Oil has been making fortunes for individuals, and swaying state policy, since drilling for oil started on the east coast of the USA in 1859. The oil industry today still uses as its basic measuring unit the volume of the wine barrels used in the first Pennsylvania oil fields. Over the last 150 years, however, the industry has spread across the globe, and oil has become the most actively traded commodity in the world, a key part of industrial society and the source of enormous power and wealth. As such, oil has been a central force in world affairs.
The Oil Corporations
The early oil industry was dominated for 30 years by a monopoly: Standard Oil, formed and run by John D. Rockefeller. Standard Oil began the process of ‘integration’, owning oil fields, refineries and pipelines. The company also ran a global network of spies ‘to forestall the initiatives of rival companies or governments’ as Anthony Sampson wrote in his 1975 book on the major oil corporations, ‘The Seven Sisters’.
Since 1975, the number of ‘majors’ has decreased to four: ExxonMobil (the merger of two daughter companies of Rockefeller’s Standard Oil), Chevron (another of Rockefeller’s daughters), Royal Dutch Shell and BP.
How big are these ‘supermajors’? Before the latest downturn really hit, this is how much they were worth in 2008 in US$:ExxonMobil: share value $406bn; turnover $443bn; profit $45bn
Shell: share value $161bn; turnover $458bn; profit $31bn
Chevron: share value $150bn; turnover $263bn; profit $24bn
BP: share value $144bn; turnover $362bn; profit $26bn
Total income: $1.5 trillion.
Total British national income (GDP) in 2008: $2.2 trillion.
The total declared profits of these four companies amounted to $126bn, more than the entire GDP of New Zealand in 2008. The supermajors’ profits were greater than the national incomes for 140 out of the world’s 190 countries. The oil companies (who have 329,000 employees) had combined profits greater than the combined national incomes of Afghanistan, Bolivia, Cambodia, Eritrea, Fiji, Greenland, Grenada, Iceland, Kenya, Liberia, Namibia, Nepal, Nicaragua, Rwanda and the Seychelles (who together have a population of 151 million).
If the four supermajors formed one country, its GDP per capita in 2008 would have been $4.6m. If the 15 named countries formed one country, its 2008 GDP per capita would have been around $830 (about the level of Kenya).
The oil corporations were particularly interested in Middle East oil, known to cost little to extract. In 1947, the US Navy was paying $1.05 or more for a barrel of crude oil from Saudi Arabia and Bahrain. The cost of production was only 19 cents per barrel (pb) in Saudi Arabia, and 10 cents pb in Bahrain. Even after factoring in a royalty payment to the governments involved of 15 cents, oil company profits were staggering.
In 1969, a US Senate investigation led by economist John M. Blair found that Middle Eastern oil which sold in the US for over $2pb, cost only 90 cents pb to produce and deliver, transportation being the largest cost (60 cents pb). In the 1950s and 1960s, oil companies could expect profit rates of well over 50% on their investments in Middle Eastern oil. From 1955-1964, the foreign oil companies in Iran recorded a profit rate of 69.3%, Blair wrote in ‘The Control of Oil’. Generally, he observed: ‘With costs so low, the ability of the “seven sisters” to control the market inevitably resulted in profits beyond the dreams of avarice.’
With the oil price explosion in the early 1970s, the levels of profit may actually have increased, as oil companies took advantage of the increase in the price of the crude oil that comes out of the ground, to increase their profits on the products of their refineries. Hence these increases in world prices from January 1973 to January 1974:
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It’s hard to tell what the increased profits were from these moves, as the business relationship between Middle East oil producers and the major oil companies changed at this time. National governments began to take more ownership of the crude oil their countries produced, and tax, royalty and other rates all changed in a deliberately complicated manner.
The crucial thing for the major oil companies is that they continued to have exclusive rights to buy oil from, for example, Saudi Arabia. On this monopoly they built their profits.
Profits not Supply
Twenty years ago, in August 1990, as the world stood aghast at the Iraqi invasion of Kuwait, the British Prime Minister, Margaret Thatcher, said: ‘You cannot have a situation where one country marches in and takes over another country which is a member of the United Nations.’
In 1958, as Britain contemplated its policy towards oil-rich Kuwait, which it had marched into and taken over in 1941, after controlling the territory for decades, the Foreign Secretary, John Selwyn Lloyd, sent a secret telegram to his Prime Minister. One option was ‘immediate British occupation’, which had the ‘advantage’ that ‘we would get our hands firmly on the Kuwait oil’, but which would be widely unpopular. The second option was nominal independence, in which case ‘we must also accept the need, if things go wrong, ruthlessly to intervene’.
Earlier, Selwyn Lloyd had set out Britain’s interests in the Persian Gulf: ‘free access’ to oil produced in the region; the continued availability of that oil ‘on favourable terms and for sterling’; maintaining ‘suitable arrangements for the investment of the surplus revenues of Kuwait’; and stopping Communism, which he explained actually meant ‘defend[ing] the area’ from ‘Arab nationalism’.
So the key issues were: controlling the price of oil; making sure it was sold in sterling, to prop up the British currency; forcing Kuwait to reinvest its oil profits in UK financial markets, to prop up the British economy; and stopping nationalists using Kuwaiti oil revenues for Kuwaiti rather than British interests.
There was no danger that whoever controlled Kuwait would not sell oil – it was the only resource the country had. The concern was to ensure that Kuwaiti oil, and especially the profits that flowed from Kuwaiti oil, benefited the British economy and British corporations. Even the profits taken by the Kuwaiti government had to be controlled, and invested in Britain.
Declassified US government documents from the same period reported: ‘the UK asserts that its financial stability would be seriously threatened if the petroleum from Kuwait and the Persian Gulf area were not available to the UK on reasonable terms, if the UK were deprived of the large investments made by that area in the UK, and if sterling were deprived of the support provided by Persian Gulf oil.’ Within a few years, these latter concerns also applied to the weakening US economy.
Earlier, during World War II, US State Department officials worked with the business thinktank the Council on Foreign Relations to develop the postwar requirements of the US ‘in a world in which it proposes to hold unquestioned power’, as Laurence H. Shoup and William Minter demonstrate in their 1977 study Imperial Brain Trust.
In 1945, the State Department described the oil region of the Persian Gulf as ‘a stupendous source of strategic power, and one of the greatest material prizes in world history’. In 1949, the State Department proposed that US control over Middle Eastern oil would also help to provide ‘veto power’ over Japan’s military and industrial policies. An example of ‘strategic power’.
For these reasons, as Noam Chomsky points out, it has been ‘Axiom One’ of international affairs that the US or its clients control Middle East oil, and that no independent indigenous force be allowed to have a significant influence.
One of today’s ‘supermajors’, BP, began life in 1909 as Anglo-Persian Oil, later the Anglo-Iranian Oil Company (AIOC). After World War II, AIOC was the largest British company in the world, with a highly unequal oil concession which meant it paid more in taxes to the British Government than it paid in royalties to Iran.
When an elected Iranian Government led by Mohammed Mossadegh nationalised Iran’s oil fields in 1951, all major oil companies boycotted Iran, reducing its oil exports from over $400m a year to less than $1m a year. The British Government illegally blockaded Iran’s coast (an act of war) and began preparing a military coup. When Mossadegh expelled all British diplomatic staff, the UK was forced to call in the US, leading to the first CIA coup, richly documented by its organizers in papers which have since been declassified.
Extinguishing democracy in Iran, propping up royal dictatorships in Saudi Arabia and the other Gulf states, supporting Saddam Hussein’s murderous regime throughout the 1980s, arming Israel as an attack dog: US-UK oil foreign policies have had considerable costs for the region, and stupendous benefits for the supermajor US-UK oil companies – and for US and British state planners determined to rule the world.