Solidarity at the Pump

...financial institutions since a strong dollar, which serves as the world's currency reserve, generates huge profits for these institutions, as well as for the U.S...

...7 OPEC needs to adjust for this in order to obtain these countries' longrun political support...

...Oil rigs in Lake Maracaibo, the historic center of Venezuela's petroleum industry...

...The juncture is fraught with danger, not only in the Middle East, but in the northern part of South America...

...Moreover, this same concept is now favored by the world's major industrial countries, who virtually all import crude oil...

...The wide fluctuations in crude oil price in the last 25 years--oscillating between $10 and $40 per barrel-have been a problem not only for OPEC, but also for the major international oil companies, who have seen their profits whipsawed by the ups and downs...

...Most of the new supply outside of OPEC would need to be discovered and exploited by the major international oil companies...

...Such cooperprices, for some of their commodity exports...

...The common interest of OPEC countries and the major oil-producing companies in a high price for crude oil, however, means that powerful forces are arrayed behind these monopoly prices...

...1 Nevertheless, most countries in Latin America, aside from Venezuela and Mexico, are net importers of oil, and are likely to remain so for many years...

...and the cost of these imports is a very large component of the U.S...

...Moreover, the Western oil powers, particularly the United States, have a strong influence on these conservative countries' oil policies, through their military and economic ties with these regimes...

...Ultimately, the phenomenon which has always defeated Despite strong popular opposition to the oil privatization movement, it has gained increased momentum in an era of "globalization" and "free markets...

...However, whereas the big U.S...

...Short-term profits can be increased by mergers which reduce costs by eliminating overlapping functions and by wholesale lay-offs of workers...

...He completely reversed the previous policy of allowing the foreign oil companies to pump out of Libya as much oil as they wanted-a policy which allowed the companies to pursue their age-old strategies in the Third World, namely, rape and run...

...In general, once the exchange rates were agreed on, the oil-producing countries would deliver oil to the VOL XXXIV, No 4 JANUARY/FEBRUARY 2001 23REPORT ON OIL feared the erosion of the value of their foreign exchange holdings through future inflation, the CORU would provide a useful alternative store of value...

...To assess the possibilities, we need to look to history...

...At the beginning of 1999, when he was president-elect, Chavez called PDVSA's production target of six million barrels per day by 2005 "completely crazy and senseless...

...Through incestuous marriages, the fabled "Seven Sisters" have been consolidated into four mega-majors...

...In 1969, oil prices in real terms reached an all-time low, and crude was selling in the Middle East for $1.25 per barrel...

...What is somewhat new in the present situation is that, perhaps more than ever in history, the stock market, with its pool of hundreds of billions of restless dollars sloshing around the world, is putting pressure on managers of oil companies to obtain short-term profits as well as to show prospects for accelerating long-term profits...

...Therefore, consolidation of these companies through mega-mergers and other alliances would go a long way toward controlling any new supplies...

...This is particularly true because U.S...

...9. Juan Gonzalez, "Hugo Chavez's Dangerous Mix," In These Times, October 16, 2000...

...First, for the oil importing countries, to reduce the costs of oil to consumers by cutting interit would alleviate the impact of high crude oil prices nal excise taxes have laid the basis for potential coopon their limited foreign exchange reserves, while eration among oil-producing countries and progressive simultaneously providing a guaranteed outlet, at fair mass movements in the industrial world...

...The arrival of a nationalist-populist leader like Chavez, together with the mega-mergers taking place in the international oil industry, might be just the combination of forces necessary to guarantee this outcome...

...oil oil-importing countries and receive payment in investments in that potentially oil rich nation...

...3 VoL XXXIV, No 4 JANUARY/FEBRUARY 2001 19REPORT ON OIL Chavez followed up his words with actions, and Venezuela played a key role in the historic March 2000 OPEC meeting which agreed to limit production, thereby causing crude oil prices to almost quadruple from their early 1999 lows...

...Their immediate, direct interests are opposed to OPEC's, in that a high price for crude oil negatively impacts their economies...

...And to top it off, Venezuela has signed a barter arrangement with Cuba, which will allow it to swap medicines and other services for a large part of its oil import needs...

...While oil has played an important role in the hemisphere throughout the twentieth century, currently Latin America represents a relatively small part of the international oil industry...

...Second, ation can flower amid recognition that the enormous it would give the oil exporting countries a means to disparity of income and wealth within and between alleviate foreign exchange burdens on the poor Third countries is a grave danger to the very survival of our World countries without themselves having to surren- species...

...The relevant point here is that such a transfer would make it easier for the OPEC countries to assist the oil-importing Third World countries...

...By developing a multilateral barter exchange system for Third World commodities, such a strategy could secure reliable revenues for the oil-exporting countries, while providing the oil-importing countries with a steady flow of oil, and with export outlets at fair prices for their own commodities...

...Historically, the largest profits in the oil industry have come from maintaining a monopolistic price for crude oil, one considerably higher than the average cost of production...

...The next 13 largest publicly traded Western oil companies control 6% percent of production...

...This is not to say that resurrecting the cartel and maintaining high prices for crude oil will be easy...

...2. Quoted in Petrostrategies, January 18, 1999...

...This oil-company regime lasted until the 1960s, when the cumulative weight of various newcomers to crude oil production drove down the price of crude to a point where the oil producing countries were forced to take action...

...A crucial similarity is the key role of the Arab-Israeli conflict in generating mass pressure on conservative Arab governments to move away from outright subservience to Western economic and political interests...

...ECOPETROL) has taken it upon itself to sweeten the incentives for foreign investment...

...This deficit threatens to undermine the value of the dollar and hurts U.S...

...As a result, new power bases have developed in the United States that have a new influence on U.S...

...Now, some 30 years later, another nationalist-populist army colonel has come to power, this time in Venezuela...

...Parallel to building up their monopolistic positions, one of the goals of the oil companies and the Western powers is to weaken and/or privatize the world's state oil companies, particularly in Latin America, which has a long tradition of popular support for state ownership of the oil industry, as exemplified in the Brazilian war cry "O petroleo e nosso"-the oil is ours...

...Both of these "needs" are simply variants on the age-old theme of the "need" for profit maximization...

...In the front row, from left to right, are the leaders of Qatar, Iran, Algeria, Venezuela, Indonesia and Nigeria...

...9 not have to be the ultimate consumer of these com- At the same time, the headlong rush to globalization modities...

...Now, OPEC once again has a chance to build the long-term Third World unity which is so necessary in today's world, where inequalities of income and wealth are increasing at ever more rapid rates...

...Since Libya was conveniently located near European markets and had a high-quality, low-sulfur crude oil, the companies were producing as if there were no tomorrow...

...the Arab-Israeli war of October 1973, which triggered the Arab oil embargo, then led to a jump to $12...

...Instead, for wealthy OPEC countries viable response is international solidarity in many like Saudi Arabia and Kuwait, which in the past have forms--including around oil issues...

...In a recent survey of oil privatization prospects, an industry journal noted approvingly that "Privatization is moving slowly across the Latin American landscape" and that "Mexico will likely continue privatization under new president, Vincente Fox, working from downstream--refining and marketing--to the upstream sector-crude oil production...

...With regard to gas reserves, which worldwide amount to more than 5,000 trillion cubic feet, Latin America accounts for about 5%, again led by Venezuela and Mexico...

...What are the motives for these mergers and acquisitions...

...To a great extent these new entities have a stake in low rather than high oil prices...

...Thus, they find themselves in a situation similar to that of almost all oil-importing Third World countries...

...Of total proven world crude oil reserves of slightly over a trillion barrels, Latin America accounts for little more than 10%, and almost nine-tenths of that amount comes from Venezuela and Mexico...

...Hence there is a conflict of interest between the big oil companies and other powerful forces in the U.S...

...Qaddafi's reversal of this practice, along with his tough overall stance toward the oil companies, was key to stiffening OPEC's backbone...

...All in all, particularly compared to what was done earlier by the big companies, OPEC has done a poor job of maintaining a high and stable price for crude oil...

...providing, however, that the region can continue and even step up efforts to sustain economic and regulatory reforms...

...But an additional long-range, profit maximizing goal lies behind these mega-mergers...

...Once the initial relationships were fixed, they would remain constant over the life of the agreement...

...For their part, the oil-importing underdevel- and the corresponding overriding of national soveroped countries would collectively promise to provide eignty and human rights in favor of the mindless forces the required amounts of commodities to the oil- of international capitalism has generated a backlash all exporting countries participating in the agreement...

...To illustrate how the scheme could work, and merely to simplify calculations, let us take a hypothetical and not necessarily real-market group of commodity prices...

...5 And significantly, in Colombia, where there may be huge reserves of oil, "state oil firm Empresa Colombiana de Petroleos SA Most oil-importing underdeveloped countries lack the foreign exchange to pay for oil imports without greatly weakening their economies...

...OPEC currently controls about 40% of the production, and the four "NOPEC" countries which usually cooperate with OPEC-Mexico, Norway, Oman and Russia-account for another 18...

...2 Instead of maintaining that target, he said, his government would "rationalize oil production and development in Venezuela...to stabilize oil prices...

...production has declined dramatically in recent years, in tandem with the growth of the VOL XXXIV...

...Third, since the oil-commodities barter would require state-tostate arrangements, the interposition of the international companies could be eliminated, and that would leave a very large pool of profits to be shared among the Third World countries...

...Finally, when it comes to oil VoL XXXIV, No 4 JANUARY/FEBRUARY 2001 17REPORT ON OIL refining capacity, Latin America accounts for only about 8% of Today, perh worldwide capacity...

...Finally, such a multilateral barter arrangement for oil could provide a first step beyond sporadic bilateral deals to enhance Third World economic unity and capacity for self-development...

...over the world, from Seattle to Europe to the Middle This barter scheme has several major advantages for East...

...The pace of these mergers has taken a quantum leap in the last three years, catapulting from an average market valuation of $10 billion per year from 1990 to 1996, to $40 billion in 1997, and well over $100 billion in 1998 and 1999...

...In Colombia, U.S...

...I suggested two basic mechanisms for OPEC to mitigate the damage: The first was direct financial assistance, and the second was multilateral commodity exchange agreements (see below...

...Treasury...

...Unfortunately for OPEC and for the Third World in general, this historic opportunity was not seized...

...His actions led to the series of increases in the price of crude oil, from $1.25 per barrel in 1969 to about $3 in 1972...

...In the face of the global challenges, the only der anything...

...In the short-term words of the head of ExxonMo- accelerate I bil's exploration operations as he addressed a recent oil and gas conference in Rio de Janeiro, "Latin America offers some of the most appealing prospects for petroleum company investment...

...While it was successful in stopping these cuts, for the rest of the decade it was otherwise a toothless tiger...

...The CORU units could be redeemed on the United States, as one observer noted, is likely to demand for the underlying commodities during a rea- "position gobs of U.S...

...6 high crude oil price will, initially at least, harm the oil-importing underdeveloped countries in Latin America (and elsewhere...

...He is currently a senior editor at The Black World Today (www.tbwt.com...

...In the back row are delegates from Iraq, Libya and the United Arab Emirates, and heads of state of Saudi Arabia and Kuwait...

...oil production is steadily declining while crude oil imports are rising...

...develop sufficient concentration among the private oil companies so that, as a group, they can become a kind of junior partner with OPEC in maintaining monopolistic and stable crude oil prices...

...As Offshore points out, "With high oil prices prevailing, Latin American countries are either reaping substantial income, if they are exporters, or weathering a deep economic hit, if they are importers...

...Thus, the four largest private companies, ExxonMobil, Royal Dutch/Shell, BP Amoco and soon-to-be Chevron-Texaco, now control 13% of world crude oil production...

...Thus, the specific proposal is that oil-importing underdeveloped countries could pay for these oil imports with a commodity oil reserve unit (CORU...

...This is not to say that the giant ever in his oil companies are writing off their market is p prospects in Latin America, but rather that pursuing them is contin- on oil comp gent upon the "good behavior" of countries in that region...

...firm to finance such risks...

...And calculating fair exchange ratios between each of the commodities in the CORU would undoubtedly require considerable negotiation among the participating countries...

...One indirect way to approach this problem is being pioneered by Venezuela, which is now taking the lead in OPEC in raising the issue of the high internal taxes that Western governments charge for oil products...

...foreign oil policy, the situation now is much more complicated...

...One indicator of this change is that since 1973, consumption of oil per dollar of GDP has dropped by almost half...

...Second, OPEC is completely unable to control production outside of its member countries...

...economy...

...In retrospect, the most important oil event that year was the rise to power in Libya of nationalist-populist army colonel Muammar el-Qaddafi...

...Rivalries between OPEC countries are deep-seated, as illustrated by the conflict between conservative countries like Saudi Arabia and Kuwait, and more "radical" nations such as Iran, Iraq, Libya and Venezuela...

...No 4 JANUARY/FEBRUARY 2001 21REPORT ON OIL financial, electronic and telecommunications industries...

...big oil, I believe Venezuela and other oil-producing countries should pursue an alternative strategy, one which builds on the potential harmony of interests among all Third World nations...

...3. Petrostrategies, January 18, 1999...

...Below, I update proposals that I made some 25 years ago to help deal with these issues...

...When we speak about oil in Latin America, there are several new developments we must take into account: first, a wave of mergers and acquisitions among the biggest international oil companies...

...He is the author of The Political Economy of International Oil and the Underdeveloped Countries (Beacon, 1969) and most recently, co-author, with Stephen Zorn, of Energy Update: Oil in the Late Twentieth Century (Monthly Review Press, 1985...

...and finally, the revival of the Organization of Petroleum Exporting Countries (OPEC) and its power to control production and maintain high oil prices...

...Most commonly cited in the oil literature is the "need" for greater efficiency in order to meet increased competition, or the "need" to increase shareholder value...

...8 W hile most oil-importing underdeveloped countries lack sufficient foreign exchange to pay for high-priced oil imports without greatly weakening their economies, collectively they produce vast quantities of valuable natural resources, ranging from coffee to copper, sugar and tin, as well as finished products like steel and aluminum, and services such as computer and medical skills...

...Its ability to do so has been hampered by two factors...

...second, the rise to power of a charismatic nationalist-populist Latin American leader, Venezuela's Hugo Chhvez...

...Moreover, cutting such taxes while simultaneously allowing the price of crude oil to rise would be equivalent to sending real financial resources to the OPEC countries, something which would be fiercely NI4IA REPORT ON THE AMERICAS 22REPORT ON OIL resisted by virtually all industrial sectors of the economy...

...6. Oil and Gas Journal Online, November 29, 1999...

...It is an extremely important point, because if such taxes on oil products were reduced, the price of crude oil could rise, while the cost of the final product for the consumer would remain the same...

...In the 1970s, this writer noted that OPEC's longstanding power was at real risk of being jeopardized if it did not consider the difficulties high oil prices were causing for oil importing underdeveloped countries...

...However, in the long run it would be more useful for OPEC to take the lead in adopting some kind of a multilateral barter exchange system...

...The journal further noted that although Brazilian crude oil exploration was being opened up to the private oil companies, "Petrobras, Brazil's national oil company [was] still far ahead of the game...

...Thus, particularly after the 1973 Middle East war, OPEC wrested control of crude oil pricing from the big oil companies...

...narcoterrorism," but surely to promote and protect U.S...

...Since then, the price of crude oil has fluctuated wildly, basically responding to OPEC's ability or inability to control supply...

...But collectively, they are rich in natural resources, and could pay for oil by bartering commodities and services among themselves...

...The current period is remarkably similar to the 1970s, when OPEC enjoyed considerable power because of the sharp increase in crude oil prices...

...Even though their profit swings have been cushioned by their vertical integration, the volatility has nevertheless hurt both long-term planning and valuation of their stock, since the stock market abhors volatility and uncertainty...

...troops are enterAn oil-drenched fisherman emerges from the polluted waters of the Barigui River after a ing in force, ostensibly to fight major oil spill caused by Petrobras in Brazil last July...

...trade deficit...

...The largest was the merger of Exxon and Mobil, followed by that of British Petroleum with Amoco and Arco, Total with Fina and Elf, and a recently announced planned merger of Chevron and Texaco...

...Much to the dismay of Washington and Mexico, Cuba was incuded under the Caracas Accord for the first time in the subsidy arrangements...

...oil cartels is the encroachment of new supplies...

...But rather than entering into an unreliable partnership with Michael Tanzer has been an oil consultant to Third World governments for over 30 years...

...oil companies once called the tune for U.S...

...Note that this goes beyond the bilateral programs, such as the one in which Venezuela is working with Cuba to exchange oil for sugar, medical services and so on...

...foreign economic policy...

...In Chavez's words, the initiative stems from "the Bolivarian vision of integration of the Latin American and Caribbean peoples...

...When OPEC was first formed in 1960 under the leadership of Juan Pablo Perez Alfonzo of Venezuela and Abdullah Tariki of Saudi Arabia, this was one of the main points raised by OPEC, but over the years it has been dropped...

...Moreover, since the OPEC countries alone control almost four-fifths of the world's crude oil reserves, if the four groups could coalesce, they could virtually dictate crude oil prices...

...Meanwhile, any oil-producing country door to Venezuela...as a security deposit on a far would be free to resell its CORUs, and hence would greater future investment...

...Most recently, in October, Venezuela launched the Caracas Energy Accord, which adds barter arrangements to Venezuela's previous sales-along with Mexico's under the San Jos6 pact of 1980-of subsidized crude oil to Caribbean countries...

...Instead, the Western powers were able to play their historic role of divide and conquer, creating instability and economic disaster for all Third World nations...

...First, its member governments often cannot agree on or stick to production quotas...

...4 These strategies also add up to a goal of strengthening the position of both Venezuela and OPEC vis-a-vis foreign oil companies 20 NACILA REPORT ON THE AMERICASREPORT ON OIL and Western powers...

...Chavez's strategy rejects the concept of "globalization," which favors "free markets" setting oil supplies and prices, and which-given the centuries-old fact that crude oil normally sells for much more than its production cost-implies a continual tendency for "overproduction," which drives down prices...

...Like Qadaffi before him, Colonel Hugo Chavez denounced oil company plans-this time of the State Oil Company of Venezuela (PDVSA)-to pump out Venezuelan crude as if there were no tomorrow...

...Further, CORUs...

...The oil industry's share of total U.S...

...he last few years have seen an acceleration of mergers and acquisitions in the oil industry...

...Such a system could enable the oil-importing Third World countries both to obtain the oil they so desperately need and to receive fair prices for at least some of their commodity exports...

...The following discussion elaborates on these points, and outlines how such a barter system could work...

...Historically, Western governments have resisted dealing with the issue, because a significant part of their fiscal revenues comes from these oil-product taxes...

...One possible direct method is for OPEC to subsidize oil shipments to such Third World countries, as Venezuela and Mexico are already doing with many Caribbean countries...

...The exact contents of the basket of Third World commodities would depend partly on which Third World countries wanted to participate in the scheme...

...In this writer's view, the big oil companies have never given up on their dream of somehow regaining control over crude oil prices...

...Further, the new Constitution of Venezuela, adopted at Chivez's instigation, prohibits the privatization of Venezuela's state oil company...

...It seems to me that a long-range goal of the contemporary giants is to 18 NACLA REPORT ON THE AMERICAS NACLA REPORT ON THE AMERICAS 18REPORT ON OIL An official photo of the Second Summit of Sovereign Heads of State and Government of OPEC Member Countries...

...This CORU would be a unit of currency based on a fixed link between a barrel of crude oil and a basket of Third World commodities...

...The assault on state ownership has been going on for many years, and has resulted in complete privatization of the state oil company of Argentina, Yacimientos Petroliferos Fiscales (YPF), as well as Bolivia's Yacimientos Petroliferos Fiscales Bolivianos (YPFB...

...W' e stand at a crucial juncture in the history of the international oil industry and Latin America, and in relations between and among Third World and developed countries alike...

...OPEC was formed in 1960 in response to unilateral cuts in the posted price of crude oil...

...Ever since the Achnacarry agreement of 1928 to divide up world markets-an agreement reached between the companies now known as Exxon, BP and Royal Dutch/Shell, and later joined by the four other so-called "Seven Sisters": today called Mobil, Chevron, Texaco and Gulf Oil-the big companies maintained a relatively stable price for crude oil, primarily by controlling its worldwide production...

...If crude oil were initially valued at $32 per barrel, and coffee, copper, sugar and tin each at $4 per pound, then one barrel of crude oil (one CORU) could be set equal to two pounds of each of those commodities, or any other combination totalling up to eight pounds...

...I t u a o In the long run--particularly ips more than regarding exploration and pro- duction in "new frontier" areas ory, the stock such as the former Soviet tting pressure Union, where risks are higher than normal due to both politinies to obtain cal and economic factors-such mergers increase the pool of Srof its and to capital available to the enlarged ng-term gains...

...military advisers right next sonable time...

...Thus, when output is totalled from the largest private companies, the aggregate second-largest firms, OPEC and NOPEC, these four groupings account for over 75% of world crude oil production...

...In this context, strenuous mass actions in Europe the Third World...

...The consolidating giant oil companies may be cynically planning to support OPEC in its efforts to raise those prices, while simultaneously seeking to eliminate, via privatization, competition from smaller national oil companies...

...4. Internews Press Service, October 20, 2000 5. Offshore, September 1, 2000...

...24 NACLA REPORT ON THE AMERICAS Solidarity at the Pump 1 Jon L. Thompson, quoted in Oil and Gas Journal Online, October 30, 2000...

...hat are the chances that a new oligopoly can be established in the oil industry...

...7. Offshore, September 1, 2000 8. See Michael Tanzer, "Oil for the Third World," The Nation, April 6, 1974...