A Slippery Business
DRAPER, ROGER
A SLIPPERY BUSINESS BY ROGER DRAPER In 1856, standing in front of a drug store in New York, a former pedagogue and journalist named George Bissell saw an advertisement for a medicine derived...
...A SLIPPERY BUSINESS BY ROGER DRAPER In 1856, standing in front of a drug store in New York, a former pedagogue and journalist named George Bissell saw an advertisement for a medicine derived from crude petroleum...
...squandered its enormous earnings...
...At an opec meeting in December 1979, says the author, Yamani warned his colleagues "that they were damaging their own interests...
...By 1986, the spot market offered just $10 or less for a barrel that had been worth up to $50 in December 1979...
...Booms, busts and attempts to control supply continued to haunt the industry, though it did not long remain under the thumb of a single company based in a single nation, and gasoline replaced kerosene as the chief product...
...With the extra income this would give him, Yergin writes, Saddam thought he would eventually "be in a position to intimidate neighboring countries, including other major oil exporters...
...Nor did they fear the glut he predicted...
...Opec appeared to have us by the throat...
...And in the late 1970s it destroyed the Shah of Iran—impressive proof of the limits of hydrocarbon power, followed by events that seemingly demonstrated its vast extent...
...Unfortunately, the author doesn't bother to identify them...
...Production cuts were more significant in the short run...
...A hostile response by mere citizens forced the White House to disavow him...
...To serve the large potential market, he would need a lot of raw material...
...Maybe it is not such a paradox that the two strongest economies, Japan and Germany, have no domestic sources...
...In the 1870s John D. Rockefeller, aCleveland refiner, built a monopoly, Standard Oil...
...and the price fell disastrously...
...A barrel that had sold in early 1861 for $10 was worth a dime at year end...
...The U.S.S.R...
...Saudi Arabia again resisted the hawks...
...In 1960, he persuaded several Third World producers to form the Organization of Petroleum Exporting Countries (opec...
...Thus began the history of what Daniel Yergin, in The Prize: The Epic Quest for Oil, Money, and Power (Simon & Schuster, 911 pp., $24.95), calls "the world's biggest and most pervasive business...
...Moreover, oil wealth has proved to be a very unstable basis for power...
...Or will we finally run out of the damn stuff...
...By the 1960s Saudi Arabia, Iran, Iraq, and Kuwait were sending us quantities sufficient to drive down the real cost of oil some 40 per cent...
...Yamani and King Faisal decided to oppose a further increase...
...people in the Sunbelt and Alaska see the matter differently...
...Until 1985, when prices began to plummet, "a cartel, opec, was preventing a big fall...
...For the chaos surrounding the overthrow of the Pahlevis and the subsequent Iraqi invasion kept Iran's petroleum, equal to 4-5 per cent of world demand, offthemarket...
...After 1945, our production did not rise quickly enough to cover consumption, and three years later imports surpassed exports...
...Reserves, albeit plentiful, had of late been found chiefly in the Persian Gulf...
...Whatever the outcome of his adventure, Saddam won't succeed in denying oil to anyone who can afford it, Yergin insists, nor will he be free to charge anything he likes: "Given time, markets will adjust" to price shocks...
...There was a surplus...
...Oil didn't save the Emir of Kuwait last summer...
...Oilhasmeant mastery throughout the 20th century," Yergin announces on page 12...
...The Reagan Administration's "'free market' approach rested upon a contradiction," observes Yergin...
...The story that takes the author from the first of these assessments to the second is told reasonably well, but Yergin says little about the future, except to suggest that natural gas, today the cleanest energy source, will gain on the others...
...No longer," says Yergin, "could the United States continue its historical role as supplier to the rest of the world...
...Transportation became the bigger market and required increasingly larger amounts of crude...
...With the danger of glut thus removed, an equally recurrent danger—a shortage of crude oil—seemed imminent in the 1880s...
...Our country provided 90 per cent of Allied petroleum in World War II...
...Prices fell...
...Apparently, King Faisal had more influence with the Lord than Khomeini did...
...In the winter of 1932-33 the state of Texas gave its Railroad Commission the power to regulate the production of oil...
...Progress was slow...
...Despite their fears, wildcatters found so much oil in East Texas that in 1931 the bottom fell out...
...In August 1859, James Townsend, the last of the group to believe in the scheme, finally sent a letter instructing the drillers to stop...
...In almost all countries, $ 10 oil was an unmitigated disaster or an unmitigated blessing: They were consumers or exporters and had a clear stake in cheap or dear oil, respectively...
...For Americans in nonproducing states, higher prices only mean higher bills...
...The druggist's poster showed derricks used to bore salt wells...
...it is also a prize that can be overvalued...
...Inflation in the West, meanwhile, had the effect of making its goods and services much more expensive for opec members...
...Panic raised the level of the spot market 150 per cent...
...He had already hit on the idea of refining "rock oil" into kerosene, the recently invented light medium...
...producers have higher costs than most of the foreign competition does...
...output had fallen—could there be an e ffective "oil weapon...
...Some reviewers have claimed that the author attributes a sort of omnipotence to petroleum...
...He would be the dominant power in the Persian Gulf, well-equipped to resume his war with Iran...
...On occasion, petroleum had also been found in them, and Bissell wondered if this technique might not provide the quantities he required...
...Nevertheless, there were compensations...
...They would turn to conservation and rival fuels, thereby devaluing the sole resource of Saudi Arabia—on which it will be dependent longer than any other country because it has the largest reserves...
...Texas entrepreneurs, who believed in the strictest free enterprise for everyone else, called on Austin and Washington for help...
...The following year, with opec no longer playingits part, Vice President George Bush—once a Texas oil man himself—warned the Saudis against "a continued free fall...
...The United States, as Yergin shows very well, has no single nationwide dominant interest...
...Congress put a tariff on imports, and backed this up with specific quotas if needed...
...It did them little good: Not until the surfeit ended in the early 1970s —mainly because U.S...
...in 1862,3 million...
...The underlying forces that had generated the Standard Oil monopoly had now generated a de facto domestic cartel...
...Yergin next turns to Juan Pablo Perez Alfonzo, a Venezuelan inspired by the example of the Texas Railroad Commission, who sought to create an international cartel...
...Bypage777 he concludes, "perhaps oil power is not so great as had been imagined...
...As the market was tightening, Saddam Hussein struck at Kuwait...
...Word of the strike "spread like wildfire and started a mad rush to acquire sites and drill...
...Oil had previously been discovered only in small amounts, near the surface...
...Demand failed to rise in proportion...
...Before it arrived, adark, heavy liquid floated to thetopofthe well...
...Prices rose approximately 600 per cent, giving the opec countries a 1974 current-account surplus of $67 billion...
...As Yergin demonstrates, the most important facts about the fateful commodity emerged right away...
...The more militant members of opec soon ran into difficulties created by Ahmed Zaki Yamani, Saudi Arabia's oil minister and the virtual hero of Yergin's tale, who regarded the Western economies as the kingdom's only possible vent...
...We never have, and no one really knows how much of it is down there...
...We were actually the source of 80 per cent of Japan's supplies before it attacked us...
...Regardless of oil's destiny as a fuel, it will remain important in medicines and plastics...
...Yet even during the 197 3 Mideast war, it worked only up to a point : The embargo of the Arab exporters against the United States was circumvented by simply rerouting tankers...
...In 1860, Pennsylvania produced 450,000 barrels of crude...
...But quite the contrary, he dwells upon the producers' inability to control its price, and on its unreliability as the foundation of national greatness...
...Yamani's Iranian counterpart declared, "In the name of almighty God, there will be no surplus and prices will not fall...
...Although similar reductions in the 1967 Mideast conflict had merely cut the exporters' income, in 1973 conditions were tighter...
...Expensive oil would bring them harder times, he argued...
...He and his partners chose a promising site in northwest Pennsylvania, where seepages were common...
...He would have economic freedom to take even larger steps...
...When Yamani said that demand for opec oil would dramatically plummet," his listeners did not believe him...
...In the mid-1980s, the oil lobby and the economic interests linked to it believed that those costs could not be recouped unless imports sold for a minimum of $ 15-$ 18 a barrel...
...Kerosene, too, was greatly in oversupply...
...By 1879thetrust was processing 90 per cent of the kerosene in the United States, and for a time it had indirect control over crude as well...
...Gasoline was inexpensive in the late 1980s, yet by the early summer of 1990, argues Yergin, the conditions of the early 1970s had returned...
...Oil built up Mexico's economy," henotes, "onlyto undermine it...
...Our domestic output had been falling for several years, and imports had never been higher...
...In real terms crude was 10 per cent cheaper in 1978 than it had been before 1974...
...By the mid-1920s refineries were desperately short of it, and experts again fretted over the possibility of depletion...
...Riyadh opened the spigot for an additional 900,000 barrels a day...
...New regions were explored and new discoveries made...
Vol. 73 • December 1990 • No. 16
