The Joy Of Cheap Gas
People are buying gas at 67 cents a gallon in Beaver Pennsylvania. Good or bad? Neither. It's highly dangerous.Nothing so holds the world together as oil. Millions of institutions and six billion humans use it to power automobiles, provide electricity, as raw material for the innumerable plastic artifacts of everyday life. If oil suddenly vanished from the world's storage tanks nothing would move, light too would vanish and, within a few days, so would food.That power to hold the world together has come from the fact that since the beginning of this century a few giant corporations, largely American and British, have had control of or influence over virtually all production and distribution of oil.In the 1980s, Thornton Bancroft, then CEO of Arco, observed that there never was a free market in oil. And the oil expert John Blair wrote that for much of the century "international and domestic market control mechanisms operated with the precision of a finely-tuned watch."The 67 cents a gallon price is scary because it is a sign that those control mechanisms may finally be breaking down.>From the beginning of this century to the mid-1960s, the Americans and the British controlled production and distribution of oil throughout the world, with the exception of the Soviet Union, which was a major producer but not a global distributor. The two kept the oil supply plentiful and the price steady.America's oil came almost entirely from the Americas, and Britain's mostly from the Middle East, where production was controlled by British and American "indirect rule."The control mechanisms worked so well that a 1980s OECD report showed the world price of oil from 1950 to 1970 as a straight ruled line. But by the late 1960s the Arab states and Iran were demanding control of production on their own soil. During the October 1973 war the Saudis, allegedly furious over Washington's tilt towards Israel, hiked the world price of oil by 400 percent.There was global turmoil -- but despite this, a new control mechanism arose: OPEC. The Western media portrayed OPEC as an Arab-Iranian ogre, but as Forbes Magazine reported at the time, America, not OPEC, raised the price of oil. It was effectively a payoff to Arab and Iranian nationalism -- the biggest ever in world history.Washington acted as it did for one overriding reason: to save the control mechanisms. The new indigenous cartel simply joined the old Anglo-American one to keep prices and supply under control. By the mid-1970s, a $20 dollar-a-barrel price became an effective ceiling, and this lasted until the Khomeini revolution in Iran.In 1979 oil prices again spiked upward as did global inflation. But prices re-stabilized despite the fact that Iran and Iraq went through a bloody eight years of war from 1980 till 1988. Both remained in OPEC and helped, rather than hindered, the re-stabilization.Even more remarkable, Operation Desert Storm in 1990-91 had a negligible effect on oil prices. Iraq was pounded, tens of thousands of its soldiers were annihilated, its children were denied medicines -- yet Saddam remained in power and worked with, not against, the control mechanism system. He still does.OPEC, however, was constantly being gnawed by fear and torn by greed. Members were straining at the leash to break production quotas. Uncle Sam kept telling them that a gargantuan economic miracle was arising in East Asia. There soon would be more than enough wealth for all members.East and Southeast Asia, including China, have over two billion people of whom some 600 million are aspirant middle class. Demand for oil began to sky-rocket. Yet OPEC and even non-OPEC producers listened to Washington and believed that price stability through control mechanisms was a better deal than one-time windfalls.Then last year, oil prices started to go down. And down and down. To keep their revenues up, oil producers lifted ever more oil -- causing prices to fall even more. And then came the Asian financial crises which wiped out immense pools of local consumption.Greed, fear and war have been a part of the global oil scene for over a hundred years. Yet each time they got out of hand the parties involved got the control mechanisms working again. And there are plenty of signs that those parties are now frantically maneuvering behind the scenes to do it again.But there is a difference. In the past, the active parties were backed by strong leaders and governments. Today, however, there is not a single strong government in the Middle East. Nor is there in Japan and Russia and Germany. Nor is there in the U.S. as Clinton faces an impeachment threat.The British historian A. J. P. Taylor, writing about why World War I broke out in August 1914, noted that every one of the European powers involved, great and small, had the weakest leaders and governments in a century. This suggests the gas station windfalls in Beaver Pennsylvania could be the harbingers of the winds of chaos. Franz Schurmann, professor emeritus at UC Berkeley, wrote on the oil crisis of 1973-74 in his "The Foreign Politics of Richard Nixon," (Institute of International Studies, UC, Berkeley, 1987).
