The Oil industry: capitalism and conflict

As the oil companies rake in huge profits while increasing their prices, Simon Basketter and Simon Assaf look at how “black gold”, capitalism and conflict are intertwined

Oil drives the global capitalist economy. It is a vital ingredient in everything from transport through to petrochemicals and agriculture. A handful of massive corporations and producer countries control the global oil and gas industry.
They are some of the richest and most powerful forces on the planet.

States have backed the multinationals to the hilt, organisating coups and wars in the pursuit of profit and power.

The discovery of oil in 1859 in the US was a major event in the development of capitalism.

This “black gold” soon transformed the world economy. The industry developed through the increased use of oil lamps and heating but expanded as it stimulated the growth of the automobile and chemical industries.

The early swarm of small companies quickly gave way to giant corporations, above all JD Rockefeller’s Standard Oil.

Rockefeller said, “God gave me my money. Having been endowed with the gift I possess, I believe it is my duty to make money, and still more money, and to use the money I make for the good of my fellow man, according to the dictates of my conscience.”

Rockefeller was a cutthroat US ­capitalist who built his oil monopoly in the decades after the 1861-5 American Civil War using methods akin to that of the Mafia. He employed private armies to break strikes.

As he once said, “I would rather earn 1 percent off a hundred people’s efforts than 100 percent off my own efforts.” This vicious worldview made him the richest man on earth.

As he quietly bought up smaller oil competitors, Rockefeller entered into secret – and illegal – agreements with railroad magnates who gave discounts as off the books rebates to his growing oil monopoly.

This drove the smaller refiners out of business. By 1879 Standard Oil controlled 90 percent of the US’s oil refining business.

When the US Supreme Court finally forced Rockefeller to disband Standard Oil as a monopoly in 1911, the damage was already done.

The break-up doubled the value of his stock and gave birth to oil conglomerates Exxon and Mobil (now Exxon-Mobil), Arco and Amoco (now part of BP), Pennzoil (now part of Shell) and Chevron.

The major rivals to the US ­companies grew up within the British Empire.

Shell developed out of a merger of British and Dutch companies in 1907. BP started as the British Persian oil company. Both exploited the oilfields and markets of empire.

It got a monopoly of Iranian oil on the back of a £20,000 deal. The carve up culminated with secret agreements between the major companies to ensure their profits.

The US and Britain’s domination of oil was central to their victory over Germany in the First World War.


After the war the oil companies continued to be involved in vicious competition while carving up the world’s supplies and markets between them.

They paid minimum sums to local rulers for concessions giving them control of areas thought to contain oil.

The most notorious and long-lasting was the 1928 “as-is” agreement backed by the world’s seven biggest oil companies – Standard Oil, Shell, BP, Gulf, Chevron, Mobil and Texaco. They were dubbed the seven sisters.

Middle Eastern oil was cheaper to extract than the older US supplies. The companies fixed prices at the US rate.

From time to time the companies’ thirst for profit even clashed with the interests of the states they sponsored.

Texaco was caught supplying oil to Nazi Germany during the Second World War.
Shell boss Henri Deterding was a convinced fascist. Adolf Hitler sent a wreath to his funeral in 1939.

But the oil companies were too firmly dependent on the military and economic power of the US and Britain to carry this too far.

After the Second World War they continued to carve up the oil fields between them. Most of the refining and almost all of the distribution of oil is still controlled by the giants.

The companies have merged along the way. But they, and the Western states behind them, continue to dominate the world.

Their desire for profits and control has led to the disaster of imperialist intervention and wars in crucial parts of the world, particularly the Middle East.

The table shows the price of oil as measured by the value of the US Dollar in 2008. Following the global panic caused by the Iranian revolution in 1979, the oil cartel Opec opened the taps, taming prices for a decade. This was interupted briefly by Iraq’s invasion of Kuwait in 1990 and the subsequent Gulf War. Prices began to rise steeply again following the invasion of Iraq in 2003.

Ruthless and corrupt drive to make oil dominant

The oil industry has been ruthless in its pursuit of markets. But a combination of state backing and corruption were at the heart of the industry’s dominance.

While the US railroads were built through private investment, the roads were built for free by federal, state and local governments, massively aiding the rise of the oil and car companies.

Public money paid for the huge network of highways that was built and for the widening of the roads. Billions more dollars in public money came in 1956 with the Federal-Aid Highway Act funded the construction of 41,000 miles of highway.

The bill passed under the pretext that the US needed a freeway network in case of a possible invasion from Russia.

The post-war boom saw the rise of the “automobile-industrial complex” – the car, oil, steel, glass, rubber, highway construction, trucking and real estate industries connected to urban sprawl.

One consequence of this vested interest was the systematic smashing of the US public transport system.

General Motors, Standard Oil of California (Chevron), Phillips Petroleum and Firestone formed National City Lines.

This was part of an organised campaign to buy up and destroy electric rail systems operating in US towns and cities.

After buses replaced trams and trains the bus systems were often wound down too.

From 1936 to 1950 the National City Lines bought out and dismantled more than 100 systems in 45 cities – including New York, Detroit, Baltimore, Philadelphia, St Louis, Salt Lake City, Tulsa, Minneapolis and Los Angeles.

Officials were frequently given Cadillacs for aiding the company plans. In 1949 the corporations were acquitted of conspiring to monopolise transportation services.

The companies behind National City Lines were each fined just $5,000, while each of their directors paid a $1 fine.

Multinationals’ scramble for Africa fuels new conflicts

by Simon Assaf

The high price of oil is driving a new scramble for Africa that will bring more misery to the continent.

Giant oil multinationals face a problem. With the exception of Iraq, where a new oil law has reversed 32 years of nationalisation, global energy firms are shut out of most key reserves in the Middle East, Latin America and Russia.

Before the oil price boom of the 1970s the multinationals had access to the Middle East. But a wave of nationalisations driven by nationalist revolutions limited the scope of oil companies.

By the mid-1980s the price of oil collapsed, taking the heat out of exploration for new fields.

As long as Saudi Arabia and the other Gulf Arab states could pump out cheap, high quality oil, the giants satisfied themselves with upstream processing and selling gas at petrol stations.

Over the past few years this trend has been reversed. Limited capacity in the face of growing demand – especially from the Asian economies – has helped to spur a frantic search for new oil sources.

The focus of this search is Africa. The continent holds around 9.3 percent of known global reserves. The bulk of this oil is in large basins that make it easy to extract.

There are 12 major oil producers in Africa, but four states – Nigeria, Algeria, Libya and Angola – account for 85 percent of output.

Libya’s Sirte Basin is the largest site, holding more than 20 percent of the continent’s 300 billion barrels of oil. A deal between Libyan dictator Muammar Gaddafi and the US in 2003 – in which Libya was declassified as a “state sponsor of terror” – has drawn the Arab country into new production deals.


High oil prices have also aroused interest in less productive fields.

In 2006 Africa supplied 12 percent of the world’s oil. Today this has grown to 30 percent. This unprecedented boom has attracted European, North American, Russian and Chinese oil giants.

Russia’s Gazprom is in negotiations with Nigeria, while China has been snapping up exploration contracts in return for infrastructure projects and military deals worth billions of dollars.

In 2006 Angola, with its vast reserves of sweet crude, became the main supplier of oil to China.

This is fuelling rapid economic growth rate of the African country, but the petrodollars are flowing into the pockets of government officials.

One Angolan newspaper revealed that 12 of the top 20 richest men in Angola are government officials, while five are former officials. Meanwhile the United Nations estimates that 60 percent of the population are living in extreme poverty.

The story is the same for all the oil producing countries.

According to the Financial Times, “between 2002 and 2006, publicly listed oil companies tripled their spending in Africa, a rate that was 20 percent more than their spending across the world during the same period”.

This oil boom has turned Africa into a major arena of imperialist rivalry. The consequences for ordinary people of this will be severe.

As in the Middle East, the scramble for oil has drawn blood. Last year the US dished out £500 million to friendly governments in their battle against Islamist militants.


The CIA calls this the war “for the wide open spaces” of North Africa – the arc from the Horn of Africa to Morocco.

George Bush has created Africom, a military command centre for Africa that would operate in a similar way to Centcom – the US military command for Middle East and central Asia.

In 2006 Bush unveiled a new strategy that would shift oil imports away from US reliance on the Middle East and towards Nigeria. The US wants to get up to a quarter of its oil imports from the Niger Delta.

This area has now become a flashpoint between angry locals – organised in the Movement for the Emancipation of the Niger Delta (Mend) – and the central government and global oil interests spearheaded by the US.

Militants destroyed a key pipeline two weeks ago, cutting production by 40,000 barrels a day.

With its vast reserves flashing on the geopolitical radar, the US attempted to strong-arm Nigeria into allowing it to station troops in the country. Nigeria refused, so the US set up camp in nearby Liberia.

Africa’s new found oil wealth is either flowing out of the continent or greasing the repressive state machinery.

This week, BP announced record second quarter profits of £4.8 billion, Shell posted £3.9 billion for the same period, and Exxon Mobil £5.95 billion. Companies pumping oil from the Gulf of Guinea are making 20 percent profit on every barrel of oil.

This is while the high price at the pumps is pushing fuel beyond the reach of ordinary people.

The Financial Times notes, “The increase in the cost of oil in 13 non-producing countries, including stable economies such as South Africa, Senegal and Ghana has since 2004 been equivalent to 3 percent of their combined gross domestic product.”

“This is more than the debt relief and foreign aid received during the same period.”

Are there alternative sources of oil?

High demand for oil is pushing the US Congress to rip up legislation that protects the Alaskan wildlife reserve, which holds between 5.9 billion to 13.2 billion barrels of oil.

The US consumes over 20 million barrels a day.

Bush, and whoever succeeds him, also wants to drill in the so-called Outer Continental Shelf – the sea beds off the US coast.

Congress banned all offshore drilling as part of a programme of environmental protection in 1981, when oil was cheaper to import.

But with an estimated reserve of 86 billion barrels – the equivalent of ten years’ supply of US oil needs – the US elite is tempted to overhaul the ban.

Both projects threaten delicate ecosystems and would do untold damage to the environment.

Another possible source of oil is tar sands – also known as extra heavy oil. High prices mean that the extraction of this crude is becoming more viable.

Tar sand is a solid form of crude oil that is strip-mined. The deposits held in Venezuela and Canada alone are each equivalent to the global reserves of conventional crude oil.

Processing this heavy crude into fuel releases up to three times as much greenhouse gas as the production of light and sweet crude. This would be an environmental catastrophe.

And to process tar sands into gasoline or diesel would require a huge investment in refineries.

According to the Wall Street Journal tar sands require so much heat in the processing that one French oil giant “briefly floated the idea of building a nuclear-power plant” near Canada’s major reserve.

Saudi Arabia, Kuwait, the United Arab Emirates, Iran and Iraq (see map above) hold the majority of the world’s reserves of cheap, sweet crude.

For this reason the Middle East is the most important source of cheap oil – and control over these reserves remains the obsession of imperialism.


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