The Oil Shock: Another Story?

You remember the Nixon oil shock? If you are of a certain age, of course you do. In 1973 the world price of oil jumped from $3 to $8-$9, then $12-$15, then (in the Reagan years) over $30.  And not just oil: all sorts of commodity prices went through the roof.

You thought it was all about the cartel, right, OPEC, perhaps actuated by the Arab-Israeli Yom Kippur War—a calamity for the United States? Could be, but Yanis Varoufakis thinks otherwise. In The Global Minotaur, he explains how it was all really our (well: Henry Kissinger's) idea:

[I]f the Nixon administration had truly opposed oil price hikes, how are we to explain the fact that its closest allies, the Shah of Iran, President Suharto of Indonesia and the Venezuelan government, not only backed the increase but led the campaign to bring them about? How are we to account for the administration's scuttling of the Tehran negotiations between the oil companies (the so-called “Sisters”) and OPEC just before an agreement was reached that would have depressed prices? … [W]hy did the United States not oppose with any degree of real commitment the large increases in oil prices?

Why, you ask? Varoufakis answers:

The simple reason is that … the Nixon administration [did not] care to prevent OPEC from pushing the price of oil higher. For these hikes were not inconsistent with the administration's very own plans for a substantial increase in the global prices of energy and primary commodities. Indeed, the Saudis have consistently claimed that Henry Kissinger, keener to manage the flow of petro-dollars to America than to prevent the rise of energy prices, was encouraging them all the way to push the price of oil up by a factor of between two and four. So long as oil sales were denominated in dollars, the US administration had no quarrel with oil price increases.

Elaborating:

Recalling that the new aim was to find ways of financing the US twin deficits [budget and trade—ed.] without cutting US government spending, or increasing taxes, or reducing US world dominance, American policy makers understood that they had a simple task: to entice the rest of the world to finance the USA's deficits. … [A]s oil prices rose, every part of the capitalist world was adversely affected. However, Japan and Western Europe (largely lacking their own oil) were burdened much more than the United States.

Meanwhile, the rise in oil prices led to mountainous rents piling up in bank accounts from Saudi Arabia to Indonesia, as well as huge receipts for US oil companies. All these petro-dollars soon found their way to Wall Street's hospitable bosom.

And there you have it. Now, I think of myself as being a moderately attentive observer of conspiracy theories and their kin (I even buy a couple, though not most). But I never heard of this one. I tried it on some of my homies who dismissed it with a poorly concealed sniff of contempt at my foolishness for even countenancing such nonsense. It does sound a bit baroque, like a nine-cushion carom shot. Are there any takers?

Tintin Goes to Prince William Sound

Steve Coll begins Private Empire, his thick new history of Exxon, with an account of the calamitous wreck of the Exxon Valdez (23 years ago, can you believe?). It's classic Coll: dense and granular, smoothly written and all impelling the conclusion that the story isn't quite as simple as what you might have heard on CNN. Specifically the notorious Captain Hazelwood, universally cast as the villain of the piece--okay, Captain Hazelwood screwed up. But it takes more than one man to make a clusterslick of Valdezian proportions, and Captain Hazelwood's draw had the ill fortune to fill an inside straight. If anything can go wrong, as the saying goes, it will.

It's a gripping if somewhat demanding read, and it stands as a model for the book as a whole. The book, that is, offers a full panoply of what Coll does best: a dozen or so instances of first-rate long-form journalism, loosely bound together by a common subject: the world's third*  largest non-sovereign oil company.   "Common subject," then, is easy enough; "common theme" is perhaps a little harder and I am not sure I have grasped the unifying principle behind Coll's diverse episodes.   But in default of a better, you might want to choose "proven reserves"--the never-ending and ever-more-difficult to tell the world that they end each year with as much oil as they had at the beginning.

It's a loser's game for somebody someday and even now it requires a lot of smoke and mirrors, not to say Calvinball: Exxon dutifully reports one set of numbers, as instructed, in its filings with the SEC, and a different, more generous account for everyone else.  The difference is tar sands: the SEC doesn't think they are "oil," but apparently they look like oil to an oil company with an accounting problem.

Anyway, it is "proven reserves that drove Exxon into Chad, French Equatorial Africa, Aceh (made you blink!--it's on the northern tip of Sumatra) and the like.  All of which gives the book the flavor of a Boys' Own story until you recall these are real people whose lives are being disrupted, real people being killed or kidnapped, real dictatorial thugs being enlisted as allies in the search.  It also makes room for a remarkable door-closing farce, where an Enron lawyer, collaborating with a heroically acquiescent Federal judge, succeeds in snaffling $300 million out from the cotton-pickin' paws of Venezuela's Hugo Chavez. 

All good stories, though in general, you'd need a strong motivation to see through Coll through every sidetrack and back alley.  The moral is there isn't any moral.  If Enron is to stay in business, it must keep up the search for new supply with the same devotion that your ordinary Congressman shows to his fund-raising.    Still, oddly enough, the book does end on a discontinuous note as Exxon discovers the magic of America's underground gas lode and embarks on a new adventure which just might turn it into an entirely different kind of energy company. For  moment the problem of reserves seems to be "solved," or at least kicked down the road.  For the moment the Exxon team can lighten up.  But only for a moment.  The fact remains that there is only so much of the stuff out there, and someday some Exxon CEO is going to have to throw down his cards and say "that's it I'm done."
===exa
*BP and PetroChina Co. Ltd. pip Exxon.  Also  thirteen sovereign companies.

Exxon: Being a Manly Man

 Were I not reading Steve Coll's gripping new  biography of Exxon, I would  not have not run across this gem, about the observation of an executive examining Exxon culture around 1990:

The executive was startled to discover at one point that the corporation's stop five leaders, all white males, were the fathers, combined of fourteen sons and zero daughters. 

"The mathematical probability that such a quirk had no basis in the corporation's social mores was low," Coll remarks drily. And quoting his "executive:" "'What is there in the culture here that promotes people with sons?'"  Actually, Coll has already suggested an answer:

Exxon recruited heavily from the petroleum engineering departments of the public universities of America’s South, Southwest, and Midwest. By locating its headquarters in Texas, the corporation placed itself in the landscape to which many of its long-tenured American employees belonged. Exxon maintained “kind of a 1950s southern religious culture,” said an executive who served on the corporation’s board of directors during the Raymond era. “They’re all engineers, mostly white males, mostly from the South.  .  .  . They shared a belief in the One Right Answer, that you would solve the equation and that would be the answer, and it didn’t need to be debated.”

--Coll, Steve (2012-05-01). Private Empire: ExxonMobil and American Power 

 (Kindle Locations 868-871). Penguin Group. Kindle Edition. 

Man, I wouldn't have lasted there five minutes.  No, strike that: the security alarms would have howled as I walked past the front door.

Afterthought:  Has it changed?  Dunno, haven't finished the book yet.

Semi-Appreciation: El-Gamal and Jaffe on Oil

El-Gamal and Jaffe's Oil, Dollars, Debt, and Crises must be the third best book on (as their subtitle calls it) "The Global Curse of Black Gold." The first best is, no doubt about it, Daniel Yergin's The Prize, surely one of the prodigies of journo-history in any field. The second best is--ah, now there you have me. The second best is the book that E&J promised but never quite brought off. Leaving aside Yergin, I can't say I know of a better book than E&J on the subject at hand; I just wish it were better still.

I found E&J used on the shelf at Powell's Portland last week. My thought after the first 20 pages was "how come nobody told me about this one before?" My thought after the next 50 pages was "I guess I know why nobody told me about this one before." But I pressed on to the end and I can't say it was time wasted. As an aide-memoire on the politics of oil over the last 40 years, it's actually pretty good: assembles a lot of data and, if you lived through all of this, serves as a pretty good reminder of a lot of what you lived through. Still, you've got to wonder about a history of oil without index refs for Nigeria or Libya, or that discusses Middle Eastern politics without an index reference for Israel.
v

The trouble is it seems to offer so much more. From the intro, you get the impression that they are going to offer a new framework for analysis. Well, no. What they do is to remind us that the oil market is like any other market, is not self-executing mechanism: it's the tool and engine of political issues that have little or nothing to do with oil. They provide a useful reminder of how the 1973 oil shock can't be understood outside the context of Nixon's decision to abandon gold in 1971. They provide a cautionary review of how badly the Middle Eastern countries mismanaged their oil wealth in the 70s and 80s.

They assert, but do not really demonstrate, that all the ups and downs in the oil market are entangled with the cycles of boom and bust in other parts of the economy. They offer up suggestive references to (and a presentable summary of) Hyman Minsky on boom and bust. But in the end they leave the reader pretty well convinced that oil busts aren't really Minsky busts at all, but problems with a trajectory all their own.

Markets are tied up in politics; that is true, but not new: it was Yergin's central premise. Yergin has always been hard to beat, and on the evidence here, he remains the champ. Still, Yergin cuts off around 2008 and it is useful to have a summary, however incomplete, of what has happened since.

But Wait a Minute...

No oil,no water, and $59 billion in debt. How is this different from, say, the guy who told us he planned to be the Bill Gates of carpet cleaning?

But wait a minute--isn't the absence of resources supposed to be a good thing? Rich in resources, you wind up like Russia or Iraq. Hungry for resources, you wind up like The Netherlands, or at least Venice. Wasn't I saying just last summer how lucky Tunisia was not to have any oil?

Eleven Years

That's 2020. So, some time late in the first term of President Jeb Bush, Bobby Jindal, Sarah Palin, whatever. Details here.

Uh oh

(link).