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?