Global Oil and Unviability of "Pax Americana"

Author(s): Cyrus Bina

Source: Economic and Political Weekly, Vol. 27, No. 28 (Jul. 11, 1992), pp. 1467-1469
Published by: Economic and Political Weekly
Stable URL: http://www.jstor.org/stable/4398614
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 global integration, 1950-1972, and (3) the
Global Oil and Unviability of Pax era of transnationalisation and unified
global pricing (since the 1973-1974 oil
Americana crisis).'

Cymzs Bina The first major oil discovery in West

Asia was made in southern Persia in 1908.
This was followed by monumental oil
lb see the drive for control over oil as the real reason for US
discoveries in Iraq (1927), Bahrain (1932)<
intervention in the Persian Gulf is to ignore the transformation of Saudi Arabia (1938), Kuwait (1938), and
the global economy and global polity in the last two decades at Qatar (1939), among others, all in the
the expense of Pax Americana. Persian Gulf region.2 A slightly different
historical periodisation can be provided
for the US domestic oil industry: (1) the
BEFORE dealing with the historical apart from the act of military intervention
era of classical cartelisation and early oil
transformation of oil industry and the itself, is an empty phrase designed to
trusts of 1870-1910, (2) the era of rgulated
resultant internationalisation of oil pric- boost the US image through actual or im-
neo-cartelisation of 1911-1972, and (3) the
ing, it is necessary to recognise whether aginable glories of the past.
era of transnationalisation and unified
oil has anything to do with the recent Thus, one has to search for a sensible
global pricing since the 1973-1974 oil
American intervention in the Persian link between US military intervention in
crisis. The first stage in the development
Gulf. Admittedly, it is hard to remain in-the Persian Gulf and the declining US
of US domestic oil was simultaneous with
different to the popular and tempting global hegemony. Here one must carefully
the rise of horizontal and vertical integra-
justification of the oil scenario as the avoid the pitfall of circularity by refusing
tion in the industry that, among others,
cause of American intervention. After all, to equate the limited 'victory' in the war
with the rise of US hegemony. In fact,
alarmed the public to the point of invok-
many on the right, including Sen Bob
ing the passage of the antitrust law of 1911
Dole (R-Kansas), and many on the left, consistent with the above reasoning, the
against the consolidating oil empire of
including Noam Chomsky, maintain that cause of US intervention is readily ex-
John D Rockefeller.
the real reason behind the deployment of plicable in terms of the US reaction to its
A close examination of the entire
US forces in the Ftrsian Gulf has been oil own global decline. The lack of counter-
1870-1970 period reveals that the triumph
given the vanishing Soviet deterrence vailing Soviet power in this connection
of administrative pricing and cartelised
globally. must be considered as a catalyst that trig-
practices were more or less predominant
In establishing the cause and effect rea- gered and thereby revealed, in gigantic
in the oil business.3 These practices,
tionship in this matter, I differ with the proportions, the declining status of US
however, had begun to lose their effec-
above assessments as I shall argue'that the global hegemony. Hence, one has to avoid
tiveness in the decades of 1950s and 196s,
oil scenario suffers from neglecting the a tautology that is based on the oil
as oil pricing had to gradually abide by
last two-decade transformation of the scenario for explaining the cause of US
the rules of the global marketplace,
global economy and global polity at the intervention.
beyond the total interventions by the oil
expense of Pax Americana. Some of the In what follows, I shall present the stage
cartel. The early period of international
major developments are: (1) the global by stage development of the global oil in-
cartelisation of west Asian oil (1901-1950)
economy would no longer obey the frame- dustry, starting from its formative years
presents a compelling story about the
work erected by the traditional boundary through its transnationalisution and
potency of political hegemony of a hand-
and sovereigty of the nation-state, (2) the ultimately post-cartelisation since 1974.
ful of transnational oil companies
international oil industry would no longerMy purpose is to demonstrate that the
(TNOCs) over the entire region, as, for in-
follow the pattern of national, regional, globalisation of oil sector has gone hand
stance, the nationalisation of oil in Iran
or cartelised price determination, (3) since in hand with the transnationalisation of
and its aftermath during 1951-1954 have
the 1974 globalisation of oil pricing the the world economy; and consistent with
provided us with enough empirical proof.
physical control of oil has not produced the latter, the US hegemonic decline. I
Given this brief history, the task will re-
intended results, (4) the post-World War even go as far as to suggest that if the
main to explain how the oil sector has
II hegemonic, international system (of entire Saudi oilrields would be taken for
been transnationalised, and why, under
nation-states) is giving way to the highly keeps by the United States, it will not help
such a system, resorting to physical con-
integrated (multipolar) transnational the reversal of the US hegemonic decline,
trol or the ownership of the oilfields is no
entities, (5) consequently, in this new unless the entire world is prepared to
longer effective against the formidable
environment, the US global hegemony is abolish the institution of the capitalist oil
forces within the global oil market.
a passe, and (6) the fall of the Soviet market everywhere around the globe. But,
Union goes hand in hand with the emerg- being a matter of historical detrmination, WESr ASIAN OIL: CENTRE OF GRAVITY
ing global multipolarity, despite the abolishing a social system normally re- The second stage in the development of
rhetoric of 'unipolar world' advanced by quires more than resorting to bureaucratic the west Asian oil industry constitutes the
the sentimental and backward-looking flat and pure voluntarism (see box, 'Oil transition toward transnationalisation and
segment of the ruling class in the UnitedMythology'). global pricing of oil (1950-1972). At this
States. stage, one can detect the coexistencc-of
These points together would invalidate FORMATIVE YEARS OF CARTELISED
declining cartelised institutions in con-
the necessity or the argument of physical A RRANGEMENTS
junction with the developing norms of the
access to the so-called cheap west Asian The entire history of west Asian oil, in- capitalist market. Here, my main point is
oil by the United States. Moreover, as the cluding its subsequent development into to show that the cartelisation of oil
above points suggest, the recent American a modern industry, can be divided into belongs to the stage in which the institu-
intervention in the Persian Gulf cannot be tions of capitalism had not yet been fully
three distinct yet interrelated stages: (I) the
attributed to the US hegemonic ascension era of international cartelisation, developed on a global basis. The identi-
at all. The US hegemonic rise, therefore, 1901-1950, (2) the era of transition to fying features of this period include:

Economic and Political Weekly July 11, 1992 1467

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(a) the dominance of long-term oil con-
tracts, (b) the recognition of the Persian Oil Mythology
Gulf as a second 'basing-point' (a cost-
I The cartel syndrome. Oil industry is inherently a cartelised industry, meaning it.
plus system) oil pricng system (nex to the has remained so even after the crisis of the early 1970s.
[US) Gulf of Mexico), (c) the utilisation 2 The OPEC syndrome: OPEC has been a cartel and, as such, determines the oil
of 'posted prices' for calculation of the prices around the world.
share of the oil exporting governments 3 7he cheap oil syndrome: Despite the globalisation of oiL, there is cheap oil and
under the headings of oil royalties and oil expensive oil (aside from quality) and, just like wine, one can recognise and
rents, and (d) the collective representaion identify them while in the market.
of majr oil-exporing rentier ses within 4 The USself-suffwency syndrome Since the United States depends on foreign oil,
there is an effort on the part of the US goernment to adiev self-suffiency similar
OPEC. During this sta, the US domestic
to the promise of Project Independence in the Nixon era.
oil also had to be controlled in order to
5 The laissez-faire syndrome: If we do not tamper with the oil market, the outcome
stabilise the 'basing-point'price of oil at will be crisis-free and smooth.
the Gulf of Mexico. This basing-point had 6 The national security syndrome: National security considerations compel the US
been in use as a refere point for pricing government to insure the security of the supply.
of oil anywhere in the world within the 7 We-do-it-all-for-you syndrome: Japan and the US's European allies are mom
administrative network of TNOCs.4 dependent on importation of oil than the US, so the US has gone out of its way
In this period, the international to insure that the Japanese and European economies will not be squeezed as a
result of a sudden shortage (just like McDonald, 'W do it all for you').
petroleum cartel, known as the Seven
8 The-hell-with-environment syndrome: The United States needs to explore more
Sisters, which had the backing of two
oil from the domestic pristine areas of wildlife because we need to become
powerful brothers, namely, the. US and self-sufficient.
British governments, started to post
9 The US war syndrome: The US has gone to war because o il.
similar prices (i e, based on the Gulf of 10 The US hegemony syndrome: Control of Saudi Arabia (and Kuwait) will inawse
Mexico) for oil from both the Persian the US global hegemony as the US leads the entire world through another 'Am an
Gulf and Gulf of Mexico. Because of ad- Century'.
vantage in the actual cost of the former,
despite the heavy transportation cost
associated with it, the cheap west Asian setting the posted price (a mechanism for explain why OPEC-posted pricn will no
oil soon found its way deeply into the determining OPEC oil revenues) became longer remain insulate from the deter-
western markets. In this manner the west the focal point of contention between the mining (and at times undermining) impact
Asian oil has gradually displaced the US international oil companies and the oil ex- of spot prices in the global oil mrket. The
oil in its own territory, i e, in the marketsporting governments.6 magnitude of these spot prices, in turn,
close to the western hemisphere, as the depends on the cost of oil from the
centre of gravity of oil reserves and pro- GLOBAL OIL ORDER IN PRESENIT highest cost regions, as the less cosy oil
duction shifted to the Persian Gulf. This POST-CARTELISATION ERA regioiS appropriate their share of oil rent,
prompted the companies to cut the in addition to their normal profit.
lbward the end of the 1960s there
Persian Gulf posted prices without an ap- The development of global spot (and
emerged two major developments that
parent fear of loss, thereby indirectly ad- future) markets in oil is indeed the con-
undermined the cartelised charcter of oil
mitting the manifold profitability of their sequence of: (a) the extent of gloalisa-
production and that helped to unify the
west Asian operations. But the mere fact tion of the oil industry that, in turn, is
pricing of oil at the global level. First,
that the companies were able to do just rested on the progressive integrto of the
there appeared a sweeping change in
that stems from their cartelised control of oil producing countries within the global
OPEC's relationship with the TNOCs,
both US domestic oil as well as oil from economy; (b) the critical importance of
having to do with the further integration
foreign subsidiaries around the world in US oil cost structure in setting the world
of these oil-exporting countries into the
the absence of an established global oil price; (c) the unification of global oil
world economy. Second, there occurred a
market. under one pricing rule; (d) the -place-
considerable increase in the production
Paradoxically, however, as the com- ment of the carteised arrangements by thi
cost of US oil (already among the highest
panies cut the price of oil from their inherently unsettled global market forces;
in the world). This was partly due to the
Persian Gulf operations, they furthered and by implication (e) the devlopmenst of
highly fragmented oil leases in the sphere
the displacement of oil in the western OPEC as a rent-collecting agency with no
of new exploration, and partly due to ex-
hemisphere by its counterpart from the immunity from the grip of (oil) market
orbitant capital investments made for ad-
Persian Gulf. This flcxibility in price fundamentals.8
ditional oil from the existing aged US
setting, in turn, introduced an adaptable oilfields.7 T'he onset of the post-cartelisation had
system of oil rents and royalties that Tbday, contrary to the previous his- its origin in the oil crisis of the early 1970s
allowed for responsivcness to the markettorical stages, oil price determinion rests that resulted in restructuring of the entire
conditions. Since the restructuring of the on the global competition among the ex- oil industry globally. The conseune of
global oil industry during 1973-1974, isting oil regions of the world. Havf-g the all this was to generate worldwide com-
however, oil prices have become subject advantage of garnering additional petitive prices based on the costliest qil
to the institution of market, following the
revenue, the low cost oil regions produce region, namely, the United States, and to
pattern set by the global spot markets, higher rate of profit than the industry's engender worldwide differential oil rents
rather than the old administrative fine- averge. This excess profit is called oil rent in more productive oil regions of the
tuning of oil companies or the will-power and is originating from the differential world. Thus, contrary to the popular
of rent-collecting states of OPEC.5 productivity and profitability of com- belief, it is not OPEC, but US oil that is
Finally, this transitional period saw the peting oil regions themselves. This univer- so critical in determining the price of oil
formation of OPEC, which came to repre- sal rule in the formation of differential oilworldwide.9 In the absence of the old
sent certain rent-collecting oil exporters rents applies equally to both OPEC and cartelised arrangements, neither OPEC
collectivrely. As a result, the struggle over non-OPEC countries alike. This would nor its 'fourteenth member', the United

1468 Economic and Political Weekly July, l1, 1992

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States sitting in the shadow of Saudi
Arabia, would any longer gain from
hold.ing to physical control of oil alone.
Thus, the act of US intervention in the
Pcrsian Gulf, especially the fashion in
which it was conducted, is explicable in
terms of the US reaction to its hegemonic
decline The rhetoric of oil is only a
reminder of bygone yews of glory, a
backward looing justification that is try-
ig to interject the past into the uncertain transnationalised industry since 1974 and
future As the saying goes: history recur- the US government, although it wishes,
red twice, the first time as tragedy, the
second time as farce.
Notes
lrhis is a part of a longer lecture entitled
'Global Oil and the Iranian Oil Policy in the
Aftermath of the Persian Gulf War' given at
the Cetre for Middl Easter Studis, Harvrd
Udiversity, Cambridge, MA, USA, on May 18.
1992.1
I See CyrUs Bins, The Economics of the Oil
Crisis (New York [London]: St Martin's
Press [Merlin], 1985), Ch 3.
2 See also Robert Engler, The Brotherhood
of 01i (Chicgo: University of Chicago
Pres, 1977); and Abbas Al tasrwi, OPEC
in a Chanrne World dEconomy (Baltimore.
MD: Johns Hopkins Pres, 1985).
3 Simon Brmley, Amerian Hegemony and
World O1JUni(Jrsity Park, PA: Pensyl-
vania State University Pres, 1991), argues
that the American hegemony is still intact -States now has that very opportunity.'
and that is also due to the US control of The US may not be able to break
west Asian oil vis--vs Japan and western with the strong continuities that have.
Europe. I wish to present a counter-
dominated its foreign policy for the past
argument, namely, that the US hegemony
half century. But in crafting a policy
has been declining due to the transna-
geared to a changed global system, its at-
tionalisation of capital, which has under-
mined the pot,-World War 11 American- tention will be dominated by a few key
based internional system of nation-states concerns and, second, by creating a con-
since the early 1970s. As for the oil factor, sensus to replace the rigid ideology of
the oil sector has already developed into a east-west conflict.
The paramount concern remains the
final configuration and mien of the
cannot determine its dircion.
USSR's successor republics: Will they be
4 Cyrus Bina, 'Inernationalisation of the Oil
nuclear powers hostile to US interests? A
Industry: Simple Oil Shocks or- Structural
second concern is China, always the
Crisis?', Review: Journal of the Fernand
source of deeply ambiguous feelings in the
Braudel Center, Vol II (No 3), Summer
1988. For a historical analysis of the 1973-74US: to many US analysts the PRC seems
oil crisis, see Joe Stork, 'Oil and the Inter- on the verge of cataclysmic change, with
national Crisis', MERIP Reports, No 32 worrying implications for stability in
(November 1974). eastern Asia. Third, relations with Japan,
5 Cyrus Bina, 'Limits of OPEC Pricing: the lynch pin of post-second world war
OPEC Profits and the Nature of Global Oil
US policy in Asia, are in danger of turn-
Accumulation', OPEC Review, Vol 14
ing hostile. Fourth, in west Asia the cold
(No 1), Spring 1990.
war's end has changed the rules of the
6 Bina, 1985, op cit, Ch 7.
7 Ibid, Ch 9. game and jeopardised (though far less
8 Cyrus Bina, 'The Political Economy of than it seems) the US's special relation-
Global Oil', The World & I (December ship with Israel. Fifth, aind perhaps the
1990). most troubling new element from the US
9 Cyrus Bina, 'The Law of Economic Rent perspective, is the proliferation of nuclear
and Property: Applied to the Oil Industry', weapons beyond their traditional con-
American Journal of Economics and
fines. Lastly, these and other challenges
Sociology, Vol S0 (No 2), April 1992.
will have to be explained by an over-
arching ideological framework, a basis for

US Foreign Policy after the Cold War a global foreign policy to replace that
earlier provided by the east -west conflict.
Siddharth Dube Revealingly, however, these are not the
foreign policy priorities being discussed by
A recent Pentagon policy planning document, leaked to the New most US decision-makers. Their concerns
presuppose a far more benign view of the
York Times, pushes the twin views that 'the world is ultimately
aims of US foreign policy. Analysts here
backed by the US' and that the emergence of rival powers must are preoccupied, first, with an alleged
be cut short. The document asserts that the US must be prepared gathering storm of isolationism that they
to use military force to stop the development of nuclear weapons, say threatens US involvement in foreign
including attacks on plants that manufacture such weapons. affairs. Second, they say that the US's
economic troubles will constrain military
NO longer locked in battle with the 'evil since the Gulf war he has shown little action and overseas adventures. They ex-
empire', US policy-makers are struggling evidence of being guided by a new foreign pect a greater reliance on non-military
to define the contours of post-cold war policy vision. Certainly, his muddled ef- instruments of foreign policy. A third con-,
foreign policy. Their soul-searching is forts abroad have done little to encourage cern is instability (and religious fun--
revealing. It allows outsiders a rare look comity and the rule of law between na- damentalism) in west Asia and other
at the purposes and intents of US foreign tions, both promised in his conception of countries of the south. Finally, they point
policy, aspects hidden in less troubled a new world order. The new. shape of US to a post-Gulf war commitment of multi-
times. Moreover, the final outcome of thisforeign policy will not emerge so quickly lateral action through the UN as being a
tussle between competing ideologies and nor so fitfully. major new element in the US emerging
'national interests' is, of course, of crucial To the contrary, the principles that will foreign policy.
interest to the rest of the world. The US guide US foreign policy in tJis changeable But for many reasons it seems clear that
remains the world's pre-eminent power world are likely to take shape over years. these are peripheral concerns, unlikely to
and will set many of the rules for the With their cold war raison d'etre, the define the nature of post-cold war US
emerging international order. world seemed frozen to Americans for the foreign policy. Conversely, focusing on
This new order will probably have little past half-century. Today it seems to this most visible part of the internal
in common with George Bush's rhetorical change at treacherous speed. William debate runs the risk of misreading the
vision of a new world order, announced Hyland, editor of Foreign Affairs, the nature of American foreign policy.
with fanfare during the Gulf war. Not influential centrist policy journal, writes, First, there is little likelihood that the
only was president Bush's announcement "It is rare in history that a country can US will withdraw in any way from an
of the new order premature, but his pur- craft a wholly new foreign policy. But international system that it helped shape
pose was clearly to claim the moral high within the constraints inevitably imposed and which has suited its purposes so well
ground for military action in the Gulf. But by geography and history, the United this century. (Jeane KCirkpatrick, Reagan's

Economic and Political Weekly July 11, 1992 1469

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