Study notes from Crude Capitalism: Oil, corporate power, and the making of the world market by Adam Hanieh (2024)
I genuinely think everyone in the world needs to read this book! It can be dense, but it’s so informative and clarifying when laying out the argument that the history of the 20th and 21st centuries is the history of oil. It’s a really interesting complement to Amitav Ghosh’s Smoke and Ashes: A writer’s journey through opium’s hidden histories, which charts the ways in which all of the 19th century wealth of Western nations and corporations derives from illegal drug-running in China.
The biggest difference between the two works is that Ghosh is approaching the history as an ecocritic, constantly emphasising the agency of the poppy and how its specific properties as a non-human actor lent itself to being appropriated the ways it were by the British colonialists. By contrast, Hanieh constantly insists that oil is never the cause of contemporary capitalism and that agency shouldn’t be ascribed to it in that way; he also rejects the notion of a ‘resource curse’ that is pushed in other books like Siddharth Kara’s Cobalt Red about the Congo (where Kara frequently laments that Congo is ‘cursed’ with mineral riches such that greedy imperialists can’t stop coming to ravage it) and which is also suggested by Ghosh in the title of his Nutmeg’s Curse book (which I haven’t read). (Before we move on, I want to note that I really do also recommend Ghosh’s Smoke and Ashes, and I was particularly interested in the sections exploring India-China interchange, as well as the chapter on ‘Boston Brahmins’.)
Back to Hanieh: “Too much of our everyday thinking about oil invests it with some kind of inherent magical power […]. The real secret to the oil commodity lies instead in the kind of society that we live in—the priorities, logics, and behaviours that derive from how society is currently organised. These social relations are what give oil meaning […]” (3-4) Obviously, Hanieh means the system of capitalism, whose rise and consolidation into the form in which we know it today is inextricable from the history of oil.
Hanieh does acknowledge, of course, that the properties of fossil fuels—especially their transportability—make it perfect for capitalism: “Expand, accelerate, and revolutionise—these catchwords of a social system based on ‘accumulation for accumulation’s sake’ sit at the core of the transition to fossil fuels [principally coal, oil, and natural gas] that occurred across major industrialised economies during the 19th century.” (12)
Important to remember:
“Mobility of fuel supports mobility of capital, which in turn helps to liberate capital from the constraints of space and time. Displacement of human muscle power as the primary energy source also divorces the worker from control over production and independent means of survival, helping to generalise and extend a reliance on waged labour and subordination to the market. Markets can grow, and capital can seek out labour where it is cheaper and better controlled.” (13)
Also important to note is that Hanieh’s expertise is in the political economy of the Gulf, so his integration of the story of resources and capitalism in South-West Asia as core to the history of global oil, especially for how we understand the petrodollar today, is a particular strength for the whole book.
Some vocab:
Upstream = where the crude oil is extracted
Downstream = where it gets refined and eventually sold
Concession = permission to extract oil from a certain place, e.g. a country gives a foreign firm a concession for all the oil in X region for Y years
Oh, and, reading this book and then immediately spending the next 3 weeks bingeing Industry was a crazy experience. The book essentially helped shed light on some of the deep evil taking place in that show.
Petro-Power: The Rise of the US Oil Industry
Focusing on the late 19th and early 20th centuries, this chapter discusses the importance of vertical integration to US oil companies drilling on US land. Companies initially focused on extracting crude came to crystallise what “would later become accepted wisdom in the oil industry: the infrastructures that took crude, transformed it into something useful, and then moved it to the consumer formed an integral part of the industry” and having full control over this would be key to profits. (31)
With the US government trying to use anti-trust regulations to break up the increasing monopolies in the oil industry, we also see the use of shell companies, holding companies, mergers, and acquisitions so that these conglomerates can stay ahead of legislation.
Eventually, Standard Oil was forced to break up into smaller companies. However, especially following WWI, which was fuelled by US oil, “with oil’s rising prominence to the world’s energy matrix, the US state had become a guarantor for the accumulation of the largest oil firms that had emerged in the wake of the Standard break-up—underwriting high profit rates through increased state consumption of oil, building critical infrastructure, and providing substantial tax breaks and other cost subsidies.” (44)
Around this time, which also saw the emergence of driving culture, US firms started looking for oil reserves abroad in order to balance out production and demand. First, they started extracting from Latin America: Barco Concession (Colombia-Venezuela border), Mexico, Venezuela (with US refineries in the nearby Dutch West Indies islands of Curaçao and Aruba). In Venezuela, Juan Vicente Gómez allowed foreign firms to extract oil without paying any taxes or royalties to the Venezuelan government, in exchange for personal kickbacks.
The Middle East and the Seven Sisters
This chapter looks at the development of oil firms in Europe and its inextricable link to colonialism.
For instance, “the 1907 union [of Royal Dutch Petroleum Company and Shell Transport and Trading Company into Shell] was thus a true child of Dutch and British colonialism, bringing the upstream and downstream together in the first of Europe’s large integrated oil companies.” (53)
Also, in 1914, the UK government takes a 51% controlling stake in APOC (Anglo-Persian Oil Company), which is now BP. Although the US and its Latin American reserves dominated the industry post-WWI, all the other oil sources in the rest of the world were controlled by Shell and APOC. This division of powers also runs in parallel to the geopolitical landscape of US capitalism vs (declining?) European imperial power.
The source of Europe’s oil was South-West Asia, with the Sykes-Picot agreement helping ensure that UK and France continued to control the area and the San Remo agreement specifically facilitating intra-European cooperation on transporting oil out of the region. “Britain, the dominant force in Iraq, was intent on blocking the entry of US firms into the Middle East.” (58)
However, the US oil industry was very able to strong-arm its way in to Iraq and became shareholders of IPC (Iraq Petroleum Company, who had a very beneficial concession for oil extraction in Iraq) alongside APOC, Shell, and CFP (France)—i.e. ultimately in partnership with British colonisers who held sway over King Faisal I of Iraq.
IPC was “incorporated as a non-profit, whose main activity was the distribution of crude oil to the company shareholders. Instead of taking a monetary dividend, the owners of IPC received a pro rata share of the oil produced in Iraq, valued at a price that was set at a minimal level to cover production, transportation, and operating costs. Ostensibly this structure was chosen because it meant that the US and French participants could avoid paying double taxation (they were essentially being paid in oil at cost price rather than money). In reality, however, this structure gave APOC, Shell, CFP, and the US partners the ability to hide the actual value of the oil extracted by IPC (and hence the royalties due to the Iraqi government, which were based on this value). The ‘price’ of IPC’s crude was effectively an arbitrary transfer price set internally by the companies themselves, bearing little resemblance to the actual market price of crude. IPC’s component companies then made their real profits on the downstream refining, transport, and marketing of oil products, and information on this was buried in confidential company reports.” (62-63)
This above bit is really important because this became the blueprint for vertically-integrated Western oil firms extracting oil from other countries. Essentially, because these firms control the oil from crude all the way to the petrol station where it’s sold to the consumer, they can decide that the crude was extremely cheap. They sell that cheap oil to themselves, and after refining it and then selling it on for higher, they make a huge profit. In the meantime, the country where the crude was extracted can only tax the companies on the original crude price, which is apparently very low. This helps us understand why oil-rich countries like Venezuela and Saudi Arabia attempted to get paid better for their crude (and thus prevent the totality of their national wealth from flowing out to the West) over the course of the 20th century through national oil companies, increases in royalties, and coalitions like OPEC.
That artificially cheap price of crude, controlled by big firms, is known as the posted price.
By collaborating together and sharing interests, the IPC’s firms also controlled production. Since, theoretically, a free market means lots of competition and lots of production, IPC firms could agree not to compete against each other. Sometimes, this involved drilling oil inefficiently on purpose, so that they didn’t produce too much oil altogether and crash the market. IPC’s firms could all make sure their profits stayed high and that they could sustainably keep doing business even when demand was low.
1928: Achnacarry, or ‘As Is’ secret agreement signed in Scotland by APOC, Shell, Standard Oil New Jersey (US), and Gulf Oil (US): “Its key feature was the apportionment of the world’s oil production outside the US between the leading oil companies based on their respective market shares in 1928 (hence As Is). […] [T]he oil executives meeting at Achnacarry sought to restrict their production within their respective shares, and only increase the supply of world oil if global demand increased.” (66)
“Achnacarry set all world oil at the price of a barrel at the Gulf of Mexico, plus the freight cost of shipping oil from Houston, Texas to the destination where it was sold. This ‘Gulf-plus’ system meant that cheaper oil produced outside the US was sold at the price of the higher-cost US oil. It also meant that oil shipped to relatively near destinations (for example, oil from APOC’s facilities in Iran transported to Italy) would be charged as if it had been shipped from the more distant Gulf of Mexico. The substantial profits made on these artificially high prices were pocketed by the large oil firms. Furthermore, the companies agreed on the reciprocal exchange of oil between themselves to ensure that markets were supplied from the closest production area. This ‘phantom freight’—as the savings made in transport costs through this exchange were called—was shared between the oil firms at the expense of buyers.” (66-67)
“The ingenious Gulf-plus pricing system guaranteed super-profits on oil produced outside the US, while ensuring the ongoing profitability of the domestic American industry, the largest market in the world at the time.” (67)
This also meant that the big firms could stay big, while smaller firms found it extremely difficult to bear the costs of entering the market and its volatility. The biggest firms were known as the Seven Sisters: Standard Oil New Jersey (now ExxonMobil); Standard Oil New York; Gulf Oil; Texaco; Standard Oil California; Shell; APOC / Anglo-Iranian Oil Company ———> Today, these companies have been consolidated into or are ExxonMobil, Chevron, Shell, and BP.
A Russian Interlude: from Baku to the Bolsheviks
Starting from the 19th century, Baku, Azerbaijan was the center of the Russian oil industry. [Lydia Kiesling’s novel about the oil industry, Mobility, features Baku as a setting. I didn’t really love it but it was an interesting read and a laudable effort to narrativise this history!] Baku’s Black Town, where the oil industry infrastructure and workers’ quarters were located, was also “the base of a militant workers’ movement” where young Stalin cut his teeth. 1904 saw a general strike in the oil industry [sorry to cite Jacobin!].
After 1917, the USSR sought to nationalise oil, but the situation in Baku was unstable, with civil war and demands for Azerbaijani sovereignty. In order to force international acknowledgment and maintain the domestic economy, the Soviets decided to sell off Baku's oil concessions to foreign companies (which would have the technology and capital to effectively extract the oil, unlike the Soviet state). After some attempts to negotiate—which scared the US government because this involved working with assets nationalised by Communists—the biggest oil firms all committed to boycott Russian oil; the concessions went to smaller firms, who introduced the technology needed to bring production back up.
Soviet oil exports to other European countries allowed for the creation of alternative oil infrastructures that rivalled US and UK firms' existing domination. Soviet oil from Sakhalin Island also broke into the oil market in Japan. Smaller firms trading in Soviet oil could compete better against the Seven Sisters because they now had this alternative source, and they entered other international markets in Asia as well. All of this helped trigger the 1928 Achnacarry agreement as the firms associated with the big imperialist powers sought to maintain their global position.
Post-war transitions I: Europe's shift to oil
This covers the oil boom after WWII, which can be split into:
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"A significant expansion in oil's use as a fuel for electricity production, industry, and in heating;
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A considerable rise in the consumption of petroleum-based liquid transport fuels;
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The development of petrochemicals and other synthetic products, ultimately derived from oil as a basic feedstock." (90-91)
Oil helped usher in the 'Golden Age of Capitalism' of the 1950s-60s because it "made possible new goods and commodity markets, accelerated the speed of production and consumption, and expanded the sphere of circulation. It helped cheapen costs of manufacturing, restructure labour processes, and became the foremost input into most of the essential consumption goods that regulated the value of labour power." (95-96)
In Europe, the US' Marshall Plan specifically forced European countries to transition from coal to oil, which was primarily sourced from South-West Asia. There, US firms' ownership increased to a majority share, including Saudi Arabia-based Aramco coming into US control in 1947.
"For Britain, the implications of this [the US' increasing domination of the global oil industry] went far beyond oil's status as the world's most important energy source and raw material. Control over oil was hugely significant to the strength of the British currency. Although the British Empire was much weakened following the war, sterling continued to account for a large share of world trade and international reserves across an assortment of British colonies, protectorates, and allied settler-colonies. Within this international system, sterling functioned as a kind of quasi-international currency, operating as a means of payment and wealth accumulation. Positioned at the center of this imperial structure, the flow of both goods and currency within the sterling area supported Britain despite a substantial deficit vis-à-vis the rest of the world. In this manner, Britain sought to negotiate a place in the new world hierarchies of post-war capitalism by displacing the costs of decline onto subordinate states through the mechanism of sterling." (103)
Because Britain still held oil in Iran, Kuwait, and Iraq, they could export oil in sterling instead of dollars, keeping their precious dollars that they would need to purchase all sorts of US imports and making sure sterling still had enough exchange value. Britain continued paying royalties to local rulers in sterling. "Britain [went] to extraordinary lengths to ensure that Middle East rulers were serviced by British banks, held their reserves in sterling, and deposited their earnings in London, rather than dollar-based jurisdictions. This link between oil, financial markets, and Britain's colonial domination of the Middle East was all the more important given the success of independence movements in South and Southeast Asia. With independence, and as part of the broader shift towards the US dollar as the dominant international currency, numerous countries began to reduce their sterling reserves and replace these with dollars. To a significant degree, Middle East oil producers formed the final backstop for sterling on the world market—a position that had much to do with Britain's unswerving support for the autocratic monarchs who ruled the Gulf." (104-5)
Postwar independence, anti-colonial, and anti-imperialist movements also meant that oil-rich countries sought to assert some control over their resource. In 1948, Venezuela got foreign oil firms to agree to a 50-50 profit-sharing model. While this was better than before, it didn't challenge the issue of posted prices for crude being very low in the first place, and the US firms were happy to agree to paying 50% taxes to Venezuela because of a new tax law in the US where "any taxes that were paid overseas by oil companies [could] be used as a credit toward taxes owed in the US. […] [T]he overall impact on oil company revenue was neutral—money was simply paid to the Venezuelan government rather than the US Treasury." (108-9) However, countries like Saudi Arabia sought to emulate this model.
Post-war transitions II: anti-colonial revolt and OPEC
Even better than 50-50 was the 75-25 'Mattei Formula' (75% profit to the upstream countries), named after the Italian figure Enrico Mattei who negotiated contracts for Italian state-owned company ENI. In the 1950s-60s, many South-West Asian and African countries signed onto this more advantageous deal. "The 1950s and 1960s were thus a meeting of these two mutually reinforcing trends: the definitive, albeit gradual and limited, erosion of the Seven Sisters' control of upstream oil resources, and the increased share of the oil wealth that accrued to producer governments." (117)
Iran: In 1933, APOC/AIOC (now BP) was given a concession of exclusive rights to Iran's oil for 60 years. But in 1951, Mossadegh nationalised the oil industry, cancelling BP's concession and confiscating its assets. The British were so outraged that they considered military invasion. Instead, the international oil majors simply boycotted Iranian oil and collaborate on transporting oil from nearby countries instead, tanking Iran's oil industry and economy. In 1953, the CIA and the UK state sponsored the Pahlavi coup in Iran. This would be "the first time the US government had deposed a foreign ruler during peacetime […] an important precursor for later US interventions such as the 1954 coup in Guatemala and the overthrow of Chile's Salvador Allende in 1973." (120)
Egypt: "A major factor behind Nasser's regional appeal was his view of oil as 'an inalienable Arab right' that could be used to unify the Arab world against imperialism." (124)
Saudi Arabia: "the racially segregated work camps of Aramco were hit by a huge wave of labour strikes through the 1950s." (126) For more, see Robert Vitalis, America's Kingdom, pp. 177-84.
Bahrain: 1954: Establishment of General Trade Union who "work[ed] closely with communist activists from Iraq and Iran who had sought refuge in the country. With British support, the ruling Al Khalifa monarchy crushed both the HEC [who were anti-British] and GTU in 1956, exiling many of their leaders to the British-controlled island of Saint Helena" (126)
Iraq: 14 July 1958 revolution overthrows pro-British King Faisal II, and there was much desire to nationalise the IPC.
[I also recommend the novel Warda by Sonallah Ibrahim, tr. Hosam Aboul-Ela, where we often see the Dhofar guerrillas clashing with British troops and BP infrastructure in Oman.]
1960: formal founding of OPEC (Organisation of the Petroleum Exporting Countries), spearheaded by Tariki of Saudi Arabia and Pérez Alfonso of Venezuela; "the first global initiative led by governments from the so-called Third World, and predated the founding of the Non-Aligned Movement by a year." (130) However, this period was closely followed by counterrevolutionary events in Saudi Arabia and Iraq, as well as the defeat of the dream of Arab unity following the 1967 Arab-Israeli war.
"[I]t would be a mistake to present OPEC as some kind of leading vanguard of Third Worldism. To a large degree, OPEC was made possible through struggles that came from below—the strikes, protests, radical movements, and revolutions in (and in near proximity to) the main oil-producing states. The demands articulated by these movements were often directed against the rulers of countries where oil was found, notably the monarchies of Saudi Arabia, Iran, and the Gulf sheikhdoms. As the radical edge of the 1950s was blunted and these oil-rich states fell firmly within the orbit of American power, the potential for OPEC to become something other than an instrument for the enrichment of ruling elites disappeared. Instead, oil wealth helped create new social forces whose interests stood decidedly against the vast majority of those living in regions such as the Middle East. In this sense, OPEC's establishment highlights the problem with collapsing the so-called Third World into a simple opposition between colonised and colonising countries." (132-3)
Petrochemicals and the emergence of a synthetic world
Outset of 20th century: chemicals industry dominated by BASF, Bayer, and Hoechst (all German) which come together as IG Farben (IGF) in 1916. The focus was mainly dyes (the production of which was powered by coal). IGF profited greatly during WWI by making poison gas and synthetic nitrates for explosives and fertilisers. In WWII, IGF produced synthetic fuels, artificial rubber, poison gases, explosives, and many other items for the Nazis; IGF was prosecuted at Nuremberg, after which it was split back into its constituent companies who remain active today.
After Germany's defeat in WWI, the US used Trading with the Enemy Act (TWEA) and Alien Property Custodian (APC) to appropriate thousands of German chemical patents (alongside other German assets), which were then redistributed to US companies, helping usher the rise of DuPont, Dow Chemicals, Union Carbide & Carbon Corporation (now part of Dow), and Monsanto. Of course, following WWII, US scientists also appropriated all of IGF's scientific and technological information.
Changes after WWII:
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"An immense increase in the diversity, output, and commercialisation of polymers" including relatively newly-discovered PVC, neoprene synthetic rubber, polyethylene, nylon, Teflon, Plexiglas
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"The emergence of the US as the dominant global chemical power (along with the decline of the German chemical industry)"
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"A shift towards the use of oil rather than coal as the basic feedstock for polymer production." (138-9)
Synthetic rubber was a key focus during WWII because "before 1939, 90% of the world's natural rubber originated from just 3 countries—Ceylon (Sri Lanka), India, and Malaysia" (all British colonies at the time), but access to this was cut off with Japanese occupation of East and Southeast Asia. (142) The US state invested immensely into the production of synthetic rubber from petroleum, which after the war they sold off for extremely cheap to chemicals firms. [Also an important episode here is the Manzanar Guayule Project, where incarcerated Japanese Americans at Manzanar camp sought to produce rubber from the guayule plant to aid in the war effort. I did my Master's dissertation on landscape photography related to Japanese American incarceration and there are so, so many layers to this story, especially when it comes to ideas of usefulness/uselessness of people and land, and how that intersects with the very nationalistic, pro-US dominant narratives surrounding the impact of Executive Order 9066.]
The postwar period also saw the "'transformation of science itself into capital'. In the US, this was expressed through the growing collaboration between the chemical industry and university chemistry departments, as well as the increasing prominence of chemical engineering as a distinct branch of academic research. Chemical engineering itself became organised largely aroudn the notion of unit operations, a kind of theoretical Taylorism that approached chemistry through a small number of generic processes (including separation, crystallisation, distillation) easily transferrable across the development of new synthetic products." (149) There is a bit more on how chemical companies changed, re-prioritised, and consolidated that is super worth getting into in the chapter!
Hanieh also discusses how our world has been completely reconfigured around petrochemicals, which have become so normalised that imagining a world beyond oil requires considering this deep paradox where petrochemicals are ubiquitous yet invisible/taken for granted.
A moment of rupture: myths and consequences of the first oil shock
This discusses the 1973 OPEC crisis [which was so big, I remember it being mentioned in high school econ class]. Not only was this event an economic shock in that oil prices hugely multiplied, it also changed the discourse (in the West) in that "oil was now discussed in terms of 'scarcity' and 'national security'—with voices from across the political spectrum urging for a turn to Western energy autarchy and a break with the dangerous addiction to Middle East crude." (155-6) This chapter showcases that OPEC was not the villain of the 1973 oil shock. In fact, the Western oil firms who controlled downstream production could have chosen—but did not choose—to absorb it. Instead, they passed the price hike onto the consumer.
Over the 1950s-1960s, US oil firms consolidated themselves with mergers and acquisitions, with big firms getting even bigger and being able to dominate the industry on a national level. Offshore oil drilling in the Gulf of Mexico also emerged at this time, and the costs associated with this depended on the price of oil remaining high. What this meant was that, when 1973 was on the horizon, US oil firms were doing so well on a domestic level that they were well-positioned to deal with crisis.
However, Soviet oil was also doing very well, and posed a threat to Western oil domination internationally, as Seven Sisters companies couldn't collaborate to control the production of oil (and thus the price of oil) as tightly as they could before. Big oil firms did not have the same kind of power that they had when, in the 1950s, they successfully completely boycotted Iranian oil. "Soviet oil exports were directly consequential to the rise of oil nationalism, the establishment of OPEC, and the upsurge of national liberation movements that reached their peak across much of the so-called Third World in the 1960s and 1970s. For the Soviet Union itself, the hard-currency income earned through oil came to underwrite the country's development trajectories—not least in enabling the ruling bureaucracy to mollify internal tensions and address domestic shortages through imports of grain, technology, and consumer goods." (165)
"For the Soviet Union, oil exports were a lifeline in a hostile global political and economic environment. OPEC producers also sought to maximise the quantity of oil extracted and exported, because royalty payments were based on the volume of oil produced." (166) This meant that there was a huge problem with the overproduction of oil—something that Seven Sisters firms had always tried to keep a check on.
There was also a lot of other stuff going on, but I think this bit on the dollar is really useful, and is worth copying out at length: "Since the establishment of the Bretton Woods monetary system in 1944, global finance had been structured around the pegging of other international currencies to the dollar, which was then convertible to gold at the price of $US35/ounce […]. With the dollar serving as the central currency for international transactions, the US supplied dollars to the rest of the world, and other currencies were adjusted in value through an exchange-rate system overseen by the International Monetary Fund (IMF). This gave the US an 'exorbitant privilege' […], because it could create dollars for a few cents while other countries were forced to exchange real goods and services for the US currency. By the early 1970s, however, the large quantities of US dollars held by private and central banks outside the US made it increasingly difficult for the US to maintain a fixed value of its currency in terms of gold. Through 1970, several European countries had demanded redemption of the US dollar holdings for gold—and with vastly more US dollars in circulation outside the US than could be covered by US gold reserves, […] Nixon took the dramatic decision on 15 August 1971 to suspend (with certain exceptions) the convertibility of the dollar into gold.
"For major oil exporting countries, Nixon's decision had immediate and severe ramifications. With the US dollar no longer pegged at a fixed value to gold, its value dropped significantly in 1971 and 1972. Crucially, however, most oil sales were priced in dollars, which meant that the reserve holdings of oil producers depreciated in step with the weakening of the US dollar. At the same time, import costs were also growing for OPEC states because a large proportion of goods they consumed came from countries whose currencies were now more expensive in relation to the dollar (such as Germany, France, and Japan). In the face of these deteriorating financial conditions, OPEC negotiated several increases in the posted price in the first half of 1973. At the same time, the leading oil-producing states continued to take greater control over the production of crude itself—whether through outright nationalisation (Algeria, Iran, Iraq, and Libya), or through participation agreements, which gave producer governments a share of the oil produced, which was then sold back to the [international] oil majors [that had extracted the oil] at a discount rate (Saudi Arabia and the smaller Gulf producers).
"The steps taken by OPEC […] served to challenge a long-standing assumption that had underpinned international oil pricing since the early years of the 20th century: the prerogative of the largest oil majors to control the price of oil at the point of extraction." (169-71)
When some Arab members of OPEC decided to dramatically increase the posted price, 'triggering' the oil crisis, it's important to remember that the posted price is the price of upstream crude oil, not the actual price of the oil after it's been refined and ready for consumption—ie. the posted price is the artificially low, 'fake' price that oil companies were deciding together, in order to have to pay less taxes to the country where they got that crude. OPEC increasing the posted price meant that OPEC countries could get more revenue from their own oil, instead of having all of that wealth/value be completely transported out of their country by the international oil firms. Paying these taxes also didn't affect US companies, since taxes they paid to foreign states were discounted off of the taxes they paid domestically. Because of these different intricacies, including the details around concessions and participation agreements, instead of suffering, "the profit per barrel for foreign oil companies operating in the Middle East tripled during 1973 as a result of OPEC's actions." (173)
Also, although 6 of the Arab OPEC countries announced an embargo on giving oil to US and the Netherlands as long as Israel continued occupying Arab land, this was not a full OPEC embargo but a very limited one, that didn't necessarily have much of an effect (especially because it was difficult to enforce). Not only did oil companies actually profit during the OPEC crisis (which meant there was a lot of capital they could invest in offshore explorations), and not only did Arab oil continue to be very much available, there was in any case plenty of other sources of oil available as well.
Again, though, what changed was the discourse. Western nations, concerned that they were vulnerable to being 'threatened' by the 'mean' Arabs, greenlit pipeline and offshore projects—which these oil companies suddenly had the money to finance, thanks to OPEC—such as BP's Trans-Alaska Pipeline (TAP), despite strong opposition from Indigenous groups and environmental concerns. The technological advancements in oil extraction facilitated by the 'crisis' would go on to fundamentally transform the oil industry.
"In the US, the American Petroleum Institute (API) embarked on a campaign that framed the crisis as a problem of too much government regulation, which kept prices artificially low and discouraged drilling and the establishment of new refineries. In this context, the OPEC bogey—and the related notion of oil scarcity—provided a convenient scapegoat for skyrocketing prices and partial shortages, as well as confirmation of what might happen if the industry continued to be shackled by government bureaucrats. This message was at one with the early advocates of deregulation, monetarism, and fiscal austerity […] who all cut their teeth on arguments around US oil in the early 1970s. […] The reform of the oil industry, in this sense, stood as synecdoche for what would later be described as the 'neoliberal revolution.'" (176-7) Yaaayyyy.....
US power, oil, and global finance
This chapter is about the petrodollar. Saudi Arabia had fully nationalised Aramco by 1980, and with general nationalisation efforts and high profits in the oil industry, a lot of oil-rich states became monetarily very rich after the 1970s. Their wealth came from the extraction of their own resources done by Western firms, which paid them royalties in dollars. What could these small countries do with their now enormous, unbelievable reserves of dollars? "Decisions about petrodollar recycling—where to invest OPEC's surpluses, who would control them, and in what currencies they would be held—drove a complex rerouting of capital flow through the 1970s." (181)
Honestly, it's going to be really hard to make notes from this chapter without just fully copying out entire pages. I think this chapter is particularly important in terms of helping us understand our contemporary situation. Essentially, the petrodollar was the key lubricant for the strong, mutually reinforcing relationship between the US and Gulf states. Gulf states spent a lot of their dollars on buying imports from the US, which meant the US actually got their money back and stimulated their stagflated economies, while US and Israeli power in the South-West Asia region helped legitimise, finance, and generally support regimes in Saudi and Iran (who felt constantly threatened by radical and left-wing groups in the region, which despised these leaders).
Key to this was the sale of US arms to Saudi and Iran—and with the purchase of military hardware also came the introduction of personnel who could help maintain and operate these defense systems for these countries, i.e. the arrival of the US military apparatus as a permanent presence in the region.
Also, Saudi Arabia became a key buyer of US national debt. After a 1974 presidential visit, "the US negotiated a secret arrangement that would see Saudi Arabia deposit billions of dollars in US Treasury bonds outside the normal auction for such securities. By the end of 1977, Saudi Arabia would hold a fifth of all Treasury notes and bonds owned by central banks outside the US. […] In this manner, Saudi financial surpluses played a central part in fortifying US dollar hegemony following the end of dollar-gold convertibility in 1971. At the same time, the status of the US dollar as the main international reserve currency was also directly connected to the denomination of oil itself in dollars." (185) The dollar was diminishing in power and other OPEC members were looking to diversify their currencies, but then somehow, Saudi Arabia got all OPEC members to commit to dollar-only trading by 1975, which cemented the US dollar's hegemony—and therefore the US as a country—on the global stage.
"It is important to emphasise once again that this was not at all a one-way external imposition of US interests on countries in the region. The Gulf monarchies represented a thin layer of extreme wealth in a region of deprivation, and it was precisely the fragility of this class within the wider political tumult of the Middle East—vividly demonstrated in Iran in 1979—that made the relationship with the US so essential to its survival. By attaching themselves to US power, the Gulf monarchies sought to secure their own interests within an American-centred political and financial order. They gained a stake in this system, and in the process, helped to produce US power itself." (187)
The next bit of the chapter talks about the Euromarket / Eurodollars, where the UK — specifically the City of London, as well as the UK’s network of offshore zones like the Cayman Islands — becomes a financial hub where any company or country could trade in currencies that weren’t their own, specifically dollars. This space had very little regulation or oversight, and it facilitated the rise of multinational corporations as well as lent a lot of money to poorer, non-oil-producing Third World countries who needed dollars to import oil. For this latter bit, it’s important to note that, beforehand, states or the IMF lent to other states, at generous interest rates—but now, Western banks could lend to these poor countries at commercial rates.
“By siphoning off capital from around the world and redirecting it into US financial markets, institutions, and dollar-denominated assets, Britain both benefited from—and helped to shape—the nature of US financial power.” (191)
In 1980, Volcker of the US Federal Reserve hiked US interest rates to over 20% (the Volcker Shock). This completely devastated Third World countries because they could not pay their massive Euromarket dollar debts, and greatly contributed to the extremely predatory financial cycle many of these countries continue to find themselves in today. “Pushed to the brink of insolvency—and concurrently reeling from the impact of the second oil shock—heavily indebted countries sought to renegotiate their debt schedules with these commercial lenders. But to reach an agreement on rescheduling, debtors had to consent to implementing a set of economic policies that were developed and monitored by the IMF and World Bank. These included measures such as trade liberalisation, privatisation, opening up to foreign capital flows, cutbacks to social spending, labour market deregulation, and so forth—all of which would become the staple requirements of the so-called structural adjustment programmes later imposed by the World Bank and IMF on debtor countries. Debt was thus the weapon used to compel poorer countries to open their industrial, financial, and commercial sectors to international capital. The sustained attack on global wages and social conditions launched at this time would profoundly alter the relative power of capital and labour, laying the ground for the later expansion and reorganisation of the world market through the 1990s and 2000s.” (192)
The Volcker shock also triggered a huge global recession. With demand for oil falling even more dramatically than during COVID, there was way too much supply, and the price of oil fell dramatically. Both OPEC and the Seven Sisters firms lost control over the production and price of oil as new actors and markets also emerged internationally in this time. Because of this, the late 1980s saw a change in how oil was priced. Starting in 1988, “the reference price of oil would be linked to the price of futures contracts—a kind of financial derivative—traded on two main financial markets, the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE). Tied in this way to the trade of so-called paper barrels, oil was transformed into a financial asset that could be bought and sold regardless of physical consumption. In subsequent decades, this would open up oil as a prime target for speculative capital flows—a feature of the markets that continues through to the current day." (196) I guess this is whatever it is the characters are doing all day on Industry.
Oil and capital in post-Soviet Russia
The 1980s recession and dramatic fall in oil prices strongly affected the USSR, which had depended on oil exports to balance out its budget and finance imports that could maintain quality of life for Soviet citizens. The USSR was also struggling to maintain a high production of oil due to depletion in their oilfields and the high capital investment that was required to open up new sources of oil extraction within the USSR—capital that they did not have.
The combined complex financial situation contributed to the collapse of the USSR in 1991. But Gorbachev's Perestroika reforms starting in 1987 allowed people who held power within the state apparatus to start accumulating capital already. In this chapter, Hanieh shows how the 1990s saw a 'clearance sale' where the Soviet national oil industry became privatised, with power and wealth becoming concentrated in the hands of a group of individuals who were former state actors, who became oligarchs.
Hanieh also mentions contemporary Russian oil firm Rosneft, which is part state-owned. Like other NOCs (national oil companies) in Africa, Asia, and South-West Asia, Rosneft is a case study of state companies embracing private capital, instead of these two things being in opposition.
A sorority reborn: the Western supermajors, 1990-2005
Hello, Thatcher. But first, in 1975, the Labour Party decides to part-privatise BP and sell 17% of it on the London Stock Exchange, reducing UK government ownership to 51%. Hanieh says that this episode is underlooked in history but represents a "watershed moment" that "paved the way for the radical embrace of privatisation" of the Thatcher era. (230) By 1987, Thatcher fully sells off BP amongst other dramatic privatisations—and many Western countries follow suit in the next decade+. "By the early 2000s, almost every large Western oil firm that had been fully or partially owned by the state would have been transferred to private hands, creating companies that are now among the largest in the world." (232)
These sales took place on the stock market instead of directly, which allowed these companies to raise equity that could fund expansion and exploration. The story of the 1990s privatisation of oil is also the story of the emergence of stock markets and 'financialisation' as the main thing going on economically. "One indication of financialisation was a change in the way that firms typically funded themselves—coming to rely more on the issuance of equity and debt securities on stock markets rather than traditional bank borrowing. Corporate behaviour and management priorities also began to shift, with business calculus moving towards the short-term maximisation of stock price and 'shareholder value' rather than longer-term business strategies. All these dynamics impacted internal firm organisation and management goals, as well as the wider vulnerability to crisis in capitalist economies." (237)
Ways that oil companies maintained shareholder value: buying back their own shares; job redundancies and outsourcing; decentralisation of internal affairs so that departments were now competing against each other; and huge mergers and acquisitions like ExxonMobil.
The 1990s also saw oil companies diversifying into natural gas, as well as other energy sources so that they could rebrand themselves as 'energy companies'. This will pave the way for greenwashing, especially as the 90s-00s is when popular understanding of climate change starts to really emerge. Of course, any rebranding is completely fake.
Western firms start drilling in West and Central African countries, including in the Niger Delta, and this is cheap because they can destroy the environment and local governments, who are in cahoots with these firms, repress any dissent or resistance.
NOCs and the new East-East hydrocarbon axis
This extends the point mentioned earlier, where NOCs (national oil companies) in Saudi Arabia, Russia, China, and Brazil are presenting a huge challenge to big Western oil firms today. There is an erroneous view that this is akin to Western 'democracy', capital, and free market vs. more autocratic states' state power, but this is of course wrong. However, when states run their countries' oil industries, this does mean that the state is trying to use the oil revenue to fund its national budget, which is different from a pure company generating profit for profit's sake: "in this sense, the break-even price of oil for these states is much higher and fluctuates according to levels of government spending." (255)
Also, fracking is now a thing. Fracking is when crude oil and gas extracted from shale or sandstone using pressurised liquid. It is expensive and devastating to the environment, but this practice was hugely expanded within the US in the 00s-10s in order to maintain US domestic sources of upstream oil.
"There has also been a signifiant change in ownership structures of the leading supermajors. The three biggest US oil companies by market capitalisation—ExxonMobil, Chevron, and ConocoPhillips—have between 60-80% of their share ownership controlled by various forms of financial capital (such as investment banks, asset management firms, and private equity funds). Playing a prominent role are the world's Big Three asset management firms—Vanguard, BlackRock, and State Street—which occupy the top three shareholder positions for around a third of the largest publicly listed oil and gas firms in the US. The strong presence of these and other financial conglomerates indicates that when we consider who profits from the Western oil industry, it is not enough to focus simply on oil companies themselves. While the supermajors drive much of the physical extraction of crude oil in North America, the dynamics of oil prodution are ultimately tied to the imperatives of large financial groups that act simultaneously in both financial markets and the day-to-day real world of energy production." (257-8)
With the rise of China 🇨🇳🇨🇳🇨🇳🇨🇳🇨🇳🇨🇳, China has seen a huge increase in demand for oil. Despite the fact that China has oil reserves, it also needs to import oil. "By 2022, more than 45% of all the world's oil exports were flowing to Asia—with more than half destined for China alone." (261) Most of this oil comes from Southwest Asia, thus the 'east-east' flow. These eastern countries and NOCs also have their own refineries, and upstream countries are acquiring downstream companies and vice versa, so there is increasingly a whole integrated oil industry that has nothing to do with Western firms. As countries like Saudi Arabia and China deepen their political ties, this echoes the increasing business connections taking place cross-regionally. Chinese firms have strong presence in the Gulf's oil sector, and there are also a lot of joint ventures taking place overall. [Here I also recommend Siddharth Kara's Cobalt Red, mentioned at the top of these notes, for the ways in which he elucidates, through first-hand observations and experience, the strong presence of Chinese firms in the upstream cobalt and copper industries. Kara showcases how, in recent decades, unlike Western firms which seemed to operate more at arms length and more passively, Chinese firms were quick to identify the value in engaging properly in business with the DRC through mining contracts and establishing strong physical presence on the ground. The cobalt and copper mined in the DRC by child labour is easily transported east-east by vertically integrated firms to make iPhones and EVs that are then sold by consumer-facing companies that claim to only source their minerals from 'clean' processes—which is actually impossible to enforce.]
With Sinopec, Aramco, etc, "[t]here is no contradiction between the state control of hydrocarbons and the growth of private capital; rather, it is through their partnership with state-run NOCs that domestic business conglomerates across Asia and the Middle East have been able to expand and enter sectors such as refining, petrochemicals, and plastics." (265-6)
This new situation means that the US dollar's future, tied as it is to its relationship to oil prices, is once again uncertain. "In 2012, the Shanghai International Exchange (INE) announced a plan to develop an oil futures contract intended to serve as an oil price benchmark for the Asia-Pacific region. Crucially, this contract would be denominated in RMB, marking the first time since sterling oil [£] that the commodity would be internationally traded in a currency other than the US dollar." (270) This was launched in 2018 and although it has made an impact, the US dollar continues to be the standard.
"With Gulf NOCs and other firms increasingly located inside Asian production networks—and not simply as suppliers of crude—we need to rethink how we approach the geographies of the global fossil fuels industry. It is not enough to focus solely on reducing the direct consumption of fossil fuels or carbon emissions in traditional Western centres. Global commodity production—including much of what actually ends up being consumed in North America and Western Europe—is grounded in an axis of fossil capitalism running between the oil fields, refineries, and factories of the Middle East and Asia. The deep connections established across this axis are a significant component of capital accumulation in both regions and help support the power of state and private business elites." (274)
Confronting the climate emergency
This chapter is a great explainer on why all the greenwashing taking place right now is actually fake. I'm slightly less interested in this bit—for me what I really got out of the book as a whole is all the history stuff we've seen.
Basically: Net zero / carbon removal is a myth. A lot of the alternatives are also mythic because they either still rely on fossil fuel production or engender environmental disaster in other ways. Oil ('energy') companies are evil and lying to us. But NOCs also, and just any entity that says they're cutting carbon emissions. Also, as a world we need to seriously reckon with our dependence on plastic. Ecosocialism now!
--The end--
I hope these notes have been useful for people. It certainly was helpful for me to revisit this book around a month after finishing it, and being able to digest the information a bit better. I honestly do think that reading this and watching Industry is a great double-whammy experience to educate you on what's going on but also make you feel completely crazy about the world we live in. I recommend doing that too. I'd love to know people's thoughts on the notes, this book, other similar books, any recommendations (my friend EG keeps saying I need to read Carbon Democracy), thoughts, feelings, connections? Minerals, resources, logistics, heavy industry, extraction, infrastructure, materiality.
xx J