Environmental Engineering Reference
In-Depth Information
if petrol prices soar. But lack of any easy substitute for petrol, diesel or
jet kerosene means that the demand for these crude oil-based fuels alters
relatively little if the price changes. This is why European governments
can get away with putting such high taxes on petrol: our mobility is
simply too important to us to be radically affected by oil's price. Imagine
what would happen if governments were to add a comparable tax of up
to eighty percent on the price of a foodstuff. People would rapidly change
their diet and switch to other foods.
At all events, there has been a tradition, for almost the entire 150-year
life history of the oil industry, of maintaining price by regulating produc-
tion. Ironically, considering the fact that US governments have often led
the complaints about oil cartels, this tradition of oil cartels started with
the Texas Railroad Commission and its equivalent body in Oklahoma:
they imposed production quotas on oil producers to prevent them under-
mining their own livelihoods by pumping too much oil and driving the
price of their product to rock-bottom. Internationally, this market regula-
tion role was taken over by the multinational oil companies, the famous
Seven Sisters, some of whom survive in today's oil big boys - ExxonMobil,
Shell, BP and Chevron.
Until the early 1970s these multinational companies dominated the oil
market (see p.151). They agreed on prices known as posted prices, which
were set to determine the income, or royalties, that the governments of
oil-producing nations would receive. These posted prices did not respond
to forces of supply and demand, because they did not have to. Oil trading,
such as it was, was really a form of inter-company exchange between the
Seven Sisters. Then, in the early 1970s, came the revolt of OPEC.
OPEC's rise
More than a decade after it was formed in 1960, the OPEC countries
decided to take advantage of the fact that a tight oil market was giving
them increased pricing power. The fourth Arab-Israeli war (also known
as the Yom Kippur war) broke out in 1973, which exacerbated tensions
between Middle East oil producers and the West in general - and the
US in particular. OPEC's share of world oil production had risen to 52
percent.
Taking the initiative on posted prices for the first time, the six Gulf
members of OPEC unilaterally announced successive rises in the posted
