Oil and oil prices — they are on the minds of everyone.
When the price of oil plummets, it’s a relief for beleaguered workers around the world. With wages falling or jobs gone, and services and education cut, paying 30 or 40 percent less for gas and heating fuel is huge. But the decrease is temporary, due to a supply glut.
Meanwhile, countries who provide oil and countries who need it clash in a global brawl whose risks include war, occupation, and economic ruin. This apparent free-for-all can seem mystifying, but there are basic facts and truths that can be understood.
Oil — tool of tyranny. Rare resources have built capitalist power since Spain first raped South America for its gold.
Oil, a material that nature created over billions of years, is the gold of our time. England, France and the U.S. controlled the resource for the first half of the 20th century. Their companies owned production facilities and reserves in the Middle East, site of the largest deposits of cheap and easily accessible oil.
In the 1950s, however, a few oil-producing nations began to push back. This provoked a long trail of skullduggery and destruction by imperialist countries in service of their need to maintain control, utilizing coup d’états, blockades, sanctions, and direct invasion.
Examples include the assassination of Prime Minister Mosaddegh in Iran, which installed the Shah; the invasion of Egypt to take back the Suez Canal; support of Saddam Hussein and then his ouster; multiple Gulf wars; and today’s manipulation of the oil commodity market to punish foes.
The imperialist message is clear: step out of line and we will do whatever is necessary to bring you back into the fold — or we will even end you.
Capitalism is by definition chaotic, but it does prefer stability if it can get it. For this reason, OPEC (the Organization of Petroleum Exporting Countries) was established in the 1960s. Member countries in the Middle East, Africa, South America and Asia act as a cartel that coordinates production with the aim of controlling the price on the world market.
But in the last decade, Russia re-emerged as a global supplier. Canada and the U.S. have become regional producers in the profitable North American market. None are OPEC members, and they operate outside of its production and price-setting controls. The net effect has been to disturb the always tenuous global equilibrium.
The new players have entered largely because new, expensive technologies have allowed them to exploit unconventional sources such as shale oil, reached by hydraulic fracturing (fracking), and tar sands oil. With strong global demand, the price has been high, justifying the high investment required.
Shifting consumption ignites competition. For decades, North America (mainly the United States) led the way in consumption of petroleum products, with Europe coming in a distant second. Now Asian economies, with China as the primary driver, consume over one third of the world’s oil, and their portion is growing every year.
Russia, Venezuela, Iran and even countries in Africa with more limited production have capitalized on the shift, striking major deals to supply Asian countries. This has boosted their economies and made them able to operate more independently on the world stage. This irks the United States, with its goal of remaining the only superpower.
Consumption of oil in the United States, although still the highest in the world, is actually declining. Now it represents “only” 20 percent of global use, because of modest conservation efforts, increases in fuel efficiency, and a shift toward natural gas. The U.S. surge in domestic production, largely due to fracking, has allowed it to import less, reducing its importance as a market.
Dark side of export dependence. Eighty-five percent of the world’s known oil reserves are in 10 countries, with Venezuela, Saudi Arabia and Canada occupying the top three positions. But dependence on oil is a risky game, lucrative when demand is high, devastating when the market turns down.
In the current crisis, the United States has used this dependence to twist the knife. Its long-standing partner, the ultra-right-wing Saudi monarchy, has engineered continued high production despite the current glut. This move damages Russia and Venezuela in particular, keeping them in their place. While this game of chicken hurts smaller U.S. producers as well, the large companies will absorb the temporary blows and weather the storm just fine.
Russia has edged out Saudi Arabia as the leading world producer, even though it only has a third of the reserves. Oil and gas make up 70 percent of its exports, and royalties fund 52 percent of the federal budget. The drop in oil prices spells economic disaster. Together with sanctions imposed by the United States and Europe in the dispute over the Ukraine, the low price of oil has caused the ruble to crash.
The cost of producing oil is high in Russia, and the same is true in Venezuela and Canada. The collapse of oil prices has also wreaked havoc in Venezuela, where oil accounts for 95 percent of exports and drives 50 percent of the federal budget. In Canada, where oil is 40 percent of exports, the fall in prices has fueled a C$2.3 billion budget deficit.
Environment takes a hit. Extraction of fossil fuels from the ground has never been environmentally sane, and in the hands of capitalists it never can be. It has caused vast damage to the environment and driven disastrous climate change. And new methods today are causing grave new problems.
Fracking involves high-pressure blasting of a toxic brew to free up oil for extraction. It uses massive amounts of water, poisons ground water, and even causes earthquakes.
The methods of extracting and converting tar sands oil are the most environmentally devastating. They turn areas into scenes that look like apocalyptic wastelands and they generate three times the carbon dioxide as conventional oil production. Canada’s primary reserves are in oil sands in the province of Alberta.
Nationalize energy under workers’ control! There’s been strong opposition to pipelines, oil and coal trains, hydraulic fracturing, and tar sands. People concerned for the health of people and the planet have to keep it up — a decisive move away from reliance on fossil fuels is absolutely necessary.
At the same time, however, people remain reliant on gas for their cars to get to work and oil to heat their home; price controls are also needed. The nationalization of all energy processes under the control of workers could be a route to winning both price relief and relief for the planet.
With real control, working people in countries around the world could fight for energy cooperation instead of deadly competition. Oil is a global problem, and a real solution will be no less international.
Send feedback to Dennis Sanders at email@example.com.
To listen to this and other articles from this issue, click here.