Page 1 of 2 Big Oil, the big survivor
By Antonia Juhasz
This year began with three landmark events. Oil reached US$100 per barrel for
only the second time in history as gasoline prices began an ascent toward the
highest prices in a generation. And on January 3, Democratic Senator Barack
Obama became the first African American to win the Iowa caucus.
In his historic victory speech, Obama chose to highlight just a handful of
policy issues in the 15-minute address, making his focus on oil all the more
significant. Obama forcefully declared that he would free the United States
once and for all from "the tyranny of oil" and then pledged to be the president
"who ends the war in Iraq and finally brings our troops home". An already
raucous crowd met these pronouncements with thunderous
applause and waves of cheers.
"The tyranny of oil" powerfully encapsulates the feelings not only of
Americans, but of people the world over. Without viable and accessible
alternatives, entire economies suffer when increasing proportions of national
budgets must be used to purchase oil. And on an individual level, families,
facing the same lack of alternatives, forgo basic necessities when gasoline
prices skyrocket. Communities that live where oil is found - from Ecuador to
Nigeria to Iraq - experience the tyranny of daily human rights abuses,
violence, and war. The tyranny of environmental pollution, public health risks
and climate destruction is created at every stage of oil use, from exploration
to production, from transport to refining, from consumption to disposal. And
the political tyranny exercised by the masters of the oil industry corrupts
democracy and destroys our ability to choose how much we will sacrifice in
oil's name.
Standard Oil, 'Seven Sisters'
The masters of the oil industry, the companies known as "Big Oil", exercise
their influence throughout this chain of events: through rapidly and
ever-increasing oil and gasoline prices, a lack of viable alternatives, the
erosion of democracy, environmental destruction, global warming, violence, and
war.
The American public is fed up with Big Oil. In 2006, Gallup published its
annual rating of public perceptions of US industry. The oil industry is always
a poor performer, but this time it came in dead last - earning the lowest
rating for any industry in the history of the poll.
As the 2008 election progressed, both Obama and his leading Democratic
challenger Senator Hillary Clinton went increasingly on the attack against Big
Oil, and each was eventually called a "Populist candidate", their words
sounding an alarm similar to one made over 100 years earlier by the Populist
movement against corporate trusts generally and Standard Oil in particular, the
company from which many of today's oil giants descend.
John D Rockefeller founded the Standard Oil Company in 1870. By the 1880s,
Standard Oil controlled 90% of all refining in the United States, 80% of the
marketing of oil products, a quarter of the country's total crude output, and,
in this pre-automobile era, produced more than a quarter of the world's total
supply of kerosene. Standard Oil was renowned for both the ruthlessness and the
illegality of its business methods. Dozens of court cases were brought against
the company, and Standard Oil was broken up by three separate state-level
injunctions.
In 1911, the federal government used the Sherman Antitrust Act to break up
Standard Oil into 34 separate companies. Standard Oil would not regain its
singular dominance and consolidation of the industry, or the political control
it held at the height of its power in the late 1800s.
The 1911 breakup largely failed over the course of the next decade, however,
due to the absence of effective government oversight. Primarily to address
these failings, new antitrust laws and, most importantly, a new government
agency - the Federal Trade Commission (FTC) - were later introduced to tighten
the government's control over antitrust violations by US corporations. The FTC
remains the most important government agency in charge of regulating corporate
consolidation and collusion.
Still, while the nation's antitrust laws were fairly well applied to domestic
oil operations, the largest oil companies functioned in the international arena
as a cartel. From approximately World War I to 1970, the three largest
post-breakup companies, Standard Oil of New Jersey (Exxon), Standard Oil of New
York (Mobil), and Standard Oil of California (Chevron), joined with Gulf,
Texaco, BP, and Shell to form a cartel, earning them the nickname the "Seven
Sisters". These seven companies owned the vast majority of the world's oil and
controlled the economic fate of entire nations.
Over the decades, many strategies to rein in the power of the Seven Sisters
were proposed, debated, and even attempted in the United States. These included
reducing the flow of oil the companies could bring into the United States,
state-owned refineries, a national oil company, and massive antitrust action
against the oil companies. Some of these efforts were successful, but most were
not.
It was the oil-rich nations operating as their own cartel, the Organization of
Petroleum Exporting Countries (OPEC), which ultimately brought down the
corporate cartel. By the mid-1980s, the OPEC governments had taken back full
ownership of their oil. The Seven Sisters, which in 1973 earned two-thirds of
their profits abroad, turned their attention back to the US market that they
had largely abdicated to the smaller "independent" oil companies. Big Oil's new
mantra was "Merge or die", as the companies first bought up the independents
and then each other.
Since 1991, government regulators, under the direct and heavy influence of the
nation's largest oil companies and their lawyers, have allowed more than 2,600
mergers to take place in the US oil industry. The mergers have resulted in the
near demise of the independent oil company, refiner, and gas station in the
United States.
The mergers of the mega-giant oil companies have all taken place since 1999 and
remain the largest mergers in corporate history. Exxon merged with Mobil,
Chevron with Texaco, Conoco with Phillips, and BP with Amoco and then Arco to
create the largest corporations the world has ever seen. Shell also
participated in the merger wave by purchasing several "baby-Standard" oil
companies.
While nowhere near its Seven Sisters "glory years", Big Oil's oil reserves are
impressive nonetheless. Were the five largest oil companies operating in the
United States one country instead of five corporations, their combined crude
oil holdings would today rank within the top 10 of the world's largest oil-rich
nations. ExxonMobil, Chevron, ConocoPhillips, Shell, and BP exercise their
control over the price of oil today through these individual holdings and
through participation in the crude oil futures market. The futures market has
replaced OPEC as the principal determinant of the price of crude oil. It is
largely unregulated and prone to excessive speculation and manipulation.
The mergers also allowed the oil companies to take control of the refining and
selling of gasoline in the United States in the style of Standard Oil. They
have forged a mass consolidation of these sectors, yielding rapid increases in
the price of gasoline and oil company profits.
Most profitable industry
Riding on high oil and gasoline prices, the oil industry is far and away the
most profitable industry in the world. Six of the 10 largest corporations in
the world are oil companies. They are, in order, ExxonMobil, Royal Dutch Shell
(Shell), BP, Chevron, ConocoPhillips, and Total. (The others are Wal-Mart,
General Motors, Toyota Motor, and Daimler-Chrysler.) According to Fortune's
2007 Global 500 listing, the 10 largest global oil companies took in over
US$167 billion in profits in 2006 alone - nearly $50 billion more than the top
10 companies in the second most profitable industry, commercial and savings
banks.
The largest publicly traded oil companies operating in the United States and
those with the greatest influence on US policy-making are ExxonMobil, Shell,
BP, Chevron, Conoco-Phillips, Valero, and Marathon. Each is either a direct
descendant or has purchased direct descendants of Standard Oil. They are among
the most powerful corporations in the world. These companies are Big Oil.
Big Oil is experiencing a level of power that has only one historical
precedent: that of the Standard Oil era. And like Standard Oil, the companies
appear willing to do anything to maintain their position. With over $40 billion
in pure profit in 2007, ExxonMobil is the most profitable corporation both in
the world and in world history. Its profits are larger than the entire
economies of 93 of the world's nations ranked by GDP. ExxonMobil had the most
profitable year of any corporation ever in 2003 and then proceeded to surpass
its own record every year for the next five years.
Wal-Mart edged out ExxonMobil as the world's largest corporation in 2007 by
just barely surpassing its sales - $379 billion compared with ExxonMobil's $373
billion. Wal-Mart's $12.7 billion in profits, however, were a mere one-third of
ExxonMobil's. In fact, ExxonMobil's profi ts were more than twice those of the
next three US companies on the Fortune 500 list combined: Chevron with $18.7
billion; General Motors, which lost $38.7 billion; and ConocoPhillips with
$11.9 billion. Similarly, in 2006 ExxonMobil's profits were nearly twice those
of the next two US companies combined: United Airlines with $23 billion and
Citigroup with $21 billion.
ExxonMobil is not alone. Each major American oil company - ExxonMobil, Chevron,
ConocoPhillips, Valero, and Marathon - has surpassed its own record-breaking
profits in almost every year for the last five years. Combined, they earned
more than $80 billion in 2007 profits. There is simply no comparison with any
other industry in the United States.
What does $133 billion in profits buy an industry? It bought the oil industry
at least eight years of a US "oiligarchy": a government ruled by a small number
of oil interests. The oil industry spent more money to get the George W Bush
administration into office in 2000 than it has spent on any election before or
since. In return it received, for the first time in American history, a
president, vice president, and secretary of state who are all former oil
company officials.
In fact, in 2000 both George W Bush and Secretary of State Condoleezza Rice had
more experience running oil companies than they did working for the government.
Every agency and every level of bureaucracy was filled with former oil industry
lobbyists, lawyers, staff, board members, and executives, or those on their way
to work for the oil industry after a brief stint of government service. The oil
industry got what it paid for: an administration that has arguably gone further
than just about any other in American history to serve Big Oil's interests
through deregulation, lax enforcement, new access to America's public lands and
oceans, subsidies, tax breaks, and even war.
Democrats failed to deliver
Americans tried to change course in 2006 by replacing the Republican Congress
with a Democratic-controlled House and
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