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     Oct 24, 2008
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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 

Continued 1 2  


Big Oil's 'secret' out of Iraq's closet
(Jul 4,'08)

Big Oil in, stability out under new Iraqi law (Feb 27,'07)


1.
US government throws oil on fire

2. Gliding towards nuclear war

3. Dark clouds over Sr Lanka's final push

4. Elusive consensus on Iran

5. A little thing called inflation

6. Pay-up time for Lehman swaps

7. Lessons from the war in Georgia

(24 hours to 11:59pm ET, Oct 22, 2008)

 
 


 

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