February
17 , 2006
No Relief in
Sight from Pain at the Petrol Pump
Major oil companies, ExxonMobil
and Chevron, have announced unprecedented high profits
for the year 2005 – the second year running.
The former declared a profit of $36 billion while
the latter, that is Chevron, announced almost simultaneously
a profit of $27.4 billion.
The enormity of these profits may be judged from
the fact that had ExxonMobile been a country, its
income would have excelled almost 90 countries of
the world. And, Chevron’s income has been
computed as the highest in its history of 126 years.
The book value of ExxonMobile, $400 billion, makes
it the wealthiest corporation of the world.
There is, however, no relief to the consumer at
the petrol pump. He continues to bear the pain of
high gas prices.
The incongruity of the situation raises naturally
many questions. The intricacies of the oil industry
may be beyond the comprehension of the common consumer.
But he knows the difference between legitimate profit
and price gouging. Even a dog knows whether he is
stumbled over or kicked.
Yes, market economy runs on the basis of profit
as the motive; and market forces smooth out any
wrinkles that develop in the smooth operation of
any sector, mainly through the formula of supply
and demand and free competition. Such a distortion
could develop only when the market forces have somehow
been thwarted.
Let us see what Tyson Slocum, an expert on the subject
and the Director of Public Citizen’s Energy
Program who is reported to have testified before
the US Senate only a few days back, has to say on
this: “Oil prices are definitely artificially
high in large part because of anti-competitive practices
by major oil companies. We’ve documented it,
government investigations have documented it”.
Mergers in the oil industry have thus induced the
price gouging. Over the past decade and a half,
it is reported, there have been 2,600 mergers in
the oil industry!
Slocum reported that the Federal Trade Commission,
after a thorough study of gasoline markets in 2001,
had declared that the oil companies could intentionally
withhold supplies from the market place to create
some scarcity and push prices up.
That is exactly what has happened.
The Bush administration is big business friendly.
Both the President and the Vice President have come
from the oil sector. But, the oil conglomerates
have been the chief manipulators of the situation.
The administration had to, a year back, face the
electorate for a second term. It is caught in the
quagmire of Iraq. Problems continue in dealing with
Al Qaeda, in eliminating the Taliban and in making
Iran give up its nuclear ambitions.
The oil companies, on their part, have increased
considerably their advertisement budget and have
been securing media time and space to put out the
theme that the oil price hike was due to the hurricanes
in the Gulf where their refineries are located and
to the disruption in Iraqi oil supplies owing to
the insurgency there. Actually, the hurricanes have
only marginally affected the refineries in the gulf
and the flow of oil from Iraqi wells had substantially
increased over the past several years. Only recently
it was disrupted.
Similarly, the oil companies have been financing
the propagation of the theme that global warming
was just a phobia. Former Exxon CEO, Lee Raymond,
emphatically asserted that climate change was a
hoax. The oil companies must have played a role
in the withdrawal of President Bush from the Kyoto
accord.
While the Republican administration’s tilt
towards the oil giants might have caused its indifference
towards climate change, several of the Blue (Democrat)
States, including California, have on their own
taken measures to deal with climate change caused
by car emissions.
The high price of oil may also play a role in the
closing down of several GM and Ford plants. The
American cars, though more comfortable, could not
compete with the foreign models that were more economical
in gas consumption.
Such developments have hardly affected the demand
of gas at the pump. The oil companies are sharp
enough to raise the price just so high that the
consumer does not totally shy away from buying despite
the financial pain. Market forces become inoperative;
greed becomes the chief motivating force. In a situation
like this, the government can’t be just a
spectator. It has to intervene particularly as the
oil companies no longer tread the path of good corporate
citizenship.
But, the Bush administration has yet to provide
evidence of its sincerity in restricting the exploitative
arm of oil companies.
For most of his first term, the Congress kept struggling
to pass an energy bill to deal with the issue. It
was only last year that he signed an energy bill
into law. Unfortunately, for the oil consumers,
the bill does not change much. It provides subsidies
for research on some of the alternative technologies,
such as clean coal, ethanol, wind, solar and nuclear
power. But, it also provided billions of dollars
in new subsidies for gas and oil, including inducements
to drill for more.
“America is addicted to oil”, the President
remarked in his latest State of the Union speech.
And, he is hardly interested in measures that may
change this behavior. As far back as 2001, his Press
Secretary had declared: “The President believes
that it (high energy consumption) is an American
way of life, and that it should be the goal of policymakers
to protect the American way of life.”
That being the approach of the Administration, it
would be a mere wishful thinking to expect government
intervention during the current regime to relieve
the consumers from the pain at the petrol pump.
