March
31, 2006
Mergers and
Cartels Produce Unprecedented Oil Profits?
By Syed Arif Hussaini
The Senate Judiciary Committee
conducted a probe in mid-March, 2006 in Washington,
into the mergers of oil companies reducing, if not
eliminating, competition that ensures a fair price
to the consumer, and into the persistent suspicions
of price maneuverings yielding an unprecedented
harvest of profits for them.
Top executives of six leading US oil companies -
ExxonMobil, ConocoPhillips, Chevron, Valero, Shell,
and BP America - were summoned to Capitol Hill to
answer queries of the Senators’ Committee.
Critics took it to be a charade, a photo opportunity
for the executives, and free time on the electronic
media for the oil magnates to justify the greed
of their corporations.
Four months back, that is in November 2005, the
Republican Senate majority leader, Bill Frist, had
called for similar hearings shortly after the companies
had declared record profits that had strengthened
suspicions of price gouging. Everyone appeared to
be going through motions and nothing concrete came
out of it for the consumers.
The ratings of Bush administration had simultaneously
gone down, oil price hike being a factor in it.
“The polling numbers are so bad”, remarked
Jerry Taylor of Cato Institute, “that there
are only two groups less popular than they are right
now: oil companies and mass murderers.”
The Bush administration had itself paved the way
for the windfall profits. President Bush and his
deputy, Dick Cheney, have both reached the White
House via the oil business. No wonder then that
Mr. Bush withdrew from the Kyoto Protocol as it
went against oil interests. On the slightest squeak
of global warming, he puts his heads in the sand.
And, he has made no significant investment in renewable
energy sources. He has, on the other hand, sought
to open the Arctic National Wildlife Refuge for
oil drilling. Also, he has inserted $2.6 billion
in tax breaks into the energy bill.
The oil companies have responded to such overtures
by donating $13.3 billion to Republican congressional
candidates. The oil executives draw, according to
Sen. Barbara Boxer (D-CA) yearly bonus 155 times
greater than the average American’s yearly
salary.
The taxpayer has to bear eventually the brunt of
all such extravagances. He has to suffer the pain
of shelling out higher amounts not only at the petrol
pumps but also for the furnace oil for heating his
home. In 2005 he had to pay on an average $360 more
for heating oil.
The very poor are entitled to receive some help
under Low Income Home Energy Assistance Program
(LIHEAP). But, the program is chronically under-funded.
Only 75 % of those who apply get any assistance.
There appears to be no willful move to enhance the
budget. But who cares for the poor? They have often
to decide between food and heating!
Yes, the oil companies were appealed to voluntarily
donate a portion of their windfall profits for heating
assistance program for the poor. They rejected it
off hand as the proposal sounded to them ‘much
like a tax’.
As for the sky-high profits, the oil companies offer
a simple explanation. Their rate of profit is linked
to the sale price. If the price goes up, owing to
the supply falling short of the demand, their profits
go up too.
According to the market forces of supply and demand,
if the supply goes down, so does the demand, and
up goes the price. What happens at the pump belies
this formula. Neither the supply goes down, nor
does the demand, only the price goes north.
The oil magnates do not mention the fact that they
peg the price of gas just below the level where
the consumer decides to reduce his demand by giving
up his weekend drives, and by walking or hopping
onto his bike for short distances. Nor, does one
notice a gas station closing down for want of supply.
Only the price goes up to the level where the customer
feels the pain, yet finds himself confronted with
Hobson’s choice, i.e. no choice.
A vast majority of the consumers have no clear comprehension
of the realm of collusion and cartels obtaining
in the oil market. They have a notion of US dependence
on foreign oil to the extent of 2/3rd of its needs.
They are vaguely conscious of the fact that oil
is now the most strategic commodity and the state
that controls, directly or indirectly, the oil spigots,
dominates the world. Gradually they have realized
that the real reason behind the invasion of Iraq
was that country’s vast oil reserves. The
oil industry stood nationalized in that country
restricting the encroaches and maneuverings of US
petro-oligarchies. The regime change was a prerequisite
for paving the way for the US oil giants to spread
their tentacles over the industry in that country.
No wonder, the Bush-appointed proconsul in Baghdad,
Paul Bremer, started his assignment by privatizing
some 200 nationalized companies. Twenty per cent
of Congressional aid to Iraq was for oil infrastructure.
It amounted to $1.6 billion!!
This facilitated corporate investment in Iraq’s
oil sector - its hold on the sector. President Bush
has made no bones about his intention to keep his
troops in Iraq, despite the mounting casualties
and his falling popularity, till the end of his
tenure on January 20, 2008. He has emphasized this
in a recent speech.
This should give an idea as to the grip of the oil
magnates on the policy-making apparatus in Washington.
They are the biggest contributors to the funds of
politicians on both sides of the aisle.
Robert Baer in his book “See No Evil”
on which is based the film “Syriana”
has called the oil traders the “vultures of
the global economy”. The film offers a searing
look at the way corruption permeates the industry.
Probes and enquiries by Senate or other high-sounding
committees will continue to be but an eyewash for
the common consumers. The pain at the pump, it looks,
may continue unabated for years to come.
- arifhussaini@hotmail.com
