Big Oil's Last Stand Antonia Juhasz Editor: Emily Schwartz Greco
Foreign Policy In Focus www.fpif.org
Editor’s Note: This is an excerpt from the introduction to The Tyranny of Oil: the World’s Most Powerful Industry, and What We Must Do To Stop It (William Morrow 2008). Within days of the New Year, 2008 began with three landmark events. Oil reached $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, Senator Barack Obama became the first African American to win the Iowa Caucus. Voter turnout broke records as well, with four times more registered Democrats voting than had turned out in 2000. Obama was reserved yet purposeful as he delivered his historic victory speech. He 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 U.S. 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 U.S. 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 U.S. 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.