[OPE-L:6160] oil rent

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Mon Nov 05 2001 - 23:44:28 EST

forwarded from left business observer list

From: "Cyrus Bina" <binac@mrs.umn.edu> 
To: "Doug Henwood" <dhenwood@panix.com> 
Date: Mon, 5 Nov 2001 15:32:27 -0600 


The notion of globalization of the oil industry rests on the following 

1. The mechanism or the formation of DIFFERENTIAL PRODUCTIVITY (reflecting 
differential profitability) of oil production globally. This reflects the 
competition of all oil regions (low cost as well as high cost) around the 
world. However, in order for the high cost regions (i.e., the US oil) to 
remain in production at all, market price of oil must accommodate their 
costs plus normal profit. 

2. All the low and lower cost oil regions, given the global market price, 
would obtain a portion of surplus value as differential oil rents. The 
magnitude oil rent associated with each lower cost region depends upon the 
difference between their individual cost and global market price. Thus the 
lowest cost regions (i.e., Middle East) obtain larger magnitude of oil 
rents. If for some reason the global price of oil falls to say, 50 percent 
its actual magnitude, in a sustained period of time, then oil from some of 
the highest cost region would be shut down and, at the 50 percent global 
price, the lower cost (than the US, etc.) will make little or no rent. It 
is in this connection that Oil rent is price-determined. Once the price is 
determined by the market, the magnitudes of differential oil rents will 

I hope this will be helpful. 


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