[OPE-L:6224] Re: economics of oil

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Mon Nov 26 2001 - 21:13:34 EST

Capitalists may have an interest in a stable value of money but 
control over the Fed may not be enough to ensure it. The US may have 
an interest in a stable price of oil but indirect control over ARAMCO 
may not be enough to realize it. Moreover, with the entry of non OPEC 
oil and independents, the US does need to control Sa'udi Arabia to 
undermine so called OPEC power which in a time of shortage can be 
quickly self defeating anyway.  More importantly, Cyrus's point is 
that OPEC or Sa'udi Arabia in particular are not price fixing cartels 
and monopolies but rent collecting agencies. This seems to be the key 
distinction that undermines popular mythology.

Relatedly,  what Cyrus emphasizes (as I understand him) is the 
importance of US control over Arab oil rent which is generated 
whether the price on the spot market is at $34 or $18.  The 
correlatives to control of Arab oil rent is  the subversion of 
democracy in client regimes as well as sanctions and  aggressive 
foreign policy against wayward regimes (Iraq, Iran, Libya); in other 
words, US foreign policy contributes to the instability and the 
possibility of upheaval. That is, I tend to see US policy not as in 
fact promoting stability but rather the control over surplus profit. 
The US exercise of power is better understood as a threat to peace 
rather than as a force for stability.

Grossmann emphasized the importance of securing surplus profits in 
the raw material industries as an important counter-tendency for 
rivalrous national capitals to the falling rate of profit in the 
system as a whole. But I have said all that before.

Yours, Rakesh

>Doug, Rakesh, and Cyrus:
>The OECD countries are interested in oil price stability, as well as 
>a "moderate" price level. In other words, having the price of oil 
>bounce around from $14 to $34 during a given period (say 18 months) 
>is much less desirable than a steady price of $24.
>It is a stable price and supply that may be an important element of 
>the US's protection of the House of Saud. Revolutionary change in 
>Saudi Arabi - whether leftist, bourgeois democratic,  Pan-Islamic, 
>or Pan-Arabic - means instability (uncertainty) in price and supply 
>during the period of the upheaval.
>The apparent recent changes in Russian oil policy throws a wildcard 
>into the international situation.
>peace, patrick
>At 05:52 PM 11/26/01 -0500, Doug Henwood wrote:
>>Rakesh Bhandari wrote:
>>>That is, does the US indeed have an interest in more than just the 
>>>disbursal of Arab oil rent--as you emphasize--but in the actual 
>>>control of the output and pricing decisions of  the Sa'udi 'swing' 
>>>producer in particular?
>>A few  years ago, Wall Street used to speak of an ideal oil price 
>>around $18 - not too high as to pinch profits/growth, spur 
>>inflation, or promote nonoil alternatives, not too low as to 
>>devalue much oil capital (real and financial). Further benefits 
>>would be that it is good enough for oil producers like Mexico and 
>>merciful to poorer countries. I haven't heard talk of that in a 
>>while, but I assume the concept still operates - some notion of 
>>economic and political equilibrium at $18-20.
>>Of course they prefer it be priced in dollars forever, though they 
>>almost never talk about it. It wouldn't surprise me, though, if 
>>some financial types would shrug their shoulders at basket pricing, 
>>saying it could be hedged. It might reduce currency risk for MNCs, 
>>who have lots of euro income too.

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