There are two popular conceptions as to the causes and effects of the 1973 oil price rises and supply cutbacks: firstly that it was an attempt by the oil-producing countries to hold the rest of the world to ransom; and secondly that it was an attempt by the Arab governments to defeat Israel by forcing the withdrawal of economic support for that regime, which defeat they had not been able to achieve militarily. These popular conceptions, however, are far from the full story, and although they may look good for popular consumption, there was far more to the 1973 "oil crisis" than that.

Control of Production

To start with, it is important to understnad something of Middle East oil production. In most cases, and particularly in the Persian Gulf and on the Arabian Peninsula, production is controlled by the oil companies, with only minimal involvement by the local governments. A prime example of this is in Saudi Arabia, where production is largely controlled by the Aramco consortium, which is owned 30% each by Texaco, Standard Oil California (known as Socal or Chevron), and Standard Oil New Jersey (Exxon or Esso), and 10% by Standard Oil New York (Mobil). The Aramco partners, together with Gulf, Shell and BP, who are collectively referred to as "The Seven Sisters", control and manage much of Middle Eastern oil production, and in those cases where part of the production is in the control of national oil companies, the "sisters" were often responsible for the marketing of it. Five of these companies are US owned, and, of the other two. Shell at least is significantly US controlled. The history of oil production in the Middle East cannot be separated from the history of these companies.

Another feature to look at is the relationship between the United States, as host country for most of these oil companies, and the various Middle Eastern countries involved at the time of the 1973 "oil crisis".

Many of the major oil producing countries, and notably Saudi Arabia, are stooges for the United States. Saudi Arabian participation in the 1973 oil embargo was to try and protect its position in the leadership of the Arab world (one could almost believe that the US government might have put the Saudis up to it). It is also believed that the United States supplies Israel with arms to the extent that it does to keep radical Arabs so involved against Israel that they do not attack the massive US investments in the Middle Eastern oil industry. That provides a new perspective to the discussion of the oil embargo as a further means of waging war against Israel.

Cutbacks and Embargoes

So much, then, for one of the conceptions about the 1973 oil crisis. It is true that production cutbacks and embargoes were initiated as a means of trying to reverse Western, particularly American, support for Israel, but the circumstances of this support for Israd, and the extent of actual support for the cutbacks must make one question the significance of this factor.

Perhaps the best way to test the validity of this is to look at the actual effects on oil shipments caused by the embargoes and production cutbacks which were so topical in late 1973 and early 1974. To start with, the cutbacks, and even the embargoes, would be likely to have very little effect on the United States, which was regarded as the chief villain, because it imported such a small proportion of its total oil consumption, and only a proportion of these imports came from the Middle East. The effect was likely to be much greater in Europe, which might be more sympathetic to the Arab cause. The Iraqi Vice-President, Sadam Hussain, condemned the cutbacks as having been devised by "reactionary ruling classes well-known for their links with America."

More interesting, perhaps, are the facts that show that the expected oil shortages resulting from the cutbacks, failed to eventuate. Rotterdam in Holland was not supposed to receive any oil supplies, yet in one sample week in mid-December 1973, it received 5.6 million tons of crude oil as opposed to its usual 6 million tons.

The figures that were produced in the United States to demonstrate the effects of the cutbacks varied according to their political purpose. While Energy Secretary William Simon talked about the tight embargo, total crude oil imports over the embargo period were up 11% over the previous winter.

It is interesting to note, moreover, that during the embargo, United States domestic production was reduced from 9.3 to 9.1 million barrels per day. One might have thought that the spectre of cutbacks would have caused efforts to be made to increase production.

Prices and Profits

The cutbacks in US domestic production of crude oil give a clue to what was a much more significant factor in the 1973 "oil crisis". Throughout the 1960s, there had been a continuing threat of overproduction from the Middle Eastern oil fields, with prices being kept low as a result, especially as Middle Eastern oil was very cheap to produce.

This had affected the economics of oil production in other markets, and particularly the market for natural gas in the US, which was subject to price controls. Any change in the cost of oil from the Middle East, therefore would allow for a change in the price of oil and natural gas in the United States and other markets, substantially inflating the value of these stocks which were wholly under oil company control.

Since most of the oil supplied to the United States market (the world's biggest) is of domestic origin, any increase in the world price of oil would therefore result in immense windfall profits to the major oil companies.

And that is just what happened in 1973, although the oil companies had been making the most of the price increases to increase profits throughout the 1970s. Of a 55 cent per barrel increase from the oil companies in late 1970 and early 1971, the breakdown was given by the [unclear: Ira] Finance Minister Jamshid Amouzegar [unclear: a] 20 cents to higher transport costs, [unclear: 10c] to the producing companies, and 25 [unclear: cen] to oil company profits.

But the oil companies also gained at those times when OPEC producers decided to raise their oil prices unilaterally The government share was always set as fixed percentage of the actual sale price and so when OPEC prices for Arabian [unclear: li] oil were raised on 16 October 1973[unclear: from] $3.01 to $5.12 per barrel, the oil company share of this went from $1.24 to $2.07 per barrel. In December, the [unclear: pric] was increased again to $11.65 per [unclear: barre] and the oil companies' share [unclear: increased] $4.65. These increases in profit [unclear: margin] were more than enough to compensate for any cutback in production.

One of the clearest examples of how [unclear: t] major oil companies benefitted from [unclear: the] "oil crisis" is in the sale of Kuwaiti oil [unclear: te] BP and Gulf at 2% more than the going rate. The increase was able to be passed straight on to the consumer, and so [unclear: Gult] and BP were not hurt.

Meanwhile they were still getting [unclear: the] balance of the oil (40% of Kuwaiti production) at S7 per barrel, making the average price of their oil $9 per barrel. Any production cutbacks were made up from the state-owned 60% of the oil production, which only served to lower the average cost of the oil to the companies.

It would hardly be suprising then, to discover that oil company profits were increased during the period of the "oil crisis", especially when one remembers that the companies were getting much [unclear: o] their oil for much less than the $7 to $1 paid in the Middle East.

In March 1974, Chevron (Standard [unclear: O] California) was reported as making [unclear: profi] of an extra half million dollars a day as [unclear: a] result of price increases. Overall it was estimated that net receipts of oil companies would increase by $24 billion, of [unclear: whi] at most $11 billion would have gone [unclear: in] taxes to the US and foreign governments, leaving at least $13 billion as the figure for increased oil company earnings. [unclear: Sau] Arabian oil revenue was estimated at $17 billion for the whole of 1974, while Exxon (Standard Oil New Jersey) earned profits of $21.3 billion in the first six months of 1974.

However, it wasn't only the US oil companies that benefitted relative to the rest of the world. Those countries that imported most of their oil requirements, such as Japan and the countries of Western Europe, found that the price rises seriously affected their balance of payments positions, whereas the United States was not affected to nearly the [unclear: same] extent. In consequence, at least in the short term, the American economy [unclear: move] into a stronger position relative to its [unclear: cosmpetitors].

The 1978/79 Oil Crisis

After having looked back over some of the history of the 1973/74 "oil crisis" it is hard not to be a little cynical, [unclear: espec] ally when we find that our own Minister of Energy is confused as to the extent to which we need to save oil, and as to the amount that we are in fact saving. The few signs that are emerging as to the [unclear: effect] on oil company profits all point to increases, however, and the Dominion 30 April reported that the five major [unclear: con] panics had increased profits by an average of 53%. Moreover we find that the cutbacks in Iranian supplies have been used to justify a complete deregulation of oil prices in the United States, which must help profits still further.

I think we could be excused for [unclear: be] cynical when the oil companies are [unclear: getting] such a first-rate opportunity to line their pockets.