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 Doug, The notion of globalization of the oil industry rests on the following mechanisms: 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 formed. I hope this will be helpful. Cyrus
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