From: Cyrus Bina (binac@mrs.umn.edu)
Date: Tue Feb 18 2003 - 22:01:36 EST
Dear Rakesh,
Let me take this opportunity and write up a few lines on the issue of oil
and its real (not alleged) connection with the past and present
impending war with Iraq. You have indicated, among others: "That is, the US
propaganda machine is now selling the invasion of Iraq as an attempt to
break up putative monopoly power and to prevent the Sa'udi dissipation of
rent in the financing of anti-Western terrorism."
My position (both theoretically and historically) is as follows:
1. The oil sector is a globalized entity, belong to the post-cartelization
era. This sector was the first "industry" to be globalized in the
mid-1970s, following the oil crisis of 1973-74 that led to quadrupling of
OPEC "posted prices." Transnationalization (globalization) of oil led to
elimination of the regime of "posted" pricing of oil and relied on the
emerging institution of "spot" pricing. Spot prices are the result of REAL
competition among the various producing units and regions of the world. By
"real" competition, I mean the actual competitive processes that are
dynamically setting up oil producing regions (including the oil
producing OPEC members) against one another. This competition (as opposed
fiction of "pure" or "perfect" competition ala neoclassical economics) is
Marxian and/or Schumpeterian in its meaning and thus does not necessarily
negate the process of integration (concentration and centralization) of
capital. Indeed, competition is a permanent feature of CAPITAL and capital
accumulation and it becomes sharper and more potent with further
centralization of capital. Finally, without competition (so defined) value
formation in capitalism is meaningless.
2. The Oil crisis of 1973-74 was not a simple shock. Although was triggered
by the Arab-Iraeli War of October 1973 and motivated by OPEC member's
(particularly by Libya and Algeria) desire to increase their share of oil
rent, the cause of this crisis was deeply embedded in the change in the US
oil production cost structure (the center gravity of oil production in the
world). US oil cost structure was (and still is) the highest in both
exploration and development of oil worldwide. Being the center of gravity
(within the largest market!) and being in need of restructuring, in
conjunction with the newly developed spot markets in oil, is the force
behind the unprecedented increase in the price oil, the reflection of which
was the quadrupling of OPEC "posted prices" between October 73 and March 74.
Given further developments that led to the establishment of globalized oil
(i.e. worldwide reorganization of the entire oil industry on the basis
objective conditions and regulation of market, including pricing of oil
based upon spot and futures markets, formation of differential oil rents,
capping of unproductive well, decisions on further exploration and
development, etc.). Globalization of oil also reshaped OPEC in terms of a
rent collecting agency in its present configuration (see, "Limits of OPEC
Pricing: OPEC Profits and the Nature of Global Oil Accumulation," OPEC
Review, Vol. 14 (1), Spring 1990). Hence, the oil crisis of 1973-74
reflectively laid the cornerstone of the globalization of oil and nailed the
coffin of Seven Sisters for good. The era of post-cartelization had begun.
At the time, I thought that only neoclassical economists and fools would
speak of oil cartel and cartelization; only neoclassical economists and
fools would venture to call OPEC a monopoly. But, to no avail, I soon
realized that many economists in heterodox tradition, including those with
"radical" and/or "Marxist" orientation repeat the same nonsense, although
with different intent. Therefore, it is not surprising that the
"anti-monopoly" posture such as this makes its entrance into the collection
of other enlightened reasons to go to war against Iraq.
3. The US war posture cannot be attributed to oil. First of all, this
argument is motivated by the lack of adequate analysis about the historical
evolution and eventual implosion of the post-war international
("inter-state") system of the Pax Americana (1946-1979?). The United States
was at the apex of this hegemonic system. The US hegemony was entwined with
the global hegemony of Pax Americana. Pax Americana was much more than the
United States. On the one hand, it included the "Western alliance" and
Japan. On the other hand, and more importantly, it had its hands on the
large number of countries that are known as the "Third World," in Asia,
Africa, and Latin America. It is in this context that one has to look at
the three simultaneous US containment strategies on behalf of the Paz
Americana, namely, containment of the Soviet Union and its satellites,
containment of nationalism and democracy in the "Third World" (Coups
against, Mossadegh (1953), Arbenz (1954), etc.), and finally ideological
containment people at home (i.e., through McCarthyism, etc.). This
behavior and these activities were exhibited and done from sheer strength.
This was the time that some scholars call it the "Golden Age" of capitalism.
Thus, hegemony of Paz Americana can be defined in these and other concrete
historical tendencies. I am holding to the meaning of HEGEMONY ala Gramsci
and thus dismissing, for example, the interpretations attributed by the
scholars within the orthodox international relations tradition. Roughly,
from mid-1960s to mid-1970s, the international system of Pax Americana
started to decline. At the very beginning of the 1970s, Bretton Woods, the
Pax Americana's international monetary system collapsed (officially, August
15, 1971). There were many other challenges throughout third decade,
including the collapse of Pax Americana's worldwide tentacles, such as the
Shah Mohammad Reza in Iran, Somuza in Nicaragua, etc. The Pax Americana
imploded and collapsed under its own weight. This goes also for its global
hegemony. The United States, which was once residing at its apex also lost
its hegemony. This also has been compounded by the transnationalization of
capital and the emerging hegemony of global social capital at more
theoretical. Thus, we entered the era that can be loosely identified as the
era of globalization. I am not talking about the so-called "corporate"
globalization. I am looking at a qualitatively new stage in development of
capitalism (see, e.g., my "Globalization: The Epochal Imperatives and
Developmental Tendencies," in Gupta (ed.) Political Economy of
Globalization, Gluwer, 1997). One of the characteristics of this era is
that it particularly negates the "hegemony" a nation-state. Finally, for
those who look at the barrel of gun and sheer military capability, and
quickly conclude that the holders of those powers have hegemony, should
think twice: once reexamining the meaning of hegemony itself (ala Gramsci)
and once by comparing the doctrine of CONTAINMENT (the most important
doctrine during the era of Pax America) and doctrine of PREEMPTION
(officially unveiled by the current Bush administration). By doctrine, I
mean a systematic policy, not a sporadic practice. Containment then was the
reflection of coexistence and also the fact that a hegemon, to say the
least, had a place worth preserving in the global polity and economy. In
other words, the hegemon had the system at its finger tips. The doctrine of
preemption and its systematic practice, on the other hand, is the reflection
of the fact that the bully not only lost its old place (that is why there is
such a haste in destruction) but also does not wish to settle for an
ordinary place like everybody else, so to speak. Would you call this
hegemony? On the contrary, I would argue that these trigger happy positions
are as the result of the US appreciable weakness, not its strength. These
postures are none other than sorry gestures against the lost hegemony. It
is within this historical context that the question of OIL can be properly
studied and analyzed. Oil is globalized and operate under the regulation of
market, which a part and parcel of the era of globalization. In this sense,
speaking of going to war for oil is untenable. The question must be
properly focused on the wholesale reaction of the US government against the
lost hegemony. Therefore, nostalgic act of conquest and control will remain
as major motivation. This motivation is, in my opinion, thousand time more
dangerous than "blood for oil." Because "blood for oil" hugely
underestimates the potency of this systematic position on the part of the
United States. Indeed, attributing this to oil amount to a small potato.
Once the weight of real US motivation is measured, then the question of oil
in Iraq is easy. How? One has to look at the transformation of oil and
formation of differential oil rents, a part of which falls into the Iraqi
economy. Appropriation of this rent (differential oil rent) is not the
END, it is the by product of bloody search for the lost hegemony (see, e.g.,
"The Rhetoric of Oil and the Dilemma of War and American Hegemony," Arab
Studies Quarterly, Vol. 15 (3), Summer 1993; "Global Oil and Inviability of
Pax Americana," Economic and Political Weekly, Vol. 27 (28), July, 192;"On
Sand-Castles and Sand Castle Conjectures: A Rejoinder," Arab Studies
Quarterly, Vol. 17 (1 & 2), Winter/Spring 1995).
4. Finally, allow me to present a few words on the worldwide formation of
differential oil rents. This goes back to my theory of oil rent (The
Economics of the oil Crisis, 1985), in which, following Marx, I have proved
that in the post-cartelization era (since 1974), via global competition, oil
rents of the various magnitudes have formed in the industry. Despite the
popular misconceptions (even among the left), these rents are NOT monopoly
rents. These rents, instead, are the reflections of cost structures (oil
exploration and development) associated with the different oil producing
regions of the world. Different oil regions show different productivity in
the production (extraction) of oil. In competition, these differential
productivities translate into differential profitability. If the least
productive oil region remains in the battle of competition (i.e., being able
to have average [normal] profit), then more productive oil regions, in
addition to their normal profit, receive differential rents. The magnitudes
of these differential oil rents depend upon the differential productivity of
oil production as a whole. Thus, more productive oil regions appropriate
larger rents than the less productive oil regions (for more theoretical
detail and empirical results: The Economics of Oil Crisis, 1985; "Some
Controversies in the Development of Rent Theory, Capital & Class, No. 1989;
"Price Formation and Competition in the International Energy Industry,"
Energy Economics, Vol. 11 (3), 1989; "The Law of Economic Rent and Property:
Applied to the Oil industry," American Journal of Economics and Sociology,
Vol. 51 (2), April, 1992).
As I have indicated to Jerry, with apology, the other day, I am overwhelmed
by deadlines, excessive commitments, unending public lectures, etc., in this
grim and unfortunate period. I hope these few lines would reveal the
application of my oil rent and the analysis globalization of oil, the era of
post-Pax Americana and globalization for the US foreign policy in the Middle
East and elsewhere.
All the best,
Cyrus
(Tuesday night, February 18, 2002)
----- Original Message -----
From: <rakeshb@stanford.edu>
To: <ope-l@galaxy.csuchico.edu>
Sent: Monday, February 17, 2003 6:58 PM
Subject: [OPE-L:8478] Re: RE: Re: Socialism and War
> On Sunday the San Francisco Chronicle ran an article in which one of
> leading myths or justifications for war was elaborated.
>
> This is the idea that the US should invade Iraq in order to
> impose a US-approved government which will allow foreign, especially
> American, direct investment and step outside of OPEC and then ramp up
> the production of oil... which will in turn break the putative quasi
> monopoly power of the alleged Saudi-dominated OPEC... which will in turn
> accomplish two things--first, lower the price of oil and stimulate the
> world economy and, two, reduce the rents now seized by the Sa'udi state
> and used to finance jehadis and Islamic terrorism.
>
> That is, the US propaganda machine is now selling the invasion of Iraq
> as an attempt to break up putative monopoly power and to prevent the
> Sa'udi dissipation of rent in the financing of anti-Western terrorism.
>
> In my opinion the propaganda machine has no other justification left for
> war. No one believes in the the imminent danger posed by Iraqi weapons
> of mass destruction, and no one believes that there is a connection
> between the Ba'ath Party and Al-Qaeda. In fact after Kanan Makiya's (aka
> Samir Al-Khalil) recent break with his former CIA sponsors, no one even
> believes that the US will impose a democratic regime in Baghdad.
>
> But this anti-monopoly, anti-terrorism justification is based on the
> dubious premise that OPEC is a price-fixing cartel. Of course this
> premise has been blasted by Cyrus Bina as well as Hans Singer and
> Kunibert Raffer in their recent book on the North South divide (see
> chapter on oil as a special commodity).
>
> So in my opinion the most important contribution for OPE-L to make is in
> the popularization of Cyrus' theory of the workings of the global oil
> market.
>
> It was nice to see that Cyrus has recently posted to OPE-L.
>
> All the best, Rakesh
>
>
>
>
>
>
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