The article below was written in late 1980 and is a response to attempts by the imperialists through the 1970s to scapegoat the Organisation of Petroleum Exporting Countries (OPEC) for oil price rises. As oil remains a vital political question, the article remains highly relevant.

imagesby Tony Norfield

Iraq, Iran, Kuwait, Saudi Arabia and Venezuela formed OPEC in 1960. For years these five backward capitalist nations had had their oil plundered by imperialism. The oil ‘majors’ – Standard Oil of New Jersey (now Exxon), Anglo-Iranian (now BP), Shell, Gulf, Mobil and Texaco – had made billions of dollars at their expense, controlling their oil revenues and severely hampering their plans for development. This, and the fact that in 1959 and 1960 oil prices fell, spurred them into forming OPEC, a cartel which aimed to maintain prices and keep revenues up.

In fact, they largely failed. Between 1950 and 1969, the price of a barrel of oil from the Persian Gulf rose less than 10 cents (P. Nore and T. Turner, eds, Oil and Class Struggle, Zed Press, 1980). Drawing other oil producers into the cartel didn’t help much either. Although Qatar, Abu Dhabi, Libya, Algeria and Indonesia all joined in the 1960s and Nigeria entered in 1971, OPEC could not secure a significant price increase until 1973.

What the 1973 energy crisis was all about

Over the winter of 1971 OPEC upped the prioce of oil from $US3 to nearly $US12 a barrel. To understand why, we have to look at the changing economic position of the imperialist nations. We also have to recall the stage hostilities in the Middle East had reached.

Throughout the 1960s the rate of profit in the advanced capitalist economies had been falling. To keep up investment in the 1970s, each imperialist state was forced to expand credit and public expenditure. The result was an unprecedented spurt of growth in 1972-3 (Britain experienced this as the ‘speculative boom’ of those two years). Demand for oil soared and market prices considerably out-stripped OPEC’s official ones. Some kind of readjustment of the latter was bound to occur, particularly as OPEC countries received their revenues in dollars. Because of the decline of US imperialism, dollars were worth less and less as each month passed and the dollar devalued.

At the same time, the oil companies themselves were hit by falling profit rates. They needed a price rise to finance their diversification into coal, nuclear power and other energy sources. Furthermore, US president Nixon knew that dearer oil would hurt Western Europe and Japan more than the USA: it meant that Texan and Alaskan wells would be more competitive, and that America’s oil-less rivals would be taken down a peg.

OPEC wanted a rise. The ‘majors’ wanted one too. Israel’s defeat of Egypt and Syria in the Yom Kippur war of October 1973 provided OPEC with a good pretext for taking action.

The imperialist powers had established Israel in 1948 so that they could have a client state in the Middle East to police their enormous interests there. As the world economy began to drift into crisis in the late 1960s, Israel was forced to consolidate its precarious position. In 1967 it occupied the West Bank and other former Arab terrritories in Sinai, the Golan Heights and the Gaza Strip. Further land was taken after the 1973 war. OPEC tolerated the first bout of Israeli aggression; it had to be seen to present some opposition to the second. Why? Because if it didn’t, the regimes which comprised its Arab members risked popular popular revolts and Palestinian outrage. It had no choice in the matter.

Soon the West found itself faced with quadrupled oil prices. In addition, OPEC made Israel’s most obvious imperialist backers the target of an oil embargo. The ‘energy crisis’ had begun – not only for the West, but for OPEC too.

OPEC: drowning in oil

Realising that foreign control over revenues would bar the road to independent capitalist development, each of the Arab OPEC states intensified its efforts to gain power over its oil from the marauding Western companies. They were only partially successful. For example: Saudi Arabia, a traditional ally of US imperialism and an anti-communist stronghold, nationalised the American multinational Aramco. But Aramco still kept its grip by controllig refining technology and sales outlets.

OPEC’s Arab members weren’t just frustrated over oil. Their efforts to bring their economies into the twentieth century proved unsuccessful too. Raising oil prices made them even more dependent on oil for survival: in 1979, all but one percent of the export earnings accrued by Iraq, Libya, Saudi Arabia and Qatar came from oil (IMF, International Financial Statisics, August 1980). On the other hand, their import bills shot up. Total OPEC imports jumped from 21 billion US dollars to 103 billion US dollars between 1973 and 1978 (OECD, Economic Outlook, July 1980).

OPEC nations couldn’t set up industries to compete with the West. Airports, motorways and similar infrastructure, yes; viable steel mills, car factories and productive capital, no. Otherwise, all the ruling classes of OPEC could do with their billions was spend them on luxuries or, more important, send them abroad.

Today, OPEC countries have more than $US270 billion of investments overseas (The Times, June 2, 1980). But this reflects OPEC’s subordinate position in the world economy rather than any strength: 75 percent of OPEC’s foreign assets consist of short-term deposits in Western banks and only a negligible amount has gone into productive investment. So OPEC couldn’t put its money to work; but imperialism could – and did.

The West: living on borrowed time

The 1973 price rises unbalanced the capitalist world in a big way. Hit by dearer oil imports, many imperialist powers went into the red. All-out protectionism loomed round the corner. Western banks resolved to mobilise OPEC’s cash to help out.

What they did was re-lend it to countries running large trade deficits. Like the imperialist powers, the backward capitalist countries had been thrown into disarray – both by higher oil prices and by the contraction of markets in the West. They needed to borrow desperately. Imperialism was ready with the funds: it needed stability in Africa, Asia and Latin America to step up the export of capital and commodities there – something the recession demanded. So it was that OPEC’s ‘petrodollars’ (the dollar revenues from oil sales) were first ‘recycled’.

This operation did have some effect in the years 1975-78. But the international extension of credit which recycling involved could only delay the day of reckoning for the West. By 1979 many of the backward capitalist countries which had borrowed money could barely meet the interest charges and repayments on their debts. For Brazil and Mexico, two important markets for imperialism, the burden of debt servicing doubled between 1970 and 1978 to 28 percent and 60 percent of export earnings respectively (World Bank, World Development Report, August 1980).

The overthrow of the shah of Iran in early 1979 precipitated another round of price increases. The ‘spot price’ of oil (the price on the open market) shot above OPEC’s official price as a result of panic buying and stockpiling. Pressure grew from the oil producers to bring their prices into line with spot prices: OPEC’s prices had already been falling in real terms since 1975. Eventually, prices rose – by as much as 130 percent by mid-1980. And so did revenues: in 1978 OPEC’s surplus revenues had fallen to a mere five billion (US) dollars, but today they are expected to be $US120 billion.

This time recycling is not such an easy option. Those backward capitalist countries which had previously received loans from Western banks are now in a much more unstable situation. Their oil import bill alone rose by by $35 billion last year. At the same time their bankers are in a dilemma. Should they continue to lend and risk throwing good money after bad? Or should they refuse to lend any more and thereby risk a default? The debt problems of these countries, and the problems capitalism faces in the ‘South’, gave ulcers to the pro-imperialist diplomats of the Brandt Commission earlier this year.

Of curse, what all the imperialists are really worried about is maintaining a trouble-free market for their exports of commodities and capital. This is imperative if they are to try and counter the effects of declining profitability at home. OPEC’s price increases do not help them out, and even OPEC is a victim of the recession.

OPEC in Vienna

The Vienna conference of the 13 OPEC states in September marked an attempt by the main oil producers to bring some order to the chaotic market. The conference had two main goals: to solve the problem of the indebted backward capitalist countries through aid programmes, and to index oil prices to prevent a decline in the real value of OPEC oil exports. But the conference broke up in disarray over the ‘pricing formula’. OPEC was split: Saudi Arabia and Iraq led a moderate group of 10 against Iran, Libya and Algeria each of which advocated a high-price policy.

The material basis for this division of opinion is clear enough. Saudi Arabia has a third of the world’s oil reserves, a third of OPEC’s current output and only a tiny population. It can afford to accommodate to imperialism. Iraq, intent of becoming imperialism’s main ally in the Arab world, is also bound to play the sycophant. By contrast, Iran is broke and both Libya and Algeria have to contend with ever-dwindling stocks of oil, stagnant economies and mounting internal opposition. Still, Saudi Arabia’s commanding role in OPEC, backed by Iraq, is not without its disadvantages. The Saudi regime itself is faced with domestic unrest and is forced to make anti-Israel noises more and more frequently. Too open an allegiance to imperialism will threaten the regime’s stability still further.

Hands off the Middle East!

The oil price rises of 1973 were a consequence of the crisis of capitalism in the West, not its cause. Long before OPEC raised prices the imperialist nations were sliding into recession. Between 1970 and 1972, unemployment in Britain and France had reached record post-war levels. Inflation too was significantly higher than at any time during the 1960s. It was the decision to break the US dollar from its link with gold in 1971 – forced on by the USA’s decline – that began the chaos in the international monetary system.

The signs were there for all to see. Needless to say, however, the bourgeoisie and the leaders of the labour movement chose not to see them. Instead, both pointed the finger at OPEC and ‘the Arabs’ – at anything, in fact, but capitalism itself.

Workers must resist attempts to blame the problems of British capitalism on foreigners. To make out that OPEC is the man enemy is to line workers up behind the imperialists’ foreign policy. At a time when the bourgeoisie is preparing the ground for military and political intervention in the Middle East, the labour movement needs a distinct, independent policy, one which identifies our interests with the workers and peasants of the Middle East. We can make no concessions to the imperialists when they cast OPEC as the root of all evil. Hands off the Middle East!

The above piece first appeared in the Nov/Dec 1980 issue of the British Marxist review the next step.


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