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, belonging 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 to fiction of "pure" or "perfect" competition al 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. And without an adequate theory of value, not unlike the current debate on war and oil, nearly everything goes!
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) who desired 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 of 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 developed and 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 1973 and March 1974. 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 modern 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 Pax 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 of 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 Pax 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 this decade, including the collapse of Pax Americana's worldwide tentacles, such as the Shah Mohammad Reza in Iran, Somoza 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 by reexamining the meaning of hegemony itself (al 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 fingertips. 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 operating under the regulation of market, which is 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, a thousand times more potent and dangerous than "blood for oil." Because the slogan of "blood for oil" hugely under-estimates the potency of this systematic approach and 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 that 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, 1992;"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 the 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 my analysis globalization of oil, the post-Pax Americana globalization and their implication for the US foreign policy in the Middle East and elsewhere in the world today.
All the best,
Cyrus (Tuesday night, February 18, 2002)
Cyrus Bina, Ph.D. Professor of Economics and Management University of Minnesota, Morris Morris, MN 56267, USA Office: (320) 589-6193 Fax: (320) 589-6117 E-mail: binac at mrs.umn.edu