How can oil prices continue to plummet whilst “The largest U.S. refinery strike in 35 years entered its fourth week on Sunday as workers at 12 refineries accounting for one-fifth of national production capacity were walking picket lines.”
This is no isolated phenomenon; the UK oil industry is witnessing a one round burst of 1,500 jobs being slashed. 15,000 more jobs are predicted to be cut, these are by no means small numbers. That is exactly what those numbers are meant to deploy: panic, fear and pressure. Pressure on whom, that is the question. But should we be as outraged as these oil companies are? Since when has big oil cared about job cuts? Since when have the unions and oil been in unison, or them being represented as such? Why would Shell offer striking US workers 2% annual pay rises in such a troublesome time?
This brings us to the oil crisis of 1973-4, when the Arab countries enacted an “oil embargo” to pressure the US and its allies to press for a resolution to the Zionist-Palestinian conflict. What did the US government, the Nixon administration and the oil companies instead press to do?
Certainly what they did is not what Brown University Professor Eduardo Porter claims in the New York Times:
[T]he Nixon administration and Congress laid the foundation of an industrial policy that over the span of four decades developed the technologies needed to unleash American shale oil and natural gas onto world markets.
As a banal point as it may seem, when governments and big corporations band together it is not to help lower carbon omissions. How Porter can say with a straight face the following is beyond me:
“Environmentalists against any government involvement in the fossil fuels business will hate this, of course. But the collaboration between government and business in pursuit of energy independence offers a valuable lesson for policy makers forging a strategy to fit the current energy imperative: reducing carbon emissions to combat climate change.”
So what did the Nixon administration do? Timothy Mitchell’s Carbon Democracy: Political Power in the Age of Oil paints a somewhat bleaker but more realistic picture. One that returns us to our senses and makes us question when corporations and governments put their hands together, more often it is not so seamless and equal; one twists the hand of the other and it is obvious who does the twisting. With the Arab ‘Oil Weapon’ brought out one tends to focus on that moment and look at larger political developments. What was at play, in fact, was OPEC’s previous decision to get together and tax oil output at a larger rate. This of course is stating the obvious, but the increase was not carried over by the oil companies, these companies looked for a way to pass on the oil increase but it was not so easy as increasing the price by that tax cost margin. Such an increase would have prompted a switch to cheaper oil resources. To do so without a switch to cheaper oil (in fact Mitchell shows how oil companies became natural gas producers and started buying coal mines so no switch to cheaper energy happened) there had to be a justification of a rapid increase in the price oil. Therein came the Arab “Oil Crisis” on a silver platter. It justified the rapid increase in the price of oil which could swallow and incorporate OPEC’s increase in the rate it taxes oil production.
What is happening today is no exception, not by any stretch or exaggeration. The only difference seems to be that the tide of history is changing. Oil companies are asking the UK government to lower taxes on production so as to ‘weather the storm’ and not have to lay off so many workers. BP, Royal Dutch and other companies even asked the UK government to lower its tax rate on companies from 60% to just lower 50% according to Ian Wood, an author of a government ordered report in the UK. Otherwise if the government fails to act, investment is set to decline, exploration is set to be at its lowest since 1965. The picture is bleak because it is manufactured to be bleak. Oil companies want lower tax rates in order to maintain their profits and have a lower price of oil.
Why did Obama veto the Keystone pipeline for “environmental reasons”? Is this connected to what is going on? Maybe yes, maybe no. What seems to be the case is that a certain type of oil-techno-politics are at play. One that, contrary to propaganda in the New York Times, is about legitimizing environmentally damaging practices and higher carbon emissions, but at the same time “selling” the idea of cheaper oil because of environmental reasons. As convoluted as this argument is-for to lower carbon emissions a whole different batch of reforms need to happen– it must hold. Why must it hold? That is the key. The industry maybe just killing itself, by having oil hovering at $50, so that it is more feasible to enter the natural gas market from shale gas. Don’t let anyone fool you; this is not about the environment. This is about, to cite the same New York Times article quoting Michael Shellenberger of the Breakthrough Institute: “investment in technology innovation [that] can bring a huge benefit for both [emphasis added] the economy and the environment”. Big corporations are manufacturing a new cost-benefit calculation whereby shale gas is being presented as an environmentally friendly technology contrary to other research. This is done by having oil prices drop, proposing a higher consumption tax on oil, and using those funds to subsidize future exploration and drilling costs of shale gas. At the same time, to reopen oil fields (which the corporations are threatening to close or have) taxes on production would be lowered. It is the best of both worlds for the corporation. Instead of actually doing something about carbon emissions, shale gas is being presented as a ‘safe’ alternative.
A final word on the US Federal Reserve; all of this coincides with the “audit the FED” movement. This is a call to have the US Federal Reserve show us its books in order for us to arrive at a more knowledgeable calculation of its policies. As the myth that Quantitative Easing (QE) ended has been busted, with ‘stealth QE’, the practice of having the US Federal Reserve use the interest money from the initial round of QE to buy more mortgage securities, continuing on a regular basis. Since QE is illegal in Europe, it is understandable why the US would want to keep quiet about QE after its formal end. This allows massive dollars to be pumped in, regularly, and undercut other currency regimes. This prompted the Swiss to give up its cap on the franc, and a host of other Central Banks such as the Indian and Australian Central Banks, to lower their interest rates in order to keep their export market competitive by weakening their currency against a rising dollar. What economics told us, that we cannot have the best of both worlds, an expansionary monetary policy and a strong dollar, the US is doing through its various contingency plans the US Federal Reserve has drawn up, by tapping into the futures market, rigging the gold futures market and other futures markets. While most countries in their dire circumstances have run net negative reserve accounts, the US Federal Reserve seems bent on hiding its books, most probably hiding the true amount of how much it has pumped into corporations in order to ‘save the economy’ (read big corporations).
At a time when forensic accountants, volunteers, investigative journalists and other proponents of disclosure are banding together to expose tax-evasion schemes, the call should be extended to a fully-fledged audit of the United States Federal Reserve. With such massive cash infusions into these big banking corporations, it is no surprise that oil corporations can be up to all sorts of acrobatics. Now they want more money from the government.
Karim Malak writes about Middle East politics. He can be reached at: firstname.lastname@example.org