Mark Connally

Article Summary #3

The main point of this article to defend, and give an image of the way that companies are and aren’t able to shape events into their benefit. It dealt with companies making agreements with oil exporting countries, importing countries making deals with large multi-national companies, and the benefits that both can receive if these are done correctly.

There are three large incidents that this article focuses on, first was the response to the nationalization of the Anglo-Persian Oil Company and the subsequent boycott of Iranian oil. Second was the relationship of the companies to OPEC, and third was the behavior of the companies themselves.

Through the boycott of Iranian oil came the ability of oil companies to produce oil in other places to compensate for the loss that they had just received. This increase in production led to an increase in overall supply over demand. As this was happening the aims of OPEC were to increase unit revenue and restore posted prices to their previous prices, but all of these things were slowed down by many company’s abilities to refer back to competitive economics. Overall the increase in volume did greatly increase total revenue.

After the 1960’s however, in the age of the consumer, saw oil prices drop in real and current terms. This wasn’t done through the power of companies, or the intervention of government policy, but through the increased level of investment through out the entire industry.

Leading up to the 1970’s was a time of remarkable technology and economic success. There was the development of resources, human and physical, greater technology, and for importers the promise of a cheap and reliable energy base for economic development. This was occurring, as the industry became more of a competitive industry, that such a monopoly. Companies now recognized their spot in the world as a mechanism to success instead of the absolute means to success. The factors that gave the companies were remove, either by the shortage of oil, or for the fact that a shortage wasn’t far off in the distance. Profits increased by the increase in oil inputs, increasing the value of oil immensely. This created a horrible effect on the balance of payment in the world between importing countries and those exporting. This problem of the energy crisis is the world dependence on oil itself, and the fact that OPEC countries import the majority of oil.

The old pattern of companies depended on vertical integration, showing pressures of the economy and of competition. Integration existed to a lesser degree through contracts, optimizing volume through giving facilities and providing for more investment. The slow process of decreasing equity ownership lead to a more prominent ownership through partnerships. These provided long term contracts that guaranteed investment, and lead to the overall purchase of oil. In time the companies and countries that are the exporters will have less to worry about than the importers, this is due to the fact that the importers are relying on someone or something else to support and help run their country. Company’s abilities to effect price are through the conditions of the market, and depend on the competition between companies.

The United States takes a central role in this entire equation, due to the fact that it has domestic energy sources that may eventually minimize pressure in certain areas of exports. The United States also has a method of stability though its political relations, which is appealing to the main oil producers. The United States is a stable importer of oil, and therefore it should secure its existing imports, and reduce the dependence on oil. This will lead to a relative downward pressure on prices. This needs to be done while maintaining the interest to invest.