Big profits, big power, big problems…

BIG OIL

IN A follow-up article to his centre-page feature in the socialist
456 on the geopolitics of oil, LYNN WALSH looks at the problems caused
by the power of the ruthless oil giants in the economy.

THE INTERNATIONAL oil market is dominated by a handful of giant
companies: ExxonMobil, BP, Royal Dutch Shell, Chevron, ConocoPhilips and
Total, collectively known as Big Oil. As oil prices soared over the last
two years, peaking at around $80 a barrel recently, their revenue and
profits have soared, making them even bigger.

They wield enormous economic power, and have massive political clout
in Washington, London and other capitals. However, most of these
companies are facing a serious long-term problem.

Their production is outpacing their discovery of new reserves.
National oil companies (NOCs), partly or wholly state-owned firms
through which national governments (e.g. Saudi Arabia, Venezuela) retain
profits from oil production, now control an estimated 90% of the world’s
oil and gas reserves. At the moment, however, Big Oil still dominates
the international trading, transportation and refining of oil and
petroleum products.

The price of crude oil rose 40% in 2005, pushing up Big Oil’s
revenues and profits. Five of the world’s top ten corporations are now
oil majors. Four more are carmakers, some like GM and Ford making huge
losses, but still producing gas-guzzling vehicles. Profits for 2006 are
likely to be even higher, as oil prices continued to soar (though they
are currently falling again).

On the basis of 2005 results, ExxonMobil became the world’s biggest
company, both in terms of revenue and profits, relegating WalMart and
Citicorp (the world’s most profitable bank).

Exxon Mobil had sales of $340 billion – almost $1 billion a day. Its
profits were up 42% over 2004, reaching $36 billion. ExxonMobil’s
revenues are greater than the GDP of countries like Sweden, Taiwan and
Indonesia. Its annual profits are more than the economies of 125 of the
184 top countries ranked by the World Bank.

Europe’s biggest oil company (the third-biggest internationally),
Anglo-Dutch Shell, reported record profits of $22.9 billion (£12.9bn)
for 2005. Earlier this year, BP also reported record profits, up 25%
over the previous year: $19.3 billion (£11bn). Investors in London,
however, expressed their ‘disappointment’ that BP’s profits had not
matched those of ExxonMobil or Anglo-Dutch Shell!

City investors also complained about ‘excessive’ bonuses promised to
Lord Browne, BP’s chief executive. His annual salary is around £1.5
million a year, and he has been promised bonuses before he retires in
three years of around 7.5 times his annual salary, that is, an
astronomical £11 million!

Fuel poverty

MEANWHILE, THE number of people in Britain suffering from ‘fuel
poverty’ as a result of higher electricity and gas prices is estimated
to be around 1.8 million households. Recent research by
PricewaterhouseCoopers confirms that the general inflation caused by oil
price rises has mainly affected the poorest third of the population.
They spend a greater proportion of their income on energy and
energy-sensitive items such as transport and food.

"The tendency for the lowest income deciles to have higher CPI
[consumer price index] inflation rates has become more marked, with the
poorest 20% of households facing an average inflation rate of around
2.8%, compared to the national average of 2.4% and the estimated rate of
2.1% for the richest 30% of households," says the PricewaterhouseCoopers
chief economist.

The Office of National Statistics has produced figures showing the
higher inflation rates faced by pensioners who are mainly dependent on
benefits and spend a lot on utility bills. Single pensioners are facing
an inflation rate of 4.1% while a pensioner couple are experiencing a
3.3% rate. (Guardian, 7 September)

So flush with bumper profits are the big oil companies that many of
them in Britain and the US have been buying back shares from their
shareholders (which pushes up the value of the remaining shares).

Over the last three years BP has handed back $40 billion to its
shareholders, and in the next three years plans to buy back another $65
billion (£37bn) of shares. This is a vast amount. At current stock
market valuations, $65 billion would buy Scottish Power, ICI, Cadbury
Schweppes, Reuters and Sainsbury’s.

Tony Woodley, general secretary of the Transport and General Workers’
Union, has called for some of this spare cash to be used to support the
Finance Assistance Scheme, the pensions’ lifeboat set up to (partially)
compensate workers who have lost their pension through mismanagement of
private pension schemes.

A Labour government that in any way represented working people would
tax the obscene windfall profits of the oil companies to improve the
pitiful rate of retirement pensions, income support, and other benefits.

It will come as no surprise to most people that Blair, Brown and
company have rejected this idea. The BP bosses are hand in glove with
the Blair government. The Financial Times commented that "BP’s ties with
the British government are still so close that rivals call it ‘Blair
Petroleum’… One Whitehall insider says there is a ‘meeting of minds’
between Tony Blair and [Lord] Browne, who is a regular visitor to
Downing Street." (2 August 2002)

Perhaps Big Oil will consider spending some of its windfall profits
on research and developing relating to alternative, renewal energy
resources which could reduce carbon emissions and global warming?

Propaganda

It has recently been revealed, however, that ExxonMobil and other big
oil companies (together with some of the big tobacco companies) hand out
millions of dollars to various think-tanks and right-wing propaganda
organisations devoted to discrediting evidence of global warming.

ExxonMobil alone subsidises 124 organisations that "take a consistent
line of climate change: that the science is contradictory, the
scientists are split, environmentalists are charlatans, liars or
lunatics, and if governments took action to prevent global warming, they
would be endangering the global economy for no good reason. The findings
these organisations dislike are labelled ‘junk science’." (George
Monbiot, Guardian, 19 September)

Big Oil represents enormously concentrated economic power. They also
exert a powerful influence over capitalist leaders. In the US between
1990 and 2002, oil and gas companies gave US political leaders $159
million, while the transport sector (mainly the big car and truck
manufacturers) contributed even more, $256 million.

The aim of these corporations is to perpetuate the existing structure
of the economy, with its overwhelming dependence on fossil fuels and
vehicles powered by petrol and diesel engines.

Big Oil is closely connected with the Bush regime, originally based
in the key oil state, Texas. The oil corporations are also a key element
in the ‘military-industrial complex’. Their profit-driven strategic
objectives have played a decisive role in the Bush regime’s aggressive,
interventionist policy in Central Asia and the Middle East.

So long as the big oil corporations are privately owned and run there
will never be planned development of natural resources, with the serious
development of alternative, renewable energy sources, and planning for
the future needs of a majority of the population of planet earth.

Needs of society

The giant oil companies are ruthless predators, recklessly pursuing
the maximisation of profit regardless of the effects on the environment
and society. Short-term profit trumps medium- and long-term
consequences. They will never be curbed on the basis of the anarchic
capitalist market.

They should be taken into public ownership and run under workers’
control and management. Only then would natural resources be nurtured
for future generations and the needs of a majority of society catered
for.

Such a revolution could not be achieved on a national basis. Big Oil
is already global. Solving the planet’s energy problems requires
economic planning on an international basis. It shows the need for
socialist transformation internationally, and a global planned economy.