Spanking the Sisters

Who is to blame for the world's soaring petroleum prices? The vast majority of consumers and experts alike would readily answer: OPEC. During the past four years, the eleven-nation Organization of Petroleum Exporting Countries has more than quintupled oil prices, raising the present tag to about $13 a barrel.

Now a distinguished U.S. oil economist has challenged that assumption. In an impressively documented book titled The Control of Oil, just published by Pantheon Books, Dr. John M. Blair argues that the real culprits are the major international oil companies, known familiarly as the Seven Sisters (Exxon, Mobil, Standard Oil Co. of California, Texaco, Gulf, Royal Dutch Shell, and British Petroleum). In Blair's view, the companies actually aided and abetted the OPEC increase, while pleading helplessness to their price-gouged public. "A form of bilateral symbiotic oligopoly" is the author's complicated if caustic term to describe the relationship between the oil "majors" and OPEC.

Diligent Crusader. In the 1974 Senate investigation into the causes of the oil embargo, similar charges of oil company profiteering were briefly aired and then forgotten. Blair has produced a 441-page work that is not so easily brushed aside. Until his retirement in 1970, he was one of Washington's most diligent and crusading economists. Corporate executives who were exposed to his withering questions in congressional hearings often regarded him as an anti-business radical. Actually, he was dedicated to reasserting the force of a free market, which he felt had been curtailed by the economic power of a handful of huge corporations. From 1957 until 1970, Blair was chief economist of the Senate Subcommittee on Antitrust and Monopoly, and helped expose price fixing and questionable interlocking relationships in the drug and petroleum industries.

Control reflects his years of probing the inner workings of the oil industry.

From the very beginnings of the international oil trade in the 1920s, Blair discovered a pattern of price fixing and cozy marketing arrangements by which the big companies divided up the world for their own gain and tried to ruin any small independent firm that sought to cut prices or intrude on their turf. No other industry, Blair implied, so depended on bribes and payoffs.

When OPEC abruptly tripled oil prices in the wake of the 1973 October War, the big multinational oil firms meekly surrendered. Blair makes the much-disputed assertion that the companies could have employed their own control over marketing, transportation and refining to try to break the price. Instead, he says, the oil giants raised their own prices to even higher levels. In chart after chart in his book, he cites the sudden surge in the Seven Sisters' profits. Blair also charges that the big companies actually helped prop up the OPEC price by cutting back on production at times, most notably in the fall of 1975, when an oil glut was causing price weakness in Western Europe.

Blair proposes a tough remedy. At present, the big companies control each stage of the petroleum process: pumping, transport, refining, marketing. Blair would break them up into companies specializing in only one phase of the petroleum process. Ideally, each company would then haggle over price each time the oil changed hands and would thus unleash free-market forces that would push prices down.

OPEC Strength. Many oil economists disagree, because the realities of the oil industry have changed drastically in the past few years; in their view, breaking up the oil companies would fragment an efficient industry and possibly push prices still higher. In general, Blair's book is the advocacy of a special viewpoint rather than a balanced overall survey. Most important, Blair seems to underestimate the true power of OPEC. When first created by the oil-producing countries in 1960 as a counterweight to the then all-powerful companies, OPEC was indeed ineffectual. But it gained strength rapidly, and many of its member countries have nationalized the Seven Sisters' holdings. Says M.I.T. Oil Economist Morris A. Adelman: "The oil companies are now hired hands who supply their services. It's the OPEC governments who are running the show and taking the rest of the world to the cleaners. To blame the oil companies for it is wide of the mark." Adds Walter J. Levy, an eminent international petroleum consultant: "The winds of change have shifted power away from the oil companies and placed it firmly in the hands of the producing countries."

Unfortunately, Blair cannot continue the argument. Last December, shortly after completing the marathon grind of writing Control (it contains 789 explanatory notes), he died at 62 of a heart attack at his Florida home.

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