Gasoline prices: up, up and away

by W.A. Halabi

This article was reprinted from the May 18, 1996 issue of the People's Weekly World. For subscription information see below. All rights reserved - may be used with PWW credits.

The price of a 42-gallon barrel of oil was $16.50 last fall and $17 as recently as January. But without any extraordinary developments, it jumped to $25 in April. Yet all experts agree that the cost of producing a barrel of oil is actually falling.

Consumers around the world (not just in the USA) are now faced with higher prices of everything from heating and cooking fuel to transportation, clothing and plastics. Oil effectively enters into every phase of present-day production and consumption.

What is going on?

The oil monopolies blame higher demand to an especially cold winter. But 1995 may have been the warmest year worldwide in decades. Even in the northeastern USA the winter of 1995-96 was not exceptionally cold. Stormy, yes, but not exceptionally cold. In fact, earlier the same storms were blamed for a slowdown in productive activity - and slowdowns invariably lead to lower demand for fuel -shooting that explanation down.

So too with the claim of "shortages." The history oil throughout the 20th century is one of "managing" overcapacity and overproduction, and 1996 is no exception. Unused capacity is such today that if demand existed, world oil production could be ramped up by 30 percent in a matter of months. If there were real shortages, the monopolies would see to it that the savage six-year-old Gulf War embargo on Iraq was lifted.

If there were real shortages, the oil companies would rebuild the refineries that have been damaged by war, fire or neglect in recent years. But Iraqi oil is still embargoed and few refineries are being rebuilt.

The petroleum industry has raised some other alibis. But no one believes them and one thing is certain: for workers, the rise in oil prices is a cut in wages. For tens of millions of self-employed, it means even less with which to feed the family. For hundreds of millions around the world who are barely surviving, it may mean choosing between food and shelter. Higher oil prices translate into a lower standard of living for masses of people.

The oil industry is highly monopolized. The "Six Sisters" (they used to be seven) effectively control most world exploration and distribution. Five of these six are U.S.- pawned and the sixth (Shell) is now owned by U.S.-British- Dutch capital.

The average world cost of producing a barrel of oil is less than three dollars, even taking into account the relatively high cost of North Sea and Alaskan production. But the monopolists stranglehold is such that a barrel today sells for $21 - at least seven times the cost of production!

As Karl Marx explained, such unequal exchange - when capitalists are able to sell commodities above their real value - is a way for bigger capitalists to suck surplus value from weaker capitalists. Thus, although oil monopolies employ far less than even one-tenth of 1 percent of the world's labor force, they have frequently accounted for as much as 10 percent of all profits going to all of the world's capitalists - more than 100 times their "rightful" share if rules governing competition were in force. But they are not. Capitalists in Japan, Germany and many other countries are, for sake of argument, completely dependent on oil imports and have little choice but to comply with the higher prices.

When looking for the real reason for the recent run-up in prices one possibility should not be overlooked: an attempt by the biggest U.S. monopolies to reverse an accelerating decline in the rate of profit on the one hand and, on the other, a startling increase in the number of bankruptcies.

Merrill Lynch recently estimated that the bad debts held by the largest Japanese banks had increased from $50 to $1,000 billion since 1990. In Germany bankruptcies last year were at a post-WWII records.

A significant portion of the revenue of large U.S. banks is derived from the sale of oil. Exporting countries like Mexico or Venezuela see little or none of the revenue generated by their sale of oil on the international market; the receipts go directly to the banks. With higher prices the monopolies may be attempting to cover losses from bankruptcies by lowering wages and, even, looting other capitalists.

International working class solidarity is key to an effective response to the maneuvers of these international predators. That will expose what is behind the rise in prices, reduce prices and also end the embargo on Iran and Iraq.