The postwar petroleum order and the prosperity it brought seemed to collapse too easily. The events known as the 1973–74 oil crisis brought an era of generally improving conditions of life in many parts of the world to a sudden and prolonged halt. The crisis confirmed the collapse of the post–Second World War system for managing international finance and a transfer in the management of oil pricing to the producer countries, which began to obtain a greatly increased income from its production. In industrialised countries, the powers of labour that had secured more egalitarian and democratic social orders were weakened, and were to be confronted by a new instrument of control: the neoliberal laws of the market. In the global south, governments with oil revenues built militarised states while those without built debts, as Western banks awash with petrodollars recycled them into risky loans to financially weakened governments.
The description of a sequence of events as a ‘crisis’ simplifies changes in multiple fields, involving various agents, into a unique event, so that a single moment, with a single agent, appears responsible for a collapse of the old order. To understand the setbacks to democratic politics, we must follow changes in the multiple dimensions of the oil order, and the work that was done to simplify what happened into a crisis, for which an outside force – the Arab oil states – could be made culpable.
What is known as the 1973–74 oil crisis gave many people in western Europe and North America their most memorable encounter with the laws of the market. Middle-class citizens faced the unfamiliar experience of a shortage of what had always been plentiful, anxiety over the future availability of an essential commodity, mile-long queues in competition with other consumers, and prices that increased almost by the day. On 17 October 1973, eleven days after the outbreak of another Arab–Israeli war, six Arab oil-producing countries announced a 5 per cent cut in the supply of oil. They promised a further 5 per cent reduction every month, until the United States stopped obstructing a settlement of the Israel–Palestine conflict. With each reported cut, the price of fuel rose. The experience offered entire populations in the West an unwelcome object lesson in the principles of neoclassical economics.
The lesson made its way into the lectures and textbooks of economists, to be repeated as a widely familiar illustration of the simple theory of supply and demand. Decades later, the oil crisis was still a favourite tool for reaffirming a straightforward point about markets. The economist Deirdre McCloskey used it in 2002 to respond to a critic who had asked if there was anything in standard economic theory worth keeping. Since the assumptions of microeconomics ‘contradict almost everything that we observe around us’, the critic complained, ‘it is increasingly impossible to discuss real-world economic questions with microeconomists – and with almost all neoclassical theorists. They are trapped in their system, and don’t in fact care about the outside world any more.’ McCloskey defended economic theory with a single example: when the Arab states cut the supply of oil in 1973, ‘didn’t the relative price of oil rise, just as a simple supply-and-demand model would suggest?’ Good economics textbooks are full of real-world examples like this, McCloskey said, demonstrating that the simplified concepts of economic theory ‘can be made as quantitatively serious as you want.They are real scientific ideas.’1
Offering the 1973–74 oil crisis as evidence that economists care about the real world is an unfortunate response. The crisis caught most economists by surprise, and the events that led to it brought many of them to abandon their old, Keynesian ways of thinking about the economy. However, the broader criticism that economists are trapped in their system of ideas misses the mark. Like their critics, orthodox economists care about the world. They care about it, however, in a different way. They do not want to alter their ideas to make them like the real world; they want to alter the real world to make it perform according to their ideas.2 In the 1973–74 oil crisis, the law of supply and demand was not a fiction, but a fabrication. It was a piece of equipment carefully fabricated by certain parties to a dispute. To achieve their goals, those participants tried to organise an event that was assembled and performed in such a way that the laws of economics might operate.
A critic of standard economic theory could raise several problems with the use of the oil crisis to illustrate the model of supply and demand. These can be mentioned briefly, although they are not our main concern. First, it is difficult to know how much of the increase in the price of oil in the winter of 1973–74 was associated with a cut in supply, or even by how much the supply was cut. While Saudi Arabia and Kuwait reduced their exports of oil, other Middle Eastern producers, led by Iran, increased production. In Iraq, the government of Saddam Hussein supported the embargo on oil shipped to the United States but opposed the decision to reduce supplies to Europe and Japan – a decision that helped the United States by limiting its political isolation and spreading the economic hardship. Iraq blamed the wider cutbacks on the governments of Saudi Arabia and Kuwait, ‘well known for their links with America and American monopolistic interests’, and increased supplies to Europe.3 By December, Iraq was producing 7 per cent more oil than in the month before the embargo. Libya, Algeria and Abu Dhabi also took advantage of higher prices to raise production after a brief cutback, maintaining their overall level of supply. Since none of these countries provided information on how much oil they were producing, it was impossible to know how far the total world supply was reduced. Even the figures based on the surveillance of tankers leaving the six main oil terminals of the Middle East – the standard method of estimating global oil supply – were disputed, with some reports showing a net increase in shipments. There was equal uncertainty about the price of oil. For fifty years the oil companies had worked to prevent the creation of a ‘market price’ for crude oil (see Chapter 6 ). As a result, there was no place, publication or regular mechanism of exchange for determining the going price, so as the crisis unfolded ‘no one knew what “the market” was’.4
Second, since interruptions in the supply of oil from one source could be made up from another, the embargo against the United States ‘never happened’.5 Other factors contributed to the sharp increase in oil prices. In the US Congress, the leader of the militarist wing of the Democratic Party, opposed to a Middle East peace settlement, introduced emergency legislation requiring the government to prepare mechanisms for fuel rationing and a programme to reduce the country’s oil consumption.6 Commercial users of petroleum products and individual motorists began to panic, unnerved by public discussions of the ‘oil weapon’ the Arabs had unleashed against the West. Uncertain about future supply, consumers purchased more petroleum than they needed. Governments worsened the problem by mismanaging the crisis, adopting emergency measures that impeded the distribution of oil and made the shortages more severe.7 Public debate contributed to the sense of threat, linking the oil embargo to a wider ‘energy crisis’, a problem of ‘limits to growth’, and the vulnerability of ‘the environment’ – a word that had previously meant milieu or surroundings, but had recently come to be used with the definite article, like the term ‘economy’ two decades earlier, to designate an object of widespread political concern.
A further problem with making oil conform to the model of supply and demand reflects a peculiar feature of oil itself. Since most users cannot easily switch to alternative sources of energy, it is said to have a very low elasticity of demand. Even small shortages can lead to large price increases. In many circumstances, however, oil enjoys a reverse elasticity of demand: as the price goes up, people buy more of it. Changes in annual world demand for oil are connected to changes in energy infrastructure, in industrial and social structure, in income growth, in excise taxes and in other factors. Demand for oil is usually unlinked to its price. The exception to this pattern is when very large increases in price occur in a very short period. The oil crisis was an example of such an exception. The simple supply and demand model that this event is deployed to illustrate is a model supported by this exceptional event, but contradicted by the more everyday price fluctuations in the market for oil.8 The economists’ model played its own role in the making of this exceptional episode.
In order for these flows of oil, military actions, industry rumours, supply figures, political calculations and consumer reactions to come together as a textbook case of the laws of economics, a new socio-technical world had to be assembled to hold them together. Periods of crisis provide useful occasions for understanding how such worlds are assembled and rearranged. The declaration of a crisis often marks an attempt to introduce new forces or to identify threats against which decisive action must be taken. It also requires defining the object or assemblage under threat. The forces introduced, the threats identified and the assemblages defined may all escape the control of those attempting to mobilise or master them.
Three matters of concern emerged and intersected in the early 1970s: the problem of energy as an interconnected and vulnerable system, especially as seen from the United States; the production and distribution of oil from the Middle East, as a flow of energy that a single set of actors could coordinate, and even turn into an instrument with which to work towards other political goals – in particular the settlement of the Palestine question; and the emergence of ‘the environment’ to rival ‘the economy’ as a central object of politics, defined not by the limitless expansion of a country’s GDP but by physical limits to growth.
I argued in Chapter 5 that carbon-based industrial democracies were characterised by a new mode of government, emerging in the middle decades of the twentieth century and coinciding with their increasing dependence on oil. The making of the economy, built with the help of cheap and abundant energy, created an object in relation to which claims to a more egalitarian life could be measured and adjusted, and matters of common concern could be removed to the administration of experts. As we saw in Chapter 6 , the mechanisms for supplying low-cost energy, along with the means of governing the continuous threat to democracy caused by large-scale financial speculation, were coming undone. As a result, it was becoming increasingly difficult to govern populations through their economy. As these modes of managing democratic politics weakened, the crisis of 1973–74 was to pave the way for the elaboration of new modes of government, using the new machinery of ‘the market’. Not just the oil crisis, but almost any conflict between rival political claims, according to this new technology of rule, was to be grasped – and governed – as a matter of simple supply and demand.
The American magazine Science Journal devoted its issue of October 1967 to the new field of technological forecasting. Alongside articles on science, automation, communication and space, it included an essay on energy. Written by the director of the science and technology division of the Institute for Defense Analyses, the article declared that ‘energy is so ubiquitous that it is taken for granted’.9 While noting problems like air pollution caused by motor vehicles and economic blight in the coal fields, there was no suggestion of a system under threat or an impending crisis.
The term ‘energy crisis’ did not appear in American political debate until three years later, in the summer of 1970.10 The ensuing events are now remembered as a problem caused by an embargo on the supply of Middle Eastern oil.11 Yet when the American press first reported the crisis, it described the problem with little reference to the Middle East, or even to oil.
The announcement of the new threat came on 10 August 1970, when the head of the Federal Power Commission, John Nassikas, gave a speech at the National Press Club on ‘The National Energy Crisis’. For the second summer in succession, New York and other large US cities were suffering shortages of electrical power. While the problems were partly caused by delays in installing power generation and transmission facilities, the main reason for ‘our developing energy crisis’, the FPC chairman told the assembled journalists, was a lack of fuel – in particular, shortages of natural gas for industry. Fuel might have to be rationed and manufacturing plants closed. The long-term solution to the energy crisis lay in the development of nuclear power, he suggested; but in the meantime the remedy was to reduce government regulation, including the relaxation of antitrust laws to allow the power industry to adopt ‘economies of large-scale operation’.12
There had been earlier crises in the distribution of fuels, access to and mining of raw materials, and the generation of electric power. But this was the first time the problem had been described as an energy crisis. There was a wide variety of industries, materials, transmission systems and forms of energy involved in the production and distribution of power: coal and the miners and mining companies that produced it, the railways that transported it, oil and natural gas fields, pipeline companies, petrol stations, public utilities, electrical generating and transmission equipment and its manufacturers, construction firms building nuclear power plants, uranium-mining companies, owners of oil tankers, and small and large oil companies. Each of these facilities, networks or materials faced particular problems at different times: a wave of wildcat strikes in the Appalachian coal industry, technical setbacks in the operation of nuclear power plants, a shortage of oil tankers following the closing of the Suez Canal, delays in the construction of electrical power stations due to the need for low-sulphur fuels, and the development of community organising as a new set of techniques enabling ‘realistic radicals’, in the words of Saul Alinsky’s popular primer Rules for Radicals, to challenge the damage done by power companies to communities and environments.13 In the early 1970s, all these issues were suddenly linked together as aspects of a single ‘energy crisis’.
As the OPEC states began to take control of the production of oil, in the ways examined in Chapter 6 , the international oil companies wanted to raise the price by as much as 50 per cent, perhaps more. The increased income of the producing countries could then be paid by consumers, rather than by any reduction in the income of the large oil firms. A main obstacle to such an increase was that users of oil might switch to alternative fuels, including natural gas, coal and nuclear power. It was not enough to collaborate in restricting the supply of oil: the oil companies, with the help of the Nixon White House, had to extend the system of ‘sabotage’ to other forms of fuel. They were to be linked together, through corporate ownership, government administration, news reporting and scholarship, as a single issue facing a collective predicament: the energy crisis.
The giant oil companies had been importing capital into the US, most of which represented the windfalls acquired from their monopoly of the sale of Middle Eastern oil to Europe and other parts of the world. Much of the imported money was paid as dividends to American shareholders, but hundreds of millions of dollars were set aside every year to buy up rival sources of energy in the United States. The oil companies consolidated their control of natural gas production, so that by the late 1960s two dozen US oil firms produced three-quarters of the country’s natural gas. They purchased coal companies, helping to transform the US coal industry from a group of cartelised coal producers into divisions of larger industries that used coal or produced other fuels. They also entered the nuclear power industry, in particular the mining of uranium, and by 1970 controlled 40 per cent of US uranium reserves.14 In an echo of events from an earlier period in the Middle East, officials in the Department of the Interior accused the oil companies of buying up leases on federal lands for uranium mining, and then sitting on the leases to drive up prices and produce the ‘energy crisis’.15
To enable oil prices to rise, the oil companies pushed for higher natural gas prices. When the Federal Power Commission rejected their appeal for a rate increase in 1968, the producers suddenly announced a dwindling supply. From then on, the rate of new discoveries began to fall.16 Appointed to head the Federal Power Commission by President Nixon the following year, John Nassikas, the man who was soon to declare an energy crisis, approved an unprecedented increase in the price of gas, claiming this would encourage the industry to invest in new production.17 The promised investment never followed, and subsequent Congressional investigations revealed that Nassikas had relied on industry figures about shortages, rather than the much higher estimates produced by the Commission’s own staff. He also acknowledged to Congress that he had no evidence that deregulation would lead to increased production.18
The oil companies also produced a concern about inadequate supplies of oil, by simultaneously increasing the estimates of future demand and reducing those of recoverable reserves. In 1972 the US National Petroleum Council predicted that the country’s primary energy consumption would reach 125 quadrillion Btu, or 125 quads, by 1985. The actual requirement that year was only 74 quads, less than 60 per cent of the estimate. Following the 1973–74 oil embargo, the Federal Energy Administration developed Project Independence, which produced similar overestimates of future demand. The calculations helped frame the National Energy Act of 1978, which banned the use of natural gas in new power plants and industrial boilers and allowed the oil companies to increase its price eightfold (from 22 cents per million Btu in 1973 to $1.75, for gas from new wells). Portrayed as a means of protecting the nation’s reserves as a defence against the Arab oil weapon, the restrictions achieved a 26 per cent decline in natural gas consumption between 1973 and 1986 – helping to protect not the American consumer but the demand for Middle Eastern oil. ‘I am now troubled by the fact that . . . I participated in these seemingly self-serving exercises’, wrote Henry Linden, following his retirement as director of the Institute of Gas Technology, which helped produce the exaggerated estimates. ‘I also accepted many other tenets of what turned out to be a fictitious “energy crisis”.’19
The transformation of power generation and resource extraction into a single field of ‘energy’ was encouraged by the White House. The responsibility for different forms of fuel and power was spread across various parts of the US government. In June 1973, after Congress had repeatedly rejected his requests to create a Department of Energy and National Resources, Richard Nixon set up a National Energy Office in the White House.20 Consolidating the different concerns over fuel and power into a single agency enabled the emergence of a new field of scholarship concerned with energy and energy policy. Before the early 1970s, most research on these topics in history, economics and policy-making focused on a single fuel. After the early 1970s, scholarly interest proliferated in the question of energy as a singular topic of concern.21
While the energy crisis in the US was first discussed as a complex interaction of developments involving different natural resources and modes of generating power, there suddenly emerged at its core the question of an ‘oil crisis’. The oil crisis was declared by James Akins, the diplomat who a decade before had welcomed the overthrow of Qasim by the Ba’th in Iraq (see Chapter 6 ) and approved of the execution of the political opposition. He was now director of the Office of Fuels and Energy in the Department of State. In an article in Foreign Affairs in April 1973, Akins argued that the repeated warnings by the Arab States of an oil boycott of the US now represented a real threat.22 OPEC had successfully negotiated higher tax rates, Iraq had nationalised its oil production, and other large producers were threatening the same. Large increases in the price of oil were therefore inevitable, and would result in an unprecedented flow of capital to the oil producers. The task was to arrange for this movement of capital to the Persian Gulf to be recycled into investments in the United States.
‘The world “energy crisis” or “energy shortage” is a fiction’, argued the oil economist Morris Adelman. ‘But belief in the fiction is a fact. It makes people accept higher oil prices as imposed by nature, when they are really fixed by collusion.’23 He presented evidence that there was a surplus of world oil supply, that demand was rising less quickly than it had been in the 1960s, and that the State Department and the oil companies were indeed colluding with the producer states to benefit jointly from a large increase in the oil price.24
Let us consider closely how the increase in the price of oil happened. The October 1973 embargo was triggered by the Arab states’ announcement that the availability of oil would be linked to progress in settling the Arab–Israeli conflict. The price of oil, therefore, could not be a question simply of demand and supply, for the demand for oil was now joined to another demand: that the United States should end its opposition to a resolution of the Palestine question. The United States had refused to support Egypt’s 1971 peace proposal, when President Anwar Sadat had abandoned the principle that Israel should agree to a comprehensive settlement of the question of Palestinian rights, addressing the expulsion and dispossession of 1948, and offered to negotiate instead an interim bilateral arrangement over the Egyptian territory Israel had seized in 1967. Egypt’s decision in July 1972 to expel Soviet military advisers helping to operate its air defence systems in expectation of improved relations with Washington produced no American response.25 Henry Kissinger, Nixon’s National Security Advisor, put off Sadat’s requests that he meet with his Egyptian counterpart, Hafiz Ismail. He finally agreed to talks the following February and May, provided they were kept secret, and then rejected Egypt’s proposals for a separate peace with Israel.26 The Soviet leader, Leonid Brezhnev, met with Nixon in June 1973 and proposed a joint statement on the principles of a peace settlement, which Nixon rejected.27 Saudi Arabia, placed under increasing pressure as a client state of the United States by its patron’s intransigence, requested throughout the spring and summer of that year that Washington support a settlement based on UN Security Council Resolution 242, without success.28 In July, a Security Council Resolution expressing concern at Israel’s ‘lack of cooperation’ with the UN mediator attempting to implement Resolution 242 was approved by all fourteen members of the Council except the United States, which vetoed it.29
The decision by Egypt and Syria to attack the Israeli forces occupying parts of their territory on 6 October 1973 was a response to this impasse. The war was widely expected. More than two years earlier, in August 1971, the United States had learned that Egypt was preparing for a ‘strong offensive of limited size’ to retake territory across the Suez Canal, with the objective of forcing Israel into negotiations.30 Repeated warnings followed that America’s refusal to support a settlement would lead Egypt to take military action.
Ten days after launching the war, as the fighting continued, Sadat repeated his proposal for a separate Egyptian–Israeli peace settlement. The next day four foreign ministers representing eighteen Arab countries met with Nixon and Kissinger and asked the United States to support a settlement of the crisis based on ‘Israeli withdrawal to the pre-1967 lines and respect for Palestinian rights, according to UN resolutions, to return to their homes or be compensated’.31 After refusing to support the proposal, Kissinger told the White House crisis group later the same day that the leader of the delegation, the Saudi foreign minister, had ‘come out like a good little boy and sa[id] they had very fruitful talks with us’. A report in the press that Saudi Arabia might embargo the supply of oil to the United States was blamed on State Department officials or the oil companies, who ‘have an unparalleled record of being wrong’, said Kissinger, assuring the group that ‘we don’t expect an oil cut-off now’.32 The following day, the Arab states announced the first cutback in supplies.
To reduce pressure on Israel to negotiate, Nixon had decided to supply Israel with additional aircraft, tanks, artillery and ammunition. The White House wanted to use the war not to address the causes of conflict in the Middle East, but as consolation for its defeat in Vietnam. ‘This is bigger than the Middle East’, he told his officials. ‘We can’t allow a Soviet-supported operation to succeed against an American-supported operation.’ Discussing the difficulty in forcing Israel to negotiate, he argued perversely that rearming it was the only way ‘to bring Israel kicking and screaming to the table’.33 The supply of weapons was intended to be secret, in order to hide from Europe and the Arab states America’s rejection of a negotiated settlement to the Palestine question. To keep it hidden, the new Lockheed C-5A aircraft bringing the weapons from the US were to land in Israel at night. The C-5A could airlift tanks and other heavy equipment normally transported by sea, and had a range that could cover the distance from the eastern seaboard of America to the Middle East nonstop (European states refused to allow the use of their airfields). Due to errors in its wing design, however, the aircraft was unable to carry a full payload the required distance. To reach Israel, the planes had to stop and refuel in the Azores. Strong crosswinds in the Azores, where it was difficult for the new size of aircraft to land, delayed the departure of the planes from the US and postponed their arrival in Israel until daylight. Secrecy was lost, the airlift became public, and thus also did the US rejection of peace negotiations.34
Oil ministers from the Gulf states were then meeting in Kuwait as part of a month-long negotiation between OPEC (whose members included non-Arab states) and the oil companies, to revise the 1971 agreement on tax rates. Based on a nominal ‘posted price’ 40 per cent above the price at which oil was then trading, the previous agreement had been overtaken in the intervening two years by rising oil prices. Oil company profits had doubled, while the producer states’ share of those profits had declined, with their real value further eroded by runaway inflation. After failing to reach a new arrangement, on 16 October the OPEC states announced they would unilaterally raise the posted price (the basis for calculating the tax rate) by 70 per cent, restoring the benchmark to a level 40 per cent above the price at which oil was trading.35
Oil ministers from the Arab Gulf states stayed on in Kuwait the next day, and were joined by oil ministers from other Arab countries to discuss the war situation. They agreed to respond to the obduracy of the US by announcing a modest 5 per cent reduction in their production of oil, reducing by a further 5 per cent each month until Israel evacuated the territories it had occupied in the June 1967 war. The producer states allied with the US resisted a demand for more effective measures, informing Washington that the cut in supply was merely a warning that they were serious ‘that Israel must give up occupied Arab lands’, as the US embassy in Kuwait reported. ‘The longer satisfactory settlement with Israel was delayed’, the Kuwaiti oil minister, Abdul Rahman al-Atiqi, explained, ‘the shorter the oil supply would become for everyone’.36 Nixon responded by submitting a request to Congress two days later for $2.2 billion in military aid for Israel. ‘We have to keep the stuff going into Israel’, Kissinger told his staff. ‘We have to pour it in until someone quits.’37 Saudi Arabia then announced an embargo on the shipment of oil to the US, which the other Arab states then joined, connecting the availability of oil to the unwillingness of the United States to support negotiations that would address the question of Palestine.
Western commentators linked the decision taken by the Arab states on 17 October to reduce the supply of oil, and the subsequent embargo on the supplies to the US, with the decision taken by OPEC the previous day to raise their tax on oil production by 70 per cent. In fact they tended to collapse the two decisions and portray them as a single event, much as they are linked by the model of supply and demand. Even today, the two events are misleadingly referred to as ‘the OPEC embargo’. The frequent reference to increased taxation of oil company profits as ‘the OPEC price rise’ is equally misleading. For the countries involved the coincidence was accidental, and neither decision was taken in order to raise the price of oil; OPEC, moreover, had no role in the embargo. The first decision was the culmination of a month of negotiations between OPEC and the oil companies over the rate of taxation of oil profits. The reduction in supply announced by a group of Arab states the following day was a response to the decision of the United States to take Israel’s side in the October war and block their attempt to force Israel to accept a peace settlement based on relinquishing the occupied territories. The cutbacks ‘had nothing to do with wanting to increase the price of oil’, according to Ali Attiga. The aim was to draw the attention of the public in the West to the unresolved question of Palestine.38
Accounts of the supply cuts and the embargo seldom mention what their purpose was. Daniel Yergin, for example, writes that ‘the Arab oil ministers agreed to an embargo, cutting production 5 per cent from the September level, and to keep cutting by 5 per cent in each succeeding month until their objectives were met’.39 Nowhere does he discuss those objectives. The Arab producer states were trying to create a linkage, to set up an equation between the availability of oil and the policy of the United States towards the Palestine question. Historians of the event sever that linkage. The general public was in the same position, too busy queuing for petrol, thinking only of the laws of the market. Meanwhile, opponents of peace negotiations in the US Congress, led by Henry Jackson, the Democrat from Washington State known as ‘the Senator from Boeing’ (America’s largest military contractor, based in Seattle, Washington), who championed the increasing militarisation of US foreign policy, were organising rationing schemes and other devices that would enable the laws of the market to operate.
Two months after the war the OPEC states met again, to readjust the tax rate. By that point oil was trading at prices sometimes as high as $17 a barrel – more than four times the price at which it was selling when they had met in October. On the eve of the later meeting Kissinger gave a speech, saying, ‘We must bear in mind the deeper causes of the energy crisis’. While exacerbated by the October war, the crisis was ‘the inevitable consequence of the explosive growth of worldwide demand outrunning the incentives for supply’. If the price increase was the result of these long-term market forces, and therefore in Washington’s view inescapable, there was no reason for the OPEC states not to adjust by resetting tax rates accordingly. Led by Iran, the closest ally of the US among its members, OPEC raised the posted price to $11.65. This increased the tax rate to $7 a barrel, implying a selling price (allowing for production costs and company profits) of under $9 a barrel, or about half the price at which oil had recently traded.40
Having helped to make the higher oil prices stable, Kissinger tried to reap the benefits. Europe and Japan would suffer higher energy costs, easing the pressure on the dollar, and the US would now be able to open up its Alaskan reserves.41 Even as the war unfolded, Kissinger made plans for Nixon to send a message to Congress ‘two weeks after this thing comes to an end’, saying that events had ‘brought home our vulnerability’ and demanding that Congress drop its opposition to an Alaskan oil pipeline. ‘The Alaska oil at its peak will equal the total lifting from the Arab countries’, an enthusiastic White House energy adviser informed Kissinger’s strategy group as the fighting on the Suez Canal intensified. ‘We need two pipelines’, added his assistant. This forecast of the Alaskan bonanza turned out to be wildly exaggerated.42
The October 1973 war enabled Washington and the oil companies to move to a system of higher energy prices, and also gave a boost to something else that was increasingly associated with the price of oil: militarism. The conflict involved the largest tank battles since the Second World War. The design flaws of the C-5A prevented America from keeping its airlift secret, but the tanks that the aircraft carried to the Middle East secured a victory not only for the Israeli army but for a beleaguered US military.
Earlier that year, having acknowledged its defeat by Vietnam and withdrawn its last forces, the Pentagon embarked on a review of its military strategies in the light of anticipated budget cuts and the loss of a war against a small state. The defeat appeared to demonstrate the futility of relying on large conventional armed forces equipped for heavily armed tank-based battles of the kind fought in the Second World War. The enormous destruction of the 1973 war, in which the Syrian and Egyptian tank losses in an eighteen-day battle were equal to the total number of US tanks deployed at that time in Europe, appeared to reinforce this conclusion. But proponents of re-equipping the US with new tanks and other heavy weaponry used the October war as ‘a fortuitous field trial’. After touring the battle sites in occupied Syria and Egypt with their Israeli counterparts, the American generals presented the devastation and the eventual Israeli victory as evidence that, with the right equipment, tactics and training, contrary to the lessons of Vietnam, large conventional armoured battles could be fought and won.
The US armed forces liked to blame the loss of the Vietnam war on democracy. It was not military weakness but popular opposition at home that caused the defeat. The Israeli success in 1973 offered an answer to this problem of democracy. The destructive power of tanks and other heavy weapons made them more suitable for a war fought by a democratic state, it was said, because their destructiveness brought rapid results, before popular opinion or international censure forced the civilian leadership to halt the fighting.43 These conclusions from the 1973 war, reinforced by frequent return visits to the sites of the field trial and incorporated into training manuals and congressional presentations, enabled the Pentagon to defeat the advocates of smaller, mobile forces and to rebuild a heavily armed military.
In defeating efforts to resolve the Palestine question, the war also helped to maintain the Middle East as a zone of insecurity. The large arms transfers to Israel and Iran, discussed in the previous chapter, were now joined by increasing sales to Saudi Arabia and other Arab Gulf states, and to Egypt. The crisis cemented the new relations between oil-producing countries and the United States, based on the selling of arms.44 The real value of US arms exports more than doubled between 1967 and 1975, with most of the new market in the Middle East.45 The flow of weapons, and related opportunities in construction, consulting, military assistance and banking, now depended on new levels of militarism. It also depended on a US policy of prolonging and exacerbating local conflicts in the Middle East, and on an increasingly disjunctive relationship with the Salafist forms of Islam that had helped defend the mid-twentiethcentury oil order against nationalist and popular pressures in the region. As we will see in Chapter 8, the tensions between militarism, Salafism and armed conflict would render the prospects for a more democratic politics of oil production even weaker in the post-1974 period.
Another set of calculations was brought to the price of oil by the 1973–74 crisis. The fourfold increase in prices was probably a larger rise than the oil companies had intended. They now needed extraordinary measures to prevent demand for oil from collapsing, in particular by ensuring that natural gas and nuclear power increased in price. One method of achieving this was for oil companies to champion conservation and the protection of the environment.
Leading oil economists argued that the supply of petroleum, for the practical purposes of economic calculation, was inexhaustible. Although reserves were depleted by extraction, they were replenished by exploration, discovery and new technology. Their exhaustion was so far in the future, they argued, that it could have no impact on the oil price. Oil reserves were less a natural resource being used up, more an inventory being run down and then replenished. ‘Minerals are inexhaustible and will never be depleted’, argued Morris Adelman in 1972. ‘A stream of investment creates additions to proved reserves from a very large in-ground inventory. The reserves are constantly being renewed as they are extracted. How much was in the ground at the start and how much will be left at the end are unknown and irrelevant.’46
This cornucopian view of the nature of oil reserves had been criticised by a number of petroleum geologists, who had a different conception of the nature and availability of oil. In 1956, M. King Hubbert, a geologist at Shell Oil, presented a paper at the Annual Meeting of the American Petroleum Institute estimating that US oil production would peak within ten to fifteen years (1966–71), and then enter a period of continuous decline.47 Hubbert’s estimate was based on prevailing industry measures of recoverable reserves, but made use of novel assumptions about the relationship of the rate of production of oil to the rate of its discovery to change the picture of the future.48
Before 1971, the US oil industry felt threatened by Hubbert’s predictions. Oil companies launched an attack on his methods, and produced rival figures that suddenly doubled or tripled the estimates of recoverable reserves. If oil was soon going to be in short supply, the government quotas and price protection that encouraged production were unjustified.
After 1971, with the OPEC producer states now managing the process of maintaining a scarcity of oil and bringing world prices up to the level of US domestic prices, the oil companies no longer needed the system of quotas and price protections. They adjusted their estimates in line with those of Hubbert, and agreed that US oil production was reaching its peak and about to start its decline. In 1971, the chief geologist of BP suggested that the world’s currently proven reserves of oil would be exhausted in the 1980s, and that the projected rise in demand meant that in less than thirty years the undiscovered reserves likely to be found would no longer be able to meet rising demand.49 When the oil crisis passed, however, the oil company geologists reverted to cornucopian positions.
The concerns about the depletion of oil reserves coincided with the emergence of a politics of ‘the limits to growth’ and the protection of ‘the environment’ as an alternative project to that of ‘the economy’.50 Curiously, the oil companies themselves helped trigger the production of the environment as a rival object of politics. They did this in part inadvertently, by adopting ways of drilling and transporting oil that led to giant oil spills, around which environmentalists were able to organise. But they also helped produce the environment as a matter of political concern, by the changes in the way they calculated the world’s reserves of oil. In 1971 the oil companies abruptly abandoned their cornucopian calculations of oil as an almost limitless resource (calculations that had underpinned postwar theories of the economy as an object capable of limitless growth), and began to forecast the end of oil.51
In the early 1970s, geologists’ arguments about the future exhaustion of oil reserves gained much wider circulation. In 1973, E. F. Schumacher, the economic advisor to the National Coal Board in Britain and a persistent critic of the postwar switch from coal to oil engineered by the US, published the book Small is Beautiful.52 A few months earlier, the Club of Rome had published The Limits to Growth, a report for the Club’s project on ‘The Predicament of Mankind’. Deploying computer modelling carried out at MIT, the report argued that, if current trends in energy consumption, resource depletion, industrialisation, pollution, food production and population growth continued, ‘the limits to growth on this planet will be reached sometime within the next hundred years’.53 Warning also of the accumulation of carbon dioxide in the atmosphere caused by the burning of hydrocarbons and the consequent threat of global warming, the report was a serious challenge to the petroleum industry, and to economists whose models of the market depended on an absence of limits to energy, and appeared to offer no way to address the question of the exhaustion of resources and the limits to growth.
As the State Department struggled to justify its support for higher oil prices, the idea that oil formed part of a larger system of ‘energy’ became increasingly important. On 10 April 1973, a week before Nixon’s energy message to Congress, James Akins had delivered a presentation in Denver, Colorado, before a meeting of the American Petroleum Institute, the collective organisation of the oil industry. He repeated his argument about the inevitability of higher prices, but warned that ‘there is one spectre which will always lurk in every producer’s mind: the development of new sources of energy which will make oil irrelevant. As improbable as this is in the short run, it is always possible that some dramatic, sudden technological development could render oil superfluous.’54 He proposed that
hydrocarbon prices should continue to rise until they reach the cost of producing alternative energy – that is, from coal, shale, tar sands or even garbage conversion. The price of energy from hydrocarbons would then roughly parallel the cost of alternative energy sources until, toward the end of the century, alternative sources would supply the growth in demand. At that time, hydrocarbons could be expected to be devoted to higher uses: plastics, building materials, medicines and even food.
As long as they represented ‘a significant portion of the energy mix’, he argued, ‘it must be assumed that hydrocarbons will be sold for at least the cost of alternative energy’. He added that future generations would probably ‘curse us for having burned this irreplaceable commodity’.55
The argument that hydrocarbons were a relatively scarce and irreplaceable part of ‘the energy mix’ indicates an important aspect of the new politics of energy. In making it possible to connect the price of oil to that of other forms of fuel and power, discussions of the energy system could link the price of oil to the new politics of the environment.
For the Nixon administration the politics of energy was simultaneously a politics of the environment. Nixon’s 1973 State of the Union address, issued as a series of written statements over several weeks rather than as a single oral address, included as its first substantive message a ‘State of the Union Message to the Congress on Natural Resources and the Environment’.56 We have learned, he said, that
natural resources are fragile and finite, and that many have been seriously damaged or despoiled. When we came to office in 1969, we tackled this problem with all the power at our command. Now there is encouraging evidence that the United States has moved away from the environmental crisis that could have been and toward a new era of restoration and renewal.
In Nixon’s speeches these themes were continually linked: energy as the crisis approaching, the environment as the crisis that could have been.
On Tuesday, 28 January 1969, one week after Nixon took office, a blowout in an underwater well that Union Oil was drilling in the sea six miles off the coast of Santa Barbara, California, led to ruptures of the sea floor that allowed 200,000 gallons of oil to escape to the surface, and took eleven days to seal.57 Caused partly by the use of weak pipe casings, the disaster enabled environmentalists to focus attention on the threat posed by the expansion of oil production into offshore drilling, as well as the proposed development of oil production on the North Slope in Alaska and the construction of a trans-Alaska pipeline. Later that year, David Brower, forced out of his post as executive director of the Sierra Club after his political campaigns lost the club its charitable status, founded Friends of the Earth, ‘a global, media-savvy, politically muscular activist group’ that created franchises in other parts of the industrialised West, becoming the first international environmental organisation.58 The pressure that this and similar groups began to exert on issues such as oil drilling, nuclear power, emissions from coal-fired electricity generation, and the Alaska pipeline became a significant challenge to many different parts of the fuel and power industries.
For the oil industry and the White House, the question of an ‘energy crisis’ became a way to address this challenge. On the one hand, the need to conserve fossil fuels as a scarce and depletable source of energy provided a justification for higher oil prices. On the other hand, the environmental movement could be encouraged to focus on the more serious threat represented by the nuclear power industry. Most economists saw the development of nuclear power as the solution to the problem of high energy costs and the eventual exhaustion of fossil fuels.59 This was also a solution to the energy crisis proposed by the Nixon administration. In the 1950s John Von Neumann had famously written that, with the development of nuclear fusion, in ‘a few decades hence energy may be free – just like the unmetered air – with coal and oil used mainly as raw materials for organic chemical synthesis, to which, as experience has shown, their properties are best suited’.60 By the 1970s the cost estimates were less optimistic, but there was still the risk that the vast funds that the government was committing to the development of the new fast-breeder reactors would produce energy at a price that would threaten the high profits now enjoyed by the oil industry. The environmental movement could help reduce this threat to oil. By insisting that nuclear power generation be forced to take account of the risks of accidents and the costs of disposing of spent fuel, environmental campaigns helped make nuclear energy less affordable, and thus less likely to become a lower-priced alternative to fossil fuels.
For the oil companies, the large increase in oil prices had carried a risk. It threatened to make affordable a rival source of energy – nuclear power. However, if the oil companies could force the producers of nuclear power to introduce into the price of the energy they sold a payment to cover its long-term environmental effects – the cost of decontaminating reactors when they went out of service and of storing spent fuel for millennia – it would remain more expensive than oil. To promote such calculations, the oil companies joined the effort to frame the environment as a new object of politics, and to define it and calibrate it in particular ways. Like the economy, the environment was not simply an aspect of external reality, against which the oil industry had to contend. It was a set of forces and calculations that rival groups attempted to mobilise.
The role of oil companies in framing the politics of the environment suggests another dimension of the relationship between oil and democracy that we have not yet considered: compared with the production of coal, oil production has a different way of deploying and distributing expertise. I suggested earlier that the democratic militancy of coal miners could be traced in part to the autonomy that miners exercised at the coalface, especially prior to the large-scale mechanisation of production. The autonomy of those who mined the ore placed a significant amount of expertise in their hands. Oil, in contrast, leaves its workers on the surface and distributes more of the expertise of production into the offices of engineers and managers.
This difference goes further, extending both to the period before the mineral is extracted and to what is done with it afterwards. The coal industry does not invest large funds in exploration, because the geology of accessible coal deposits makes their location readily known, while extracting remote deposits is uneconomic. In the oil industry, exploration is a large, capital-intensive part of the industry, in which companies can realise large profits. Large firms depend on an extensive body of technical, political and economic expertise to support the discovery of new deposits.61
Once mined, moreover, coal is ready to use. It may require cleaning and sorting, but it needs no chemical transformation. Oil, on the other hand, comes out of the ground in the unusable form known as crude oil. The crude must be heated in a furnace, separated into its different hydrocarbons by fractional distillation, and further processed into usable and uniform products. Initially, as we saw in Chapter 1, its main use was in the form of kerosene for lighting and, with heavier oils, in the form of fuel oil for steam boilers and mineral oils for lubrication. Gasoline and other lighter by-products of the refining process were treated as waste. To increase their profit margin, oil companies developed large research and development divisions to find uses for these unused by-products, distribution and marketing divisions to promote their use, and political and public relations departments to help build the kinds of societies that would demand them.62 The major oil companies also collaborated to deny expertise to others, including the coal industry. The cartel formed in 1928 by the major oil companies was actually a broader hydrocarbon cartel, because it consisted of an agreement not just to control the production of oil, but to prevent the use of patents that would allow coal companies to move into the production of synthetic oils.63
Compared with coal companies, oil companies developed much larger and more extended networks for the production of expertise, which became increasingly involved in making of the wider world a place where its products could thrive. For this reason, the international oil industry was well equipped to meet the challenge of the 1967–74 crisis. Facing both the demand from producer states for a much larger share of oil revenues and the rise of environmentalist challenges to carbon democracy, the major oil companies could draw upon a wide array of resources in public relations, marketing, planning, energy research, international finance and government relations – all of which could be used to help define the nature of the crisis and promote a particular set of solutions.
Issues of concern were multiplying: the exhaustion of natural resources; destruction of the environment; the warming of the atmosphere caused by burning fossil fuels; the increasing cost of energy; the devaluation of the dollar; the decline of manufacturing and the end of postwar economic growth; a continuing anti-war movement; conflict in the Middle East; and the financial corruption of American politics (including large illegal payments by oil companies), culminating in the Watergate crisis. A prominent political scientist, Samuel Huntington, reflected a common view among the political elite in America when he declared that the country suffered from an ‘excess of democracy’.64
This excess could no longer be contained by subordinating political claims to the calculations of what was possible according to the principles of ‘the economy’. The development of the national economy had been calculated without taking into account the cost of depleting non-renewable resources, the wastefulness of war, alterations to the earth’s climate, or the destruction of the environment. Measuring the world at the scale of the nation-state, macro-economics could not address the oil crisis except as an external ‘supply shock’, or calculate the transnational relations between militarism, the value of the dollar, and the changing control of oil.
For economists opposed to the role of the government in regulating economic life, as an influential number were, the inability to explain the oil crisis was both a challenge and an opportunity. The opportunity was taken up at the eighty-sixth annual meeting of the American Economic Association, in December 1973. Addressing the entire assembly of the profession in the Richard T. Ely Lecture, Robert Solow discussed the sudden political concern to control the depletion of mineral resources. To counter plans for government regulation of energy consumption, he set out to demonstrate that the conservation of mineral resources could be managed by laws of the market.
Solow addressed a profession that was reacting to the wider social and political crisis of the period with profound disagreement and uncertainty. Two years earlier, the Richard T. Ely lecture had been delivered by Joan Robinson, a left-leaning neo-Keynesian (and one of only three women to deliver the lecture in its fifty-year history). Her lecture on ‘The Second Crisis in Economic Theory’ compared the current disarray of ‘an economics profession that builds intricate theories in the air that have no contact with reality’ to the state of the profession in the 1930s when, prior to Keynes’s General Theory, it was unable to explain or provide remedies for the Great Depression. She described ‘the evident bankruptcy of economic theory which for the second time has nothing to say on the questions that, to everyone except economists, appear to be most in need of an answer’ – principally the question of explaining the unequal distribution of wealth.65
Solow began by confirming ‘that economic theorists read the newspapers’. Having read a variety of recent reports about the advancing scarcity of minerals, and ‘having, like everyone else, been suckered into reading The Limits to Growth’, he decided to see what economics might have to say about the problems connected with exhaustible resources. He found that the literature was not very large. While he was drafting his own paper, however, ‘just about then it seemed that every time the mail came it contained another paper by another economic theorist on the economics of exhaustible resources. It was a little like trotting down to the sea, minding your own business like any nice independent rat, and then looking around and suddenly discovering that you’re a lemming.’66
Solow recovered the forgotten work of a prominent economist of an earlier generation, Harold Hotelling. In an article on ‘The Economics of Exhaustible Resources’, published in 1931, Hotelling had argued that in a competitive market there was an equilibrium price path, in which the price of oil would rise at the prevailing rate of interest for capital invested in projects with a similar degree of risk. Since a resource left in the ground increases in value as its market price rises, owners will in theory extract less of it as the price goes up, preferring to leave it to grow in value as a stored resource while investing their capital elsewhere. The higher price should cause demand to fall and the price of the resource to drop. Once its price falls below the prevailing rate of interest, Hotelling suggested, owners of the resource lose money by storing it for the future and therefore invest in increased production. The laws of the market thus provided a mechanism for regulating the speed of extraction of a natural resource, pushing the rate towards one that produced the exponential price path of the compound rate of interest.
It was no accident that Hotelling’s work had been forgotten. He was writing at an earlier time of increased demands for the public regulation of the depletion of natural resources – in particular the cutting of forests and drilling of oil wells – and of wildly erratic swings in the price of petroleum. Like Solow’s intervention four decades later, his attempt to prove that market mechanisms could regulate petroleum and other natural resource industries was directed against government intervention. As Hotelling’s article went to press, however, prospectors in East Texas drilled what turned out to be the largest oilfield yet discovered. The oil that gushed from the wells caused the price of petroleum to collapse. Four months later, the governors of Oklahoma and Texas declared martial law and sent the National Guard to occupy the oilfields and shut down the new wells, as a means of increasing the price.67 Hotelling’s argument for market regulation was ignored. The year after he published his paper, the US introduced the system of production quotas and price regulation governed by the Texas Railroad Commission.
Four decades later, with military rule of the oilfields now outsourced to the Middle East and the regulatory authority of the Texas Railroad Commission devolved onto OPEC, Solow recovered Hotelling’s work and once again proposed using market laws to regulate the extraction of natural resources. Solow’s lecture was followed by a stream of articles and PhD dissertations on the subject, creating a new field of study: resource economics. This work contributed little to explaining the forces that determined the price of oil or governed its production.68 Solow acknowledged this in the lecture. He had not written it, he claimed, ‘with current problems in mind. After all, nothing I have been able to say takes account of the international oil cartel, the political and economic ambitions of Middle Eastern potentates, the speeds of adjustment to surprises in the supply of oil, or the doings of our own friendly oligopolists.’69 His purpose, rather, was to design calculative devices that could produce a different way of governing prices.
For Solow and many of his fellow economists, market devices were intended as an alternative to democratic methods of governing matters of public concern, by converting them into matters of private regulation by those with the resources to operate as market agents. Even if his market solution produced a steady, unerratic price for oil or other natural resources, Solow acknowledged, the mechanism did not guarantee that prices would take account of the needs of future generations – the major concern of the new debates about the depletion of resources and the protection of the environment. In fact, he admitted, market prices were more likely to discount those interests. However, he argued against any attempt to curb current consumption and take account of future needs by means of democratic government. Politicians look only to the next election, he said, so the political process cannot be ‘relied on’ to be more future-orientated than energy corporations. Transferring an oil company executive to the government bureaucracy ‘does not transform him into a guardian of the far future’s interests’.70 Instead of trusting politicians to take care of the long run, people should trust in technology, which would devise new sources of energy to replace fossil fuels. For the near future, the government should limit its role to improving the use of market calculations. Two specific measures would allow market devices to better regulate the oil industry: the establishing of a futures market, as a means of introducing calculation for the nearer future, and gathering and publishing information on the future trends in technology, oil reserves and energy demand, to make the futures market more efficient.71
This technology was developed in relation to oil in two forms. One was the state and intergovernmental coordination of knowledge about oil. The US government established the Department of Energy, within which it created the Energy Information Administration, which centralised in one office the production of statistics and analysis on oil and other energy resources. At the same time the industrialised countries, through the OECD, quickly established the International Energy Agency in Paris, to counter the threat of another oil embargo by organising the stockpiling of oil and publishing data and reports on energy supplies. The other was to organise another technical device for oil – a set of market arrangements to supplement the system of fixed contracts by which oil had previously been traded. In the late 1970s, an oil futures market was established at the New York Mercantile Exchange, where Solow’s arguments were developed as a set of tools for predicting the future movement of oil prices.
The success in increasing oil prices undermined the Keynesian management of the economy, easing the way for the development of market-based devices promoted as an alternative to an ‘excess’ of democracy and the ‘failures’ of democratic government. A long struggle unfolded through the 1970s and beyond, to today, in which oil companies continually used their political connections to defeat legislation aimed at restricting their influence or at managing natural resources. The market-based solutions offered tools and arguments for derailing alternative efforts at regulation. In the 1980s, neoliberal think tanks began promoting another set of tools: carbon trading.72 To limit government regulation of the increased burning of fossil fuels, and reduce the costs of such regulation to corporate profits, a variety of schemes were devised whereby reductions in pollution in the West could be traded against much cheaper putative reductions in the global south.
The rapid increase in the price of oil assisted this process in a more direct way. As oil companies prospered in the boom, a handful of families in the United States turned their fortunes from oil into windfall funds for the neoliberal movement. Richard Mellon Scaife, heir to the Gulf Oil fortune of the Mellon family, used these funds to become the country’s largest benefactor of neoliberal free-market political organisations, giving at least $340 million over four decades to such organisations as the Heritage Foundation, the American Enterprise Institute, the Hoover Institution, the Manhattan Institute and the Center for Strategic and International Studies.73 Charles and David Koch, whose company Koch Industries was the largest privately held oil company in the US, played a similar role, and Charles Koch co-founded the Cato Institute in 1977. These think tanks and policy organisations oversaw the neoliberal movement, with a programme assembled since the late 1930s to remove from the state its role in regulating the economy and replace this public regulation of collective life with its private regulation by the market.74
The academic profession that had ‘nothing to say on the questions that . . . appear to be most in need of an answer’ was to be reinvigorated by the neoliberal movement, in which many of its members came to play a leading role. Closely tied to the movement’s think tanks, it would commit itself to the market technologies of neoliberalism and to addressing the problems of an excess of democracy.
The dramatic increase in the price of oil in 1973–74 has been described as a textbook illustration of the law of supply and demand. Rather than rejecting this account as too narrow an explanation of what happened, we have followed the work that had to be done to make such an explanation viable. That work involved bringing together a series of conflicts and transformations in the control of raw materials, the generation of power, the claims of energy workers and social communities, and the regulation of corporate profit, into a single field of political concern and government intervention in the United States, to be known as the ‘energy crisis’. It also involved the series of strikes, acts of sabotage, political rivalries and confrontations in the Middle East examined here and in the previous chapter, which made it possible to transform the networks that moved oil supplies from the major producing regions to sites of consumption in western Europe into a political instrument. This instrument was fashioned in its turn to serve a dual purpose – concerned both with redirecting the flow of profits from oil and with the settlement of the Palestine question. The efforts to prevent a settlement of the Palestine question made particular use of market mechanisms, relying on arguments about supply and demand and devices for rationing consumption in an attempt to frame the probable causes and possible solutions to the crisis.
In several ways, however, the events of 1973–74 overflowed the attempts to contain them within the realm of market forces. The question of supply raised new doubts about the possible limits to reserves of oil; the increasing difficulty of forecasting future demand and prices opened up new ways of mapping the future; and the inability to prevent catastrophic oil spills helped trigger the emergence of new issues of concern – in particular the preservation of the environment. Yet the events of 1973–74 also helped trigger the unravelling of Keynesian economics, attacked by market technologies developed from the mid-1970s in revitalised neoliberal think tanks – many of them funded by the private fortunes of American oil families, swollen by windfall profits from the 1973–74 oil crisis.
1 Bernard Guerrien, ‘Is There Anything Worth Keeping in Standard Microeconomics?’ Post-Autistic Economics Review 12, 15 March 2002; Deirdre McCloskey, ‘Yes, There is Something Worth Keeping in Microeconomics’, Post-Autistic Economics Review 15, 4 September 2002.
2 See Michel Callon, The Laws of the Markets, Oxford: Blackwell, 1998; and Donald MacKenzie, Fabian Muniesa and Lucia Siu, eds, Do Economists Make Markets? On the Performativity of Economics, Princeton: Princeton University Press, 2007.
3 Middle East Economic Survey 3, 1973: 14–16.
4 Francisco Parra, Oil Politics: A Modern History of Petroleum, London: I. B. Tauris, 2004: 183; Joe Stork, Middle East Oil and the Energy Crisis, New York: Monthly Review Press, 1975: 230; Christopher Rand, Making Democracy Safe for Oil: Oilmen and the Islamic East, Boston: Little, Brown, 1975: 317–18, 328–30.
5 Morris Adelman, ‘The Real Oil Problem’, Regulation 27: 1, 2004: 16–21.
6 Dan Morgan, ‘Legislation Proposed by Jackson to Offset Possible Oil Losses,’ Washington Post, 18 October 1973: A6.
7 Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power, New York: Simon & Schuster, 1991: 617.
8 Robert Mabro, ‘OPEC and the Price of Oil’, Energy Journal 13: 2, 1992.
9 Ali Bulent Cambel, ‘Energy’, Science Journal 3: 10, 1967.
10 Over the preceding twenty-five years, since 1945, references to an ‘energy crisis’ in leading American newspapers are found only in discussions of postwar Europe (where the term ‘fuel crisis’ is more common), and, for the New York Times, on one other occasion – in a 1954 review of Harrison Brown’s The Challenge of Man’s Future (Orville Prescott, ‘Books of the Times’, New York Times, 9 March 1954: 21). In the 1950s and 1960s, the concern with oil and other fuels was usually part of a general issue of ‘natural resources’, with postwar fears put to rest by the report of the President’s Commission on Natural Resource, known as the Paley Commission.
11 In Daniel Yergin’s account, for example, although the mobilisation of environmental campaigns, especially following the large oil spill in the Santa Barbara Channel in March 1969, was a factor affecting the production of oil, the main problems were the rapid increase in demand for oil, especially in the United States, the shortage of US supplies as the rate of domestic oil production reached its peak, and the tightening of oil supplies from the Middle East as OPEC first began to push for a higher price, and then in October 1973 reduced supplies in response to the US taking Israel’s side in the Arab–Israeli war.
12 Richard Halloran, ‘FPC’s Head Warns Power Shortages Are Possible Next Winter’, New York Times, 11 August 1970: 20; Richard Harwood, ‘Fuel-Short US May Face Plant Closings, Rationing’, Washington Post, 17 August 1970: A1.
13 Saul Alinsky, Rules for Radicals: A Practical Primer for Realistic Radicals, New York: Random House, 1971. See also William Cleaver, ‘Wildcats in the Appalachian Coal Fields’, in Midnight Notes Collective, eds, Midnight Notes, Midnight Oil: Work, Energy, War, 1972–1992, Brooklyn: Autonomedia, 1992: 169–83.
14 Stork, Middle East Oil: 121–5.
15 James Ridgeway, ‘Who Owns America?’ New York Times Book Review, 24 October 1971: 7. See also US Congress, Office of Technology Assessment, ‘Assessment of Oil Shale Technologies, Vol. II: A History and Analysis of the Federal Prototype Oil Shale Leasing Program’, July 1980, available at www.princeton.edu/~ota. A bill passed by the US Senate in 1975 requiring oil companies to divest themselves of holdings in coal, uranium and photovoltaics was defeated by subsequent oil company lobbying (Andrew S. McFarland, ‘Energy Lobbies’, Annual Review of Energy 9, 1984: 504). In 1966 the government had banned the use of imported uranium in US reactors as a means of supporting higher domestic prices. Gulf Oil and other US oil companies then joined an international uranium cartel, set up by the government of Canada in response to the US import ban, which further increased the price of uranium (William Greider, ‘Gulf: Uranium Cartel Raised US Prices’, Washington Post, 17 June 1977: A1).
16 Stork, Middle East Oil: 128.
17 Robert Sherill, ‘Nassikas Sets Your Gas Bill’, Nation, 17 Jan 1972: 73–9.
18 Jack Anderson, ‘FPC Chief and Natural-Gas Rate Rise’, Washington Post, 14 June 1971: B11; Jack Anderson, ‘FPC Staff Disputed Industry Plan’, Washington Post, 15 June 1971: B13; ‘General Accounting Office, Report to the FPC’, in ‘Fattening Gas Prices’, Time, September 1974; Sherill, ‘Nassikas Sets Your Gas Bill’; Stork, Middle East Oil: 125–31.
19 Henry R. Linden, ‘The Evolution of an Energy Contrarian’, Annual Review of Energy and the Environment 21, 1996: 32, 34, 38.
20 In 1974 the White House Energy Office was transformed into the Federal Energy Administration. The Department of Energy was eventually set up by the Carter Administration in 1977.
21 Richard H. K. Vietor, Energy Policy in America since 1945: A Study of Business– Government Relations, Cambridge, UK: CUP, 1984: 1–2.
22 James E. Akins, ‘International Cooperative Efforts in Energy Supply’, Annals of the American Academy of Political and Social Science 410, 1973: 75–85.
23 Morris Adelman, ‘Is the Oil Shortage Real? Oil Companies as OPEC Tax-Collectors’, Foreign Policy 9, Winter 1972–73: 73.
24 A few years later, V. H. Oppenheim gave a more detailed account in the same journal of how this collusion unfolded: ‘Why Oil Prices Go Up: The Past: We Pushed Them’, Foreign Policy 25, 1976–77.
25 Richard B. Parker ed., The October War: A Retrospective, Gainesville: University Press of Florida, 2001, contains a discussion of this diplomatic history by several of its key participants. While describing Israel’s response to Sadat’s overtures as ‘singularly inflexible, unresponsive, and unimaginative’ (p. 58), they fail to note the fact that the US position was effectively the same.
26 Memorandum of Conversation between Muhammad Hafez Ismail and Henry A. Kissinger, 20 May 1973, National Archives, RG 59, Department of State, Records of Henry Kissinger, Box 25, Cat C Arab–Israeli War, available at www.gwu.edu/~nsarchiv. Kissinger explained the US position in a conversation with the shah: White House, ‘Memorandum of Conversation’, 24 July 1973, at www.gwu.edu/~nsarchiv.
27 The four principles Brezhnev proposed were: ‘(1) Guarantees for Israel and the other states . . . (2) . . . no confrontation from the occupied territories. (3) Israeli withdrawal from Arab territories. (4) . . . unobstructed passage for all through the straits’ (Henry Kissinger, ‘Memorandum for the President’s Files, President’s Meeting with General Secretary Leonid Brezhnev on Saturday, June 23, 1973 at 10:30 p.m. at the Western White House’, San Clemente, California, HAKO, Box 75, Brezhnev Visit 18–25 June 1973, Memcons, available at www.gwu.edu/~nsarchiv.
28 On the eve of the October 1973 war, Saudi Arabia called on the United States to require Israel to accept United Nations Security Council Resolution 242 of 1967, which laid out a settlement based on Israel’s withdrawal from the West Bank, Gaza Strip, and other territories occupied in the 1967 war (Alexei Vassiliev, The History of Saudi Arabia, New York: New York University Press, 2000: 391). See also Donald Neff, ‘Nixon Administration Ignores Saudi Warnings, Bringing On Oil Boycott’, Washington Report on Middle East Affairs, October–November 1997: 70–2.
29 United Nations Security Council, draft resolution S/10974, 24 July 1973, at unispal.un.org.
30 White House, ‘Henry Kissinger is provided with a report on the situation in Vietnam and other world developments’, memo., 20 August 1971, CK3100551156, Declassified Documents Reference System, Farmington Hills, MI: Gale, 2011.
31 David Hirst, ‘Arabs Acclaim Sadat Peace Plan as a Major Breakthrough’, Guardian, 18 October 1973; William B. Quandt to Kissinger, ‘Memoranda of Conversations with Arab Foreign Ministers’, 17 October 1973, National Security Archive, ‘The October War and US Policy’, at www.gwu.edu/~nsarchiv, referred to in following notes as NSA, ‘October War’.
32 Edward Cowan, ‘A Saudi Threat on Oil Reported’, New York Times, 16 October 1973: 1; Minutes, ‘Washington Special Action Group Meeting’, 17 October 1973, NSA, ‘October War.’
33 Minutes, ‘Washington Special Action Group Meeting’, NSA, ‘October War.’
34 ‘C-5 History’, at www.globalsecurity.org; James Schlesinger, ‘The Airlift’, in Richard B. Parker, ed., The October War: A Retrospective, Gainesville: University Press of Florida, 2001: 153–60.
35 Parra, Oil Politics: 177–9.
36 US Embassy Kuwait to State Department, ‘Atiqi Comment on OAPEC Meeting’, 18 October 1973, NSA, ‘October War’.
37 Minutes, ‘Washington Special Action Group Meeting’, NSA, ‘October War’.
38 Anthony Sampson, The Seven Sisters: The Great Oil Companies and the World They Made, London: Hodder & Stoughton, 1975: 265, quoting an interview with Attiga, secretary general of the Organization of Arab Petroleum Exporting Countries (OAPEC – not, as Sampson writes, of OPEC) held in February 1975. Aimed at the supporters of Israel’s refusal to negotiate, the embargo was initially imposed on the US, and then extended to the Netherlands, South Africa and Rhodesia. Portugal was added after it allowed the US to use Portuguese territory – the Azores – for airlifting weapons to Israel (Ian Seymour, OPEC: Instrument of Change, New York: St Martin’s Press, 1981: 119).
39 Yergin, The Prize: 607.
40 Parra, Oil Politics: 183–4.
41 On Kissinger’s support for higher prices, see Tore T. Petersen, Richard Nixon, Great Britain, and the Anglo-American Alignment in the Persian Gulf and Arabian Peninsula: Making Allies Out of Clients, Eastbourne: Sussex Academic Press, 2009: 8–14, and Parra, Oil Politics: 197–205.
42 Minutes, ‘Washington Special Action Group Meeting’, NSA, ‘October War’. At its peak, in 1988, Alaska produced 2 million barrels of oil per day; production from the Arab states that year exceeded 15 mbpd – www.eia.gov, and DeGolyer & MacNaughton, Twentieth Century Petroleum Statistics, Dallas: DeGolyer & MacNaughton, 2009.
43 Saul Bronfeld, ‘Fighting Outnumbered: The Impact of the Yom Kippur War on the US Army’, Journal of Military History 71: 2, 2007.
44 Jonathan Nitzan and Shimshon Bichler, ‘The Weapondollar–Petrodollar Coalition’, in The Global Political Economy of Israel, London: Pluto Press, 2002: 198–273.
45 SIPRI Arms Transfers Database, available at armstrade.sipri.org.
46 Morris Adelman, The World Petroleum Market, Baltimore: Johns Hopkins University Press, 1972; Adelman, ‘Is the Oil Shortage Real?’.
47 Hubbert had been associated in the 1930s and 1940s with the technocracy movement, an organisation of engineers linked with the work of Thorstein Veblen, mentioned in Chapter 5, on Engineers and the Price System. The movement sought to replace the price system of the economists and the corporate power of big business with the technocratic management of society and its resources by engineers.
48 Gary Bowden, ‘The Social Construction of Validity in Estimates of US Crude Oil Reserves’, Social Studies of Science 15: 2, May 1985: 207–40.
49 As we will see in the Conclusion, these predictions were not far off. James Bamberg, History of the British Petroleum Company, vol. 3: British Petroleum and Global Oil, 1950–1975: The Challenge of Nationalism, Cambridge, UK: CUP, 2000: 209.
50 See Donella H. Meadows, Dennis L. Meadows, Jorgen Randers and William W. Behrens, The Limits to Growth: A Report for the Club of Rome’s Project on the Predicament of Mankind, New York: Universe Books, 1972; E. F. Schumacher, Small is Beautiful: Economics as if People Mattered, New York: Harper & Row, 1973.
51 Gary Bowden, ‘The Social Construction of Validity in Estimates of US Crude Oil Reserves’, Social Studies of Science 15: 2, 1985: 207–40.
52 Schumacher, Small is Beautiful.
53 Meadows, Meadows, Randers and Behrens, The Limits to Growth 29, 75, 85–6.
54 Akins, ‘International Cooperative Efforts’: 78.
55 Ibid.: 79.
56 Nixon, ‘Special Message to the Congress on Energy Resources’.
57 Keith C. Clarke and Jeffrey J. Hemphill, ‘The Santa Barbara Oil Spill: A Retrospective’, in Darrick Danta, ed., Yearbook of the Association of Pacific Coast Geographers, vol. 64, Honolulu: University of Hawai’i Press, 2002.
58 Daniel Coyle, ‘The High Cost of Being David Brower’, Outside Magazine, December 1995.
59 Robert M. Solow, ‘The Economics of Resources or the Resources of Economics’, American Economic Review 64: 2, 1974: 1–14.
60 John von Neumann, ‘John von Neumann on Technological Prospects and Global Limits’ (1955), Population and Development Review 12: 1, March 1986: 120.
61 Gavin Bridge, ‘Global Production Networks and the Extractive Sector: Governing Resource-Based Development’, Journal of Economic Geography 8: 3, 2008: 414.
62 See Bruce Podobnik, Global Energy Shifts: Fostering Sustainability in a Turbulent Age, Philadelphia: Temple University Press, 2005.
63 Gregory P. Nowell, Mercantile States and the World Oil Cartel, 1900–1930, Ithaca: Cornell University Press, 1994.
64 Samuel P. Huntington, ‘The United States’, in Michel Crozier, Samuel P. Huntington and Joji Watanuki, eds, The Crisis of Democracy: Report on the Governability of Democracies to the Trilateral Commission, New York: New York University Press, 1975: 59–118, 113.
65 Joan Robinson, ‘The Second Crisis of Economic Theory’, American Economic Review 62: 1/2, 1972: 9–10. See also Michael A. Berstein, A Perilous Progess: Economists and Public Purpose in Twentieth-Century America, Princeton: Princeton University Press, 2001: 148–84.
66 Solow, ‘Economics of Resources’: 1–2.
67 Harold Hotelling, ‘The Economics of Exhaustible Resources’, Journal of Political Economy 39: 2, 1931: 137–75; ‘Military Rule in Texas May Boost Oil’, Wall Street Journal, 18 August 1931: 1.
68 Robert Mabro, ‘OPEC and the Price of Oil’, Energy Journal 13: 2, 1992: 1–17.
69 Solow, ‘Economics of Resources’: 13.
70 Ibid.: 12.
71 Ibid.: 13.
72 Larry Lohmann, Carbon Trading: A Critical Conversation on Climate Change, Privatisation and Power, Development Dialogue, no. 48, September 2006.
73 Robert G. Kaiser and Ira Chinoy, ‘How Scaife’s Money Powered a Movement’, Washington Post, 2 May 1999: A1, A25; James Allen Smith, The Idea Brokers: Think Tanks and the Rise of the New Policy Elite, New York: Free Press, 1991: 200–1.
74 See David Harvey, A Brief History of Neoliberalism, Oxford: OUP, 2005; and Timothy Mitchell, ‘The Work of Economics: How a Discipline Makes its World’, European Journal of Sociology 46: 2, 2005: 297–320.