Oil and Ideology Don’t Mix

Oil has never escaped from the struggle of competing political ideologies, but the number of “isms” at play in today’s oil scene seems high even by historical standards. Of course, the oil industry got started off with a bang of raw capitalism back in the days of John D. Rockefeller. Then, Arab Nationalism, socialism, Zionism, Communism and the Cold War, to name a few, had their influence on how oil was found and sold.By the 1980s, however, oil seemed to be on the road to depoliticization. Wall Street, with its message of clearing markets and commoditization, was lecturing the oil world on the benefits of the market mechan”ism.”Markets still reign today, but in a world with increasingly excess rents to grab, ideology is rearing its ugly head. The interplay of the politics behind these isms is leaving the oil market on shakier ground as headlines hint at everything from forced asset transfers to violence against energy infrastructure.The most recent interplay of ideology and oil has been in Venezuela. A quick lesson on Marxism is now helpful in understanding the oil policies of Caracas. The new Venezuelan vice minister for hydrocarbons is well studied on Karl Marx, while the president he advises, Hugo Chavez, is bent on stopping imperialism in its tracks, using Venezuela’s oil strategies and policies as his main tool. As the headlines demonstrate, Venezuela is reevaluating new investment by Western companies in its oil fields. ConocoPhillips was particularly hard hit when its $480 million budget for investment in the Corocoro field was rejected. Instead of pursuing more deals with American firms, the Venezuelan government has granted a number of projects to Chinese state-owned companies following state-to-state meetings last month. China’s state company CNPC already had stakes in two oil fields in Venezuela.Mr. Chavez is so hot to sell his oil to someone other than capitalist Americans, he sent heated cargoes of heavy Boscan oil all the way around the horn of Africa to China at a discount of $30 to international benchmark West Texas Intermediate. That was a lot of effort to make an ideological point when American buyers were a six-day sail away. Mr. Chavez is now talking about signing major trade and investment agreements with China. The Chinese government apparently seems preferable to the West because it still pays lip service to communism. Chinese communist leaders are even known to boast that they don’t mind paying up for oil because it helps redistribute rents back to the Third World away from the rich industrialized centers of capitalism.In another example of an ism at play, former Marxist dislike for Westerners might not be the root of the Putin government’s grab for the assets of Yukos and the unsettled future of BP-TNK’s fields in East Siberia, but resource nationalism is certainly a good explanation. Mother Russia should have the final control its own oil and as its representative, the Kremlin decides export policy, not private companies.And what of Islamism? Osama Bin Laden describes the market price for oil “the biggest theft ever witnessed by mankind in the history of the world.” He is calling on the faithful to attack energy facilities and insists the price of oil should be $100 or more.High oil revenues for Middle East regimes, in turn, isn’t sitting well with American neoconservatism, a movement whose followers believe that America has a responsibility to reduce import dependence on Middle East countries that sponsor terrorism.I have advice for those who believe that their ideology should be the center of the oil world. The market will punish those who defy its logic – whether they are sanctions-enforcing Americans or rent seeking oil producers. It is hard to reason with the power of supply and demand, commodity substitution, and price signals – no matter what philosophy ideologues think will overcome such forces.The oil world is taking a dangerous detour from market principles. It is a detour that could, if it gets out of hand, cost more than just extra money for market inefficiencies in fuel supplies. In a world where there are so many things to fight about – religion, human rights, territorial integrity, national pride, genocide – must we add oil to the mix?Ms. Myers Jaffe is a research fellow at Rice University.

Oil and Ideology Don’t Mix

Oil and Ideology Don’t Mix

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