We Pay through the Nose for Gas—While U.S. Oil Companies Stuff Their Bank Accounts

May 17, 2004

Gasoline prices have reached more than $2.00 per gallon in many places around the country–with predictions it will go much higher. The oil companies, as usual, blamed OPEC for creating a shortage of crude oil–and so causing prices to rise. In reality, it is not crude oil that is in short supply in this country. The oil industry admits it–and the government’s reserve continues to increase as surplus crude oil accumulates.

What’s in short supply is gasoline. And that shortage is being contrived by the companies that refine oil in this country–dominated by the world’s five biggest oil companies, the "Majors" as they are called. These five–BP/Amoco, Exxon/Mobil, Chevron/Texaco, Royal Dutch Shell and Total–have shut down much of their refinery capacity to drive up the price of gas. Since 1980, the companies have closed half of their refineries in the U.S. and they continue to do so, even while prices shoot further up.

They are not replacing old refineries with new more efficient ones–they have not built a single new one since 1976. They certainly could have done so–given their enormous profits during all that time.

This is not the first time that the big oil companies have created artificial shortages to drive prices up. They did so in 1973, during what was known as the "Arab Oil Embargo." OPEC had threatened to embargo countries that had supported Israel during its Yom Kippur War. In reality, that embargo was always violated.

The oil companies took advantage of OPEC’s threat, however, to drive up their prices. At that time, the big oil companies still directly controlled a big part of the production of crude oil, in addition to refined oil products.

It is usually difficult to prove how big companies create shortages in this manner, but in this case a report came out five years later showing that U.S. officials had encouraged OPEC to increase its prices since early in 1971.

U.S. industry overall stood to gain from these price increases, since it would benefit from increased exports to the OPEC countries and because higher oil prices would hurt competitors in Europe and Japan more than U.S. companies. Europe and Japan were more dependent on oil than the U.S. was.

The big oil companies used part of the enormous super profits they made to pay for exploration of new oil resources in the North Sea, Alaska and the Gulf of Mexico.

The oil companies manufactured a similar shortage in 1979, and blamed it on OPEC once again. They did it again in 2000 and they are doing it today.

So what does the oil industry want this time? The U.S. Senate, using the high gas prices as a justification, has just passed a nine billion dollar tax break going to the oil and natural gas industry. It includes enormous tax refunds for companies that increase oil drilling within the U.S. and for a pipeline to carry natural gas from Alaska.

This same bill has been turned down three times before. Given how enormously profitable the oil industry has been, it was a kind of embarrassment, even for politicians who give the corporations everything they ask for.

But now it’s been passed. Effectively, the gas price explosion has extorted another tax break for the oil industry. The other thing the companies want is the elimination of many environmental and health restrictions that cut slightly into their profits.

The world’s oil is controlled by a handful of companies–who create artificial shortages when it serves them, regardless of the havoc this causes to society. But the oil industry is not unique–it’s only a microcosm of how the whole capitalism economy works.