MONEY AND THE CITY
Oil and monopoly power
tichololas Davenport
Socialists who would rightly denounce businessmen for using Monopoly power to advance prices and profits are naturally loathe to denounce the miners for using Monopoly power to advance their Wages. The reason is that they ttegard the businessman working °I. Pure profit as somewhat imMoral while they regard the miner Working as Mr Wilson put it, in 4dark, dirt and danger," to provide e°al for the country in an energy crisis as somewhat of a hero. The estion is whether we should allow the miners to do a lot of POblic damage and hurt innocent orking people just to prove their IMPortance in the economy. I find tgliese moral questions very dif„colt to answer. Having searched gle New Testament I can find only e saying of the Master which is ,T• evant: "Agree with thine adLetsary quickly whilst he is in the „W with you.” This suggests that ▪ Heath or Mr Whitelaw should !,17e settled this dispute long ago, :°„ile the adversary was perhaps ling to compromise a little, and ‘'c't allow the dispute to drag on ,I,11(1 become a fight to the death. hose death will it be? Mr
eath's or just the thousands of call firms which may now go h,st? The saying of the Master I
ve quoted implies that it is al wise to get to know your guversary whilst he is in the way Zth You. Has Mr Heath got to °W the entirely new type of 8t4121histicated left-wing leaders ot
e Miners? He had better be qUiek.
ti Here is another difficult quesdti)°. Is it right for the Arabs to use eir monopoly power in the oil :usiness to hold up supplies and 71act a price which is eventually 1,(1 be quadruple the old posted of around $3 a barrel price, their customers into cobs • deficits on their balance of i7Yibent5 and bring on a world ,Lad e slump by stopping growth in _ge great industrial nations? Of tVlIrse, they had a political move, which was to prevent their (1134,, tomers helping the Israelis just a4 there is a political motive len:°ng the Communist miner a tiers which is to break Phase 3 go" bring down the Heath ocov.ernment. But leaving aside the toutics, is it right for monopolists ri exploit their customers? Is it ,,ght for the Arabs to cause a world economic upheaval?
The Arabs are mostly small nations with an absurd feudal authoritarian social structure. I am not suggesting that the princely ruling families, already fabulously rich, are going to pocket their oil loot. The can, no doubt, bring their small populations up to the American standard of living but what good that will do them in their sandy deserts, I cannot imagine. The Shah of Shahs can industrialise his country and become a military power but trouble may come as a result. Incidentally, I wish he would stop saying that oil is too precious to burn for heating our homes. He himself has got slaves to fill his grates with cedar logs, but I would have no one to help me stoke up my boiler with, say, anthracite coal. Oil-fired heating is a labour-saving necessity for the bourgeoisie in the West. So this rocketing of the price of oil seems to me a racket which I resent. It costs a few pence to produce a barrel of oil in the rich fields of the Middle East for which they are now asking $11.65. The OECD has estimated that the two oil price increases of October and December will add $50,000 million to the fuel bill of its 24 members of which $33,000 million will fall on the EEC and $9,000 million on Japan. The fact that Libya, Venezuela and Nigeria have not advanced their prices above those posted in the Gulf and that further increases are coming in the next six months means that the OECD fuel bill will double, that is around $100,000 million extra in 1974. For Great Britain it will add £2,000 million to the deficit on ouilbalance of payments which had allready mounted to £1,400 million in 1973.
I hope Mr Wilson is not thinking that he can win the next election as he did in 1964 on the "scandal" of a balance of payments deficit which is now four times the size of Mr Maudling's. Obviously we cannot deal with such enormous deficits by deflating the domestic economy and forcing goods out of home consumption on to the export markets. We will have to arrange finance and borrow. We have been quite clever this last year in arranging borrowings abroad to the extent of $2,488 million to meet the capital needs of the nationalised industries and local authorities. These borrow
ings have been credited to our reserves so that at the end of the year, in spite of paying the usual $252 million to meet interest and principal on the American and Canadian loans of the last war, we finished up with reserves of $6,476 million (£2,787 million) against $5,658 million (£2,376 million) in January. How much the Bank of England spent in supporting sterling in the foreign exchange markets is not known but the fall in the sterling rate to $2.28 suggests that it could have been considerable.
To meet the new colossal deficits coming in the next two years to pay for monopoly priced oil we will have to discuss with the Arab governments what kind of security they prefer. They will probably not want to take more Euro-dollar or Euro-sterling bills, for these markets are already flooded with paper. They will not want to take IMF paper (SDRs) which has not yet been defined in terms of gold and currencies. Fortunately they will want to buy manufactures from us to meet the capital requirements of their own oil business, so that we shall be able to pay off most of the debts with goods.
It is not generally appreciated that the Arab states are going into the oil refining and distributing trade. They are taking over the Western oil companies which held their producing concessions. For example, Kuwait intends to acquire 60 per cent of the Kuwait producing company owned by British Petroleum and Gulf Oil, and to raise the participation by degrees to 100 per cent by 1979. The same sort of thing is happening in Saudi Arabia. This means that the Arab oil producing states will require refineries and tankers to handle the oil from the expropriated companies. (I cannot imagine that the expropriated companies will agree to sell their stolen oil for a miserable commission.) Iran has taken a different line over expropriation. The Shah has given the oil companies a longterm agreement under which they can take so much oil at a discount price for refining and distributing abroad. The impression I get is that the oil producing states do not want to disrupt the western economies but to make a lot more money for themselves out of their monopoly power. Such is life. If Great Britain is lucky over its drilling in the North Sea it can cock a snook at the Arabs by. 1975. Meanwhile I am impressed by the fact that the Americans in Wall Street are still buying our British Petroleum shares in hundreds of thousands.
Previous page
