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Is the Oil Shortage Real? Oil Companies As OPEC Tax-Collectors

M. A. Adelman
Foreign Policy
No. 9 (Winter, 1972-1973), pp. 69-107
DOI: 10.2307/1148086
Stable URL: http://www.jstor.org/stable/1148086
Page Count: 39
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Is the Oil Shortage Real? Oil Companies As OPEC Tax-Collectors
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Abstract

The United States currently consumes more energy than any other country. Over the next dozen years, our energy consumption may double. Oil and gas provide three-fourths of our energy. Domestic reserves could supply this projected demand only at excessive costs, and large-scale supply of nuclear energy is more than a decade away. By the end of this decade, we will probably be importing very substantial quantities of our oil. It is widely believed that this situation will constitute a major foreign policy problem in the coming decade with implications ranging from adverse effects on our balance of payments to a changed political balance in the Middle East. Negotiations between oil companies and oil-producing countries have been front page news almost continuously for the past two years, with the companies recently agreeing to producing-country "participation" in ownership. The New York Times has announced editorially that "the squeeze on oil has begun," and the Ford Foundation is financing a large-scale study of world energy problems. Oil companies have spent considerable amounts on advertisements to inform us about the problem. Given these views, it is rather startling to find a highly respected M. I. T. economist and oil expert stating that there is "absolutely no basis to fear an acute oil scarcity over the next 15 years." Professor Adelman, while acknowledging that the United States is confronted with a local exhaustion of its low cost oil and gas, nevertheless argues in the following article that not only is the world energy crisis "a fiction," but that to the extent that there is a foreign policy problem, it is in considerable part caused by inept policies of the U. S. government. In Adelman's view, the State Department's interest in "stability" has reinforced the oil companies' and producing-countries' ability to maintain a monopoly price at 10 to 20 times the long-run incremental cost of producing oil. The only question that matters is whether the monopoly will flourish or fade. The success of the OPEC cartel of oil-producing countries largely depends, in Adelman's view, on the policies of the United States and other consuming countries, to which the oil companies will adapt as best they can. If, for a variety of reasons spelled out below (and by Theodore Moran in the last issue of FOREIGN POLICY) the oligopoly weakens, the sources of supply of oil on world markets will increase and the price will decrease. In the meantime, contrary to popular myth, the multinational companies turn out to be agencies for taxing people in consuming countries-both rich and poor-and transferring the lion's share of the proceeds to the governments of the oil-producing countries. The amount of the resources transferred by this transnational system exceeds the amounts of resources transferred in bilateral governmental aid programs. Adelman's article is longer than our usual articles, and his views are bound to provoke controversy. Nonetheless, the Editors of FOREIGN POLICY believe that the article makes an important contribution toward developing an informed debate on what has already become an important foreign policy issue.

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