Oil Dollars at Work

Dianne Feeley

Crude Capitalism
Oil, Corporate Power, and
the Making of the World Market
By Adam Hanieh
Verso Books, 2024. 336 pages, $29.95 hardcover.

CRUDE CAPITALISM IS a concise and fast-paced history of oil’s political and economic significance in facilitating and expanding a world capitalist market over the past 150 years. Its author warns us, however, against seeing oil as the driving force: “it is simply a sticky black goo.”

The resource becomes a valuable commodity in the capitalist logic of accumulation. Indeed, over the last third of the book Adam Hanieh explains that this dense energy resource has become even more than a commodity, but transformed into a financial derivative.

Beginning with Chapter 1, the author frames the history of oil as a commodity whose dominance now threatens human life:

“Oil, in other words, remains at the core of our economy and our energy systems; without dislodging it from this position there is no possibility of ensuring a future for humanity.” (3)

In 13 chapters Hanieh shows how the drivers of the capitalist economy recognized the superiority of oil over other fossil sources because of its density and portability. By 1950, oil supplied the majority of U.S. industry and energy; within a decade Europe and Japan also switched to oil.

Transforming oil into a commodity and getting it to consumers required considerable infrastructure. The most successful and profitable industrial model became the vertically-integrated firm controlling upstream (extraction) as well as downstream (pipelines, shipping, refining, storage, marketing, and developing new products).

Non-integrated and smaller firms owned the majority of the wells, and bore the risk of maintaining production and exploring new fields. Yet they were forced to sell their crude oil to firms that moved, refined and marketed their resource.

Although the power of the largest and wealthiest U.S. firms was challenged with passage of the Sherman Anti-Trust Act (1890), their lawyers and lobbyists were able to find various ways to circumvent the law.

Eventually a firm that coordinated upstream and downstream operations was transformed into a network of subsidiaries. This enhanced their capacity to set prices, block competitors and move their money internally to minimize taxes and royalty payments.

The Changes War Brings

U.S. oil firms got a head start in the early 20th century as oil fed the growing auto industry. It was also crucial in building the U.S. arms industry, fueling ships, submarines, airplanes, trucks, motorcycles, even the manufacture of explosives. Eighty percent of the oil used by the Allies in World War I came from the United States.

By 1918 a joint board of federal officials and the largest U.S. firms worked together to strategize the country’s energy policies. Part of the planning meant tax breaks including depletion allowances specific to the oil industry. Later most of these mechanisms were extended to the firms’ overseas operations and continue today.

Although the United States came out of World War I an ascending power, European countries had investments in oil-producing countries in the Middle East. Indeed, the defeat of the Ottoman Empire enlarged their control. But one important oil field, on the coast of the Caspian Sea, slipped from Swedish and British control by the Russian Revolution and subsequent nationalization of the Baku fields. This separate development demonstrated a possible alternative path for subsequent anti-colonial struggles.

On the eve of World War II, the U.S. market was dominated by a core of 20 vertically-integrated firms with thousands of small producers and retailers working with them. Hanieh notes that the bifurcation of the U.S. domestic market was a mirror of the international one, which was dominated by European firms.

After World War II

World War II provided a unique opportunity for U.S. firms to extend their infrastructure and supply the Allied forces. With the 1944 Bretton Woods agreement, the international oil market was priced in the U.S. dollar and pegged to the gold standard. As the clear victor, Washington imposed conditions on defeated Germany and Japan, banning them from using coal to produce synthetic fuels. Although the orders were reversed several years later, by then coal-to-fuel plants had been closed or converted.

Further, between 1948-52 Washington’s passage of the Marshall Plan provided $13 billion in reconstruction aid to Europe. This enabled European countries to purchase U.S. goods and services, specifically requiring at least one-tenth to be spent on U.S. oil.

As Walter Levy, head of the Marshall Plan’s oil division and former economist for Mobil, later remarked, without the plan “the American oil industry in Europe would have been shot to pieces.” (102)

As early as 1947, Saudi Arabia’s Aramco, which became the world’s largest oil producer, came under the control of four U.S. firms.

While before the war U.S. firms held 10% of the Middle East’s oil, by the early 1950s they held the majority. oil in the Middle East was cheaper to extract and bring to market than in the United States. In fact, Hanieh reports, four-fifths of the price of a barrel of crude oil was pure profit. (113)

Over the next decade and aided by generous tax benefits, U.S. firms supplied 60% of the world’s manufacturing output and slightly more than a quarter of the world’s GDP. This golden moment of U.S. capitalism was bolstered by the range of downstream operations. Five U.S. oil firms along with Royal Dutch Shell and British Petroleum, known as the Seven Sisters, dominated the world market.

With the most developed chemical industry in the world, Germany saw an estimated $700 billion of its patents seized by Washington and sold well below value to U.S. firms — DuPont, Union Carbide & Carbon Corporation, Dow Chemical and Monsanto to name a few. As Hanieh explains the expansion of the market this meant:

“Today it is almost impossible to identify an area of life that has not been radically transformed by the presence of petrochemicals. Whether as feedstocks for manufacture and agriculture; the primary ingredients of construction materials, cleaning products, and clothing; or the packaging that makes transport, storage and retail possible – our social being is bound to a seemingly unlimited supply of cheap and disposable petrochemicals.” (154)

The petrochemical industry transformed industrial production, sparked automation and drove mass consumption.

Anti-Colonial Victories and Setbacks

As Europe was being rebuilt in the aftermath of World War II, countries still controlled by these imperialist powers were demanding their independence and then nationalizing their oil industry.

Britain was able to remain a major player through its oil interests in Iran, Iraq and Kuwait while begrudgingly accepting that its firms might need to compromise on royalty fees and taxes to prevent nationalization. It sought, above all, to keep its financial advantage through maintaining London as a financial center.

When Iran nationalized its oil industry under Prime Minister Mohammad Mossadegh in 1951, Britain imposed an international boycott. But the 1953 British-U.S. coup that restored Shah Mohammed Reza Pahlavi did not restore the British monopoly nor reverse the nationalization. Instead, Washington maneuvered to win a favored financial and political relationship with the Shah, which lasted until his overthrow in 1979.

In summarizing the anti-colonial struggle that erupted in the post-World War II period, Hanieh focuses on the Middle East but mentions struggles in Latin America, Africa and Asia. Seeking collaboration, these newly independent countries came together in a series of conferences during the latter half of the 1950s. Although these discussed a wide range of cultural, political and economic issues, above all they sought to control the pricing of their crude oil and expand their infrastructure to capture more of its value.

By 1960 five major oil-producing countries — Iran, Iraq, Saudi Arabia, Kuwait and Venezuela — established the Organization of Petroleum Exporting Countries (OPEC). At that time, these five produced 37% of the world’s crude oil.

The promise of OPEC would be cut short by counter-revolutionary events in Saudi Arabia, Iraq and the 1967 Arab-Israeli War. Hanieh summarizes how the radical anti-colonial movements that underpinned OPEC were overwhelmed by the repression these events unleashed.

OPEC did break the power of the Seven Sisters, who no longer controlled the growing share of oil reserves. However, in the new environment a huge portion of the oil wealth remained in the oil-producing countries, particularly through the sale of military weapons and technical oversight.

Even the “petrodollars” that were soaked up by the ruling elite ended up as secure investments in Western banks, properties and bonds. Further reinforcing their control, autocratic leaders in Saudi Arabia and the Gulf states expanded their production by importing a working class without citizenship rights, whose protests over working conditions can lead to deportations.

Moving to Neoliberalism

In opposition to the theory that OPEC produced the oil crisis of the 1970s, Hanieh examines how several factors bookended the economic crises.

In 1971 the U.S. Nixon administration stopped pegging the dollar to the gold standard. This sudden decrease in the value of their oil reserves led the OPEC countries to revolt, launching what would be a five-month partial embargo. Insisting that oil be priced at the point of extraction, they successfully increased the price sixfold over four years.

While dominant U.S. and British firms used the moment to lobby their governments for “energy independence” as a way to bypass environmental regulations and obtain a green light on their projects, they no longer had the power to mount a strangling oil boycott as they had on Mossadegh’s Iran.

To expand into more distant and costly oil fields, U.S. firms used the more deregulated Euromarkets to obtain cheap credit. As these capital flows moved across borders, the poorer, non-exporting countries also signed up for cheap credit, using commercial banks with variable interest rates.

When the U.S. Federal Reserve Bank’s director, Paul Volcker, decided to halt U.S. inflation in 1980 by raising interest rates to a crippling 20%, oil prices collapsed. This decision came as oil supplies were expanding and were being purchased in a quick cash “spot” market. Debtor nations found that the “easy” credit disappeared, replaced by hefty debt service payments.

As Hanieh explains:

“Dominated by Anglo-American financial institutions, this new architecture of global finance would help re-embed the primacy of the American state and the U.S. dollar at a time of major political and economic uncertainty. It would also enable the appearance of new modes of wealth extraction and dependency across much of the globe, expressed most particularly through the chains of debt that emerged following the oil shocks [of 1973-74 and 1979-80].” (181)

Financialization

In the aftermath of the 1979-83 crisis, the oil market continued its sluggish performance as many European countries sold off their state-owned oil firms. Privatizations and mega-mergers altered not only the firms’ ownership but their structure, operation and practices. By 1988, oil emerged as a financial derivative traded on the International Currency Exchange (ICE) and New York Mercantile Exchange (NYMEX). Instead of relying on banks for loans, oil firms seek issuance of equity or debt securities on the stock market.

This financialization demands short-term maximization of the stock price, not longer-term goals. Share buybacks is one strategy for increasing shareholder returns, another is cost cutting.

Hanieh cites one U.S. government survey showing that the top 25 U.S. companies halved employment between 1985-95. In-house work was often outsourced, including drilling and well maintenance, marine transportation and information technology. Worldwide between 1980-97, fully 60% of the oil industry’s work force was laid off.

The new model also meant decentralization in each sector, turning the vertically-integrated industry into a modular structure. Those elements deemed to be underperforming were closed down or sold off. When the firm needed to expand, it was cheaper to invest in a company than build a facility.

Once acquired, the new company’s “excess” capacity would be eliminated. In 1980 there were 24 top vertically-integrated U.S. oil firms, by 1990 there were 19; a decade later only nine, today just four.

Although their primary business is oil, these supermajors rebranded themselves as “energy” companies supplying natural gas, wind, solar and renewables. But their major commodity is oil.

The Russian Model

Having introduced the separate path of oil production taken by the Bolsheviks after the Russian Revolution, Hanieh develops a fascinating chapter on the dissolution of the USSR in 1991 and the creation — within less than a decade — of a capitalist class. As early as 1997, Forbes listed five Russians among the world’s top billionaires; by 2003 there were 17. Capital flight was moving about three billion a month abroad.

To end the instability that this breakneck transition caused, Russian President Boris Yeltsin appointed Vladimir Putin prime minister in 1999. His task was to reverse the economic, political and social crisis.

Putin made the decision to target Mikhail Khodorkovsky, who owned Yukos, the country’s largest vertically-integrated firm. Accused of economic crimes, Khodorkovsky and his partner were sentenced to prison for nine years. By disciplining one of the country’s wealthiest industrialists, Putin established his authority over the capitalist class.

He also projected Russian power internationally by merging Yukos’ assets into state-owned Rosneft. Hanieh cautions the reader: “(I)t is a mistake to counterpose the state and the market as two separate and antithetical spheres of economic activity. Oil remains the nexus that mutually binds the growth of Russia’s billionaire class and the repressive, authoritarian state that Putin has built.” (226)

This transition occurred during a decade-long oil boom on the international market. Given that Putin prioritized developing a global market for its resources, countries previously in the Soviet orbit, including in Eastern Europe and Cuba, no longer had access to deeply discounted oil prices.

How to Prevent Disaster

As oil prices rebounded in the 21st century, significant investments were made in areas where extraction was more expensive. This included producing oil and gas through offshore deep- water drilling, fracking, and extraction in the Alberta tar sands. These methods are not only more expensive, but more ecologically destructive.

This is also evident in Western oil companies’ expansion into Africa, particularly Angola and Nigeria. Having negotiated profitable contracts with state-owned companies, these firms have little concern for the ecological or social devastation wrought by their activities. The cost of a barrel of African oil is a third to a half less than that of other countries.

With foreign investments and commercial firms flocking to China in the 1990s, the country mobilized its rural workers and transformed itself into “the workshop of the world.”

Today a manufacturing network has transformed not only China but East Asia. Consuming almost one-third of the world’s oil and expanding its infrastructure, this area has become the global center of petrochemical production and consumption.

As the result of this dynamic interplay, Middle Eastern and North African oil is increasingly shipped eastward. While the same 15 Western firms and national oil companies (NOCs) control half of the world’s oil resources, the Western firms have slipped from top place.

Today only one Western firm, ExonMobil, is in the top four. The other three are Saudi and Chinese NOCs, with Saudi Arabia’s Aramco the most valuable company in the world. These NOCs are vertically integrated firms with many privately owned downstream activities.

Hanieh sees two dominant parts of the oil industry: the national oil companies and the Western firms that he describes as supermajors. Both are huge and diversified corporations controlled by their shareholders, although for the NOCs, the principal shareholder is the government.

At this point, the two work primarily in regional, but occasionally overlapping, areas. The North American market is largely self-contained, while the rest of the world needs imports to meet its needs.

Until Putin’s war on Ukraine, Russia shipped half of its oil to Europe. With the EU imposing restrictions, Russian oil has been rerouted to India and China.

This dynamic East-East hydrocarbon axis reveals the weakening of U.S. global power and threatens the continuation of oil prices being set in U.S. dollars. While this explains Washington’s interest in controlling Middle East oil production even while the United States remains in control of the world’s oil resources, Hanieh projects a future, circling back to his introduction.

Crude Capitalism not only outlines the changing dynamics of the oil industry, but also show how that has produced immense profit for those who have captured fossil resources and used their governments to ensure continued profits.

In his concluding chapter, the author outlines the false solutions to the disaster of carbon emissions. He concludes that the technical fixes offered are totally inadequate. So too is the idea that adding green energy to the mix will reverse the planet’s warming. Instead Hanieh sketches out an alternative to the various technical proposals, demanding:

“We must confront the multiple logics of a social system that has served to centre oil throughout all aspects of our lives. And we cannot extricate ourselves from oil’s pervasiveness — certainly not at the pace necessary to halt runaway climate change — while remaining within this social system.” (310-11)

The only way to break with an increasingly destructive consumer world is to prioritize humanity’s social needs and repair the world in which we must live. Crude Capitalism concludes with briefly outlining an ecosocialist perspective. This means expanding social needs (access for all to housing, health, education), an immediate limit on destructive forms of production/consumption, and massive reparations to the vulnerable who have been forced to live in abject poverty.

This wide-ranging history of oil ends with a vision of a democratic and egalitarian society where people, not the market, make the decisions. Hanieh concludes:

“As the history of oil over the last century confirms, capitalist states exist to support and facilitate the accumulation of capital, and this cannot be changed without a root-and-branch transformation of society.” (313)

March-April 2025, ATC 235