Nature's Evil

In 1971, President Nixon suspended the convertibility of the dollar to gold. If he had not done this, the fourfold increase in the price of oil in 1973 would have led to a banking crisis: there was simply not enough gold to match such a growth in the money supply. Since then the dollar has floated in relation to other currencies. If general inflation is taken into account, the price of gold has increased more than the price of oil because the supply of gold has grown more slowly than the supply of oil. But the price of oil is more volatile than the price of gold. In peacetime these prices fluctuate in tandem; in times of war or crisis they diverge. The neoliberal economy, which reigned supreme thanks to the victory of oil over coal, thrived only when oil prices grew smoothly. Perhaps an oil standard would work as a regulated process of predictable growth rather than as a price equivalent like the gold standard. ‘Stabilisation of the markets’ was the official goal of OPEC.

Founded in 1960 by Arab nations, Iran and Venezuela, this cartel now includes fifteen countries, which control 44 per cent of global oil extraction. A few other countries such as Russia and Norway attend OPEC meetings as observers. The USA is an unofficial but influential observer. Paradoxically, the price of the most traded commodity of global capitalism is not set by the market but depends on agreements among the members of OPEC. The American disposition towards free trade did not prevent it from approving the formation of OPEC. John F. Kennedy’s administration hoped that making an agreement with a state cartel would be easier than with transnational corporations. But during the Arab–Israeli war in October 1973, OPEC announced an embargo on supplying oil to the USA, and prices soared. Like Rockefeller a century before, OPEC did not deliver the stability of oil prices that justified its monopoly. In June 1974 the secretary of the US Treasury, William Simon, signed an agreement with Saudi Arabia: the Americans agreed to a new price level on condition that the Saudis would invest petrodollars in American Treasury bonds. 30 OPEC established the price of a barrel an order of magnitude higher than its production cost; this defined the price of fuel in petrol stations all over the world; consumers paid this price because they had no alternative; the profits were shared between the owners of the petrol stations and the exporters of oil; and the latter bought US Treasury bonds, which lowered bank rates, gave relief to business and created bubbles on the property market. Sucking money out of domestic economies, including that of the USA, and directing it into the biggest treasury on earth, this was a mercantile pump of the highest level.

The banks and stock markets need a globally shared fiction, an analogue for the gold standard. The price of a barrel is as fluid as oil itself, but it has strong backing. Geologists took care of the fact that, for every barrel of oil consumed, another two were added to the ‘proven reserves’ of the planet. The replacement of solid, limited gold with flowing, growing oil added a shot of dynamism to the neoliberal world view. But oil prices fluctuated wildly, as Keynes had predicted they would. Post-war governments limited this volatility either by establishing ‘price corridors’ or by creating national reserves. The first method usually failed to work; the second led, for example, to the creation of the Strategic Petroleum Reserve, giant oil-storage facilities in salt mines in Louisiana and Texas. Oil has been stored there since 1975; now this reserve has so much oil that it would take six months to take it all out if ever the need arose. The creation of this giant storage system coincided with the widely circulated idea of ‘peak oil’. A sort of resource panic, it was articulated by the American geologist Marion King Hubbert. Repeating Jevons’s fallacy, Hubbert wrote in 1948 that oil would soon run out; his forecast was that oil extraction would reach its peak in 1970 and then fall because of depletion, rising costs and diminishing returns. People discussed this prediction in 1973, when the price of oil rocketed for quite different reasons. 31 In response to the American oil reserve, the Soviet Union created massive underground storage facilities for natural gas; ironically, they all happened to be on the territory of Ukraine and now belong to Russia’s rival.