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Welcome to the New Books Network.
Hello, everyone.Welcome to the New Books Network.My name is Jeffrey Gordon, and today I'm talking to Adam Nia about his new book, Crude Capitalism, Oil, Corporate Power, and the Making of the World Economy, which just came out from Verso Books.
Oil is everywhere.It's in our cars, it's in the fertilizer used to grow our food, and it's in the plastics used to produce and transport our consumer goods, named just a few prominent uses.
How did oil come to occupy its central position in the world economy?And how did corporate power shape the uptake, pricing, and distribution of oil and petrochemicals? And how have changes in oil markets affected broader trends in the global economy?
In his new book, my guest Adam Hania tackles all of these questions by tracing the history and diverse geographies of oil.
His narrative weaves together the links between oil, geopolitics, high finance, the evolution of corporate organization, and the environment. Adam Nunez, Professor of Political Economy and Global Development at the University of Exeter in the UK.
He is currently a Distinguished Visiting Professor at Tsinghua University in Beijing.
His previous books are Lineages of Revolt, which came out in 2013, and Money, Markets, and Monarchies, the Gulf Cooperation Council, and the Political Economy of the Contemporary Middle East, which came out in 2020 and which I spoke to Adam about for the New Books Network a few years ago.
Um, hello, Adam.How are you today?Hi, Jeff.It's great to be with you.Um, so as is customary on the new books network, uh, I'll start off by asking you, uh, about yourself.Uh, tell us a little bit about yourself.
How did you come to write this book and how does it fit in with your broader intellectual trajectory?
Well, my academic interests have mostly focused on the Middle East, especially the Gulf monarchies, Saudi Arabia, United Arab Emirates, and so forth.
And in my work on these monarchies, I've encountered what I would say is a problem with the way that people treat and analyze these countries.In a lot of writing, Oil wealth is seen as explaining everything.
It's used to explain the nature of the states, their lack of democracy, their kinds of economic development.And I think there's a problem with this focus on oil as the causal explanation.
It tends to exceptionalize the Gulf states and it feeds into these popular misconceptions. that the Gulf countries are like unique places, different from anywhere else on the planet, kind of feudal hangovers run by despotic shits.
So my earlier books try to work against these ideas.And I wanted to show in these books that The Gulf, we can understand the Gulf countries just like we would any other capitalist state.
They are run by powerful capitalist conglomerates linked closely to the ruling families.They exploit labor, which is overwhelmingly migrant labor.They have a big footprint on their surrounding regions.
And of course, they're deeply connected to the global economy. So all of these things, obviously, oil wealth is really important to all of these things, but oil doesn't have any kind of innate power.
At the end of the day, it's just a sticky black goo.And what I've tried to argue in these books is that what matters is the social system in which oil is located.And that's capitalism.
So in thinking about these things, it's kind of, you know, working around these, the Gulf for many years, and thinking about oil and how we can think about oil's relationship to capitalism, I felt that there's a much bigger story there to tell about the history of oil and to talk about how this shift to oil as the principal fossil fuel that happened in the middle of the 20th century,
was really connected to the emergence of the world market, to the emergence of global capitalism.So it partly comes out of my deep interest in the Middle East, but it's a story that really does try to cover every corner of the world.
Yeah, and I appreciate the way that this book on the one hand is sensitive to the materiality of oil and how that affects its uptake in society and how that affects the way that oil interacts with broader markets.But on the other hand,
It doesn't give into the sort of oil fetishism that we see in some of the social sciences, especially around the resource-first literature, where, as you say, oil is treated as something with its own unique causal powers.
You know, oil has to be drilled.That takes the exploitation of labor, it has to be transformed into all these other substances.Oil and energy as a whole is a social relation, it's not just something that
Oil doesn't, uh, drill itself, you know, it doesn't just, it's not just sitting there for people to take.Um, and it's, uh, not just sitting there ready to go straight into your gas tank.
It takes a lot of, um, uh, social processes to, to turn it into the substance.It's at the center of our lives today.
So we often hear about the resource curses I just alluded to and geopolitical conspiracy theories that reduce every major global political event to attempts to gain control over oil and pipelines.
Yeah, as you just said, oil is just an inert substance.It's just goo. Why is an understanding of capitalism necessary for explaining why and how oil emerged as a dominant fossil fuel in the 20th century?
Yeah, this is really the key question.And here in the book, I draw upon the work of other wonderful writers on oil and energy, people like Andres Malm, and Matt Huber, and Michael Watts, and also Marx. and his idea of commodity fetishism.
And I think this is quite a powerful idea.Basically what Marx is arguing with this concept is that we do tend to invest commodities with some innate or inherent power over us.
And we forget about the social relations that generate particular patterns of behavior, particular logics, and really go to explain where that apparent power in a commodity comes from.
So it's foregrounding those social relations, the social relations of capitalism.So as I said, oil is just a sticky black goo.And so the question is, what is it about capitalism that has given this goo such an apparent mystical power over us?
So much so that it's now leading to the collapse of the planet. And in the book I talk about how these various logics of capitalism have done this, have invested oil with this kind of power.
Things like capitalism's tendency towards ever accelerating accumulation, the tendency to speed up production and circulation of commodities, to widen markets and the sphere of consumption, to grow the sphere of consumption.
mechanization and replacement of human labor with machines, the growth in finance, all of these kinds of things that we tend to think of as natural, because they have been naturalized under capitalism, really try to foreground these to explain where oil's meaning comes from.
over the last hundred years or so.
It's not just a theoretical point this, and this is, I think, the main story I wanted to tell is the kind of historical emergence of all of these processes from the early 20th century, all the way up to the current climate emergency that we're facing.
I think there's, if we say, why is it important to foreground capitalism?I think there's two points I would make here.Firstly, I think what it really does, as you alluded to in the question, is it helps to
shift our attention away from just crude oil, just the oil that's under the ground, to think about what oil becomes as it circulates in our economies, in our lives, to look at the oil products, the products that crude oil turns into.
And there are many, many, many of these. And in the industry parlance, this is called the downstream sector.So, a really important part of this is petrochemicals and plastics, that I think is typically overlooked in the question of oil.
It's also how oil gets transformed into money, into wealth, and how this is connected to global finance. So that's the first thing I think is important.
It helps to shift our attention to those downstream products where oil, as oil moves through our lives.And then the second useful thing, I think it really helps to locate the problem of the current crisis, the climate emergency.
It points to the fact it's not just the oil companies.It's not just patterns of individual consumption, or that there's too many people, or these kinds of explanations we often hear.It's the social system we live under.It's capitalism.
And I really think that we need to really name this problem and confront it.We can't just pretend it doesn't exist.And so much of the climate discourse today just ignores this problem.It ignores the reality of this social system.
Yeah, I think that as happens so often in our public discourse around environmental problems, financial crisis, I think that there is too much of a focus on
the companies themselves and the wrongdoings of, uh, or immoral acts of, you know, Exxon and, um, all these, uh, other companies, which are real, like they, they are nefarious actors, but why are they nefarious actors?
You, you can't understand that without, uh, uh, understanding the broader social system in which they're embedded.And, um, um,
Yeah, you have to have a systemic understanding of the global economy as an integrated totality in order to understand the evolution of the oil economy and how oil became central to our lives.
Um, so the first three kind of, um, empirical chapters, uh, of the book, um, which we don't really have time to get into a lot of depth about, uh, uh, talk about, um, the intertwining of oil with the, the monopoly capitalism in the U S in the early 20th century and the rise of, um, uh, standard oil and, and, uh, John Rockefeller.
And then the emergence of oil and the discovery of oil reserves in the Middle East and the interaction between that and European colonialism in the region, particularly in the interwar years.
And at the same time, the emergence of Baku as a major oil producing center in the Soviet Union. and how that affected the Soviet economy in its early post-revolutionary years.
But what I want to do is pick up the narrative at World War II, because that marks a major inflection point in the consumption and production of oil worldwide.
Why did World War II mark this major turning point in the history of energy, not just in the military sector, but also in terms of civilian use of petroleum?
How did the war and the war's immediate aftermath influence the uptake of oil in the world economy?
Yeah, World War II, we can really identify as this kind of turning point, this mid-20th century turning point where oil becomes the dominant fossil fuel, overtaking coal in that respect, which had been up until then the major principal fossil fuel.
And I think what... this moment shows the conflict in the war itself is how important militarism has been to pushing forward this emergence of an oil-centered world.It's really inseparable militarism and the rise of oil.
We can see it, for example, in the way that various kinds of war-making
or waging war took place in World War II, the kinds of vehicles, motorized vehicles, tanks, planes, oil-powered ships rather than coal-fired ships that dominated the conflict in World War II.Now obviously,
Some of these had been present in World War I, and World War I is really also a very important point in this kind of history, which I speak to in the book a bit.
But it's really, I think, at this moment that we see oil becoming really central to the way that war is waged.And it's beyond just the direct fuel as a fuel source.We see it, for example, in the way that
petrochemicals begin to become really central to war making.Weapons like the atomic bomb, for example, would not have been possible without various petrochemicals.We see it also in the way that agriculture
It gets transformed through petroleum-derived fertilizers.It gets transformed through mechanized transport.And all of these things help free up labor, free up people to go and fight or to work in the factories.
So in all these kinds of multiple ways, oil really kind of underpins the waging of the war itself.And it really drove forward a huge increase in the demand for oil, both in the United States and Europe and globally.
And this link, by the way, with militarism really remains today. the largest institutional consumer of oil on the planet, and thus the largest source of carbon emissions is the US military.
And by the way, military emissions are emitted in international climate treaties, they're simply not counted.So I think foregrounding this connection with oil and war, oil and militarism is really key to understanding what oil does today.
But after, of course, the war itself, Second World War, we see this transition take place.Globally, it starts to spread through Western Europe and then Japan and other other parts of the world.And so we call this the coal to oil transition.
But we do need to be careful with this term.And I think this is really important to highlight today, because many people are talking about the green transition.And I think it's really important to think about these transitions, not as a replacement.
It's not like oil supplanted coal or took over and replaced coal, rather it's additive.It was added on top of coal.Oil became dominant, but coal remained ever important.In fact, last year was the largest
human production of coal we've seen in history.So it's not as if coal has disappeared.
So thinking about these energy transitions as being additive and not simply replacements, I think is really key, especially when we're thinking about the green transition.
So basically, what this meant is that post the post World War Two, we see this huge growth in the global consumption of fossil fuel. Between 1950 and 1965, those 15 years, there's a doubling in global consumption of fossil fuels.
So when you look at those graphs of carbon emissions, and you see that big spike, beginning in 1950, this is the reason.It's this oil being centered, so both in war and in civilian uses, spreading across the globe.
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Yeah, I think that point about transitions not necessarily meaning replacement is certainly an important one to sit with and think about.
in our current global conjuncture, as you said, coal is still absolutely central, particularly in the economies of China and India, but also still in the US and Western Europe, coal is still really important in those places.
But yeah, the US would not be able to play the role of global policeman if it had to still rely on coal.Oil is really central to how the U.S.undertakes imperial power in the world today.
How is the changing structure of the oil industry in the Middle East connected to the rise of U.S.
power in Europe, and how did Britain's attempt to resist imperial decline and currency devaluation affect its actions in the region in this immediate post-war period?
Yeah, this period, the aftermath of World War Two is really crucial.And it's here where the Middle East becomes so central to the world's energy matrix.The Middle East had a lot of oil, it was about
In the mid-1950s, it was estimated around 40% of the world's reserves.It was close to Europe, and its costs of oil production were much less than other places anywhere else in the world.
essentially what this low-cost Middle East oil did was it underpinned the coal-to-oil transition in Europe.This low-cost oil could be shipped, supplied to Europe at prices lower than coal.And also, very importantly, it could do this without actually
drawing oil away from the United States.The U.S.market remained insulated from the increased demand that was coming from Europe.So this was really important.And if you look at the Marshall Plan that was pushed by the U.S.
after the war for reconstruction of Western Europe, oil was really a central part of the Marshall Plan, thinking about how oil would be supplied and also how industry would be transformed to running on oil.
This is also the moment the petrochemical industry really becomes emerging in Western Europe. By about 1960, around 85% of Europe's oil came from the Middle East.
There really wouldn't have been a transition to oil in Europe without these Middle East reserves.But really importantly, as you've pointed out, this kind of move to oil as the principal fossil fuel,
took place alongside another transformation, global transformation, that was the shift towards a US-centered global order, the decline of older European powers like Britain and France that had been dominant in the Middle East and elsewhere, obviously colonial powers emanating from Europe.
And the Middle East really became like a crucible, if you like, of this shift from European to a more American-centered world order.
So what we see here is in the Middle East up until this moment, most of the oil production in the Middle East had been controlled by British firms and other Europeans, particularly British firms.But
Shortly after World War II, American oil firms really began to enter in a big way to gain a foothold in the region.And by the mid 1950s, a majority of Middle East oil was being produced by American oil firms.Before the war, it was less than 10%.
So it's really a sea change.It's a very dramatic change in the control of the Middle East oil that takes place in the 50s and the 60s. Really the key, the center of this is Saudi Arabia.
And in Saudi Arabia, we have a very important oil company called Aramco, which was at this stage in the 40s and 50s controlled by four big leading US firms.It was an American company essentially.
For Britain, this was a real big deal, this shift away from British control of oil in places like Iran, Iraq, and elsewhere, towards a much more American-centered oil order in the region.
And it was important, it affected Britain, not simply because of the physical supply of crude oil.
Britain had really invested a lot of effort into, particularly in Iran, of thinking about those crude oil supplies and as part of its war-making abilities, naval abilities, using oil as a fuel for ships.
But it was more than just the crude oil that was important here, because what Britain did was that when they produced oil in the Middle East, they sold this oil in sterling, in the British currency.
And this was really important for the strength of the British currency, sterling. It meant, for example, that Britain didn't have to spend U.S.dollars on oil.They could conserve their U.S.
dollar reserves, rather than having it leave the country on oil purchases.So, you know, it's not widely known, really, that up until the 1970s, about a fifth, about 20% of the world's oil was actually traded in sterling, not the U.S.dollar.
So it was seen, the Middle East was seen from the perspective of the British as an important source of crude oil, but also as an important source of strength for their currency, the sterling.
And another aspect here that was really important, and this connects directly to British colonialism in the Middle East, particularly in the Gulf monarchies, is that the money that was earned through taxes and royalties by the Gulf
monarchies in Kuwait and elsewhere, was held in British banks in London and again in sterling, in the sterling currency.They were denominated in sterling, the wealth of these rulers.
So all of this really illustrates the way that oil and the currency that oil is priced in, the patterns of colonial rule in the region,
were really important to Britain's role in the international financial order and particularly the importance of the City of London.
The strength of the City of London in the financial world can't be separated from this imperial control over oil in the Middle East and the relationships with the Gulf.
And what this meant is that as British imperial power was slipping, as American dominance was emerging in the post-war period, British capitalism was able to navigate this kind of imperial decline in a much better way than other European states.
It positioned itself as an ally, an important ally, albeit a subordinate one, but an important ally to to the US state, to American power.
And it's a place in the financial architecture was really, the global financial architecture was really key to this.I think this helps to explain, I think, the special relationship we continue to see today between the UK and the US.
So thinking about oil, I think, could be really productive in looking at these bigger questions of geopolitics, finance, and these transitions in global power.
Certainly after World War II, the UK was heavily indebted to the US.And so having, being able to pay for this really crucial energy source in its own currency was a major prop for the British economy in these years of post-war reconstruction.And
Yeah, at a time of tremendous dollar scarcity in Europe as a whole, and especially in the UK.
So seeing from that perspective, it makes sense why the UK was so driven to maintain its position in the Middle East when that was so crucial to propping up sterling in this period.
So in the 50s and 60s, this was a period of tremendous anti-colonial struggle and struggles for national liberation in Asia and Africa.How did the shift to an oil-fueled and U.S.-centered world market shape these struggles in the post-war years?
The two major shifts that we've talked about up to this point around the shift to oil as the principal fossil fuel, and also this shift away from British-French colonialism towards a more American-centered world order,
These coincided and were deeply wrapped up with that tremendous upsurge in anti-colonial and national liberation movements that predated the war, but really took off in the post-war period.
Sometimes it's called the Bandung moment, the idea that after the famous conference that was held in Bandung in Indonesia in 1955,
when newly independent states and anti-colonial movements were really trying to steer a direction, a path, away from colonial rule.And oil and the control of natural resources was really central to the debates that emerged among
these movements, these anti-colonial movements, because up until this point, basically the world's oil reserves outside of the US and outside of the Soviet Union were fully controlled by just seven oil companies, Western oil companies.
They were dubbed the Seven Sisters.These were five American firms and two European firms.These seven Western oil firms are the forerunners of the big Western oil firms we know of today, ExxonMobil, Chevron, BP, Shell, and so forth.
So these seven sisters, they controlled the crude resources outside of the US and USSR.They controlled the refining of all oil that was extracted from around the world.
They controlled the pipelines, they controlled the shipping routes, the tankers, and they controlled the retail and marketing of the world's oil.
Really, the national liberation and independence movements were faced with this challenge of how to wrest control of this crucial resource.Remember, this is the moment that oil is becoming central to economic and political processes globally.
How do they gain control of this resource?And it's in this climate.
beginning at Bandung, or importantly, marked at Bandung, but also through the later part of the 1950s, you see discussions among oil ministers and industry experts in Venezuela, in Iran, Saudi Arabia, Iraq and elsewhere,
about this question, how do we gain some control over this really crucial resource.
So this ultimately culminates in 1960 with the establishment of OPEC, the Organization of Petroleum Exporting Countries, which was really led by Venezuela, Saudi Arabia and Iran in the early days.
And now, of course, obviously, it's still a very important part of the oil industry.So thinking about OPEC in the context of this anti-colonial moment is really important.
But what I also try to do in the book is to say that it would be wrong to read OPEC and this, we need to read it in a careful and nuanced way and not simply as an embodiment of some kind of anti-colonial third-worldism.
What I mean by this is that if we think about somewhere like the Middle East and we think about the wider region in the Middle East and the anti-colonial movements, the leftist movements, the communist movements in places like Egypt and Lebanon and Jordan,
in North Africa, these movements at the regional level thought about oil as well.It wasn't just the oil-rich states.It wasn't just Saudi Arabia, Iran, Iraq, and so forth.It was the wider regional dimension that's really key here.
And for many of these movements, they saw the control of oil as a way to kind of chart a different future and address these kind of centuries of colonial plunder.
So one slogan that became popular was Arab oil for the Arabs, that we should take this oil and use it for our own development purposes. And really, it's crucial now to see what happens next.
Because what these kinds of left wing and nationalist movements outside of the oil producing states, and they resonated also deeply inside the states as well in Saudi Arabia and elsewhere,
they presented a threat, not just to the Seven Sisters, not just to the big Western oil companies, but also to the autocratic rulers and the monarchies in places like Saudi Arabia.And at that time, we're talking here about the 60s and 70s, Iran.
So, we see at this moment a shift in the way that the US relates or projects itself in the Middle East, and this is through becoming the main allies
of the Gulf monarchies, building a privileged relationship with Saudi Arabia in particular, guaranteeing the rule of these monarchies as long as they remain within the orbit of American power.
And there's a variety of ways this happens that I talk about in the book, but it's really incorporating
these big oil producing countries as key American allies, even though these states are getting control of their own oil, that the US holds back any challenge to its global position.
So what I'm saying is we can't flatten out the Middle East and other areas that have really been reeling from colonization.
There were social forces in the regions, particularly in the Gulf monarchies, who benefited from their alliance with the US and from their control of oil.They stood against the interests of the vast majority of the region.
And the other side to this, which is absolutely crucial to mention, particularly in this moment, of course, is the U.S.
alliance with Israel, which really cemented and took hold after the 1967 war, where Israel really set back the left, the Arab nationalist movements in the region, and the U.S.moves in as the main backer of Israel for this exact reason.
So we have these two pillars of American power in the Middle East, Israel on one side, and then the Gulf monarchies on the other.And that still remains very, very true today.
And we can't think about the politics of the Middle East, we can't think about what's going on in Palestine, without centering the question of oil and the centrality of the Middle East to the global political economy.
Yeah, I think that a lot of people in the US don't realize that the oil sector in Saudi Arabia and Iran in the 50s and 60s was a major center of left-wing mobilization and of trade unionism and certainly there was no
It wasn't foreordained that these countries would wind up within the U.S.orbit, and eventually Iran did leave the U.S.orbit after the Iranian revolution.
There were certainly times when it looked like Saudi Arabia was potentially open to charting a different path, or if there were different social forces in Saudi Arabia mobilizing to contest monarchical power there.And I think that
These things are overlooked in what most people in the US, at least, know about Saudi Arabia today.I want to talk about, before we pick up the narrative again of OPEC and the oil crisis of the 70s and the major transition in control over oil.
Before we get to that, I do want to talk about, in the 50s and 60s, the petrochemical revolution, which is an important contribution of the book in talking about
Um, here, the major transition in, um, uh, the industrial chemical sector away from, uh, sort of, uh, uh, coal centrism to an oil, uh, oil centrism and the role of petroleum products.
And this is really a period when, um, petroleum products come to take on a central role in modern life beyond, uh, fueling transportation.
So what was the petrochemical revolution and how did it shape the evolution of the oil industry in the post-war years?
Yeah, this is, I think, a really often overlooked process and moment.And I think it's really central to understanding the power that fossil fuels continue to have over us in this respect, because what happened in
the mid-20th century, and again World War II played a big role in this, is that we see this shift away from natural materials, natural products like wood and glass and natural rubber and natural fertilizers and so forth, and their replacement by synthetic products that are made from
petroleum, they're byproducts of oil.So I'm talking here about things like plastics, synthetic fibers, synthetic fertilizers, and all sorts of petroleum-based chemicals.
Now, I spent some time in the book talking about what this did for capitalism, again, to try to foreground this in the social system.It really enabled this huge expansion
in the quantity and diversity of commodities that we are really living today, the ecological consequences of.It cheapened manufacture and reduced labour costs.It sped up the circulation of capital.
And these things that petrochemicals did, it made these petrochemical products the essential material substrate of basically all of the commodities that surround us.
So I really think it's a useful exercise just to pause for a second and look around your room where you happen to be sitting or the car that you're driving in or where you might be
and think about the plastics, the synthetic products, the rubbers, the paints. that surround us, the clothes that you're wearing, all of these are products of oil and increasingly gas today.That's where oil, if you like, hides in plain sight.
So what the petrochemical revolution did was it wove fossil fuels into our daily lives, but it did it in a really unseen way.And it made, and this is really the crucial point here,
it made the oil industry so much more powerful because oil wasn't just a fuel, it wasn't just a transport fuel, it actually became integrated into everything we consume and depend upon.But in the process, it became invisible.
So this is the paradox we have to confront.It's everywhere, but we can't see it.One of my favorite examples of this is the notion of fast fashion.
I'm sure your listeners will have heard of this, the idea that now the fashion industry is just, there's many different, there's a very rapid kind of turnover of clothing styles, there's many micro seasons.
That just happened very quickly, one after the other, and a huge, huge quantity of clothes that are produced.
Now, this, partly, and many people have written about this, depends upon, of course, the highly exploited workers in factories in Bangladesh and elsewhere.
who produced these clothes on demand, but it was synthetic fibers, in particular polyester, which are petrochemical products, they're products of oil, that enabled this huge increase in clothing production.So
it was the oil industry that underpinned this shift.
I really think this is important to highlight and to address because it helps to shift our thinking about oil away from just the question of what fuel we put in our car, to think about this broader picture.
And also, and this again, I think is really, really key, it helps us think about plastics in a different way, because
The dominant narrative about plastics is to think about these substances as being toxic wastes, you know, the question of microplastics and pollution, and the need to improve recycling, all of these various ways that plastics and the discourse of plastics are generally spoken about.
Now, obviously, plastic waste is a hugely important issue.But it's much bigger than this, actually.When we place petrochemicals in the bigger picture of what they did for capitalism and the oil industry, we see it as a problem of climate change.
It's a problem of how plastics have become central to embedding oil in our lives and therefore central to dealing with the climate crisis.
This is beyond the question of the carbon emissions that come from the direct production of plastics, which is a major source of emissions globally.
actually thinking about their place in the kind of emergence of the industry is, I think, really, we are not going to be able to address the climate emergency without centering this issue of petrochemicals and plastics in the story.
Absolutely.I was just thinking about, you know, I work at a grocery store, and it would be impossible to imagine the modern Uh, grocery retail sector without petrochemicals being in everything.
Uh, obviously the, the transportation infrastructure, uh, is, is critical, but also, um, the fertilizers, uh, that make it so that you can have all this, uh, variety of produce year round.
Um, and that you can, uh, import in, in the advanced countries, at least you can import out of season produce from, uh, the Southern hemisphere.In this case, uh, you know, you can get oranges from Chile and South Africa and stuff in here.
grocery store and apples from New Zealand out of season.And, uh, and of course, uh, it's all, uh, uh, all this produce can travel as far as it does because it's encased in plastic.
And, um, you know, we think of, uh, food prices increasing, uh, uh, with inflation. in the US right now, it would be even worse if you had to package everything in wood or glass or some other kind of
more durable, reusable material, instead of cheap, you know, one-off, single-use plastics that are made from petrochemicals.
So, as you say, it's really, this is, the petrochemical revolution is really what makes oil more than just a transportation fuel, but a real cornerstone of modern industrial civilization. in all of its different facets.
So shifting back now to the story of OPEC and the cost of oil in the 1970s, I want to take up especially this
issue of So first of all, we we need to talk about how what drove the price increases of the 1970s and the cost of oil and the problems with the kind of dominant narrative of the OPEC oil embargo and what that kind of obscures and then we also need to talk about
Um, Going back to the, uh, um, the Gulf monarchies position in the U S kind of security umbrella.Um, this is a period when, uh, um, the dollars that they earn from oil start to, uh, become a question where. What did they spend it on?
What did they invest in?What currencies do they use?And this is a period when the U.S.government really tries to kind of deal with these monarchies about how they're going to recycle these so-called petro dollars.
So, um, yeah, this is what I would like to talk about now is, um, what drove the, the increasing cost of oil in the seventies and then how are those petro dollars, uh, recycled into the global economy?
Yeah, I've mentioned the establishment of OPEC in 1960.And up until that time, it was those big Western oil companies, the Seven Sisters that I mentioned, the predecessors of ExxonMobil and so forth, who really set the price of oil.
So these big Western companies up until 1960 or so, they controlled oil from, pulling it out of the ground, that moment of extraction, the refining of it, all the way through to the petrol pump.
And they did this within vertically integrated structures.Each stage in the movement of oil from its crude state through to its product, they controlled essentially.
So they also controlled the price of crude oil, and this was called the posted price.
And basically, they set this arbitrary price, and they used this posted price to determine what tax or royalties they would pay governments in the producing states, in places like Saudi Arabia or Venezuela.
And obviously, these Western companies, they had an interest in setting the price, this posted price quite low, because it meant that they had to pay less to the countries where the oil was actually being extracted.
So this was basically how the oil industry globally looked outside of the US and USSR up until OPEC and those changes that took place.
So what happened with the establishment of OPEC, and also very, very importantly, alongside of this, the steady nationalization of crude reserves in places like Venezuela, in Saudi Arabia and other Gulf states, this began to erode
the power of those Western firms to control crude production.And the main thing these governments were concerned about was how low the posted price was.They wanted more revenues.
So as oil was nationalized, they insisted on an increase in the posted price.And this is what set off what are called the oil shocks.
the quadrupling of oil prices in 1973-74, and then another doubling of oil prices in 79-80, associated at that time with the Iranian revolution.So, there's a narrative that it was embargo, I talk about the oil embargoes in the 70s in the book.
There's a whole lot of myths about who did that and which states were involved.People think it's an OPEC embargo where it's not.It wasn't an OPEC embargo.
People tend to look at it without thinking about this kind of structure of the oil industry that I've described.But the key thing is that it was this shift in the control over crude reserves that underlay these oil price spikes.
Crucially, however, this is a really important point, that the Western oil firms, they still controlled the downstream sectors.So they still controlled refining, they still controlled
the shipping and the oil tankers, and they controlled the sale of these refined products at the petrol pump or in the plastics industry or wherever it might be.So, the price rises that consumers in the United States or in Europe felt
came from the decision by those Western firms to simply raise the price of those refined products.That's really what they made.They benefited enormously actually from these price spikes.
So moving to the second part of your question around what happened to the money earned by the sale of the crude oil by the producer states, by the OPEC countries.Again, we're talking here in the 1970s.
As these countries like Saudi Arabia get control over crude, they're selling it at a higher price.They begin to receive trillions of dollars in revenues for the sale of this oil.
Remember, up until this time, they were just paid some royalties and taxes.Now they're selling the crude directly, they're earning a lot more money.And this money, as you've said, are called petrodollars.I mean,
They're just like any other dollar, but they're gained from the sale of oil.And where these petrodollars went was hugely consequential to the global financial system.And there's three interrelated questions I think it's useful to highlight here.
One was that, So, despite the fact that crude was no longer controlled, a lot of the world's crude oil production is no longer controlled by these Western states. came to be solely denominated in American dollars, in the US dollar.
Today, when we quote the price of oil, it's $72 or whatever it is.We call it in US dollars.And if you remember earlier, I spoke about that this wasn't always the case.Sterling oil, for example, played a big role in world oil markets.
So this shift for oil being solely denominated in US dollars was really important.And again, I talk about this in the book, but the key point here is that relationship between the United States and Saudi Arabia, the major power in OPEC.
Basically, the US made an agreement with the Saudi government that this would be the case.I'm drawing here upon this really pathbreaking work that was actually done
a couple of decades ago by David Spiro, who was really, I think, was one of the first to trace out these connections, showing that these agreements between the US and the Gulf were hugely consequential to the American dollar.
So what it meant is that every country in the world, needed to hold American dollars in order to pay for what was now the world's most important commodity.So it really was a key part in the dollar's rise as the leading global currency.
Incidentally, shortly after this happened, this agreement to price oil solely in dollars, Saudi Arabia gained a permanent seat on the IMF executive board.It's one of the only seven countries in the world to have such a seat.
And, you know, you look at a list of the countries that hold these seats, and it can be a bit puzzling to think about why Saudi Arabia got the seat and other countries don't.And it's very much related to this point about
the pricing of oil and Saudi's alliance with the United States at this moment.So that's the first point, the connection between oil and US dollar hegemony.The second thing is that what happened to the petrodollars that were earned
by these states, they were generally invested in Western banks.And what this means is that they were invested in basically the big Anglo-American banks that were operating in London, in New York and other key financial markets.
So the strength of these institutions, these Anglo-American financial institutions, were really deeply connected to the rise of oil as the world's most important fossil fuel. So this is one thing that's happening.
But then thirdly, the 1970s, of course, is a moment of global economic crisis, partly connected to the spike in oil prices.And if you are a non-oil country in the global South, you don't have your own oil reserves, but you need oil.
You're seeking to industrialize.You're trying to chart a different way forward after independence. you're faced with this spike in oil prices.
And on the other hand, you're also faced with a decline in maybe your export markets, because this is a moment of global crisis.And what they're forced to do, these poorer countries in the global South is borrow money.They need funds.
Most of this money, and this is really the kicker, that most of this money was borrowed from the big Anglo-American banks which were holding these surplus petrodollars and lent them out to poorer countries, non-oil rich countries.
through this moment.And then the final part of this story that's really key is that in the early 1980s, American interest, the US interest rates were raised very, very sharply.
It's called the Volcker Shock after the chair of the Federal Reserve at the time, Paul Volcker. the U.S.interest rates went up to more than 20%.
And what this meant is that all of these holders of American dollars in the global South were suddenly faced with very large interest rate debt service payments because they're borrowing in U.S.
dollars and their variable rates that they're borrowing on meaning that they have to pay more back to service their debt.So this is the origin of the debt crisis through the 1980s.And again, oil is really woven into every aspect of this story.
And it's the moment here when we see international financial institutions like the World Bank and the IMF
enter into the Global South, or what was then called the Third World, with the kind of structural adjustment packages that we're really all, I think, very familiar with.
So these bigger picture stories about the emergence of neoliberalism, the debt crisis, the centrality of the Anglo-American banking system, the strength of the U.S.
dollar is all deeply, deeply connected to the control of oil and the circulation of these petrodollars.
Yeah, it's remarkable to me how when these debt crises started to kick in for developing countries and they started to go hand in to the IMF and the World Bank because they were on the brink of insolvency, what's remarkable to me is how
the world make and the IMF had the kind of symbolic power to interpret these crises as being domestic in origin and solely the cause of, you know, whatever variations, deviations from this sort of free market neoclassical norm.
You know, you look at the Berg Report at the World Bank during this period, which was a report on basically the causes of the African debt crisis in the early 80s that was all about the ways that African governments
intervened in the allocation of resources rather than the oil crisis and this major exogenous shock in the cost of energy that no country could do without, no country could afford to just avoid paying because oil is central to modern life and for modernizing countries you had to have oil and
Also during the 70s, there was a major global food crisis that was partially linked to the oil crisis, but also had other origins.But this is also a time when a lot of
Countries in the global South were trying to provide subsidized food to major parts of their populations in order to create political stability and some semblance of representative government in a lot of cases.
And a lot of what people demanded was access to basic foodstuffs.And so part of the debt crisis was also driven by the need to import food. And that, of course, became more difficult.
And yeah, it's just remarkable how these two major shocks, whatever the vulnerabilities and weaknesses of these developing economies, the structural adjustments were based on the premise that these debt crises were primarily internal in origin.
and have nothing to do with these major price increases.And I just think that that's just kind of a remarkable aspect of what happened in the 1980s and in the last decade is this kind of symbolic violence, I would call it, of
of interpreting it as solely an internal crisis.So the global economic slowdown of the 1980s related to the gold attack crisis and the Volcker shock and the monetarist experiment in the UK and the general slowdown in the global North economies.
resulted in a rapid decline in the price of oil.How did the collapse of oil prices contribute to the end of the Cold War?And why was the Soviet Union unable to weather the collapse of world oil prices?
And here we're bringing the Soviet angle back into the story that you touched on earlier in the with your chapter on Baku and its importance to the Soviet Revolution.
Yeah, absolutely, Geoffrey.I think, again, this 1980s experience is another part of the story of oil that often gets a bit of short shrift in a lot of discussions.We talk a lot about the oil shocks of the 70s, but not so much about
the counter-shock of the 1980s.And this refers to the point in 1985, 1986, where the price of oil dropped by about half in that mid-1980s moment.
Now, as you pointed out, a big part to why this happened, there's a variety of factors here, but a really important one was a global recession that occurred. between 1980 and 1982.
This was the deepest recession actually since the Second World War, this early 80s recession.
And what it meant was that as businesses were shuttered and so forth, we saw a contraction in economic activity and therefore a huge drop in the consumption of oil.It was actually about
a 10% drop if you compare 1979 to 1983 in global oil consumption.It's a huge amount and it actually is the largest drop of oil demand in history.It's even more than the drop that happened during COVID, this reduction in oil consumption.
It combined with some other factors, which I talk about in the book, this led to this moment of counter-shock, this decline in the price of oil, which obviously impacted all oil producers.
It impacted the Middle East, it impacted Latin America, but it had a particularly severe impact on the Soviet Union. because the Soviet Union, as you mentioned, was heavily reliant upon oil sales to earn foreign currency.
And they needed this foreign currency because one of the things the Soviet leadership did was basically mask the contradictions and the tensions in society through
steady import of things like grain and meat and technology and other kinds of consumer goods.So they used the money, the hard currency they earned through oil sales to import these other products.
In fact, the Soviet Union was the world's largest importer of grain around this time. So this was really important for the social stability of the Soviet Union at the time.
It was also really important for the wider international network of allies that the Soviet Union had, because what they did was provide subsidized oil to Eastern Europe and elsewhere.
So that's why Eastern Europe was relatively insulated from the 1970s price shocks.They had this subsidized oil coming from the Soviet Union.So the figure is something like 60% of the Soviet Union's
hard currency revenues through the 80s were coming from the sale of the export of this oil.And if you put gas on top of this, and the price of gas was linked to the price of oil, it reaches about 80% of the Soviet Union's hard currency revenues.
So really, really, really important.And it's interesting, actually, once you start to think about these patterns that you look, for example, indirectly, how it also affected the Soviet economy.
For example, the other major export, apart from hydrocarbons, were military exports, military hardware and other things.And they sold a lot of this military hardware to the Middle East.
And with declining oil revenues in the Middle East, because of this global drop in the price of oil, These states were not buying as much military hardware.
So it also hit the Soviet Union's exports of those kinds of commodities as well, indirectly through this mechanism. So what it meant is that there was a big collapse in the foreign income that Soviet Union was earning.
There's one estimate I cite of about 20 billion a year, according to the Politburo archives, that the country was losing at this time because of this collapse or this counter-shock.And what did they do?
Well, they basically did the same thing that much of the Third World at the time did. They had to borrow money from Western banks and got caught in a similar kind of debt trap that faced countries elsewhere in the world at the time.
So that's one side of the story going on.The other side, of course, is the broader kind of political crisis of the Soviet system at that time, the strikes that are taking place among workers, the Afghanistan conflict, of course, mired in that war.
The oil sector itself was suffering deeply.They needed investment, but that investment needed foreign currency, and they didn't have that foreign currency.
So all of these kinds of things intersected to really place a lot of pressure on the Soviet system, the Soviet society.
As you know, Gorbachev in 1989, as Gorbachev is implementing various reform policies to try to deal with some of these problems, one of the things he does in 1989 is he cuts the supply of subsidized oil to Eastern Europe and insists that oil payments be made in hard currency.
And that in turn intensifies the problems in Eastern Europe, who were themselves very much indebted to Western banks, and really was an important part of how market economies begin to get restored across Western Europe.
So all of these kinds of interdependencies that really play and lead to the eventual collapse of the Soviet Union.
To be clear, I'm not saying that the drop in the price of oil caused the collapse, but rather that oil was a key link, to go back to something you said earlier, between the kind of global and domestic contradictions and tensions that the country was facing at that moment.
We can gain a lot of insights through thinking about the way that oil circulates to understanding how and why the Soviet Union eventually did collapse.
The collapse of oil prices played a major role in exacerbating the centrifugal tendencies in the Warsaw Pact and within the Soviet Union itself because oil revenues were such a key element of the fiscal transfers and even the kind of straight-up barter between
the Soviet Union and their Eastern Black Allies, where the Soviet Union provided subsidized energy resources to Eastern European economies in the post-war period.And as you said, Gorbachev eventually
Turns off the spigot and says, uh, we need, you're going to have to start paying real prices for your, for your, uh, oil.If you're, if you're going to want to get energy from us and.
That kind of puts a nail in the coffin of the Warsaw Pact in a lot of ways because those economies just could not supply that.They didn't have the hard currency to be able to pay market prices for oil at that point.
and you look at the push for Ukrainian independence during this period, revenue sharing between the center and the provinces or the republics is also a key aspect of the independence of Ukraine and the Baltic republics.
So that's also another kind of contributing factor to the collapse of the Soviet Union from the inside.So I think that oil is absolutely an important part of the story, but as you say in the book,
There are a lot of inefficiencies in the Soviet oil sector that increased their vulnerability to the price shocks during this period.
And the fact that the Soviet Union was a major grain importer is kind of crazy when you consider how much arable land the Soviet Union had.
their agricultural sector was highly inefficient, and that also contributed to their vulnerability to this changing price structure at this time.So as you say, it's not kind of a monocausal thing, but certainly when
this really important commodity that's at the center of your entire social structure has such a dramatic change in price, it's going to have huge spillover effects on the rest of the macro economy.
So we're not going to be able to get quite as far to the end of the book.
You talk about how oil industries were at the center of privatization in the 90s and 2000s and neoliberal revolution in Eastern Europe and elsewhere and Western Europe as well, including that.
where the privatization of state-owned oil companies was a major way that governments tried to recap some of the losses of revenue that came from
Either indebtedness and having to pay interest on foreign loans or changes in the tax structure that they implemented in order to be more competitive with other countries.
used the sale of oil companies as a source of money to be able to keep their budgets at least somewhat balanced during these periods.
But then in the 2010s, we kind of see, at least in some of the non-Western countries, a retreat from privatization and a kind of
the growth of new nationalized state oil companies and the rise of state capital, which is an important part of the so-called new state capitalism that I spoke to Adam Dixon and Ilyana Salami about
the oil sector is once again central to that tendency.
I do want to ask you quickly about a major change that we're seeing in the global oil sector today of the East-East hydrocarbon access that's licking the economies of the Middle East and East Asia.How is the rise of China affecting
the global oil economy and is there a move to create yuan-denominated oil markets in the world economy?
The really big part of this story is Saudi Aramco, that firm that I mentioned earlier, that had previously, after World War II, owned by those four American oil firms, and was really crucial to the shift to US dominance in the Middle East.
Saudi Aramco today is now owned by the Saudi state through various investment vehicles, with a small part, about 2%, that's listed on the Saudi stock market.
So the thing about this firm, Saudi Aramco, is it's by far the largest oil company in the world today by any metric.If we look at output of oil, if you look at profits, if you look at market capitalization.
In fact, last year, its profits were just over 120 billion US dollars.And if you add up the profits of Exxon Mobil, Chevron, Total Energy, Shell and BP, it's more than their combined profits.So it gives you a sense of how big this firm is.
It's a massive company.But there's a real I think important dimension to thinking about how Aramco has evolved.It's followed in the path of what I described earlier was really key to the big Western oil majors, the Seven Sisters.In other words,
the vertical integration controlling each moment of the oil circuit from the crude sector all the way through to the petrol pump.
And Aramco and other national oil companies in the UAE and in China and elsewhere have followed in the same kind of pattern.So Aramco, for example, is no longer simply a producer of crude oil.It's one of the biggest
petrochemical firms, it's a major refiner of oil, it owns shipping lines, it owns fertilizer sites, and so forth.It's become vertically integrated, active all the way down the value chain.
So, as you asked in the question, what we've seen, though, in the last decade or two, really over the last decade, is that there's been a major reorientation, though, in both Saudi Aramco and the other big Gulf oil producers away from Western markets.
towards China and East Asia, obviously connected very much to China's emergence as a major center of capital accumulation, a major manufacturing center.Part of that has involved the need for oil and also for refined products and petrochemicals.
And China has got this oil through imports.I mean, China has a lot of oil reserves itself, but it doesn't have enough for its needs.So it actually is the largest by far oil importer in the world.
It's about 20% of the world's crude imports go to China today.It's quite remarkable. And then if we add on top of this wider East Asia, South Korea, Japan, the figure grows even more.So basically, the world's crude oil imports have shifted East.
And that's why I describe it as the East-East hydrocarbon axis. But it's not just crude.And this is also really important.It's also the petrochemical industries.So the export of petrochemicals.
And it's also very interestingly and importantly, it's involving joint investments between the two regions.So we see the heavy involvement of Aramco, for example, in the Chinese petrochemical industry.
And we see the heavy involvement of Chinese oil firms in oil fields of the Gulf and other places in the Middle East.And these are often joint investments.So there are these interdependencies forming.
between the two regions that I think are really central to thinking about the oil industry today and thinking about the power and the rise of firms like Saudi Aramco, because it's deeply connected to this process and this massive increase in oil demand that's coming from and has come from China and East Asia.
To be clear, I'm not saying the Western oil firms are not important.ExxonMobil, BP, Chevron, and these firms remain absolutely crucial to the industry and absolutely crucial to the question of the climate catastrophe.
But we do need to kind of foreground the role of these national oil companies, I think, more explicitly and think about strategically how to deal with them.
Because as you point out, one of the things that may also be leading, it's not, it hasn't got to this stage yet.And I think there's many factors militating against it.But you know, there is the possibility also that we might see the trade in
RMB, Chinese currency of oil, which would mark the first time that since sterling oil, that oil is priced in this kind of alternative currency.
I'm somewhat skeptical it's going to happen anytime soon, but in any kind of major way, but certainly there's talk about this.
Yeah, people have been talking about the dollar's precarity as the global reserve currency for a long time and speculating about whether first the euro and then the renminbi will become a challenger to the dollar or even special drawing rights.
It would take at the very least something like the emergence of the major Renminbi oil market to put a dent in the dollar's dominance of the global economy.
The dollar's dominance of the global economy is what is making it difficult for a Renminbi oil market to get off the ground in the first place.
It's difficult to see that happening anytime soon, but there are certainly a lot of actors in the world economy who would like to see a new currency emerge to challenge the dollar as a global reserve currency.
It's just a massive coordination problem in a lot of ways for these different challengers to be able to make that happen. Um, so, um, We need to wrap up the interview now.
And again, as is customary in a further new books network, uh, I would like to ask you, uh, what you're working on now.Uh, what, what's in the pipeline for you?
I'm really interested in building upon some of the discussion that I shared today around the petrochemicals and plastics question is one thing.
So as I said, I really do think we need to think about these products in the context of fossil fuels and their role in kind of, as the oil industry itself says, making the future of oil, ensuring the future of oil.So I think it's
really central, we take that seriously and think about it strategically.
And I'm also interested in, you know, in the last section of the last chapter of the book, I spent a bit of time talking about the kind of false solutions that we see now on offer, hydrogen and carbon capture and
biofuels and carbon offsetting, these things that the oil industry is really pushing forward.And I'm interested in thinking about what are the ways that the, you know, how the oil industry is doing this, number one.
But also, I think the real clear role of the national oil companies like Saudi Aramco, like Adnok, the Abu Dhabi National Oil Company in Dubai,
in pushing forward these false solutions and really shaping the agenda of climate policy in, I think, really negative ways.So that's the other side of the kind of work that I'm doing at the moment.
I also want to say that I really enjoyed the article you recently co-authored on borders and global capitalism and racialization and historical materialism in their massive double issue on racial capitalism.I thought that was a great article.
Thank you very much for joining me today, Adam, and for staying up there in Beijing to talk to me.I really enjoyed the book.It's very elegantly written.I want to say it's a You cover a lot of ground in its big history, but it was a page-turner.
It was easy, very easy to keep reading.It's a topic that could easily lend itself to some rather turgid prose. I do want to say that it's an enjoyable read.Thank you very much for joining me today.
I really enjoyed the book and I strongly recommend it.Thank you all for joining us on the New Books Network today.Thank you so much, Jeff.
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