Who Really Raised Oil Prices Back In 1974?
Most history books say the Arab countries raised oil prices through OPEC in 1974 to punish the West for supporting Israel in the Yom Kippur War. But this story of the omnipotent OPEC is a myth. At the time, not only did the Seven Sisters oil companies completely control the distribution and refining of petroleum, four of them—Exxon, Sunoco, Texaco and Mobil—jointly owned Armaco, which produced all of Saudi Arabia’s oil (the largest producer in OPEC) and directly controlled the oil production in both Iran and Kuwait. It was the companies that planned, organized and enforced the “first oil shock”. The Yom Kippur War was merely a convenient political cover. There is much evidence that the oil companies were informed of the boycott and the subsequent price increase, coordinated it and enforced it. Armaco, and thus the oil companies that at the time owned it, were informed of the Egyptian plan to attack Israel by May of ’73. (John Blair, The Control of Oil, Pantheon, New York, 1976 p.268) At that point, not only Armaco, but all the other companies, ordered an increase in production to levels far above those the companies had agreed to at the beginning of the year. Oddly enough, after the boycott reduced production, the total output for the year was identical to the level the companies had set in 1972. As John Blair pointed out (ibid, p.268) this strange coincidence means that either the companies must have known the exact extent and timing of the boycott and increased production to compensate for it, or that they themselves planned the boycott, or both.
Second, the companies admitted in a later U.S. Senate hearing that in 1973 they had nearly doubled their target profits from 11 to 18 percent, a target that was reachable only with a vast increase in the price of crude oil. (ibid, p.294ff) Third, when the OPEC countries decided in December 1973 to increase prices, it was the companies that decided by how much. As no less than the Shah of Iran admitted in an interview at the time, “It was the companies who insisted on the $12 price. We would have settled for less.”
Finally, it was the companies’ globally coordinated cutbacks in production in 1974 and ’75 that preserved the price increases in the face of falling demand during the recession that followed. In October, 1975, Armaco cut production by two and a half million barrels a day, a move that Exxon Chairman Clifford Ganin admitted was solely at the companies’ own initiative. (ibid, p.292) Blair’s book dispels any myth that OPEC was calling the shots, rather than the oil companies.