Oil Crises are Recurring Phenomena

By James Castagnera

As the price at the pump flirts with three dollars, the doomsday crowd declares the end of the Oil Age. While, as a recent National Geographic cover-story proclaims, we Yanks may have just witnessed the end of cheap oil, a dearth of petroleum products is unlikely. A better bet is one more round in a recurring cycle of shortage scares, dating back to the late 19th century.

The birth of the US oil industry can reasonably be dated back to the 1850s in western Pennsylvania, where "rock oil" was skimmed off the water with rags, bottled, and sold as a medicine labeled "Seneca Oil." After the Civil War, a genuine oil shortage -- of whale oil, that is -- opened the door for kerosene to enter the market as a major competitor. By 1859, some three dozen firms were distilling and marketing "coal oil." The first "Oil Boom," during and immediately after the war, drew Cleveland's John D. Rockefeller into the refining business in a big way.

Rockefeller's Standard Oil soon used its near-monopoly on refineries, plus a complex rebate system, to manipulate railroad rates and crush the competition. The Standard Oil Trust Agreement of 1882 created the nationwide, soon to be worldwide, "Octopus." But, according to oil expert Daniel Yergin of Cambridge Energy Research Associates, "a sense of precariousness underlay Standard's great globe-girdling system. There was the fear that the oil would run out."

Ironically, neither a drying up of crude oil, nor even a somewhat-belated Justice Department anti-trust action, broke Standard's iron grip on the industry. Discoveries of vast oil and gas deposits, dwarfing Pennsylvania's reserves, in Texas, Oklahoma and a little later in Arabia, Russia and South America, made Standard's brief monopoly a practical impossibility. The mushrooming industry, its growth tracking the transportation revolution powered by the internal combustion engine, struggled to maintain profitability in the teeth of growing surpluses and cut-throat competition.

Nearly a century after Standard's move toward monopoly status, OPEC -- the Organization of Petroleum Exporting Countries -- built upon the 1973 "Arab Oil Embargo" a cartel regime that drove the members' oil earnings up from $23 billion in '72 to $140 billion five years later.

Americans once again feared dry gas tanks. For instance, in January 1974 this writer wrote in Lakeland Boating Magazine, "The American boater is vitally interested in what's happening in the desert sheikdoms of the Middle East, where the robed rulers of these oil-rich lands (yes, I liked alliteration even then) have closed the valves that fed US markets."

Again, as in the late 19th and early 20th centuries, monopolization led to higher prices, which inspired entrepreneurs to open up new lines of supply, this time most notably in the North Sea. By the mid-1980s, crude oil prices very nearly collapsed.

At this, the start of the 21st century, as at the beginning of the 20th, the talk has turned to the end of oil. Wishful-thinkers of green hues would welcome such a state of affairs. Working stiffs (such as yours-truly, who commutes 100 miles a day) would not. I prefer to believe CERA's Yergin, when he reassures us that although "bouts of anxiety have recurred since as far back as the 1880s -- global output has actually increased by 60% since the 1970s, the last time the world was supposedly running out of oil."

Now, as ever, soaring prices and apparent shortages can best be blamed on corporate shenanigans and political instabilities -- today in Venezuela, Nigeria, the former Soviet Union and, inevitably, the Middle East.

The time is ripe for the United States to ensure its energy security -- or risk more, and more severe, disruptions. Needed is concerted action along diplomatic, military and industrial/technological lines -- a three-front campaign. The decisive factors are not reserves but resolves.

Jim Castagnera is a Philadelphia attorney, author and educator, who writes the weekly newspaper column "Attorney at Large."

From The Progressive Populist, June 15, 2006

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