The resources of economics: making the 1973 oil crisis

Reference: Mitchell, Timothy. “The resources of economics: making the 1973 oil crisis.” Journal of Cultural Economy 3.2 (2010): 189-204.

  • Research question:

    • The 1973-4 oil crisis: a textbook case of the law of supply and demand?
    • Work to be done to make the description viable:
      • A series of conflicts into a single field of political concerns known as “energy crisis”
      • Forms of confrontation and acts of sabotage in the middle east that made it possible to transform the networks that transported oil supplies into a political instrument.
      • two purposes: redirecting the flow of profits from oil; attempting to settle the Palestine question
      • Outcomes: trigger the unravelling of Keynesian economics
    • 总结：西方石油公司卡特尔的衰落、OPEC的兴起，美元与石油流动，主要产油国的政治动员、凯恩斯主义的前景，这些因素如何相互联系形成了“石油危机”

  • background

    • October 1973, six main producer countries promised a five percent reduction per month, until us stop obstructing a comprehensive settlement of Israel-Palestine.
    • The case was understood as to support supply-demand as “real scientific ideas”
    • “the law of supply and demand was not a fiction, but rather a tool. It was a piece of equipment that a variety of agents were using.“
    • “they do not want to alter their system to make it like the real world; they want to alter the real world to make it perform according to their system.”
    • Problems: 1. how much the increase in 1973-4 associated with a cut supply? How much supply was reduced? 2. supply could be made up. Other factors contributed to the sharp increase in oil prices. Uncertain -> users purchased more petroleum.3. Demand of oil is elastic only when oil price increases fast. “the model of an exceptional event?”
    • Three master concerns:1. the problem of energy as an interconnected and vulnerable system; 2. the production and distribution could turn to other political goals; 3. the mergence of the environment as a rival to ’the economy’ as a central object of politics, defined not by the limitless expansion of a country’s GDP but by physical limits to growth p.192

  • Energy –> Energy System

    • The concept of “energy crisis” was a political narrative emerging before 1973, especially used to concern different fuels as a whole.
    • The process of turning energy into a single field of government action <- changes in the control of fuels and the ways they were produced. Coal carter -> large industries with multiple fuels.

  • Oil –> political instrument

    • The more radical Arab nationalism -> the supply of oil as a weapon
    • Oil price since 1930s controlled by US cartel between seven major corporations. -> expanding US oil production in spite of cheaper Middle East oil-> 1971, declined.
    • From 1967:(1) Arab-Israeli war, Iraq-Syria pipeline cut, Suez blocked; (2) Bahrains shut down two refineries; (3) Libya strike stopped export; (4) Palestinian guerilla cut the pipe from Saudi to Mediterranean, Israel not to repair it; Israel exported oil from occupied field in Sinai; (5)Libya revolution –> increases OPEC’s share of income in 1971

  • Energy crisis –> Oil Crisis

    • Dollar devaluation in 1972 -> reduce the benefits of OPEC
    • 1973, six Gulf producer increases 70% price. The target: flow of capital in persian gulf-> investment in US
    • State Department and oil companies were colluding with the producer state to joinly benefit from a large increase in price. “The world ’energy crisis’ or ’energy shortage’ is a fiction, but belief in the fiction is a fact. It makes people accept higher oil prices as imposed by nature, when they are really fixed by collusion.”

  • The Palestine Equation

    • Arab producers tried to create a linkage to set up an equation between the price of oil and the policy of us regarding the Palestine question.

  • Oil Companies frame the environment

    • “the Nixon administration’s politics of energy was simultaneously a politics of the environment”

    • 1969, oil leak in Santa Barbara; 1970, the friend of Nature

    • Oil companies encouraged the environmental organizations to limit the nuclear

  • The neoliberal defeat the Keynesians

    • “The framing of the 1973-4 oil crisis in terms of the law of supply and demand was a particular intervention in a contest over calculations. The American economics profession in fact went further…they develop a new field of study – resource economics.”

    • Robert Solow’s Richard T. Ely Lecture in 1973: “to counter the argument for government regulation of energy consumption, by showing that there existed a market-based method to manage the optimum rate of extraction of mineral resource.”

    • Solow’s theory was nothing about the origins of the oil price. It concerned only the moments that petroleum was felt as not plentiful. “the model is a tool, not for understanding the oil industry but for maintaining the viability of a form of knowledge that depends on the possibility of limitless growth.”

    • Undermine Keynesianism. - political technology (oil futures markets; carbon trading)

  • Conclusion

    • Economics is used as an instrument;

    • The event exceeded the attempts to contain them as a matter of market. Supple-> limit of oil? Doubt. -> difficulty of forecasting future demand and prices –> new way of mapping the future.