Today, oil prices are 200% higher than they were in 2003 and 300% higher than in 1999. Every commentator seems to take it for granted that these high prices are here to stay.

Against this background, the largest international oil companies, the so-called "majors", are reaping unprecedented increases in their profits, ranging from 25% for BP to 42% for Shell. Dividends on oil shares are rocketing upwards and most of the "majors" have announced plans to hand back billions of pounds to their shareholders in the form of share buyback programmes.

As to consumers, they are told that higher oil prices justify two-digit price hikes for petrol, electricity and gas. And while Brown is happily pocketing the additional tax income resulting from this increase, thanks to the 67% tax he gets on the price of every gallon of petrol sold, the government blames the oil producing countries and tells consumers that they should be more careful about the energy they use. The CBI, for its part, warns of a possible return to the 3-day production week of the 1970s - although this seems highly unlikely and rather more like an attempt to get the government to offer companies some sort of tax break.

The past "oil shocks"

Both Brown and the CBI refer, more or less explicitly to the past "oil shocks", as if the same process was taking place all over again. In a certain sense, they are right, but only in the sense that the apparent "economic inevitability" of the present rise in oil prices only conceals the deliberate policies of the oil "majors".

Twice - in 1973 and in 1979 - oil prices increased by 300%. On both occasions the rich countries' governments blamed the oil producing countries, and more specifically OPEC - the organisation set up by the main Third World oil-producing countries - which was accused of "holding the world to ransom". For good measure, another argument was found, which had the additional advantage of diverting attention from the role played by the "majors". According to this so-called "explanation", the world had only enough oil reserves to last for another 3 decades and as oil became more scarce, it was bound to become more and more expensive.

The first "oil shock" coincided with the beginning of a difficult period for the capitalist economy. This was the end of the so-called "postwar boom", a period during which, following the destruction of WWII, the world economy had experienced relatively sustained growth. For the first time since the war, world production fell in 1974-75 and the same fall was to be repeated in 1979-82, the period coinciding with the second "oil shock".

In 1974, the economic crisis triggered - and was compounded by - a monetary crisis, which saw the collapse of the postwar dollar-based monetary system. Two-digit inflation figures became the norm across the world and, in the case of Britain, this level of inflation remained for almost a decade. Mass unemployment returned as a permanent feature, while the standard of living of the working class, whether in work or not, was slashed by continuous price increases.

The sharp increase in oil prices only resulted in the deepening of this crisis. Every sector of the economy had to pay more for its energy, with manufacturing and transport being most affected, as the largest energy consumers.

The impact of the crisis was even worse in the majority of poor countries which were dependent on oil imports for their energy supply. This was one of the main factors in the enormous growth of Third World indebtedness.

What happened in the first "oil shock" was that the oil "majors" changed their strategy.

Since WWII, these companies had been selling oil at an average of $15/barrel, way above their production costs. This was still considered cheap. But with an economy - and, therefore, oil demand - which was constantly expanding, this price level suited everyone: it allowed the "majors" to make huge profits while allowing the world's capitalist classes to rebuild their industrial infrastructure (and their profits) in the aftermath of the war. At the same time, keeping the price of oil low allowed the "majors" to compete favourably with other sources of energy, particularly with coal. while making high profits, thanks to the high volumes sold.

Of course, these high profits were boosted by very low production costs, allowing the "majors" to enjoy profit margins of 300% or more, particularly in the Middle East. The very low cost of labour in these countries was one of the reasons for such margins. But the other reason was simply a question of balance of forces: it was easy for the "majors" to "punish" a country whose regime was not willing to accept their terms, by reducing production on its territory - a technique which was used time and again against Iraq, for instance. It was in reaction against such methods that a number of oil producing countries nationalised their oil industries in the 1970s, in order to create some sort of level-playing field against the "majors"' greed - which they never achieved, in fact.

The truth is that the "oil shocks" resulted from a deliberate move on the part of the oil "majors" to protect their profits against what they expected to be a reduced market. From now on oil was to be expensive, allowing the "majors" to make even more profits on a lower volume of trade and with less investment. And they had the means to impose this new policy, due to their monopoly over the entire oil industry. They controlled refining and distribution directly as well as production, albeit more indirectly, thanks to the allegiance of the oil producing countries' regimes.

And the same mechanism presided over the second "oil shock", five years later, albeit in a different context.

Scapegoating the oil-producing countries

Western leaders used the OPEC countries as scapegoats. But why would countries which had never had a say in the organisation of the oil market and had only benefited from the crumbs that the "majors" had been willing to leave them, suddenly be in a position to dictate to these "majors" and to the entire imperialist world? And why would the "majors" prove suddenly so receptive to the demands of the OPEC countries? The truth was simply that the "majors" had changed their strategy.

For once the interests of the "majors" coincided with those of the rulers of the producing countries, which were certainly looking forward to increasing their incomes.

However the "fabulous fortunes" which were allegedly built by the oil producing countries following the "oil shocks", belong to the realm of fantasy. Or to put it more accurately, the frequent references to these alleged fortunes are merely designed to fudge the real issues. It was common to read in the late 1970s, that the oil producing countries had piled up enough dollars to challenge the financial power of the rich countries. In Britain, this kind of quack demagogy even led to a major scandal, when the Kuwaiti regime was accused of trying to take control of BP and the Midlands Bank.

But in fact, most of the $47bn which was invested by the oil producing countries in western countries, was invested in the form of state bonds, particularly US Treasury bonds - in other words money that was lent long-term to western governments. The rest was drowned in the flow of capital circulating on financial markets or was invested in real estate or in western companies' shares. But the oil producing countries were certainly never in a position - nor did they even try - to challenge the west's financial domination.

As to the populations of the oil-producing countries, they never benefited from this bonanza. Of course, there is a handful of tiny emirates where the population is so small that their feudal rulers were able to distribute a few crumbs without denting their own incomes. But even in these emirates - not to mention some of the larger oil producing countries such as Saudi Arabia - a large population of over-exploited, very low-paid immigrant workers was brought in to form a large part, if not the majority, of the working class. Besides, there are those large oil-producing countries, like Nigeria, Gabon, Angola, etc.. , where the standard of living of the population is just as low as in some of the poorest Third World countries.

It should be added that in the early 1980s, after the second "oil shock", when the oil-producing countries began to find themselves in dire straits due to their indebtedness and tried to push for an increase in oil prices, they failed. There was no mention of this in the western media, of course, as this would have amounted to an admission that the first two "oil shocks" had been agreed, if not initiated by the "majors".

But, in fact, US Secretary of State Henry Kissinger had actually admitted this fact himself, by demanding, at the end of 1974, that a minimum level should be set on world oil prices. This was aimed at ensuring that the North American wells whose production had been abandoned by US companies, because they were not competitive, could be exploited profitably again. This was also aimed at guaranteeing that the billions of dollars invested by the US "majors" in new, "promising", energy sources, would pay back.

Profiteering and malthusianism

Thanks to high oil prices, the "majors" were able to fill their coffers. But they also developed their activities towards areas which had been considered unprofitable before, such as the North Sea and Alaska. Oil rigs were built to pump oil from the deep-sea, far deeper than in the Gulf of Mexico, particularly off the coasts of Africa. They also took their share in other sources of energy, such as oil sands and bituminous coal. Some among them took a big slice of the nuclear-generating industry.

The "majors" made the population of the whole planet pay for their new investment with the active support of the rich countries' states. However, given the general sluggishness of the world economy, the "majors" had just as little enthusiasm for investment as the rest of the world's capitalist classes. And they kept it to a minimum.

In particular, a large part of the so-called investment made by the "majors" over the past decade has been devoted to acquisitions of smaller companies, or to mega-mergers between the "majors" themselves. The most spectacular examples of the latter, were the mergers between Exxon and Mobil, BP and Amoco, and the formation of today's Total, out of Total, Petrofina and Elf. Either way, the "majors" added existing activities, facilities and markets to their portfolios, usually cutting jobs into the bargain, but without actually investing in any new production. This is why, for instance, no new refinery has been built in the US for nearly 30 years - because it is so much more profitable to buy old ones and squeeze as much output as possible from them!

So what happened to the hundreds of billions of dollars they made over all these years? Most of it went to their shareholders, either in the form of dividends or by buying back their own shares.

In the years 2000-2004, for instance, BP bought back over £10bn worth of its own shares. And, last year, even before the recent oil price hike and the new heights reached by its profits, it was already announcing another programme of share buy-back worth £14bn over the period 2005-2007. But the odds are that this total will be a lot higher, since by the end of the present year, it will have already bought back £9bn worth of shares. In and of themselves, such buybacks would be completely sterile games. But in fact they are not, at least not from the point of view of the capitalists. For big shareholders, they offer a possibility of cashing in on the steady rise of their share prices, without the risk of upsetting the stock market with massive sales. And for the "majors" it means that fewer of their shares are on the stock market, thereby boosting the price of the remaining shares and keeping shareholders happy!

A better idea of what this implies is provided by the fact that over the past five years, the money spent by BP on buybacks is the equivalent of just over half what it spent on "investment" in exploration and production - including the various acquisitions it made during that period. But if dividends are taken into account, BP has spent about 2/3 of its profits to line the pockets of its shareholders and 1/3 on what it calls "investment"!

In order to maintain their fabulous profits at such a level and, if possible to increase them, the "majors" had to keep the prices of oil and all its derivatives high. To this end, ever since the return of the capitalist crisis, they have managed their stocks of oil in a malthusian way. In an of itself, this is nothing new. Ever since the days of the first oil magnates, the big oil companies have always managed to maintain some sort of straitjacket on the oil markets, sometimes by acting as a cartel and fixing prices, sometimes by getting the rich countries' states to do it on their behalf, or a combination of both - the aim of the exercise being, always, to protect their profits and the income of their shareholders from the so-called "free market" that the capitalist class and their politicians are always so keen to hail.

This is not to say, of course, that the "majors" have not sought to put new oil fields into production over the past three decades. However, in doing so, they never took the risk of causing an excess of oil supply, which would have threatened their profits. In fact, their main, if not only purpose, was to diversify their sources of supply. Indeed, the legacy of the interwar period had left the "majors" with the Middle-East as their main supplier - a region which proved to be chronically unstable, despite the abject regimes supported by imperialism in most of the region.

But, according to the International Energy Agency, at a time when oil prices were in the $22-28/barrel range, the "majors" only considered it worthwhile to venture outside when production costs were at most $10/barrel. Needless to say, that with the price per barrel reaching $60, their profit margins became enormous!

It must be mentioned that in their effort to diversify their supplies, the "majors" struck lucky with the collapse of the USSR, which had so far been the world's second largest oil producer. They were unable to take over as much of the Russian oil industry as they probably would have liked, since today the Russian state still directly controls a third of its oil industry. But the "majors" were able to take options in some of the former Soviet oil and gas resources by taking opportunity of the greed and corruption of the ruling circles of the state in Russia, as well as Azerbaidjan, Kazakhstan, Turkmenistan, etc..

Blood and oil

In the 1970s, most of the significant oil-producing Third World countries nationalised their oil industries. From then onwards, the "majors" had to operate through fixed-term contracts with these national oil companies that they did not formally control. To a limited extent, the regimes of these countries were even able to play one "major" against another in order to win better terms. It became more difficult for the "majors" to force a "regime change" at will, when the rulers did not prove flexible enough to their liking. Even though they did carry on shaping the political set-up of the poorest among the oil-producing countries, as was shown, for instance, by the brutal repression of the Ogoni rebellion against the destruction of their livelihoods by Shell in Nigeria, or, in the case of Congo-Brazzaville, by the confrontation between armed factions which were backed by rival "majors".

However, this system of contracts passed with national state companies was in no way unfavourable to the "majors". In the Middle East, instead of having to take upon themselves the financial burden and risk involved in prospecting for oil, developing new fields and maintaining them, they did it as contractors of the national state companies, which, in most cases, did not have the technology nor the equipment to carry out these tasks. What the "majors" lost on the oil profits themselves - of which they had to give a larger share to the oil producing states - they gained in charging exorbitant prices for their services. Besides, the fact that the "majors" still managed to maintain a virtual monopoly over refining and distribution, meant that they were in a position to obtain long-term supply contracts based on production costs rather than on current world oil prices.

Outside the Middle East, particularly in countries which were either too poor to make the investment themselves or whose rulers were corrupt enough to agree to anything the "majors" wanted, the companies were able to win so-called "production sharing agreements", which were far more advantageous for them, to the point of being described by Platform, a journal devoted to keeping track of the British oil giants' misdeeds, as "oil privatisation by another name." Under such contracts, the "majors" take responsibility for financing exploration and development. They get paid by getting for free a large proportion of the oil produced during a specified period, which can be quite long. And the legal complexities involved in such contracts, together with the length of the repayment period, usually give far less control to the oil-producing country over its oil resources.

The "majors" are not only in a position to dictate to the poor countries. They are also powerful enough to have their say over the policy of the rich imperialist countries. This was already true at the beginning of the 20th century, when the western powers were busy carving out the old Ottoman empire between themselves - not so much for the sake of territorial or market control at the time, but for the sake of its oil resources.

The heavy presence of men closely linked to the oil industry in high spheres is not specific to today's Bush administration. From the coup supported by the CIA and MI6 against the Iranian prime minister Mossadegh, in the 1950s, to the support given to the CIA-inspired bloody repression of the Iraqi communist by the Baath party in the 1960s, the first Gulf War after the invasion of Kuwait by Saddam Hussein, and the subsequent blockade against Iraq, the US and British "majors" have played a decisive role in the policies of their respective states. And, of course, everyone remembers the cynical statement issued by Lord Browne, BP's chief executive, claiming a "historical right" for his company over Iraq's oil, in the run-up to the present war in Iraq.

"Energy saving" and hypocrisy

A lot of hot air has been produced by past and present governments about the need to "save energy", sometimes even claiming that this was the best way to contain the greed of the "majors".

In reality, the main beneficiaries of these so-called "green campaigns" have been companies which were given state subsidies and tax incentives to improve their energy efficiency or develop "alternative energies".

The International Energy Agency has compiled a study of the savings achieved in the OECD countries. According to its findings, by 2002, it took half the amount of oil required in 1971 in order to produce the same added value. This is an average, of course, and the energy efficiency achieved is significantly higher in Japan and the European Union than in the US - no doubt because the US capitalist class can afford to buy more oil, even if it results in a huge current account deficit, than the lesser imperialist powers. But the gap between the rich and the poor countries in this respect is not only as large as ever, it is actually increasing. Even in China, which is so often portrayed as a future economic power capable of competing with the USA, it takes 3.5 times as much energy as in Japan to produce the same added value!

Since there was a potential market and massive subsidies involved, the capitalists got interested in "alternative" or "renewable" energies. Britain's "wind farms" are a typical example of this. Despite spoiling large areas of the landscape and the lives of people living close to them, they are only capable of producing a minimal amount of energy - possibly enough for villages, but certainly not for towns and industries. A recent article published by the Guardian noted that even Europe's champion in this field, Denmark, was only managing to produce 16% of its energy despite the huge number of wind farms planted along its coasts. And, as was pointed out this article, they had to be supplemented by a fallback system supplied with electricity by hydro-electric power plants in Norway and Sweden, in case the wind was too weak or too strong for the turbines to operate. Despite this, the government is said to be determined to go ahead with a grand plan to develop large-scale wind farms across the country. Not everyone will lose out, of course - especially not the handful of turbine manufacturers and privatised water and electricity companies which are being subsidised to build and run these farms.

And guess what? Among the big names in wind farm contractors is... BP, which has even been appointed a "director of wind energy". Nor is BP only involved in wind energy. It also sells solar energy devices and owns a whole number of patents in these fields. Who said renewable energy would free consumers from the greed of the "majors"?

The truth, however, is that despite the more or less official campaigns around the alleged threat that the planet's oil resources are coming to an end, there was never any serious attempt to develop other sources of energy, which could have been substituted for oil, without carrying its disadvantages. There was not even a serious attempt at encouraging the use of small cars rather than petrol-guzzlers like SUVs and 4x4s, let alone at developing cheap public transport which would have really freed people from the need to use a car - no doubt, because no government was prepared to upset the big car companies either.

Indeed, an oil-based economy as the present one carries an enormous social cost. The numerous forms of pollution, wastes and environmental destruction it causes, express a total lack of responsibility towards mankind, its present and its future. In that the "majors" and the politicians who defend their interests, only reflect the workings of a capitalist system for which only one thing matters - private profit!

In any case, the issue is not the exhaustion of the planet's oil reserves. 30 years ago, it was predicted that by around this time, these reserves would have been exhausted. These predictions have proved to be nonsense. Today, some "scientists" have updated them and now claim that this "end of the world as we know it" will come round about 2030-40. But no-one is capable of assessing with any precision the actual amount of oil contained in the earth's crust. Only known reserves are taken into account in these estimates and, in fact, only when they are considered exploitable from the point of view of profitability. However, as the past 30 years have shown, new reserves have been found continuously, including some that no-one thought would have been exploitable at the time, for lack of the necessary technology or because they would have been considered unprofitable.

A third "oil shock"

In the present oil price hike, financial speculation has played an important role which should not be underestimated. From 2003, a wave of speculation developed on the oil futures markets - NYMEX in New York and ICE in London. Thereafter, every event in the news which had the sligthest connection with oil, triggered a new speculative fever. For more than 2 years, large volumes of capital in search of quick and easy profits, have flocked on these markets to buy and sell future contracts - i.e. "paper-barrels" of oil, which have no material existence until the contract reaches its settlement date (which can take up to 7 years on some contracts!). But, of course, the aim of the speculators on such market is not to acquire or to sell oil, but to make a profit thanks to the ups and downs of the contracts' prices.

That such a speculative wave happens means, in and of itself, that the speculators are convinced that prices are going up and that they can indeed make a profit this way. In the days of the first "oil shocks", the "majors" had encouraged this "optimism". Still today every "major" employs hundreds of traders to speculate on these markets - Shell, for instance, has 240 traders of its own.

But there are other reasons to boost the "optimism" of potential speculators. The world oil market is worth around £1,500bn/year. Once all the costs are deducted, what remains is a net "surplus" of around £1,200bn, only slightly less than Britain's entire GDP. Of course, there are many capitalists who feed on this surplus: the "majors" and their shareholders, of course, but also a galaxy of "services" companies, which provide anything from exploration expertise to mercenaries, as well as banks, through the interest payments they get, and the states, through various forms of petrol taxes. But this still leaves an enormous cake to share.

However, this cake depends on the amount of investment which is made in the industry. In 2004, the International Energy Agency estimated that £1,700bn investment would be needed in the oil industry between then and 2004 in order to meet oil demand, or a yearly average of around £60bn. But the "majors" are very far from investing that sort of money. And in fact, since 2000, they have cut their exploration budget by 27%.

It does not take an astute speculator to deduce from this that the "majors" are likely to see an oil price increase as being the best way for them to make up for their investment shortfall. And this is obviously the reasoning that many speculators made when they chose to gamble on a price increase from 2003 onwards.

Up to recently, the leaders of the rich countries did not seem too worried by the rise of oil prices. But the level reached this year has caused some of these leaders to express their worries of a possible impact on "economic growth" - meaning mainly, on capitalist profit in an economic situation which is already far from healthy. And, in September, the G7 meeting of finance ministers devoted most of their discussions to the oil issue.

In the rich countries this price increase is already affecting the standard of living of the working class and not just from the higher cost of petrol and heating, but also the cost of a whole number of other products, either because they contain oil derivatives themselves or simply because they need to be transported and refrigerated. Contrary to what the CBI implies today, it is not companies which are paying the higher price of oil, it is consumers, because this price is passed on to them immediately by the capitalists.

But the most dramatic consequences are already taking place among the 2/3 of the world's population who live in poor countries. In these countries, the state of the power-generating infrastructure is already so bad that any disruption to supplies, due to the inability of the state to pay its oil bills, results in the closing down of the whole network. In some countries, a virtually bankrupt state has repealed the existing rebate on petrol and domestic fuel, thereby leaving the population to face a double additional bill that it cannot afford. There have already been riots and strikes over these issues, in Nigeria and the Comores, among others. And as the more expensive oil hits these countries, there will be, without doubt, more distress, more anger and more casualties.

Why this calamity? Just so that the "majors" can boast the highest profit on record in any industry in front of their shareholders - an estimated £77bn for this year alone, equivalent to the estimated cost of all the damage caused by hurricane Katrina in the US south. It is the oil "majors" which are holding the world population to ransom. Their racketeering is yet another reflection of the present phase of the capitalist crisis. This crisis is a catastrophe for the entire world population and for the planet itself. But it is the only thing that the capitalist system and its frantic race for private profit has to offer.