To fully understand oil-rich Alberta's status as Canada's most affluent province, and how it achieved that prosperity, it is necessary first to look briefly at the history of the Organization of Petroleum Exporting Countries, or OPEC.
In March, 1975, in the Palace of Nations near Algiers, a group of men assembled to do a piece of business that would affect the fortunes of the entire world. The meeting was hosted by the president of Algeria, Houari Boumédienne. Among the assembled élite were the Shah of Iran, Saddam Hussein of Iraq, Carlos Pérez, president of Venezuela, and the sheikhs of Abu Dhabi and Kuwait. These were the leaders of the Organization of Petroleum Exporting Countries-OPEC-and they controlled the life-blood of the industrial age: oil. The crowd applauded as the Shah of Iran embraced and kissed Saddam Hussein. It was an ecstatic moment.
The oil men had much to celebrate. They had clinched their control over the world's most desirable commodity and their countries were about to become fabulously rich. The price of oil, under $3 a barrel only two years earlier, was now four times that, and would go much higher.
It might seem that what they had accomplished was the victory of a cartel over the free market, but that was not the case. What OPEC had achieved was the victory of one cartel over another. oil and the free market are not well acquainted.
The oil patch has always conjured up a romantic image of rugged individualists competing in a wide-open market, and there is some truth to this-at the lower levels. Where the real power lies, however, it is a different story: few industries have produced more vocal advocates of the free market, and few industries have seen less of it. As John D. Rockefeller proclaimed late in the 19th century, early in the oil game, "Individualism has gone, never to return."
John D. knew whereof he spoke. Son of a devout Baptist mother who tied him up and beat him when he disobeyed and a patent-medicine-peddling father who taught him how to cheat, he understood discipline and sharp practice like few .
men. While others toiled in the oil fields of Pennsylvania, the first great oil state, the ex-bookkeeper bought a refinery business and conspired with other refiners and the railroads to undercut the producers with cheap transport. He bought up oilfields to integrate his company from production to marketing. He established the Standard oil Trust to get around investment laws and hired teams of lawyers to defend his actions, while befriending and bribing legislators. He monopolized oil, becoming in the process more powerful than governments.
Ultimately, the U.S. Supreme Court broke up Standard oil, but that did not end the monopoly of oil. It merely set the stage for the emergence of the "Seven Sisters" cartel, so-called by Enrico Mattel, former head of Italian State oil. Three of the sisters, Standard oil of New Jersey, Standard oil of New York, and Standard oil of California, (ultimately Exxon, Mobil, and Socal), were daughters of Rockefeller's empire, birthed by the trust-busters. The other major players were two American companies, Gulf and Texaco, and two European companies, Shell and British Petroleum.
With new supplies coming onto the market after the First World War from the Middle East, Venezuela and Mexico, the sisters were faced with an oil glut. Competition threatened to get out of hand. Consequently, in 1928, the heads of Exxon, Shell and British Petroleum formed a cartel. The conspirators agreed to fix market share, tailor growth in supply to avoid gluts and rig prices. The agreement was accepted by the other sisters and most other American companies that operated internationally. It couldn't be rigidly enforced-it was after all, secret-but it guided the behaviour of the international oil industry well into the 1960s.
The biggest pie in the oil patch, the Middle East, had already been divided up. A syndicate that included British Petroleum, Shell, and the German Deutsche Bank agreed not to take concessions in the former Ottoman Empire except through the consortium. …