ECONOMIC CONDITIONS: Oil Titans: National Oil Companies in the Middle East

Article excerpt

ECONOMIC CONDITIONS Oil Titans: National Oil Companies in the Middle East, by Valerie Marcel. London, UK: Chatham House, 2006. 265 pages. Appends, to p. 294. Bibl. to p. 304. Index to p. 322. $49.91 cloth; $19.95 paper.

Reviewed bv Robert Looney

The field of economics is littered with numerous myths about energy, particularly about oil. At the top of the list is the notion of impending scarcity: because the earth's reserves are finite, they will be exhausted at some point in the future. In reality, if and when the growth of oil consumption seriously depletes reserves, the cost of extracting oil will have risen to such a high level that non-fossil energy sources will be used in preference to oil and other remaining fossil fuels - Europe's vast deposits of coal are currently lying dormant for this very reason.

A second energy myth, and a favorite of American politicians of both parties is that US energy independence is both vital and attainable. The reality is that, for the foreseeable future, America's dependence on foreign sources of supply is ineluctable, a fact that can be mitigated, hedged, and cushioned but not avoided.

A third myth surrounds the state-owned or national oil companies (NOCs). The assertion, perhaps reinforced by the recent experience of Venezuela's Petroleos de Venezuela, is that the business of pumping and selling oil is entirely subsumed by politics. NOCs are said to be hopelessly inefficient, overstaffed, and technologically dated. Whatever profits they make are quickly diverted to either the politicians' or ruler's pet social programs or are dissipated through corruption - a key element in the resource curse thesis. As a result, less oil is produced and prices are much higher than would have been the case under private control.

While the first two myths have been routinely refuted, the third has received little serious academic attention. Instead, most observers accept it as intrinsically obvious. This cavalier attitude is somewhat surprising, given the fact that eight of the ten largest oil companies in the world are NOCs, as are nine of the ten largest reserve holders. Organization of Petroleum Exporting Countries (OPEC) data for 2003 show they contributed 48% and 22% of global oil and gas production, respectively. Given the NOCs' control of reserves, the development of future petroleum is largely dependent on the policies these state firms adopt. …