Politics and World Oil Economics: An Account of the International Oil Industry in Its Political Environment

By J. E. Hartshorn | Go to book overview
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CHAPTER VIII
Bigness in the Oil Business

I n glancing at the operating economics of the petroleum industry in the last few chapters, we have seen various factors that make it convenient to have big units of ownership. Many of its operations are highly-capitalized, and in some there are considerable economies of scale. Moreover, the large areas over which rights to explore for oil have become available, in many parts of the world outside the United States, have raised the cost of entry into this one stage of the industry where one might expect to find adventurous individual businessmen -- though one sometimes still does. These elements make for big units of ownership at particular stages of the industry's operations -- that is, for 'horizontal integration'. They may also, indirectly, make for 'vertical integration', or the ownership of more than one stage of oil operations. In practice, oil companies frequently own or directly control almost all the operations that are applied to petroleum, from exploration right down to selling the processed products. There is still great diversity in the company structure of this industry; many small units or largish non-integrated units survive and flourish. But integration does dominate at most levels in the structure; and whether or not one regards it as an inevitability in the development of such an industry, it certainly has played a logical part in the way this industry has developed in practice.

First, the facts. Here, as in other ways, there are marked differences between oil in the United States and in the rest of the free world, even though many of the same companies are involved in both, and American companies own a majority of the privately-owned oil industry outside their borders. In particular, the share of vertically-integrated oil companies, and of the seven great 'international majors', is much greater outside the United States. Here the oil industry developed later than inside America, and the shape that it adopted, historically, was in some ways a reaction to the structure and strength of American oil companies at the time.

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