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Edited on Thu Sep-07-06 05:46 PM by leveymg
one should know that after King Faud's debilitating 1995 stroke -- when oil was down around $15/barrel -- Saudi Ambassador to the U.S., Prince Bandar bin-Sultan, gathered representatives of the U.S.-based majors at his residence in Great Falls, VA and put an astonishing offer on the table.
He offered to sell off the "upstream" oil reserves that Aramco had nationalized. Bandar proposed a bulk sale at a $25/barrel target price. The offer was made on bahalf of the faction of the Royal family around Crown Prince Abdullah, who wanted to modernize the Saudi economy with the proceeds, but it was bitterly opposed by a coalition of seven of his half-brothers. In early 2001, an agreement appeared near to lease natural gas production to a group of five U.S. companies.
That deal fell apart. But, it had planted the seed of the idea that all that oil could be had, without paying for it, if the House of Saud were to split and fall. An armed resistance movement sprung up in the mid-1990s within Saudi Arabia under the guise of a religious-nationalist movement. A messianic son of a Yemeni construction magnate took its lead, after he was exiled to Sudan. Thus, started the civil war within the House of Saud that was to culminate in 9/11.
SNIP
The "oil crisis" was comparatively short-lived in terms of supply. The oil companies had had hints from King Feisal of the impending war and had built up stocks. There was no oil shortage in 1973. What was different was the price of oil, passed on to consumers by the majors as they paid more to the producers for their crude. As long as the majors could control the crude oil supply, and as long as the consumer could pay the increased price, the majors could arrange to have at least the same absolute profit margins as before. If they could arrange to keep anything close to their original percentage profit margins, they would make a lot of money. In typical figures for a refinery on the US East Coast, the refining profit per barrel was 95¢ (25% above cost) in 1969, but $4.23 (50%) in 1974. The result was that major oil companies made profits of about 19% in 1974, compared with a historical average of about 11% in the previous decade.
In all of the upheavals, the overriding concern of the majors was clearly to retain control over crude oil shipping, refining, and marketing. This was shown in 1974, when Saudi Arabia demanded the nationalization of Aramco. If there were problems, the Saudis threatened, they would simply offer 3 million barrels a day directly to third parties (outside the majors). In the end, Aramco quietly gave in, in return for contracts by which it would handle all the shipping of Saudi crude.
Since the usual effect of a major price rise is to cut consumption, by economy (conservation) or switching to alternate supplies, one would expect that a continuation of OPEC production at its 1973 rates would tend to bring prices down again, no matter what the wishes of the producers. If OPEC could maintain its prices in the face of restricted demand, production would have to drop. In 1974 production was almost exactly the same as 1973, and in the light of a historical 9.5% increase each year for 20 years, this constitutes a distinct restraint in production. In 1975 there was a real drop in production. Together, these actions ensured that the price remained high. It's quite conceivable that these figures were achieved because the majors as well as the producing nations both benefited from the large price increase, and neither had any interest in seeing that position eroded.
SNIP
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