Roberto F. Aguilera and Marian Radetzki have written both an assessment of the past and a prediction of the future. The Price of Oil explores oil price fluctuations since the early 1970s in an attempt to uncover the most prominent reason(s) for price instability. They dispense with a variety of popular theories about price increases—such as resource depletion, the costs of production, and the role of the Organization of the Petroleum Exporting Countries (OPEC) and Saudi Arabia—and argue that supply disruptions resulting from nationalization of oil by producing states in the 1960s and 1970s are the primary culprit of price increases since that time. Problems with inexperienced, inefficient, and politically conflicted state-owned companies meant that not enough resources were allocated to production. “Domestic and international conflicts over the oil rent,” they point out, led to slower production, resulting in supply problems (p. 4). Similar issues with supply, they argue, are to blame for ongoing price instability. The authors then look at the rise of two production revolutions—the technological revolution and the shale revolution—to suggest that, as a result, sustained lower oil prices and greater global economic development will dominate the long-term future of oil.
Aguilera and Radetzki note, unsurprisingly, that “prices are in effect determined by the relative balance of supply and demand for oil” (p. 15). Speculation by investors and changes in demand, however, have little impact on the long-term price of oil. In addition, while OPEC often acts as a cartel, the authors find that its actions (its quota system and its management) also do not have a significant long-term impact on prices, in part because they are not managed consistently, individual countries cheat on production quotas, and many producing states are already operating at or very near capacity. And Saudi Arabia's actions as a “swing producer,” in particular, also cannot explain price fluctuations (p. 28).
The exploration of both oil depletion and costs of production yields a conclusion that neither has significant long-term impacts. Depletion, the authors argue, has never been an issue, and costs are hard to determine. In looking at depletion, they explore the notion of “peak oil” and state that “Peak Oil adherents assert that the technology of exploration and exploitation is now so mature that believable ultimate quantities can be determined. They share this view with self-assured experts and analysts of 100 years ago” (p. 35). Providing some more information about how peak oil adherents recycle old tropes in their predictions could help contextualize, historically, the problem with these arguments. It might also shed light on the thinking of those who make these arguments and, therefore, the role of certain kinds of “experts” within the industry.
After rejecting many popular beliefs about oil price fluctuations, Aguilera and Radetzki move to their pivotal historical contribution. They argue that state-owned oil companies operate “with the purpose of affecting corporate behavior for political ends” (emphasis in original) and therefore “the goal of profit maximization is typically subordinated to the pursuit of a broader set of social goals and specific agendas” (p. 46). This political and social agenda, combined with early inexperience with oil industry operations, created inefficiencies. Moreover, conflicts related to oil, such as the war between Iran and Iraq in the 1980s, led to a decline in available oil.
The authors stick to the economic data, but at times this approach is to the detriment of trying to understand the broader history of the issues they raise. For instance, when discussing Iran and Iraq, Aguilera and Radetzki state that “it is certainly possible to point to the seeds of the conflict planted by the break-up of the Ottoman Empire in 1914, the aftermath of colonialism in the 1950s and 1960s, and to the religious differences of the two countries. Though the counterfactual will never be known, we allege that the conflicts would not have been as bloody and as extended in the absence of the countries’ oil wealth” (p. 71). The seeds of the conflict are indeed long and complicated, and oil does factor into the discussion. The authors convincingly show that oil production dropped in Iran and Iraq during their prolonged war in the 1980s, as it did in various other oil-rich regions during periods of conflict. The argument that the production declines are significant to higher prices is not novel, and any suggestion that these sorts of conflicts were tied merely to nationalization and state ownership would be rather simple. More complicated inquiries into conflicts in and among oil-rich states might, however, complicate the point that the authors want us to contemplate. It is possible that this particular conflict would not have occurred with private ownership, but of course conflict between private firms and producing states has always been an issue historically, as it continues to be. By extending the range of the study, the authors would no doubt run across examples of serious disruptions to supply as a result of European colonialism and private control. Iran's own history in this regard is telling.
Aguilera and Radetzki quickly move into the second part of the book to explore the impact of current extractive practices on the future. They argue that the technological revolution in shale oil extraction has crossed a point whereby it is not as expensive and is therefore profitable when oil prices are low, and they maintain that this technological revolution will spread globally. The United States, they predict, will become the world's largest producer. In the end, global economic development will result.
The Price of Oil makes helpful comparisons between crude oil and other minerals and metals to show that issues like demand and resource depletion cannot exactly be identified as the key culprits of oil price fluctuations since the 1970s. Instead the authors show that problems with supply predominate. Economic historians and some business historians will appreciate the approach the authors take, but political and diplomatic historians may want deeper analysis of the political, social, and diplomatic factors within the producing states.
