Wait for the Price Hike

Here we have the proposed formal re-assembly of the old John D. Rockefeller oil trust broken up ninety years ago, and thus far there's barely been a bleat of indignation. Mostly there's a solemn chorus of admiring comment from industry analysts noting that the merger of Exxon and Mobil is a prudent protective move by two oil giants worried about softness in oil prices which have dropped to just over $12 a barrel from nearly twice that amount only two years ago.

It's being called a merger, though "buy-out" seems to be a simpler way of describing the engorgement of Mobil by the far larger Exxon. Why this reunification of what were, back in the nineteenth century, Standard Oil of New Jersey (Exxon) and Standard Oil of New York (Mobil)? It was Adam Smith who once remarked that when you see a bunch of business men gathered together, chances are they are conspiring to fix prices. That's certainly what the anti-trust reformers believed ninety years ago when they broke up the Rockefeller oil trust. The whole history of the oil industry has been one desperate attempt after another to limit the supply and thus keep prices up. There's no reason to see the prospective Exxon-Mobil deal in any other light.

There was a time when "Big Oil" was an explosive catalyst of populist anger against the monopolies and combinations that dominate our economic life. In the old days a suggested merger of two mighty oil companies, with 21.5 billion barrels in joint reserves and 8.8 million barrels a day in joint sales, would have sent members of congress--particularly those from the northeast and midwest--turning out furious press releases and invocations of the Sherman Anti-Trust Act. It's early days yet, but on the evidence of congressional reaction after the prospective (though ultimately aborted) Shell/Texaco merger last year, we should not expect much. That proposed merger barely raised a regulatory murmur, a silence all the more surprising given the fact that not long before, gas prices had suddenly shot up amidst much head scratching by news commentators as to why this should have happened. The real reason was never hinted at even in the form of a hypothesis that the oil companies were simply doing what comes naturally to them--fixing prices.

The only cautionary note from the Clinton administration back then came from Deputy Energy Secretary Charles Curtis, who wagged a deferential finger at the oil men gathered at the annual confab of the American Petroleum Institute. "Domestic energy prices have grown brittle, with troubling results," Curtis warned. "Investors and consumers don't like surprises, but that's what they're getting. Public confidence in the free market erodes when prices suddenly increase. Too much vitality will create demand for political solutions that are short-sighted and ill-conceived." Curtis was decorously signaling that a sudden hike in gas prices might send politicians back to the sort of populist stump they were mounting in the early 1970s, when the U.S. Senate almost voted to break up the oil industry, and when Rep. John Dingell from Michigan held a hearing on the topic of "white-collar crime in the oil industry." The oil men probably thought Curtis was being paranoid. If so, they were right. Since those dark days of the early 1970s, amid the great oil price shock, the oil companies have undertaken a quarter-century propaganda campaign to persuade the American people that they are as selfless servants of the public weal as nuns in a slum.

The costly PR effort has paid off. In the Clinton era alone, Big Oil has scored one amazing triumph after another, amid an almost eerie silence in Congress and the media. Oil companies such as Arco operating on Alaska's North Slope managed--courtesy of an executive order by Clinton--to overturn the ban on selling that oil to Asian markets. Not a whisper of protest. The leasing to oil companies of the national oil reserve on the Arctic slope--a scandal bigger than Teapot Dome--slunk from Interior Secretary Bruce Babbitt's office amid similar public silence. Why should the reintegration of the old John D. Rockefeller trust evoke any other reaction? There's scarcely a populist left in Congress. How delighted old John D. Rockefeller would have been at this public complaisance towards concentration of ownership.

So, if the Exxon-Mobil merger goes through, similar fusions in the oil industry will follow fast upon its heels, and we can confidently expect a look forward to an avalanche of industry-inspired propaganda about why gas prices will shortly have to go up, as part of a new bid for national energy independence. If they can sell that ... yes, they probably can.