This book has been on my "to do" list for a long time, and I am glad that I read it. I now know a lot more about the oil business (and oil politics!). That knowledge provides useful insights into the the present and gives me some idea of what will happen in the future.
I will not give you a long summary of the book. For that, start with wikipedia. The short version of the book is:
- Americans started the oil industry with lighting; it was run by rough, smart, aggressive characters.
- Electricity killed the lighting market (kerosene), but the fuel market (diesel and gasoline) took its place.
- Before WWII, most oil was controlled by US and UK firms that worked all over the world; the US was the biggest producer.
- Mexico was first to nationalize its oil (breaking contacts with foreign companies) in 1938.
- Oil was important in WWI, when it helped machines replace horses. It was critical in WWII, when its absence choked the Nazis and a shortage nearly ended Britain's resistance.
- After WWII, supply outran demand, and prices dropped.
- Iran (under the Shah) fought with Saudi Arabia for title of biggest exporter. These "beggar thy neighbor" races for market share hurt everyone, in an echo of the same overpumping that harmed oil US producers in the 1920s.
- It was not until the 1980s that oil prices were really set in transparent markets; before then, they were set in long-term contracts, in bilateral negotiations that sometimes had nothing to do with economics.
- Water is not even CLOSE to oil in significance for military or political actions. It's VERY unlikely that an army would lose a battle for lack of water or a nation be invaded for its water supplies. That's because water is everywhere, but oil is not.
- There were a lot of VERY smart people in the oil business. Global competition forced the best to the top. No such competition exists in the water world, either in terms of measured talent or productivity nor in terms of the size of the market or incentives to succeed or fail.
- The Office of Price Administration (J.K. Galbraith was on staff and on topic) opposed raising prices in WWII, making it more likely that the US would have fuel shortages and the military would not have enough oil to fight. Vacations to Florida were making it more likely that the Axis would be the owners of Disney World.
- The US was involved in Saudi Arabia from the start, and that involvement meant that the US was not too critical of mistakes or misrule in Saudi.
- The first oil concessions favored capitalist companies. Producing countries then unilaterally rewrote contracts for 50/50 profit splits. New-comers offered more to get into the game. After awhile, most concessions were nationalized.
- Everything changed in 1973, when the Arab -- not OPEC -- embargo against Israeli allies during the Yom Kippur War raised prices to levels never before seen. It's important to note that Small is Beautiful and Limits to Growth were in the public consciousness at the time. With the intellectual background in place, people saw the advantages to using less. It was a total change compared to use more more more...
In the United States, the shortfall struck at fundamental beliefs in the endless abundance of resources, convictions so deeply rooted in the American character and experience that a large part of the public did not even know, up to October 1973, that the United States imported any oil at all. But, in a matter of months, American motorists saw retail gasoline prices climb by 40 percent -- for reasons that they did not understand... The embargo and the shortage it caused were an abrupt break with America's past, and the experience would severely undermine America's confidence in the future. [pp 616-7]
- Oil exploration, production and distribution takes a lot of money, talent and coordination. The oil market was run like a big bureaucracy for many years, but many surprises and mistakes increased the cost of handling complexity. The rise of markets removed a lot of those problems, or at least minimized their harm.
Bottom Line: I give The Prize five stars for its clear and thorough exposition of an industry that gave us the good life today -- and the industry whose unsustainable product threatens to take that prosperity away.