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    The World Petroleum Market by M. A. Adelman

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    The World Petroleum Market by M. A. Adelman

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    The World Petroleum Market by M. A. Adelman

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    Volume 13

    Issue 4 Fall 1973

    Fall 1973

    The World Petroleum Market, by M. A. Adelman


    James W. McKie

    Recommended Citation
    James W. McKie, The World Petroleum Market, by M. A. Adelman, 13 NAT. RES. J. (1973).
    Available at: https://digitalrepository.unm.edu/nrj/vol13/iss4/10

    This Book Review is brought to you for free and open access by the Law Journals at UNM Digital Repository. It has
    been accepted for inclusion in Natural Resources Journal by an authorized editor of UNM Digital Repository. For
    more information, please contact [email protected].
    The World Petroleum Market
    M. A. ADELMAN
    Baltimore and London
    Johns Hopkins University Press
    For Resources for the Future, Inc.
    Pp. 438. $22.50

    Professor Adelman's authoritative treatise on the world petroleum


    market has been over a decade in preparation, though he has
    published enough other writings on the subject during that time to
    give the community of oil-watchers a good preview of his position on
    various questions. The book lives up to expectations in every respect.
    It combines a thorough survey of the recent history and factual data of
    the world oil industry with a penetrating economic analysis. Its expert
    orchestration of fact and theory indeed sets a model for future writers
    on the economics of industrial organization.
    Adelman's approach to the economics of the world petroleum
    market, brilliantly developed in this work, has provided a persuasive
    explanation of the long decline of world prices from 1957 (and even
    before that) to 1970. His opinions have strongly influenced the views
    held by most students of the industry concerning its essential structure
    and dynamics-including the views embodied in the Report of the
    Cabinet Task Force on Oil Import Controls (The Oil Import Question,
    1970). That approach was, in essence, that supply was bound to
    expand rapidly because the long-run marginal cost in the Middle East
    was far below the world price; that prices would continue to decline
    toward (though perhaps not nearly to) this marginal cost; and that the
    Organization of Petroleum Exporting Countries (OPEC) was a failed
    cartel which was bound to be ineffectual under the circumstances.
    Events seem to have overtaken that position. In a very short time,
    in 1970-71, the situation in the world industry changed abruptly, and
    a new configuration emerged to which Adelman's earlier views did
    not seem to apply without modification. Prices suddenly began to
    climb; surplus changed to scarcity; OPEC grew powerful overnight
    and began to increase both taxes and prices around the world; several
    producing countries did other disagreeable things such as expropria-
    ting properties, demanding a share of ownership in producing their
    resources, and fixing output rates. What happened? Had the underly-
    ing economic forces in the world petroleum market changed so
    fundamentally as to require an entirely new explanation and forecast?
    Professor Adelman does not seem to think so, though he recognizes
    the dramatic effects of the events of 1970-71. What happened was
    NATURAL RESOURCES JOURNAL [Vol. 13

    that the producers' cartel seized upon the consequences of some


    events of that period-e.g. the Libyan cutback and the temporary
    interruption of the Trans-Arabian pipeline, which raised transporta-
    tion costs and prices in consuming countries quite drastically. A tacit
    combination of producing countries and international oil companies
    perpetuated the conditions of that period, up to now, by collusive
    control which the consuming countries failed to counteract for a
    variety of reasons. "The producing nations now have a cartel
    tolerated by the consuming countries and actively supported by the
    United States. But there is as yet no effective limit on output, nor
    division of the market, and hence no change in the long-term
    outlook." (p. 250). The United States Government has supported
    OPEC with the hope of securing stability in the world oil economy,
    for the Western Alliance,-a hope that has repeatedly been dashed.
    (pp. 254-256).
    Other observers do not find this explanation entirely persuasive. It
    is not easy to understand how the cartel could maintain itself so
    effectively now in the face of the same disruptive forces that nullified
    it in the 1960's, while purely psychological explanations or attribution
    of the key role to the maladroitness and mistakes of the U.S.
    Department of State seem too weak to account for what has
    happened.
    More to the point is the question of what will happen in the future.
    If Adelman's critics are right, the demand on world markets will
    increase faster than the rate of development of new supply in the next
    few years, OPEC will continue to gain strength, prices will continue
    to rise and the revenues of exporting countries will grow exponential-
    ly. These things will happen regardless of the role played by the major
    international oil companies. Professor Adelman, on the other hand,
    thinks that the underlying economic forces will produce a resumption
    of the downward march of prices; all that is necessary is for the U.S.
    and other consuming nations to ". . . remove the multinational oil
    companies as the OPEC nations' tax collection agents." (p. 261).
    When the exporting countries, or their national companies, become
    the sellers on the world markets, competition will break out again and
    prices will again decline-especially if the consuming countries take
    advantage of their buying power. "There would no longer be a floor of
    tax-plus-cost, but only one of cost" (p. 261), and costs are very much
    less than prices.
    It will be a matter of acute interest to all readers of this volume to
    see whether Professor Adelman's conditional forecast is borne out by
    actual events, which have continued to unfold rapidly since the book
    was published. Several exporting countries have demanded and
    October 1973] BOOK RE VIEWS

    secured "participation" in the ownership of their producing indus-


    tries, leading ultimately to majority control; at least one (Iran) has
    begun to move into partnership with an international oil company in
    its refining and marketing operations. Control at home and forward
    integration abroad by the natioanl companies of countries which will
    play the dominant role on world markets in the future can obviously
    have profound consequences for the international petroleum econo-
    my. Observers of that process, whether they agree with Professor
    Adelman's basic views or not, would do well to read this treatise with
    careful attention.
    JAMES W. McKIE*

    *Dean, College of Social and Behavioral Sciences, University of Texas, Austin, Texas.

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