State monopolies nudge out Big Oil

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State control of oil only stands to grow in the future. The Boston energy think tank estimates that 84 percent of the growth in world oil production in the next decade will be controlled by 15 countries. Of those countries, only one — Canada — allows Western companies to freely explore and develop the oil. All the other countries either prohibit Western development or limit the role Western companies play.

Countries like Iran and Venezuela help attain their goal of high prices not only by keeping a lid on supplies of oil but by creating political instability and uncertainty, which also add to oil prices by roiling markets and increasing risks for consumers and investors.

Iran does not even need to withhold oil from world markets to play its ‘oil card,’ ” said Brookings Institution fellow David B. Sandalow. “The mere fear it might do so can cause oil prices to climb, as traders build a ‘risk premium’ into the cost of every barrel.”

As long as major producers like Iran, Iraq and Nigeria remain in the center of political turmoil in the world, “anxiety about the reliability and adequacy of supplies will remain a feature of the oil market,” said Ms. Roth.

Even in countries like Kazakhstan, Nigeria and Indonesia which allow Western companies to assist in extracting their oil, governments are demanding that companies build refineries and petrochemical facilities that can be run locally.

The goal of these and other countries like Russia is to acquire the technology and expertise needed to develop oil and gas resources without Western help or involvement. To that end, the Russian government in recent years engineered a leading role for its state-controlled Gazprom monopoly in all the major oil and gas projects started by Western firms in the 1990s.

While consumers in the West have been slow to wake up to the reality that the price of gasoline is largely controlled by foreign monopolies rather than big oil companies like Exxon Mobil, investors have overwhelmingly reached that conclusion. They have been piling into the stocks of state companies like Gazprom, PetroChina and Petrobras, the Brazilian oil company.

“Clearly, they are betting on who will own the oil in the future,” said Ms. Jaffe. The flood of investors in state oil firms has put companies like Exxon Mobil on the defensive, forcing them to use more of their profits to try to prop up their stock prices with stock repurchases and dividends, she said.

“We still like Big Oil, but admit to becoming increasingly nervous about the future reserve and production levels of many U.S. oil companies,” said Joseph Quinlan, chief market strategist at Bank of America. “It’s in all the wrong places, at least from a U.S. perspective. We recommend investors increasingly take positions in the oil complex and energy infrastructures of the developing energy nations, where possible.”

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