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World oil marketing in transition

Published online by Cambridge University Press:  22 May 2009

Brian Levy
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Extract

The rise of direct marketing of crude oil by state-owned enterprises from producer countries has added to the instability of world oil trade. The major cause of the rise of direct marketing was the changing structure of barriers to entry into the industry by new firms. Upstream, shifting entry barriers enabled state-owned enterprises increasingly to displace international companies; meanwhile, independents were increasing their share of refining capacity downstream. These changes contributed to the demise of traditional patterns of vertical integration. But these vertically integrated linkages had served to stabilize world oil trade, so their demise added to the turbulence of the international market. In response, both governments and firms from oil-importing countries have sought, with mixed success, to create new ties to sellers in order to stabilize the market.

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Articles
Information
International Organization , Volume 36 , Issue 1 , Winter 1982 , pp. 113 - 133
Copyright
Copyright © The IO Foundation 1982

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References

Professor Raymond Vernon's special mixture of encouragement and criticism has been invaluable. Research support was provided by Seung Jae Chyun and Jim Murchie. The Program on U.S.-Japan Relations, Center for International Affairs, Harvard University, provided financial assistance.

1 Exxon, Mobil, Socal, Texaco, Gulf, British Petroleum, and Royal Dutch Shell.

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5 For a discussion of these entry barriers, see Vernon, Raymond, Sovereignty at Bay (New York: Basic Books, 1971), pp. 27–37.Google Scholar

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28 American Petroleum Institute, Basic Petroleum Data Book (Washington, D.C., 1980)Google Scholar, Section 9. Table 3.

29 For evidence that some OPEC countries have long recognized this danger, see Yamani, Sheikh A. M., “Participation Versus Nationalization: A Better Way to Survive,” in Z., Mikdashi, ed., Continuity and Change in the World Oil Industry (Beirut: Middle East Research and Publishing Center, 1970).Google Scholar

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42 For an example from the iron ore industry, see Vernon, Raymond and Levy, Brian, “State-owned Enterprises in the World Economy: The Case of Iron Ore,” in Jones, Leroy P., ed., Public Enterprise in Less Developed Countries: Multidisciplinary Perspectives (Cambridge: Cambridge University Press, 1982)Google Scholar; for a more general treatment, see Newman, H. H., “Strategic Groups and the Structure-Performance Relationship,” Review of Economics and Statistics 60 (08 1978): 241–61.Google Scholar

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48 “What's New Around the World,” Petroleum Intelligence Weekly, 10 March 1980, p. 10Google Scholar; “Non-OPEC Mexico Broadens Its Base in European Refining,” Petroleum Intelligenc Weekly, 7 July 1980, pp. 4–5.Google Scholar

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50 The Japanese intent to diversify was announced in the October 1978 report of the Overall Energy Council; see “Long-term Oil Strategy Succeeding for Japan,” Petroleum Economist, September 1979, pp. 369–75Google Scholar. See also “Japan Nearly Covers Its Iranian Crude Supply Shortfall,” Petroleum Intelligence Weekly, 19 May 1980, p. 3.Google Scholar

51 See Nye, Joseph S., “Energy Nightmares,” Foreign Policy, no. 40 (Fall 1980), p. 153.Google Scholar

52 For examples from other industries of the fragility of linkages short of vertical integration, see Vernon, and Levy, , “State-owned Enterprises in the World Economy.”Google Scholar See also Joseph, D'Cruz, “Quasi Integration in Raw Material Markets: The Overseas Procurement of Coking Coal by the Japanese Steel Industry,” Ph.D. diss., Harvard Business School, 1979.Google Scholar

53 Parra makes a similar point in “The New Role of NOCs.”

54 “Oil Exchange for Steel Finance,” Financial Times, 21 July 1980Google Scholar; “Mitsubishi's Longpending Saudi Project Starts Taking Shape,” Japan Economic Review, 15 May 1980.Google Scholar

55 ”Iraq Plans to Sell More Oil to France,” New York Times, 12 July 1979Google Scholar; “Caracas to Double Italy Oil Sales,” Financial Times, 14 December 1979.Google Scholar

56 For one expert's depiction—or, perhaps, as he suggested, “unrealistic utopian fantasy”—of what such linkages might be, see Levy, Walter J., “Oil and the Decline of the West,” Foreign Affairs, Summer 1980, pp. 1014–1015.Google Scholar