Panic, Prosperity, and Progress: Five Centuries of History and the Markets

CHAPTER 14

Energy, Politics, and War

No other commodity in the modern age has affected the world stage as much as oil. As a basis for any modern economy, crude oil is second only to water as the liquid perceived as vital to life, and the global political stage—particularly since 1970—has been largely shaped by the price movement of oil in the financial markets. No wars have been fought over corn, pork bellies, or gold. In modern rhetoric, oil has been made the figurative equal of blood.

■ The Birth of OPEC

The popular perception of the Organization of the Petroleum Exporting Countries (OPEC) is that it is an all-powerful cartel of Middle Eastern countries that has unilaterally set the worldwide price of crude oil to maximize profits, to the chagrin of industrialized Western countries beholden to its decisions. The truth is far afield from this set of common assumptions.

The model for OPEC is actually an American creation called the Texas Railroad Commission (TRC), which was established late in the nineteenth century in order to, as the name suggests, regulate railroads. As the twentieth century dawned, and the decades passed, the domain of the TRC began to spread far beyond just rail lines, particularly with respect to energy resources. In spite of its name, the modern-day TRC holds sway over many local industries with one curious exception: railroads.

The TRC’s control of production levels in the oil industry gave it tight control over oil prices for most of the twentieth century. ...