Who Holds the Black Gold?

Analysis on Middle East Oil, MNCs and the Philippine Government’s Role Links

Aaron Laylo

It was mid-2008 when oil prices augmented to their highest peak for the year. Such “oil price crisis” had direct and shaky effect on international and local trade for almost two months. Import transportation cost higher. As an effect, duty and tariff prices could also increase; thus affecting the prices of imported goods. As these commodities reach the domestic market, and transported again to smaller markets, prices could have reached the ceiling level. Not only would the goods be affected by price increase but even transportation fare. This chain effect that began with international oil price increase had adverse effects even to mere domestic consumers of the sari-sari store or the simple jeep pasahero.  

How does international political economy of oil affect the Philippine energy industry? What is the important role of the government in adjusting oil prices or does it have authority to dictate prices at all? How powerful are multinational oil companies and their impact on the local industries? Who holds a tighter and stronger grip on black gold–the producers or price-setters?

The largest hydrocarbon deposits in the world may be found in the Middle East. For this reason, most members of the Oil Producing and Exporting Countries belong to this region. It may also be one of the reasons why this region plays an important role in global political economy. However, although the region exports large numbers of barrels of oil, it does not fully or directly determine prices. This other important task is at the capitalist helm of multinational companies which are responsible for the rise and fall of oil prices in the international market.

Given the distinguished roles of oil-producing and exporting countries against that of multinational corporations, which group may be considered more significant in oil importation? With which group then should the Philippines tie up tighter trade relations and economic partnership?

Middle East is the largest supplier or source of oil to the Philippines. MNCs dictate the prices. Since the Philippines is dependent on Middle East oil, we value our trade relations with the region’s oil-selling states. But given that MNCs dictate the prices, the Philippines, therefore is tied up with these companies more than the oil source itself. It may be neutral and good to say then that we must maintain close ties with both the OPEC and MNCs to safeguard and satisfy the country’s need for black gold.

The smoke however gets into the picture when oil prices rocket in the market. As oil source states increase the value of their product, the MNCs would add profit and when they market refined oil to the consumer-states, the oil price would have multiplied many-folds already. It’s given that in such 2589034606_89c43d2566scenario, it’s always the consumerist state that would simply comply with the dictates of oil prices. How does this consumerist state adjust to soaring numbers given the continuous demand for oil in the country?

Here comes the role of the government –regulation. But still, it depends on how the government handles the economy and on what principle it follows. In the Philippine setting, oil prices have been deregulated since mid to latter 1990s when Ramos broke the monopoly of the big three and set the tone for deregulation. This follows free trade. At first, the result was commended by the masses. Since there is competition in free trade, oil companies tend to lower their prices, thus everyone could enjoy cheap oil. However, as the government partly allows free trade through deregulation, influential and giant oil companies may also tend to connive and eventually dictate a common price which may dominate and practically dictate the prices again, and add larger profits to these giant companies. The common people are those that are worst affected by this oil game. Even when there are crises, influential players are still winners and consumers are clearly the losers here. They can’t do anything to pull down oil prices because in the first place, it is the government’s free trade approach that tolerates it. In free trade, anything goes and things only stop when things hit the ground. But things such as oil prices do not actually stop in free trade, they just decline. Eventually, they’ll soar as soon as crises soften.

MNCs and the OPEC countries are important to the Philippines insofar as the political economy of oil is concerned. But these two components may be harsh too in the economic climate of the country if the government will not intervene in times of wanton dominance by the former. It is therefore the government’s prime responsibility here to hold on to the interest of its people. Free trade may be good for the country but the government should always see to it that the energy needs of the country would not be too much dependent on foreign oil resources and companies. If such happens, the country would less likely to attain its development plans and sustainable energy programs.

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