| Summary/Abstract |
The oil industry has gone through a constant process of change since the oil-price shocks of the 1970s, but one key, structural feature has endured. The sovereign owners of the cheapest resources on earth – notably Saudi Arabia and other Gulf producers – have exploited them much less intensively than would have been the case under a competitive market structure. Because of the relative unresponsiveness of both supply and demand for oil to changes in price, the Saudi-led oil cartel of low-cost Gulf producers has been able to withhold cheap oil from the market, shifting marginal supply to more expensive oil fields. Hence, for decades, oil has been sold for more than it would have cost in a competitive industry. This strategy has generated huge economic rents for the industry’s key players, including Gulf sovereigns and publicly traded oil companies. Today, however, this structure is being eroded, and may even be collapsing before our eyes.
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