Stephen Glain, Newsweek International
Why are oil prices so high? Partly because the industry is dominated by incompetent monopolies.
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Remember the giant companies that once dominated the world oil market as the Seven Sisters? Of course, they have long since been expelled as owners from the Middle East to Mexico, and must now beg and barter for access to oil. The majority stake in world oil reserves that they held is now in the hands of nation-states. The result is a critically important anomaly: a vast global free market for oil, in which all the power players are nationalized, often highly inefficient state monopolies. One might call them the Seven (Or So) Sovereigns.

These new giants are far less controversial than the old ones. As oil prices continue to hover around record highs of $75 a barrel or more, the heated public discussion in the West still is focused on oil states and multinationals: Saudi Arabia and ExxonMobil, not Saudi Aramco. Yet, shielded from market forces, the state oil companies have a very clear impact on prices. In comparison with private companies like ExxonMobil, they pump a smaller share of their reserves, using less modern technology, with much more erratic management, and spend much less on finding new wells. All of this works to tighten supply, raise uncertainty and push up prices.

From the market viewpoint, the problem with state oil companies comes down to "inefficiency," says Jean-François Seznec, an oil expert at Columbia University.

...In the global oil market, the state-for better or worse-is the guiding hand. And it's going to cost you.
(Aug. 21-28, 2006 issue)

Oil's Dirty Laundry (state oil companies)