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Financial Times: Lex Column: Big Oil under pressure

Published: June 27 2007 20:05 | Last updated: June 27 2007 20:05

What links the world’s largest listed company, riots in Tehran, and political attacks on the private equity industry? The curious, and longstanding relationship between politics and Big Oil.

High crude prices stoke not just the profits of oil companies, but also politicians’ blood pressure – and ambitions. The latest round of nationalisation in Venezuela’s oil fields, edging out ExxonMobil, reflects this: when the profit pie gets bigger, resource-rich governments push for a bigger slice. Yet it also excites US politicians, which is also risky.

Congress is currently debating energy reforms that envision a US that is energy independent and “carbon-lite”, yet still enjoys low fuel prices. It is also taking a swipe at Big Oil’s cash flows through proposed windfall taxes. Calling on consumers to use less fuel without a significant increase in price is a doomed strategy. Witness Iranian drivers who, after years of profligate petrol consumption on the back of subsidised prices, are up in arms after the government’s introduction of rationing to ease capacity constraints.

The grandstanding in Washington’s current energy debate – including spurious calls to sue the Organisation of the Petroleum Exporting Countries for price manipulation – should have investors worried. The mood on Capitol Hill is not just pro-green and anti-oil. A wider focus on “fairness” has shown up in attacks on private equity’s favourable tax status – one worry weighing on Blackstone’s newly minted stock. Yet one year’s worth of net income at Exxon outstrips Blackstone’s entire market capitalisation. So even if it is simple supply and demand that really determines pump prices, calls to punish oil companies for supposed price gouging are beguiling. Venezuela may be at the bleeding edge of resource nationalism. But even in “market-friendly” regimes such as the US, Big Oil makes for a juicy target.

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