Raising the Chopping Block

Huge, rich and efficient, the U.S. oil industry has long occupied an ambiguous place in American life. Its dazzling feats of technology in supplying the nation's voracious demand for energy have helped the U.S. to become the most advanced country on earth. Yet many Americans have come to view the industry with suspicion, especially since the rapid runup in oil prices that followed the 1973 Arab oil embargo. Critics contend that the major companies' total control of all aspects of their business, from wellhead to gas pump, has given the industry too much power to manipulate supplies and prices and reap excessive profits at the expense of consumers. During the past year or so, the efforts of congressional Democrats to curb the companies' clout and inject more competition into the industry has gained increasing support. Last week, in the most far-reaching move yet, the Senate Judiciary Committee, by a vote of 8 to 7, sent to the full Senate a bill requiring the breakup of the 18 largest oil corporations.*

The measure, which is not expected to reach the Senate floor for debate until after the Democratic National Convention next month, is given little chance of enactment this year. Yet the committee's action adds fuel to what has become a bitterly fought ideological, economic and political issue that is certain to spill over into the presidential campaign. Says Senator Birch Bayh, Democrat of Indiana and the bill's chief sponsor: "If there is one symbol of the Establishment ripping off the people, it is the oil companies." The companies, which have suffered a series of blows in recent years, including nationalization of many of the foreign oilfields they developed, have pulled out all stops in a multimillion-dollar lobbying campaign to defeat the bill. In the view of American Petroleum Institute Vice President Charles DiBona, "There couldn't be a worse time to even be considering this economic tomfoolery."

The Breakup. Specifically, the legislation would give the Federal Trade Commission authority to supervise the breakup. The companies, which now produce, refine, transport and market their oil, would have 18 months to determine what operations to jettison, and five years to sell them off. A company could become an exploring and producing firm exclusively or a refiner-marketer. Though refining firms would be permitted to keep their service stations and other marketing facilities, they could not buy more. Companies that decided to become either producers or refiner-marketers would have to spin off their pipelines. To handle the lawsuits that would arise from the sale of some operations and the establishment of new companies, a Temporary Petroleum Industry Divestiture Court would be established with powers equal to those of a federal district court.

The bill faces formidable legislative hurdles. Indeed, three Senators who voted to send the measure to the floor, Democratic Whip Robert Byrd of West Virginia, Minority Leader Hugh Scott of Pennsylvania and Republican Charles Mathias of Maryland, are avowed opponents of divestiture. They merely wanted to bring the issue up for a full-scale debate in the Senate, which last October rejected a similar proposal by a surprisingly close vote of 54 to 45. The bill's fate is also uncertain in the House, which has not yet even held committee hearings on the matter.

If legislation passes both houses, it faces a veto from President Ford, who opposes the bill. Jimmy Carter, the front-running Democratic presidential candidate, has also come out against a thoroughgoing breakup of major oil firms -though whether as President he would thumb down such a proposal is open to question. On the other hand, Carter would favor getting the oil companies out of other energy fields, such as coal, uranium and solar power.

Supporters of the Bayh bill, which include labor unions and consumer and environmental groups, argue that putting the giant firms on the chopping block would open the market to greater competition, end price discrimination by the majors against independent marketers and ultimately result in cheaper petroleum products. More important, they insist that splitting up the industry would stiffen its approach to oil-producing countries, which have quintupled the price of crude in recent years. A fully integrated company, the critics say, has a vested interest in playing ball with the producers, while a marketing and refining firm without producing interests would haggle more vigorously for lower prices.

Glutted Market. The oil companies, backed by the Administration, contend that they are competitive and point out, correctly, that there is far less concentration of market power in oil than in autos, steel, aluminum and other fields. A Treasury Department study released last week asserts that divestiture would hamper the industry's efficiency, lessen exploration and development of new wells, increase the nation's dependence on costly foreign oil and drive up prices. Oilmen agree that if more companies were bidding vigorously for Middle East oil, prices might drop somewhat -if there was a glutted market. But that system could work both ways. In a tight market, more companies bidding could kick up prices faster, as some smaller independents did in 1974.

For all the arguments on both sides, it is impossible to predict with any accuracy what would happen to the price and supply of oil if major companies were dismantled. Even with divestiture, some companies would be giants; as far as accounting figures can be interpreted, just Exxon's refining and marketing operation would make it the second largest corporation in the world behind General Motors. Oil Economist Morris Adelman of the Massachusetts Institute of Technology sees no great loss or gain from breaking up the oil companies and thinks the effort is a "waste of time." Yet the issue will probably continue to flare, especially if the Democrats gain both the Congress and the White House in November.

* Exxon, Texaco. Mobil Oil, Standard Oil of California, Gulf Oil. Standard Oil (Ind.). Shell Oil, Atlantic Richfield, Continental Oil. Phillips Petroleum, Union Oil of California, Sun Oil, Ashland Oil, Cities Service, Amerada Hess, Getty Oil, Marathon Oil. Standard Oil (Ohio).

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