The Political Economy of Brazilian Oil.

• Author: Linde, Coby van der

In the last few years, national oil companies have been receiving more attention from scholars of various disciplines. In many countries, state oil companies are a fairly recent phenomenon--dating back to the first oil price crisis of 1973/74--when governments took over the price and production decision-making from the large international oil companies. Since the decision-making in oil matters was the prerogative of governments rather than the (newly established) state oil companies, most attention was focussed on government policies and the policy-making in the OPEC-framework.

In the 1970s, much of the companies' effort was directed at actively organizing their companies. Often, the reorganization entailed merging and restructuring the nationalized interests of the international oil companies. These new organizational structures and decision-making structures shaped the companies' future performance framework. These structures were established in a boom period, and, by hind sight, took little account of the cyclical nature of their business. A heavy tax burden, subsidization of other sectors of the economy, consumers or groups of consumers (like the military) made the economy very dependent on oil and oil income. It also minimized the ability of the firm to reinvest in the future of the company when oil revenue would decline--as it did after 1985. Nevertheless, most of the attention of oil industry specialists in the 1970s and 1980s was aimed at governments and OPEC decision-making and interest-seeking, while the companies' performance was neglected.

In the course of the 1980s, it became clear that such an approach to oil producing countries no longer sufficed. The companies and their governments found it harder to agree on the preferred investment strategies, pricing, production, etc. Management of the state oil companies started to complain about the ineffectiveness for the national oil industry of their governments' decision-making in the OPEC framework. This rift between the strategic interest of the state oil companies and their governments became more pronounced when oil prices began to decline, and the contribution to the governments budgets slumped.

The debt crisis in many oil producing, but also oil consuming developing countries, and the ensuing economic crisis forced many of these countries to seek assistance of the International Monetary Fund and The World Bank. The structural adjustment programmes proposed by these...