Oil, due to its abundance, ubiquitous utility (plastics, chemicals, pharmaceuticals etc.), and capacity to store energy for protracted periods, is one of the most coveted resources in the world.
The rapid growth in oil demand in the USA during the second half of the 19th century saw an oil rush that attracted more investment and prospectors than the country’s more famous gold rushes. However, the laws of supply and demand dictated that, with such a spike in production, the price of oil would fall dramatically by 99.95% from $20.00 a barrel to 10 cents a barrel. In order to make oil a more profitable trade for oil companies, they were left with two options: monopoly or oligopoly.
A monopoly over oil production and sales was tried by J. D. Rockefeller but resulted in the enforcement of antitrust laws and the dissolution of his company Standard Oil. After the Second World War, the many companies that ensued, along with the oil companies from across the pond, decided to collude and inflate the price of this abundant commodity. This was the origin of a durable oil cartel.
In this wargame, the player embodies the fictional oil company Petroleum & Sons from 1955 to 1965. Every year, the company can invest in production sites and export the extracted oil to consuming countries. Petroleum & Sons shares the market with Standard Oil, a non-playable company. Every year, the player can choose to collude with Standard Oil or to compete aggressively. Standard Oil has a “tit for tat” strategy, to use terminology from the prisoner’s dilemma, wherein he starts the game by colluding but later mirrors the player’s actions from the previous year.
This wargame’s objective is twofold. One is to give a broad idea to the player of how far across the value chain the operations of oil companies extend, and the second is for the player to understand the basic dynamics of collusion in such industries. By looking at the statistics at the end of the game, the player will find that while aggressive competition confers advantages in the short term, colluding with Standard Oil is a far more profitable long-term strategy.
These two objectives were ambitious to include in such a short and simple didactic wargame, and many concessions had to be made for the sake of simplicity.
Chief amongst these simplifications were concerning numbers. For example, the price of oil during the 1950s-60s oscillated around $2 per barrel, but in order to avoid overly precise and cramped decimals, or indeed a boring experience, I opted for a $10-$200 range instead. The number of barrels exported per year during that period were close to 70 billion barrels total, but such a high number is hard to visualise, so I limited the potential exports to the hundreds or eventually thousands of barrels.
During the 1950s-60s, there were 7 major companies and not just two, but the limitation to just two simplified the wargame without compromising its main objective to show the dynamics of collusion. A 7-company oligopoly would be more complex, but the results would be essentially the same.
Concerning the value chain, the goal was to show the extent of oil companies’ control over the industry, not its precise machinations. Showing the place and machinations of sectors like exploration, refining, and marketing, however important in real life, would have been superfluous to that goal. Understanding the operation of oil companies as ranging from oil production to oil distribution, i.e. a vertically integrated value chain, was the principal objective.
This interactive model allows a player to understand the broad operations of an oil company during the post-war period, as well as experiment with different collusion strategies. In 10 turns, the player can work out the dynamics of the petroleum market of that period without getting lost in granular and excess detail.