The politics of oil revolves around its price and the reliability of its suppliers. In turn, many international conflicts in the world today are rooted in these politics. Not the price of oil is managed by a cartel-OPEC-some of whose member governments are deeply hostile to the United States and other major importers of oil. And OPEC controls nearly two-thirds of the world's oil reserves. Ironically, the United States and many others, especially non-OPEC producers of energy, have come to rely on OPEC to set prices that encourage the development of high-cost oil elsewhere, and thus promote some diversity of supply. Fundamental to any understanding of the politics of the contemporary world is an understanding of the politics and most recent history of petroleum. Francisco Parra, drawing on his long and varied experience in international oil, sets out the events that have shaped the industry over the past fifty years--the displacement of coal as the world's prime fuel; the tight control of international oil by the seven major oil companies (all US or British), monopolizing production in the Middle East and Venezuela; the rise of OPEC and the ousting of the companies in a bitter struggle in which the companies were abandoned by their home governments; how the world was hypnotized for more than a decade by the delusion of impending depletion; and the political turbulence that has led to wars in the Middle East, to US sanctions on Iran, Iraq, and Libya, and, most recently, to the invasion of Iraq. After a surge in non-OPEC oil production in the 1980s and 1990s, dependence on the Middle East is increasing and OPEC's control over price is volatile. Parra asks whether this enduring predicament-that holds the threat of political conditions being attached to the supply of oil-can be managed by the "West", to avert successive and deepening crises in the pricing and supply of oil and in the world at large.
a dry and academic account. its also middle of the road -- neither for the oil companies nor the oil states. but the author is an insider and gives us some necessary perspective.
Very detailed account of the the creation of OPEC. Outlines American companies moving in, to their eventual leaving as nation states took over. Left this book in Coron, Philippines. Enjoy.
“After the energy crisis of 1973 and 1979, control over crude production in the Middle East and other OPEC countries passed to the governments, who promptly converted OPEC from a common-front organization designed to balance the common front presented by the seven major oil companies, into a cartel.”
“Concessions (or E&P agreements) in developing countries vary vastly and significantly in content, but all of them have essential features in common: 1) the government grants the company an exclusive right to carry exploration, development and hydrocarbon production operations in a defined area for a limited period of time, 2) The company acquires title to the hydrocarbons and is almost always free to dispose of them without future restriction, 3) The company bears the financial and commercial risk associated with the undertaking, 4) The company agrees to make certain payments (signature bonus, surface taxes, royalties, production taxes, etc.) to the government in return, 5) The concessions are contracts with the state, though this done not in itself imply insulation from the state’s general power to pass legislation overriding the terms of the contract.”
“In industrial countries, exploration and production arrangements are usually called licenses, sometimes leases.”
“But that was not the problem. The problem was, first, that Middle East production was clearly much cheaper than most US production that it could be easily imported, despite the long freight involved, and push the higher-cost US producers out of the business. The second part of the problem was that the major US companies producing oil in the Middle East were also large new buyers of oil from the small independents in the US. If they chose to import rather than buy, as they were most likely to do, then the independents would be faced with both declining price and declining volume.”
“European governments felt justified in maintaining a clearly uneconomic industry mainly on the grounds of national security, fearing that access to oil might be cut off from an extended period, of that the major oil companies would favor their home countries in the event of oil shortages and the need to ration whatever was available.”
“OPEC had just been created in the wake of posted price decreases in the Middle East in 1959 and 1960; it was not time to go out looking for trouble in exchange for a fast buck.”
“Most notably Texas, where the Texas Railroad Commission (TRC) was the lynchpin, setting monthly maximum allowable production levels which were then pro-rated among producers. The TRC was hugely successful for a few years in the early 1950s on the US domestic scene, through the system soon had to be insulated from foreign competition by import restrictions.”
“OPEC therefore has a long and varied lineage, and indeed it was originally intended by two of its founders – Venezuela’s Juan Pablo Perez Alfonzo and Saudi Arabia’s Abdullah Tariki – to play the same role as the TRC, but on the international stage. The organization came into existence as a result of a number of circumstances, some of which were not in fact closely related. In 1958, two major political events occurred which brought to power nationalistic governments hostile, in different ways, to the status quoi.”
“Sometime during the period following the end of the Second World War, two fundamental changes in the nature of the international petroleum industry occurred. First, the development and growth of the world economy became vitally dependent on imported oil rather than domestically produced coal. The consuming countries wanted assured suppliers of oil ad reasonable prices. But the emphasis was on assured not price. At every stage, accommodation (i.e. higher taxes) with the producing governments seemed preferable to confrontation and this was true from the beginning of 50/50 in 1948 in Venezuela.”
“Opinion was universal in the Middle East that if the United States did not modify its stance towards Israel, US investments in the Middle East would be endangered and probably lost. The use of oil as a political weapon was daily becoming a hotter issue and there is no doubt that a tidal wave in favor of its use was forming and threatening to sweep away even the mildest dissent from Kuwait and Saudi Arabia.”
“On 17 October 1973, Arab oil ministers from ten countries met in Kuwait and decided to reduce production by 5% each month (from the previous month) until the total evacuation of all Israeli forces from the territories occupied during the Six-Day War of 1967 was complete.” “On 19 October the United States announces a massive new program of military aid for Israel. On October 20, Saudi Arabia announced a total ban on shipments of oil in the United States. Over the next couple of days, all the other Arab countries embargoed shipments of oil to the United States, and several of them also embargoed shipments to the Netherlands, in retaliation for these countries support of Israel.”
“The governments of the important consuming and importing countries reacted in three major ways to the price increases. First, through a variety of price, tax and regulatory measures, they tried to stimulate a higher degree of conservation (efficiency of use) into the markets than would have occurred naturally through market prices. Second, through tax incentives, subsidies and de-regulation, they tried to increase the domestic supply of energy. And third, some tried t reserve domestic supplies of fuel for the domestic market, on national security reasons.”
“It was widely perceived as a monument to political expediency, not an adequate response to the energy problems facing the country. In fact, however the act did include some important positive measures; it authorized the creation of a strategic petroleum reserve (SPR); mandated an automobile fuel efficiency program; called for the doubling, over a ten-year period, of the average miles-per-gallon capability of care production, from 13 miles to 27.5 miles per gallon; and granted the authorities requested on coal conservation and product labeling.”
“There were only four developed countries that were important producers in the 1970’s: the United States, Canada, Britain and Norway. In Canada the governments created a wholly owned state oil company, Petro-Canada, but it did not go the participation route, operating instead through commercial acquisitions, like any other oil company, though government financed.”
“No producing area in the world was harder hit by lower prices than many of the US high-cost fields where more than 450,000 “stripper” wells, each pumping only two or three barrels per day of oil, contributed in aggregate about 1.3 mbd or one-quarter of the country’s total production. More than half of this – about 700 kbd – was soon to be closed in as prices plunged from $26 at the beginning of 1986 to $12 by the end of March. The loss of production was permanent because these wells have to be plugged and abandoned after a period of time. They also happened to belong to many politically influential independent producers.”
“The war precipitated by Iraq’s invasion of Kuwait in August 1990 was different. It was also the first oil war – a war fought primarily over the control of oil; other motives were at best secondary.”
“The United States, it was repeatedly said, should have gone in and finished the job. The United States rather confidently, bet that the people of Iraq would quickly get rid of Saddam Hussein after the war, and that some kind of regime would emerge that was strong enough to hold the country together and, ultimately, remain as a counterweight to Iran, but abandon its arms program and its aggressive policies towards Kuwait and Saudi Arabia.”
“Fuel-efficiency and conservation regulations, drawn up and passed into legislation with some sense of urgency, are not rescinded; nuclear power plants that would never have been built at the now lower prices prevailing, are not shut down and scrapped; and car manufacturers do not (are not allowed to) revert to making gas-guzzling engines, despite some loop-holes such as the sports utility vehicles(SUV).mostly, the changes are irreversible; and so, the lower prices do not bring a resurgence in demand sparked by a return to the regulatory and technical past. Consumption increases more normally, in line with the growth in the economy and its reaction to lower oil prices.”
“The emergence of real and reliable, visible and verifiable, independently market-determined crude oil prices, published daily, was a godsend to OPEC. They provided, just when it was most needed, as escape-hatch from the fixed price system that OPEC has previously clung to with unworkable differentials and its heavy reliance on a swing country.”
“Volatility became, and remains, an uncomfortable fact of life in the oil industry. It has several contributory causes, such as exchange rate fluctuations, the industry’s just-in-time inventory practices, the seasonality of demand, but most importantly, the control (or lack of it) exercised by OPEC over the supply of crude oil.”
“The West has never wanted free, competitive markets in international oil, President Clinton said (in August 2000) that the price needs to be, I think in the low 20s somewhere, and a spokesman for the European union’s Commission said, approvingly, that most observers considered a price of around $25/B to be justified.”
“OPEC has set an objective for oil prices, a band of $2 to $28, clearly acceptable to the major countries of the OECD, and a mechanism for achieving it. Above $28, production will be increased; below $22 production will be decreased. However, the mechanism does not kick in automatically.” “US dependence in imported oil has been growing steadily over the years and by the year 2000 was up to 55 percent of total demand. Th Department of Energy was forecasting an increase in net imports to nearly 70 percent of demand by 2025. On the supply side, two-thirds of the increase in world production needed by 2025 was forecast to come from the OPEC area, mostly from the Middle East – and most of that from Audi Arabia. The figures spelled growing world dependence on OPEC oil and on Saudi Arabia in particular.”
“For the West, and discussion of security of oil supply starts from the tacit assumption that the major suppliers are members of a potentially dangerous cartel and are politically hostile form a number of reasons of which US support for Israel is the main one. As noted at several points throughout this book, the West needs relatively high prices to provide an umbrella under which higher-cost non-OPEC sources of oil can be developed. It needs an OPEC (or surrogate) to produce them. But it needs a relatively weak OPEC, and most certainly not on virtually or actually in the hands of a single hostile country in the Gulf – which could all too easily happen with a change in the current Saudi regime.”
Good source for research, but what a tedious read. Hard to follow, no graphs, not much of an attempt to process the information All the people have no characteristics, all people are essentially blanks Not nearly as broad and comprehensive as the title implies, its more of a blow-by-blow of negotiations between OPEC countries and Oil majors, much of the oil market is entirely ignored, you won't hear anything about USSR, Canada, Mexico, Indonesia or others.
Ultimately, this book was a failure to me, it didn't give me the perspective on oil politics I had hoped, and it was less useful than other books which were more specific and focused.
For those interested in a balanced and thoughtful analysis of global oil governance rather than sensational nonsense about resource wars and grand conspiracies: This book should be no 1 on the reading list!