Petroleum politics have been an increasingly important aspect of diplomacy since the rise of the petroleum industry in the Middle East in the early 20th century. As competition continues for a vital resource, the strategic calculations of major and minor countries alike place prominent emphasis on the pumping, refining, transport, sale and use of petroleum products.
The Achnacarry Agreement or "As-Is Agreement" was an early attempt to restrict petroleum production, signed in Scotland on 17 September 1928.[1] The discovery of the East Texas Oil Field in the 1930s led to a boom in production that caused prices to fall, leading the Railroad Commission of Texas to control production. The Commission retained de facto control of the market until the rise of OPEC in the 1970s.
Venezuela was the first country to move towards the establishment of OPEC by approaching Iran, Gabon, Libya, Kuwait and Saudi Arabia in 1949, but OPEC was not set up until 1960, when the United States forced import quotas on Venezuelan and Persian Gulf oil in order to support the Canadian and Mexican oil industries[citation needed]. OPEC first wielded its power with the 1973 oil embargo against the United States and Western Europe.
The term "petro-aggression" has been used to describe the tendency of oil-rich states to instigate international conflicts.[2] There are many examples including: Iraq's invasion of Iran and Kuwait; Libya's repeated incursions into Chad in the 1970s and 1980s; Iran's long-standing suspicion of Western powers. Some scholars have also suggested that oil-rich states are frequently the targets of "resource wars."
Cullen Hendrix, author of the academic article "Oil Prices and Interstate Conflict", focuses on creating a more sound measurement of an index, building off of Colgan and Weeks indices respectfully. Hendrix findings are such that as the price in oil goes up the more confrontational a petro-state becomes. This may be due to the fact that these countries can now invest more heavily in their military. When people feel secure, they tend to give a higher approval rating to the leader. A petro-state GDP will grow, offering the opportunity for a more diverse industry, which in turn gives more bargaining chips in terms of global negotiations.[3]
In June 2006, former U.S. president Bill Clinton said in a speech,[5]
"We may be at a point of peak oil production. You may see $100 a barrel oil in the next two or three years, but what still is driving this globalization is the idea that is you cannot possibly get rich, stay rich and get richer if you don’t release more greenhouse gases into the atmosphere. That was true in the industrial era; it is simply factually not true. What is true is that the old energy economy is well organized, financed and connected politically."
In a 1999 speech, Dick Cheney, the US vice president and former CEO of Halliburton (one of the world's largest energy services corporations), said,
"By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from?....While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies, even though companies are anxious for greater access there, progress continues to be slow."[6]
Cheney went on to argue that the oil industry should become more active in politics:
"Oil is the only large industry whose leverage has not been all that effective in the political arena. Textiles, electronics, agriculture all seem often to be more influential. Our constituency is not only oilmen from Louisiana and Texas, but software writers in Massachusetts and specialty steel producers in Pennsylvania. I am struck that this industry is so strong technically and financially yet not as politically successful or influential as are often smaller industries. We need to earn credibility to have our views heard."
Pipeline diplomacy in the Caspian Sea area
Location of Baku–Tbilisi–Ceyhan pipeline
The Baku–Tbilisi–Ceyhan pipeline was built to transport crude oil and the Baku-Tbilisi-Erzurum pipeline was built to transport natural gas from the western side (Azerbaijani sector) of the Caspian Sea to the Mediterranean Sea bypassing Russian pipelines and thus Russian control. Following the construction of the pipelines, the United States and the European Union proposed extending them by means of the proposed Trans-Caspian Oil Pipeline and the Trans-Caspian Gas Pipeline under the Caspian Sea to oil and gas fields on the eastern side (Kazakhstan and Turkmenistan sectors) of the Caspian Sea. In 2007, Russia signed agreements with Turkmenistan and Kazakhstan to connect their oil and gas fields to the Russian pipeline system effectively killing the undersea route.
Several countries have nationalised foreign-run oil businesses, often failing to compensate investors. Enrique Mosconi, the director of the Argentine state owned oil company Yacimientos Petrolíferos Fiscales (YPF, which was the first state owned oil company in the world, preceding the French Compagnie française des pétroles (CFP, French Company of Petroleums, today TotalEnergies), created in 1924 by the conservative Raymond Poincaré), advocated oil nationalization in the late 1920s among Latin American countries. The latter was achieved in Mexico during Lázaro Cárdenas's rule, with the Expropiación petrolera.
Similarly Venezuela nationalized its oil industry in 1976.[7]
Politics of alternative fuels
Vinod Khosla (a well known investor in IT firms and alternative energy) has argued[8] that the political interests of environmental advocates, agricultural businesses, energy security advocates (such as ex-CIA director James Woolsey) and automakers, are all aligned for the increased production of ethanol. He pointed out that from 2003 to 2006, ethanol fuel in Brazil replaced 40% of its gasoline consumption while flex fuel vehicles went from 3% of car sales to 70%. Brazilian ethanol, which is produced using sugarcane, reduces greenhouse gases by 60-80% (20% for corn-produced ethanol). Khosla also said that ethanol was about 10% cheaper per given distance. There are currently ethanol subsidies in the United States but they are all blender's credits, meaning the oil refineries receive the subsidies rather than the farmers. There are indirect subsidies due to subsidising farmers to produce corn. Vinod says after one of his presentations in Davos, a senior Saudi oil official came up to him and threatened: "If biofuels start to take off, we will drop the price of oil."[9] Since then, Vinod has come up with a new recommendation that oil should be taxed if it drops below $40.00/barrel in order to counter price manipulation.
It is argued that international climate policy and unconventional oil and gas developments may change the balance of power between petroleum exporting and importing countries with major negative implications expected for the exporting states.[11] From around 2015 onwards, there was increasing discussion about whether the geopolitics of oil and gas would be replaced by the geopolitics of renewable energy resources and critical materials for renewable energy technologies.[12][13]
Some authors argue that compared to the geopolitics of fossil fuels, renewable energy may cause more small-scale conflicts but reduce the risk of large inter-state conflicts.[14]
The anti-nuclear movement received some funding early on from fossil fuel companies, including petroleum interests.[15][16] Even in the 21st century there are continuing efforts by fossil fuel companies to paint nuclear energy in a negative light[17] and to position fossil gas and oil as a "perfect partner for renewables".[18][19]
Key oil producing countries
Canada
As development in the Alberta oil sands, deep sea drilling in the North Atlantic and the prospects of arctic oil continue to grow Canada increasingly grows as a global oil exporter. There are currently three major pipelines under proposal that would ship oil to the pacific, atlantic and gulf ports. These projects have stirred internal controversy, receiving fierce opposition from First Nations groups and environmentalists.
Discovery of oil in 1908 at Masjed Soleiman in Iran initiated the quest for oil in the Middle East. The Anglo-Iranian Oil Company (AIOC) was founded in 1909. In 1951, Iran nationalized its oil fields initiating the Abadan Crisis. The United States of America and Great Britain thus punished Iran by arranging coup against its democratically elected prime minister, Mosaddeq, and brought the former Shah's son, a dictator, to power. In 1953 the US and GB arranged the arrest of the Prime Minister Mosaddeq. Iran exports oil to China and Russia.
A U.S. soldier stands guard duty near a burning oil well in the Rumaila oil field, Iraq, April 2003
Iraq holds the world's second-largest proven oil reserves, with increasing exploration expected to enlarge them beyond 200 billion barrels (3.2×1010m3) of "high-grade crude, extraordinarily cheap to produce."[20] Organizations such as the Global Policy Forum (GPF) have asserted that Iraq's oil is "the central feature of the political landscape" there, and that as a result of the 2003 invasion,"'friendly' companies expect to gain most of the lucrative oil deals that will be worth hundreds of billions of dollars in profits in the coming decades." According to GPF, U.S. influence over the 2005 Constitution of Iraq has made sure it "contains language that guarantees a major role for foreign companies."[20][21]
Mexico has a largely oil-based economy, being the seventh largest producer of petroleum. Though Mexico has gradually explored different types of electricity, oil is still crucial, recently generating 10% of revenue.[22]
Before 1938, all petroleum companies in Mexico were foreign based, often from the United States or Europe. The petroleum industry was nationalized in the late 1930s to early 1940s by then-president Lázaro Cárdenas, creating PEMEX. Mexico's oil industry still remains heavily nationalized. Though oil production has fallen in recent years, Mexico still remains in seventh place.[23]
Although Norway relies heavily on natural gas and oil for export income, the country consumes almost none of the petroleum resources that they produce. In 2017, Norway was ranked 3rd behind Russia and Qatar as the world's largest natural gas exporter.[24] Norway was also the 8th largest exporter of crude oil in the world. These industries are a vital part of Norway's economy, making up nearly 50% of the country's total export value and accounts for 17% of its GDP.
Norway however, runs on 98% renewable energy with a heavy emphasis on hydroelectric power. Their development of renewable energy allows Norway to export their non-renewable energy to turn a profit. “Nearly all oil and gas produced on the Norwegian shelf is exported, and combined, oil and gas equals about half of the total value of Norwegian exports of goods. This makes oil and gas the most important export commodities in the Norwegian economy."[25] This has positioned Norway in a very unique spot as they aspire to be the world's leading climate change combatant while still drilling/fracking in the North Sea, Norwegian Sea, and the Barents Sea.[citation needed]
Several Norwegian environmental groups, such as Greenpeace Norway and Young Friends of the Earth Norway, have sued the Norwegian government for the opening of new oil and natural gas plants in the Arctic. As Norway continues to pursue a green future, the Norwegian government pursues different avenues of justifying that petroleum has a place in a low-carbon future. Norway's government is continuing to pass measures to bolster their oil and natural gas sectors, while simultaneously passing legislation to further their environmental agenda. Continued dependence on oil production has strong support in the government: ”...the petroleum policy in Norway has been supported by the largest political parties across the left-right cleavage in Norwegian politics. Although there have been tensions on certain issues, the Labour Party, the Conservative Party, and the Progress Party make up the majority of support for the current petroleum policy in Parliament.”[26]
Norway has avoided the “oil curse” or “dutch disease” Dutch disease that many oil producing countries have experienced, in part because it began to harvest petroleum resources at a time when the government regulation was well developed and already in an economically strong position: “Norway had the advantage of entering its oil era with a mature, open democracy as well as bureaucratic institutions with experience regulating other natural resource industries (hydropower generation, fishing, and mining for example)”.[25]
\As Norway began to exploit their petroleum resources, the government took steps to ensure that the natural resource industry idid not deplete other industries in Norway by funneling profits from the state owned operations into a pension fund known as the Government Pension Fund Global (GPFG). The GPFG is the world's largest sovereign wealth fund and was established for the purpose of investing in the surplus revenues of the petroleum sector in Norway. “The Norwegian government receives these funds from their market shares within oil industries, such as their two-thirds share of Statoil, and allocates it through their government-controlled domestic economy.”[citation needed]
Nigeria
Petroleum in Nigeria was discovered in 1955 at Oloibiri in the Niger Delta.[27] High oil prices were the driving force behind Nigeria’s economic growth. This has made the Nigerian economy to become the largest in Africa surpassing both Egypt and South Africa, also making it the 24th largest in the world. The Nigerian economy is heavily dependent on the oil sector, which accounts for 98% percent of export earnings and 83% of federal government revenues as well as generating 14% of its GDP.
Even with the substantial oil wealth, Nigeria ranks as one of the poorest countries in the world, with a $1,000 per capita income and more than 70 percent of the population living in poverty. In October 2005, the 15-member Paris Club announced that it would cancel 60 percent of the debt owed by Nigeria. However, Nigeria must still pay $12.4 billion in arrears amongst meeting other conditions. In March 2006, phase two of the Paris Club agreement will include an additional 34 percent debt cancellation, while Nigeria will be responsible for paying back any remaining eligible debts to the lending nations. The International Monetary Fund (IMF), which recently praised the Nigerian government for adopting tighter fiscal policies, will be allowed to monitor Nigeria without having to disburse loans to the country.[28]
Russia
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On 21 May 2014, Russia and China signed a $400 billion gas deal for natural gas supplies via the Eastern Route.
High-priced oil allowed the Soviet Union to subsidize the struggling economies of the Soviet bloc for a time, and the loss of petrodollar income during the 1980s oil glut contributed to the bloc's collapse in 1989.[29]
In 1973, Saudi Arabia and other Arab nations imposed an oil embargo against the United States, United Kingdom, Japan and other Western nations which supported Israel in the Yom Kippur War of October 1973.[30] The embargo caused an oil crisis with many short- and long-term effects on global politics and the global economy.[31]
Saudi Arabia is an oil-based economy with strong government controls over major economic activities. It possesses both the world's largest known oil reserves, which are 25% of the world's proven reserves, and produces the largest amount of the world's oil. As of 2005, Ghawar field accounts for about half of Saudi Arabia's total oil production capacity.[32]
Saudi Arabia ranks as the largest exporter of petroleum, and plays a leading role in OPEC, its decisions to raise or cut production almost immediately impact world oil prices.[33] It is perhaps the best example of a contemporary energy superpower, in terms of having power and influence on the global stage (due to its energy reserves and production of not just oil, but natural gas as well). Saudi Arabia is often referred to as the world's only "oil superpower".[34]
It has been suggested that the Iran–Saudi Arabia proxy conflict was a powerful influence in the Saudi decision to launch the price war in 2014,[35][36] as was Cold War rivalry between the United States and Russia.[37]Larry Elliott argued that "with the help of its Saudi ally, Washington is trying to drive down the oil price by flooding an already weak market with crude. As the Russians and the Iranians are heavily dependent on oil exports, the assumption is that they will become easier to deal with."[38] Vice President of Russia's largest oil company, Rosneft, accused Saudi Arabia of conspiring against Russia.[39]
In 1998, about 40% of the energy consumed by the United States came from oil.[40] The United States is responsible for 25% of the world's oil consumption, while having only 3% of the world's proven oil reserves and less than 5% of the world's population.[41] In January 1980, President Jimmy Carter explicitly declared: "An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States."[42]
According to the Oil and Gas Journal (OGJ), Venezuela has 77.2 billion barrels (1.227×1010m3) of proven conventional oil reserves, the largest of any country in the Western Hemisphere. In addition it has non-conventional oil deposits similar in size to Canada's - at 1,200 billion barrels (1.9×1011m3) approximately equal to the world's reserves of conventional oil. About 267 billion barrels (4.24×1010m3) of this may be producible at current prices using current technology.[43] Venezuela's Orinoco tar sands are less viscous than Canada's Athabasca oil sands – meaning they can be produced by more conventional means, but are buried deeper – meaning they cannot be extracted by surface mining. In an attempt to have these extra heavy oil reserves recognized by the international community, Venezuela has moved to add them to its conventional reserves to give nearly 350 billion barrels (5.6×1010m3) of total oil reserves. This would give it the largest oil reserves in the world, even ahead of Saudi Arabia.
Venezuela nationalized its oil industry in 1975–1976, creating Petróleos de Venezuela S.A. (PdVSA), the country's state-run oil and natural gas company. Along with being Venezuela's largest employer, PdVSA accounts for about one-third of the country's GDP, 50 percent of the government's revenue and 80 percent of Venezuela's exports earnings. In recent years, under the influence of President Chavez, the Venezuelan government has reduced PdVSA's previous autonomy and amended the rules regulating the country's hydrocarbons sector.[44]
In the 1990s, Venezuela opened its upstream oil sector to private investment. This collection of policies, called apertura, facilitated the creation of 32 operating service agreements (OSA) with 22 separate foreign oil companies, including international oil majors like Chevron, BP, Total, and Repsol-YPF. Hugo Chávez, the President of Venezuela sharply diverged from previous administrations' economic policies. PDVSA is now used as a cash-cow and as an employer-of-last-resort;[45] foreign oil businesses were nationalised and the government refused to pay compensation.[46]
Estimates of Venezuelan oil production vary. Venezuela claims its oil production is over 3 million barrels per day (480,000m3/d), but oil industry analysts and the U.S. Energy Information Administration believe it to be much lower. In addition to other reporting irregularities[citation needed], much of its production is extra-heavy oil, which may or may not be included with conventional oil in the various production estimates. The U.S. Energy Information Agency estimated Venezuela's oil production in December 2006 was only 2.5 million barrels per day (400,000m3/d), a 24% decline from its peak of 3.3 million in 1997.[47]
Recently, Venezuela has pushed the creation of regional oil initiatives for the Caribbean (Petrocaribe), the Andean region (Petroandino), and South America (Petrosur), and Latin America (Petroamerica). The initiatives include assistance for oil developments, investments in refining capacity, and preferential oil pricing. The most developed of these three is the Petrocaribe initiative, with 13 nations signing a preliminary agreement in 2005. Under Petrocaribe, Venezuela will offer crude oil and petroleum products to Caribbean nations under preferential terms and prices, with Jamaica as the first nation to sign on in August 2005.
The Organization of the Petroleum Exporting Countries is an organization enabling the co-operation of leading oil-producing countries in order to collectively influence the global oil market and maximize profit. It was founded on 14 September 1960 in Baghdad by the first five members. The organization, which currently comprises 12 member countries, accounted for an estimated 30 percent of global oil production. A 2022 report further details that OPEC member countries were responsible for approximately 38 percent of it. Additionally, it is estimated that 79.5 percent of the world's proven oil reserves are located within OPEC nations, with the Middle East alone accounting for 67.2 percent of OPEC's total reserves.
Sources include: Dow Jones (DJ), New York Times (NYT), Wall Street Journal (WSJ), and the Washington Post (WP).
The price of oil, or the oil price, generally refers to the spot price of a barrel of benchmark crude oil—a reference price for buyers and sellers of crude oil such as West Texas Intermediate (WTI), Brent Crude, Dubai Crude, OPEC Reference Basket, Tapis crude, Bonny Light, Urals oil, Isthmus, and Western Canadian Select (WCS). Oil prices are determined by global supply and demand, rather than any country's domestic production level.
For further details see the "Energy crisis" series by Facts on File.
An energy superpower is a country that supplies large amounts of energy resources to a significant number of other countries, and therefore has the potential to influence world markets for political or economic gains. Energy superpower status might be exercised, for example, by significantly influencing the price on global markets, or by withholding supplies. Most recently, the term "energy superpower" is increasingly used to characterize nations at the forefront of energy transition and the development of renewable energy resources.
United States energy independence is the concept of eliminating or substantially reducing import of petroleum to satisfy the nation's need for energy. Some proposals for achieving energy independence would permit imports from the neighboring nations of Canada and Mexico, in which case it would be called North American energy independence. Energy independence is espoused by those who want to leave the US unaffected by global energy supply disruptions and would restrict reliance upon politically unstable states for its energy security.
Venezuela has the largest conventional oil reserves and the second-largest natural gas reserves in the Western Hemisphere. In addition Venezuela has non-conventional oil deposits approximately equal to the world's reserves of conventional oil. Venezuela is also amongst world leaders in hydroelectric production, supplying a majority of the nation's electrical power through the process.
The nationalization of oil supplies refers to the process of confiscation of oil production operations and their property, generally for the purpose of obtaining more revenue from oil for the governments of oil-producing countries. This process, which should not be confused with restrictions on crude oil exports, represents a significant turning point in the development of oil policy. Nationalization eliminates private business operations—in which private international companies control oil resources within oil-producing countries—and transfers them to the ownership of the governments of those countries. Once these countries become the sole owners of these resources, they have to decide how to maximize the net present value of their known stock of oil in the ground. Several key implications can be observed as a result of oil nationalization. "On the home front, national oil companies are often torn between national expectations that they should 'carry the flag' and their own ambitions for commercial success, which might mean a degree of emancipation from the confines of a national agenda."
Petroleum has been a major industry in the United States since shortly after the oil discovery in the Oil Creek area of Titusville, Pennsylvania, in 1859. The industry includes exploration, production, processing (refining), transportation, and marketing of natural gas and petroleum products. In 2018, the U.S. became the world's largest crude oil producer, producing 15% of global crude oil, surpassing Russia and Saudi Arabia. The leading oil-producing area in the United States in 2019 was Texas, followed by the offshore federal zone of the Gulf of Mexico, North Dakota and New Mexico. In 2020, the top five U.S. oil-producing states were Texas (43%), North Dakota (10.4%), New Mexico (9.2%), Oklahoma (4.1%), and Colorado (4.0%).
The proven oil reserves in Saudi Arabia are reportedly the second largest in the world, estimated in 2017 to be 268 billion barrels, including 2.5 Gbbl in the Saudi–Kuwaiti neutral zone. This would correspond to more than 50 years of production at current rates. In the oil industry, an oil barrel is defined as 42 US gallons, which is about 159 litres, or 35 imperial gallons. The oil reserves are predominantly found in the Eastern Province. These reserves were apparently the largest in the world until Venezuela announced they had increased their proven reserves to 297 Gbbl in January 2011. The Saudi reserves are about one-fifth of the world's total conventional oil reserves. A large fraction of these reserves comes from a small number of very large oil fields, and past production amounts to 40% of the stated reserves. Other sources state that Saudi Arabia has about 297.7 billion barrels.
Oil reserves in Canada were estimated at 172 billion barrels as of the start of 2015 . This figure includes the oil sands reserves that are estimated by government regulators to be economically producible at current prices using current technology. According to this figure, Canada's reserves are third only to Venezuela and Saudi Arabia. Over 95% of these reserves are in the oil sands deposits in the province of Alberta. Alberta contains nearly all of Canada's oil sands and much of its conventional oil reserves. The balance is concentrated in several other provinces and territories. Saskatchewan and offshore areas of Newfoundland in particular have substantial oil production and reserves. Alberta has 39% of Canada's remaining conventional oil reserves, offshore Newfoundland 28% and Saskatchewan 27%, but if oil sands are included, Alberta's share is over 98%.
EnergyinSaudi Arabia involves petroleum and natural gas production, consumption, and exports, and electricity production. Saudi Arabia is the world's leading oil producer and exporter. Saudi Arabia's economy is petroleum-based; oil accounts for 90% of the country's exports and nearly 75% of government revenue. The oil industry produces about 45% of Saudi Arabia's gross domestic product, against 40% from the private sector. Saudi Arabia has per capita GDP of $20,700. The economy is still very dependent on oil despite diversification, in particular in the petrochemical sector.
Sources include: Dow Jones (DJ), New York Times (NYT), Wall Street Journal (WSJ), and the Washington Post (WP).
Iran is an energy superpower and the petroleum industry in Iran plays an important part in it. In 2004, Iran produced 5.1 percent of the world's total crude oil, which generated revenues of US$25 billion to US$30 billion and was the country's primary source of foreign currency. At 2006 levels of production, oil proceeds represented about 18.7% of gross domestic product (GDP). However, the importance of the hydrocarbon sector to Iran's economy has been far greater. The oil and gas industry has been the engine of economic growth, directly affecting public development projects, the government's annual budget, and most foreign exchange sources.
The 2010s oil glut was a significant surplus of crude oil that started in 2014–2015 and accelerated in 2016, with multiple causes. They include general oversupply as unconventional US and Canadian tight oil production reached critical volumes, geopolitical rivalries among oil-producing nations, falling demand across commodities markets due to the deceleration of the Chinese economy, and possible restraint of long-term demand as environmental policy promotes fuel efficiency and steers an increasing share of energy consumption away from fossil fuels.
↑ "Nigeria". U.S. Energy Information Administration (EIA). Archived from the original on 31 December 2016. Retrieved 30 December 2016.
↑ McMaken, Ryan (November 7, 2014). "The Economics Behind the Fall of the Berlin Wall". Mises Institute. Archived from the original on March 6, 2016. Retrieved January 12, 2016. High oil prices in the 1970s propped up the regime so well, that had it not been for Soviet oil sales, it's quite possible the regime would have collapsed a decade earlier.
↑ "The Arab Oil Threat". The New York Times. November 23, 1973. Archived from the original on July 22, 2019. Retrieved July 27, 2019.
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