** economics raw material fuel oil








Fuels: Oil


Figure 1.--Oil in America has played an inportant role in developing a modern econnomy. Tragically oil has been a curse for many other oil producing countries. These are children at Qayyara, Iraq (October 2016). ISIS fighters set the oil fields as they retreated. Journalist Francesca Mannocchi and photojournalist Alessio Romenzi were in Iraq covering the Iraqi offensive in Mosul to retake the city. They asked their translator, 'What will happen after the war? Especially in regards to the children?' The translator’s reply worried them. 'Most probably the Iraqi army will try to kill as many of the kids who have been fighting for ISIS, or who had family members that did.' Mannocchi reports that he and Romenzi, 'decided to investigate what happens to children who grow up during a war. We decided to focus on children because in the structure of ISIS – just as it was in Nazi Germany or under Pol Pot in Cambodia, children are the future of the ideology. We believe these children are the arsenal of the movement because they are raised like weapons.'

Ancient people including Native Americans came across natural seepage of oil and made a range of uses for it. The first written record was left by the Chinese who constructed bamboo pipelines (600 BC). Oil was well known in the ancient world. There is evidence dating back (4000 BC). Mostly thick viscous types like asphalt and bitumen. This is because what the ancients found were natural seepages. And oil that seeped to the surface mostly evaporated. And without the volatile components only the tarry components were left. The ancients found various uses for it, mostly building material and boat caulking. The Egyptians used it in the embalming process. Our name for oil comes from the Romans -- petroleum. This meant 'rock oil'. It was first used as a fuel by the Chinese (1st century AD). Bamboo pipes carried oil and gas into homes for both heating and lighting. It was the Byzantines that made the first weapon out of oil -- Greek Fire. A range of people around the world during the ancient and medieval era were convinced that oil had medical curative properties. Marco Polo reported that in Central Asia camel drivers used it to treat mange. Amerindian peoples had been collecting oil in natural seepages for millennia. Spanish Conquistadores sent oil back to Europe to treat Emperor Charles V who suffered from gout. Coal became the major fuel of the Industrial Revolution during the 19th and much of the 20th century. A new fuel appeared in the mid-19th century -- oil. It was at first mostly for home lighting and lubricants. It became a major fuel in the 20th century. Electrical energy was beginning to become important by the-turn of the 20th century. But this was mostly generated by first coal and than oil. As strange as it may seem, settler during the pioneer Western movement era considered oil a pollutant. When they drilled, they wanted water or brine to produce salt--not oil. The modern oil industry began when Col. Edwin Drake drilled the first successful oil well at Titusville, Pennsylvania (1859). He had to drill through rock. At the time it was called 'Drake's Folly'. But there was a developing demand for kerosene. Whalers were depleting populations of the great marine animals. And a replacement was needed for whale oil that was in great demand for home lighting. Coal was being used to produce kerosene, which is why it was known as 'coal oil'. (In the 20th century coal would be used to produce synthetic oil by countries without access to oil--most notably NAZI Germany.) This was, however, an expensive process. Oil was a much more adaptable and flexible source than coal. Many small companies began producing kerosene. Other diluted like gasoline were an unwanted byproduct. John D. Rockefeller founded Standard Oil (1870). He began buying up these companies and driving competitors bankrupt. In the process he became the wealthiest American of all time and the richest person in modern history. This occurred because a major development occurred that created a demand for the gasoline that was at first a waste product--the invention of the internal combustion engine. This was followed by Henry Ford's creation of an automobile that the acreage worker could afford -- The Model-T Tin Lizzie (1908). The impact was produces tens of millions of customers. And the Spindletop discovery in Texas made America the major world producer (1901). America was already the major industrial power in the World. The automobile industry thrust the country way beyond the European countries. Oil emerged as the preferred energy source for both the military and civilian economy. Ironically, at this time the United Stares broke up Rockefeller's Standard Oil Monopoly (1911). The British Royal Navy was first military adopter for its surface fleet. And was necessary for both submarines and air planes in World War I (1914-18) as well as British and French tanks as well as American trucks. It was not the military, however, that was key driver. Several of the titan's of American industry were involved. It was the demand foe electricity created by Thomas Edison's electric light bulb and Henry Ford's Model-T. Automobile ownership and demand for electricity grew exponentially and, with them, the demand for oil. Gasoline sales first exceeded kerosene sales (1919). Oil-driven transport (ships, cars, and truck)s) as well as military vehicles made oil not only a vital economic energy asset, but strategic military asset. After World War I, the natural gas that was produced along with oil was flared off as a waste by-product. Slowly natural gas began to be used for industrial and residential heating and power (1920s). The natural gas molecule is not as energy dense as gasoline, but was of value and clean during. Oil played an even more important role during World War II fighting circled the globe and warfare became moth mobile and mechanized. And the Allies and Soviets had oil and the Axis did not. The German and Japanese effort to obtain oil would be a major factor in the War. Oil would become a major factor in post-Word War II world as America's need for oil exceeded its supply. Oil was discovered in many areas around the world. The Middle East became a major oil produce. This mixed with Israeli-Arab conflict resulted in an Arab oil embargo. This resulted in huge increases in prices. Many poor countries became rich as a result, although the benefits often did not flow to the people. The huge increases in price, as well as technology led to an oil renaissance in the United States. Global warning has led to an effort to develop renewable energy sources to lower carbon emissions. Here natural gas is serving as a bridge fuel that has enabled significant reductions in coal consumption, although countries like China and India continue to burn huge quantities of coal.

Ancient World

Native Americans came across natural seepages of oil and made a range of uses for it. The first written record was left by the Chinese who constructed bamboo pipelines (600 BC). Oil was well known in the ancient world. There is evidence dating back (4000 BC). Mostly thick viscous types like asphalt and bitumen. This is because what the ancients found were natural seepages. And oil that seeped to the surface mostly evaporated. And without the volatile components only the tarry components were left. The ancients found various uses for it, mostly building material and boat caulking. The Egyptians used it in the embalming process. Our name for oil comes from the Romans -- petroleum. This meant 'rock oil'. It was first used as a fuel by the Chinese (1st century AD). Bamboo pipes carried oil and gas into homes for both heating and lighting. It was the Byzantines that made the first weapon out of oil -- Greek Fire.

Medieval Era

A range of people around the world during the ancient and medieval era were convinced that oil had medical curative properties. Marco Polo reported that in Central Asia camel drivers used it to treat mange. Amerindian peoples had been collecting oil in natural seepages for millennia. Spanish Conquistadores sent oil back to Europe to treat Emperor Charles V who suffered from gout.

Industrial Revolution: Coal

Coal became the major fuel of the Industrial Revolution during the 19th and much of the 20th century. Coal like oil is a hydrocarbon. And a huge reservoir of energy. Great deposits existed in Europe, including Britain, France, and Germany to power the Industrial Revolution. And inventors began to create primitive steam engines (18th century) that could be powered by wood or coal. This began the conversion of Europe from an agricultural to industrial economy. James Watt, a Scottish instrument maker at Glasgow University, began working on steam engines. He had a real working model in a very fateful year (1776). Coal quickly became the preferred fuel. It was cheaper and could be had in huge , reliable quantities. The physics and economics were unassailable. A ton of coal produced four times as much energy as the same amount of wood. Coal-fired steam engines dramatically reduced the time and cost of both inland and marine transport and well as powering factory machinery. These coal-powered machines created huge improvements in productivity while at the same time reducing physical toil. Coal had one major disadvantage, it was a dirty fuel giving off large volumes of pollutant and carbon laden smoke--easy to spot at sea. Thus is why navies would be the first military force to shift to cleaner burning oil. Here it was not only industry burning coal, but coal was being widely used for home heating. Environmental concerns became a serious issue. By the late 20th century coal burning smoke with sulfurous particles had created major health concern such as the London smog. This helped drive the shift to another hydrocarbon -- oil.

New Fuel

A new fuel appeared in the mid-19th century -- oil. It was at first mostly as kerosene for home lighting and lubricants. It became a major fuel in the 20th century. Electrical energy was beginning to become important by the-turn of the 20th century. But this was mostly generated by burning coal and than oil.

Kerosene Era

As strange as it may seem, settler during the pioneer Western movement era considered oil a pollutant. When they drilled, they wanted water or brine to produce salt--not oil. The modern oil industry began when Col. Edwin Drake drilled the first successful oil well at Titusville, Pennsylvania (1859). He had to drill through rock. At the time it was called 'Drake's Folly'. But there was a developing demand for kerosene. Whalers were depleting populations of the great marine animals. And a replacement was needed for whale oil that was in great demand for home lighting. Coal was being used to produce kerosene, which is why it was known as 'coal oil'. (In the 20th century coal would be used to produce synthetic oil by countries without access to oil--most notably NAZI Germany.) This was, however, an expensive process. Oil was a much more adaptable and flexible source than coal. Many small companies began producing kerosene. Other diluted like gasoline were an unwanted byproduct. John D. Rockefeller founded Standard Oil (1870). He began buying up these companies and driving competitors bankrupt. In the process he became the wealthiest American of all time and the richest person in modern history.

Electrical Lights and the Tin-Lizzie

The demand for oil increased as countries began to electrify. Another major development was that the the gasoline that was at first a waste product became a valuable product as result of the invention of the internal combustion engine. This was followed by Henry Ford's creation of an automobile that the average worker could afford -- The Model-T Tin Lizzie(1908) . The impact was produces tens of millions of customers. And the Spindletop discovery in Texas made America the major world producer (1901). America was already the major industrial power in the World. The automobile industry thrust the country way beyond the European countries. Oil emerged as the preferred energy source for both the military and civilian economy. Ironically, at this time the United Stares broke up Rockefeller's Standard Oil Monopoly (1911). Several of the titan's of American industry were involved. It was the demand for electricity created by Thomas Edison's electric light bulb and Henry Ford's Model-T and powered by Rockefeller's oil..

Country Trends

The United States aided by John D. Rockefellrt and Henry Ford led the transotion from coal to oil. These two men literally changed the worls. Rockefeller's oil and Ford's automobile for decades dominated the new oil industry. American dominance played an imprtant role in the Allied victory in World Wat I and especially World War II. The iotaliratian powers wanted to fundamentally cahnge the world ordr, but their lack of oil made it impossivle to do so. The Soviet Uniin was yhr olny btitalitarian power to that had oil, but even the Soviets erelied on American deliveries of aviation fuel. One author clains that the Allies basically sailed to victory on a sea of American oil. One might think that it was mere happen stance that the Allies had oil and the Axis did not. This is not actually the case. The engine of capitalism applies no where in greater force in America and ionky to as monewhat more limited extent in Britain created the econoimic success that enable these two ciuntries to devloo the capoital and technology to develop oil fields around the world. Germany had a weak capital structure when it kaunched Worlkd War I and Hitler bhad essentiall bankruipted Germany at the time that he and Stalinlaunvhed World War II. The oid industry transfornmed and in may ways created the modrn world. Whilke the American story is the single most imprtant, many other countries developed oil industries and have important histories.

The Majors

Oil more than any other commodity came to be dominated by a few huge Americana and British companies. That bis because much of the world's oil was produced in America or the British Empire (but not Brattain itself) and related countries. John D. Rockefeller was the first great oil baron. He began not by drilling for oil, but by refining it. He founded Standard Oil at the end of the Civil War (1865). At the time Standard Oil focused in kerosene and to a lesser extent lubricants. Gasoline was a bothersome waste product. In a little over a decade, Rockefeller and Standard Oil controlled 90 percent of America’s refining capacity, as well as pipelines and gathering systems. It was America's first great monopoly. Many of the acquisitiins were forced, others like Carter Oil more amicable. Refining meant that supply was needed, so Standard Oil eventually transformed into a vertically integrated monopoly including exploration, production, and marketing operations. While no country consumed more oil than America, there was also oil activity in Europe, mostly Britain. The Nobel and Rothschild families were competing for control of production and refining of Tsarist Russia's deposits--mostly in the Caucuses. The Russian Revolution would prevent the creation of an oil major based on Russian oil. But for a time the Rothchilds played a major role and had a problem to solve. The oil fields they were developing were located in fields very distant from Europe or other important markets like China. This was a problem Rockefeller did not have. Standard Oil produced oil in the same country where it marketed its products. At the time as in America, kerosene was the major product--oil for the lamps of China was the business slogan. And the Europeans A The Rothchilds commissioned the first oil tankers from a British seashell trader, Marcus Samuel. The first of these tankers was named the Murex, after a type of seashell, and became the flagship of Shell Transport and Trading, which Samuel formed (1897). Royal Dutch Petroleum was also founded by Sammuels and first focused on seashells sourced in the Dutch East Indies. It developed integrated production, pipeline, and refining operations. Royal Dutch and Shell Transport and Trading agreed to form the Royal Dutch Shell Group (1907). All of this of course the forerunner of Shell Oil. At the same time, another British group was forming. Oil was discovered in Persia (modern Iran) by a British former gold miner. With the approval of Reza Shah Pahlavi, the Anglo-Persian Oil Company was founded. The British government purchased 51 percent of the company stock (1914). This ensured oil supplies to the Royal Navy which had largely shifted from coal to oil. The company became British Petroleum or BP (1954). These three companies (Standard Oil, Shell, and BP) are considered the original 'super majors'. Despite their dominance, other major companies were founded. The discovery of the Spindletop Field in Texas (1901) spawned new companies. The find was so large that Standard Oil and Rockefeller could not control it. Gulf Oil, Texaco, and other companies became players. America was so dominant at the time that regardless of where oil was produced around the world, price was fixed at that of the Gulf of Mexico. Monopolies became a major target of the American Progressive Movement and no monopoly was bigger than Standard Oil. The U.S. Government broke up Standard Oil (1911). The successor company was Esso (today Exxon), but a huge number of new companies appeared, the most well known surviving successors were today Chevron (Standard oil of California), Marathon Oil (Standard Oil of Ohio), and Mobil (Standard Oil of New York). Ironically, with the break up, Rockefeller became even richer. The broken up companies were worth more than the original Standard Oil. Immediately after the breakup of Standard Oil, World War I broke out in Europe. Oil became a strategic energy source and a tremendous geopolitical resource. The Allies and America had it and the Germans did not. After the War, Gulf Oil, BP, Texaco, and Chevron obtained concessions that made major discoveries in Kuwait, Libya, and Saudi Arabia. Those discoveries, however, did not lead to significant new production until after the War. Ironically German Afrika Korps Panzers would run out of fuel while below the sands was an enormous oil reservoir. These discoveries led to the creation of a cartel that controlled much of the the world’s oil and gas business for much of the 20th century. The cartel was known as the Seven Sisters, they included: British Petroleum, Chevron, Esso (now Exxon, formerly Standard Oil of New York), Gulf, Mobil, Royal Dutch Shell, and Texaco.

Militrary Significance

Oil had huge military potential, although that was only becoming consequntial when World I broke out in Europe. The most obvious utility was in naval warfare. Oil returned a measure independence to fleets that had been lost when coal began to replace sail (mid-19th centuyry). Not only could ships could carry several times as much oil as coal, oil had a far greater energy density than coal. The tonnage of oil doubled a ship's speed and nedraly doubled its cruising range. This mean that navies were not nearlt as tied to bases and the need to maintain large numbers of coialing statiions. It also was the only fuel that new weapons ststems (submarines, aircraft, and tanks) could use. Trucks wouls significantly affect logistics and force mobility--vital factors in warfare. All of this wouild come to fuition in World War II. Fleets further increased their independence, The U.S,. Navy created the fleet train, capable of replenishing entire fleets while still at sea. By the end of the War. oll maenat that that fuel and logistics no longer limited fleet action--it was only crew endurance. The U.S. Pacufic Fleet Navy during the Central Pacific Campaign, remained continuously at sea for over a year-- only switching names between 3rd Fleet and 5th Fleet based on whether Spruence or Halsey was in command. Aircraft could now strike at great dustance making possible the strategic bombing campaigns that sestouyed German and Japanese war industries. And armies became increasingly mechinized-- especially Allied armies. Axis armies were largly on foot abd still dependen largely on horse poeer of the four legged sort. Th Germans despite Gioebbel's propaganda used more horses in Wotkd War II than in World War I. A critical factor in both wars, especially World War II is that the United States and Britain controlled the great bulk of the world oil supply. Coal was widely distributed around the world, but neither the Central Poweers in World War I or the Axis in World War II had adequate access to oil. The NAZIs obtained oil for a time from the Soviets and from Romanian fioelds. They also launched a synthetic oil industry. But this only provided part of what they needed. The Jaoanese suceeded in seizing oil fields in their Southern Resource Zone, but were unable to transport much oil back to the war industries on the Home Islands.

World War I (1914-18)

Fuels were also important, especially coal. Then a new fuel began to become important--petroleum. Oil was important in World War I. The navies of the day were shifting from coal to oil, in part because it significantly reduced the smoke trail. Tanks and trucks emerged as militarily important, And planes required high-octane gasoline. But draft animals remained vital to moving armies and artillery, Because of American trucks, the Allies were much more mechanized than the Central Powers. The Allied naval blockade cut the Central Powers off from needed oil imports. German chemists began working on synthetic fuel production. Allied control of the sea lanes meant that they could import all the oil they needed from America. One observer wrote that "...the Allies floated to victory on a wave of oil." [Viscount Curzon of Kedleston] This created a problem for Europe as so little oil was produced in Europe on the Continent, except for poorly developed Russia. Romania and Austria-Hungary (Galacia) produced small amounts. Thus it had to be imported. Oil became increasingly important when a new raw material began to become important--petroleum. At the urging of Admiral Jackie Fisher and First Lord of the Admiralty Winston Churchill, Britain began converting its fleet from coal to oil. German strategic thinkers also saw the importance, lending urgency to the rail connections with the Middle East. Coal continued to be important World War I, but oil was needed for aircraft, tanks, trucks, and U-boats. America was the greatest oil producer, the Saudi Arabia of the day. The Royal Navy guaranteed deliveries to Britain, but an embargo enforced by the Royal Navy cut Germany off. Germany went to war expecting a quick victory rendering embargoes moot and meaning shortages would not develop. It was a huge strategic blunder and in the end consume the short-lived German Empire. The inability to obtain needed raw materials seriously impacted German industry. Oil was a special problem. German at the time the war broke out was in the process of building the Berlin to Baghdad (Basra) Railway. This would have given the Germans access to vast quantities of oil that could not have been interrupted by the Royal Navy. The Germans hoped to obtained access to the Romanian oil fields, but the British blew up the Ploesti oil fields before the German Army arrived. One geologist writes that winning the First World War had been impossible "without gasoline for automobiles and airplanes, without oil for lighting in dugouts and on the homeland's flat soil, without diesel oil for submarines, and without lubricating oil for the innumerable machines in industry and transportation." This would be a scenario repeated two decades later, but with the the increasing demands of an enlarged navy, a powerful air force, and an increasingly motorized army made a petroleum-strapped victory even more unthinkable ..." [Friedensburg, p. 445.] Germany went to war expecting a quick victory rendering embargoes moot and meaning shortages would not develop. It was a huge strategic blunder. The quick Germany victory evaporated on the Marne only a month into the War. In the end the inability to import raw materials and food would be a major factor in the defeat of the short-lived German Empire.

Inter-War Era (1920s-30s)

It was not the military, however, that was key driver for oil usage. Automobile ownership and demand for electricity grew exponentially and, with them, the demand for oil. Gasoline sales first exceeded kerosene sales (1919). Oil-driven transport (ships, cars, and truck) as well as military vehicles made oil not only a vital economic energy asset, but strategic military asset. After World War I, the natural gas that was produced along with oil was flared off as a waste by-product. Slowly natural gas began to be used for industrial and residential heating and power (1920s). The natural gas molecule is not as energy dense as gasoline, but was of value and comparatively clean burning. Oil was delivered in many areas around the world before World War II. The fields began coming on line, especially after the War. They were controlled by the Seven Sisters.

Soviet Oil Industry

Oil from an early point became an internationally traded commodity. The reason for that was that for the most part, with the exception of America, oil was found in countries with little use for it. And the countries that needed it (Europe) had very limited resources. Shell helped pioneer the oil tanks that could move oil around the world. There was one exception -- the Soviet Union. The Soviets had huge oil resources, only partially developed. Industrial development began during the final years of the Tsarist Empire just as oil was becoming an important commodity. There were exports, although the industry based along the Caspian Sea in modern Azerbaijan suffered from under investment. The Russian Revolution put this resource in the the hands of the new socialist Soviet Union with its totalitarian leadership. The energy policy of the Soviet Union was an important element of the country's planned economy. The Soviet Union, unlike most European countries, was basically self-sufficient in oil. Several European countries had important coal resources, but only Romania has an important oil resource. And by the time the Soviet Union was created, oil was becoming increasingly important, both for the economy and military. Stalin's pursued an economic policy of autarky. Soviet economic growth was to a large degree based on keeping labor costs low and large inputs of domestic natural resources, including oil. There was no price mechanism in the Soviet economy. As a result, the actual value of Soviet manufactured goods were commonly less than the value of the production inputs. The Soviet oil industry was based in the Caspian area in modern Azerbaijan -- Baku 1 bordering on Iran. The Soviets at the time of World War II were planning an enormous increase in oil production based on Baku 2 -- an area between the Volga and the Urals. [Nazaroff, p. 81.] This huge oil resource was unknown to the Germans, but just Baku 1 was a major objective when Hitler launched Operation Barbarossa, the invasion of the Soviet Union (1941).

World War II (1939-45)

Oil played an even more important role during World War II fighting circled the globe and warfare became both mobile and mechanized. Military forces required huge quantities of oil for air, land, and sea operations. Oil was not evenly distributed around the world. Some countries had a great deal and other countries very little. The two major producers were America and the Soviet Union. America produced vast quantities of oil, to supply its industries and the many civilians who owned cars. Gasoline rationing was the major complaint Americans had on the home front during the War. It has been said that the Allies floated to victory on a sea of American oil. It also exported large quantities. The Soviet Union produced less, but still very large quantities. Production in the Caucuses was especially important. Britain and France had very limited domestic production, but imported from America and American associated countries Mexico and Venezuela). Fields in Middle east and India supplied British field armies and Indian Ocean Mediterranean fleets. The Axis on the other hand had very limited domestic oil resources. Japan in particular was almost entirely dependent on American oil. Some British analysts believed that the Germans could not launch another war because it lacked adequate domestic oil production. They were wrong, but oil wold become a major concern for the Axis. The Germans managed to cobble together enough domestic production, synthetic fuel production, and terrestrial imports (primarily from Romania and the Soviet Union--until 1941) to run their war effort, although oil was a serious constraint throughout the War. They even got the Soviets to ship them oil. Oil remained, however, a primary concern for German planners and was one of the inducements in invading the Soviet Union. Oil was even more critical for the Japanese who were dependent on American oil exports. Thus the Southern Resource Zone (SRZ), especially the oil-rich Dutch East Indies became a primary objective. Inconveniently for the Japanese, the American controlled Philippines Islands backed by the Pacific Fleet at Pearl Harbor lay between the Home Islands and the DEI.

Post World War II Era

Oil would become a major factor in post-Word War II world as America's need for oil exceeded its supply.

OPEC (1960)

Gradually after World War II the oil producing countries began ti take control over oil and gas production and pricing from 'Big Oil', namely the Seven Sisters. With the decolonization process, rising nationalism, and the Arab-Israeli wars, control passed from the consuming countries to the oil-producing countries. The governments of oil-producing countries particularly in the Middle East and Latin America began to view the integrated international oil companies (IOCs), all European or American, as instruments of quasi-colonial oppression. For both economic and political reasons, the leaders of the producing countries began asserting their authority to control of their countries’ oil and gas resources and the wealth involved for the benefit of their nations. Unfortunately in all too few of these countries very little of the wealth filtered down to the population. This process began in Mexico when After the Revolution) (1910-20) the Mexican Government began seizing the oil industry. The governments of Kuwait, Iran, Iraq, Saudi Arabia, and Venezuela founded the Organization of the Petroleum Exporting Countries (OPEC) for the purpose of negotiating with IOCs on matters of oil production, oil prices, and future concession rights. OPEC did not challenge the Seven Sisters during its first decade of existence. This changed abruptly with the Yom Kipur War and Arab Oil Boycott (1973). By this time rising energy demand had significantly increased American dependence on oil imports. Libya dictator Muammar al-Qaddafi added to the tumult. OPEC Share of World Crude Reserves gave the oil producers considerable economic clout in a world economy dependent on oil. OPEC claimed over 80 percent of the world's oil reserves. And one single Arab country, namely Saudi Arabia, controlled over half the total. Iran and Venezuela were other major producers. Notably. the Soviet Union did not join OPEC. At the time its oil was mostly used domestically, but especially after the dissolution of the Soviet Union, Russia would become a major exporter. There were other substantial oil reserves beyond OPEC control. One field important to Europe was the North Sea (controlled by the UK, Norway, Denmark, Germany, the Netherlands). Canada’s oil sands and American shake were a huge resource, but technology was needed to unlock them for commercial exploitation. Deep water reserves exist off Brazil and in the Gulf of Mexico. OPEC was based in Vienna, Austria, largely because of tensions among Arab members. It was created because Western oil companies, namely the Seven Sisters, sought to keep oil prices low. OPEC enabled the oil-producing countries to increase income by coordinating policies and prices. Membership in OPEC became a matter of both economic and as a result political influence in the global community. The United States saw OPEC as a threat. primarily because it ended the era of cheap energy. OPEC was able set world market oil prices at its pleasure. And it set high prices. Oil would eventually rise above $100 a barrel. This was the most enormous transfer of wealth in human history. It adversely affected the American and European economies as well as developing economies dependent on oil imports. American policy was complicated by the fact that OPEC members included some American allies--including Iran. This changed with the Islamic Revolution (1979). OPEC while succeeding in raising oil prices faced major problems. To keep oil prices higher, OPEC members had to agree to limit production. There this were bitter arguments over country quotas and even then there was significant cheating. Something that OPEC did not calculate was the impact of rising prices and the ability of oil consuming countries to use technology to unlock new resources. OPEC believed that oil prices would steadily rise over time with nothing to limit that increase. Unfortunately for OPEC, the higher the price the greater the resources which could be unlocked. This would take some time, but would eventually lead to American energy independence. More countries joined OPEC. The members now include Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela. Russia continues to be a hold out. OPEC also led to National Oil Company (NOC) era.

Arab Oil Embargo (1973)

The Middle East became a major oil producer. This mixed with Israeli-Arab conflict resulted in an Arab oil embargo. This resulted in huge increases in prices. Many poor countries became rich as a result, although the benefits often did not flow to the people. The huge increases in price, as well as technology led to an oil renaissance in the United States.

National Oil Company Era

The allure of controlling foreign oil operations and the wealth produced resulted the oil producing countries to seize foreign operations. This process began with the Russian Revolution (1917) when the Bolsheviks seized all private enterprises including foreign oil companies. This did not much affect the e]world economy, as Russian oil mostly supplied the domestic market. Mexican President Lázaro Cárdenas (1895–1970) nationalized the Mexican assets of Shell, Standard Oil, and 15 other foreign-owned companies (1938). He created Petróleos Mexicanos (PEMEX) to administer them. This did have an impact because Mexico at the time was a major producer. After World War II rising nationalist sentiment and a desire to control economic resources as ell as a growing realization of the wealth involved led country after country to nationalize their oil industries. This has meant that the world oil industry has become incredibly complex. The single most important of these companies is Saudi Aramco, with origins dating back to the British and French exclusion of American companies from Mesopotamia --the San Rome Petroleum Agreement (1920). This led to the foundation of Saudi Aramco by Standard Oil of California (So Cal modern Chevron). In retaliation for American supporting Israel during the Yom Kipper War, the Saudi Arabian government acquired a 25 percent 'participation interest' in Aramco (1973). It increased its participation interest to 60 percent (1974) and acquired the rest (1976). The Venezuelans followed suit by nationalizing the oil industry (1976). They founded PDVSA (Petroleros Venezuelanos) which was also very important because of the country's huge reserves (1976). Other oil producers followed this process. One of the most important is Gazprom, normally a private company, formed in Russia after the dissolution of the Soviet Union (1991). Gazprom has reneged on contracts with the IOCs. Russia's exports have become so important that it has been negotiating with Saudi Arabia to limit production to hold up oil prices. The change in NOC participation has been dramatic. IOCs controlled over 90 percent of world oil production (1972). NOCs now control over 70 percent of production. A major limit on NOC control has been the fracking and the American oil renaissance. The justification behind seizing foreign property and a national oil company was so that the oil resource could be used for the benefit of the nation. Here the results have been disappointing. The oil producing nations include only a few democracies. The benefits of the oil wealth in most countries have gone to only a small part of the population and many have been very poorly managed. PEMEX despite considerable untapped resources have been unable to increase production. Mexico as a result has had to begin importing natural gas from the United States despite having major gas resources. The all time poster child for poor management is Venezuela's PDVSA sitting on one of the world largest oil resource yet the population is near starvation.

American Oil Renaissance (2000s-2010s)

Thanks to OPECs oil price increases, huge volumes of oil locked in shale and oil sands have become economically recoverable as well as opening old fields that had been thought to be depleted. Technological advances breakthroughs in unconventional oil and gas production in the last 15 years have altered the North American energy landscape. These developments have opened up important new opportunities around the world, bur so far have mostly affected the industry in North America. The major result has been to bring vast new quantities of oil in the market. America has become an oil and gas exporter and driven down the price of oil. This has ended the dominance of OPEC which is no longer able to set world prices. There have been three major breakthroughs: 1) horizontal drilling, 2) sub sea engineering (deep water production), and 3) hydraulic fracturing. Hydraulic fracturing referred to as fracking, is the process of injecting water, chemicals, and sand into wells that on their own are not producing or producing much. This causes fractures in the shale rock formations which hydrocarbon deposits (oil and natural gas) to escape. Mitchell Energy began the process with the first slick water frack (1997). This method lowered the cost of hydraulically fracturing and hugely increased production. A boom in North American oil and natural gas production ensued. American drillers rapidly perfected fracking techniques and added horizontal drilling. One result was a drastic fall in domestic natural gas prices – from over $13.00 per mmBtu (2008) to under $2.00 in (2012). and it gas since hovered around $2-4. This of course is not good for the producers, but it has been a vast boom to the American economy, meaning cheap energy for consumers, both industry and home residents. One impact is that relatively clean burning natural gas has replace coal in power plants. And America had switch from importing natural gas to exporting it. . There are environmental concerns meaning the use of technology from state-to-state. and country-to-country as politicians weigh conflicting constituencies. The Biden Administration is not favorably disposed toward fracking. The new President is banning fracking on Federal lands. It remains to be seen how his policy initiatives will affect oil and gas production and America's energy independence.

Global Warming

Global warning has led to an effort to develop renewable energy sources to lower carbon emissions. Here natural gas is serving as a bridge fuel that has enabled significant reductions in coal consumption, although countries like China and India continue to burn huge quantities of coal.

Sources

Nazaroff, Alexander. "The Soviet oil industry," ?The Russian Review Vol. 1, No. 1 (November 1941), pp. 81-89.







CIH






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