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Oil in the US Foreign Policy II – Cold War
Era
Martin Jirušek, Ph.D.
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After the WWII
̶ Expanding car industry and post-war reconstruction – key determinants for increasing
demand for oil
̶ Oil as a determining factor for the economy – still not a key factor in foreign policy
̶ clash of approaches among state representatives: PAW – Harold Ickes vs. Dept. of State (liberal)
̶ Middle East seen as the new center of gravity
̶ “cheap vs. secure” debate
̶ preserving domestic sources for the event. of conflict (importing cheap oil) vs. extracting domestic oil (not relying
on potentially unstable foreign suppliers)
̶ gradual shift in the perception of imports – support for foreign imports, change in later years
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Roosevelt a Abdulaziz Ibn-Saud Aboard the
USS Quincy
̶ Establishment of the “special relationship” between the US and Saudi Arabia 14.2.1945:
access of US OCs in Exchange for military and material assistance
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After the WWII – Divide and Conquer?
̶ Oil within the top 3 energy sources in the US
̶ US & UK disputes about the spheres of influence in the Middle East
̶ Concerns about the growing influence of the USSR
̶ Concerns about potential overproduction and market instability
̶ Negotiations with UK – efforts to renegotiate rather restrictive RLA and cooperation – cartelization?
̶ questionable compatibility with the Sherman Anti-trust act
̶ negotiations about so called Anglo-American Petroleum Agreement since 1943
̶ Clear shift in positions compared to pre-war years– strengthening US OCs at the expense of Brits
̶ US share in the total world oil production was steadily declining (from 2/3 pre-WWII to 1/3 by 1973)
̶ rise of new producers
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Negotiations with UK
̶ Anglo-American Petroleum Agreement agreed in 1944, renegotiated 1945, finally withdrawn
in1952
̶ the US Senate refused the bill
̶ Truman refused to support the bill
̶ the public and policy sentiment fundamentally changed (30s vs 40s & 50s)
̶ public and political resistence towards state-guided policy
̶ “OCs can make it on their own!”
̶ concerns about compatibility with the Sherman AT Act
̶ Unsuccesful efforts to state/guided activities in the Middle E.
̶ PRC and Anglo – American PA failed
̶ paradigm shift - indirect support for US OCs
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Demise of the RLA & the state-guided policy after the WWII
̶ SOCONY & SONJ pressured to repeal the restrictive conditions of the RLA in
order to be able tojoin SOCAL & TEXACO at ARAMCO
̶ SOCONY & SONJ barrewd by the original RLA
̶ FRA and Gulbenkian protested but eventually agreed (1948)
̶ IPC (TPC) area of activities redrawn (excl. Saudi Arabia, Yemen, Bahrain,
Egypt, Israel, and the western-half of Jordan
̶ eventually, the center of gravity of oil production shifted out of this area
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After the WWII
̶ Korean War – Petroleum Administration for Defense
̶ successor of similar gov. bodies Fuel Committee (WWI), Petroleum
Administration for War (WWII)
̶ Change in the perception of oil imports
̶ 1930s & 1940s – insufficient imports are dangerous
̶ 1950s – 1960s - excessive imports are dangerous
̶ Introduction of import quotas 1959
̶ higher utilization of domestic resources, combined with increasing demand
̶ did not work – consumption outpaced saving measures
̶ accelerated incoming of the expected ‘peak oil’
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After the WWII
̶ Sufficient oil supplies as one of the determining factors of the post-war development
̶ US aimed to secure sufficient oil supplies for Europe
̶ economic development as a precaution against revisionist tendencies and destabilization (part of the containment,
Marshall Plan)
̶ SSSR – oil production vastly damaged during the war
̶ gradually increasing production in following years
̶ 2nd biggest producer by 1960s
̶ Developed economies converted to oil
̶ departure from coal as the primary energy source
̶ Conversion accelerated by post-war reconstruction
̶ oil eventually assumed ½ of the worldwide total energy consumption
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Peak Oil?
̶ “The Stone Age came to an end not for a lack of stone, and the oil age will end, but not for a
lack of oil.”
̶ Zaki Yamani (former Saudi minister of oil industry)
̶ 1956 - Marion King Hubbert: US production
will peak in early 1970s
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Peak Oil?
̶ 2005-2008 – some claimed this period to be the ‘real’ peak oil (again)
̶ a) Absolute peak?
̶ i.e. all resources have been discovered and developer with maximum efficiency, using the most advanced technologies available;
technological development reached its absolute peak (highly improbable if not outright impossible)
̶ b) ‘Plateau’? – a peak that lasts for a long period of time, production on more less stable level
̶ c) Temporary peaks? – peak production determined by new resources, instable price, etc.
̶ d) Peak of conventional resources?
̶ resources vs. (proven) reserves – how much oil is left?
̶ decline of (super and mega)giant conventional fields, decline of new finds (Ghawar – the biggest oilfield has been producing since
eraly 1950s, now in clear decline)
̶ the end of oil?
̶ …or rather the end of cheap oil?
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Seven Sisters
̶ Anglo-Persian Oil Company (UK): later Anglo-Iranian Oil Company and then British
Petroleum, BP since 2000
̶ Gulf Oil (US): later merged with SoCal and became Chevron
̶ Royal Dutch/Shell (NED/UK)
̶ Standard Oil of California (US): acquired Gulf and became Chevron
̶ Standard Oil of New Jersey (US): became Exxon, acquired Mobil and became ExxonMobil
̶ Standard Oil Co. of New York (US): became Mobil and was alter acquired by Exxon to
become ExxonMobil
̶ Texaco (United States): later acquired by Chevron.
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Iran – Unsuccesful ‘Stabilization’
̶ Iranian people dissatisfied with the quality of life
̶ public unrest anti-imperialism – nationalist Mohamed Mossadegh as the new PM
̶ 1951 –Anglo – Iranian Oil Co. nationalized
̶ US concerned about the rise of nationalism and penetration of USSR to the region (the heyday of the
containment, Tudeh Party)
̶ 1953 - Coup supported by western secret services – reinstallation of Pahlavi
̶ Iranian oil industry nationalized, although US OCs operated and to great extent influenced the whole
industry – replaced British influence in the area
̶ US supported shah´s regime by supplying it with political support, supplies, training of
counterinsurgency forces, etc.
̶ seen as a stabilization for the region and shield against communism
̶ public resistance against the regime was increasing
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Iran – Unsuccesful ‘Stabilization’
̶ The revolution of 1979 – the Shah was replaced by anti-American Ruhollah Khomeini
̶ Expulsion of foreign experts, continual decrease of oil production
̶ Supplies to the US embargoed
̶ Major consumers stockpiling with oil – oil scarcity increased
̶ Other producers eventually caught up with the demand, offsetting
Iranian production cuts
̶ 1980 – outbreak of the war between Iraq and Iran
̶ another blow for the Iranian production
̶ situation stabilized in mid 1980s
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Oil Production of Selected Countries During the Iranian
Revolution
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Key Events for the US Oil Policy
̶ The Suez crisis (1956) – efforts to replace British influence
̶ unsuccessful - Egypt turned away from the West, nationalized the canal – intervention of UK, FRA and Israel –
Saudi oil embargo: US intact – clear warning (mind the rise of nationalism)
̶ UK and FRA under Saudi embargo
̶ limited impact, still a clear warning
̶ 1960 – OPEC founded – at first as rather underestimated actor, internal
disputes
̶ 1967 – Six-day war – limited oil embargo (US, UK, W Germany)
̶ both embargoes were selective and limited in the duration; also did not include production cuts, limited in time
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Oil shock of 1973
̶ Early warnings – nationalization of assets of US OCs in Libya and subsequent price rises –
an inspiration for other OPEC countries
̶ 1968 – OAPEC – important for later development (rather an „OAPEC embargo“ than „OPEC
embargo“)
̶ Yom Kippur War - production and supply cuts from mid-October 1973, total embargo after
US decision to help Israel
̶ Spring 1974 – embargo ended
̶ Influx of ‘petrodollars’ to producing countries – strengthening their confidence and
accelerating the process of nationalization
̶ Position of USSR indirectly strengthened
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Oil shock of 1973
̶ Bad timing for the world economy
̶ end of the Bretton-Woods system
̶ already rising oil prices before the embargo
̶ rapidly growing consumption and import dependency…
̶ supply/demand disparity
̶ Major consumers were stockpiling with oil – oil scarcity increased
̶ Impact on the global scale
̶ Geopolitical implications – concerns about the outcome of the CW, US withdrawal from
Vietnam, Watergate, decolonization, economic issues, ...
̶ US as a weakening power?
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US Oil Imports
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Consequences of the 1st Oil Shock
̶ ‘Oil Weapon’ became a reality
̶ Positions of producing countries and OPEC were strengthened, IOCs weakened (and the
views were pessimistic…)
̶ Further nationalization (Venezuela, SA – during 1970s)
̶ Oil prices quadrupled, accelerated inflation, economic development slowed down or stopped,
unemployment in the US doubled, …
̶ BUT! – serious blow for developing countries
̶ Global impact despite rather selective nature of the embargo
̶ Oil imports from ME substantially decreased – blow for the economy
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Embargo as a Double-Edged Sword
̶ Credibility of oil producers substantially harmed – source of concern for SA even before the
embargo
̶ A serious blow for producers´ economies – reluctance for future use of the oil weapon
̶ Supply diversification – away from ME – rise of production on the Western hemisphere
̶ Canada, Venezuela, Mexico, Norway, UK, diminishing the importance of oil in housing and electricity prod.
̶ ME producers lost great deal of their consumers
̶ efforts to regain their positions
̶ increasing production in 1980s
̶ price collapsed - Serious (decisive?) blow for the USSR
̶ OPEC unity deteriorated
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Oil imports from the Middle East and Other Countries
After the Oil Shocks
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‘The Oil Weapon’
̶ "Oil is the only thing that the Muslims have which is needed by the
rest of the world„
̶ Malaysian prime Minister Mahathir Mohamad (2002)
̶ However, oil weapon is now largely discredited
̶ Mutual dependence of suppliers and consumers
̶ Who has a ‘bigger stick’?
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Reaction on the Oil Shocks
̶ Establishment of the IEA
̶ Energy-related issues in the centre of attention
̶ Nixon´s project ‘Independence’
̶ Establishment of the DoE
̶ Strategic Petroleum Reserves
̶ Related legislation: Energy Policy and Conservation Act, Emergency Petroleum Allocation Act
̶ Corporate Average Fuel Economy (CAFE)
̶ US economy restructured – oil consumption temporarily decreased (so did the imports), lower utilization in housing
and power generation
̶ Strengthened hemispheric and continental cooperation (lead to NAFTA)
̶ US efforts to consolidate common approach of western countries perceived as efforts to strengthen its position
globally (context: final stage of the CW, Reagan administration)
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Reaction on the oil shocks
̶ Oil-based power generation in US decreased from 17% to 2%
̶ US oil imports decreased by 42%, import from ME decreased by 87%
̶ affected by economic crisis
̶ total oil consumption between 1979 – 1985 decreased by 15%
̶ Ongoing nationalization of oil industry in the world
̶ Carter´s doctrine – the Persian Gulf as an area of vital US interests
̶ Second oil crisis only accelerated ongoing processes in the Western states and implementation of
related measures
̶ Following oil prices slump in1980s
̶ 1970 – 10% of oil production capacity owned by producing states
̶ 68% by 1980
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Questions
̶ Who has the power: consumers or suppliers?
̶ Oil weapon as an effective tool or double-edged sword?
̶ Nationalization – good or bad? For whom?