Oil Bites Back

A generation had passed since the oil companies brokered their first Middle East oil deals. World oil consumption had exploded during the immediate post-war years and the Middle East was the source of much of that growth. None of this was lost on a new set of leaders in the Middle East who resented the carve-up of their region by the colonial powers and the cut-price concessions the major oil companies had negotiated. In a world dependent on hydrocarbons, the Middle East could and should get a greater share of the profits, the producing nations reasoned. The time had come to challenge the majors.

The catalyst for this challenge came not from some cavalier Lawrence of Arabia figure or even from Soviet meddling. It came from Venezuela where, in 1948, a populist government had passed a new petroleum law. It ensured Venezuela would now share all “rents” – the market share profits plus extra fees that took into account various costs of production – in a 50/50 split with the major oil companies. The companies, realizing that the US government wasn’t going to back them up and fearful that they might lose everything if Venezuela nationalized its oil business, agreed to the new deal.

Word of the Venezuelan deal spread and by 1949, Saudi Arabia was demanding the same terms. Aramco might have rebuffed the Saudi government had it not been for a new group of independent oil men, epitomized by Oklahoma millionaire J Paul Getty who offered far higher terms for Saudi concessions. If this American was prepared to pay so much, then obviously the majors were taking the Saudi government for a ride. Soon, Kuwait and Iraq had also cut their own 50/50 deals.

Iran also tried to get BP, the sole operator in the Anglo Iranian Petroleum Company, to agree to such a deal, but its chairman, William Frasier rejected it outright. It would prove disastrous for BP. In 1951, the new prime minister of Iran, Mohammed Mossadegh  called for the nationalization of Iranian oil and the seizure of BP’s oil fields. BP retaliated by organizing a boycott of Iranian oil effectively depriving Iran of its primary source of income.

Mossadegh’s revolt was a direct affront to Western interests in the Middle East. If BP could be thrown out of Iran, what would that mean for the other majors in the region? The US and Britain may have been concerned about the Soviet threat in the region but they were more worried about their companies losing their sweetheart deals. So, in a move that continues to affect Iranian attitudes to the West today, the CIA, at Britain’s prompting, staged a coup and forced Mossadegh out of office. In his place they put the young Shah Reza Pahlevi on the Peacock throne. The West, it was clear, would let no one interfere with its control of Middle East oil.

Mossadegh’s message of resistance was carried on by Egyptian dictator Colonel Gamal Abdel Nasser. He was not just a nationalist and anti-colonialist, he also sought to unite the Arab world in a campaign for the dissolution of Israel. Nasser was perfectly candid about the role oil played in his revolutionary thinking, calling it “the vital nerve of civilization” and vowing to use oil as a weapon to overcome imperialism.

The only problem for Nasser was that Egypt didn’t have any oil. But it did have the Suez canal which carried the majority of Middle East oil shipments to Europe even though stewardship of the canal was still controlled by Britain and France. In just a few months in 1955 Nasser successfully scared the hell out of US and Western Europe by turning to the Soviet bloc in search of weapons and raising the prospect that the canal might fall under Communist control.

Britain and France, fearing an economic catastrophe and also furious at the latest demonstration that their colonial power had crumbled, took an aggressive step – they decided to invade the Suez to protect the canal. Israel, already smarting for a fight to topple Nasser, volunteered to come along for the ride. The only ally they neglected to tell was the US who could only look aghast, not so much at the attempt to overthrow Nasser, but at the damage caused to Arab diplomacy by Western paratroops fighting together with Israeli troops.

The Suez drop was a huge embarrassment for the Europeans. Arab oil nations promptly banned all oil shipments to Britain and France and the US also declined to bail them out. The Europeans immediately retreated and with them disappeared their influence in Middle East affairs.

Three years later, Nasser again unsettled the West when he helped engineer a military coup against the British backed Hashemite royal family in Iraq. The new Arabist regime put pressure on the major oil companies and in 1960 it revoked 99.5 percent of the concession granted to the Iraq Petroleum Company, leaving the Seven Sister companies with only the three fields it was then producing. The Arab nations were beginning to flex their muscles. Oil they realized could give them great power if they worked together.

The Start of the Addiction

Perhaps it was because of Samuel’s understanding of maritime trade or maybe it was because Shell now had large excess reserves of Borneo fuel oil following its recent merger with Royal Dutch, an East Indies-based rival, but Samuel led the campaign to make the British Royal Navy abandon coal-fueled ships in favor of oil.

Since the late 1890s, Britain and Germany had been caught up in an increasingly high-stakes naval arms race. Central to both sides’ military ambitions was control of the world’s oceans. The British admiralty was dead set against switching to oil – not least because, while Britain enjoyed great reserves of coal, it had no oil of its own. Nevertheless, after a decade of lobbying, Samuel finally got the ear of a new First Lord of the Admiralty, the young Winston Churchill.

Churchill quickly grasped the advantages of an oil-fueled battle fleet. Between two such well-matched imperial powers as Britain and Germany, naval superiority would tip the balance and Churchill saw how Britain could achieve that. Oil fuel allowed faster cruising speeds and faster acceleration than coal furnaces. It took up less room allowing for greater armaments and manpower. It was also cheaper to operate. In April 1912, Churchill took the “fateful plunge” as he described it and commissioned a series of new battleships all dependent on oil.

In one swoop, Churchill had made the security of Great Britain dependent on foreign oil. Yet the lure of oil - its mobility and the advantage it afforded the British fleet at war - was enough to persuade him. With oil, Churchill wrote, “we should be able to raise the whole power and efficiency of the Navy to a definitely higher level; better ships, better crews, higher economies, more intense forms of war power.” As he put it, “mastery itself was the prize of the venture.”

Churchill found the oil he needed to run his navy in Persia where a new company, Anglo-Iranian Oil had struck a rich seam of oil. Yet despite the company’s potential, it was desperately short of capital. In 1913, Churchill announced that, in the interests of national security, the government would buy 51 percent of the company and Anglo Iranian would sign a long-term contract to supply fuel oil to the British Navy. The agreement stipulated that the company must always remain a British concern and, to protect its investment, the government increased its military presence in Persia. Anglo Iranian would soon change its name to British Petroleum, or BP. And Great Britain had become the first Western power to tie its economic and national security to Middle East oil. Others would soon follow.
The First Oil War

Nowadays we take technology in warfare for granted. Ever since the first Gulf War in 1991, the media has fallen over itself to catalogue new military inventions – be it stealth fighters, smart bombs or real-time video footages of the battleground that can be monitored from thousands of miles away. But, as Germany and the allied powers of Great Britain and France squared off in 1914, neither side understood the differences that the internal combustion engine would bring to modern conflict.

The First World War dragged on in an increasingly bloody stalemate for four years as each side introduced more deadly mobile weapons and the carnage grew exponentially. In 1916, the tank was introduced to combat and by 1918, the allied forces were using over 150,000 cars, trucks and motorbikes to transport troops and supplies. During the course of the war, the combustion engine also took to the skies. In 1915, the Royal Air Force had only 250 planes to call upon; by war’s end, British industry had produced 55,000, France 68,000 and Germany 48,000.

These inventions increased mobility on the battlefield, spreading the conflict over a far greater area than military planners had ever imagined. And it changed the odds of warfare. Even the finest infantry and cavalry was no match against the new fighting machines. Over 13 million people died and millions more were wounded during the four-year conflict.

It took huge quantities of oil to supply both sides’ war effort. Oil production at Anglo-Persian’s operations increased ten-fold from 1912 to 1918 and in 1917, Great Britain, with an eye to Mesopotamia’s oil potential, captured Baghdad from the Turks. Yet Britain and France still found themselves facing huge oil shortages at the height of the war. There was only one place they could turn for help – the United States. By 1917, the US was producing 335 million barrels of oil, 67 percent of total world output, and nearly one quarter of that was sent to Europe. In total, the US supplied 80 percent of the allies’ wartime petroleum needs. One quarter of that came from Standard Oil of New Jersey.

Germany’s oil problems were even more severe. Cut off from overseas oil by the allied naval blockade, it had only one other option – the oil fields of Romania. Yet despite a full-press effort to capture the oil fields, British saboteurs got there first putting Romanian oil out of action for five months. On November 11, 1918, Germany, faced with an acute oil shortage for the coming winter, surrendered. As Lord Curzon, a member of Britain’s War Cabinet, triumphantly announced, “The Allied cause had floated to victory on a wave of oil.”

The enivironmental and social costs of climate change would wipe away the record profits recorded by BP, ExxonMobil and Shell in the last year reports BBC NEWS

A BP exec says oil companies will invest heavily in new technology over the coming years. Well they have to do something with all that profit they’ve made on oil markets (partly due to their underinvestment in refining technology).

Here’s an interesting piece on green advertising or greenwashing (depending on your point of view) from the International Herald Tribune (courtesy of RAN’s blog).

Under particular scrutiny for overstating its green credentials: Ford and BP.