Creating an Islamic Monster

The fall of the Shah and the expulsion of US oil companies from Iran severely rattled the government of Jimmy Carter. Compounding America’s energy and security concerns, the Soviet Union had recently invaded Afghanistan in what many observers believed was a blatant first step in a push to control some part of the Persian Gulf. The US believed Iran, with its access to the Persian Gulf, could be the next target for the Soviet Union.

In his 1980 State of the Union speech, Democratic president Jimmy Carter confronted this threat. In what became known as the Carter Doctrine, he said, “Let our position be absolutely clear. 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 of America and such an assault will be repelled by any means necessary, including military force.”

To back up the Carter Doctrine, the National Security Council headed by National Security Advisor Zbigniew Brzezinski created a new military unit that could be sent anywhere in the world at short notice. It was called the Rapid Deployment Joint Task Force and though originally conceived as a lighting force to assure the unimpeded flow of Persian Gulf oil it soon it evolved into a unified command for the all of the Persian Gulf, Central Asia and North Africa. In time it would be renamed the US Central Command.

The Carter administration also helped unleash another force that over the next decade would play a more profound role in Middle East politics than the US military. In a series of secret legal documents known as Presidential Findings, Carter authorized the Central Intelligence Agency to begin covert action against the Soviet army in Afghanistan. Carter could have had no idea just what he had set in motion but, for the best part of the next decade through two successive Reagan administrations, the CIA helped turn a ragtag group of Afghanistan resistance fighters into a well-trained and very well-armed Mujahadeen – or God’s Army.

It was a large and costly operation and to help fund it, the US turned to Saudi Arabia for help. The Saudi kingdom had already begun to transform itself into a forward base for the Rapid Defense Task Force. Convinced that the Soviets had designs on their oil supplies, the Saudis agreed to match the $15 million Congress had appropriated for the Afghan struggle in 1983. In time the budget would increase to $250 million and the Saudis matched it each time.

Thousands of young men from all over the Middle East made the journey to Afghanistan to take part in the Jihad – or holy war- against the Soviet infidel. Not only did they succeed in driving out the Soviets but they emboldened the cause of Islam and the growth of Islamic fundamentalism. Much of this new fighting force would return to the Middle East and they would hold onto the weapons – notably the AK-47s, Rocket Propelled Grenade (RPGs) and Stinger anti-aircraft missiles – with which the CIA had supplied them. Before too long, this fighting force would turn against a new infidel – its old benefactor, the United States.

While the Soviets were suffering a slow Vietnam-style humiliation in Afghanistan, the Reagan administration continued to look after its interests in the Middle East. The US still maintained its good relations with Saudi Arabia but it was also eager to support the avowed enemy of its avowed enemy, Iran. His name was Saddam Hussein and to the US, his secular strongman regime in Iraq was a refreshing and stable counterpoint to the Islamic crazies next door in Tehran.

The Reagan administration dallied with Saddam Hussein for nearly three years, but by then, the Middle East had been replaced in importance by the administration’s anti-communist campaigns in Europe and Central America. One reason for this was that OPEC members had undercut themselves by over-producing oil and world prices had plummeted. The major consuming nations, meanwhile, began to cut their dependence on the Middle East by consuming less oil and turning to  new oil sources from the North Sea, Alaska and Africa.

Not that Middle East oil could be ignored. In the late summer of 1990 Saddam Hussein once again delivered a shock to the world energy status quo when he invaded Kuwait in a grab for that nation’s oil fields. Many observers believed the US had not done enough to dampen Hussein’s territorial ambitions in the months leading up to the invasion, but once Iraq attacked, President George Bush moved quickly to assemble an international coalition to repulse Iraq. The coalition was formed in the name of restoring Kuwaiti sovereignty but no-one was in any doubt that the security of Middle East oil was the real concern.

Saudi Arabia was particularly worried about Saddam Hussein and it allowed US forces to set up staging bases on Saudi soil for a war against Iraq. The efficiency of the US deployment showed just how closely the two old allies understood each other. Since the Soviet threat a decade earlier, Saudi Arabia had built vast underground warehouses where US weapons and materiel could be stored as well as enormous aircraft hangers just in case the US needed to fly in.

The coalition forces were successful in expelling Iraq from Kuwait but the US left large numbers of troops in Saudi Arabia after the war to deter further Iraqi aggression and to guarantee the security of world oil. In doing so, the US once again stirred Arab resentment of the West and its historic meddling in the Middle East. Muslim anger at US forces staying in the land of Islam’s most sacred sites only grew with the return of thousands of well-armed fundamentalist Mujahadeen from Afghanistan. One such religious warrior was the Saudi billionaire Osama Bin Laden. He declared a holy war on the US for defiling Islam and for its continued support of Israel. As part of his new jihad, Bin Laden would target US interests in Saudi Arabia and Africa. Then, on September 11, 2001 he brought his holy war home to America.  Fifteen of the attackers that day came from America’s longtime oil ally, Saudi Arabia.

US forces have pulled out of Saudi Arabia but they now find themselves an occupying force next door in Iraq. The second Gulf War that drove Saddam Hussein out of power in March 2003 once again placed the United States front and center in the complicated world of Middle East affairs. It is a region that will only grow in importance as the world’s dependence on oil grows. And that means US forces will remain in the Middle East for a long time to come.

Glut and Cut

By the early 1960s, there was far more oil available on the world market than even the multiplying demand for automobiles and passenger jets could sustain. Compounding this glut, the Soviet Union had restored its oil fields to near full production and was aggressively selling on the world market. The major companies were forced to discount the price at which they sold their Mid-East oil, but they still had to pay the producing nations the official price for crude oil they’d set under the 50/50 agreements. This meant the companies had to discount their oil at the pump and were only receiving 40 or even 30 percent of the profits.  They were, however, still making a handsome profit thanks to a clandestine scam worked out with the US state department that allowed the companies to deduct the extra money they paid the producing nations as losses on their US corporate tax bill.

Still, they were not prepared to absorb the depressed oil prices alone. In 1959, BP unilaterally cut the posted price of oil by 10 percent outraging the oil exporters. Two men in particular – Juan Pablo Perez Alfonso of Venezuela and Saudi oil minister Abdullah Tariki - began planning a new oil producers cartel that would stand up to the Seven Sisters. Then, in 1960, Exxon cut the posted price of oil once again, forcing all the other majors to follow suit. This cut into the national economies of the oil producing nations all of whom depended on their oil profits for the bulk of national revenue. Within a month, Alfonso and Tariki convened the major exporting countries – Saudi Arabia, Venezuela, Kuwait, Iran, and Iraq – and they agreed to establish a new organization to protect their interests. It would be called the Organization of Petroleum Exporting Countries, OPEC for short, and it would maintain the price that the producing nations wanted on the global market.

The oil companies realized they’d made a big mistake but it was still hard for them to believe that this new organization could have any real clout. For the next decade, the seven major companies paid lip service to OPEC while also undermining it by cutting deals with individual member nations.

Still, OPEC’s potential and the West’s growing dependence on Middle East oil worried the Western powers. Global demand for oil was finally catching up with supply and by 1970, the production glut was over. Unfortunately for the US, this rise in demand came just as US domestic production peaked reached 11.3 million barrels a day. Never again would it be so productive, and the nation that had come to take cheap oil for granted would from this point on be dependent on foreign oil to meet its needs. The US could no longer count on the security surplus of oil it had maintained for over 50 years. Though it didn’t know it yet, America had discovered its Achilles heel.

By the start of the 1970s, the oil producing powers could see it was their oil, not that of the United States, that mattered most to the world economy. There had been a 21 million barrel increase in demand for oil in the non-Soviet world since 1960 and two thirds of that demand was being met by the Middle East.

Just as the world’s oil consumers were dependent on Middle East oil, so were the major oil companies. And that gave OPEC great power whenever it chose to use it.

OPEC’s first thrust was spearheaded by Libya.  Under the aggressive tack of a new dictator, Colonel Muammar Qadaffi, threatened to nationalize all of its oil fields unless foreign companies improved upon the 50/50 split. Libyan oil was crucial to the economies of Western Europe – it was easily refined into gasoline and had cheaper transportation costs than Persian Gulf oil - and the companies took his threats very seriously. As soon as Qadaffi upped the old 50/50 deal to 55 percent in Libya’s favor, Iran demanded a similar deal. Knowing they’d have to offer the same deal to the other Gulf states, the companies agreed to a 55/45 split in the exporters favor in 1971 along with a 35 cents increase in the posted price of crude oil to be renewed annually.

It didn’t last. Within two months, Libya had strong-armed the companies into another price increase and the new agreement would be whittled away by the exporting nations over the next two years.

By 1973, the market price for crude oil had doubled from its 1970 level. But if the Mid-East producers were making more money, so were the oil companies. OPEC had intended to reduce the companies’ take and redress the balance towards the producing nations, not increase it. Now in October 1973, OPEC announced its intention to set new prices without consulting with Big Oil. The new prices would reflect the desires of the Middle East, not America, Japan or Europe. As Saudi oil minister Sheik Ahmed Yamani declared in the fall of 1973, “The moment has come. We are masters of our own commodity.”

Triple Shock

Just as OPEC ministers were convening to discuss new prices, Egypt and Syria, supported by the Soviet Union, launched a surprise attack on Israel, the start of the Yom Kippur War. Israel, in danger of being overwhelmed, called on the US for help. And when the US military first flew in supplies to its ally (albeit reluctantly) and then okayed a $2.2. billion military aid package for Israel, the Arab nations reacted with indignation.

First, OPEC raised the posted price of oil by 70 percent, bringing it up to $5.11 a barrel, the same price it was currently trading on a now very jittery spot market. Then Saudi Arabia announced its intention to cut off all oil exports to any nation that supported Israel.  The other Arab states all did the same.

In the past, the US might have shrugged off this oil blackmail, confident that its powerful Texas, Oklahoma and California oil fields would simply ramp up production to meet the fall in supply. But those days were over. Saudi Arabia was now the only nation with enough excess producing capacity to act as the “swing” producer – upping production to match a shortfall elsewhere in the world. And Saudi Arabia was the one causing the shortfall.

The embargo, combined with OPEC’s price hike, caused panic around the world. By November, oil prices had jumped from $5 to $16 a barrel. At the time, the Nixon administration was so distraught over the embargo that it drew up plans to send troops to the Middle East to seize oil fields in Saudi Arabia, Kuwait and Oman. According to British intelligence documents, the US contemplated holding onto the oil fields for up to 10 years in order to maintain its energy security.

In the end, the Arab states lifted the embargo on Western Europe after those countries pledged their support for the Arab position but waited until the spring of 1974 to resume shipments to the US. OPEC had shown that the Arab states now controlled oil prices and now the main Middle East members began nationalizing their oil industries. The Seven Sisters found themselves frozen out of Saudi Arabia, Iraq and, with the 1978 overthrow of the Shah, Iran as well.

The Ford administration took immediate action. In 1975, it established the Strategic Petroleum Reserve, an emergency stockpile of up to 1 billion barrels of oil that would be stored in empty salt caverns underneath the Texas and Louisiana coast and could be accessed in times of an energy emergency. Today the reserve holds nearly 700 million barrels of oil – just over one month’s supply of America’s total daily oil consumption. The same year, Congress passed the Energy Policy and Conservation Act establishing the first ever fuel economy standards for US cars and trucks.

In 1978, western consumers suffered a second oil shock when the Shah of Iran was toppled by the Islamic revolution of Ayatollah Khomeini. In the process, the US embassy in Tehran was stormed, 50 hostages taken and all foreign oil companies were thrown out of Iran. This time, Saudi Arabia upped its own production to meet the shortfall but panic once again gripped the world oil markets. Crude oil prices shot up to over $30 a barrel.

Just when it looked like things couldn’t get worse, the Iraq regime of Saddam Hussein invaded Iran in 1980, sparking a war involving two of the world’s most important oil producers and triggering the third oil shock. Crude prices went over $30 a barrel once again.

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 Age of Energy

The war in Europe had only been over for a few months when first President Roosevelt traveled to meet a world leader he might not have given the time of day to just a few years before - Saudi King Ibn Saud. There is no official record of what Roosevelt and the Saudi king discussed, but a number of accounts assert the US president promised to guarantee Saudi national security (not least from Great Britain whose imperial traits Ibn Saud had a particular dislike for) in return for continued and preferential access to Saudi oil. The potential prize was huge – in 1939, Standard Oil of California along with Texaco had struck Saudi oil. The companies had agreed a 60 year concession with Ibn Saud covering 440,000 miles, one sixth of the continental US. Now, geologists at the newly formed Saudi-American Oil Compnay, Aramco, confirmed there was more oil underneath the Saudi sands than in the whole of the United States.

The US and Saudi Arabia had good reason to be concerned. The world was divided into two camps and Middle East oil was caught in a superpower struggle between the US and the Soviet Union. As Daniel Yergin describes in The Prize, his sweeping history of the oil industry, the US believed that “The Middle Eastern oil fields had to be preserved and protected on the Western side of the Iron Curtain to assure the economic survival of the entire Western world.”

In 1940, America had accounted for two thirds of all global oil production. But the immediate post-war years saw an enormous growth in world oil demand and, while the US could still meet most of its own domestic demand, Saudi oil soon became an important part of the Marshall Plan to bail out Western Europe. US president Harry S. Truman wrote to the Ibn Saud in 1948, “No threat to your Kingdom could occur that would not be a matter of immediate concern to the United States.”

Socal and Texaco had won the right to develop Saudi Arabia’s oil industry but they quickly realized that the task was so immense that they needed outside help.  The companies that Socal and Texaco reached out to were Exxon and Mobil.

The entry of Exxon and Mobil into Saudi Aramco signaled the end of the Red Line Agreement but it also allowed all the US and European majors to put aside their rivalries and protect their mutual interests in the Middle East. United, they could shut out other oil companies from lucrative contracts and also control Middle East oil output. So successful were they in this strategy that they earned themselves the enmity of other independent companies. They also picked up a sardonic nickname to describe their cozy realtionship, the Seven Sisters. Through the multi-decade sweetheart deals signed in Iraq, Iran and Saudi Arabia the Sisters (Exxon, Mobil, Shell, BP, Texaco, Socal and Gulf) would transform themselves into the greatest multinationals in the world. For a time, they would be more powerful than the countries whose oil fields they were drilling.

The US government let the four Aramco members act as de facto US ambassadors to Saudi Arabia, not least because the US government was a strong supporter of the new state of Israel, a position the anti-Zionist Saudi King abhorred. Despite their disagreements over Israel, both the US and Saudi found common cause in a greater concern: the Soviet Union’s own territorial ambitions in the region. And this wedded US foreign policy even more closely to the business needs of the major oil companies. So while back in the states, the companies were fighting tooth and nail against the government over new antitrust and price fixing charges, abroad they were America’s eyes and ears in what was becoming the most influential region of the world.  This blurring of business and diplomacy suited both parties: the oil companies had been negotiating deals in the Middle East since the 1920s and they understood the workings of the region better than the US state department. The companies’ close ties to the US government also enhanced their standing with Middle East governments. Before long though, the perception that the majors were doing Washington’s bidding would come back to haunt them.

The prospectors who descended on Pennsylvania’s Western hills in the months following Drake’s 1859 discovery of “rock oil” had no idea of oil’s true potential. They didn’t know that oil would dictate the fortunes of millions of people for the next 150 years. They didn’t know that the pursuit of oil would push great nations into war and they didn’t know that their initial wildcatting would propel the United States to become the most important nation on earth. All that mattered at the time was that there was a fortune to be made. Kerosene lamps were already being celebrated as “the new light” in cities up the Eastern coast and Pennsylvania oil promised a new abundant source.

Thousands of people – many of them Civil War veterans - flocked to stake a claim in the new oil regions. In January 1861, barely a year after Drake’s initial discovery, the price of a barrel of oil hit $10 (Drake had collected the first oil in whiskey barrels and the 42 gallon measure has remained the industry standard ever since). By the end of the year, however, as more and more wells were stuck and prospectors frantically offloaded their oil, the new pioneers came to realize just how fickle their fortune could be. Prices dropped to 10 cents a barrel and the oil industry confronted what would be the first of many gluts in its history.

Yet out of the Oil Regions’ chaos came order and control in the figure of John D. Rockefeller, owner of a small refinery in Cleveland Ohio. Rockefeller observed how the hundreds of Pennsylvania drillers were bidding against each other and so were driving down the cost of oil. Rockefeller realized the essence of making money in this new volatile industry lay not in producing oil but in controlling the transport and sale of oil’s refined products.

Though only 26 years old, Rockefeller bought out his refinery partners and started building up a strong cash position. This liquidity gave him the leverage he needed to buyout competing refineries when the next production glut sent oil prices plummeting and cut revenues for both producers and refiners.

Rockefeller soon began undercutting his rivals by persuading the railroads that carried the oil out of the Oil Regions to give him secret rebates on his shipments based on the volume of his business. By 1870, Rockefeller was able to establish a joint-stock company named the Standard Oil Company. After just seven years in the business, this company controlled one tenth of the US oil industry.

Standard Oil’s business methods were ruthless. The company tried to squeeze many competitors out of business by deliberately cutting its prices in one market, knowing all the time that with its superior cash reserves it could hold out until competitors folded. When Rockefeller bought these companies, he would keep the transactions secret so that his other competitors would not know which companies were owned by Standard and working against them.

By 1883, Standard was laying the foundations for what we now know as the vertically integrated company and the modern multinational. He owned refineries and the new pipelines that were transforming the transportation of oil. He had bought up oil fields. And he was opening up new markets for his products on the East Coast and Europe.

In 1906, following years of investigations and a series of damning newspaper and magazine articles on Standard’s predatory practices, the US government brought a massive lawsuit against the company under the statute of the 1890 Sherman anti-trust act. By now, Standard had recorded over a billion dollars profit since its inception 25 years before. The case dragged on for five years and Standard argued it all the way up the Supreme Court. But in May 1911, Chief Justice Edward White declared Standard Oil a monopoly and ordered that it must divest itself of all its subsidiaries.

By the end of the year, Standard had been split into 34 companies. The break-up destroyed Standard’s singular stranglehold on the oil industry but it didn’t destroy the strength of the Standard brand. On the contrary, Standard’s model was so strong and the US oil industry so vibrant that a number of the new mini-me Standard clones soon emulated Standard’s success. Three in particular, Standard Oil of New Jersey (later to be known as Exxon), Standard Oil of New York (Socony and later Mobil) and Standard Oil of California (Socal, later Chevron) quickly became global powers in their own right.

No nation uses more oil than the United States. The U.S. uses a full quarter of all the oil produced in the world. And even though it produces nearly eight million barrels of oil a day, it must import a further 12 million barrels just to meet its daily needs. Yet despite this amazing discrepancy, we still take oil for granted.

How could it be that a people whose way of live is so dependent on oil could be so naive in how we use it? The more I thought about it, the more I began to realize that America’s oil addiction runs deeper than a love for big cars and the open road.

Oil, I believe, has etched an indelible yet invisible mark on the modern American psyche. After all, America the birthplace of the oil industry. Cheap, plentiful supplies of U.S. oil propelled the United States to victory in two World Wars. Oil fed the post-World War II consumer boom that established a consumption-crazy Middle Class. And the oil industry helped spawn another industrial giant, the automobile industry. At every step of the way, oil has provided a blueprint for modern American life that the rest of the world eagerly copied. Americans, for their part, have embraced the spirit of self-confidence and invincibility that grew from knowing they controlled their own oil destiny. And that spirit continues today, even though America has long depended on others for oil.

One weekend last summer, I took a drive from New York to the rolling hills of Western Pennsylvania. I wanted to visit the birthplace of the oil industry. I wanted to see where the roots of modern life began. And I wanted to capture a bit of the old oil spirit.

Six hours west of New York, I pulled off Interstate 80 and headed north following the Allegheny River as it winds its way through some of Pennsylvania’s most rugged and beautiful countryside. Climbing up through the hills, I came to the small town of Oil City, its impressive late 19th century stone buildings a proud reminder of the time when this rural patch of Pennsylvania was the very heart of the world oil industry.

Oil City was once the most important boom town of what became known as Pennsylvania’s Oil Regions, a heart of oil exploration that sent crude oil north by rail to refineries in Cleveland, Ohio. In the early 1860s, 2,000 oil wells dotted the land around the town and the entire area resembled an oil derrick pin cushion. For a short time, Oil City was as famous as Houston.

In 1857, a small group of New Haven, Connecticut investors founded the Pennsylvania Rock Oil Company to tap into a flammable substance that seeped from the earth around the hills in this part of Pennsylvania. “Rock oil” was being used by the locals to clear headaches, toothaches and even upset stomachs.

The investors were interested for another reason. Global supplies of the whale oil that had long been burned in lamps were dwindling as sperm whales had been hunted to the point of extinction. Meanwhile, in Europe, a new process was being employed to dig this rock oil out of the ground by hand so that the stuff could be refined to make a new illuminant, kerosene.

The Pennsylvania Rock Oil Company had a better idea for extracting oil - it would drill for it using the same techniques already used at salt wells around the country. The man the investors chose to lead this venture was Edwin Drake. The 38-year-old jack of all trades was “between jobs” at the time, but he happened to be living in the same hotel as one of the main investors. The company decided on him partly because he portrayed himself as a can-do type of guy and partly because, as a railroad conductor, he could travel to Pennsylvania for free.

To bolster Drake’s credibility in Pennsylvania, the company sent letters ahead of his arrival addressed to “Colonel” E.L. Drake. The title stuck and, in 1858, the Colonel began drilling a few miles south of the little hamlet of Titusville, some fifteen miles north of Oil City. on a farm that contained a seeping oil spring. For over six months he had dug deep but dug dry. He was still searching for oil and had exhausted all the funds of the investors when, out of desperation, they mailed him instructions to abandon the operation. But the letter didn’t reach Drake until after he had tried one final well. This time, the drill bit sank 69 feet into the ground – then slid six inches more. Drake had hit oil and the industry that would change the world was born.

Soon thousands of prospectors – many of them returning from the Civil War - were flocking to the area around Titusville in search of their fortune. No place better epitomized the Oil Region’s frenzy of speculation than the town of Pithole, a few miles south of Drake’s first discovery in Titusville. At its peak in 1865, Pithole had 10,000 inhabitants, 50 hotels, two telegraph offices, and a post office that was said to be the third busiest in the United States. It was also a haven of prostitution packed with 50 “free and easy” brothels.

But Pennsylvania’s dominance was short-lived. Within a year Pithole was gone. The oil fields had been pumped too quickly by the prospectors, and once abandoned, Pithole’s wooden buildings burned to the ground in a fire. Soon, bigger and better oil fields were discovered in Texas, California and Oklahoma, then farther afield in Russia, Mexico and Venezuela and eventually, in the desert lands of the Persian Gulf. In the process, big oil companies – most of them American – would ride the booms and the busts and grow so rich that they often became more powerful than the countries where they drilled for oil.

Pennsylvania’s oil boom crashed almost as quickly as it began. But, in the 1920s, Oil City received a second lease on life when a company named Pennzoil relaunched the town’s oil business. Oil City became a company town – its livelihood totally dependent on Pennzoil’s business. Then, in 1995, the company pulled the plug on Oil City and moved to Texas where production costs were cheaper. Today, as you walk down the once vibrant Petroleum Street, you can’t help but notice that most of the stores have been replaced by boarded-up buildings. Even the town’s central landmark – the Oil City Savings Bank - now opens only for a weekend flea market. “This town used to be full of nice shops and boutiques,” said the owner of the Yellow Dog Lantern restaurant when I stopped by for dinner. “Now there is nothing left.”

Oil City discovered the perils of building a society that is totally dependent on oil. It is a lesson that America as a whole has yet to learn. Yet Pennsylvania’s problem wasn’t that it ran out of oil. There are still some 4,000 active small oil wells across the state. No, Pennsylvania’s problem, one that Oil City was able to delay, was that it could no longer compete against newer, cheaper sources of oil from other parts of America and the world. Oil fields rarely run dry, but as they get older - or grow more mature, as the oil industry calls it - the oil becomes more expensive to produce.

It wasn’t until the 1970s that the U.S. first realized it had an Achilles heel. The 1973 Arab oil embargo, coupled with a series of price hikes by the Organization of Petroleum Exporting Countries (OPEC), shocked the U.S. into realizing that its oil dependency had become a seriousness weakness.

Yet since that time, oil production in America has fallen rapidly. US oil fields in the lower 48 states are 25 percent less productive today than they were in 1985. And since 1990, proven oil reserves have dropped 20 percent. Unable to meet its own needs, and wary of being burned once more by OPEC, the US has made a concerted effort to spread its oil imports across a large number of producing countries. Winston Churchill once said that oil “security exists in variety and variety alone” and this has been the mantra of US governments since the end of the 1970s.

The US presently gets just 25 percent of its imported oil from the Middle East, and it has cultivated important relationships with Canada, Mexico and Russia as well as other producing nations in Latin America and Africa. Europe and Japan, with little oil of their own to draw upon, have also sought to diversify their oil imports, though they still rely more on Middle East oil than the US does.

But despite this emphasis on diversity, everyone associated with the oil business knows that the future of oil will be decided by one region, the Middle East. For all the new technology and all the financial resources that oil companies can call upon to find and drill oil around the world, the Middle East has not just the most abundant and deepest reserves of oil in the world but also the oil that is cheapest to produce. As the lessons of Pennsylvania’s oil regions show, it is only a matter of time before the rest of the world’s oil becomes uncompetitive compared to that of the Middle East. When that happens, Saudi Arabia, Iran and Iraq will be able to set their price.

* * *

For as long as we are dependent on oil, we will face a triple threat.

The first part of the threat is economic – As the balance of power once more shifts to the Middle East, America’s oil dependency is likely to leave the nation once again at the mercy of OPEC. At that point, oil prices are likely to start rising and that could threaten the jobs of millions of Americans and ultimately undermine the economic well-being of the country.

The second is geopolitical – the United States must protect its oil interests all over the world. That forces the US to get directly involved in those regions where oil is abundant, regions where the very power and allure of oil wealth breeds instability. The end result is that the US supports a host of corrupt autocratic regimes solely because they have oil. At the very least, this fosters anti-American sentiment. At its worst, America’s oil addiction has caused US governments to plot the overthrow of other countries’ governments. Increasingly, the US is shaping a military policy based on protecting strategic oil resources around the world.

Finally, oil dependence is sowing the seeds of a global environmental tragedy. Even if the US could produce enough oil to meet its own needs, or could solve all the problems of the Middle East, the rapidly growing demand for oil throughout the world will result in the large-scale release of greenhouse gases like carbon dioxide into the atmosphere. Global warming – an assault on the earth’s atmosphere the scale of which no one in the world’s scientific community can yet fully comprehend - could ultimately destroy the very planet that sustains us.

So is all lost? Should we just give up now, buy Hummers and drive off into the brightly glowing and rapidly warming sunset? Hardly. Our dependence on oil grew over just 150 years. That’s a mere speck in time in the history of our world and it is also the best indicator that our addiction may also be fleeting. Oil replaced our reliance on more polluting fossil fuels like wood and later coal. Now, having appreciated both the achievements of oil and also its risks, we can move to a new energy strategy that would both sustain us and protect us in decades to come. With global demand for oil likely to double by 2030, the time has come to develop a new fuel strategy that reduces the threat of global warming and eases the power struggles that threaten our security.

This strategy should be realized in three stages. First, we in America should reduce the amount of oil we consume by implementing new fuel economy standards for our automobiles. Next we should adopt a new generation of gasoline-and-electric-hybrid vehicles that can provide a bridge between the internal combustion engine and new, non-polluting forms of transportation. Finally, we should put our resources behind an aggressive plan to make hydrogen the fuel that powers our automobiles. Most important of all, this hydrogen needs be produced using non-polluting, renewable energy forms like solar, wind or hydro-electric power.

* * *

I’d been writing stories about oil for nearly a decade before I fully began to appreciate its power. At first, I viewed oil as just another big industry, albeit one ruled by some of the largest multinational companies on earth. But over time I started to realize that oil was a lot more important than just a business.

The main reason that it took me so long to appreciate the power of oil was because it flowed so deeply through my life. This was the industry that had built those super-cool supertankers that mesmerized me as a child growing up on the coast of Wales, and the same industry whose gas stations gave away coin collections commemorating all my favorite English soccer teams. For a while, my family even made special trips to one Esso gas station to collect free drinking glasses (I think my mother is still using them.) As a teenager, I was taught how North Sea oil was the lifeblood for a British economy that was sinking otherwise into a pit of moribund industry. And on my first visit at age 15 to the U.S. I fell in love with American cars and car culture. Life in America seemed so fast so supercharged compared to back home and it left an indelible mark on my teenage mind – so much so that I would later settle in New York.

At the same time, this was the industry that was responsible for an oil spill that wrecked the coast near my home. It was the industry that flooded Alaska’s Prince Edward Sound with millions of barrels of oil from the Exxon Valdez within months of my arrival in the US. Later, I would see the full extent of oil pollution and destruction when I traveled the fringes of the Amazon rainforest and met whole communities whose lives had been ruined by oil.

These contradictions had filtered through my brain for years as I followed the oil industry from afar, but it wasn’t until the months immediately following the September 11, 2001, terrorist attacks on New York and Washington D.C. that I started to consider the larger role of oil in our global society.

I started to notice how so many of the stories I read each morning in the newspaper were connected to oil. There were the obvious ties between Osama Bin Laden’s anti-US jihad and America’s military presence in Saudi Arabia – a hangover of the Gulf War and US commitment to protect Middle East oil supplies. And there was the increasing military deployment of US forces in the countries that surround the oil-rich Caspian Sea. Then there were the environmental and energy policies of the Bush administration, which sought to pump new life into America’s domestic oil industry while rejecting the environmental controls that the rest of the world seemed to agree could combat global warming.

And then there was Iraq and the US government’s bellicose drive to overthrow Saddam Hussein. Opponents of the Bush administration inside the US and all over the world were convinced this was a war over oil. At the same time, both the US and the UK government of Tony Blair were adamant that oil played no role in the push to putsch Saddam.

The Bush administration’s pre-emptive war seemed both preposterous and crass even without the benefit of hindsight that we now enjoy. But I couldn’t buy the No Blood for Oil argument. The U.S. had spent the last 20 years cultivating relationships with other producing nations and it didn’t have to invade Iraq just to satisfy its own oil needs. However, I was convinced that oil played some crucial role in the geopolitical maelstrom surrounding Iraq that neither the pro- nor anti-war crowd was addressing.

That was when I decided to undertake this journey through the world of oil. The purpose of the journey was simple – to understand and explain in straightforward terms the ways that oil has come to control our lives.

From the moment we wake in the morning to the moment we go to sleep, oil controls our lives. Its influence reaches far into politics, international affairs, global economies, human rights and the environmental health of our planet.

The most obvious way that oil dominates us, of course, is transportation. Oil powers 97 percent of America’s transportation needs and over half the oil we consume daily goes to keeping our cars and trucks on the road. That’s one barrel out of every seven used in the world. Not surprisingly, the United States has more automobiles than any other country; in fact, it has more cars and trucks than it has people.

But oil is far more important to modern society than simply as fuel for our automobiles and airplanes. Oil provides heat in the winter for millions of American homes and it accounts for 40 percent of our total energy needs. Without oil there would be no plastics, nor many of the chemical-based medicines we take for granted. Perhaps most important, America would go hungry without oil: commercial agriculture would grind to a halt without oil to run farm and food processing machinery or to make fertilizers, herbicides and pesticides.

To better understand oil’s impact on our lives, I devised a little experiment. I would spend a day without oil. How hard could that be? After all, I live in Brooklyn so I’d already won half the battle; I’d leave the car parked on the street and hope I didn’t pick up a parking ticket.

I began in the bathroom. I’d have to carry off the rough and ready look this morning as petroleum products play a role in my shampoo, shaving cream and deodorant. There was also going to be a lot of water to clear up – my shower-curtain is also an oil product.

Brushing my teeth became a far-less appealing experience without the benefit of toothpaste, whose ingredients include petrochemical-enhanced artificial coloring and mineral oils. (But at least I still had my own teeth. If I’d worn petroleum-based dentures, I’d be gumming my way through this particular day.)

As it was, I was going to have to make do with only limited vision as both my contact lenses and plastic lens eyeglasses came from petrochemicals. And I’d have to skip putting on lip balm; that’s petroleum oil. Worse still, I’d have to dress my six-month-old son in cloth diapers instead of the normal disposable ones. (What a day to have made the switch to solid food!)

Next came the problem of what to wear. Typically, I live in sneakers but not today – I had to search out an old pair of non-rubber soled leather shoes. It was raining outside but I had to forgo any waterproof outerwear. Goretex, it turns out, is yet another genius invention of the petrochemical industry.

I left my house and immediately encountered another problem. All New York streets are paved with asphalt, the sticky byproduct that remains after refining crude oil to extract its more lucrative properties, like gasoline and heating oil. Lacking powers of levitation, and with not an inch of grass in sight, I had to admit defeat on this point. I traipsed slightly forlorn to my neighborhood café for breakfast. Eggs and coffee came courtesy of a non-stick pan and a heat-resistant glass pot – products of the petrochemical industry. Defeated again. At least I could pay in cash. All credit and debit cards are oil products.

On my return home, I realized this wasn’t going to be the most productive day of my working life because I couldn’t use the computer or telephone, both of which depend on oil-based plastics to function. Neither could I kick back and listen to music or watch a movie - CDs and DVDs also contain oil. Perhaps then I could just go and play a round of golf? Stuck again: golf balls contain polybutadiene, another petrochemical.

The list of off-limit items continued. Bandages, blenders, garbage bags, glue, pacemakers and pantyhose (the latter two not being items I needed on this particular day) all got their start as oil. This whole day-without-oil thing was beginning to give me a headache. Perhaps I should just take a few aspirin and forget about the whole thing. You guessed it: Aspirin is another proud legacy of oil.

With Israel on the attack and tensions and violence rising across the Middle East, I thought it might be a good time to start putting the history and geopolitics chapters of Oil: Anatomy of an Industry online.

War in the Middle East is the nightmare scenario of all world powers - even though, given the wealth of energy resouces in the region, war seems an inevitability at some time.

Over the last 70 years, the major Western powers have worked overtime to dictate influence in the region. Today, more than ever, the fear of the US, Europe, Russia and China is that events escalating at a pace that will be difficult to control.
I’ll be splitting the chapters into a series of blog posts so that no one post is too unwieldly. Keep checking back or subscribe to the RSS feed for new installments of the book as I post them.