Petroleum & International Relationships in 1945-2001

Introduction

Petroleum is otherwise referred to as crude oil. It is a naturally occurring flammable and toxic liquid substance with high economic value1. Petroleum processing starts from exploration2 to hauling3. In terms of output, the largest oil products are the gasoline or petrol and fuel oil. It is also important to state that petroleum is also used as a vital raw material for numerous chemical products which entail pesticides, plastics, fertilizers, solvents and pharmaceuticals amongst others4. The petroleum industry is subdivided into three sections: these are upstream, midstream and finally downstream5. The value and importance of petroleum is a major concern for many nations; in relation to this, it is acknowledged that oil accounts for a very large portion of the world’s consumption of energy. Petroleum and petroleum products, due to their strategic importance to every industry, has great and significant effects to the global economy; they drive and determine the economic operations especially between the period running from 1945 to 2001.

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Petroleum occurs naturally as liquid found within rock formations. It is consisted of a composite jumble of hydrocarbons of contrasting molecular mass besides other macrobiotic compounds6. The use of oil started over 5000 years ago when early man used it to keep fire ablaze in order to provide warmth7. Since then, the use of oil has become increasingly common in the running of automobiles, factory machines and generation of electric power8.

International economic and political causes relating to petroleum between the periods of 1945 to 2001

There are lots of international political and economic issues that relate to petroleum and petroleum products9. Petroleum has been playing major economic, social and political roles in the history of the world10. Since the advent of oil as the main source of energy, the worlds as a whole faced major crisis resulting from social utilization of petroleum products and political turmoil mostly in petroleum producing nations11. Even though the alternative energy sources are being sought to replace petroleum, it is of significance to recognize the fact the major world nations have become overly reliant on petroleum as the major source of energy that influenced past and will continue to influence present and future economic, political and social aspects of their operations12. Politically, oil has played a key part in influential the worldwide phase of diplomacy since the rise of oil industry in the 20th century13. As the rivalry for the limited but very critical resource, most of the world’s nations have realigned their tactical controls on the emphases of pumping, refining and haulage of petroleum and petroleum products14.

Since the advent of oil in the oil producing nations during this period, the oil producing nations have strengthened their political autonomy as the Western nations some times helped them reinforce their autonomy due to their interest oil. This was especially witnessed in times of war when Western and European nations supported certain oil producing nations against common enemies. Economically, most nations rely heavily on oil since their industrial operations depend greatly on oil. Due to this, such nations had become economically reliant on oil producing nations.

The petroleum development deal in Saudi Arabia led by the Aramco oil company

Aramco Oil Company is a state owned company that has been involved in many petroleum deals undertaken both at local and international level15. It is ranked the biggest oil firm found in the globe16 with the largest reservoir17. This scenario has given the company a vital position of influence in the global petroleum industry. Saudi Arabia, through Aramco has established a lot of diplomatic links with major nations of the world due to its strategic oil position, especially with reference to the United States of American18. In 1960, Saudi Arabia through Aramco (in union with (petroleum) producing nations like Kuwait) formed OPEC, an organization for oil producing nations19. The membership to the organization later increased when it was joined by other oil producing nations like Qatar, United Arab Emirates, Libya, Indonesia, Nigeria and Indonesia. The major objective of founding OPEC was to regulate petroleum productions and regulation of oil prices amongst member states20.

Moreover, Saudi Arabia also participated in the formation of Gulf Cooperation Council whose who membership also included oil producing states like Bahrain, Oman, Kuwait, United Arab Emirates and Qatar21. The Saudi Aramco exports more than half of its crude oil products; some of the exports are transported to the Far East22; the United States of America gets a substantial amount of petroleum products from Saudi Aramco23. The Saudi state owned company ships a very significant amount of petroleum and petroleum products around the world; it is probably the major world supplier of oil and oil products around the world24.

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It is important to note that political activities, including wars in the world have depended so much on oil and its products. war planes and ships have utilized oil for a great deal during preparation for war, at the time and after the wars. Countries that produce oil have formed economic and political blocks that enable them exploit the global political and diplomatic opportunities and hence increase their bargaining power in the global political and economic activities. For instance, for the period between 1945 and 2001 the oil producing nations have strengthened their bargains, especially after the 9/11 that subsequently led the United States and its global allies invade Iraq and Afghanistan; the period that began after the 2nd World War was a defining moments for the global economic, political and diplomatic activities; several western nations with interest in oil started realigning themselves with some oil producing nations and even went a far as having certain specific trade-offs to achieve mutual benefit.

Post war petroleum deal by Gulf Oil, and the “50-50” deal with Shell petroleum

Gulf Oil was a main global oil corporation from the period starting 1900s to 1980s25. It was one of the known Seven Sisters oil corporations; these Seven Sisters companies were Exxon, Chevron, Texaco, Shell, Mobil, BP and Gulf. After the two world wars followed a series of petroleum deals between the Gulf Oil and Shell petroleum; these deals also included the 50-50 deal26.

At the core, four of the seven large oil companies that survived the world wars were still nascent and hence were considered as children of Standard Oil27. The new oil boom that followed would soon send all oil company profits plummeting and gave the Seven Sisters companies unmatched global economic dominance28. These companies were well aware that the cheapest and most accessible oil in the world was concentrated in the Middle East. The governments of oil producing nations in the Middle East clearly became aware of the potential profits that would run into billions of US dollars; due to this, they began to demand for 50% of all the profits made from oil in the year 195029. This came shortly after the end of the Second World War30. Nonetheless, the governments of oil producing nations had no powers to determine the prices of oil, because of this the Seven Sisters set oil prices and determined 50% of their total revenues really meant in terms of payments to the governments of the oil producing nations31. The governments of oil producing nations became uncomfortable with the 50-50 deal32.

Immediately after the war years, Shell faced very challenging situations in its business operations. In 1947, the initial commercially feasible offshore well was eventually drilled in the Mexican Gulf. After two years, Shell extracted its own sub-sea petroleum from there. By the year 1955, Shell had managed a total 300 (offshore wells mostly at the Gulf) by 195533. Moreover, there were also newly ascertained oil wells along the Niger delta and also in Borneo34. Commercial petroleum productions in Niger delta commenced in 195835. After the wars, the return of peace consequently led sudden rise in oil and oil products demands by the civilians especially in the United States where the number of car usage went up by approximately 60 percent during the period running 1945 and 1950. In order to end its slow supply, Shell Oil Company entered into an alliance with the Gulf Oil of the Middle East in which it offered the Gulf Oil a significant stake in the oil producing region36.

Post war oil deals in Iran

In the year 1941, after the invasion of USSR by the Nazi, the British and the forces of the Common Wealth Countries and the Red Army carried an invasion against Iran with a sole mission of securing petroleum; the securing of petroleum was geared towards reinforcing the efforts by Soviet Union against the Nazi on the Eastern Front and anywhere else for the British37. After the world wars, the autonomists within Iran became considerably powerful by seeking a significant reduction in long-standing involvement by the alien forces in Iran38. This was particularly emphasized on the oil concessions which was seen by the nationalists as only beneficial to the Britain at the expense of the Iranians39. As the Britain faced the newly nationalists government officials of Iran, where the Iranian parliament strongly backed the nationalists government to demand for further favorable concessionary agreements so that even Iran could benefit from petroleum and petroleum products transactions in the global market40. However, Britain still wanted to be the primary beneficiary of oil reserve in Iran41. However, this demand went against the fact that the United States international interests, in relation to oil, were actually amongst the beneficiaries of the signed concessionary program that ensued after the nationalization. In view of this, the United States of America rejected the demand by the Britain. This implies that there was a tussle between the United States of America and Britain over the utilization of oil and oil products in Iran giving the notion that despite the fact that Iran produced oil it never had significant influence on the global oil industry4243.

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European energy crisis

The European nations are some of the greatest consumers of oil globally. Oil is mainly used by the developed economies in running their production operations and hence these nations are in great need of continuous supply of petroleum and petroleum products44. Due to certain socio-economic and political factors, the European countries experienced a significant level of energy crises that threatened the collapse of their economies45. However, the energy crises of 1973 came about mostly due to economic and political scenarios that prevailed out of Europe46. In this case, the implication is that the energy crises that hit Europe from the period beginning 1973 arose due to factors external to European countries47. This was attributed to the serious conflict that arose in the Middle East and the involvement of the world’s major superpowers in the conflict48. It is important to note that the crises was most probable because the Western Europe nations was composed of a group of industrial nations that were most vulnerable to the crises related to energy supply both in Europe and to the other world energy market segments49.

Moreover, the energy crises was partly attributed to the fact that from the beginning of the Second World War the Western European countries had run down their coal-mining industries due to the availability of abundant and low cost supplies of petroleum and petroleum products from the Middle East50. The period following the wars witnessed an upsurge in the manufacturing operations. This consequently resulted into an ever high consumption of oil from the Middle East region and near complete dependence on it51. The reduction in both production quantity and escalated prices simultaneously, and given the vulnerability of the countries, threw them into panic52. The over-dependence on oil from the Middle East and also over-dependence on oil as the main source of energy has been the main causes of energy crises in the European nations; if this does not change, it is likely to be the same situation throughout53.

Security issues of petroleum in Middle East and the event of war

It is important to start by pointing out that security in the oil producing Middle East nations have been a subject of great concern since the discoveries of oil in those countries. This is premised on the fact that the Middle East is the region with the largest world’s oil reserves. The region of Middle East is of world’s strategic interest and even powerful nations compete to exert their personal influence on it. With the high competition for oil energy, and given the fact that oil is a non-renewable energy, the future oil production is bound to decline and consequently have negative effects on the global economies54.

The growing movements formed by petroleum producing nations have a deep effect on the global production of oil and its products and also state politics by making significant contributions the instability of the oil producing regions by controlling oil production activities55 which may entail reducing the output and or at the same time increasing prices per unit output5657. The strength of petroleum movement groups during the 1990s period forced oil producing nations58, global corporations and international proponents of oil to realize the global security as an important issue; this is also viewed in terms of global security of oil producing communities besides national and international security concerns of the oil industry and the nation state59. With much concern, the global community is very cautious towards dealing with the oil rich Middle East region; this includes putting strict checks and balances on any form of war or imminent war.

Suez Canal oil crisis

The Suez Canal crisis is also referred to as the Tripartite Aggression. The predicament concerned a war in which three nations (Israel, France, and Britain) invaded Egypt in 195660. This was as a result of Egypt’s to taking over the (Suez)61 and after the US and UK’s refusal to fund (Aswan) Dam completion62; the close ties between China and Egypt might have propagated this63. The Suez Canal had been important in terms of penetrating the African oil market; by nationalizing it, it implies that the Egyptian government would take full control of the Suez Canal giving it an upper hand to determine and control its utilization to its own advantage64. Through the Suez Canal, approximately two thirds of oil to European region was transported65 and its nationalization angered to countries that used the canal for trading purposes including importation of oil and oil products. The Soviet Union threatened to act in aid of Egypt, but due to fears of even a larger war, the United States intervened and the war was stopped66.

OPEC oil crisis

In 1973, the Organization of Petroleum Exporting Countries made an embargo declaration on shipment of petroleum to nations that had rendered their support to Israel during its fight with Egypt67. This embargo exposed the danger faced by the nations for being over-dependent on oil from the OPEC regions or members. Just before the crisis, the United States had taken the cheap oil for granted. The consumption of oil products increased tremendously between 1945 and 1975 and it was clearly evident that the United States had become slave to oil from the OPEC regions68. The effects of the embargo were almost immediate; the retail price of gasoline rose immediately and had ripple effects down to small scale consumers69.

Conclusion

Petroleum is otherwise referred to as crude oil. It is a naturally occurring flammable and toxic liquid substance with high economic value70. Petroleum occurs naturally as liquid found within rock formations71. It is consisted of an intricate mix of hydrocarbons of differing molecular mass besides other macrobiotic composites. There are lots of international political and economic issues that relate to petroleum and petroleum products. Petroleum has been playing major economic, social and political roles in the history of the world. Since the advent of oil as the main source of energy, the worlds as a whole faced major crisis resulting from social utilization of petroleum products and political turmoil mostly in petroleum producing nations72.

Several economic challenges and the perceived exploitation by oil producing nations led to establishment of agreements between the Gulf Oil Company and the Shell Oil Company73. Amongst the agreements was the deal of 50/50 in which profits from oil sale was to be shared on equal basis between the two giant oil companies. Immediately after the war years, Shell faced very challenging situations in its business operations. In 1947, the initial commercially feasible offshore well was eventually drilled in the Mexican Gulf. After two years, Shell extracted its own sub-sea petroleum from there74. By the year 1955, Shell was already possessing approximated 300 offshore wells most of which were located within the Gulf. Moreover, there were also recently exposed oil wells along the Niger delta and also in the regions of Borneo. The global oil industries faced several challenges. These included the nationalization of the Suez Canal by the Egyptian government. Another challenge is the control of oil output and regulation of prices75.

In the year 1941, after the invasion of USSR by the Nazi, the British and the forces of the Common Wealth Countries and the Red Army carried an invasion against Iran with a sole mission of securing petroleum76; the securing of petroleum was geared towards reinforcing the efforts by Soviet Union against the Nazi on the Eastern Front and anywhere else for the British77. The European nations are some of the greatest consumers of oil globally. Oil is mainly used by the developed economies in running their production operations and hence these nations are in great need of continuous supply of petroleum and petroleum products78.

In 1973, the Organization of Petroleum Exporting Countries made an embargo declaration on shipment of petroleum to nations that had rendered their support to Israel during its fight with Egypt. This embargo exposed the danger faced by the nations for being over-dependent on oil from the OPEC regions or members.

The availability of oil in the Middle East has attracted both political enemies and friends; due to this, the oil issue has been used to shape the global political landscape and international economies. It is important to note that during the period between 1945 and 2001, the oil producing nations played a great role in strengthening their bargains against the oil “hungry” Western and European nations.

References

Akita Shigeru, “The International Order of Asia in the 1930s and 1950s,” (2010): 114-127.

Arabian American Oil Company, “Aramco handbook: oil and the Middle East,” (1968): 23-109.

Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.

Bjorlykke Knut, “Petroleum Geology,” (2009): 1-12.

Europa Publications Limited, “The Middle East and North Africa, Volume 50,” (2003): 116-138.

Hoffman W. George, “The European energy challenge: East and West,” (1985): 25-30.

Howard Roger, “Iran oil: the new Middle East challenge to America,” (2007): 159-164.

Klebanoff, Shoshana, “Middle East oil and U.S. foreign policy: with special reference to the U.S. energy crisis,” (1974): 157-159.

Leokum Arkady, “Tell me why,” (2009): 87-107.

Lomborg Bjørn, “The skeptical environmentalist: measuring the real state of the world,” (2002): 120.

Merrill Karen, “The oil crisis of 1973-1974: a brief history with documents,” (2007): 156-164.

Parra Francisco, “Oil politics: a modern history of petroleum,” (2004): 245-357.

Priest Tyler, “The offshore imperative: Shell Oil’s search for petroleum in postwar America,” (2007): 43-67.

Ro’i Yaacov, “From encroachment to involvement: a documentary study of Soviet policy in the Middle East, 1945-1973,” (1974): 1-10.

United Nations Centre for Human Settlements “Effects of energy-conservation policies in the member countries of the Economic Commission for Europe on global energy supply in the long term,” (1991): 50-68.

Footnotes

  1. Bjorlykke Knut, “Petroleum Geology,” (2009): 1-12.
  2. Akita Shigeru, “The International Order of Asia in the 1930s and 1950s,” (2010): 114-127.
  3. Akita Shigeru, “The International Order of Asia in the 1930s and 1950s,” (2010): 114-127.
  4. Akita Shigeru, “The International Order of Asia in the 1930s and 1950s,” (2010): 114-127.
  5. Akita Shigeru, “The International Order of Asia in the 1930s and 1950s,” (2010): 114-127.
  6. Akita Shigeru, “The International Order of Asia in the 1930s and 1950s,” (2010): 114-127.
  7. Akita Shigeru, “The International Order of Asia in the 1930s and 1950s,” (2010): 114-127.
  8. Arabian American Oil Company, “Aramco handbook: oil and the Middle East,” (1968): 23-109
  9. Akita Shigeru, “The International Order of Asia in the 1930s and 1950s,” (2010): 114-127.
  10. Arabian American Oil Company, “Aramco handbook: oil and the Middle East,” (1968): 23-109.
  11. Arabian American Oil Company, “Aramco handbook: oil and the Middle East,” (1968): 23-109.
  12. United Nations Centre for Human Settlements “Effects of energy-conservation policies in the member countries of the Economic Commission for Europe on global energy supply in the long term,” (1991): 50-68.
  13. United Nations Centre for Human Settlements “Effects of energy-conservation policies in the member countries of the Economic Commission for Europe on global energy supply in the long term,” (1991): 50-68.
  14. Arabian American Oil Company, “Aramco handbook: oil and the Middle East,” (1968): 23-109.
  15. Arabian American Oil Company, “Aramco handbook: oil and the Middle East,” (1968): 23-109.
  16. Arabian American Oil Company, “Aramco handbook: oil and the Middle East,” (1968): 23-109.
  17. United Nations Centre for Human Settlements “Effects of energy-conservation policies in the member countries of the Economic Commission for Europe on global energy supply in the long term,” (1991): 50-68.
  18. Arabian American Oil Company, “Aramco handbook: oil and the Middle East,” (1968): 23-109.
  19. Priest Tyler, “The offshore imperative: Shell Oil’s search for petroleum in postwar America,” (2007): 43-67.
  20. Parra Francisco, “Oil politics: a modern history of petroleum,” (2004): 245-357.
  21. Parra Francisco, “Oil politics: a modern history of petroleum,” (2004): 245-357.
  22. Parra Francisco, “Oil politics: a modern history of petroleum,” (2004): 245-357.
  23. Parra Francisco, “Oil politics: a modern history of petroleum,” (2004): 245-357.
  24. Parra Francisco, “Oil politics: a modern history of petroleum,” (2004): 245-357.
  25. Parra Francisco, “Oil politics: a modern history of petroleum,” (2004): 245-357.
  26. Europa Publications Limited, “The Middle East and North Africa, Volume 50,” (2003): 116-138.
  27. Europa Publications Limited, “The Middle East and North Africa, Volume 50,” (2003): 116-138.
  28. Europa Publications Limited, “The Middle East and North Africa, Volume 50,” (2003): 116-138.
  29. Europa Publications Limited, “The Middle East and North Africa, Volume 50,” (2003): 116-138.
  30. Ro’i Yaacov, “From encroachment to involvement: a documentary study of Soviet policy in the Middle East, 1945-1973,” (1974): 1-10.
  31. Ro’i Yaacov, “From encroachment to involvement: a documentary study of Soviet policy in the Middle East, 1945-1973,” (1974): 1-10.
  32. Howard Roger, “Iran oil: the new Middle East challenge to America,” (2007): 159-164.
  33. Ro’i Yaacov, “From encroachment to involvement: a documentary study of Soviet policy in the Middle East, 1945-1973,” (1974): 1-10.
  34. Howard Roger, “Iran oil: the new Middle East challenge to America,” (2007): 159-164.
  35. Howard Roger, “Iran oil: the new Middle East challenge to America,” (2007): 159-164.
  36. Ro’i Yaacov, “From encroachment to involvement: a documentary study of Soviet policy in the Middle East, 1945-1973,” (1974): 1-10.
  37. Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.
  38. Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.
  39. Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.
  40. Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.
  41. Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.
  42. Hoffman W. George, “The European energy challenge: East and West,” (1985): 25-30.
  43. Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.
  44. Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.
  45. Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.
  46. Hoffman W. George, “The European energy challenge: East and West,” (1985): 25-30.
  47. Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.
  48. Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.
  49. Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.
  50. Hoffman W. George, “The European energy challenge: East and West,” (1985): 31-34.
  51. Hoffman W. George, “The European energy challenge: East and West,” (1985): 25-30.
  52. Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.
  53. Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.
  54. Lomborg Bjørn, “The skeptical environmentalist: measuring the real state of the world,” (2002): 120.
  55. Banks Ferdinand, “The political economy of natural gas,” (1987): 75-79.
  56. Klebanoff, Shoshana, “Middle East oil and U.S. foreign policy: with special reference to the U.S. energy crisis,” (1974): 157-159.
  57. Lomborg Bjørn, “The skeptical environmentalist: measuring the real state of the world,” (2002): 120.
  58. Lomborg Bjørn, “The skeptical environmentalist: measuring the real state of the world,” (2002): 120.
  59. Lomborg Bjørn, “The skeptical environmentalist: measuring the real state of the world,” (2002): 120.
  60. Merrill Karen, “The oil crisis of 1973-1974: a brief history with documents,” (2007): 156-164.
  61. Merrill Karen, “The oil crisis of 1973-1974: a brief history with documents,” (2007): 156-164.
  62. Merrill Karen, “The oil crisis of 1973-1974: a brief history with documents,” (2007): 156-164.
  63. Leokum Arkady, “Tell me why,” (2009): 87-107.
  64. Leokum Arkady, “Tell me why,” (2009): 87-107.
  65. Leokum Arkady, “Tell me why,” (2009): 87-107.
  66. Leokum Arkady, “Tell me why,” (2009): 87-107.
  67. Arabian American Oil Company, “Aramco handbook: oil and the Middle East,” (1968): 23-109.
  68. Lomborg Bjørn, “The skeptical environmentalist: measuring the real state of the world,” (2002): 120.
  69. Klebanoff, Shoshana, “Middle East oil and U.S. foreign policy: with special reference to the U.S. energy crisis,” (1974): 157-159.
  70. Klebanoff, Shoshana, “Middle East oil and U.S. foreign policy: with special reference to the U.S. energy crisis,” (1974): 157-159.
  71. Klebanoff, Shoshana, “Middle East oil and U.S. foreign policy: with special reference to the U.S. energy crisis,” (1974): 157-159.
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