A story of money and power

No raw material has had a greater impact on human development than crude oil. But producing nations have reacted in a variety of ways to the challenges of exploiting and administering this resource.
  • Bjørn Vidar Lerøen

Photo: Reuters/Jumana El Heloueh

Big reserves.
Whenever they want, the Gulf states can make up oil shortfalls in the international market to keep prices stable. Their finance ministers met in Abu Dhabi during October. (Photo: Reuters/Jumana El Heloueh)


The USA has been regarded as the cradle of the modern oil business, even though petroleum was known in a number of other countries.

Colonel Drake’s oil well at Titusville in Pennsylvania in 1859 is widely held to be the starting point, and the US petroleum model was subsequently built on pioneering spirit and enterprise.

But American historians agree that the massive Spindletop discovery at Beaumont in Texas during 1901 was the one which changed both the USA and the world.

It marked the start of the new industrialised America. Oil became the driving force behind its power, prosperity and status as the world’s leading superpower.

US developments more than any other helped to forge the organisational and technological aspects of the petroleum industry.

Most of the companies which built the global oil business during much of the 20th century were American, and the country’s oil policy and model also set the standard internationally.



The names primarily associated with this development were Standard Oil and its creator, John D Rockefeller, who began as an oil refiner in Cleveland, Ohio, before buying out his partner in 1865.

That deal marked the start of his rise and ultimate fall in the business – involving first a steady concentration of power and then its forced dissipation.

Through Standard Oil, Rockefeller secured a virtual American oil monopoly. His influence over the industry became so strong that he was compelled by the Supreme Court in 1911 to break up the company in accordance with the Sherman Antitrust Act.



That was also the year when Winston Churchill, as First Lord of the Admiralty, took the key decision that the British fleet would convert from coal to oil.

While the UK had coal aplenty, the oil lay further afield – in the Middle East, Indonesia (then the Dutch East Indies) and the USA.

British interests had found oil in Persia (now Iran) in 1909, forming the basis for the Anglo-Persian Oil Company as the forerunner of today’s BP. The UK government became a shareholder.

Among the people who urged Churchill to convert the navy to oil was Marcus Samuel, one of the founders of Shell. It and BP became the dominant oil companies in Europe.

They were also the European members of the powerful club which became known as the Seven Sisters. The other five were US-based, and mostly successors to Rockefeller’s Standard Oil – Esso, Chevron, Gulf, Mobil and Texaco.

These companies controlled the world, and ensured that nominal oil prices remained around USD 2 per barrel for a large part of the 20th century.

But this dominance prompted the producing nations to create a counterweight in the form of the Organisation of Oil Exporting Countries (Opec) in 1960.

The five founders who met in Baghdad with a desire to secure more control over their own natural resources were Saudi Arabia, Kuwait, Iraq, Iran and Venezuela. Others were to join later.



That meeting in the Iraqi capital was to have dramatic consequences for the world’s petroleum industry. Almost 50 years later, the USA and its allies invaded Iraq – ostensibly to fight terrorism, but with the struggle over oil sources as a backdrop.

Opec changed the agenda and introduced the world petroleum market to a new dimension – resource nationalism. The Yom Kippur War between Israel and its Arab neighbours in 1973 saw the first deployment of the oil weapon.

Countries siding with the Israelis were told that their oil deliveries would be cut. The market suddenly faced a shortage of supply, and prices shot up.

The time had come for a change of scene. Power in the oil sector shifted in a way from one cartel to another, from the Seven Sisters to national oil companies.

That marked the start to a turbulent period in the global oil business – just as Norway was beginning its career as a petroleum producer.


"Opec changed the agenda and introduced the world petroleum market to a new dimension – resource nationalism"


During the 1970s and 1980s, oil began to be defined much more as a strategic and political raw material. A widespread view at the end of the 1970s was that access to oil in the future would be conditional on good relations with producer governments.

Energy security emerged as a new concept. At the same time, crude output was increasingly assessed in relation to the theory of “peak output” and concern for the global climate.

The politicisation of oil as a strategic raw material is conditioned first and foremost by geography. Seventy-five per cent of the world’s oil reserves are in the Middle East – and Opec.

No power on Earth can change this geological fact, which gives Opec full control when it wants to exercise it. But even this organisation is not a unified body.

It has been hit from time to time by major internal tensions, and battles over production quotas in periods of oversupply have absorbed much energy.

Oil power wears different faces, at least in relation to the USA. Saudi Arabia, the biggest Opec heavyweight as a result of its reserves and production, has close ties to the Americans, which found expression not least during two invasions of Iraq.

Resources and output also make Iran a major Opec player, but its relations with the USA are hostile and the country is also developing as a nuclear power. That enhances the complexity of threats in the Middle East and globally.

The third Opec country which deserves mention in this context is Venezuela, also characterised by plenty of crude and high production.

It ranks as an important oil supplier to the USA, but the latter regards Venezuela’s geographical proximity as problematic – not least because of its capricious president, Hugo Chavez. He has used oil to build military power and regional influence.

Oil is still about power and money, war and peace. But it is primarily about Opec. The organisation’s back is far from broken, despite the major conflicts of interest between its members.