Geopolitics: How has oil shaped geopolitical power dynamics?

Crude oil, once extracted, is sent to refinery in order to separate hydrocarbons by distillation according to needs:

• Heavy hydrocarbons (bitumen, heavy fuel oils, lubricants) ⇒ heavy fuel oils for ships, bitumen for road construction

• Semi-heavy hydrocarbons (domestic fuel oils, diesel, kerosene) ⇒ kerosene for airplanes, diesel for cars and heating

• Light hydrocarbons (naphtha, gasoline) and gas (butane, propane) ⇒ lighters, cooking, gasoline for cars, naphtha used in petrochemistry to create plastic, synthetic fabrics, medicines and cosmetic products

The challenge for many oil exporting countries is to increase refining capacities. Even though reserves may seem an opportunity, they do not necessarily lead to the economic development of a country (example: Venezuela): mastering petrochemistry is essential for valorising oil.

The oil industry is one of the most profitable industries but also requires the most capital investments → drilling wells, production facilities, oil platforms, refining plants, storage tanks and pipelines for transportation towards terminals. Therefore, the oil industry is very demanding in investments and techniques but offers high ROI.

NB: one barrel = about 159 liters

Oil Characteristics

History

I. Second Half of the 19th Century (1846-1900)

During the second half of the 19th century, global oil consumption expanded significantly. While coal remained the main energy source during the Industrial Revolution, the increase in energy demand for lighting, transport and machinery pushed countries to seek for alternatives.

Interest in oil arose worldwide with new oil fields: Wietze (Germany), Krosno (Austro-Hungarian Empire), Ploiești (Romania), Baku (Russian Empire) and Titusville & Oil Springs (USA). In the USA, this caused a " black gold rush" quickly making it the world’s largest producer.

Innovations in the oil industry emerged quickly, driven by companies like Standard Oil (owned by J.D Rockefeller). Oil became essential in global trade as kerosene replaced whale oil, and lubricants powered factories and locomotives. In 1900, oil has become a strategic global commodity, in the wake of the energy revolution (with the automobile era) coming the 20th century, defining modern power.

The development of oil during this period is described as a “new epoch of energy”, unmatching any other energy source, The Age of Oil, Leonardo Maugeri

II. Early 20th Century (1900-1939)

Oil demand skyrocketed in the start of the century, especially with the invention of the internal combustion engine which revolutionized transport. The number of automobiles worldwide grew from a few thousands to over 30 million, from 1900 to 1930. The Ford Model T (in 1908) was a turning point in the mass-production car industry.

The change in ship engines and the aviation boom (mostly during WWI) have also supported oil growth.

Winston Churchill decided in 1912 to convert the British Royal Navy from coal to oil, supporting the idea that high service range will be necessary to defend its Thalassocracy. This decision made Great Britain highly dependent on Persian oil, leading to the creation of the Anglo-Persian Oil Company (APOC) in 1908.

During WWI, oil became vital for military resource. The Allies’ victory was partly due to American oil supplies (25m barrels exported to Europe in 1917), while Central Powers were suffering severe shortages.

Many oil fields were discovered from 1900 to 1939:

• Venezuela: Maracaibo Basin (Zulia state) in 1914. By the 1930s, the country became the second largest producer after the USA, mainly exporting to the UK and the Netherlands.

• Persia: William Knox D’Arcy (a British entrepreneur) obtained a 60-year concession from the Qajar dynasty in 1901, giving him the right to explore, extract and sell Persian oil. The concession was transferred to APOC to develop the highly profitable Masjed Soleyman oil field (paying 16% of royalty on profit only).

• Iraq: After the fall of the Ottoman Empire, Great Britain took control of Iraq’s oil under San Remo Treaty (1920), leading the exploitation of the Kirkuk’s giant field, discovered in 1927.

• Arabic Peninsula: Bahrain’s Awali field (1932), Kuwait’s Burgan field (1938), Saudi Arabia’s Dammam No. 7 (1938).

• Romania: oil fields around Ploiești were supplying 8% of global output before 1914. These fields became a strategic bombing target during WWII.

Seven Sisters:

• Anglo-Persian Oil Company (BP)

• Gulf Oil (which merged with Chevron)

• Royal Dutch Shell (Shell)

• Standard Oil of California (Chevron)

• Standard Oil of New Jersey (later Exxon, now ExxonMobil)

• Standard Oil of New York (later Mobil, now ExxonMobil)

• Texaco (which merged with Chevron).

The Seven Sisters had negotiated highly asymmetric agreements with locals, Local populations saw little benefit from the new business, leading to resentment and anti-colonial movements later on (ex: Mossadegh nationalization plan in 1951).

In Texas, newborn cities like Houston and Beaumont grew exponentially after the “Spindletop Gusher” (1901), marking the start of American oil production.

Baku turned into one of the wealthiest cities of the Russian Empire.

“He who controls oil controls the world,” U.S. President Calvin Coolidge.

III. During WWII (1949-1945)

Oil had become the single most strategic commodity on Earth. Its control defined the pace of military production and the country’s strength. Unlike WWI, the Second World War was a mechanized war, fought with tanks, aircraft and ships, all powered by oil. The Allies were burning over 7m barrels a day.

“Oil hunger” was the biggest threat to armies.

In the other side, Germany was facing severe oil shortage from the start. It had limited reserve and relied on synthetic fuel derived from coal and on oil coming from Romania. Ploiești was heavily bombed during the Operation Tidal Wave (1943), when the US attacked the refineries.

Hitler’s 1942 invasion of the Soviet Union was largely driven by the goal of seizing the Caucasus oil fields in Baku. As Germany failed to reach those, the fate of the war changed completely.

Japan was also lacking oil and was heavily dependent on US oil imports. In 1941, following the Japanese aggression of China, the US imposed an oil embargo on Japan. Tokyo then attacked Pearl Harbor, seeking the control of Dutch East Indies, rich in oil reserves.

In contrast, the Allies controlled around 85% of the world’s oil production — especially through the United States (60% alone, with Texas, California and Oklohama), the Soviet Union (mostly Baku and Grozny) and the Middle East (Abadan in Iran, Haifa in British Palestine, Iraq, Bahrain and Saudi Arabia).

American tankers carried massive volumes of oil across the Atlantic and Indian Oceans, often under threat from German U-boats.

In February 1945, US President Franklin D. Roosevelt met King Abdulaziz Ibn Saud, the founder of modern Saudi Arabia. The two leaders sealed the Quincy Pact: The US would guarantee the security and stability of the Saudi kingdom in exchange for privileged and stable access to Saudi oil.

This handshake alliance has endured for over seven decades, shaping U.S. policy in the Middle East to this day.

At the time, Saudi oil production was modest — only about 20,000 barrels per day — but the Dammam and Ghawar fields (discovered in 1938) promised enormous potential.

The partnership was operationalized through ARAMCO (Arabian American Oil Company) which was a consortium of U.S. oil majors (SOOC, Texaco, Exxon and Mobil)

It marked a shift in oil control from the British Empire, which had dominated Persian and Iraqi oil, to the US.

“World War II was fought with oil, over oil, and largely because of oil. By its end, the map of global power was drawn not only by armies, but by pipelines and refineries.” The Prize, Daniel Yergin.