DeGolyer:

“The center of gravity of world oil production is shifting to the Middle East”

1944

Center of GravityCenter of Gravity

• The US government to acquire direct ownership• The US government to negotiate an agreement with the British• Let the private companies do the business

What to do What to do In the Middle East?In the Middle East?

1st option: ruled out2nd option: before going to Yalta, Roosevelt withdrew it from Senate3rd option: won

YaltaYalta

Growing demand and Growing demand and rising productionrising production

1945: 26 million cars1950: 40 million cars

1948

Net exporter Net importer

USA

Many new discoveries

March 12, 1947March 12, 1947Truman DoctrineTruman Doctrine

1. New Aramco: Socol, Standard Oil of NJ, Texaco, Socony2. Gulf Oil – Shell in Kuwait3. Iranian contract between Anglo Iranian and Standard Oil, Socony

Europe in crisisEurope in crisisMarshall planMarshall plan

Birth of IsraelBirth of Israel

May 14, 1948

First Arab-Israeli war

Dilemma of Ibn Saud:Birth of IsraelUS guarantee on Saudi Arabia’s independenceSoviet threat

King Ibn SaudKing Ibn Saud h

Post-war petroleum orderCenter: Middle EastMarket: USA, Western Europe, JapanTechnology: huge developmentProblem: Large surplus of oil How to divide profit

Advancement inAdvancement inTechnologyTechnology

50-50 Deal, December 1950

The producing countries wanted more money and power

Iran40 % of Middle Eastern oilWeak shahUS interestKorean warBritish hatredNationalization, May 1951, Mossadegh (Mossy)

Korean WarKorean War

Expropriation vs. economic warfare, 1952No oil export no money, economic troubleLaw and order collapsingMossadegh turned to MoscowU.S. and Brithish assisted coupThe shah regained powerOil consortium: Jersey, Socony, Texaco, Standard of California, Gulf; Shell; CFP; Anglo IranianResult: The USA is the major player in the Middle East, 1954

Suez represented the post-war petroleum order:2/3 of Europe’s oil passed through Suez2/3 of traffic in Suez was oil

SuezSuez

1952: a coup removed the king1954: Colonel Gamal Abdel Nasser became dictator

Rejection of the WestPan-Arabism“greatest international crime” – the creation of IsraelGot weapons from the Soviet block

NasserNasser

Whether to build the Aswan dam?

US rejectedRevenge: expropriation of Suez Canal, July 26, 1956

Eisenhower did not want warThe French and British wanted military action

AswanAswan

War plot against Egypt: France, UK, IsraelOctober 29, 1956

Eisenhower was furious

Soviet Union threatened by rocket attacks

Revolution in Hungary

Result: Nasser became a hero and leader of Arabs

22ndnd Arab Israeli War Arab Israeli War

World oil production

8.7 million barrels 42 million barrels

Middle East

1.1 million barrels 18.2 million barrels

U.S. production share

64% 22%

U.S. reserves share

34% 7%

1948 1972

50-50% is not enough any more

Nasser ascendant Soviets build Aswan Syria joins Egypt: United Arab Republic Nasser controls oil: Suez and pipelines

Producer countries wanted more money and power

End of 1950s: Soviet Union is the second largest oil producer

Oil companies cut prices

Building national refineriesNational integrated oil companiesStabilize market for themselves, 60-40 % share

OPECOPEC

OPEC’s aim:

1960s: more discoveries in Africa, large oil surplus

Nasser’s prestige was decliningHe wanted to gain recognition: liquidation of IsraelBlockade against Israeli shipping,Military buildup with Syria, Jordan, Iraq

June 5, 1967: 3rd Arab-Israeli war, 6 day warOccupation of Sinai, Gaza, West Bank, East Jerusalem

Six Day WarSix Day War

Oil embargo against Israel’s friends

Arab oil decreased by 60%No effect – oil is abundant, cheapEmbargo lifted in September

End of 1960s, early 1970s

Recession in US and British power

Vietnam warAnti-Americanism becomes a great fashionNixon-doctrineDemand in oil was catching up with supply – end of surplus

Huge economic growth fueled by oil

US oil production: 11.3 million barrels per day, the peakMore dependency on Middle Eastern oil

NixonNixon

1971: collapse of Bretton Woods

Occidental Petroleum discovered oil in Libya in 1966

Qaddafi coup, 1969Increase in oil priceAll the countries increased their profit share

QaddafiQaddafi

Egypt was in bankrupt after Nasserism endedSadat wanted to restore order and make peace with IsraelIsrael was conceited after the 1967 success

1973 Yom Kippur war

SadatSadat

Yom Kippur War

The Soviet Union supported Egypt and SyriaThe USA supported IsraelWorld War conflict was imminentOil exporters increased oil prices 100%Arabs cut oil supply and eventually stopped exporting to USA

A weak president in the Watergate agony contributed to the oil crisis

WategateWategate

Boom times

Alska, Mexico discoveriesNorth Sea: the biggest play of all

Iran: too much money – corruption, chaos, political tensionsShah represented modernization

Shiite fundamentalists hated US as the main ally of the ShahEscalating chaos in the oil industryBy December 1978 no oil exports from Iran

The Shah escapedFebruary 1, Komeini returned to Tehran

KomeiniKomeini

Second Shock

Panic in the world market: price went up from $13 to $34

From March 1979, Iranian export started to come back

Shortage in oil: long lines at gas stations

Peace accord: Camp David

CarterCarter

November 4, 1979 : hostage

USA allowed the Shah for treatment

The West, especially USA seemed very weakSoviets invaded Afghanistan

Price: $45

HostageHostage

Hussein ofHussein ofIraqIraq

September 22, 1980: Iraq attacks Iran

Early 80’s:Two drastic changes: Enormous investment in explorationDecreasing demandResult: oil surplus

June 1982: Lebanon war

Golden age for oil geologists

Cheap oil: financial crisis in some oil exportersMukluk dry hole: end of exploration boom

End of pessimism of the 70sEconomy is booming, but not because of oil fuelOil is not that dangerous as before

August 2, 1990: Iraqi invasion of KuwaitNew oil shock, supply decreasedLoss had been compensated by December from other sources

January 17, 1991: Desert StormFebruary 28 cease fire

Desert StormDesert Storm