THE GEOPOLITICS OF OIL & GAS

WELFARE ECONOMICS PRESENTATION

ANURAG VYAS(07)
PARTH CHOKSI(30)
PRADEEP BHAILOT(31)
ROSHAN JEERAWLA(61)
NAJEEB AHMED(46)

B2/
 CRUDE OIL(MOTHER OF ALL
COMMODITY)
 Petroleum or crude oil is a naturally occurring, flammable liquid
consisting of a complex mixture of hydrocarbons of various
molecular weights and other liquid organic compounds, that are
found in geologic formations beneath the Earth's surface. 
 It’s recovered mostly through oil drilling.
 This stage comes after studies of structural geology (at the
reservoir scale), sedimentary basin analysis, reservoir
characterization (mainly in terms of porosity and permeable
structures).
 It is refined and separated, most easily by boiling point, into a
large number of consumer products, from gasoline and kerosene
 to asphalt  and chemical reagents used to make plastics
 and pharmaceuticals.
 OIL & GAS SECURITY HISTORIC
COMMITMENTS
3

 Franklin D. Roosevelt in 1944 was the first US president to

declare ‘Petroleum as a National Security Issue’. He secretly met
with King Abdel-Aziz ibn Saud, and pledged “to offer him and
the Saudi Royal family protection against all internal and
external threats.”
 Presidents Truman in 1947 and Eisenhower in 1957, promised
Iran, Iraq, and Saudi Arabia and to other states in the Middle
East US military aid if they were attacked by the Soviet Union or
any of its allies.
 After the ‘Oil shock in 1973-74’, the US Secretary of State,
Henry Kissinger, declared that: “the US was prepared to go to
war over oil.”
 THE CARTER DOCTRINE
4

President carter in 1980 following the Soviet Union’s

invasion of Afghanistan, formalized US energy
security policy by declaring to a joint session of the
US Congress:

“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 will be repelled by any means
necessary, including military force”.
 TYPES OF OIL EXPLORATION & PRODUCTION
AGREEMENTS
5

 Oil Concession - an exclusive license granted by a country

to explore and develop oil.
 Oil Lease – an agreement between parties to allow a Lessee
to have access to the property and minerals on the property of
the Lessor.
 Production Sharing Agreement (PSA) - a country's
government awards the execution of exploration and
production activities to an oil company. The oil company
bears the financial risk, explores, develops and produces the
field. The profits after cost recovery are shared.
 PROJECTED DISTRIBUTION OF WORLD
ENERGY CONSUMPTION 2010-2030
6

Energy Source Percent Percent % Change

2010 2030 Total BTU
Liquids 34.4 31.7 + 2.3
Natural Gas 23.3 23.3 + 0.3
Coal 27.6 28.0 - 0.36
Nuclear 5.7 6.0 + 0.39
Other 9.0 11.0 + 0.63
Source: International Energy Outlook Report 2009, DOE/EIA
 GEOPOLITICS,OIL AND NATURAL GAS

8
GEOPOLITICS,OIL AND NATURAL
GAS(CONT.)
 RECENT MIDDLE EAST UPROAR & CRUDE
OIL PRICES

 Crude oil prices, which were trading in a range of

$80-$90 per barrel since December 2010, suddenly
spiked since 21st February 2010.
 Oil prices on the Nymex touched their two-year
highs of $103.41/bbl, whereas the London
benchmark Brent touched a high of $119/bbl.
 Crude oil prices mainly rose sharply after protests
in Libya emerged as the country is one of the
largest producer and exporter of the commodity.
OIL PRICES SINCE DECEMBER 2010
 WHAT MAKES LIBYA AN IMPORTANT
CAUSE OF CRUDE OIL SPIKE?
 Produces 2 percent of global oil
consumption(around 1.6 million barrels per day
(mbd) of oil per day)
 Exports more than 75% of its total crude oil

production
 Largest Crude Oil Reserves in Africa

(As per the Oil and Gas Journal (OGJ) statistics,

Libya holds around 46.4 billion barrels of oil
reserves, which is the largest in Africa. The country
also holds close to 55 trillion cubic feet (Tcf) of
natural gas reserves.)
 WHAT MAKES LIBYA AN
IMPORTANT CAUSE OF CRUDE OIL
SPIKE?
 Libya's oil industry is run by the state-owned National Oil
Corporation (NOC). As per the latest estimates from the
NOC released on March 1st 2011, Libya’s oil output had
fallen by almost half due to the ongoing political issues.
Outage estimates were around 800,000 barrels per day.
 Most of Libya's oil fields are located in and around the Sirte
Basin, which contains around 80 percent of the country's
proven reserves. As per media reports, the opposition parties
of Libya had managed to take control of the Eastern part of
the country, where these reserves are located.
LIBYA’A EXPORTS IN 2010
 HOW WILL THE OPEC, US AND THE
OTHERS ACT FOR CONTROLLING
PRICES?
 Organization of Petroleum Exporting Countries (OPEC)
may use spare capacity(Saudi Arabia, Kuwait, United
Arab Emirates (UAE) and Libya itself have excess
capacity.
 While Saudi Arabia has the maximum of around 3.5 mbd
of capacity surplus, Kuwait and UAE each have around
0.3 mbd of excess capacity). But there have been fears
that political crisis may spread to Saudi Arabia as well.
 Releasing oil from the Strategic Petroleum Reserve
(SPR).(The SPR currently holds 727 million barrels and
is filled to capacity.)
 HUBBERT PEAK OIL PLOT

16
 WHO OWNS OR CONTROLS OIL RESOURCES?
A Brief History of Western Oil Companies
17

 1870 - J.D. Rockefeller founded Standard Oil Co. which in 30 years

time became the largest oil monopoly in the world.

 1908 Britain went global in the oil business and laid claim to the oil
found in Persia (Iran), and in1914 the British Parliament authorized the
British government to become the majority owner of the Anglo-Persian
oil (BP) company.

 1911 - US federal government, invoking the Sherman Antitrust Act,

divided Standard Oil into 34 individual US companies.
 WHO OWNS OR CONTROLS OIL RESOURCES?
The First International Oil Cartel
18

 1928 “The Red Line Agreement”: between the western governments

and oil company chiefs, awarded concessions to western oil companies in
the Middle East (except Iran & Kuwait).

 1933 Gulf Oil the first American oil company: shared with the
British government a seventy four year ‘Concession for ownership and
control’ of Kuwait’s oil.

 1933 SoCal and Texaco formed (ARAMCO): the Arabian-

American Oil Company and got concessions in Saudi Arabia.
 WHO OWNS OR CONTROLS OIL RESOURCES?
The Seven Sisters Cartel
19

 During the period WW I – WW II, Britain had a monopoly on

Middle East oil fields.

 WW II through the1960s – with a weakened British empire

and a growing demand for oil, the largest three of the broken
up US companies formed, with four other western companies,
the largest world oil cartel which was known as “The Seven
Sisters”: Standard Oil of New Jersey (Exxon), Standard Oil of New York
(Mobil), Standard Oil of California (Chevron), Gulf Oil, Texaco, British
Petroleum (BP), Shell

Together they owned, monopolized, and controlled the majority

of the world's oil & gas resources.
 WHO OWNS OR CONTROLS OIL
RESOURCES? Nationalization of Oil & OPEC Cartel
20

 1960s – 1980s: as a reaction to the 7-Sisters, strong national movements

arose worldwide to control natural resources. Five countries:
 Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela formed the Organization of
Petroleum Exporting Countries (OPEC) in 1965.
 Within 5 years, they were joined by: Algeria, Angola, Ecuador, Libya, Nigeria,
Qatar,& United Arab Emirates.
 1965 – 1972: Algeria, Iraq, and Libya nationalized oil.
 In 1974 Saudi Arabia acquired 60% ownership in ARAMCO, and 100% later
on in 1988.
 1979: Iran nationalized its oil.

 This ended the Oil concession system in the Middle East. Today 90% of
the world’s oil companies are National.
 WHO OWNS OR CONTROLS OIL RESOURCES?
The Four Sisters Cartel
21

 In 1972 the 7-sisters produced about 90% of the Middle East

Oil, and provided two thirds of the supply to Europe & China.
 But by 1984 their share of the areas oil reserves dropped to
one third. Thus, through the motto “merge or die”, additional
consolidation and mergers took place beginning 1999.
 Today Four Sisters, if not own as such, control the world’s oil
reserves, markets, and in some instances governments. They
are: 1) ExxonMobil, 2) Chevron, 3) BP, 4) Shell.
 ECONOMIC & SOCIAL CONSEQUENCES
OF OIL DEPENDENCY
22

1. Financial indebtedness and possible insolvency of oil

consuming countries.
2. Dependence on oil as the main revenue in oil producing
countries, at the expense of other infrastructure
development efforts.
3. Adverse impacts on the environment, indigenous peoples
livelihoods and social structure.
4. Creating monopolies that nurture corruption in the oil
producing as well as the oil consuming countries
5. Militarization of energy security policies leading to
conflicts with high economic and human costs.
 OIL & WARS
23

 1980-88, President Reagan, during the Iran-Iraq war

supported Iraq’s Saddam Hussein, reflagged Kuwaiti tankers
with American flags, and provided them with US Navy
escorts.
 George H.W. Bush in 1991 relied on the Carter Doctrine to
implicitly justify US intervention in the invasion of Kuwait by
Saddam Hussein.
 In 1997, President Clinton engineered building a US military
base in Kyrgyzstan side by side a Russian military base. The
bidding games between the two powers to maintain these
bases, are still going on.
 OIL & WARS (CONTINUED)
24

 President George W. Bush formally adopted the

National Energy Policy Group’s (NEP) report in
2001 to: “make energy security a priority of our
trade and foreign policy.”

 Then it proceeded to invade Iraq in 2003, when

Saddam Hussein agreed to give oil exploration rights
to Chinese, Russian, French, and other nations
excluding the US and British multinational
companies.
 OIL AND THE IRAQ WAR
25

 In 2003 the US invaded Iraq, with President George

W. Bush citing various reasons. However, the real
reason is expressed in a quote by a prominent US
government individual:

“I am saddened that it is politically

inconvenient to acknowledge what everyone knows:
The Iraq war is largely about oil.”
Alan Greenspan,
Chairman Federal Reserve Board 1987-
2006
 ENERGY & OIL SECURITY
STRATEGIES
26

The energy hungry big powers have and continue

to employ the various strategies of offering
energy producing countries:
1. Economic development incentives
2. Industrial development incentives
3. Armament sales
4. Military alliances and bases
 PERILS OF ENERGY SECURITY
MILITARIZATION
27

1. Encouraging the creation of repressive autocratic

regimes for ‘assuring’ energy security.
2. Inducing ethnic violence within states,
3. Invoking violent regional instabilities, resulting in
territorial conflicts between states,
4. Leading to military conflicts between big powers,
and/or their client states.
5. Breeding Terrorism
 US MILITARY BASES IN THE MIDDLE
EAST
28
 A PERPETUAL CRISIS: WHAT WE
COULD DO
29

1. Incentivize and enforce conservation policies.

2. Demilitarize energy security strategies. War has never been
a zero-sum game.
3. Work on breaking up oil monopolies and cartels leading to
price manipulations, by encouraging free trade.
4. Use cooperative strategies of economic and industrial.
development between energy producers and consumers.
5. Encourage international cooperation in renewable energy
research and technologies.
6. Adopt international standards that assure human and
environmental safety.
 WHAT LIES AHEAD FOR THE CRUDE
OIL?.....
 A possibility of another oil crisis cannot be ruled out completely,
though the risk of that is still lower.
 If situations in Saudi and Iran become worse and any disruptions
in their production activities would see oil prices rocketing.
 There have been constant protests by the Shiite community
which are expected to further escalate in the coming days.
 As per news, clashes have been reported between
antigovernment protestors and security forces in Iran too.
 Another major factor still prevailing in India is the payment
issues with Iran for its crude oil imports.
 India would be amongst the worst sufferers if the Middle-East
tremors would be felt in Saudi Arabia and Iran.