Consuming on average around twenty billion barrels of oil per day, the U.S. is stringently dependent upon fossil fuels. This dependence has had a marked influence on global politics and has over the course of decades directed U.S. policy both home and abroad. Shaping the international order for much of the last two centuries, global influence – whose is growing and whose is waning – is inextricably linked with oil.
“Oil is like a wild animal. Whoever captures it has it.” (J. Paul Getty).
The Age of American Oil
America was one of the first large producers of oil. During the “Black Gold Rush” that began in 1850, a man by the name of Samuel M. Kier was the first to refine crude oil. His Pittsburgh, PA refinery, working at a capacity of five barrels per day in 1854, was the first of its kind. The first American oil export set sail, meanwhile, on November 19, 1861 – carrying 1,329 barrels of U.S. petroleum that would arrive at London’s Victoria Port after almost two dangerous months at sea. A year later, Philadelphia was exporting over 200,000 barrels across the Atlantic, and by 1880 the United States was responsible for supplying 80 percent of the world’s oil. Production began to expand overseas. Britain and France entered the oil business. As competition for areas of exploration intensified, attempts to shut the U.S. out of oil territories in the Middle East saw the United States turn its sights to oil fields in Latin America. Capitulating, however, after a decade of competition and with America more eager than ever for increased oil security following World War I, companies from Britain, France, and the U.S.A. signed the “Red Line Agreement” in 1928. Stipulating that no single entity would seek to independently develop any oil field within the proposed boundaries, the Red Line Agreement effectively proffered control of the oil in Turkey, Iraq, and Saudi Arabia to its signatories. Working as a cooperative, the stage was set for the world’s four largest producers to “dominate the world market” in oil (Blair, 1976).
A Wrinkle Appears: Nationalization
As the global oil market expanded, it brought with it vast fortunes to the Red Line extractors and refiners first to take it from the ground. Soon the governments of nations on whose land foreign corporations were growing rich became less welcoming to such international integration. Alongside the critical role of oil supplies in winning World War I, in particular, the Shah of Iran became increasingly displeased with the original deal struck between Persia and Britain. Cancelling Iran’s agreement with British Petroleum founder William Knox D’Arcy in 1932, Reza Shah successfully renegotiated the terms of the D’Arcy Concession to include higher royalties for the nation as well as more jobs and better conditions for Iranian workers at British Petroleum refineries. On the other side of the world, Mexico made a similar move six years later. Permanently revoking oil rights from foreign entities in 1938, Mexico was the first to officially nationalize its oil industry. While Mexico was narrowly spared retaliation from the United States government by the impending Second World War, its nationalization of oil would be an example to others in the years to come.
The Dawn of a New Era: OPEC
After World War II, the U.S. embarked on an ambitious plan to assist Europe in post-war recovery, providing billions of dollars in oil aid through the Marshall Plan. Meanwhile, amidst increasing global demand, Middle Eastern producers with their expansive reserves became increasingly integral to the oil machine. Yet the oil market remained firmly in the grasp of companies from the West, who were free to adjust prices as they saw fit whenever necessary, and in August of 1960, Western companies slashed oil prices yet again. Without notification or consultation, the oil-producing states of the Middle East – now responsible for a large portion of the world’s crude exports and with economies highly sensitive to fluctuations in the price of oil – found themselves once again experiencing unexpected upheaval. Gathering together in Baghdad, a council convened with representatives from the Gulf States of Iran, Iraq, Kuwait, and Saudi Arabia and including amongst them Venezuela, with the world’s largest oil reserves. It was decided that, in an international environment dominated by the “Seven Sisters” – Exxon, Mobil, Shell, British Petroleum, Gulf Oil, Chevron, and Texaco – another union must be formed as a balancing force to provide greater price stability in international oil markets. Headquartered in Geneva, the Organization of the Petroleum Exporting Countries (OPEC) came into being on September 14, 1960, with its mandate to “secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.”
The First Arab Oil Embargo
On June 6th, 1967, Israel entered into a war on three fronts. The third iteration of a decades-long feud between the Arab nations of Egypt, Syria, and Jordan with the Jewish state, the Six-Day War was a brief but violent demonstration that prompted the newly-formed OPEC to attempt an intervention. It was the organization’s first endeavor to influence foreign policy using oil as a playing card, and it failed miserably. When Arab oil ministers called for an embargo on exports to allies of Israel, removing OPEC oil from circulation to Britain and America – the United States simply increased its output, adding one million barrels a day to production and all but negating OPEC’s attempt at sanctions. The Six-Day War ended as abruptly as it began, but through a peace brokered by the United Nations, uninfluenced whatsoever by the actions of the Organization of the Petroleum Exporting Countries.
In 1971, despite the ceasefire, one critical repercussion of the Six-Day War persisted. The Suez Canal, a critical waterway for cargo ships, remained closed by Egypt. The canal’s ongoing closure and subsequent increase in the cost of transporting oil provided the petroleum producing country of Libya with a geopolitical advantage. A newly-minted OPEC member – alongside Qatar, Algeria, the United Arab Emirates, and Indonesia – Libya successfully leveraged its geographical position to garner an increase in Libyan oil prices as well as secure a higher share of revenue from oil refineries. The deal, unprecedented, reverberated across the Gulf. The United States had hit peak oil. Middle Eastern producers were increasingly filling the gap in rapidly growing global demand. Negotiating from a new position of power, talks in Tehran ended in similar Libyan-like concessions for all Gulf State producers. The Tripoli agreement, just two months later, resulted in even larger price increases for Mediterranean OPEC nations. With its “Declaratory Statement of Petroleum Policy in Member Countries,” which “emphasized the inalienable right of all countries to exercise permanent sovereignty over their natural resources in the interest of their national development,” many OPEC members began restricting foreign oil rights. In moves that would have previously proved untenable, the majority of OPEC nations had fully or partially nationalized their oil industries within a decade. The slice of the oil market that remained accessible without restriction to the large multinationals of the fore had shrunk to just seven percent of what had been eighty-five a short eleven years before.
“There’s no doubt that the buyer’s market for oil is over.” (David Barran, Chairman of Shell, 1971).
The Perfect Storm
U.S. oil production had peaked in 1970 at 9.6 million barrels per day. Meanwhile, automobiles were giving everyday Americans a new sense of freedom and rigor and domestic demand for oil had increased to fifteen million barrels per day in 1973 – more than twice what it was just two decades before (Verrastro & Caruso, 2013). Inflation, additionally, had jumped since Nixon’s removal of the dollar from the gold standard. In an effort to curb rising prices, the Nixon administration enacted price controls on everything from wages to oil. Shrinking the profit margins of oil refiners even as supply was already declining, America’s output reduced further – and with the lifting of import quotas that had previously limited the amount of oil the U.S. could purchase from overseas, in 1973 over thirty percent of domestic consumption was reliant on imports.
The US in 1973 did not have a backup reserve. So when the second Arab oil embargo hit – after America’s pledged support for Israel in yet another Arab-Israeli war, launched this time on Yom Kippur – America’s oil supply was crippled. The cost of a barrel of oil quadrupled. Long lines formed at gas stations. People waited for hours on designated days to get rations of fuel. Prices increased as much as forty percent, while some petrol stations ran out of gas entirely. The effect of the actions of OPEC, when the same strategy had proved insignificant a few years before, was a shock. The effects of the embargo rippled across the waters to Europe and as far as Japan.
A month later, Richard Nixon appeared on national television to announce the creation of Project Independence, a plan to develop domestic energy sources and create “the strength of self-sufficiency.” He would also ask Congress to draft emergency energy legislation and go on to enact a host of new government programs aimed at confronting the energy crisis, emphasizing Project Independence as “absolutely critical to the maintenance of our ability to play our independent role in international affairs.”
The oil shock of 1973 led to the development of the International Energy Agency to coordinate global response and attempt to minimize damage from future supply shocks, as well as the creation of America’s Strategic Petroleum Reserve. The crisis was also followed by the meeting of the first Group of Six – with France, West Germany, Italy, Japan, the United Kingdom, and United States gathering in Rambouillet to discuss the state of the global economy and energy in 1975. The balance of power, alongside the oil market, had shifted.
Crisis of Confidence
The peace after the 1973 oil crisis was short lived. Just five years after experiencing its first oil shock, the United States was once again rattled by shortages when the Iranian Revolution erupted. Dropping global output by seven percent in two months and sparking fears that caused oil-dependent nations to hoard supply, the uprising against Mohammad Reza Pahlavi caused prices to skyrocket over the next year. Gas lines returned. Jimmy Carter took to national television, like his predecessor, to discuss plans for facing the energy crisis but also admonishing the American people for allowing the crisis to let them lose faith in their ability to innovate. Proclaiming that, “On the battlefield of energy we can win for our Nation a new confidence, and we can seize control again of our common destiny,” Carter called for a reinstatement of import quotas, the removal of American oil price controls, and the creation of the U.S. Synthetic Fuels Corporation to find alternative sources for 2.5 million barrels of oil per day by 1990 as part of the Energy Security Act.
Yet threats to American oil security persisted. 1983 saw American troops deployed to the Persian Gulf to protect oil facilities and keep the Strait of Hormuz open for tankers in the Iran-Iraq War. Ten years later, with American oil imports at almost fifty percent, Iraq began setting Kuwaiti oil fields ablaze, prompting a multinational response that sent almost a million troops to the borders of Saudi Arabia and Iraq in Operations Desert Shield and Desert Storm. Venezuela, the OPEC country in command of the largest oil reserves, gained a new leader highly critical of U.S. foreign policy including America’s military actions in the Middle East. Exporting over fifty million barrels of oil to America the year of his election, Hugo Chavez repeatedly threatened to cut Venezuela’s oil supply to the U.S. throughout his tenure. In the east, Vladimir Putin rose to power. Controlling large swaths of reserves between the two leaders, both Russia and Venezuela began shrinking foreign access to their markets, nationalizing their resources under Venezuela’s Petróleos de Venezuela, S.A. and Russia’s Rosneft. The West’s position in oil weakened further.
The Arab Spring
“This is what Ben Ali did to us. He divided us. He made us quarrel with each other. But it reached its limits and so we exploded and the revolution was born.” (Tunisian protester. (Fatma Riahi, 2012)).
On December 17th, 2010 – a single act spawned a wave of uprisings that would sweep across the Middle East. Constantly harangued by corrupt police in the town of Sidi Bouzid in Tunisia, Mohamed Bouazizi set himself on fire in protest. Through the blogs, photos, and videos of the revolution against President Zine El Abidine Ben Ali’s government that followed, the flame of revolution spread across populations from Syria and Yemen to Egypt and Morocco. When Libya entered the Arab Spring, oil prices responded. Spiking almost ten percent in one day, the price of oil continued to increase in 2011 from $90 a barrel at the start of the year to almost $130 by May. In the midst of the greatest economic downturn since the Great Depression, the United States, for the fourth time since its inception was compelled to release thirty million barrels of oil from its strategic reserve. The IEA, concurrently, matched the amount of the U.S.’ release from its own reserves, citing the potential of the crisis in the Middle East to endanger the “fragile global economic recovery” of a world still reeling from the fallout of America’s housing crisis.
“We will keep on being a victim to shifts in the oil market until we finally get serious about a long-term policy for secure, affordable energy.” (Barack Obama, March 30, 2011).
The Resurgence of American Oil
Obama’s March 30th speech reiterated the need to reduce America’s reliance on imported oil. It was a sentiment echoed many times by American presidents. This time, however, the goal would not go unfulfilled. Something had changed. A few short years prior, technologies that had originally been reserved for gas extraction had been found for the first time to work for oil.
Tapping into shale and other “tight oil,” vast reserves in America’s Permian, Bakken, and Eagle Ford oil fields were unleashed through hydraulic fracturing and horizontal drilling. Exploding once again into production, tight oil output quadrupled from 2010 to 2015 to over four million barrels a day, almost doubling total U.S. crude production and overtaking every OPEC nation except Saudi Arabia (EIA, 2018). In November 2017, United States oil extraction reached over ten million barrels a day, surpassing its peak in 1970. The shale boom, likewise, precipitated a more than twenty percent drop in oil imports to fewer than ten million barrels per day and, as production continued to increase, positioned the U.S.A. once again as a net exporter of oil. Topping Saudi Arabia’s maximum capacity as of August 2019, America has since officially returned to its original place, beginning in the 1800s, as the largest crude oil producer in the world.
With calls for reduction in the use of fossil fuels increasing, what happens next in global energy remains to be seen. For now, however, and for the foreseeable future, oil is still the maker of kings.
“The secret of success is to get up early, work late, and strike oil.” (John D. Rockefeller).
CFR. (2019). “Timeline: Oil Dependence and U.S. Foreign Policy.” Council on Foreign Relations.
Blair, J. (1976). “The Control of Oil.” New York: Pantheon Books, pp. 31-34
Verrastro, F., & Caruso, G. (2013). “The Arab Oil Embargo – 40 Years Later.” Center for Strategic and International Studies.
Fatma Riahi. (2012). “Tunisia: The Revolt Continues.” Al Jazeera.
EIA. (2018). “Tight oil remains the leading source of future U.S. crude oil production.” U.S. Energy Information Administration.