Center of Gravity

1944

DeGolyer:
“The center of gravity of world oil production
is shifting to the Middle East”
 What to do
In the Middle East?

• The US government to acquire direct ownership

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

1st option: ruled out

2nd option: before going to Yalta, Roosevelt withdrew it
from Senate
3rd option: won
 Growing demand and
rising production

1945: 26 million cars Many new discoveries

1950: 40 million cars
USA
1948

Net exporter Net importer

 March 12, 1947
Truman Doctrine

1. New Aramco: Socol, Standard Oil of NJ, Texaco, Socony

2. Gulf Oil – Shell in Kuwait
3. Iranian contract between Anglo Iranian and Standard Oil,
Socony
Europe in crisis
Marshall plan
Birth of Israel

May 14, 1948

First Arab-Israeli war
King Ibn Saud h

Dilemma of Ibn Saud:

Birth of Israel
US guarantee on Saudi Arabia’s independence
Soviet threat
Advancement in
Technology

Post-war petroleum order

Center: Middle East
Market: USA, Western Europe, Japan
Technology: huge development
Problem: Large surplus of oil
How to divide profit
50-50 Deal, December 1950

The producing countries wanted more money and power

 Korean War

Iran
40 % of Middle Eastern oil
Weak shah
US interest
Korean war
British hatred
Nationalization, May 1951, Mossadegh (Mossy)
Expropriation vs. economic warfare, 1952
No oil export no money, economic trouble
Law and order collapsing
Mossadegh turned to Moscow
U.S. and Brithish assisted coup
The shah regained power
Oil consortium: Jersey, Socony, Texaco, Standard of California,
Gulf; Shell; CFP; Anglo Iranian
Result: The USA is the major player in the Middle East, 1954
Suez

Suez represented the post-war petroleum order:

2/3 of Europe’s oil passed through Suez
2/3 of traffic in Suez was oil
 Nasser

1952: a coup removed the king

1954: Colonel Gamal Abdel Nasser became dictator

Rejection of the West

Pan-Arabism
“greatest international crime” – the creation of Israel
Got weapons from the Soviet block
Aswan

Whether to build the Aswan dam?

US rejected
Revenge: expropriation of Suez Canal, July 26, 1956

Eisenhower did not want war

The French and British wanted military action
2nd Arab Israeli War

War plot against Egypt: France, UK, Israel

October 29, 1956

Eisenhower was furious

Soviet Union threatened by rocket attacks

Revolution in Hungary
Result: Nasser became a hero and leader of Arabs
 1948 1972

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%
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

 OPEC

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

Oil companies cut prices
OPEC’s aim:
Building national refineries
National integrated oil companies
Stabilize market for themselves, 60-40 % share
 Six Day War

1960s: more discoveries in Africa, large oil surplus

Nasser’s prestige was declining
He wanted to gain recognition: liquidation of Israel
Blockade against Israeli shipping,
Military buildup with Syria, Jordan, Iraq

June 5, 1967: 3rd Arab-Israeli war, 6 day war

Occupation of Sinai, Gaza, West Bank, East Jerusalem
Oil embargo against Israel’s friends

Arab oil decreased by 60%

No effect – oil is abundant, cheap
Embargo lifted in September
 Nixon
End of 1960s, early 1970s

Recession in US and British power

Vietnam war
Anti-Americanism becomes a great fashion
Nixon-doctrine 1971: collapse of Bretton Woods
Demand 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 peak
More dependency on Middle Eastern oil
 Qaddafi

Occidental Petroleum discovered oil in Libya in 1966

Qaddafi coup, 1969
Increase in oil price
All the countries increased their profit share
 Sadat

Yom Kippur War

Egypt was in bankrupt after Nasserism ended

Sadat wanted to restore order and make peace with Israel
Israel was conceited after the 1967 success

1973 Yom Kippur war

 Wategate

The Soviet Union supported Egypt and Syria

The USA supported Israel
World War conflict was imminent
Oil 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
Boom times

Alska, Mexico discoveries

North Sea: the biggest play of all
 Komeini

Iran: too much money – corruption, chaos, political tensions

Shah represented modernization
Shiite fundamentalists hated US as the main ally of the Shah
Escalating chaos in the oil industry
By December 1978 no oil exports from Iran

The Shah escaped

February 1, Komeini returned to Tehran
 Carter
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

 Hostage

November 4, 1979 : hostage

USA allowed the Shah for treatment

The West, especially USA seemed very weak

Soviets invaded Afghanistan
Price: $45
 Hussein of
Iraq

September 22, 1980: Iraq attacks Iran

Early 80’s:
Two drastic changes: Enormous investment in exploration
Decreasing demand
Result: oil surplus
June 1982: Lebanon war

Golden age for oil geologists

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

End of pessimism of the 70s

Economy is booming, but not because of oil fuel
Oil is not that dangerous as before
 Desert Storm

August 2, 1990: Iraqi invasion of Kuwait

New oil shock, supply decreased
Loss had been compensated by December from other sources

January 17, 1991: Desert Storm

February 28 cease fire