Chapter 28- The Hinge Years: Countries Versus Companies

During the years covered in Chapter 28, we see a power shift so to speak in the Middle East. The British leave which creates a power vacuum, quickly filled by Iran, while the Russians arm Iraq. This period also saw the birth of the United Arab Emirates. Libya comes on strong and shifts the balance of power. The countries themselves started flexing their muscle, pressuring the companies into price and production ultimatums. OPEC was finally having the influence they had always hoped for, but they had to deal with rogue nations- Libya and Venezuela. On a global scale however, there were other challenges- mainly demand was catching up with supply and the surpluses and buffers that existed for a while were rapidly dwindling.

Dependency on foreign oil increased, and there was an alarming decrease in the margin of error. Any glitch in the supply chain, even if the supply of oil was sufficient, could cause shortages and stresses. It was more than finding recoverable oil, it also needed reliable transportation, refining, and distribution systems to be working optimally.

Helping the supply/demand issue was the discovery of North Sea oil fields and the incredible find on the North Slope of Alaska. These two areas would become two of the most productive oil regions in the world for many decades to come. And not being in the Middle East or in areas of political instability provided a supply line less threatened by conflict. Not all was hunky-dory though as these areas were very challenging technologically to develop, and the environmental movement was introducing roadblocks and barriers. Companies who were extremely competitive saw that “the enemy of my enemy is my friend,” and decided to work together to push back against the governments of the oil producing countries to avoid being completely overrun. Both countries and companies realized that joint “participation” in development was better than nationalizing the oil industry. Countries didn’t want to become de facto oil companies and the existing companies wanted to participate in the producing regions and get the oil to global markets. It was just smarter to work together in a more productive fashion, than take adversarial roles that would not help anyone. Unfortunately, oil consuming and importing countries, especially the US, didn’t seem to notice the writing on the wall and downplayed the growing threats to reliable and secure oil supplies from abroad. As we will learn, that proved to be a fatal error, and one that we seem to be repeating again in the 2020s.