Exploitation of Oil A History of Entrepreneurs Who Made it Happen

1
Exploitation of Oil A History of
EntrepreneursWho Made it Happen
-What does it all mean to us all?
Christopher G. St.C. Kendall
2
Texts on History of Petroleum Exploitation
3 books set Middle East petroleum scene "The
Prize The Epic Quest for Oil, Money Power" by
Daniel Yergin Records history of petroleum
Industry in USA, Baku, Middle East. "Sowing
the Wind The Seeds of Conflict in the Middle"
by John Keay. Chronicles activities of British
their allies... "A Peace to End All Peace The
Fall of the Ottoman Empire and Creation of the
Modern Middle East" by David Fromkin. Records
why British decided to move on Ottoman Empire and
results..... These are well written, easy to
read informative histories!
3
Current Middle East Reserves
Crude Oil(BB) - Natural Gas (TCF)

• Saudi Arabia 263.5 bbls 204.5 Tcf 8 Years
• Iraq 112 bbls 109 Tcf
• UAE 97.8bbls 212 Tcf
• Kuwait 96.5 bbls 52.7Tcf
• Iran 89.7 bbls 812.3Tcf
• Oman 5.3 bbls 28.4 Tcf
• Yemen 4.0 bbls 16.9 Tcf
• Qatar 3.7 bbls 300.0 Tcf
• Syria 2.5 bbls 8.5 Tcf
• Bahrain 0.1 bbls 3.9 Tcf
• TOTAL 675.1 bbls 1,748.2 Tcf

Most of these countries fields are in carbonates
4
World Petroleum Exploitation

• Non-OPEC countries produced 60 of world's oil in
  2005 with a steady increase since 1993
• Currently only 4 (Saudi Arabia, Iran, UAE,
  Venezuela) of top 10 oil producers were OPEC
• Most prolific producers are Saudi Arabia 11,
  Russia 9, USA 8, Iran 4, Mexico 4, China 4,
  Canada 3, Norway 3, UAE 3, Venezuela 3, Kuwait 3,
  Nigeria 3, Algeria 2, Brazil 2
• Non-OPEC countries have most of world's capacity
  for refining crude oil into gasoline heating oil

5
Iraq's Role?
Thomas Homer-Dixons Conflict Model Environmental
Scarcity ---gt Social Effects ---gt Violent Conflict

• U.S. War Against Terrorism in a deadly phase
  spreading across Middle East
• Middle East a geopolitical cauldron - Caspian
  States on eastern flank Mediterranean on
  western flank bridge between Europe, Africa
  Asia
• Important current battlefields within region
  include Iraq Iran, West Bank, Somalia, Sudan
  Afghanistan

6
World Petroleum Exploitation

• As of January 2004, OPEC countries hold 77 of
  world's proven oil reserves
• Most major non-OPEC oil producers are very large
  consumers, low exporters
• World 84 - USA consumes 20.73, imports 13.15
  exports 1.048 million bbl/day
• Persian Gulf OPEC has the world's lowest oil
  finding lifting costs
• Non OPEC oil liable to price collapse e.g. Russia
  etc
• Consumption grows 3 annually

7
Commodity Scarcity

• Exploration potential
• Gulf coast West Texas for small US companies
• Oil shales of Western USA Athabaska tar sands
• Employment in exploration builders of
  exploitation models of current oil fields in
  Secondary Tertiary recovery mode!
• At least 1 of you in this room should be
  millionaires before you retire!

8
Oil Time Line Important Events

• 1850 - 1910 Kerosene the fuel of choice
• 1869 Suez Canal opens
• 1878 Electric Light
• 1908 Auto Boom starts
• 1912 UK Navy uses Oil
• 1914 1918 WWI
• 1920 9 million vehicles U.S
• 1938 1945 WWII
• 1948 Israel born
• 1948 1st Arab Israeli War

• 1948 US Net Oil Importer
• 1952 Iran Oil Nationalized
• 1956 Suez Nationalized
• 1956 2nd Arab - Israeli War
• 1960 OPEC founded
• 1967 3rd Arab - Israeli War
• 1969 Qaddafi coup
• 1978 Khomeini coup
• 1980 Iraq Iran War
• 1990-91 1st US - Iraq War
• 2003 - 2nd US - Iraq War

9
History of Petroleum Exploitation

• How Seeps (Oil Springs), Wells - Hand Dug
  Drilled (Percussion Rotary)
• Where Asia, Middle East, Europe America
• Use Heat, Paving, Light, Kerosene, Transport
  (Ships and Automobiles)
• Entrepreneurs John Rockefeller, Nobels,
  Rothschilds, Marcus Samuel, William DArcy, Henri
  Deterding, Calouste Sarkis Gulbenkian
• Movers Stalin, Ford, Fisher, Churchill, Ibn
  Saud, Mossadegh, Shah Reza Pahlavi, Nasser,
  Khomeini, Mohammar Qaddafi, Saddam Hussein

10
The Players

• John Rockefeller
• Rothschild
• Nobles Robert, Ludwig, Alfred
• Marcus Samuel
• William DArcy
• Henri Deterding
• Calouste Gulbenkian

Standard Oil
Nobel Brothers Oil
Baku Oil
Persian Oil
Shell Transportation
Royal Dutch Shell
5 Arabian Oil
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Movers Shakers
Winston Churchill

• Henry Ford
• Jackie Fisher
• Winston Churchill
• Ibn Saud
• Dr. Mohammad Mossadegh
• Shah Reza Pahlavi
• Gamal Abdel Nasser
• Ayatollah Ruhollah Khomeini
• Mohammar Qaddafi
• Saddam Hussein

Admiral Fisher
Henry Ford
Ibn Saud
Mossadegh
Shah
Qaddafi
Gamal Abdel Nasser
Saddam Hussein
Khomeini
12
Early History of Oil Monopolies

• Appalachians Key Elements
• Rail Boom of US (1830-1860)
• Refining of Oil for Kerosene (1850)
• Oil Boom after Drakes well (1859)
• Standard Oil Incorporated (1870)
• Light bulb of Thomas Edison (1878)
• Baku Key Elements
• Rail Boom of Russia (1830-1917)
• Refining of Oil for Kerosene (1830)
• Oil Boom with Nobel Brothers Incorporation (1875)
• Tanker "Zoroaster" (1877) Pipeline (1897-1907)
• World Wide Key Elements Spindletop (1901)
• Suez Canal Built (1869)
• Henry Ford Mass Produces Cars (1908) 9m (1922)
  Royal Navy Converts to Oil (1912)

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Early History - Appalachians
1855 assist bookkeeper Hewitt Tuttle, quickly
cashier bookkeeper
Dr. Abraham Gesner 1849 Distills Kerosene from
Oil - Whale Oil Ends
Drakes well (1859)
1830-1860 US Rail Lines boom
1860 1875 Oil Boom
14
Standard Oil Monopoly Grows
John Rockefeller - Timeline

• 1867 Rockefeller Andrews absorbed William
  Rockefeller's refinery, Henry M. Flagler joins
  partnership
• 1870 Standard Oil Company forms - John D.
  Rockefeller president, William Rockefeller,
  Flagler, Andrews Stephen Harkness
• 1870 Uses South Improvement Company secret
  rebates for better rates with Pennsylvania
  Railroad (PRR), Eire, New York Central
• Standard Oil organization buys-up opposing
  interests, or guarantees financial security
  jobs as partners gaining a monopoly on oil
  production in US
• 1882 Separate companies organized in each state
• 1890 Standard Oil controlled over 90 of refined
  oil in USA
• 1895 Rockefeller retires from active business
  but keeps his title as president till 1911

15
Standard Oil Monopoly Ends
John Rockefeller - Timeline

• 1900 Mergers made Standard Oil the largest
  company in U.S. with fields located in U.S. Began
  exporting products to Europe Far East competing
  with "Shell" Transport Trading Company Royal
  Dutch Petroleum Co.
• 1901 Jan 10 Spindletop's discovery
  uncontrolled exploitation busted Standard Oil)
  monopoly in U.S. so now it competed with Shell
  Transport Trading, (begun life ferrying oil
  produced by Rothschilds and Nobles in Baku to Far
  East and Western Europe) and Royal Dutch
• 1903 Royal Dutch Shell Oil established the
  jointly owned Asiatic Petroleum Company Limited
  to combat Standard Oil.
• 1911 May 15 Supreme Court US sees Standard Oil,
  now holding 64 of oil market, as a monopoly
  orders form some 37 new companies

16
Early History of Oil Monopolies

• Appalachians Key Elements
• Rail Boom of US (1830-1860)
• Refining of Oil for Kerosene (1850)
• Oil Boom after Drakes well (1859)
• Standard Oil Incorporated (1870)
• Light bulb of Thomas Edison (1878)
• Baku Key Elements
• Rail Boom of Russia (1830-1917)
• Refining of Oil for Kerosene (1830)
• Oil Boom with Nobel Brothers Incorporation (1875)
• Tanker "Zoroaster" (1877) Pipeline (1897-1907)
• World Wide Key Elements Spindletop (1901)
• Suez Canal Built (1869)
• Henry Ford Mass Produces Cars (1908) 9m (1922)
• Royal Navy Converts to Oil (1912)

17
Caspian Sea
Arab Scholars Marco Polo report civilized man
using oil seeps on Abseron Peninsula as source
of light fuel
Volga Delta
Abseron Peninsula
With industrialization 1830-1901 became worlds
largest source of kerosene oil
Baku
Zagros Mountains
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Early History - Baku
Rothchild
1880s Invests in Oil Exploration, Refineries,
Rail Ships
1830-1917 Rail Boom of Russia
Tsars Alex II III
Invest in Oil Rail
Nobel Brothers Oil
1878 - Bibi-Heybat?
1897 - 1907 Nobels Kerosene Pipeline
1875 Nobels Invest in Oil, Exploration
Refineries,
1883 Rothchilds Railway
1877 Nobels Invest Tankers
1875 Invest in Kerosene Flimsies
19
Baku Oil Monopoly Grows
Nobels Rothchilds - Timeline

• 1873 Russia used Nobels guns which needed a
  supply of walnut wood for gunstocks from Caucasus
  region. Oil fever just began in Baku Robert saw
  profit brought a small refinery kerosene
  plant with "walnut money"
• 1879 With his younger smarter brother Ludwig
  founded Nobel Brothers' Oil Producing
  Extracting Company.
• Ludwig, organized engineered modern technology
  related to oil production. Built 1st tanker,
  Zoroaster, in Caspian Sea reducing transport
  expenses. Success led to tanker fleet (including
  Moses, Spinoza, Darwin) further increasing
  turnover with Nobels supplying Russia with Baku
  oil via rivers Caspian Sea. Ludwig 1st to
  introduce railway tanks for oil transport.
• 1879 Built a pipeline reducing transport
  expenses by five, paying for itself in a year.
  Built iron oil reservoirs with tank parks in Baku
  other cities.
• 1880's Rothschild's interests in Baku supply
  their refinery on Adriatic with Russian oil. In
  exchange built a railroad from Baku to Black Sea
  port of Batum. Baku oil now major world supplier
  new railroad meant Rothschilds had more oil
  than they could sell now competing with
  Standard oil, sought markets east of Suez.
• 1890 Baku now busiest port in world.

20
Baku Oil Monopoly Lives
Nobels, Rothchilds, Shell Standard Oil

• 1878 Marcus Samuel expanded from antiques,
  curios, bric-a-brac, exotic sea shells to
  selling cased Russian kerosene in Far East,
  top-selling fuel in world used for lamps and
  stoves
• Standard Oil under priced competitors to defend
  its Asian markets controlled almost all worlds
  supplies.
• 12 years later Samuel visited Baku with
  Rothschilds thought to export oil to Far East
  via Suez Canal (opened in 1869), countering
  Standard Oil competition in region. Built eight
  tankers that met safety regs. of canal to
  Singapore Bangkok after noticed harbor in
  Constantinople jammed with tankers loading
  Russian oil. Rejected Standard's acquisition
  overtures, Samuel created "Shell" Transport
  Trading in 1897.
• 1898 Rothschild brothers formed Mazut
  Transportation Society by 1912 owned 13 large
  tankers in Caspian with auxiliary ships
  partnered with Shell to transport excess kerosene
  to Far East.
• 1900 Nobel Brothers Rothchild's have oil
  production exceeding US
• 1901 Jan 10 Spindletop's discovery meant that
  Shell Transport Trading, that had been ferrying
  oil produced by the Rothschilds and Nobles in
  Baku to the Far East Western Europe could
  compete directly Standard Oil at a favorable rate
• 1903 Royal Dutch Shell established jointly
  owned Asiatic Petroleum Company Limited

21
Joseph Stalin
1893
1903

• 1879 December 9 - Joseph Vissarionovich
  Djugashvili (Stalin) was born in Gori, Georgia.
• 1888-94 Elementary clerical school in Gori.
• 1894 Begins studies at Tiflis Theological
  Seminary.
• 1895 Contacts groups of Russian Marxists exiled
  to Transcaucasia by tsarist government.
• 1896-1898 At Theological Seminary in Tiflis
  gathers Marxist students studies Marx, Engels,
  Lenin.
• 1898 January formed workers' Marxist circle in
  Central Railway Workshops of Tiflis.
• 1899 May 29 Stalin expelled from Tiflis
  Theological Seminary for propagating Marxism.
• 1898-1904 Organized, directed revolutionary
  activities, writes leaflets, lead strikes sent
  to Siberia received letter from Lenin escaped
  back to Baku to lead general strike of Baku
  workers.

22
Baku Oil Monopoly Dies

• 1903 1904 Oil worker strikes common against
  Tsar
• 1904 Baku kerosene supplied 47 of needs of UK
  71 of France
• 1905 Revolution halts production at Baku by oil
  worker strikes Josef Dzhugashvili (Josef Stalin)
  exiled to Siberia
• 1911 Musavat party urges a Muslim state with
  Azerbaijan under Turkey
• 1914-18 Baku oilfields oil refineries control
  by Shell Nobel Brothers, supply Russian Army.
  UK interest in Transcaucasia oil-rich area
• 1917 Armed intervention, aimed at Bolsheviks in
  Transcaucasia East to gain control of Baku's
  oil, discussed in London. Henri Deterding, Shell
  president, buys shares of largest oil producers
  who fled Baku after Oct revolution. Sets up
  military-political mission in Iran with General
  Dunsterville
• 1918 March pogroms against Azerbaijanis by
  Armenians Bolsheviks in Baku. Declaration of
  Baku Commune establishes links with Moscow
  recognizes role of Russian Federation .
• 1920 April 28, Bolsheviks seize power in Baku
  Nobels sell most of Russian holdings to Standard
  Oil (NJ). Standard Oil protests nationalization
  refuses cooperation with Soviet government.
  Mobil, invests in Russia. Continued inflow of
  Western funds help Russian oil production to
  recover, by 1923 oil exports climb back to
  pre-revolutionary levels.
• 1920 Roughly 9 million gas-burning vehicles now
  in the U.S

23
Early History of Oil Monopolies

• Appalachians Key Elements
• Rail Boom of US (1830-1860)
• Refining of Oil for Kerosene (1850)
• Oil Boom after Drakes well (1859)
• Standard Oil Incorporated (1870)
• Light bulb of Thomas Edison (1878)
• Baku Key Elements
• Rail Boom of Russia (1830-1917)
• Refining of Oil for Kerosene (1830)
• Oil Boom with Nobel Brothers Incorporation (1875)
• Tanker "Zoroaster" (1877) Pipeline (1897-1907)
• World Wide Key Elements Spindletop (1901)
• Suez Canal Built (1869)
• Henry Ford Mass Produces Cars (1908) 9m (1922)
• Royal Navy Converts to Oil (1912)

24
Central Asian Middle East Oil
Batum
Baku
Kirkuk
Suez
MIS
25
British Navy Petroleum
Fisher
Churchill

• John Arbuthnot Jackie Fisher 1st Baron Fisher
  (Jan 25, 1841 July 10, 1920), joined Navy in
  1854 as 3rd Sea Lord built 1st destroyers, 1902
  2nd Sea Lord, in 1905 1st Sea Lord when Germany
  Britain in naval arms race. Preferred
  battlecruiser with speed not amour, introduced
  submarines converted from coal to oil fueling
• Winston Churchill After career as journalist, in
  army and then parliament, in 1912 became 1st Lord
  of Admiralty ordered conversion from coal to
  oil
• 1901 Spindletop's discovery lead to Shell
  Transport Trading needing sales

26
Oil Fords Automobile

• 1896 Ford had constructed his first horseless
  carriage which he sold in order to finance work
  on an improved model.
• 1908 Ford T in production, price as low as 280.
  Nearly 15,500,000 sold in the United States. The
  Model T heralds beginning of Motor Age and the
  car has evolved from luxury item for the
  well-to-do to essential transportation for the
  ordinary man
• 1920 Roughly 9 million gas-burning vehicles now
  in the U.S

27
Zagros Mountains

• Abundant Oil Seeps
• Abundant Anticlines

28
Iranian Negotiations Begin

• Jacques de Morgan An archeologist noted oil
  seeps in western SW Persia.
• 1901 A friend of Persian grand vizier, Antoine
  Kitabgi, Persian commissioner-general of Paris
  Exposition 1900, thinks local oil industry will
  develop. Helped Baron Julius de Reuter with
  Iranian government concessions that failed.
• 1901 Asked Sir Henry Drumond Wolff, once UK
  minister in Tehran, locate UK investor for oil
  concession.
• 1901 UK William Knox D'Arcy (with Australian
  gold mining fortune) acquires 60 year oil
  concession for all Persian Empire except Russian
  border.

29
Masjid-i-Suleiman
DArcy

• 1905 Burma Oil Comp supplies D'Arcy with more
  finance
• 1908 Oil at Masjid-i-Suleiman
• 1907 Royal Dutch Shell incorporated (60RD -
  40Sh)
• 1909 Anglo-Persian Oil Company forms to develop
  field
• 1911 138 mile pipe Masjid-I-Suleiman - Abadan
  refinery
• 1912 Anglo-Persian 10-year contract with Royal
  Dutch-Shell as outlet for crude oil products
• 1914 Anglo-Persian contract to supply Navys
  ships UK government invest 2 million becomes
  major shareholder
• 1915 Anglo-Persian forms British Tanker Company
  at end of WW I owns a shipping fleet
• 1917 Anglo-Persian buys British Petroleum
  Company, acquiring a marketing organization for
  products founds a research centre at
  Sunbury-on-Thames in UK

30
Calouste Sarkis 5 Gulbenkian

• 1869. March 29th Wealthy Armenian family in
  Istanbul, Banker father imported Russian kerosene
  to Ottoman empire. Educated in Turkey, France
• 1897 Engineering degree, London Kings's College
• 1898 Financial oil advisor to Turkish
  embassies Paris London
• 1902 Becomes British Citizen
• 1907 Helped form Royal Dutch Shell (60RD -
  40Sh)
• 1908 Organized UK Dutch Oil Cos as Turkish
  Petroleum Co. Called Mr. 5 from holdings
• 1910 Consultant to Turkish National Bank pushing
  Oil exploration in Iraq opening up Middle East

31
Calouste Sarkis5 Gulbenkian

• 1928 Post WWI architect of Red Line Agreement
  with British (Persian Oil), Anglo-Dutch (Shell),
  French (CFP) US (Exxon Mobil) joint venture
  in former Ottoman empire producing areas except
  Kuwait Iran for 5 of all oil found.
• Oil in Iraq Saudi Arabia made him one of
  world's richest men.
• Avoided taxes by shuttling between Ritz Hotel in
  London Ritz in Paris.
• Diplomatic status as accredited to Iraqi embassy
  of London exempting from taxation
• Formed Gulbenkian Foundation in Portugal and
  supported the Arts

32
Red Line Map of Gulbenkian
33
The Gulbenkian TPC Agreement
34
Oil British Fleet - Iraq

• 1908 discovery of giant Masjid-I-Suleiman by
  Anglo-Persian Oil Co reinforces potential of
  Mosul Vilayet
• 1909 Sultan deposed within 24 hours of
  Anglo-Persian signing concession for Mosul
  Vilayet
• 1912-1913 UK Government proposes Royal Navy be
  oil powered so needs own source
• 1914 Government has Anglo-Persian join TPC with
  50 interest while buying controlling interest of
  Anglo-Persian

35
Iraq Exploration - Events

• 28 June 1914 Grand Vizier sends letter to UK
  German Governments proposing to issue concession
  to TPC
• 1920 Treaty Of Sevres
• German interests in TPC assigned to France
• Government of Iraq promised 20 of TPC
• US Government objects to exclusion of American
  Companies
• 1923 Treaty of Lausanne Iraq becomes British
  Mandate but status of Mosul Vilayet unresolved
• 1923 TPC Starts Negotiations with Government
• March 1925 Signing of Concession with TPC, later
  Iraq Petroleum Company but with no Iraqi direct
  interest

36
Iraq Petroleum Company (IPC) Shareholders
Shell (Anglo-Dutch) 23.75 BP (British) 23.75
(Anglo-Per Anglo-Iranian) CFP (French)
23.75 (now Total Fina Elf) Exxon (US)
11.875 (now Exxon-Mobil) Mobil (US) 11.875
(now Exxon-Mobil) Gulbenkian (Independent)
5 Companies also agreed not to compete with
each other through most of previous Turkish
Empire, including Saudi Arabia Exxon Mobil
reneging on agreement when they formed Aramco in
Saudi Arabia in 1930s.
37
The Way it was!ResultsofTreatyofSevres
38
Iraq First Major Discovery
14th October 1927 Baba Gurgur 1 (Kirkuk 1)
The 6th Exploration Well Spudded after Concession
was granted in 1925 Well blew wild at 90,000
bbls/Day Reserves of some 17 Billion barrels in
Tertiary Cretaceous 13th October 1927,
Qaiyarah-1, 4000 Bopd, 120 API
39
History of Petroleum Exploration

• 1933 Chevron acquired a lease to explore in
  Saudi Arabia
• 1938 Steineke found oil at the Dammam dome
• 1938 Oil was first discovered in Kuwait
• 1939 Chevron had production exported the first
  oil
• 1939 Oil is discovered in Qatar

The start of the golden age of US involvement
with exploration for foreign cheap oil
40
Oil Time Line Important Events

• 1850 - 1910 Kerosene the fuel of choice
• 1869 Suez Canal opens
• 1878 Electric Light
• 1908 Auto Boom starts
• 1912 UK Navy uses Oil
• 1914 1918 WWI
• 1920 9 million vehicles U.S
• 1938 1945 WWII
• 1948 Israel born
• 1948 1st Arab Israeli War

• 1948 US Net Oil Importer
• 1952 Iran Oil Nationalized
• 1956 Suez Nationalized
• 1956 2nd Arab - Israeli War
• 1960 OPEC founded
• 1967 3rd Arab - Israeli War
• 1969 Qaddafi coup
• 1978 Khomeini coup
• 1980 Iraq Iran War
• 1990-91 1st US - Iraq War
• 2003 - 2nd US - Iraq War

41
History of Petroleum Exploration

• Oil became commodity of military success
• In Second World War Germany controlled the oil of
  Romania
• Wanted to acquire Baku (Russian) Persian Gulf
  (British Empire)
• BP was active in Middle East retained control
  of Persian Gulf until the USA acquired
  exploration concessions in Saudi Arabia (5)
• Cheaper oil for all!!!

42
Center of Gravity
1944
De Golyer The center of gravity of world oil
production is shifting to the Middle East 1945
- Ras Tanura Refinery begins operations
eventually becomes largest refinery in world
43
Petroleum What to do in the Middle East?

• US government to acquire direct ownership
• US government to negotiate an agreement with
  British
• Allow private companies to conduct the business

44
Yalta
1st Option Ruled out 2nd Option Before going
to Yalta, Roosevelt withdrew it
from Senate 3rd Option Won
45
Growing Demand Rising Production
1945 26 million cars 1950 40 million cars
Many new discoveries
USA
1948
Net exporter
Net importer
46
History of the Oil Price
47
March 12th, 1947 Truman Doctrine

• New Aramco Socol, Standard Oil of NJ, Texaco,
  Socony
• Gulf Oil Shell in Kuwait
• Iranian contract between Anglo Iranian Standard
  Oil,
• Socony

48
Europe in crisis Marshall Plan
49
Birth of Israel
1946 June - Oil giant Burgan field discovered
1948 May 14 - First Arab - Israeli war
1951 May - 1st shipment of Kuwait crude oil
50
King Ibn Saud

• Ibn Sauds Dilemmas -
• Birth of Israel
• US guarantee of Saudi Arabian independence
• Soviet threat

51
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?
52
Stress on Seven Sisters or Big Oil
50-50 Deal, December 1950 But the producing
countries wanted more money and power!
53
Korean War - Iranian Card
Iran 40 of Middle Eastern oil Weak Shah US
interest Korean war British hatred Nationalizat
ion, May 1951, Mossadegh (Mossy)
54
History of the Oil Price
World events, 1947-1973
55
Dr. Mohammad Mossadegh
King Reza Pahlavi
Expropriation vs. economic warfare, 1952 No oil
export, no money, economic trouble Law and order
collapsing Mossadegh turned to Moscow U.S. and
British assisted coup Shah regained power Oil
consortium Jersey, Socony, Texaco,
Standard of California, Gulf
Shell CFP Anglo
Iranian Result USA becomes major player in
Middle East, 1954
56
Suez
Suez represented the post-war petroleum
order 2/3 of Europes oil passed through
Suez 2/3 of traffic in Suez was oil
57
Gamal Abdel-Nasser
1952 A coup removed King Farouk 1954 Colonel
Gamal Abdel Nasser became dictator
Rejected Western involvement Pan-Arabism Greatest
international crime the creation of
Israel Acquired weapons from the Soviet block
58
Aswan
Whether to build the Aswan dam?
US rejected Revenge expropriation of Suez Canal,
July 26, 1956
The French and British wanted military action!
Eisenhower did not want war!
59
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
1956 - Aramco confirms scale of Ghawar and
Safaniya
1958 - Oil found in the Abu Dhabii
60
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
61
Stress on Seven Sisters or Big Oil
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
62
History of the Oil Price
Middle East and OPEC events, 1947-1973
63
History of Petroleum Exploration

• September 1960, Organization of Petroleum
  Exporting Countries (OPEC) founded in Baghdad,
  Iraq
• OPECs proposed to unify coordinate members'
  petroleum policies
• OPEC members' national oil ministers meet
  regularly to discuss prices
• Since 1982 set crude oil production quotas

64
History of Petroleum Exploration

• Original OPEC members include Iran, Iraq, Kuwait,
  Saudi Arabia, Venezuela
• Between 1960 1975, expanded to include Qatar
  (1961), Indonesia (1962), Libya (1962), United
  Arab Emirates (1967), Algeria (1969), Nigeria
  (1971)
• Ecuador Gabon were members of OPEC, but Ecuador
  withdrew in December 1992, Gabon followed suit
  in January 1995

65
History of Petroleum Exploration

• Current 11 OPEC members are Algeria, Indonesia,
  Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi
  Arabia, United Arab Emirates, Venezuela
• Produce some 40 world's oil
• Have more than 77 world's proven oil reserves
• OPEC also holds most of world's excess oil
  production capacity

66
OPEC
End of 1950s Soviet Union second largest oil
producer
Oil companies cut prices
OPECs aim in 1960

• Build national refineries
• National integrated oil companies
• Stabilize market for themselves, 60-40 share

67
Six Day War
1960s more discoveries in Africa, large oil
surplus
Nassers prestige 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
68
Oil embargo against Israels friends
Arab oil decreased by 60 No effect oil is
abundant, cheap Embargo lifted in September
69
Richard 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, replaced by
floating exchange rates
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
70
Muhammar Qaddafi
Occidental Petroleum discovered oil in Libya in
1966
Qaddafi coup, 1969 Increase in oil price All the
countries increased their profit share
71
Anwar Sadat Yom Kippur War
Egypt was bankrupt when Nasserism ended Sadat
wanted to restore order make peace with
Israel Israel disinterested because of its 1967
success
1973 Yom Kippur war
72
Watergate
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
73
No Stress on Seven Sisters or Big Oil
Boom times Alaska, Mexico discoveries North Sea
the biggest play of all
74
Ayatollah Ruhollah Khomeini
Iran too much money corruption, chaos,
political tensions Shah represented
modernization
Shiite fundamentalists hated US as main ally of
Shah Escalating chaos in oil industry By December
1978 no oil exports from Iran Shah
escapes February 1, Khomeini returns to Tehran
75
Jimmy 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
76
Hostages
November 4, 1979
Hostage crisis
Shah allowed into USA for medical treatment
West, especially USA seemed very weak
Soviets invaded Afghanistan
Price 45
77
History of the Oil Price
World events, 1973-1981
78
Saddam Hussein of Iraq
September 22, 1980 Iraq attacks Iran
Early 80s Two drastic changes Huge investment
in exploration Decreasing demand Result oil
surplus
June 1982 Lebanon war
Golden age for oil geologists
79
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
80
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
81
History of the Oil Price
World events, 1981-1999
82
History of Petroleum Exploration
OPEC suspended price band after Sept 11 believing
stability of market more important than OPEC
price target. Officially suspended Jan 2002 but
basket price again within band, OPEC members
speak again of keeping prices within
22-28/barrel range
83
World Petroleum Exploitation

• Non-OPEC countries produced 60 of world's oil in
  2005 with a steady increase since 1993
• Currently only 4 (Saudi Arabia, Iran, UAE,
  Venezuela) in top 10 oil producers were OPEC
• Most prolific producers are Saudi Arabia 11,
  Russia 9, USA 8, Iran 4, Mexico 4, China 4,
  Canada 3, Norway 3, UAE 3, Venezuela 3, Kuwait 3,
  Nigeria 3, Algeria 2, Brazil 2
• Non-OPEC countries have most of world's capacity
  for refining crude oil into gasoline heating oil

84
History of Petroleum Exploration
Cheap transportation in USA essential to maintain
even the most rural subsistence economy!
85
World Petroleum Reserves
86
Iraq's Role
87
Iraq's Role

• "By 2010 we will need a further 50 million
  barrels a day. The Middle East, with two-thirds
  of the oil and the lowest cost, is still where
  the prize lies." - US Vice President Dick Cheney,
  as Halliburton chief executive officer, London,
  fall 1999
• From cynics perspective Bush Cheney's Iraq war
  may be over its Mission Accomplished
• Costs of over trillion dollars spent, anywhere
  from 50,000 to 500,000 Iraqis 3,161 US military
  dead

88
Iraq's New Petroleum Laws
From 1972 to 1975 Iraqi resources Nationalized.
Replaced by production sharing agreements (PSAs)
- Operating Companies get up to 75. Sixty-five
of Iraq's roughly 80 oilfields open for bid.
National revenue distribution Kurds in north,
Shi'ites in south and Sunnis in center. Most of
reserves are in Shi'ite-dominated south, Kurdish
north holds the best explartion prospects New
Law drafted by US consultants hired by USA
administration vetted US Oil, International
Monetary Fund, former US deputy defense secretary
Paul Wolfowitz' World Bank, US Agency for
International Development. Original language
English, not Arabic. Iraqi oil to be controlled
by "Federal Oil and Gas Council", oil experts
from inside outside Iraq, includes US
executives. Iraqi public overwhelming
majority of Parliament members out of loop.
89
Iraq's Role
Thomas Homer-Dixons Model For Conflict Environmen
tal Scarcity ---gt Social Effects ---gt Violent
Conflict

• U.S. War Against Terrorism enters second deadly
  phase spreading to other regions of Middle East
  this year
• Middle East a geopolitical cauldron - Caspian
  States on eastern flank Mediterranean on
  western flank bridge between Europe, Africa
  Asia
• Important current battlefields are located within
  this region- Iraq Iran, the West Bank,
  Somalia, Sudan Afghanistan

90
Iraq's Role

• U.S. hoped to pursue military objectives without
  threat of interrupted oil supply
• Bush secured agreement with Putin to access oil
  from Russia against threats of another OPEC oil
  embargo
• Exploration production booming in Russia as new
  pipelines develop
• ChevronTexaco, BP Amoco, ExxonMobil, Conoco,
  Royal Dutch Shell work with Russia to develop oil
  fields with investment technology
• Saudi relations with USA, worlds largest oil
  importer, strong despite war on terrorism,
  continued problems with Iraq renewed violence
  in Israel Palestine

91
Chokepoints

• Over 30 million barrels/day pass through narrow
  shipping lanes pipelines
• Strait of Hormuz between Oman/Iran - 15.4
  mbbs/day
• Strait of Malacca between Malaysia/Singapore -
  9.5 mbbs/day
• Bab el-Mandab between Djibouti/Eritrea/Yemen 3.3
  mbbs/day
• Suez Canal Sumed Pipeline Egypt connects the
  Red Sea Gulf of Suez - 3.1 mbbs/day
• Bosphorus Turkey - 1.7 mbbs/day
• Russian Pipelines/Ports, e.g. Druzhba - 1.25
  mbbs/day
• Panama Canal Pipeline - 0.6 million mbbs/day

92
IRAQs Role
Crude Oil(BB) - Natural Gas (TCF)
Saudi Arabia 264.3 bbls 204 Tcf Iran 132.5
bbls 94.5 Tcf Iraq 115 bbls 110
Tcf Kuwait 101.5 bbls 55 Tcf

• Washington forecasts a drop in Iraq output to 1.3
  million barrels a day by year end from just under
  2 million in January. Before war 2.6 million
• As military confrontation interrupts Iraqi
  exports, Saudi Arabia other OPEC members
  provide spare capacity to cover shortfalls

93
Conclusions

• As in 1986 1998 Gulf War, Oil prices have risen
  with current US - Iraq War
• OPEC responding by countering Russian moves to
  take market share from Saudi Arabia other
  Middle East producers
• Russia is stronger today than it was in 1986
  more powerful ally but it is depleting its
  reserves
• Islamic world fighting back, namely the terrorist
  element

e.g. Strait of Hormuz could be blocked by sinking
of major oil tankers as threatened by Osama bin
Laden no longer fiction of geopolitical
thriller, as Osama dreams of oil prices of over
100 a barrel!
94
Long-term Conclusions

• Oil industry unable to protect against commodity
  markets speculators benefiting from war
• Oil markets influenced by short-term events of
  war weather, trading tactics of speculators
• Other political geological factors also in play
• Oil is a depleting finite resource
• Non-OPEC oil producers could have huge, long-life
  reserves paralleling production declines
• Small oil companies in USA uniquely positioned to
  make more profit from their assets
• Never the less without care, production of cheap
  oil of West will continue to peak go into
  decline

95
Baku Oil
Standard Oil
Nobel Brothers Oil
Shell Transportation
Long-termConclusions
Royal Dutch Shell
Persian Oil
5 Arabian Oil
As entrepreneurs of 19th century so OPEC, other
producing countries consuming countries all aim
to stabilize the energy market for themselves
from

• National integrated oil companies
• National refineries

96
Conclusions
Now to Supper!