The year 1908 is when oil stocks were first discovered in the Middle East. A fossil fuel that has driven the economy, the diplomacy, the political and the social life of the whole world for more than 100 years now. It has been the reason for a multitude of conflicts and disputes yet additionally the cause of a high level of stability and wellness for all the countries that manage oil revenues. Oil prices change at various speeds, that consequently affect the underlying countries, due to their high sensibility to geopolitical occurrences. Oil, also known as the Black Gold, is the key for supremacy which is highly aware of its past and future accomplishments achieved through a way which was not always equal to the World’s conformity. It is a non-renewable energy source which has negative effects on the environment and at the same time, the economy is crazy about it.
The Middle East’s oil reserves collect half of the World’s supply and are estimated to reach 836 billion barrels total. Saudi Arabia finds itself at the second place for the amount of oil on its territory with 297.7 billion barrels; with the 17% of oil refineries, however, is the biggest oil-exporting country.. Venezuela has got the first place with 303.3 billion barrels. Iran’s oil barrels reach 155.6 accordingly the 10% of the World’s supply. Iraq has got 147.2 billion barrels followed by Kuwait with 101.5 billion barrels. Meanwhile, the United Arab Emirates counts 97.8 billion oil barrels. (May 2020).
The First Approach to Oil
In the early 20th century, oil was first discovered in Persia, Iran, by a British geologist under the UK protection, acknowledging the Middle East countries of the resourcefulness of their territory. Soon multiple new places were crude oil was available were found in countries like Kuwait, UAE or beneath the Caspian Sea.
‘The oil in this region is the greatest single prize in all history’ ( DeGolyer’s 1944).
Oil discovery in the Arab Gulf region determined the country’s potential for the future world influence and finally withdrew a socio-political structure. The ones that held the authority over oil, understood its importance and made it become a growing national income to rely on.
In World War One, the Middle East participation in the oil market didn’t have a long-lasting, nevertheless, prices were improving for most of its duration due to the growing demand for the Oil Curse. Ever after oil started being the strategic resource needed by Europe and supplied by the Middle East which found itself with oil but often without water. The Great Depression was disrupted when Europeans and Americans searched for ways to exploit the area. In the meantime also Middle East countries started fighting for their nationalisation in order to obtain control over their oil resources and have seen conflicts arose. Especially the US which strongly increased the demand. The Saudi Arabia-US conflict slowed down with a solution proposed, where it was stated that the US will protect militarily Saudi Arabia as long as they will provide them with oil supplies. Oil was considered a useful tool to convince the opponents to sign for the most favourable decisions or to use it as a mean for blackmailing the underlying countries or companies; an example of its use was when in 1956, Arab oil-producing countries influenced the decisions of the United Kingdom, France and Israel during the Suez crisis when they invaded Egypt. In 1960 the Organization of the Petroleum Exporting Countries (OPEC) was founded by Venezuela, Iraq, Saudi Arabia, Iran and Kuwait to control the oil production, coordinate petroleum policies and keep stable the market shares. At the beginning OPEC was controlling the 86% of the oil market through the seven sisters, 7 transnational oil companies which dominated the oil industry until the 1970s when new independent oil companies started existing. Then the percentage went down until 76% of oil market control by OPEC which supply could only be contrasted by a multitude of non-OPEC countries, like Japan or the European countries. In 1969 an agreement between Russia and Iraq was signed for the development of a similar pact to the United States – Saudi Arabia pact, where protection is given to a country for an oil supply back.
Oil as a military weapon
The early 70s begun with a stage where Arab states wanted to have a better future and shift from fragmented to united states in order to restore the previous glory taking into consideration that everyone would fight for themselves as long as they will be free from the West. The focus moved on the Persian Gulf. The Arab Gulf included Iraq, Iran, Saudi Arabia, Kuwait, Qatar, United Arab Emirates and Oman and they all became independent from 1971 when the British pulled out signing a treaty of friendship. Britain was their protector for 150 years and no one wanted the British to pull out but at the same no one stood against their leaving. The Arab Gulf countries began to claim for their independence and legitimate representation to individually ensure their authority with Arab nationalism. Britain’s disengagement reintroduced old territorial conflicts which later on led to a multitude of political instabilities like the Arab-Israeli war where oil started being used as a leverage tool like in Iran-Iraq war which dragged the price of oil down causing a recession. Middle Eastern nations stopped exporting oil to the US due to the American alliance with Israel and their attacks on Egypt and Syria. Consequently, OPEC decided to put an embargo on the oil sells against the US that had to face high demand and very low supply, which led to rationings of oil at elevated prices and showed how much the West was reliant on the Middle East. Arab countries provide a multitude of countries with oil: Japan imports 90% of Middle Eastern oil; Europe imports around 85-90% and North Africa almost 70%. Oil producers highly profited from the quadrupled prices which from $3 went up to $12 globally per barrel. When in 1974 the Iran-Iraq war began, the oil prices increased by 100% and the black gold price amounted 40 dollars a barrel. Saudi Arabia was the main oil supplier and became rich as a consequence of the Arab-Israeli war where states demanded oil while it was poorly available in the market. Saudi Arabia managed perfectly how to divide oil from politics and how to manage the trade benefitting from foreign demands. Saudi Arabia was able to radically improve its population’s welfare and wellbeing by modernizing itself and implementing social life. As well as Saudi Arabia also other Gulf countries became millionaires thanks to oil production; the revenues were $1 million a day. The increasing profits in those countries made the economy move exponentially which required a high amount of workers which came from poorer neighbouring countries. Egyptian’s doctors and teachers found jobs and also Bangladesh and Pakistani’s with manual work obtained a way to earn money and improve their lives. When in 1979 the Ayatollah finally gained control over the Middle East’s Iran, the oil price increased by over 150% of its previous value. In 1990 the invasion of Kuwait by Iraq signs the first Gulf War and the price again spikes with a 90% increase which consequently has a global economic slowdown as an effect in the mid-90s of the previous geopolitical actions.
In the early 2000s, the 9/11 happened the attack on the Twin Towers in New York, which provoked the subsequent military US action against Iraq. It rose concerns on Middle East’s instability which led to higher oil prices and economic fluctuation. Throughout the US invasion of Iraq in 2003 prices went up again. The continuous imbalance in the region brought a disruption in the oil supply because of possible worker protests or citizen’s fear of a military action which portrays into the closure of the refineries. When in 2011 the Libyan dictator Mu’ammar Gheddafi, was being defeated, the oil prices drastically went up and were being held very high for a long time due to the extraction suspension for Europe’s supplies so a complete shut down of the production of oil for European countries. The US goal was to take control of the region and to preclude the Middle East states to control oil. Saudi Arabia was a US enemy since the very beginning. They both often tried to destroy each other’s economy. They allied with opponents and they tactically lowered or rose oil prices (2014-2016). In November 2014 during an OPEC meeting, Saudi Arabia stated that they will not cut the production of oil and will continue with high distribution for as much time as it will take the US to slow down their production; the same was done by the US which consequently provided to the market more oil than needed and that could have been consumed. The two pumpers blamed each other for fast pumping efficiency. Recently the ( OPEC) together with Russia decided to balance the oil prices by some production cuts and to buoy the US. When the Iraqi dictator Saddam Hussein, was still alive he invaded Kuwait and was trying to convince Saudi Arabia to do the same. The consequence of this decision would be their control of 20 % of all the global oil production, but it was intolerable and no action was taken.
Nowadays, the price shiftings can be felt, but only for a small percentage change. We came into 2020 with an oil price equal to $61 a barrel, not long after, on January the 8th, the murder of the Iranian general Qassem Soleimani happened, due to military actions between US and Iran, and the price spiked up to $65 a barrel. The coronavirus outbreak forced entire countries to not use cars or aeroplanes, which brought to less oil being burned. At the same time, oil pumpers are producing the same amount of oil, or even more, which caused the lowering of oil prices. Usually, it would have been profitable for oil-burning companies although they cannot benefit from it. Oil consumption has drastically fallen reaching the lowest point in over 30 years. While Saudi Arabia finds itself in a difficult situation, it tries the overproduction to lower prices and increase demand. There is an indirect war going on between the Us and Saudi Arabia and the only thing that worries the citizens is the increasing economic instability. While Saudi Arabia tries to block US economy, President Trump warned the Saudis that they wouldn’t survive without the US protection, making them restabilise the economy, also using legislations which would eventually make Saudi Arabia pay the US over $1 trillion because the anti-trust law sets that it is illegal to set oil prices and to artificially cap oil, like Saudi Arabia and OPEC do.
How will it evolve?
The future of oil companies and industries is still uncertain but the past history gave some hints that can show the possible scenario. A new war based on oil control will be possible, but its effects would not be profitable for anyone. A possible questionable area is the Strait of Hormuz between the Persian Gulf and the Gulf of Oman where disputes and armed conflicts may occur. This strategic point is the only passage to the open sea from the Persian Gulf. From the north, it is controlled by Iran and from the south by UAE and Oman. It is said that around 20-30% of the world’s exported oil passes from this channel. This chokepoint is remarkably tight and the tankers have the need to enter the Iranian national waters to pass through it. On that matter, Iranians have not once provoked to the opponent countries, possible blockades on their territory. If Iran’s military chief would ever decide to take this option into real and effective consideration, the barrel price would rise again to over $100 per barrel having catastrophic effects on the economy. But Iran itself would not stand such a big crisis, Iran’s capital, Teheran, already tries to figure out how to improve the state’s administration, which is facing difficulties due to big sanctions put on Iran for their possible nuclear programmes. That might be the reason why the obstruction still hasn’t happened. Nevertheless, in case of a war explosion, this strategic action of locking the oil market and fighting together with his allies, like Yemen, would put Iran into a definitely good position.
The long-lasting, stable economy in the main Middle East countries gave the possibility to the families to grow. A drastic increase in population led to the point where currently one-third of Saudi Arabia’s population is under age 14 and in Oman 43% are kids. Those numbers are giving a severe future projection of the economic growth rate, job demand will harshly grow as much as unemployment. Its consequences will be seen in many of the Gulf states. The oil production won’t be able to sustain all the requests and moreover, it won’t take long until also this market will cess its activity.
Over the years, there have been implemented new technologies to oppose oil production. Countries began to decrease their demand and started passing to renewable energies, safer for the environment. Currently, they are more expensive than the hydrocarbon but consumers are slowly changing their patterns.
This analysis of oil history showed how many military actions, disputes and fear are key factors in the oil market because they provide unexpected price shocks. Geopolitics together with demand and supply run the trade for energy wars that see the oil as the most valuable commodity and as the source of income due to the energy-centralized world that we live in. This fossil fuel made possible to the majority of Middle East countries to improve their situation, although it is not a long-lasting source of energy and profit. Studies showed that the world’s oil supply will end in fifty years if the fossil-fuel will be continued to be extracted at such a high-speed rate. The damages subsequent to the oil discovery, are more than its effective help to economy and society. Fighting over oil control is a critical factor in contemporary warfare because it keeps all the conflicts burning up and determines the national power. This kind of oil, which took millions of years to be formed, will be entirely consummated in no more than 200 years total. This ongoing powerful force is soon to be finished, and it is just to be seen how, everything that is related to it, will evolve.