Y376 IPE:Y376 IPE:Oil PoliticsOil Politics

February 20, 2012February 20, 2012

World Energy World Energy Consumption, 1965-Consumption, 1965-

2005, in Terawatts (TW)2005, in Terawatts (TW)

Projected Future Energy Projected Future Energy UseUse

Top Consuming Top Consuming Countries, 1960-2005, in Countries, 1960-2005, in Million Barrels per DayMillion Barrels per Day

Addiction to OilAddiction to Oil

Figure 9-5. World Consumption of Figure 9-5. World Consumption of Petroleum, 1960-2005, in Millions of Petroleum, 1960-2005, in Millions of

Barrels per DayBarrels per Day

Source: U.S. Department of Energy, Energy Information Agency,International Energy Annual (various years).

OPEC Headquarters, OPEC Headquarters, ViennaVienna

Sheik AhmedZaki Yamani

Table 9-1. Members of OPECTable 9-1. Members of OPEC

Country Membership

Algeria 1969

Angola 2007

Ecuador 1973-92, Rejoined 2008

Indonesia 1962, quit 2009

Iran 1960

Iraq 1960

Kuwait 1960

Libya 1962

Nigeria 1971

Qatar 1961

Saudi Arabia 1960

United Arab Emirates 1967

Venezuela 1960

OPECOPEC

Organization of Oil Exporting Countries

Major Crude Oil Reserves, Major Crude Oil Reserves, 20062006

Source: Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University

Figure 9-4. Production of Crude Petroleum by Figure 9-4. Production of Crude Petroleum by OPEC Countries, 1970-2007, in Millions of OPEC Countries, 1970-2007, in Millions of

Barrels per DayBarrels per Day

Source: U.S. Department of Energy, Energy Information Agency,International Energy Annual (various years).

Figure 9-7. OPEC and Non-OPEC Oil Figure 9-7. OPEC and Non-OPEC Oil Production, 1970-2007, in Millions of Barrels Production, 1970-2007, in Millions of Barrels

per Dayper Day

Source: Department of Energy, Energy Information Agency,International Energy Annual (various years).

Non-OPEC Oil Non-OPEC Oil Production, 1900-2003Production, 1900-2003

Middle EastNorth AmericaLatin AmericaAfricaWestern EuropeFormer Soviet UnionPacific Asia

Major Oil Routes & Major Oil Routes & Chokepoints, 2000Chokepoints, 2000

15

10

3

1

Million barrelsper day

Hormuz

MalaccaBab el-Mandab

Suez

Bosphorus

Panama

Source: Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University

Price of Oil, Nominal and Price of Oil, Nominal and Real Real

1861-2006, $ per Barrel1861-2006, $ per Barrel

Source: Wikipedia.

Oil Prices, 1987-2011Oil Prices, 1987-2011

Figure 9-14.Figure 9-14.U.S. Gasoline Prices in Current and U.S. Gasoline Prices in Current and

Constant 2007 Prices, 1919-2007, in Cents Constant 2007 Prices, 1919-2007, in Cents per Gallonper Gallon

Source: Department of Energy, Energy Information Agency,Short Term Energy Outlook, August 2008.

Gasoline Prices in Gasoline Prices in Pennies per Gallon, Pennies per Gallon,

1973-20101973-2010

Non-OPEC Supply and Non-OPEC Supply and Oil PricesOil Prices

Real Price of Oil and Real Price of Oil and Major Disruptions in Major Disruptions in

World Oil SupplyWorld Oil Supply

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Figure 9-8. U.S. Production, Consumption, and Figure 9-8. U.S. Production, Consumption, and Imports of Crude Petroleum, 1949-2007, in Imports of Crude Petroleum, 1949-2007, in

Millions of Barrels per DayMillions of Barrels per Day

Source: Department of Energy, Energy Information Agency,International Energy Annual (various years).

Challenges to the Seven Challenges to the Seven Sisters and the rise of the Sisters and the rise of the

cartel (OPEC)cartel (OPEC) ““Oligopsony = An Oligopsony = An oligopsonyoligopsony is a is a

market form in which the number of buyers in which the number of buyers are small while the number of sellers in theory are small while the number of sellers in theory could be large.”could be large.” The Seven Sisters were also an oligopsony!The Seven Sisters were also an oligopsony!

“ “A A cartelcartel is a group of formally independent is a group of formally independent producers whose goal it is to producers whose goal it is to fix prices, to , to limit limit supply and to limit and to limit competition.”.”

OPEC OPEC was formed in 1960, but its effects was formed in 1960, but its effects were most dramatic in 1974.were most dramatic in 1974.

OPEC sought to counterbalance the Seven OPEC sought to counterbalance the Seven Sisters.Sisters.

Definitions from WikipediaDefinitions from Wikipedia

Seven Sisters: Old and Seven Sisters: Old and NewNew

Old New

British Petroleum China National Petroleum (China)

Gulf Gazprom (Russia)

Royal Dutch Shell National Iranian Oil Company

Standard Oil of California (Socal/Chevron)

Petrobras (Brazil)

Standard Oil of New Jersey (Esso/Exxon)

PDVSA (Venezuela)

Standard Oil of New York (Mobil) Petronas (Malaysia)

Texaco Saudi Aramco (Saudi Arabia)Chevron acquired Gulf in 1985 and Texaco in 2001Exxon acquired Mobil in 1999The old Seven Sisters became the four “Supermajors”

Conservation Measures Taken Conservation Measures Taken after the Oil Price Shocks of the after the Oil Price Shocks of the

1970s1970s Higher taxes on gasoline and fuel oil Higher taxes on gasoline and fuel oil

in Western Europein Western Europe Fuel efficiency standards for motor Fuel efficiency standards for motor

vehicles in the USvehicles in the US Accelerated adoption of energy-Accelerated adoption of energy-

efficient heating for homes, offices, efficient heating for homes, offices, and factoriesand factories

General substitution of energy-General substitution of energy-conserving technologies for energy-conserving technologies for energy-intensive technologiesintensive technologies

Oil Prices have less impact on US Oil Prices have less impact on US EconomyEconomy

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The Energy Intensity of Output has Declined Markedly

US Demand for All Fuels

This doesn’t mean the US is consuming less oil,

just that it is more efficient at utilizing oil to produce

What Role Did Energy What Role Did Energy Politics Play in September Politics Play in September

11? In…11? In… AfghanistanAfghanistan Central AsiaCentral Asia The Middle EastThe Middle East The Rest of the WorldThe Rest of the World

AfghanistanAfghanistan• Afghanistan itself has few exportable energy resources.

• Its main value from an energy standpoint stems from the fact that it offers a route for Caspian energy to the sea via Pakistan.

• There are large deposits of oil and natural gas in the Caspian Sea region.

• The main problem is getting these resources to markets.

• Pipelines are required to service the large markets in North America, Europe, and E. Asia.

Two Pipelines in Greater DetailTwo Pipelines in Greater DetailMain participants in these two pipelines:

Tengiz to NovorossiyskRussian Federation 24%Repub. Of Kazakhstan 19%Sultanate of Oman 7%Chevron 15%LUKARCO 12.5%Rosneft/Shell 7.5%Mobil 7.5%Agip 2%

Turkmenistan to Pakistan:Unocal, Gazprom, Hyundai,Itochu, Delta Oil (Saudi Arabia)

What is the Role of Saudi Arabia What is the Role of Saudi Arabia within OPEC?within OPEC?

It is the largest single supplier of oil.It is the largest single supplier of oil. The small Saudi population permits The small Saudi population permits

them the luxury of varying the them the luxury of varying the amount of oil that they sell (thereby amount of oil that they sell (thereby controlling prices):controlling prices): When they want the price to increase When they want the price to increase

they sell lessthey sell less When they want the price to decrease When they want the price to decrease

they sell morethey sell more

Figure 9-10. Saudi Export Revenues and Figure 9-10. Saudi Export Revenues and Foreign Currency Reserves, 1960-2005, in Foreign Currency Reserves, 1960-2005, in

Billions of Current DollarsBillions of Current Dollars

Source: World Development Indicators 2007; and Saudi Arabian Monetary Agency, Annual Report, Monetary and Banking Statistics.

What Role Did Energy What Role Did Energy Politics Play in September Politics Play in September

11? In…11? In… AfghanistanAfghanistan Central AsiaCentral Asia The Middle EastThe Middle East The Rest of the WorldThe Rest of the World

AfghanistanAfghanistan• Afghanistan itself has few exportable energy resources.

• Its main value from an energy standpoint stems from the fact that it offers a route for Caspian energy to the sea via Pakistan.

• There are large deposits of oil and natural gas in the Caspian Sea region.

• The main problem is getting these resources to markets.

• Pipelines are required to service the large markets in North America, Europe, and E. Asia.

Two Pipelines in Greater DetailTwo Pipelines in Greater DetailMain participants in these two pipelines:

Tengiz to NovorossiyskRussian Federation 24%Repub. Of Kazakhstan 19%Sultanate of Oman 7%Chevron 15%LUKARCO 12.5%Rosneft/Shell 7.5%Mobil 7.5%Agip 2%

Turkmenistan to Pakistan:Unocal, Gazprom, Hyundai,Itochu, Delta Oil (Saudi Arabia)

What is the Role of Saudi Arabia What is the Role of Saudi Arabia within OPEC?within OPEC?

It is the largest single supplier of oil.It is the largest single supplier of oil. The small Saudi population permits The small Saudi population permits

them the luxury of varying the them the luxury of varying the amount of oil that they sell (thereby amount of oil that they sell (thereby controlling prices):controlling prices): When they want the price to increase When they want the price to increase

they sell lessthey sell less When they want the price to decrease When they want the price to decrease

they sell morethey sell more

Figure 9-10. Saudi Export Revenues and Figure 9-10. Saudi Export Revenues and Foreign Currency Reserves, 1960-2005, in Foreign Currency Reserves, 1960-2005, in

Billions of Current DollarsBillions of Current Dollars

Source: World Development Indicators 2007; and Saudi Arabian Monetary Agency, Annual Report, Monetary and Banking Statistics.

This Puts the United States in a This Puts the United States in a Strange PositionStrange Position

The U.S. wants the price The U.S. wants the price of oil to be low, and it of oil to be low, and it views the Saudis as a views the Saudis as a moderates within OPEC.moderates within OPEC.

Saudi Arabian donors Saudi Arabian donors funded the Mujaheddin funded the Mujaheddin in Afghanistan and many in Afghanistan and many of the Islamic schools of the Islamic schools that were the recruiting that were the recruiting grounds for both Taliban grounds for both Taliban and Al Qaeda fighters.and Al Qaeda fighters.

The Three PeriodsThe Three Periods

Period Dates Type of Governance

Bretton Woods 1945-1971 Hegemonic

Interdependence 1971-1989 Collective

Globalization 1989-present Global

Evolution of SubsystemsEvolution of Subsystems

Subsystems Bretton Woods

Interdependence Globalization

North-North

Creation of US-dominated regimes

Floating replaces fixed exchange-rates; Major challenges to US hegemony

EU expansion and the creation of Euro; the US reemerges as hegemonic

North-South

Bipolar competition

NIEO, OPEC, increasing gaps w/in the South

Rise of Asian NICs and the Washington Consensus

What Happens to Specific What Happens to Specific Regimes?Regimes?

Regimes Bretton Woods

Interdependence Globalization

Monetary Fixed but adjustable rates

Dirty Float Dirty Float; greater concerns about crises

Trade GATT GATT challenged (even by US)

WTO; rise of the anti-globalization movement

Investment Few rules other than retaliation

Period of nationalizations

TRIMs within the WTO; but MAI fails; rise of BITs