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Oil and World Power

Cobb cartoon courtesy of Wild & Woolley.

You hardly hear the word ‘oil’ unattached to the word ‘crisis’. But for whom is it a crisis? To the oil-exporting countries, ‘oil opportunity’ or even ‘oil justice’ may appear more appropriate descriptions.

A Western world accustomed to profiting hugely from a surplus of cheap ‘foreign’ oil may feel outraged when the price goes up. Its economies may be badly rattled. But why, asks Professor Odell, should the ruler of Saudi Arabia feel persuaded that it is his duty to save the civilization of the Christian world after "300 years in which the West had kept its interests very much to itself"? The crucial shift in oil power, from the West to the OPEC states, took place in the early ‘70’s. A detailed examination of the background to this shift occupies the larger part of the book.

According to Odell, the seven major oil companies - six and a half of them American or British - had the oil-trading system cosily sewn up in the first half of the century. High profits were ensured by this unofficial cartel and supply presented no problem: the US was herself the world’s largest oil producer, and she had enough political and military muscle to get Third World oil on her own terms. The USSR, the second largest oil producer, kept her oil to herself. So the ‘Seven Sisters’ were sitting pretty.

But after the Second World War life wasn’t so comfortable. Their spectacular success (in Kuwait they could ‘hardly put a drill in the wrong place’) had brought its own hazards. Possibly the oil companies’ soaring assets hastened the Third World oil producers’ awareness that ‘oil exploration’ had become ‘oil exploitation’; that oil concession rights which ‘virtually gave the US oil companies sovereignty over the territories concerned’ were the weapons of a new imperialism.. Success also spawned more oil companies, the ‘independents’, who wanted to be in on the oil bonanza.

As oil began to flood the markets in the fifties, the US slapped on import quotas to protect her domestic oil industry. But the ‘Fortress America’ policy had the adverse effect of adding to the world surplus. Western Europe and Japan grabbed at the cheap oil, switching their principal energy source from coal to oil. Even the USSR started to trade oil, offering it to consumers like India and Cuba at a rate below the artificially preserved price of US oil, forcing the USA to choose between economic and political advantage.

The oil companies, fearing for their profits, made use of the glut to play one producing country against another, ‘punishing’ governments with nationalistic oil policies. And they dropped the price of crude oil, unilaterally reducing host government revenues.

This was going too far. The shock forced the host countries into realising that as long as they were divided, the oil companies would rule. Collectively, though, they could play the companies at their own game. In 1959, OPEC was born, out of surplus and price weakness.

At first the USA welcomed OPEC. Price hardening was to her advantage. What no-one was prepared for was the traumatic quadrupling of the oil price between October and December 1973 which set the now familiar cry "Oil crisis!" echoing across the airwaves. OPEC was no longer a reactive quasi-trade union, but master, with absolute control over supply and price. Odell clarifies the vital relation between oil power and the Arab-Israeli conflict, showing how the Arabs had changed their use of oil as a weapon.

Whereas in the Suez Crisis Arabs had stopped oil getting through to Israeli­sympathisers, now they allowed most of it through - but extracted a heavy price. These massive oil revenues would benefit them far more profoundly. Even if the oil runs out, in twenty years, or thirty, the investment of hundreds of billions of dollars should bring security. ‘Diversification’ is the name of the new game. It has clearly been an effective policy. The West has been hit where it really hurts - in its pocket. The US has rushed to make peace in the Middle East with a new show of deference to the Arab world, despite the Jewish lobby.

But could oil consumers not retaliate? Odell points out the West’s over­commitment during the years of surplus, and the Third World’s powerlessness. Nepal only uses 20 Ibs of coal-equivalent per person, against the US’s 20,000 lbs. Who would care but Nepal herself if she withdrew her custom?

In two absorbing final chapters, Odell sketches in the present role of oil in international politics and speculates on its future. He ranges widely, taking in the influence of oil sanctions in Rhodesia, pursuing South African interests in Australia and Argentina, asking if China will lay full claim to the East Asian continental shelf. And he maps out vast areas of untapped oil potential which would surely alter the balance of oil power if they were to be developed.

*Anuradha Vittachi*