CONTENTS
1. Introduction
2. A brief history of oil politics
3. Oil Politics and U.S. Militarism in the Middle East
4. Wars and disputes for oil
5. Oil and the Iraq War
6. Conclusion

Introduction: The modern era of oil production began on August 27, 1859, when Edwin L. Drake drilled the first successful oil well 69 feet deep near Titusville in northwestern Pennsylvania. Just five years earlier, the invention of the kerosene lamp had ignited intense demand for oil. By drilling an oil well, Drake had hoped to meet the growing demand for oil for lighting and industrial lubrication. Drake's success inspired hundreds of small companies to explore for oil. In 1860, world oil production reached 500,000 barrels; by the 1870s production soared to 20 million barrels annually. In 1879, the first oil well was drilled in California; and in 1887, in Texas. But as production boomed, prices fell and oil industry profits declined. The energy source, which made the Industrial Revolution possible in England in the 18th century, was coal. Coal powered the steam engines which drove machinery in the factories, and the steamboats and railroads of the early industrial age. It has continued to power electric generation plants throughout the 19th and 20th centuries. Among the fossil fuels, coal is the most abundant in the earth, but it is also the most polluting. High sulphur and carbon content, and soot, cause coal to be the least desirable of the fossil fuels.
A brief history of oil politics: Oil or petroleum energy applications were first developed in the United States in the 1850,s with the discovery of crude oil in eastern Pennsylvania. After refinement into kerosene, it was used for lighting. The invention of the internal combustion engine in the 1880's, and the refinement of gasoline from crude oil, made possible a revolution in transportation. Gasoline became the fuel which powered the automobile, and the airplane. As new oil reserves were discovered and the fuel became increasingly abundant and inexpensive in the 20th century, it became the preferable alternative to coal for other uses, because it was less polluting and, with the building of pipelines, easier to deliver to the end-user. The development of the petroleum industry began in the United States, because there were large reserves of oil, and the automobile and the airplane were invented in the United States. The development of the United States into a great industrial power in the 20th century was built upon the exploitation of oil. When large new reserves were discovered in Texas in the 1930,s, oil became so abundant, that it was cheaper than water. Six major oil corporations, all based in the United States, came to dominate the oil industry both at home and abroad. The only one of the so-called seven sisters, the seven leading companies in the international oil industry, which was not based in the United States, was British Petroleum. Even larger oil reserves were discovered in the Near East, first in Iraq, in the early years of the century, and then in Saudia Arabia during the 1930,s. Close cooperation was forged between Saudia Arabia, a major producer of oil, and the United States, the largest consumer of oil. The abundance of oil fueled the war effort of the United States and its allies in World War II. Pipelines extended across the United States during the war protected oil deliveries from the threat of the German submarine. By the end of the war, oil had replaced coal as the principal source of energy used to fuel the U.S. economy.

The investment and the technical expertise of the major oil companies gave them a controlling position in determining the rate of production and pricing of oil, both in the United States and abroad. After World War II, there were two price levels that were maintained by the major oil companies. One was a domestic price in the United States and the other was an international price. Reflecting the fact that the United States economy was the first national economy to widely exploit the use of oil, and the first to mass produce automobiles, and the first to develop a civilian airline industry, the United States was the largest consumer of oil. Meanwhile, as Near Eastern oil reserves were tapped, that area became the largest producer of oil. This resulted in a greater abundance of oil abroad than in the United States, which led to the two different price levels. During the 1950,s, the domestic oil market was separated from the international oil market by an import embargo on foreign oil. This was repealed in the 1960,s as oil reserves in the United States diminished. There was such an excess supply over demand in the international market, that it was difficult to prevent prices from dropping. Several of the oil-producing nations, most of whom were located in the Near East, formed an oil cartel known as the Oil Producing Export Countries or OPEC, in order to prevent competition and avoid excessive price drops. Meanwhile, the "Seven Sisters" maintained strict limits on oil production in order to stabilize prices. As the oil industry expanded, a great number of”independent" oil companies were formed. As the number of”independents" increased, it became increasingly difficult to limit production and control pricing.

In 1964, a further element of instability was created by the discovery of rich new reserves of oil in Libya. This oil field was close to the surface and relatively inexpensive to exploit. It was of high quality, low in sulphur content and, therefore, desirable from an environmental perspective. Furthermore, it was located close to the European market and the northeastern United States, both of which were major consuming areas. As Libyan oil came on line, it threatened the ability of the major oil companies to limit production and prevent a price drop. However, the situation changed dramatically when a new leader came to power in Libya. Qaddafi was not willing to abide by the informal rules that governed the relationship between the oil producing governments and the major oil companies. Qaddafi nationalized a majority of the oil properties in Libya, and took control of pricing from the oil companies there. The major companies were not in Libya. It was a large "independent" oil company, Occidental Petroleum, which was primarily affected by the Libyan government action. Occidental might have been able to face down Qaddafi by withdrawing its oil experts from the country and paralyzing oil production. However, to do that, it needed the help of at least one of the "majors". Occidental informed Exxon, the largest of the "majors" that, if Occidental could obtain oil from Exxon at cost, they could afford to oppose the Libyan action. Significantly, Exxon refused. They recognized that Qaddafi's actions had effectively removed the threat Libyan oil posed to the oil production limits set by the "majors". Thus, Qaddafi had asserted control over his nation's oil reserves without retaliation by the oil industry. This set an important precedent.

In 1970, the United States, which had been steadily increasing its oil consumption as the economy grew, was, for the first time, unable to produce as much as it was consuming. From that time on, the United States became a net importer of oil. Dependence on the international oil market meant that the United States was no longer able to export oil in order to stabilize the price.

Oil Politics and U.S. Militarism in the Middle East:

Barely a month after the September 11 attacks, Business Week reminded readers that the U.S. economy was ailing and that the country was more vulnerable to an "oil shock," a reference to the feared hike in oil prices, than it had been at the time of the first Gulf War. The reason was to be found in diminished global reserves, the combined product of U.S. sanctions on Libya and Iran, and "tight national budgets in oil-producing nations." The same journal warned its readers that oil accounted for "40% of the nation's energy." In that light, it recommended diversification of U.S. sources given that the country was importing "51.6% of its oil needs and relies on OPEC for about half of that-roughly 26% of total consumption." The eleven oil-producing states represented in OPEC, in turn, accounted for roughly two thirds of the world's crude oil exports, with Saudi Arabia responsible for 7.8 millions of barrels per day, or 18.9 percent of the "world share" according to a November 2001 estimate. Considered in other terms, Saudi Arabia exported 7.8 millions of barrels per day, followed by Venezuela at 2.7 million barrels per day, Iran at 2.6 million barrels per day, United Arab Emirates at 2.2 million barrels per day, and Iraq at 2.1 millions barrels per day. Among non-OPEC states, Russian production stood at 4.3 million barrels per day, with an estimated 10.4 percent of the world's output, according to the same source. The short history of U.S. policy in the Middle East confirms the centrality of oil and its role in justifying U.S. intervention. The succession of presidential "doctrines" from Eisenhower to Carter to Bush II leaves no doubt as to U.S. commitment to use force in securing its interests, including "regime change." That is precisely what was done in Iran in 1953, when as a result of Iranian Prime Minister Mohammed Mossadegh's nationalization of the Anglo-Iranian oil company, the U.S. and U.K. collaborated in a covert coup to bring down that regime. It was replaced by the Shah, who remained in power until 1979. In 1956 the British and French, along with Israel, invaded Egypt in response to Nasser's nationalization of the Suez Canal Company. Two years later, President Eisenhower resisted the British prime minister's call to intervene in Iraq, where revolution brought down the Hashemite monarchy and the entire political edifice on which it rested, which was a product of the British mandate and continuing British power. Within hours of that event, Eisenhower called for U.S. troops to intervene in Lebanon, then in the midst of its first civil war, while also backing British intervention in Jordan. U.S. action in Lebanon, preceding the events in Baghdad, was designed to assure the emergence of a politically reliable leadership that excluded the socialist Kamal Jumblatt. His leadership, U.S. oil companies feared, would put the U.S. pipeline (TAPLINE) that carried Aramco's oil to the Mediterranean at some risk. Further East, the U.S. was supporting counter revolutionary policies in the Arabian Peninsula in a covert campaign that attracted little attention in the U.S. The U.S. not only armed its allies in Saudi Arabia, but by the early 1970s, Kuwait, North Yemen, Oman, Bahrain, Qatar, and the United Arab Emirates had also become eligible to receive U.S. military assistance. "Everyone has heard of the Bay of Pigs invasion of Cuba in 1961," wrote Fred Halliday in a major work on the Arabian peninsula, "but not its Arabian counterpart-the September 1972 attack on South Yemen, when thousands of right-wing exiles and their tribal allies hurled themselves against the boundaries of the beleaguered anti-imperialist republic." The U.S. relied on Iran during the 1973 oil crisis to send some 10,000 troops into Dhofar province in Oman in order to crush its guerrilla movement. Iran was active in support of U.S. policy outside of the Middle East as well in this period, as the Shah's support for U.S. military action in Vietnam made clear. With the fall of the Shah in 1979 and the emergence of the Khomeini regime in Teheran, Washington's calculations concerning the Middle East underwent a major shock but its objectives did not change. In supporting the repressive regime of Saddam Hussein, the U.S. used Iraq to contain Iran's influence in the Arabian Peninsula and the Middle East, a policy the Saudis actively promoted. To that end Washington, along with its allies and other states with compatible interests, supported Baghdad in the long and bloody war that ensued between 1980 and 1988. These were the very years singled out in the U.S. State Department's information sheet on Iraq's "Crimes Against Humanity." As the statement indicated, the Iraqi dictator "ordered the use of chemical weapons against Iranian forces in the 1980-1988 Iran-Iraq war, and against Iraq's Kurdish population in 1988. The 1980-1988 Iran-Iraq war left 150,000 to 340,000 Iraqis and 450,000 to 730,000 Iranians dead." It was in this very period, between 1981 and 1988, that both Iran and Iraq received arms from foreign sources, including the U.S., the Soviet Union, and France, with North Korea and Israel providing arms to Iran. Assessments of this arms traffic demonstrate, however, that "between 1981 and 1988 Iraq received 77 percent of the arms delivered to the two belligerents (in dollar terms) while Iran received only 23 percent."

Wars and disputes for oil: Most of the OPEC members were Near Eastern countries which were opposed to Israel in the ongoing Arab-Israeli cold war. The United States had been a staunch ally of Israel ever since an independent Israeli state was created in 1948. When the Israelis decisively defeated the major Arab states in the 1967 war, the peace settlement created an intolerable situation for Egypt. In October, 1973, shortly after Egypt required the evacuation of United Nations observers from the Egyptian-Israeli border, Egypt attacked Israel in the Sinai Peninsula. Equipped with surface to air missiles and armored vehicles provided by the Soviet Union, they were able to throw back the Israeli air attack with heavy losses. The tide of war turned, however, after the Israelis received substantial replacements of aircraft from the United States. As Israeli armor threatened to cross the Suez Canal, the movement of a Soviet fleet into the eastern Mediterranean raised the possibility that the war might bring in the two superpowers. To avoid such a catastrophe, a negotiated settlement compelled the Israelis and Egyptians to accept a cease fire. This conflict became known as the Yom Kippur war.

The Arab oil countries were in negotiation with the major oil companies when the war occurred. Because the war involved extensive U.S. aid to Israel, they broke off negotiations and imposed an oil embargo against the United States and its European allies. This created an artificial shortage of oil. During the four months of the embargo, consumers in the United States and Europe were compelled to wait in long lines at gasoline stations. The Arab members of OPEC seized the occasion to drive crude oil prices up fourfold. Given the dependence of the entire world upon oil, not only for transportation, but for industry, power plants, and a variety of oil by-products, the international economy was driven into an inflation that would endure until 1982. As the shortage of oil reverberated through the international economy, the costs of production and delivery rose because oil was essential to deliver goods to their intended end-users. In 1974, the international economy experienced the greatest depression since the 1930,s. The period of substantial prosperity, which had followed the recovery from World War II, came to an end.

In 1979, war broke out between Iraq and Iran, which were two of the major oil producing countries in the Near East. Since Europe imported large amounts of oil from them, a further artificial shortage occurred, and the international price of crude oil doubled again. In 1973, before the Yom Kippur war, the price of oil had been about $3/barrel. After the embargo, it had reached $12/barrel, and after the Iran-Iraq war it was $28/barrel. As inflation worked its way through the international economy, the price of all goods rose substantially. In the United States, there were several years of approximately 10% increases/year in the price index. This inflation motivated a major effort at conservation of energy, a beginning of a development of alternative sources of energy, and a search for new reserves of oil. Significant progress was made in improving building construction practices to conserve energy, in producing lighter and more fuel-efficient automobiles, and in developing more efficient lighting fixtures. A limited amount of progress was achieved in harnessing direct solar power sources as well as wind energy. Co-geneneration of electricity was encouraged in the United States by federal legislation. This was the practice of requiring utility companies to buy back surplus electricity generated for industrial use. There was an increased investment in nuclear power plants, as projections for future energy needs forecast great increases in energy consumption in the years to come. These forecasts, however, were not realized because conservation was effective in moderating the increase in consumption. Conservation became the most effective and least expensive response to the energy shortage. Nuclear power, on the other hand, became extremely expensive because of the cost of providing safety measures against the hazards of radiation release. Aside from conservation, the most decisive response to the oil crisis was the discovery of new reserves of oil in offshore waters in the North Sea, off the coasts of Nigeria and Angola, along the north slope of Alaska, and in Mexico.

Since the oil crisis had not been the result of a real shortage of oil, but an articificially-contrived shortage for political reasons, when the above-described measures of conservation and increased reserves began to take effect, there would be a large surplus of oil. The increase in supply, and the increased variety of sources of oil made it impossible for OPEC to sustain the high prices that had been achieved. In 1982, prices began to drop substantially and the oil crisis was over. Inflation was brought under control. The international economy enjoyed a substantial recovery, reflected in rising stock prices. The crisis had damaged the interests of all concerned, even the oil producing countries, which also had to deal with the rising cost of all other goods. Upon reflection, it would seem to be in everyone's interest to try to maintain a stable production and price situation.
Oil and the Iraq War: If the Iraq war had ended within 18 months, as the supporters of the war believed it would, then the Bush Presidency might have been honored as visionary. But, that did not happen. Perhaps if the Vietnam War had ended successfully within a year or two, then President Johnson would be considered a hero and a visionary today, but that did not happen either. The Middle East is not Vietnam. There is a big difference between the Vietnam War and the war in Iraq. The difference is the oil in the region and the importance of oil in the world economy; specifically the importance of oil as a source of energy (transportation fuels). Our dependence on oil to produce gasoline, diesel and jet fuel makes us vulnerable to shortages. An interruption of the supply of oil anywhere in the world affects everyone because oil is a global commodity. The Middle East has about 60% of the world's known oil reserves; if the U.S. Military pulls out of Iraq allowing civil war and sectarian violence to escalate, causing the region to fall into the hands of Islamic militants who hate the United States and western values, then Middle East oil will become a weapon of political extortion subjecting the United States and Europe to economic terrorism by threatening the global economy with oil supply interruptions. The United States walked away from Vietnam with only a loss of national pride and nothing to show for the deaths of fifty-eight thousand U.S. soldiers (and 300,000 wounded), but otherwise the loss of Vietnam had no real influence on the U.S. or world economy. The situation in the Middle East is different. If the U.S. walks away from the Middle East it must have alternative sources of energy to replace oil. Not just for the USA alone but for the entire world. The world economy will need alternative energy, on a scale large enough to break the global economic influence of Middle East oil. That can only be accomplished by a full substitution (replacement) of oil as the dominant source of transportation fuel (energy) for the global economy. For this reason, the development of alternative transportation fuels is the most important challenge facing this generation of Americans.
Conclusion:

The international economy remained dependent upon oil as the main source of energy. Since oil is, among the fossil fuels, the one with the least reserves, there is a reason to turn to natural gas for as many applications as possible. Natural gas is found, almost always, wherever there are reserves of oil. It has the advantage of being the cleanest-burning of all the fossil fuels. In the long term, the development of the renewable sources of energy; direct solar, wind, geothermal, tidal, and water, will postpone the arrival of the time when there will be a real shortage of fossil fuels.

References
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