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OIL: what is it, where is it, and why we are willing to kill for it

pkj | 26.11.2004 15:52 | Analysis | Anti-militarism | Globalisation | London | World

OIL: what is it? A hydrocarbon. Where is it? Trapped in porous reservoir rock underground. Why are we willing to kill for it? Cos it's finite, far away, and the planet is addicted to it. And more....


The original alternative energy source.

Oil begins as tiny sea organisms called plankton. As the creatures die their bodies fall to the floor of seas and oceans. With the right conditions the layers of dead plankton can become sandwiched between other layers of silt and mud. With a combination of heat, pressure, and absence of oxygen the skeletons of the plankton begin to breakdown into hydrocarbons. A simple hydrocarbon produced by the human body can be found by sticking a finger into your ear. Wax.

To recap the basics: Heat, time, pressure, and the absence of oxygen are all needed to create oil from plankton.

Geologic time spans millions of years and the time needed to produce oil is extraordinarily long.
During that time oil deposits may become exposed closer to the surface by erosion. Ancient seas may dry up, massive tectonic upheavals may shift oil deposits closer to the surface.

Of course the earliest oil used by humans was the surface oil. Oil, being lighter than water, tends to rise. In order to trap oil underground in vast reservoirs there needs to be a cap rock over top to hold it down.

But, such conditions do not always exist and history is full of ancient tales of oil being found in creeks or pits.

The modern oil age began around 1861 in Pennsylvania. Rock oil had been sold as a patent medicine cure-all but a simple distilling process rendered a flammable liquid which was a perfect substitute for whale oil as lamp fuel.

The first oil boom in the world brought with it the first containers for oil, barrels, the first method to transport it cheaply, pipelines, and the first sabotage. Teamsters who had been transporting the barrels of oil smashed the pipeline in order to keep their jobs.

The business of the Standard Oil company soon took over the American oil industry and the rest is history.

What we know about oil is this: It is a finite resource. All the easiest to get at and cheapest oil is gone. Now remains the exploration into costlier areas of the world to find the remaining reserves.

When oil is burned it releases carbon which had been stored by the plankton over millions of years. A lot of that stored carbon has been released back into the atmosphere and environment in just one hundred years. A blink of an eye in Geologic time. Almost like an explosion of pollution.

The oil molecule is a marvellous thing. By thermal or chemical “cracking” it can broken into multiple gasoline molecules, or combined together into longer chains to build waxes, plastics, and a whole host of petrochemicals.

The oil companies control every aspect of the industry from well head to gas pump. By working together to form cartels (illegal monopolies to crush competition) the majors can exclude independent companies from accessing oil, or selling oil at cheaper prices.

The majors also control the flow of oil. So, in times of lowered consumption, then the supply also diminishes. That way the price can always be artificially controlled.

There are several steps needed to put the gas in your car. First there needs to be exploration to find the oil. That is costly and time consuming. Then once the oil is produced it needs to be transported to refineries. From the refineries it is transported again to your local gas station.

It is a fragile chain. The weakest link is refining capacity. If I was a terrorist I would be blowing up oil refineries. Can’t refine the oil, then there’s no gas, no diesel, no jet fuel. It also forces the price way up.

Refining capacity is the choke point in the flow of oil from well to pump.

Entering into the First World War in 1914 Britain’s Royal Navy, the most powerful in the world, was mostly coal fired, but was undergoing a transformation into an oil fired fleet. Discoveries in Persia and Mesopotamia revealed vast quantities of oil which lay close to the surface, and was of high quality. Guess who the British went to war with? The Turkish Ottoman Empire that controlled Mesopotamia.

Following WW1 the majors, also known as the Seven Sisters made an agreement amongst themselves to operate in the Gulf States within a “red-line” that would limit their natural proclivities to greed and piracy. But, outside the red-line…. Well, there were no rules.

The United States was slow to pick up on the need for foreign sources of oil. During the first World War there had come a panic that American domestic reserves had run out, but that fear dissipated and led to a degree of complacency about securing foreign sources of oil for several years.

Eventually though the Americans got in on the act by forcing the European majors to allow them into the “red-line” area. But other American companies, not bound by the red-line agreement of the seven sisters went into Saudi Arabia and discovered that here was the mother lode.

America’s dependency on foreign oil is rivalled by the needs of China, Japan, and Europe. Russia has vast reserves of her own, which make her a strong player in the future energy wars of the 21st Century.

America’s problem is that the oil she needs to maintain her military hegemony is so bloody far away from home. Logic dictates that when building a fort or a castle you put all your food and fuel inside the castle. You don’t have it over the horizon in some other village where every time you need some you have to go all the way over there to get it. But, that’s the way it is. It’s a long way off, it costs money and time to get it back to America and these things must freak out the American leadership elite no end.

I have included here some excellent excerpts from John M. Blair’s fascinating investigation of the oil industry in his best selling 1976 book “The Control of Oil.”

The Control of Oil
(published 1976)
- John M. Blair PhD (Assistant Chief Economist of the Federal Trade Commission and Chief Economist of the Senate Subcommittee on Antitrust and Monopoly.)

The discovery of oil in the Middle East traces back to the efforts, not of corporations or government, but of individuals. C.S. Gulbenkian, an Armenian, made a “comprehensive report” on the oil possibilities of Mesopotamia, prompting the Turkish Sultan, Adbul Hamid, in 1904 to transfer the ownership of immense tracts of land from the Minister of Mines to the Liste Civile: “This in fact was a transfer from the government to his own personal account.” In Persia an Australian, William D’Arcy, obtained in 1901 a sixty-year concession covering 500,000 square miles of five-sixths of what is now Iran. There he established the Anglo-Persian Oil Co., later to become Anglo-Iranian, and, still later British Petroleum (BP). An interested party was the Deutsche Bank, which secured mining rights extending 20 kilometres on both sides of the projected Baghdad railway. But according to a commission of experts sent by the bank to examine the area, “.. it seemed doubtful whether the discovered oil was worth exploiting, since considerable transportation problems had to be solved, and the Deutsche Bank, which would have had to bear the main burden of all exploitation costs, owned promising oil resources in Rumania..” The Deutsche Bank lost its foothold to the French as a spoil of World War I, while the direct corporate beneficiaries of the Gulbenkian and D’Arcy discoveries were the British-European firms, BP and Royal Dutch Shell. Not until the latter half of the twenties were the first American companies admitted into the area. On July 31, 1928, Exxon and Mobil became part owners of the Iraq Petroleum Co. Later entrants in the Middle East were Gulf (through Kuwait) and Standard of California and Texaco (through Bahrain and Saudi Arabia). Until 1973, when the host governments began to exercise varying degrees of influence over the disposition of the mineral wealth, control over Mideast oil remained firmly in the hands of these companies - the “seven sisters.” Their control was rooted in a series of jointly owned operating companies established in each of the area’s principal producing countries: Iraq, Iran, Saudi Arabia, and Kuwait. Supplementing and reinforcing these joint ventures were supply contracts covering very large volumes of oil, extending over periods of many years, and containing highly restrictive provisions relating to terms and conditions of sales. The pattern of control through the joint ventures was first established by the formation of the Iraq Petroleum Company.

The Iraq Petroleum Company
Formed in 1914, the Iraq Petroleum Company (originally Turkish Petroleum Co.) brought together interests who for over a decade had been contesting each other for a firm foothold in the Middle East. From the outset, the purposes of IPC were to consolidate existing rights under common ownership and to preclude competitive rivalry for future rights. Under an agreement adopted at the British Foreign Office on March 19 1914, the British-Dutch Groups accepted a “self-denying clause, stipulating that they “would not be interested, directly or indirectly, in the production or manufacture of crude oil in the Ottoman Empire… otherwise that through the Turkish Petroleum Co.”
Conspicuous by their absence were the American companies, who had remained profoundly disinterested in the Middle East. But scattered shortages during World War I gave rise to a deep-seated fear that the United States might be running our of oil. According to an industry source, “fear of an oil shortage in the United States was uppermost as a factor in international relations after World War I. It was a hold-over fear from a narrow escape from scarcity in 1917-1918 when in the midst of war” Moreover, even before the use of the foreign tax credit, the cost of leasing from private landowners (usually at a one-eight royalty rate) was generally higher than securing rights from governments. There was also widespread concern over a foreign monopoly of all foreign oil resources. The Senate launched an investigation, which found that American interests were indeed being systematically excluded from foreign oil fields. In 1920, Senator Phelan of California introduced a bill to establish a government corporation to develop oil resources in foreign countries. Negotiations looking toward American entrance into the Middle East as a participant in the Iraq Petroleum Company began in the 1922 and continued for six years, with the American firms represented by Exxon (Standard of New Jersey). The US companies, however, were frustrated in their efforts to secure access to the new sources of supply, which were being discovered with increasing frequency in Rumania, India, the Dutch East Indies, Iran and elsewhere:
Because of the factors, by the end of World War I nearly all of the important American oil companies were actively seeking foreign reserves. In this search, however, they were confronted in the Eastern Hemisphere with formidable obstacles, the most important ones being the national and colonial policies of Great Britain and the activities of British- Dutch oil companies which were, themselves, engaged in the search for foreign reserves. The British-Dutch companies were endeavouring to prevent the surrender of Empire reserves to the American “oil trust,” while at the same time they were busily protecting a similar trust of their own. The national and colonial policies of other European countries were directed to similar objectives.

These restrictionist policies were dramatized by the British refusal in 1919 to permit American oil companies to send exploration parties into Mesopotamia (now Iraq). Formerly part of the old Ottoman Empire under Turkish control, Mesopotamia after the war had become a “mandated” area under British control. Arguing that the war had been won by all of the allies fighting together, the US companies and their government insisted upon a “open door” policy, specifically that favoured treatment not be accorded nationals of any one country, that concessions not be so large as to be exclusive, and that no monopolistic concession be granted.
Between 1922, when the “open door” policy was first advance, and 1927, when it was in the process of being discarded, radical changes took place in the world oil situation. The fears of a shortage, so widespread in 1922, were drowned in a surplus oil. Instead of competing for the development of oil resources, the international companies turned their attention to limiting output and allocating world oil markets. Reflecting these changes in economic conditions the American companies lost their enthusiasm for the “open door” policy, particularly after their entrance into IPC had been assured.

Although its original concession of March 14, 1925, covered all of Iraq, the Iraq Petroleum Co., under the ownership of BP(23.75%), Shell (23.75%), CFP(23.75%), Exxon (11.85%), Mobil (11.85%) and Gulbenkian (5.0%) limited its production to fields consisting only one-half of one percent of the country’s total area. During the Great Depression, the world was awash with oil and greater output from Iraq would simply have driven the price down to even lower levels. Delaying tactics were employed not only in actual drilling and development, but also in conducting negotiations on such matters as pipe-line rights-of-way. While such tactics ensured the limitation of supply, there were not without their dangers. If the Iraqi government learned that IPC was neither actively seeking new fields nor exploiting proved and productive areas, it might withdraw or narrow IPC’s concession, or worse, award it to some independent willing and anxious to maximize production.

From almost the beginning of its operations IPC not only suppressed production in Iraq (as well as in nearby lands) but went to considerable lengths to conceal that fact from the Iraqi government.
Of the many concession areas exclusively pre-empted by IPC, none was rapidly developed. IPC had held the area east to the Tigris River in the Mosul and Baghdad vilayets since 1931, and by 1950 the only developed field was Kirkuk. Qatar is another illustration of “sitting on” a concession. Fearful that the area would fall to outside interest, Anglo-Iranian in 1932 obtained a two-year exclusive license for a geological examination of this peninsula. These exploration rights were expanded into a concession in 1935, and in 1936 were given to IPC under the terms of the Red Line Agreement. BP and Shell, however were not anxious to develop more production in the Persian Gulf because of the effect this would have upon production in Iran. Although Mobil wanted more crude from the Persian Gulf, drilling did not start until three years and five months after the signing of the concession, and five years and two months after the completion of the geological survey. A productive well was completed in 1939, and a few others were drilled after the war began; but in 1941, an official (Mr. Sellers) wrote: “…as there is excess of petroleum products available form AIOC and Cal-Tex in Persian Gulf, it is obvious productive wells in Qatar will not be expedited at present time.” Commercial production in substantial quantities did not begin until 1950 - eighteen years after the first exploration of the area.
The restrictive policies of the Iraq Petroleum Company during its early years have been summarised as follows:
Following the discovery of oil in Iraq in October, 1927, these three groups (BP, shell, and Exxon-Mobil) employed a variety of methods to retard developments in Iraq and prolong the period before the entry of Iraq oil into world markets. Among the tactics used to retard the development of Iraq oil were the requests for an extension of time in which to make the selection plots for IPCs’ exclusive exploitation, the delays in constructing a pipeline, the practice of pre-empting concessions for the sole purpose of preventing them falling into other hands. The deliberate reduction in drilling and development work, and the drilling of shallow holes without any intention of finding oil.

That the IPC continued its restrictive practices into recent years is corroborated by an excerpt from what Senator Muskie referred to as “this intelligence report,” which he read into the record of the Senate Subcommittee on Multinational Corporations on March 28, 1974. According to the Senator, the report was “dated February 1967 and it has to do with questions of the potential in Iraq.”
In 1966 a study was made of the geological, geographical and other petroleum exploration data of the areas of Iraq relinquished by IPC, Iraq Petroleum Co. The purpose of the study was to help government let new concessions and obtain more advantageous terms from foreign oil firms. The study indicated that the untapped reservoirs of oil in Iraq appear to be fantastic. There is every evidence that millions of barrels of oil will be found the in the new concessions. Some of these new vast oil reservoirs had been discovered previously by IPC but they were not exploited because of the distance to available transportation, the heavy expense of building new pipelines and the fact that IPC has had a surplus of oil in its fields that are already served by existing pipelines.
The files yielded proof that IPC had drilled and found wildcat wells that would have produced 50,000 barrels of oil per day. The firm plugged these wells and did not classify them at all because the availability of such information would have made the companies bargaining position with Iraq more troublesome.

- e-mail: pkj(at)
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