Oil

Written by the Financial Loon


Blood of the Earth

There is no question that the modern world would not exist if it were not for petroleum. Oil has seeped its way into every fiber of our existence. The food we eat is fertilized by chemicals derived from it. The clothes we wear are made from fibers created from oil, or in the case of natural fibers fertilizer again play a large part. Plastics ranging from the common grocery bag to life saving medical equipment are sourced from it. The rubber in your tires and the asphalt you drive across are both derived from oil. All manner of adhesives and lubricants find their roots in it. Our electronics would not be the same without it. For example the keyboard, mouse, and monitor you are using to view this, all contain plastic, all from oil. Casing for electric wires and much the electricity we use is generated from oil. Not to mention we burn it every time we move ourselves or transport any product we use. From mine, forest, farm, or sea to factory, warehouse, port, or store, oil is burned, moving our goods along every step of the way.

As one can see, any society which wishes to live a modern life must control great sources of petroleum. There is one problem with this situation: a modern society’s consumption of oil rapidly outpaces its domestic output of the product the more that the society develops. This is the case for most developed nations across the globe. More and more developing nations are also exceeding their local oil reserves. All interested parties eventually turn to areas where there is a vast surplus of oil, and few locals to use it. The largest of these areas on the globe lies in what was once territory of the Ottoman Empire.

Blood for Oil

Petroleum usage during World War I showed the world that the nations who controlled the supply of oil would command the globe. Oil provided the energy to drive both new and old machines of war. Battleships and locomotives were made many times more effective after abandoning coal and instead burning diesel. Tanks, planes, and armored cars developed the speed, range, and maneuverability for which they would be feared for decades to come. It became evident that the greater the consumption of oil by a nation’s military the greater the need to locate and control sources of the fuel.

Having provided much of the refined oil needed to win the war, the United States thought it right that it should receive claim to a large portion of the untapped oil reserves in the Middle East. The years between WWI and WWII saw great development of western oil interests in the region. The Iraq Petroleum Company was established during this period and is most easily described as the OPEC of the day. Though, in its case, it was thirty years before the actual OPEC was established, and consisted of European and American oil companies instead of actual oil producing countries. Its purpose was to form a powerful oil cartel that would share Iraqi oil among its members, who by no accident did not include Iraq. The final agreement was known as the Red Line Agreement, and covered a huge amount of territory.

World War II saw the fine tuning of oil-powered military equipment which was only being developed during the First World War. Allied success can again be tied to the United States’ ability to provide fuel for the war machine. The war would also prove a boon to the newly developing petroleum derived products industries. Synthetic rubber and oil based nylon replaced natural rubber and silk and carried American paratroopers off the ground and back again by way of aircraft tires and parachutes. The importance of controlling Middle Eastern oil fields was redoubled at the conclusion of the war. Speaking to the British, FDR commented, “Persian oil …is yours. We share the oil of Iraq and Kuwait. As for Saudi Arabian oil, it’s ours.”

FDR and King Saud, 1945

The Eagle, the Bear, and the Dragon

The decades following the war have been fraught with turmoil throughout the region. Every modern conflict in the area can be traced to powerful nations seeking control of oil fields in the Middle East. Nationalizing of petroleum industries by host nations has greatly dissatisfied those who once had dominion over the oil. Much of the military muscle flexing by the US, the Soviet Union, and later Russia can be directly tied to securing land for oil pipelines. Coups, bribes, and military arms support have been used again and again to install leadership favorable to the nations behind them.

There is no commodity in the world that can replace oil; its versatility and portability are unmatched. The wealth and power gained from controlling it are unsurpassed by any other product. However, countries whose populations have outgrown their domestic supply are growing more numerous year by year. China has only been a net oil importer since 1993 and is just beginning to exert its great influence over oil rich areas. India is right behind China and with over a third of the global population between them their effect on world geopolitics will be great.

As has been the case since the ending of the Second World War, American political and business policy toward oil has been to find more and exert a tighter grip over what we already have possession of. We did not much enjoy our brief stint of conservation and rationing during the early seventies, many could not stand to repeat it. This attitude can only lead us toward further and greater conflict. Should the flow of oil be greatly interrupted again we will see immense chaos.

As we rapidly exhaust land and near-shore oil reserves we will be forced to go further out to sea in our quest for oil. Deep sea endeavors will only be warranted when the price of oil has sufficiently risen to match their prohibitive costs. By this time we will be running uphill chasing ever more expensive oil. The cost of everyday life will be increased to unsustainable levels. Furthermore, we will see a rise in disputes over drilling in international waters, and in seas bordered by oil deprived nations.

The only solution we have is to pursue every alternative to oil at once. While nothing can replace it completely many of its uses, particularly as fuel for power and transport, can be substituted by other products. Only through reducing our use of oil on all fronts can we have enough left to use for the things we cannot yet replace. The hand of business will only pick up this cause when that is where the profit is, or unless we force it to through regulation. If we wait until the alternatives are less expensive it may be too late to perform the sweeping changes to our way of life.

This article was greatly influenced by Dilip Hiro’s “Blood of the Earth” which I recently finished reading. If you are interested in the past, present, and future history of oil please give it a read. His descriptions of notable characters and locals across time made the story very intriguing.