Oil and West Asia

Oil and West Asia

The modern era of oil production began on 1859, when the discovery of first successful oil well in Pennsylvania, USA. In 1879, the first oil well was drilled in California; and in 1887, in Texas.

Up until the 1910s, the United States produced between 60 and 70 percent of the world's oil supply. As fear grew that American oil reserves were dangerously depleted, the search for oil turned worldwide. Oil was discovered in Mexico at the beginning of the twentieth century, in Iran in 1908, in Venezuela during World War I, and in Iraq in 1927.
By 1919, Britain controlled 50 percent of the world's proven oil reserves.

A British company strikes oil in Persia (now Iran). It's the first big petroleum find in the Middle East, and it sets off a wave of exploration, extraction and exploitation that will change the history of the region and world. Englishman William D'Arcy had obtained a license to explore for oil in Persia in 1901.

He sent explorer George Reynolds, who searched fruitlessly for seven years. Finally in 1908 oil was discovered at Masjid-i-Suleiman in Iran.

After world war second, policy makers and the oil industry focused their attention on the West Asia, particularly the Persian Gulf, which they believed would become the center of postwar oil production. As early as the 1930s, Britain had gained control over Iran's oil fields and the United States discovered oil reserves in Kuwait and Saudi Arabia. After the war ended, West Asian oil production increased. Gradually, American dependence on West Asian oil increased.

Economy and politics of oil in West Asia

World oil prices were so low that Iran, Venezuela, and Arab oil producers banded together in 1960 to form OPEC, the Organization of Petroleum Producing States, to negotiate for higher oil prices.

By the early 1970s, the United States depended on the West Asia for a third of its oil. Foreign oil producers were finally in a position to raise world oil prices. The oil embargo of 1973 and 1974, during which oil prices quadrupled (4 fold), and the oil crisis of 1978 and 1979, when oil prices doubled, graphically illustrated how vulnerable the nation had become to foreign producers.

The oil crises of the 1970s had an unanticipated side-effect. Rising oil prices stimulated conservation and exploration for new oil sources. As a result of increasing supplies and declining demand, oil prices fell from $35 a barrel in 1981 to $9 a barrel in 1986. The sharp slide in world oil prices was one of the factors that led Iraq to invade neighboring Kuwait in 1990 in a bid to gain control over 40 percent of West Asian oil reserves.

Oil as a political weapon

When the oil used as a weapon firstly in 1973, it had a dramatic and lasting effect on the world economy and Western states. As a weapon of economic embargo, no one can deny its success, quadrupling (4 fold) the price of the world’s major commodity in the space of a few days. Most of the Arab demands in 1973 with regards to the Palestinians and Israel remained unfulfilled, although an amicable cease-fire was brokered by the United States. Today in the Middle East it is widely accepted that, - “Economics...has taken priority over politics, co-operation has replaced confrontation”. The Middle East is not in the position it was in 1973 with regards to oil exports, and with natural gas and new oil finds outside the Middle East coming into play it does not have the kind of monopoly on energy that it once had.

Impact of oil in West Asia

The discovery of petroleum in the West Asia greatly boosted its economy and resulted in the infrastructural developments etc especially in the GCC sttaes. Currently this region contains about 65% of the world’s oil and it has made the countries surrounding the Persian Gulf quite wealthy. Since the world depends on petroleum as a primary source of fuel, this discovery has obviously created many trading opportunities for the West Asia. Consequently, it has also opened up West Asian countries to varying degrees of Western influence. In the beginning the countries were more receptive of this influence and it began to affect culture and society, particularly the Muslim society’s view towards women. However, in recent years this has change when fundamentalist Islam has begun to reappear.

OPEC

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental Organization, was founded in Baghdad, Iraq, with the signing of an agreement in September 1960 by five countries namely Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. They were to become the Founder Members of the Organization.

 The five Founding Members were later joined by nine other Members: Qatar (1961); Indonesia (1962) – suspended its membership from January 2009; Libya (1962); United Arab Emirates (1967); Algeria (1969); Nigeria (1971); Ecuador (1973) – suspended its membership from December 1992-October 2007; Angola (2007) and Gabon (1975–1994). OPEC had its headquarters in Geneva, Switzerland, in the first five years of its existence. This was moved to Vienna, Austria, on 1965. From December 1992 until October 2007, Ecuador suspended its membership. Gabon terminated its membership in 1995. Indonesia suspended its membership effective January 2009. Currently, the Organization has a total of 12 Member Countries.

These countries account for 2/3 of the known deposits of crude oil (2/3 of which are located in the West Asia) whereas obviously Non OPEC Countries hold less than 1/4 of the total amount of the word known oil reserves. In 1996, OPEC Members represented 33.3% of the oil world production (including crude oil, natural gas liquids, etc…). At the end of 1999, OPEC Crude Oil production amounted to 26,507 b/d, in July 2000 OPEC supplied approx.28, 172 b/d. The OPEC headquarters is located in Vienna (Austria) and the organization’s Secretary General is Mr.Abdallah Salem el-Badri, elected in January 2007.

OPEC's objectives are,

Ø   to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers;

Ø  an efficient, economic and regular supply of petroleum to consuming nations; and

Ø  a fair return on capital to those investing in the industry.

The organization has three main weak points:

Ø  Its decisions require unanimity for adoption.

Ø  Its members do not always abide (keep) by the decisions which are taken.

Ø  The Organization does not include all the major players in the Oil Market arena such as Angola, Bahrain, Brunei, the United Kingdom, Mexico, Norway, Oman, the United States, Russia and the former Soviet republics.

The events of September 11, 2001, the invasion of Afghanistan in the same year, the Iraq war launched in 2003 whose consequences prevail today have caused an important surge in oil prices in recent years, pushing countries such as Indonesia to remove itself from the Organisation in a desperate effort to protect its national oil interests. Simultaneously, the OPEC has to confront the issue of declining global oil demand.

OAPEC

The Organisation of Arab Petroleum Exporting Countries was founded in Beirut, Lebanon on 1 January 1968 by Kuwait, Libya and Saudi Arabia. The aim of the three founding countries was to protect their interests and to coordinate their oil trade, with the long term objective of fostering economic integration amongst Arab countries.

At present time, the OAPEC includes 10 members: Algeria, Bahrain, Egypt, Iraq, Kuwait, Libya, Qatar, Syria and United Arab Emirates.

In 1986, Tunisia submitted a request for withdrawal. The Ministerial Council agreed to suspend Tunisia’s rights and obligations in OAPEC.

These countries account for about one fourth (1/4) of the total world oil production.

The OAPEC has sponsored the following institutions:

Arab Maritime Petroleum Transport Company (AMPTC), 6 May 1972: Algeria, Bahrain, Egypt, Iraq, Kuwait, Libya, Qatar, Saudi Arabia, and the United Arab Emirates.

Arab Shipbuilding and Repair Yard Company (ASRY), 8 December 1973: Bahrain, Iraq, Kuwait, Libya, Qatar, Saudi Arabic, and the United Arab Emirates.

Arab Petroleum Investments Corporation (APICORP), November 1975: all OAPEC countries

Arab Petroleum Services Company (APSCO), 23 November 1975: all OAPEC countries

Arab Petroleum Training Institute (APTI) May 1978

Major Oil companies in West Asia

•      Saudi Arabian Oil Co- National Iranian Oil Co- Kuwait Petroleum Corporation

•      Iraqi National Oil Co- Kingdom Holding Co (KSA)- Saudi Basic Industries Corporation (SABIC)- Abu Dhabi National Oil Co.- National Oil Company (NOC)- Libya

•      Qatar Petroleum- The Emirates Group- Saudi Binladin Group

•      National Petrochemical Company (Iran)- The Bahrain National Oil Company (BANOCO)