The Persian Gulf, Global Oil Resources, and International Security

By Chapman, Duane; Khanna, Neha | Contemporary Economic Policy, October 2006 | Go to article overview

The Persian Gulf, Global Oil Resources, and International Security


Chapman, Duane, Khanna, Neha, Contemporary Economic Policy


I. INTRODUCTION

Remaining global conventional crude oil resources are on the order of 3 trillion barrels, with more than 50% of that amount in the Persian Gulf. Consequently, Persian Gulf oil has been of considerable interest to Western oil companies and governments (and to Russia) for more than a century. In earlier work in this journal, the authors argued that a target price range framework initiated in 1986 had resulted in stable crude oil prices and reliable supply. Western military support had been an important part of this framework, which constituted a Nash equilibrium between Gulf producers and Western (and Asian) consumers (see Chapman and Khanna 2000, 2001).

With the very low cost of production in the region (about $5 per barrel) and the great magnitude of resources, the oil wealth in the Gulf, to be illustrative, is roughly on the order of $75 trillion. (This figure, discussed later, is intended to illustrate the scale of the wealth involved.) The authors argue that it is the existence of this wealth that creates a major policy problem for the eight countries in this region and for global security. They will also argue that the framework that ensured a steady supply at mutually acceptable prices to the Persian Gulf producers and Western consumers has itself contributed to growing political instability in individual countries and the rise of Al Qaeda and similar groups. The article concludes with a broad outline of three policy directions.

II. BRIEF HISTORY: PETROLEUM, THE PERSIAN GULF, AND THE WEST

Today's issues with international security and oil have deep roots. Table 1 very briefly summarizes the colonial history of the Persian Gulf countries and their current status. Turkey's Ottoman Empire controlled most of the region at different periods over a seven-century span in the last millennium. The slow disintegration of the empire was accelerated by the search for oil for naval vessels by Britain and France early in the twentieth century. After the 1907 Anglo-Russian Convention, Britain obtained concessions in southern Iran, whereas Russia sought to control the northern sphere. In the years after World War I, Britain created borders throughout the Persian Gulf that ensured easy access to oilfields, and much of the oil in this region came under the production control of Western oil companies. Initially British Petroleum, Compagnie Francaise de Petroles, and Royal Dutch/Shell dominated the region, reflecting the European concern for secure sources of petroleum. Russia and the Soviet Union also sought to establish their influence in the Persian Gulf but were mostly unsuccessful except for brief periods in Iran and Iraq. By the 1950s, however, American oil companies had become full partners. Figure 1 summarizes the composition of major oil production companies in 1972.

Almost every country in the Persian Gulf region was under direct or indirect British control until the middle of the twentieth century (see Table 1 and Figure 1). An important exception is Saudi Arabia, where American oil companies became paramount in the 1930s. In Saudi Arabia, Britain had supported the House of Saud against the Ottoman Empire and was the leading Western influence in the country into the 1920s. In fact the first oil concession agreement in Saudi Arabia was held by British oil companies, but in the 1930s the Arab-American Oil Company (ARAMCO) established itself as the leading factor in oil development in the country (Yergin 1992, pp. 280-92; ARAMCO 1960, pp. 131-41; Sampson 1975, pp. 87-91).

In contrast to the Saudi Arabian experience, American influence in Iran developed much later. Iran had been strongly influenced by British Petroleum and the British government into the 1950s. In 1953, American support of the Shah's countercoup established American influence there until the Islamic Revolution 25 years later; see, for example, Kinzer (2003) and Roosevelt (1979).

[FIGURE 1 OMITTED]

In effect, between WW I and the 1950s, Britain maintained military security in the Persian Gulf region and guaranteed Western access to the region's oil. …

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