Magazine article Geographical

The West's Oily Heart: Oil's Central Position in the World Economy Has Also Put It at the Heart of Global Geopolitics. So Why Can't Anyone Agree on How Much Is Left to Exploit?

Magazine article Geographical

The West's Oily Heart: Oil's Central Position in the World Economy Has Also Put It at the Heart of Global Geopolitics. So Why Can't Anyone Agree on How Much Is Left to Exploit?

Article excerpt

Oil has been known to man for millennia. The walls of ancient Babylon were cemented with the bitumen that bubbled through the same earth where now stand the derricks of Iraq. But it took until the 1860s, when the first commercial wells were drilled in the USA, for oil to move from the periphery of human endeavour to its very epicentre.

The fabric of the world economy is drenched in oil. It is our primary energy source, feeding the power stations that drive industries and heat homes, and fuelling the cars, tractors, ships, trains and aircraft that have enabled trade, agriculture and tourism on a global scale. And it has shaped the political landscape.

"Oil has been the core issue for almost a century since the world began to shift to an oil-based economy," says political analyst Noam Chomsky.

Oil became a strategic commodity in 1912 when Winston Churchill converted the Royal Navy from Welsh coal to Iranian oil. In 1932, Hitler stated that "an economy without oil is inconceivable in a nation that wishes to remain independent". His desire to control the oil-rich Russian Caucasus ended with the catastrophe at Stalingrad. In 1941, Japan attacked Pearl Harbour and made a grab for the oil-producing Dutch East Indies after the USA had cut its vital fuel supplies.

As the 20th century's largest oil consumer (currently accounting for 25 per cent of world demand), the USA has had more at stake than most in securing its flow. By 1945, the State Department was describing Gulf oil as "a stupendous source of strategic power and one of the greatest material prizes in world history".

The need to supply this demand has meant that oil has apparently become a significant factor in determining US foreign policy. "The governments and international oil companies share the same interests and are often so closely linked that it is difficult to distinguish them," says Chomsky. "The executive branch in the USA has been historically heavily staffed by either people in the industry, or by people from corporate law firms that cater to their interests."

But Chomsky believes that the clash between corporate desires for short-term profits and state interests in long-term control has stopped oil companies from actually dictating policy. "Right now, the US energy corporations would be quite eager to enter into exploitation of Iran's oil and gas resources. I'm sure they weren't pleased that Japan just got a multi-billion-dollar contract for developing an apparently substantial oil field."

The largest counterweight to the USA in the oil arena is the Organization of the Petroleum Exporting Countries (OPEC). Until the 1960s, the world's oil was predominantly controlled by the so-called Seven Sisters--a group of European and US oil companies. The formation of OPEC in 1960 broke the West's stranglehold, and the industries of most of the major oil-producing nations were nationalised. OPEC now accounts for around 40 per cent of global production, and has been able to use this as a weapon against the West, as in the 1973 OPEC oil embargo.

Its potential as a weapon is amplified by the fact that in the financial markets, oil is key. According to veteran industry analyst Colin Campbell, modern economics simply wouldn't exist without the vast finances oil has generated. Unrefined crude oil is the world's most actively traded commodity. Any bad news from the oil industry--such as Shell downgrading the size of its reserves (see The Shell controversy)--will have repercussions across the markets. …

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