Oil & Gas Summiteer

August 31, 2019

Geostrategies and oil hegemony

OPEC, OIL, crude oil

By Sonny Atumah

Oil has useful properties known since ancient times. On August 27, 1859, oil was for the first time, produced with a fixed flow rate at the Drake Well in Northwest Pennsylvania, USA.

That was the day people began to dig wells to extract its products. Since then one group or the other had exercised control over the flow of oil wherever it was found. In recent times, oil has been known for its unique role in economic development, transportation of people and goods, social well-being and military might.

This struggle for oil dominance to survive and make progress in the competitive environment has become a way of modern life. For decades oil has been wielding influence on economies of nations that it is difficult for oil-and-gas producing nations to retire from what is now becoming the global rat race.

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Global oil has become a victim of who controls the oil fields and market share. Oil dominance by any entity or group is of paramount significance and it continued to change hands as nations developed.

The Second World War really defined the significance of oil as an instrument of tact and strategy. Account of the war was that the Germans roundly defeated the French army in a matter of days.

War tacticians believed that the Germans impressive feat of overrunning France in a few days showed that modern warfare was not just the issue of having men and a well-equipped army, but that oil played important role.

War analysts believe that the Battle of Britain’s dogfights ( combat between fighter planes) could not have been won by the British without 100 octane US aviation fuel, which put the British fighters on par with the Luftwaffe-German Air Force.

Without it, victory was absolutely impossible: The World War II coalition of countries that had access to oil resources defeated a coalition of countries with very limited access to them. Hitler had hoped that by taking Stalingrad he would secure access to the then Soviet Union’s Azeri oilfields. Allied bombing destroyed Germany’s synthetic fuel-making and oil refining capabilities.

This bombing, in turn, was only possible because the Luftwaffe lacked the fuel to fight the Allies in the air. World War II veterans believed that the Germans lost the war because the Allied Forces continuous bombing of German oil industries had the greatest effect on their war strategies.

Their supplies for training new airmen were severely curtailed even when they had plenty of planes and enough pilots up to the end of 1944. The lack of petrol prevented the expansion of proper training for the Luftwaffe.

Corporate control of oil began to wane as they lost power to the Venezuelan led opposition that led to the creation of the Organization of the Petroleum Exporting Countries, OPEC in the second half of the 20th century.

The then Venezuelan Minister of Mines and Hydrocarbons, Dr Juan Pablo Pérez Alfonzo, was one of the earliest Venezuelan political thinkers to espouse and vigorously canvass unity among oil-producing countries as a strategy for optimising the benefit of their God-endowed natural resources for the benefit of their own people. The Seven Sisters, a group of international oil companies that held sway in the early part of the 20th century, lost control to their dominant state players including Saudi Aramco, NIOC, KPC, INOC and many others.

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As oil producing nations progressively cut new terms and contracts with corporate oil the West realized the role of OPEC in oil politics.  With the role OPEC as a cartel played in the oil embargo against the West, security of supply started becoming prominent in the West geopolitical agenda. OPEC that was largely controlled by the Middle East states, used oil as a weapon of sanctions in the 1973-74 oil embargo. The spike in oil prices that quadrupled led to the big meltdown in the world economy in the late 1970s. Any structural change in oil markets affects the global economy. The 2011-2014 round of high prices delayed global recovery from the financial crisis of 2007-2008. In 2014 oil was the most geopolitically important commodity.

Analysts say the effect of the American shale had started affecting global oil supplies. Oil producers, whose public finances were strained following the 2014 drop in prices, spent extra budget revenues to cushion the effect of price swings on global demand.

It is predicted that the effect of the American shale that has transformed into a major exporter within less than a decade would only be in the short run till 2025 when the United States shale (new oil) may peak. But for now, the United States according to the Global Witness is set to drown the world in oil with a staggering 61 percent of the world’s new oil and gas production set to come from the United States.

The geopolitics of oil is that many leading oil producers are at loggerheads with the United States that have oil growth they believe is unsustainable. “If things don’t change, by the end of the next decade, new oil and gas fields in the US will produce more than twice what Saudi Arabia produces today,” Global Witness said in its recent report. Perhaps some members of OPEC are becoming economically unstable as the cartel loses hegemony.