CRUDE OIL & GEOPOLITICS

8/7/2019 CRUDE OIL & GEOPOLITICS

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THE GEOPOLITICS OF OIL & GAS

WELFARE ECONOMICS PRESENTATIONANURAG VYAS(07)

PARTH CHOKSI(30)

PRADEEP BHAILOT(31)

ROSHAN JEERAWLA(61)

NAJEEB AHMED(46)

B2/



CRUDE OIL(MOTHER OF ALL COMMODITY)

Petroleum or crude oil is a naturallyoccurring, flammable liquid consisting of a complexmixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found

in geologic formations beneath the Earth's surface. It·s recovered mostly through oil drilling.

This stage comes after studies of structural geology (atthe reservoir scale), sedimentary basin analysis,reservoir characterization (mainly in terms of porosityand permeable structures).

It is refined and separated, most easily by boiling point,into a large number of consumer products, from gasolineand kerosene to asphalt and chemical reagents used to make plastics and pharmaceuticals.



OIL & GAS SECURITY HISTORIC COMMITMENTS

3

Franklin D. Roosevelt in 1944 was the first US president to declare ¶Petroleum as a National Security Issue·. He secretlymet with King Abdel-Aziz ibn Saud, and pledged ´to offer himand the Saudi Royal family protection against all internal and

external threats.µ Presidents Truman in 1947 and Eisenhower in 1957, promised

Iran, Iraq, and Saudi Arabia and to other states in the MiddleEast US military aid if they were attacked by the Soviet Union orany of its allies.

After the ¶Oil shock in 1973-74·, the US Secretary of State,Henry Kissinger, declared that: ´the US was prepared to go towar over oil.µ



THE CARTER DOCTRINE

4

President carter in 1980 following the Soviet Union·s invasion of Afghanistan, formalized US energysecurity policy by declaring to a joint session of the

US Congress:

´An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault

on the vital interests of the United states of America ,and will be repelled by any means necessary, includingmilitary forceµ.



TYPES OF OIL EXPLORATION & PRODUCTION

AGREEMENTS

5

Oil Concession - an exclusive license granted by a country to

explore and develop oil.

Oil Lease ² an agreement between parties to allow a Lessee to

have access to the property and minerals on the property of the

Lessor.

Production Sharing Agreement (PSA) - a country's

government awards the execution of exploration and production

activities to an oil company. The oil company bears the financialrisk, explores, develops and produces the field. The profits after

cost recovery are shared.



PROJECTED DISTRIBUTION OF WORLD ENERGY

CONSUMPTION 2010-2030

6

Source: International Energy Outlook Report 2009, DOE/EIA

Energy Source Percent

2010

Percent

2030

% Change

Total BTULiquids 34.4 31.7 + 2.3

Natural Gas 23.3 23.3 + 0.3

Coal 27.6 28.0 - 0.36

Nuclear 5.7 6.0 + 0.39

Other 9.0 11.0 + 0.63





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GEOPOLITICS,OIL AND NATURAL GAS



GEOPOLITICS,OIL AND NATURAL GAS(CONT.)



RECENT MIDDLE EAST UPROAR & CRUDE OIL PRICES

Crude oil prices, which were trading in a range of

$80-$90 per barrel since December 2010,

suddenly spiked since 21st February 2010.

Oil prices on the Nymex touched their two-year

highs of $103.41/bbl, whereas the London

benchmark Brent touched a high of $119/bbl.

Crude oil prices mainly rose sharply after protests in Libya emerged as the country is one of the

largest producer and exporter of the commodity.



OIL PRICES SINCE DECEMBER 2010



WHAT MAKES LIBYA AN IMPORTANT CAUSE

OF CRUDE OIL SPIKE?

Produces 2 percent of global oil

consumption(around 1.6 million barrels per day

(mbd) of oil per day)

Exports more than 75% of its total crude oil

production

Largest Crude Oil Reserves in Africa

(As per the Oil and Gas Journal (OGJ) statistics, Libyaholds around 46.4 billion barrels of oil reserves,

which is the largest in Africa. The country also holds

close to 55 trillion cubic feet (Tcf) of natural gas

reserves.)



WHAT MAKES LIBYA AN IMPORTANT

CAUSE OF CRUDE OIL SPIKE?

Libya's oil industry is run by the state-owned NationalOil Corporation (NOC). As per the latest estimates fromthe NOC released on March 1st 2011, Libya·s oiloutput had fallen by almost half due to the ongoing

political issues. Outage estimates were around 800,000barrels per day.

Most of Libya's oil fields are located in and around theSirte Basin, which contains around 80 percent of thecountry's proven reserves. As per media reports, theopposition parties of Libya had managed to takecontrol of the Eastern part of the country, where thesereserves are located.



LIBYA·A EXPORTS IN 2010



HOW WILL THE OPEC, US AND THE OTHERS

ACT FOR CONTROLLING PRICES?

Organization of Petroleum Exporting Countries (OPEC)may use spare capacity(Saudi Arabia, Kuwait, United Arab Emirates (UAE) and Libya itself have excess

capacity. While Saudi Arabia has the maximum of around 3.5

mbd of capacity surplus, Kuwait and UAE each havearound 0.3 mbd of excess capacity). But there have

been fears that political crisis may spread to Saudi Arabia as well.

Releasing oil from the Strategic Petroleum Reserve(SPR).(The SPR currently holds 727 million barrels and

is filled to capacity.)



16

HUBBERT PEAK OIL PLOT



WHO OWNS OR CONTROLS OIL RESOURCES?

A Brief History of Western Oil Companies

17

1870 - J.D. Rockefeller founded Standard Oil Co. which in 30 years timebecame the largest oil monopoly in the world.

1908 Britain went global in the oil business and laid claim to the oilfound in Persia (Iran), and in1914 the British Parliament authorized the

British government to become the majority owner of the Anglo-Persian oil(BP) company.

1911 - US federal government, invoking the Sherman Antitrust Act,divided Standard Oil into 34 individual US companies.




The First International Oil Cartel

18

1928 ´The Red Line Agreement µ: between the western governments

and oil company chiefs, awarded concessions to western oil companies in

the Middle East (except Iran & Kuwait).

1933 Gulf Oil the first American oil company: shared with the

British government a seventy four year ¶Concession for ownership and

control· of Kuwait·s oil.

1933 SoCal and Texaco formed (ARAMCO): the Arabian-American Oil Company and got concessions in Saudi Arabia.




The Seven Sisters Cartel

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During the period WW I ² WW II, Britain had a monopoly onMiddle East oil fields.

WW II through the1960s ² with a weakened British empire

and a growing demand for oil, the largest three of the brokenup US companies formed, with four other western companies,the largest world oil cartel which was known as ´The SevenSistersµ : Standard Oil of New Jersey (Exxon), Standard Oil of New York(Mobil), Standard Oil of California ( Chevron), Gulf Oil, Texaco, BritishPetroleum (BP), Shell

Together they owned, monopolized, and controlled the majorityof the world's oil & gas resources.




Nationalization of Oil & OPEC Cartel

20

1960s ² 1980s: as a reaction to the 7-Sisters, strong national movements arose worldwide to control natural resources. Five countries:

� Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela formed the Organization ofPetroleum Exporting Countries (OPEC) in 1965.

� Within 5 years, they were joined by: Algeria, Angola, Ecuador, Libya, Nigeria,

Qatar,& United Arab Emirates.

� 1965 ² 1972: Algeria, Iraq, and Libya nationalized oil.

� In 1974 Saudi Arabia acquired 60% ownership in ARAMCO, and 100% later on in 1988.

� 1979: Iran nationalized its oil.

This ended the Oil concession system in the Middle East. Today 90% of theworld·s oil companies are National.




The Four Sisters Cartel

21

In 1972 the 7-sisters produced about 90% of the Middle EastOil, and provided two thirds of the supply to Europe & China.

But by 1984 their share of the areas oil reserves dropped to one third. Thus, through the motto ´merge or dieµ, additional

consolidation and mergers took place beginning 1999. Today Four Sisters, if not own as such, control the world·s oil

reserves, markets, and in some instances governments. Theyare: 1) ExxonMobil, 2) Chevron, 3) BP, 4) Shell.



ECONOMIC & SOCIAL CONSEQUENCES

OF OIL DEPENDENCY

22

1. Financial indebtedness and possible insolvency of oilconsuming countries.

2. Dependence on oil as the main revenue in oil producingcountries, at the expense of other infrastructure development

efforts.3. Adverse impacts on the environment, indigenous peoples

livelihoods and social structure.

4. Creating monopolies that nurture corruption in the oilproducing as well as the oil consuming countries

5. Militarization of energy security policies leading to conflicts with high economic and human costs.



OIL & WARS

23

1980-88, President Reagan, during the Iran-Iraq war supported Iraq·s Saddam Hussein, reflagged Kuwaiti tankers with American flags, and provided them with US Navy escorts.

George H.W. Bush in 1991 relied on the Carter Doctrine to implicitly justify US intervention in the invasion of Kuwait bySaddam Hussein.

In 1997, President Clinton engineered building a US militarybase in Kyrgyzstan side by side a Russian military base. Thebidding games between the two powers to maintain these

bases, are still going on.



OIL & WARS (CONTINUED)

24

President George W. Bush formally adopted theNational Energy Policy Group·s (NEP) report in 2001to: ´make energy security a priority of our trade and

foreign policy.µ

Then it proceeded to invade Iraq in 2003, whenSaddam Hussein agreed to give oil exploration rights

to Chinese, Russian, French, and other nations excluding the US and British multinational companies.



OIL AND THE IRAQ WAR

25

In 2003 the US invaded Iraq, with President GeorgeW. Bush citing various reasons. However, the realreason is expressed in a quote by a prominent USgovernment individual:

´I am saddened that it is politicallyinconvenient to acknowledge what everyoneknows: The Iraq war is largely about oil.µ

Alan Greenspan,Chairman Federal Reserve Board

1987-2006



ENERGY & OIL SECURITY STRATEGIES

26

The energy hungry big powers have and continue

to employ the various strategies of offering

energy producing countries:

1. Economic development incentives

2. Industrial development incentives

3. Armament sales

4. Military alliances and bases



PERILS OF ENERGY SECURITY

MILITARIZATION27

1. Encouraging the creation of repressive autocratic regimes for ¶assuring· energy security.

2. Inducing ethnic violence within states,

3. Invoking violent regional instabilities, resulting interritorial conflicts between states,

4. Leading to military conflicts between big powers,

and/or their client states.5. Breeding Terrorism



US MILITARY BASES IN THE MIDDLE EAST

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A PERPETUAL CRISIS: WHAT WE COULD DO

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1. Incentivize and enforce conservation policies.

2. Demilitarize energy security strategies. War has never beena zero-sum game.

3. Work on breaking up oil monopolies and cartels leading to price manipulations, by encouraging free trade.

4. Use cooperative strategies of economic and industrial.development between energy producers and consumers.

5. Encourage international cooperation in renewable energy

research and technologies.6. Adopt international standards that assure human and

environmental safety.



WHAT LIES AHEAD FOR THE CRUDE OIL?.....

A possibility of another oil crisis cannot be ruled outcompletely, though the risk of that is still lower.

If situations in Saudi and Iran become worse and anydisruptions in their production activities would see oil prices rocketing.

There have been constant protests by the Shiite communitywhich are expected to further escalate in the coming days.

As per news, clashes have been reported between

antigovernment protestors and security forces in Iran too. Another major factor still prevailing in India is the payment

issues with Iran for its crude oil imports.

India would be amongst the worst sufferers if the Middle-East

tremors would be felt in Saudi Arabia and Iran.



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