CHANGING GEOPLITICS OF OILFROM PENINSYLVANIA TO THE CREATION OF NEW MIDDLE EAST

GUNJAN PRIYAM.A. FINAL

DEPARTMENT OF GEOGRAPHY

DECLARATION

This term paper, titled “changing geopolitics of oil” is anoriginal work,prepared by me under the course- 206 (Geography of Energy)for M.A. final, Geography.

GunjanPriya

ACKNOWLEDGEMENT

I express my profound gratitude to Mr. Kiran A.B. for his apt and sincere guidance in the preparation of this term paper.

Gunjan Priya

CONTENTS

S. NO. CHAPTER

1. INTRODUCTION

2. CONCEPTUALIZATION

3. GLOBAL OIL SCENARIO: RESERVES, PRODUCTION AND CONSUMPTION

4. OIL CRISES AND POLITICAL STRATEGY

5. SHIFTING OF THE OIL AXIS

6. CONCLUSION: FUTURE GEOPOLITICS

7. REFERNCES

CHAPTER 1: INTRODUCTION

• Introduction to Topic : This study paper titled as Changing Geopolitics of Oil” discusses the importance of oil, distribution of oil over the globe and changes in its value as an energy resource.

• Aim and Objective : The main objective of this study paper is to understand the international oil fiasco, conflicts created due to oil diplomacy and the changes in oil politics with recent technological innovations. It also establishes the fact that despite the surge foralternative energy resources, oil still remains the most dynamic element of the energy geopolitics.

• Research Methodology : This study paper follows a deductive approach by discussing history and development of oil as a energy resource, political conflicts and crises created due to fluctuations in oilsupply and then predicting the future scenario.

• Source: Articles and reading materials from different websites, magazines and books have been used to gather different data and instances to support the objective of this study.

Chapter 2: CONCEPTUALIZATION

Oil and Politics • Oil exercises a deep influence on the modern

industrial life of the world. Over 100s of years since its first drilling, oil has played a great role in the history of modernization.

• Being the most dynamic energy resource, oil occupies strategic place in the formulation of foreign policies of all the nations.

• The economic, political and social importance of oil is so immense, that whether be it George Bush’s strategy towards the Middle East, or the United

Nation’s Promotional Programmes for the developing nation, oil lies as a central issue for all.

A Resource • Like all other resources, oil is scarce and unevenly

distributed on the globe.• Those, who are not blessed with oil reserves, heavily

depend upon oil import and this creates the whole geopolitical imbalances.

• This term paper throws light on the growth of importance of oil as a chief energy resource from the mid of 19th century to the present day and the impact of shift in the oil axis on the political map of the world

The situation of Conflict • Recently, the dominance of the Middle East and OPEC

countries in the oil politics has been shaken by the discovery of newer reserves.

• The most powerful democracy of the world, U.S.A. has changed into diplomatic dictator of the world followingEnergo- Fascism.

• Many other nations too have joined this oil diplomacy,targeting Central Asia, Middle East and Caspian Sea in order to buy control over the movement of liquid gold.

• The political orientation of different nations is shifting with the shift in proved oil reserves and their longevity.

Search for alternatives• In order to break the OPEC monopoly, non- OPEC

countries are being encouraged to exploit their oil reserves at a faster rate.

• Repeated oil shocks have made the world rethink whether they should let oil regulate the nerves of nations or should it be replaced by alternative sourcesof energy as soon as possible.

• Be it Natural Gas, Bio- fuel, Nuclear Energy or Hydro- power, wind energy, and solar energy, among which, manyare more efficient than oil, yet none has replaced oil for the time being from its current position.

• REGIONS WITH THEIR SHARE IN ENERGY CONSUMPTION AND OIL CONSUMPTION

REGION % OF GLOBAL ENERGY CONSUMPTION

% OF GLOBAL OIL CONSUMPTION

NORTH AMERICA

27.2 25.9

SOUNTH AND CENTRAL AMERICA

4.7 5.7

EUROPE 30 21

MIDDLE EAST 4.7 5.7

AFRICA 3.1 3.3

ASIA PACIFIC 31 23

Quest for Dominance • It is not just the U.S.A. and European Union, who want

to dominate the oil politics.• countries like Libya are also in the same race. India

and China are planning to resurrect the Silk Road, which could re- awaken the old rivalries in a new GreatGame.

• The decline of oil basins of North Sea have put Russia and other European nations in a difficult position and Russian dream of economic resurgence dwindles over the oil- pendulum .

DEVELOPMENT OF OIL AS AN ENERGY RESOURCE

Coming on the floor • Oil was first of all discovered in Pennsylvania in U.S.

in 1859.• Initially, it supplied only 4% of the world’s total

energy demand in the preceding decade, but gradually itbecame the most important source of energy .

• Today, it supplies about 40% of world energy requirements, meets for 60% of the energy demand for transportation.

• Without oil, today’s industrial society can not survive. Oil and Natural Gas, together are the fuel forthe engine of modern capitalism.

• In this regard, Michel Collen has rightly said, “ If you want to rule the world, you need to control the oil. All the oil. Anywhere.”

Locational Axis• Seeing the geography of oil- producing regions, it can

be said that Iraq, Iran, Kuwait and Saudi Arabia form the epicenter of global oil.

• The recent urge to save the world from Terrorism in theU.S. administration and their compaingn against it is nothing but a quest for oil.

• U.S. is the largest consumer of oil, and combined with Japan and European Union, it consumes more than 65% of the total energy obtained from oil and natural gas.

LOCATIONAL AXIS

First World War• With the invention of Internal Combustion Engine in the

mid 19th century, oil proved to be mosst efficient and mobile fuel and thus could be used easily with all kindof locomotives. The importance grew rapidly in the First World Warl After the victory of Allied forces in the war, British Foreign Secretary Lord Curzon commented, “ The Allied floated to victory on a wave ofoil.”

• Gradually oil production in Caribbean basin and Texas was surpassed by the Middle East. At this time, Britain

had almost monopoly over Iraq oil and other countries had to face problems in getting their share

Second World War• U.S. had to fight with Britain in getting concessions

in Iran and Iraq. However in the II’nd world war, Europe was devastated. Major imperial powers got weakened and U.S. emerged as controlling half of world’s industrial production.

• This also reflected in the control of oil resources. In1940, U.S. share of Middle East oil was just 10%, whichincreased to 50% by 1950.

• To control over the oil resources, U.S. started interfaring in the internal conflicts within the MiddleEast. When the then Prime Minister of Iran, Mohammad Mossadeq nationalized the Anglo- Iranian Oil Company in1951, CIA campaigned against him and replaced him with a puppet government

Post War Period• The European economies were so much weakened in these

two wars and their colonial gains had already been lostthat America started giving aids for the reconstructionof European economies.

• Indirectly it tried to capture the energy markets and rushed to have her own share in the colonial holdings of Europe.

• By this time, Petroleum’s share in the world energy usehad increased by many times and in 1952 it accounted for 67%.

Economic Importance• After the Marshall Plan of reform of European

economies, petroleum replaced Coal in Europe as the main source of energy. Extraction of oil and its exportled high profits to Western countries between 1954-64. In 1970, sixty percent of U.S.A.’s profits coming from the Third World was from oil. By 1973, seven of world’slargest companies were oil corporations called as SEVENSISTERS. They are:-

• (1) Exxon• (2) Mobil

• (3) Chevron• (4) Texaco• (5) Gulf• (6) Shell• (7) B.P.

Rise of OPEC• Organization of Petroleum Exporting Countries was

founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia andVenezuela.

• It was joined by Quatar, Indonesia, Libya, U.A.E., Algeria and Nigeria for negotiating a better share in the oil profits.

• They set a quota system to control supply and thus to control the price of oil.

• Accounting for 40% of oil production of the world, theyhave a great influence in global oil market.

• Today new players are try to weaken the OPEC monopoly. New discoveries in the Caspian Sea and in countries outside OPEC have been encouraged by all nations.

IMPORTANCE OF OPEC IN OIL SCENARIO

• OPEC’s presence was especially felt with the 1973 Oil Embargo, organized by its Arab countries, as a protest of Israel war and also against U.S. for helping Israel.

• During the Embargo, prices trippled from $ 4 a barrel to $ 12 a barrel.

1979 onwards • By the end of 1970’s u.s. had to accept OPEC”s control

over oil supplies.• 1980- War between Iran and Iraq gave U.S. an

opportunity to reinsert its military in the Gulf• By 1972 situations in the Gulf stablised. Saudi Arabia

became totally dependent on oil exports. Diversification of Oil Resources • This was the motto for U.S. Sorces other than Persian

Gulf- from Africa, to the North Sea to canada were tapped to diversify the U.S. oil imports

• The production of oil in U.S. declined.By 1985, U.S. share in total world oil production was plummeted to

31% from the 1970’s level (50% ) as oil production peaked there in 1970s.

Caspian Sea • After the collapse of Soviet union in 1991, caspian sea

has proved a potential alternative to Persial Gulf oil.

CASPIAN SEA

• At present, Azerbaijan and Kazakhstan have seen the biggest increase in oil production, an increase of 70% since 1992. Despite this, the region is still achievingless than potential output, with total regional production 1.6 million barrels (250,000 m³) per day, roughly equal to Brazil's production. This is expected to triple by 2010.

• The oil in the Caspian basin is estimated to be worth over USD$12 trillion dollars.

• Oil Reserves in The Erstwhile U.S.S.R -Azerbaijan, Kazakhstan and Turkmenistan have around 70 Billion Barrels of oil reserves.

• Today major oil companies Chevron, Texaco, Exxon, Mobil, B.P. Amaco have all made bids for investment forthe development of Caspian Oil.

• China and Japan have taken share in oil consortium. Iran and Russia are trying to be the main transport route for Caspian oil.

CHAPTER – 3GLOBAL OIL PATTERN: RESERVES, PRODUCTION AND CONSUMPTIONRESERVES

• Proved oil reserves are those quantities of oil that geological informations indicates, can be, with reasonable certainty, recovered in the future from known reservoirs.

• Region –wise distribution of oil reserves

Region % of total global oil reserves

North America 6Central and South America 9

Europe 2Africa 7Asia Pacific 4Former Soviet Union 6

Middle east 66   World’s total 1,032,132 million barrel (data-

2002)

• Saudi arabia is producing 8,528 billion barrel per day,while U.S. stands second with 8,091 mb/d, followed by russia and iran.

• World’s total production is 75,226 mb/d which leads to it’s annual production of 28,180 bb.

ProductionOil production in the world

*Top World Oil Producers, Exporters, Consumers, and Importers, 2004

(millions of barrels per day)

 ProducersTotal oil production  Exporters

Net oil exports  Consumers

 1. Saudi Arabia 10.37 8.73  1. United

States

 2. Russia 9.27  1. Saudi Arabia 6.67  2. China

 3. UnitedStates 8.69  2. Russia 2.91  3. Japan

 4. Iran 4.09  3. Norway 2.55  4. Germany

 5. Mexico 3.83  4. Iran 2.36  5. Russia

 6. China 3.62  5. Venezuela 2.33  6. India

 7. Norway 3.18  6. United Arab Emirates 2.2  7. Canada

 8. Canada 3.14  7. Kuwait 2.19  8. Brazil 9. Venezuela 2.86  8.

Nigeria 1.8  9. South Korea

10. UnitedArab Emirates

2.76  9. Mexico 1.68 10. France

11. Kuwait 2.51 10. Algeria 1.48 11. Mexico

12. Nigeria 2.51 11. Iraq 1.34  

13. UnitedKingdom 2.08 12. Libya 1.06  

14. Iraq 2.03 13. Kazakhstan 8.73

Consumption• The consumption figures do not coincide with the

reserves and production in the same proportion.• U.S. stands highest with 19,993 mb/day, followed by

Japan 5,423 m b/day and China- 4,854 m b/day.• The global oil consumption figure is 75,988 m b /day

and annual global consumption is 28,460 bb/year.

Top petroleum non-producing and consuming countries

# Consuming Nation (bbl/day) (m³/day)

1 Japan 5,578,000 886,8312 Germany 2,677,000 425,6093 India 2,320,000 368,8514 South Korea 2,061,000 327,673

5 France 2,060,000 327,5146 Italy 1,874,000 297,9427 Spain 1,537,000 244,3638 Netherlands 946,700 150,513

Strategic oil reservesCountries Oil reserves

in Million barrel

USA 658

JAPAN 321

GERMANY 191

SOUTH KOREA 77

FRANCE 71

• World oil consumption has remained constant at an average 4.47 barrel per capita between 1981 and 2001. This is due to growth of other alternative energy resources.

How long will it last• Total estimated reseves are-800 billion barrels.• World consumption 76 million barrels per day• At present rate of consumption it is going to last just

27 years.

Chapter5SHIFTING OF THE OIL AXIS

• Shift in the production• Since the first oil well began pumping in Titusville,

Pennsylvania on Aug. 27, 1859, some 900 billion barrelsof oil have been sucked out of the earth. Now over 1 trillion barrel in proven reserves exist.

• It is estimated that world production will peak between2010 and 2020. But despite the expectations, two new Supergiant fields have been discovered in Kazakhstan and Iran in the last decade.

• As prices rise, it makes Deep Ocean, marginal fields ofArctic explorations more economical.

• Unconventional sources like tar-sands in Western Canada,

• Heavy oil belts in Venezuela and oil shales in U.S., Brazil, Zaire, India will become major producer in mid 21’st century.

• Third world regions are at the beginning of Discovery curve likely resulting in increasing output in future decades.

Potential producers of 21st century

Shift in Consumption• The world energy consumption has increased by 84% since

1970.• The industrially advanced countries have been using the

lion’s share of this energy.• U.S- 25%• Japan – 5%• Western Europe- 185• The rate of increase in energy consumption has not been

uniform. Industrial integration into the new global economy has meant an increase in the energy usage in Developing countries at a pace three times that of the U.S., japan and Western Europe.

• Increse in Consumption since 1990• U.S.,JAPAN AND W. EUROPE-12%• CENTRAL AND SOUTH AMERICA-40%• DEVELOPING ASIA-44%• SOUTH KOREA-84%• INDIA-59%• By 2020, Asian economies will account for 27% of

world’s energy consumption, followed by U.S.-25% and Western Europe-18%.

• China alone will have 150% increase in oil consumption by 2020.

• Thus axis of consumption has shifted from Britain to U.S. in the initial period and now has diversified among U.S. and other developed nations, but soon will move faster towards the Developing nations

Chapter6CONCLUSION

FUTURE GEOPOLITICS ( A Report by EIA-2004)• Oil is expected to remain the dominant energy resource

worldwide through 2025.• World oil consumption is going to increase at the rate

of 1.9% per year.• OPEC oil production are expected to be the major

suppliers. They will increase by 80%• Non- OPEC oil production will increase only by 42%.• Largest share in the Non –OPEC production is expected

in Russia, Caspian Basin, Non OPEC Africa and South Central America (mainly Brazil).

Shifting in consumption axis by 2020

SHIFT ISHARE OF GLOBAL RESERVES BASED ON CURRENT PRODUCTION RATES

The Rise of Energo Fascism• The shift of oil power and demand, towards the Third

World will give rise to a new ENERGO-FASCISM, which is driven by the changing geography of energy production.

• At one time, world’s major oil wells were located in North America, Europe and European sectors of the Russian Empire.

• But these deposits have now depleted and areas which still satisfy the rising world demand are in Africa, asia, Latin America and the largest –in the Middle East.

The Future• Middle East- will be more important, seeing the

longivity of oil resources, the region will remain important for next 50 years atleast.

• Islamic Fundamentalism, which have been quoted often, as a threat to oil supplies, have in contrast suggestedby their examples in Iran and Saudi Arabia, that they need to keep in contact with market for oil revenue.

• Gulf region can create more oil shocks but not because of price hike, rather if the oil price collapse.

Caspian Basin-It has proven reserves of 15-31 billion barrels of oil that counts for 2.77% of world reserves. Thus they are unlikely to have great influence on world market. Still it is important because of its strategic location.

• U.S and Europe are not alone building links with this region.China sees it as a path to resurrect the Silk Road, which could reawaken Old rivalries in a new Greatgame.

• This puts Russian in a difficult posion, since it’s competing with Iran for grabbing the opportunities to become the major transport route for oil trade from this basin.

New Geopolitics of oil: Its now India and China vs the U.S.A.

Today China and India are locked in an aggressive wrangle with U.S. over the world’s most critical commodity i.e. oil. The tussle will shape the economic,environmental and geopolitical future of these 3 countries.

Ensuring a steady flow of oil has always been the central goal of U.S., but China and India are

increasingly competing with U.S. to secure oil exploration rights in Africa, South East Asia, Central Asia and Latin America.

India has invested $ 3 Billion in global exploration ventures whereas China has put $ 15 Billion in Foreign oil fields.

By 2012, India will have 36 times more cars.

• China will have 90 times more, more than U.S. By 2020 China will surpass U.S. in oil imports.

• China and India, which are both nuclear states, are also taking advantage of the U.S.’ strained ties with Iran, Libya, Vietnam and Myanmar by extending these coutries military and political support for exchange ofenergy supplies

Therefore, not only the Geopolitics of oil is shifting over globe, it is also shifting the poitical axis of the globe. Countries, which dominated the globe and controlled power,

Giving way to Third World

resources and future by controlling the liquid gold from themid 19th century, are today facing tough challenges with thechanging paradigm and oil still remains dominant in ruling the planet.

REFERNCES• 1. Mitchell, J.” The Changing Geopolitics of Energy”

MIT Center for Energy and Environmental Policy Research, (2003)

• Michael T.K., “The Geopolitics of Oil”• Michael T.K., “Is Energo- Fascism in Your Future?” Tom

Dispatch, 15 Jan, 2007.• Wekepedia.org, “North Sea Oil Declining’• Patric Love, “The Changing face of Energy Geopolitics”.

International Future Programme, (Sept 1999 ).• Saman Sepehri, “Caspian Black Gold”.• Gupta A.K, “ Oil: Reserves, Production and Consumption”

Z Magazine, Nov. 2002.• Poscha, J.S., “The Geopolitics of Oil: Its Now India

and China vs. the U.S.