It is impossible to imagine or appreciate the history of the twentieth century without understanding how oil has made possible the modern world – the age of the hydrocarbon man. First there was coal, the vital ingredient necessary to begin the industrial age. Coal extraction was so labor intensive that it quickly promoted large populations in relatively few urban areas. Then came oil with its transportability and enormous energy output, allowing a great expansion in the number of urban areas with substantial concentrations of people and diversified economies, thus arose more leisure time, technological advancements, and some would argue, a higher quality of life. Today, almost sixty percent of the world’s energy is provided by oil and natural gas, with coal still accounting for nearly thirty percent.
As profound as oil’s impact has been on human history, its impact on the Modern Middle East has arguably been even greater. The political borders of today’s Middle East were shaped by the demands for secure oil supplies by colonial powers after the end of World War I, which had the effect of separating homogenous cultural groups and joining fractious religious groups into single states, thus contributing greatly to the unending turmoil in the region and the instability of world energy markets. The nature of the world oil market is an ongoing story of instability, over-production and wasted reserves, which have resulted in the dramatic price swings and attendant economic downturns of the past 150 years. The lessons of the first oil boom would be repeated in each new cycle when scarcity of supply, high prices and resulting wave of exploration would eventually create a sea of oil in which markets would soon be drowning.
By the time of the first of oil boom in the United States, the Ottoman Empire was well into its sixth century of rule over large swaths of the Mediterranean basin, the Balkans and most of what we know as the modern Arab Middle East. Europe was then dominated by not only the Turks in Istanbul, but by the imperial presence of the British, French and Russians. Into this fiery mix was added a rising German nation with imperial aspirations of its own and an ever-diminishing Sultanate in Istanbul being replaced by dictatorial power in the hands of the Young Turk Revolutionaries.
The beginning of the age of oil in the Middle East would officially begin in 1901, when a British businessman, William Knox D’Arcy, obtained a massive oil concession from the Shah of Persia, which covered much of modern day Iran. Nearly bankrupt and on the eve of having operations terminated, D’Arcy finally discovered oil in 1908, a new resource that would eventually be managed by the Anglo-Persian Oil Company, the predecessor to today’s BP.
1911 would prove to be a significant milestone in the ascendancy of Middle Eastern oil. Winston Churchill, as First Lord of the Admiralty, made the momentous decision to begin converting the British Navy from coal to oil. This conversion required securing vast sources of oil to maintain the British Empire and, most immediately, to prepare for the impending war with Germany and the new age of mechanized transportation and warfare.
The Middle East would become entangled in World War I when the Ottomans entered the war at the behest of a headstrong Enver Pasha. In response, the British forged an alliance with Sharif Hussein of Mecca and attempted to stoke the passions of Arab Nationalism against the Turks. Britain’s ultimate success was popularized in the movie Lawrence of Arabia, about British Captain T.E. Lawrence, whose friendship with Sharif Hussein’s son Faisal would ultimately help defeat the Ottomans. In the end, however, the British would fail to support Arab independence as previously promised; and, the former Ottoman lands in the Middle East would be divided into French and British protectorates with political boundaries that gave little regard to the division of people and groups, but whose boundaries are largely still with us to this day. Transjordan, Mesopotamia (Iraq) and Palestine were given to the British, while Syria and Lebanon would be governed by the French.
Notwithstanding the early discovery of oil in Persia, the age of oil in the Middle East would not begin in earnest until well after the end of World War I. Coal would continue to be the most important fuel for the global economy during the interwar war period, but would give way to oil beginning with a wave of discoveries of major reserves across the Middle East before and after World War II. Some of the most significant discoveries were Iraq (1927), Bahrain (1932), Saudi Arabia and Kuwait (1938) and Libya (1959).
The influx of oil revenues would also closely coincide with the creation and independence of many of the new Middle East States. Iraq and Saudi Arabia would gain their independence in 1932, while Kuwait would not gain its independence until 1961. Petrodollars would prove to be critically important to the new ruling monarchs and autocrats. Oil revenues provided a means for pacifying religiously diverse populations with public works and social programs aimed at unifying a people that otherwise would have little reason to unify as a nation.
During World War II, access to oil would be not only the deciding factor in numerous battles, but central to strategic decision-making of both the Axis and Allied powers. From Erwin Rommel in North Africa, to Patton’s Third Army running out of gas in pursuit of the Germans – lack of fuel would often prove to be decisive. Following World War II, oil would begin its dramatic rise as the fuel for a newly mobile world. And although the largest concentration of oil reserves are located in the Arab Gulf region, oil consumption has until recently been located primarily in Europe, North America and East Asia. Western attempts to colonize or control the oil producing countries of the Middle East not only bred suspicion, but also led to numerous foreign policy debacles that resulted in repeated world oil crises.
The first crisis began in 1951 when Mohammed Mossadegh, or “Old Mossy” as he was affectionately referred to, nationalized the Anglo-Iranian Oil Company in Iran. In 1953, the United States and Great Britain responded to this first nationalization by initiating a coup which would result in the fall of Mossadegh and the return of the Shah. The now infamous Operation Ajax was run by the CIA’s man on the ground, Kermit Roosevelt, grandson of Teddy Roosevelt, whose story had all the intrigue and suspense one would expect from an episode of Mission Impossible. There was also a growing sentiment in the Middle East that the Western oil companies were taking too large a share of the revenues, while the oil exporting countries were keeping only a small fraction of the royalty to which they felt entitled. This imbalance would make a massive shift in favor of the oil exporting countries when Saudi Arabia and Aramco agreed to a 50/50 royalty split, followed in 1960 by the creation of the Organization of Petroleum Exporting Countries, or OPEC as it is commonly known, by Saudi Arabia, Iran, Iraq, Kuwait and Venezuela.
The next oil crisis would begin when Egypt nationalized the Suez Canal, which was quickly followed by an attack from Israel, France and Great Britain. The third post war oil crisis began in 1967 when Egypt, Jordan and Syria attacked Israel but were quickly defeated in what would come to be known as the Six-Day War. At the end of the conflict, Israel controlled the West Bank, East Jerusalem, the Gaza Strip, the Golan Heights and the Sinai Peninsula. Tensions in the Middle East remained high when in 1973, Egypt and Syria launched an attack on the Jewish holy day of Yom Kippur, in an attempt to regain the territories lost in the Six-Day War. Although Israel would prevail with support from the United States, the resulting Arab Oil embargo temporarily crippled the American economy, initiating an energy crisis which encouraged significant energy and monetary policy changes in the West – most significantly a renewed search for other sources of supply and a move to alternative sources of energy. The drive in worldwide oil exploration and advances in alternative sources of energy continued through to the 1979 Iranian Revolution which resulted in the overthrow of the unpopular Shah by the dissident Ayatollah Khomeini and the establishment of his vision for a Shia Islamic Republic.
By 1980, it may have seemed as if OPEC’s control and influence over the global oil market would continue unabated, but the high oil prices of the 1970’s resulted in major new oil discovers in Alaska’s North Shore, the Caucasus, the Caspian Sea and the North Sea, which began to undermine OPEC’s dominance. By 1986 a massive collapse in oil prices was underway which would force OPEC to undertake a shift from deliberate price controls to an indirect influence on prices based solely on member production quotas, which exists to this day.
The final crisis of the Twentieth Century sprung from the first Gulf War and Iraq’s attempted annexation of Kuwait. This was a dangerous moment – the combined reserves of Iraq and Kuwait amounted to almost 70 percent of the world’s known oil reserves, which in Saddam Hussein’s hands would rewrite the balance of power not just in the Middle East but in the world. However, the former oil man from Zapata Off-Shore, George H. Bush, would rush to Kuwait’s rescue and be welcomed into Saudi Arabia by a smiling but worried King Fahd. The presence of foreign troops on Saudi soil was certainly unwelcomed by Muslims across the Middle East, but it was also clear that the ruling family needed the support of Western forces. Furthermore, the religious Wahhabi sheikhs depended on the generosity of rich Saudi families for support and grudgingly supported the presences of the foreign collation forces.
The success of the United States led coalition in the Gulf was followed by a decade of relative stability in Middle Eastern oil states until the events of September 11, 2001, which would upset this balance in a dramatic way. It would come as a great shock that 15 of the 19 hijackers were Saudi nationals, but this was in many ways the result of a deliberate Saudi policy to encourage Islamic fundamentalism as a way to pacify its restless and unpredictable citizenry.
The average price of a barrel of oil in 1999 was around $17.00. By 2002 world oil demand had risen by over 1.4 million barrels of oil per day. Between 2002 and 2006, the demand for oil would rise by 4.9 million barrels of oil per day – the result would be the twenty-first century’s first supply shock. By 2011 the average price of a barrel of oil would be at $87.00
In the midst of the oil driven matrix of today’s global economy, if one adds the extra layer of concern for securing oil resources in an increasingly unstable world, one can easily see how Iran’s threat to close the Straits of Hormuz would send oil prices higher. Given that most of the Middle East’s oil reserves are found in the Gulf Rim, which is currently controlled by Sunni dominated states almost entirely populated by Shia Muslims, it is little surprise that the United States Fifth Fleet is based in Bahrain. One of the results of the Second Gulf War was that the United States succeeded in destroying the Iraqi Army, which despite their best efforts, Iran was never able to accomplish on its own. This has lead to an increased fear that Iran will succeed in gaining de facto control of Iraq by proxy through the majority Shia population, much the same as it has acquired substantive control of Lebanon through the political and military arm of Hezbollah, and thereby gaining effective control of one-half of the worlds proven oil reserves. Through Western eyes, modern day Iran is often seen primarily as an irrational actor being driven by radical Shia clerics, but this country has gained substantial political influence in the Middle East by way of calculating support of Hezbollah, Hamas, the currently embattled regime in Syria, and other Shia groups in Sunni dominated states. It is also possible that the Middle East is seeing a rise in Sunni dominance and influence by way of the recent Arab Spring in Egypt, Libya and Syria, which will further solidify the alliance between the United States and the oil rich states of the Gulf region.
Today, the Middle East still accounts for 54 percent of the world’s proven oil reserves. And despite significant worldwide shifts and technological advancements in oil production and exploration, emerging alternative energy sources and the unpredictable nature of the oil market, it will likely be many decades before the world economy stops relying on Middle Eastern oil to fuel the demands of a growing world.