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The Rise and Fall of the Neoliberal Order Gary Gerstle
THE RISE AND FALL OF OPEC IN THE TWENTIETH CENTURY
The Rise and Fall of OPEC in the Twentieth Century
GIULIANO GARAVINI
1
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A
Checca, Clio e Margherita, le mie risorse naturali inesauribili
List of Figures
0.1. La Rosa oilfield in Maracaibo started production in 1922 18 (Shell Historical Heritage & Archive, 190F-00801)
0.2. Plaza de Toros in Juan Vicente Gòmez’s home town of Maracay, inaugurated in 1933 21 (No known copyright)
0.3. Map image of the1928 Red Line Agreement 29 (BP Archive, ARC117446/001)
0.4. The harbor of Kuwait in 1918, before the beginning of the “age of oil” 38 (Qatar Digital Library, Ref: Photo 496/6/35)
0.5. The Venezuelan petroleum workers’ strike of 1936 45 (https://commons.wikimedia.org/w/index.php?curid=68707021)
1.1. Main hydrocarbon reservoirs in the Gulf 69 (A.S. Alsharhan, “Petroleum systems in the Middle East”, 2014)
1.2. General view of the Abadan refinery in the 1950s (Braim housing for European expats in the foreground) 80 (BP Archives, ARC 180451/007)
1.3. Protests by Iranian oil workers in 1951. Some of the slogans read: “Shame on the assassins of the workers . . . Khuzestan”; “Honour to the petroleum workers of Khuzestan who resisted the tyranny, they have been killed but did not surrender” 84 (Getty Images, License 50865335)
2.1. Informal settlement for Arab labor at the beginning of the 1950s in the north of Ahmadi, the “oil town” of Kuwait 97 (KOC Archives)
2.2. El Pentágono Petrolero: the Oil Pentagon. The five sides of the Pentagon, starting from the top, are: 1. Reasonable participation; 2. CCCCH, the commission in charge of analyzing production, marketing and prices; 3. No more concessions; 4. CVP, the Venezuelan Petroleum Corporation; 5. OPEC 106 (Juan Pablo Pérez Alfonzo, El Pentágono Petrolero, 1967)
2.3. Manuel Egaña and Juan Pablo Pérez Alfonzo shake hands with Nasser at the first Arab Oil Congress in Cairo in 1959 112 (Courtesy of Bernard Mommer)
2.4. Heads of delegations to the Baghdad meeting of September 1960 from top to bottom: Fuad Rouhani (Iran), Tala’at al Shaibani (Iraq), Ahmed Sayed Omar (Kuwait), Abdallah Al-Tariki (Saudi Arabia), Juan Pablo Pérez Alfonzo (Venezuela)
121 (OPEC Archives)
2.5. Membership of the Petroleum Exporting Countries (OPEC) in1975
3.1. Comparative oil production in the Middle East (1948–73)
123
141 (Petroleum Press Service)
3.2a. Leaflet from OPEC’s PR Department in 1963 150 (ENI Historical Archives)
3.2b Leaflet from OPEC’s PR Department in 1963 150 (ENI Historical Archives)
4.1. Peak production and the rise of import dependence in the US. “Conventional” oil production peaked in 1970; since then the US has been increasingly reliant on petroleum imports. The new increases in production in the 2000s are due to “unconventional” oil 190 (US Energy Information Administration)
4.2. The two chief negotiators, Jamshid Amouzegar for OPEC and Lord Strathalmond for the international oil companies, shake hands after signing the Tehran Agreement in February 1971 198 (BP Archive, ARC174241/023)
4.3. French President Georges Pompidou addresses chief French negotiator (minister F.X. Ortoli) during Franco-Algerian oil talks: “What I am reading Ortoli? Are you willing to compromise on the crucial issue?” 206 (Le Figaro, 6/1/1971. Copyright: Coll. et Cliché Caricadoc)
4.4. The “ World Model Standard Run” from the 1972 edition of the Limits to Growth Club of Rome report shows widespread consensus at the beginning of the 1970s on swiftly declining resources
212 (The Limits to Growth, 1972)
5.1. Evolution of the official price of Arab Light crude
222 (Ian Skeet, OPEC. Twenty-Five Years of Prices and Politics, 1988)
5.2. Book cover of Arabia Without Sultans by Fred Halliday (1974). A rich Arab sheik (resembling king Faisal of Saudi Arabia) drowns in oil. Elites in the Gulf had to respond both to nationalist pressures from within, as well as to widespread global activism
232 (Copyright Peter Fluck)
5.3. The North–South divide in 1975. OPEC countries were then considered as the “spearhead” of the G77 developing countries
5.4. Houari Boumediene inaugurating the 1975 OPEC Summit in Algiers
238
249 (Getty Images, license 956645300)
6.1. The bus carr ying Carlos (in front to the right of the driver) and his hostages from OPEC countries to Vienna’s airport, December 22, 1975
256 (AP Images, ID 070125017577)
6.2. The hotel where the “Doha split” OPEC meeting in 1976 took place. The skyline of Doha was far from the impressive collection of skyscrapers it is today
262 (AP Images, Id: 534889738499)
6.3. OPEC price increases in the 1970s spur efforts at energy conservation in OECD countries: a Mini Morris advert of 1980
273 (British Motor Museum)
6.4. Popular representation of the relationship between Western Europeans and Arab sheiks during the oil price increases of the 1970s
279 (Frankfurter Allgemeine Zeitung, 1979)
6.5. At the OPEC Conference meeting in Bali in December 1980, the Iranian delegate to OPEC sits next to the portrait of the Iranian Petroleum minister then held captive by Iraqi military forces
299 (AP Images, Id: 98853415334)
7.1. Mass rally of striking miners in Mansfield (UK) in May 1984 309 (The Daily Mail, 3 March 2014)
7.2. The Statfjord B platform in the Norwegian North Sea became operational in 1982. At the time this “monster” was the world’s largest concrete platform, testifying to the gigantic financial and technological effort to develop North Sea oil 312 (https://commons.wikimedia.org/wiki/File:Statfjord_B_(DEX_PR_000829).jpg)
7.3. Increase in non-OPEC oil production from the second half of the 1970s; parallel decline of OPEC output at the beginning of the 1980s 322 (DOE, Annual Energy Review, 1985)
7.4. The rise and fall of oil revenues in selected OPEC countries in the first decade after the 1973 oil revolution 348 (OPEC, Annual Statistical Bulletin, 1985)
7.5. Historical evolution of crude oil prices 355 (BP, Statistical Review of World Energy)
E.1. International oil rent per family group in Venezuela in the twentieth century 373 (Asdrúbal Baptista, Teoría Económica del Capitalismo Rentístico)
E.2. National Monument (MONAS) in the middle of Merdeka (Independence) Square in Jakarta. The other towering building on the square is the headquarters of the Indonesian national oil company PERTAMINA 377 (Photo taken by the author)
E.3. Arial view of Abu Dhabi town and the Corniche in 1960 379 (BP PLC and Abu Dhabi National Archives)
E.4. The towering new building of ADNOC (the old ADNOC building is the small building on the right) on the Corniche of Abu Dhabi 379 (Photo taken in 2018)
E.5. Fire and looting in the center of Caracas during the Caracazo, February 27, 1989. The official death toll was 300 victims 383 (Photo by Tom Grillo. Archivo Fotografia Urbana, image 127710)
E.6. Global fossil fuels consumption (1965–2005). The graph shows a decline in petroleum consumption from the middle of the 1970s to the middle of the 1980s 390 (Simon Pirani, Burning Up, 2018)
E.7. Increasing levels of carbon emissions from fossil fuels during the Anthropocene 391 (Tyler Volk, CO2 Rising, 2008)
List of Tables
0.1. Main commodities exported by Venezuela from 1913 to 1940 19 (Miguel Izard, Series estadísticas para la historia de Venezuela, 1970)
0.2. Net petroleum exports by region from 1938 to 1960 39 (Petróleo y Otros Datos Estadísticos (PODE), 1960)
1.1. Leading joint ventures in the Middle East 70 (Ian Skeet, OPEC, 1988)
3.1. Outcome of the royalty-expensing negotiations in 1964 154 (The Economist, January 23, 1965)
5.1. These figures for the oil production in Abu Dhabi in 1974/5 show that OPEC countries, even when (as in this case) they had not nationalized all oil production, were taking in most of the value of a barrel of oil 229 (Figures taken from TNA, FCO 8/2432)
7.1. OPEC establishes a collective production ceiling and individual quotas starting from 1982 (OPEC Bulletin) 333
E.1. Saudi budget deficit from the 1986 to 2000 372 (Steffen Hertog, Princes, Brokers and Bureaucrats, 2010)
Introduction
Sovereign Landlords in the Twentieth Century
The mansion of modern freedoms stands on an ever-expanding base of fossil-fuel use.1
Dipesh Chakrabarty
[Proprietors of land] are the only one of the three orders whose revenue costs them neither labour nor care, but comes to them, as it were, of its own accord, and independent of any plan or project of their own. That indolence, which is the natural effect of the ease and security of their situation, renders them too often, not only ignorant, but incapable of that application of mind which is necessary in order to foresee and understand the consequences of any public regulation.2
Adam Smith
Herein lies the enormous difference, as regards the land, between old countries and colonies: the legal or actual non-existence of landed property.3
Karl Marx
Most people have entrenched ideas about petroleum. Some think that it must be the ultimate explanation for the wars raging in the Middle East and elsewhere. Others consider oil companies as responsible for worldwide corruption and environmental damage. Many of those who lived through the oil price shocks of the 1970s have vivid memories of car-free Sundays, lines at gas stations, widespread inflation, and place the blame for these evils either on the oil companies or the Gulf sheiks, or on both. Arguing that petroleum has been the most valuable commodity and the most important energy source of the twentieth century sounds like a truism, much like the fact that John D. Rockefeller was the richest man on Earth up to when he died in 1937. The price of petroleum is a hotly debated topic. The price of copper or that of coffee (itself a key energy source of a different kind) is not on verybody’s lips. The price of oil, on the contrary, often makes the news’
1 Dipesh Chakrabarty, “The Climate of History: Four Thesis”, in Critical Enquiry, 35:2 (Winter 2009), pp. 197–222.
2 Adam Smith, An Enquiry into the Nature and Causes of the Wealth of Nations (Hartford: Lincoln & Gleason, 1804), p. 206.
3 Karl Marx, “Transformation of Surplus-Profit into Ground-Rent”, Capital, Vol. III, Part IV.
The Rise and Fall of OPEC in the Twentieth Century headlines worldwide. When, from 2011 to 2013, the price of Brent crude oil had risen well above 100$ a barrel it was hard to get it off people’s minds. Consumers seem to think that a price of petroleum of over 100$ a barrel is not acceptable. But if Coca Cola or Bertolli olive oil sold in barrels (an oil barrel equals almost 160 litres) their price in 2019 would be respectively in the order of 110$ for Coke and 960$ for Bertolli oil. Consumers are so responsive to the price of petroleum because it is perceived as being in a different league when compared to copper, coffee, or bauxite, representing, as opposed to Coke or olive oil, an essential pillar of our modern way of life.
Petroleum is experienced in different ways: in the form of an indirect tax on the consumer’s general lifestyle, as a trigger for global political instability, as gasoline for automobiles. The closest consumers come to contact with this liquid is through the smell of gasoline at gas stations, advertisements of companies such as EXXON, or by observing from the distance the smoking chimneys of refineries. Petroleum derivatives such plastics or synthetic textiles, together with hundreds of other such byproducts, are hardly ever mentally associated to the natural resource itself. This distance from the materiality of crude oil (something that is also true for other raw materials) is felt not just by consumers, but also by the majority of those living in the countries where crude oil is extracted in order to then be exported all around the world. The areas where some of the most productive oil fields in the world are located, Lake Maracaibo in Venezuela, the East of the Arabian Peninsula, the platforms off the coast of the Niger Delta or in the rough waters in the North Sea, are remote, hidden from the daily gaze of citizens, except for the relatively small number of workers employed by extracting industries.
The way the history of petroleum has mostly been written reflects this distance from the materiality of the natural resource as well as the hysteria about price levels and the fears about the possibility of “running out of oil.” Historians have mostly been interested in the wealth that oil trade generates, its impact on military and economic power, and the way it has promoted industrialization and consumerism or induced panic reactions among consumers. Up until the early 1990s, most accounts of the rise of the petroleum industry were typically written either as criticism of the machinations of large multinational companies (as in the first examples of investigative journalism such Ida Tarbell’s enquiry on Standard Oil at the very beginning of the twentieth century, or in John Blair’s The Control of Oil after WWII) or as a paean to the entrepreneurship, vision and machinations of the titans of the oil industry (as in the best of these accounts, Daniel Yergin’s classic The Prize).4 These narratives share the underlying assumption that while oil production itself has been beneficial in providing a cheap and abundant energy source, the main problem resided in the distribution of oil profits and in the geopolitical conflicts for the control of the resource. Parallel narratives have always been present of course, as well as early criticisms of over-consumption fossil fuels, but they have
4 John Malcolm Blair, The Control of Oil (New York: Pantheon Books, 1976); Ida Tarbell, The History of Standard Oil Company (New York: McClure and Phillips, 1904); Daniel Yergin, The Prize: The Epic Quest for Oil, Money and Power (New York: Free Press, 1991).
Sovereign Landlords in the Twentieth Century 3
been far from mainstream.5 In 1931 Lewis Mumford wrote possibly the first world history in which energy sources featured prominently as history-shaping agents and expressed his hope that “carboniferous capitalism” would soon be substituted by a new civilization based on solar energy.6
By the beginning of the 1990s the advent of the age of petroleum has instead been increasingly associated, in both academic literature and public opinion, with fundamentally negative shifts that have occurred during the twentieth century: the rise of consumerism with the pollution and waste this has generated (including the formation of plastic continents floating around the oceans); the corruption and authoritarianism in the oil exporting countries; the triumph of neoliberalism and the financialization of the economy triggered by the “recycling of “petrodollars” in the 1970s; and, crucially, the damning accusation that the massive use of fossil fuels is the most important cause of global warming, with potentially catastrophic consequences for life as we know it on planet Earth. Amitav Ghosh summarizes some of the recent criticism of fossil fuels, and of petroleum in particular:
Think of the vocabulary that is associated with these substances: naphtha, bitumen, petroleum, tar, and fossil fuels. No poet or singer could make these syllables fall lightly on the ear. And think of the substances themselves: coal and the sooty residue it leaves on everything it touches; and petroleum—vicious, foul smelling, repellent to all the senses.
Of coal at least it can be said that the manner of its extraction is capable of sustaining stories of class solidarity, courage, and resistance, as in Zola’s Germinal, for instance, and John Sayles’s fine film Matewan.
The very materiality of coal is such as to enable and promote resistance to established orders. The process through which it is mined and transported to the surface creates an unusual degree of autonomy for miners; as Timothy Mitchell observes, “The militancy that formed these workplaces was typically an effort to defend this autonomy”. It is no coincidence, then, that coal miners were in the front lines of struggles for expansion of political rights from the late nineteenth until the mid-twentieth century, and even afterward. [. .]
The materiality of oil its very different from that of coal: its extraction does not require large numbers of workers, and since it can be piped over great distances, it does not need a vast workforce for its transportation and distribution. This is probably why its effects, politically speaking, have been the opposite of those of coal. That this might be the case was well understood by Winston Churchill and other leaders of the British and American political elites, which was why they went to great lengths to promote the large-scale use of oil.7
According to Ghosh (here echoing an argument first popularized in Timothy Mitchell’s Carbon Democracy), the deleterious impact of the rise of the global petroleum industry extends well beyond climate change and the “imperialism” of
5 Christophe Bonneuil and Jean-Baptiste Fressoz, The Shock of the Anthropocene: The Earth, History and Us (London: Verso, 2017).
6 Lewis Mumford, Technics and Civilization (London: Harcourt, 1934), pp. 222–4.
7 Amitav Ghosh, The Great Derangement: Climate Change and the Unthinkable (Chicago: University of Chicago Press,2016), pp. 73–4.
The Rise and Fall of OPEC in the Twentieth Century oil multinationals to include issues such as the weakening of democracy and of working-class activism, and the advent of an “economy” grounded in the utopia of unlimited and painless growth.8 Andreas Malm has argued that coal was not inherently more productive than other energy sources (say hydro-power) at the beginning of the industrial revolution, but that fossil capital triumphed because it allowed steam engines to be placed in areas where workers could be more easily controlled.9 Other scholars are now emphasizing that it was the willingness to promote peculiar technological, social and economic systems, rather than demand, that launched the age of fossil fuels: “push” factors prevailed over “pull” factors when it came to energy models.10
Rather than debating the positive or negative connotations of the advent of petroleum as a key global energy source I try, from the peculiar vintage point of a “diplomatic historian”, to see how the twentieth century looks like when viewed from the perspective of the landlords that rule over the most productive oil regions in the world. These very few areas still hold the vast majority of the world’s proven reserves of petroleum: as of 2017, countries that are members of the Organization of the Petroleum Exporting Countries (OPEC) accounted for more than 80 percent of global oil reserves, the vast majority being concentrated in the Middle East and Latin America.11 The sovereign landlords that are protagonists of this book, the most important raw materials exporters of the twentieth century, I have called “petrostrates”, a term that I did not invent and that is often used with negative connotations (the Collins English Dictionary describes a petrostate as a “small oilrich country in which institutions are weak and wealth and power are concentrated in the hand of a few”).12 These territories did not decide to become so dependent on petroleum exports. It was both foreign capital and foreign countries that encouraged them, at the beginning of the twentieth century, to become suppliers of an increasingly important energy source. I am well aware that people who live in petrostates might consider the term diminishing, insufficient to describe sophisticated societies and elaborate traditions present everywhere from Iran and Saudi Arabia to Nigeria and Venezuela. The label “petrostate” does not render justice to the complexity and diversity of such territories and societies. Equally problematic is the fact that there is no clear-cut definition of what a petrostate is. A petrostate is in fact more than an oil producer. Neither the United States nor Russia, and not even Great Britain, Norway, or Mexico have ever been petrostates. From my perspective, two basic features define petrostates. The first is a peculiar geological conformation that makes parts of their territory incredibly productive in terms of a natural resource that is in high demand globally. This means that if (or rather when) demand for petroleum will fade away, petrostates will inevitably cease to be
8 Timothy Mitchell, Carbon Democracy: Political Power in the Age of Oil (London: Verso, 2011).
9 Andreas Malm, Fossil Capital: The Rise of Steam Power and the Roots of Global Warming (London:Verso, 2016).
10 Simon Pirani, Burning Up. A Global History of Fossil Fuel Consumption (London: Pluto Press, 2018).
11 OPEC, Annual Statistical Bulletin, 2017.
12 https://www.collinsdictionary.com/dictionary/english/petrostate. Consulted on 8 January 2019.
such. The second feature is that petroleum must account for the vast majority of their exports, while income from these exports must make up a very significant proportion of their economy and fiscal revenues—according to the International Energy Agency the oil sector, in the period from 2010 to 2014, accounted for 17 percent of Iraq’s GDP, 32 percent of that of Kuwait, 19 percent of that Saudi Arabia and 11 percent of that Venezuela; while for all these countries oil revenues represented more than 60 percent of their fiscal income. In their history of the SAMA (the Saudi version of a central Bank), Ahmed Banafe and Rory Macleod explain the crucial role that the revenues from oil exports play in the Saudi economy to this day: “if oil money stopped coming in - if, say, there was a breakthrough in the cost of renewables so the oil price collapsed and stayed down - the government would have nothing to spend unless it raised money from local taxes, something that would decimate the economy.”13 This means that production size matters, but isn’t everything. If a major oil producer such as the United States becomes a net oil importer, something that happened as early as 1948, by definition it cannot be defined as a petrostate. At the same time a country such as Mexico, which started exporting petroleum once again in the late 1970s, cannot be defined a petrostate because the value of these exports, while significant, still constitutes a relatively small portion of its economy. To sum up: for a petrostate to exist there must be a significant global demand for petroleum and participation to this global market must be vital for the country in question. By founding OPEC in 1960, a handful of countries have made it even easier to identify petrostates.14
Intellectuals and politicians in OPEC countries have been very outspoken about the key role petroleum has played, and continues to play, in their countries. The Venezuelan historian and writer Domingo Alberto Rangel noted that “no event in Venezuela can be separated from oil [. . .] It is the fundamental force that shapes national life. All aspects of the Venezuelan economy are legitimate or bastard children of that substance that irrevocably stained our history.”15 In both Iran and Nigeria, numerous intellectuals and politicians have dealt with the primacy of oil in the countries’ economic and political systems, for better and for worse.16 The profound legacy of political figures such as Mossadegh in Iran or Boumediene in Algeria is deeply associated to the nationalization of the oil sector. Even in petrostates in which the debate over the role of petroleum industry has been more muted, everything their citizens experience—from skyscrapers to desalination plants, from highways to migrant housemaids, from citizenship regulations to fiscal regimes, from shopping malls to traffic jams—can inevitably be linked to the development of the petroleum industry and its relationship with the global market
13 Ahmed Banafe and Rory Macleod, The Saudi Arabian Monetary Agency, 1952–2016. Central Bank of Oil (London: Palgrave MacMillan, 2017), p. 4.
14 Indonesia was readmitted to OPEC in 2015 even though it was by then a net oil importer. It decided to “freeze” its membership again, less than a year later.
15 Quoted in: Miguel Tinker Salas, The Enduring Legacy: Oil, Culture, and Society in Venezuela (Durham and London: Duke University Press), p. 2.
16 For example Abohlassan Banisadr in the Iranian case or Ken Saru-Wiwa in Nigeria testify as to how oil was, and still is, at the very centre of the political and social struggles in those two countries.
The Rise and Fall of OPEC in the Twentieth Century for petroleum. In a petrostate petroleum exports cannot explain everything, but nothing can be really explained without taking into account the impact of these petroleum exports.
Petrostates are often disliked because of their “rentier state” status.17 They have the aura of a “pariah state” status when compared to other “productive” members of the international community. Land rent has been progressively marginalized as a topic of mainstream political economy, and has generally negative connotations for liberal and Marxist intellectuals and economists alike.18 The general dislike for rent as “undeserved wealth” lies very deep in widely engrained religious and cultural views all over the world. Variations of Paul’s biblical admonition that “if any would not work, neither should he eat” (Thessalonians 3:10) exist in many different cultures. I hold no such prejudice against land rent and sovereign landlords. I simply observe that land rent exists because the Planet Earth is finite and because much of the ecosphere has been split up in the twentieth century among sovereign landlords that we call nation states. Each of these nation states has peculiar geographical and cultural characteristics and has to deal with them. The existence of petrostates such as Venezuela, Saudi Arabia, Nigeria, and Iran, countries with such an important regional and global role, while at the same time crucially dependent on international land rent (a rent deriving from mineral exports), cannot be easily dismissed as the outcome of a quirk of international political economy that has generated extravagant regimes.
I am not interested here in closely describing the formation of petrostates, how they have built up their state bureaucracies, or how they represent themselves politically and culturally. Other scholars are heading in this direction, and I have used some of their extremely valuable work that manages to embed the natural endowment of a territory with the analysis of its politics, economics, and identity.19 My focus is instead on the international cooperation among petrostates and the way they have struggled to negotiate their presence in a world that became increasingly dependent from the trade in hydrocarbons as a key energy source. I concentrate on the petrostates’ governments, oil technocrats, and elites, and the way they have cooperated (or clashed) over what is best to be done with petroleum. This book starts by describing the emergence of Venezuela in the 1920s as the biggest
17 The classic here is: Hazem Beblawi and Giacomo Luciani (eds.), The Rentier State: Nation, State and Integration in the Arab World (London: Croom Helm and IAI, 1987).
18 For a theoretical discussion of the theory of rentier capitalism and the role of international mineral rent: Asdrúbal Baptista, Teoría económica del capitalismo rentístico (Caracas: Banco Central de Venezuela, 2010).
19 A few examples quoted in this book of how fertile recent research on the impact of petroleum on the culture, politics, society and institutional setting of individual oil producing countries: Andrew Apter, The Pan-African Nation: Oil and the Spectacle of Culture in Nigeria (Chicago: Chicago University Press, 2005); Fernando Coronil, The Magical State: Nature, Money, and Modernity in Venezuela (Chicago: The University of Chicago Press, 1997); Christopher R.W. Dietrich, Oil Revolution: Anticolonial Elites, Sovereign Rights, and the Economic Culture of Decolonization (Cambridge: Cambridge University Press, 2017); Michael Herb, The Wages of Oil: Parliaments and Economic Development in Kuwait and the UAE (Ithaca: Cornell University Press, 2014); Douglas Rogers, The Depths of Russia: Oil, Power, and Culture after Socialism (Ithaca: Cornell University Press, 2015); Myrna Santiago, The Ecology of Oil: Environment, Labor and the Mexican Revolution 1900–1938 (Cambridge: Cambridge University Press, 2006); Robert Vitalis, America’s Kingdom: Mythmaking on the Saudi Oil Frontier (Stanford: Stanford University Press, 2007).
Introduction: Sovereign Landlords in the Twentieth Century 7 oil exporter in the world and with the parallel formation of the oil “concessions system” in the Middle East during the 1920s and 1930s. It explains the reasons for the birth of OPEC in 1960, and then follows the success and failures of the cooperation among petrostates up to the beginning of the 1990s, when the organization seemed to so weak as to be ready to collapse. More specifically, the book starts with the transformation of Venezuela into the world’s first petrostate during the 1930s and ends at the beginning of the 1990s, when powerful internal and external forces were pushing this country that had so crucially contributed to the creation of OPEC out of the organization.
The reason I decided to write about petrostates and OPEC is because I reckon that international cooperation among petrostates tells us a great deal about some of the driving forces of twentieth-century international history. These pages could be read as the story of the interaction between global capitalists (the international oil companies that have throughout the twentieth century consistently ranked among richest companies in the world), sovereign landlords (petrostates), and sovereign consumers (the governments of the key oil consuming countries). This triangular global interaction between capitalists, sovereign landlords, and sovereign consumers has generated its own peculiar forms of international cooperation: oil companies have cooperated in what has been defined by some as the International Oil Cartel, an oligopoly of the largest international oil companies that lasted up to 1973; petrostates did the same with the creation of OPEC in 1960; and sovereign consumers eventually reacted to the growing power of OPEC by launching the International Energy Agency (IEA) in 1974. This global triangular interaction for the control and management of natural resources speaks volumes about some of the key political and economic conflicts of the twentieth century, complicating a narrative of the international history that still overwhelmingly focuses either on the Cold War and on great power politics.
It is worth noting here that the countries that gave birth to OPEC found themselves on opposite sides of the Cold War divide, and even on opposing sides of various regional “cold wars” as highlighted in the tensions between Iraq, Saudi Arabia, and Iran. Their citizens spoke different languages, belonged to different religious faiths, ate different foods, inhabited regions that varied from tropical forests to deserts, and organized themselves politically in different systems, including democracies, socialist regimes, and absolute monarchies. It is safe to say that most of them did not share cultural identities, political models, or international alliances. What brought them together was both their position as raw materials exporters, their distinctive natural resource endowment, and the willingness to stand up to the tremendous external pressures that shaped them and weighed heavily on their key industry and income source.
There are some excellent histories of OPEC (or memoirs in which OPEC plays a prominent role), written by former policymakers in petrostates, journalists, or practitioners in the oil industry.20 I have learned from these accounts, and they are
20 Histories of OPEC have been written by: Abdul Amir Q. Kubbah, Bernard Mommer, Francisco Parra, Ian Seymour, Ian Skeet, Pierre Terzian. Key memoires and essays by protagonists have been written among others by: Belaid Abdessalam, Philip Asiodu, Ali Al-Naimi, Mana Al-Otaiba, Abdallah Al-Tariki, Fadhil J. Chalabi, Manuel Egaña, Juan Pablo Pérez Alfonzo, Fuad Rouhani.
The Rise and Fall of OPEC in the Twentieth Century extensively quoted. The wealth of knowledge about petroleum and OPEC is generally far greater than what we know about other commodities and raw materials in the twentieth century.21 But most histories of OPEC have been written before the beginning of the 1990s (when OPEC still featured prominently on global news), while none has been published by a professional historian or is based on in-depth archival research. By using previously unavailable archival material, my main contribution to the literature has been twofold.
First: I have tried to link the rise of OPEC with the ongoing debates on development and with the efforts of other Third World countries influence the international agenda. OPEC has been the first international organization of the so-called “Global South.” It was created one year before the Non-Aligned Movement was launched in 1961 and four years before the creation of the United Nations Conference for Trade and Development (UNCTAD). Petrostates, particularly through OPEC, have in many ways embodied and spearheaded the international struggle for sovereignty over natural resources that came to represent and symbolize one of the key developmental strategies of “post-colonial” governments, as well as one of the priorities in the international human rights debate of the late 1960s and early 1970s. In this struggle for state sovereignty over natural resources OPEC countries, specially through increasing state control over their key industry industry, have been so successful that the oft-repeated representation of raw materials producers from the developing countries simply as being “pillaged” throughout the twentieth century by industrialized countries and avid corporations has more to do with the realm of myth than that of historical reality. On the other hand, being successful in taking over a key industrial sector is not the same as avoiding the trap of dependence, as begin able to resist massive influx of money and avoiding the over-exploitation of the country’s natural resources.
Secondly, I have also tried to connect the history of petrostates more deeply with environmental history. If petroleum is “commodified” (i.e. simply considered a commodity to be exchanged on the market), states become mere market actors, and natural resources such as petroleum are separated from the environment in which they are produced, the pollution and development models they generate, and the conditions of local populations.22 On the contrary, local elites, workers, and political movements have often approached petroleum as an exhaustible natural resource and refused to consider it a commodity as any other. Petrostates have played an active role in influencing oil consumption worldwide by manipulating prices and by expanding or reducing oil production, and have thus directly affected CO2 emission globally, one of the key environmental concerns today. As paradoxical as this might seem, sovereign landowners have been, and might actually become once more, active contributors in the effort to reduce fossil fuels consumption. In her environmentalist pamphlet This Changes Everything Naomi
21 The Norwegian University of Science and Technology (NTNU) is trying to overcome the knowledge gap between petroleum and other raw materials with its project History and Strategic Raw Materials Initiative.
22 For example: David Harvey, Spaces of Global Capitalism (London: Verso, 2006).
Klein considers that the only critics of “extractivism” (an ideology to which, according to Klein, both the socialists and liberals have become addicted) have been native communities and unorthodox intellectuals.23 As counterintuitive or displeasing (at least for Klein) as this might be, I argue that Gulf sheiks, Persian Shahs, and exotic democratic politicians in the Caribbean, have also at particular moments questioned the limits of “extractivism” and thought about preserving natural resources for future generations. As will be shown in Chapter 4, one of the driving factors behind OPEC’s 1973 increase of the oil prices, commonly referred to as the “oil shock,” was the concern for overconsumption in industrialized countries and for the swift depletion of natural resources. After he was diagnosed with cancer Juan Pablo Pérez Alfonzo, one of the key figures in the history of OPEC and of Venezuela, spoke about the failure of OPEC as to act “ecological force.”24 This book is partly the story of the rise and fall of OPEC as such an “ecological force.”
The reason that finally convinced me to write this book is that, after looking into the archives of various governments, international organizations, and oil companies, I have been able to access the (previously unavailable) minutes of the OPEC Conferences, starting from the founding of OPEC in 1960 up to the so-called oil “countershock” of 1986. Since the OPEC Conference is the main decision-making body of the organization—the institution where ministers and delegates from their respective countries meet to discuss, and eventually to approve, binding resolutions—this proved to be an immensely valuable source. These minutes are edited and are subject to approval by all delegates, and are thus somewhat “sanitized.” On the other hand, they are also long and well-articulated documents (frequently well over 200 pages) that reflect in great detail hours or days of discussions, and present the official views of the OPEC member countries at crucial junctures in the history of petroleum. They offer, in other words, a wonderful tool to get behind the curtains of one of the most recognizable acronyms in the world.
I have done much travelling from Venezuela to Indonesia, including spending a few years in Abu Dhabi. During these travels I had the opportunity of interviewing some of those who played a role in the petroleum industry of their respective countries or in OPEC itself, as well as of chatting with people I considered well-informed observers with historical memory. I have used these interviews as background, as a device that allowed me to better understand the mentality and way of thinking— often alien to me—of oil technocrats and politicians from different OPEC countries. I hardly ever quote my conversations directly because this left my interlocutors more freedom in our conversations. Among others, I want to thank for their patience: Belaid Abdessalam, Abdul Amir Al-Anbari, Abdullah bin Hamad Al-Attiya, Issam Al-Chalabi, Yousef Khalifa Al-Yousef, Abdulla Al-Naibari, Philip Asiodu, Fadhil J. Al-Chalabi, Sid Ahmed Ghozali, Khair El Din Haseeb, David
23 Naomi Klein, This Changes Everything: Capitalism vs. The Climate (New York: Simon & Schuster, 2014), pp. 176–83.
24 “El Testamento de Pérez Alfonzo”, Resumen, September 16, 1979.
The Rise and Fall of OPEC in the Twentieth Century
Heard, Hosseini Kazempour Ardebili, Hocine Malti, Michael Olunrenfemi, Siham Razzouki, Ramzi Salman, Ian Skeet, Dr. Subroto, Pierre Terzian.
Although they surely disagree with many of the things I have written, and might consider a few of my “outsider’s” observations as very naive, former Venezuelan Governor to OPEC Bernard Mommer and former Saudi Governor to OPEC Majid Al-Moneef have been to this book what Juan Pablo Pérez Alfonzo and Abdullah Tariki have been to OPEC: in different ways they have been crucial to my research and have deeply influenced my way of viewing things.
I have benefited from significant funding by the Italian Ministry of Education, University and Research (MIUR) through the FIRB project Engines of Growth that I co-directed at the University of Padua with my friend, colleague, and intellectual partner Duccio Basosi from the University of Venice. I was fortunate enough to be appointed Senior Research Fellow in the Humanities at NYU Abu Dhabi for three years, a position that allowed me to have time to think and write as well as access to travel funds. This book would not have existed without the NYUAD Humanities Research Fellowships Program and this is why I left the key OPEC documents I used in the book to the NYUAD library so that they can be used by other researchers. Reindert Falkenburg and Martin Klimke, heads of my program during my stay at NYUAD, had confidence in me and in my research. Alex Sandu, the program manager, made my stay easy and helped in every possible way. All the rest of the team at the NYUAD Institute make it such a great place. I have written some of these pages during my stay as Senior Braudel Fellow in the enchanted Villa Salviati of the European University Institute. My Norwegian colleague Dag Harald Claes co-funded a conference on OPEC at NYU Abu Dhabi and shared his views and comments about international energy politics and economics.
The list of colleagues that have helped me one way or the other is endless. More are left out than those I can mentioning here: Ervand Abrahamian, Touraj Atabaki, Alain Beltran, Juan Carlos Boué, Bao Maohong Éric Buissière, Chris Dietrich, Nelida Fuccaro, Stephen Gross, Victor McFarland, Einar Lie, Molly Nolan, David Painter, Werner Sollors, Henning Turk, Corinna Unger, Robert Vitalis. A special mention goes to my Italian friends working on or around international energy issues, or simply for their support: Elisabetta Bini, Massimo Bucarelli, Mario Del Pero, Silvio Labbate, Marta Musso, Leopoldo Nuti, Francesco Petrini, Federico Romero, Massimiliano Trentin, Antonio Varsori.
Christopher Wheeler was the first at OUP to believe in the project. After he left Cathryn Steele took over the responsibility and I could not have been in better hands. I also have to thank especially Richard Nybakken for having helped with translating and editing some of the chapters of the book, as well as to Giancarlo La Rocca for helping with the index.
Prologue
Petrocapital and the Birth of the Petrostate
And over there in Europe, people had begun making smaller machines still, with even greater power, or at least with the same power as steam-engines. Indeed not with steam. With oil. [. . .]
The forces of nature were beginning to be changed by man so as to be put to his service.1
Pramoedya Ananta Toer, This Earth of Mankind
We owe it to the progress of the world and to the world’s need for its natural resources to see to it that the republics of Tropical America behave like citizens of the world rather than like pirates or members of savage headhunting tribes.2
Hiram Bingham, The Future of the Monroe Doctrine, 1920
While travelling through Latin America at the beginning of the nineteenth century, the German naturalist and philosopher Alexander Von Humboldt pointed to the relationship between colonialism and the exploitation of nature. According to his biographer Andrea Wulf, Von Humbolt
debated nature, ecological issues, imperial power and politics in relation to each other. He criticized unjust land distribution, monocultures, violence against tribal groups and indigenous work conditions—all powerfully relevant issues today. As a former mining inspector, Humboldt had a unique insight into the environmental and economic consequences of the exploitation of nature’s riches. He questioned Mexico’s dependence on cash crops and mining, for example, because it bound the country to fluctuating international market prices.3
A century after Von Humbolt’s trip, the petroleum industry was on its way of becoming a sophisticated and globally interconnected system for the economic exploitation of nature. Small scale trade in bitumen and crude oil for various uses had been going on for centuries, but the modern petroleum industry now stretched out from the United States and the Russian Empire, into Southeast Asia, Latin
1 Pramoedya Ananta Toer, The Earth of Mankind, trans. Max Lane (New York: Penguin, 1996), pp. 17–18.
2 Hiram Bingham, “The Future of the Monroe Doctrine”, in Journal of International Relations, 10:4 (April 1920), pp. 392–403 (p. 400). Bingham was professor of Latin American history at Yale University and the Journal of International Relations would later be renamed Foreign Affairs.
3 Wulf, The Invention of Nature, p. 105.
The Rise and Fall of OPEC in the Twentieth Century America, and the Middle East. These new oil regions were, either formally or informally, under tutelage from one or the other of the Great Powers. Some of these oil regions could be identified on early twentieth-century colonial maps by the pinkish-red of the British Empire, the purple-blue of its French rival, or the yellow-brown of the Dutch Empire.
Once the Soviet revolution had blocked Russian petroleum exports, AngloAmerican petrocapitalism quickly managed to gain almost absolute control over a trade that already by the 1920s was among the most profitable in the world. Oil money poured into US oil companies and into mammoth financial institutions such as the Chase National Bank, partly owned by the founder of Standard Oil John D. Rockfeller. Oil fueled the automobile industry that would constitute the paradigm of industrialization and consumerism for the rest of the twentieth century. Anglo-American petrocapital was comfortably dealing with colonized territories such as Kuwait, or with subaltern states such as Iraq. Unfettered access by private companies to the oilfields represented a key asset for the advent of petroleum as the energy source of the future. The male tycoons and the technocrats of the oil industry, as well their backers within their own governments, espoused a racialized view of international relations that placed responsibility for maintaining global stability and for the free flow of raw materials in the hands of white (preferably AngloAmerican) nations alone.4 Labor relations everywhere from Venezuela, to Saudi Arabia, to Iran to the Dutch East Indies, were characterized by discrimination against non-white workers, unfair pay, inequitable working conditions, and substandard accommodations, as well as unequal access to technical knowledge and positions of authority. The new oil exporting regions in the 1920s and 1930s were among the most precious gems of the Earth of Mankind. But the Mankind in question was almost exclusively white, its civilization propelled by Wall Street or the City of London.
But while petrocapital flourished in the 1920s and 1930s, one of the unintended consequences of its expansion was the birth of its nemesis: the petrostate. The petrostate, increasingly dependent for its very survival on the rent generated by petroleum trade, was a sovereign landlord that struggled to exert some degree of control over its natural resources. This chapter will review some key features of the expansion of petrocapital in Venezuela and in the Middle East (Iran, Iraq, as well the Arabian Peninsula) and will deal with the less known story of the emergence of Venezuela, under the rule of its strongman general Juan Vicente Gómez, as the first petrostate of the twentieth century.
BIG OIL
Already by the beginning of the twentieth century most of the key protagonists of petrocapital had emerged.
4 Robert Vitalis, White World Order, Black Power Politics: The Birth of American International Relations (Ithaca: Cornell University Press, 2015).
John D. Rockefeller’s Standard Oil had gained control of the largest refineries in the US and monopolized the distribution of crude oil via railroads and pipelines. By the end of the nineteenth century it controlled almost 85 percent of US petroleum production and provided the US and European market with kerosene, at the time the most important refined product derived from crude oil. Standard Oil was thus able at the same time to earn an enormous amount of money and to “rationalize” an industry that was prone to boom and bust cycles by providing it with a modicum of organization which helped stabilize the price. In 1911, the Supreme Court of the United States, bowing to the public pressure of the “muckrakers”, partly endorsed by President Theodore Roosevelt, busted Standard Oil, ordering it to be split up into thirty-four different companies. The most important of these—and the most relevant to this story because of their future involvement in the exploration for petroleum outside the US—were Standard Oil of New Jersey (SONJ, later EXXON), Standard Oil of New York (SOCONY, later MOBIL), and Standard Oil of California (SOCAL, later Chevron). TEXACO (eventually merging with Chevron) was born instead in 1902 soon after the discovery, with the famous Spindletop gusher, of the huge oilfield of Southeast Texas that put the state on the global oil map.
On the other side of the Atlantic, meanwhile, Europe’s second industrial revolution also required increasingly significant quantities of lighting oil and lubricants for machinery. By the middle of the nineteenth century, crude oil production (always for kerosene) had begun in Galicia and Romania. Of even greater importance, however, was the development of the other great hub of oil production (alongside the US): the city of Baku on the Caspian Sea. There, the Rothschilds and the Swedish-Russian Nobel family had taken on the job of building a railway from Baku to the city of Batumi in Georgia, in order to move crude oil from the Caspian to the Black Sea to supply the European market. The transport company Shell, owned by Marcus Samuel, a British businessman of Iraqi-Jewish descent, soon entered the Russian oil game, obtaining the rights to sell Caspian crude oil east of Suez. By the end of the century Baku oilfields were producing three times more than the US fields. In 1905, after massive worker’s protests in Baku—whose leaders included a Bolshevik revolutionary later known by the name of Stalin— the Rothschilds partnered with Shell, exchanging the rights to Russian oilfields for shares of company stock. Both the United States and Russia had pioneered the development of oil industry auditioning for their roles as twentieth-century energy superpowers.
In the Dutch East Indies, the Royal Dutch Petroleum Company had begun drilling on the island of Sumatra, in the steamy jungles of the South Pacific, the heart of what is now Indonesia, In 1907, Royal Dutch merged with Shell Transport, the Dutch providing 60 percent of the capital and the British the remaining 40 percent. The new company, which kept the Shell symbol (the scallop logo), controlled promising oil deposits in both Europe (Baku) and Asia, and owned a fleet specialized in crude oil shipping. Royal Dutch Shell quickly affirmed its status as the most important international petroleum company, becoming Standard Oil’s greatest competitor. Responding to the hostile bids by Rockefeller’s Standard
The Rise and Fall of OPEC in the Twentieth Century Oil, Henry Deterding, the charismatic head of Shell demonstrated a precocious inclination for splitting up the international market:
It is not wise for Standard to buy us. I dream and (if we have success in Romania, California or Russia this will soon be realized) I believe our goal is to be the only opponent, and therefore silent partner of Standard. There is no place for a monopoly on this earth, but there is for two great companies working together wherever this is possible.5
By the end of WWI, Shell was drilling in the Dutch East Indies, Romania, Mexico, and Russia. It had secured the most promising oil concessions in Venezuela and, between 1919–20 it also began to produce oil in the United States, thus taking the competition onto Standard’s own turf. In 1920 Shell became the world’s largest oil producer—though not necessarily the most profitable—and accounted for some 11 percent of worldwide production. Shell had managed to surpass in production the largest US company, Standard Oil of New Jersey (SONJ), which had to rely almost exclusively on US crude production.6
The first petroleum concession in the Middle East was granted in 1901 by the Shah of Persia to William Knox D’Arcy, an English businessman who had made a fortune in mining in Australia. The concession was supposed to last for sixty years. It extended across three-quarters of the country, excluding only the five northern provinces that fell under the Russian sphere of influence, and granted the Shah a 16 percent ownership and share in the companies’ future profits and shares.7 Because of a lack of funds, D’Arcy was very soon forced to sell the concession to the British Burmah Oil (even though the Shah was not consulted, the government said goodbye to its 16 percent ownership), which in 1908 uncovered the giant oilfield at Masjid-i-Sulaiman in the southwestern Arab province of Khuzestan. After this discovery, the Anglo-Persian Oil Company (APOC, later the Anglo-Iranian Oil Company, and finally British Petroleum) was founded in 1909 under the auspices of the British Empire: a British monopoly in Persia was thought to be useful in part to prevent Russian oil from reaching Asian markets. Anglo-Persian immediately set out to build a pipeline capable of transporting crude oil from the fields in Khuzestan to a new refinery located on the hot, humid island of Abadan on the Shatt Al-Arab, where the Euphrates and the Tigris rivers join before discharging into the Gulf.
Not long after the British company had discovered the first oil deposits in the Middle East, the Admiralty, headed by the then Liberal MP Winston Churchill, decided to convert the vessels of the Royal Navy—the institution protecting all the vital lifelines of the British Empire—from coal to oil power, in the belief that this new fuel source would deliver better performance for its warships and greater flexibility in refueling and supply. Oil weighed less per thermal unit and did not
5 Jan Luiten van Zanded, Joost Jonker, Stephen Howarth, Keetie Sluyterman, A History of Royal Dutch Shell, Vol.1, (Amsterdam/New York: Oxford University Press: 2007), p. 116.
6 George S. Gibb and Evelyn Knowlton, History of Standard Oil Company (New Jersey), vol. 2: The Resurgent Years, 1911–1927 (New York: Harper, 1955), p. 454.
7 R.W. Ferrier, The History of the British Petroleum Company, vol. I: The Developing Years (1901–1932) (Cambridge: Cambridge University Press, 1982), pp. 32–3.
require stokers to continually feed the boilers, thus releasing a significant amount of labor for other duties. It was also cleaner when burning, which provided a major advantage in battle at sea, since smoke could be detected over great distances. This crucial strategic choice for the Navy pushed the British government to invest directly in Anglo-Persian - once again without any previous consultation with the Qajar Shah - acquiring a 51 percent majority stake upon the outbreak of the First World War in August 1914. Critics denounced the decision on multiple grounds: as an unthinkable intrusion of the state into the economic sphere; a waste of public funds; a rash decision to rely upon a strategic resource basically non-existent within the lands of the Empire; a potential source of tension with the Persian government. Churchill won the day by emphasizing that it was vital for the Empire to exert direct control over such a promising oil region—there were as yet no known crude oil deposits in lands directly under British control—and suggesting that the Navy could be supplied at cost. Betraying the widespread racialist and nationalistic sentiments of the era, he also cautioned against relying on an Anglo-Dutch venture such as Shell, which was after all run by a Jew, Marcus Samuel, alongside the Dutchman Deterding. After the end of WWI, Churchill congratulated himself for the significant returns that the Persian oilfields had bestowed upon His Majesty’s coffers: some £16 million in appreciation on the government’s initial investment, £6.5 million in dividends, as well as savings of £3 million in oil procurement.8 “We shall be entitled also to claim,” he famously added, “that the mighty fleets laid down in 1912, 1913 and 1914, the greatest ever built by any power in an equal period, were added to the British Navy without costing a single penny to the taxpayer.”9
MARACAIBO
The Great War had highlighted the strategic importance of petroleum, not simply for the production of kerosene as an illuminant, but also as fuel for the new modern warfare both on sea and land (and in the air). The importance of petroleum to the US economy increased dramatically in the decade following the Great War: 23 million cars already motored along American roads by the end of the 1920s, and the countryside was increasingly crisscrossed with highways and dotted with gas stations. The automobile industry of Great Britain, France, and Germany, meanwhile, still lagged behind, having not yet fully exploited the Fordist efficiency model. The perspective of the expansion in the use of the combustion engine and of electricity networks led petrocapital to invest in the most productive oil regions and to hunt globally for concessions. In this endeavour it was supported by a US department of Interior that, after the war, was increasingly worried about the possible overexploitation of the US oil fields. As summarized by Megan Black: “The
8 John Blair, The Control of Oil (New York: Vintage, 1978), p. 49.
9 George W. Stocking, Middle East Oil: A Study in Political and Economic Controversy (Nashville: Vanderbilt University Press, 1970), p. 20.
