Friday, March 14, 2014

`The Prize (6) "Power to the Producers"

The Prize: The Epic Quest for Oil, Money, and Power is Daniel Yergin's history of the global oil industry from the 1850s through 1990. The Prize became a bestseller owing to its release date: it was published in October 1990, two months after the invasion of Kuwait ordered by Saddam Hussein and three months before the U.S.-led coalition began the Gulf War to oust Iraqi troops from that country.  It eventually went on to win the Pulitzer Prize. 
The Prize has been called the "definitive" history of the oil industry, even a "bible".
My notes

In the 1950s and 1960s the tension between the oil-producing countries and the (oil-consuming) West increased.

Oil was being discovered more than ever before, but a battle was brewing for the control of this wealth.

On October 27th 1962 an Italian oil magnate – Enrico Mattei – was getting death threats. His plane crashed, one minute from landing. Some suspected sabotage, but apparently there were no signs of such.

Mattei had taken on many big and powerful oil players. His opponents saw him as the Napoleon of oil. He was determined to get his share of the business.

The major oil companies – The Seven Sisters ▪ Chevron | Esso | Texaco | Mobil… The world was shifting from coal to oil, because oil was cheap.

Hydrocarbon Society, the Automobile Culture. Fast food, new prosperity. Millions took to the highways.

Competition among the majors was fierce, especially for branding in the market. But behind the scenes, they collaborated on oil production concessions.

Investments in exploration and transportation, refining and marketing.

It’s like the Emperor’s clothes. If people perceived that you had power, then you had power.

As the production of oil went up, the price went down.

Japanese growth was based on the switch from coal to oil, which transformed the county into a major industrial power.

Governments saw that oil was vital to national interests.

Mattei fought hard to make ENI – Ente Nazionale Idrocarburi – a state company. For centuries Italy battled poverty.

Mattei saw a prospective partner just across the Mediterrean ▪ Gamal Abdel Nasser, of Egypt. He promised the latter a staggering 75% of the profit, but the pot was relatively small.

He offered the Shah of Iran the same 75%-25% deal.

Mattei’s legacy was the 8th biggest oil company in the world.

The oil companies in the West kept producing, thus driving prices down. Which didn’t make oil producers in the Middle East happy at all. So Alfonso broached an idea that was to become OPEC.

OPEC was formed in Baghdad in 1960, which Western majors refused to recognize.

In the 1960s Libya emerged onto the scene. It was a North African bonanza. Libya was a very poor country. But the regime saw the opportunity to make real money.

Occidental was an overnight success for Armand Hammer. He fought hard for a concession in Libya. He drew on technology to help him discover oil, where others failed.

Then Gaddafi engineered a successful coup, but knew nothing about international oil. He wanted control over national oil. Libya was Hammer’s only source of oil, and Gaddafi cut off 50% of it.

Thank you for reading, and let me know what you think!

Ron Villejo, PhD

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