geog 102 case study 9
TRANSCRIPT
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GEOG 102 Population, Resources, and the Environment
Professor: Dr. Jean-Paul Rodrigue
Case Study 9 The Geopolitics of Petroleum
1 Context2 The Economic Importance of Petroleum
3 First and Second Oil Shocks4 The Oil Countershock
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11
Context
The Seven Sisters Petroleum has for long been the object of geopolitical
confrontations. The ability to fix the price and the production of oil was first
established in 1928 by the Achnacarry Agreements. Between the seven sisters forming an oil oligopoly. Major oil multinationals (Exxon, Texaco, British Petroleum, Shell, Gulf,
Standard Oil and Mobil Oil). Invested massively in extraction infrastructures, especially in the Middle
East. Several producing countries, most of them in the Third World,
wanted to have a more important share of the incomes of thislucrative market.
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Context
OPEC Venezuela, Iran, Iraq, Saudi Arabia and Kuwait founded the
Organization of Petroleum Exporting Countries (OPEC) in 1960at the Baghdad conference.
Several other oil-producing nations joined thereafter theorganization:
Qatar (1961), Indonesia (1962), Libya (1969), Algeria (1970), Nigeria(1971), Ecuador (1973-1992, left the organization in order to avoid
production quotas), The United Arab Emirates (1973) and Gabon (1973-
1994). From its foundation until the beginning of the 1970s, OPEC was
unable to increase oil prices. Production was very important in non-member countries. Difficulty of OPEC members to agree on a common policy.
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OPEC Country
Former member ofOPEC
Venezuela
Ecuador
Nigeria
Gabon
Algeria
Libya Saudi Arabia
IraqIran
Indonesia
KuwaitQatarUnited Arab Emirates
OPEC Countries
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Context
Developed countries were confident that the price of petroleumwould remain relatively stable.
The American Government even predicted that the oil pricemight rise to 5 dollars a barrel by 1980.
Environment of low petroleum prices and strong economicgrowth.
No developed country had an energy policy and waste wascommon.
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The Economic Importance of Petroleum
Context First commercial exploitations in Pennsylvania in 1859. Importance of oil increased significantly in the global economy.
In 1920, 95 million tons were produced annually. Number reached 500 million tons by 1950. A billion tons in 1960. Average annual production around 3 billion tons in the 1990s.
Strong growth rests for a very large part on the availability of oilresources and their low cost.
Economic systems, which include industry, housing, energy
generation and transportation, became dependant on cheap oilprices.
The United States being the most eloquent example.
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The Economic Importance of Petroleum
The relationships between oil supply and demand A spatial differentiation of supply and demand. This can only be overcome by oil transportation. 42% of the oil production was controlled by OPEC in 1997.
Countries not being OPEC members contributed to 58% of theproduction.
A spatial differentiation of oil reserves is also observed, the bulkof them, 64%, are located in the Middle East
Estimates in reserves range from 50 to 100 years.
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Share of OPEC and the Persian Gulf in the World Oil
Production, 1972-1997
0%
10%
20%
30%
40%
50%
60%
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
OPEC
Persian Gulf
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World Energy Consumption, 199 -2 2
0
50
100
150
200
250
300
1990 1995 2000 2005 2010 2015 2020
QuadrillionBtu
Developed
Developing
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World Crude Oil Production, 19 -199 (in 1,
barrels per day)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
1980 1985 1990 1995 1998
Fa
Eas
and Oceania
Af
ica
Middle Eas
Eas
e
n Eu
ope & Fo
me
U.S.S.R.
Wes
e
n Eu
ope
Cen
al and Sou
h Ame
ica
No
h Ame
ica
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World Petroleum Consumption, 19 -199 (in 1,
barrels per day)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
1980 1985 1990 1995 1998
a
Eas
and ceania
Af
ica
iddle Eas
Eas
e
n Eu
ope &
o
e
.S.S.
.
es
e
n Eu
ope
en
al and Sou
h A
e
ica
o
h A
e
ica
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WorldOil Balance, 19 -199 (in 1, barrels per
day)
-1 ,
-1 ,
- ,
,
1 ,
1 ,
,
19 19 199 199 199
North A erica
entral and o th A erica
Western rope
astern rope & For er
U. . .R.
Middle ast
A rica
Far ast and Oceania
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WorldOil Production and Estimated esources,
19 -21 (in billions of barrels)
5
1
15
2
25
3
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
ctual
Predicted
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Estimates of ltimate Oil esources (billions of
barrels)
0 500 000 500 000 500 3000
etroconsul 5
La errere 5
OPE 3
asters
8
P, 84
asters ( ), 83
e rin , 8
onoco, 8
Halbout , 8
E , 80
ell,
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World Crude Oil eserves, 1999
6%%
%
%
64%
8%
6% or eri
Ce r l ou eri
Wes er uro e
s er uro e or er
iddle s
ri
r s Oce i
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Major Crude Oil eserves, 1999 (billions of barrels)
1 1
Saudi A abia
I aq
Kuwai
I
an
ni ed A ab E
i a es
ussia
enezuela
hina
exico
Libya
! ige ia
ni ed S a es
Alge ia
! o way
Indonesia
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The Economic Importance of Petroleum
Costs of oil dependency Wealth is transferred from oil consumers to producers. The economys overall ability to produce is reduced by oils
greater economic scarcity.
When price movements are sudden and drastic, inflation andunemployment cause additional losses of output.
Creates instability.
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33The irst Oil Shock
Control In the 1970s, OPEC countries achieved control over more than
55% of the oil supply. Started to fix production quotas.
Establish co-operation between producers in order to avoidcompetition that would bring the price of oil down.
Feasible in the context of a growing market demand and thedependency on only a few oil suppliers.
Very difficult to maintain in a competitive environment. Between 1970 and 1973, the price of the oil barrel passed from1.80 dollars to 3.01 dollars.
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The irst Oil Shock
The Kippur War of 1973 Between Israel and Egypt (and several other Arabian countries). OPEC intervened by nationalizing production facilities, reducing
production by 25% and imposing export quotas.
OPEC imposed quotas on countries supporting Israel. The price of oil consequently reached 11.65 dollars per barrel at
the end of the same year. High oil demand, the limited capacity of developed countries to
supply oil and no readily energetic substitutes. OPEC gained the ability to control the price of oil with a marketcontrolled by oil producers.
This caused the first oil shock.
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The Second Oil Shock
The 1970s and early 1980s The price of oil remained high but stable over the 1970s, around
20 dollars per barrel. Developed countries started to worry about the exhaustion of oil
reserves and unreliable supply sources. Instability in two major oil producers, Iran and Iraq. The Iranian revolution of 1979. Iran-Iraq War of 1979-1980, because Iran was trying to export
the Islamic revolution to Iraq. Removed 8% of the world oil supply. Caused the second oil shock where the price of oil went over 35
dollars per barrel.
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The Second Oil Shock
Drastic, but somewhat temporary, measures to lower oilconsumption.
Relocation of energy-consuming industries. Consuming less energy in a more efficiently manner.
Relying on national energy sources (petroleum, coal, natural gas,hydroelectricity, nuclear energy. Substituting petroleum for other energy sources when possible.
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The Oil Countershock
A changing scene At the end of the 1980s and at the beginning of the 1990s,
OPEC countries lost their price-fixing power. Internal problems (economic and geopolitical conflicts between
its members). New producers such as Russia, Mexico, Norway, England and
Colombia. Not constrained by OPEC policies and were free to fix their own prices.
Mexico surpassed Saudi Arabia in 1997 to become the secondlargest oil exporter to the United States, afterVenezuela.
Latin American countries such as Columbia and Brazil are tryingto boost their oil production.
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The Oil Countershock
Vietnam is exploring offshore fields, as are other SoutheastAsian countries, hopeful that there are major reserves under theSouth China Sea.
Divergences
Since 1982, divergences occurred within OPEC members to fixquotas and prices as competition increased. The share of OPEC dropped from 55% of all the petroleum
exported in the 1970s to 41% in 1992. All-time low of 30% in 1985. That year Saudi Arabia lowered the price of its oil to increase its market
share. Oil counter-shock that lowered the price of the barrel under 20
dollars, even reaching a record of 15 dollars in 1988. The oil market was again a market controlled by the demand.
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The Oil Countershock
The Gulf War Respecting production quotas became a major issue among
OPEC members. Countries such as Kuwait producing well above quota.
This event was a motivation for the invasion of Kuwait by Iraq in1990, which saw the price of petroleum jump to 41$.
7.8% of the worlds oil production was removed (Iraq andKuwait).
Other petroleum-producing countries were quick to expand theirproduction to replace Iraq's and Kuwait's shortfalls. The increase in oil price was short-lived.
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The Oil Countershock
Aftermath of the Gulf War The price of oil fell to 25 dollars per barrel by the mid 1990s. By 1998, the price of petroleum went under 10 dollars per barrel. Rendering several producing regions temporarily unprofitable.
OPEC countries only control about 42% of the global oilproduction and are so in a weak position to fix prices.
Reemergence At the end of the 1990s, the price of petroleum increased.
Oil reserves are in the Middle East. Share of OPEC expected to climb to 48% in 2005 and 52% in2010.
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Real Price of Oil, 191 -199 andMajor Disruptions in
WorldOil Supply
0
10
0
30
0
0
60
191
1918
19 19
6
19
30
19
3
19
38
19 19
6
19
0
19 19
8
19
6
19
66
19
0
19
19
8
19
8
19
86
19
90
19
9
$
per
arrel
0
0
1
1
3
3
illionsof
arrelperday
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Petroleum Imports and Oil Price, SA, 19 -199
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
0
5
10
15
20
25
30
35
Petroleum Imports (BBtu) Domestic Price per Barrel ($)
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U
nitedState
sStrategic
PetroleumR
eserv
19990
100
200
300
400
500
600
1977
1978
1979
1980
19811982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
19941995
1996
o age in illion ofba el )
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A Sound Energy Policy
Safe supply sources Low diversity of energy sources. Foreign sources. Dependence on oil.
Keeping natural resources for future use. Low oil prices instead of an energy policy.
Reasonable prices Economies of scale.
Waste involves less profits. Market forces and profit margins.
Low environmental consequences Lobbying against environmental legislation.
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Cost of Gasoline, United States, 1999
3 %
36%
13%
14%
C de Oil
ede al and State a es
efinin costs and ofits
ist i tion, etaila etin costs and ofits
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Natural Gas Production, 19 -199 (trillion BTUs)
0
10
20
30
40
50
60
70
80
90
1980 1985 1990 1995 1998
" entral and # outh$
%
erica
$ &
rica
'
iddle(
as t
Far(
as t and ) ceania
0 es tern(
urope
(
as tern
(
urope1
For
%
er2 3 # 3 # 3
4
3
5
orth$
%
erica
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World Gas Reserves, 2
0 10 20 30 40 50 60 70 80 90
Russ ia
6 7an
Saudi A 7 abia
Uni8 ed S8 a 8 es
UAE
Tu7 kmenis 8 an
No7 9
ay
6 7aq
Alge 7 ia
@ enezA ela
6 ndonesia
Aus8 7
alia
B a 8 a 7
Nige 7 ia
C 7azil
Res 8 o D Wo 7 ld
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