International Resource Politics 101: Oil’s Emergence and Historical Implications

Foreword

International Resource Politics is characterized by three terms: International Relations, Geopolitics, and Resources. It explains the influence of natural resources, particularly energy, on state behavior and international politics. Resources have a tremendous impact on the world stage as resource-rich states have power over obtaining, securing, and limiting access to their energy assets, hence shaping interstate relations. Taking into account the three terms formerly mentioned, this series of articles explains the geopolitical advantages and disadvantages provided, namely, by energy while focusing on the development of resources as economic engines and their role in various political events that occurred in the late 19th century up to present times.

The International Resource Politics 101 series is divided into six chapters:

1. International Resource Politics 101: Foundations of Resource Politics

2. International Resource Politics 101: Oil’s Emergence and Historical Implications

3. International Resource Politics 101: Economic Illnesses

4. International Resource Politics 101: Political Implications of Renewable Energies

5. International Resource Politics 101: Terrorism and Geopolitics

6. International Resource Politics 101: Blessing Or Curse?

International Resource Politics 101: Oil’s Emergence and Historical Implications

Oil, one of the fossil fuels, well-known as black gold for its significant role in our contemporary world to meet the basic human needs and deep integration into our daily lives, has wide-scale importance in the world (EIA, n.d.). Oil has been, is, and will be not only fuels and lubricants but also the foundation for the production of hundreds of various industrial and household goods (EIA, n.d.). Humanity has entered the twenty-first century and petroleum, along with coal and natural gas, remain critical to the global economy's development (Sönnichsen, 2022). According to Sönnichsen, demand for primary energy is rising every year, and oil remained the most widely used primary energy source on the planet in 2021.

The globalization of the world is largely affected by oil as by value, it is the third-largest export in the world (OEC, 2020). As a downside, petroleum dependence reacts to any disequilibrium in supply and demand negatively driving the world economy back and forth (Ballentine, 2022). Citing the case of the ongoing war in Ukraine, due to the invasion of Russia, the price of crude oil is skyrocketing as most of Russia´s oil importers are banning it (Cahill, 2022). Consequently, the top importers of oil in the world known as the U.S., the Netherlands, Germany, and South Korea are encountering the highest inflation in commodity prices (Fadel, 2022). Dave Harden, the president of the financial adviser of Summit Global Investments explains that disruption in the oil supply chain means higher prices across the board for anything to consumers (Ballentine, 2022). The impact of rising oil costs is not just limiting the gas stations, but critically pushing up the costs of food, plastic, heating, etc. (Ballentine, 2022).

One may wonder how the world became heavily reliant on the exports of crude oil to generally function and when the petroleum industry began. To better acknowledge the emergence of petroleum and its precise influence on our daily lives, it is crucial to dive deep into its history. The integration of oil into the world market should be considered in two periods, ancient history to 1800 and late modern history (Library of Congress, n.d.).

Figure 1: A crude oil, known as a black gold because of its crucial value in the modern world and the actual color of extraction being black.

The oil was discovered on the Caspian Sea coasts more than 500,000 years ago and rose to the surface in the Caucasus and Central Asia 6,000 years BC (Nirbachita, 2020). According to archaeological perspectives, oil was extracted on the banks of the Euphrates as early as 6,000–4,000 B.C., and asphalt (oxidized oil) was used by the ancient Egyptians for embalming (Nirbachita, 2020). Samir Dalvi (2015), a professional engineer in the upstream and downstream hydrocarbon industry indicates that the first drilled oil wells to a depth of 250 meters have been found in China in 347 CE or earlier; it was then utilized for heating and lighting, and transported in pipelines made from bamboo (Nirbachita, 2020). In Samir´s book "Fundamentals of Oil & Gas Industry", it is mentioned that petroleum was used for cosmetic purposes in Greece and Rome, while during the Indian civilization, it has been used as a medicine and a foundation for paints. Furthermore, according to the Venetian trader Marco Polo, the crude oil was applied to treat mange in camels in the Caspian Sea region and he claimed that the first oil exported from Venezuela was for Charles V of Rome and was used to treat his gout (Nirbachita, 2020).

The utilization of crude oil in modern times is characterized by its application in a refined form and bringing forth the industrial revolution together (Dalvi, 2015). James Young, a Scottish scientist, made a breakthrough that marked the beginning of the oil and gas industry's modern history in 1847 (Stewart, n.d.). He distilled natural petroleum in the Riddings coal mine seepage and made a light thin oil ideal for lighting and a heavier one for lubrication (Stewart, n.d.). Together with his associates Edward Meldrum and Binney, Young patented this specific technique in 1850 and established a company at Bathgate that eventually turned into the world's first commercial oil refinery. Apparently, Young was not the only scientist making discoveries on coal in the nineteenth century (Ali, 2019). Abraham Pineo Gesner, a Canadian geologist, developed a cheaper and cleaner burning liquid from coal, oil shale, and bitumen in 1846 (Ali, 2019). He gave this substance the name "kerosene" and established the Kerosene Gaslight Company in 1850, using the oil to illuminate Halifax's streets and those in the U.S. (Ali, 2019). In the meantime, Ignacy Łukasiewicz, a Polish pharmacist of Armenian origin, took up research into crude oil processing and obtained a yellowish oily liquid that gave off a light when burning, which is now known as paraffin (Ali, 2019).

Figure 2: Abraham Pineo Gesner, a Canadian geologist and developer of oil shale, and bitumen.

In 1857, The American Merrimac Company attempted the first commercial drilling to a depth of 280 feet in La Brea, Trinidad; even though the first successful contemporary oil well has been found in 1859 in Titusville, Pennsylvania by Edwin Drake. Oil became one of the most valuable commodities in America as a result of the Pennsylvania "oil rush" that followed the discovery of petroleum at Titusville (Yergin, 2008, p.25). In 1865, The Standard Oil Company was established by John D. Rockefeller, making him the first oil magnate in history (Yergin, 2008, p.35). With control over 90% of America's refining capacity as well as a lot of gathering systems and pipelines, Standard Oil swiftly rose to the top-earning position in Ohio (Yergin, 2008, p.35). ExxonMobil, one of Standard's substitutions during its collapse in 1911, is currently the ninth-largest revenue-generating firm in the world (Yergin, 2008, p.36).

Opposedly, a Russian mining engineer, Nikolay Ivanovich Voskoboynikov stated, the first modern oil well in the world has been drilled in 1846 in the South Caucasus region of the Russian Empire (present-day Azerbaijan), on the Absheron Peninsula, northeast of Baku (Gerali, 2020). During that period, a team led by Major Alexeyev of the Bakinskii Corps of Mining Engineers manually dug a well. To increase their oil activities and attract more foreign clients, the Rothschild family in Russia ordered oil ships from British dealer Marcus Samuel. Samuel's first ship, the Murex, became the first oil tanker to travel through the Suez Canal, which links the Mediterranean Sea and the Red Sea (EKT, n.d.).

Figure 3: John D. Rockefeller, the founder of Standard Oil in 1870s and the oil baron.

As a result, oil has become the predominant energy source owing to the 20th century's technological advances, with the electric light bulb and the automobile being the main forces behind the oil revolution (EKT, n.d.). World War I depicts the decisive role petroleum played in obtaining a victory over the allies consisting of Germany, Austro-Hungary, and Ottoman Empires, and Daniel Yergin describes:

that it was fought between men and machines. And these machines were powered by oil. (2008, p.167).

To get the French army to the front swiftly, General Gallieni brainstormed over possible ways to solve it. Using the railway could have been availed due to system disruptions, marching on foot would have taken ages, and thus he decided to rely on Paris taxicabs (Yergin, 2008, p. 169). The armada of taxis fueled by oil had delivered thousands of troops ahead of time and resulted in the retreat of the Germans (Yergin, 2008, p. 169). The shift from horsepower to gas-powered trucks and tanks, and of course to oil-burning ships and warplanes, happened throughout the conflict. These new technologies were immediately operated on the brutal World War I battlefield-attributable innovations and eventually became a key military asset (Yergin, 2008, p. 171). On the same note, it is mentioned that Germany has been defeated as a result of the Allied "oil campaign" during World War II, as Britain had recognized that German war machines were heavily dependent on oil; the strategic bombing campaign attempted by attacking refineries, synthetic-fuel factories, and storage depots of Germans (Cox, et al., 1945).

Figure 4: Taxis in Paris line up before being directed to the front.

In the modern era, coal has been a primary energy source in the world until the 1950s, however, petroleum immediately took over the place and continues to be the number one fuel globally (OWD, 2021). Along with its popularity, the petroleum market encountered several fights over the oil reserves and the right to rule them. Crises, oil shocks, and glutes between nations became inevitable.

First and foremost, the Suez Crisis in 1956 was a result of Egypt, a former colony of Britain, attempting to nationalize the Suez Canal which previously ran by French-British companies; the 120-mile long waterway controlled two-thirds of the oil utilized in Europe and was the major access to the oil from the Middle East (Jones, 2016). Besides, the canal possessed an important role in Europe-Asia trade flows, linking the Mediterranean Sea and the Indian Ocean via the Red Sea. The great powers, Britain and France jointly with Israel sought to regain control over the Suez canal, however, they were forced to retreat under the pressure and criticism from the United Nations and the U.S. (Jones, 2016). Unfortunately, the Suez Canal was shut down as a result of a six-day conflict between Israel and the Arab countries in 1967 (Agnihotri, 2019). In order to bring stability to the oil market, Iran, Iraq, Kuwait, Venezuela, and Saudi Arabia formed the Organization of Petroleum Exporting Countries known as OPEC in the 1960s (OPEC, 2020). The members of OPEC sought to guarantee a reasonable price for their exported oil and a consistent supply to the market based on their energy policies as they account for 40% of the total world-oil supply (OPEC, 2020).

Thereafter, the world faced two oil shocks in 1973 and 1979 which caused inflation and extreme oil price fluctuations. The oil glut in the 1980s, the Gulf War in 1990-1991, and Iraq's recommencement of its oil exports in 1997-1998s impacted severe disruption of the oil market (Agnihotri, 2019). This has become a turning point to reconsider the full reliance on oil as a primary energy source (Ali, 2022).

Figure 5: The first OPEC Conference, 10-14 September 1960, Baghdad, Iraq.

The role of oil is overwhelming. A glimpse of petroleum´s historical development presents the reasons the world is heavily reliant on it nowadays. In the ancient period, the importance of oil has not been visible in any aspect of life until the beginning of industrialization which brought forth oil into the market. Throughout the development of the oil industry, it has been utilized not only for lighting and lubricant but also its usage has broadened over time becoming the major energy source in the world. It also played a critical and decisive role in major world wars.

The penetration of oil into the economy made a huge difference in the relationships between producer and consumer countries. As in the case of Arab countries, any ban on oil exports could create volatility in the market and despite being an international organization, OPEC has the significant power to influence the global oil market. The pivotal role of oil is crystal clear and it is all around.

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