2. Yergin 16-21

a. Yergin does not offer a description of general currents of international politics and economics in the 1930s.  Depression, decline of international trade. "Competitive" devaluations as finance ministries attempt to protect their own currency, many of which are pegged to gold ($,£) Other currencies are non-convertible (German mark, Russian ruble), which tends to force trade by barter.  Spread of autarkic policies.  Spread of authoritarian, often fascist, governments.  Polarization of the world into "democracies" (including the principal empires), fascists or militarists, and communists. 

b. Japanese expansionism:  'lateral pressure' (militarized competitive industrialization) thesis;

c. Yergin's "deadly paradox for Japan" -- Japan can lessen energy dependence upon the US only by imperial expansion which would be likely to lead to war with the US. 

d. Dilemma for the US: POL embargo can pressure decisively Japan but will make it more desperate to alter the status quo.  [Consider  Iran's calculus now.  Would use of the 'oil weapon' cow the US or prompt it to invade?]

e. Pearl Harbor: brilliantly executed plan misses the decisive targets (aircraft carriers by accident, fuel storage by oversight).  Attack on oil storage facilities in Hawaii would have crippled the US navy and airforce.  [This lesson is not missed by subsequent war planners in the 20th century!]

f. Germany needs petroleum: what are the options once war begins against Poland, France and Britain? 

In lightning invasion of France, German Army runs on French supplies.  But other invasions don't manage this.  (German vehicles use gasoline; Russian use diesel (of a low-grade sort). 

Synthetics: these again prove to be inadequate.  So German objectives become:  Seize Ploesti oil fields in Romania (repeat of WW1).  Seize Baku: Generals wanted Moscow as the prime objective; Hitler insisted on (much more distant) Baku.  Result: battle at Stalingrad; entire army corps forced to surrender there. 

g. Japan captures oil fields of (today's) Indonesia, but has difficult time transporting it to home islands.  Also tries synthetic fuels.  From mid-1942, military operations are hampered by lack of fuel.  Fruitless search for substitutes: "pine root campaign"

h. Reprise: can allies trust Royal Dutch/Shell: Deterding is enamored of Hitler.  British mobilize fully for war: one instance -- the Petroleum Board encompasses all imperial oil companies.

i. Reprise: Harold Ickes again Oil Czar, this time with amicable relations with industry.  (Aside: US military needs 100 octane fuel!)

j. WW2 interrupts exploration and drilling world wide.  Fortunately, deGolyer bets on the Middle East, even barren, primitive Saudi Arabia!

k. "We're running out of oil." (Winter of 1946: Europe freezes) "No, we have a glut of oil."  After WW2, the pattern of boom and bust is moderated (smaller price fluctuations) but occurs on a global scale.

l. How can US companies penetrate the Red Line to exploit Saudi and Gulf oil?  A new voice is heard: the rulers of the emirates who want greater revenues and play British companies off against American.  Roosevelt woos Ibn Saud.

m. Result?  The Anglo-American Petroleum agreement of 1944 -- using a commission to estimate global demand, then to allocate supplies to companies; Beaverbrook's "monster cartel."  But the rest of the oil industry opposed it, and it was abandoned.   [Why are global cartels so difficult to achieve?  Is / was OPEC one?]

n. Socal (Standard Oil Company of California, small regional company) and Texaco --> Aramco (Arabian-American Oil Company), but need big $ to build a pipeline (Tapline as of 1951 seen here).  Risky. Ibn Saud wanted only American partners.  So Standard Oil of NJ was included. 

On pipelines, generally, look here.

But the Red Line required Aramco to join with all the others: Iraqi Petroleum Company (IPC: remember Gulbenkian?) Shell, Anglo-Iranian and CFP (French state company at that time).  Aramco's partners appeal to international legal principle of "supervening illegality," namely, that major holders of IPC and other shares were "illegal aliens" (actually, there were merely living in Nazi-occupied territory) and that the old Red Line agreement was therefore dissolved.  Living in Lisbon, Gulbenkian threatened litigation when WW2 ended.  You can read how the story ended.

o. Kuwait lay outside the Red Line.  Gulf had oil in Kuwait, but few outlets.  So it joined with Shell, which had marketing but little oil. 

Then Iran.

p. But Iranian oil is different.  Iran was effectively partitioned between the USSR and Britain during WW2.  Getting the Soviets out of NW Iran (Iranian Azerbaijan, which is geographically but not very culturally distinct from the post-Soviet state of Azerbaijan) was achieved by end of 1947, but the communist-led Tudeh Party grew in influence, especially among workers in the southern oil fields.  (Recall the organized revolutionary workers of imperial Russian Baku?)

Map on p. 423 foretells much about  the situation today ... up to the process of nationalization of oil assets. 

q. By 1947 US energy independence is evidently ending.  Proposal for a 2nd "Manhattan Project" to create a competitive synthetic fuels industry for the US.  [How many times have we heard and half-heartedly done, this?]

r. 50-50.  See Saudi energy sector today.  Also, US Energy Information Administration  report: note statement about the "decline rates" (p. 5).  So what is the truth about Saudi oil reserves?  CERA (a consulting firm) report.

Do OPEC decisions set the world price of oil?  Sometimes.  Other times (last paragraphs). For any  cartel, cheating by members if a problem: every member possesses a continuing incentive to expand production above the agreed limits in order to earn more money.