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Foreign Affairs
Not in Oil's Name
By Leonardo Maugeri
Leonardo Maugeri is Group Senior Vice President for Corporate Strategies and Planning for the Italian energy company eni.
Dangerous Myths
Since oil became vital to industrial societies, it has been the subject of mythmaking. This is not surprising since the control and pricing of energy is an emotionally charged issue that lends itself to conspiracy theories and distorted interpretations of past events. Conspiracy theorists are once again active, spurred on by the conflict in oil-rich Iraq. They see multinational oil corporations working with the U.S. government to dominate the supply, distribution, and cost of oil. To them, the ultimate goal lurking behind major international crises, such as Iraq, is access to oil. But the relationship between oil and politics is not so simple. Neither oil scarcity nor energy security—the twin concepts that underpin much thinking about this issue even in some official circles—is a sound starting point for thinking about oil policy. Getting beyond such notions, however, requires an examination of the myths and the realities of oil.
The Golden Age
In World War II, oil played an important international role, proving essential to the conduct of mechanized warfare. That experience, coupled with the Soviet threat, prompted U.S. policymakers and their British and French counterparts to choose oil over coal to fuel the rapid reconstruction of Europe's industries and societies. But this daunting task and growing U.S. demand required fresh sources of oil. Whereas before the war the United States had been able to supply 90 percent of Europe's then modest oil needs, by 1948 the country had become for the first time a net importer of oil. Thus attention focused on the Middle East, which alone possessed the huge oil resources needed to serve as Europe's oil tanker and as America's supplier of last resort.
The region, however, was wrenched by Arab nationalism, anticolonialism, and the emerging Israeli-Palestinian conflict, and the resulting political instability provided fertile ground for the expansion of Soviet influence. In response, the Truman administration devised a multistage strategy, whose rationale was eventually codified in National Security Council Resolution 138/1, to secure oil resources for the Western world. The initiative turned out to be a great success.
Between 1948 and 1972, world oil consumption grew fivefold, ushering in the golden age of oil. Given its higher initial level of demand, North America's consumption only tripled, but elsewhere oil demand increased by as much as 11 times. This range yielded an average compound growth rate of 11 percent per year, or a doubling of oil consumption every six and a half years. Oil changed everyday life and work in the developed world by spurring mass motorization, broader access to electricity, and the spread of synthetic materials. Above all, oil fueled the greatest economic leap forward by any group of countries in modern history.
This extraordinary phase in economic development depended on the flow of cheap and abundant energy from the Middle East. In the region, oil production cost 20 cents per barrel, as opposed to 80 cents in Venezuela and 90 cents in Texas. Middle Eastern oil therefore flooded the world right through the 1960s, with brief . . .