Petroleum and Crude Oil – the Future of Oil Production
DW (2019) – only online until April 17th
This documentary analyzes the long term economic viability of the petroleum industry, in view of climate change, increasing competition from cheap renewable energy and shifting geopolitical allegiances.
It begins with an examination of the 2014 collapse in oil prices – with the cost of a barrel of oil dropping by over 70% between June 2014 and January 2016. Oil bottomed out at $26 a barrel in February 2016.
The filmmakers explore a number of factors keeping the oil price above $100 a barrel prior to 2014. Speculation in oil futures by big banks such as Goldman Sachs and Morgan Stanley seems to be the main one.
These high oil prices made the fracking boom possible. Fracking technology, whereby trapped oil and gas reserves are released by fracturing bedrock, is an extremely expensive technology. According to industry analysts, fracking is only financially viable with oil prices above $70 a barrel.
The fracking industry was a great boon to the US petroleum industry, enabling it to export oil and liquified natural gas (LNG) for the first time in decades.
The filmmakers point to two main reasons for the 2014 collapse in oil prices. The first was reduced oil demand (due to global economic slowdown) popping the speculative bubble created by the big banks. The second was Saudi Arabia’s attempt to destroy the US fracking industry by flooding the global market with oil.
This scheme seems to have backfired. While numerous small fracking operations went bust, the major oil companies had sufficient financial resources to continue fracking at a loss.
The low oil prices probably hurt Saudi Arabia more than the US, as the Saudis are extremely dependent on oil revenues to finance their national budget.
In 2017, Saudi Arabia and other OPEC* countries reached out to Russia to form OPEC Plus. The latter agreed to limit oil production to stabilize prices. The Saudi oil ministry fully expects Kazakhstan and other former Soviet republics will also join OPEC Plus.
Meanwhile oil producing countries (except for the US under Trump) have learned an important lesson from the 2014 price shock. Both Norway (the world’s largest oil/gas producer) and Saudi Arabia are rapidly diversifying their energy industries to protect themselves from future price volatility. Most industry analysts expect other countries to follow suit. At present China, the world’s largest oil importer, is also the largest investor in renewables. This, in turn, signals a significant reduction in their future oil dependency.
*Organization of Oil Exporting Countries – current members include Algeria, Angola, Austria, Cameroon, Congo, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia (the de factor leader), Syria, United Arab Emirates, and Venezuela.
The first video is a 2015 presentation by William Engdahl about his 2010 book The Gods of Money. It focuses on the use of US economic and military warfare to maintain the supremacy of the US dollar as the global reserve currency.
As his point of departure, he begins with the 1944 Bretton Woods agreement, in which the Allied powers agreed to use the gold-backed US dollar as the world’s reserve currency. In 1971 when Nixon was forced to end the gold standard,* the gold-backed US dollar was replaced by the “petrodollar.” According to Engdahl, it was so named because of a secret agreement the US made with Saudi Arabia – in return for a guarantee that OPEC would only trade oil in US dollars, the US guaranteed the Saudis unlimited military hardware.
In this way, oil importing nations (most of the world) were forced to retain substantial US dollar reserves. This was the only way they could provide their economies with a continuous supply of oil.
The petrodollar remained supreme until the mid-1980s, when the collapse of the US Savings and Loan industry (a pre-cursor of the 2007 banking collapse) raised concerns in Europe that the US was failing as a super power. Fearing the US economy was collapsing, they created the euro and the Eurozone, to prevent the Soviet Union or China from filling the power vacuum.
The financial warfare unit of the US treasury responded by feeding hedge fund manager and currency speculator George Soros secret information that enabled him to lead an attack on the British pound. This, in turn, destabilized the British economy to the point the UK no longer qualified to join the euro.
In 1997 the US Treasury and Soros made a a similar attack on economies of Southeast Asia (Thailand, South Korea, Indonesia, Hong Kong, Laos, Malaysia, Philippines) that attempted to use currencies other than the dollar as their reserve currencies.
In 2010, after the US government had run three years of $1 trillion deficits, China, Russia and Japan announced their intention of selling US Treasury bonds (which the US government sells to finance its debt) to increase their euro reserves. Concerned this placed the US dollar on the brink of catastrophic collapse, the US Treasury and Soros attacked the Euro directly by collapsing the Greek economy. The mechanism Soros used was to direct his hedge funds to dump the sovereign treasury bonds that financed Greek debt.** When the European Central Bank announced its commitment to a Greek bail-out, the US Treasury and Soros followed up with an attack on Irish, Spanish and Portuguese sovereign bonds.
*A US economic crisis led to massive foreign demand for US dollar redemption that threatened to deplete US gold reserves.
** The immediate effect of bondholders dumping Greek bonds raised interest rates on Greek debt to a level that threatened to bankrupt their government.
The second clip is a Guns and Butter radio interview with Engdahl. It focuses on a second area the Gods of Money covers, namely the long US battle to abolish their private central bank (aka the Federal Reserve) and end the ability of private banks to create money out of thin air (see How Banks Create Money Out of Thin Air).
After a brief explanation of fractional reserve banking, whereby 97% of our money is created by private banks, Engdahl traces the history of the First Bank of the United States, created by Alexander Hamilton in 1791. The latter was the first US central bank, 80% owned by private (mostly Rothschild-controlled) banks in the City of London and 20% owned by the US government. President James Madison’s refusal to renew the bank’s charter in 1811 would result in Britain and the US going to war in 1812.
When the war ended in 1815, the American war debt was so substantial, the US had no choice but to charter the Second Bank of the United States, which once again was 80% controlled by London banks.
In 1832, Andrew Jackson refused to renew the bank’s charter, and the US had no central bank between 1832 and 1913. In 1913 when President Woodrow Wilson secretly colluded with the global banking establishment to create the Federal Reserve.
Both Lincoln and Kennedy challenged the exclusive role private banks play in creating the US money supply – Lincoln by issuing greenbacks (rather than borrowing money from private banks) to pay for the civil war and Kennedy by issuing silver certificates directly redeemable by the US Treasury. In both cases, Engdahl feels their defiance of the international banking establishment played a role in the decision to assassinate them.
Despite its length, this documentary should be compulsory viewing. Everyone with an IQ over 90 should see it at least once before they die. It was only in viewing this film that I fully grasped the insane, oil-inspired military aggression in the third world and the US fascination with despotic dictators.
The video below is actually an 8-part series shown over successive nights on Al Jazeera-English. I’ve summarized the highlights of each of the eight parts so you can fast forward to specific segments that interest you.
0.00 – 23.26
Part 1takes viewers from the founding of the secret Seven Sisters oil cartel in 1928 to the creation of the competing Organization of Petroleum Exporting Countries (OPEC) in 1960. The latter is made up of oil producing countries that have nationalized their oil industries.*
The film begins by describing the secret (illegal) cartel formed in 1928 by the Anglo-Persian Oil Company (which became British Petroleum), Standard Oil (which became Exxon) and Royal Dutch Shell. The goal was to end the cutthroat competition that was eating into profits. At a secret meeting in Scotland the three companies agreed to an orderly division of global production zones, as well as a process for fixing oil prices.
Later Mobil, Gulf, Texico and Chevron would join these three oil giants. The existence of the cartel remained secret until the 1950s, when it became known as the Seven Sisters.
This segment describes the totalitarian control BP exercised over Iran until 1951. A strike for higher wages led to a national uprising that overthrew the Shah and resulted in the democratic election of Mohammad Mosadegh as president. When the latter threatened to nationalize Iran’s oil industry, the British government requested CIA assistance to overthrow Mosadegh and restore the Shah to the throne. In return, the US government won the right for American oil companies to join BP in exploiting Iran’s oil resources.
In July 1956 after Egyptian president Nasser nationalized the Suez Canal (the main route for transporting Middle East oil to Europe), Britain, France and Israel declared war on Egypt. Nasser responded to an aerial bombing campaign by using concrete bunkers to blockade all Suez traffic. For once, the US and USSR collaborated to pressure the three aggressors to withdraw their forces and restore the transit of oil tankers through the canal.
23.26 – 46.00
Part 2 traces how the rise of OPEC worked to gradually erode the dominance of the Seven sisters – with violent repercussions.
In 1972 Saddam Hussein nationalized Iraq’s oil industry, with technical and military support from the Soviets and the French.
By October 1973, when Israel’s Arab neighbors launched the Yum Kippur War, OPEC members controlled 60% of the global oil supply. This enabled them to launch an oil embargo against the US in retaliation for their support of Israel in the 1973 conflict.
In 1978 Iran’s Ayatollah Khomeini, living in exile in Paris, called for a workers strike in the Iranian oil industry that caused a total shutdown of oil production. This, in turn, led the US to abandon their longtime support of the Shah and his secret police. The result was a national uprising, the forced exile of the Shah, the return of Ayatollah and the nationalization of Iran’s oil industry.
Determined to regain American corporate control of Iran’s oil industry, the US government backed Saddam Hussein’s invasion of Iraq in 1980. The sudden onset of peace in 1988 led to a period of “overproduction” and a dangerous drop in oil prices. In response, George Bush senior, whose Zapata oil company had made a fortune via offshore drilling in Kuwait, openly encouraged Saddam Hussein (through ambassador April Glaspie) to invade Kuwait. This would create a pretext for the first US invasion of Iraq in 1991.
In May 2001 (20 months before the US invasion), a secret energy task force headed by former oil executives Dick Cheney and Condoleezza Rice, drew up a plan whereby Exxon, Shell and BP would divide up US occupied Iraq into eight oil extraction zones.
48.00 – 61.00
Part 3describes the decision by the Seven Sisters to open up Africa to increasing oil exploitation due to their gradual loss of control over Middle East oil.
In 1970, Colonel Omar Gaddafi led a coup against a corrupt Libyan monarchy that was allowing the Seven Sisters to pay 12 cents a barrel in royalties to extract high quality Libyan oil. Gaddafi immediately nationalized the oil industry, raised oil prices 33% and used the funds to finance generous public services for the Libyan world and to fund freedom fighters all over the world (including the Palestinians).
This section also traces the history of the French oil companies ELF and Total in Nigeria. After Algeria won independence from France in 1971, they nationalized their oil industry, and ELF began exploiting oil resources in Nigeria, Chad, Congo, Cameroon, and Angola, where they financed guerrillas and despotic regimes and participated in bribery and embezzlement schemes that massively increased the international indebtedness of these countries. In 2003 the CEO of ELF was sentenced to prison and the company was bought out by Total.
61.00 – 95.00
Part 4 covers the role of the Seven Sisters in stoking Sudan’s civil war (most of Sudan’s oil comes from South Sudan) and the role of Shell Oil Company in Nigeria’s trial and execution of environmental activist Ken Saro-Wiwa.
95.00 – 118.00
Part 5 traces the longstanding battle between Russia and the US oil industry over control of the Baku oilfields on the Caspian Sea. It begins with Lenin’s capture of the oilfields in 1920. Hitler’s primary reason for attacking the USSR in 1941 was to gain control over Baku.
This section also details how a US-Saudi conspiracy to flood the market with oil in the late eighties (dropping the global oil price to $13) ultimately led to the Soviet collapse in 1989. At the time revenue from oil sales was the Soviet’s sole source of foreign currency.
118.00 – 142.00
Part 6 concerns the role of the color revolutions in Georgia, Armenia and Azerbaijan in keeping Caspian Sea oil out of Russian hands and under the control of US oil companies.
It briefly discusses the US role in Boris Yeltsin’s coup against the Russian parliament and his privatization of the Russian oil industry on behalf of the Seven sisters and a handful of Russian oligarchs (Putin has subsequently re-nationalized Russia’s oil industry).
Part 7discusses the concept of Peak Oil and the current dispute between the Iraqi Kurds and the Iraqi government over the control of the Bakr oil terminal near Bazra. At present it’s illegal for the Kurds to export their own oil. Eighty-five percent of Iraqi oil is processed at the Bakr oil terminal and Iraqi Kurdistan on receives 17% of this revenue.
165.00 – 190.00
Part 8 is about the Seven Sisters exploitation of Mexican and Venezuelan oil prior to the election of Hugo Chavez as president. It also summarizes that status of the countries (Saudi Arabia, Russia, Iran, Venezuela, Brazil, and Malaysia) that have nationalized their oil industry. At present these countries control one-third of oil and gas production, and more than one-third of oil reserves. Despite their role in instigating western military aggression, the influence of the Seven Sisters continues to declines.
At present they control 10% of oil production and only 3% of oil reserves. Their monopoly on exploration, drilling and refining technology gives them disproportionate control over the industry.
*Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela