By Pod

FOR MANY of us, oil and the valuable by-products its refining process creates are so much a part of everyday life it would be difficult to imagine existence without them.

Take a moment to consider its manufacturing uses: hair dyes, cosmetics, manmade fibers and textiles, are all made using petrochemicals. The trainers we wear, the carpets we walk on, the disposable nappies we wrap our babes in. All our plastic products, including radios, televisions, mobile phones, computers, compact discs and microchips. Plant fertilizers, pesticides, pharmaceutical drugs; I haven't even reached your car, the gas it guzzles, the synthetic rubber tires, the interior and the battery, even the roads it travels.

Without oil, space exploration as we know it would not exist. Worst of all, the additives that extend the life of many of our every day foods are made using petrochemicals. Fertilizers are ploughed into the ground to make the food grow, pesticides are delivered with oil carriers, and the food is processed by machines that use diesel fuel.

There is no doubt that oil has played a critical important role in the evolution of humans. In the timeline of humankind, after Stone Age, Bronze Age, and Iron Age, we are Petroleum Age. Our planet could not have developed and sustained a population this size were it not for oil agriculture. Maybe it is time to seriously consider going beyond oil to the next stage. What that stage will be is up to us.

In The Beginning

Oil replaced coal as the most popular energy resource in 1946, before I was born and certainly long before many of today's generations were born. Another 30 years and like the firsthand memories of World War I, there will be few people around who can recall what life was like without cheap oil. My grandfather once reminisced that when he bought his first car, they were so rare that if he met another car going all the way to London, he would signal the driver and they would race.

Hard to believe but the story of cheap oil does have a beginning, a peak, and an end. There is much evidence to suggest that we have passed the peak and the end is in sight. But the main oil producers keep reassuring us that there is plenty of oil, and every time prices rise, our governments return to the familiar bleat, "Give us more, OPEC. Turn up the taps!" So we have to look at the whole picture and determine as much of the truth as we can amidst the spin and political power games.

Oil enters modern history in the Bible. The "eternal fires" of King Nebuchadnezzar, King of the Chaldeans, around 550 BC, were probably petroleum from oil seepages in what is now modern Iraq. (1) In fact the first "really big oil field discovery in the Middle East" occurred within a mile of these famed fires in 1927. Yup, Iraq featured right at the beginning of the story!

The early oil fields were first struck in Ontario, Canada. One day, a guy called Trill decided to drill for water on his land and instead struck this black smelly stuff. He didn't know what it was and gradually sold off his land to James Miller Williams who could be called the "Father of North American Oil." In 1855 Williams organized his company and started to produce "illuminating oil."

The oil was literally pulled out, a barrel at a time. Such a modest beginning, but by 1901, North America would lead the world in oil production, due mainly to the plentiful American oil fields in Texas, California and Okalahoma. Pennsylvania also factors into the story, commemorated in the oil brand Quaker State.

The Oil Barons

Indeed, the US oil industry began in 1859, when Edwin Drake drilled the very first oil well in Pennsylvania. Drake teamed up with John D. Rockefeller, and it may be that the seeds of our present day economic system, and its destruction, were sown then.

As the value of oil became increasingly more important to the world and its burgeoning technology, the search for oil fields widened. In 1928, geologists began exploring Saudi Arabia. Saudi Arabia is important to oil's history because it contains Earth's most prolific deposits, or it did at one time, anyway. These are the super giants we have been encouraged to depend on. When they die, the growing fear is that if we're not sufficiently prepared, the world economy -- now based on oil revenues -- may collapse. And that is when it affects you and me.

The first and only oil concession granted by Saudi Arabia was given to SOCAL (Standard Oil of California) in 1933. SOCAL was a Rockefeller company. They drilled for five years and indeed, the day that executives met in America to decide whether to continue investment, they received a cable to tell them that Dahran 7 had "blown" and was ejaculating 1500 barrels a day! (2) Spielberg could not have planned it better. Dahran 7 operated for 44 years until it died. But only two years later, in 1935 the first of the 'super giant' oil fields was discovered. Texaco was brought in to help SOCAL financially with the huge investment of drilling and building and in 1944, the company was renamed ARAMCO.

Imagine an oil field is a beautiful woman. If you treat her well, and let her rest occasionally, then she will give you all she has. Abuse her, or put her under constant pressure, and she will grow weary and weep. Oil is forced out of the ground due to its own internal pressure. If oil comes out too quickly, water contaminates it and eventually an oil field will drown, even if it still contains large quantities of oil.

Exploration of oil in Saudi Arabia pretty much stopped until after World War II, but throughout the next 23 years, over 28 oil fields were discovered. In the 1970s, another 27 oil fields were found. As technology improved, the 90s added 12 but none of them were large producers. In fact, no large finds were made after the late 1960s, not because searching ceased, but because there were no more to find. (3)

The Rise Of OPEC

In 1959, the US imposed strict import quotas on the oil from the Gulf States, choosing instead to buy much of their oil from Mexico and Canada. The five largest oil producing countries -- Iran, Iraq, Kuwait, Saudi Arabia and Venezuela -- formed OPEC in 1960 in an effort to gain greater control over the world's oil markets by agreeing on their combined output and controlling the price. Such a cartel could have been impressively powerful, but it has largely failed in its ambitions, mainly because a lot of the members cheat on their quotas. So the Saudis continued to pump it out and sell it cheap, if only to keep the world economy stable.

For nearly 60 years, the "big seven" Arabian fields produced almost all the oil the fast advancing technology of the world required, with 75 percent coming from the two biggest, Ghawar and Safaniya.

When US oil production peaked in 1970 and began a rapid decline, Saudi Arabia was needed to make up the loss in a world market that was becoming greedier.

In the early 70s, with the looming threat of nationalization, evidence suggests that Aramco managers (representing Exxon, Texaco, Chevron and Mobil) systematically abused the oil fields of Saudi Arabia to make as much profit as possible. It is clear from sworn testimony heard in a 1974 Senate hearing that American oil executives were probably aware of the damage that would occur, but simply did not care. Despite strong arguments for lower production made by Saudi Arabia's oil minister, to conserve the precious oil and stop increasing water contamination, the US management won. By the time Aramco eventually became Saudi Aramco in the late 70s, long-term damage may have been inflicted on Saudi's super oil fields and the criminals had cut and run with their profits. (5)

In 1973, political blackmail entered the oil drama big time. King Faisal of Saudi Arabia, unused to the cut-throat dynamics of modern politic life and struggling to nurture and maintain a new kingdom that had burst into untold wealth and power with alarming speed, became increasingly suspicious of American promises to support his people and their Moslem culture in the Middle East.

As Nixon re-armed Israel in 1973, any semblance of political partnership between the US and OPEC was destroyed, and oil ministers in Saudi Arabia and Kuwait reduced their crude oil production by five percent in retaliation, causing the worlds first big oil price peak. They also began the process of nationalizing Aramco, which had up to then been under the control of US oil companies. Kissinger later referred to this as the biggest threat to world economies since World War II. It became painfully apparent to governments everywhere that controlling the world's oil fields was paramount to controlling world power.

Instability In The Middle East

By 1978, Iran had become a significant and stable oil producer -- the Shah (the US-installed dictator) once offered the US an oil contract for 10 years at $1 a barrel, but the US turned it down! But within 10 months, riots and strikes shut down a good deal of Iran's oil fields and Saudi Arabia once again increased its production to fill the gap in the market. Prices shot to $40 a barrel.

The US government began to understand for the first time its dangerous dependency on Saudi oil and perhaps, because of insider knowledge, questioned the capabilities of Saudi Arabia's oil fields to fulfill the growing amount of oil that America needed. A series of reports were presented to the US Senate, but the most telling is the 1979 report. It warned that "Aramco's oil fields would all be in decline before the end of the century." The documents that sourced this report were sealed from the public until 2029 because of their disturbing contents.

Even more disturbing -- for 32 years, from 1950 to 1982, OPEC had made public its oil production data and oil field information on a regular basis, so everyone more or less knew what the situation was.

But in 1982 this stopped. Instead, OPEC member countries published reports on their oil reserves. These figures were then used to calculate production quotas. However, oil reserve estimates are largely unverifiable, and for all practical purposes, OPEC nations could set them at any number they wanted. Consider that in 1983, Kuwait doubled its reserves by 50 percent thereby doubling production overnight. Amazingly, Kuwait still claims that it has the same oil reserves it had in 1985, despite the millions of barrels of oil it has since produced. Estimating reserves is nothing short of black magic.

The fact remains, no one really knows for certain how much oil is readily available in any of these countries, how much has been found, and how many fields are water contaminated. This allows the OPEC countries to constantly reassure the world that they have the ability to continue to supply the world's oil needs for at least the next 50-75 years. When we consider that our lives and our entire world economy are based on these valuable assets, it is surprising, to say the least, that no one seems to know for sure -- and that the issue is not more widely discussed and questioned.

The third oil price peak occurred in 1990, when the US embargo of Iraqi oil forced the Saudi oil fields to produce even more to feed America's addiction to cheap oil. The Saudis could have refused and saved their precious assets for years to come, but by now Saudi Arabia was trapped in the relationship and feared that such measures would bring about the collapse of the world economy. Perhaps more convincingly, their own country had risen from absolute poverty to huge wealth on the sale of oil and they themselves were now dependant on the vast revenues their black gold yielded.

Al-Qaeda terrorist leader Osama Bin Laden put it bluntly in a 1997 interview:

"As for oil, it is a commodity that will be subject to the price of the market according to supply and demand. We believe that the current prices are not realistic due to the Saudi regime playing the role of a US agent and the pressures exercised by the US on the Saudi regime to increase production and flooding the market that caused a sharp decrease in oil prices."

The Iraq Oil War

No history of oil would be complete without mentioning Iraq and the Bush/Blair invasion.

In the run-up to the Iraq War, many critics in America and around the world pointed to an obvious reason for starting such a war: oil. Although Bush declared other reasons for the war both at the time and in the years afterward (retaliation for Sept. 11, WMD, promoting democracy, fighting terrorism), oil remains a likely impetus.

Bush has his war in Iraq now, and you'd think that would be enough. But in the recently released infamous Downing Street memo from 2003, President Bush is said to have urged invasion of "Iraq then Saudi Arabia." Then there is the ongoing US-led campaign against Iran as an arm of the so-called "Axis of Evil," as well as the failed coup attempt in Venezuela in 2003. Iraq, Iran and Saudi Arabia are three of the largest oil-producing nations in OPEC. Add in Venezuela and you have the top four.

Many have suggested that oil wars are coming as an inevitable consequence of oil's increasing scarcity. If so, we are only getting a preview in Iraq. For an unvarnished accounting of what's really at stake, I can do no better than to quote from the Independent Newspaper of November 22nd, 2005:

"On the eve of the war in Iraq, there was a shocking moment of clarity in the Commons when Jack Straw revealed that when it was all over, France and Germany would not be allowed to 'get their snouts in the trough'.

"This public slap in the face to Britain's biggest EU partners gave an insight into what was really concentrating US and British minds. Having constructed a tortuous case for war over Iraq's lack of co-"operation with the UN Security Council, plans were being laid for post-Saddam Iraq excluding non-coalition countries.

"Straw's remarks revealed the focus on Iraq's oil. The World's four oil giants (BP, Exxon, Chevron and Shell) have been desperate to get back into Iraq since being booted out in the nationalization of 1972.

"Iraq sits on the world's second largest proven oil reserves, expected to increase to reserves of 200-plus billion barrels of high-grade crude. No one doubts Bush's determination to ensure 'friendly' companies gain the lion's share of lucrative oil contracts -- worth hundreds of billions of dollars over many decades." (Link to original)

In addition to making oil companies and defense contractors very wealthy, the Iraq War also caused a crunch in oil supply. That, along with a couple major hurricanes, brought on yet another price peak in 2005 resulting in record profits for oil companies. The closing of oil fields as a result of the Iraq War hit China especially hard. Before 2003, China imported most of its oil from a single field in Iraq.

The invasion effectively put an end to that, leaving China scrambling for oil on the open market. In Britain, the ruling party's economic forecasts have fallen short, all due, it is said to "the oil problem." Vladimir Putin has finally brought the last of Russia's oil fields under his control in an attempt to secure oil supply. Even in America, President Bush has asked people to conserve gasoline.

Have We Peaked Yet?

There is good reason to be concerned about oil. Overall, there has been a 50 percent price rise in the last 12 months and increasing demands from China and India means there is less to go around.

Describing the supply problem on a recent Channel Four News broadcast in the UK, leading energy analyst and former Bush advisor Matthew Simmons said: "We are producing, in all likelihood, every barrel of oil we can produce today that can be refined and used. We are at full capacity."

He went on to refute the Saudi's claim that they can be trusted to produce the 15 million barrels of oil a day that the world's markets now require, for the next 50, 75 or 100 years. The situation is "so utterly serious to the well-being of the global economy," Simmons says that, "no one is really interested in transparency on what oil is available, because the truth will shock." He predicts his worst doomsday scenario for this winter when world demand for oil could exceed world supply by 2-5 million barrels a day.

The world's largest oil company EXXON Mobil alongside the Saudi Oil Minister Ali Al Naimi, recently tried to calm rising oil prices by stating that "the country would soon double its proven reserve base" and offered a figure of "3 trillion barrels to be recovered." In what may be a political hint, Naimi said that "talk of oil scarcity reminded him of the 70s."

Whether the peak oil scenarios described in books such as Simmons' are accurate, one thing is very sure. The era of cheap oil is over. Prices stood at under $20 a barrel in 1999. They topped $70 a barrel in August 2005 after Hurricane Katrina before settling back down into the $50+ range. Moreover, world demand is expected to double in the next 20 years, according to the World Petroleum Conference. And all the while, oil supplies are decreasing and what oil remains is harder to extract and refine.

There is a more alarming element to all this. America is the world's number one energy consumer. If current trends continue, with American consumption at 20 million barrels a day, the US will be importing 70 percent of its oil by 2025. This estimate doesn't even factor in the expected 50 percent increase in demand. What does this mean? It means that the US will be looking for ways to secure a cheap, reliable source of fuel.

Higher oil prices are likely to cause hardship for billions of people in the coming years as petroleum and petroleum products become more expensive. But you can bet that the oil industry won't be sharing the pain or the gain as they reap the profits of this global energy crisis.

Footnotes

All notes from Matthew Simmons "Twilight in the Desert"