Oil: Reopening The Door

Joseph Stanislaw and Daniel Tergin

From Foreign Affairs, September/October 1993

Article preview: first 500 of 4,478 words total.

Summary:  Oil-exporting nations are seeking the capital, technology and management skills of the very international oil companies they shut the door on in the 1970's. Driving the changed relationship is broadened competition for market share needed investments that meet the double criteria of economic and environmental competitiveness. Now flat, oil demand could increase by 20 percent in the next decade, pushed by Asia's economic growth. Evening with the opening of Russia, most increased production can be expected from the Middle East, maintaining that troubled region's strategic importance.

Joseph Stanislaw is Managing Director of Cambridge Energy Research Associates. Daniel Yergin, President of Cambridge Energy Research Associates, won the 1992 Pulitzer Prize for General Non-Fiction for The Prize: The Epic Quest for Oil, Money, and Power and is coauthor most recently of Russia 2010-And What It Means for the World.

GLOBAL AGAIN

TWENTY YEARS AFTER it burst into international politics with the 1973 crisis, oil remains a strategic commodity critical in the global balance of power. But, looking toward the 21st century, the perspective has changed radically since those days when it seemed that oil power would engulf world politics.

Today, economics is taking precedence over politics. Many exporting countries court the international oil companies that they once shunned. The door that was slammed shut in the 1970s is being reopened. In fact, with the prospect of the opening of the petroleum reserves in Russia and many other countries that up to now have been politically inaccessible oil is truly a global business for the first time since the barricades went up with the Bolshevik Revolution.

In retrospect, the shocks of the 19708 can be seen as the high point of oil nationalism. It was the era when the world economy hung on the comments of oil ministers in the hallways of OPEC meetings and when the wrongs of colonialism were to be set right. It was to be the beginning of the "new international order" a zero-sum game that would see a wholesale redistribution of wealth from the North to the South and a diminution of the international stature of the United States and the other major industrial powers.

Much of that is now history. The oil exporters learned that they needed the importers as much as the importers needed them. The producers may have had oil to sell, but the consumers provided the markets. They could also provide, when needed, security. These developments lead to new questions about the very meaning of security, and what durable relationships are now possible between consumers and producers that will serve the longer-term interests of both. The Persian Gulf War of illustrates both the critical position of oil in the global balance of power and the importance of interdependence between producers and industrial consumers. There is also the increasingly important question of how to reconcile energy use and environmental imperatives.

With the collapse of communism, the global security issues that were uppermost have receded. Regional security issues, however, remain. The world is now shifting back to oil dependence on the Middle East, where modernization and Islamic revivalism are in conflict. Moreover, oil's traditional relationship to other global issues continues. It is intertwined with Russia's transition to free markets and Asia's economic growth. The United States is back on the track of higher oil imports, which means that its foreign policy will remain acutely sensitive to developments in oil-exporting countries.

In the years ahead, the global oil industry will require much higher levels of investment than in the recent past to meet both energy needs and environmental requirements. Politics, which in the 1970s sundered economic links between producers and consumers, is now permitting the reconnection of those links, though on a different basis. Thus, a new dimension of security between exporting nations and oil companies will come from the interweaving of investment, ...

End of preview: first 500 of 4,478 words total.