As oil became a key energy source in the 20th century, Western companies backed by the US and UK monopolized production in the Global South. But in the age of decolonization, newly independent nations fought for a different global energy order.
At the opening of the OPEC oil ministers meeting on December 15, 1976, Saudi Arabian oil minister Sheikh Yamani (C) peers at the other delegates arriving in the conference room. At right is the United Arab Emirates delegation. (Bettmann / Getty Images)
In the decades immediately after oil became a major source of energy for industry around the world, Western governments, primarily the UK and United States, used their military and economic power to seize control over the resource across the globe. However, in 1960, petrostates fought back against the West’s dominance over the sector, banding together to form the Organization of the Petroleum Exporting Countries (OPEC).
In an interview with Jacobin’s the Dig podcast, the historian Giuliano Garavini, author of The Rise and Fall of OPEC in the Twentieth Century, spoke to Daniel Denvir about how oil has helped to transform the fortunes of organized labor and the governments of former colonies throughout the twentieth century. You can listen to the conversation here. This interview has been edited for length and clarity.
The Twentieth Century Through a Lens of Oil
Your book is first and foremost about petrostates, the sovereign landlords of the world’s petroleum reserves, and about OPEC, the organization they founded to advance their interests within an industry dominated by major oil companies and their imperial patrons. But simply producing oil, you argue, does not make a state into a petrostate. So neither the United States nor Russia, nor Great Britain, Norway, Mexico — none of them qualify.
You write, “in a petrostate, petroleum exports cannot explain everything. But nothing can really be explained without taking into account the impact of petroleum exports.” What then is a petrostate and what makes it different from other states?
The size of production of oil is obviously important. But that’s not what defines a petrostate. To be a petrostate, a country would have to be very productive. The second characteristic would be that it would have to be a very large exporter, a net exporter, of this natural resource.
So for example, the United States is the world’s largest oil producer, and also the world’s largest natural gas producer. But it became a net importer of petroleum in 1948. So it’s not a petrostate.
Petrostates are countries that have a vast amount of oil. And the income from these exports represents a very significant portion of their economy, of their fiscal revenues. And obviously, a very vast proportion of all the exports. So basically, most of the exports of these countries.
Your book is also about some of the most powerful global capitalists: oil companies, particularly the giant oil majors. I’ll list those majors right now just for reference: Standard Oil of New Jersey, which would become Exxon; Standard Oil of New York, later Mobil; Standard Oil of California, later, Chevron; and Texaco, which of course later merged with Chevron; then there’s Royal Dutch Shell; and the Anglo-Persian Oil Company, later British Petroleum (BP).
All of them were created under the umbrella of colonial or imperial power. The oil majors in that context formed an oligopoly, and then ultimately, what was essentially a cartel. How did the oil majors, and this broader petro-capitalist order, emerge from the European- and American-dominated colonial capitalist world system, a system that until World War II remained primarily driven not by oil, but by coal? How did these petro-capitalists ascend? And what features of the emerging oil industry, and its inherent tendency toward monopoly, drove them to cartelization?
The oil industry from its very beginning was conducive to becoming a global industry because oil is easier to transport over long distances than coal or natural gas. And so the fact that oil was easier to transport allowed these companies to basically generate a global oil market. The fact that you needed very large investments in order to search for oil and produce oil allowed a very select group of companies to engage in this capitalist venture. And most of these companies also had big financial groups that helped their venture into oil-producing regions.
So, I mean, the combination of the nature of oil as being an energy source, which is to transport the emergence of big finance in the United States and in Great Britain, and the fact that this industry is very capital intensive, allowed the formation of this very select group of companies.
The combination of the nature of oil as being an energy source, and the fact that this industry is very capital intensive, allowed the formation of this very select group of companies.
Then my other argument would be that, in a way, the creation of this very small group of international oil companies basically represented the emergence of petro-capital. You could write (even though that won’t explain everything that happened in the twentieth century) the history of the twentieth century from the point of view of a clash or an interaction between these important actors that are, on the one hand, political capital represented by these very large international companies.
On the other hand, there are petrostates, which are countries and the governments that try to establish some kind of control over these very productive oil regions, i.e., countries such as Venezuela, which we’ll talk about later. Conversely, there are consuming governments, which are the governments of countries that are large consumers of this very important energy source, i.e., countries such as Germany and the United States. The emergence of petro-capital is interesting, because it provides a lens through which to tell the story of the twentieth century, if you will.
In reframing the history of the twentieth century, your book goes beyond accounts that define it as this mere great-power conflict in terms of looking at the entire history through the Cold War, because OPEC is a form of political alliance that was built not around ideology, but the shared material reality of controlling oil resources.
You write,[M]ost of them did not share cultural identities, political models, or international alliances. What brought them together was both their position as raw materials exporters, their distinctive natural resource endowment, and the willingness to stand up to the tremendous external pressures that shaped them and weighed heavily on their key industry and income source.
And so this history of OPEC is a key part of another history that we’ve discussed a lot on this podcast: the history of Third World liberation movements, the Non-Aligned Movement, and the struggle to remake the global political economy; a history of people like Raúl Prebisch, the Economic Commission for Latin America and the Caribbean, dependency theory, developmentalism, and the United Nations Conference on Trade and Development.
You write,[W]hatever their political system and ideological outlook, whether the absolute monarchy of Saudi Arabia, the progressive military dictatorship in Egypt, or the Indian democracy, whatever their differences in religion or culture, elites in third world countries could potentially identify themselves as belonging to a periphery of commodity producers in a tug of war with the industrialized regions of the center, a global south needing redemption from a wealthy exploitative north.
To ask one last big-picture question before we get into a lot of historical detail: How does the history of OPEC require us to entirely rethink conventional narratives of the twentieth century, particularly from the perspective of the Third World or Global South?
When you look at the history of natural resources, and oil in particular, you discover that certain kinds of relationships — alliances of cooperation efforts — can only be explained by considering the discount fees on these countries and governments that rule over very productive regions.
To put it in more practical terms, look at the relationship between Venezuela and Iran, which started already after World War II with the first visit of Venezuelan technocrats to Iran in 1949. That cannot be explained if it were not the case that these countries were important as exporters. Or if you want to go to recent times, if you want to explain the relationship between Saudi Arabia and Russia, which entered into this strategic alliance, called OPEC+, in 2016, you cannot explain that without considering the fact that these are the most important oil-exporting countries in the world. So if you leave aside this issue of natural resources, there are key elements of international politics, of relationships among communities and countries that you cannot explain.
If you leave aside this issue of natural resources, there are key elements of international politics, of relationships among communities and countries that you cannot explain.
On the other hand, as I think Bob Vitale has pointed out to me often, one has to really escape the danger of raw materialism, which is the view that these raw materials tend to explain anything from the creation of OPEC to the war in Iraq, which according to this view was just a war over oil fields.
I think that’s a danger. I think, as historians, the broader periodization of the twentieth century relates to a complexity of issues that are not necessarily only related, obviously, to natural resources. So if I had to define a periodization of the twentieth century, I would say, maybe until the 1930s is the era of interimperial competition, which culminated in the Nazi government’s attempt to build its own empire in eastern Europe; then from World War II to the end of the 1970s, you have the Bretton Woods framework; and then from the 1980s to maybe the financial crisis, you have neoliberal rule. So these are maybe the real periodizations. And the history of the relationship between oil-producing and consuming countries should be understood within this broader framework.
But having said this, it’s a fact that if you can’t understand the role that these raw materials play, you can’t understand the peculiar diplomacy that is generated by these raw materials. You can’t understand all the issues we’re living through today with decarbonization, and with other critical minerals, without looking at oil.
Oil and Western Colonial Dominance
Let’s turn to the 1930s, when Venezuela became the world’s first petrostate under the authoritarian government of General Juan Vicente Gómez. For more than forty years, Venezuela was the largest oil exporter in the world, treated like an all but colonial holding of a paternalistic United States.
How did it become a petrostate in this moment when oil consumption was becoming central to first the US economy and then to Europe’s, all while in the background just a little bit to the north, revolutionary Mexico nationalized its huge oil resources? And then what did Venezuela becoming a petrostate do to Venezuela? To an economy in which the main exports prior to oil had been coffee and cacao?
Basically, Venezeuala’s oil production was monopolized by three companies: Standard Oil of New Jersey, which as you said, eventually became Exxon; by Shell; and by Gulf Oil. So these were the so-called Big Three that monopolized Venezuelan production. And there was an authoritarian government very close to these foreign capitalist interests. It could be quite easy to say that the picture of Venezuela you have during this period is of a semicolonial country, dominated by these foreign companies, and under the umbrella of the protection of the United States and to a lesser extent, of Great Britain.
On the other hand, in the ’30s, you have the emergence of this very nationalist oil policy of Mexico, which led the country to nationalize its own industry in 1938. And to this day, Mexicans commemorate this event with a public holiday. Every Mexican knows about it. And it’s part of, I would say, the identity of Mexico as a sovereign country.
I think this image of a very nationalistic Mexico on the one hand and of a semicolonized Venezuela on the other isn’t quite right, for various reasons. First of all, in 1929, when Venezuela became the largest oil exporter in the world, at the same time the country basically zeroed its external debt. I mean, if you know something about the history of the relationship between the United States and other former European countries toward Latin American countries, you know that foreign debt has been used often as a reason for military intervention and political control. So it’s already quite meaningful that by 1929, Venezuela managed to free itself from the burden of external debt.
And actually, the rent that came from oil production was still a very small proportion of the profits that these companies made, helping Venezuela to build an army, to build the first infrastructures. They obviously became rich while under Vincente Gómez. But they certainly contributed to unifying the country, for example, in that the workers that went to Lake Maracaibo to work came from different parts of the country. So they blended in to a certain extent, also contributing to generating Venezuelan culture. Even though the industry was basically entirely controlled by foreign companies, it still allowed Venezuela to be in a better position, compared to its neighbors, at least in the Caribbean, and to many other countries in Latin America.
The British, exercising their colonial power in the wake of World War I, were the first to establish control over Middle Eastern oil, but then the United State insisted on a share of its own. This was the United States’ so-called open door policy. You write, “in the wake of World War I, the Middle East was a battleground of economic competition between oil companies, each backed by the menacing shadow of their government protector.”
How did the United States use the leverage it had over exporters, in terms of them being able to access the US domestic market, to secure a share of mostly British Iraqi oil? Then how in Persia, by contrast, did Britain manage to maintain exclusive control, while in Saudi Arabia it was the United States that did? What did the ultimate settlement look like once the colonial powers and their national oil majors had divided up all the region’s oil concessions among themselves? And how did that both make and reflect the colonial order in the Middle East?
The issue is that after the end of World War I, many people in the US government knew that the United States was running out of oil. And when you looked at the world, outside the United States, it seemed the British were in a pretty good position, because they had access to the Middle East; they had basically the most important position in Venezuela; there was Shell in Indonesia. Most of the most attractive oil reserves seemed, at that point, to be in the hands of or tied to the British Empire.
One of the policies of the US government after World War I was to get its own share of the reservoirs in the Middle East. So after a long negotiation, things came to a head in 1928 with the formation of the Iraq Petroleum Company, which was a concession that had shareholders — the British, the French, but also a group of American companies — each allowed to have 23-point-something percent share of the company. This was the first time that the US companies were allowed to enter the game of Middle East oil after that oil had actually been found in 1927 in Iraq. At the same time, US companies massively invested in Venezuela, and by the end of the 1920s, they were the most important producers of oil in the country.
And then the last success, if you will, of the United States was to be granted the concession over oil in Saudi Arabia in 1933. At the time, nobody actually knew that Saudi Arabia would become what Saudi Arabia is today. So I’m not sure, but I don’t think that this news really made the headlines. But we know today that was a bit of a stroke of luck.
As to Iran, there was a British company, the Anglo-Persian Oil Company, that was actually majority owned by the British state, that had a concession that covered the entire territory of Persia. So there was really no reason to allow US companies to produce oil in Iran, at least from the point of view of the British.
And you describe an alternative path in Saudi Arabia, a remarkable story that I had not been aware of where the Roosevelt administration considered taking a direct state stake in Saudi oil. It’s a really strange and interesting window into a sort of New Deal–inflected empire building. But it didn’t happen, thanks to business opposition.
How did that play out? And how did the United States’ role in Saudi Arabia shape and reflect the United States’ emergence as a global hegemony that was supplanting the British Empire?
I think this should be put a little bit into context in the sense that, as you know better than I do, the 1930s were in general a time when economic policy shifted in the sense of a stronger role of the state in the economy. And this manifested itself as the New Deal. And it has an appendix, if you will, in the oil sector, because after the Great Depression, the prices of oil had dropped remarkably, and it seemed that the oil industry would suffer. People would get fired; the materials of the barrel was actually more expensive than the gasoline it contained. So the oil industry was falling apart.
After the Great Depression, the prices of oil had dropped remarkably, and it seemed that the oil industry would suffer.
Part of the solution came from reinforcing the role of the states and in particular in Texas, the most important oil-producing state in the United States. An organization called the Texas Railroad Commission came in and basically was allowed to decide how much oil every single oil field in Texas could produce. This action by the state generated huge theoretical controversies with the US Supreme Court, but it allowed the economic value of oil to be safeguarded. It also in a way prevented waste, because the expansion of the use of natural gas in the United States is also due to the choices made in the 1930s, as the Texas Railroad Commission forced companies not to flare gas, but to actually use it. And the United States was one of the first countries to massively use natural gas as an energy source.
The 1930s were a time of state intervention — contested but existent in the oil sector — and the creation of the Petroleum Reserves Corporation during World War II, which was a brainchild of Secretary of Interior Harold L. Ickes. Ickes was a big part of this idea that there needed to be a state role in managing this crucial strategic energy sector.
In 1944, Ickes advanced the proposal that this strategic reserve corporation would get a controlling share of Aramco. Aramco was the consortium that had acquired the concession in Saudi Arabia. So basically, the US government, through this state corporation, would produce oil and transport oil and even build a pipeline to export oil toward the Mediterranean and potentially to Europe.
This was very dangerous for this very small group of oil companies, because it would have allowed a state to have a say in how much oil was produced, at what price oil would be sold, and also knowledge, if you will, of how the concessions worked in the Middle East. The knowledge of this is very valuable for international companies. To have a monopoly of knowledge of how business works is a valuable thing.
Eventually the opposition was very strong. Ickes was accused of being a communist for presenting this project. And the whole project failed. The solution to the need of huge investments in Saudi Arabia to develop these fields was basically for the largest oil company in the United States, Standard Oil of New Jersey (eventually Exxon), to enter the consortium. So Standard Oil of New Jersey became part of Aramco in 1948, and contributed to the expansion of Saudi production.
The Peculiarity of US Oil Production
I think we should pause here to emphasize this distinction between the US domestic market dominated by tons of smaller independent oil companies, and these big US oil majors operating abroad.
How did the United States end up with this domestic concessionary system that’s so different from what the United States and the UK and their oil majors insisted on imposing as almost the natural order of things abroad?
I mean, the key issue here is basically property of land. The United States and Russia before the Bolshevik revolution were the only two countries — leaving aside the colonized world — where the owner of land was also the owner of subsoil rights. In the rest of the world, the owner of land was never the owner of subsoil rights. The owner of subsoil rights is the state.
This generated this very peculiar governance of the oil sector in the United States, where you have basically private property of land and oil, which is then leased to companies. Since there are so many owners of land, it’s very hard to monopolize production of oil in the United States.
Since there are so many owners of land, it’s very hard to monopolize production of oil in the United States.
I was struck when I once visited an oil field in the United Arab Emirates (UAE). You don’t see wells. Basically, you see a couple of wells, and the UAE produces so much more than most of the US regents. But if you visit an oil reserve, in an oil-producing area of the United States, you see thousands of wells. This produces a totally different landscape in the United States. So the images of these wells — one after the other — that’s an image that is really related to the United States, and it’s hard to find elsewhere. And it’s related to the property of land, which is very fragmented. And it’s very hard to monopolize it.
In these countries — Iraq, Iran, Saudi Arabia — the state had monopoly over subsoil rights. So the states could decide, basically, to allow a foreign company a concession, whose extent was the entire territory of the countries.
Now this could be seen, obviously, as something that empowered these companies, because it gave them access to enormous territories and huge reserves. But on the other hand, it’s also possibly a more rational way of exploiting these reserves, because often these reserves are units, and it’s technically wrong to fragment thousands of different land-ownership claims.
Also, eventually, the fact that these states had one actor they had to face obviously made these capitalist actors very strong, because they would have production; they could do a lot of arm-twisting. But on the other hand once these countries took over, they took over entirely an industry that was already coherently set up.
Yeah, sort of complex because the initial setup was one that benefited the oil majors and their imperial-colonial patron governments. But on the other hand, it was what allowed for a form of resource nationalization that’s incomprehensible in the United States.
There’s two reasons why this is complex in the United States. The first reason is that the United States is actually one of the few countries in the world where there have not been state-owned companies. So there was very heavy regulation, as we have seen with the Texas Railroad Commission, but that was never direct state ownership of companies in energy sectors. This is different from other countries in the world. Most of the rest of the countries in the world normally had state companies taking over at one point or another.
The second difference, as we said before, is actually the ownership of land. And it must be something that has to do with the way the United States was shaped as a nation — building one state after the other, with the role of landowners in actually building up the country.
It’s like the basic organization of American settler colonialism, and how individual settlers and their claims to private property interacted with the expansion of the settler-colonial state westward.
The governance of land in the United States is obviously related to the way the United States was formed through expansion. But if you want to understand how favorable the conditions were for oil production for these oil multinationals in the countries of the Middle East in particular, you have to consider that owners of land in the United States get paid by companies, at the minimum royalty of one-eighth of the value of a barrel of oil, or 12.5 percent. And this is a small landlord of a small piece of land who is able to force a royalty of 12.5 percent out of a company that wants to produce oil in that particular area.
In many of these countries, they even have royalties. So I mean, the position of a small landowner in the United States toward oil companies was stronger in the ’20s and early ’30s than the position of the ruling government of an entire country facing an international oil company. So yeah, that tells you a little bit.
And just briefly an added layer of complexity there. The Texas Railroad Commission’s response to this Depression-era oil glut was a level of state regulation in terms of controlling production that the United States and UK and the oil majors certainly did not want to export abroad.
Well, of course, because the bottom line of an institution like the Texas Railroad Commission is, in a way, controlling production, having a say in the quantity of oil that is produced. If countries outside the United States were able to control production, they would have enormous leverage toward these oil companies. Basically, through controlling production, you also control the profits. If you allow companies to produce more in certain times, they will make more money. If you allow them to produce less, they will make less money.
And that’s very important, since these companies had interlocking ownerships of most of the consortiums. The same companies that were in the Iraq Petroleum Company, some of them were also in Aramco. Others eventually became part of the consortium in Iran in 1954. So it was very important for them to say to the government of Saudi Arabia or Iran: if you want to increase taxes, you will simply shift production from Iran to Saudi Arabia, or from Iraq to Iran.
That was a way to convince governments to withhold certain decisions that would be considered harmful either in terms of taxation, levels of employment of nationals or investments, and so on and so forth. So controlling production is a key political issue.
A key turning point in this history takes place in 1948, when Venezuela established a new fifty-fifty revenue model that would later become the norm across the entire oil-exporting world. What accounts for this relative Venezuelan assertiveness, if not radicalism? Why did resource nationalism sweep the country in the 1940s, first under President General Isaías Medina Angarita, and then intensified as the social democratic government of Rómulo Betancourt took power in 1945, after this military junta overthrew the general in a coup?
What I argue in my book — following what Venezuelan historians, or at least some of them, have written — is a bit the other way around. I described the oil law of 1943 as the most important nationalist achievement when it comes to oil legislation. In the middle of World War II, Venezuela was crucially important to US war efforts. There is the Good Neighbor Policy in the United States, so it’s important for the United States to keep on good terms with Latin American countries.
Venezuela’s oil law of 1943 is the most important nationalist achievement when it comes to oil legislation.
And this oil law that is written by some of the Venezuelan technocrats that have been working in the oil sectors now for decades is quite revolutionary, because, for example, it increases the royalties to 16 percent. But royalties are not really taxes. They’re something you have to pay as a cost even before paying taxes. So if you increase royalties, it’s a big cost on oil companies. The government of Venezuela will take, in the end, 60 percent of the rent, leaving 40 percent of the rent to the companies.
But what’s more important is that this is the first time officially that the government of Venezuela claims to have fiscal sovereignty. What’s fiscal sovereignty? The ability to decide whatever taxation level you want on whatever company is in your country.
And this is in contrast to the sanctity of contracts?
Yes and no, in the sense that deciding on a new oil law is different from changing the contract. Obviously, foreign companies could argue that this was a change in the rules of the game. But that’s what new laws are. It was also favorable for other things. It was also favorable to companies, because for example, it extended their concessions for a very long time. It created a general framework in which concessions were all different, one from the other. By then they needed to be all the same.
Why am I saying this? Because then in 1948, there was the first democratically elected government in Venezuela. In this government, Acción Democrática — the democratic party of Venezuela, which was a party that was very close to trade unions, or at least part of trade unions — performed very well. And Juan Pablo Pérez Alfonzo, who was the oil expert of Acción Democrática, was the minister of development, also in charge of the oil sector.
Since this is the first democratic government of Venezuela, it is also important for democrats in Venezuela to argue that the first democratic government of Venezuela was the government that took action that was more favorable to the interests of Venezuelans in opposition to foreign interests and to foreign companies. But in fact, that’s not what we see in the archives.
There was never a big opposition. This was not a new law. This was basically a new regulation enacted by this new democratic government of Venezuela, and conceived also by Pérez Alfonzo, but actually in a dialogue with oil companies and the US administration. This new regulation basically established that whatever happens to the price of oil, to the cost of production and so forth, there would have to be a fifty-fifty profit split. So 50 percent of the profits would go to the country, to the government, to the state, and 50 percent to the oil companies.
But if you think about this more, this was very favorable to the companies, because basically it set a roof over the amount of rents that the government and the state could collect, and the roof was 50 percent. At least in principle, it could not get more than 50 percent. And at that time with that 50 percent, the foreign companies really are making a huge amount of money. It was also money that by paying to the Venezuelan government, they could detract from tax payments in the United States, so it didn’t cost them so much. It was like a wedding between the Venezuelan state and foreign capitalist companies.
To a certain extent, it was a less innovative law compared to the law in 1943 that was enacted by a dictator. It was a populist, military government, but it was a military government. Where Acción Democrática was different was in the way it used that money.
The argument was, let’s use that money to increase wages, to generate more employment, to invest in refineries, to industrialize the country, and so on and so forth. So Acción Democrática and the Venezuelan democrats were not necessarily more nationalistic.
They were more developmentalist, especially in the vision of Pérez Alfonzo, who had this whole critique of the dominant oil system and what it did to the petrostate within the world system.
So if you think that oil has been from 1960 the most important primary energy source in the world, Pérez Alfonzo is one of the key intellectuals and politicians in general of the twentieth century. There should be a small place at least for Pérez Alfonzo in a textbook. He played a very significant role in his country in the creation of OPEC, and in thinking about natural resources. But his way of thinking evolved very significantly from 1948 to the 1970s. So it’s very hard to say what Pérez Alfonzo’s thoughts are in general, because he went through different phases.
In this phase, so 1948, the way he thought about the oil industry is, this is a public service like any other public service. So the companies that play a role in this public service are entitled only to a certain defined profit margin, let’s say 8 percent. Other times he said, 15 percent return on investments. All the rest should be recouped by the state to use in a way that is basically the way of social democracy — build welfare states, to develop the industries, etc.
This is not maybe the most innovative phase. Today I was looking at Guinea, which is one of the countries that now is emerging as a key oil exporter. It takes 10 percent of the oil grant. So really in certain countries, it seems like history and the experience of these crucial figures of oil-exporting countries has been forgotten. But I don’t think the Pérez Alfonzo of 1948 is the most innovative Pérez Alfonzo. I think later he would become even more innovative.
Oil’s Ascendance to Global Energy Primacy
The rise of petrostates and petro-capitalists was premised, of course, on the rise of oil consuming countries in the industrialized metropole of the world system. First the United States and then Britain, and then after World War II, increasingly continental Europe, which rapidly transitioned from coal to oil.
Why and how did American patterns of energy consumption become the ideal model for the entire world? Why did Europe in particular, make that transition? And what role did the United States play in pushing Europe to do it?
Because of course, this is all amid the Marshall Plan and the onset of the Cold War, which in western and southern Europe meant an all-out effort to undermine and marginalize communists.
You could argue that there are certain instances in which the US influence on forcing, or at least helping, the use of oil as an energy source has been prominent. Maybe you could argue that the development of car manufacturing, of Fordism in general, the car being the symbol of Fordism, was a US invention to a certain extent that then spread to other industrialized countries. And obviously, since the expansion of the car industry, at least in the United States, went in parallel with the expansion of the oil industry, you could argue that that was a contribution of the United States to the development of oil and its derivatives, like gasoline as an energy source.
The United States did play a role in the creation and expansion of the oil industry. Maybe it’s the role that China is going to play in the expansion of an industry based on renewable energies. Who knows.
Since you mentioned Europe: former prime minister of Italy Romano Prodi, who was also the head of the European Commission for a while, wrote a book about this in the 1970s. He is basically arguing that the Marshall Plan — because it financed the building of refineries in Western Europe, and the import of oil, basically — to a certain extent forced Western European countries to open up to oil imports.
You could argue that there is a US role because of the car industry, because of the importance of US oil majors. The language of oil is basically all American words. If you talk to people in the oil industry, they all use English words, even though maybe the Russians would argue at the end of the nineteenth century that they produced more oil than the United States. But most of the language of the industry is American. So you could argue that there’s obviously a strong role of the United States, but I wouldn’t push it to the point of the United States basically forcing the rest of the world to rely on this industry.
And also, I would argue, at least in my experience as an Italian, that the consumption patterns in different areas of the world are also profoundly different. It’s true that the car industry developed throughout the industrialized countries. But it’s also true that the cars are not all the same. So if one looked at the Italian cars in the ’60s, they looked different from the American cars. If you look at the way cities were shaped, they were very different from American cities in the role of suburbs and the role of trains versus highways. So there are important differences.
But I agree with you that if that’s the argument, the United States did play a role in the creation and expansion of this particular industry. Maybe it’s the role that China is going to play in the expansion of an industry based on renewable energies. Who knows.
Oil-Worker Power and Anti-Colonial Politics
We should pause here to emphasize the role and position of oil workers from Venezuela and Mexico to Iran, Iraq, and Saudi Arabia. This militancy in your account really exploded as the Great Depression sent raw material prices plummeting everywhere — not just oil, but across the board. This fueled Mexico’s nationalization of oil, and reached perhaps its most consequential point in Iran, when oil-worker and communist militancy pushed the government to nationalize its oil on the eve of Prime Minister Mohammad Mossadegh taking power. These events, of course, led directly to the US and UK orchestrated coup in 1953 that brought the shah into full control.
But this labor militancy was, I think it’s fair to say, present almost everywhere that significant amounts of oil were being produced. What was it about the way that the oil industry proletarianized diverse groups of people and about the position of the oil industry that led to such militancy? And what impact did that militancy have on governments of the vast majority of countries, which unlike Mexico at that point were still resisting or not interested in nationalization, but nonetheless began to move toward a more confrontational stance vis-à-vis the oil majors and their rich-country patrons?
Even though the entire book is mostly on technocrats and elites, as much as possible, I tried to emphasize how these elites were also constrained by cultural movements and social movements that were below them and that pressured them toward certain decisions. And in doing so, in a way, what I said is a bit in contrast with a very good book that has become a reference point, and that I also use in my classes: Carbon Democracy: Political Power in the Age of Oil by Timothy Mitchell.
Basically, the argument of that book is that when coal was a key energy source, since the coal industry was heavily unionized, and because of the way the coal industry worked, the way coal was transported, and the way workers were in control of how coal was produced, basically, workers were able to democratize society. They had a way to influence their governments by directly controlling or having a role in the production of this kinetic resource.
When the Western world shifts to oil, this eventually leads to more authoritarianism, to this idea that we can have an ever-expanding economy with no limits, and in a way to a de-democratization of society.
So what I tried to point out in the book is that the history of oil is also a history of social activism. And you point out that this social activism is true everywhere from Venezuela with the oil strikes of 1936 — twenty thousand workers on strike for the first time in the history of their country — to Iran, the strikes and the wave of protests that lead to nationalizations by Mosaddegh. Even in Saudi Arabia, the 1950s was a time of profound activism with the requests of forming trade unions, and this activism still persists until 1967 when the workers of Aramco take on the headquarters of Aramco to protest after the Six-Day War.
The history of oil is also a history of social activism.
Obviously, the workers in the oil fields were protagonists of the revolution against the shah. I would argue that oil workers in Iran in 1978 made a revolution against the shah possible by blocking oil production. That’s the more general framework of the history of the twentieth century.
From the ’30s to the ’70s, the workers’ movements were a significant, effective, powerful countervailing force to capitalism. This happens in every country of the world, including in oil-exporting countries. The only difference is that in oil-exporting countries, these worker movements basically expect the governments to take control. They take greater control, direct control of their industry.
Oil-exporting countries take control of the industry by nationalizing goods, and they all do from Venezuela — Chavez did not nationalize the Venezuelan oil industry, Venezuela nationalized the oil industry in 1975 with a democratic government — to Saudi Arabia, which takes full of control of the industry. Algeria, Iraq, you name it. There’s not one of these counties that does not take control of the industry.
But then, even though it’s counterintuitive, this eventually paradoxically leads to a problem for the workers’ movements. The problem is that it’s harder for the workers’ movement to take on state companies than it is to take on foreign multinationals. So it might be paradoxical. But if nationalization does not necessarily reinforce workers’ movements to a certain extent, it weakens them in that their acts in a way endanger national security, which is symbolized by the role of these state-owned companies.
An extraordinary contradiction given that it’s precisely these oil workers’ movements, as we’ll see, as we continue in this interview, that are propelling nationalization forth. Oil-worker militancy took hold among this just remarkably, transnational workforce drawing workers in from across the region.
How did that militancy take shape? And how was it in turn shaped by the ascendance of a diverse array of radical anti-colonial ideologies across the Middle East — including the Arab nationalism embodied by Egypt’s Gamal Abdel Nasser (whose influence and prestige across the Arab world during this period is really hard to overstate), Ba‘athism, and communism? And how did each of these ideologies separately, and in combination, respond to the conditions and positions of Middle Eastern petrostates in the grievances and aspirations of their people?
So as you point out, the late 1950s to the 1960s was a time in which various social and political movements from the Middle East to Latin America manifest themselves. So you have Nasserism, which is a relatively vague ideology that, to a certain extent, is based on the idea of a stronger role for the state and of pan-Arab cooperation. You have Ba‘athism, which is also an ideology that is quite hard to define, but even here, it’s premised on a strong role for the state and the overcoming of the nation-state — you’re building broader alliances. In Venezuela, you have social democracy, but you also have minoritarian communist groups, which wage armed conflict, for example.
In Venezuela, obviously, there is a distinction between those like Pérez Alfonzo, who still think, at least in the early ’60s, that you have to deal with these international companies, and those who think, let’s get over with them, let’s just nationalize and kick them out of the country. These would be the more radical militants.
In the Middle East, even in the countries that we perceive as more conservative, such as Saudi Arabia, these social and political groups exist and exert their influence. In Saudi Arabia, a symbol of these particular instances when it comes to oil is Abdullah Tariki, the so-called Red Sheikh, who was the head of the oil directorate-general when OPEC was created, so he was possibly with Pérez Alfonzo, in Venezuela, the other key figure for the creation of OPEC. So this is just to say that the political atmosphere until the 1960s and 1970s is quite different from the one that we’re looking at today. There’s social mobilization; there’s a lot of public debate in newspapers, in leaflets, trade union mobilization, etc.
Nasserism is so powerful that Egypt and Syria from 1958 to 1961 formed the United Arab Republic, a unified country, something I think a lot of listeners outside the region might not be aware of in the appeal of all these ideologies and figures like Nasser. It means that we cannot project back the Saudi Arabia, for example, that we know today as this inherently reactionary regime. That is not necessarily all set in stone at this point.
As you mentioned, under King Saud, before the more conservative Prince Faisal takes power, the top leader on oil is Tariki, known as a Nasser sympathizer. And you have this much more politically open, contentious kingdom than the one we know today — workers’ movements calling for representative government, a free prince’s movement doing the same. It’s a very different world and region.
Nasser becomes this larger-than-life political figure for the entire Arab world after 1956, after the success of the nationalization of the Suez Canal, and since he promotes the creation and the convening of an Arab oil congress. Nasser is convinced that oil should be one of the key industries and one of the key ways in which the Arab world would manage to become more autonomous to develop, and so on and so forth. So why is it that we have not witnessed the creation of an Arab oil organization?
Nasser is convinced that oil should be one of the key industries and one of the key ways in which the Arab world would manage to become more autonomous to develop.
I think this is an interesting question, because it says a lot about exactly what a petrostate is, and what it is not. So Egypt is not a petrostate. And that’s why you couldn’t create an organization based in Cairo, even though in 1959 Nasser helped convene an Arab oil congress with the idea that Cairo will become the capital in discussing oil issues. But eventually, even among the people that met in Cairo for the first time, you had the Venezuelans that joined with a very big delegation, and also the Iranians visited. But eventually the organization of oil exporters was not based in Cairo.
OPEC was for the first time convened in Baghdad, because it had to group only countries that had similar interests as being relevant oil-exporting countries, and that did not include Egypt. Even though within these countries there were people that were Nasserists, were influenced by Nasser, the logic of an organization of oil exporters, if you will, was stronger than the political and cultural logic of the influence of Nasserism in building a pan-Arab organization.
The Rise of the Gulf States
How did the United States establishing dominance over Saudi oil spur the British interest in the oil resources of what until independence were known as the Trucial States, the kingdoms under British protection that would later become the UAE: Dubai, Ras al Khaimah, Sharjah, and Abu Dhabi? And where did the other Gulf kingdoms — Bahrain, Qatar, Kuwait and Oman — fit in? Because it’s hard to imagine today how sparsely populated, poor, and marginal these polities were compared to what we see today.
So we were talking about this phase of the end of the 1950s. At the time, you had Kuwait, not yet an independent state, which was a British protectorate and a significant oil producer. You had Saudi Arabia. But most of the rest of the sheikdoms, if you will, of the Arabian Peninsula had not become important. They were interesting, but they had not become producers.
In 1960 in Abu Dhabi — which was the emirate where among the Trucial States, the largest quantity of oil would be found, where the largest reservoirs were located — oil production had not started, and there was just one building. One permanent construction, which was the fort of the Emir of Abu Dhabi. The rest of the so-called town was basically a group of tents or nonpermanent constructions for fishermen, a population that must have been one thousand or two thousand. Very small, very marginal. In a way, a backwater at the time of the British colonial empire.
Dubai was already a commercial hub. But also there, we’re talking about something quite small. Obviously, when we talk about the Anthropocene, we’re talking about this massive expansion and massive acceleration of the use of fossil fuels from the 1950s onward. The 1960s was a moment of huge expansion of production. Then, all these places become more interesting. The investments started, and eventually Abu Dhabi became an oil producer and eventually also joined OPEC at the end of the ’60s.
Stepping back, how did the expansion of the oil frontier from Latin America to the Middle East shape a region and the states within it that were still almost entirely under either formal or informal colonial control? Is it a coincidence that Middle Eastern petrostates, at least before a wave of nationalist coups began in the 1950s, were organized initially as monarchies?
I think it would be fair if my colleagues saw what I said about the Middle East as being too deterministic and even possibly wrong. I also have to point out that I did visit the National Museum of Saudi Arabia, and I was struck by the fact that it ends with the beginning of oil production in Saudi Arabia. So basically, it’s like the story of Saudi Arabia ends, instead of starts, with oil production, and there’s no history of Saudi Arabia after oil production starts.
Does the fact that these countries eventually shaped their political systems in the way they did, basically being absolute monarchies, except for the case of Kuwait that actually has a parliament, which is quite influential . . . is this connected to the rise of the oil industry and to the influence of foreign powers, and in particular the British Empire, which at the time, until World War II, was the prevailing foreign actor in the region?
It’s fair to say that these foreign companies basically decided to pay, or were forced to pay, or just paid their taxes to the monarch. This is obviously something that reinforced the monarchies of the region, because they had the financial possibilities to build the army, to build the security system, and so on and so forth. It is also possible to argue that the shape of the territories that define Kuwait, Qatar, Saudi Arabia, and the UAE at least has interacted with the shape of the concessions.
So the necessity to define specific boundaries, in order to be able to pay this or that landlord, has been significant in shaping the boundaries in a territory that, let’s not forget, is often a territory in which boundaries are very hard from a geographical point of view to define. You’re talking about deserts, at times shifting mountains of sand. So how do you place a boundary there? Obviously, the necessity to determine where concessions were did play a role.
A territory, just to emphasize, that until World War I (aside from Persia, later Iran) was all under Ottoman control. These were not separate countries. This was an empire.
I think the Saudis would argue that they were never really part of the Ottoman Empire. But anyway, obviously most of the Arab territories or at least parts of the Arabian Peninsula, yes.
The Founding of OPEC
At the same time that the United States and British were plotting against Mossadegh in response to Iran’s nationalization of oil, Britain’s Labour government at home was nationalizing industry. Ultimately, and we’ll get into this period later, but ultimately neoliberalism would break down this divide between the social democratic policies allowed in the metropole, versus the sort of raw capitalist dominance that neocolonial powers imposed upon the periphery. This is something I discussed a while back with Kojo Koram on the podcast.
But what was the significance of this distinction between what was possible and even normal in the metropole versus the colonial world? What did that divide reveal about how the world system was developing, and I guess more generally, energies placed with it, in terms of liberal capitalist democracies requiring these backstage zones of authoritarian energy expropriation?
So yes, obviously, there’s a contradiction in the Labour government in winning elections in Britain promoting this massive wave of nationalization of the commanding heights of the British economy, including the energy sector where they nationalize the coal sector. Even though arguably you could say that it did not nationalize the oil industry, which had been kind of nationalized by Churchill and was left untouched by the Labour government. But at the same time that it did so, it protected the interests of the Anglo-Iranian Oil Company in Iran, even in the face of massive protests coming from forty thousand workers.
At the same time that the Labour government nationalized the coal sector, it protected the interests of the Anglo-Iranian Oil Company in Iran, even in the face of massive protests coming from forty thousand workers.
I would argue, first, that Labour politicians were not always happy with the way the Anglo-Iranian Oil Company was behaving itself. And I have thought that the Anglo-Iranian Oil Company had to be more proactive when it came to workers’ rights. Not everything that Iranians were asking for was wrong for Labour politicians.
But aside from the fact that eventually the government shifted from Labour to Churchill once more after nationalizations — and aside from the racism, that was, I think, a prevailing cultural feature of every single politician in every country in the West — the Anglo-Iranian Oil Company was so important to the macroeconomic state of British finances that it was actually hard to do without it. It was by far the largest company. These massive revenues, in hard currency, in dollars, were crucially important for a country that lacked dollars at the time, so it was actually hard for Britain to do without the benefits of controlling Persian oil.
Having said this, yes, it was very contradictory to promote nationalization in the metropole, and at the same time fight nationalizations in countries that were politically subordinate, at least to a certain extent, to Great Britain. But I would argue that neoliberalism was never really a dominant political or cultural approach in the countries of the Global South or in the countries of the so-called Third World, the extractive provinces of capital.
And, in fact, the rise of neoliberalism in the West symbolized by Thatcher in the UK never went in parallel with a similar rise of neoliberalism in oil-exporting countries. None of these countries ever privatized their oil companies. They did not renounce the taxes that came from extracting oil.
Maybe the only country that did was Russia after the fall of the Soviet Union. But as we’ve seen today, it was a relatively short process only in the 1980s. And then, to a certain extent, Russia went back to an approach, which is not a neoliberal approach, but the approach of a natural-resource exporter trying to keep that sector under control.
This brings us to OPEC’s founding in 1960, five years after the seminal anti-colonial meeting in Bandung, Indonesia, and amid the rapid decolonization of French, British, and Belgian Africa. The colonial order is being entirely upended at this moment.
What is it about that moment in the history of the world system in general, and also the oil system in particular, that finally pushed these countries together to found OPEC? And what role, in terms of bringing these five countries together, did Venezuela’s early initiatives to foster oil exporter dialogue and solidarity play?
The general political atmosphere of the late 1950s is an atmosphere where decolonization is, in a way, the wave of the time. 1960 is the year when many countries in Africa became independent. In 1955, there was the Bandung meeting, the first international conference for Afro-Asian countries denouncing colonialism, and to a certain extent, wanting to advance a non-white corporation to set the rules of the game, even though their economic requests were very vague. That was the political atmosphere of the time.
And in such a political atmosphere, there are things that happened in the oil markets, specifically in 1959 and 1960, that are considered by these oil-exporting states as a declaration of war on the part of oil companies, and some key oil producers such as the United States.
So the first decision on the part of the United States was in 1959, when the United States implements what are called mandatory import quotas. So it basically decides that it is not going to import, I don’t remember the exact figure, but it’s something like more than 9 percent of its consumption. This decision by the US government basically means that the United States has a market, which is a huge market for oil exporters all over the world, that is becoming a closed market in which it is difficult to enter. So these countries are now in competition, one with the other.
And, to make matters worse, at least for Venezuela, the United States basically does not apply this system of quotas to Canada, for example, which is considered reliable, but it applies it to Venezuela. So now Venezuela is producing more and more oil and has to struggle to find markets and potentially has to face the competition of oil producers in the Middle East for these shrinking markets in the United States.
But also the other reason why it’s significant that the United States imposes this quota is that the price of oil in the United States was basically the standard for the price of oil everywhere. That was very important, because it sets a floor. So it said, prices would not go below that level, because below that level, the US producers will not accept it. It allowed a price structure. With the creation of import quotas, mandatory import quotas, the United States reduces the market, which basically undermines this price structure.
In fact, the year later, in 1960, this oligopoly of companies (the first is Exxon) reduced the posted price of oil. So the posted price is a tax reference price that is used to pay taxes to local governments. In practice this means that, since if you remember we had this fifty-fifty profit sharing, if the posted price is two dollars a barrel, this fifty-fifty profit sharing is applied to the price of two dollars a barrel. If you reduce the posted price, it means governments are going to get less money for the same barrel of oil.
So the combination of the two speeds up a process that is already happening: dialogue between Venezuela and Middle Eastern countries. This group of five countries you are talking about convened in September 1960 in Baghdad, and they decide on the creation of this organization.
But at the time, their number-one issue or objective is to avoid the repetition of a situation in which the oil companies can simply reduce the price of oil without any negotiations with the governments of oil-exporting countries, considering that the governments of these oil-exporting countries by then have become entirely dependent on the revenues from the exports. So if you reduce those revenues, that might generate massive social problems, political problems, protests, etc.Original post