19th century developments
Petroleum has been used as an energy source for thousands of years, but access was usually limited to areas where oil was known to seep through the earth's surface, and use was very uncommon until the mid-19th century. Wood and other biomass were the primary fuels used throughout most of human history, before gradually being replaced by coal during the industrial revolution. As coal beds are typically found 100-200 meters below the surface, whereas oil and gas is mostly found several kilometers deeper, coal was the early driver of industrialization as it was much more accessible.The modern oil industry emerged in the 1850s, when geologists in Europe and North America began experimenting with oil found in mines, seeps, or in the form of bitumen and shale. Oil was usually dug or mined from the ground before 1859, when the first oil well was then drilled in Pennsylvania. This technology quickly spread to oil producing regions across North America and Europe, and by the end of the century, the Russian Empire was the world's largest oil producer. At this time, the primary uses for oil were as fuel for lighting and as machine lubricant – over the early decades of the 1900s, the development of the internal combustion engine and mass production of automobiles saw oil demands rise significantly, while oil also became the primary fuel source for aircraft and naval vessels, although its use as a light source diminished due to the electric light bulb.
Growth in the early-20th century
Oil booms in California and Texas saw the U.S. outproduce the rest of the world combined by 1910, with Standard Oil becoming one of the most profitable companies in the world, controlling over 90 percent of U.S. production (it’s founder, John D. Rockefeller, is often considered the wealthiest American in history). The strength of the U.S oil industry meant that international oil prices were largely dictated by the prices set around the Gulf of Mexico until the 1970s. Because of its monopoly, Standard Oil was broken up into 43 smaller companies by the Supreme Court in 1911, yet four of these successors would continue to control much of the global oil production in the decades that followed, as part of the cartel known as the "Seven Sisters". The remaining three companies were British and Dutch enterprises, based in the Caucuses, Persia, and Indonesia, who established control over much of the world's maritime oil transport in the early-1900s.The importance of oil in conflict had been identified in previous wars, particularly in transport and naval warfare during WWI, but it became especially pronounced during WWII. Control over oil resources was decisive to where the Axis Powers' chose to invade, as it was essential to maintaining supply lines, operating the thousands of tanks, ships, and planes produced, and it also limited oil availability for the Allies. Notably, the Japanese attack on Pearl Harbor and the German push into Stalingrad, two of the most significant events of WWII, were both part of broader attempts to secure access to oil. The Allies' ability to maintain and protect their oil supplies while destroying those of the Axis was decisive in the eventual victory.
1950-1973: Shifting balance and OPEC
Following the war, the Western world experienced what was possibly its most prosperous period in history, with vast improvements in living standards that were driven by oil. These included the further growth of car ownership, the development of central heating systems, and the rise of consumerism through plastic manufacturing, commercial aviation, and increased global trade. Not only has oil usage been essential to industrialization on a national scale, but also in facilitating the development of globalization until today.For decades, the Middle East has been the largest oil producing region in the world, but after WWII, almost all of this oil was under Western control with its owners colluding to limit production and fix prices. As Middle Eastern states grew in power and autonomy, the strength of the Seven Sisters weakened, and the growth of these economies was driven by their oil industries. Western governments tried to retain control, most notably through the Iranian oil embargo and Suez Crisis in the 1950s, but domestic oil demands were so high that alternative fuel supplies could not keep up. In 1960, several oil-producing states united to consolidate their power by forming the Organization for Petroleum Exporting Countries (OPEC), shifting the international balance of power away from private companies based in the UK and U.S.. Saudi Arabia is generally seen as the greatest beneficiary of OPEC, as it has the largest influence on global oil prices through its ability to limit or exceed production quotas set by the organization.
1973 oil crisis
Most early OPEC members were majority-Muslim countries with hostile attitudes towards Israel - the 1973 Arab-Israeli War then led to the Arab OPEC countries placing a six-month oil embargo on Israel's Western allies, causing the price to multiply by four. This price hike brought an end to the post-WWII boom, causing a recession across the OECD and exposing the West's growing dependency on oil imports. To protect its own supply, the United States prohibited almost all crude oil exports after 1975 (this ban stayed in place until 2015). In many European countries, restrictions were put in place to limit oil consumption, such as lower speed limits and bans on Sunday driving.For the West, the recession mostly ended by 1975, but economic growth did not return to the highs experienced in previous decades. In the communist sphere, however, the oil shocks of the 1970s had almost no direct impact. At this time, the Soviet Union produced enough oil to meet its domestic demand, as well as supply other Eastern Bloc countries, while the separation between Western capitalism and Eastern command economies shielded the communist sphere until the 1980s.
1979-1991: Middle Eastern conflict
Political instability, conflict, and rivalry in the Middle East has been a persistent problem for global oil markets since the 1973 crisis. In 1979, the Iranian Revolution saw the West lose one of its most valuable suppliers, and it set in motion a string of events the region's production fall by over 50 percent by 1983. The revolution was followed by the Iran-Iraq War (1980-1988), which, in-turn, was followed by the Iraqi invasion of Kuwait and the Gulf War (1990-1991). Through these conflicts, Saddam Hussein sought to capitalize on Iran’s turmoil and make Iraq the dominant power in the Persian Gulf. Iraq initially had support from the West, and military operations were largely financed by its oil reserves, although it also accrued significant debts from Kuwait as oil production was disrupted. This debt was a driving factor behind the Iraqi invasion of Kuwait, which caused yet another (albeit smaller) oil shock in the West, contributing to the recession of the 1990s, and leading to direct military intervention from the U.S. and its allies.A large part of both conflicts was the targeting of production facilities in Iran and Kuwait respectively, with the Iraqi military famously setting fire to hundreds of Kuwaiti oil wells as they were pushed back by a U.S. forces. Ultimately, the economic impact of these wars highlighted the West's continued vulnerability to Middle Eastern instability - ties with the Arab Gulf states grew stronger, while heavy sanctions were imposed on Iran and Iraq. The sanctions crippled Iraq’s economy and resulted in a humanitarian crisis; in 1995, the UN introduced its Oil-for-Food Programme, which aimed to exchange Iraqi oil for humanitarian aid that would not benefit its military, but to mixed results.
1991-2000s: Soviet decline and emerging opportunities
As the Eastern Bloc economies stagnated and declined in the 1980s, and low oil demands both within the Bloc and globally meant the USSR could not use its natural resources to protect its own economy. This was compounded by mismanagement and lack of investment or innovation in the Soviet oil industry, and, although many other factors contributed to the Soviet Union’s dissolution, some historians cite the failure of the oil industry as the tipping point from which it could not recover. Russia then inherited the largest share of the USSR’s natural resources, and emerged on the global market as one of the largest producers.Yet, production slumped during the economic turmoil of the 1990s, and much of Russia’s resources were then auctioned off to wealthy individuals at a fraction of their value, contributing to the emergence of the oligarch class. Many of these individuals then rose to prominent positions in Russian politics and the media, although some fell out of favor with the Putin administration that came to power in 1999, which also sought to retake control of its energy sector. Notably, this included Mikhail Khodorkovsky, Russia’s wealthiest man and the owner of Yukon, Russia’s largest oil company. Khodorkovsky tried to use his influence to improve human rights and democracy in Russia, but was arrested in 2003 under charges of fraud and embezzlement, and Yukon was broken up and mostly bought by the state-owned oil company, Rosneft, in 2006. Today, Rosneft is Russia’s largest oil producer by a considerable margin, and Russia was the largest energy supplier of the EU before its war with Ukraine, and remains the second largest oil supplier to China.
2003-present: Conflict in the Middle East
After relative stability in oil prices in the 1980s and 1990s, prices quadrupled from 2003 and 2010, due to a variety of factors. The largest of these was another U.S.-led invasion of Iraq in 2003, which overthrew Saddam Hussein's government. The invasion was carried out under a false pretense of Iraq having nuclear weapons and supporting Al-Qaeda, but many critics accused the West of using the invasion to secure more access to Iraqi oil. While the government was overthrown in a matter of months, it was followed by a string of insurgencies that have caused persistent instability in Iraq, although it remains among the top three or four oil exporters in the world today.The insurgencies in Iraq are considered part of the wider Iran-Saudi Arabia Proxy Conflict, where both countries support various militant groups across the Middle East in an attempt to become the leading Muslim and Middle Eastern power. Both countries have the largest conventional oil reserves in the world, but Iran’s production is is significantly lower than Saudi Arabia’s - it is believed that Saudi Arabia wants stricter control over oil prices to boost its influence, while Iran wants higher prices to boost its economy. Historically, Saudi Arabia has been more aligned with the West, who supply weapons in exchange for oil, while Iran had closer ties to Russia and China. In recent years, however, many of the sanctions imposed on Iran were lifted following the Iran nuclear deal in 2015, granting it access to some of the larger Western markets (although the U.S. withdrew in 2018), while Saudi Arabia established stronger trade relations with Russia, particularly through the formation and joint leadership of the wider OPEC+ bloc. There has also been movement towards reconciliation between Iran and Saudi Arabia, as the OPEC Bloc must respond to changes in consumption habits across the globe, but these have not yet proven fruitful.
1998-present: Developments in the West
At the end of the 20th century, in response to growing international competition, as well as opportunities in Asian markets, many of the largest oil companies in Europe and the U.S. took unprecedented action. Between 1998 and 2002, 12 of the West’s largest private oil companies were involved in mergers and acquisitions that have further established today’s market leaders, such as the merger of Exxon and Mobil or BP’s acquisition of Amoco. While some of these deals rank among the largest M&As of all time, the West’s so-called “Supermajors” (sometimes referred to as “Big Oil”) only control around five percent of global oil reserves today, while OPEC controls over 80 percent.Following the Iraq War, global oil prices rose throughout the early 2000s (apart from a sharp dip during the Great Recession), before peaking in 2012. An oil glut then took place from 2014 to 2016, as new technologies, such as hydraulic fracking, horizontal drilling, or shale refinement, transformed the U.S. oil industry and saw the world’s largest importer of oil move on track to become a net exporter in 2023. While conventional crude oil (i.e. drilled vertically from a well) remains the most common form used, unconventional oil has lowered the U.S.’ dependency on foreign imports; though it still receives the majority of Canada's exports, which is also among the top producers. These changes have also come at a time of expansion in green transport and renewable energy, with governments across the world implementing ambitious policies that aim to curb fossil fuel usage, which is beginning to erode the influence of oil prices on Western markets – nonetheless, the energy crisis of the 2020s shows that oil still plays a vital role in Western economies today.
2000s-present: Developments elsewhere
Venezuela: another major side effect of the 2010s oil glut was its effect on Venezuela. The already-struggling economy had been propped up by its oil industry for decades, but the drop in oil demand saw its government struggle to combat food shortages, causing widespread starvation, a refugee crisis, and the collapse of its economy. The Venezuelan government’s failure to acknowledge the crisis, and its violent repression of its citizens saw a wave of international sanctions, exacerbating its humanitarian crisis and causing hyperinflation. As of 2023, upwards of seven million people had left the country and the majority of those remaining live in poverty – this is despite the fact that Venezuela is estimated to have the world’s largest proven oil reserves.China: The emergence of China as an economic superpower saw its oil consumption skyrocket following the rapid growth of its manufacturing and export sectors in the 2000s (although this had a larger influence on global coal consumption), which then led to a boom in vehicle ownership as its citizens benefited from higher incomes and increased living standards. China itself is one of the world's largest oil producers, and home to some of today's most-profitable oil companies, although the majority of its oil is used domestically. China’s oil consumption then slowed in the mid-2010s, contributing to the global oil glut, but it still remains the largest single importer of oil in the world, with Saudi Arabia and Russia as its largest suppliers. Similar developments are also taking place across South and Southeast Asia due to both manufacturing growth and demographic development.
Less-populous states: natural resources’ potential for boosting economic growth is perhaps most evident in smaller countries. Despite their small populations, countries such as Kuwait, Qatar, and the United Arab Emirates all have GDPs per capita exceeding the EU average due to the strength of their energy sectors. Yet, such developments are not limited to the Middle East; historic examples include Brunei and Norway, while Equatorial Guinea, Gabon, and Trinidad and Tobago have developed in recent decades. The profits from oil production in these countries has allowed them to achieve significant economic growth, however, this wealth has not been evenly distributed in all societies. For example, the influx of migrant workers to both Qatar and the UAE's energy industries have seen the share of the native population shrink to almost 10 percent of the total, while around 50 percent is from South Asia - generally speaking, these South Asian communities live in much greater levels of poverty than native or Western migrant populations, with this wealth gap rising. Similarly, Equatorial Guinea now boasts one of the highest GDPs per capita in Africa, but it is also estimated to have the lowest Gini index score (measurement of income inequality) in the world.
