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Oil and International relations*

Published online by Cambridge University Press:  26 October 2009

Edith Penrose
Edith Penrose
Affiliation:
Professor of Economics, School of Oriental and African Studies, London
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Extract

Oil is a highly political commodity and has more than once taken the centre of the stage in international affairs. This is not surprising in view of its importance in industry and transportation as well as for military activities. Mesopotamian oil was a crucial consideration in a number of the political settlements in the Middle East after the First World War, with the French, British and Americans playing the leading roles, just before that war the British navy had converted to oil, and Britain considered the security of her oil supplies to be an important objective of foreign policy. She had no domestic production. In the 1920s the United States began to fear that her oil reserves were becoming dangerously depleted and she also felt that her security as well as her prosperity depended on obtaining control of oil abroad. The United States sought access to oil concessions in the Middle East, and the diplomatic skirmishes were sharp as the British and Dutch tried to keep her out, not merely from the Middle East, but from south-eastern Asia as well, where production was dominated by the Dutch. Thus oil was an important source of controversy in the foreign policy of a number of countries in the inter-war period.

Type
Research Article
Information
Review of International Studies , Volume 2 , Issue 1 , April 1976 , pp. 41 - 50
Copyright
Copyright © British International Studies Association 1976

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References

page 42 note 1 Posted prices were the prices at which oil was valued for tax purposes. They had no relation to market prices.

page 43 note 1 Under the San Remo Agreement of 1918 the Iraqi government had been guaranteed 20 per cent of the equity of the Iraq Petroleum Company, although in negotiations over the oil concession in 1924 she was forced to renounce this right in return for a fixed royalty. The history of oil in the Middle East would have been very different if the Iraqis had been given in fact what they had been promised on paper.

page 43 note 2 An “independent” in this context is a company that did not have oil in any significant quantities elsewhere in the Middle East. Thus, independents in Libya were particularly vulnerable to government pressure.

page 43 note 3 A light crude oil from Arabia (gravity of 34° API) and called the “marker” crude.

page 45 note 1 When the participation agreements were made it was assumed that the governments would have trouble selling the oil to which they were entitled since the markets were largely under the control of the companies. Arrangements were therefore made for the companies to buy much of the oil back from the governments at prices below the tax price but above the expected market prices.