A while back I posted this article as a backgrounder on the history of oil:
http://mygeologypage.ucdavis.edu/cowen/~gel115/115ch13oil.htmlThe whole thing deserves a read. I wish I could quote more from the lecture than four paragraphs, but here’s an excerpt from the secton on Libya:
Libya and The Rise of OPEC: 1955 to 1970:
The Libyan government of King Idris granted oil concessions in 1955. The Libyans were well aware of the way the petroleum industry worked, and were anxious to keep the country's oil out the hands of the majors. Most concessions were granted to independent operators. As a result, when large fields of high-quality oil were discovered, they were developed quickly, instead of being held to slow rates as in Iraq and Kuwait. Occidental Oil in particular, under the dynamic and eccentric Armand Hammer, began to produce large quantities of Libyan oil.
In 1960, Libyan production was still small, but its influence was enough to generate price cutting in the global oil market. Although open figures are not revealed, it's clear that real oil prices fell steadily during the 1960s, as more new oil came on to the market. The majors held back production in their existing Middle Eastern fields, so that the global increase in sales grew at the same steady pace. But their share of the production, and their profit margins, were suffering. Prices paid for Middle Eastern oil fell from close to $2 a barrel to more like $1.20 a barrel.
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The resulting dénouement is interesting. The Qaddafi government demanded an increase in royalties to 40¢ a barrel, targeting Occidental in particular as the largest independent company, totally dependent on its Libyan fields. Occidental, and then all the others, had to pay the increased royalty. Qaddafi had now accomplished more for Libya than OPEC had managed to do for its members since its founding in 1960. Stung or stimulated by the Libyan success, OPEC met in Venezuela in December 1970 and demanded similar increases. The majors met and agreed that they would support one another against any OPEC nation (for example, they would supply crude oil from other sources to any company whose production were cut back by an OPEC government), and they asked the US Government to turn a blind eye to the breaches of the anti-trust laws that this agreement had made. (The Justice Department agreed to do so.) The American Under Secretary of State even went to the Gulf, apparently on behalf of the majors, to talk separately to OPEC governments and to try to dissuade them from joint action. This was a clumsy diplomatic blunder, and the US Government's pressure was shrugged off: the Shah of Iran angrily stated that the majors' agreement to collaborate against OPEC was a "dirty trick."
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The Qaddafi government now rapidly began to nationalize the oil companies in Libya, taking some over outright, and forcing the others to yield 51% to the government. But in expelling the Western oil men, Qaddafi severely cut down Libyan production, and crippled the independent refiners and marketers abroad who had been taking market share away from the majors. The Libyans were able to maintain their revenues by charging higher prices for the reduced oil flow, but the majors were delighted by the outcome. They regained their market share of global output, and were able to exploit the sudden weakness of the new independents. More important, the Libyans themselves had removed the threat of Libyan production increase that had been hanging over the majors for ten years. The majors were now back in charge of most of the world's production, refining, marketing, and sales, in a global situation where the threat of overproduction had been removed.
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If you read the whole lecture, you’ll see that over the years, the majors targeted a few oil rich countries for lower production (notably Iraq and Kuwait), a few countries suppressed their own, and that this practice allowed the majors to control oil prices and geopolitical hegemony.
But, as we move to the exhaustion of reserves in favored nations (such as Saudi Arabia) and as the world’s appetite for oil increases with the economic explosion of China and India, the remaining reserves will be found in exactly those nations where oil production has been suppressed. And, while an eccentric Qaddafi may have been OK while he suppressed oil production in his country, I don’t think Western powers are comfortable with the mischief Qaddafi could wreck with the oil revenues he’s accumulating now that he’s invited Western oil companies back into his country, to say nothing of his habit of nationalizing oil production.