What's it Oil About?

Oil isn’t sexy, but it shapes the fates of nations.


Originally published in PAN Magazine, Feb 25, 2016.

On a strategic and invisible battlefield, a war is being waged that will determine the fates of nations. Planted in Cold War soil, the seeds of this conflict have grown and evolved as the world has changed. Today, the United States are weathering a years-long barrage, perpetrated by a trans-continental, intergovernmental coalition; at its head, American ally, Saudi Arabia.

The group is OPEC (Organisation of the Petroleum Exporting Countries), the weapon is oil, the attack is economic, and while the battlefield isn’t physical, the stakes are real.

October 1973. Arab nations attack Israel. Selecting the holiest day in Judaism, the triggered events become known as the Yom Kippur War. Anticipating American support for Israel, the Arab belligerents prepare to deploy an audacious weapon—the oil weapon—one of economic rather than military design. The Arab states, through OPEC, intend to leverage their domination of energy to affect US foreign policy.

OPEC, an intergovernmental organisation, was founded in 1960 to help “co-ordinate and unify the petroleum policies” of oil rich, predominantly Middle Eastern nations. Prior to its forming, individual nations exercised little control over their oil reserves; the status quo had been the subjugation of the world’s oil by a cartel of Western companies known as The Seven Sisters. OPEC was envisioned as the “cartel to confront the cartel”, and by 1973 the balance had shifted. During the Yom Kippur War, the unified voice of OPEC spoke for over 70 per cent of the world’s oil reserves.

It takes less than a week for the war to transform into a superpower proxy battle. With the Soviet Union resupplying the Arab armies, and Israel on the ropes, US President Nixon gives instructions for the Pentagon to “send everything that can fly” in an effort to aid and resupply Israel.

OPEC responds in earnest, swinging a one-two punch; cutting global oil production by 25 per cent, and embargoing the supply of oil to the US and allies.

The gambit pays off, and with the reduction in the absolute supply of oil, the price of oil quadruples. The United States now suffer from an acute oil shortage, and an increase in their fuel bill. The Federal and State governments introduce measures to reduce domestic power consumption, from limiting highway speeds, to (what could be considered an actual “war on Christmas”) banning the use of Christmas lights. A small war on the other side of the world is now directly affecting the American citizenry.



The Yom Kippur War ends with Arab defeat, but the US oil embargo remains—for six months—until the Israelis are pressured to retreat from captured Egyptian land.

The events teach the world a visceral lesson in “supply and demand”, as OPEC member states begin to benefit from record income, and the United States embarks on a journey of energy independence.

2014; forty years later and the world is a different place. OPEC’s hold over world energy has been eroded by an especially apathetic force—technology—in two ways. The development of viable alternatives to oil (nuclear, biofuels, natural gas) has reduced oil’s monopoly over energy, and the unearthing of new ways to extract oil has reduced OPEC’s monopoly over oil. Hydraulic fracturing (or “fracking”) is one such technology, that has propelled the United States to become the world’s largest oil producer.

This increase in oil production adds to the world’s supply, reducing the price of oil, and reducing OPEC’s market share, or the percentage of the world’s oil it is producing.

While the process is a testament the American mastery of technology, fracking and its related technologies are dangerous and costly, to the environment , to workers, to local communities, and to the hip pocket. In a world where the environmental and human cost are treated as trivial, the economic expense, in contrast, is seen as an exploitable weakness. OPEC have picked their moment and have re-deployed their oil weapon, targeting this weakness in US fracking.

Today, oil is at its lowest price in a decade. An inversion of 1973’s lesson, an increase in the supply of oil has resulted in plummeting prices. OPEC, rather than reduce production to stabilise the price—and increase their profits—are continuing to produce near their maximum capacity, over-supplying the market, forcing prices even lower. The behaviour appears perplexing, but has a strategic edge; OPEC is working to maintain low prices in an effort to bankrupt or disincentivise North American fracking.

Fracking and other technology intensive methods are expensive, with an estimated cost of around $70 to produce a barrel of oil. This is in contrast to an estimated $10 per barrel in Saudi Arabia. Obviously the cost to pull oil out of the ground affects profit, but this discrepancy can also be exploited; there is a range ($10–$70) for the price of oil where one party remains profitable, whereas the other does not. For over a year, that price of oil has been within that range.

There are signs the measures are taking grip, with Western oil giants cutting jobs and reporting dramatic drops in revenue, and American oil production in decline after a decade of explosive growth. But the West are not the only ones in pain.

Oil revenue has become integral to OPEC members’ national income, and lower prices for oil means less money to maintain their often precariously built states. Saudi Arabia—the largest OPEC producer and the group’s de facto leader—are sheltered, having squirrelled away healthy cash reserves, but other OPEC members are far more exposed; chief among them Venezuela, on the brink of economic and political collapse.

Prices are in freefall, fracking is no longer profitable, and as the pain increases disproportionately on OPEC members, the voice of the group becomes less and less unified. The war has become one of attrition; all that’s left is to see who has the deepest pockets, and who blinks first.