Challenging Times - The Renaissance of Renewable Energy - page 171

5 Challenging Times
The Politics and Economics of Energy
5.1 The World Markets in Oil, Gas and Coal
At the end of World War II, seven Western oil companies controlled most of the world's
oil production, 1 and only the national oil companies of the USSR and Mexico could rival
them in terms of production. These so-called 'majors' worked the bountiful oil fields
that straddled the Persian Gulf, and their dominance helped to fuel America's economic
expansion and Europe's recovery after the war.
The first challenge to this dominance came in 1950 when the king of Saudi Arabia
negotiated an increased share in oil revenues with the U.S. majors. The following year, the
new Iranian prime minister, Mohammad Mossadegh, attempted to nationalize his country's
oil. Before Mossadegh could do so, the British and American secret services engineered his
overthrow in a coup d'état (Fisk 2006 ) . In 1956, Britain again intervened to safeguard oil
supply, this time joined by France and Israel, following Egypt's nationalization of the Suez
Canal, the main route for tankers sailing from the Persian Gulf to Europe. In the end, the
Suez Crisis weakened Europe's influence in the Middle East and hardened the resolve of
petroleum-producing states to control their own resources. Gradually, over the next twenty
years, they did so, most significantly through the establishment in 1960 of the Organization
of Petroleum Exporting Countries (OPEC). 2 By 1970, with oil production nationalized in
most member countries, OPEC was in a position to control the global price of oil.
In 1973 OPEC became a household term in the industrialized world. The Arab members
of the cartel imposed an embargo on oil sales to protest against American support for Israel
in the Yom Kippur War. The effect was a quadrupling of the price of oil, which sent a shock
wave through the Western economies. One of the responses of the West was to establish the
International Energy Agency (IEA), an organization representing the major oil consumers,
which, it was hoped, could counteract OPEC. Members are required to maintain stocks of
oil equivalent to ninety days of the previous year's consumption. In the event of cut-offs or
restrictions to the flow of oil, IEA members can release oil from their stocks, thus stabilizing
themarket. 3 Thiswouldobviouslyhelptomitigate anemergencysituationbutdoesnotoffer