The Petrol Past! Remember, it's estimated that the world consumes about 90 million barrels of petroleum every day. Now one barrel equals 42 US gallons, 159 liters for the rest of the peoples of the world. So you do the math there and that's about 3.8 billion gallons of petroleum a day, this human race now uses. And you know a little bit now about where it's at, where it has to get to, and of course that radically affects who's making the money on this stuff, who's heavily reliant on this stuff, who needs to import this stuff, who they may have a very keen interest in keeping this stuff flowing which, perhaps is why many world powers have such a vested interest in what's going on in the Middle East all of the time in those pipeline politics, but all of this insanely huge reliance on this single commodity called crude is actually a fairly recent phenomena. I love that word, phenomena. Wait a minute, you mean the whole world wasn't heavily reliant on this black bubbling brew as the lifeblood of the world economy a thousand years ago? No, not really at all. To understand the huge role that petroleum plays in the present Middle East and the present world, we perhaps should elaborate a bit more on petrol of times past. Now, I'll keep this brief. Petroleum has been known since ancient times, it wasn't just recently discovered or anything. It naturally occurs, it bubbles to the surface and pits and places around planet Earth and people knew about it, and they knew it as basically a flammable substance. Yes, you could probably try to put it into a lamp, although it's chunky and crude and doesn't work that well. Torches though, oh, yeah, you dip your torch in it while you're chasing mummies around the pyramids of Egypt, or you use it for warfare. Yeah, you catch your bows and arrows on fire and shoot them at your enemies and catch their houses on fire, or you fill your moat with this bubbling brew and catch it on fire so that people can't invade your castle, or you pour boiling oil from the ramparts of your castle. Yeah, whoa, human history, good times, good times. But, that's really all it was used for, sporadically. It wasn't a real vested part of any economic thing. It's only about the 1840s and 1850s, hold the phone right there, that's only about 150 years ago, 1840s and 1850s is when people really start experimenting a lot more with this stuff mostly in Europe and actually America and they were experimenting with it as a cheaper replacement for whale oil. Whale oil? What? Yes, whale oil was the primary thing you used for lighting oil to have light after dark. Remember, I know this is hard for us to fathom in the modern world of today, but back in the good old days before electricity and stuff, when the Sun went down it was dark and the only way that you would do anything or see anything after the Sun went down was candles and whale oil. So, it was an important commodity for light after dark, but it was messy, it wasn't that terribly efficient, and these folks that started dabbling with petroleum in 1840s and 1850s distilled out kerosene. They were messing with it and they were like oh we can do this and this and this and basically distill it out like you make liquor and it produces this thing called kerosene which is awesome because kerosene burns way brighter and way cleaner than whale oil and it's way cheaper cause this stuff's all over the place on the land. You know where whales are? Out in the water, you gotta go find them. finding whale blubber is not necessarily an easy nor cheap affair so when people started to figure out you can use this stuff called petroleum to light way cheaper easier better than whale oil Whale oil is out the window and this kind of a revolution kind of starts. Hey, let's find this stuff and produce this stuff because we can make a lot of selling kerosene and of course you could use it for a heating oil as well, but mostly for lighting and this really kind of sets off a second Industrial Revolution. I know you know your history from the European Industrial Revolution from a few hundred years back, but this is like a second round of the Industrial Revolution that occurs in Europe and actually mostly in America that people are using more stuff and experimenting and building machines and doing things and by the 1860s and 1870s kerosene and petroleum drilling and petroleum extraction is big production, it starts to be big money and commercial wells were cranking out black gold mostly in United Kingdom, Eastern Europe, and Russia. Yeah, so the Europeans are places, except for Russia, places you don't necessarily consider as being big in oil like I don't know Poland and Bulgaria. These are places that were on the top of the game of petroleum extraction and refinement back in the day and believe it or not, there was a huge old boom in the United States in the early 20th century. You ever seen that movie There Will be Blood? Yeah, heard of a wildcatters, Texas wildcatters or Rockefeller? Ever heard of that guy? These are all part of a American boom in petroleum exploration and refinement and sales that made a few people billions of dollars and change the whole landscape of America, creating more petroleum for way cheaper and changing the way that the economy run ran to be reliant on petroleum. Dig this, for the first half of the 20th century the United States was the world's top producer of petroleum. Again, in today's world, this is shocking to Americans. The United States still produces a whole lot of oil but we use so much because we were the early adopter, early adapter, and early adopter for petroleum and perhaps that makes sense given what comes next in America, hundred years ago, which was the mass production of the internal combustible engine which then folks started putting in these cool things that we call cars. Now cars weren't invented in America. The automobile I should say, was not invented in America, but as part of the Second Industrial Revolution I'm referring to. it really takes off in America. The first modern automobiles were already created in I think the 1880s in Germany yeah, yeah, Germany. I think by this guy named Karl Benz produced the first one in 1886. Not factoids you necessarily need to remember. I'm just setting the stage here, and there were actually auto races and stuff. Anybody seen the movie Chitty Chitty Bang Bang? I love the beginning of Chitty Chitty Bang Bang because it's showing auto racing, LeMans type stuff, you know 110 years ago before everybody drove cars, they were a novel cool thing. The point is cars were invented in Europe in the 1880s, but it wasn't until efficient production methods were figured out that they became affordable for the middle and eventually the lower classes in America and worldwide, that's what caused the car explosion, ah, and that's where we bring it back to America where that guy what's his name Henry Ford did the first moving assembly line in 1913. And oil is apart of all of this story because as every section of the story that I'm unfolding happens, you need more oil for that. You need for this, you need it for lighting, you need it for this. So there's a huge rise in the importance of oil due to the development and widespread adoption of the internal combustible engine, the subsequent rise in auto production, thanks to the assembly line, the rise in commercial aviation. And you talk about the Wright brothers and stuff that was all happening at the same time too. People started doing airplanes and they take tons of fuel. So, rising commercial aviation and then the importance of petroleum to the industrial organic chemistry industry, which happens from the 20s and the 30s all the way up to the 1950s, particularly for the synthesis of plastics, fertilizers, solvents, adhesives, pesticides, things which you are now taken for granted everywhere in modern life, they were being invented and figured out and mass-produced during that first half of the 20th century. All of these things grew exponentially from the early 1900s to the 1950s, 1960s. I mean prior to 1900, it was lamp oil. Petroleum was primarily used for lamp oil. And don't get me wrong, the people that were extracting this stuff were making tons of money off of it because people like lights. And there's this dude like Rockefeller who made billions off of the stuff, but all the lighting stuff was soon to be displaced by the electric light bulb. In 1900, oil was not an integral central component of the industrial system, but times sure did change in the intervening hundred years, have they not? The growth and then adoption of the engine for industrial and personal use, meant the growth in oil demand, maybe this is obvious so I won't have to point this out, but gasoline is made from oil and you also need oil the lubricate the machines and lubricate your engine, so it's needed for every aspect for vehicles. So, the growth of all that stuff meant the growth in oil demand, which meant the growth in oil exploration and production, and where did that mostly happen? Hmm. What entities have I named so far? Where did all of this happen? In what we now term the rich developed Western world, led by the United States of America, but whole bunch of European countries and Russia, etc., etc., etc., and Eastern Europe. That's where the demand was, that's where the Second Industrial Revolution was occurring, that's where this commercial rise of personal auto use, personal machine use, industrial machine use, industrial oil use, industrial aviation oil use, all of this stuff is happening in the rich Western world. Believe it or not, even though we now think of oil as coming primarily from the Middle East, they have only come to dominate the oil industry in the last 40 or 50 years. So call it 50 or 60 if you want, but let's just say 50 years. The Middle East was not a player in any of this five or six decades ago. Okay, wait a minute, I thought that's what this lecture was about. If the Middle East was only a minor player or no player at all in oil business a mere century ago, what changed? Ha, I'm glad you asked because now it starts to get really interesting. In a nutshell as more and more and more oil was needed to fuel the rich Western countries economies, the rich Western countries companies went out looking for this stuff in the rest of the world. So even though the United States was the biggest producer of oil in 1920, 1930, 1940, everybody knew, we need more and so Western companies, the United States companies went out looking for more oil in the rest of the world and they found a whole bunch of it, namely in the Middle East. Now, we're getting back to the region in question. So, I will spare you all the details of the fascinating forays of foreign companies into the Middle East and their discovery of oil and it is a fascinating story by the way, go look it up, it's intriguing. Uh, but dig this, literally dig this, or drill this. Geologic expeditions for oil started in the 1920s in the Middle East. Remember the Middle Eastern countries that we recognize today is the UAE, Qatar, Bahrain. These are all British protectorates back in the day. Almost everywhere besides Saudi Arabia, which was independent, was a protectorate of an European country and so European companies were dabbling around, they were cutting deals and looking for oil, and the Americans which had the biggest demand for it, American companies they were quick on the scene as well saying hey, what's going on here? So, people started looking in the 1920s and started extracting things and this kind of crescendos in the late 1930s and a mad scramble across all of the countries that touch the Persian Gulf, as people started finding more and more oil in different places, and cutting contracts, and deals, and claiming territories, and it wasn't even until the 1940s in fact, I'm gonna have you know this date, 1948 that the Ghawar oilfield was found in Saudi Arabia. What? Ghawar oilfield? What? I've never heard of the Ghawar oilfield. Of course you haven't heard of the Ghawar oilfield, but you should have, and now you have have. It is the single biggest production field of petroleum on planet earth ever and it still is. It's the biggest single like hundred seventy mile long well. Nothing, but grade-A oil underneath of it, found in eastern Saudi Arabia. That one oil well tapped in 1948 is what put Saudi Arabia on the map for oil production and becoming an oil giant and the intervening decades since 1948, the Saudis have made trillions and trillions and trillions of dollar bills off the trillions and trillions and trillions of barrels of oil from Ghawar oilfield. Are you starting to see the significance of this entity now? And here's why I want you know the date. 1948 ain't that long ago. I know it's long before you were born and maybe even your parents, but it's not that long ago that the Saudi Arabian giant that we recognize today, even started in this oil game, about five or six decades. So, if that's a recent phenomena for the Middle Eastern countries to be having all this oil and producing tons, and tons what else kind of changed that I really, really, really want you to understand? Just this, this whole story I've told you thus far, who was exploring in these Middle Eastern countries? Who was extracting the oil from the Middle Eastern countries? Who was refining oil in the Middle Eastern countries? Who was transporting oil out of the Middle East countries? Who was selling the oil from the Middle Eastern countries? Western companies were, of course. Western companies, not local Middle Eastern companies. In fact, there was seven specific companies that became known as the Seven Sisters, Seven Sisters, which was a phrase coined back in the 1950s to describe seven specific oil companies which absolutely dominated the global petroleum industry from 1930s 1940s right on up to the 1970s. I mean, you could logically say they dominated it from 1900 all the way up to the 1970s, but this is when these companies started going out globally and taking over and making tons of money off oil. Now this group is comprised of seven different oil companies, some of which don't even exist anymore. So, I'm gonna go through this list because I find this history fascinating and it will help you understand the modern world when you go to the pump as well. I won't necessarily test you on knowing the original Seven Sisters, but dig this, I just want you to be smart. The original Seven Sisters group was comprised of the Anglo-Persian Oil Company, Anglo-Persian I'll come back to this the Anglo-Persian Oil Company, Gulf Oil, Standard Oil of California or SoCal, Texaco, Royal Dutch Shell aka SHELL, Standard Oil of New Jersey aka EXXON, Standard Oil Company of New York aka Socony. I think it's Socony or Socony, which changed its name to MOBIL. Okay, well let's back that up, and that's the 7 and maybe some of those names you recognize and maybe some you didn't. Let me catch you up. This is this big 7 back in the day and I'll cut to the chase. They controlled 85 percent of the world's oil production and reserves and everything, 85 percent, seven, seven companies all Western, okay? But let me catch up to history because maybe you don't recognize all those names and I bet you'll recognize these, okay? The Anglo-Persian Oil Company, the first one I named, that's called BP in today's world. What's BP stand for? British Petroleum and not Middle Eastern petroleum, British Petroleum. So BP, Gulf Oil, maybe you've never heard of Gulf Oil, yeah, that's right you haven't, because Gulf Oil corporation ceased to exist as an independent company in 1985 when it merged with Standard Oil of California, SoCal. So, Gulf merged with SoCal, but wait a minute cause you've never heard of either one of those. That's right, because when they merged they renamed their company Chevron. Ah, got it now? So, we got BP, we got Chevron. Texaco, maybe some of you remember that term, but they don't exist anymore either. Texaco also merged with Chevron back in 2001. The companies are are disappearing as they unify into bigger and bigger entities. So now we've got BP, from four, now we have two, BP and Chevron. Royal Dutch Shell, aka SHELL, they're still around, they perhaps still the biggest on planet earth, Dutch, another European company. Standard Oil of New Jersey s, Esso, maybe you've never heard of Esso, but maybe you remember their name because they change it to EXXON. Yeah EXXON, you know, and the last one was a Standard Oil Company of New York, they changed their name to MOBIL. Hmm EXXON MOBIL, EXXON MOBIL. Yeah, maybe you don't recognize them as independent entities because in 1999 those two companies unified to become ExxonMobil, a single company. So, from the original seven, there's actually four: BP, Chevron, SHELL, ExxonMobil. And dig this, just reading recent news here in 2015, there is talk of ExxonMobil absorbing BP, so the four could turn into three soon. I mean, it could happen at any time or depending on when you're watching this, maybe it's already happened, but back to this story. These seven companies in essence formed a global cartel which ended up controlling the entire Middle East oil production after World War II and because of market dominance were able to exert considerable power over all of the country that they were dabbling around in. Back in the day we would have said, third-world countries were controlled by these Western entities. Let's call them the developing countries where a lot of this all was, particularly the Middle East, were outright dominated by the Seven Sisters and the Seven Sisters work together to eliminate competition and control world production of oil and therefore control world price of oil, and they made trillions and trillions and trillions of dollars in the process and prior to the oil crises, multiples their, crises of the 1970s the members of the Seven Sisters, as I already pointed out to you, controlled around 85% of the world's petroleum reserves. 85% was controlled by seven companies that were all of Western origin, and that included all of the oil being pumped out of the Middle East which had, by the 1970s, became the primary region of export. And I keep saying the 1970s, put that down in your brain, because a whole lot about petroleum started to change in that crucial decade of the 1970s. I've already referred to there were a couple different oil crises I'll talk about that in the next video, but every decade since the 1970s the dominance of the Seven Sisters and their successor companies has actually gotten smaller and lesser and smaller and lesser and smaller and lesser. It's been diminished in today's world significantly by several trends, and I'll point them out to you right now because that's what I do. Why have the the big seven lost so much power? One, a declining share of world oil and gas reserves that were held by the rich countries themselves. Remember all these companies I've listed were Western companies. They started in their perspective home countries doing oil exploration and production and refining and selling and those countries, because we'll just pick on the United States, the United States is a big oil producer and it was the biggest oil producer hundred years ago, but it's also the biggest consumer. So it's been using lots and lots and lots and lots and lots of its oil for a hundred years and it doesn't have as much as it used to and it doesn't have as much Saudi Arabia does now. That makes sense? Same thing with a lot of these other entities in Europe that again you never perhaps thought of that, we're oil producers like Eastern European countries. They had some 100 years ago, and they've largely exploited and it's gone. So, those companies that used to control oil in those richer countries, their market share is simply declined they've used it. So this has happened, so much so, that by this crucial decade of the 1970s, all of these rich countries are dependent on oil imports, even the United States. For the first time ever in the decade of the 1970s, the United States used to make so much oil that they just would consume the oil it they made. By the 1970s, their demand exceeded their production and they had to start importing from other places, namely the Middle East, but not the only place, Venezuela and some others we'll get to later, okay? So, declining share of oil and gas reserves held by those rich countries where these companies are from. Two, rise of super tankers. I love technical innovations which change everything. The rise of super oil tankers? These huge ships, which could hold millions of barrels, lessen the cost of transport from Middle Eastern countries to anywhere on planet Earth to next to nothing, made it super cheap. So, a hundred years ago, maybe oil that people would have found oil in the Middle East, but it's like oh, but now you got to get it to the other side of the planet where the people want it and it's expensive and it cost so much money that Texas oil is still way cheaper than Saudi Arabia and all that changed by the 1970s. Super tankers made it so easy to move so much oil all over the place that local companies, or small companies, or anybody be like oh well if I can get access to a super tanker in sell my oil and other entities started to rise so much cheaper from source to market that distance no longer became an issue. Ah, we're back to geography there, shrank distance and therefore cost of moving all to market. Three, the trend of countries nationalizing, they're oil resources. Oh, I love it when we tie back into we've already learned in this class you remember that term nationalization? When the government of a state or the state itself takes over a private company, private enterprise private industry, and makes it the state industry and nationalization started to kick in about mid-century and basically this means there was an emergence of powerful state-owned oil companies in these emerging markets in the developing world, powerful, state-owned oil companies which looked at these seven sisters and said, oh you can go away now and that ties in to number four, the most significant one. It's related to number three and that is number four most significantly, the formation and increasing influence of an entity that we refer to as OPEC. The OPEC oil cartel officially formed in 1960, has done nothing but grow in power and influence ever since. So, back it up and wrap it up. What I want you to generally understand from all this Petro Past stuff is that the control of this all-important super crucial commodity has been shifting from team West companies that dominate it oil from 1850 to 1950, to other players, namely those in the Middle East and namely one called OPEC. In today's world, as a group, the seven sisters, the super majors of oil that most Americans routinely believe control all of the world's oil and our gouging consumers and Exxon makes billions of dollars, which they do, but people think, oh those American companies still own everything, *murmuring*. Those companies now control around six or seven percent tops of global oil and gas reserves. Six or seven percent! 85 percent, six or seven percent, see how that's changed. Now again, in the intervening five or six decades, oil demand has increased worldwide, so everybody's still making money. I'm not saying ExxonMobil and BP ain't making money but not as much as they used to. They certainly controlled 85%, now they only control six or seven. Conversely, 88% of global oil and gas reserves are controlled by OPEC members and/or state-owned oil companies, i.e. think Russia, but primarily, these are entities located in the Middle East. What a petroleum reversal of fortune. In the last five or six decades, particularly since the 1970s. So, from the 1850s, you can even just say 1900, from 1900 to 1950 I say that worldwide oil is Westernized, or you know what I'll say from 1900 to 1950, Middle Eastern oil is westernized, okay, westernized. From 1960s, 1970s, oil becomes what I call arabised. I just made the term up maybe it's easier for you to understand if I say it becomes localized. The local Middle Eastern countries start to take control of their industry and their oil and that has continued up into the present primarily by the petroleum superpower we call OPEC. On that note, let's catch up to the world of petrol present to understand who is large and in charge of oil nowadays. So, let's get to the all-important current Petro power player, OPEC.