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PRI's Environmental News Magazine

Oil’s Origins

Air Date: Week of March 28, 2003

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Author Daniel Yergin narrated the oil century in his book “The Prize: the Epic Quest for Oil, Money & Power,” which won a Pulitzer prize. This week he helps us take a look back at the history of Iraqi oil following that first gusher in Kirkuk.

Transcript

CURWOOD: To trace the history of Iraqi oil since that first gusher in Kirkuk 75 years ago, we turn to Daniel Yergin. Mr. Yergin is author of “The Prize: the Epic Quest for Oil, Money and Power,” and chairman of the Cambridge Energy Research Associates, an international energy consulting firm. Hello, Daniel.

YERGIN: Hello.

CURWOOD: We just heard about that first Iraq oil well, the first confirmation that there are incredibly rich oil fields beneath the Kurdish lands there. Now, back then in the 1920s, Iraq was only recently a state. It had been patched together from three provinces in the Turkish empire. Dan Yergin, was it pretty much a foreigner's game back then? Who first explored and exploited Iraqi oil?

YERGIN: It was definitely foreigners who did it. Some of the major oil companies of the day, Anglo-Persian, which became BP, Royal Dutch Shell, such American companies as Standard Oil of New Jersey and Standard Oil of New York. That team went to Iraq, arrived in 1925, and two years later, in October of 1927, they struck oil, really opening up the Arab world to commercial oil development.

CURWOOD: How important was Iraqi oil at that point?

YERGIN: Prior to World War II it was more promise than anything else. Iraq was not a major source of oil before World War II. And, of course, it was not until almost the eve of World War II that oil was discovered in Kuwait and Saudi Arabia.

CURWOOD: And what, you move forward to the '40s and World War II, the demand for petroleum skyrockets. Suddenly, we need it for everything: cars, fertilizer, plastic. Now, what happens when Iraq and other nations that do have oil realize how crucial a commodity it is?

YERGIN: Then we, as you say, get into the post-war period, where oil demand just grows so quickly because of economic growth, because of higher standards of living. And gaining control over the oil resources becomes front and center in the nationalist ideology. It's part of the great sort of post-war movement of de-colonization, the emergence of all these independent nations.

CURWOOD: And then, by the '70s we see the creation of OPEC--

YERGIN: No, no, OPEC started earlier. OPEC actually started in 1960 in response to a price cut, because cheaper Russian oil was starting to flood into the market, because the Soviets saw this as a way to earn hard currency. So they were making their deals, and that's why a few nations got together in, of all places, Baghdad, in 1960, and formed this organization called OPEC, which almost no one ever heard of until 1973.

CURWOOD: And by the end of the Iran-Iraq war in 1988, Dan Yergin, you write the great contentious issue of sovereignty has ended and it was clear the exporters owned the oil. And oil countries started competing more for customers, promising each to be the most reliable source of oil for the countries of the north. But you write Iraq is an exception. It doesn't kowtow, it doesn't promise to be the best supplier. Why is that?

YERGIN: Iraq was extremely nationalistic and also a very tightly-controlled--I think you’d probably use the term “totalitarian state”--and wasn't interested in the same degree as opening up and interacting with the rest of the world because it would have undermined, it could have undermined the political control that Saddam Hussein exerted over his country where he had about free hand to do just about anything he wanted.

CURWOOD: Iraq has a lot of oil. They have some of the largest proven reserves in the world and yet they export relatively little of it. I think, before the hostilities began, perhaps it was 2 million barrels a day. I know sanctions are involved with that. But why has Iraq's oil output been relatively low given the size of their reserves?

YERGIN: Iraq is a sort of upper-medium tier oil exporter, less than the North Sea, about the same level as Nigeria. But the reason it doesn't have larger is because Iraq has kind of shut itself off from the world, because it has the UN sanctions have been in place, because Iraq has not been cooperating with UN resolutions. And it has sought to bring in foreign investment, particularly starting in the late 1990s, but while deals have been made, no investment has gone in because of the UN sanctions.

CURWOOD: Some people are saying that after this current war in Iraq is over it will be the people of Iraq who will benefit more than they have in the past from the nation's oil wealth. That's a noble image, but how likely is it?

YERGIN: You have to keep in mind that today, unlike the 1950s, that most of the revenues from oil don't go to the companies, they go to the nation state. Maybe 80-90 cents of every dollar of the oil price goes to the country. And so, the Iraqi people would benefit in two ways. One, money would not be siphoned off into this very expensive weapons program. Secondly, that if Iraq does rehabilitate its industry and bring in foreign investment, that would be--the country would end up earning a lot more money that it doesn't really have because it's been in this kind of very constrained situation.

CURWOOD: Daniel Yergin is author of “Commanding Heights: the Battle for the World Economy.” A PBS series inspired by his book will air on stations across the country in May. Thanks for taking this time with us today.

YERGIN: Thank you.

 

 

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