The Battle over the Control of Petroleum Resources

The battle to control petroleum resources of the world

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The battle to control petroleum resources of the world

Abstract

Issues and conflicts over the control of treasured oil resources has been a chronic feature in the current world issues since the start of this millennium and even in years before it (Fursenko & Gregory, 1990). Such conflicts differs in characteristics, which range from territorial conflicts over the ownership of oil-rich places to dynastic or factional battles among the control of oil-rich nations to significant inter-state conflicts over the control of significant oil-laden areas. As the usefulness and scarcity of petroleum increases, the regularity and harshness of such conflicts is likely to increase (Fursenko and Gregory, 1990). This paper is a report on the various contacts that oil producing nations are using to avoid wars that may arise from the conflicts about the control of this valuable resource, with a bias on the use of Production Sharing Agreements (PSAs). The report looks at the countries that use this kind of contract and evaluates its effectiveness in settling disputes in the control of petroleum production

Introduction

Financially speaking, oil is crucial to the international economy because it is the globe's major source of primary energy, with a record of 39 % of the world's power consumption. (Other energy sources used compare as follows: fossil fuel records for 24 % of globe power use, natural gas 23 %, atomic power 7 %, and all other resources 8 %) (Tavern, 2008). Oil is especially important to all forms of transport, providing roughly 95 % of all power used for this use (Tavern, 2008). Moreover, petroleum is the basic element (or "feedstock") for most plastic products, insecticides/pesticides, paints, and very many other important products. With oil performing such a crucial role in creating the globe's economy, any extended scarcity in its accessibility can produce a definite worldwide economic slowdown, as happened in 1974 following the Arabic oil restriction, in 1979 during the Iranian revolution, and 1990 with the Iraqi intrusion of Kuwait.

Oil exports are also incredibly profitable, especially for those nations that depend on its production as a significant resource of foreign income. According to the Enegry Information Administration of the U.S., oil exports are 90-95 % of Saudi Arabia's foreign income, 90-95 % of Nigeria's, and 80 % of Iran's (Tavern, 2008). This explains, for instance, why it is oil investors who offer a very huge portion of the resources available to the U.S.-imposed temporary government in Iraq . It is not any amazing then, that the reigning parties in these nations will readily avoid any developments in governance that might negate the accessibility legendary oil earnings from them.

Cause of conflict

Considering military power, oil is an important aspect in the army supremacy of nations, in that it offers most of the energy used for fighter tanks, aircraft, missiles, ships, armored automobiles, and other equipment of war. Bulk amounts of petroleum are used in contemporary military functions, and so every significant powerful nation pushes to make sure that it is accessible and sufficient for its army. During the 1991 Gulf War, for instance, The U.S.A and allied forces guzzled about19,000 gallons of oil every day – comparative to the total everyday fuel consumption of Argentina! (Fursenko & Gregory, 1990). Given such significance of oil, its ownership has been treated as a matter "national security" by the U. S. and several other nations, terming it as something that may require the use of military power to secure.

Geographically, the distribution of oil in the world is another key factor in the control battles. Natural oil does not happen arbitrarily across the world but is rather highly focused in a few huge rich zones. The biggest of these, accounting for roughly two thirds of the globe's orthodox (liquid) oil is in the Persian Gulf area, covering of Saudi Arabia, Iran, Iraq, Qatar, Kuwait, and the United Arabic Emirates. Large deposits are also present in the USA, Northern America, South America, Colombia, Venezuela, Norway, the United Kingdom, Russian federation, Azerbaijan, Kazakhstan , Algeria, Angola, Libya, Nigeria, China, and Philippines. Collectively, the 22 nations in these zones have more than 90% of the globe's petroleum resources (Fursenko & Gregory, 1990).

Recently, the phrase ‘oil's shifting center of gravity' was coined to refer to the fact that petroleum reservoirs drilled in the year past are nearing exhaustion while new ones are rich in the mineral. The uneven distribution of this precious commodity is further aggravated by the fact that some of these oil mining zones were exploited relatively early in the, and so are now reaching fatigue, while others that were exploited further in the pattern are still bountiful. Some of the earliest exploited zones include the USA, Mexico, parts of Europe, Canada and Russia. The ‘center of gravity' of global oil is progressively shifting towards the third-world nations of the global "South," especially Saudi Arabia, Iran, Iraq, Angola, Nigeria, among others. According to the US Department of Energy, the amount of global oil production from major Northern oil producing nations (excluding Russia) is expected to decrease from 27% in 2001 to 18% in 2025, while that from in African, Latin-American , and the Middle-Eastern producing countries will increase from 50 to 61 %. It should be noted that most of the later nations have strong sentiments against the west Tavern, 2008).

Another issue in the control of oil resources is the fact that it is believed that the world is moving closer and closer to a peak in the amount of oil produced. Although there is a heated debate on how near we are to this crucial time – some professionals say that we are already at optimum manufacturing while others say that this peak is forthcoming in several decades or so later on – there is no arguing about the point that we have already used a significant part of the globe's unique bequest of petroleum and that chronic shortages are likely to be a persistent issue in the coming years. This directly contributes to the financial and ideal value of all present oil sources, and thus aggravates territorial and factional conflicts over its control.

For all the above reasons, the conflicts that arise concerning the control of petroleum resources are most likely to result in armed conflict among the interested nations, probably taking a course like that of the Persian Gulf War in 1991. However, the magnitude of any armed conflict that would ensue is feared that it would be too intense, and harmful- possibly even triggering a third world war. As it is, militaries have immensely grown in power, and war technologies have greatly advanced. Therefore, countries try as much as possible to use non-violent means to resolve any form of conflict that builds over the control of petroleum resources.

Contracts used in oil production and control

It is in the interest of natural resource–rich countries to use their resources to obtain funds for social and economic development. To do so, many governments enter into contracts with foreign companies to develop and sell their oil or gas. Negotiating the right contract is vital to a government's efforts to reap the benefits of its natural resources. A popular technique in solving disputes in the control of petroleum resources is the use of production contracts. We can distinguish four basic contract types; concessions, production-sharing agreements, service contracts, and joint ventures. Each form can be used to accomplish the same purpose. The differences between the types of contracts are of a conceptual nature mainly with regard to levels of control granted to the foreign contractor, compensation arrangements, and levels of involvement by NOCs (National Oil Companies) (Centre on Transnational Corporations, 1983). Oil exploration and development can only be conducted by virtue of one of several forms of contracts granted either by the government or its NOC. In countries with large or potentially large oil deposits, the resource and its extraction tend to become vital cornerstones of that country's economy. Not surprisingly, governments have increased their involvement in the oil sector. This has resulted in increased state participation, the establishment of NOCs, and greater government shares arising from the financial rewards of oil operations (Centre on Transnational Corporations, 1983).

The existing types of contracts can be broadly categorized into risk-bearing and non-risk bearing agreements with most arrangements falling into the former category. The types as well as the terms of contracts vary not only between but also within countries. Furthermore, many contract forms have some overlapping features. The type of agreement offered and the terms applied to it can be due to specific legislation or free negotiation. A great many parameters determine the nature of the contract. Among them are the maturity of the oil sector, the fiscal regime, import or export dependency,