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The Politics of Oil

Controlling Resources, Governing Markets and Creating Political Conflicts

Dag Harald Claes

The Politics of Oil brings together legal studies, economics, and political science to illustrate how governments gain and exercise control over oil resources and how political actors influence the global oil market, both individually and in cooperation with each other. The author also investigates the role of oil in preserving regime stability, in civil wars and in inter-state conflicts, as well as discussing the possible implications for the oil industry from policies to combat climate change.
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Dag Harald Claes

State sovereignty and ownership are fundamental preconditions for governments control over and gains from natural resources. The chapter covers the philosophical debates following John Locke regarding who can claim ownership over territories and oil resources, the legal aspects of state’s territorial sovereignty and the relationship between the state and private citizens regarding the property rights. The essence of the Lockean perspective is that private property can be regarded as a natural right, while the regulation of occupation of territory, transfer of rights and regulation of harvesting and extraction of resources lies with the sovereign government. The chapter discuss various political aspects related to the government’s exercise of its sovereignty over natural resources, it also discuss sovereignty and ownership over offshore oil resources under the Law of the Sea regulations.

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Dag Harald Claes

This chapter is devoted to governmental regulation, or lack thereof, over onshore oil resources. It starts out with a presentation of the economic theories for optimization of the value of exhaustible resources, following the work of Harold Hotelling. Hotelling’s theory is based on a fixed amount of the resources. The chapter discuss the empirical value of this assumption, the exhaustibility and scarcity of oil resources, also covering the Peak Oil debate. Then the chapter address the relationship between governments and companies in the upstream sector, based on the obsolescing bargaining model developed by Raymond Vernon. The chapter ends with a brief presentation of the experience of production governance in three oil-producing countries: Venezuela, Saudi Arabia and Norway.

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Dag Harald Claes

This chapter provides the theoretical foundation for the following empirical chapters on attempts to govern the international oil market, by presenting and discussing relevant models and assumptions prominent in studies of international institutions and in the sub-field of International Relations known as International Political Economy, inspired particularly, by the work of Robert O. Keohane. The chapter concludes that the governance structure of international energy in general and oil in particular are characterized by a complex interaction of political and economic actors on various levels, without a single overarching governing institution. Thus, the political governance of the international oil market is unstable and subject to various constellations of actors with various interests and capabilities to regulate the market. Nevertheless, the oil producers generally have the upper hand.

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Dag Harald Claes

It follows from Chapter 4 that empirical studies of the politics of the oil market will pay special attention to the regulatory ability of oil producers. The chapter starts out with a discussion of monopoly and cartel theory. It is followed by a historical exposition of producer governance from the role of Standard Oil in the US oil market in the last decades of the 19th century to the role of the International Oil Companies, known as the Seven Sisters in the international oil market in the 1950s and 1960s. The most recent and dominant producer attempt to regulate the market – the Organization of the Petroleum Exporting Countries (OPEC) has been devoted a chapter on its own.

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Dag Harald Claes

The chapter provides a brief history of the market governing attempts by OPEC from the early 1970s until today. The chapter shows how the Organization was important for the member states in the 1960s, but the market influence first appeared in the early 1970s, when OPEC took control over the setting of the market price of oil from the International Oil Companies. The Second oil-price shock in 1979_1980 created a price level that both reduced demand and attracted exploration and production of oil outside of OPEC. This caused OPEC to try to behave as a cartel, by cutting production in order to sustain the high price level. An ambition the Organization has tried to achieve with various success, partly due to the market conditions and challenges in establishing the necessary internal cohesion. At the end, the chapter relates the case OPEC to the prescriptions of cartel theory.

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Dag Harald Claes

While the second part of the book started out with the perspectives of liberal institutionalism, this section of the book starts out with fundamental features of the realist perspective in international relations. Both with the concept of energy security and the Hegemonic Stability Thesis, formulated by Charles Kindleberger. A historic account of the importance of oil for the hegemonic power of the United States and the increasing challenges facing the United States in maintaining its control over the vital oil industry and the global oil market. The conclusion is that the US has turned from a policy-maker to a policy-taker in matters related to global oil.

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Dag Harald Claes

Turning to the regional level, the concept of national security developed by Barry Buzan, serves as the starting point for discussing the role of oil in interstate conflicts in general and in the Persian Gulf in particular. The first aspect is discussed based on the work of Jeff Colgan in his book Petro Aggression; the latter rely on the work of Gregory Gause III, providing a perspective on the Persian Gulf as a regional security complex. In addition, cooperative aspects of the regional interstate relations are discussed.

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Dag Harald Claes

The academic literature on the role of natural resources and civil war is almost as voluminous as the literature on the resource curse. This chapter presents the key contributions and discusses the empirical validity of the findings. The literature on oil and terrorism is comparatively very limited. Some recent general trends in terrorism are described, and a few explicit studies of the role of oil are presented and discussed. The ‘oil policies’ of Al-Qaeda and ISIL are particularly highlighted.

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Dag Harald Claes

The final chapter situates oil as part of the global energy system, describing the recent patterns of energy consumption. The potential for reduction of oil consumption in order to reduce CO2 emissions is discussed both in the industrial and transportation sector. The chapter also discuss the role of the United Nations Framework Convention on Climate Change on future oil consumption, emphasizing the possible reactions from oil-producing countries and oil investors. The final section discuss the general opportunities and obstacles for reducing emission from the oil sector.