by Tom Bower
Also by Tom Bower
Blind Eye to Murder: The Pledge Betrayed
Klaus Barbie: Butcher of Lyon
The Paperclip Conspiracy
Maxwell: The Outsider
Red Web
Tiny Rowland: A Rebel Tycoon
Heroes of World War II
The Perfect English Spy: Sir Dick White
Maxwell: The Final Verdict
Nazi Gold
Branson
The Paymaster: Geoffrey Robinson, Maxwell and New Labour
Fayed: The Unauthorized Biography
Broken Dreams: Vanity, Greed and the Souring of British Football
Gordon Brown
Outrageous Fortune
Copyright
Copyright © 2009 by Tom Bower
All rights reserved. Except as permitted under the U.S. Copyright Act of 1976, no part of this publication may be reproduced, distributed, or transmitted in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.
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ISBN: 978-0-446-56354-3
To George and Sylvia Bower
Contents
Also by Tom Bower
Copyright
Illustrations
Preface
Map
Chapter One: The Emperor
Chapter Two: The Explorer
Chapter Three: The Master Trader
Chapter Four: The Casualty
Chapter Five: The Star
Chapter Six: The Booty Hunters
Chapter Seven: The Oligarchs
Chapter Eight: The Suspect Traders
Chapter Nine: The Crisis
Chapter Ten: The Hunter
Chapter Eleven: The Aggressors
Chapter Twelve: The Antagonists
Chapter Thirteen: The Shooting Star
Chapter Fourteen: The Twister
Chapter Fifteen: The Gamble
Chapter Sixteen: The Downfall
Chapter Seventeen: The Alarm
Chapter Eighteen: The Struggle
Chapter Nineteen: The Survivor
Chapter Twenty: The Backlash
Chapter Twenty-one: The Confession
Chapter Twenty-two: The Oligarch’s Squeeze
Chapter Twenty-three: The Frustrated Regulator
Acknowledgments
Notes
Illustrations
John Browne, Larry Fuller and Peter Sutherland. (Press Association Images)
The damaged Thunder Horse platform in the Gulf of Mexico. (AP/Press Association Images)
Browne inspects a leaking pipeline in Alaska in 2006. (AP/Press Association Images)
Attacks by armed gangs in Nigeria’s Delta region hampered production in the area. (Sipa Press/Rex Features)
Oil pollution in Nigeria. (AP/Press Association Images)
Ken Saro-Wiwa. (© Tim Lambon/Greenpeace)
Marc Rich. (Photograph by Jim Berry, Camera Press London)
John Deuss. (Photo by David Skinner)
President Heydar Aliyev of Azerbaijan with the Queen at Buckingham Palace. (Press Association Images)
President Boris Yeltsin with leading Russian bankers. (AP/Press Association Images)
Mikhail Khodorkovsky and Mikhail Fridman. (Tass/Press Association Images)
Fridman and Vladimir Potanin. (AP/Press Association Images)
Lee Raymond and Lou Noto. (AP/Press Association Images)
Lee Raymond. (AP/Press Association Images)
Rex Tillerson. (AP/Press Association Images)
Russia’s President Vladimir Putin meets leading US oilmen in Moscow. (AP/Press Association Images)
Raymond and Khodorkovsky at the World Economic Forum in Moscow in October 2003. (Tass/Press Association Images)
Nymex traders. (AP/Press Association Images)
Andy Hall. (Nicholas Richer/PatrickMcMullan.com)
Tom O’Malley. (Roberto Arcari/contrasto/eyevine)
Putin and Phil Watts. (AFP/Getty Images)
Walter van de Vijver. (epa/Robert Vos)
Oleg Mitvol. (AP/Press Association Images)
Jeroen van der Veer. (Reuters/Itar Tass)
Oil pollution in Russia. (© Igor Gavrilov/Greenpeace)
US Vice President Al Gore with President Nursultan Nazarbayev of Kazakhstan. (Reuters/Mark Wilson)
Venezuela’s President Hugo Chávez and German Khan. (AP/Press Association Images)
Fridman and Putin. (Yuri Kadobnov/AFP/Getty Images)
Rodney Chase. (Press Association Images)
Igor Sechin. (AP/Press Association Images)
Alexei Miller and Tony Hayward. (Reuters/STR New)
Saudi Arabia’s oil minister Ali al-Naimi. (LANDOV/Press Association Images)
Preface
VIENNA, MAY 28, 2009
DESPITE THE CROWDS of journalists and TV cameras jostling in the small entrance hall of OPEC’s Vienna headquarters, the atmosphere was mellow. After the frenzy of oil prices soaring and then crashing during 2008, the arrival of Ali al-Naimi, the dapper Saudi oil minister, seemed undramatic. The small man was smiling after his 20-minute walk from the Grand Hotel, but his serenity was deceptive. Known as “Mr. OPEC,” or the leader of the Organization of Petroleum Exporting Countries, al-Naimi had uncharacteristically sought publicity before the 11 members of the price-fixing cartel began their 153rd meeting that morning.
“We think prices will rise,” he had puffed during a 6 a.m. run along the Baroque Ringstrasse the previous day. As usual, he was seeking to influence the markets in New York and London. To his satisfaction, over the next 24 hours speculators had bid up oil prices by $1 to $63 a barrel, a 100 percent increase in eight months. Over the next weeks, al-Naimi hoped, if the speculators could be persuaded, prices would rise by another $20; more truculent OPEC members, he knew, would hope that prices would eventually rise by a further $70 to $150, an all-time high. Billions of dollars had flowed from the Western countries into the oil producers’ coffers in previous years, but al-Naimi was determined to defy economic law. Demand for oil had fallen since the crash in July 2008, record amounts of oil were in storage, and the world had plunged into recession. Yet he was talking up prices. Of course he understood that an excessive price hike would endanger the world’s economy and annoy Saudi Arabia’s allies in Washington but a limited increase would benefit his interests. If he was to succeed, he would have to persuade the other OPEC members, an exclusive but quarrelsome club, to endorse his strategy.
Unlike the exotic pageant of presidents and kings who had attended OPEC’s meetings during the 1970s, the 10 ministers and their aides who followed al-Naimi into the shiny office block were colorless placemen. Journalists no longer witnessed dramas like Saddam Hussein embracing his bitter enemy the Shah of Iran in 1975 while the stylish Sheikh Yamani, al-Naimi’s predecessor as the Saudi oil minister, hovered in the background. In those days, the dictators posed as brokers of the world’s future. Having wrested control of their oil from the cabal of dominant Western companies known as the Seven Sisters, the OPEC countries had freed themselves of the imperialist, and occasionally racist, attitudes that had formerly dictated their fates. The American and British corporations, blamed for their willful blindness about realities in West Africa, Central America and the Arab world, had ceased to be the guardians of the common destiny.
Neverthel
ess, oil remained the world’s biggest business. Every aspect of mankind’s lives depended on the refinement of crude oil into energy, plastics, chemicals and drugs. For a century the commodity has been on a roller coaster, swinging from surplus to shortage. Cheap oil has fueled booms while high prices have plunged the world into recession. Finding a balance has been elusive. Always the target of mistrust, oil has now become a tougher, more unpredictable business than ever before.
In 1975 Anthony Sampson, the redoubtable author of The Seven Sisters, a groundbreaking description of the relationship between the seven major oil companies and OPEC, described the Arab–Israeli war of 1973 as the “last battle” to control the industry. “The fascination of oil history,” he wrote, “lies in the ever changing form of the battle to control supply.” Focused on the “collision course” between the governments of the oil producers, the oil companies and the governments in Washington and London, Sampson, like others, did not anticipate Iraq waging war against neighboring Iran and Kuwait, or that America would twice lead invasions of Iraq, characterized by some as “blood for oil.” He would have been struck, as I was, by the candor of the vice president of one of America’s biggest oil companies whom I asked in passing in 2007, “Was George W. Bush’s invasion of Iraq about oil?” He replied, “Absolutely, yes.” Some argue that the ideological Cold War has been replaced by “resource wars.” In Sampson’s era, the “resource war” revolved around disputes about prices between the oil companies and OPEC.
In the two years after the 1973 Arab–Israeli war, the OPEC leaders defied American forecasts that their cartel would collapse, because the consequence of oil prices quadrupling would be a recession in the West. But OPEC’s defiance was rewarded, and despite the nationalization of many Western-owned oilfields, the unnerved oil companies collaborated with their expropriators. Stripped of their mystique and their arrogance, the American and British giants were transformed into paper tigers. Anxious to guarantee oil supplies and to maintain their share of markets, the companies that had discovered and developed the oilfields and refined the crude became supplicants. To many, OPEC’s ascendancy appeared to be irreversible. Only a few wise oilmen mentioned the fact that cycles never changed. Permanently fixing the market was beyond any mortal, even the OPEC nations.
In the years after 1990, OPEC’s lurking threat had indeed diminished. The procession of technocrats following Ali al-Naimi to the second floor of OPEC’s headquarters understood that oil had become democratized: prices were set by traders in New York’s and London’s markets rather than by OPEC’s edict. Yet, even though they were no longer brokering mankind’s destiny, the ministers retained control of 40 percent of the world’s oil supplies — sufficient to wield considerable influence.
Since oil is the OPEC countries’ principal, and usually only, source of income, the 11 officials who attended that 153rd meeting had every incentive to seek the highest prices. Between the certainty of extracting oil from the Saudi desert for $2 a barrel or risking $100 billion to drill a speculative well four miles below the sea in the Gulf of Mexico, is the insoluble mystery of establishing the true price of a simple product. The conundrum is to identify the dividing line between reasonable businessmen and villains. Since 1990, that division has become obscured.
In that year Daniel Yergin wrote The Prize, a magisterial description of oil’s influence on modern history. Oil, he commented, remains “central to… the very nature of civilisation.” But many of the political trends of the previous century that he described were changing. The major oil companies were becoming minnows, and OPEC’s power was being challenged by non-OPEC oil-producing countries, especially Russia and the states around the Caspian Sea.
The moral keynotes were also changing. Historically associated with corruption, civic corrosion and civil war, the relationship between the governments in Washington and London and the oil companies had been a dominant topic for a century. Posing as representatives of mankind’s interests, but beyond mortals’ control, the corporations’ chairmen appeared detached from national governments. Uncertain who was using whom, many debated whether the oil companies should be supported, controlled or investigated. An important theme explored by Yergin and Sampson was the battle waged by America’s federal and state governments against J. D. Rockefeller, the creator of America’s oil industry. The epic legal contests against oil companies had usually ended in the governments’ defeat, spurring public anger about Big Oil. “His lack of scruple and his mendacity,” wrote Sampson of Rockefeller, “provoked a continuing distrust of the oil industry.”
Oil provokes irreconcilable emotions. Moralizing sermons about oil have never stopped, but since Sampson’s and Yergin’s books, some issues have changed. Destitution in the Niger Delta, the contamination of Alaska’s pristine wilderness, the destruction of Canada’s forests and spreading corruption across Africa are all blamed on oil companies. “African oil did not create the system or its failings,” wrote Nicholas Shaxson in Poisoned Wells, accusing Shell, ExxonMobil and the French oil corporation Elf of destroying idyllic communities. Serious authors have claimed that the oil industry is “among the least stable of all business sectors,” and that supplies are “utterly dependent on corrupt, despotic ‘petrostates’ with uncertain futures.” The riddle is whether, in pursuing their priority of caring for their shareholders and their customers, the oil majors should refrain from interfering in the internal affairs of Third World countries, or accept a duty to prevent the “institutionalized pillage” of impoverished populations and to oversee the fate of their nations’ oil wealth.
These issues continue to be exhaustively debated. Besides the technical and corporate histories, there are many descriptions of evil corporations exploiting the Third World and causing environmental catastrophe. In addition, a new dominant theme has arisen: “The End of Oil.” Predictions laced with alarming statistics foreshadow permanent shortages, blackouts and soaring prices. “Terminal decline” is the favored phrase of those speaking in apocalyptic terms about the world imminently running out of oil. One authoritative tract is Twilight in the Desert (2005) by the investment banker Matthew Simmons, who claims that Saudi Arabia’s oil production is “at or very near its peak sustainable volume (if it did not, in fact, peak almost 25 years ago), and is likely to go into decline in the very foreseeable future.” Even Simmons’s critics acknowledge the value of his polemic. If Saudi Arabia’s supply of oil does indeed decline, the world’s destiny is questionable. However, despite Simmons’s insistence that his doom-laden prediction is “not a remote fantasy,” Saudi Arabia increased its production capacity from eight million barrels a day in 2005 to 12.5 million in 2009, when the world’s daily consumption was 86 million barrels. In the aftermath of prices crashing in July 2008 and surplus oil sloshing around the world, the prophets of doom disappeared from the television studios and newspapers. Since then, the wailing about the world’s endangered oil supplies has reverted to blaming the oil companies for restricting their investment in the search to find new oil.
Unlike oil’s first century, over the last 20 years no single nation, government, cartel or corporation has controlled its fate. Markets have determined prices and investment; but there has been a twist. Because the oil-producing countries retain up to 90 percent of the profits, the Western oil companies have the delicate task of persuading rightly self-interested governments to share their wealth and sell access to their reserves. In Africa, Asia and South America, impoverished nations may be ecstatic about the sudden promise of effortless wealth; but it is only realizable with the marketing, organization and technology invented by Western companies.
In pulling the strands of the oil industry together, this book takes no sides in the arguments among the specialists and partisans. Rather, I have recognised that many of those employed in the oil industry are remarkably intelligent individuals pursuing their ambitions with expertise and inspiration, rather than being inextricably entangled, as the alarmists suggest, in corruption, conspiracies a
nd cover-ups.
United by a smelly, unattractive product, most of the millions of employees who work in the oil industry are strangers to each other. Unlike manufacturing cars or planning a space program, oil offers no natural bond. The gas-station attendant, the crews of the supertankers, the offshore engineers, the dedicated geologists, the excitable traders, the sober accountants, the nationalistic politicians, the rig workers in the prairies, deserts and jungles, the refinery workers and the corporate chieftains are all interdependent in their efforts to produce and convert crude oil. Yet there is no bond between them to overcome their separation and rivalry. Oil unites all their destinies, but they are professionally isolated. Since the late 1980s, however, there has been a common thread: some squeeze markets, some squeeze rocks, some squeeze crude oil through refineries, while others squeeze governments and rival corporations. Oil is not a business for fools or the faint-hearted.
To chart for the first time what has occurred over the past 20 years, I have followed the careers of some of the principal personalities who have determined oil’s fate as its price rose from $7 to $147 a barrel. As I interviewed nearly 250 people across the world, I gradually came to understand the perpetual conflict between the oil companies and the nations that control the reserves, the arguments between consumers and the proponents of the end of oil and climate change, the overwhelming influence of the oil traders, the ingenuity of the explorers, the ambitions and frustrations of the chieftains who manage the world’s biggest corporations, and the agendas of politicians anxious to control the world’s lifeblood.
The story of oil over the last two decades is fascinating, but to understand all the disparate elements — the personalities, the corporations, the governments, the traders and the geologists — requires gradual introduction. Unlike the straightforward structure of a standard history or the description of a particular event, this book takes the reader on a journey through the lives and eyes of the major characters who have dominated the industry. As readers become familiar with the labyrinthine complexity of the subject, I hope that, like myself, they will become excited by the discovery of an epic story at the heart of all our lives.
