Yergin’s The Prize provides a sweeping account of the history of oil, using it as a lens to view the most impactful economic, political, military, and social developments from roughly 1850 until 1990. Oil is on the way out, but as his history shows, it has impacted our past more than nearly any other commodity, and it likely still has a role to play in our future – for better or for worse.
Picture by: Zbynek Burival, unsplash
Yergin’s thesis can be summarized in three points:
1The rise of capitalism and modern business are inextricably linked to oil
‘[O]il as a commodity [is] intimately intertwined with national strategies and global politics and power.’
Since oil’s dethroning of coal (with the help of natural gas) in the late 19th century, we have made ourselves into a ‘Hydrocarbon Society’
The first two tenets are uncontroversial. Oil is power, both political and economic. If coal powered the Industrial Revolution, then oil powered our modern societies. Geopolitically, oil (and the combustion engine) has underpinned the largest paradigm shift in warfare since the invention of gunpowder. But whereas gunpowder made the walled city obsolete, the oil age has distorted and stretched projection of power, and therefore, the reach of nations.
Access to commodities has always mattered, from antiquity to the present. The world’s first empire, the Sumerians, rose in part because they secured steady access to tin from the faraway Taurus Mountains to forge their place as the paladins of the early Bronze Age. Millenia later, only a few years before the outbreak of WW1, then-First Lord of the Admiralty Winston Churchill’s decision to transition Britain’s navy from coal-powered to oil-powered meant that oil was the strategic resource.
Yergin’s analysis of WW2, viewed from oil, provides crucial insights into the most important conflict of the 20th century. After all, Imperial Japan did not attack Pearl Harbor for lack of iron, but oil. And when Hitler’s armies marched east in a pincer movement, their goal was to eventually capture Baku and the rich oil fields of the near east. But his dual defeats, at Stalingrad and El-Alamein, thwarted this plan. Without oil, Imperial Japan and Nazi Germany were doomed. Access to oil is not a sufficient condition for victory, but in modern warfare, it certainly is a necessary one – hence the remaining importance of the Straights of Hormuz and Malacca.
Oil shaped our economies and geopolitics. But will this hold up in the future? Are we still a ‘Hydrocarbon Society’, as Yergin argues? The answer is still yes, but clearly this is changing. Our societies will of course move away from oil, but prognostications of ‘peak oil’ in the past have often been wrong: Hubert’s 1956 ‘peak oil’ prediction was right about the 1970s, but the US production rebounded during the Obama administration to levels above the peak a half-century earlier.
As the Russian invasion of Ukraine highlights, while we certainly must redouble our efforts to electrify our economies, oil (and other hydrocarbons) still plays a key role in bridging the gap. However, if oil was the main geopolitical force of the past century (as seen in the Agadez Crisis, WW2, the Suez Crisis, Western engagement in the Middle East) and has so greatly shaped our societies (suburbanisation, globalisation to scales previously unimaginable, and an existential pollution threat) – then what will be the driving force for the next century?
Oil is no saviour for all countries – ‘Dutch Disease’ examples abound, from Mexico, Venezuela, Libya, Iran, and the Soviet Union in the 1970s and 1980s. But what will happen to the countries who have become wealthy off oil? Saudi Arabia, the rest of the GCC, Norway, to name a few? How will the shift to renewables change the social contract in these countries?
The truth is we don’t know. In the past 15 years, the NASDAQ has outperformed the USO oil futures ETF by 40 times. The microchip is the future, and a future without oil is surely coming. The question is what will that future look like? If we want to spend some time thinking about that, we would do well to study the history of oil to help us navigate these uncharted waters.
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