CHAPTER 19
THE IPE OF ENERGY RESOURCES: STUCK IN TRANSITION
Overview:
The year 1973 was a turning point for the international political economy. The international balance of
wealth and power began to shift away from the U.S. to its European allies, Japan, and a number of militarily-weak,
oil-producing nations. When the U.S. supported Israel in its 1973 war with Egypt and Syria, Arab members of the
Organization of Petroleum Exporting Countries (OPEC) oil cartel banned exports of petroleum to the United States
and the Netherlands. For a short period of time, OPEC seemed to hold nation-states hostage. World oil prices
skyrocketed, and gasoline at the pump had to be rationed in many industrialized nations. Vast sums of money were
suddenly transferred to oil producing states in the Middle East. Because petroleum had become so vital to every
aspect of an industrial society, the lives of most people in the world were disrupted.
This chapter looks at the recent history of oil and the role of OPEC in its production and pricing. We
discuss some of the political and economic tensions that have arisen due to the interdependence between oil
producing and consuming nations. These stresses include security issues and oil as a resource curse.
We also chronicle the actors and conditions since the early 1970s that have impacted the supply and
demand for fossil fuels (coal, oil, and natural gas) and the development of renewable energy sources (nuclear, wind,
solar, and biomass). We explore the symbiotic relationship between energy corporations and state officials who have
so generously rewarded the corporations over the years. Together they have spurred commodity speculation and the
fossil fuel boom. Fifth, we conclude with a look at three potential global energy policies in the future: heavy
investments in fracking and offshore fossil fuels; reliance on free-market solutions; and a reinvigorated transition to
renewable resources. Continued reliance on fossil fuels will cause dangerous and irreversible global climate change
and political disruptions.
Learning Objectives:
• To define the significance of the OPEC cartel.
• To explain the political and economic forces responsible for the oil crises of 1973 and 1979.
• To assess the political and economic relations between oil exporting nations and oil importing nations that have
been conditioned by these crises.
• To explain why OPEC nations have had difficulty controlling oil prices.
• To understand why most countries have failed to make progress in achieving their goals of getting off oil,
establishing energy independence, and promoting environmental sustainability.
• To explain changes in global energy markets in the 2000s, including renewables, higher oil prices, and the
emergence of China as a major consumer of energy.
• To explain why oil can have a curse-like effect on many nations instead of a blessing.
• To assess what is driving the “doubling down” on investments in new fossil fuel production since the mid–
2000s.
• To estimate the implications of the fracking boom for trade, ecosystems, and national security and debunk the
claim that the United States is likely to achieve energy independence.
• To outline speculative activities of major energy corporations and trace the ways in which they influence
political elites.
• To assess political and economic reasons why renewable energy has failed to become more widely available
and why investments in green energy remain lackluster.
Chapter Outline:
INTRODUCTION
a) In the past few years global energy supply conditions have changed dramatically, reflecting an unexpected
increase in oil (and especially, natural gas) production due to new investments and hydraulic fracturing
(fracking) technology.
b) Based on current trends, the United States may become the world’s biggest fossil fuel producer by 2020,
replacing the Organization of Petroleum Exporting Countries (OPEC) as the world’s energy hegemon.
c) The boom in natural gas production is causing environmental and social effects that give it some
characteristics of a resource curse.
d) Key theses of this chapter include: energy self-sufficiency does not equal energy independence; oil
corporations play a major role in setting retail gasoline prices; states and energy corporations have in some
ways deterred development of renewable energy; states often have a symbiotic relationship with energy
TNCs; in developing countries, increased resource extraction tends to enrich wealthy elites and major
energy companies while sustaining authoritarian leaders.
OPEC RULES
a) OPEC’s control over its oil reserves gradually increased after Libya was able to gain price concessions by
the big oil companies for its oil.
b) The OPEC cartel rose to prominence in the early 1970s when Arab states within OPEC imposed a
successful oil embargo against the U.S. and the Netherlands for supporting Israel in the October 1973 war.
OPEC attempted to control the supply and price of oil in order to generate profits for its thirteen members.
c) By the mid-1970s, OPEC controlled oil prices, production levels, and royalty taxes as the developed
world’s reliance on petroleum imports increased.
d) U.S. dollars that went to OPEC to pay for oil imports flooded back into Western banks, which in turn
loaned money to states and to oil corporations investing in new fossil fuel production—a process
commonly referred to as petrodollar recycling.
The Oil Crisis and the Energy Paradigm Shift: Scarcity and Vulnerability
a) The OPEC oil price hikes of 1973–1974 and 1979–1980 changed the global landscape. Many developed
and developing nations had become dependent on and politically vulnerable to Middle Eastern oil supplies.
b) OPEC and its hegemonic leader Saudi Arabia set oil production quotas and prices at levels that reconciled
their interests with the goal of stabilizing international market conditions
c) Instead of using force to counter OPEC’s influence, the Carter administration adopted a series of measures
to counter and adjust to higher costs of oil and energy. Sustainability and efficiency began to play bigger
roles in comprehensive energy planning.
d) A second global oil shock occurred near the end of the decade when Iranian fundamentalists finally
succeeded in toppling the U.S.—backed Shah of Iran in 1979.
e) Oil is sold in two different markets; long term contracts and spot markets. Oil became so expensive during
the second oil shock that many OPEC members broke their long-term contracts to sell oil on the more
lucrative spot market. They collectively drove the price of oil way down by 1982.
THE 1980S AND 1990S: THE IRAN-IRAQ AND PERSIAN GULF WARS
a) In the 1980s, a decrease in the demand for oil due to recession, over-quota production by OPEC members,
and an increase in non-OPEC production resulted in long-term surpluses and downward pressure on prices.
b) Fed up with other OPEC members in 1985, Saudi Arabia flooded oil markets and drove crude oil prices
through the rest of the 1980s. By the end of the Iran–Iraq War in 1988, oil prices in “real terms” were
below their 1974 level.
The 1990s: Iraq and the Gulf War
a) In 1990 oil prices shot up again after Iraq invaded Kuwait. Prices dropped back to their previous low levels
after Iraq was routed in February 1991. Saudi Arabia remained the linchpin in OPEC and a primary
security interest of the United States.
b) For much of the 1990s, oil prices remained relatively low—roughly $10 a barrel less than they were in the
1980s. . In 1998, in the middle of the Asian financial crisis, the price of oil dropped to $9.64 a barrel.
Shortly thereafter, OPEC finally dramatically cut production quotas to push the price of a barrel of oil back
up to $26.
c) With the collapse of the Soviet Union in 1990 and the Gulf War victory, the U.S. had a free hand to
influence developments in the Middle East oil–producing countries.
STUCK IN TRANSITION: THE ENERGY BOOM AND VOLATILE MARKETS IN THE 2000S
a) In the early 2000s, oil price hikes reflected dramatic growth in world consumption—driven largely by
China, India, Brazil, Saudi Arabia, and other emerging economies.
Oil and Intervention in Afghanistan and Iraq
a) Some structuralists and realists criticized the United States for pursuing wars in Afghanistan and Iraq in
order to promote U.S. oil interests.
b) In the early 200s, support for the shift away from nonrenewable fossil fuels to renewable sources of “green
energy” was advancing in many places in the world, albeit much more modestly than some state officials
and environmental groups had hoped for.
c) The high price of imported oil—driven by increased demand in the emerging economies such as China,
India, and Brazil—incentivized the United States, Canada, and Russia to produce more of their own fossil
fuels and develop new oil fields.
d) Between 2004 and 2007, global investments in renewable energy more than quadrupled.
e) Table 19-1: Top Oil Consumers and Hydroelectricity Producers, 2011
The Devil’s Excrement
a) A number of countries have found that “black gold” is a “resource curse” that contributes to corruption,
violence, environmental damage, and war between neighboring nations.
Box: The Nigerian Resource Curse
a) Nigeria suffers a resource curse: although the country grosses more than $50 billion a year from oil exports,
it has a poverty rate of 70 percent. Economic inequality is high.
b) Most of the drilling takes place in Niger Delta, which creates many transportation, environmental, and
socio-political problems.
c) There is rampant corruption, money laundering, and racketeering within the government. Economic liberals
tend to blame the state for deterring even more foreign investment. Many structuralists blame the state for
delayed or nonexistent efforts to improve Nigeria’s infrastructure. The rule of law is weak.
2008: The Financial Crisis and the Energy Boom
a) Instead of a gradual decrease in production caused by less demand, the financial crisis fed the volatility of
energy markets. Oil prices had steadily risen since 2002, and then in July 2008 they suddenly peaked at
$147 per barrel. Then in 2011 and 2012, prices stabilized within a range of approximately $85 to $110 per
barrel.
b) As late as 2008, some predicted that the “tipping point” of peak oil had been reached and that supplies
would increasingly be in short supply, driving up prices even further.
c) In many industrialized nations, the financial crisis weakened support for the argument that peak oil is a
major problem. Moreover, a slew of technological changes related to drilling has reduced investment risks
and costs in fossil fuel production and emboldened those who view new technologies as helping overcome
the problem of oil scarcity.
d) Russia has become a more important player in recent years, bolstering its share of global oil production
from 8.7 percent in 2000 to 11.7 in 2012.
“Drill Baby Drill”: Doubling Down on Fossil Fuels
a) Between 2008 and 2012, there was a massive boom in the production of fossil fuels to meet ever-increasing
demand for energy from China, India, and other emerging economies. Oil drilling spread to new areas of
the United States, Canada, Brazil, Iraq, and the Arctic.
b) Fracking—a method to extract gas from shale rocks—has made major headlines since 2008 because it has
succeeded in generating tremendous supplies of natural gas while supposedly causing disastrous human and
environmental effects. Development of huge natural gas fields in North Dakota, Texas, Pennsylvania, and
New York allowed the United States in 2009 to overtake Russia as the world’s largest producer of natural
gas.
c) “Big Oil” companies like Exxon Mobil and BP have been keen to sell U.S. LNG to countries in Asia and
Latin America. There has also been an ongoing effort to enhance energy efficiency; natural gas has higher
conversion efficiency than “dirty coal” and nuclear power.
d) Benefits to U.S from the increased production of natural gas and oil potentially include lower U.S.
dependence on Middle Eastern oil and the ability to use fossil fuels as leverage in negotiations.
e) Table 19-2: Largest Producers of Coal, Oil, and Natural Gas, 2011
Box: Fracking: The U.S. Resource Curse?
a) One of the biggest criticisms of fracking is that it employs excessive amounts of water that contains many
harmful chemicals. Because fracking leads to dramatically higher use of natural gas—and thus significant
carbon emissions—it contributes to the effects of climate changes.
b) In 2005, the U.S. Congress passed the Halliburton Loophole—at the behest of Vice-President Cheney—
that exempted gas fracking from the Safe Water Drinking Act in order to promote big business and oppose
environmental policies. Fracking has been outlawed in France, while South Africa has imposed a
temporary moratorium on it.
The Energy Independence Pipe Dream
a) While the United States may become “self-sufficient” in energy production, several reporters have pointed
out that “U.S. customers would still be susceptible to surges in global oil prices.”
b) The market for natural gas is becoming more globalized all the time; prices vary in different regions,
depending on problems related to access, processing, and transportation costs.
King Coal and Nuclear Power
a) Coal is still king in China; in 2011, the country produced and consumed half of all the world’s coal.
According to Peter Galuszka, global coal production is expected to increase by 50 percent by 2035, and
coal could overtake oil as the earth’s primary fuel.
b) Some hope that so-called “clean coal” can reduce pressures on the environment. However, coal
sequestration has yet to be perfected. Sequestration refers to the process whereby carbon dioxide
emissions from burning coal are captured and stored underground.
c) Nuclear power produces 21 percent of energy consumed in the United States and 12 percent of the world’s
electricity output. Despite the argument that nuclear power is dead, most experts and commentators agree
that that claim is exaggerated.
d) Proponents of nuclear energy point out that it is much “cleaner” than coal and other fossil fuels because it
does not emit CO2. Many environmentalists debate the claim that nuclear power is clean, especially given
that there has been no resolution of the problems associated with safely disposing of highly radioactive
waste.
e) Table 19-3: Top Ten Renewable Energy Producers
“BIG OIL” MAJORS: SPECULATION AND LOBBYING
a) There are many reasons for the growth in oil and now natural gas investments. While real estate tanked
during the financial crisis, many investors shifted into the energy sector. Oil, natural gas, and some
renewables get big government subsidies. National legislatures derive political and economic benefits from
supporting Big Oil and other energy projects.
b) A number of critics contend that large-scale speculative trading plays a major role in keeping oil prices
high and prices volatile.
c) Multinational and independent energy companies influence energy policy in the United States by lobbying
Congress and executive agencies and by donating to political campaigns. Between the 1990 and 2010
election cycles, individuals and political action committees affiliated with oil and gas companies donated
$239 million to candidates and parties.
d) Corporate influence is also aimed at repealing or weakening industry oversight.
e) Table 19-4: Effective Federal Corporate Income Tax Rates, 2008–2010
State-Owned Oil Companies
a) National oil companies (NOCs) play a much more complicated role in the IPE of energy than the
mischievous role covered by the press. Fifteen of the twenty biggest NOCs are owned by nation-states,
many of which were hit hard during the financial crisis. And 80 percent of oil reserves are under state
control.
b) Many Middle Eastern and African petrostates have used oil revenues to pacify burgeoning populations with
subsidized food, gas, and other basic necessities. Energy policy often plays a major role in state
development strategies. In other cases—especially places where oil is a resource curse—revenues often go
into government coffers and are used by leaders to fund arms purchases and extravagant lifestyles.
The Renewables: Slowdown vs. Reinvigoration
a) The recent doubling down on fossil fuel production has dampened enthusiasm for clean energy and derailed
efforts to wean nations off wasteful habits.
b) The financial crisis in 2007 and a dramatic increase in natural gas production conspired with doubts about
energy resource scarcity and the effects of fossil fuels on climate change to weaken the argument for
renewable resources.
c) Arguments that worked against promotion of renewables include: Increasing fossil fuel production to
support recovery from the financial crisis should take precedence over increasing dependency on
renewables; renewables cannot meet the growing energy needs of industrialized and developing nations;
the state should not be “picking winners and losers” in the energy industry.
d) Scholars David Victor and Kassia Yanosek argue that alternative energy projects based on biofuels, solar,
and wind are in a state of crisis because they simply are not cost-effective or sustainable without
government subsidies.
e) Government loan guarantees, cash grants, and contracts often result in large profits for investors like
Goldman Sachs and conglomerates like General Electric—precisely the kind of actors that should not need
government subsidies.
f) Supporters of renewables suggest that they are at a disadvantage because they are still “infant industries”
that cannot compete with many of the fossil fuels producers. Renewable supporters note that major energy
companies continually receive numerous subsidies and the use of federal land to lower the costs of resource
extraction. Many renewable supporters believe that we cannot drill our way out of our energy problems.
g) Amory Lovins believes that the costs of oil dependency, oil price volatility, and the security of military
forces in the Middle East outweigh the benefits of oil and natural gas.
CONCLUSION: THREE FORKS IN THE ROAD
a) Many experts and commentators believe that there has not been a consistent set of energy policy
recommendations for at least the past decade.
b) Some policymakers want an “all of the above” approach that encourages the production of fossil fuels and
renewable energy resources. This mixed approach appears to have taken hold in nations with significant
manufacturing such as Canada, Australia, China, India, and Brazil.
c) A second path is to let the free market figure out a way to solve global energy problems with only a small
amount of state regulation. Too much regulation stifles innovation. Solutions are most likely to appear
through the development of new technologies.
d) A third path to the future requires reinvigorating the transition–to-renewable-resources movement.
e) Former Peruvian diplomat Oswaldo DeRivero contends that the rest of the world cannot reach the U.S.
standard of living based on a U.S. energy–intensive “California” model without destroying the planet. Mass
consumption in China, India, Brazil, and other emerging nations, when added to high energy use in
industrialized countries, will bring us all down.
Key Terms:
• hydraulic fracturing (fracking)
• Organization of Petroleum Exporting Countries (OPEC)
• Resource curse
• Cartel
• Spot market
• Peak oil
• Petrodollar recycling
• sequestration
• national oil companies (NOCs)
Teaching Tips:
• In many ways, IPE was reborn as a field of study in the 1970s when the oil crisis (combined with the collapse of
Bretton Woods, changing security structures, rise of global finance, etc.) made clear the increasing
interdependence of states and markets in the world. This chapter tries to capture the delicate nature of this
interdependence, showing both the deep historical roots of the oil crisis of the 1970s and its continuing
influence through the 1990s and into the 2000s.
• This chapter provides both an interpretive history of the IPE of energy that may be examined by using the three
IPE perspectives. There are many factors and details provided in the historical analysis, and you will need to
decide up-front how deep you wish to go into this material and how much you want to emphasize the three
perspectives. The authors do not emphasize them in this chapter, and this might be an assignment you give to
students.
• One exercise might be to ask students to imagine they were a U.S. diplomat and how they would resolve some
of the political, social, and economic tensions between the United States, Saudi Arabia, Russia, China, India,
and others when it comes to managing the issue of energy. What role would/should IOs play in helping solve
some of these issues?
• Fracking is a useful gateway into a discussion of global energy issues because it is so controversial and students
are likely to be familiar with debates about it. You might want to have students watch a documentary or feature
film about it such as Gasland or Promised Land as background for a discussion.
• Many students overestimate how significant renewables are in meeting global energy needs. Spend time
comparing the consumption of energy from different sources in different countries. You might want to conduct
a debate about the benefits and tradeoffs associated with nuclear energy, especially in light of the Fukushima
nuclear disaster. Ask students to place themselves in the shoes of an emerging power like China or India that is
expanding the number of nuclear power generators.
• It is useful to account for some of the reasons why OPEC has and has not been able to exercise a decisive
influence on oil prices and production. You can also compare it to other cartels (or attempted cartels) in
commodities such as coffee, bauxite, and copper to point out why some cartels succeed and others fail.
• This chapter provides an opportunity to discuss the extent to which lower energy consumption is compatible
with global economic growth. In a related fashion, you might ask students to debate whether it is possible to
sustain rising energy consumption in emerging countries without causing catastrophic environmental damage.
Sample Essay-Discussion Questions:
1. List and discuss two recurring themes in this chapter, providing specific examples to illustrate each problem.
2. What three economic factors have changed in the world oil market that make it more difficult or more costly for
OPEC to raise oil prices? Explain how each contributes to OPEC’s weakened economic influence. Finally,
discuss the extent to which cartels can or are likely to be effective institutions in the global political economy.
3. Why have some countries advanced much further in the development of renewable energy sources than others?
Political culture? Government incentives and subsidies? The forcing of higher energy prices on consumers?
4. What makes resource curses such a popular topic? Under the circumstances, isn’t it unfair to expect many states
to successfully manage and profit from their resources?
5. Define the term peak oil and discuss some of the implications it has for the making of future energy policy.
Include in your discussion some of the arguments economic liberals, mercantilists, and structuralists would
make about the idea.
6. When it comes to the future of energy, discuss some of the factors that have led to not only the lack of U.S.
leadership on this issue, but why other countries like China, Germany, India, and Italy have all invested
significant funds toward developing other forms and sources of energy.
7. What are the key economic, social, and environmental tradeoff associated with the growth of nuclear energy
and fracking?
8. How will the boom in U.S. oil and natural gas production affect the geopolitical role of the United States? Will
the United States be able to reduce its military commitments in the Middle East?
9. Why is energy independence a pipe dream?
Sample Examination Questions:
1. Before World War II, this country was the world’s largest producer and exporter of oil?
a) Russia
2. OPEC is an example of a cartel. A cartel is
a) an organization of producers, something like a Japanese keiretsu.
3. Which statement about fracking is most accurate?
a) It produces lots of oil but only small amounts of natural gas.
4. In which year did the first oil shock take place?
a. 1972
5. Which process is thought of as the seed of the debt crisis in developing nations in the 1980s and 1990s?
a) prisoner’s dilemma
6. Which of the following statements about energy in China is incorrect?
7. The oil price hikes of 1979 and 1980 were primarily triggered by events in which countries?
a) Israel, Egypt, and Syria
8. Iraq accused this country of cheating on its OPEC production quotas and siphoning off oil from the neutral zone
between Iraq and this country, which led to the Persian Gulf War.
a) Mexico
9. This U.S. president claimed that the effort to make the United States independent of imported oil was “the
d) Richard Nixon
10. Which of the following statements is most representative of an economic liberal perspective on energy issues?
a) The government should require manufacturers to increase the fuel efficiency of cars to reduce dependence
11. Which country produces more solar energy than any other country in the world?
a) The United States
12. Which of the following is NOT estimated by experts to be a potential outcome of the U.S. fracking boom?
13. Which of the following is NOT commonly associated with a “resource curse”?
d) Saudi Arabia
15. Which of the following statements about renewable energy is not correct?
d) China is one of the largest manufacturers of solar panels in the world.