The Decline of Oil Demand and the Future of Petrostates

Adriana Castagnoli
Historian of Economy, editorialist of the daily Il Sole-24 Ore, former teacher in Contemporary and Economic History at the University of Torino, member of the European Business History Association and Business History Conference (USA)

Giuliano Garavini
The Rise & Fall of OPEC in The Twentieth Century
Oxford, Oxford University Press

In September 2020, BP, the oil company that recently declared the intention to become emission-free, has published its “World Energy Outlook”. In this, the company suggests that the global demand for crude oil has already reached its peak, and may therefore be heading towards rapid decline.

Major changes are taking place in the oil sector, compared to previous decades. First of all, thanks in part to what happened in America with tight oil, and the two oil crises in the 1970s, the fear of a crude oil shortage has given the way to the admission of its abundance. Secondly, oil-dependent countries have acknowledged that, for the sake of the planet, this dependency must end. Thirdly, the shift towards electrification: a new system of renewable energies is emerging, such as solar and wind power, which by 2050 could provide about half of the global energy needs. Oil and coal usage will plummet, although the use of natural gas will remain crucial. Climate change and political pressures are driving the world towards low-carbon energy sources, and this inevitably alters the power of balance.

The axiom contained in The Rise & Fall of OPEC is that international cooperation among petrostates was one of the most powerful driving forces in the international history of the 20th century. The sources of the book are a wide range of archival documents as well as ‘conversations’ with many political actors of the oil world. The book makes an important contribution to the history of the interaction among powerful global capitalist forces such as the big oil companies, the rentier oil states, and the big consumer states and their governments. This triangulation generated, according to Garavini, its own peculiar forms of cooperation: the big oil companies’ oligopoly, lasted until 1973, the creation of OPEC in 1960, and the International Energy Agency (IEA) in 1974.

According to Garavini, the power of these competing interests on the balance of the world has been somehow overshadowed in historiographical interpretations, as a result of an excessive focus on both the logic of the Cold War and the policies of the great powers. The states that instituted OPEC were different in many ways, because of their side in the Cold War, or their religion or language, but they were nonetheless united by being exporters of crude oil. Garavini links the rise of OPEC to the debate on the development of the Global South and the history of the environment. This is because OPEC was the first ‘organisation of the Global South’ against the overwhelming power of the industrialised consumer countries, at least until the attempt, carried out within the United Nations, to build a New World Order through an explicitly political initiative for the reorganisation of international power, including that of the media, which the process of decolonisation had initiated. However, Juan Pablo Pérez Alfonso, a leading political figure in OPEC and Venezuela, had already proclaimed the failure of OPEC as an ‘ecological force’ at the end of the 1970s. The history of oil is also that of those producer 63 countries that have not joined the cartel. For instance, Russia (and before that, the USSR), as Moscow has never been interested in an international commodity policy nor in the New World Order. Since the Cold War, Kremlin’s foreign policy focused on oil and gas exports – as historians have well reconstructed – to increase its influence over the Baltic States, Eastern Europe and even Western Europe. As this book also shows, Ronald Reagan and Margaret Thatcher, leaders of the most important crude oil both producing and consuming countries, played a decisive role in defeating OPEC with the 1986 price collapse and the loss of the cartel’s control over them. The tensions that for decades marked the relationship between petrostates, big oil companies and big consumer states, now including China, still persist. In conclusion, the world is now moving towards low-carbon energy sources, and this is already changing the balance of power in favour of those who gain the most from this transition. In the short and medium-term, Russia and Saudi Arabia’s industry may be strengthened by the growing demand for oil resulting from the post-pandemic economic recovery, considering also that hydrocarbons remain fundamental to the chemical industry’s production processes. Provided that the United States, as the largest oil producer, aims to reduce fracking for environmental reasons. China has its own robust oil industry, but, as the world’s second-largest economy, still has to import about three-quarters of its needs, making it the world’s largest oil importer. Beijing is also gaining from the energy transition process, as it has obtained a global leadership position in green energy. It also has a dominant position in the lithium’s market, an indispensable component for electric car batteries, as well as in the related supply chains, controlling about four-fifths of