UK: CRUDE BUT PRECIOUS COMMODITY.

UK: CRUDE BUT PRECIOUS COMMODITY. - Scalding hot, it came in handy to pour over fierce foes. Centuries later, it fuelled cars, and sparked wars and recessions. Rhymer Rigby charts oil's slippery fortunes through the ages.

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Last Updated: 31 Aug 2010

Scalding hot, it came in handy to pour over fierce foes. Centuries later, it fuelled cars, and sparked wars and recessions. Rhymer Rigby charts oil's slippery fortunes through the ages.

Would Saddam have found himself up against 100,000 of NATO's finest if Kuwait's main export had been carrots? Quite possibly not, but the Allied response to Iraq's incursion certainly says something about the lengths the West will go to where oil is concerned. And it's unlikely our leaders would schmooze the autocrats the CIA usually favours as targets were it not for the billions of barrels of crude beneath their sands.

Though oil has only really been worth fighting wars over during the 20th century, its properties have been known and exploited since prehistory.

Around 3000 BC Mesopotamians in the oil-rich Fertile Crescent had discovered that the unctuous black fluid could be put to a variety of uses. These included lighting, sealing and - when heated to boiling point - discouraging unwanted visitors. Evidence of drilling exists from as long ago as the 12th century, though, for the most part, oil and gas seeped naturally to the surface where plentiful. These springs frequently resulted in flaming geysers which, in turn, led to fire worship. Temples near Baku on the Caspian Sea recall the area's popularity as a pilgrimage destination among the Zoroastrians, a prominent pyromaniacal sect.

But the appearance of the world's first dedicated petroleum concern had to wait until the mid 19th century, when the technology for 'cracking' oil into factions such as kerosene appeared. In 1859, the Pennsylvania Rock Oil Company sunk the world's first well in Titusville. Some four years later, a youthful J D Rockerfeller set up shop in Ohio. His company would become the infamous Standard Oil which, by 1879, controlled 90% of the US refining capacity. Worried about this near-monopoly's effect on prices, the Ohio Supreme Court forced Standard to dissolve and reform in New Jersey, where the federal government eventually dismembered it a la AT&T in 1911. Standard offspring such as Mobil survive to this day.

Though oil production and use grew rapidly during the late 19th century, for mankind's love with the gooey hydrocarbon to blossom fully a catalyst was needed: this was found in the mass-produced automobile.

By and large, the world wars passed the oil markets by: in both cases the 'evil empires' of the day had no stranglehold over production. Post second world war, the oil markets, like much of the global economy, danced to America's tune. As the world's biggest consumer - and very significant producer - Uncle Sam called the shots. But this rather benign dictatorship was not to last; in the early 1970s, OPEC flexed its muscles and prices skyrocketed. As the West was then heavily reliant on Arab oil, fiscal turmoil ensued. The oil crisis is often credited with ending the almost uninterrupted postwar growth enjoyed by the western democracies, but the effects were not all bad. The crisis shook the US and Europe out of a complacency borne of seemingly endless cheap fuel. Car manufacturers started worrying about miles per gallon; governments looked at alternative energy supplies; and, here in Britain, we redoubled our efforts beneath the North Sea.

Thus, in the early 1980s, when hostilities began afresh in the Middle East, Britain found itself exporting a commodity that was suddenly worth around $50 per barrel. While this did wonders for our flagging balance of payments, it led to a massive over-valuation of the pound on the foreign exchanges, making other areas of the economy, notably manufacturing, highly uncompetitive in the global marketplace. The 'petropound' is widely blamed for decimating the UK's industrial base during this period.

By the mid '80s OPEC's power and resolve had weakened sufficiently for prices to collapse. This precipitated a sterling crisis and a sharp plunge into the red for the current account. Oil prices leapt again briefly early in this decade on the back of the Iraqi invasion of Kuwait, before declining once more. Though there has been a small pick-up in prices of late, all the signs point to a continuation of a period of unusual calm. Oil's biggest problem - that it might run out - has receded further into the future than most would have dared hope 20 years ago. Likewise, the Gulf seems to be somewhat more stable now, politically, with a rocky but holding Pax Arabia.

All said, though, those enjoying the present lull would do well to remember that crises always take us unawares. And small countries with aggressive neighbours would do well to start drilling wells.

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