In the last 20 years oil production in the free world has taken on the color, pace and excitement of a steeplechase. The hurdles are high, the purses are large, and the odds are changing quickly.
Up to World War II the United States and Venezuela were inevitably the favorites to win any production race. They had, to push the metaphor further, the inside track. But today new entries, all champing at the bit, are moving up fast and it looks as if they'd be in the running right down to the wire—whenever and wherever that may be. If so, the Middle East will be neck and neck with the winners.
To the late United States geologist E. I. DeGolyer this would have been no surprise. In the midst of World War II, Mr. DeGolyer, despite the uncertainties of the period, advised the U.S. Government that the center of gravity in the world's oil production would shift gradually from what he called the North American-Caribbean area to the Middle East-Arabian Gulf area. His prediction caused a stir, but most economic seers were skeptical—and not without reason. Few of them, if any, imagined that the free world crude oil production would increase nearly four times between 1945 and 1965. And the United Sta.tes at that point—1945—was, by a large margin, the leading producer of oil in the world and Venezuela was the dominant exporter. Between them they met about 85 per cent of the world's needs. And although oil had been known in the Arabian Gulf as long ago as 4000 B.C. and had been discovered in recoverable quantities in Iran (1908), Iraq (1923), Bahrain (1932). Saudi Arabia (1937). Kuwait (1938) and Qatar (1940). only four of the strikes had been developed. Other than trickles from Saudi Arabia and Bahrain, production in the southern littoral of the Gulf was not only in its infancy but, because of the war, at a virtual standstill. In 1945 the Gulf region as a whole produced less than one-tenth of the crude oil in the free world.
Five years later, however, Mr. DeGolyer's" prediction didn't seem quite as improbable. Spurred on by massive investments in exploration, pipelines and shipping terminais, the Middle East had begun to stretch its legs. New wells in Kuwait (1946), Turkey (1948) and Qatar (1948) had gone on stream. Production in Iran had increased so fast that the country was already the second largest exporter in the free world and the largest in the Gulf region.
The next 10 years—in what one oil magazine labeled the "fighting fifties"—were even more interesting. Despite a serious drop in output when Iran got caught on the hurdle of nationalization, the Gulf as a region expanded production at an impressive rate. Kuwait soon took over iran's place as the primary crude oil exporter of the Gulf and Saudi Arabia moved up to second place. After a slow start in 1954 even the Neutral Zone became a significant producer. By 1955 the Gulf countries together were producing more than a quarter of the crude oil for the free world—even though the free world's total had doubled—and by 1960 the North American-Caribbean area's share in production had fallen from nearly 90 per cent to just over 60 per cent.
In the meantime, the new entries in the production race were themselves being challenged—internally as well as externally. Twenty years ago the Arabian Gulf was roughly divided into huge blanket concessions—most of which had been awarded to the world's major oil companies. Today there is a patchwork of concessions held by smaller independent companies. These companies have been especially active in the Neutral Zone and offshore in the Gulf. Some have been successful, some not; but overall, their new discoveries helped to expand the Gulf output of crude oil. Tiny Abu Dhabi, for example, the largest of the Trucial Oman states, did not enter the race until 1962. yet by 1965 had shot up to sixth place. In that year Abu Dhabi together with Qatar, Bahrain and the Neutral Zone produced more than a tenth of the Gulf total.
Outside the Middle East the new entries wore gay silks adorned with such colorful names as "Nglobo-Semanggi-Benjusasin," "Kotobatak," "Teluga Said." all fields in Indonesia, and "Moonie" and "Sunny Bank." in Australia. But with Indonesia more or less permanently in eighth place as a producer—tenth in 1965—and Australia still relatively slow, the real challenge of the 1960's came from North Africa and Nigeria,
Concerning the upsurge of production in the Middle East there was at least one expert—Mr. DeGolyer—who anticipated it. But no one was wholly prepared for the dynamic developments in North Africa. There, in 1958, from fields whose names ring with Beau Geste romanticism-El Gassi. Eladeb Larache—new wells in the Algerian Sahara began to pour petroleum into Europe. Not long after, Libya joined the race and soon earned the title of oil's "hot spot" in North Africa. Although starting three years later than Algeria. Libyan production shot up like a jet on a short runway. Libya's average annual increase in a four-year period was 40 per cent and last year—while Algeria was hobbled with a shortage of pipelines—it took the lead. In total production the Algerian Sahara and Libya together are still much less prolific than the Middle East countries as a whole, but they have, nevertheless, achieved a staggering record—a combined increase of nearly 30 per cent each year. Whereas they produced a meager one per cent of the free world's production in 1960 their joint share of production by the end of 1965 was seven per cent, and Libya alone was crowding Iraq for sixth place as a producing country.
In West Africa, meanwhile, fields like Nun River and Rembo Kott in Nigeria had also begun to produce black gold at a devastating pace. With a 145 per cent increase in 1965 over 1964, Nigeria showed the greatest growth rate of the free world and was hailed by one publication as the "top newsmaker in oil circles in 1965." Furthermore, Nigeria has, according to another source, "a future... that many would envy." When explorations are finished in such a place as the volcanic island of Fernando Poo in Spanish Guinea, there may be an even richer treasure house to dip into.
Despite this mercurial pace, and despite the vigor of Algeria, Libya. Nigeria, and, most recently, Canada, the only significant challenge to the favorites—at least during 1965's derby—has come from the Middle East. It is true that Africa, for example, had the biggest growth in free world production in 1965, yet its total production for that year was less than a third the Arabian Gulfs total. The newcomers never even got to within shouting distance of the United States. And Venezuela remained, by several lengths, the second largest producing country and the largest national exporter even though failing to recover from a serious loss of European shipments in 1964.
The Middle East, on the other hand, has been gaining ground year after year. From 1962 to 1965 the Gulf's output rose nine per cent each year—in contrast to the annual average of less than eight per cent for the free world as a whole—and in the last 20 years has increased 14 times. In 1965 the combined production and export of Saudi Arabia and Kuwait, the Gulfs two star performers, exceeded that of Venezuela for the first time by a significant amount. For the first time, too, Saudi Arabia and Kuwait achieved a production average of two million barrels a day. An even more impressive triumph was recorded when the Gulf countries as a group produced more than the United States—the first time in history U.S. oil production was ever exceeded.
With 1966 figures incomplete it remains to be seen whether any of the contenders maintain the same thundering pace this year as in 1965. but few would argue that right now the odds on the Middle East are good. Although the United States is still the main producer of oil in the world and Venezuela is still second, the countries strung out behind them were all from the Middle East: Kuwait, third; Saudi Arabia, fourth; Iran, fifth; and Iraq, sixth. As to the future, the Middle East's proved reserves are not onty the largest in any oil region in the world, North Africa excluded, but also represent 70 per cent of the free world's total. The area as a whole contains more than six times the crude reserves of the U.S.A. and has a much lower withdrawal rate. Active exploration, moreover, is constantly adding to the total reserves. The Middle East, in short, looks like a good bet now or anytime.
Keith Carmichael is a graduate of Oxford, where he studied philosophy and economics, and an author who has published one novel and numerous articles and is under contract with Penguin Books to write a book on marketing. He is now driving around the world studying ancient trade routes and gathering material for a new book.