Risks of rising oil nationalism

Governments may focus much of their oil wealth on other priorities, causing oil-field efficiency and investment to suffer.

from the April 3, 2007 edition

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In a new analysis of the role of national oil companies, Ms. Jaffe cites stark numbers from the International Energy Agency: Developing nations, typically with oil fields under state control, will account for some 90 percent of new hydrocarbon supplies over the next two decades. That's a sizable shift from the decades since 1970, when industrialized Western nations were able to pump about 40 percent of the world's new supplies, with most of that done by publicly traded companies.

"A major shift in control of reserves and production is under way in international oil markets from international oil companies to national oil companies," John Deutch, former Director of Central Intelligence, said at a March congressional hearing. "The NOCs have both commercial and political objectives. Countries such as Iran, Russia, and Venezuela make clear their intent to use their petroleum resources to advance their political interests."

It's a pattern that ebbs and flows with the price of crude oil, some energy analysts say. When oil prices are strong, resource-rich developing nations try to harvest maximum gains from their petroleum reserves. Governments assert a bigger role for national oil companies and grant a smaller role to firms like Exxon-Mobil.

Of course, the threat posed by the rising NOCs depends on the eye of the beholder. While some US experts fret that world oil supplies won't keep up with growing demand, oil-producing countries may well be worried about domestic unrest. So increased social spending, even from the perspective of Western consumers, may be laudable if it helps stabilize oil markets.

"If we ended up in a civil war, we may not see that output, period," says A.F. Alhajji, an oil expert at Ohio Northern University in Ada. In that way, he says, the NOCs are generally making world oil markets more reliable, not less.

A lot depends on how NOCs are run, and how well they are able to partner with other oil firms or energy-service companies. State-run oil companies can be run efficiently, say Jaffe and other experts, pointing to Brazilian and Norwegian companies as models of success.

On the other hand, Iran is now pumping less than 4 million barrels of oil per day, Dr. Alhajji notes. He estimates that if the previous government had retained power, Iran would be producing 4.5 million barrels per day by now, and 5.5 million by 2010.

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