Agencies
London
“It was forced on them. They don’t have the ability to keep up the production volumes because they don’t have access to necessary technology.” So said the EU’s energy commissioner Kadri Simson in response to Russia’s announcement that it would cut oil production in March by 500,000 barrels per day (bpd). But is this the real reason?
National oil industries can collapse for various non-technical reasons: war, sanctions, political breakdown. History offers at least four solid examples that might compare to Russia’s current situation, excluding physical destruction such as that in Kuwait in 1990-91.
Iran’s production reached its all-time high of slightly more than 6 million bpd in 1974. The revolution of 1978-79, strikes by oil workers and the invasion by Saddam Hussein’s Iraq in 1980 brought it crashing down to 1.3 million bpd in 1981.
Post-war recovery was hampered by American sanctions and unattractive conditions for foreign investment, then by US presidents Obama and Trump’s moves to cut off most of the country’s oil exports. Nevertheless, despite ageing fields and infrastructure, and waves of civil unrest, production still hovers around 3.6 million bpd.
Iraq was also badly affected by wars. Production in the post-nationalisation glory years of the 1970s peaked at almost 3.7 million bpd in 1979. During the Iran-Iraq War, exports via the Gulf were cut by Iranian military action and Iran’s ally Syria closed the pipeline through its territory. Output dwindled, partly recovered when a pipeline via Turkey was opened, then crashed to fewer than 300,000 bpd because of UN sanctions following the 1990 invasion of Kuwait.
The oil-for-food programme in the 1990s allowed for some recovery but the industry was starved of funds and equipment, then battered by looting and political chaos following the 2003 US-led invasion. Only after 2009 and the advent of major foreign investment could the situation improve, as Iraq passed its previous high in 2015 and reached a record of nearly 4.8 million bpd in 2019 before Covid struck. Today’s Iraqi oil industry is almost entirely a post-2009 creation.
Venezuela is the most extraordinary case: without war or, until 2019, strict sanctions, it sabotaged itself. In the late 1990s, it challenged Saudi Arabia and its Opec colleagues with plans for rapid production growth, contributing to a price collapse. President Hugo Chavez, elected in December 1998, reinstated full co-operation with Opec. He fired 17,000 oil workers after a general strike of 2002-03 aimed at unseating him, ruining Petroleos de Venezuela, once an admired national company.
Expropriation of foreign projects, lack of investment, emigration, corruption, theft and sabotage decimated Venezuela’s petroleum industry under Mr Chavez and his hand-picked successor Nicolas Maduro. US sanctions in early 2019, following another disputed presidential election, were the final straw. Record production in 1998 of more than 3.4 million bpd slumped to just 640,000 bpd in 2020.
Despite sanctions waivers to allow US companies to resume some operations, and greater openness to foreign involvement after an apparent change of heart in the Maduro administration, it seems unlikely that Venezuela’s rusting industry, based on heavy, high-carbon oil, will ever truly recover. Russia itself is the final example. As Thane Gustafson’s prescient book Crisis Amid Plenty recounts, the Soviet oil industry of the late 1980s, when Russian output peaked at 11.4 million bpd, was already struggling with inefficiency, outdated technology and depleted fields.
During the post-Soviet time of troubles in the 1990s, the integrated business was broken up and most passed into the hands of “oligarchs”, who fought messy corporate battles to grab more. Prices were low, investment and tax payments minimal.
