The modern-day commercial extraction of oil began in the mid-19th century in the United States and present-day Azerbaijan, then part of the Russian empire. Before the introduction of electricity in the early 1880s, crude oil was refined into kerosene as an illuminating fuel in lamps. By the late 1800s, the oil demand surged as the invention and dissemination of the internal combustion engine transformed the transportation of people, goods, and services.1 Today, oil is primarily used in the transportation sector and for the manufacturing of plastics, chemicals, and pharmaceuticals. In 2022, oil accounted for 32% of global primary energy use. The top five oil consumers were the United States, accounting for 19% of oil consumption, followed by China (15%), India (5%), Russia (4%), and Japan (4%).2
The first big oil boom was triggered by the discovery of the Spindletop field in Texas in 1901, catapulting the United States to the top position in global oil production. Through the Second World War, global oil exploration and extraction expanded in the Middle East, Russia, Mexico, and Venezuela. World War II compelled the Allies to search for oil reserves in the Middle East and North Africa due to Europe’s limited oil resources. Oil was a strategically vital energy resource to power warships, tanks, and airplanes during the war.3
The history of oil is closely intertwined with the era of decolonization, a period that coincided with the shift from coal to oil as the world’s most important energy source. Countries in the Middle East and North Africa that were under colonial rule sought independence and faced challenges in asserting control over foreign oil extraction companies operating within their territories. From the mid-1950s through the 1970s, many nations like Venezuela renegotiated terms that produced a more beneficial splitting of profits with international oil companies.4
The Organization of the Petroleum Exporting Countries (OPEC) creation in 1960 would dramatically alter the world oil market and global geopolitics.5 OPEC was formed in part to counter the domination of oil production by the “Seven Sisters,” major British and American oil companies.6 The five founding members–Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela—agreed to coordinate production decisions to rest market control from Western companies and increase revenues through efforts to raise prices.
The rise of OPEC and other market conditions introduced tremendous price volatility in the 1970s and 1980s. Wars and revolutions in the Middle East caused historic and rapid increases in the price of oil that produced global recessions and shook the global political landscape.7 Higher prices encouraged non-OPEC nations to increase oil supply, which was one factor that helped prices to fall dramatically in 1986.
Oil consumption increased steadily in the 2000s due to rising population, increased affluence, and especially the use of personal vehicles and air transportation. Fracking in the United States enabled the country to dramatically increase output, as did the expansion of oil sands in Alberta, Canada. Oil production in Russia nearly doubled from 2000 to 2019. More non-OPEC production did not eliminate price volatility. For example, prices collapsed during the COVID-19 pandemic due to reduced economic activity, especially driving, only to have prices surge in 2021 when economic recovery commenced.
1 Offshore Technology, “The history of the oil and gas industry from 347 AD to today,” March 7, 2019, Link
2 The Energy Institute, “Statistical Review of World Energy 2023,” https://www.energyinst.org/statistical-review
3 Yergin, Daniel, “The Prize: The Epic Quest for Oil, Money & Power,” Simon and Schuster, 200Link
4 Högselius, P. “The political history of fossil fuels: coal, oil, and natural gas in global perspective,” In Handbook on the Geopolitics of the Energy Transition.; Scholten, D., Ed.; Edward Elgar Publishing, Inc.: 9 Dewey Court, Northampton, Massachusetts 01060, USA, 2023, pp. 67-83Link
5 Fattouh, B., Sen, A. (2016). “The Past, Present, and Future Role of OPEC.” In: Van de Graaf, T., Sovacool, B., Ghosh, A., Kern, F., Klare, M. (eds) The Palgrave Handbook of the International Political Economy of Energy. Palgrave Handbooks in IPE. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-55631-8_3
6 Office of the Historian, Foreign Service Institute, United States Department of State, “The 1928 Red Line Agreement”, Link
7 Painter, D. S. (2014).” Oil and Geopolitics: The Oil Crises of the 1970s and the Cold War.”Historical Social Research, 39(4 (150)), 186–208. http://www.jstor.org/stable/24145533