An American voter’s guide to the dirty truth about oil

What does “oil” make you think of? Do “invasions” and “emissions” top your list? Why have leaders thought it worth spilling so much blood for the sake of this pungent mud? And why has it been so hard to switch away from this fuel that is harming our one and only environment? Here are the real facts about oil in the world today—the facts about oil prices, the oil companies, Saudi Arabia, and crayons—that every voter should know. Excerpted from Blood Oil: Tyrants, Violence, and the Rules that Run the World, out now from Oxford University Press.

The cathedrals of modernity

Travelers returning from a trip to Egypt or India or Italy may scan their home country with a critical eye. Where, after all, are our great wonders? Where are our pyramids? And what have we built that approaches the glorious Taj Mahal? Today, we are so much richer than the Italians of the Renaissance—and our architects can computer-design any fantasy. Yet what have we done with all of our wealth and technology, really? Have we created anything that can hold a candle to St. Peter’s in Rome?

These travellers are looking in the wrong places. Unlike the ancient civilizations, our modern civilization does not invest its genius in glorifying its rulers or gods. Our best designers and biggest enterprises mostly strive to satisfy the daily desires of ordinary people. And that means that our architectural wonders are ugly monstrosities, hidden far from public view. Instead of the grandeur of pharaohs or popes, much of our engineering ingenuity is aimed at the shared need of all production and consumption, which is energy. Travelers looking to see the cathedrals of modernity should helicopter out to an oil platform.

The world’s tallest skyscraper is the Burj Khalifa in Dubai—but an oil platform in the Gulf of Mexico stands more than two-thirds taller. The One World Trade Center complex in New York has been called “the world’s most expensive building”—it cost around $4 billion; Australia’s Gorgon gas facility is estimated at $54 billion. Russia’s Berkut platform is built to survive a sixty-foot tsunami—and to endure a 9.0 earthquake without interrupting its operations. A platform floating off the coast of Brazil can stretch its equipment through 12,000 feet of ocean and still drill a well to 40,000 feet—farther below the earth’s surface than most commercial jets fly above it. There are two man-made objects that can be seen with the naked eye from the surface of the moon—the Great Wall of China, and the Troll platform off the coast of Norway.

 The outcome of innovation has been oceans of oil. 

The oil industry is first and most about geology and engineering: about finding elusive pockets of molecules in the earth’s crust, extracting them, transporting them, and refining them into useful products. Doing this today requires highly sophisticated technology—imagine what it would take to drill to a closet-sized area half a mile down and seven miles away; that’s been done off the coast of Siberia. Subsurface imaging techniques require huge amounts of artificial brainpower—and 4D seismic surveying captures gigantic caches of data. There already exist today what Star Trek fans would recognize as holodecks: immersive rooms where petroleum geologists walk through dynamically simulated oil reservoirs.

The outcome of innovation has been oceans of oil—transported through tubes that are as long as the Mississippi River and carried by ships five times heavier than the biggest aircraft carrier. The world uses 1,000 barrels of oil—that is, 42,000 gallons of oil—each and every . . . second. Imagine four Olympic-sized swimming pools full of dark liquid disappearing into showers of tiny sparks, once a minute. This liquid is being used everywhere around the world, helping humans to live in unprecedented numbers and in the remotest locations. The geniuses of the ancient world would not know how to take the first step of the engineering feats that we hardly notice. The Romans were so proud of their aqueducts; few of us give a thought to the oleoducts that sustain modern civilization worldwide.

 The world uses […] 42,000 gallons of oil—each and every second. 

The reason that oil is so much with us is that—ignoring the geopolitics and the environment for the moment—it is such a brilliant energy source for transportation. Oil fuels are easy to move, relatively light and stable, and pack lots of punch: a gallon of oil contains about the same energy as ten pounds of coal, seventeen pounds of wood, and (comparing again to ancient civilizations) fifty days of slave labor. If you tried to fly a 737 using today’s best batteries instead of jet fuel, you would need to load batteries that weighed twenty-two times more than the plane itself.

The fact to remember here is that today oil is humanity’s largest source of energy. Over 90% of the world’s transportation runs on oil—that’s almost every car, truck, ship, and plane on Earth. The world’s fleet is oil-powered today because (again holding politics and the environment aside) oil has for years been the best engineering solution to the challenge of moving people and goods. Right now, any machine that travels on land, air, or sea is very likely powered by oil. It may well be that everything you can see right now (including the people) has been moved to where it is by tiny oil sparks.

Petroworld

Oil is the world’s most valuable internationally traded commodity—worth trillions every year—and oil isn’t just energy. Oil also contains chemicals that suffuse our material world. It’s as though a giant petroleum geyser had erupted in the center of each continent and splashed all over it—over the roads, into the buildings, onto the people. You drive on it, and you wear it in your waistband. It may be smeared on your face, and it may be enhancing your sex life. Oil is everywhere.

Basically, if it’s plastic, it’s oil. And if it’s synthetic, it’s likely made from oil. And there’s more too; a very partial list of ordinary things often made from oil includes:

Asphalt, aspirin, balloons, blenders, candles, car bumpers, carpets, contact lenses, crayons, credit cards, dentures, deodorants, diapers, digital clocks, dinnerware, dyes, eyeglass frames, furniture fabrics, garbage bags, glue, golf balls, hair dryers, infant seats, lipstick, lubricants, luggage, paint, patio screens, pillows, shampoo, shaving cream, slippers, syringes, tents, tires, toothpaste, toys, umbrellas, vinyl, vitamins, and wallpaper.

 Basically, if it’s plastic, it’s oil. 

The role of oil in world food production is significant. Modern agriculture depends on oil, not only to power farm machines but also for fertilizers and sprays. The Green Revolution of the twentieth century—which helped to double agricultural yields and the human population in a generation—grew on the nitrogen extracted from oil. As the philosopher John Gray has put it, “intensive agriculture is the extraction of food from petroleum”—yet another way in which oil today sustains the species at its size.

Imagine one lifetime in today’s petroworld. As a baby girl emerges, the doctor catches her in oil gloves, and nurses clean her with oil cloths. Her parents look down through oil lenses; they drive her home in an oil carriage over oil streets to the oil-furnished house where she will grow up eating oil food. All her toys are oil, and her books are written in oil ink. She buys an oil suit when she gets a job, and she spends more time looking at oil each day, in the plastic of her screens, than looking at human faces. She spends more time touching oil each day, in her keyboard, than caressing her spouse or her children. She ages; she takes oil pills; her hips are replaced with oil hips, her heart valves with oil valves. At last, she dies, lying in oil blankets. The oil tubes and catheters are removed, and the oil sheet is pulled over her. It could be any life; it could be ours.

Get thee behind me, Petro

We now take up a few topics that are more emotive, like the price of oil and Saudi Arabia.

The countries that have the most oil are not the countries that use the most oil: about 60% of the oil that is used in the world crosses an international border. The world’s “artery of oil reserves” starts in Siberia, is widest in the Middle East, snakes through Africa, and then arcs up from Brazil to Canada. The Middle East has just under half of the world’s proven oil reserves, and most of its production now goes to Asia. The United States today imports about a third of all the oil it consumes. Canada is the biggest source of oil imports to the United States, followed by Saudi Arabia, and then Mexico and Venezuela. Shale in the United States has boosted domestic oil (and even more domestic gas) production remarkably since 2009, meaning that US imports have recently decreased rapidly. Many are now predicting North American energy independence within a decade or so.

The United States has never been that reliant on the Middle East for oil—its dependence is now less than 10%, and has never been more than 15%, of total consumption. Why then has America spent such huge amounts keeping its military in the region—and why has it shown itself so ready to use its military there, even at great cost?

 Oil is a globally traded good that essentially has a single world price. 

As far as oil goes, there have been two basic plot lines. First, major US trade partners and allies (such as Europe and Japan) have been more heavily reliant on Middle East oil, and the United States has traditionally seen the economic vitality of these countries as favorable to its own interests.

Second, oil is a globally traded good that essentially has a single world price—everybody pays the same for a barrel of oil. The world price of oil (and so the price in the United States) is greatly influenced by what happens in the Middle East. To take Bill Nordhaus’s metaphor, you can think of oil-producing countries as pipes of different sizes hanging down and filling up a bathtub. Think of oil-consuming countries as drains of different sizes drawing oil out from the bottom of that bathtub. The world price changes with the level of oil in the tub. For price, it doesn’t matter which countries are piping oil in or which countries are draining oil out: all that matters is how much is in the tub. The more oil there is in the bathtub, the lower the price for everyone in the world; the less oil there is, the higher the price for all.

Since the Middle East has the biggest “pipes,” keeping oil flowing through those pipes is the best way to keep the world (and so the US) oil price down. And since the Saudi regime can open or close the valve on its huge pipe, it has traditionally had the greatest influence on the world (and so on the US) oil price. So the Middle East, and the Saudis in particular, have been important for cheaper oil, and “cheaper oil” basically means “cheaper everything”—and so more economic growth. The United States has believed that military and diplomatic engagement with the Middle East is in its overall national interests (though this is an assumption that some are now questioning).

 Basic economics are what is slowly shifting the world away from oil right now. 

Prediction is difficult, as Niels Bohr quipped, especially about the future—and nowhere more so than with the future of oil. Ten years ago, the talk was about global “Peak Oil”—that the world would soon run out. Then supply curves rose, demand curves flattened—so today few speak about Peak Oil. All forecasts about energy should be taken with shakerfuls of salt. Right now, the most sensible thing to say is that the world will not soon run out of oil—but it has moved beyond cheap oil.

The giant Texan oil fields that gushed in the 1930s yielded more than a hundred times the energy it took to extract that energy—and the Middle Eastern megafields of today are likely even more generous. But the world now demands much more oil than such “easy” fields provide. Deploying expensive oil platforms offshore, or evulsing the gummy oil sands of Canada and Venezuela, pushes the energy ratio down—from these new sources, one gets only a ten-to-one, or even only a four-to-one, return on the energy invested. These basic economics are what is slowly shifting the world away from oil right now—and future policies (such as on climate) could speed that shift. The Stone Age did not end because of a shortage of stones, as one commentator put it, but because new technologies were found that were better overall.

Countries and companies

Much of what is commonly believed about the big Western oil and mining companies is true. Companies like Exxon, Shell, and BP are gigantic global firms. They are fierce capitalist enterprises wherever they operate, yet they are also powerful enough to demand large tax breaks and subsidies at home and abroad. They are well connected at the highest levels of government around the world. In general, these firms have been obstructionist on climate change issues. And while their investments in alternative energy and “corporate social responsibility” are not trivial, these are essentially window dressings around their core business concerns.

However, some people may have a few belief weeds about these companies that it will be useful to pull out. The first surprise is that if one has heard of an oil or mining company, then it is probably better behaved than most. This is not because the familiar Western companies are altruistic, but simply because they must maintain the value of their brands. In the shadowy world of oil, there are many firms that most people never hear of—the Asian national oil companies, gigantic traders, small explorers—that are much worse than the Western majors when it comes to environmental safety, labor standards, and doing dodgy deals with corrupt foreign officials. For firms in the oil industry, to know them is actually to love them (at least relatively).

 It is countries, not companies, that are most important [in the world’s oil trade] today. 

The second surprise is that the oil companies do not really pull all the strings in Washington, London, or Paris. These firms are well connected, they do have influence, but they represent just one business sector that lobbies among many others. And their interests are often overridden by geostrategic maneuvering. (Think, for example, of the sanctions that the American government has placed over the years on Iran, Iraq, Libya, and Sudan—these sanctions have meant that US oil companies were not allowed to make money in these big oil countries.) More, the oil industry does lose political battles—sometimes even to small but well-organized NGOs. If you think of “groups that influence policy” as needles dipping into a pool of water, then the oil industry is one large needle, but there are many other needles too.

The crucial fact that everyone needs to know about the world’s oil trade is that it is countries, not companies, that are most important today. Countries own their natural resources—they only hire foreign companies, if at all, to get the resources out of the ground. You can think of the well-known oil companies like Chevron as star football players. A star can ask for a lot when bargaining to join a team—but it is the owners who have the money and make all the most important decisions.

The biggest oil-producing countries, like Saudi Arabia, use their own national oil companies to take their oil out of the ground—they only hire in the Western majors to do the occasional odd job. These big countries and their national companies are far more important players than any private firm. (Saudi Arabia, for example, controls close to 20% of the world’s reserves of oil. Exxon, the largest US oil firm, controls less than 1%.) Smaller oil-producing countries do need to hire foreign companies to extract their oil, but today they have many foreign companies to choose from—not only the Western majors but also, for example, the deep-pocketed Chinese companies and also oil service firms like Halliburton. What the Western majors offer is world-leading technology and decades of experience in managing large, complex projects in difficult places. So the Western majors are still the top choice for the most geologically and politically challenging plays. Still, the majors have lots of competition nipping at their heels.

  If [an oil country] hires a foreign company, it will usually pay that company in oil […] [and] will also pay money to the government. 

An oil country has oil; it needs to get that oil out of the ground. If it hires a foreign company, it will usually pay that company in oil, by letting the company keep some of the oil that it extracts. Along the way, the company will also pay money to the government (in signing bonuses, royalties, taxes, and more). These contractual arrangements often involve very large sums, and they have traditionally been kept secret. This has allowed vast corruption for decades. When the US imposed half a billion dollars in fines on Halliburton for bribing top Nigerian officials, it was the punishment, not the crime, that shocked insiders.

Whoever gets the oil out of the ground, once the oil leaves the country it enters the global market, and it can in principle go almost anywhere. Someone will refine it and sell it to a retailer who will then sell it to consumers. The gas you buy at a Chevron station might have been extracted by Chevron and refined by Chevron—but it also might have been extracted by Kuwait, shipped by an oil trader like Vitol, refined by Marathon, and then sold to the Chevron station. The people who protested outside BP stations after the 2010 spill in the Gulf of Mexico were directly attacking only a small part of BP’s business—the retail part. What these protesters were doing more effectively was piling more damage onto BP’s brand.

Emerging from the mud

Someday, our progeny will look back at our current primitive state, where humans propelled themselves around the planet by burning mud. But right now, if that mud suddenly became incombustible, much of the species would be dead within a year. Humanity is heavily dependent on an enormous oil-fueled infrastructure for transporting itself, and for making and moving what it needs. That will change, more quickly or more slowly, depending on the choices we make now.

You can follow Leif on Twitter at @LeifWenar. We welcome your comments at ideas@qz.com.

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