Ownership and Control of Oil Ownership and Control of Oil examines government decisions about how much control to exert over the petroleum industry, focusing on the role of National Oil Companies in the production of crude oil since the nationalizations in the 1970s. • What are the motives for which some producing states opt for less and not more control of their oil production sector? • When can International Oil Companies enter the upstream industry of producing states and under what conditions? The diversity of policy choices across producers provides the stage for this investigation: different theoretical explanations are confronted with empirical evidence, with the aim of fi nally proposing an interdisciplinary framework of analysis to explain who controls oil production around the world. This book is intended for both specialists and general readers who have an interest in the issue of government control of the petroleum industry. Due to its multidisciplinary approach, the book is aimed at a large academic public composed of scholars of political science, international political economy, comparative politics, and Middle East area studies. Moreover, this book should be relevant to international consultants, industry professionals and decision-makers in countries assessing their experience with existing control structures as well as the many countries in the process of joining the “petroleum club” of oil producing nations. Bianca Sarbu is a post-doctoral researcher at the Center for Security Studies, ETH Zurich. Her research spans the fi eld of Energy Studies with a particu- lar focus on the oil industry, political risks, National Oil Companies and International Oil Companies, as well as the political economy of oil producing countries. For the 2011/2012 academic year, Bianca was a Fulbright Visiting Scholar at the Elliott School of International Affairs, George Washington University, Washington DC, USA. This page intentionally left blank Ownership and Control of Oil Explaining policy choices across producing countries Bianca Sarbu ROUTLEDGE Routledge Taylor & Francis Group LONDON AND NEW YORK First edition published 2014 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2014 Bianca Sarbu The right of Bianca Sarbu to be identifi ed as author of this work has been asserted by her in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identifi cation and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Sarbu, Bianca. Ownership and control of oil : explaining policy choices across producing countries / Bianca Sarbu. pages cm Includes bibliographical references and index. ISBN 978-0-415-72599-6 (hb : alk. paper)—ISBN 978-1-315-77809-9 (ebook : alk. paper) 1. Petroleum industry and trade—Government policy. 2. Petroleum industry and trade—Political aspects. I. Title. HD9560.6.S37 2014 338.2'7282—dc23 2013042670 ISBN: 978-0-415-72599-6 (hbk) ISBN: 978-1-315-77809-9 (ebk) Typeset in Sabon by Refi neCatch Limited, Bungay, Suffolk To my parents and my Manuel This page intentionally left blank 1. The right of peoples and nations to permanent sovereignty over their natural wealth and resources must be exercised in the interest of their national development and of the well-being of the people of the State concerned. 2. The exploration, development and disposition of such resources, as well as the import of the foreign capital required for these purposes, should be in conformity with the rules and conditions which the peoples and nations freely consider to be necessary or desirable with regard to the authorization, restriction or prohibition of such activities. (United Nations General Assembly Resolution 1803 (XVII) of December 14 1962, “Permanent Sovereignty over Natural Resources”) Oil is the most glaring exception to the rules of trade and investment underpinning globalization. (. .) Barriers to investment are preserved and protected as governments freely discriminate against foreign investment or totally ban it, providing their companies unfettered, uncompetitive monopo- lies in the exploration, production and sale of oil. (Edward Morse, SAISPHERE 2005) This page intentionally left blank Contents List of fi gures and tables x Preface and acknowledgements xii 1 Rethinking the ownership and control of oil 1 2 Upstream sector policy in the oil industry 22 3 Current readings of Energy Studies and theory development 50 4 A statistical analysis of oil upstream sector policies across the world 82 5 Mirroring the cases of Saudi Arabia and Abu Dhabi 108 6 Conclusions 154 Annex 164 Index 195 Figures and tables Figures 1.1 Position of this book in relation to the existing literature 12 3.1 Analytical framework—explaining oil upstream sector policies worldwide 69 5.1 Professional distribution of interviewees on Saudi Arabia (22 interviewees) 112 5.2 Professional distribution of interviewees on Abu Dhabi/the UAE (16 interviewees) 113 6.1 Revised analytical framework 156 Annex 7 State control ratio versus time 172 Annex 8 State control ratio—variation across countries 174 Annex 9 State control ratio (mean) versus time 176 Annex 14 Political constraints versus state control ratio 186 Annex 15 Control structures in (a) Saudi Arabia versus (b) Abu Dhabi 188 Annex 16 Time versus state control by country 190 Tables 1.1 Relevance of the existing literature to this book 14 2.1 Combinations of ownership and control 30 5.1 The Board of Directors at Saudi Aramco (August 25, 2012) 125 Annex 1 NOCs abroad 164 Annex 2 Countries in the sample 165 Annex 3 Countries by year in the sample 166 Annex 4 Data operationalization and sources 168 Annex 5 Summary statistics 170 Annex 6 Correlation matrix 171 Annex 10 Regression models 1–7 178 Annex 11 Regression models 8–14 180 Annex 12 Regression models 15–21 182 Figures and tables xi Annex 13 Regression models 22–25 184 Annex 17 Questionnaire on the oil sector organization and upstream strategies in Saudi Arabia and the United Arab Emirates 192 Preface and acknowledgements This book examines the diverse policies pursued by producing countries in their oil production sector, also known as the oil upstream, since the nationalizations in the 1970s. More specifi cally, it explores the motivations behind government decisions about how much control to exert over the petroleum industry, focusing on the role of National Oil Companies (NOCs) in the production of crude oil. The idea of the book concretized in time and took shape in a doctoral research project at the ETH Zurich in Switzerland. Following myriad discussions with fascinating people I had the chance to meet at the UN headquarters during my time as a Youth Delegate of Romania in New York, I grew more and more interested in energy-related topics and resource curse. Curiosity-driven, after my return to the ETH Zurich, I immersed myself in endless readings and debates until I faced the puzzle. In short, a number of oil-rich countries around the world like Kuwait, Saudi Arabia, Iran, Mexico (since the 1990s until the mid-2000s), Uzbekistan and Turkmenistan have kept their oil upstream industry largely under state control. If present, foreign oil companies have operated without decision-making rights over investments, oil prices or profi ts. In contrast, other oil producing countries like Abu Dhabi in the United Arab Emirates, Oman, Colombia (since the 1990s), Kazakhstan and Azerbaijan have attracted foreign direct investments into their upstream and have made their NOCs share production and profi t with International Oil Companies (IOCs). The question that sprang to my mind was “What triggers this variation?” or in a more scholarly form, “Why have oil producing countries pursued diverse policies in their oil upstream sector?”. To my surprise, the existing theoretical and empirical scholarship turned out NOT to have a systematic and comprehensive answer to this, which provided the stage for my doctoral investigation and eventually this book project. Over the past years of research and writing, I have grown grateful to a lot of people for their intellectual and/or moral support. In this sense, I would fi rst like to express my most sincere appreciation and thanks to Professor Robert Weiner from George Washington University in Washington DC for Preface and acknowledgements xiii his intellectual guidance, knowledgeable advice, unconditional support, and not least, collegial attitude during my Fulbright Fellowship as well as afterwards as external supervisor on my doctoral committee. For encouraging me to advance my academic degrees, pursue my research interests, fi nd an empirical puzzle, and also, for upholding the trust in my abilities and determination to bring this book project to an end, I am fully indebted to Professor Andreas Wenger from the ETH Zurich. Furthermore, I am most grateful to Fareed Mohamedi from Statoil and Rodica Donaldson from EDF Renewable Energy (formerly enXco) for offering me invaluable perspectives from energy consultancy and the industry, as well as for introducing me to the community of energy experts on the Middle East. In addition, I am fully indebted to my interview partners, without whose breadth of knowledge, expertise and insights this book would not have been possible. I should also like to thank Christian Wolf, Raphael Andre Espinoza and Pauline Jones Luong for sharing datasets with me and for fruitful discus- sions.