The Prize: The Epic Quest for Oil, Money, and Power

by Daniel Yergin

The postwar petroleum order rested on two foundations. One was composed of the great oil deals of the 1940s, which had established the basic relationships among companies operating in the Middle East. These arrangements mobilized the resources required for the rapid development of the petroleum reserves, tied production to the refining and marketing systems required by the scale of reserves, and developed and secured the much larger demand that was required. The second foundation was composed of the concessional and contractual relationships between the companies and the governments of the oil-producing countries, at the heart of which was the hard-won fifty-fifty profit-sharing arrangement. On those two bases, it was hoped, relative stability would be built. Fearing what might otherwise follow, neither major oil companies nor the governments of the consuming nations wanted to budge from the fifty-fifty principle. As the Middle East Oil Committee of the British Cabinet Office said in late 1954, “A reasonable basis has now been reached for a partnership between the oil companies and the Middle East Governments…. Any further encroachment by the Middle East Governments…would seriously damage our oil supply system.” But for the governments of the producing countries, it was quite a different matter. Why not increase their revenues if they could, so long as they did not irrevocably alienate the companies and Washington and London?