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

by Daniel Yergin

While, initially, the oil companies were still linked by supply contracts to their former concessions in Saudi Arabia, Venezuela, and Kuwait, those connections would weaken over time due to diversification policies of both countries and governments, and because of the opportunities and alternative ties that existed in the market. Moreover, at the same time that the “great concessions” were being terminated, a new relationship was emerging between various petroleum exporting countries and international oil companies. Instead of being “concessionaires,” with ownership rights to the oil in the ground, the companies were now becoming mere “contractors,” with “production sharing” contracts that gave them rights to part of any stream of oil they discovered. This new type of relationship was pioneered by Indonesia and Caltex in the late 1960s. The “services” happened to be the familiar ones of exploring for, producing, and marketing oil. But the shift in terminology reflected an all-important political change: The sovereignty of the country was recognized by both parties in a way that was acceptable in the domestic politics of the countries. The lingering aura of a colonial past was banished; after all, the companies were there merely as hired hands. By the mid-1970s, such production sharing contracts were becoming common in many parts of the world. Meanwhile, the amount of oil sold directly by the exporters themselves into the market, without benefit of the companies in their tr...