National oil companies (NOCs) are wholly or predominantly owned by the state. With the exception of OPEC [link to OPEC], private oil companies have enjoyed the upper hand in the struggle between the two. With a surge in demand, governments of countries with vast reserves of oil realized the size of the bargaining chip they possessed. More profit could be generated if national oil companies extracted and sold oil, as opposed to NOCs simply serving as licensing agencies and silent partners for private companies. Governments in possession of oil reserves reap financial and political windfalls. Oil profits serve to pay down international debt, increase GDP, strengthen the national economy and ensure political power. Even with nationalistic goals in mind, many NOCs perpetuate a corrupt system where political and military officials benefit from oil profits while those most in need of oil’s profits remain hungry and poor. Oil’s wealth does not “trickle-down” through all levels of society. The nationalization of oil companies has led to the following trends:
- Governments demand a higher percentage of oil revenues. The majority of public oil companies receive no more than 50% in oil revenues from oil-producing nations. Venezuela took over 32 small fields developed by foreign companies and increased oil company taxes to 83% (from 56.6%).
- Governments (like Nigeria, Saudi Arabia, Mexico, and Kazakhstan) give preferential treatment to national oil companies.
- By producing 50% of the world’s oil, and possessing over 70% of the world’s reserves, NOCs now drive the global oil market.
SHIFT IN BIG OIL After World War II, private oil companies dominated the world oil market. They would pay oil-rich nations a “hosting fee” while essentially controlling oil operations in the country. In 1960, oil producers in the Middle East and Latin America established the Organization of the Petroleum Exporting Countries (OPEC) and demanded more compensation from the profiting foreign oil companies. By the 1970s, OPEC largely shut foreign companies out and replaced them with state-owned or National Oil Companies (NOCs). Today, private oil companies control only 6% of world reserves and can invest in countries that own an additional 11% of reserves. State-owned company reserves (reserves that are not open to private oil companies) account for an estimated 77% of total world oil reserves. Largest NOCs:
Saudi Aramco -- Saudi Aramco was started by Standard Oil of California. Eventually the Saudi Royal Family bought the entire company in 1980. Aramco controls 25% of the world’s oil. On average Saudi Aramco produces 7.7 million barrels of oil a day, roughly three times the amount produced by any other group. Many of the countries who have National Oil Companies formed an organization to help organize and implement petroleum policies among member countries. Why did oil rich nations create the Organization of the Petroleum Exporting Countries (OPEC)? To secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.
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