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Persia to the North Sea, and after

Financial Times

Review by Ed Crooks

Published: April 26 2009 19:52 | Last updated: April 26 2009 19:52

Black Gold: Britain and Oil in the Twentieth Century
By Charles More
Hambledon Continuum, $49.95

More than most people might realise, Britain remains a petro-economy. As recently as a decade ago, the UK was the world’s sixth largest producer of oil and gas.

Even after a steep drop-off in production since then, the industry’s central importance to the British economy was underlined last week by figures showing that more than a quarter of all corporate taxes paid in the UK last year came from companies working in the North Sea. Britain also boasts two – or at least one and a half – of the world’s biggest private sector oil companies, in BP and Royal Dutch Shell.

How the industry achieved that prominence is the theme of Charles More’s Black Gold, which follows Britain’s oilmen from the first concession in Persia in 1901 to BP’s mega-mergers at the end of the century.

Mr More is a former academic at the University of Gloucestershire, and his judgments are measured. His tale is gripping, however, and its lessons are powerful. Echoes of today’s controversies resonate throughout his story.

At the dawn of Britain’s oil age, among the biggest producing countries were Russia, Venezuela, and the regions that are now Iran, Iraq and Azerbaijan: all of them still very important. Resource nationalism, a global phenomenon today, has erupted again and again over the decades. Iran nationalised its oil industry – then run by the Anglo-Iranian Oil Company, which became BP – in 1951.

Even the technology of the past is often familiar. In the second world war, the Luftwaffe was kept flying by aviation fuel made from coal, using a process that has again attracted great interest recently. History shows that, in the oil business, claims that anything is “unprecedented” should always be treated sceptically.

Another message that emerges starkly is that attempts to use military force to secure oil supplies are generally doomed to failure. In general, Mr More argues, Britain’s policy towards oil has been “quite sensible”. The two glaring exceptions were Iran in 1953, where the UK joined the US in backing the coup against Mohammad Mossadeq, and the Suez adventure of 1956, prompted by concerns about the closure of the canal to tankers carrying Middle Eastern oil. In both cases, the consequences were disastrous: immediately in Suez, and over the course of several decades in Iran.

Wiser governments, in Britain and elsewhere, have realised that it is diversity of supply, preventing excessive reliance on any one source, that is the best guarantee of energy security.

Nor did Britain’s military and diplomatic power contribute much to the rise of Shell and BP. It was Britain’s abundance of capital, Mr More concludes, that enabled the early oil entrepreneurs to build up such strong global positions.

“With a constant supply of capital looking for investments, British firms were almost inevitably going to get involved in a new dynamic and potentially lucrative industry,” he writes. “And some of those firms were likely to be successful.”

Today, it is China that has the surplus capital, and Chinese companies have been flexing their muscles internationally, investing in resource-rich countries such as Russia, Brazil and Kazakhstan.

The oil industry changes only slowly. In the 1910s, ExxonMobil’s ancestor Standard Oil of New Jersey was the world’s biggest oil company, with Shell second; that is still the position among the western companies today.

In the past decade, however, Chinese companies, led by CNPC/PetroChina, have emerged as global powers, and it will be a surprise if they do not lead the industry in the decades to come.

Britain, meanwhile, is watching its indigenous oil and gas production dwindle away as the North Sea fields are sucked dry.

Reports of the imminent demise of North Sea oil have in the past proved exaggerated. Nevertheless, the decline of recent years, one of the sharpest in any oil-producing region in the world, is unlikely to be arrested, let alone reversed.

Mr More defends successive British governments for their enthusiasm for extracting the oil and selling it as fast as possible, which was their aim since before the first big discoveries in 1970-71.

The more cautious Norwegian approach to its natural wealth may have been appropriate for a country of less than 5m people, he argues, but was less justifiable for one more than 10 times that size.

Even so, the continuing importance of Britain’s North Sea production makes the prospect of doing without it unsettling. In the 1970s, it was common to ask: “What will we do when the oil runs out?” Before much longer, we will find out.

 The writer is the FT’s energy editor

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