Qaddafi takes over – raises oil price

On 15 January 1970 Muammar al-Qaddafi becomes premier in Libya. Today he’s best known for running a brutal regime, but in the 1970s he is the first Arab leader to make use of a powerful tool – oil production and price. He pushes through an increase in oil price and a new ratio to split profits with oil companies. Iran and Arab oil-producing countries follow up.

It sets in motion price increases and production cuts that end up in the oil crisis in 1973. The changes have profound effects on how the income of oil is distributed – also enriching other oil producing countries like Norway.

Al-Qaddafi and Nasser

ENI’s (Italian company) oil-platform DP4 on the Bouri field.

Background

Italy takes Libya by force in 1911 and makes it a colony, with the European big powers’ consent. Italian leader Mussolini’s dream of creating an empire is crushed during World War II, after invading British-held Egypt. The British reward the Sanussi religious leader Idris al-Sanussi who supported the Allied. He becomes King Idris, Libya’s first, and only king in 1951. Oil is discovered in 1959, and Libya quickly becomes the sixth largest oil-exporter in the world outside the Soviet Union. They are on par with Saudi-Arabia and this brings wealth to Libya. But the 1960s is a time of blossoming Arab nationalism. Many Libyans see Idris as a corrupt, pro-western monarch.

The political and oil coup

A group of young officers make a bloodless coup, the Libyan Revolution, on 1 September 1969. Captain Qaddafi, the leader, is an admirer of President Nasser in Egypt, and assumes the same rank, Colonel. In January he steps forward and becomes the Premier, and brushes aside other leaders of the revolution. The same month he meets with western oil companies in Libya and asks for 20% price increase per barrel of oil. Esso which has reserves in several countries refuse, but Occidental Petroleum has no other fields but the Libyan. The Libyan authorities cut Occidental’s production substantially, and in September 1970 the company agrees to a price-hike of 30 cents to US$ 2.53 per barrel.  And apart from this unprecedented event there is more - they agree to split profits with the government 55 % to the state and 45 % to the oil company. This is the first time a state gains this majority. It makes a precedent and Iran and Arab oil-producers follow up quickly. They had tried to make use of oil as a weapon in the June 1967 war, but failed to achieve their goals. When the US openly support Israel in the Yom Kippur war of 1973, Arab oil-producing states impose an embargo. The price goes up to US$ 11.65 by December that year.  More about that in another article.

Oil and gas location map 2011.

Eugene Rogan’s book “The Arabs”.

Sources and more information

”The Arabs”, Eugene Rogan, Basic Books New York 2009. Page 355-373.

Rogan’s book on modern Middle-East history has received excellent reviews. He manages to combine details and overview in an inspiring way.

I am open to your comments and proposals.

Regards

Bjarte Bjørsvik