Oil production and supply became more unstable for the United States and Europe after World War II. Although the United States and Europe remained strong economic powers, they relied increasingly on Middle Eastern oil to supply rising domestic demand. Control of resources by the major oil companies faltered as political tensions halted oil transport and demands for nationalism from producing countries threatened concessions. The development of other energy resources was important during this period, as they provided alternatives to coal and petroleum for electricity generation. This section examines how Middle Eastern tensions and the influence of oil-producing countries shifted the balance of power away from the large multinational companies. Then, it discusses the growth and early development of nuclear power, natural gas, and hydropower resources.
World War II was devastating to Western Europe. Coal mines that had been under the control of Nazi Germany were damaged and mines in Britain were not able to supply the necessary resources to make up for the shortage. As a result, Europe experienced a large domestic energy crisis. The European Coal Organization (ECO) was formed as the first transnational alliance to respond to an energy crisis. It was responsible for regulating the allocation of coal resources among its ten member states. The member states of the European Coal Organization were Belgium, Denmark, France, Greece, Luxembourg, the Netherlands, Norway, Turkey, the United Kingdom, and the United States. The Eastern European states were left out of the association because of the refusal by the Soviet Union to participate in the ECO (Kapstein 1990, 29). In order to aid its allies, the United States produced the Marshall Plan in 1947, which provided economic and energy aid to Europe by supplying equipment for mine recovery and emphasized a transition to a petroleum-based economy using imports from the Middle East. The Marshall Plan also contained political motivations, as the United States sought to discourage coal imports from Poland, an ally to the Soviet Union. The United States feared that if Poland became economically important to Europe, Communist influence would dominate European politics. In 1947, the ECO was dissolved and the European Coal and Steel Community (ECSC) formed in its place (Hunter and Smith, 2005). The ECSC united European countries and was responsible for responding to energy crises in addition to allocating coal and maintaining markets for coal resources.
The end of World War II was also important for energy dynamics in the United States. In 1947, America became a net importer (rather than a net exporter) of oil. This shift was due to increasing consumption of oil, insufficient means for controlling waste during the production of petroleum, and the large use of oil during the war. It is a significant point in energy history because it marks the beginning of the United States' dependence on foreign oil. Although the United States still supplied a significant amount of oil to the energy market, its influence in the energy economy increasingly relied on the ability of multinational companies to secure international oil resources. For the next thirty years, this reliance proved to be difficult as political tensions hindered the flow of oil from the Middle East and producing countries became more powerful.
Following the nationalization and profit-sharing success that occurred in Latin America, Middle Eastern producing nations became interested in examining their own relationships with oil companies. From 1951 to 1954, Iran was the first country to attempt nationalization of its oil reserves. In 1951, after profit-sharing negotiations failed with the Anglo-Iranian Oil Company (AIOC, previously known as the Iran Petroleum Company), the AIOC refinery complex was shut down. The Iranian nationalization was not completely successful. Iran was not able to secure contracts with other oil companies, and overproduction in world oil allowed supplies from other producing countries to supplement the market. In 1954, an agreement was reached between Iran, the United States, and Great Britain that provided for national ownership of all AIOC properties by the National Iranian Oil Company (NIOC), but relied on a consortium of foreign oil companies to produce the oil.
Although the energy market emerged from the Iranian crisis relatively unscathed, the Suez Crisis in 1955 proved to be more devastating to European energy security. By 1956, oil accounted for approximately 22 percent of total European energy consumption with 90 percent of this oil being supplied by the Middle East and 70 percent shipped through the Suez Canal (a man-made waterway that was operated by the British-owned Suez Canal Company) (Kapstein 1990, 103-105). In July 1956, the Egyptian president, Gamal Abdel Nassar, nationalized the Suez Canal. Great Britain, France, and Israel, fearful that the oil supply would be disrupted, responded by organizing a coordinated attack against Egypt (without the support of the United States) for the purpose of taking control of the canal. Although the fighting ceased by December 1956, the canal remained closed to oil shipments until May 1957 and an extensive energy crisis plagued Europe. The closing of the canal shut off two-thirds of the oil shipped to Europe. Although emergency supplies flowed from the United States, this nation was reluctant to provide support and Europe realized the consequences of its reliance on Middle Eastern oil. In response to the crisis, the Organization for European Economic Cooperation (OEEC) developed energy strategies for future shortages that created emergency petroleum stockpiles and diversified member countries' oil resources by securing reserves in North Africa and Russia.
The Suez Crisis also impacted energy policy in the United States and raised concern over increasing reliance on foreign sources. In 1959, President Dwight Eisenhower established the Mandatory Oil Import Program (MOIP), which limited petroleum imports at a set amount and controlled them with the issuance of "quota tickets" to individual companies. Although it was a national policy constructed to address energy security issues in the United States, the MOIP affected the global energy market by lowering the price of international oil. Because of the quotas, demand for foreign oil was lowered in the United States, but world supply of oil remained the same. This imbalance created a trend of decreasing oil prices. Additionally, the opening of new oil markets in northern Africa (Algeria) increased the supply of world oil and caused oil companies to implement two successive price reductions in 1959 and 1960. In light of the declining world oil prices, major producing countries faced declining revenue and in response formed the Organization of Petroleum Exporting Countries (OPEC) in 1960. Members of OPEC (Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela) required that original prices be restored and demanded consultation prior to price reductions. OPEC's influence was minor throughout the 1960s, but the cartel contributed to the increasing unease that was felt by consuming nations. In response to OPEC, major industrialized nations established the Organization for Economic Cooperation and Development (OECD) in 1961. This organization replaced the OEEC and extended membership to the United States, Canada, Japan, New Zealand, and Australia. Although not established to deal with energy matters exclusively, the OECD in part developed strategies to deal with energy shortages among industrialized nations.
The energy emergency strategies that were developed after the Suez Crisis helped alleviate the impacts of another oil crisis that emerged in 1967 when tensions escalated between Israel and Arab nations. In June 1967, Israel preemptively attacked Egypt, marking the beginning of the Six-Day War. Because of their support for Israel, Arab states implemented an oil embargo against the United States and Europe. The oil shortage that followed was alleviated by an increase in exports from Venezuela and Iran (which did not participate in the embargo) and from an increase in U.S. production. Although the embargo was lifted by the end of July, unrest intensified among Arab producing nations over Western support for Israel. In 1968, Arab states founded the Organization for Arab Petroleum Exporting Countries (OAPEC) for the purpose of uniting political interests in the Arab nations. The conflict between Arab and Israeli nations was heightened during the seventies, leading to energy crises that altered the global energy economy.
Natural Gas, Hydropower, and Nuclear Energy
Natural gas, hydropower, and nuclear energy are three primary sources that became important during the twentieth century. Natural gas resources are generally found associated with oil reserves, but it wasn't until the 1920s, when advances in pipeline design allowed for easier transport, that gas became a commodity. Natural gas burned cleaner than oil or coal and hence was attractive as a domestic fuel. In the United States, an extensive gas pipeline network was constructed following the passage in 1938 of the Natural Gas Act, which regulated the price of natural gas between producing states and consuming states. In Russia, discovery and expansion of natural gas fields in Siberia, the Ukraine, and North Caucasus in the 1950s and 1960s led to the development of an extensive natural gas pipeline through central Russia (Dienes and Shabad 1979, 75). The development of natural gas pipelines in Russia also allowed Europe to import natural gas. European gas consumption increased with the discovery of gas and oil reserves in the North Sea in the 1960s.
Hydropower also came to be an important energy resource for the generation of electricity. Governments in industrialized countries sponsored large water projects. The United States constructed large dams along many rivers and developed river basin co-operations to coordinate the distribution of electricity. One such project, the Tennessee Valley Authority, was created in the 1930s. In the Soviet Union, development of large-scale hydropower projects also began in the 1930s along the Dnieper River, and hydropower developments expanded drastically in the 1950s into Siberia and Central Russia (Dienes and Shabad 1979, 136-137). Hydropower provided a cheap, efficient resource for electricity and irrigation. Large water projects were extended into many developing countries, such as Brazil and India, throughout the 1960s and 1970s. Worldwide, construction of large dams peaked in the mid-1960s, with approximately 1,000 large dams being constructed per year (Khagram 2004, 8).
Nuclear power emerged in the United States with the development and use of the atomic bomb during World War II. After the war, nuclear energy's promise as an alternative to polluting coal made it an attractive energy source to the power industry. In 1953, Eisenhower's famous "Atoms for Peace" speech at the United Nations pledged support for the peaceful development of nuclear technology. This speech led to the establishment of the International Atomic Energy Agency (IAEA) in 1956 with eighty-one member countries. Its goal was to act as a watchdog agency, providing verification of the safety and security of nuclear development around the world (Fischer 1997, 1).
In the United States, the federal government passed the Atomic Energy Act in 1946, which established the Atomic Energy Commission (AEC) and the Joint Committee on Atomic Energy (JCAE) in Congress. These two governing bodies regulated the nuclear power industry and established federal ownership of nuclear fuels. The 1954 Atomic Energy Act and the 1957 Price-Anderson Act provided incentives for private nuclear power development by allowing private firms to own nuclear reactors and by limiting the liability of potential nuclear accidents with subsidies that would cover the damages. Although these measures increased the development of nuclear resources, public health and safety concerns hindered the expansion of nuclear power.
The nuclear power industry was also adopted in other parts of the world. In Russia, the first nuclear reactor became operational in 1954. By 1975, more than 6,200 MW of generating capacity was installed (Pryde 1979, 151). In Europe, nuclear energy offered an alternative to coal and a buffer against the volatility of the oil market in the 1960s and 1970s. Coordination of nuclear technology and resources was examined by Euratom, an organization established by the ECSC in 1955 to research nuclear technology development in European nations. Euratom's influence grew after the Suez Crisis, but multinational coordination was ultimately undermined by initiatives in member countries to develop nuclear resources independently. This was the case in the 1970s when the security of energy resources was increasingly threatened.
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