Concession agreements and international agreements can depend on them as long as all parties are convinced that they are serving their interests and that a violation of their parties would be more damaging than the other. For example, a producing government will be less likely to make inappropriate demands to oil companies or threaten expropriation if the turbulence of a confrontation could threaten its regime; Safer governments may be less inhibited. Even if an extraction country can only afford a relatively short interruption of its oil revenues, while consuming countries can survive an oil embargo for a longer period of time, the oil embargo is unlikely to be used as a weapon. Sales policy displayed on a flag at a gas station in Oregon in the winter of 1973/74. (Source: NARA/Wikipedia) The 1950s and 1960s were an era of cheap and abundant oil, thanks (mainly) to Middle Eastern oil. Between 1948 and 1972, global crude oil production increased from 8.7 MMbop to 42 MMbop; Production in the Middle East increased from 1.1 MMbop to 18.2 MMbop. During the same period, global crude oil reserves increased from 62 to 534 Bbo; Reserves in the Middle East increased from 28 to 367 Bbo – in other words, seven out of 10 barrels added to global reserves came from the Middle East. During all these years, oil prices have remained relatively stable between $1.8 and $2.0 per barrel, while the petrochemical and automotive industries have prospered rapidly. Low oil prices were mainly made possible by increased production from international oil consortia in the Middle East to catch up with rising global oil demand. It is interesting to note that the United States, the world`s largest oil producer and consumer, had decided to rely more on its own domestic resources than on foreign oil.
Taking into account domestic security measures, the United States developed a “voluntary program” in 1954 to reduce its oil imports from outside the Western Hemisphere. But it didn`t work. In 1959, U.S. President Eisenhower announced the mandatory oil import quota program that limited U.S. imports of crude and refined oil to less than 9% of domestic demand (in 1962, the rate changed to 12.2% of domestic production). Independent oil companies in the United States (which had always committed to it) were pleased, while large international companies were disappointed. From 1948 to 1971, U.S. oil reserves increased from 21 to 38 Bbo and production from 5.5 to 9.5 MMbop; However, the U.S. share of world crude oil production increased from 64% to 22%. In fact, Dr. King Hubbert (1903-1989), a brilliant oil researcher who worked for Shell, had made predictions (dating back to 1956) that oil production in the 48 United States would peak in the late 1960s or 1970s.
Surprisingly, its forecasts came true: U.S. conventional crude oil production peaked at Bbo 3.5 in 1970. The decline in U.S. production not only moved the large oil supply away from the global oil market, but also was followed by a rapid increase in U.S. oil imports. In 1973, when President Nixon officially ended the mandatory oil import program, the United States imported 6.2 MMbopd, up from 3.2 MMbopd in 1970. In this context, an OPEC meeting was held in Caracas in December 1970, at which a wide range of requirements were formulated, inviting oil companies to submit an acceptable offer within a provocative time frame and, failing that, to initiate swift joint action.