Tom Bower is a British investigative journalist who made his name writing hard-hitting exposés of the activities of such major British business figures as Robert Maxwell, Mohamed Al-Fayed, and Richard Branson. He has now turned his attention to an entire industry, and he chose to start at the top. Oil is a 20-year history of the oil industry, taking up around 1990, where Daniel Yergin’s Pulitzer Prize–winning The Prize (1991) left off. Those used to Bower’s exposés of corruption will not be disappointed, for there is plenty of underhanded dirty dealing to be documented. Yet the real villains of Bower’s tale are not corporate executives. Bower makes it clear from the very start that all-powerful Big Oil is actually nothing but a pawn in the hands of governments and traders, and the greatest player of energy chess is Vladimir Putin.
This is underlined at the start of the book. What is generally a chronological narrative from 1990 onwards begins in 2003. In a chapter titled “The Emperor,” Bower tells the tale of how ExxonMobil’s bid to take over Mikhail Khodorkovsky’s oil company, Yukos, was foiled by then-president Putin. Shortly afterwards, Khodorkovsky was arrested and Putin’s inexorable march toward regaining central control of Russia’s energy resources began in earnest. It’s a dominant theme of the latter half of the book. The author thus set the stage early for the book’s overarching narrative: The 1990s were a time of a genuine free-market in oil, with resultant low prices and trouble for the oil industry; and the following decade was dominated by regulation, environmentalism, peak-oil theory, and nationalism, resulting in high prices — and trouble for the oil industry.
The other main player in the first chapter is Lee Raymond, the former head of ExxonMobil. Exxon and its chairman come across as all-American, reliable, convinced of their superiority because their long-established procedures have been proven to work. Bower depicts the company’s culture as both stifling and successful: It entertains an overriding, and rather off-putting, belief that there are two ways to do things, the Exxon way and the wrong way; but, time and time again, the Exxon way is shown indeed to be the right way. By sticking to its norms and procedures, Exxon has consistently avoided the sort of troubles that bedeviled the other majors throughout the past two decades.
John Browne, the group chief executive of BP from 1995 to 2007, is portrayed as flamboyant where Raymond was solid, and risk-taking where Raymond was risk-averse. Browne, Bower shows us, was clearly a genius, but a flawed one whose genius led BP to disaster as well as triumph. It’s a shame that Bower’s book was written before the Deepwater Horizon oil spill, because that calamity can be seen as a natural consequence of the trail of decisions taken by Browne and his sycophantic management team: BP’s concentration on cost-cutting — something that Bower makes clear Exxon would never indulge in — was instrumental in a string of fatal and/or damaging accidents that bedeviled BP toward the end of Browne’s time as head of the company.
In Bower’s account, all of BP’s other senior figures come across as, if not outright incompetent, mired at some level of competence below Browne’s. That includes recently departed CEO Tony Hayward and newly installed CEO Robert Dudley, who had rings run around him in Russia by the Kremlin and the energy oligarchs. Indeed, the tale of how Dudley was, almost literally, run out of town by the oligarch Mikhail Fridman is one of the most revealing in the book, as it illustrates just how little power the oil majors have over the security of massive investments they have made in the non-Western world. If the Obama administration succeeds in reinstating an offshore-drilling moratorium, this will be an indication that, even in the West, the oil companies have little recourse when politicians turn against them.
If the majors are at the mercy of politicians, they are equally impotent when it comes to the activities of oil traders. David Hall, who traded at various organizations over the time span of the book, is the central figure here. Bower shows how Hall and his colleagues and rivals caused the collapse of oil prices in the 1990s by instituting a completely free market in oil. In fact, the British edition of Bower’s book was called The Squeeze, in reference to the maneuvers the traders engaged in to maximize their profits at the expense of the majors and the oil-producing countries. The story of how the traders worked around OPEC, the majors, regulators, and journalists to keep the oil-derivatives market profitable makes for fascinating reading. What is especially interesting is that illegal activity was usually punished, and that the traders themselves were always on the edge of disaster, with even the mighty Hall being squeezed himself at points.
Yet Hall and his colleagues were also guilty, to some extent, of causing the recent spikes in oil prices. Hall became an adherent of peak-oil theory (a theory Bower obviously thinks little of), and started laying his bets on the oil supply’s dwindling in the near future. Aided by nationalism in a number of countries (notably Russia and Venezuela), China’s huge demand for oil in the run-up to the Olympics (a demand inflated by China’s inefficiency in using oil), and environmental restrictions on drilling, Hall and his colleagues were able to cash in on their long positions. With a weak dollar, massive numbers jumped on the oil bandwagon, and the number of contracts for delivery held by Nymex traders rose from 850,000 in 2003 to 2,700,000 in 2008. Bower, to his credit, does not say that this proves that speculation was to blame for the oil-price spike. He makes it clear that there were so many factors in play that to say any one factor caused the spike is foolish, and that those in Congress who try to search for one such factor are equally foolish. This sort of old-fashioned “show, don’t tell” journalism is refreshing.
So is the fact that much of the book is set in Russia. The tale of the rise and fall of the energy oligarchs and the survivors’ rapprochement with Vladimir Putin is fascinating in itself, and the book is a valuable window into the overall character of post-Soviet Russia, a country that is desperate to regain past nationalist glories and is, as a result, suspicious of even genuine attempts by foreigners to invest in it. When it comes to oil, Russia is faced with an almost impossible dilemma. It wishes to retain full control over its resources, but it lacks the technical abilities to develop them, abilities that only the Western majors can deliver. So it veers between a form of “petronoia,” a belief that the majors are trying to exploit it, and willingness to deal.
The tale of Shell, a company that comes across as hapless throughout the book, and its troubled investments in Sakhalin, is particularly instructive. Despite bringing much to the table, the company consistently found itself on the receiving end of everything the Russians could throw at it. Shell, proud of its environmental consciousness, was even the victim of a spontaneously generated Russian environmental movement, at least until the Russian government wrung another round of concessions out of it. Yet the prize of Russian oil is so enticing that all the majors keep going back for more. Only Exxon, burned by the Yukos incident, is wary.
Oil is a gripping book: Its plots are so intertwined that it could have been written as a mystery, albeit one that would be dismissed as unbelievable. There are a lot of names, so many that, at times, the reader will have trouble remembering just whom Bower is referring to; but that’s a relatively minor flaw. For anyone who wants to understand just why oil is at the center of so many geopolitical intrigues, and for those on the left who still labor under the delusion that Big Oil runs the world, this book is an essential read.
– Mr. Murray is a vice-president at the Competitive Enterprise Institute.