This week we talk about OPEC, the Seven Sisters, and the price of oil.
We also discuss fracking, Israel and Iran’s ongoing conflict, and energy exports.
Recommended Book: Thirteen Ways to Kill Lulabelle Rock by Maud Woolf
Transcript
The global oil market changed substantially in the early 2000s as a pair of innovations—horizontal drilling and hydraulic fracturing—helped the plateauing US oil and gas market boom, unlocking a bunch of shale oil and gas deposits that were previously either entirely un-utilizable, or too expensive to exploit.
This same revolution changed markets elsewhere, too, including places like Western Canada, which also has large shale oil and gas deposits, but the US, and especially the southern US, and even more especially the Permian Basin in Texas, has seen simply staggering boosts to output since those twin-innovations were initially deployed on scale.
This has changed all sorts of dynamics, both locally, where these technologies and approaches have been used to tap ever-more fossil fuel sources, and globally, as previous power dynamics related to such resources have been rewired.
Case in point, in the second half of the 20th century, OPEC, the Organization of the Petroleum Exporting Countries, which is a predominantly Middle Eastern oil cartel that was founded by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela in 1960, was a dominant force in geopolitics, as they collaboratively set global oil prices, and thus, were able to pull the strings connected to elections, war, and economic outcomes in nations around the world.
If oil prices suddenly spiked, that could cause an incumbent leader in a country a hemisphere away to lose their next election, and if anyone threatened one of their number, they could conceivably hold back resources from that country until they cooled down.
Before OPEC formed and established their position of primacy in global energy exports, the so-called Seven Sisters corporations, which consisted of a bunch of US and European companies that had basically stepped in and took control of global oil rights in the early 20th century, including oil rights across the Middle East, were the loci of power in this space, controlling about 85% of the world’s petroleum reserves as of the early 1970s.
That same decade, though, a slew of governments that hosted Seven Sisters facilities and reserves nationalized these assets, which in practice made all these reserves and the means of exploiting them the government’s property, and in most cases they were then reestablished under new, government-controlled companies, like Saudi Aramco in Saudi Arabia and the National Iranian Oil Company in Iran.
In 1973 and 1979, two events in the Middle East—the Yom Kippur War, during which pretty much all of Israel’s neighbors launched a surprise attack against Israel, and the Iranian Revolution, when the then-leader of Iran, the Shah, who was liberalizing the country while also being incredibly corrupt, was overthrown by the current government, the militantly Islamist Islamic Republic of Iran—those two events led to significant oil export interruptions that triggered oil shortages globally, because of how dominant this cartel had become.
This shortage triggered untold havoc in many nations, especially those that were growing rapidly in the post-WWII, mid-Cold War world, because growth typically requires a whole lot of energy for all the manufacturing, building, traveling around, and for basic, business and individual consumption: keeping the lights on, cooking, and so on.
This led to a period of stagflation, and in fact the coining of the term, stagflation, but it also led to a period of heightened efficiency, because nations had to learn how to achieve growth and stability without using so much energy, and it led to a period of all these coming-out-of-stagflation and economic depression nations trying to figure out how to avoid having this happen again.
So while OPEC and other oil-rich nations were enjoying a period of relative prosperity, due in part to those elevated energy prices—after the initial downsides of those conflicts and revolutions had calmed, anyway—other parts of the world were making new and more diversified deals, and were looking in their own backyards to try to find more reliable suppliers of energy products.
Parts of the US were already major oil producers, if not at the same scale as these Middle Eastern giants in the latter portion of the 20th century, and many non-OPEC producers in the US, alongside those in Norway and Mexico, enjoyed a brief influx of revenue because of those higher oil prices, but they, like those OPEC nations, suffered a downswing when prices stabilized; and during that price collapse, OPEC’s influence waned.
So in the 1980s, onward, the previous paradigm of higher oil prices led to a surge in production globally, everyone trying to take advantage of those high prices to invest in more development and production assets, and that led to a glut of supply that lowered prices, causing a lot of these newly tapped wells to go under, a lot of cheating by OPEC members, and all of the more established players to make far less per barrel of oil than was previously possible.
By 1986, oil prices had dropped by nearly half from their 1970s peak, and though prices spiked again in 1990 in response to Iraq’s invasion of fellow OPEC-member Kuwait, that spike only last about nine months, and it was a lot less dramatic than those earlier, 70s-era spikes; though it was still enough to trigger a recession in the US and several other countries, and helped pave the way for investment in those technologies and infrastructure that would eventually lead to the US’s shale-oil and gas revolution.
What I’d like to talk about today is the precariousness of the global oil and gas market right now, at a moment of significantly heightened tensions, and a renewed shooting conflict, in the Middle East.
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As of the day I’m recording this, the Islamic Republic of Iran is still governing Iran, and that’s an important point to make as while Israel’s official justification for launching a recent series of attacks against Iran’s military and nuclear production infrastructure is that they don’t want Iran to make a nuclear weapon, it also seems a whole lot like they might be aiming to instigate regime change, as well.
Israel and Iran’s conflict with each other is long-simmering, and this is arguably just the most recent and extreme salvo in a conflict dating back to at least 2024, but maybe earlier than that, too, all the way back to the late-70s or early 80s, if you string all the previous conflicts together into one deconstructed mega-conflict. If you want to know more about that, listen to last week’s episode, where I got deeper into the specifics of their mutual dislike.
Today, though, I’d like to focus on an issue that is foundational to pretty much every other geopolitical and economic happening, pretty much always, and that’s energy. And more specifically, the availability, accessibility, and price of energy resources like oil and gas.
We’ve reached a point, globally, where about 40% of all electricity is generated by renewables, like solar panels, wind turbines, and hydropower-generating dams.
That’s a big deal, and while the majority of that supply is coming from China, and while it falls short of where we need to be to avoid the worst-case consequences of human-amplified climate change, that growth is really incredible, and it’s beginning to change the nature of some of our conflicts and concerns; many of the current economic issues between the US and China, these days are focused on rare earths, for instance, which are required for things like batteries and other renewables infrastructure.
That said, oil and gas still enable the modern economy, and that’s true almost everywhere, even today. And while the US changed the nature of the global oil and gas industries by heavily investing in both, and then rewired the global energy market by convincing many of its allies to switch to US-generated oil and gas, rather than relying on supplies from Russia, in the wake of Russia’s invasion of Ukraine a few years ago, a whole lot of these resources still come from at-times quite belligerent regimes, and many of these regimes are located in the Middle East, and belong to OPEC.
Iran is one such belligerent regime.
As of 2025, Iran is the 9th largest producer of oil in the world, and it holds 24% of the Middle East’s and about 12% of the world’s proven oil reserves—that’s the total volume of oil underground that could be pumped at some point. It’s got the world’s 3rd largest proven crude oil reserves and it exports about 2 million barrels of crude and refined oil every day. It also has the world’s second-largest proven natural gas reserves.
Iran isn’t as reliant on oil and gas exports as some of its neighbors, but it still pulled in about $53 billion in net oil exports each year as of 2023; which is a lot less than what it could be making, as international sanctions have made it difficult for Iran to fully exploit its reserves. But that’s still a huge chunk of its total income.
This is important to note because Israel’s recent series of attacks on Iran, in addition to taking out a lot of their military leaders, weapons manufacturing facilities, and nuclear research facilities, have also targeted Iran’s oil and gas production and export capacity, including large gas plants, fuel depots, and oil refineries, some located close to Tehran in the northern part of the country, and some down on its southwestern coast, where a huge portion of Iran’s gas is processed.
In light of these attacks, Iran’s leaders have said they may close the Strait of Hormuz, though which most of their exports pass—and the Strait of Hormuz is the only marine entryway into the Persian Gulf; nearly 20% of all globally consumed oil passes through this 90-mile-wide stretch of water before reaching international markets; it’s a pretty vital waterway that Iran partially controls because its passes by its southern coast.
Fuel prices already ticked up by about 9% following Israel’s initial strikes into Iran this past week, and there’s speculation that prices could surge still-higher, especially following US President Trump’s decision to strike several Iran nuclear facilities, coming to Israel’s aide, as Israel doesn’t possess the ‘bunker-buster’ bombs necessary to penetrate deep enough into the earth to damage or destroy many of these facilities.
As of Monday this week, oil markets are relatively undisrupted, and if any export flows were to be upset, it would probably just be Iran’s, and that would mostly hurt China, which is Iran’s prime oil customer, as most of the rest of the world won’t deal with them due to export sanctions.
That said, there’s a possibility that Iran will decide to respond to the US coming to Israel’s aid not by striking US assets directly, which could pull the US deeper into the conflict, but instead by disrupting global oil and gas prices, which could lead to knock-on effects that would be bad for the US economy, and the US’s relationships with other nations.
The straightest path to doing this would be to block the Strait of Hormuz, and they could do this by positioning ships and rocket launchers to strike anything passing through it, while also heavily mining the passage itself, and they’ve apparently got plenty of mines ready to do just that, should they choose that path.
This approach has been described by analysts as the strategic equivalent of a suicide bombing, as blocking the Strait would disrupt global oil and gas markets, hurting mostly Asia, as China, India, South Korea, Japan, and other Asian destinations consume something like 80% of the oil that passes through it, but that would still likely raise energy prices globally, which can have a lot of knock-on effects, as we saw during those energy crises I mentioned in the intro.
It would hurt Iran itself more than anyone, though, as almost all of their energy products pass through this passage before hitting global markets, and such a move could help outside entities, including the US, justify further involvement in the conflict, where they otherwise might choose to sit it out and let Israel settle its own scores.
Such energy market disruption could potentially benefit Russia, which has an energy resource-reliant economy that suffers when oil and gas prices are low, but flourishes when they’re high. The Russian government probably isn’t thrilled with Israel’s renewed attacks on one of its allies, but based on its lack of response to Syria’s collapse—the former Syrian government also being an ally of Russia—it’s possible they can’t or won’t do much to directly help Iran right now, but they probably wouldn’t complain if they were suddenly able to charge a lot more per barrel of oil, and if customers like China and India were suddenly a lot more reliant on the resources they’re producing.
Of course, such a move could also enrich US energy companies, though potentially at the expense of the American citizen, and thus at the expense of the Trump administration. Higher fuel prices tend to lead to heightened inflation, and more inflation tends to keep interest rates high, which in turn slows the economy. A lot of numbers could go in the opposite direction from what the Trump administration would like to see, in other words, and that could result in a truly bad outcome for Republicans in 2026, during congressional elections that are already expected to be difficult for the incumbent party.
Even beyond the likely staggering human costs of this renewed conflict in the Middle East, then, there are quite a few world-scale concerns at play here, many of which at least touch on, and some of which are nearly completely reliant on, what happens to Iran’s oil and gas production assets, and to what degree they decide to use these assets, and the channels through which they pass, in a theoretical asymmetric counterstrike against those who are menacing them.
Show Notes
https://archive.is/20250616111212/https://www.reuters.com/world/middle-east/an-overview-irans-energy-industry-infrastructure-2025-02-04/
https://www.aljazeera.com/news/2025/6/15/which-iranian-oil-and-gas-fields-has-israel-hit-and-why-do-they-matter
https://www.aljazeera.com/news/2025/6/17/mapping-irans-oil-and-gas-sites-and-those-attacked-by-israel
https://www.aljazeera.com/economy/2025/6/13/oil-markets-are-spooked-as-iran-israel-tensions-escalate
https://archive.is/20250620143813/https://www.bloomberg.com/news/articles/2025-06-20/eu-abandons-proposal-to-lower-price-cap-on-russian-oil-to-45
https://apnews.com/article/russia-economy-recession-ukraine-conflict-9d105fd1ac8c28908839b01f7d300ebd
https://www.nytimes.com/2025/06/22/business/us-iran-oil.html
https://www.bbc.com/news/articles/cvg9r4q99g4o
https://www.weforum.org/stories/2025/04/clean-energy-electricity-nature-and-climate-stories-this-week/
https://archive.is/20250622121310/https://www.ft.com/content/67430fac-2d47-4b3b-9928-920ec640638a
https://oilprice.com/Energy/Crude-Oil/Oil-Markets-Brace-for-Impact-After-US-Attacks-Iran-Facilities.html
https://www.nytimes.com/2025/06/22/business/energy-environment/iran-oil-gas-markets.html
https://www.eia.gov/todayinenergy/detail.php?id=65504&utm_medium=PressOps
https://www.nytimes.com/2025/06/22/business/stocks-us-iran-bombing.html
https://en.wikipedia.org/wiki/Big_Oil
https://en.wikipedia.org/wiki/Fracking_in_Canada
https://en.wikipedia.org/wiki/Fracking_in_the_United_States
https://en.wikipedia.org/wiki/Petroleum_in_the_United_States
https://en.wikipedia.org/wiki/Shale_gas_in_the_United_States
https://en.wikipedia.org/wiki/Yom_Kippur_War
https://en.wikipedia.org/wiki/Iranian_Revolution
https://en.wikipedia.org/wiki/1970s_energy_crisis
https://en.wikipedia.org/wiki/1990_oil_price_shock
https://www.strausscenter.org/energy-and-security-project/the-u-s-shale-revolution/
https://archive.is/20250416153337/https://www.reuters.com/business/energy/us-crude-oil-output-peak-by-2027-eia-projects-2025-04-15/
https://www.investopedia.com/ask/answers/030415/how-does-price-oil-affect-stock-market.asp
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