Five Secretive Sisters


National Oil Companies in the Middle East

By Valérie Marcel, John V. Mitchell, contributor

Chatham House/Brookings -- 322pp -- $49.95 hardcover, $19.95 paper

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Editor's Review

Three Stars
Star Rating

The Good A timely account of the companies that control most of the world's oil reserves and production.

The Bad The writing style and organization are rather dry and academic.

The Bottom Line A wealth of information on outfits that are likely to exert increasing sway over how we live.

Say the words "oil company," and the names that come to mind are the likes of ExxonMobil (XOM ), Chevron (CVX ), and Shell. But when it comes to actually producing crude, another, less familiar group of companies is becoming increasingly important. State-owned oil companies such as Saudi Aramco and National Iranian Oil, not the remnants of the so-called Seven Sisters, control most of the world's reserves and production.

These secretive outfits are likely to exert, at least indirectly, a growing influence over how we live. For readers interested in learning how they behave and what motivates them, Oil Titans: National Oil Companies in the Middle East by Valérie Marcel is a good place to start. It is timely because national oil companies (NOCs) from Venezuela to Iran are flexing their muscles and raising their profiles. And unlike many of the available books about oil, which tend to be rather basic, this one is packed with useful information, compensating for its dry writing style.

Marcel, a researcher at London's venerable Chatham House think tank, focuses on five of the most important NOCs, including Abu Dhabi National Oil, Kuwait Petroleum, and Algeria's Sonatrach, along with the two previously mentioned. These companies alone account for about 50% of world oil reserves and 25% of production. The author seems sympathetic to the NOCs' point of view, and she may be a bit uncritical about some of their assertions, such as Saudi Arabia's possibly over-optimistic pronouncements about its production capacity. But Marcel, assisted by former BP adviser John Mitchell, delves into everything from their corporate cultures to their financial systems, international strategies, and the evolution of partnerships between the NOCs and global oil companies. She also delineates some of the snags Western oil companies face in this politically charged region.

While there are distinct differences among the NOCs, it's safe to say from Marcel's work, which draws upon dozens of anonymous interviews with their personnel, that their operations are quite unlike what one finds at a BP or an Exxon. Their managers may be highly professional, but there's little doubt the companies are instruments of their home countries' political leadership, which has priorities other than investing in the industry, such as social spending.

The existence of these other agendas means that in places such as Kuwait and Iran, the national companies don't have access to sufficient capital and expertise to meet the production targets they have been given. Yet there is great resistance to bringing in outsiders. Marcel also shows that the companies don't have sufficient incentives in place to promote sound business decisions and hard work.

Above all, the NOCs' histories explain their current mindsets. Before World War II, a handful of U.S. and European companies carved up the region's oil zones. These companies, Marcel writes, "fixed the rules of the oil game," not only taking what now seem like outlandish percentages of the revenues but controlling prices, usually to the disadvantage of the producing countries. Gradually, Saudi Arabia and the rest threw off this yoke, nationalizing their industries and gaining leverage over pricing through OPEC, founded in 1960. But memories of this era have meant resistance to the return of Western oil companies, which probably offer the best hope of quickly increasing production.

Marcel also teases out a less well-known objection to the Westerners. Middle Eastern oil professionals, citing alleged examples such as Shell's work in Oman, say that to meet quarterly targets, the majors manage fields too aggressively. NOCs prefer to underproduce if that will allow them to keep going for the 50 years or more some countries' reserves might last. So even if they let Western companies in, the NOCs believe it is important to closely monitor the outsiders' behavior and, sometimes, restrict their participation.

The NOCs, Marcel asserts, do have some advantages over the majors. In cases such as Iran they have specialized knowledge of unique reservoirs. They also have access to most of the world's best fields. Above all they have "the luxury to think strategically and...the time to implement their strategy," she writes.

The situation isn't static. The emergence of a new generation and the severe financial pressures from rock-bottom oil prices in the mid-1990s have pushed the companies to behave more like commercial entities. Still, it's a good bet that bridging the gaps between the state-owned companies and the big international players will be a long, slow process, and that the reserves of the Middle East will be developed much less rapidly than many would prefer.

By Stanley Reed

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