Oil Titans: National Oil Companies in the Middle East

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Ninety percent of the world's oil reserves are entrusted to state-owned companies. Originally created as political instruments, these so-called national oil companies (NOCs) face new demands amid today's dwindling oil reserves and simmering social pressures. Increasingly, state-owned oil firms-particularly in the Middle East-must balance the political demands of their governments with the need to be commercially competitive. In this ground-breaking new volume, Valérie Marcel draws on unprecedented access to the politicians, engineers, and businessmen directing five Middle Eastern state oil companies to illuminate one of international industry's most secretive yet powerful sectors.The author tells the stories of Saudi Aramco, the Kuwait Petroleum Corporation, the National Iranian Oil Company, Sonatrach of Algeria, and the Abu Dhabi National Oil Company. Taken together, these oil titans produce one quarter of the world's oil and hold half of the world's known oil and gas reserves. Marcel explains the complex bond between each state and its oil company, tracing evolution of the companies from the politically charged days of foreign concessions to today's world of profit-driven decisionmaking. Drawing on numerous and extensive interviews with company executives, middle managers, and oil ministry officials, Marcel identifies a number of surprising new trends in NOC strategy. She also paints a picture of their operating culture, capturing their nascent sense of corporate identity. Contributor John V. Mitchell, a renowned oil industry analyst, puts the operations and culture of NOCs into a wider macroeconomic context. He shows how the hydrocarbon sector fits into the overall national economies and discusses how it must adapt to rapidly changing circumstances in order to offset economic weaknesses elsewhere. Oil Titans provides rare and timely insight into how state-owned companies are striking a new balance between their national mission and their commercial needs. It provides an insider's guide to their unique culture while demonstrating the critically important role they plan in developing and maintaining their country's economic welfare.
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Editorial Reviews

From the Publisher

"Marcel's path-breaking analysis is particularly adept at showing the great diversity across her sample of NOCs." —Robert Looney, Naval Postgraduate School, Middle East Journal, 9/1/2006

"by far the most detailed account available about Middle Eastern national oil companies...Marcel had remarkable access to senior officials at the companies and the associated government oil ministries." —P. Clawson, Washington Institute for Near East Policy, CHOICE, 11/1/2006

"OIL TITANS is a thorough and readable comparative study of national oil companies.... Marcel is to be congratulated for this timely and well-done report from the field." —Mary-Ann Tétreault, Trinity University (San Antonio, Texas)

"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 Valerie Marcel is a good place to start." —Stanley Reed, Business Week, 6/12/2006

"In her recently published book, Oil Titans: National Oil Companies in the Middle East, Dr. Marcel comprehensively examines the challenges facing five regional NOCs as they strive to balance their domestic obligations with their commercial ambitions in a global market place." — Middle East Economic Survey, 5/29/2006

"A useful handbook for understanding five of the world's most important national oil companies." —Julia Nanay, Middle East Policy, 9/1/2007

"by far the most detailed account available about Middle Eastern national oil companies, specifically those in Saudi Arabia, Abu Dhabi, Kuwait, Iran, and Algeria. Marcel has remarkable access to senior officials at the companies and the associated government oil ministries." —Patrick Clawson, Middle East Quarterly, 9/1/2007

"This is an informative analysis of these important organizations and their evolving relationships with their government owners." —Richard N. Cooper, Foreign Affairs

"Valérie Marcel has conducted a far-reaching study. The number and quality of her interviews, and the accuracy of her analysis produce a result both new and most useful. Rather than the usual description of the national oil companies from the outside, she gets them to reveal themselves in a striking psychological exercise." —Jacques de Boisséson, former director for international relations, TOTAL

"The companies analyzed in this excellent book produce one-quarter of the world's oil. Still, the world knows little about these national oil companies and their perspectives.... Marcel had unique access to the inner life of the companies and is able to shed light on the drivers, goals, and challenges they face." —Willy Olsen, former senior adviser to the president & CEO of Statoil

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Product Details

  • ISBN-13: 9780815754732
  • Publisher: Brookings Institution Press and Chatham House
  • Publication date: 4/20/2006
  • Edition description: New Edition
  • Pages: 256
  • Product dimensions: 6.00 (w) x 9.00 (h) x 0.70 (d)

Meet the Author

Valérie Marcel is principal researcher at Chatham House.

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Read an Excerpt

Oil Titans

National Oil Companies in the Middle East
By Valérie Marcel John V. Mitchell

Brookings Institution Press

Copyright © 2006 Brookings Institution Press and Chatham House
All right reserved.

ISBN: 0-8157-5473-6


In most important oil-producing regions of the world, the oil industry has been nationalized. Ninety percent of the world's oil reserves are entrusted to state-owned companies. The five national oil companies (NOCs) that are the focus of this book together produce one quarter of the world's oil and hold one half of the world's oil and gas reserves. What do we know about these oil titans? Do we understand how they operate and what drives them? Do they emphasize politics over profits? Do they have the technical and business skills to develop responsibly the immense petroleum resources entrusted to them?

In spite of the dependence of importing countries' economic fortunes on the performance of the NOCs of the Middle East and North Africa, outsiders know very little about these organizations. Their opacity has discouraged most analysis so far. However, after explaining my project, I was invited to meet with the managers of Saudi Aramco, the Kuwait Petroleum Corporation (KPC), the National Iranian Oil Company (NIOC), Sonatrach (Algeria) and the Abu Dhabi National Oil Company (ADNOC). They allowed extensive interviews to be conducted, demonstrating theirinterest in discussing both their past accomplishments and future challenges. These were fascinating discussions, and this book will tell those companies' stories.

From the oil industry's perspective, it is an important time to be studying NOCs. Many of them are emerging on the international scene, no longer confined to filling the shoes of the oil majors, which left when the host countries nationalized their oil sector. NOCs have grand ambitions: they are competing with the majors on their turf by developing new oil reserves overseas and investing in international refining and retail activities. National oil companies from China, India and Malaysia are in the spotlight, signing deals in Saudi Arabia, Iran and Sudan, for instance. Some NOCs are being partially privatized, to encourage their competitiveness, while other countries are reasserting national control over their oil sector. In a move that startled the industry in the summer of 2005, the China National Offshore Oil Corporation (CNOOC), a Chinese state oil company listed on the New York Stock Exchange, bid to buy out a Western international oil company, Unocal-this bid presaged growing ambitions on the part of the new players. Meanwhile, Russia, which is seen as the new frontier for the private international oil companies, appears to be reasserting the role of the state in the oil and gas sector by dismantling the most successful private Russian company, Yukos, and discouraging new foreign investment. The industry is in flux.

Two years ago, when I began this research on national oil companies and to discuss them with peers, I received mostly negative comments about their inefficiency. But now, the tone has changed. People are starting to take notice of NOCs. And NOCs themselves are embolded by this change.

On the home front, national oil companies are often torn between national expectations that they should carry the flag and their own ambitions for commercial success, which might mean a degree of emancipation from the confines of a national agenda. They are not "just companies," however. Within their borders, they enjoy an unparalleled standing with the public. NOCs are often the best employer. They train young people to the highest standard, develop local technological capability, create opportunities for the private sector and develop the country's infrastructure. But more fundamentally, the historical context of their country's struggle for independence has made national oil companies politically sacred entities. As the former Secretary-General of OPEC stated: "Although several decades have passed since the era of nationalisation, our national oil companies continue to possess a rather unique political status in the eyes of their respective nations. They are still regarded as the symbol of national sovereignty that controls the most important and the most valuable resource endowment in our countries" (Subroto, 1994: 20).

Henri Madelin has explained the ideology of resource nationalism, which took hold of North Africa in the 1970s, as one which combines with a "revolutionary fervour directed towards removing all vestiges of the former subservience. It assumes a socialist color in order to be better designed to signify collective rights to interests accused of the three vices of being foreign, capitalist and private" (Madelin, 1975: 66). There remains a deep emotional attachment to sovereign control over natural resources among many Middle Eastern societies, as is also the case in Latin America. It follows from this that resisting foreign attempts to control oil is a tune that has more resonance in these countries than increasing the performance of the hydrocarbon sector. This might explain why no more in-depth analysis of these key actors has appeared in the Middle East than in consuming countries. People in producing countries should be debating, "Why have an NOC?" The answers would help to establish the priorities of the company-to maximize revenue, to promote national pride or to optimize the development of resources? This question is raised only rhetorically by those in consuming countries who want to see oil in the Middle East privatized. They favor a privatization of the oil and gas sector there because it would allow foreign oil companies to develop more oil for the world's consumers and market forces to overtake OPEC. In the consuming countries, few people ask, "Why not rely on NOCs to supply energy to markets?"

From the producing countries' perspective, a high-competence NOC with good governance processes may be preferable to a privatization of the industry that improves access to resources for foreign oil companies. NOCs are by statute, organization and often affinity more responsive to the needs of society and the interests of the state. Under optimal financial management, they can generate more revenue for the state than private companies, which have their shareholders to pay. In fact, in some cases they achieve this despite inefficiencies because the royalties, taxes and dividends they pay to the state are so high. They may also serve the state's foreign policy interests by supplying specific markets, and they are more willing than international oil companies to develop spare capacity in order to balance the world oil markets. Moreover, a number of their community investments have been designed to serve the long-term interests of society. This is the case of programs to train nationals and to develop capacity in the local private sector. However, a key challenge is to establish good governance processes within the NOC and between it and the state that will allow it to develop its competence and to serve national interests efficiently. Finally, some degree of competition from other companies can be a valuable means of stimulating the performance of national oil companies-though it may run into opposition from society.

In spite of the highly politicized national and international environment in which oil is produced and traded, the most relevant and urgent pressures on NOCs are economic and industrial rather than political. In fact, NOC managers are, for the most part, noticeably apolitical, perhaps with the exception of Iran. Their priorities are the allocation of resources for the industry, their operational autonomy and national economic challenges. Indeed, as companies operating primarily at home, they are preoccupied with the difficulty of meeting the needs of society and government as well as investment challenges to the industry. Contrary to a premise that guided my first steps in this research, I found that politics form only a backdrop to the operating environment of NOCs. This observation pointed to a complex relationship between NOCs, their society and their government that is essential to understanding national oil companies.

There are numerous divergences in perspective and interests between society, government and the national oil company. Events in the oil and gas industry carry a political significance for the societies of producing states. Popular political views will shape attitudes to, most notably, foreign investment. Nationals of the major exporting states will also expect oil export revenues to finance a number of public services. This public opinion pressure tends to be exerted on government and to reach the NOC only indirectly. Government is the interface between society and NOC. It is government's role to develop policies to achieve long-term goals, but it deals with contrary interests along the way and responds to short-term threats to political stability. This political process can lead governments to have incoherent goals-for instance, seeking greater revenue from the oil industry while asking the NOC to carry out social programs that hamper its operations and increase its costs. NOCs are instruments of the state and help government achieve a number of policy objectives. But NOCs' managements seek the freedom to manage the industry so as to mobilize the country's oil wealth without government intrusions that would cripple their economic and technical capacity. There is, in this respect, a constant institutional struggle between government and NOC.

This struggle is compounded by power asymmetries. The NOC is powerful because of its knowledge. It has technical and business expertise: it knows the fields and understands how the business works and what it costs. Government, for its part, sets the rules of the game: it determines the targets for the sector and decides whether to introduce competition and invite foreign investment. Society seeks information regarding the NOC's activities and influence over the government's decisions concerning the sector.

This book seeks to explain the complex relationship between the state, society and the NOC, and traces the industrial evolution of NOCs in order to identify new trends in their strategy and identity. National oil companies are evolving, seeking an elusive balance between their national and commercial missions.

Scope and Definitions

It is not my intention to set the national oil companies of the Middle East and North Africa apart from their peers. In terms of the historical importance of oil and the challenges faced by the NOCs in their industrial consolidation, the stories of these NOCs could be told alongside those of the Venezuelan, Mexican, Malaysian or Brazilian NOCs, for instance. NOCs worldwide share a common concern regarding their relations with the state. The geographic focus of this book is an attempt at comparing NOCs that are producers within a regional system. In itself, the focus on the Middle East and North Africa is an interesting one: the analysis will show that for all their common cultural, historical and political references, each NOC in this study is unique. It follows that it is not useful to create categories of NOCs. Instead, this book examines the way in which each company is unique and highlights differences between them.

The book focuses on companies with upstream activities because these are the revenue-generating activities that make them so important to their country, as opposed to the "downstream" or refining business, which historically has not been very profitable. Most Middle Eastern producers have very low production costs: some $2 for each barrel of crude oil that fetched around $50 per barrel in 2005 on the international markets. On the other hand, exploring for new reserves is an expensive and risky activity, though a necessary first step in producing oil. The upstream business is also highly charged politically: it is a central battleground of resource nationalism, which seeks to protect hydrocarbons from foreign hands. By contrast, the downstream business is not.

Moreover, in the minimalist definition NOCs are not restricted to those companies owned entirely by government and in possession of exclusive rights over the mineral domain. A number of NOCs have evolved beyond the attributes that initially defined them and, to some extent, protected them. An increasing number of NOCs coexist and cooperate with foreign private companies on national soil. This is the case for ADNOC, Sonatrach, the National Oil Corporation of Libya, Petronas of Malaysia, Petrobras in Brazil, Pertamina in Indonesia, NNPC (the Nigerian National Petroleum Corporation), the Qatar National Gas Company and PDVSA (Petróleos de Venezuela SA). Others have the structure of a private-sector company but with a majority of government shares at the voting level-this is the case for Petrobras of Brazil and Statoil of Norway. The configuration of the industry in Russia and China is still evolving but it includes both state and private-sector enterprises. With the growing commercial focus of most NOCs and the increasingly liberal agenda of governments legislating on these matters, there is more flexibility than in the past regarding the status of NOCs. In this more liberal view, they need not be exclusively state-owned operators of the national hydrocarbon sector. But there are forces within NOCs, state institutions and societies that resist this evolution.


A look at the history of the national oil companies in the Middle East and North Africa will help us to understand what they are now, how their present- day challenges have taken shape and how they perceive foreign investors and consumers. This history does not define these companies, nor does it determine their behavior; but it is in the background, a part of the producers' collective memory with which an observer of the region must be familiar so as better to understand conversations about the industry today. Chapter 1 therefore examines the history of oil concessions in the region and the subsequent nationalizations. Chapter 2 discusses current attitudes to this history and investigates how it has shaped national oil companies in the Middle East and North Africa. Chapter 3 introduces five national oil companies, the key characters of this book, by looking at their corporate culture, identity and processes.

The story shows that national oil company employees are proud of what has been accomplished since nationalization. But this is no longer a sufficient driver for success. NOCs seek to develop a strong commercial culture, and this permeates the aspirations of most managers. Saudi Aramco, for example, refers to the state as its "shareholder." The current trend in the Middle East and North Africa is one of emancipation from the model of NOCs as instruments of the state. There is a drive to adopt the business practices of private oil companies. Although these are clearly national companies with state ownership of capital, special status in the mineral domain, obligations to the national market and a common history, they say they want to operate like international oil companies (IOCs), and even talk about partial privatization. We will see, however, that the term "privatization" does not carry the same meaning everywhere. In the West, it usually refers to the process of engaging the private sector to provide services or facilities that are regarded as public-sector responsibilities or to shifting from publicly to privately produced goods and services. In the Middle East and North Africa, this term has different meanings, both in different countries and in different sectors of activity. Moreover, even though many people in the industry showed interest in the management practices of private companies, the transition to a commercial culture is not fully implemented in most companies in the region. Many employees want to retain the community engagement that has historically defined their company.

NOCs operate in two very different settings: one is national, laden with obligations and constraints, but it is also where they draw their strength thanks to (sometimes exclusive) access to low-cost reserves; the other is the industry environment, which exists outside the rules of the national setting and in which they must be skilful to succeed. Chapters 4 to 7 look at how national oil companies manage the contending demands of these operating environments.

Chapter 4 focuses on the national setting, and examines the quality of the NOC-state relationship. Are the decision-making processes clear? Are the two parties' roles and responsibilities clearly demarcated? Is there political interference in companies' operational decisions?


Excerpted from Oil Titans by Valérie Marcel John V. Mitchell Copyright © 2006 by Brookings Institution Press and Chatham House . Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

1.  How It All Started
2.  How History Is Viewed by the National Oil Companies
3.  Corporate Culture and Identity
4.  Who Is Driving This Train?
5.  New Generations, Changing Expectations
6.  Changing Mission of the National Oil Companies
7.  Industry Challenges
8.  The Home-Front Strategy
9.  Going International?
10.  Partnerships
Conclusion: National Oil Companies on the Rise
Economic Background: The Challenges Faced by Petroleum-Dependent Economies-Special Contribution by John V.  Mitchell
Appendix 1.  Questionnaire
Appendix 2.  National Oil Company Structures
Appendix 3.  The Challenges of a Petroleum-Dependent Economy: Simulations of the Future Bibliography
About the Authors
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  • Anonymous

    Posted March 30, 2007

    a reviewer

    Don't look now, but five nationally owned oil companies (NOCs) control more than half the world's reserves of oil and natural gas. In today's media-steeped culture you might expect those companies to be under a constant microscope, but actually their operations tend to be cloaked in bureaucratic smoke. Valerie Marcel's book sheds valuable light on the way these companies operate and the red-tape constraints they face. While the book suffers from a rather colorless presentation, it more than compensates for this with insights into what the NOCs are and how they relate to the world's insatiable thirst for petroleum. We recommend this book to serious students of the global energy business.

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