44THE BIG PAYBACKWestern oil companies had proven adept at dealing one on one with
troublesome regimes. For producers, the key to restoring national con-
trol lay in collective action. In 1960, five oil- producing countries— Iran,
Iraq, Kuwait, Saudi Arabia, and Venezuela— had laid the groundwork
for such collective action when they founded the Organization of the
Petroleum Exporting Countries (OPEC). At the time, few noticed. Min-
isters from OPEC’s member states periodically sought to improve their
negotiating power with the Seven Sisters, but for its first ten years, OPEC
operated in a deferential manner.
By 1971, OPEC members understood that intimidation worked bet-
ter than servility. First came veiled threats of nationalization, aimed at
improving producer states’ share of the rents. As IOC executives found
their influence crumbling, they capitulated. Recognizing a shift in the
balance of power, producer countries began methodically imposing sov-
ereignty over national resources through a series of escalating demands,
most of which were met by the oil companies’ climbdowns. Over the next
two years, OPEC countries issued ultimatums for increased revenue and
higher prices, demanding “participation.” Once again, the oil companies
relented. Participation meant that, for pennies on the dollar, producer
governments could reclaim formal ownership of a portion of the crude
oil produced. They then sold the crude back to IOC concession holders
at higher prices.^1
Host countries did not just want better financial terms; they wanted
more control over production practices. One major grievance revolved
around the IOCs’ wholesale waste of natural gas, which came to the
surface as a byproduct of oil production. Gas was often simply “vented”
into the atmosphere or “flared off ”— literally burned up— at the well-
head. Western IOCs had no interest in gas, viewing it as a “stranded
resource,” a nuisance byproduct without a viable regional market or strat-
egy for transport.
Heads of state, on the other hand, saw gas as a valuable tool for
national development. In Kuwait, the government wanted to capture gas
for domestic uses (such as electricity generation), but BP and Gulf Oil
refused to invest in the necessary gas- recovery infrastructure.^2 Aramco’s
prenationalization venting of natural gas in Saudi Arabia was so profuse