48THE BIG PAYBACKThe nationalizations had been timed perfectly. It was the producer
countries, rather than the Western IOCs, that reaped most of the fruits
of the spike in oil prices. In the wake of the embargo, Gulf regimes fin-
ished the business of kicking out their long- term foreign partners. Kuwait
took 60 percent of the BP- Gulf concession in 1974. Qatar did the same
to Shell and BP. A year later, Kuwait took the remaining 40 percent and
handed BP and Gulf Oil a paltry $50 million in compensation.^14
Saudi Arabia, despite leading the embargo, pursued a more cautious
strategy of nationalization. The Saudi government had already pur-
chased 25 percent of Aramco’s assets in 1973. A year later it raised that
to a controlling stake of 60 percent. But the Saudis wanted to main-
tain close ties with American IOCs and with Washington, by then a
big importer and strategic Cold War partner. The Saudi objection to
US backing for Israel was tempered by bigger concerns. The kingdom
needed American experts to keep Aramco’s operations running, and
it needed American IOCs to continue marketing Saudi oil around the
world. “You are the evil we cannot live without,” a prominent Saudi offi-
cial told the US embassy.^15 Saudi nationalization remained quiet and dis-
ciplined, and the Saudi government did not take full ownership until
1980, when it paid a mutually agreeable price.^16
Overall, the combined effects of embargo and nationalization caused
a sea change in global energy. The transformation comprised five major
effects:
- Control of global oil passed from Western IOCs to national oil com-
panies (NOCs) in the developing world. In 1970, IOCs controlled access
to 85 percent of global oil and gas reserves. By 1980, that share had plum-
meted to just 12 percent, with states taking control of 88 percent.^17 - Nationalization resulted in a similar revolution in the share of
oil revenues flowing to oil- exporting states relative to those controlled
by IOCs. Where Middle Eastern governments’ combined tax and roy-
alty rates stood at around 2 percent in the 1940s and 50 percent in the
early 1970s, by 1975 they reached an average of 85 percent.^18 - OPEC control over pricing and output also allowed exporting
countries to increase the amount of revenues flowing to their treasuries.