Petroleum politics have been an increasingly important aspect of diplomacy since the rise of the petroleum industry in the Middle East in the early 20th century. As competition continues for a vital resource, the strategic calculations of major and minor countries alike place prominent emphasis on the pumping, refining, transport, sale and use of petroleum products.
Quota agreements The Achnacarry Agreement or "As-Is Agreement" was an early attempt to restrict petroleum production, signed in Scotland on 17 September 1928. Text of the 18 August 1928 draft of the Achnacarry Agreement. The discovery of the East Texas Oil Field in the 1930s led to a boom in production that caused prices to fall, leading the Railroad Commission of Texas to control production. The Commission retained de facto control of the market until the rise of OPEC in the 1970s.
The Anglo-American Petroleum Agreement of 1944 tried to extend these restrictions internationally but was opposed by the industry in the United States and so Franklin Roosevelt withdrew from the deal.
Venezuela was the first country to move towards the establishment of OPEC by approaching Iran, Gabon, Libya, Kuwait and Saudi Arabia in 1949, but OPEC was not set up until 1960, when the United States forced import quotas on Venezuelan and Persian Gulf oil in order to support the Canadian and Mexican oil industries. OPEC first wielded its power with the 1973 oil embargo against the United States and Western Europe.
Oil and international conflict
The term "petro-aggression" has been used to describe the tendency of oil-rich states to instigate international conflicts. There are many examples including: Iraq's invasion of Iran and Kuwait; Libya's repeated incursions into Chad in the 1970s and 1980s; Iran's long-standing suspicion of Western powers. Some scholars have also suggested that oil-rich states are frequently the targets of "resource wars."
Cullen Hendrix, author of the academic article "Oil Prices and Interstate Conflict", focuses on creating a more sound measurement of an index, building off of Colgan and Weeks indices respectfully. Hendrix findings are such that as the price in oil goes up the more confrontational a petro-state becomes. This may be due to the fact that these countries can now invest more heavily in their military. When people feel secure, they tend to give a higher approval rating to the leader. A petro-state GDP will grow, offering the opportunity for a more diverse industry, which in turn gives more bargaining chips in terms of global negotiations.
Research by Emily Meierding has characterized oil wars as largely a myth. She argues that proponents of oil wars underestimate the ability to seize and exploit foreign oil fields, and thus exaggerate the value of oil wars. She has examined four cases commonly described as oil wars (Japan's attack on the Dutch East Indies in World War II, Iraq's invasion of Kuwait, the Iran-Iraq War, and the Chaco War between Bolivia and Paraguay), finding that control of additional oil resources was not the main cause of aggression in the conflicts.
A 2024 study found that the presence of oil in contested territory can make states less likely to seek to acquire the territory.
Peak oil
In 1956, a Shell geophysicist named M. King Hubbert accurately predicted that U.S. oil production would peak in 1970.
In 1970, production effectively peaked in the United States.
In June 2006, former U.S. president Bill Clinton said in a speech,
"We may be at a point of peak oil production. You may see $100 a barrel oil in the next two or three years, but what still is driving this globalization is the idea that is you cannot possibly get rich, stay rich and get richer if you don't release more greenhouse gases into the atmosphere. That was true in the industrial era; it is simply factually not true. What is true is that the old energy economy is well organized, financed and connected politically."
In a 1999 speech, Dick Cheney, the US vice president and former CEO of Halliburton (one of the world's largest energy services corporations), said,
"By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from?....While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies, even though companies are anxious for greater access there, progress continues to be slow."
Cheney went on to argue that the oil industry should become more active in politics:
"Oil is the only large industry whose leverage has not been all that effective in the political arena. Textiles, electronics, agriculture all seem often to be more influential. Our constituency is not only oilmen from Louisiana and Texas, but software writers in Massachusetts and specialty steel producers in Pennsylvania. I am struck that this industry is so strong technically and financially yet not as politically successful or influential as are often smaller industries. We need to earn credibility to have our views heard."
Pipeline diplomacy in the Caspian Sea area
The Baku–Tbilisi–Ceyhan pipeline was built to transport crude oil and the Baku-Tbilisi-Erzurum pipeline was built to transport natural gas from the western side (Azerbaijani sector) of the Caspian Sea to the Mediterranean Sea bypassing Russian pipelines and thus Russian control. Following the construction of the pipelines, the United States and the European Union proposed extending them by means of the proposed Trans-Caspian Oil Pipeline and the Trans-Caspian Gas Pipeline under the Caspian Sea to oil and gas fields on the eastern side (Kazakhstan and Turkmenistan sectors) of the Caspian Sea. In 2007, Russia signed agreements with Turkmenistan and Kazakhstan to connect their oil and gas fields to the Russian pipeline system effectively killing the undersea route.
China has completed the Kazakhstan–China oil pipeline from the Kazakhstan oil fields to the Chinese Alashankou-Dushanzi Crude Oil Pipeline in China. China is also working on the Kazakhstan-China gas pipeline from the Kazakhstan gas fields to the Chinese West-East Gas Pipeline in China.
Politics of oil nationalization
Several countries have nationalised foreign-run oil businesses, often failing to compensate investors. Enrique Mosconi, the director of the Argentine state owned oil company Yacimientos Petrolíferos Fiscales (YPF, which was the first state owned oil company in the world, preceding the French Compagnie française des pétroles (CFP, French Company of Petroleums, today TotalEnergies), created in 1924 by the conservative Raymond Poincaré), advocated oil nationalization in the late 1920s among Latin American countries. The latter was achieved in Mexico during Lázaro Cárdenas's rule, with the Expropiación petrolera.
Similarly Venezuela nationalized its oil industry in 1976.
Politics of alternative fuels Vinod Khosla (a well known investor in IT firms and alternative energy) has argued that the political interests of environmental advocates, agricultural businesses, energy security advocates (such as ex-CIA director James Woolsey) and automakers, are all aligned for the increased production of ethanol. He pointed out that from 2003 to 2006, ethanol fuel in Brazil replaced 40% of its gasoline consumption while flex fuel vehicles went from 3% of car sales to 70%. Brazilian ethanol, which is produced using sugarcane, reduces greenhouse gases by 60-80% (20% for corn-produced ethanol). Khosla also said that ethanol was about 10% cheaper per given distance. There are currently ethanol subsidies in the United States but they are all blender's credits, meaning the oil refineries receive the subsidies rather than the farmers. There are indirect subsidies due to subsidising farmers to produce corn. Vinod says after one of his presentations in Davos, a senior Saudi oil official came up to him and threatened: "If biofuels start to take off, we will drop the price of oil." Since then, Vinod has come up with a new recommendation that oil should be taxed if it drops below $40.00/barrel in order to counter price manipulation.
Ex-CIA director James Woolsey and U.S. Senator Richard Lugar are also vocal proponents of ethanol.
It is argued that international climate policy and unconventional oil and gas developments may change the balance of power between petroleum exporting and importing countries with major negative implications expected for the exporting states. From around 2015 onwards, there was increasing discussion about whether the geopolitics of oil and gas would be replaced by the geopolitics of renewable energy resources and critical materials for renewable energy technologies.
Some authors argue that compared to the geopolitics of fossil fuels, renewable energy may cause more small-scale conflicts but reduce the risk of large inter-state conflicts.
The anti-nuclear movement received some funding early on from fossil fuel companies, including petroleum interests. Even in the 21st century there are continuing efforts by fossil fuel companies to paint nuclear energy in a negative light and to position fossil gas and oil as a "perfect partner for renewables".
Key oil producing countries
Canada
As development in the Alberta oil sands, deep sea drilling in the North Atlantic and the prospects of arctic oil continue to grow Canada increasingly grows as a global oil exporter. There are currently three major pipelines under proposal that would ship oil to the pacific, atlantic and gulf ports. These projects have stirred internal controversy, receiving fierce opposition from First Nations groups and environmentalists.
In June 2025, after becoming prime minister, Mark Carney voiced support for a new oil pipeline to the West Coast and a proposed $16.5 billion carbon capture system for the Athabasca oil sands. A deal was reached for the pipeline and carbon capture system in November 2025. The One Canadian Economy Act speeds up approval of projects deemed of national interest, potentially including mines and oil pipelines, and eliminates some trade barriers between provinces.
Iran
Discovery of oil in 1908 at Masjed Soleiman in Iran initiated the quest for oil in the Middle East. The Anglo-Iranian Oil Company (AIOC) was founded in 1909. In 1951, Iran nationalized its oil fields, initiating the Abadan Crisis. The Central Intelligence Agency and MI6 responded by supporting a coup against its democratically elected prime minister, Mosaddeq, and brought the former Shah's son to power in 1953. During the coup, Western-back Iranian rebels arrested Mosaddeq and kept him under house arrest. Iran exports oil to China and Russia.
Iraq
Iraq holds the world's second-largest proven oil reserves, with increasing exploration expected to enlarge them beyond of "high-grade crude, extraordinarily cheap to produce." Organizations such as the Global Policy Forum (GPF) have asserted that Iraq's oil is "the central feature of the political landscape" there, and that as a result of the 2003 invasion,"'friendly' companies expect to gain most of the lucrative oil deals that will be worth hundreds of billions of dollars in profits in the coming decades." According to GPF, U.S. influence over the 2005 Constitution of Iraq has made sure it "contains language that guarantees a major role for foreign companies."
Mexico
Mexico has a largely oil-based economy, being the seventh largest producer of petroleum. Though Mexico has gradually explored different types of electricity, oil is still crucial, recently generating 10% of revenue.