The Challenge of Nationalism, A Historical Look at BP

Updated: Apr 10, 2020


Challenges Facing International Oil Companies


"BP was hindered early on by its lack of diversification, but executives learned quickly that the Company needed to explore in the more stable and non-OPEC Western Hemisphere, which led to successful discoveries like Prudhoe Bay in Alaska."

During the 1950’s to 1970’s era, major international oil companies were faced with many difficult challenges that had lasting impacts on their success. For these companies, the nationalism of foreign oil played a huge role in the decisions that were made by company executives. Ultimately, these decisions can be boiled down to the following topics: asset diversification, new exploration, and negotiating with foreign governments.


The idea of nationalism was a constant threat in foreign oil production. One method of lessening the magnitude of this threat was by holding a diverse set of assets, and Winston Churchill argued that “safety and certainty in oil lie in variety and in variety alone.”[1] Companies that produced from countries that were quick to nationalize, like Mexico & Venezuela, understood this concept early on. Majors like Standard of NJ, Shell, Gulf, and Texaco produced from a mix of countries in order to lessen the impact of potential nationalization of a single country. However, BP employed a deliberate strategy of concentration, focusing its attention on developing “the giant oil field at Masjid-i-Suleiman in Iran.”[2] BP was the first to produce in Iran through the D’Arcy concession, so the Company had experience in the area, giving them a significant advantage over the competition. One reason BP focused its attention on Iran was because it was extremely cheap to produce Persian oil - the Company was already vested in Iran and the infrastructure was in place. Another reason was that there were significant amount of reserves that did not require the Company to look elsewhere for oil. Iran was viewed by BP as a “country of seemingly inexhaustible oil reserves [that] commanded and absorbed the Company’s attention to a degree that did not permit equivalent developments elsewhere.”[3] While this strategy of concentration proved effective until the nationalization of Iranian oil in 1951, it forced BP to fall behind its peers in exploring for and producing oil outside of Iran and the Middle East.


As Middle Eastern governments became more assertive in their royalty demands, companies producing in these countries became more vulnerable to the threat of nationalization - forcing many to look outside the Middle East for oil. When BP was kicked out of Iran, as a result of the nationalization in 1951, the Company was forced to adopt “as our aim and policy the energetic search for new sources of crude oil…to provide supplies outside the Middle East.”[4] BP’s strategy was to gain a competitive advantage in a region by being the first to explore and produce it - just as the Company had done in Iran. This led BP to energetically explore for oil in countries like Nigeria, Libya, South America, The Caribbean, Canada, Alaska, and The North Sea. However, since the Company never before had to look outside of the Middle East, BP was significantly disadvantaged in exploring for oil in these areas. BP had no experience with competitive lease bidding in Libya; whereas American oil companies were familiar with it, because it was the normal system in the USA. “BP, on the other hand, was a novice at it and soon fell behind in the competitive race.”[5] However, BP’s experience with the geology in Iran gave them an advantage in Alaska, as “BP had been influenced by its longstanding preference for exploring in areas with a geological likeness to the Zagros foothills in Iran,”[6] which ultimately led to the discovery of the giant oil field at Prudhoe Bay.


Searching for oil outside of the Middle East was a temporary relief to the rising nationalism that occurred in the late 1950’s; however, international oil companies still had to face the challenge of dealing with the Middle East governments, and eventually OPEC. “For BP this was an absolutely crucial issue. With its near-total dependence on the Middle East for crude oil, BP was more exposed than any other major to the risks of political disturbances in a region that was in ferment.” [7] After OPEC was formed in 1960, as a reaction to the produce price cuts, there were differing views on how to handle the new cartel. BP favored a “wait and see” attitude, while Standard Oil of NJ regarded OPEC as “a far more serious and immediate menace,” and believed that “they must either murder it or make love to it.”[8] BP saw Iran and the other OPEC moderates as a “weak link” that could be used as a brake to stop the progression of OPEC cartel. The idea was to convince the moderates that “they had more to gain from co-operation with the oil companies than they could win by confrontation through OPEC.” [9] However, BP - so focused on its large stake in Iran - was almost “too successful in convincing Iran…[the] purpose was to use Iran as a brake within OPEC, not to detach Iran from OPEC altogether.”[10] Some thought that if Iran left OPEC, it would remove a moderating influence on the organization and give the radical countries even more power. But in 1963, the oil companies offered the Shah of Iran a new Consortium offer and he was persuaded to “stand firm against unilateral action at OPEC’s Riyadh conference.”[11] By detaching the OPEC moderates from the radicals “the oil companies had achieved a large measure of success in slowing OPEC down and perpetuating the concessionary system,”[12] for the time being.


In retrospect, the same challenges that faced BP also faced most major oil companies during the 1950’s through 1970’s. The nationalism of foreign oil played a huge role in the decisions that BP made. BP was hindered early on by its lack of diversification, but executives learned quickly that the Company needed to explore in the more stable and non-OPEC Western Hemisphere, which led to successful discoveries like Prudhoe Bay in Alaska. Ultimately, the companies that had diversified assets, were agile explorers, and could negotiate with foreign governments, were the ones that proved to be most successful during this era.

[1] James H. Bamberg, British Petroleum and Global Oil, 1950-1975: The Challenge of Nationalism. 2000. Cambridge: Cambridge University Press, 2000. p. 13

[2] Bamberg, British Petroleum and Global Oil, 1950-1975: The Challenge of Nationalism, p. 13

[3] Bamberg, British Petroleum and Global Oil, 1950-1975: The Challenge of Nationalism, p. 13

[4] Bamberg, British Petroleum and Global Oil, 1950-1975: The Challenge of Nationalism, p. 106

[5] Bamberg, British Petroleum and Global Oil, 1950-1975: The Challenge of Nationalism, p. 115

[6] Bamberg, British Petroleum and Global Oil, 1950-1975: The Challenge of Nationalism, p. 190

[7] Bamberg, British Petroleum and Global Oil, 1950-1975: The Challenge of Nationalism, p. 143

[8] Bamberg, British Petroleum and Global Oil, 1950-1975: The Challenge of Nationalism, p. 151

[9] Bamberg, British Petroleum and Global Oil, 1950-1975: The Challenge of Nationalism, p. 153

[10] Bamberg, British Petroleum and Global Oil, 1950-1975: The Challenge of Nationalism, p. 154

[11] Bamberg, British Petroleum and Global Oil, 1950-1975: The Challenge of Nationalism, p. 160

[12] Bamberg, British Petroleum and Global Oil, 1950-1975: The Challenge of Nationalism, p. 161

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