[Choi Ji-woong's Oil Hegemony War] The Fate Divided by Shale... US and UK Each on Their Own Path

UK's Crude Oil Production Plummets "Towards Renewables"
US Shale Oil Production Triples "Oil Until the End"

Asia Economy Newspaper publishes a biweekly Friday series titled 'Choi Ji-woong's Oil Hegemony War,' diagnosing changes in the international oil order and the future of the energy industry. The author joined Korea National Oil Corporation in 2008, working in the Europe & Africa Business Division and the Stockpile Business Division before attending the Oil & Gas MBA program at Coventry University in London in 2015. Last year, he published the bestseller 'How Oil Rules the World,' which chronicles the modern history of oil.

There is a special aspect to the relationship between the United States and the United Kingdom. Henry Kissinger explains in his book Diplomacy that "there is a linguistic, cultural, and historical solidarity between the two countries, which gives their relationship a unique character." Since World War II, the two countries have maintained a core alliance within the free world. During the Korean War in June 1950, the country that dispatched the most troops was the United States, followed by the United Kingdom. The same pattern held during the 1991 Gulf War and the 2003 Iraq War. Even now, a large number of U.S. troops are stationed in the UK. This close relationship is evident not only in military matters but also clearly manifests in economic and diplomatic fields related to oil.

In the early 20th century, American and British companies were the first to enter the Middle East to secure oil resources. The first large oil fields in the Middle East were discovered by the British, and the American-founded Aramco in Saudi Arabia became the world's largest oil company today. Subsequently, seven oil companies from the U.S. and the UK, including Exxon and BP, enjoyed exclusive oil operations in the Middle East, earning the nickname the Seven Sisters. This nickname, coined by Italian oil businessman Enrico Mattei, was a sarcastic reference to their exclusive oil order. Until the 1970s, the Seven Sisters almost monopolized Middle Eastern oil fields, hardly allowing other countries business opportunities.

During the Iraq War, the British Prime Minister was dubbed 'Bush's Poodle'... a nickname born from oil

The close relationship between the U.S. and the UK is well illustrated by the 2003 Iraq War. Just before the war broke out, the UK’s Oil Depletion Analysis Centre submitted a report to the cabinet predicting a sharp decline in global oil production after 2010. Around the same time in 2001, the U.S. government also forecasted that domestic crude oil production would continuously decline, failing to meet even 30% of domestic demand by 2020. (Of course, these predictions were all proven wrong by the 2010 shale revolution.)

In 2002, when both countries shared similar concerns about the future, British Prime Minister Tony Blair consulted with U.S. President George Bush regarding Iraq. The minds of both leaders were already made up. Blair sent Bush a memo stating, "I will be with you," which was later revealed in the 2016 Chilcot Report investigating the UK's involvement in the Iraq War. This memo showed that Blair decided on the Iraq War before obtaining parliamentary approval. At the time, he was aptly called "Bush's poodle." Ultimately, both countries jointly conducted the Iraq War in 2003 and ousted Saddam Hussein. The official justification was that Iraq was hiding weapons of mass destruction.

Alliance breaks since last year... U.S. focuses on shale, UK on renewables

Under such a close bilateral relationship, American and British oil companies, known as the Seven Sisters, have shown changed behavior since 2019. They criticize each other's strategies and pursue their own paths. British BP declared it would cut investments in oil and gas sectors and expand investments in renewable energy. Last month, BP presented a roadmap to reduce oil and gas production by 40% by 2030 and increase renewable energy investments tenfold. On the 14th, BP released its 'Annual Energy Outlook' report, making a groundbreaking forecast that oil demand will not increase over the next 30 years. Another major British oil company, Shell, also diversified into renewable energy and pledged to achieve net-zero carbon emissions by 2050.

▲Choi Ji-woong, author of "How Oil Rules the World," working at the Korea National Oil Corporation Oil Information Center

In contrast, U.S. companies ExxonMobil and Chevron expressed doubts about BP and Shell’s strategies and intend to maintain business structures focused on oil. ExxonMobil CEO Darren Woods stated that the world’s oil consumption habits cannot be changed in the short term. He argued that energy demand will increase by about 20% by 2040 due to population growth, especially among the middle class, and this demand will be met by oil and gas. Chevron CEO Mike Wirth also criticized British oil companies’ low-carbon policies as lacking specificity and questioned their carbon reduction effectiveness. American and British oil companies now clearly show strategic differences.

Corporate strategies are heavily influenced by government policies. This is especially true in the energy sector, which relies greatly on taxation, subsidies, and diplomatic capabilities. Currently, Europe pursues more progressive energy policies than the U.S. In particular, the UK has declared it will close all coal-fired power plants by 2025 and eliminate internal combustion engine vehicles from roads by 2035. Meanwhile, since taking office, President Donald Trump has actively supported the oil industry through his policies.

Oil production reshapes international political landscape

Why do the U.S. and the UK, which once shared the same direction, now pursue such different policies? The biggest reason is the increase in U.S. crude oil production. Until the early 2000s, both countries’ crude oil production declined similarly, allowing them to share a sense of crisis. But the current situation is completely different. Production in the UK North Sea, where Brent crude?the benchmark for international oil prices?is produced, has dropped to half of what it was in the early 2000s. Meanwhile, U.S. crude oil production has nearly tripled during the same period due to the shale revolution. The two countries now face entirely different positions. This change led to the U.S. withdrawal from the Paris Climate Agreement and the UK’s bold energy transition policies.

It is still premature to view BP and Shell’s strategic changes as representative of the global oil industry. While European energy policies influenced BP and Shell’s accelerated strategy shifts, another important factor is the rapid decline in European oil production compared to regions like the Middle East and South America. In other words, BP’s decision to reduce oil development investments stems from the decline in North Sea production?their home turf?and the expectation that oil-producing countries willing to offer business opportunities to foreign oil companies will decrease. Conversely, U.S. companies have seen a surge in domestic crude oil production and still have opportunities to expand overseas businesses based on strong resource diplomacy and technological capabilities. Moreover, the U.S. has the world’s largest domestic oil market.

In the past, stable management and securing of oil resources were key reasons for the U.S.-UK alliance. As the surrounding circumstances change, so do their foreign policies and corporate strategies. Oil remains a significant factor influencing international politics and the global economy. In this regard, it is important to closely monitor the future energy situations of both countries.