Elevating the Upstream in the Middle East’s Gulf Oil Producers

Oil is a dominant theme on the international political agenda. The Arab Spring has caused a lot of concern among oil importing countries given the looming threat of supply disruptions. The world's dependence on the Middle East oil is a fact. As Mary Ann Tetreault (2008, 256) points out, “The Middle East is the geographic «center of gravity” of the world oil industry” with over 60% of the world's conventional oil reserves. On these grounds, understanding the functioning of the oil production and exploration sector (also known as the upstream) in the Gulf petroleum-exporting countries is not a whim but a must.

Ever since the era of oil nationalizations, within-country variation in the oil upstream policies pursued by the Gulf countries has been rather limited; in turn, cross-country variation in the region has been large. Within the scope of this research, upstream sector policy looks into the control structures present in the exploration and production sector within the petroleum value chain.1 Upstream control translates into the ratio of upstream production operated by the National Oil Company (NOC) to total production per country.

Over the past four decades, Kuwait and Saudi Arabia have kept the upstream sector largely under state control. If present, IOCs have operated under execution mandates with hardly any decision-making rights. By comparison, Oman, Qatar and the United Arab Emirates (UAE) have made their NOCs share production and profit in the upstream with IOCs to a rather considerable extent (above 40%).

Despite its relevance to the energy security agenda, this variation in upstream sector policies across the Gulf oil producer countries has not been satisfactorily explained so far. This paper focuses on upstream activities because these are the revenue-generating activities within the oil supply chain. They are considerably more relevant to both oil companies and oil producer countries than the ‘midstream’ (i.e. transportation system) or the ‘downstream’ (i.e. refining business), both of which have been historically less profitable.