The Creation of OPEC Impacted Tulsa, the World

By CHARLES CANTRELL
Contributing Writer

BIG LOSS: Tulsa took a big blow in the early 2000s with the loss of the Citgo headquarters to Houston. Founded in 1965 as an off-shoot from Cities Service Oil Company in Bartlesville, the $32 billion company and its 4,000 employees were taken over by Petróleos de Venezuela in 1986. PDVSA is controlled by the Venezuelan government of Hugo Chávez, an anti-American socialist. Venezuela (PDVSA) was an original member of OPEC.

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Editor’s Note: This article is the 14th in a multi-part series about the past, present and future of the oil industry in greater Tulsa and throughout the region. The series began in Mid-June 2005 and has been published monthly since. The series is available on the GTR Web site at www.gtrnews.com. This article begins a look at the oil industry in Tulsa in the 1980s and will continue next month.

In 1983 Tulsans Barbara and Gary bought their dream home. It was a Tudor style cottage across the street from Woodward Park in a Utica Square neighborhood where traditionally residential housing investment was a no-brainer if you could afford it. They paid the asking price of $135,000, came up with the five percent down payment and secured a 30-year mortgage at the prevailing 12.58 fixed interest rate for the remaining 95 percent. Little did they know events halfway around the world were conspiring to render their dream home an investment disaster. They had bought Tulsa real estate at exactly the worst possible time. They and many others were on the cusp of what would soon become a real estate collapse unequaled in a city unfamiliar with such things. It was one in a chain of events we now call the 1980s oil bust.

As the home real estate market collapsed, Barbara and Gary’s dream house lost value until eventually they owed more on the mortgage than the house could bring on the market. Consequently, the couple would have to make up the $15,000 difference in the event they were ever able to sell the property in the severely depressed market. It wasn’t until 1991 that they finally sold at a substantial loss. Across the state this same scenario was repeated countless times. Many simply walked away from their homesteads. Not only residential, but also commercial and business property flooded the market as a result of financial failures spreading like prairie fire. It all had to do with the oil bust, but how and why was the question.

To understand what was happening, we should start back in April 1905. On a nine-mile strip of tall grass prairie on the Creek Indian Reservation in Oklahoma Territory just an hour buggy ride from Tulsa, an event that would forever change Oklahoma, America and the world was about to happen. Less than 1,500 feet below ground the bit of a cable tool drilling rig, operated by partners Robert Galbreath and Frank Chelsey, pierced a strata of sandstone, later named Bartlesville Sand, and discovered the Glen Pool, the richest oil reserve the world had yet seen. The oil rush was on as additional fields discovered across the heartland soon made the USA the world’s leading producer of carbon-based fuels and products.

The Glen Pool set the stage for Tulsa to become one of America’s great cities.

As domestic oil fields matured, United States energy companies took their honed expertise and explored the world discovering new oil fields to replace depleted reserves at home. For five decades the USA, along with other western countries worked together to monitor the worldwide supply of crude oil to help stabilize and hold down the cost of energy.

Things began to change as more oil reserves were discovered around the world. In the early 1960s many of the oil producing nations from the Middle East and elsewhere formed a cartel, the Organization of Petroleum Exporting Countries (OPEC), to protect their interests. The increase of oil output of the cartel countries of Algeria, Indonesia, Iran, Qatar, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates and Venezuela along with increasing world-wide demand for oil began to erode away the USA’s ability to monitor crude oil prices.

Meanwhile, the USA went from energy self-sufficiency up until the early 1950s to importing 35 percent of its energy needs in the 1970s. Maintaining crude oil price stability was suddenly in the hands of the cartel. Consequently, Tulsa’s reliable energy-based economy was at the mercy of forces far beyond the reach of everyday Tulsans like Barbara and Gary.

In October 1973, OPEC began to flex its newly acquired muscle by imposing an oil embargo on the USA for its support of Israel during the Yom Kippur conflict of that same year. The embargo had the desired results of sending energy prices skyrocketing and sending shock waves through an American economy long accustomed to cheap oil. This was the country’s first experience with the cartel’s willingness to use oil as a potent political weapon.

Attempts by President Nixon to deal with the problem by gasoline rationing and price controls produced little help as the USA quickly spiraled into a deep recession. Tulsa weathered this storm due in part to its access to domestic energy resources and the short duration of the embargo. OPEC lifted the embargo on March 1974 and cheaper oil was back. The crisis had prompted congress to pass funding for the Trans-Alaskan pipeline designed to supply 2 million barrels of oil a day and contribute to price stabilization once it came on line in 1977.

The events of 1973/74 should have served as a warning to Tulsans that the glory days of a reliable energy-based economy were over for the Oil Capital of the World. It also put the domestic oil industry on notice that a new day had arrived. The stage was set for what would come in the next decade of the 1980s. Ironically, it was low crude oil prices that hurt the Tulsa economy. While most of the nation enjoyed an economic resurgence in the 1980s, the Oil Patch suffered greatly.

Next issue: Oil in the 80s—Tulsa’s Bubble Bursts.

Updated 07-31-2006

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