In the United States, an executive order is a directive by the president of the United States that manages operations of the federal government. The legal or constitutional basis for executive orders has multiple sources. Article Two of the United States Constitution
gives presidents broad executive and enforcement authority to use their
discretion to determine how to enforce the law or to otherwise manage
the resources and staff of the federal government's executive branch. The ability to make such orders is also based on expressed or implied Acts of Congress that delegate to the president some degree of discretionary power (delegated legislation). The vast majority of executive orders are proposed by federal agencies before being issued by the president.
Like both legislative statutes and the regulations promulgated by government agencies, executive orders are subject to judicial review and may be overturned if the orders lack support by statute or the Constitution. Some policy initiatives require approval by the legislative branch,
but executive orders have significant influence over the internal
affairs of government, deciding how and to what degree legislation will
be enforced, dealing with emergencies, waging wars, and in general
fine-tuning policy choices in the implementation of broad statutes. As
the head of state and head of government of the United States, as well
as commander-in-chief of the United States Armed Forces, only the
president of the United States can issue an executive order.
Presidential executive orders, once issued, remain in force until
they are canceled, revoked, adjudicated unlawful, or expire on their
terms. At any time, the president may revoke, modify or make exceptions
from any executive order, whether the order was made by the current
president or a predecessor. Typically, a new president reviews in-force
executive orders in the first few weeks in office.
Basis in the United States Constitution
The United States Constitution does not have a provision that explicitly permits the use of executive orders. ArticleII, Section1, Clause1
of the Constitution simply states: "The executive Power shall be vested
in a President of the United States of America." Sections2 and3 describe the various powers and duties of the president, including "He shall take care that the Laws be faithfully executed".
The U.S. Supreme Court has held
that all executive orders from the president of the United States must
be supported by the Constitution, whether from a clause granting
specific power, or by Congress delegating such to the executive branch. Specifically, such orders must be rooted in Article II of the US Constitution or enacted by the Congress in statutes.
Attempts to block such orders have been successful at times, when such
orders either exceeded the authority of the president or could be better
handled through legislation.
With the exception of William Henry Harrison, all presidents since George Washington
in 1789 have issued orders that in general terms can be described as
executive orders. Initially, they took no set form and so they varied as
to form and substance.
The first executive order was issued by Washington on June 8,
1789; addressed to the heads of the federal departments, it instructed
them "to impress [him] with a full, precise, and distinct general idea
of the affairs of the United States" in their fields.
According to political scientist Brian R. Dirck, the most famous executive order was by President Abraham Lincoln when he issued the Emancipation Proclamation on September 22, 1862, which in part contained explicit directions to the Army, the Navy, and other Executive departments:
The Emancipation Proclamation was
an executive order, itself a rather unusual thing in those days.
Executive orders are simply presidential directives issued to agents of
the executive department by its boss.
Until the early 1900s, executive orders were mostly unannounced and
undocumented, and seen only by the agencies to which they were directed.
That changed when the US Department of State instituted a numbering scheme in 1907, starting retroactively with United States Executive Order 1, issued on October 20, 1862, by President Lincoln.
The documents that later came to be known as "executive orders"
apparently gained their name from that order issued by Lincoln, which
was captioned "Executive Order Establishing a Provisional Court in
Louisiana". That court functioned during the military occupation of Louisiana during the American Civil War, and Lincoln also used Executive Order1 to appoint Charles A. Peabody as judge and designate the salaries of the court's officers.
President Harry Truman's Executive Order 10340 placed all the country's steel mills under federal control, which was found invalid in Youngstown Sheet & Tube Co. v. Sawyer,
343 US 579 (1952), because it attempted to make law, rather than to
clarify or to further a law put forth by the Congress or the
Constitution. Presidents since that decision have generally been careful
to cite the specific laws under which they act when they issue new
executive orders; likewise, when presidents believe that their authority
for issuing an executive order stems from within the powers outlined in
the Constitution, the order instead simply proclaims "under the
authority vested in me by the Constitution".
Wars have been fought upon executive order, including the 1999 Kosovo War during President Bill Clinton's
second term in office; however, all such wars have also had authorizing
resolutions from Congress. The extent to which the president may
exercise military power independently of Congress and the scope of the War Powers Resolution
remain unresolved constitutional issues, but all presidents since the
passage of the resolution have complied with its terms, while also
maintaining that they are not constitutionally required to do so.
In 2021, President Joseph Biden issued 42 executive orders in the
first 100 days of his presidency, more than any other president since
Harry Truman.
Franklin Roosevelt
Before
1932, uncontested executive orders had determined such issues as
national mourning on the death of a president and the lowering of flags
to half-staff.
President Franklin Roosevelt issued the first of his 3,721 executive orders on March 6, 1933, declaring a bank holiday, and forbidding banks to release gold coin or bullion. Executive Order 6102 forbade the hoarding of gold coin, bullion and gold certificates. A further executive order required all newly mined domestic gold be delivered to the Treasury.
Justices Frankfurter, Douglas, Black, and Jackson dramatically
checked presidential power by invalidating the executive order at issue
in Youngstown Sheet & Tube Co. v. Sawyer: in that case Roosevelt's successor, Harry S. Truman, had ordered private steel production facilities seized in Executive Order 10340 to support the Korean War effort: the Court held that the executive order was not within the power granted to the president by the Constitution.
Large policy changes with wide-ranging effects have been implemented by executive order, including the racial integration of the armed forces under President Truman.
Two extreme examples of an executive order are Franklin Roosevelt's Executive Order 6102 "forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States", and Executive Order 9066, which delegated military authority to remove any or all people in a military zone (used to target Japanese Americans, non-citizen Germans, and non-citizen Italians in certain regions). The order was then delegated to GeneralJohn L. DeWitt, and it subsequently paved the way for all Japanese-Americans on the West Coast to be incarcerated in ten specially built prison camps the duration of World War II.
President George W. Bush issued Executive Order 13233 in 2001, which restricted public access to the papers of former presidents. The order was criticized by the Society of American Archivists
and other groups, who say it "violates both the spirit and letter of
existing U.S. law on access to presidential papers as clearly laid down
in 44 USC 2201–07", and adding that the order "potentially threatens to undermine one of the very foundations of our nation". President Barack Obama subsequently revoked Executive Order 13233 in January 2009.
The Heritage Foundation
has accused presidents of abusing executive orders by using them to
make laws without congressional approval and moving existing laws away
from their original mandates.
Legal conflicts
In 1935, the Supreme Court overturned five of Franklin Roosevelt's executive orders (6199, 6204, 6256, 6284a and 6855).[22][23]
Executive Order 12954, issued by President Bill Clinton in 1995, attempted to prevent the federal government from contracting with organizations that had strike-breakers on the payroll: a federal appeals court ruled that the order conflicted with the National Labor Relations Act and overturned the order.
Congress has the power to overturn an executive order by passing
legislation that invalidates it, and can also refuse to provide funding
necessary to carry out certain policy measures contained with the order
or legitimize policy mechanisms.
In the case of the former, the president retains the power to
veto such a decision; however, Congress may override a veto with a
two-thirds majority to end an executive order. It has been argued that a
congressional override of an executive order is a nearly impossible
event, because of the supermajority vote required, and the fact that such a vote leaves individual lawmakers vulnerable to political criticism.
On July 30, 2014, the US House of Representatives approved a resolution authorizing Speaker of the HouseJohn Boehner to sue President Obama over claims that he exceeded his executive authority in changing a key provision of the Affordable Care Act ("Obamacare") on his own
and over what Republicans claimed had been "inadequate enforcement of
the health care law", which Republican lawmakers opposed. In particular,
Republicans "objected that the Obama administration delayed some parts of the law, particularly the mandate on employers who do not provide health care coverage". The suit was filed in the US District Court for the District of Columbia on November 21, 2014.
The degree to which the president has the power to use executive orders to set policy for independent federal agencies is disputed. Many orders specifically exempt independent agencies, but some do not. Executive Order 12866 has been a particular matter of controversy; it requires cost-benefit analysis for certain regulatory actions.[34][35][36][37]
Executive orders issued by state governors
are not the same as statutes passed by state legislatures. State
executive orders are usually based on existing constitutional or
statutory powers of the governor and do not require any action by the
state legislature to take effect.
Executive orders may, for example, demand budget cuts from state government when the state legislature is not in session, and economic conditions take a downturn, thereby decreasing tax revenue below what was forecast when the budget was approved. Depending on the state constitution, a governor may specify by what percentage each government agency must reduce and may exempt those that are already particularly underfunded or cannot put long-term expenses (such as capital expenditures) off until a later fiscal year. The governor may also call the legislature into special session.
There are also other uses for gubernatorial executive orders. In 2007, for example, Sonny Perdue, the governor of Georgia, issued an executive order for all its state agencies to reduce water use during a major drought. The same was demanded of its counties' water systems as well, but it was unclear whether the order would have the force of law.
Presidential proclamation
According to political expert Phillip J. Cooper, a presidential proclamation
"states a condition, declares a law and requires obedience, recognizes
an event or triggers the implementation of a law (by recognizing that
the circumstances in law have been realized)".
Presidents define situations or conditions on situations that become
legal or economic truth. Such orders carry the same force of law as
executive orders, the difference between being that executive orders are
aimed at those inside government, but proclamations are aimed at those
outside government.
The administrative weight of those proclamations is upheld
because they are often specifically authorized by congressional statute,
making them "delegated unilateral powers". Presidential proclamations
are often dismissed as a practical presidential tool for policy making
because of the perception that proclamations are largely ceremonial or
symbolic in nature. However, the legal weight of presidential
proclamations suggests their importance to presidential governance.
The online video platformTikTok
has had worldwide a social, political, and cultural impact since its
global launch in September 2016. The platform has rapidly grown its
userbase since its launch and surpassed 2 billion downloads in October,
2020. It became the world's most popular website, ahead of Google, for the year 2021.
TikTok's diverse content ecosystem includes popular niches such as
music, fitness, beauty, education, and gaming, which cater to a wide
range of audiences.
Cultural impact
Music
TikTok has been noted by many media outlets as having a major influence in the music industry. American artist Lil Nas X notably rose to fame after his song "Old Town Road"
went viral on TikTok in 2019. He acknowledged the platform's influence
in popularizing the song, saying "[TikTok] really boosted the song ... I
credit them a lot".Doja Cat has also been noted as an artist who achieved mainstream popularity thanks to her success on TikTok. Insider noted in 2020 that "one of the most popular, pervasive dances of all time" from TikTok was set to Say So, which became her first no.1 hit on the Billboard Hot 100. Pitchfork
also noted Doja Cat's "astonishing, unprecedented TikTok reign", saying
that before her fame on TikTok, "many people didn’t fully register Doja
Cat as a star".
When it was launched, TikTok allowed users to upload videos that
ranged from 3 seconds to 1 minute. The short video length limit led to
users making sped-up versions of songs to use in their videos. This allowed them to fit more of the song in their video. Some artists, including SZA and Steve Lacy, released official sped-up versions of their songs after unofficial sped-up remixes of their songs went viral on the platform.
TikTok has also helped popularize older songs. Fleetwood Mac's song Dreams
re-entered the Billboard Hot 100 over 40 years after its release after a
video that featured the song went viral on the platform.
Dan Whateley from Insider noted that songs could "rise up organically
on the app even if they've been outside the mainstream for decades".
In September 2023, Billboard and TikTok launched a new chart called the TikTok Billboard Top 50 to track music that is popular on the platform in the United States.
Some artists have complained of a "burnout" due to TikTok's massive role in the music marketing process. American singer Halsey said in 2022 that her label was stopping her from releasing a new song if she didn't agree to "fake a viral moment on TikTok".
News and information
TikTok is becoming a growing source of news for Americans. Pew Research Center
found that the percentage of US adults who regularly got their news
from TikTok more than tripled from 3% of US adults in 2020, to 10% in
2022, and now 14% in 2023. The percentage of US adult TikTok users who
regularly get their news from the platform increased from 22% to 33% in
the same time period. This is much lower than the percentage of Facebook
and Twitter users who regularly get their news from those platforms.
However, unlike with TikTok, the proportion of Facebook and Twitter
users who get their news from those platforms declined every year from
2020 to 2022.
An increasing proportion of Generation Z internet users have also started using TikTok as their preferred search engine over Google.
Politics
As
the popularity of TikTok grows, more and more individuals join the
platform. Hence, current political ideologies are being spread on the
platform. TikTok has turned into a political landscape, where young
individuals are consuming far-right related content on a daily basis.
TikTok has allowed for far-right supporters to have a platform where
radical views are naturalized. Statistics have shown that roughly 14% of
adults regularly get their election and political news through the
platform.
TikTok has addressed multiple times that hateful content, related to
far-right ideologies, is being banned and removed from their platform.
However, most hateful content (related to religion, identity, race)
have gone unnoticed by the system until December 2019. Although user
protection has improved, hateful videos still go undetected by the
platform. Additionally, since TikTok functions on an algorithmic system,
individuals can get more exposure to hateful content without intending
to do so.
TikTok content is able to influence the food choices of its users. A 2023 study of teenagers
found that TikTok content influences both short term food decisions,
such as trying a new food item or recipe, as well as long term food
decisions, like dietary adjustments.
TikTok has also led to an increase in custom orders at restaurants, known on the platform as menu hacks. In 2021, some Starbucks
baristas complained of an increase in complicated, custom drinks being
ordered that were not on its menu after videos of the customs drinks
went viral on TikTok. In 2023, Chipotle Mexican Grill
added a viral TikTok custom order created by two influencers as a
permanent item to its menu after receiving an influx of orders for the
item. The same year, several videos of different Waffle House branches refusing to serve custom orders from TikTok went viral on the platform.
Fashion
The
wide audience that TikTok videos are able to reach compared to other
platforms allows just a small number of viral videos about a similar
style of clothing to create a new microtrend. The high quantity of new
microtrends produced by TikTok users has increased the popularity of fast fashion retailers such as Shein, who are able to rapidly reproduce and sell items that are trending on TikTok.
Fashion trends and fads that have become popular through social media
platforms have collectively become known as "internet aesthetics".
Haul videos are popular amongst TikTok fashion creators.
Shein successfully worked with influencers on TikTok and Instagram to
grow its business by sending them free clothing and discount codes to
share with their followers that earn them a commission on sales. Influencers are also paid to post haul videos for Shein with the free clothing.
The popularity of haul videos on TikTok also results in users
advertising Shein for free by making and posting their own Shein haul.
Cosmetic surgery
Videos about cosmetic surgery are very popular on TikTok. In January 2022, videos with hashtags related to plastic surgery had over 29 billion views combined on the platform. TikTok and Instagram have led to an increase in the number of cosmetic surgeries performed on young people.
In 2021, Plastic and Reconstructive Surgery published an article that found that plastic surgeons
were among the earliest adopters of social media and at the time the
article was published, it was found that at least five plastic surgeons
had surpassed 1 million followers on TikTok. The article noted that some
surgeons were influencers on the platform and had the ability to
influence public perception. A 2021 study published by the University of South Florida
found that content posted on TikTok by plastic surgeons helped
legitimize plastic surgery by educating their viewers and reducing their
fear of the surgeries.
Plastic surgery is also legitimized by the TikTok recommendation system
which shows users who showed interest in plastic surgery videos even
more plastic surgery videos via the For You Page, which makes plastic
surgery seem more widespread than it actually is among both celebrities
and normal people.
TikTok does not allow direct paid advertisements of cosmetic
surgeries on its platform, but cosmetic surgery clinics are able to
promote their services using normal unpaid posts, as well as by paying
influencers or giving them free surgeries in exchange for the influencer
posting a video about their cosmetic surgery experience.
Cosmetic procedures that have trended on TikTok include rhinoplasties, buccal fat removals, and botox injections. Cosmetic procedures sometimes trend in the form of an internet challenge
on TikTok. The "#Nosejobcheck" challenge involves users posting videos
of their noses before and after their rhinoplasties, with a specific
background sound for the challenge used in the videos.
Videos discussing and recommending books has collectively become known as BookTok by users. Books that become popular on BookTok often experience a large increase in sales. The author Colleen Hoover who rose to popularity on BookTok saw six of her books reach the top ten of The New York Times Best Seller list in the paperback trade fiction section in October 2022. An analyst from the book sales tracking service BookScan said that BookTok "remains the industry’s most important platform for discovering new writers". Some publishers have paid popular BookTok influencers to recommend books to capitalise off of the phenomenon.
The success of BookTok content on the platform lead TikTok's parent company, ByteDance, to launch their own publishing company called 8th Note Press in 2023.
Medication shortages
Trends on TikTok have contributed to the shortages of some medications. Danish pharmaceutical company Novo Nordisk produces three medications containing the active ingredient semaglutide. One of the drugs, Wegovy, is certified by the Food and Drug Administration for the treatment of obesity. The other two, Ozempic and Rybelsus, are only certified for the treatment of diabetes. In 2022, the United States suffered shortages of Ozempic after it became a trend on the platform to use the medication off-label for its weight loss effects. Australia's Therapeutic Goods Administration
reported that Ozempic's popularity on TikTok had contributed to a
global shortage of the medication. It recommended that doctors not
prescribe the medication to new patients and prescribe alternative
medications to existing patients where possible. By March 2023, TikTok videos posted with the hashtag#Ozempic had amassed 690 million views.
Mental health
TikTok has become a hub for mental health content, where users share personal experiences with depression and anxiety.
While this has helped normalize conversations around mental health, it
also raises concerns. Dr. Corey Basch, a public health professor, points
out that TikTok's algorithm can create echo chambers.
Users who engage with posts about anxiety or despair may find
themselves bombarded with similar content, which can lead to a harmful
cycle.
This surge in mental health discussions has also contributed to more young people self-diagnosing conditions like ADHD
and anxiety before consulting a professional. Researchers are concerned
about the influence of profit-driven motives, with the platform
promoting mental health apps and influencers sponsored by these
companies. These services often advertise quick, quiz-based diagnoses,
which may oversimplify complex issues. Additionally, misinformation is a growing problem, studies have found that some videos about therapies, like cognitive behavioral therapy, include inaccurate or misleading information.
Hustle culture
TikTok has played a huge role in shaping hustle culture,
especially during the COVID-19 pandemic, blurring the lines between
work and personal life. With over 1 billion daily active users and 60%
of U.S. Gen Z
checking in regularly, the platform has made productivity a key focus
for many users. People share their daily routines, promoting the idea
that constant work leads to success. However, this pressure to always be
"on" has its downsides. A 2022 study showed 77% of employees felt
burned out, which is a consequence of hustle culture.
That said, some creators are pushing back, showing that it's okay
to slow down. For example, Jonathan Graziano's "Bones Day" trend
encourages followers to take rest when they need it. TikTok gives a wide
range of content, from productivity hacks to messages about self-care, offering users the chance to define their own balance.
Other websites
TikTok
is now the dominate social media platform amongst the newer generation.
The popularity of TikTok has led various other web services to adopt
similar features in order to compete with TikTok. Instagram launched
added a short, vertical videos section called Instagram Reels to its app in 2020. YouTube followed with the release of YouTube Shorts in 2021. In 2022, Facebook launched a videos tab on its app that shows users a personalized selection of videos. The same year, Twitter announced that it would also be launching a short videos feature and Amazon added a scrolling feed with photos and videos of available products to its mobile app. In 2023, Spotify redesigned its home screen to have a similar scrolling interface to TikTok and Reddit also added a separate video feed to its mobile app.
A 2021 study by Adweek and Morning Consult found that 49 percent of TikTok users bought goods or services after seeing them being discussed or promoted on the platform.
In 2023, the European Journal of Business and Management Research
published a study that found that TikTok users were much more likely to
trust products shown in TikTok videos that had high quality videos,
rather than products shown on the platform that were more useful or had
lower prices.
When products go viral on TikTok, the impact on sales can be
significant. Stanley tumblers saw their revenue jump from $73 million in
2019 to $750 million last year after going viral on the platform. Feta cheese sales soared by 200% in 2021 after the baked feta pasta recipe took off. CeraVe’s
sales increased by over 60% in 2020 as TikTok users turned to the brand
during lockdown. Other items, like Cat Crack catnip and Isle of
Paradise tanning spray, sold out within days after viral posts.
In 2023, TikTok rolled out a shopping feature called TikTok Shop,
making it easy for users to buy products directly from a range of
sellers. This feature lets businesses sell products directly on the
platform, using tools like shoppable ads, product showcases, and creator
partnerships to boost sales and connect with their audience in a more
native way.
Some fashion and beauty brands have even started thinking about how a
product could be featured on TikTok before they finish developing it.
The nationalization of oil supplies refers to the process of confiscation of oil
production operations and their property, generally for the purpose of
obtaining more revenue from oil for the governments of oil-producing
countries. This process, which should not be confused with restrictions
on crude oil exports, represents a significant turning point in the
development of oil policy. Nationalization
eliminates private business operations—in which private international
companies control oil resources within oil-producing countries—and
transfers them to the ownership of the governments of those countries.
Once these countries become the sole owners of these resources, they
have to decide how to maximize the net present value of their known stock of oil in the ground.
Several key implications can be observed as a result of oil
nationalization. "On the home front, national oil companies are often
torn between national expectations that they should 'carry the flag' and
their own ambitions for commercial success, which might mean a degree
of emancipation from the confines of a national agenda."
According to consulting firm PFC Energy,
only 7% of the world's estimated oil and gas reserves are in countries
that allow private international companies free rein. Roughly 65% are in
the hands of state-owned companies such as Saudi Aramco, with the rest in countries such as Russia and Venezuela,
where access by Western companies is difficult. The PFC study implies
political groups unfavorable to capitalism in some countries tend to
limit oil production increases in Mexico, Venezuela, Iran, Iraq, Kuwait and Russia. Saudi Arabia is also limiting capacity expansion, but because of a self-imposed cap, unlike the other countries.
History
This
nationalization (expropriation) of previously privately owned oil
supplies where it has occurred, has been a gradual process. Before the
discovery of oil, some Middle Eastern countries such as Iraq, Saudi Arabia, and Kuwait
were all poor and underdeveloped. They were desert kingdoms that had
few natural resources and were without adequate financial resources to
maintain the state. Poor peasants made up a majority of the population.
When oil was discovered in these developing nations during the
early twentieth century, the countries did not have enough knowledge of
the oil industry to make use of the newly discovered natural resources.
The countries were therefore not able to mine or market their petroleum.
Major oil companies had the technology and expertise and they
negotiated concession agreements with the developing countries; the
companies were given exclusive rights to explore and develop the
production of oil within the country in exchange for making risky
investments, discovering the oil deposits, producing the oil, and paying
local taxes. The concession agreements made between the oil-producing
country and the oil company specified a limited area the company could
utilize, lasted a limited amount of time, and required the company to
take all the financial and commercial risks as well as pay the host
governments surface taxes, royalties,
and production taxes. As long as companies met those requirements,
governments promised the companies would be able to claim any of the oil
they mined. As a result, the world's oil was largely in the hands of seven corporations based in the United States and Europe, often called the Seven Sisters. Five of the companies were American (Chevron, Exxon, Gulf, Mobil, and Texaco), one was British (BP), and one was Anglo-Dutch (Royal Dutch Shell). These companies have since merged into four: Shell, ExxonMobil, Chevron, and BP.
The nations with oil reserves were unhappy with the percentage of the
profits they had negotiated. But, due to the inclusion of choice-of-law
clauses, the sovereign host countries could not simply change the
contracts arbitrarily. In other words, disputes over contract details
would be settled by a third party instead of the host country. The only
way for host countries to alter their contracts was through
nationalization (expropriation).
Although undeveloped nations originally welcomed concession
agreements, some nationalists began to argue that the oil companies were
exploiting them.
Led by Venezuela, oil-producing countries realized that they could
control the price of oil by limiting the supply. The countries joined
together as OPEC and gradually governments took control of oil supplies.
Before the 1970s there were only two major incidents of successful oil nationalization—the first following the Bolshevik Revolution of 1917 in Russia and the second in 1938 in Mexico.
Pre-nationalization
Due
to the presence of oil, the Middle East has been the center of
international tension even before the nationalization of oil supplies. Britain was the first country that took interest in Middle Eastern oil. In 1908, oil was discovered in Persia by the Anglo-Persian oil company under the stimulus
of the British government. Britain maintained strategic and military
domination of areas of the Middle East outside Turkish control until
after World War I when the former Turkish Empire
was divided between the British and the French. It turned out that many
of the areas controlled by the French had little oil potential.
On the other hand, Britain continued to expand oil interests into other parts of the Persian Gulf. Although oil resources were found in Kuwait, there was not enough demand for oil at the time to develop in this area.
Due to political and commercial pressure, it did not take long before the United States secured an entry into Middle Eastern oil supplies. The British government was forced to allow the US into Iraq and the Persian Gulf states. Iraq became dominated by US oil companies while Kuwait consisted of a 50/50 split between British and American companies.
Up until 1939, Middle Eastern oil remained relatively unimportant
in world markets. According to “The Significance of Oil,” the Middle
East at the time “was contributing only 5 percent of total world oil
production and its exports were limited to countries within the
immediate region and, via the Suez Canal, in western Europe.”
The real significance of pre-1939 developments in the Middle East is
that they established the framework for the post-1945 oil expansion.
After World War II,
the demand for oil increased significantly. Due to war-time oil
development, which proved the great potential for oil discovery in the
Middle East, there was little hesitation in investing capital in Iran, Iraq, Kuwait and Saudi Arabia.
Huge investments were made to improve the infrastructure needed
to transport Middle Eastern oil. For example, investment was made on the
Suez Canal to ensure that larger tankers could utilize it. There was also an increased construction of oil pipelines.
The expansion of infrastructure to produce and transport Middle East
oil was mainly under the operation of the seven major international oil
companies.
Early nationalizations
Prior
to 1970, there were ten countries that nationalized oil production: the
Soviet Union in 1918, Bolivia in 1937 and 1969, Mexico in 1938, Iran in
1951, Iraq in 1961, Burma and Egypt in 1962, Argentina in 1963,
Indonesia in 1963, and Peru in 1968. Although these countries were
nationalized by 1971, all of the “important” industries that existed in
developing countries were still held by foreign firms. In addition, only Mexico and Iran were significant exporters at the time of nationalization.
Proponents
of nationalization asserted that the original contracts held between an
oil-producing country and an oil company were unfair to the producing
country. Yet without the knowledge and skill brought into the country by
the international oil companies, the countries would not have been able
to get the oil. Contracts, which could not be altered or ended in
advance of the true end date, covered huge expanses of land and lasted
for long durations. Nationalist ideas began once producing countries realized that the oil companies were exploiting them. Many times these countries did not pay the companies for their loss of assets or only paid nominal amounts.
The first country to act was Venezuela, which had the most
favorable concession agreement. In 1943, the country increased the total
royalties and tax paid by the companies to 50% of their total profits. However, true equal profit sharing was not accomplished until 1948. Because oil companies were able to deduct the tax from their income tax,
profits acquired by the oil companies did not change significantly and,
as a result, the oil companies did not have any major problems with the
change imposed by Venezuela. Even with increased oil prices, the
companies still held a dominant position over Venezuela.
Change in oil prices
The
posted price of oil was originally the determinant factor of the taxes
that oil companies had to pay. This concept was beneficial to the oil
companies because they were the ones who controlled the posted prices.
Companies could increase the actual price of oil without changing the
posted price, thus avoiding an increase in taxes paid to the producing
country.
Oil-producing countries did not realize that the companies were
adjusting oil prices until the cost of oil dropped in the late 1950s and
companies started reducing posted prices very frequently.
The main reason for the reduction in oil prices was the change in the
world's energy situation after 1957 that led to competition between
energy sources. Efforts to find markets led to price cuts. Price cutting
was first achieved by shaving profit margins,
but soon prices were reduced to levels far lower than posted prices as
companies producing oil in the Middle East started to offer crude to
independent and state-owned refineries.
Producing countries became aggravated when the companies would reduce
the prices without warning. According to “The Significance of Oil,”
“small
reductions in posted prices in 1958 and 1959 produced some indications
of disapproval from certain Middle East governments, but it was not
until major cuts—of the order of 10 to 15 percent—were announced in 1960
that a storm broke over the heads of the companies whose decisions
would reduce the oil revenues of the countries by 5 to 7 ½ percent.”
High oil prices, on the other hand, raise the bargaining power
of oil-producing countries. As a result, some say that countries are
more likely to nationalize their oil supplies during times of high oil
prices. However, nationalization can come with various costs and it is
often questioned why a government would respond to an oil price increase
with nationalization rather than by imposing higher taxes. Contract theory provides reasoning against nationalization.
Structural change of oil-producing countries
The Third World went through dramatic structural change in the decades after oil was first discovered. Rising nationalism and the emergence of shared group consciousness
among developing countries accompanied the end of the formal colonial
relationships in the 1950s and 1960s. Shared group consciousness among
the oil-exporting countries was expressed through the formation of OPEC,
increased contact and communication between countries, and attempts of
common action among countries during the 1960s. The structure of the
industry, which led to increased nationalistic mentality, was affected
by the following important changes:
Strategic control
Originally, oil-producing countries were poor and needed oil companies to help them produce the oil and manage the oil reserves located within the country. However, as the countries began to develop, their demands for revenue increased. The industry became integrated into a local economy
that required strategic control by the host country over pricing and
the rate of production. Gradually, foreign investors lost the trust of
oil-producing countries to develop resources in the national interest.
Oil-producing countries demanded participation in the control of the oil
within their country.
Increased capabilities
Furthermore, technological innovation and managerial expertise increased dramatically after World War II, which increased the bargaining power of producing countries. Increased bargaining power allowed the companies to change their mode of operation.
“During the interwar period and through the 1950s, international petroleum was a very tight oligopoly dominated by seven major international oil companies (Exxon, Shell, BP, Gulf, Texaco, Mobil and Chevron—as
they are known today). However, between 1953 and 1972 more than three
hundred private firms and fifty state-owned firms entered the industry,
drawn by the explosion in oil consumption and substantially diminished
barriers to entry.”
The new, independent companies disturbed the equilibrium between the
major companies and the producing countries. Countries became aware of
their options as these companies offered better agreement terms.
Changes in supply and demand
The
shortage of oil in the 1970s increased the value of oil from previous
decades. The bargaining power of producing countries increased as both
the country governments and the oil companies became increasingly
concerned about the continued access to crude oil.
Diffusion of ideas between oil-producing countries
Rogers defines diffusion as, “the process by which (1) an innovation (2) is communicated through certain channels (3) over time (4) among members of a social system.” Innovations may consist of technology, philosophy, or managerial techniques. Examples of communication channels include the mass media, organizations such as OPEC or the U.N., or educational institutions.
Due to diffusion, attempts at oil nationalization from producing
countries, and whether or not these attempts were successful, affected
decisions to nationalize oil supplies.
Two attempts of nationalization that had clear inhibiting effects
on other producing countries were the nationalizations of Mexico in
1938 and of Iran in 1951, which occurred prior to the important
structural change in the oil industry. The Mexican nationalization
proved that although it was possible to accomplish nationalization, it
came at the cost of isolation
from the international industry, which was dominated by the major
companies at the time. The Iranian nationalization also failed due to
the lack of cooperation
with international oil companies. These two incidences proved to other
oil-producing countries that, until the structure of the oil industry
changed to rely less upon international oil companies, any attempts to
nationalize would be a great risk and would likely be unsuccessful.
Once the oil industry structure changed, oil-producing countries
were more likely to succeed in nationalizing their oil supplies. The
development of OPEC provided the medium in which producing countries could communicate and diffusion could occur rapidly.
The first country to successfully nationalize after the structural change of the industry was Algeria, which nationalized 51% of the French companies only ten days after the 1971 Tehran agreement and later was able to nationalize 100% of their companies. The nationalization of Algerian oil influenced Libya to nationalize British Petroleum in 1971 and the rest of its foreign companies by 1974. A ripple effect quickly occurred, spreading first to the more-militant oil producers like Iraq and then followed by more-conservative oil producers like Saudi Arabia. Stephen J. Kobrin states that
“By
1976 virtually every other major producer in the mid-East, Africa,
Asia, and Latin America had followed nationalizing at least some of its
producers to gain either a share of participation or to take over the
entire industry and employ the international companies on a contractual
basis.”
Implications of nationalization
Vertical integration of the oil industry was broken
Due to the overall instability of supply, oil became an instrument of foreign policy for oil-exporting countries. Nationalization increased the stability in the oil markets and broke the vertical integration
within the system. Vertical integration was replaced with a dual system
where OPEC countries controlled upstream activities such as the
production and marketing of crude oil while oil companies controlled
downstream activities such as transportation, refining, distribution,
and sale of oil products.
Under the new dual structure, OPEC
was neither vertically or horizontally integrated and was not able to
take over the entire oil sector from the oil companies. The temporary
fear of an oil shortage during the 1970s helped to hide this
consequence. In addition, relations between producing countries of the Persian Gulf
and previous concessionary companies induced an “artificial” vertical
integration. These relations included long-term contracts, discount of
official prices, and phase-out clauses. Free markets started to become
prevalent in 1981 after the trade in oil switched from being a sellers’
to a buyers’ market.
Oil companies lost access to oil supplies
According to the Energy Studies Review
the western world oil demand decreased 15% between the years 1973 and
1982. In the same time period the major oil companies went from a
production in the crude oil market of 30 to 15.2 million barrels (4.8 to 2.4 million cubic metres),
a decrease of nearly 50%. In this period, the production from reserves
under their own control went from 25.5 to 6.7 million bbl (4.1 to
1.1 million m3), a decrease of 74%. As a result, important
oil companies became important net buyers of crude oil after a long time
of being vertically integrated sellers to their own refineries.
Change in the horizontal integration of the oil industry
The
increase in oil prices of the 70s attracted non-OPEC producers—Norway,
Mexico, Great Britain, Egypt, and some African and Asian countries—to
explore within their country. In 1965, the Herfindahl index of horizontal integration
for the crude oil production industry was 1600 and the horizontal
integration for the exploration industry was 1250. By 1986, it decreased
to around 930 for the crude oil production industry and 600 for the
exploration industry. This created a further destabilizing factor for
OPEC.
Restructuring of the refining sector
The
world refining capacity of the major oil companies in 1973 was
23.2 million barrels (3.69 million cubic metres) per day. However, by
1982, their world refining capacity had decreased to 14 million bbl
(2.2 million m3) per day. This decrease was a result of their decreased access to the oil reserves of OPEC countries and, subsequently, the rationalization
of their world refining and distribution network to decrease their
dependence on OPEC countries. The increase in the refining capacity of
OPEC countries that wanted to sell not only crude oil but also refined
products further reinforced this trend towards rationalization.
Change in the spot market
The nationalization of oil supplies and the emergence of the OPEC market caused the spot market
to change in both orientation and size. The spot market changed in
orientation because it started to deal not only with crude oil but also
with refined products. The spot market changed in size because as the
OPEC market declined the number of spot market transactions increased.
The development of the spot market made oil prices volatile. The risks
involving oil investment increased. To protect against these potential
risks, parallel markets such as the forward market
developed. As these new markets developed, price control became more
difficult for OPEC. In addition, oil was transformed from a strategic product to a commodity.
Changes in the spot market favored competition and made it more difficult for oligopolistic agreements. The development of many free markets impacted OPEC in two different ways:
A destabilizing effect occurred that made it easier for OPEC members not to respect their own quota if they did not want to.
A stabilizing effect occurred that provided an incentive for
cooperation among OPEC members. Decreased prices due to free markets
made it more profitable for OPEC countries to work together rather than
to seek profit individually.
OPEC countries
Algeria
Currently, Algeria is one of the largest natural gas producers in what is known as the Arab World behind Qatar and Saudi Arabia. Algeria's nationalization of oil and gas
came a mere nine years after the nation declared independence from
colonial France which had ruled over the region for 130 years. Algeria
joined OPEC
in 1969 and fully nationalized its industry in 1971, but Algeria was
taking steps to play a larger role in the oil industry profiting from
their reserves in the Sahara in 1963.
Ecuador
Ecuador
has had one of the most volatile oil policies in the region, partly a
reflection of the high political volatility in the country. Petroecuador
accounts for over half of oil production, however, as a result of
financial setbacks combined with a drop in oil price, private companies
increased oil investments in Ecuador. In the early 1990s annual foreign
investment in oil was below US$200 million, by the early 2000s it had
surpassed US$1 billion (Campodónico, 2004). Changes in political power led to an increase in government control over oil extraction. In particular, the election of President Rafael Correa, on a resource-nationalism platform, prompted increases in government control and the approval of a windfall profits tax.
Since its beginning, Iran's oil industry has experienced expansion and contraction. Rapid growth at the time of World War I declined soon after the start of World War II. Recovery began in 1943 with the reopening of supply routes to the United Kingdom. The oil was produced by what became the Anglo-Iranian Oil Company, but political difficulties arose with the Iranian government in the postwar period.
Iran sought to rid itself of British political influence and the
exploitation by AIOC. Negotiations between Anglo-Iranian Oil Company and
the government failed and in 1951 the oil industry was nationalized. As
a result of Britain's boycott and the Abadan Crisis, Iranian production dropped to virtually zero. On British initiative the CIA
overthrew Prime Minister of IranMosaddegh in Operation Ajax.
Formally the nationalization remained effective, but in practice a
consortium of oil companies was allowed in under a by then standard
50/50 profit-sharing deal.
The whole process had left the British a major share in what had
been their single most valuable foreign asset. It had stopped the
democratic transition in Iran however, leaving its mark for decades to
come. The coup is widely believed to have significantly contributed to
the 1979 Iranian Revolution after which the oil industry would be nationalized again.
Iraq
The properties of the majors were nationalized totally in Iraq, in 1972.
Worldwide oil shortages in the 1970s forced major oil suppliers to look
elsewhere for ways to acquire the resource. Under these circumstances,
NOCs often came forward as alternative suppliers of oil. Nationalization of the Iraq Petroleum Company
(IPC) in 1972 after years of rancor, together with restrictions on oil
liftings by all but one of the IPC's former partners, put Iraq at the
forefront of direct marketing. Iraq's oil production suffered major damage in the aftermath of the Gulf War. In spite of United Nations sanctions, Iraq has been rebuilding war-damaged oil facilities and export terminals.
Iraq plans to increase its oil productive capacity to 4 million barrels
(640 thousand cubic metres) per day in 2000 and 6 million bbl
(950 thousand m3) per day in 2010.
Libya
Libya,
in particular, sought out independent oil firms to develop its
oilfields; in 1970, the Libyan government used its leverage to
restructure radically the terms of its agreements with these independent
companies, precipitating a rash of contract renegotiations throughout
the oil-exporting world.
Nigeria
The discovery of oil in Nigeria
caused conflict within the state. The emergence of commercial oil
production from the region in 1958 and thereafter raised the stakes and
generated a struggle by the indigenes for control of the oil resources. The northern hegemony, ruled by Hausa and Fulani, took a military dictatorship and seized control of oil production. To meet popular demands for cheaper food during the inflationary period just after the civil war, government created a new state corporation, the National Nigerian Supply Company (NNSC). While oil production proceeded, the region by the 1990s was one of the least developed and most poor. The local communities responded with protests
and successful efforts to stop oil production in the area if they did
not receive any benefit. By September 1999, about 50 Shell workers had
been kidnapped and released. Not only are the people of Nigeria affected, but the environment in the area is also affected by deforestation and improper waste treatment. Nigerian oil production also faces problems with illegal trade of the refined product on the black market. This is undertaken by authorized marketers in collusion with smuggling syndicates.
Activities such as these severely affect the oil industries of both the state and MNCs. Oil production deferments arising from community disturbances and sabotage was 45mm barrels in 2000 and 35mm barrels in 2001.
The state has not been a very effective means of controlling incursions
such as these. The illegal oil economy in such a circumstance may
continue to exist for a long time, albeit in
curtailed and small scales.
Saudi Arabia
By
1950, Saudi Arabia had become a very successful producing area, with an
even greater undeveloped oil production potential. Because of favorable
geological
conditions and the close proximity of oil fields to the coast, Saudi
Arabia operations were low cost. American companies therefore heavily
valued the oil. The joint concessionary company, ARAMCO,
agreed to the government's demand to use the introduced posted price as
a way to calculate profits. Profit-sharing between ARAMCO and Saudi
Arabia was established as a 50/50 split. Eventually the Saudi government fully purchased Aramco in 1980 renaming it as Saudi Aramco.
In 1938, Venezuelan President Eleazar López Contreras
enacted a new Hydrocarbons Law, which established the increase of
royalties, as well as the increase of exploration and exploitation
taxes. The State was also authorized to create companies or institutes
for the development of the oil activity. On 13 March 1943, President Isaías Medina Angarita
promulgated another Hydrocarbons Law, which established that from then
on at least 10% of the crude oil had to be refined in Venezuela; the
royalty or exploitation tax could not be less than 16.7%; the Venezuelan
State received a 50% profit from oil exploitation and 12% of the income
tax. New taxes were also established to prevent companies from
maintaining idle fields. While the world was in the midst of World War II, Venezuela increased its oil production to supply the Allies with fuel, much of the oil was refined in the Caribbean islands. Medina's government was overthrown by a coup on 18 October 1945; an interim government was installed, which later gave way in 1948 to another democratically elected government presided by Rómulo Gallegos,
during which the oil policy of "no more concessions" was promoted,
which was also authored by the then Minister of Development of those two
periods, Juan Pablo Pérez Alfonzo. Implementing a 50%-50% or fifty-fifty readjustment in 1948. Gallegos' government was in turn deposed by a military coup d'état later that year on 24 November. Another coup 1958 brought an end to the military dictatorship in the country. The newly elected Minister of Mines and Hydrocarbons, Juan Pablo Pérez Alfonzo, acted to raise the income tax on oil companies and introduced the key aspect of supply and demand to the oil trade.
On 29 August 1975, during the tenure of President Carlos Andrés Pérez, "Law that Reserves the Hydrocarbon Industry to the State" was enacted and the state-owned company Petróleos de Venezuela
(PDVSA) was created to control all oil businesses in the Venezuelan
territory. The law came into effect on 1 January 1976, as well as the
nationalization of the oil industry with it, after which PDVSA began
commercial operations.
Non-OPEC countries
Argentina
Nationalization of oil resources in Argentina began in 1907, when upon the discovery of the nation's first sizable oil field near Comodoro Rivadavia, President José Figueroa Alcorta declared the area around the oil field public property. YPF, the first oil company in the world established as a state enterprise, was established by President Hipólito Yrigoyen and General Enrique Mosconi in 1922. The nation's mineral resources were nationalized in toto with Article 40 of the Argentine Constitution of 1949 promulgated by President Juan Perón. The latter was abrogated in 1956, but oil and natural gas were renationalized in 1958 during President Arturo Frondizi's self-described "oil battle" for self-sufficiency in the staple, and private firms operated afterward via leases. YPF was privatized in 1993, and Madrid-based Repsol
acquired a majority stake in 1999. Oil and gas production subsequently
weakened while demand increased, and in 2011 Argentina recorded the
first energy trade deficit since 1987.
In April 2010, Argentina's president Cristina Fernández de Kirchner introduced a bill on April 16, 2012, for the expropriation of YPF,
the nation's largest energy firm. The state would purchase a 51% share,
with the national government controlling 51% of this package and ten
provincial governments receiving the remaining 49%.
Investment in exploration at YPF as a percentage of profits had been far below those in most other Repsol subsidiaries, and declines in output at the firm represented 54% of the nation's lost oil production and 97% in the case of natural gas. Market analysts and Repsol blamed the decline in exploration and production on government controls on exports and prospecting leases, as well as price controls on domestic oil and gas.
YPF increased its estimates of oil reserves in Argentina in 2012, but
warned that government policies would have to change to allow investment
in new production. The government announced instead that it would
acquire a majority stake in YPF. Argentine Economy Minister Hernán Lorenzino claimed that asset stripping at YPF had financed Repsol's expansion in other parts of the world, while Repsol officials denied charges of underinvestment in its YPF operations.
Argentine Deputy Economy Minister Axel Kicillof
rejected Repsol's initial demands for payment of US$10.5 billion for a
controlling stake in YPF, citing debts of nearly US$9 billion. The book value of YPF was US$4.4 billion at the end of 2011; its total market capitalization on the day of the announcement was US$10.4 billion. The bill was overwhelmingly approved by both houses of Congress, and was signed by the president on May 5.
The government of Argentina eventually agreed to pay $ billion compensation to Repsol, which had previously owned YPF.
Canada
In 2010 Canada was the United States' leading oil supplier, exporting some 707,316,000 barrels (112,454,300 m3) of oil per year (1,937,852 barrels per day (308,093.8 m3/d)), 99 percent of its annual oil exports, according to the EIA.
Following the OPEC oil embargo in the early 1970s, Canada took
initiative to control its oil supplies. The result of these initiatives
was Petro-Canada,
a state-owned oil company. Petro-Canada put forth national goals
including, increased domestic ownership of the industry, development of
reserves not located in the western provinces, that is to say, the
promotion of the Canada Lands in the north and offshore, better
information about the petroleum industry, security of supply, decrease
dependence on the large multinational oil corporations, especially the
Big Four, and increase revenues flowing to the federal treasury from the
oil and gas sector. Petro-Canada was founded in 1975 as a federally-owned crown corporation, then privatized beginning in 1991. The provincial government of Ontario purchased a 25% stake in Suncor Energy in 1981, then divested it in 1993.
Petro-Canada has been met with opposition mainly from Alberta,
home to one of the main oil patches in Canada. After negotiating a
royalty increase on oil and price increases for natural gas, Lougheed
asserted Alberta's position as the centre of Canada's petroleum
industry.
Alberta had since been the main source of oil in Canada since the
1970s. The clashing viewpoints of resource control has resulted in
conflict over the direction of Canada's oil industry, and as a result,
the vast majority of Canada's oil ownership and profits continue to lay
in foreign hands.
Mexico nationalized its oil industry in 1938, and has never privatized, restricting foreign investment.
Important reserve additions in the 1970s allowed a significant increase
in production and exports, financed by the high oil prices. Despite producing more oil than any other country in Latin America, oil does not carry a relevant proportion of Mexico's exports. Since the giant Cantarell Field in Mexico is now in decline, the state oil company Pemex
has faced intense political opposition to opening up the country's oil
and gas sector to foreign participation. The lack of financial autonomy
has limited Pemex's own investment capacity, inducing the company to
become highly indebted and to use an out of budget mechanism of deferred
payment of projects (PIDIREGAS) to finance the expansion of production.
Some feel that the state oil company Pemex does not have the capacity
to develop deep water assets by itself, but needs to do so if it is to
stem the decline in the country's crude production.
Russia
Since Putin assumed the Russian Presidency in January 2000, there has been what
amounts to a creeping re-nationalization of the Russian oil industry. In Russia, Vladimir Putin's government has pressured Royal Dutch Shell to hand over control of one major project on Sakhalin Island, to the publicly traded company Gazprom in December. The founder of formerly private Yukos has also been jailed, and the company absorbed by state-owned Rosneft. Such moves strain the confidence of international oil companies in forming partnerships with Russia.
Russia has taken notice of their increasing foreign oil investment
improving politics with other countries, especially former states of the
Soviet Union.
Oil industry in Russia is one of the top producers in the world,
however, the proven reserves in Russia are not as prevalent as in other
areas. Furthermore, previously accessible oil fields have been lost
since the Cold War.
With the collapse of the USSR, Russia has lost the rich Caspian Basin
off-shore and on-shore oil fields in the Central Asian states and Azerbaijan.