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The Global History of Oil

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The Early Days, 1850s to 1870s Oil collected from skimming seepages in bodies of water. Kerosene oil used for heating, lighting, and lubricating, competing with other oils from animal fat. Smoky, smelly, expensive. 1850s Pennsylvania Rock Oil Company prospects for cleaner oil, Drakes Well erupts in 1859. First year- 75 wells. Within two years- virtually exhausted. Coal mining regions prospect for oil: Western Pennsylvania, Ohio, Kentucky, West Virginia. Busts follow Booms- tremendous social unrest, pollution, financial ups and downs.

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Rockefeller 1859- JD Rockefeller formed partnership, 1865 bought out partner in Ohio refinery business, Standard Oil incorporated 1870. Cleveland, Ohio dominated mid- western refining, Rockefeller dominated Cleveland. Partnered with Henry Flagler- whiskey, railroads, Florida real estate. Established preferable financial arrangement with railroads through rebates and drawbacks. Out performed competition in 1870s.

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Rockefeller Aimed to consolidate refining into a horizontal monopoly. South Improvement Company paper tigers. Challenged by state legislatures. 1879 Standard Oil controlled 90% of US refining. 1882 S.O. Trust formed, relocated administration of S.O. to NYC. 1870s/80s labor discontent in all major industries.

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Challenging S.O. Nobel brothers- Swedish, mining, dynamite, endowed Nobel Prizes. Invested in Russian oil prospecting, particularly in Baku. Finances arranged by European Rothschild banking family. Provided oil to European markets beginning in 1876. S.O. unleashed devastating price war to destroy Nobel/Russian oil industry in the 1890s, but Nobel was the largest provider of oil to Europe until WW1. The Russian Revolution finally devastated their efforts and sold shares to S.O.

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Challenging S.O. Shell: The Anglo-Jewish traders, Samuel Brothers, inherited their fathers import business. Shell had transportation connections with Japan, China, Australia as well as a substantial fleet. Imported shells, feathers, spices, knick-knacks. Access through British citizenship to Suez Canal = competitive edge over S.O. 1890s- begin to develop modern tankers, moving greater volume of oil than S.O. and serving as transportation service for other oil companies.

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Challenging S.O. Royal Dutch- prospecting in Sumatra, Indonesia, Malaysia Discovered oil, conflict with pirates and regional militants. 1890s: S.O. and Shell competed to buy out R.D. to end competition. Texas! Patillo Higgins prospected near Beaumont. 1901 Spindletop erupted. Texas passed anti-S.O. legislation, kept Rockefeller out.

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Texas! Spindletop boom, 1901-1905: Beaumont from 10,000 to 50,000 in six months 16,000 living in tents Acres sold from $10 to $900,000 Enormous boom town Tulsa, OK enters in 1905 OK led TX until 1928 Gulf Oil, Sun Oil, Texaco Oil outside S.O. control

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Trust Busting 1902: Ida Tarbells History of Standard Oil published, a muckraking anti-monopoly tract. 1904: Teddy Roosevelt elected president, campaigned as trust buster. 1905-1909: US government prosecuted S.O. for unfair trade practices. 1911: Standard Oil ordered to dissolve.

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Breaking up the Giant Seven major regional mini-Standard Oils: S.O. of New York = Mobil S.O. of New Jersey = Exxon (later merged with Mobil) S.O. of Ohio = Sohio (later bought by BP) S.O. of California = Chevron (later merged with Texaco) S.O. of Indiana = Amoco (later bought by BP) Continental Oil = Conoco (later bought by Phillips) Atlantic Oil = Arco (later bought by BP)

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New Oil Persian oil: British/Russian rivalry, British asserted control. 1901 Iranian Shah granted concession to British prospectors. 1908 Oil discovered. 1909 Anglo-Persian formed to refine oil. 1912 allied with Royal Dutch/Shell. WWI: Pressure on all British companies to defer to national military needs, in return British naval conversion from coal to oil as enormous subsidy.

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Middle East Oil World War I in 1910s and oil surpluses in 1920s deterred prospecting in Arabia. 1925 Anglo-Persian (BP), Royal Dutch/Shell, and larger Mini-S.O.s collaborate to explore Arabian oil prospects. Discoveries potentially could result in dreaded over supply, price deflation, and cutthroat competition. Two Agreements in 1928 As Is: No infringing on one anothers markets. Red Line: Line drawn around Arabia and Turkey, including modern middle east of Iraq, Syria, Lebanon, Israel, etc.- No prospecting without sharing labor and profits.

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The Red Line Agreement

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S.O. of New Jersey S.O. of New York S.O. of California Gulf Texaco Anglo-Persian (BP) Royal Dutch/Shell 99% of pipelines 90% of production 80% of known reserves 75% of refining 66% of tanker fleet The Seven Sisters, 1950

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Early Challenge to Seven Sisters International Turmoil in Great Depression Mexico: Revolution, 1911-1921 1920s: US industry extracting oil and mineral wealth 1930s: Depressed economy, perception old oil deals made with previous govt invalid, assertions of national right to oil wealth, demand US companies train Mexican workers, US companies resist. 1938: Mexico nationalized oil

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Mexicos Oil 1930s Great Depression hurt Mexican economy, especially workers in oil and agriculture in northern region. 193590% of oil reserves and 75% of mining operations are foreign owned, mostly American, in 1930s. New President Cardenas inaugurated. 1937Oil workers union strike. Demanded 40 hour work week, 6 weeks vacation, pensions at 85% of wages at 50 years of age, replace foreign workers with trained Mexicans within 2 years. 1937Presidential commission investigates worker grievances.

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Mexico and Venezuela US and Anglo-Dutch led boycotts of Mexican oil pushed Mexico into trade alliance with European fascist nations. US led a boycott of Mexican silver and manufactured goods to punish Mexico. In 1973 Mexico recovered to 1920s production levels and in 1977 to 1981 the US eased boycott restrictions. Venezuela became the major source of Latin American oil for Allies in 1940s during WW2, largely replacing Mexican oil. 1943 Venezuela negotiates with oil companies for larger share of profits. Fearing another Mexican Nationalization a 50/50 accord is devised so that the private companies and Venezuelan state will evenly divide profits.

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Saudi Arabia Aware that Venezuela has now gotten a much greater deal, Arabia re-assessed contracts with oil companies. ARAMCO (Arabian-American Oil Company) founded in 1920s and expanded in 1940s by American and British oil companies as parties to Red Line agreement. Shared oil production and profits within the red line zone, opened during and after WW2. After 1943, Venezuelan trade delegates circulated in the Middle East- Egypt, Iraq, Arabia- and promoted the 50/50 deal.

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Saudi Arabia Golden Gimmick US firms allowed to deduct from US taxes any foreign taxes paid during the conduct of business. 1949 US firms pay $43 million in taxes and $39 million in profit sharing with Saudis Under Golden Gimmick break in 1950 the US firms paid $4 million in taxes and $78 million in profit sharing with Saudis. Oil companies + Saudi Arabia triumph. Who loses?

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Iran Anglo-Iranian Oil (BP) in Iran 1945-1950 BP earns $250 million in profit, pays $90 in concession to Iran, and more than $90 million in taxes in Britain WW2 Shah Reza Pahlavi, a military dictator with pre-war ties to fascism in Europe, joined Allies and after WW2 was the hope of the US and Britain to keep the Soviets out of the oil rich Middle East. (Turned over power to son in 1941.)

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Iran 1950 Irans Parliament under democratic pressure to renegotiate oil concessions and seek 50/50 deal like Venezuela and Arabia. Shah and PM Razmara opposed nationalization or renegotiation- a deeply unpopular position with Iranians. March 1951 Razmara assassinated by gunman who supported nationalization of oil and ejection of foreign influence. April 1951 Iranian Parliament chose Mohammad Mosaddegh of the National Front to be new PM.

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Iran Mosaddegh and Parliament opposed Shah, ordered nationalization. British Secret Service MI6, US Central Intelligence, and Shahs military stage a joint coup. Mosaddegh out of power, under house arrest. Shah- in exile during the popular uprising returns to power in 1953. Shah and Iran will not nationalize oil, but instead are subsidized by the US government and oil companies until revolution in 1979. Anglo-Iranian (BP) also abdicated monopoly of Iranian oil and opened it to American companies.

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OPEC 1959 BP cuts price it will pay for oil 10%. Arab Oil Congress held in Cairo, Egypt. Proposed cartelizing to drive up price. 1960Standard Oil of NJ cuts price 7%. 1960Venezuela, Arab nations, and Iran join together to form OPEC. Modeled after Texas Railroad Commission which regulated production in 1920s and 1930s Texan oil fields and the As-Is/Red Line international cartel. Goal: Restrict production and supply to drive price up.

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OPEC 1960s to 1970s Global oil consumption skyrockets. No longer an oil glut, supply now below demand, prices escalating. OPEC nations becoming increasingly wealthy, oil consuming nations like USA see standard of living costs increase. Direct economic conflict between USA and oil exporting nations.

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The Oil Weapon US support of Israel always irritating to Arab nations and Iran Israel: founded in 1948 by UN from lands formerly under British control following the defeat of the Ottoman/Turkish empire in 1918. Arabs refer to the land as Palestine, Jews in Europe and America refer to land as Israel. Britain and UN favor facilitating the relocation of European Jews to this land after the holocaust. Arabs see this as dispossession, loss of sovereignty, European imperialism. 1948 War erupts immediately, Israel triumphs. US, USSR, and other NATO allies on Israels side, but this all predated much of the oil relationships of the USA and the Middle East.

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Arab Israeli Wars 1956Egypt nationalized Suez canal, antagonized British and French. Britain, France, and Israel attacked Egypt but USA and USSR together pressured the allies to end attack on Egypt. 1967 Six Day War Egypt-led second Arab attack on Israel. US supported Israel in 1967- Saudi Arabia threatened US with oil embargo, war was very brief, no significant consequences for US and oil but first time oil used by Arabia to leverage US policy regarding Israel.

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First Oil Shock Yom Kippur War 1973 Saudi Arabia threatened USA with embargo. Angered over US support of Israel, sought more funds for war, demand 100% increase in oil prices, US negotiators agree to 15%. Arab nations angered and confused over relationship with USA. Embargo October 1973 5% reduction every month in production until price goes up. 100% embargo to the USA. President Nixon- authorized $2.2 billion in aid to Israel. Oil jumps from $5 to $17 a barrel, US entered enormous slump of recession and stagflation.

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Second Oil Shock 1970s: US aid to Israel and Iran to cultivate alternative allies in region. Arab-led resentment fuels anti-American feeling in region. 1974 Saudi Arabia uses wealth and power to acquire 60% control of ARAMCO. No longer in the control of American or European companies, over the next 20 years Arabia will wholly purchase ARAMCO. 1979 Iranian Revolution. Iranian people overthrow the US-backed Shah dictatorship.

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Iranian Revolution 4-5% of world oil reserves off the market due to instability of Revolution. 150% price increase results from panic about another embargo or further loss of access. Jimmy Carters covert military operations to rescue American hostages failed. 52 Americans held hostage for 444 days. Economy nosedives in 1979-1981.

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1970s to Present American and British companies prospect for oil outside of OPEC control. Alaska, Gulf Coast, and North Sea developed and begin to deliver, but Saudi Arabia and Iraq continue to hold largest known reserves. Saudi Arabia, now in control of oil, diplomatically allied with US consumer interests. Egypt and Arabia make peace with Israel. Tremendous division between Arabian governments and Arabian people, however.

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