Rating: 9/10 (for the depth, narrative, and sheer feeling of triumph)
Reading The Prize, an almost-complete history of oil from the mid-1800’s to 1990, was one of the most rewarding experiences I have ever had. Standing at over 800 incredibly dense pages, Yergin proves to be a high output information-processing beast who turns countless hours of research into a page-turning story.
The impact and dramatic stories of these iconic men, corporations, and governments in a struggle for what was the most powerful commodity of the industrial age is valuable for everyone to know. Thank you to Professor Scott Moore for the recommendation.
I started reading the book with detailed in-text notes and I attempted to transfer my underlines and notations in. I stopped about halfway through and continued on Zotero. Maybe one day I’ll go back and re-outline the rest.
Some takeaways (not detailed, relative to the book):
Understanding the relationship and the trends between the individual, the corporation, and the government has been incredibly useful.
For example, understanding how concessions were taken by colonist governments and then taken back decades to hundreds of years later by governments and how they interacted with each other.
From Venezuela bringing that sentiment into the Middle East, based on the amount of oil reserves each country had, they would react differently and plan their timing about taking the concessions differently.
The balance of power is between Iran, Saudi Arabia, Iraq, Venezuela, Mexico, countries in Asia, and the strategic significance of oil.
The book made the subject less about just learning about an industry but learning about the power conflicts in our world over the last 200 years.
After the 1980s, oil stopped being as significant in directly controlling power in the world as it did during the petroleum crisis of OPEC.
The significance of oil is huge, but it might be less than, for example, semiconductors and chips today.
Oil underpins the world, so it’s important to understand its foundations.
The book covers the role of the US as a country that has, for most of history, both produced the most oil and also consumed the most oil.
It discusses how markets evolved from long-term contracts with companies who had concessions to owning distribution in those countries, to the countries taking back the concessions and creating contracts, to the advance of the spot markets.
The Texas Railroad Commission showed us what governance was like and how it might be hard to create a sense of unity, but how Texas did it to the benefit of the whole.
The book also covers historical figures in incredible depth, such as Rockefeller, T. Boone Pickens, and the Samuel brothers, and their stories interwoven with the broader narrative.
Some more specific things to mention:
It's very interesting how countries like Mexico and others benefited from the price spikes during OPEC on the markets.
These countries were thought to have sustainable cash flows, so US banks and other financiers would lend to them, but these countries would later be forced to pay interest and service the debt on something that maybe wasn't sustainable for their development.
The book showed how oil revenues, the "black gold," could be a double-edged sword, especially when wielded by governments and people who didn’t necessarily want authoritarianism and wanted liberal policies or needed time to adapt to changes.
It highlighted that the transition is not all about economics, but there are also a lot of cultural values involved.
The book starts with George Bissell at Dalum, who traveled to Pennsylvania and found oil used for healing purposes.
It discusses Edwin Drake, who led Seneca Oil and Titusville, Pennsylvania, and the first tide compensation at the rate of one dollar per foot drilled.
It covers John Rockefeller and Henry Frick, seeing the chaos and panic caused by people driving prices lower, making it cost-inefficient to produce, but necessary.
They created a system through ruthless discounts, rebates, and drawbacks, leading to the creation of Standard Oil and eventual trust busting by Teddy Roosevelt.
How extreme capitalism can be harmful.
It discusses the secret operations and communications, Baku in Russia and Azerbaijan near the Caspian Sea, the Nobel Brothers producing oil, and Marcus Samuel and his merchant business.
The book covers the creation of a transport and trading system for oil through the Suez Canal, Royal Dutch’s investments, and the break-up of Standard Oil, which was worth more as separate entities.
It talks about Ida Tarbell, the first great journalist who wrote the history of Standard Oil Company.
How Russia fell and how communism was sparked by the mistreatment of coal and oil workers, although oil treatment was better than coal.
It discusses the trials after Russia's fall, Baku's importance, cultural differences, and the need for cash that the Arabians wanted early on.
The rise of Calouste Gulbenkian, an Armenian who brokered the deal for the Turkish Petroleum Company, is covered.
British state investments, Mesopotamia, and the promise of protection to guarantee oil revenues.
Dad Joyner, who found the Black Giant oil field in East Texas, leading to competitive production and industry challenges.
The power of Harold Ickes, the new administrator for public works in the interior and oil under FDR, and how they used the independents for World War II efforts.
The Supreme Court's actions during the war, the extreme conditions, and the mistrust of companies.
Detailed Outline:
Prologue
Three theses
(1) The rise and development of capitalism and modern businesses
(2) Oil is a commodity intimately intertwined with national strategies and global politics and power
(3) We have become a "Hydrocarbon Society", or "Hydrocarbon Man"
Part 1: The Founders
Chapter 1: Oil on the Brain, The Beginning
George Bissell (Dartmouth alum) travelled through Pennsylvania and noticed oil being used for healing purposes. Saw a rock oil sample at Dartmouth when going up to visit his mother and then worked with James Townsend (New Haven financier) to start a company after a successful report analyzed by Benjamin Silliman (Yale chemistry professor whose father basically started chemistry)
"An acceptable fluid could be extracted from rock oil"
Demand for artificial illumination from industrial revolution.. animal grease/vegetable fat wasn't enough and whale oil was too expensive (voyages now all the way to the pacific)
Funny enough, whaling is how modern Venture Capital started in New Bedford, Connecticut
Oil in other parts of the world
Oil was being used in the Middle East all the way from 3000 BC as bitumen ,a semi solid substance. Used as a building mortar, for pharmaceuticals (checked bleeding, healed wounds, treated cataracts, soothed aching teeth, etc)
Pre-American oil drilling, there was a small oil industry in Eastern Europe (Galicia) by peasants digging oil shafts + a pharmacist in Lvov invented a cheap lamp suited to burning kerosene
Spread of kerosene had 2 barriers in US: (1) no substantial source and (2) no cheap lamp to burn what was available... up until Lvov lamp became widespread
Discover a new source for the raw material that went into an existing, established process. Could rock oil be cheaper than other sources?
Bissell & Co thought to apply China's method for "boring" for salt (developed 1500 yrs earlier) to oil. Silliman's report --> capital --> quick execution
Edwin L. Drake selected to lead Seneca Oil & Co go to Titusville, PA. James Townsend send letters in advance calling him Colonel so locals would respect him, even though he wasn't
"He would tie compensation to successful completion at the rate of one dollar per foot drilled. The first couple drillers he engaged simply disappeared or begged off."
Idea thought to be insane, but Drake was single-minded. Financial troubles but Townsend kept backing them; at the last, Townsend said to wrap it up but before the letter arrived, they struck oil at 69 feet.
Bissell became very wealthy & donated to Dartmouth (gymnasium); Townsend denied credit he deserved; Drake gambled it off
"Supply far outran demand and the price plummeted. With the advent of drilling, there was no shortage of rock oil. The only shortage was of whiskey barrels, and they soon cost almost twice as much as the oil inside them."
Race for "flush production" (produce as much volume as possible) based on "rule of capture"
"Various surface owners atop a common pool could take all the oil they could get , even if they disproportionately drained the pool or reduced the output of nearby wells and neighboring producers"
But quick production --> wider market + after bubble popped in 1866-1867 --> innovation & organization
"Man was suddenly given the ability to push back the night" ---- very poetic phrase
Coal oil refiners either out of business or had to become crude oil refiners
Civil war developed oil markets quicker
Shortage of turpentine from South --> shortage of camphene... filled by Kerosene from PA
Oil export to Europe filled cotton's gap
Congressman James Garfield substantial investor in oil, later became president. Hints to link between politics & money....
Which politicians investing in tech like AI/crypto/software will be the future president?
Transportation by pipeline solved the problem of moving barrels by teamsters
Titusville Oil Exchange opened in 1871
Chapter 2: "Our Plan": John D. Rockefeller and the Combination of American Oil
Rockefeller and Maurice Clark got into dispute about speed of expansion; Rockefeller bought him out
Rockefeller: pious, single-minded, persistent, thorough, attentive to detail, with both a a gift and fascination for numbers
Habit of holding intimate conversations with himself, repeating homilies, warning himself to beware of pitfalls, moral as well as practical
The Great Game: struggle to accomplish and build, and the drive to make money both for its own sake and as a register of achievement
Laura, his wife, became his closest confidant and even reviewed important business letters
"It is not the business of the public to change our private contracts"
"All sorts of people went into it: the butcher, the baker, and the candlestick-maker began to refine oil." ----bars from rockefeller inspired by Adam Smith
Believed in building strong cash position to not have to rely on bankers and to take advantage of downturns
Would be on the front lines buying oil
Henry Flagler: initially had Whiskey business and went broke in salt manufacturing in Michigan
Belief in the value of cooperation among producers; deep aversion to "unbridled competition"
"A friendship founded on business is better than a business founded on friendship"
Post-oil, he founded Miami and West Palm Beach by building railways down the coast
They sat in the same office , with their desks back to back, passing drafts of letters to customers and suppliers back and forth to each other until the missives said exactly what they wanted to say. Their friendship was the business, which they were constantly and obsessively discussing -- in the office, during lunch at the Union Club, or as they walked between the office and their nearby homes"
Discounts, rebates, and drawbacks
Drawbacks: "A competing shipper might pay a dollar a barrel to send his oil by rail to New York. The railroad would turn around and pay twenty five cents of that dollar back, not to the shipper, but to the shipper's rival, Standard Oil!"
Competitors unknowingly subsidized Standard Oil
Too many wells, too much oil -- 3x greater than market need (late 1860's)
Turned partnership to joint-stock company to bring in more capital w/o losing control
"Do what a mere pool or association could not: eliminate excess capacity, suppress wild fluctuations in price -- and indeed, save the business"
The South Improvement Company; principle idea of the railroads --> Oil Wars
Won by producers... but Rockefeller wanted that
Many producers were speculators who didn't take a long view
Standard's "war or peace"
Bought out leading refiners and operated through firms that appeared to be independent
Engaged in "a good sweating" (i.e. price cutting in a particular market to force a competitor to operate at a loss)
Communicated in code and w/ secrecy in operations
The Trust
Stockholders of SO had shares in other firms, not SO itself... at the time corp's couldn't own stock in other corps. Shares held in "trust"
System of management and coordination by committees. Executive Committee had control
Always made votes unanimous in the end
Costs calculated to the third decimal place
It maintained a card catalog of every buyer of oil in the country, showing where virtually every barrel by independent dealers went -- and where every grocer, from Maine to California, obtained his kerosene
Replaced barrels for railway tank cars and horse-drawn tank cars
By 1879 -- controlled 90% of America's refining capacity
Tidewater pipeline was a long-distance pipeline that had no guarantee that it was technically possible. SO eventually gained a minority stake here too
Any drop in the price of crude was not reason for anxiety, but an opportunity to buy
Poem by Rockefeller: "A wise old owl lived in an oak / The more he saw the less he spoke, / The less he spoke, the more he heard, / Why aren't we all like that old bird"
Resolved from beginning of his career to expose as little as possible
Take away his piety and you remove his greatest avocation
Established UChicago and only ever visited twice
Out of the refineries: kerosene; naphtha; gasoline; fuel oil; petroleum jelly (vaseline); paraffin (chewing gum, candle making)
Chapter 3: Competitive Commerce
Kerosene taken to Europe initially bc in 1861, a Philadelphia shipper obtained a crew by getting the potential recruits drunk and virtually shanghaiing them aboard the sailing ship
Baku -- Russia / Azerbaijan... near Caspian Sea
Nobel Brothers (Robert, Ludwig, Alfred) --> Nobel Brothers Petroleum Producing Company --> dominated Russian oil market
Ludwig Nobel ("Oil King of Baku")'s death was confused for Alfred's, and disappointed upon hearing his premature obituaries as a "dynamite king," Alfred left his money to start the Nobel Prize
Bunge & Palashovksy were two other oil producers were bankrolled by the french Rothschilds to form Caspian and Black Sea Petroleum Company ("Bnito")
Fred Lane was a shipping broker in London who orchestrated deals between the Rothschilds and Samuel Samuels.
He sometimes appeared to be representing so many different interested parties simultaneously in a transaction that it was hard to know for whom he was actually working
Marcus Samuel (older brother) and Samuel Samuel (younger brother) inherited a successful mercantile business from their father and had a strong network
During a prospective trip to the Caucasus in 1890, observed a primitive bulk ranker and saw the vision that modern tankers would be more efficient
Samuel couldn't undersell Standard Oil... so he'd have to break into all markets simultaneously. Created Shell Transport and Trading. He needed:
Newer and larger tankers (savings on space & weight --> reduced shipping cost per gallon)
Designed them with safety features that minimized risks and allowed him to gain access to the Suez, which didn't allow tankers w/ dangerous kerosene
Guaranteed supplies of kerosene from Batum
Won a 9 yr contract w/ Rothschilds
Access to the Suez Canal
Large storage tanks in all major Asian ports
Sent their nephews (Mark and Joseph Abrahams) to execute here
He hurried to buy a site in Shanghai before the Chinese New Year since "It can be got cheaper because the Chinese have to pay all their debts contracted during the past year & they are requiring money"
To establish inland depots where bulk shipments of kerosene could be broken down and put into receptacles for local wholesale/retail
Samuel had assumed the customers would have their own receptacles to fill the oil with, but the tin containers were used for random things (opium cups, hibachis, tea strainers, and egg beaters). Had to establish local factories to make the tin containers, which they shipped as raw tinplate
Samuel had lack of talent for organization in business and seeked status above all
Standard Oil failed to assimilate American independents and so it could not create a worldwide grand alliance
Royal Dutch
Aeilko Jans Ziljker started looking for oil in Sumatra
What won't bend must break, whoever is not with me is against me, and I shall treat him accordingly. I know well enough that this motto earns me enemies, but I also know that had I not acted as I did, I should never have accomplished the business."
Jean Baptiste August Kessler
6 mile pipeline linking wells in the jungle to the Balaban River
Faced issues like 300 marauding pirates, ops in horrible states, and disease
Standard Oil intelligence said to partner w the Dutch and assimilate, but Dutch wouldn't have it
Directors of Royal Dutch created a special class of preference stock, the holders of which controlled the board. To make acq even more difficult, admission to this exclusive rank was by invitation only
Chapter 4: The New Century
See AlsoADP-1 FINAL WEB - [PDF Document]Coleridge Text 058 t ABC 10 - [PDF Document]Paul Simon's Graceland and its Social and Political Statements on - [PDF Document]50 Famous Documentary Photographers From HistoryThomas Edison invented electricity to make light that didn't need kerosene... He even worked very carefully to price electricity so that it would be highly competitive -- at exactly the equivalent of the town gas price of $2.25 per thousand cubic feet
New market from oil started by advent of internal combustion engine --> automobile + trains/ships industry that used fuel oil and gasoline
Oil found in California --> Union Oil (now Unocal) -- continuous independent existence since 1890 as a major integrated oil company
Patillo Higgins, Captain Anthony F. Lucas, Guffey & Galey, and eventually the Mellons found oil at Spindletop in Beaumont, Texas --> Gulf Oil Corporation
Lucas I was flowing not at fifty barrels per day but at as much as seventy-five thousand barrels per day
Texas oil was of such poor quality that it could not be made into kerosene by existing processes
Built 450 mile pipeline from Port Arthur to Tulsa
Oklahoma oil discoveries in Glenn Pool near Tulsa in 1905
J. Edgar Pew --> Sun Oil Company
Joseph Cullinan --> Texas Fuel Company (Texaco)
Brought in Governor Hogg, who was great opponent in Texas of Standard Oil
Eventually kicked out by Wall Street financiers after fighting to try and move everything to Houston
As a result of the explosion of production on the Gulf Coast, the Old House also saw its control over crude oil production in the United States -- and it's ability to "establish" prices -- slipping away
Chapter 5: the Dragon Slain
Standard Oil mastered art of timely political contributions
Setup "blind tigers": companies that looked to the outside world like totally independent distributors, but of course were not.
Advertisem*nts sayings "No Trust" and "No Monopoly" and "Absolutely Independent"
Secretly reported to 75 New Street in NY, the backdoor of 26 Broadway
SO of NJ became holding company after NJ revised corporate law
John D. Archibold -- Rockefeller's successor
No diversions other than work; used humor to defuse tense situations
Much later when asked if SO had looked out only for its own interests, he dryly replied, "We were not always entirely philanthropic."
Became secretary of Titusville Oil Exchange and had denounced Rockefeller, but when invited to combine, he accepted swiftly
SO's paid out huge cash dividends. "really a bank of the most gigantic character -- a bank within an industry, financing this industry against all competitors"
Rockefeller retained title of President. Bc so secretive, nobody knew he was effectively retired so he still caught all the blame
Writers known as "muckrakers" took up progressive movement against trusts
Ida Tarbell was first great woman journalist. Worked at McLure's
Had Mark Twain, who was dearest friend of John Archibold, put her in touch. Established quick rapport bc Archibold lived near Tarbell's family and remembered Tarbell's father
Wrote The History of Standard Oil Company with 64 appendices... arguably single most influential book on business ever published within the US
"They had never played fair and that ruined their greatness for me."
Rockefeller's attitude as that "of a game fighter who expects to be whacked on the head once in a while. He is not the least disturbed by any blows he may receive.
Trust-buster Teddy Roosevelt distinguished between good trusts and bad trusts... launched 45 anti-trust actions as President
Ordered $100k donation returned... though it had been spent. Made big news as a "square deal"...
Well, the letter will look well on the record, anyhow"
Charged SO with conspiring to restrain trade under Sherman Antitrust Act of 1890 --- case led by Frank Kellogg, who would become Secretary of State two decades later
SO given 6 months to dissolve itself --> Archibhold: "Well, gentlemen, life's just one damn thing after another."
Dissolution
SO of Nj became main company with 50% of net value --> Exxon
SO of NY --> Mobil
SO of California --> Chevron
SO of Ohio --> Sohio --> acq by BP
SO of Indiana --> Amoco
SO of Indiana didn't need approval from higher ups anymore and had a tech leap via "thermal cracking"
putting gas oil under high pressure & temp (up to 650 degrees) to yield "synthetic gasoline," which more than doubled the share of usable gasoline from a barrel of crude -- up to 45%
The petroleum industry was the first big industry to be revolutionized by chemistry
Refiners output no longer arbitrarily bound by atmospheric distillation temperatures of the different components of crude oil
Licensed the tech within a year to other co's outside its own markets
Value of the shares of the successor companies had mostly doubled... Rockefeller's net worth rose to $900M ($9B today)
"No wonder that Wall Street's prayer now is: 'Oh Merciful Providence, give us another dissolution.'"
Chapter 6: The Oil Wars: The Rise of Royal Dutch, the Fall of Imperial Russia
The mere production of oil is almost its least value and least interesting state. Markets have to be found - Marcus Samuel
Kutei in east Borneo was isolated but struck oil
Marcus Samuel predicted oil's future would be not for illumination but as a source of power (shipping from coal to oil), making the Royal Navy a prime target but one he would hardly get
Economic depression of Russia --> ramped up oil production --> glut in the world market & China's Boxer Rebellion disrupted that market --> hurt Shell
Henri Deterding -- financier turned most powerful man in oil after taking over Royal Dutch
"You will go a long way in business if you train yourself to be able to appraise figures as rapidly and as shrewdly as a good judge of character can sum up his fellow-man"
"By generally sniftering round wherever business could be done, and without this flair for sniftering, no man starting from the bottom can make money on a large-scale -- I discovered additional avenues whereby additional financial grist rolled into the bank's till"
Contrasted from Samuel in that his purpose was to make money, not status
Merged into The Royal Dutch / Shell Group
3 key people: William Loudon, Robert Waley Cohen, and Deterding
Deterding did defensive expansion into US by purchasing in Tulsa
Baku became hotbed which created modern Joseph Stalin, who fought for workers rights there and launched aggressive campaigns
Oil's natl distribution system was a perfect vehicle for clandestinely distributing propaganda
Russo Japanese War
In Caucasus, race and ethnic conflict not socialism, drove conflict
2/3 of all oil wells were destroyed
"Three years of revolutionary work among the workers of the oil industry tempered me as a practical fighter and as one of the local practical leaders. I first discovered what it meant to lead large masses of workers. There in Baki I received, thus, my second baptism in revolutionary combat. Then I became a journeyman for the revolution." - Stalin
Deterding acq Rothschilds interests --> globally balanced portfolio
Baku would remain most important source of oil on Europe's immediate periphery
Chapter 7: "Beers and Skittles" in Persia
William Knox D'Arcy syndicated investments in an AU goldmine and was welathy. Antoine Kitabgi brought him an inv
Persia was hotspot of competition for Russia and Britain
British viewed Persia as a premium on the Insurance of India
Russians wanted a warm water port and to exclude the other Great Powers
British oil concession would assist fight
George Reynolds found oil in Persia. D'arcy was on the edge of losing his investment but a tie up with Burmah Oil (conservative Scotts). Reynolds eventually fired by short-sighted Burmah
Profits and politics inextricably linked
Had to deal with revolution in Tehran and the Bakhtiari tribe
The English idea of an agreement is a document in English which will stand by lawyers in a court of Justice: the Persian idea is a declaration of general intentions on both sides, with a substantial sum in cash."
New capital was needed to develop Persia and the refinery was low quality
Chapter 8: The Fateful Plunge
Admiral John Fisher pushed oil to the center of national strategies. "The godfather of oil" and "a mixture of Machiavelli and child"
Dedicated to modernizing Royal Navy -- convert ships from coal to oil fuel
Thought imperial Germany was Britain's greatest enemy
Made in Germany was like Britain's vers of American Made in China (industrial leadership slipping away)
Navelists vs Economists (social welfare programs) --> Is Britain going to surrender her maritime supremacy to provide old-age pensions
Winston Churchill championed similar causes. Switched from being against Navy after The Panther episode when German warship sailed into Moroccan port of Agadir
Fisher conspired with Samuel to push Churchill to modernize and pursue SPEED fight When you like, Where you like, and How you like
Churchill's gamble: convert to oil before supply problem has been solved
Charles Greenway twisted the RD/Shell merger to say that it could be aligned w Germany --> British govt invested and gained 51% of the company
(1) Growing doubts ab availability and reliability of petroleum from sources other than Persia
(2) Price of oil fuel was increasing heavily
(3) Churchill was exerting influence in the Navy
Played parliament on untrue claims ab Shell but it worked
Safety and certainty in oil lie in variety and variety alone
Fisher advised to bind Deterding to England by making him buy an estate etc
Some felt: It is rather as though the owners of the premier cru vineyards in the Gironde went about preaching the virtues of Scotch whiskey as a beverage
Part II: The Global Struggle
Chapter 9: The Blood of Victory: World War I
Oil powered engines simplified mobility and supply but also multiplied devastation
Military Governor of Paris, Joseph Gallieni, used armada of taxis to move thousands of troops to front in failing German fight
the esplanade des Invalides as the avenue du Marechal Gallieni
British Navy developed the tank to fight the constant stalemate
456 tanks broke through the German like --> "black day of the Germany Army in the history of the war"
Victory of allies over Germany was in some ways the victory of the truck over the locomotive
Fighter planes became heavily used while prewar naval race was largely a stalemate
Greenway positioned AP to purchase British Petroleum (BP)
Samuels heroically used Shell to provide 80% of the British military's TNT by deconstructing a Dutch factory and shipping it in secrecy
Grave shortages of oil --> Britain developed national petroleum policy
US helped by supplying most of the oil... mainly SO of NJ and
Mark Requa -- America's first energy Czar
Baku / Rumanian oil fields burned by "Empire Jack" (Colonel John Norton-Griffiths), a great engineer who used his tunnel digging experience to set the oil valleys ablaze --> hurt Germans
"The blood of the earth was the blood of victory... Germany had boasted too much of its superiority in iron and coal, but it had not taken sufficient account of our superiority of oil. As oil had been the blood of war, so it would be the blood of the peace. At this hour, at the beginning of the peace, our civilian populations, our industries, our commerce, our farmers are all calling for more oil, always more oil, for more gasoline, always more gasoline. More oil, ever more oil!" - Senator Berenger, France's Comite General du Petrole
Chapter 10: Opening the Door on the Middle East: The Turkish Petroleum Company
Calouste Gulbenkian - Armenian oil man who helped broker deal for Turkish petroleum Company.
Mr. Five Percent
The hands you dare not bite, kiss it
Don't you ever call me an oil merchant... I classify myself as a business architect
Attended by a succession of mistresses, at least one of whom at all times, on the basis of "medical advice," had to be eighteen years or younger in order to rejuvenate his sexual vigor
Teagle said of him: Gulbenkian was "most difficult in a difficult situation"
Didn't want to be paid dividends or keep stake in oil in a restructured and negotiated deal. Wanted money
Had never before seen an oil tanker until 37 yrs later
CFP -- linked French govt as major contender in oil riches of Middle East
Churchill approached to help Shell take takeover Anglo Persian
Churchill was in dire financial situation and agreed. Years later, he resigned his commission,. returned the initial fee, and change dback into his natural and beloved fray, politics
Americans were scared about potential oil shortage and so they pushed hard for "Open Door" -- equal access for American capital and business
London concerned about anti-British sentiment after American had supplied most of the oil they needed during WWI
Better to have Americans "inside" then to have them "outside"
Washington wouldn' recognize Turkish Petroleum Company's 1914 oil concession. Only agreed to new one in 1925
Walter Teagle -- head of Standard Oil, NJ
Grandson of Rockefeller's original partner in oil
Professional manager, not a substantial stockholder. Was open with the press, albeit carefully controlled and calibrated
Tried efforts to push SO intoc rude production. Response by a director "We're not going to drill dry holes all over the world. We're a marketing company"
Unquenchable love for chocolate
Represented not only SO but also host of American consortium in negotiations against British, French, and Gulbenkian
Only recently this new group would have been attacked by the government on the grounds of restraint of trade; now it was supported as a national champion in promoting the Open Door and access to foreign oil
Shows how tides can change quickly on the global playing field
Effort to divide up Mesopotamia
Hussein, the Sharif of Mecca, led Arab revolt against Turkey with help of Lawrence of Arabia (great movie)
Faisal (3rd son of Hussein) put in control of Syria by British, but ousted by French when it was passed on --> became monarch in Iraq (formed out of 3 provinces of the old Turkish empire)
Not well-defined nation; shia and sunni arabs, jews, kurds, and yazidis
Britain hoped oil revenues would finance new Iraqi govt and reduce their financial burdens
Abdullah (brother) became king of Amirate of Transjordan
Chapter 11: From Shortage To Surplus: The Age of Gasoline
Eisenhower in 1919 made a snail-paced mission "Through Darkest America" --> future vision for interstate highways
Drive in "crackerbox" gasoline station pioneered by Shell
Also sold TBA - tires, batteries, and accessories; air and water service was a gratuity as quality service became standardized
Gas stations --> cartography
Mobility was the miracle
Teapot Dome Scandal under Harding
Fall succeeded in wresting control of the naval oil reserves away from the Navy Department and placing it in the Interior Department --> leased reserves to private companies (bribes from and to Harry Sinclair of Sinclair Oil and Colonel Robert Stewart, Chairman of SO Indiana)
John D. Rockefeller Jr (son of Rockefeller sr.) launched a proxy battle and ousted Stewart from his position (even though Stewart had been a great operator)... he was committed to philanthropy
Calvin Coolidge succeeded Harding after he died. Distanced himself from scandal --neutralized issues by ignoring them -- a campaign of silence. "Silent Cal"
Chapter 12: "The Fight for New Production"
Oil was a symbol of sovereignty --> collision between objectives of oil co's and of nation-states
Sir Weetman Pearson, later Lord Cowdray, one of the greatest 19th century engineer contractors with much attention to detail. Owned Financial Times, the Economist, Penguin Books, and Lazard, as well as Mexican Eagle
To his daughter, he wrote: "Dame Fortune is very elusive; the only way is to sketch a fortune which you think you can realize and then go for it baldheaded." To his son he added, "Do not hesitate for one second to be in opposition to your colleagues or in overriding their decisions. No business can be a permanent success unless its head is an autocrat.
1901 trip to Mexico, he missed a rail connection in a Texas border town and discovered the town had the oil craze. Recalling the report of an employee about seepages in Mexico, he examined every oil prospectus he could find on short notice in Laredo, and then cabled his managers to 'move sharply' to 'acquire prospective oil lands.' 'And be sure we are dealing with principals,' he ordered. Oil, he reasoned, would be good fuel for his new Tehuantepec Railroad. All of this was accomplished in the course of a nine-hour stopover.
He fired Sir Thomas Boverton Redwood's firm and instead hired Americans formerly associated with the US Geological Survey
Production on the Golden Lane, not far form Tampico --> Mexico became 2nd largest oil producer in the world by 1921
Political environment changed after overthrow of President Diaz and Mexican Revolution --> sold Mexican Eagle to Shell
Almost immediately after the sale, salt water started to intrude into the big producing wells that Shell had purchased from him. The problem could have been conquered with more capital, better technology, and new exploration. But, in the midst of the revolutionary turmoil, the foreign companies were loath to step up their investment
General Juan Vicente Gomez of Venezuela
Acq power and played foreigners off against each other to get $
Gomecistas (his family and cronies) would obtain choice concessions from the government and then resell them, at considerable profit, to the various foreign companies, passing on kickbacks to the general himself
Same George Reynolds who found oil in Persia found oil in Venezuela
Oil co's built export refineries in islands near Venezuela (Aruba, Curacao) but not in Venezuela itself in fear of change in political power
Bolshevik revolution --> Novel's trying to sell properties they may no longer own -- bought by SO at bargain price but at considerable risk
Commissar for Foreign Trade and 'finance minister', Leonid Krasin, discussed trade relations in London
New Economic Policy of Lenin (1921): concessions, private enterprise, and market system
Entrance of SO to Russia brought insurance for all foreign investors, including Royal Shell/Dutch and their Rothschild properties
Front Uni in 1922 was a way for Jersey, RD/Shell, and Nobels to seek compensation for nationalized property and to refrain from dealing with the Russians independently of one another
Teagle: but somehow or other the idea of trying to be on friendly terms with the man who burglarizes your house of steals your property has never appealed to me as the soundest course that could be pursued towards him
Regretted buying in Russia for moral reasons
Ultimately Jersey adopted a neutral stance on Soviets -- neither to seek a contract nor participate in a boycott
Conversely, Deterding launched massive ads campaign slandering SO of NY for buying russian kerosene and launched a price war
Chapter 13: The Flood
Columbus Joiner, aka eccentric "Dad Joiner," was a wildcatter who found the Black Giant, the largest oil field in America found in East Texas.
Every woman has a certain place on her neck, and when i touch it they automatically start writing me a check, I may be the only man on earth who knows just how to locate that spot. Of course, the checks are not always good.
Paid workers in royalty rights and sold more interests than there were to sell --> Haroldson Lafayette Hunt, aka H.L. "Boy", paid him for it up front and promised to pay the rest out of production
Hunt had given $20,000 to the head driller on the Deep Rock well, who had secretly provided advance word to Hunt's scouts on the oil below... Hunt proceeded to settle the jungle of claims against Joiner and quickly became the largest independent in East Texas
Rush of competitive production in East Texas--and elsewhere--meant competitive suicide for entire oil industry
Texas Railroad Commission tried in disguise to stop this on the grounds that it created "physical waste"... Federal courts repeatedly checkmated it
Oklahoma Governor "Alfalfa Bill" Murray proclaimed state of emergency and ordered state militia to close oil fields until the oil "price hits one dollar"
Hot oil = petroleum produced in excess of state-mandated levels, often smuggled across borders into other states... state's begged for federal supervision and FDR had just come into office
Harold L. Ickes
Chicago lawyer, progressive party politics, and mastered art of impulsive resignation on grounds of high principle. Loved accumulating power and being a strong man who could say "no"
Secretary of Interior, Oil Administrator, and Public Works Administrator under New Deal of FDR
Refused to sign anything he hadn't personally read, lest it be another Teapot Dome... acutely fearful of corruption and consistently mistrustful of the oil industry
Setup own internal investigation unit using wiretaps
The Oil Code -- set monthly quotas for each state
Had Federal investigators in East Texas examine refinery records, test oil gauges, inspect tanks, ... dig up pipelines to measure the accuracy of sworn records --> Federal "certificates of clearance" were required to move any oil out of East Texas
With pro-rationing, the rule of capture was overturned
Regulation of production preferred over regulating prices, bc that could incentivize overproduction --> brought price down again (in a free market)
Supreme Court declared New Deal agencies regulating oil unconstitutional for federal govt --> Connally Hot Oil Act: the Federal government, specifically the Bureau of Mines, prepared demand estimates for the coming period; then it "assigned" to each state a suggested share of that demand-- a sort of informal, voluntary "quota"
States which overran quotas risked reprisal from Federal govt and risks of other states overproducing --> glut and price collapse
Tariff on foreign oil + Interstate Oil Compact (1935): a forum for states to exchange information and plans, to standardize legislation, and to coordinate pro-rationing and conservation in production
Note: all of this happened because there was a 1% tail end situation which occurred which caused the previous system to collapse
Two assumptions for this system: (1) demand for oil wouldn't be particularly responsive to price movements (which was a given in the Depression) and (2) each state had its "natural" share of the market and those shares wouldn't change dramatically
The system withstood new petroleum from Illinois in the future but it was a headache for Texas and Oklahoma to cut back substantially on their production
Forever changed relationship between oil companies and govt
Chapter 14: "Friends" -- and Enemies
Sir John Cadman succeeded Charles Greenway as chairman of Anglo-Persian
AP had 2 choices: (1) expensive and large investment fights with unavoidable worldwide competition or (2) join ventures with establishes companies and divide the markets between them
Churchill didn't want to controversially go in front of parliament again to ask for more investment. The direct interests of the british government in oil matters were best kept out of sight
AP formed African "alliance" with Shell
Many tries to find cooperation in international markets (i.e., Achnacarry Agreement, As-Is system, ) but they failed
Supported by
Webb-Pomerene Act of 1918: allowed US companies to do abroad what the antitrust laws did not permit them to do at home -- come together in a combination-- so long as the combination's activities took place exclusively outside the United States
Both the tempter of the time and the pressure of government policies, in addition to the business environment, pushed towards some form to collaboration or cartelization
The little promotional gifts so dear to motorists, such as cigarette lighters, pens, and calendars, were to be sharply limited or done away with altogether. Nothing was left unscrutinized; even the number and types of signs in gas stations were "to be standardized to reduce unnecessary expenditure"
Points of friction
Couldn't win over all of American oil exports
Chronic cheating and the problem of what to do about "virginal markets" -- markets in which participants had not previously traded but were now seeking to enter
Not only is the thought of having outside auditors go over our books objectionable for obvious reasons, but it seems to use that the As-Is [agreements] would be on a very weak foundation if the parties concerned cannot trust each other to the extent of giving correct information on the volume of trade.
Modern application of Zero Knowledge technology!
Thought they should keep the info within private walls, but that often led to the impulse to compete which couldn't be completely checked
WW2 (1939) brought it all to an end
Even as they were talking about cooperation, they were plotting new attacks.
Shell entered East Coast market in US --> Jersey sold entire Mexican operation to William Davis, who was an example of a fringe player who made cooperation hard to enforce
Nationalism
Generally tendency in all foreign countries to-day to force or encourage the establishment in their own lands of national companies in the place of non-national subsidiaries
2nd half of 1930s --> major oil co's wanted to protect themselves against govt intervention (nationalistic policies, socialistic tendencies)
Operations in the oil business in Europe, are 90 percent political and 10 percent oil.
Persia
Shah Rezah Pahlavi announced he would unilaterally cancel Anglo-Persian's concession. He had command of the Cossack Brigade, beat down a insurrection by the religious mullahs, was suspicious of everybody
Ultimately got a much larger deal
Mexican battle
General Lazaro Cardenas became President of Mexico in 1934
Resented how oil men treated Mexico as "conquered territory"
Byproduct of revolutionary fervor and nationalism.
SO of NJ preferred to lose everything it had in Mexico rather than acquiesce in a partnership which might be regarded as potential expropriation
Mexican Eagle, a British company, was largest producer in Mexico
Much of agitation was strong anti-US sentiment though. Still, The British government took a a very strong against Mexico. It insisted to the Mexicans that the properties be returned. Instead of replying, Mexico severed diplomatic relations.
Venezuela supplied >40% of British oil... moves in Mexico could project strength or weakness
Roosevelt didn't want to aggravate relations bc of consequences that could benefit the Axis powers
Nazi Germany became Mexico's #1 petroleum customer (and at discount prices or on barter terms), #2 was Fascist Italy, and Japan became a major customer
Shortly before Pearl Harbor, Washington pushed for settlement on a take it or leave it basis.
90 percent of all the suboil reserves owned by the companies had already been produced by the time of expropriation. No point arguing who owned the suboil or the value of the reserves since most of the oil was supposedly gone in any event --> settlement of $30M that Americans took
Mexican focus shifted to its domestic market... Petroles Mexicanos (Pexmex) was first and most important state owned oil company. Mexico established a model for the future
Chapter 15: The Arabian Concessions: The World That Frank Holmes Made
Major Frank Holmes - "Abu Naft", the "Father of Oil" in Arabia
Drilled for water in Bahrain and was rewarded an oil concession in 1925
Created Eastern and General Syndicate retained a prominent Swiss geologist whose expertise in Alpine geology made him think Arabia was a pure gamble
Gulf Oil committed to developing production on a diversified basis around the world as a hedge against general shortage or declines in specific producing areas
Gulf has to abide by the Red Line Agreement due to its ownership by the Turkish Petroleum Company --> pursued Kuwait and let SO of California (Socal) take up Gulf's option in Bahrain
The American company could exercise the Bahrain option, though only under certain conditions that would guarantee Britain's position and political primacy. For instance, all communications from the company to the Amir were to pass through the political agent, the local representative of the British government
Bahrain hit oil on May 31, 1932 --> wide implications that shook established companies bc Bahrain was only 20 mi from the Arabian Peninsula where geology was for all intents and purposes, the same
Ibn Saud: conquering patriarch of modern Saudi Arabia
In his early days, could carry his entire national treasury in the saddlebags of a camel
Ancestor Muhammad bin Saud took up the cause of Muhammad bin Abdul Wahab. Wahabism had stern puritanical version of Islam
Ibn's father Abdul Rahman fled from Al-Rashid family and stayed in Kuwait under the Sabah family
2 goals: (1) re-establish Saudi dynasty and (2) make Wahabi branch of Sunni Islam supreme
Amir of Kuwait gave Ibn Saud expert education in realpolitik, stern religious education, and prescribed Spartan life
Ibn Saud led military campaigns to conquer Arabia. His Ikhwan (religious warriors) were loyal.
Ikhwan said instruments of modernity were ruining Saudi Arabia and led a revolt. Crushed by Ibn Saud, who now held complete power
Great depression --> fewer pilgrims to Mecca --> hurting major source of King's revenues just as he embarked on expensive and varied development program (domestic radio network, reconstructing water supply system of Jidda, etc)
Harry St. John Bridger Philby (father of famous double spy Harold "Kim" Philby) was studied in Arabic and an adventurer. Became close friends with Ibn Saud after 34 hours of personal interviews
Connected Saud to Charles Crane, an American plumbing tycoon, and then Karl Twitchell, a engineer in Yemen drilling for water
al-Hasa became more attractive after oil discovery in Bahrain
Philby worked as a paid agent for Socal, acting as an advisor to the Saudis, coaching IPC and serving as Longrigg's confidant, and casually dropping in conversation with various oil men what the King had said to him on their most recent auto ride up to Mecca
IPC was Iraq (formerly Turkish) Petroleum Company. They didn't think a large upfront payment made sense for Arabia
Saudi Arabia's final deal was good for 60 yrs. Interesting artifacts of it
It was structured as an upfront cash payment as a loan, where The total loan was to be repaid only out of any oil royalties the government was due
Care had been taken that all the coins bore the likeness of a male English monarch, and not Queen Victoria, which, it was feared, would have devalued them in the male-dominated society of Saudi Arabia
Kuwait
Kuwait economy devastated by Japanese noodle vendor who had developed a technique for cultivating pearls artificially
Negotiation had dragged on for a decade
Kuwait was in sphere of influence of Anglo-Persian, aka Britain
Sheikh Ahmad knew American oil co brought American political interest, which could bolster position against Britian. But also he could not alienate Britain due to practical value of Royal Navy
Andrew Mellon (controlled Gulf Oil) was American Ambassador to England and former US Treasury Secretary under Hoover
Bidding war from Anglo-Persian and Gulf for Kuwait vs cooperation
Chose to cooperate so Sheikh didn't play them off against each other
Final deal: Actual operations on the ground to be in British hands, but Gulf owned 50%. 75 year concession. Signed 1.5 yrs after Saudi concession
World economy was depressed and suffered from acute oversupply of oil... even if Socal found oil in Saudi, they didn't have the distribution (a problem they realized from their success in Bahrain)
Without a middle eastern supply, Texaco faced the prospect of losing markets or losing money in the years ahead
James Forrestal, head of investment bank Dillon, Read helped Texaco and Socal create Caltex --> new oil found in Saudi Arabia could be managed and would not necessarily destroy prices
German, Japanese, and Italian interests tried to obtain drilling rights in Saudi... oil operations across the middle east mostly got shutdown during WW2 with some wells filled with cement by the US
Part III: War And Strategy
Chapter 16: Japan's Road to War
1931, The Manchurian Affair. Japanese desired pretext to attach Chinese forces, so they bombed the South Manchurian Railway (Japanese controlled) with minimum damages
Manchuria had strategic geographic location to stem dual threats of Soviet communism and Chinese nationalism
Official US policy supported China, but US gripped by isolationism
FDR wanted to use economic sanctions, but was prevented... would also lead to war in Dutch East Indies
Japanese would submit, to any deprivation rather than see their nation humbled by Western powers--and lose face.
Japan wanted to exclude Western powers from "Greater East Asia Co-Prosperity Sphere"
Death of PM Osachi Hamaguchi --> no containment for the new cult of ultranationalism
Rejected liberalism, capitalism, and democracy as weakness and decadence. Established "national defense state"
Recognized their lack of materials and vulnerability to blockade as similar to Germany's
Produced 7% of oil it consumed; imported 80% from US and 10% from Dutch East Indies
American "Open Door Policy" at odds with Japan's imperial ambition
Hokushi nanshin - "defend in the north, advance to the south"
US fearful of beleaguered Britain withdrawing forces from Far East --> moved American fleet from SoCal to Pearl Harbor to stiffen British resolve and deter Tokyo
Authorized two-ocean Navy
Fuel ban: the ban was limited only to aviation gasoline of 87 octane or higher, as well as some kinds of iron ore and steel scrap. That would protect gasoline supplies for the U.S. military, as American planes used 100-octane fuel. But the ban did not hinder the Japanese, as their planes could operate with fuels below 87 octane.
Presidential election for 3rd term was 1 mo away... did not want to do anything provocative
Secretary of State Cordell Hull talks with Admiral Kichisaburo Nomura
Nomura: political moderate; served as a naval attache in Washington in WWI --> Roosevelt greeted him as "friend"; did not want war between 2 countries;
His lips and heart were at variance
US and Britain cracked "Purple", top secret Japanese diplomatic code
Admiral Isoroku Yamamoto, Commander in Chief of Japan's Combined Fleets
Student at Harvard, then naval representative and attache in Washington. Scoffed at ultranationalists and jingoists but was a fervent nationalist at his core
Thought fighting the US was doomed, but if they must, it must be quick decisive blows to secure position in Southeast Asia and destroy American morale
Inspired by night attack in Port Arthur battle in Russo-Japanese War
May 27, 1941: FDR declared unlimited national emergency -- wanted to scare the daylights out of everyone about the true dangers of the Axis drive for world domination
Ickes wanted to embargo Japan for oil conservation; FDR didn't want to for foreign policy reasons
Germany's surprise attack on Soviets --> fateful choice for Japan: put off doing anything about the Soviet Union, and instead concentrate on Southern strategy, seeking control over Indochina necessary to go after the East Indies.
FDR indicated: If Japan moved --> economic sanctions: freeze financial assets and restrict ability to buy oil
Aim to create maximum uncertainty for Japan by using oil as instrument for diplomacy but not as a trigger for war -- he didn't want to push it over the brink
Disparity between State/Treasury/President led to confused US policy, virtually a full embargo
Tokyo refused to recognize the self-fulfilling prophecy
Summit of Juneau -- Roosevelt neither agreed nor rejected the meeting to avoid looking like an appeaser; PM Konoye was willing to jettison Axis alliance
Rejection --> Konoye fell as PM to Hideki Tojo, bellicose war minister who thought diplomacy was useless and opposed any compromise with the US
Emperor did not want war; poem from his grandfather, Emperor Meiji: Since all are brothers in this world, / Why is there such constant turmoil?
Roosevelt after sending his final message to the emperor: This son of man has just sent his final message to the Son of God
Pearl Harbor
Just as the Japanese did not think the Americans were technically capable of cracking their most secret codes, so the Americans could not conceive that the Japanese would be able to mount so technically complex an operation
The breakdown of critical communication among key actors on the American side that may have been the second most important cause of the tragedy at Pearl Harbor, following only on the failure to believe that such an attack could take place at all.
In the same hours, the Japanese were bombing and blockading Hong Kong, bombing Singapore, bombing the Philippines, bombarding the Islands of Wake and Guam, taking over Thailand, invading Malaya on the way to Singapore and preparing to invade the East Indies.
American aircraft carriers survived only because they were out at sea
Commander Chuichi Nagumo: he did not want to send planes back to Hawaii, for a third wave, to attack the repair facilities and the oil tanks at Pearl. His luck had been so enormous that he did not want to take more risks. And that, along with the sparing of its aircraft carriers, was America's only piece of good fortune on that day of devastation.
Admiral Yamamoto had observed that the great mistake made in Japan's surprise attack against the Russians at Port Arthur in 1904 was in not being "thoroughgoing" enough.
If the Japanese planes had knocked out the Pacific Fleet's fuel reserves and the tanks in which they were stored at Pearl Harbor, they would have immobilized every ship of the American Pacific Fleet, and not just those they actually destroyed.
Would have prolonged the war another 2 years
Chapter 17: Germany's Formula for War
Germany had lots of coal, little oil --> Hitler endorsed synthetic oil via hydrogenation (extracting a liquid from coal)
Fischer-Tropsch process: coal molecules were broken down under steam into hydrogen and carbon monoxide
I.G. Farben's hydrogenation was clear threat to Standard --> technical knowledge flow via joint company and IG owning 2% of S.O.
IG Farben would later become the industrial arm of German state
After Italy invaded Ethiopia, PM Eden wanted oil sanctions but Mussolini found an ally in the French PM, who subverted it
Hitler had a 4 year plan, starting in 1936 to reduce dependence on foreign oil via new tech/chemistry
Synthetics provided 95% of Germany's total aviation gasoline and lack of oil --> blitzkrieg (fierce but short battles) strategy
Build up of industry headed by Albert Speer
Concentration camp prisoners drafted into IG Farben plants to a private enterprise "branch" of the concentration camp-- money paid for them went to SS coffers
Plant was so large that it used more elctricity than entire Berlin
Germany captured oil stocks considerably in excess of the fuel they expended during campaign in West in 1940s
Hitler thought Soviet threat would be permanent threat in Ploetsi oil fields in Rumania, Europe's largest source of oil outside Soviets
Russia could open up Maikop, Grozny, Baku (Caucasus)
Seriously miscalculated supply needs... bad russian roads and terrain --> vehicles burned 2x as much --> fuel shortages
Moscow wasn't prioritized above Crimea/Donets oil area --> critical time lost before onset of winter--> stalemate
Japanese decision to attack Pearl Harbor allowed Stalin to transfer Siberian divisions westward
Operation Blau - Germans ran short of oil in their quest for oil
Russians destroyed oil in Maikop. Russian tanks ran on diesel, which was useless to german panzer units
Battle of Stalingrad
German retreat was surrounded. Their tanks had 20 miles, but had to escape 30.
First major defeat in Europe. Signified end of blitzkrieg and start on military/economic manpower war
General Erwin Rommel in North Africa on "principle of complete mobility"
Thatre was 70 miles wide by 1000 miles long; from Tripoli in Libya to El Alamein in Egypt
Rommel had talent for improvisation: "dummy tanks" mounted on Volkswagens in order to frighten the British into thinking his armored divisions were much larger than in fact they were.
Allies held Malta, which gave them a base to attack Axis shipping to North Africa
--> Fuel sunk or waiting to be loaded in Italy in Rommel's time of need
First Battle of El Alamein
Rommel's supply lines were very long, due to his own success in aggressively pushing forward --> too short on gasoline to regain momentum
Hitler made promises but could not keep them up with oil
General Bernard Montgomery -- cousin of John Philby, on Allies side.
Second Battle of El Alamein --> Rommell had to retreat
General Carl Spaatz argues to set priority on german synthetic fuel industry, whereas opposition by British, wanting to target French railway system... victory to target synthetics decided the technological war in favor of Allies
Speer ordered synthetic fuel plants dispersed where possible into smaller, better protected, and hidden sites (rubble of destroyed factories, quarries, underground, breweries, etc.)
Fewer fighter planes to protect plants --> more destruction --> fewer supplies for Luftwaffe
Battle of Bulge, 1940 -- east of Belgium and Luxembourg; final blitzkrieg
German Colonel Joachim Peiper's U-Turn was one of those small battle incidents with momentous consequences. The Stavelot fuel supply was equivalent to the requirements of the first ten days of Germany's entire Ardennes offensive
Chapter 18: Japan's Achilles' Heel
Balikpapan in Borneo: 4 decades of industrial work destroyed in less than one day
Battle of Balikpapan: first American sea battle since 1898 at Manila. Blacked-out American destroyers slipped up on Japanese fleet
Japan controlled East Indies in just 3 months --> access to rich resources of Southeast Asia
Divided allied command had poor coordination between scarce resources
(1) How were American forces to be supplied? (2) How were Japanese to be denied abundant resources they had just captured?
The primary purpose of the Allied armed forces were to safeguard their own supply lines and then drive westward in order to capture bases from which Japan's indespensable "oil line" might be blocked
Admiral Isoroku Yamamoto (strategist behind Pearl Harbor): The 'first stage of operations' has been a kind of children's hour, and will soon be over; now comes the adults' hour, so perhaps I'd bettyer stop dozing and bestir myself
The Battle of Midway (1942)
US Navy defeated Japanese. sending 4 ships down while losing one
End of Japanese offensive
Guadalcanal off New Guinea
American counterattack (first counterattack of the war). 6 months of brutal fighting
Premier Tojo announced oil problem was solved after oil wildcat in Minas structure, which was found by Caltex pre-war. Ended up being the largest between California and Middle East
Success depended on integrity of Japan's shipping system, which was vulnerable to submarines
Americans intercepted Japanese messages --> 2% of Navy personnel responsible for 55% of total Japanese loss
Of Japan's total wartime steel merchant shipping, some 86% was sunk during the conflict and another 9% so seriously damaged as to be out of action by the time the war ended
Over half the capacity was in Manchuria, where it was rendered useless in late 1944 and 1945 by blockade
Japanese push for synthetic oils failed due to shortages of materials needed to build the massive plants --> expensive failure due to drain on resources, manpower, and management
Great Mariannas Turkey Shoot
Lack of oil --> Japanese planes approaches Americans directly rather than circuitously
273: 29 lost planes ratio
The overall consequence of the oil shortage was to divide naval strength when the Japanese needed a truly combined fleet, strong enough to repel Allied advances
Japanese rebuilt ships to service coal --> relative security of supply but loss in speed and flexibility
Recapture of Guam (1944): brought cities on the Home Islands into the range of the new B-29 bombers
Battle of Leyte Gulf (off the Philippines):
Japanese admiral: Should we lose in the Philippines operations, even though the fleet should be left, the shipping lane to the south would be completely cut off so that the fleet, if it should come back to Japanese waters, could not obtain its fuel supply. If it should remain in southern waters, it could not receive supplies of ammunition and arms. There would be no sense in saving the feet at the expense of the loss of the Philippines. That was my reason for my order.
Kamikazes: "divine wind" after a typhoon in the 13th century that shattered Kublai Khan's great invasion fleet before it could land in Japan
Whereas 8 bombers and 16 fighters were required to sink an American aircraft carrier or battleship... same effect with 1-3 by suicide planes. Fuel req was also cut in half
Americans had huge floating bases (fuel barges, repair ships, floating docks, etc) which gave US Navy long legs across the Pacific
Okinawa had a 35% casualty rate for the Americans. The anticipation of millions of casualties --> decision to use nuclear bomb
Iwo Jima: island that was 4.5 x 2.5 mi left many dead for such a small area of land
American recapture of Manila and. British offensive in Burma. Japanese abandoned Balikpapan
Japanese Navy wanted to sacrifice Yamato, world's largest battleship, in a special attack that would break American ships in battle of Okinawa
To many, the sinking of the Yamato, which has been destroyed even before it could commit suicide, marked "the end of the Imperial Navy"
Pine root campaign showed Japanese desperation and was wildly ineffective and inefficient- each gallon req 2.5 man days of work; two hundred pine roots will keep a plane in the air for an hour.
Japan approached Soviets directly and asked it to mediate between Tokyo/Washington/London and to trade Soviet oil for resources from Southern Zone; didn't know that at Yalta, prev February, Stalin promised to bring soviets to war with Japan 90 days after the war ended in Europe
Premier Tojo tried to shoot himself, was nursed back, and then executed after trial
Chapter 19: The Allies' War
Britain didn't use synthetic oil strategy bc: A system based on the importation of conventional oil in many ships through many ports would be less vulnerable to air attack than one dependent on a few very large, easily identifiable—and easily bombed— hydrogenation plants
(1) Would the oil be available? (2) Would Britain be able to pay for it?
Deterding retired from Shell (1936) and died in 1936. Reputation was damaged after pro-Nazi views
Germans tried to get hands on Deterding's shares but were blocked by key preference shares, which was held by other directors
Domestic changes
British oil companies merged into nat'l monopoly, the Petroleum Board. products sold under single brandname "Pool"
Gasoline stations in eastern and southeastern England shut down and concentrated in places where they could be better defended or set ablaze
British and French govt's jointly offered to pay Rumania $60M to destroy its oil fields, but could never agree on a price. Rumanian oil --> Germans
Lend Lease instituted by FDR, declaring US as the "arsenal of democracy". It removed "the silly, foolish old dollar sign" to let democratic nations repay American oil at some indefinite time in the future
Federal-state pro-rationing system --> extra capacity, an invaluable security margin
Harold Ickes, Oil Czar, would informally have to fuse oil industry into one giant organization
Roosevelt:"Old Dr. New Deal" had to call in his partner "Dr. Win-the-War.?" And what Dr. New Deal had found unpalatable and unhealthy about Big Oil its size and scale, its integrated operations, its self-reliance, its ability to mobilize capital and technology—was exactly what Dr. Win-the-War would prescribe as the urgent medicine for wartime mobilization.
Ickes detested in industry. During the Depression, at his behest, the oil companies had established pools to buy up "distress" gasoline --> indicted the companies for pooling
Voluntary conservation program was a flop. Pressed companies to cut deliveries to gas stations by 10-15%
Ickes couldn't and wouldn't explain real reason for conservation: feared if he publicized the severity of the situation, he would be passing on valuable intelligence to Nazis and didn't want to unnecessarily rile isolationists
Prevention, whether it be an ounce or a pound, was bad politics. Ickes resolved never again to go too far out on oil issues. The shortage itself can be attributed to God while I reap a harvest of praise for my lack of foresight.
Battle of Atlantic
German U-boat's, operating in "wolf packs," disorganized shipping and oil tankers
British cracked German naval codes, enabling them to put convoys on evasive routings
German Milchkuhs ("milk cows"): large underwater supply ships that could deliver diesel fuel as well as fresh food to the U-boats
Churchill: How willingly, would I have exchanged a full-scale invasion for this shapeless, measureless peril, expressed in charts, curves, statistics!
US neglected anti-sub warfare and American cities were brightly illuminated, providing perfect silhouettes of the tanker targets for the submarines
US established based in Newfoundland, Greenland, Iceland and Bermuda
Big Inch pipeline project (1943): 1,254 miles long. Little Inch: 1,475 miles.
Carry gasoline from Southwest to East Coast. From 4% in 1942 to 42% in 1944
Cryptoanalytics was a major determinant of success in WW2
Initial German advantage was they (1) Changed code procedures; (2) broke ciphers for Anglo-American convoys
Allies successfully broke new U-Boat codes and closed off their own convoy ciphers to Germans
Petroleum Administration for War (PAW)
Deny or grant allocation to drilling supplies to force oil meant to adopt improved petroleum engineering methods
Explorers could deduct drilling costs as intangible expenses from their taxes
FDR administration reluctant to blanket whole country with rationing
Able to ration gas in the name of rubber, which was affected by the Japanese
35 mph speed limit; alphabetical tickers on display for those with first responder-like status who could purchase unlimited amounts of gasoline
Americans & British principle: in each theater of war, one or the other would have complete responsibility for supplying the troops and air forces of both countries
100x more gasoline was used in WW2 than in WW1.
Standardization of new gasoline products
One all-purpose motor fuel and same for diesel fuel. 5 gallon gasoline can adopted from the germans ("blitz can"), but where Germans had used a funnel Americans made a built in spout to keep dirt out
100-octane aviation gasoline
15-30% increase in power and savings, enabling long-range aircraft
Proved vital in Battle of Britain
Catalytic cracking, invented by Eugene Houdry and Sun Oil, helped produce it at larger scale
General George Patton Jr: similar aggressive style to Rommell (on german side). Patton was too ready to gamble, too prone to ill-advised action
Patton launched a great offensive with the 3rd army into Germany and had an "unforgiving minute" to make a deadly push before Germans could regroup
Eisenhower had to decide between sending gasoline to British General Montgomery of the First Army or to Patton. Likelihood of failure of Patton's plan was too great
Of the million casualties the Allied forces suffered in liberating Western Europe, fully three-quarters occurred after the September check on Patton's advance.] Many millions more died as a result of military action and in the German concentration camps in the last eight months of the war. Moreover, if the Allies had broken through into Germany from the West earlier, the postwar map of Europe would have been drawn quite differently, for Soviet power would not have projected so far into the heart of Europe.
And when the Germans mounted one massive last-ditch counter attack, the Russians, not the Americans, took Berlin.
Studied by Basil Liddel Hart, the British militarist and strategist who ironically inspired "blitzkrieg" with the concepts of "expanding torrent"
Part IV: The Hydrocarbon Age
Chapter 20: The New Center of Gravity
There will be an outline coming to a neighborhood near you, one day in the future…
