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.
Slide 4
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.
Slide 5
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.
Slide 6
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.
Slide 7
Slide 8
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.
Slide 9
Slide 10
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.
Slide 11
Slide 12
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
Slide 13
Slide 14
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.
Slide 15
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)
Slide 16
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.
Slide 17
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.
Slide 18
The Red Line Agreement
Slide 19
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
Slide 20
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
Slide 21
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.
Slide 22
Slide 23
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.
Slide 24
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.
Slide 25
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?
Slide 26
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.)
Slide 27
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.
Slide 28
Slide 29
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.
Slide 30
Slide 31
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.
Slide 32
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.
Slide 33
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.
Slide 34
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.
Slide 35
Slide 36
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.
Slide 37
Slide 38
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.
Slide 39
Slide 40
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.
Slide 41
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.