HISTORY OF OIL- A QUICK GLANCE

Subhra Ghatak
 Presentation covers three phases in history
of petroleum up to OPEC’s shock in 1973
War of worlds:
Age of illumination: till Rise of Middle-East
quartermaster
Standard Oil and Arab oil
decides the winner

Historical WW I: oil Anglo-

mentions goes to war Persian
Turkish
Modern
Petroleum
development Period
Company
between the
US story: wars: US
Standard gets on car Saudi story
Oil
OPEC and
Russia and WW II: oil the first
Europe decides fate shock
Oil was known to the east of Roman empire
since ancient ages

Baku 1264 AD

Greece 800 BC
Hit 3000 BC

Dated map
It all started here in 1850s
 Technology was already
developed
 A kerosene lamp was already
developed
 Refining technology was developed,
thanks to coal oil
 George Bissell from Hanover ‘Colonel’ Drake
 1853: Noticed oil seepage in PA
 1856: Planned the drilling method
 1857: sent “Colonel” Drake to
Titusville
 Discovery of oil
 August 27,1859: oil was found
 10 barrel/ day
 1871: Titusville Oil Exchange opened
The ensuing rush resulted in extreme
volatility
 Pithole, PA captures the time
Price/ Barrel
$12  A parcel of land: 1865: $ 2M
1876: $4.73
$10
 Everyone was drilling for oil
$8
 In oil creek alone 75
$6 functioning wells
$4  Refineries totally depended
$2
on middlemen
 Volatility was bad for refiners
$0
and consumers
Dec-1861

Dec-1862

Dec-1867
Jan-1861

Sep-1863
Jun-1861

 Oil business needed a

structure
John D. Rockefeller provided the much
needed structure to the industry
 1870: Standard Oil was incorporated
 Name signified quality and consistency

 1872: Rockefeller devised “Our Plan”

 Consolidate ENTIRE refining business
 Standard way of “War or peace”
 Tools: flattery, putting stress, price-cut, creation of barrel-shortage, propping
false independent companies

 Rebates and Drawbacks: most infamous of Standard’s practice

 1887: Standard entered oil production in Lima, Ohio
 1891: Standard gained control of > 25% of US production
 Possessed control of ~85% of US oil market
A piece of investigative journalism by
Ida Tarbell destroyed the giant
 1911: Antitrust lawsuit
forced Standard to
dismantled into seven
separate companies
 Standard of New Jersey: Exxon
 Standard of New York: Mobil
 Standard of California: Chevron
 Standard of Ohio: US arm of BP
 Standard of Indiana: Amoco
 Continental Oil: Conoco
 Atlantic Oil: Sun
Gusher at Spindletop initiated Texas
oil boom
 Jan’1901: Spindletop was
discovered
 75,000 barrels/ day: more than
rest of US production combined
 Captain Lucas found the oil
 The real discovery was made by
Pattilino Higgins
 Melons of Pittsburg took
management control
 Shell from UK agreed to
purchase output
 Gulf Oil was formed: the first
totally integrated oil company
 From production to marketing
 Nobel brothers were the biggest
player in Europe
 1871: Robert Nobel reached
Baku to purchase woods
 Bought a refinery
 1873: Ludwig visits Baku
 Huge transportation problem: Ludwig
designs world’s first oil tanker-Zoroaster
 Highly scientific: first oil company to have
permanent geologists
 1884: production reached 10.8M barrel
 Total control of European market
 Standard tried everything to acquire
 Stalin started trade union movement from
Baku in 1907
 1920: post-revolution sold to Jersey at
$7.5M
 The next major player in Russia was
Rothschild family
Royal Dutch Shell emerged as the
biggest European powerhouse
 1880s: Rothschilds needed market for Russian oil
 Marcus Samuel, a trader at London was tapped
 Received permission to pass oil tankers through Suez
 Successfully carved market share from Standard ( unexpected roadblock: packaging)
 Signed agreement to purchase Spindletop oil

 1885: Oil was found in Dutch East indies

 1890: Royal Dutch company was formed
 Henry Deterding, the CEO, realized importance of collaborating with Shell
 1901: Standard made an offer of $40M to purchase Shell
 Shell refused and created a marketing arrangement with Royal Dutch
 Spindletop , the Texas gusher, dried out and British Navy refused
Shell’s proposal to convert to oil
 1907: Shell merged with Royal Dutch ( 40: 60 ownership)
 WWI: “The allied floated to victory
upon a wave of oil”
 Sep’1914: Taxis of the Marne
 First instance of petroleum fuel in battle
 Britain identified oil’s importance
before war started
 1912-1914: Navy switched to oil
 Purchased share of Anglo-Persian Oil Co
 War moved to air
 Jan’1915: 250 planes
 1918: 55,000 planes
 Germany did not have own oil
 British destroyed every refinery in Rumania
just before Germany moved in
 Blocked Turkish attempt to invade Baku
 Oct’18: ran out of oil stock; Nov’18:
Surrendered
Period between WWI and WWII saw
rapid shift to automobile
 US people moved from horse to cars
 1920: # of Automobiles in US < 100,000
 1929: # of Automobiles in US > 300,000
 Major oil reserves discovered in Latin America
 1921: Mexico became second largest oil producer
 1922: Shell engineer George Reynolds discovered oil in Venezuela
 1929: Venezuela replaced Mexico from second spot
 Dad Joiner discovered Black Giant in eastern Texas in 1931
 Daily production: 340,000 barrels ( more than 3 times that of
Spindletop)
 Price of oil fell
 WWII: Lack of oil was the most
important factor that suffocated Japan
 1940: Advances towards Dutch East
Indies
 Jul’41: US froze Japanese accounts
 80% of petroleum import was from US
 Till Nov’41 tried to remove embargo
 Dec 7, 1941: Pearl Harbor
 1942: Japan won Sumatran oilfields
 1943: Oil supply to Japan peaked
 1944: US started sinking Japanese
tankers (86% ships were sunk)
 Dry Japan: 4% of 1940 consumption
 Direct warfare of Japanese
 Jun’44: Great Mariana turkey shoot
 Kamikaze warfare
 Pine root craze of 1945
“If I do not get the oil of Maikop and
Grozny then I must end this war”
 1930’s: IG Farben led the research in hydrogenation
 1939 Germany: 46% of national oil supply and 95% of aviation fuel was synthetic
 Located plants near Auschwitz to utilize slave labor
 Russian Front: 1942: Initiated operation Blau to get
Caucasian oil
 Faced oil supply issues even before reaching oil field: captured Soviet supply was
diesel
 Decisive battle at Stalingrad: surviving German troupes had fuel for 20 miles,
escape was only 30 miles away
 African front : “The battle is fought and decided by
quartermasters before shooting begins”-Rommel
 West Europe
 Dec’1944: Battle of Ardennes- caught allied by surprise but additional forces were
stuck for lack of fuel.
Middle-east: Initial years
 1901: D’Arcy bought Iran
concession
 British government joined in
 1908: Oil discovered by George Reynolds
 1951-53: Nationalization and coup
 BP

 Turkish Petroleum Co: First cartel

 1912: Concession for Ottoman empire
 1912: Anglo-Persian, Deutsche Bank, Gulbenkian
 1920: Anglo-Persian, Shell, French, US
consortium, Gulbenkian
 1927: Stuck Oil
 1928: Red Line Agreement
 1972: Nationalized by Iraq government
There was no taker for world’s richest
oilfield
 1925: Frank Holmes purchased concession: but negative
reports
 1935: SoCal, not in red line, bought Saudi concession
 1938: discovered huge reserve of oil
 Formed partnership with Texaco: Casoc ( 1944: Aramoco)
 Feb’1943: started lobbying with US govt. to help Saudi
royalty to keep British away
 18th Feb: First of many US assistance to royal family ( a year earlier Roosevelt
commented, Saudi is of little importance)
 Roosevelt traveled to Egypt to meet King Ibn Saud
 Desperate Jersey and SOCONY lobbied to nullify red line agreement
 US government declared red line illegal, later bypassed the agreement
OPEC: Events leading to the first oil
shock
 1959: Wanda Jablowski arranged an undercover meeting of oil ministers
 OPEC: a “gentlemen’s agreement” was formed
 1973: US oil import rose 3 times that of 1967 after a decade of oversupply
 Oct-6: Egypt and Syria attacks Israel ( first time Israel is surprised)
 Oct-8: OPEC asked 100% price rise
 Oct-12: Nixon receives two letters
 1: CEOs of Exxon, Mobil, Texaco, Socal
 2: Golda Meir
 Oct-13: America sends secret supply to Israel that became open
 Oct-16: OPEC oil ministers declare 70% price rise ( from $2.9 to $5.12)
 Oct-17: OPEC oil ministers declare 5% production cut
 Oct-19: US announces $2.2B military aid to Israel
 Oct-20: Saudi stops export to US: first embargo
 Dec-22: OPEC meets again. Iran’s shah proposes $11.65 as price (based on
an Arthur D. Little case)
 Price rises by 300% within two months ( Oct’73 to Dec’73)
Appendix
Detail of the investigative piece by Ida
Tarbell
 Ida Tarbell wanted to do a
story on the Trust
 Her father was an independent
oilman
 Mark Twain arranged meeting
with HH Rogers
 Hell hound Rogers: No. 2 at
Standard
 Benefactor or Mark Twain and
Helen Keller
 Rogers even arranged a desk for
Ms. Tarbell at Standard office
 Nov’1902 first installment was
published
 1905: ended with a virulent
Personal sketch of Rockefeller