HISTORY OF OIL- A QUICK GLANCE

Subhra Ghatak

Three phases in history of petroleum up to OPEC’s shock in 1973

Age of illumination: till Standard Oil

War of worlds: quartermaster

decides the winner

Rise of Middle-East and Arab

oil

Historical mentions

Modern developm

ent

US story: Standard

Oil

Russia and

Europe

WW I: oil goes to

war

Period between the wars: US gets on car

WW II: oil decides

fate

Anglo-Persian

Turkish Petroleum Company

Saudi story

OPEC and the first shock

Oil was known to the east of Roman empire since ancient ages

Hit 3000 BC

Baku 1264 AD

Greece 800 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 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

‘Colonel’ Drake

The ensuing rush resulted in extreme volatility

Pithole, PA captures the time A parcel of land: 1865: $

2M 1876: $4.73 Everyone was drilling for

oil In oil creek alone 75

functioning wells Refineries totally

depended on middlemen Volatility was bad for

refiners and consumers Oil business needed a

structure

Jan

-18

61

Jun

-18

61

De

c-1

86

1

De

c-1

86

2

Se

p-1

86

3

De

c-1

86

7

$0

$2

$4

$6

$8

$10

$12

Price/ Barrel

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: Standard of New York: Standard of California: Standard of Ohio: Standard of Indiana: Continental Oil: Atlantic Oil:

Exxon

Mobil

Chevron

US arm of BP

Amoco

Conoco

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

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)

Royal Dutch Shell emerged as the biggest European powerhouse

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 suffocating 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

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.

“If I do not get the oil of Maikop and Grozny then I must end this war”

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

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

There was no taker for world’s richest oilfield

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