Modern history

Prologue

WINSTON CHURCHILL CHANGED his mind almost overnight. Until the summer of 1911, the young Churchill, Home Secretary, was one of the leaders of the “economists,” the members of the British Cabinet critical of the increased military spending that was being promoted by some to keep ahead in the Anglo-German naval race. That competition had become the most rancorous element in the growing antagonism between the two nations. But Churchill argued emphatically that war with Germany was not inevitable, that Germany’s intentions were not necessarily aggressive. The money would be better spent, he insisted, on domestic social programs than on extra battleships.

Then on July 1, 1911, Kaiser Wilhelm sent a German naval vessel, the Panther, steaming into the harbor at Agadir, on the Atlantic coast of Morocco. His aim was to check French influence in Africa and carve out a position for Germany. While the Panther was only a gunboat and Agadir was a port city of only secondary importance, the arrival of the ship ignited a severe international crisis. The buildup of the German Army was already causing unease among its European neighbors; now Germany, in its drive for its “place in the sun,” seemed to be directly challenging France and Britain’s global positions. For several weeks, war fear gripped Europe. By the end of July, however, the tension had eased—as Churchill declared, “the bully is climbing down.” But the crisis had transformed Churchill’s outlook. Contrary to his earlier assessment of German intentions, he was now convinced that Germany sought hegemony and would exert its military muscle to gain it. War, he now concluded, was virtually inevitable, only a matter of time.

Appointed First Lord of the Admiralty immediately after Agadir, Churchill vowed to do everything he could to prepare Britain militarily for the inescapable day of reckoning. His charge was to ensure that the Royal Navy, the symbol and very embodiment of Britain’s imperial power, was ready to meet the German challenge on the high seas. One of the most important and contentious questions he faced was seemingly technical in nature, but would in fact have vast implications for the twentieth century. The issue was whether to convert the British Navy to oil for its power source, in place of coal, which was the traditional fuel. Many thought that such a conversion was pure folly, for it meant that the Navy could no longer rely on safe, secure Welsh coal, but rather would have to depend on distant and insecure oil supplies from Persia, as Iran was then known. “To commit the Navy irrevocably to oil was indeed ‘to take arms against a sea of troubles,’” said Churchill. But the strategic benefits—greater speed and more efficient use of manpower—were so obvious to him that he did not dally. He decided that Britain would have to base its “naval supremacy upon oil” and, thereupon, committed himself, with all his driving energy and enthusiasm, to achieving that objective.

There was no choice—in Churchill’s words, “Mastery itself was the prize of the venture.”1

With that, Churchill, on the eve of World War I, had captured a fundamental truth, and one applicable not only to the conflagration that followed, but to the many decades ahead. For oil has meant mastery through the years since. And that quest for mastery is what this book is about.

At the beginning of the 1990s—almost eighty years after Churchill made the commitment to petroleum, after two World Wars and a long Cold War, and in what was supposed to be the beginning of a new, more peaceful era—oil once again became the focus of global conflict. On August 2, 1990, yet another of the century’s dictators, Saddam Hussein of Iraq, invaded the neighboring country of Kuwait. His goal was not only conquest of a sovereign state, but also the capture of its riches. The prize was enormous. If successful, Iraq would have become the world’s leading oil power, and it would have dominated both the Arab world and the Persian Gulf, where the bulk of the planet’s oil reserves is concentrated. Its new strength and wealth and control of oil would have forced the rest of the world to pay court to the ambitions of Saddam Hussein. The result would have been a dramatic shift in the international balance of power. In short, mastery itself was once more the prize.

Over the previous several years, it had become almost fashionable to say that oil was no longer “important.” Indeed, in the spring of 1990, just a few months before the Iraqi invasion, the senior officers of America’s Central Command, which would be the linchpin of the U.S. mobilization, found themselves lectured to the effect that oil had lost its strategic significance. But the invasion of Kuwait stripped away the illusion. Oil was still central to security, prosperity, and the very nature of civilization. This remains true in the twenty-first century.

Though the modern history of oil begins in the latter half of the nineteenth century, it was the twentieth century that was completely transformed by the advent of petroleum. The role of oil—and anxiety about its supply—is a primary consideration of the Internet and the era of globalization that characterizes the first decades of the twenty-first century. In particular, three great themes underlie the story of oil.

The first is the rise and development of capitalism and modern business. Oil is the world’s biggest and most pervasive business, the greatest of the great industries that arose in the last decades of the nineteenth century. Standard Oil, which thoroughly dominated the American petroleum industry by the end of that century, was among the world’s very first and largest multinational enterprises. The expansion of the business thereafter—encompassing everything from wildcat drillers, smooth-talking promoters, and domineering entrepreneurs to highly trained scientists and engineers, great corporate bureaucracies, and state-owned companies—embodies the evolution of business, of corporate strategy, of technological change and market development, and indeed of both national and international economies. Throughout the history of oil, deals have been done and momentous decisions have been made—among men, companies, and nations—sometimes with great calculation and sometimes almost by accident. No other business so starkly and extremely defines the meaning of risk and reward—and the profound impact of chance and fate.

As we look forward, it is clear that mastery will certainly come as much from a computer chip as from a barrel of oil. Yet the petroleum industry continues to have enormous impact. Of the top ten companies in the Fortune 500 global ranking in 2008, six are oil companies. Until some alternative source of energy is found in sufficient scale, oil will still have far-reaching effects on the global economy; major price movements can fuel economic growth or, contrarily, drive inflation and help kick-start recessions. Today, oil is the only commodity whose doings and controversies are to be found regularly not only on the business page but also on the front page. And, as in the past, it is a massive generator of wealth—for individuals, companies, and entire nations. In the words of one tycoon, “Oil is almost like money.”2

The second theme is that of oil as a commodity intimately intertwined with national strategies and global politics and power. The battlefields of World War I established the importance of petroleum as an element of national power when the internal combustion machine overtook the horse and the coal-powered locomotive. Petroleum was central to the course and outcome of World War II in both the Far East and Europe. The Japanese attacked Pearl Harbor to protect their flank as they grabbed for the petroleum resources of the East Indies. Among Hitler’s most important strategic objectives in the invasion of the Soviet Union was the capture of the oil fields in the Caucasus. But America’s predominance in oil proved decisive, and by the end of the war German and Japanese fuel tanks were empty. In the Cold War years, the battle for control of oil between international companies and developing countries was a major part of the great drama of decolonization and emergent nationalism. The Suez Crisis of 1956, which truly marked the end of the road for the old European imperial powers, was as much about oil as about anything else. “Oil power” loomed very large in the 1970s, catapulting states heretofore peripheral to international politics into positions of great wealth and influence, and creating a deep crisis of confidence in the industrial nations that had based their economic growth upon oil. Oil was at the heart of the first post–Cold War crisis—Iraq’s 1990 invasion of Kuwait. And oil figured much in the reconfiguration of international relations that came with the dramatic petroleum price increase, 2004–2008, the return of resource politics, and the new importance of China and India in the world market.

Yet oil has also proved that it can be fool’s gold. The Shah of Iran was granted his most fervent wish, oil wealth, and it destroyed him. Oil built up Mexico’s economy, only to undermine it. The Soviet Union—the world’s second-largest exporter—squandered its enormous oil earnings in the 1970s and 1980s in a military buildup and a series of useless and, in some cases, disastrous international adventures. And the United States, once the world’s largest producer and still its largest consumer, must import between 55 and 60 percent of its oil supply, weakening its overall strategic position and adding greatly to an already burdensome trade deficit—a precarious position for a great power.

With the end of the Cold War, a new world order took shape. Economic competition, regional struggles, and ethnic religious rivalries replaced traditional ideology as the focus of international—and national—conflict, aided and abetted by the proliferation of modern weaponry. A new kind of ideology—religious extremism and jihadism—came to the fore. Yet oil remained the strategic commodity, critical to national strategies and international politics.

A third theme in the history of oil illuminates how ours has become a “Hydrocarbon Society” and we, in the language of anthropologists, “Hydrocarbon Man.” In its first decades, the oil business provided an industrializing world with a product called by the made-up name of “kerosene” and known as the “new light,” which pushed back the night and extended the working day. At the end of the nineteenth century, John D. Rockefeller had become the richest man in the United States, mostly from the sale of kerosene. Gasoline was then only an almost useless by-product, which sometimes managed to be sold for as much as two cents a gallon, and, when it could not be sold at all, was run out into rivers at night. But just as the invention of the incandescent light bulb seemed to signal the obsolescence of the oil industry, a new era opened with the development of the internal combustion engine powered by gasoline. The oil industry had a new market, and a new civilization was born.

In the twentieth century, oil, supplemented by natural gas, toppled King Coal from his throne as the power source for the industrial world. Oil also became the basis of the great postwar suburbanization movement that transformed both the contemporary landscape and our modern way of life. In the twenty-first century, we are so dependent on oil, and oil is so embedded in our daily doings, that we hardly stop to comprehend its pervasive significance. It is oil that makes possible where we live, how we live, how we commute to work, how we travel—even where we conduct our courtships. It is the lifeblood of suburban communities. Oil (and natural gas) are the essential components in the fertilizer on which world agriculture depends; oil makes it possible to transport food to the totally non-self-sufficient megacities of the world. Oil also provides the plastics and chemicals that are the bricks and mortar of contemporary civilization, a civilization that would collapse if the world’s oil wells suddenly went dry.

For most of the twentieth century, growing reliance on petroleum was almost universally celebrated as a good, a symbol of human progress. But no longer in the twenty-first century. With the rise of the environmental movement, the basic tenets of industrial society are being challenged; and the oil industry in all its dimensions is at the top of the list to be scrutinized, criticized, and opposed. Efforts are mounting around the world to curtail the combustion of all fossil fuels—oil, coal, and natural gas—because of the resultant smog and air pollution, acid rain, and ozone depletion, and because of the specter of climate change. The last has now become a central focus of national policies and international negotiation. Oil, which is so central a feature of the world as we know it, is now accused of fueling environmental degradation; and the oil industry, proud of its technological prowess and its contribution to shaping the modern world, finds itself on the defensive, charged with being a threat to present and future generations. This has put a new imperative on technological innovations to mitigate the environmental challenges.

Yet Hydrocarbon Man shows little inclination to give up his cars, his suburban home, and what he takes to be not only the conveniences but the essentials of his way of life. The peoples of the developing world give no indication that they want to deny themselves the gains of an oil-powered economy, whatever the environmental questions. Any notion of scaling back the world’s consumption of oil will be influenced by the extraordinary population growth ahead—with more and more of the world’s people demanding the “right” to the benefits that come from consumption. Total world oil consumption grew almost 30 percent between 1990 and 2008—from 67 million to 86 million barrels per day. Over the same time, oil demand in India more than doubled and in China, more than tripled. Thus, the stage has been set for a great balancing between, on the one hand, environmental protection and reduction of carbon and, on the other, economic growth, the benefits of Hydrocarbon Society, and energy security.

These, then, are the three themes that animate the story that unfolds in these pages. The canvas is global. The story is a chronicle of epic events that have touched all our lives. It concerns itself both with the powerful, impersonal forces of economics and technology and with the strategies and cunning of businessmen and politicians. Populating its pages are the tycoons and entrepreneurs of the industry—Rockefeller, of course, but also Henri Deterding, Calouste Gulbenkian, J. Paul Getty, Armand Hammer, T. Boone Pickens, and many others. Yet no less important to the story are the likes of Churchill, Adolf Hitler, Joseph Stalin, Ibn Saud, Mohammed Mossadegh, Dwight Eisenhower, Anthony Eden, Henry Kissinger, George H. W. Bush and his son George W. Bush, and Saddam Hussein.

Yet for all its conflict and complexity, there has often been a “oneness” to the story of oil, a contemporary feel even to events that happened long ago and, simultaneously, profound echoes of the past in recent and current events. At one and the same time, this is a story of individual people, of powerful economic forces, of technological change, of political struggles, of international conflict and, indeed, of epic change. It is the author’s hope that this exploration of the economic, social, political, and strategic consequences of our world’s reliance on oil will illuminate the past, enable us better to understand the present, and help to anticipate the future.

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