THOUGH THE REST OF THE WORLD was waiting for the “new light” from America, it had been no easy thing to get the first shipment of oil off to Europe. Sailors were terrified about the possibility of explosions and fires that might result from carrying kerosene as a cargo. Finally, in 1861, a Philadelphia shipper obtained a crew by getting the potential recruits drunk and virtually shanghaiing them aboard the sailing ship. That cargo made its way safely to London. The door to global trade was opened, and American oil quickly won markets throughout the world. People everywhere would begin to enjoy the benefits of kerosene. So, virtually from the very beginning, petroleum was an international business. The American oil industry could not have grown to the size it did and become what it was without its foreign markets. In Europe, the rapid increase in the demand for American oil products was stimulated by industrialization, economic growth, and urbanization, and by a shortage of fats and oils that had afflicted Continental Europe for more than a generation. The development of the various markets was speeded by United States consuls in Europe, who were eager to push this new “Yankee invention,” as one put it, and who, in some instances, purchased oil out of their own pockets to distribute to potential customers.
Consider what the global demand meant. The substance for the popular form of lighting worldwide was provided not merely by one country, but, for the most part, by one state, Pennsylvania. Never again would any single region have such a grasp on supply of the raw material. Almost overnight, the export business became immensely important to the new American oil industry and to the national economy. In the 1870s and 1880s, kerosene exports accounted for over half of total American oil output. Kerosene was the fourth-largest U.S. export in value; the first among manufactured goods. And Europe was by far the largest market.
By the end of the 1870s, not only was one state dominant, but so was one company—Standard Oil. Eventually, at least 90 percent of the exported kerosene passed through Standard’s hands. Standard was satisfied with a system in which its role ended in an American port. It was confident in its overwhelming position and was prepared to conquer the planet from its American base. John D. Rockefeller would, indeed, be able to impose “our plan” on the entire world. At the same time, the company took enormous pride in its product. Petroleum, said Standard Oil’s chief foreign representative, has “forced its way into more nooks and corners of civilized and uncivilized countries than any other product in business history emanating from a single source.”
There was, of course, a danger—the potential of foreign competition. But the men at 26 Broadway discounted that possibility. The only way such competition could arise was on the basis of some new source of cheap and abundant crude. The Pennsylvania Geological Report of 1874 proudly commented on how thoroughly the state’s oil dominated the markets of the world. It mentioned in passing that there was a question whether “the drill in other countries … would find oil.” But this was only an issue “that some day may interest us.” The authors of the report were so sure of America’s dominant role that they saw no purpose in further pursuing the question at the time. Yet they were already in error.1
“The Walnut Money”
Among the most promising markets for the “new light” was the vast Russian empire, which was beginning to industrialize, and for which artificial light had a special importance. The capital city, St. Petersburg, was so far north that, in the winter, it had barely six hours of daylight. As early as 1862, American kerosene reached Russia, and in St. Petersburg, it quickly won wide acceptance, with kerosene lamps swiftly replacing the tallow on which the populace had almost entirely depended. The United States consul at St. Petersburg reported happily in December 1863 that it was “safe to calculate upon a large annual increase of the demand from the United States for several years to come.” But his calculations could not take into account future developments in a distant and inaccessible part of the empire, which would not only foreclose the Russian market to American oil but would also spell the undoing of Rockefeller’s global plans.
For many centuries, oil seepages had been noted on the arid Aspheron Peninsula, an outgrowth of the Caucasus Mountains projecting into the land-locked Caspian Sea. In the thirteenth century, Marco Polo reported hearing of a spring around Baku that produced oil, which, though “not good to use with food,” was “good to burn” and useful for cleaning the mange of camels. Baku was the territory of the “eternal pillars of fire” worshiped by the Zoroastrians. Those pillars were, more prosaically, the result of flammable gas, associated with petroleum deposits, escaping from the fissures in porous limestone.
Baku was part of an independent duchy that was annexed to the Russian empire only in the early years of the nineteenth century. By then, a primitive oil industry had already begun to develop, and by 1829 there were eighty-two hand-dug pits. But output was tiny. The development of the industry was severely restricted both by the region’s backwardness and its remoteness and by the corrupt, heavy-handed, and incompetent Czarist administration, which ran the minuscule oil industry as a state monopoly. Finally, at the beginning of the 1870s, the Russian government abolished the monopoly system and opened the area to competitive private enterprise. The result was an explosion of entrepreneurship. The days of hand-dug oil pits were over. The first wells were drilled in 1871–72; and by 1873, more than twenty small refineries were at work.
Shortly after, a chemist named Robert Nobel arrived in Baku. He was the eldest son of Immanuel Nobel, a clever Swedish inventor who had emigrated in 1837 to Russia, where the military establishment excitedly took up his invention of the underwater mine. Immanuel built up a considerable industrial company, only to have it fail when the Russian government made one of its periodic swings from domestic to foreign procurement. One son, Ludwig, built upon the ruins of his father’s business a new company, a great armaments concern; he also developed the “Nobel wheel,” which was uniquely suited to the wretched Russian roads. Another son, Alfred, gifted in both chemistry and finance, and picking up on a suggestion from his tutor in St. Petersburg about nitroglycerine, created a worldwide dynamite empire, which he ran from Paris. But the eldest son, Robert, had no such good fortune; he was unsuccessful in a variety of businesses, and finally returned to St. Petersburg to work grudgingly for Ludwig.
Ludwig obtained a huge contract to manufacture rifles for the Russian government. He needed wood for the rifle stocks, and in the quest for a domestic supply, he dispatched Robert south to the Caucasus to search for Russian walnut. In March 1873, Robert’s journey took him to Baku. Though a great polyglot trading emporium between East and West, Baku was still very much a part of Asia with the minarets and the old mosque of the Persian shahs, and with its population of Tatars, Persians, and Armenians. But the recent oil development had begun to bring great change; and Robert, immediately on his arrival in Baku, was caught up in the fever. Without consulting his brother—after all, he was the eldest and, therefore, held certain prerogatives—Robert took the twenty-five thousand rubles that Ludwig had entrusted to him for buying wood—the “walnut money”—and instead bought a small refinery. The Nobels were in the oil business.2
The Rise of Russian Oil
Robert quickly set about modernizing and making more efficient the refinery he had bought with Ludwig’s money. With additional funds from his brother, he established himself as the most competent refiner in Baku. In October 1876, the first shipment of Nobel’s illuminating oil arrived in St. Petersburg. In that same year, Ludwig came to Baku, to see for himself. Skilled in dealing with the imperial system, Ludwig won the blessing of the Grand Duke, brother of the Czar and the viceroy of the Caucasus. But Ludwig Nobel was also a great industrial leader, capable of conceiving a plan on the scale of Rockefeller. He set about analyzing every phase of the oil business; he learned everything he could about the American oil experience; he harnessed science, innovation, and business planning to efficiency and profitability; and he gave the entire venture his personal leadership and attention. In a very few years, Russian oil was to take on and even surpass American oil, at least for a time; and this Swede, Ludwig Nobel, would become “the Oil King of Baku.”
Long-distance transit was a critical problem. The oil was shipped in wooden barrels from Baku over an inefficient and lengthy route—carried by boat six hundred miles north on the Caspian Sea to Astrakhan, then transferred to barges for the long journey up the Volga River, eventually reaching one or another rail line to which it was transferred for further shipment. Handling costs were enormous. Even the barrels were costly. No local wood was available in sufficient quantity, and wood was brought from a distant part of the empire or imported from America, or secondhand American barrels were bought in Western Europe. Ludwig conceived a solution to the barrel problem that would have far-reaching implications. It was to ship the oil in “bulk”—that is, in large tanks built into the ships.
The idea had great merit, but in practice it faced considerable ballast and safety problems. The captain of a ship that had been wrecked while carrying oil in bulk explained: “The difficulty was that the oil seemed to move quicker than water, and in rough weather, when the vessel was pitched forward, the oil would rush down and force the vessel into the waves.” Ludwig figured out how to solve the ballast problem and commissioned the first successful bulk tanker, the Zoroaster, which was put into service in 1878 on the Caspian. By the middle 1880s, Ludwig’s conception had also proved itself on the Atlantic, launching a major revolution in oil transport. Meanwhile Ludwig was constantly pushing his Baku refinery to be among the most scientifically advanced in the world. His was the first company anywhere in the world to have a permanent staff position for a professional petroleum geologist.
The great, highly integrated oil combine built by Ludwig soon dominated the Russian oil trade. The evidence of the Nobel Brothers Petroleum Producing Company could be found throughout the empire: wells, pipelines, refineries, tankers, barges, storage depots, its own railroad, a retail distribution network—and a multinational workforce that was treated better than virtually any other working group in Russia, and whose members proudly called themselves “Nobelites.” The rapid development of Ludwig Nobel’s oil empire in the first ten years of its existence has been described as “one of the greatest triumphs of business enterprise in the entire nineteenth century.”3
Russian crude production, which was less than six hundred thousand barrels in 1874, reached 10.8 million a decade later, equivalent to almost a third of American production. By the early 1880s almost two hundred refineries were at work in the new industrial suburb of Baku that was, appropriately enough, known as Black Town. They emitted so dense a cloud of dark, smelly oil smoke that life in Black Town was compared by one visitor to “confinement in a chimney-pot.” This was the expanding industry that the Nobels dominated. Their company was producing half of all Russian kerosene, and triumphantly telling its stockholders that “American kerosene has now been completely forced out of the Russian market.”
But the company suffered from discord among the Nobel brothers themselves. Robert resented Ludwig’s intrusion into his preserve, and eventually went back to Sweden. Ludwig was a builder, constantly seeking to expand, which meant that Nobel Brothers was continuously hungry for new capital. Alfred, well remembering how their father had failed through overexpansion and overcommitment, was much more cautious. “The main point of criticism,” Alfred scolded Ludwig, “is that you build first and then look around for the wherewithal.” He advised Ludwig to speculate with company shares on the stock market as a way to generate additional capital. In reply, Ludwig told Alfred to “give up market speculation as a bad occupation and leave it to those who are not suited for really useful work.” Despite their disagreements, Alfred provided crucial assistance both in the form of his own money and in his help in arranging loans elsewhere, including a major borrowing from the Crédit Lyonnais. That transaction set a significant precedent in that it may have been the first loan for which future petroleum production was used as collateral.
While Nobel Brothers dominated distribution of oil within the Russian Empire, beyond those borders Russian oil was hardly a factor. Geography locked the oil into the empire. For example, to reach a Baltic port meant “2,000 miles, intermittent water and rail transportation through western Russia.” To make matters worse, severe winter weather precluded the shipment of kerosene on the Caspian between October and March, with the result that many refiners simply shut down for half the year. Even parts of the empire were inaccessible; in the city of Tiflis (now Tbilisi), it was cheaper to import kerosene from America, 8,000 miles away, than from Baku, 341 miles to the east.
There were also limits to the market within the Russian empire; illumination was far from a necessity for the vast peasantry and not something they could afford in any event. Ever-growing production forced the producers of Baku to look hungrily beyond the borders of the empire. Seeking an alternative to the northern route dominated by Nobel, two other producers—Bunge and Palashkovsky—won government approval to begin building a railroad that would go west from Baku over the Caucasus to Batum, a port on the Black Sea that had been incorporated into Russia in 1877 as the result of a war with Turkey. But in the midst of construction, the price of oil dropped, and Bunge and Palashkovsky ran out of money. They were in desperate straits.
Their rescue came from the French branch of a family that, among the wars and governments and industries it had bankrolled, had also already financed many of Europe’s new railroads. They owned a refinery at Fiume, on the Adriatic, and were interested in acquiring lower-priced Russian crude for it. They loaned the money to complete the railroad that Bunge and Palashkovsky had begun, acquiring in exchange a package of mortgages on Russian oil facilities. They also arranged guaranteed shipments of Russian oil to Europe at attractive prices. They were the Rothschilds.
This was a time of fervent anti-Semitism in Russia. An 1882 Imperial Decree had forbidden Jews to own or rent any more land within the empire; and, after all, the Rothschilds were the most famous Jews in the world. But in their case, the decree did not seem to matter. Russian oil was a project of the Paris Rothschilds. That meant, in particular, of Baron Alphonse—who had organized France’s reparations payments after its defeat by Prussia in 1871, was considered one of the best-informed men in all of Europe, and was said to own the best pair of mustaches on the Continent—and of his younger brother, Baron Edmond, who sponsored Jewish settlement in Palestine. The Rothschild loan allowed the railroad from Baku to be completed in 1883, turning Batum almost overnight into one of the world’s most important oil ports. In 1886, the Rothschilds formed the Caspian and Black Sea Petroleum Company, known ever after by its Russian initials—“Bnito.” They built up their storage and marketing facilities in Batum; the Nobel Brothers quickly followed suit. The Baku-Batum railroad opened a door to the West for Russian oil; it also initiated a fierce, thirty-year struggle for the oil markets of the world.4
The Challenge to Standard Oil
With the arrival of the Rothschilds on the scene, the Nobels were suddenly faced with a major competitor, soon to become the second-largest Russian oil group. Though these two competitive groups discussed amalgamation, they could find no common ground beyond expressions of friendly intent, and their rivalry remained intense. There were others whose intentions were decidedly hostile. Standard Oil could not afford to ignore the Russian oil industry. Russian kerosene was now competing with American illuminating oils in many countries in Europe. In response, Standard Oil stepped up its intelligence-gathering effort about foreign markets and the new competitors. Reports began to flow into 26 Broadway from all over the world, including some from American consuls who were also on the Standard payroll. The intelligence was disturbing. No longer could Standard complacently count on its overwhelming dominance.
Standard Oil’s management figured that the Czarist government would never allow it to buy out Ludwig Nobel altogether. But it could try instead to acquire a substantial number of Nobel shares, and retain the invaluable Ludwig in the management—just as it had retained the best of the competitors it had bought out in the United States. In 1885, W. H. Libby, Standard’s top business-diplomat and ambassador-at-large, opened talks with the Nobels in St. Petersburg. Ludwig Nobel was not interested. Instead he concentrated on strengthening his own marketing network and building up his sales—in Europe. He had no choice. The spectacular increase of Russian oil production forced Nobel, and the other Russian oil men, to seek new markets beyond the empire. Baku was characterized by a series of astonishing oil “fountains” or gushers, with such names as “Kormilitza” (the Wet Nurse) and Golden Bazaar and Devil’s Bazaar. One called “Droozba” (Friendship) gushed for five months at the rate of forty-three thousand barrels per day, most of it wasted. By 1886, there were eleven fountains, then a host of new ones in a newly opened field. Altogether Russian oil production rose tenfold between 1879 and 1888, reaching 23 million barrels, which was equivalent to more than four-fifths of American production. As the flood of oil rapidly rose in the 1880s, it needed to find its way to markets.
Faced with the aggressive Nobel’s new sales campaign in Europe, and deeply alarmed by the growing production from Baku, Standard concluded that it would have to take actions beyond mere discussions. In November of 1885, it dropped its prices in Europe—just as it would when attacking a competitor in the United States. Its local agents started rumor campaigns in various European countries about the quality and safety of Russian kerosenes. They also resorted to sabotage and bribery. Despite the ferocity of the Standard assault, Nobel and the Rothschilds fought back fiercely and successfully, and Standard’s executives watched with dismay as the region of what they ominously labeled “Russian competition” broadened across the map.5
At 26 Broadway in New York City, some members of Standard’s Executive Committee had been pushing for Standard to set up its own marketing companies in foreign countries, rather than sell to independent local merchants, so that it could compete more aggressively. Moreover, the development of bulk shipment in tankers brought new economies of scale to the business. John D. Rockefeller himself, exasperated with the slowness of decision, even wrote a chiding poem to the Executive Committee in 1885:
We are neither old nor sleepy and must “Be up and
doing, with a heart for any fate;
Still achieving, still pursuing, learn to labor and
In 1888, the Rothschilds took a new step in the competition; they established their own importing and distributing companies in Britain. Nobel Brothers did likewise. Finally galvanized into action, Standard set up its first foreign “affiliate,” the Anglo-American Oil Company, just twenty-four days after the official organization of the Rothschilds’ new enterprise in Britain. It also established new affiliates on the Continent—joint ventures in which it shared ownership with leading local distributors. Standard Oil had become a true multinational enterprise.
Still its competitors could not be stayed. The Rothschilds lent money to smaller Russian producers, in turn tying up rights to their production at advantageous prices. The Baku-Batum railroad suffered from a great bottleneck; the seventy-eight-mile stretch over the three-thousand-foot peak was so difficult that only half a dozen cars could be hauled over at any given time. In 1889, the Nobel Brothers completed a forty-two-mile pipeline through the mountain. What made all the difference was the use of four hundred tons of Alfred’s dynamite. In this new era of what Libby, Standard’s roving ambassador, called “competitive commerce,” America’s share of the world export trade in illuminating oil fell from 78 percent in 1888 to 71 percent in 1891, while the Russian share rose from 22 percent to 29 percent.
The prolific Baku fields continued to throw up new petroleum fountains and ever more oil. But there had been one dramatic change in the Russian oil industry. While Ludwig Nobel’s patience and determination did not abate in the face of the never-ending obstacles, physically he was worn out. In 1888 at the age of fifty-seven, the Oil King of Baku died of a heart attack while vacationing on the French Riviera.
Some of the European newspapers confused the Nobel brothers and instead reported the death of Alfred. Reading his own premature obituaries, Alfred was distressed to find himself condemned as a munitions maker, the “dynamite king,” a merchant of death who had made a huge fortune by finding new ways to maim and kill. He brooded over these obituaries and their condemnations, and eventually rewrote his will, leaving his money for the establishment of the prizes that would perpetuate his name in a way that would seem to honor the best in human endeavor.6
The Son of the Shell Merchant
Still, there was the Russian kerosene, flowing out of Batum in ever-increasing quantities, in search of markets. The Nobels, at least, had a firm grip on the internal Russian market. But for the others, especially for the Rothschilds, the problem of “disposal” was growing with each passing year. Somehow, the Rothschilds had to find their way around Standard Oil and into the world market. They looked with special interest to the East, to Asia, where they saw hundreds of millions of potential customers for the “new light.” But how to get the oil to them?
The Rothschilds in Paris knew a shipping broker in London named Fred Lane, who watched out for their oil interests there, and they shared their problem with him. Though always a backstage figure, Lane was to be one of the important oil pioneers. He was a big, burly man of great intelligence and with a talent for making friends and mediating interests. He was willing to back up his friendships and business alliances, which were usually one and the same, with his own capital. A “go-between par excellence,” he was eventually to be known as “Shady Lane,” not because he was crooked, for he was not, but because 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 really working.
Lane was truly expert in shipping; and now he had a solution to offer the Rothschilds. For he, in turn, knew a certain merchant of rising prominence, Marcus Samuel. He put the Rothschilds in touch with Samuel. The result would be an audacious scheme that might not only solve the problem of Russian oil, but also take the form of a veritable worldwide coup that, if successful, would loosen the iron grip of Rockefeller and Standard Oil on the kerosene trade of the world.
By the end of the 1880s, Marcus Samuel had already gained some prominence in the City of London. It was no mean achievement for a Jew—and a Jew not from one of the old Sephardic families, but from the East End of London, a descendant of immigrants who had come to Britain in 1750 from Holland and Bavaria. Samuel had the same name as his father, Marcus Samuel, most unusual for a professing Jew. The elder Marcus Samuel had begun his own business career trading on the East London docks, buying curios from returning sailors. In the census of 1851, he was listed as a “shell merchant”; among his most popular products were the little knickknack boxes covered with seashells, known as a “Gift from Brighton,” which were sold to girls and young ladies at English seaside resorts in the mid-Victorian years. By the 1860s, the elder Marcus had accumulated some wealth and, in addition to seashells, was importing everything from ostrich feathers and partridge canes to bags of pepper and slabs of tin. He was also exporting an expanding list of manufactures, including the first mechanical looms sent to Japan. In addition, in what was to prove of great importance to his son, the elder Samuel had built up a network of trusted relationships with some of the great British trading houses—run mainly by expatriate Scots—in Calcutta, Singapore, Bangkok, Manila, Hong Kong, and other parts of the Far East.
The younger Marcus was born in 1853. And in 1869, at age sixteen, after some schooling in Brussels and Paris, he went to work on his father’s ledgers. At that very moment in America, John Rockefeller, fourteen years older than Samuel, was about to begin his decade-long campaign to consolidate the oil industry. Throughout the entire world, new technology was radically transforming trading and international commerce. In 1869, the Suez Canal was opened, knocking four thousand miles off the journey to the Far East. Steamships were taking over from sail. In 1870, the direct telegraph cable from England to Bombay was completed, and shortly after, Japan, China, Singapore, and Australia were all brought into the telegraph network. For the first time, the world was knitted together by global communications through the telegraph wire. Swift information now eliminated the months of waiting and suspense. Shipping was no longer a speculative venture, and explicit deals could be made in advance. These were all tools that the younger Marcus Samuel would use to build his wealth.
After the death of his father, Marcus, in partnership with his brother Samuel Samuel, developed a considerable trading operation. For several years, Samuel Samuel was resident in Japan, and the brothers had two firms—M. Samuel & Co. in London and Samuel Samuel & Co. in Yokohama, later removed to Kobe. The brothers played an important role in the industrialization of Japan, and before he was thirty, Marcus had made his first fortune out of the trade with Japan. The two brothers went on to do business throughout the Far East, in cooperation with those trading houses with which their father had first forged the relationship. At the time, Marcus and Samuel Samuel were the only British Jews prominent in the trade with the Orient.
Marcus Samuel was always the trader, the idea man, and Samuel Samuel, two years younger, always the loyal adherent and sidekick. Marcus was the more complicated, and as the years went by, his considerable charm gave way to a remoteness that almost seemed to be a mask. Short and stout, with heavy eyebrows, he was totally unprepossessing in appearance. But he was capable of bold vision, and he was adventurous, ingenious, quick to act, and single-minded when he chose to be. He talked in a very soft voice, sometimes hardly audible, making people strain to hear him and perhaps making himself all the more persuasive. He also instilled trust in people, so much so that for two decades, he depended for his credit not on bankers but on those Scottish merchants in the Far East. Marcus had more on his agenda than simply accumulating wealth for its own sake. He had a craving for position. As an outsider, as a Jew born in the East End of London, he would put his considerable energies into seeking and winning acceptance for the name Samuel at the highest levels of British society.
Samuel Samuel, in contrast to his brother, was warm-hearted, generous, gregarious, and in addition always late. He had a fondness for silly riddles, some of which he cherished for half a century or more. Let a guest come to lunch on a sunny day and he would be told by Samuel, “It’s a lovely day for the race.” What race? “The human race,” Samuel would reply triumphantly.
Marcus did not believe in overhead; indeed he profoundly disbelieved in it. He operated out of a small office in Houndsditch in the East End, behind which was his warehouse, crammed to the ceiling with Japanese vases, imported furniture and silks, seashells and feathers, and every other kind of knickknack and curio. The perishable commodities were disposed of immediately on arrival. His operating staff was lean, another way of saying he had virtually no staff at all. He had little capital, depending instead on the credit extended to him by the Far Eastern trading houses. He also used the trading houses as his foreign agents, saving more on organization and administration. And to charter ships, he used the shipping brokerage firm of Lane and Macandrew, whose senior partner, Fred Lane, could frequently be found in the cramped offices, off a narrow alley, that belonged to M. Samuel and Company.7
The Coup of 1892
Marcus Samuel’s entire business experience had conditioned him to be swift in grasping an opportunity, and here with the Rothschilds was an astonishing one. He moved quickly to lay the groundwork with Lane. The two men made a prospecting trip to the Caucasus in 1890. It was there that Samuel observed a primitive bulk tanker and saw in a flash that bulk tankers—the ship as a floating bottle, like modern tankers—would be much more efficient. Samuel then traveled out to Japan, and back through the Far East, seeking to persuade the Scottish trading houses with which he customarily did business to sign on with his new venture. Without them, he could not go ahead. He needed more than their cooperation; they would also have to finance the enterprise. And they all agreed to join his scheme.
Altogether, Marcus Samuel carried out a study of the opportunity and the requirements of success with a meticulous care that was uncharacteristic of the normally fast-moving trader. But he knew how large were the risks—and the stakes. He recognized that there was no point in trying to break into the market unless he and his partners could undersell Standard Oil—or at least avoid being undersold by Standard Oil. In order to assure that result, the campaign would have to be waged in all markets simultaneously; otherwise, Standard Oil would slash prices in markets where the Samuel group was competing and subsidize the price cuts by raising prices where they were not present. And, finally, speed and—to the greatest extent possible—secrecy were essential. He knew he was girding for a war with a merciless opponent.
But exactly how was Samuel to fight this war? He could tote up a long and daunting list of requirements. He needed tankers, so that the kerosene could be shipped in tanks, rather than cases. The savings on space and weight, and the gain in volume, would greatly reduce shipping costs per gallon. Like Rockefeller with the railroads, Samuel understood the absolute need to master transportation costs. The type of tanker then in operation simply would not do. Samuel needed a new, larger, technologically more advanced type of tanker, and he commissioned the design and construction of such ships. He needed guaranteed supplies of kerosene from Batum, in sufficient volume and priced to reflect the savings gained by not having to tin the kerosene. He needed access to the Suez Canal, which would cut the voyage by four thousand miles, pulling costs down further and increasing his competitive advantage against Standard, whose oil traveled to the Far East on sailing ships around the Cape of Good Hope. But the Suez Canal was closed to tankers on grounds of safety; indeed, Standard’s tankers had already been refused entrance. But that did not deter Samuel. He would batter down the door. Samuel also required large storage tanks in all of the major Asian ports. He needed tank cars or tank wagons to carry the kerosene into the hinterlands. Finally, he and his partners in this venture, the trading houses, would have to establish inland depots where the bulk shipments of kerosene could be broken down and put into receptacles for the local wholesale and retail trade. And this demanding enterprise, involving detailed long-distance organization and coordination of markets, engineering, and politics, had to be kept as secret as possible!
Samuel found it difficult to work out the actual deal with the Rothschilds and Bnito. The Rothschilds were of two minds: They were never quite sure whether they wanted to compete with Standard or reach an accommodation. To M. Aron, the Rothschilds’ chief oil man, Standard was always “cette puissante compagnie” (“this powerful company”)—not to be trifled with. But finally, in 1891, after long negotiations and in the face of falling prices, Samuel won his contract with the Rothschilds, which gave him the exclusive rights for nine years, until 1900, to sell Bnito’s kerosene east of Suez. That contract was what he wanted, he had always been sure he would get it, and he had been proceeding at full speed on the other fronts.
The tankers that he had already ordered represented a significant technological advance. In order to further reduce costs, his tankers would be capable of being steam-cleaned and then filled for the return trip with goods from the Orient, including food that would by definition have to be untainted by the taste of oil. The tankers also had to meet the safety requirements of the Suez Canal Company. Fear of explosions, fully justified by the early experience with tankers, made safety a major concern. Unlike the tankers that Standard used between the East Coast of the United States and Europe, Samuel’s were to be designed with a host of new safety features, such as tanks that allowed for expansion and contraction of kerosene at different temperatures, thus minimizing the risk of fire and explosion.
Opposition quickly arose to allowing Samuel’s tankers into the Suez Canal. Already, by the summer of 1891, the press was darkly reporting rumors of a “powerful group of financiers and merchants” under “Hebrew influence” who were trying to take tankers through the Suez Canal. Then, one of the most eminent firms of solicitors in the City of London, Russell and Arnholz, launched a strong lobbying campaign against granting permission to Samuel, including a lengthy correspondence with the Foreign Secretary himself. The solicitors were very concerned, ever so concerned, about safety in the canal. What might happen to ships, what might happen on hot days, what might happen during sand-storms? There were so many things to worry about, one hardly knew where to begin. They refused to reveal who their client was, even when the Foreign Secretary inquired what British interest they were representing. But there was hardly any question that the client was Standard Oil. Soon, Russell and Arnholz was hastily alerting the British government to a new danger: If British merchants were permitted to put tankers into the canal, Russian shipping concerns would surely also win the same right. And if the Russian naval officers and seamen, who would undoubtedly man these vessels, got into the canal, they were very likely to undertake all kinds of mischief, including seeking “to block the navigation of the Canal” and “destroy all the shipping in it.”
But Samuel had powerful allies both in the Rothschild family, whose English branch had financed Benjamin Disraeli’s purchase of the Suez Canal shares in 1875, and in the influential French Banque Worms. Moreover, the Foreign Secretary saw the passage of British tankers through the canal as very much in Britain’s interest, and he was not going to let a firm of solicitors, however eloquent, sway him. Lloyds of London rated Samuel’s new tanker design safe.8
Meanwhile, M. Samuel & Co. had already embarked upon a campaign to build storage tanks throughout Asia to receive the oil. The Samuel brothers sent out their nephews, Mark and Joseph Abrahams, to find the sites and supervise the construction of the tanks, and to work with the trading houses to set up the distribution systems. Joseph had India and Mark the Far East. Mark was paid five pounds a week and was further rewarded by constant long-range interference, carping, criticism, and insults from his uncles. They hammered at him both about keeping costs down and about speeding up work—two quite contrary objectives. They showed no sympathy for him in his lengthy negotiating and haggling with an endless series of consular officials, harbormasters, merchants, and Asian potentates. When Mark purchased his own secondhand rickshaw to keep costs down, he could not win his uncles’ approval. And to make matters even more difficult, as if he did not have enough to do, they also hounded him to keep busy, on the side, selling coal they were trying to export from Japan. Yet, through it all, Mark was buying the sites and building storage tanks throughout the Far East, including a new site on Freshwater Island, off Singapore, and thus outside the jurisdiction of an obstructionist harbormaster.
On January 5, 1892, despite all the objections of the eminent solicitors from the City of London, the Suez Canal gave its official approval to passage for tankers built according to M. Samuel’s new design. “The new scheme is one of singular boldness and great magnitude,” the Economist commented four days later. “Whether it is true, as its opponents insinuate, that it is purely of Hebrew inspiration, we are not concerned to inquire; nor does it appear why such a circumstance should count against it. … If simplicity is an element of success, the scheme certainly seems full of promise. For instead of sending out cargoes of oil in cases costly to make, expensive to handle, easy to be damaged, and always prone to leak, the promoters intend to ship the commodity in tank-steamersvia the Suez Canal, and to discharge it wherever the demand is greatest into reservoirs, from which it can be readily supplied to consumers.”
Mark had already made progress in the Far East. He acquired an excellent site in Hong Kong, and 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.” Having traveled constantly back and forth among the other ports of the Far East, he finally returned to Singapore in March 1892 to find yet another scolding letter from his uncles, insisting on haste and greater haste. The clock was ticking. One never knew when or how Standard Oil would launch a counterstrike.
The first tanker was nearing completion at West Hartlepool. It was called the Murex—named for a type of seashell, as were all of Samuel’s subsequent tankers. It was a memorial to the elder Marcus, the shell merchant. On July 22, 1892, the Murex sailed from West Hartlepool for Batum, where it filled its tanks with Bnito’s kerosene. On August 23, it passed through the Suez Canal, headed for the East. It discharged part of its cargo at Freshwater Island, Singapore; then, its load sufficiently lightened to allow it to pass over a difficult sand bar, it sailed on to Mark’s new installation in Bangkok. The coup was launched.
Taken by surprise by the swiftness with which Samuel had moved, Standard’s shocked representatives rushed to the Far East to assess the dangers. The implications were enormous, for, as the Economist noted, “If the sanguine anticipations of the promoters are realized, the Eastern case-oil trade must needs become obsolete.” Standard Oil’s agents were too late; Samuel’s kerosene was everywhere. Thus, Standard could not cut prices in one market and subsidize them by raising prices elsewhere.
The coup was indeed brilliant and the execution superb—with one exception. For Samuel and the Far Eastern trading houses had committed a small oversight, and yet one that almost destroyed their venture. They had assumed that they would deliver the kerosene in bulk to various localities, and that the eager customers would line up with their own receptacles to be filled. The customers were expected to use old Standard Oil tin cans. But they did not. Throughout the Far East, Standard’s blue oil tins had become a prized mainstay of the local economies, used to construct everything from roofing to birdcages to opium cups, hibachis, tea strainers, and egg beaters. They were not about to give up such a valuable product. The whole scheme was now threatened—not by the machinations of 26 Broadway or by the politics of the Suez Canal, but by the habits and predilections of the peoples of Asia. A local crisis was created in each port, as the kerosene went unsold, and despairing telegrams began to flow into Houndsditch.
In the quickness and ingenuity of his response to the crisis, Marcus proved his entrepreneurial genius. He sent out a chartered ship, filled with tinplate, to the Far East, and simply instructed his partners in Asia to begin manufacturing tin receptacles for the kerosene. No matter that no one knew how to do so; no matter that no one had the facilities. Marcus persuaded them they could do it. “How do you stick on the wire handles?” the agent in Singapore wrote to Samuel’s representative in Japan. Instructions were sent. “What color do you suggest?” cabled the agent in Shanghai. Mark gave the answer—“Red!”
All the trading houses in the Far East quickly established local factories to make the tin containers, and throughout Asia, Samuel’s bright and shiny red receptacles, fresh from the factory, were soon competing with Standard’s blue ones, battered and chipped after the long voyage halfway around the world. Perhaps some customers were buying Samuel’s kerosene more for the useful red can than for its contents. In any case, red roofs and red birdcages—as well as red opium cups, hibachis, tea strainers, and egg beaters—began to replace the blue.
And so the day was saved. Samuel’s coup had worked, and in record time. By the end of 1893, Samuel had launched ten more ships, all of them named for seashells—the Conch, the Clam, the Elax, the Cowrie, and so on. By the end of 1895, sixty-nine tanker passages had been made through the Suez Canal, all but four in ships owned or chartered by Samuel. By 1902, of all the oil to pass though the Suez Canal, 90 percent belonged to Samuel and his group.9
Marcus Samuel was not only on the edge of a great success in business, he was also beginning to achieve some station in British life. In 1891, in the midst of planning for his global coup, he had taken time off to stand for and win election as an alderman of the City of London. Though it was largely honorific, he savored the post. But then in 1893, the year after the coup, all—both business and social—seemed for naught. Samuel became seriously ill; his physician diagnosed cancer and gave him no more than six months to live. The prediction was to prove slightly off the mark—by some thirty-four years. Still, the threat of imminent death did motivate Samuel to put his business affairs into a somewhat more orderly form. The result was the creation of a new entity, the Tank Syndicate, composed of the Samuel brothers, Fred Lane, and the trading houses of the Far East. They shared all profits and losses on a global basis; such an arrangement was necessary if they were to be able to fight Standard Oil in whatever market it chose and absorb the resulting losses. The Tank Syndicate grew quickly and became increasingly successful.
Marcus Samuel’s fortune was accumulating rapidly, not only from oil and tankers, but also from the longer-standing trade links with the Far East, principally Japan. The Samuel brothers made money as the principal provisioners of weapons and supplies to Japan during its 1894–95 war with China. And so it happened that within a very few years of the Murex’s first passage through the Suez Canal, Marcus Samuel, a Jew from the East End, had become a very rich man, one who went riding every morning in Hyde Park, who owned a splendid country house in Kent called the Mote, with its own five-hundred-acre deer park, and who had one son at Eton and another already entered.
Samuel had, however, one serious fault as a businessman. Unlike his rival, Rockefeller, he lacked talent for organization and administration. Where Rockefeller had an instinct for order, Samuel had an addiction to improvisation. For him, organization was an afterthought; he ran everything out of his hat, which made his continuing success all the more astonishing. He was operating, among other things, a large steamship line as part of his oil enterprise, and yet he had no one in his office with any knowledge or experience of actually managing such an organization. He simply depended upon Fred Lane. The day-to-day operations of the fleet were run out of a small room in Houndsditch that contained nothing but a table, two chairs, a small wall map of the world, and two clerks.
And compare Rockefeller’s owl-like unfathomability, his masklike face, his quiet deliberation, his drawing out of judgment and consensus from the gentlemen in Room 1400, to the violent quarrels—the combat, anger, and recriminations—by which Marcus and Samuel arrived at decisions. Sometimes a clerk would be summoned to bring a piece of information to Samuel’s office and while he waited, as one employee would recall, “the two brothers would always go to the window, their backs to the room, huddled together close, their arms around each other’s shoulders, heads bent, talking in low voices, until suddenly they would burst apart in yet another dispute, Mr. Sam with loud and furious cries, Mr. Marcus speaking softly, but both calling each other fool, idiot, imbecile, until suddenly, for no apparent reason, they were in agreement again. There would be a quick, decisive exchange of final views. Then Mr. Marcus would say: ‘Sam, speak to him on the telephone,’ and would stand at his brother’s shoulder while the telephoning took place.” And that was how their deals were done.10
“This Struggle to the Death”
The rapid rise of Russian production, the towering position of Standard Oil, the struggle for established and new markets at a time of increasing supplies—all were factors in what became known as the Oil Wars. In the 1890s, there was a continuing struggle involving four rivals—Standard, the Rothschilds, the Nobels, and the other Russian producers. At one moment, they would be battling fiercely for markets, cutting prices, trying to undersell one another; at the next, they would be courting one another, trying to make an arrangement to apportion the world’s markets among themselves; at still the next, they would be exploring mergers and acquisitions. On many occasions, they would be doing all three at the same time, in an atmosphere of great suspicion and mistrust, no matter how great the cordiality at any given moment. And, at each juncture, there was the Standard Oil Trust, that remarkable organism that was always ready to absorb generously its fiercest rivals—or, as Standard executives put it, “assimilate” them.
In 1892 and 1893, the Nobels, Rothschilds, and Standard came close to bringing virtually all oil production into one system, dividing the world among them. “In my opinion,” noted M. Aron, who represented the Rothschilds’ interests in the negotiations, “the crisis has reached its end, for everybody, in America and Russia, is exhausted by this struggle to the death that has gone on so long.” Baron Alphonse, the head of the French Rothschilds, was himself keen to get matters settled; but, mortally afraid of publicity, he resisted an invitation that Standard was pressing on him to come to New York. Finally, Libby of Standard Oil assured Baron Alphonse that, with so many foreigners visiting America on account of the Chicago World’s Fair, the arrival of the Rothschild group would not be much noted. Reassured, the Baron made it to New York and to 26 Broadway. After the meeting, a Standard Oil executive reported to Rockefeller that the Baron was very courteous and remarkably fluent in English, adding that the Rothschilds would “immediately begin the steps toward control in Russia, and are quite confident of their ability to accomplish it.” But the Baron had also gently but firmly insisted that Standard Oil bring the American independents into the contract. With great effort, slowed not only by rivalries but by a cholera epidemic that gripped Baku, the Rothschilds, joined by the Nobels, did succeed in getting all the Russian producers to agree to form a common front, as a prelude to a grand negotiation with Standard. But despite its 85 to 90 percent control of American oil, Standard could not deliver the critical missing element, the independent American refiners and producers, to the grand scheme, and the proposed agreement collapsed.
In response, in the autumn of 1894, Standard launched another worldwide price-cutting campaign. The Rothschilds regarded Samuel as a tool with which to improve their bargaining position with Standard, and were very tough in their interpretation of their contract with him. Understandably, Samuel complained bitterly and loudly—loudly enough for Standard Oil to hear. Suspecting that the dissatisfied Samuel could be the weak link in the Rothschilds’position, Standard opened negotiations with him. It presented a proposal much like those it had made to competitors in America who had left the fray and joined the fraternity, save that the offer to Samuel was on a far grander scale. He would be bought out for a great deal of money, his enterprise would become part of Standard Oil, and he would become a director of Standard, though free to pursue his civic interests. Altogether, it was a very attractive offer. But Samuel rejected it. He wanted to keep the independent identity of his enterprise and his fleet, flying the flag of M. Samuel and Company, and he wanted it all to remain British. For it was British success on British terms on which he was intent, not integration into an American entity.
Standard Oil immediately returned again to the Russian producers, and on March 14, 1895, it signed the long-sought grand alliance with the Rothschilds and the Nobels “on behalf of the petroleum industry of the U.S.” and “on behalf of the petroleum industry of Russia.” The Americans were to get 75 percent of the world export sales, the Russians 25 percent. But the agreement never came into force. The specific reason would seem to have been the opposition of the Russian government. Once again, the would-be grand alliance had collapsed. Standard responded with new price-cutting campaigns.
If Standard Oil could not regain control over the world oil market and its international competitors through a grand alliance with the Russian producers, there was an alternative, a way to beat the Russians at their own game. A significant part of the Russian advantage came from the fact that Batum was 11,500 miles from Singapore, compared to Philadelphia’s 15,000 miles. But Standard could turn the tables if it could acquire access to crude much closer to the Asian market, or, indeed, in Asia itself. Thus, Standard’s attention turned to Sumatra, in the Dutch East Indies, from which the steaming time to Singapore, across the Strait of Malacca, could be measured in hours. And its eyes fell, in particular, on a Dutch company that, after years of struggle, had successfully carved out a profitable business from the jungles of Sumatra. This company was now beginning to make a sizeable impact on markets throughout Asia with its own brand, Crown Oil, and in so doing, it was opening up the world’s third major producing province. It was called Royal Dutch.11
Seepages had been commented upon in the Dutch East Indies for hundreds of years, and small amounts of “earth oil” had been used for relief of “stiffness in the limbs” and other traditional medicinal purposes. By 1865, no fewer than fifty-two oil seepages had been identified through the archipelago. But there matters languished, while American kerosene went on to capture the world.
One day in 1880, Aeilko Jans Zijlker, a manager of the East Sumatra Tobacco Company, happened to be visiting a plantation in the marshy coastal strip of Sumatra. The youngest son of a Groningen farming family, Zijlker had come out to the lonely life of the East Indies two decades earlier, after a failed love affair. Now, while he was traipsing around the plantation, a powerful storm came up, and he took refuge for the night in a darkened, unused tobacco shed. With him was a mandur, or native overseer, who lit a torch. Its bright flame caught the drenched Zijlker’s attention. He thought the fire must be the product of an unusually resinous wood. How had the mandur acquired the torch? Zijlker asked. The mandur replied that the torch had been daubed over with a kind of mineral wax. For longer than anyone could remember, the locals had been skimming this wax from the surface of small ponds, and then putting it to many uses, including caulking boats.
The next morning, Zijlker had the mandur take him to one of the ponds. He recognized the smell; imported kerosene had been introduced a few years earlier into the islands. The Dutchman collected a little of the muddy substance and sent it off to Batavia for analysis. The results enthused Zijlker, for the sample yielded between 59 and 62 percent kerosene. Zijlker made up his mind to develop the resource and threw himself wholeheartedly into the venture. His new obsession would demand his every ounce of devotion over the next decade.
His first step was to win a concession from the local Sultan of Langkat. The concession, which became known as Telaga Said, was in northeast Sumatra, six miles of jungle away from the Balaban River, which emptied into the Straits of Malacca. It was not until 1885 that the first successful well was drilled. The drilling technology itself was backward and ill-suited to the terrain, and progress continued to be very slow over the next few years. Zijlker was continually strapped for cash. But he finally gained prestigious sponsorship at home, in the Netherlands, from the former head of the central bank of the East Indies and the former governor general. Moreover, as a result of the efforts of these powerful sponsors, the Dutch king himself, William III, was willing to grant the use of the title “Royal” in the name of this speculative enterprise, a license normally reserved for established, proven companies. That imprimatur was to have lasting value. The Royal Dutch company was launched in 1890, and the first flotation of its stock was oversubscribed four and a half times.
Zijlker was triumphant. Ahead, he could see vindication of the labors of ten years. “What won’t bend must break,” he wrote in a letter. “Throughout the entire exploration, my motto was: 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 know also that had I not acted as I did, I should never have accomplished the business.” Those words might well have stood as the epitaph of Aeilko Jans Zijlker. For, returning to the Far East in the autumn of 1890, a few months after the launching of the company, he stopped at Singapore, and there he died suddenly, his vision still unrealized. His grave was marked with an inconspicuous monument.
The leadership of the enterprise in the inhospitable, swampy jungles of Sumatra passed to Jean Baptiste August Kessler. Born in 1853, Kessler had established himself in a successful trading career in the Dutch East Indies. He ran into serious business reverses that sent him back to Holland, broken and in poor health. Royal Dutch offered him a chance to begin again, and he took it. Kessler was a born leader, with an iron will, and with the ability to concentrate all his own energy and that of those around him on a single objective.
When he arrived at the drilling site in 1891, he found the entire enterprise in chaos, with everything, from the equipment shipped from Europe and America to the local finances, in total disarray. “I do not feel very cheerful about this business,” he wrote to his wife. “An enormous amount of money has been lost by precipitate action.” The working conditions were awful. After days of nonstop rain, the men sometimes labored in water up to their waists. The site ran out of rice, and a team of eighty Chinese workmen had to wade and swim to a village fifteen miles away to bring back a few sacks. There were also the inevitable pressures from Holland to speed things up, to stick to schedules, to keep the investors happy. Somehow, working both day and night, often racked with fever, the obsessed Kessler forced the pace.
In 1892, a six-mile pipeline linking the wells in the jungle to the refinery on the Balaban River was completed. On February 28, the entire crew gathered to wait nervously for the oil to arrive at the refinery. They had calculated how long it would take, and now, watches in hand, they counted the minutes. The moment came, and it went, but there was no oil. Depression settled over the anxious onlookers. Kessler, fearing that defeat was at hand, turned away. But then suddenly they all froze. A “roar as of a mighty storm” announced the arrival of the oil, and it quickly poured “with incredible driving force” into the first still of the Royal Dutch refinery. The crowd burst into cheers, the Dutch flag was raised, and Kessler and the crew toasted the future prosperity of Royal Dutch.
The company was now in business. By April of 1892—while Marcus Samuel was preparing to send his first cargo through the Suez Canal—Kessler himself had delivered to market the first few cases of kerosene, christened Crown Oil. Still, prosperity was hardly at hand. Royal Dutch’s financial resources were quickly strained by the continuing requirements, and its very existence was threatened by its inability to raise working capital. Kessler left for Holland and Malaysia in the frantic search for new funds. Though the company was selling twenty thousand cases of kerosene a month, it was still losing money.
Kessler managed to secure the capital. He returned to Telaga Said in 1893, where he found the entire operation in a deplorable state. “Half-heartedness, ignorance, indifference, dilapidation, disorder, and vexation are everywhere apparent,” he reported. “And it is in these circumstances that we have to expand the enterprise if we wish to make ends meet.” He pushed the operation as hard as he could, summing up the danger in a few pithy words: “To stagnate means to liquidate.”
All sorts of obstacles had to be overcome, including the arrival of almost three hundred marauding pirates from another part of Sumatra, who temporarily cut communications between the drilling site and the refinery and then set fire to some of the outbuildings with, ironically, the traditional oil torches that had first caught the eye of Zijlker more than a decade earlier. Yet, no matter what the difficulty, Kessler kept pushing. “If things go wrong,” he wrote his wife, “my job and my name are gone and perhaps my sacrifices and my extraordinary exertions will be repaid with censure into the bargain. Heaven preserve me from all that misery.”
Kessler persevered and succeeded. Within two years, he had increased production sixfold, and Royal Dutch had finally become profitable. It was even able to pay a dividend. Yet being a producer was not enough; if Royal Dutch were to survive, it needed to establish its own marketing organization throughout the Far East, independent of middlemen. Royal Dutch also began to use tankers and to build its own storage tanks near its markets. The immediate danger was that Samuel’s Tank Syndicate would move too swiftly ahead and gain a hammerlock on the business. But, in a timely piece of protectionist intervention, the Dutch government excluded the Tank Syndicate from the ports of the East Indies, telling its own producers that the Tank Syndicate thus “need not be for the time being an object of terror” to the local industry.
Royal Dutch’s business was growing at an astonishing pace; between 1895 and 1897, its production increased fivefold. Yet neither Kessler nor the company wanted to crow too loudly about its success. Kessler warned at one point that, until Royal Dutch could obtain additional concessions, “we must pretend to be poor.” For, he explained, he did not want to draw other European and American interests to the East Indies, or to Royal Dutch. His principal worry was, of course, Standard Oil, which if too aroused, would wield its potent weapon—price cutting—and push Royal Dutch to the wall.12
But Royal Dutch could hardly remain invisible to its competitors. Its rapid growth, along with that of other producers in Asia, created a new distress for Standard Oil, matching that already created by the Russian producers. Standard Oil investigated all possible options. Early on, it began negotiating for a concession in Sumatra, but quickly gave that up in the wake of a native revolt. It searched for production opportunities in every corner of the Pacific, from China and Sakhalin to California.
In 1897, Standard dispatched two representatives to Asia to assess what could be done in the face of the Royal Dutch threat. In the East Indies, they met Royal Dutch’s local manager and visited the company’s installations; they called on Dutch government officials; they gathered intelligence from homesick American drillers. The representatives warned 26 Broadway against a “promiscuous search through such an enormous expanse” of steaming jungle. Much better, they told New York, to buy existing production and establish a partnership with an authentic Dutch enterprise—not only because “the ways of the Dutch Colonial Government are past finding out,” but also because “you will always find it difficult to keep enough Americans here, of good business ability to make the management.” Standard’s objective, they insisted, should be to “assimilate” the successful companies. And that meant, above all, Royal Dutch.
To the Dutch, Standard Oil may have looked like a terrifying competitor. But Standard, for its part, had no lack of respect for the intrepid Dutch company. Standard’s agents were impressed by everything from Kessler’s leadership to Royal Dutch’s favorable economics to its new marketing system. “In the whole history of the oil business,” they reported, “there has never been anything more phenomenal than the success and rapid growth of the R. D. Co.” When the Standard Oil men said good-bye to the Royal Dutch managers in Sumatra, there was something almost wistful in their farewell. “Would not it be a pity that two such big concerns as you and we own should not go together,” one said.
To complicate matters further, it soon became apparent that Samuel’s syndicate was also hungrily eyeing Royal Dutch. In late 1896 and early 1897, intense discussions were taking place between the two groups. But their objectives were quite different. Royal Dutch was looking for a joint marketing arrangement in Asia. Marcus and Samuel Samuel wanted more; they wanted to buy out Royal Dutch. Much was said of mutual interest, but that was about it. After one visit to the Dutch directors in The Hague, a visit characterized mostly by silence and stone coldness, Sam wrote back to Marcus: “A Dutchman sits and says nothing till he gets what he wants but of course in this case he won’t.” There was no progress. Yet, despite their competition, Marcus and Kessler maintained a friendly relationship. “We are still open to negotiate with you, if you think there is a possibility of coming to business,” Marcus wrote cordially to Kessler in April 1897. “We feel quite certain that in the long run terms must be arranged between us, or ruinous competition to both will take place.”
Standard Oil knew such discussions were going on, and could not be confident that they would not eventually lead to some kind of powerful combination arrayed against the company. One executive warned, “Every day makes the situation more serious and dangerous to handle. If we don’t get control of the situation soon, the Russians, Rothschilds, or some other party may.” Standard had already tried and failed to acquire Ludwig Nobel’s and Marcus Samuel’s companies. Now, in the summer of 1897, W. H. Libby, Standard Oil’s chief foreign representative, presented Kessler and Royal Dutch with a formal proposal. The capital of Royal Dutch would be quadrupled, with Standard Oil taking all the additional shares. Standard Oil, Libby stressed, had no intention at all of getting Royal Dutch “into its power.” Its objectives, he assured Kessler, were modest; it was “only seeking a favorable capital investment.” Kessler could hardly believe Libby or the sincerity of his pledge. On Kessler’s strong recommendation, Royal Dutch’s board rejected the offer.
Standard Oil, disappointed, began discussions about acquiring another concession in the Dutch East Indies, but both Dutch government officials and Royal Dutch successfully intervened. “Dutch obstacles are about the most difficult in the World for Americans to remove,” a Standard Oil official declared, “for Americans are always in a hurry and Dutchmen never.” Still, Royal Dutch did not feel secure. Its directors and management knew how Standard Oil had operated in America—buying up shares in offending competitors quietly, and then putting them out of action. To forestall such a stratagem, the directors of Royal Dutch created a special class of preference stock, the holders of which controlled the board. To make acquisition even more difficult, admission to this exclusive rank was by invitation only. One of Standard’s agents unhappily reported that Royal Dutch would never merge with the American company. It was not merely a “sentimental barrier” on the part of the Dutch that blocked the way, he said; there was a practical matter, as well. The managers of Royal Dutch greatly enjoyed receiving 15 percent of the company’s profits.13