IN JULY OF 1903, during one of his many moments of despair, William Knox D’Arcy, disappointed and worn down by the slow and expensive progress of his oil venture in Persia, had taken himself off for a cure at the spa at Marienbad, in Bohemia. His spirits were lifted there, however, not only by the treatment but also by an acquaintance he made—that of Admiral John Fisher, then the Second Sea Lord of the Royal Navy and already long known as the “oil maniac.” That chance meeting would eventually lead to the transformation of D’Arcy’s venture and would push oil to the center of national strategies.
Admiral Fisher had been a regular visitor to Marienbad since recovering at the spa, many years earlier, from a case of chronic dysentery. But on this particular visit, Fisher too had arrived a disappointed man. Shortly before, the first test of fuel oil in a British battleship had taken place aboard HMS Hannibal. The ship had steamed out of Portsmouth Harbor, burning good Welsh coal, with a trail of white smoke. At a signal, it switched to oil. Moments later, the ship was completely enveloped in a dense black cloud. A faulty burner had turned the test into a disaster. It was a bitter defeat for the two leading proponents of oil fuel for the Navy, both of whom were in attendance—Admiral Fisher and Marcus Samuel of Shell. Shortly after, a dejected Fisher had set off for Marienbad, where by coincidence he met D’Arcy.
The two men immediately discovered that they shared an enthusiasm for oil, and D’Arcy hurriedly sent for maps and papers concerning the Persian venture to show Fisher. In turn, Fisher was cheered and enormously impressed by what he was told by D’Arcy, whom he called the “gold-mine millionaire.” D’Arcy, Fisher wrote, “has just bought the south half of Persia for OIL. … He thinks it’s going to be a great thing: I am thinking of going to Persia instead of Portsmouth, as he tells me he wants someone to manage it for him!” D’Arcy understood Fisher to have promised some kind of help. Though help would come—first, behind the scenes, and then in a very significant public way—it would never be anywhere near as swift as D’Arcy would have wished.1
“The God-father of Oil”
John Arbuthnot Fisher, who would be memorialized by Marcus Samuel as “the God-father of oil,” became First Sea Lord in 1904. For the next six years, “Jacky” Fisher would dominate the Royal Navy as no other man had ever done. Born in Ceylon of an impoverished planter family, Fisher went to sea in 1854, at age thirteen, as a naval cadet on a sailing ship. He had advantages of neither birth nor rank, but rather advanced by sheer intelligence, tenacity, and force of will. To one contemporary, he was “a mixture of Machiavelli and a child.” Overwhelming all with whom he came in contact, he was a “tornado of energy, enthusiasm, and persuasive power.” Once, after being subjected to some forceful argument by Fisher, King Edward VII himself told the admiral, “I wish you would stop shaking your fist in my face.”
Aside from family, dancing, and religion (including a prodigious recall of biblical quotations), Fisher had only one consuming passion—the Royal Navy. He dedicated himself fully to modernizing it, furiously seeking to shake it free of its ingrained habits, its complacency, its cobwebbed traditions. He pursued his goals with unswerving determination. An officer who served under him said, “‘Jacky’ was never satisfied with anything but ‘Full Speed!’” A self-proclaimed zealot in his causes, he was the Royal Navy’s greatest proponent of technological change. His “Golden rule” was never “to allow ourselves to be out ‘classed.’” First achieving some reputation in the Navy as an expert on torpedoes, he went on to champion the submarine, the destroyer, Kelvin’s compass, advances in firepower, eventually naval aviation—and, all along, petroleum. “Oil fuel,” he wrote as early as 1901, “will absolutely revolutionize naval strategy. It’s a case of ‘Wake up England!’” He wanted to convert the fleet from coal propulsion to oil. The benefits would be faster speed and greater efficiency and maneuverability. But he was in a minority; the other admirals felt more secure depending on Welsh coal, and insisted on continuing to do so.
While First Sea Lord, Fisher maintained his interest in the project to which D’Arcy had introduced him at Marienbad. Intent on seeing oil fields developed under British control, he provided much of the impetus for the Admiralty’s support of the Persian concession and then for the pressure on the Burmah Oil Company to come to D’Arcy’s rescue. His principal objective was always the same—to bring the Royal Navy into the industrial age and to have it prepared when war came. Earlier than most, he was convinced that Britain’s enemy would be the formidable industrial rival that had arisen on the Continent—imperial Germany. And he would push both the Royal Navy and the British government toward oil, for he was no less convinced that oil fuel would be a critical element in the inevitable conflict ahead.2
“Made in Germany”
Though the specific subjects of direct dispute between Germany and Britain were surprisingly few, many factors contributed to the growing enmity between them at the turn of the century—including the marked insecurity of the Kaiser, a grandson of Queen Victoria, toward his uncle, Britain’s King Edward VII. But no other single factor counted for so much as the burgeoning naval race between Britain and Germany—the competition for size and technological advance of their two fleets. It dominated relations between the two nations; within each, it captured the attention of the press, shaped public attitudes and discussion, fed the rising nationalistic passions, and fueled the deepest anxieties. It was the focus of their antagonism. “So far as contemporary opinion was concerned,” one historian has written, “it was the naval question above everything else which exacerbated Anglo-German relations.”
By the late 1890s, the German government had inaugurated its full-scale attempt at Weltpolitik—the drive for global political, strategic, and economic prominence, for recognition of Germany as a world power, and for what was referred to in Berlin as “world political freedom.” The heavy-handed, occasionally crude, and blatantly aggressive way in which the “new” Germany sought to assert itself on the world stage only disconcerted and increased the alarm of other powers. Even one of the Kaiser’s own chancellors was to criticize the nation’s “strident, pushing, elbowing, overbearing spirit.” It was a manner that seemed to reflect and to be made worse by the character of Kaiser Wilhelm himself. He was a temperamental, erratic, prejudiced, petulant, and mercurial monarch. One prominent German despaired of the Kaiser’s ever becoming wiser with age.
To many Germans, living in the heyday of post-Bismarckian empire, a single obstacle, above all others, seemed to stand in the way of their dream of world power—British supremacy on the high seas. Germany’s aim was, in the words of one of its admirals, to break “England’s world domination so as to lay free the necessary colonial possessions for the central European states who need to expand.” That meant, first of all, building a Navy to rival Britain’s. As the Kaiser himself declared, “Only when we can hold out our mailed fist against his face will the British lion draw back.” The Germans launched their naval challenge in 1897. Though they fully expected that achievement of their goal would take considerably more than a decade, they were counting on the British to tire eventually of the cost of the rivalry. The actual effect on the British would be quite the opposite: The challenge alarmed and galvanized them to their own strenuous efforts. For naval supremacy was central to England’s conception of its world role and to the security of the British empire. The new menace from Germany was even more alarming when measured against the pressures and problems that Britain was experiencing as it struggled to cope with imperial responsibilities and burdens larger than its capabilities to manage, man, and pay for. Industrial leadership was slipping away from it—to the United States and, worse, to Germany. In 1896, an admonitory work entitled Made in Germany became a best seller in England. Britain, moaned a Cabinet minister, was “the weary Titan.”3
Admiral Fisher had no doubt that it was Germany and only Germany that was the future enemy. He feared that it would strike out of the blue, probably on a long holiday weekend—so, over the years, his aides were always kept on special duty and thus missed many such holiday weekends. Pushed by Fisher, the British government responded to the German challenge with the modernization of its fleet and an expanded construction program. By 1904, the naval race was on in full—fueled on both sides by “a runaway technological revolution” in the size and speed of battleships, in the range of and accuracy of their firepower, and in the development of new weapons like the torpedo and submarine.
In both countries, the race took place against a backdrop of social and labor unrest, of domestic conflicts, of financial and budgetary constraints. Britain underwent a classic guns-or-butter debate. The ruling Liberal party was torn between the “navalists,” who supported a “big Navy” policy and an expanded Admiralty construction budget, and the “economists,” who wanted to contain naval expenditures and instead put more money into the social and welfare programs they thought necessary to maintain domestic peace. The ensuing debate was very bitter. “Is Britain going to surrender her maritime supremacy to provide old-age pensions?” the Daily Express declaimed. From 1908 on, the “economists” in Prime Minister Herbert Asquith’s Liberal Cabinet were led by David Lloyd George, the Welsh solicitor who was Chancellor of the Exchequer, and for a time, by Winston Spencer-Churchill, who had dropped the Spencer while still at school, so he would not have to wait and be “the last of all” in line. Now, in British politics, he was “the young man in a hurry.”4
Winston Churchill was the nephew of the Duke of Marlborough and son of the brilliant but erratic Lord Randolph Churchill and his beautiful American wife, Jennie Jerome. He had entered Parliament as a Conservative in 1901, at age twenty-six. Three years later, he bolted from the Tory party over the question of free trade and crossed over to the Liberals. His political conversion did not impede his progress. He was soon President of the Board of Trade and, by 1910, Home Secretary. He lived for politics and grand strategy. On the day of his marriage, even as he stood in the vestry in the moments before the ceremony, he talked and gossiped of politics. He threw himself into the leadership of the “economists” campaign. Battling against Fisher’s expanded naval program, he and Lloyd George championed an Anglo-German naval agreement as a way to reduce the Navy’s budget and so free money for social reform. For all this Churchill was much criticized. But he would not budge. Belief in the inevitability of war between Britain and Germany, he declared, was “all nonsense.”
But in July 1911, the German gunboat Panther sailed into the Moroccan port of Agadir—in that clumsy ploy meant to assert Germany’s insistence on its place in the African sun. The Panther episode backfired, consolidating anti-German feeling both in Britain and on the Continent, especially in France. Churchill’s views were instantaneously transformed. From that moment on, he had no doubt: Expansionism was the German goal, and the growth of the German fleet served no purpose save to threaten Britain—a threat that had to be countered. Germany, he now concluded, meant to make war. Britain, thus, had to marshal its resources to maintain its supremacy; and Churchill, though still Home Secretary, began to express intense interest in the strength of the Royal Navy and to question whether it was really ready for a bolt out of the blue. He was outraged that senior officials chose to go on shooting holidays in Scotland at the height of the Agadir crisis. At the end of September 1911, the crisis ended, and thereupon, Churchill himself went off to Scotland to stay with Prime Minister Asquith. On the way back from a game of golf, the Prime Minister quite abruptly asked him if he would like to become First Lord of the Admiralty, the top civilian post for the Royal Navy.
“Indeed I would,” Churchill replied.5
Now the Admiralty would have, as its civilian head, a man who could channel his enormous energy, vision, concentration, and powers of exposition to the task of assuring Britain’s victory in the naval race. “The whole fortunes of our race and Empire,” Churchill said, “the whole treasure accumulated during so many centuries of sacrifice and achievement, would perish and be swept utterly away if our naval supremacy were to be impaired.” His guiding precept during those three years before the outbreak of the First World War was clear: “I intended to prepare for an attack by Germany as if it might come the next day.”
His ally in that campaign would be Admiral Fisher, who, almost twice his age, had just retired from the Navy. Fisher had been entranced by Churchill ever since their initial meeting at Biarritz in 1907. So close were they that Fisher may well have been the first to be told of Churchill’s impending marriage. Despite a falling out over his earlier criticism of the Navy’s budget, Churchill, on becoming First Lord, immediately sent for the old admiral and, after spending three days with Fisher at a country house at Reigate, won him back. Thereafter, it would be said that Fisher had become Churchill’s “dry nurse.” He certainly emerged as the dominating unofficial adviser. Churchill regarded Fisher as the source for a decade of “all the most important steps taken to enlarge, improve, or modernize the Navy,” and he found the admiral, who bombarded him endlessly with memos, to be “a veritable volcano of knowledge and of inspiration.” Fisher offered tuition on the widest variety of subjects.
One of the most significant lessons to be learned concerned petroleum—which, Fisher argued, would prove integral to the strategy of supremacy. He set out to make sure that Churchill was properly educated about the virtues of oil over coal for His Majesty’s Navy. Alarmed by reports that the Germans were building oil-powered ocean liners, Fisher felt a new urgency to shove the Royal Navy “over the precipice” of oil, and as rapidly as he could. To speed Churchill’s education, the admiral conspired with Marcus Samuel of Shell. More than a decade earlier, those two men had come to an instant meeting of minds on oil’s potential role; their relationship was cemented when Samuel confidentially informed Fisher that a German shipping line had made a ten-year contract for oil—with part of the supply secretly destined for experimentation by the German Navy. “How right you have been & how right you are now!” Samuel wrote Fisher at the end of November 1911. “The development of the internal Combustion engine is the greatest the world has ever seen for so surely as I write these lines it will supersede steam and that too with almost tragic rapidity … I am heartsick as I know you are at the machinations of the permanent officials at the Admiralty & it will require a strong & very able man to put right the injury they have inflicted so far.
“If Winston Churchill is that man I will help him heart and soul.”6
Shortly thereafter, Fisher arranged for Marcus Samuel to meet Churchill in order to make the case for oil. But Churchill was not all that impressed with the chairman of Shell Transport and Trading. In a follow-up note to Churchill, Fisher first apologized for Samuel: “He is not as good at exposition but he began as a pedlar selling ‘sea’ shells! (Hence the name of his Company) and now he has six million sterling of his own private money. ‘He’s a good teapot though he may be a bad pourer’!” Fisher then explained that he had promoted the meeting with Samuel to convince Churchill that oil was available in volumes sufficient to make a confident commitment to it for the propulsion of the Royal Navy. He lectured Churchill on oil’s advantages over coal: “Remember oil like coal don’t deteriorate and you can accumulate vast stores of it in submerged tanks so as to be free from destruction by fire or bombardment or incendiaries and east of Suez oil is cheaper than coal!” Fisher added that Samuel had invited him to join the Shell board but that he had declined: “I’m a pauper and I am deuced glad of it! but if I wanted to be rich I would go in for oil! When a cargo steamer can save 78 percent in fuel and gain 30 percent in cargo space by the adoption of internal combustion propulsion and practically get rid of stokers and engineers—it is obvious what a prodigious change is at our doors with oil!” The admiral was scornful of the delays in converting to oil and warned Churchill of the dangerous consequences. “Your old women will have a nice time of it when the new American Battleships are at sea burning oil alone and a German Motor Battleship is cocking a snook at our ‘Tortoises’!”7
When Churchill arrived at the Admiralty, the Navy had already built or was building fifty-six destroyers solely dependent on oil and seventy-four submarines that could only be driven by oil. Some oil was also sprayed in the coal furnaces of all ships. But the most important part of the fleet—the battleships, the capital ships that were the very backbone of the Navy—burned coal. What both Churchill and the Navy wanted was to create a new breed of battleships, with yet bigger guns and stronger armor but also with the greater speed necessary to draw ahead and circle around the head of the enemy’s line. “Sea fighting is pure common sense,” Fisher reminded Churchill. “The first of all necessities is SPEED, so as to be able to fight—When you like, Where you like, and Howyou like.” The British battleships of the day could get up to twenty-one knots. But, as Churchill observed, “much greater speed” would introduce “a new element into naval war.” In a study conducted at Churchill’s behest, the War College estimated that with twenty-five knots, a new “Fast Division” could get the better of the emerging new German fleet. In short, the Royal Navy wanted an extra four knots—and there seemed no way to get it without oil.
Churchill’s education was complete. Oil allowed not only higher speeds, he recognized, but also greater rapidity in getting up to speed. Oil offered further advantages in the operation and manning of the fleet. It allowed a greater radius of action. It permitted refueling at sea (at least on calm seas), without occupying a quarter of the ship’s manpower in the effort, as was the case with coal. Moreover, it greatly reduced the stress, time, exhaustion, and discomfort that went with coaling and cut the required number of stokers by more than half. Oil’s advantage in terms of operations, as well as speed, could count the most at the most critical time—in battle. “As a coal ship used up her coal,” Churchill later wrote, “increasingly large numbers of men had to be taken, if necessary from the guns, to shovel the coal from remote and inconvenient bunkers to bunkers nearer to the furnaces or to the furnaces themselves, thus weakening the fighting efficiency of the ship perhaps at the most critical moment in the battle. … The use of oil made it possible in every type of vessel to have more gun-power and more speed for less size or less cost.”
The three naval programs of 1912, 1913, and 1914 constituted the greatest addition—in terms of sheer power and cost—in the history of the Royal Navy up to that time. All the ships of those three programs were based on oil—not a coal-burning ship among them. (Some of the battleships were originally to be coal burning, but were switched to oil.) The key decision was taken in April of 1912, with the inclusion in the naval budget of a Fast Division, the Queen Elizabeth class—composed of five oil-fired battleships. With this “fateful plunge,” Churchill wrote, “the supreme ships of the Navy, on which our life depended, were fed by oil and could only be fed by oil.”
That commitment, however, raised a very serious problem—where was the oil to be found, would there be enough, and would it be a militarily and politically secure supply? Churchill’s great gamble was to push for conversion to oil before the supply problem had been solved. He eloquently summarized the issue: “To build any large additional number of oil-burning ships meant basing our naval supremacy upon oil. But oil was not found in appreciable quantities in our islands. If we required it we must carry it by sea in peace or war from distant countries. We had, on the other hand, the finest supply of the best steam coal in the world, safe in our mines under our own land. To commit the Navy irrevocably to oil was indeed ‘to take arms against a sea of troubles.’” Yet, if the difficulties and risks could be surmounted, “we should be able to raise the whole power and efficiency of the Navy to a definitely higher level; better ships, better crews, higher economies, more intense forms of war power”—in a word, “mastery itself was the prize of the venture.”8
The Admiral Cracks the Nut
Churchill established a committee to study the issues raised by converting from coal to oil, including pricing, availability, and security of supply. The committee in turn recommended the establishment of a royal commission to investigate these matters more thoroughly. Churchill’s obvious choice to head such a commission was the retired Admiral Fisher. There was only one obstacle—Jacky Fisher himself. The volcanic admiral was once again furious with Churchill, this time because he disapproved of some promotions Churchill had made. “You have betrayed the Navy,” Fisher wrote to Churchill from Naples in April 1912. “This must be the last communication with you in any matter at all.”
It required a good deal of cajolery, the blandishment of a Mediterranean cruise on an Admiralty yacht with Churchill and Prime Minister Asquith in attendance, and a most forceful letter to win over the irascible admiral. “My dear Fisher,” Churchill wrote:
We are too good friends (I hope) and the matters we are concerned with are too serious (I’m sure) for anything but plain language.
This liquid fuel problem has got to be solved, & the natural, inherent, unavoidable difficulties are such that they require the drive & enthusiasm of a big man. I want you for this, viz, to crack the nut. No one else can do it so well. Perhaps no one else can do it at all. I will put you in a position where you can crack the nut, if indeed it is crackable. But this means that you will have to give life & strength, & I don’t know what I have to give in exchange or in return. You have got to find the oil; to show how it can be stored cheaply: how it can be purchased regularly & cheaply in peace, and with absolute certainty in war. Then by all means develop its applicn in the best possible way to existing & prospective ships….
When you have solved the riddle, you will find a vy hushed attentive audience. But the riddle will not be solved unless you are willing—for the glory of God—to expend yourself upon its toils.
Churchill could not have done any better by way of flattery. Without undue modesty, Fisher wrote to his wife, “I really have to admit that they are right when they all unanimously say to me that no one else can do it.” He accepted the post, and shortly after—so as to avoid conflict of interest—sold the shares he held in Shell at a prospective loss.9
A distinguished group was assembled to sit for the Royal Commission on Fuel and Engines, including the ever-present oil expert Sir Thomas Boverton Redwood, with the orchid in his buttonhole. Fisher threw himself into the job, working, he said, as hard as he had ever worked. His urgency increased when he learned that the German Navy was going forward with oil propulsion. “They have killed 15 men in experiments with oil engines and we have not killed one! And a d——d fool of an English politician told me the other day that he thinks this creditable to us.”
The commission issued the first part of its report in November 1912 and two further sections in 1913. It stressed both the “overwhelming advantages in favour of oil fuel” over coal and oil’s vital importance to the Royal Navy. It maintained that sufficient supplies existed throughout the world, although it did call for much-expanded storage facilities because, as Fisher put it, “Oil don’t grow in England.” At last, Marcus Samuel’s dream of an oil-fueled British Navy looked to become a reality. But one question remained: who would reap the profits? The likely choices were only two: the powerful and entrenched Royal Dutch/Shell Group, and the much smaller and still-struggling Anglo-Persian Oil Company.10
The Shell Menace
Though Anglo-Persian’s creation was the result of the combined efforts of William Knox D’Arcy, George Reynolds, and Burmah Oil, Charles Greenway was the man who really fashioned the company. It was as manager of a Scottish trading house in Bombay that he had first begun to deal in oil. The Scottish merchants associated with Burmah Oil asked him to assist in the beginning stages of Anglo-Persian, and within a year he was its managing director. He dominated the company for the next two decades. When he started, he was virtually a one-man band; by the time of his retirement, he presided over an integrated oil company, actively engaged throughout the world. Later in life, he became known as “Champagne Charlie” and was caricatured as “Old Spats and Monocle.” Though “decorous, even fastidious” in manner, Greenway was tenacious and always ready for a brawl. He was also unbending and obstinate in pursuing his central objectives: to build Anglo-Persian into a major force in world oil; to make it the national champion of Great Britain; to resist the unwelcome and suffocating embrace of Royal Dutch/Shell—and to ensure his own unquestioned control of the new concern. He would do whatever was necessary to achieve his goals, including the pursuit of a ceaseless vendetta against Royal Dutch/Shell, which became both a useful tactic and a personal obsession.
Britain’s “fateful plunge” inevitably spurred even fiercer rivalry between Royal Dutch/Shell and Anglo-Persian. In that battle, Anglo-Persian was at a definite disadvantage; it once more found itself under intense financial pressure. As far as Greenway was concerned, time was growing short, and he was forced to pursue several goals at once: obtain the capital to develop the Persian resources, build up the oil company, develop secure markets, and—despite its marketing agreement with Royal Dutch/Shell—avoid being absorbed by that company. In Anglo-Persian’s weak financial position, there was only one obvious alternative to Shell, and that was the British Admiralty. Greenway offered the Admiralty a twenty-year fuel contract and campaigned hard for a special relationship that would rescue the company from its financial straits.
Greenway’s recurrent theme, both in testifying before Fisher’s commission and throughout Whitehall, was that, without government aid, Anglo-Persian would disappear into Shell. If that happened, Greenway warned, Shell would be in a monopoly position and would extract monopoly prices from a hapless Royal Navy. He stressed Samuel’s “Jewishness” and Deterding’s “Dutchness.” Shell, he said, was controlled by Royal Dutch, and the Dutch government was susceptible to German pressure. Control by Shell, he told Fisher’s commission, would eventually place Anglo-Persian “under the control of the German Government itself.”
There was, Greenway altruistically allowed, a price to be paid by him and his colleagues for being so concerned about Britain’s national interest. But, he confided, he and his associates, all patriotic Englishmen, were willing—indeed, more than willing—to sacrifice the economic advantage that would accrue from affiliating with Shell and instead keep the company independent. All they asked in return was just some small consideration from the British government—just a guarantee or contract “that will at any rate give us a moderate return on our capital.” He emphasized repeatedly that Anglo-Persian was a natural adjunct to British strategy and policy and was a significant national asset—and that all the company’s directors saw it just that way.11
Greenway’s message was well received. Immediately after his testimony to the royal commission, Fisher detained him for some time outside in Pall Mall, to talk privately. Something had to be done at once, Fisher insisted. Greenway was greatly pleased, for, despite Fisher’s friendship with Marcus Samuel, the admiral was completely clear on exactly what it was that needed to be done. “We must do our d——st to get control of the Anglo-Persian Company,” he wrote, “and to keep it for all times as an absolutely ‘all-British’ Company.”
Greenway’s arguments won support elsewhere as well. The Foreign Office, concerned as it was with Britain’s position in the Persian Gulf, generally found the case convincing. The priority for the Foreign Office was that the Anglo-Persian concession, “embracing as it did the entire oil fields of Persia … should not pass under the control of a foreign syndicate.” Britain’s political predominance in the Persian Gulf “is largely the result of our commercial predominance.” At the same time, the Foreign Office was persuaded by the more specific needs of the Royal Navy. “Evidently,” Sir Edward Grey, the Foreign Secretary, commented, “what we must do is to secure under British control a sufficient oil field for the British Navy.” Though sometimes irritated and made suspicious by Greenway’s harping upon the “Shell menace” and the much-touted patriotism of Anglo-Persian Oil, the Foreign Office stuck to that position. “It is clear that diplomatic assistance alone will be useless in preserving the independence of the APOC,” the Foreign Office warned the Admiralty at the end of 1912. “It is pecuniary assistance in some form that they require.”12
Aid for Anglo-Persian
That pecuniary assistance would have to involve the Admiralty. Initially, the Admiralty was not at all interested in developing such a special relationship with Anglo-Persian; it feared becoming involved in a business “subject to much speculative risk.” But three decisive factors changed the Admiralty’s outlook. First, there were growing doubts about the availability and reliability of petroleum supplies from sources other than Persia. Second, the price of fuel oil was increasing dramatically, doubling between January and July of 1913 alone, in response to rising maritime demand around the world—a critical consideration as the construction of oil-fired battleships had begun even while the protracted political battle over the Navy’s budget continued to rage.
The third factor was Churchill, who was pushing decisions and forcing senior Navy officers to analyze the availability, needs, and logistics of oil in both peace and war. In June 1913, Churchill presented the Cabinet with a key memorandum on “Oil Fuel Supply for His Majesty’s Navy,” which called for long-term contracts to assure adequate supplies at secure prices. A governing principle was “keeping alive independent competitive sources of supplies,” thus frustrating “the formation of a universal oil monopoly” and safeguarding “the Admiralty from becoming dependent on any single combination.” The Cabinet agreed in principle, as Prime Minister Asquith wrote to King George V, that the government should “acquire a controlling interest in trustworthy sources of supply.” But exactly how? Greenway then met with members of the Cabinet, and in the course of their discussions the long-sought-after answer to that question began to emerge: namely, the arresting idea that the government itself become a shareholder in Anglo-Persian as a way to legitimize its financial support.13
On July 17, 1913, Churchill, in a statement to Parliament that the Times of London described as an authoritative presentation on the national interest in oil, took the idea one step further. “If we cannot get oil,” he warned, “we cannot get corn, we cannot get cotton and we cannot get a thousand and one commodities necessary for the preservation of the economic energies of Great Britain.” In order to assure dependable supplies at reasonable prices—because the “open market is becoming an open mockery”—the Admiralty should become “the owners or, at any rate, the controllers at the source” of a substantial part of the oil it required. It would begin by building up reserves, then develop the ability to deal in the market. The Admiralty should also be able “to retort, refine … or distil crude oil”—disposing of surplus as need be. There was no reason to “shrink from making this further extension of the vast and various business of the Admiralty.” Churchill added, “On no one quality, on no one process, on no one country, on no one route and on no one field must we be dependent. Safety and certainty in oil lie in variety and variety alone.”
Though there was no specific commitment to Anglo-Persian, the Cabinet decided to send a commission to Persia to investigate whether Anglo-Persian could actually deliver on any of its promises. The new refinery at Abadan was experiencing enormous problems. One of the directors of Burmah Oil had described it as nothing more than a “scrap heap.” Even the fuel oil it produced—confidently named “Admiralty”—had flunked the Admiralty’s own qualifying test. But, on the eve of the commission’s arrival, the company hastily introduced cosmetic improvements, orchestrated by a new refinery manager hurriedly rushed in from Rangoon. The ploy worked. “It seems to be a thoroughly sound concession, which may be developed to a gigantic extent with a large expenditure of capital,” Admiral Edmond Slade, former Director of Naval Intelligence and head of the commission, privately informed Churchill. “It would put us into a perfectly safe position as regards the supply of oil for naval purposes if we had the control of the companyand at a very reasonable cost.” In his official and influential report at the end of January 1914, Slade added that it would be “a national disaster if the concession were allowed to pass into foreign hands.” Slade even managed to find some kind words to say about the operation of the Abadan refinery.14
A Victory for Oil
Admiral Slade’s report was heaven-sent for Anglo-Persian. The company’s financial situation was steadily deteriorating and indeed was nothing less than desperate. Now, however, Slade had blessed the operation and, on the all-important issue, pronounced it a secure source for the Royal Navy; the way was open to bring matters to a conclusion. On May 20, 1914, less than four months after Slade’s report, the deal was wrapped up with the signing of an agreement between the company and the British government. But there was still one last obstacle; the Treasury insisted that any appropriation required Parliamentary approval, and that test had yet to be passed.
On June 17, 1914, Churchill rose in the House of Commons to introduce a historic measure. The bill he proposed had two essential elements: First, the government would invest £2.2 million in Anglo-Persian, acquiring in turn 51 percent of the stock; second, it would place two directors on the company’s board. They would have a veto on matters involving Admiralty fuel contracts and major political matters, but not on commercial activities. Another contract was drawn up separately, so it could be kept secret; it provided the Admiralty with a twenty-year contract for fuel oil. The terms were very attractive, and in addition, the Royal Navy would get a rebate from the company’s profits.
The debate in the House was highly charged. Charles Greenway sat in the official box with senior Treasury officials in case Churchill needed any special information. Also present in the Commons was the member from Wandsworth, one Samuel Samuel, who, working for many years by the side of his brother, Marcus Samuel, had helped to create Shell—and who, that day, became increasingly fidgety and aggravated as Churchill spoke.15
“This afternoon we have to deal, not with the policy of building oil-driven ships or of using oil as an ancillary fuel in coal-driven ships,” Churchill began, “but with the consequence of that policy.” The oil consumer, he declaimed, had freedom of choice neither in regard to fuels nor in regard to sources of supply. “Look out upon the wide expanse of the oil regions of the world. Two gigantic corporations—one in either hemisphere—stand out predominantly. In the New World there is the Standard Oil. … In the Old World the great combination of the Shell and the Royal Dutch, with all their subsidiary and ancillary branches, has practically covered the whole ground, even reached out into the New World.” Churchill proceeded to argue that the Admiralty, along with all private consumers, had been subjected to “a long steady squeeze by the oil trusts all over the world.”
Early in the debate, Samuel Samuel popped up three times to object to Churchill’s characterizations of Royal Dutch/Shell. He was ruled out of order. “He had better hear the case for the prosecution,” Churchill acidly said after the third interruption, “before he offers an argument for the defense.” Samuel resumed his seat but not his composure.
“For many years,” Churchill went on, “it has been the policy of the Foreign Office, the Admiralty, and the Indian Government to preserve the independent British oil interests of the Persian oil-field, to help that field to develop as well as we could and, above all, to prevent it being swallowed up by the Shell or by any foreign or cosmopolitan companies.” Since the government was going to give such a boost to Anglo-Persian, it was but reasonable, he added, that it share in the rewards. And “over the whole of these enormous regions we obtain the power to regulate developments according to naval and national interest.” Declaring that “all the criticisms” of such a plan “so far, have flowed from one fountain,” Churchill then launched an attack on that fountain—Royal Dutch/Shell and Marcus Samuel—though adding, “I do not wish to make any attack upon the Shell or the Royal Dutch Company.”
“Not the least!” Samuel Samuel called out from the back bench.
Churchill’s oratory was full of sarcasm. Were the bill to fail, he said, Anglo-Persian would become part of Shell. “We have no quarrel with the ‘Shell.’ We have always found them courteous, considerate, ready to oblige, anxious to serve the Admiralty, and to promote the interests of the British Navy and the British Empire—at a price. The only difficulty has been price.” With the leverage of Persian oil “at our disposal, we do not think we shall be treated with less courtesy, or less consideration, or shall we find these gentlemen less obliging, less public spirited, or less patriotic than before. On the contrary, if that slight difference of opinion which has hitherto existed about prices—I am obliged to return to that vicious and sordid matter of prices—were removed, our relations would be better; they would become … the sweeter, because no longer leavened with the sense of injustice.”
Samuel finally had his chance, later in the debate, to reply. “I do protest most strongly on behalf of one of the greatest British commercial industrial companies, that the attacks that have been made are wholly unjustifiable.” He catalogued Shell’s services to the Navy and its championing of oil-powered propulsion. He asked the government to make public the prices that Shell had charged, which had been kept secret, and which, he said, would prove that the company had never gouged the Admiralty.
“The attack we have heard had nothing on earth to do with the question before the Committee,” said another M.P., Watson Rutherford. Criticizing Churchill for raising the specter of monopoly and for “Jew-baiting,” he declared that the rising prices of fuel oil had resulted not from “the machinations of some trust or ring” but from the fact that an international market for fuel oil—as opposed to those for gasoline, kerosene, and lubricants—had only arisen in the “last two or three years, in consequence of these new uses which have been found for this oil. … There is a world shortage,” he continued, “of an article which the world has only lately begun to see is required for certain special purposes. That is the reason why prices have gone up, and not because evilly-disposed gentlemen of the Hebraic persuasion—I mean cosmopolitan gentlemen—have put their heads together in order to try and force prices up.”
Churchill’s proposal for government ownership of a private company was indeed unprecedented, save for Disraeli’s purchase of shares in the Suez Canal a half century earlier—a step also taken on strategic grounds. Some M.P.s, representing their local interests, argued for the development of oil from Scottish shale and liquids from Welsh coal (many years later known as synthetic fuels). Both, they said, would provide more reliable supplies. Yet, despite the strong criticism inside Parliament and out, the oil bill passed by an overwhelming vote—254 to 18. The margin was so large that it surprised even Greenway. After the vote, he asked Churchill, “How did you manage to carry the House with you so successfully?”
“It was,” Churchill replied, the “attack on monopolies and trusts that did it.”16
But his assault on foreigners and “cosmopolitans” also helped. Moreover, Churchill had been more than a little cynical in his presentation. For there was no evidence that Shell had ever served the Admiralty poorly. Indeed, years before, Marcus Samuel had actually asked the government to place a director on the board of Shell. And while Churchill had taken a dislike to Marcus Samuel, who had been Lord Mayor of London, he had developed a most favorable opinion of Deterding, who was, after all, the foreigner.
Here, in the matter of Deterding, Churchill was following Admiral Fisher’s lead. Fisher wrote to Churchill that Deterding, “is Napoleon and Cromwell rolled into one. He is the greatest man I ever met … Napoleonic in his audacity: Cromwellian in his thoroughness! … Placate him, don’t threaten him! Make a contract with him for his fleet of 64 oil tankers in case of war. Don’t abuse the Shell Company. … [Deterding] has a son at Rugby or Eton and has bought a big property in Norfolk and [is] building a castle! Bind him to the land of his adoption!” Churchill did exactly that. Despite the new agreement, Anglo-Persian was not to be the sole supplier to the Admiralty, and in the spring of 1914, he took over personally in negotiating with Deterding on Shell’s fuel oil contract with the Navy. Deterding was responsive to Churchill’s attention. “I have just received a most patriotic letter from Deterding,” Fisher wrote to Churchill on July 31, 1914, “to say he means you shan’t want for oil or tankers in case of war—Good Old Deterding!How these Dutchmen do hate the Germans! Knight him when you get the chance.”17
Deterding was a practical man and understood the rationale for the Anglo-Persian arrangement. Still, there were those perplexed by the government’s purchase. The Viceroy of India, Lord Hardinge, had served two years in Tehran, leaving him with a lasting suspicion of all things Persian. His view, and that of his senior officials in India, was that it was altogether unwise to become dependent upon a most insecure foreign source of oil when Britain was blessed with an abundance of secure coal. As the Secretary of State for India declared, “It is rather as though the owners of the premier cru vineyards in the Gironde went about preaching the virtues of Scotch whisky as a beverage.”
The critics had a point. Why the troubles of Scotch whisky when one produced a fine wine? Quite simply, the decision was driven by the technological imperatives of the Anglo-German naval race. Even as the Germans sought equality, the British Navy was committed to maintaining naval supremacy, and oil offered a vital edge in terms of speed and flexibility. The deal assured the British government a large supply of oil. It provided Anglo-Persian with a much-needed infusion of new capital and a secure market. It spoke directly to the need for survival of Anglo-Persian, and indirectly, to that of the empire. Thus, by the summer of 1914, the British Navy was fully committed to oil and the British government had assumed the role of Anglo-Persian’s majority stockholder. Oil, for the first time, but certainly not the last, had become an instrument of national policy, a strategic commodity second to none.
As First Lord of the Admiralty, Churchill would often say that his goal was to have the Navy ready, as though war might erupt the very next day. Yet during the weeks leading up to the June 17, 1914, Parliamentary debate, Europe had seemed more at peace, and war farther away, than had been the case for several years. No major issue riled the passions of the Great Powers. Indeed, British naval units were making courtesy visits to German ports at the end of June. Later, many would look back on those spring and early summer days of 1914 with nostalgia, as the dusk of an era, the end of childhood, a time of unusual, even unnatural calm. It would not last. One June 28, 1914, eleven days after Parliament approved Churchill’s bill, Archduke Franz Ferdinand of Austria was assassinated at Sarajevo. It was not until August 10, 1914, that the Anglo-Persian Oil Convention would receive its Royal Assent. By then, the world had changed. Russia mobilized on July 30. On August 1, Germany declared war on Russia and mobilized its armies. At 11:00 P.M. on August 4, after Germany had ignored a final British ultimatum against violating Belgium’s neutrality, Churchill flashed a message to all of His Majesty’s ships: “COMMENCE HOSTILITIES AGAINST GERMANY.” The First World War had begun.18