The Prize: The Epic Quest for Oil, Money, and Power

Yergin provides an overview of the early development of the oil industry, focusing on key figures and their initial endeavors. He explains that in the 1850s, a Yale chemistry professor named Benjamin Silliman Jr. undertook a research project for a fee of $526.08. The project was funded by a group of businessmen led by George Bissell and James Townsend. They envisioned transforming “rock oil,” a substance found in Pennsylvania, into a significant source of illumination and lubrication. Despite initial skepticism and financial struggles, Bissell and Townsend believed in the potential of rock oil to replace existing, costly illuminants like whale oil and camphene.

George Bissell, the primary driver behind the venture, recognized the potential in rock oil during his travels through western Pennsylvania. His business acumen and entrepreneurial spirit lead him to Dartmouth College, where he discovered a bottle of rock oil, solidifying his belief in its commercial viability. Bissell’s encounter with the oil sample at Dartmouth sparked the idea of using rock oil as an illuminant, setting him on a path to revolutionize the industry.

To validate their vision, the group hired Professor Silliman to analyze rock oil’s properties. Silliman confirmed that rock oil could yield a high-quality illuminating oil. This statement provided the scientific endorsement needed to attract further investment. After investors published Silliman’s report, the Pennsylvania Rock Oil Company was established.

The chapter then introduces Edwin L. Drake, a former railroad conductor chosen to lead the drilling operation in Pennsylvania. Drake’s determination and the use of a salt-drilling technique adapted for oil eventually resulted in success. In August 1859, Drake’s well struck oil, marking the beginning of the commercial oil industry. Despite the logistical challenges of storing the oil and dealing with fluctuating prices, Drake’s discovery ignited a rush to drill for oil, transforming the landscape of Titusville and setting the stage for the rapid growth of the oil industry.

Yergin explains that John D. Rockefeller’s rise and the formation of Standard Oil mark the dawn of the modern oil industry. In 1865, Rockefeller outbid his partner, Maurice Clark, for full control of their Cleveland refinery: a pivotal moment in establishing Standard Oil’s dominance. Born in 1839 in New York and raised in Ohio, Rockefeller developed sharp business skills early due to the influence of his father, who was a traveling salesman. By 1859, Rockefeller partnered with Clark to trade produce, and following Colonel Drake’s oil discovery, he soon expanded into oil refining. By 1865, Rockefeller had full control of the refinery, using his meticulous management and financial acumen to expand. He invested in infrastructure for vertical integration, reducing costs and outcompeting other refiners. In 1867, Rockefeller partnered with Henry Flagler, securing favorable transportation rates and strengthening their market position.

In 1870, Rockefeller and Flagler incorporated Standard Oil Company, aiming to stabilize and dominate the fragmented oil industry. Despite early 1870s market depression, Standard Oil aggressively acquired competitors, achieving 90% control of U.S. refining capacity by the decade’s end. The construction of the Tidewater Pipeline in 1879 challenged this control, but Rockefeller quickly adapted by building his own pipelines and partially controlling Tidewater. Standard Oil’s dominance sparked public and political backlash, leading to legal challenges and increased scrutiny. Despite these setbacks, Rockefeller’s strategic vision and relentless efficiency transformed the oil industry, laying the foundation for the modern multinational corporation.

Chapter 3 highlights the emergence of petroleum as a global commodity, starting with the first successful oil shipment from the U.S. to Europe in 1861. This event marked the beginning of an international oil market, with American kerosene quickly gaining popularity due to Europe’s industrialization and urbanization. The demand for American oil products grew because Europe needed a reliable lighting source. U.S. consuls in Europe promoted kerosene, often buying oil to distribute to potential customers. Pennsylvania, a key supplier, dominated the global market. By the 1870s and 1880s, kerosene exports made up over half of America’s oil output, with Europe as the largest market.

John D. Rockefeller’s Standard Oil controlled up to 90% of exported kerosene by the late 1870s. However, the company’s dominance was challenged by potential foreign competition, particularly from Russia. Although American kerosene was popular in Russia, especially in St. Petersburg, the oil-rich but remote Baku region presented a significant challenge. In the early 1870s, the Russian government opened the oil industry to private enterprise, leading to rapid advancements. Robert Nobel and his brother Ludwig modernized the Baku oil industry, introducing new technologies and developing an integrated company. By the 1880s, Baku had nearly 200 refineries, with the Nobels’ company dominating the Russian market and reducing the presence of American kerosene. Despite internal conflicts and logistical challenges, Russian producers began seeking opportunities beyond their borders, impacting the global oil market and posing a significant threat to Standard Oil’s dominance.

In the late 19th and early 20th centuries, Standard Oil, known as the “Old House,” dominated the U.S. oil industry. However, market shifts and new competitors began challenging its supremacy. By the end of the 19th century, kerosene, gas, and candles were primary light sources despite the drawbacks involved, but Thomas Edison’s 1879 invention of the incandescent light bulb revolutionized lighting, leading to the widespread adoption of electricity. By 1902, 18 million electric light bulbs were in use, significantly reducing the kerosene market and pushing the natural gas industry toward heating and cooking while limiting kerosene use to rural areas.

Simultaneously, the automobile emerged, creating a new demand for gasoline. Although it was initially unreliable, the internal combustion engine gained popularity after a successful race in 1895. Henry Ford’s gasoline-powered vehicles transformed cars from novelties to practical tools, increasing gasoline demand. By 1912, U.S. car registrations surged from 8,000 in 1900 to 902,000, boosting the oil industry.

Standard Oil’s dominance was challenged by new discoveries and independent producers. The depletion of Pennsylvania oil fields prompted searches for new sources, leading to discoveries in Colorado, Kansas, and California. By 1910, California produced 73 million barrels of oil annually, leading U.S. production and comprising 22% of global production. Union Oil played a major role in this boom. Similarly, the 1901 Spindletop gusher in Texas marked a pivotal moment, producing up to 75,000 barrels per day and transforming Texas into a major oil producer. This shifted the focus of U.S. oil production to the Southwest, initiating regional booms.

The emergence of independents such as the Producers’ and Refiners’ Oil Company and Pure Oil Company challenged the supremacy of Standard Oil. Pure Oil resisted Standard’s buyout attempts and established itself as a significant industry player. New field discoveries in Texas, California, and Oklahoma further eroded Standard’s control, allowing independent companies to flourish.

As the 20th century began, Standard Oil faced intense commercial, political, and judicial opposition. Criticized for its ruthless business practices, Rockefeller’s Standard Oil gained a reputation as a devious and monopolistic entity. Despite its self-perception as a necessary force against “unbridled competition,” the company’s dominance raised widespread concern. Standard Oil encountered numerous antimonopoly lawsuits from various states, including Ohio, Texas, and Kansas. These legal actions highlighted the growing anti-trust sentiment among the American public, which was fueled by rapid industrialization and the rise of trusts. In response, Standard Oil reorganized, shifting to a holding company structure in New Jersey in 1899. This move allowed it to maintain control over its numerous subsidiaries under the newly established name of Standard Oil of New Jersey.

By 1897, John D. Rockefeller had stepped back from day-to-day operations, appointing John D. Archbold as his successor. Despite Rockefeller’s retirement, he retained the title of president, making him the lightning rod for ongoing criticism against Standard Oil. The assault on Standard Oil intensified with the rise of the progressive movement, which aimed to control and regulate big business. Muckraking journalists, particularly Ida Tarbell, exposed the company’s unethical practices. Tarbell’s series in McClure’s Magazine detailed Standard Oil’s manipulations and espionage, becoming a national sensation and turning public opinion against the company.

President Theodore Roosevelt, embodying the progressive spirit, pursued aggressive antitrust actions against monopolies, including Standard Oil. In 1906, his administration brought a landmark antitrust lawsuit against the company, culminating in a Supreme Court decision in 1911 that ordered Standard Oil’s dissolution. The company was broken into several independent entities, marking the end of its monopoly. Despite this development, the value of the successor companies’ shares surged, significantly increasing Rockefeller’s wealth.

In the late 19th century, the oil industry was marked by intense competition and strategic maneuvering. Marcus Samuel, head of the Samuel’s Syndicate, dispatched Mark Abrahams to Kutei, Borneo, to develop an oil concession crucial for the survival of his enterprise. Samuel understood that to secure his market, he needed a stable oil supply, fearing dependence on Russian oil due to unreliable transport rates and potential competition from Standard Oil.

In Borneo, Abrahams faced numerous challenges: lack of experience, chaotic logistics, disease, and hostile jungle conditions. Despite these hardships, the first oil was struck in February 1897, with further development needed for commercial production. The heavier Borneo crude oil, while not yielding much kerosene, was suitable as fuel oil, a vision that Samuel zealously promoted, foreseeing oil’s future as a power source rather than a mere provider of illumination. Meanwhile, Royal Dutch in Sumatra faced its own crisis when its prolific wells began producing salt water instead of oil. However, perseverance paid off when new oil was discovered in Perlak in December 1899, leading to a resurgence in production and preparing Royal Dutch to compete in the European gasoline markets.

Henri Deterding, who became the interim manager of Royal Dutch in 1900, was a dynamic and ambitious leader. He focused on simplifying business problems and saw amalgamation as essential for stability and protection against Standard Oil. Deterding’s vision extended beyond immediate business interests, aiming for a unified approach to manage production and market competition effectively. The rivalry between Samuel and Deterding was intense, with each man aiming to lead any potential combination. A middleman named Fred Lane facilitated negotiations, resulting in the first steps towards the establishment of the Royal Dutch/Shell Group. Deterding’s strategic acumen eventually led to the creation of the Shell Transport and Trading Company, incorporating various trading houses and solidifying Shell’s position.

As the 20th century dawned, Samuel and Deterding’s enterprises faced fluctuating oil prices and geopolitical upheavals. The Boer War and Russian economic crises also affected global oil markets. Samuel’s strategy of emphasizing his Borneo fields helped to secure a renewed contract with the Rothschilds, while Deterding’s focus on robust management and strategic alliances positioned Royal Dutch as a formidable competitor in the global oil industry.

In late 1900, a Persian general named Antoine Kitabgi sought European investors for a petroleum concession in Persia. This was a crucial enterprise to mitigate the Shah’s financial struggles. William Knox D’Arcy, a British investor known for his gold mining ventures, was interested despite previous failures by Baron Julius de Reuter. Kitabgi used his connections to secure Persian support for D’Arcy. Persia, the region associated with modern-day Iran, was highly significant for its strategic location and was therefore a focus of British and Russian rivalry. In 1901, D’Arcy’s 60-year concession, which excluded northern provinces to avoid provoking Russia, granted the Shah 20,000 pounds in upfront and future profits. With British political backing, D’Arcy proceeded despite opposition.

An experienced engineer named George Reynolds led the difficult exploration efforts in Chiah Surkh, facing logistical challenges, harsh terrain, and hostile tribes. Drilling began in late 1902 but faced setbacks due to mechanical failures, weather, and political tensions. D’Arcy sought to mitigate his financial strain by seeking additional funding. He turned to the British Admiralty, and political pressure emphasized the strategic importance of Persian oil. In 1905, the Concession Syndicate was formed, involving Burmah Oil, and provided essential capital and expertise for continued exploration. Reynolds moved operations to Masjid-i-Suleiman in southwestern Persia, persevering despite harsh conditions. In May 1908, just as Burmah Oil threatened to stop funding altogether, a gusher confirmed substantial oil reserves and validated the investment. The establishment of the Anglo-Persian Oil Company in 1909 marked the emergence of a significant new player in the oil industry. Despite initial challenges, Anglo-Persian became a key British enterprise that proved vital for future geopolitical and commercial developments in the Middle East.

In July 1903, William Knox D’Arcy, disheartened by his slow and costly oil venture in Persia, visited the spa at Marienbad. There, he met Admiral John Fisher of the Royal Navy, who was known for his enthusiasm for oil. This encounter would eventually transform D’Arcy’s venture and elevate oil’s strategic importance. Admiral Fisher, who later became First Sea Lord, was a zealous advocate for modernizing the Royal Navy. He championed technological innovations, including oil fuel, which he believed would revolutionize naval strategy by providing faster and more efficient ships. Despite initial resistance from his peers, Fisher remained determined to push the Navy towards oil.

The burgeoning naval race between Britain and Germany, which was driven by Germany’s quest for global prominence, intensified the rivalry between the two nations. The competition for naval supremacy was central to their relations, shaping public opinion and policy. Admiral Fisher firmly believed that Germany was the future enemy and that oil-powered ships would be a crucial innovation enabling Britain to maintain its naval dominance. Winston Churchill, who became First Lord of the Admiralty in 1911, shared Fisher’s vision. Convinced of the strategic advantages of this fuel source, Churchill pushed for the Navy’s transition from coal to oil, despite concerns about securing reliable oil supplies. He established a committee to investigate the issue, and this action ultimately led to the creation of a Royal Commission that was headed by Fisher.

The Commission’s findings highlighted the overwhelming advantages of oil over coal, prompting the British government to secure a stable supply. Churchill’s strategic decision was to commit the Navy to oil before resolving the supply issue, banking on oil’s operational benefits to enhance naval power. In 1914, Churchill proposed to Parliament that the government acquire a controlling interest in the Anglo-Persian Oil Company in order to secure oil supplies for the Navy. The bill passed, marking a historic commitment to oil as a strategic resource. This move ensured a reliable oil supply for the Royal Navy and integrated oil into national policy, underscoring its critical role in Britain’s global strategy.