The Rise of the Oiligarchy

I. Oil and Gas in the United States

A. Oil and Gas in the Midwest

1. Quaker State--the discovery of oil created a great industrial boom in western Pennsylvania


a) Titusville--the first successful oil well was drilled near Oil Creek near Titusville, Pennsylvania, in 1859. Population grew over night from a 250 people to more that 10,000. The new industry created jobs not only for oil drillers, put also machinists, teamsters, and eventually railroad workers to transport the oil from the wells to refineries and then to customers.

b) Oil used for a variety of purposes; lubricate the machines that were becoming more common, but also for oil lamps (replacing whale blubber), for “medicinal” purposes (petroleum jelly), and in the growing chemical industry.


c) Sun Oil Company (SUN Oil COmpany--Sunoco) was established in Pittsburgh in 1866, and became one of the first companies to move into the new oil fields being opened in Pennsylvania and Ohio (the Sun Oil Company of Ohio was headquartered in Toledo). Sun was among the early companies to move into the huge Spindletop oil field in eastern Texas, as well.

d) Ohio Oil Company--founded in Lima by a Pennsylvania oil industry veteran named Samuel M. Jones. The Ohio Oil Company was bought out by John D. Rockefeller in the early 1890s; Jones took his profits and moved to Toledo to establish an oil field supply firm called the Acme Sucker Rod Company.

2. Midwest gas boom--the Midwest did produce some oil wells, but the boon to manufacturing in the region came largely because of the discovery of natural gas deposits, which allowed towns and cities in the region to attract companies in need of cheap fossil fuels


a) Glass industry--Toledo, Fostoria, Findlay, and Tiffin all attract glass manufacturers on the promise of cheap natural gas.


B. John D. Rockefeller--the prototypical late 19th and early 20th century industrialist.

1. Standard Oil Company--was originally a partnership with his brother William, Henry Flagler, chemist Samuel Andrews, and silent partner Stephen V. Harkness, and started in 1870. By the time Rockefeller “retired” in 1897, he was the richest man in the world--maybe the richest ever.


a) Cleveland, where Rockefeller was living when he started the company, became one of the early oil refining centers (in the Flats, then an industrial center), along with Pittsburgh, Philadelphia, and New York--as well as numerous small refineries in northwest Pennsylvania. Rockefeller’s company became such a high volume customer of railroads that he was able to negotiate “rebates”--or kickbacks--from the railroad companies. These secret rebates gave Rockefeller’s company a competitive advantage over other refiners. When this secret leaked out, the competitors also demanded rebates--but Rockefeller was able to parlay the money he made into the acquisition of other companies, and allowed his company to become “vertically integrated”--that is to say, the company acquired oil fields, machine shops, oil tank cars, and other refineries, so Rockefeller’s company controlled the entire process until the oil product was delivered to the customer.

b) Rockefeller used his control of the market for oil to limit his competitors--he would offer to buy them out, or simply cut prices on his product until the targeted competitor was ruined, and then buy them for pennies on the dollar.

c) Ida Tarbell--one of the businesses that Rockefeller bought belonged to the father of early “muckraker” Ida Tarbell, who exposed Rockefeller’s business practices. This publicity eventually led to the anti-trust action against Standard, and the break-up of the holding company into numerous component parts (including Standard Oil of Ohio--SOHIO--and Samuel M. Jones’ old company, which became Marathon Oil.


C. Spindletop--the discovery of the Spindletop Oil Field in eastern Texas completely changed the oil industry. The daily production of Spindletop by 1902 matched the entire production of the rest of the world’s daily production. This made oil tremendously cheap (eventually driving many other fields in other parts of the country out of production), and it began slowly replacing coal as the fossil fuel of choice: automobiles (one of the reasons that gasoline engines begin predominating); diesel engines replaced steam engines in railroads (and diesel-powered trucks nearly replaced railroads entirely for parts of the 20th century); fuel oil and natural gas replaced coal for heating homes.

1. Gulf Oil Company

2. Texas Oil Company Texaco)

II. Rise of the Oiligarchy

A. British Petroleum--founded in 1901 by William Knox D’arcy, who obtained a concession from the Shah of Iran to explore the country for oil.


1. Dry holes--George Bernard Reynolds, a self-taught geologist who had successfully drilled oil wells in Sumatra for the Royal Dutch Petroleum Company, was given the charge of duplicating this success in Iran. Inhospitable conditions and other difficulties led to a prolonged period with no operating wells; eventually, D’arcy brings in other partners to bring more capital to the project--the Concession Sindicate, Ltd.


2. Majid Sulaiman--in May of 1908 the first oil well was successfully drilled in the Middle East, and the second near the same location in Iran just weeks later. Since that discovery, Majid Sulaiman has provided more than 1 billion barrels of oil; more than 7,000 barrels of oil every day are still pumped out of the ground there of sweet light crude. With the refining process, much of that oil has provided the gasoline that powered--and still powers--American automobiles.

3. The Anglo-Iranian Oil Company (AIOC)--was formed after this discovery. Most of the profits from the sale of this oil went into the pockets of the British oil executives, with a much smaller share being skimmed off for the Shah and his associates; the people of Iran saw very little benefit from this enterprise.

B. Royal Dutch Shell

1. Royal Dutch Petroleum Company--formed to drill for oil in the Dutch East Indies (Indonesia)

2. Shell Company--originally formed to import exotic shell for collectors in London by brothers Marcus Samuel and his brother Samuel Samuel; Marcus saw the need to develop a transportation system to get oil from the fields to consumers in Europe (and eventually around the world). His company commissioned the earliest oil tankers to transport oil from the Caspian Sea back to England.

3. Merger--the two companies merged in 1907 in order to compete on a global scale with Standard Oil.

III. Fall of the Oiligarchy--There Will Be Blood

A. The Post-Colonial World--much of the control the industrialized nations--in particular Great Britain and France--exercised over natural resources in other countries was a result of the colonial control they had acquired; this explains in part their desire to retain this colonial control


1. Iran--Prime Minister Ali Razmara in 1950 negotiated a highly unfavorable contract with the AIOC, which had less favorable terms then the Venezuelan government negotiated with Standard Oil, or that the Saudi Arabian government had just concluded with the Arabian-American Oil Company, This was the reason that the AIOC had negotiated with the Shah to place Razmara in this position; this lopsided deal was so disliked, however, that Razmara was assassinated in 1951.

a) The Shah sees the handwriting on the wall, and decides to skip the country to avoid a similar fate.


b) Assassin of Razmara was a member of the Popular Front, which sought to nationalize the oil assets of Iran. Dr. Mohammed Mossadegh was the secular leader of the party (which had a strong Muslim fundamentalist element, as well). Mossadegh and the Popular Front moved to nationalize the petroleum industry in the country, but the CIA and the British M5 (the British equivalent to the CIA) bribed Iranian officials, and armed dissident factions in the Iranian army, to stage a coup d’etat that resulted in the murder of Mossadegh, and the re-establishment of the Shah to the throne in Iran until the events of 1979.


B. The Organization of the Petroleum Exporting Countries (OPEC)--is a cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. Indonesia withdrew its membership in OPEC in 2008 after it became a net importer of oil, but stated it would likely return if it became a net exporter again.

1. Establishment--in 1960, in reaction to US policy that placed duties on Venezuelan and Arab oil in favor of Mexico and Canada, for “national security” purposes.


2. 1973 Oil Embargo--in reaction to the US backing Israel in the 1973 Arab-Israeli war, OPEC nations voted to not sell oil to the US. This resulted in supplies drying up, and people not being able to buy gasoline because gas stations had none to sell--even at double the price (from $.25/gal. to $.50/gal).

a) When the embargo ended, the price charged dropped only slightly--and there came a much greater demand for small, fuel-efficient automobiles in the United States that domestic manufacturers were ill-prepared to meet.

b) US economy tumbled as a result, Keynesian economic policy failed, and the re-emergence of the “free market” philosophy re-emerged


3. 1979 Iranian Revolution

a) Fall of the Shah--Shah’s support for oil embargo weakened US support for his government, resulting in tacit support for the return of his clerical opponent, the Ayatollah Khomeini; Shah flees Iran again.

b) Sick with cancer, Shah pleads to enter US for medical treatment; Carter grants this request. Iranian Revolutionary Guard storms American embassy, hold Americans working there hostage until January 20, 1980--when Ronald Reagan took office.


4. Iran-Iraq War (1980-1988)--in the time-honored policy that the enemy of the enemy is my friend, US backed Saddam Hussein in his war for Persian Gulf dominance over Iran. This policy was continued under Ronald Reagan. War ended in a costly stalemate, with great loss of life on both sides.


5. Iraqi Invasion of Kuwait--Saddam Hussein assumed he had implicit US permission, Saddam invaded neighboring Kuwait in order to gain control over greater share of oil assets in the Gulf, resulting in the First Gulf War in late 1991-1992.