The Rise of Big Oil
The lessons of the First World War were all too obvious – the Great Powers needed oil to survive. And while new finds were being made in the US and Mexico, one region of the world was attracting more interest than any other – the Middle East. Pre-war the US had been content to develop its domestic reserves and leave foreign prospecting to the Europeans. Now, it was adamant that Britain and France should not carve up the Middle East alone.
Britain and France had agreed to divide up responsibility for the Arab lands of the Ottoman Empire, which had been allied with Germany during the war, but had now disintegrated. Central to their ambitions was Mesopotamia, which Britain quickly renamed Iraq, and specifically the region around Baghdad and Mosul that were believed to hold huge oil reserves. Iraq’s potential had first been identified by a savvy Armenian oil prospector, Calouste Gulbenkian. In 1914 he put together the Turkish Petroleum Company, a syndicate involving Anglo Iranian, Shell, Deutsche Bank and himself, holding five percent of the concern.
After the war, Britain and France agreed to let the US companies, Standard of New Jersey (Exxon), Socony (Mobil) and five other US companies take Deutsche Bank’s stake in what was now called the Iraq Petroleum Company. With Britain overseeing Iraq, the local puppet rulers rubberstamped a very favorable concession for the foreign companies - exclusive drilling rights in Iraq until the year 2000.
Gulbenkian, wary of being squeezed out by the major oil companies, was insistent on one condition in the contract: no member of the Iraq Petroleum Company would undertake operations anywhere else within the Middle East lands of the former Ottoman Empire without the joint cooperation of the other members. There was just one problem – no one was really sure just how far the Ottoman lands extended. So when the new members of the company came together to finalize the deal, Gulbenkian took a red pencil and drew a rough line on a map around what he understood to be the Ottoman lands. Inside the line lay all of Iraq and Saudi Arabia. Gulbenkian’s guess had fortuitously pinpointed the greatest oil fields in the world and it put them in the hands of Western oil companies. In establishing a de facto non-compete agreement between Shell, BP, Exxon and Mobil, Gulbenkian’s Red Line agreement, as it became known, created a cartel out of the world’s pre-eminent oil companies. As for Gulbenkian, he got to keep his original stake in the company. He would forever be known as Mr. Five Percent.
The Second Great Oil War
Twenty years after the end of World War I, Europe once again found itself facing war. This time, all the powers knew that oil would make the difference between victory and defeat. The US once again used its plentiful oil fields to supply its own war needs and those of Great Britain. But Germany, just as in the First World War, was forced to undertake a risky strategy to capture foreign oil supplies.
Germany believed that its key to victory was a series of short overwhelming mechanized attacks – the blitzkrieg – and at first it was very successful. One reason for the blitzkrieg was that Hitler knew he didn’t have enough oil to compete in long drawn-out battles. To counter this weakness, Germany had two goals in mind – its Panzer tank divisions would punch through Russia and snatch the Baku oil fields before continuing on to secure the grand prize of Iraq and Iran. But Operation Blau, as this grand oil grab was called, faltered before it could ever reach Baku. The German army had to travel thousands of miles to reach the Caucuses and the speedy Nazi tanks outran their own fuel supply lines. Short of gas, and caught in the heavily defended Caucasus mountains, the armored divisions had to be refueled by camel trains as their own trucks had run out of gas. In its desperation to capture Baku, Germany left its sixth army stranded and short of fuel outside Stalingrad. Surrounded by Soviet forces after a six-month siege, the Germans needed only to fight for 30 miles to escape. But their tanks only had 20 miles of fuel in them. The decision to strand the sixth army by refusing to divert the Baku-bound forces was taken by Hitler himself. “Unless we get the Baku oil, the war is lost,” he told his commander of the forces in the Caucasus.
Fuel shortages would continue to bedevil both sides as the war went on. General Erwin Rommel, father of the Afrika Korps, the most mobile and effective tank division Germany possessed was undone in North Africa when the allies destroyed his refueling lines of supply while the hard-charging American General George Patton and his rampant Third Army was prevented from what could have been an early and decisive invasion of Germany in 1944 by a lack of fuel. “My men can eat their belts” he said, “but my tanks have gotta have gas.”
The United States may never have entered the war were it not for Japan’s desperation to capture the oil fields of Indochina. As early as the mid-1930s, Japanese economic planners had come to the conclusion that Japan’s plans for the aggressive colonization of Southeast Asia would fail unless it controlled its own oil destiny. That meant invading the oil fields of the Dutch East Indies but this strategy risked an attack by the US, who already wary of Japan’s imperial ambitions, had recently moved the American fleet from California to Pearl Harbor in Hawaii. Faced with Japan’s invasion of Southern Indochina and its new alliance with Germany and Italy the US had frozen all Japanese financial assets cutting off its ability to purchase US oil.
It was at this point that Japan took its own fateful plunge – the pre-emptive attack on Pearl Harbor in an attempt to destroy US influence in the Pacific. To a degree they were successful. The December 7, 1941 assault decimated many ships in the fleet. But the Japanese also made a big mistake. They failed to hit the four and a half million barrels of oil stored at Pearl Harbor. If they had destroyed America’s Pacific oil reserves the whole fleet would have been immobilized.
Over the next four year, Japan would be methodically expelled by Allied forces from the Pacific islands and Southeast Asia. And with each defeat, it saw its access to oil dwindle. By the time the first atomic bomb was dropped on Hiroshima in August 1945, Japan was already a spent force. The US navy was sinking every Japanese oil tanker before it could return home from the Dutch East Indies and the Japanese Navy didn’t have enough fuel to leave its home base. The shock of the atomic attacks ended the war, but it was a lack of oil that defeated Japan.