The Seven Ages of Oil Part 2 – Monopoly, Hegemony, and World War
This blog is part two of a series that explores the intricate history of oil.
1870-1911: Rockefeller Creates the Multinational Oil Standard
Born July 8, 1939, John D. Rockefeller is arguably the most notorious business magnate and philanthropist the world has ever known. The first American billionaire, at the pinnacle of his power he controlled 90% of all US oil. In 1865, Rockefeller bought out Clark & Company at auction for $72,500 to establish the firm of Rockefeller & Andrews. He thereafter quickly manoeuvered to take advantage of the post-war posterity and followed the trains westward to build a national oil business. The next five years saw an expansion in scope as he built business ties and alliances as quickly as he built his oil business. Pivotally, in June of 1870, Rockefeller formed Standard Oil of Ohio. Standard Oil became essentially the one and only oil standard taking over Ohio and then the nation. In the age of cartels and unrestricted monopolies, the oil men and the railroad men (a.k.a. the Robber Barons) became the richest and most powerful people in the world. Rockefeller ate up his competition until, by the end of the 1870s, Standard Oil was refining more than 90% of US oil. As the price setter, Rockefeller would even sell at a loss to gain market share. And for the most part, prices were in decline for the greater part of the Age of Standard Oil.
Notably, Rockefeller was not the architect behind the doubling of oil prices in 1875, but rather it was the US Government. In what would be the oft-called “peak oil” cry of the wolf (as the regulator warned of the wolf amongst the flock, the sky falling, the end being nigh), John Strong Newberry, the chief geologist of the state of Ohio, declared that oil supplies would soon dry up. Obviously, this was no truer in 1875 than it was in 1973 when the Nixon declared the Oil Crisis, or in 1979 when Jimmy Carter implemented subsidies to derive fuel from corn, or in 2005 when George W. Bush’s Energy Policy was developed to combat growing energy concerns (partially arising from the war on Iraq) with tax incentives for alternative energy, or during the Obama Administration when he dithered in his policies on energy independence, $800 billion for clean energy investment, and the ever-pending approval of the Keystone Pipeline.
Following Newberry’s ominous predictions, two major technological advancements would impact oil prices into the turn of the twentieth century. In 1878, the pivotal pioneer of the electric industry, Thomas Edison, would invent the light bulb and essentially eliminate demand for kerosene as an illuminant, sending the oil industry into a brief recession. However, automotive pioneers on either side of the Atlantic would soon help them out of this recession. In 1886, Karl Benz and Wilhelm Daimler introduced gasoline-powered automobiles to Europe and fueled them with California oil. Following in the tracks of the German’s, Henry Ford and his Ford Motor Company began producing the Model T (Tin Lizzie) in 1908. The oil industry would thereafter ride the coattails of automotive industrialists and their fuel-ravenous consumers. Before the automobile, gasoline was simply a solvent produced from kerosene distillation; in other words, it was a cheap way to strip paint.
But getting back to Rockefeller, we can observe that nothing lasts forever: not monopolies, not civil wars, not world wars, not cold wars, not empires, not political regimes, and not the national or geopolitical status quo. Rockefeller’s use of market power to bust railroads and undermine competition finally led to charges of monopolizing the oil trade in 1879. The scale had tipped as the business practices of Standard Oil became a national talking point and a source of shame. It took another 22 years, but eventually in 1911 the US Supreme Court found Standard Oil to be in violation of the Sherman Antitrust Act. Standard Oil was broken up into 34 separate new companies. It has been more than 100 years, but many of these companies remain, although often transformed. Continental Oil became Conoco / ConocoPhillips. Amoco became part of BP. Esso became Exxon and is now part of ExxonMobil. Mobil is now part of ExxonMobil. Pennzoil and Chevron have remained largely the same.
There were other important developments in the Age of Standard Oil. Rockefeller actually quintupled his wealth, as the assets broken up were worth significantly more than under the monopoly. He essentially traded his monopoly power for wealth. Although 85% of global oil production was coming from Pennsylvania in the 1880s, Russia and Asia notably joined the fray during the 1880s, introducing pipelines and tankers to the technology mix. Further, the Rothschilds of Paris were providing the financing. It was the age of power and dominium on a global scale. As Mark Twain so aptly put it, it was the “Gilded Age.” Everything was shiny, new, and exciting on the outside; however, on the inside, greed was insidious, ruthless speculators abounded, scandal was rampant, and politicians were easily corrupted. Thus the 1880s saw the irrevocable and enduring connection among energy (oil and electricity), geopolitics, and finance. The stage was unknowingly set for the conflicts that would define the twentieth century as the Age of the Pax and World Wars.
1911-1921 – A Pax on You
Exiting the Gilded Age – of the Robber Baron, of larger than life magnates, of industrialists and financiers – we approach the staging for world war. Eventually, the culmination of World War I would end the European pastime of Empire building and put in place hegemonic practice of Pax. Prior to the war, there was very little separation between building political influence, empire building, and the building of personal wealth. Financiers and businessmen in Europe and America were constantly conniving to establish their power, national empires, and personal wealth by any means. Just because one oil magnate’s monopoly and aspirations were corralled, it did not mean that the rest of the world was neutered.
While history may rightly denote the assassination of the Archduke Francis Ferdinand, the heir to the Habsburg throne, on June 28, 1914, as the spark that set the world aflame, the predisposition to war was already well established. Similarly, the sinking of the Lusitania on May 7, 1915, may have been used as a ruse to draw the United States into the war formally. However, the United States was already financially invested through deals between the financial houses of the French Rothschild’s and the American Morgan’s as well as myriad other overseas industrialist ventures. As noted, the ties among war, commodities, finance, politics, and social change were well established. But it is important to note that, by the turn of twentieth century, London remained the undisputed financier of the world. But soon, British industrial excellence would succumb to the natural resource strength of America and, more importantly, Imperial Germany . . .
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For more industry perspectives and the latest market data reports, subscribe to the monthly DataWatch emagazine here.https://blog.ze.com/our-industry-views/the-seven-ages-of-oil-part-2-monopoly-hegemony-and-world-war/https://blog.ze.com/wp-content/uploads/2015/03/SevenAges2.jpghttps://blog.ze.com/wp-content/uploads/2015/03/SevenAges2-300x300.jpgIndustry ViewsChevron,Edison,England,Esso,ExxonMobil,germany,Pax,Pennzoil,Rockefeller,Standard Oil,United States,war,World War I,WWIThis blog is part two of a series that explores the intricate history of oil. 1870-1911: Rockefeller Creates the Multinational Oil Standard Born July 8, 1939, John D. Rockefeller is arguably the most notorious business magnate and philanthropist the world has ever known. The first American billionaire, at the pinnacle of...Aiman El-RamlyAiman El-Ramlyaiman@ze.comContributorBlogs by data management Experts & Analysts | ZE