The history of oil: Past, present and future

oil wellOf all the oligopolies that controlled the oil price, the reign of OPEC was the shortest and most anarchic. At peak production OPEC controlled over half the market but by 1975 it was a shrinking market with a surplus of world oil. Only predictions of coming shortages stopped a total price collapse and there was a small but growing spot market where buyers would pay over the OPEC odds to guarantee supply.  Every time the spot market went up, hawkish producers like Iran, Iraq and Libya demanded OPEC hike up its prices. A second oil shock was coming.

The catalyst was the 1978 revolt against the Iranian Shah. Pahlavi’s brutal regime imposed martial law against protesters but that only brought 17 million people out on the street. The dying Shah was convinced his time was up and he left the country in January 1979, sending the oil world into panic over the future of the world’s fourth largest producer. The Three Mile Island nuclear disaster of that year also helped inflate oil prices as Ayatollah Khomeini’s regime inspired Islamic radicals everywhere.

World tensions climaxed with the Soviet invasion of Afghanistan at the end of 1979 causing the US president to issue the Carter Doctrine: “Any attempt by outside forces to gain control of the Persian Gulf would be regarded as an assault on the vital interests of the US”. The US would use military force to defend those interests. Yet Carter was powerless to end the US embassy siege in Tehran as scientists predicted peak oil was coming.

Not for the first or last time, they were wrong. In 1980 world demand dropped abruptly as oil finally proved to be price sensitive. The previous high prices had enabled profitable investment in otherwise hard to reach areas such as the North Sea and Alaska while the USSR also upped its production to become the largest in the world. Saudi Arabia decided to become a swing producer as OPEC slashed production to keep its prices high but Iran, engulfed in war with Iraq, refused to throttle its output. The first West Texas Intermediate oil future market at New York’s Nymex, launched in 1983, served as an objective frame of reference for all oil pricing and unchained from distortive psychology, spot transactions drove prices down.

By 1986 a tidal wave of oil hit the market causing prices to collapse. Free market economics had far-reaching effects on the seven sisters. Thatcher’s public floating of BP saw the Kuwaiti Investment Office buy one fifth of the company while Gulf was taken over by Chevron. Oil became just another commodity, subject to the vagaries of world demand and the iron laws of economics. Saddam Hussein further destroyed OPEC’s credibility with Iraq’s invasion of Kuwait in 1990. After defeat by a US-led coalition in 1991 , Iraq’s production went down to one fifth of its pre-war total until Saddam finally accepted a UN Oil for Food program.

Even the end of the Soviet Union had no effect on oil prices as demand stayed sluggish. It took renewed discipline by OPEC at the end of the 20th century to stabilise supply and finally increase prices. The problems of the Middle East were brought home to Americans with the 9/11 attacks and the failures of the Israel-Palestine peace process. The hawkish Bush administration used 9/11 as an excuse to invade Iraq, though it made the politics of the region – and oil supply – more unpredictable. With no new exploration finds, the price soared after 2003. Once again the prophets of doom spoke of the end of the oil era. Once again they were wrong. Russia and Venezuela stepped up production to meet increased demand.

Outside the Gulf, the story of the 21st century has been the growth of third world consumption, led by China. The price which stayed below $25 a barrel from the 1980s to 2003, began to skyrocket reaching $147 in 2008, with record profits for the oil majors. It took a decision by President Bush to lift the ban on oil drilling to end the rises and the GFC that struck later that year sent prices plummeting again. It rose steadily again as the Arab Spring affected output in the Middle East and a faltering US economy kept the dollar low.

By 2015, the barrel price was one third what it was in 2008 and by the end of the year had slipped from $50 to $38. The low price has acted as a dampener on exploration of shale oil and gas but predictions of peak oil seem as far fetched as ever they were in the last 50 years. The concept of peak oil is based on the scientific model of Marion King Hubbert dating from 1956 (and not invented by the “green left” as ludicrously claimed in today’s Australian by Judith Sloan) from his observations of the production bell curve of known oil provinces. Hubbert correctly predicted peak oil in US fields (which were the most well-researched) around 1970.

Recoverable oil supplies are finite and demand is high. However Hubbert’s models don’t take into account scientific innovations such as fracking, limited knowledge of geology and hydrocarbon exploration or political motivations. When Hubbert tried to apply his model to world supply he predicted peak in the mid 1980s with a massive drop off by the end of the century. Of course that proved hopelessly wrong with over twice as much oil drilled in 2000 as Hubbert predicted. The International Energy Agency says production has ratcheted up from 75 mbd (million barrels a day) then to 97 mbd by end 2015 and a forecast average demand of 96 mbd next year. Indeed Hubbert failed to foresee that the US itself would contribute most of the increases through its shale oil supply which came online in 2008.

Certainly continued low prices will act as a dampener on investment in new oil and LNG fields and the world climate agreement will further reduce incentives. But long term the iron laws of supply and demand will govern the price of crude and China will continue to drive demand. Sometime in the next 10 to 20 years solar and wind power will become cheaper alternatives but until that time oil will remain the black gold driving the world’s ongoing obsession with energy as it has done for the last 150 years.

The history of oil: From Seven Sisters to OPEC: 1946-1974

Mr Robert Garrott, cashier at Hopfields Service station on the O
Petrol shortages were common in the 1973 oil shock.

America’s growing involvement in Middle East affairs after the Second World War came to a head with the establishment of Israel in 1948, much to the distaste of the US’s new oil partners Saudi Arabia. President Harry Truman fought against his own administration and the oil companies to recognise the new country as American policy in the region would remain mired in contradiction for decades to come. Meanwhile the British overthrow of Reza Shah in Iran (as Persia renamed itself in 1935), set in motion more nationalism and hatred of BP’s dominance of their economy and their refusal to accept the “fifty fifty” arrangements of other world oil producers.

Veteran politician Mohammed Mossadegh led the opposition to foreign manoeuvring and in 1951 the Iranian parliament approved his proposal to nationalise BP’s assets. Labour prime minister Clement Attlee labelled the Iranians “thieves” and “paranoics” though they were doing exactly what Attlee was doing in Britain: nationalising major institutions. Britain led a world oil blockade of Iran which lurched towards economic collapse. Britain’s position hardened when Churchill was returned as prime minister in 1951. His hopes of a coup d’etat were raised after Eisenhower won the US presidential election a year later and Iran began to be seen as a potential Soviet pawn, threatening the oil reserves of the entire Persian Gulf. The successful coup was engineered in 1953 but Britain did not get the result it wanted. An international consortium replaced BP’s monopoly with British and American interests getting 40% each. The oil companies would be at the forefront of American foreign policy and strategic objectives.

The golden age of oil was between the Marshall Plan of 1948 and the first oil shock of 1973, with world consumption growing sixfold and the number of cars growing fivefold. Europe and Japan led the way with car production, while aeroplanes became mass transportation. Petrochemical plants also had an inexhaustible demand for oil to make plastics and the Gulf countries rose to the challenge. The combined production of Saudi Arabia, Iran, Kuwait, Iraq and the Emirates went from 1.7 mbd in 1950 to 13.3 mdb in 1970, skyrocketing to 20.5 mbd by 1973. Cheap oil underpinned the postwar economic miracle, with Europe tapping into growing Soviet reserves, whenever the Seven Sisters became too demanding.

Other countries began to looking at how they could best use their oil. In September 1960 ministers from Venezuela, Saudi Arabia, Iran, Iraq and Kuwait met in Baghdad to form the Organisation of Petroleum Exporting Countries. OPEC would be an instrument for collective bargaining and self-defence. Change was coming, presaged by an Iraqi coup in 1958 that swept away the pro-British administration. In 1961 Iraq nationalised its oil industry as it looked to the appealing pan-Arab vision of Egypt’s Gamal Abdel Nasser. The days of “fifty fifty” were numbered.

Nasser’s approach was to use oil as a weapon to end western domination. In his Philosophy of a Revolution Nasser called oil one of the three fundamental pillars of Arab power (unity and socialism were the other two). From 1955 Arab nationalist strikes hit oilfields across the region and fearful America decided not to finance Nasser’s Aswan Dam. In retaliation Nasser nationalised the Suez Canal, which provided half of Europe’s oil needs (1.3 mpd) and a lucrative income to owners Britain and France.

Britain and France secretly planned to reclaim the canal, with Israel set to gain the Sinai Peninsula. The plan fell apart when the US refused to support it and the USSR threatened to intervene. It was Nasser’s biggest triumph and it was followed by more ructions in the short-lived merger with Syria and the more profound rise of the Baathists in Iraq. Even Saudi king Faud was forced to consider an alliance with the seemingly unstoppable Nasser, despite Egyptian propaganda portraying the Saudis as corrupt servants of the Americans.  An alarmed Washington began to look at ways to reduce its dependence on Arab oil but they were helped by Nasser’s overreach in a long and bloody war in Yemen and a surprise attack by Israel in 1967 which routed Egyptian, Syrian and Jordanian forces and set today’s Middle Eastern borders.

In response, Arab oil producers placed an embargo on the US, Europe and Japan. Despite supplying 80% of Europe and Japan’s oil, the embargo was unsuccessful. The US ramped up domestic production to meet the shortfall as did Iran and Venezuela and the embargo ended in a damp squib after a couple of months. Nasser died of a heart attack in 1970 and his pan-Arab mantle passed to new Libyan dictator Muhammad al-Qaddafi. Qaddafi immediately overturned the “fifty fifty” formula to a new 55-45 arrangement in favour of Libya and a 30% increase in its posted price for oil. It set the scene for a world oil shock in 1971.

Decades of overproduction and low prices came to a shattering end in a perfect storm of adverse circumstances. The world was now reliant on Middle East oil with the US at full capacity by 1971 (ending the Texas Railroad Commission’s role as swing producer). The Nixon administration unlinked the dollar from the gold standard to devalue the currency while trying to introduce price controls to tame inflation caused by financing the Vietnam war without raising taxes. The artificially low oil price discouraged further investment.

A freezing 1969-1970 US winter brought energy shortages while Iran and Algeria emulated Libya’s new oil pricing arrangements. Despite rising prices western demand went from 46 mbd in 1970 to 58 mpd in 1973. Nasser’s successor Anwar el-Sadat received Saudi blessing for his 1973 attack on Israel, backed with a huge OPEC price rise from $2.90 to $5.11 a barrel, with production cuts for each month Israel failed to withdraw from its 1967 territories. While the Saudi embargo was a failure and the Israelis won the Yom Kippur war, the perception of a crisis sent prices wild, almost ten times the 1970 price. By June 1974 Saudi Arabia acquired 60 percent of Armaco as the era of the Seven Sisters came to an end. However the fundamental oligopolistic command of the oil market remained unchanged. The power the Seven Sisters inherited from John D. Rockefeller was now in the hands of OPEC.

How stoner sloths may help legalise marijuana

stoner slothThe Australian state of New South Wales may have done the drug debate an unlikely favour through its hilariously bad new ads warning of the dangers of marijuana. NSW Health Department’s updated version of Reefer Madness is a campaign called Stoner Sloth designed to warn teenagers about the de-energising effect of the drug. But the anthropomorphic sloths used in the ads have attracted ridicule and concerns the cuddly looking mammal will actually have the opposite effect, attracting more people to use the drug.

NSW Health’s campaign was launched with the support of St Vincent de Paul’s Alcohol Drug Information Service. The premise is that “you are worse on weed”, based on research done by the National Cannabis Prevention and Information Centre. The idea has some intrinsic merit. Cannabis is a depressant drug, which means it slows down messages travelling between brain and body. However the health aspect of the ads are drowned by embarrassingly bad delivery.

Complete with its own hashtag, #stonersloth sets out to talk to the young about the effects of marijuana in language (and gifs) the department hoped the young would understand. Hit the books not the bong at exams, the campaign lectures (sound advice before exam time, though unlikely to be listened to AFTER the exam). It also warns about marijuana turning you into “that guy” at a party who is moody, listless and uninvolved (presumably unlike all the drunks who are the life of the party).

While slow reactions and a tendency to disengage can be symptoms of marijuana usage, the ads run into trouble transforming the stoner into an actual sloth, surrounded by human friends and family. Sloths are South American tree-dwelling mammals related to anteaters. Because they mostly eat nutrient-poor leaves, three-quarters of their body weight is devoted to their stomachs, so there is little energy to do much else. Their resulting lack of speed makes them ideal hosts for moths, beetles, cockroaches, fungi and other microbiotic creatures. Their low metabolic rates has made them extraordinary successful lifeforms in tropical rainforests. In short they are very little like the three young people named Deliha, Jason and Dave, the stoner sloths of the ads who can’t communicate with family and friends or concentrate on exams.

The campaign was designed to be shareable, especially among teenagers and it certainly made waves if not for the reasons the makers hoped. The hashtag #stonersloth became a hotbed of ridicule with people complaining about the stupidity of the ads, the cuddliness of sloths, and the apparent lack of consultation with young people.

Even NSW Premier Mike Baird appeared to distance himself from the campaign.He used his mastery of Twitter to riff about “Chewbacca siblings” and “no sloths being harmed in the making of the video”. Baird’s offhand humour is engaging but his comment that the video was “Quite something” is less than ringing endorsement of the message of his own health department and showed he didn’t see it before it was released.

The NCPIC whose message NSW Health relied on had not seen it either and are furious their message is attached to it. “NCPIC was not consulted on any of the creative elements of this campaign,” NCPIC director Professor Jan Copeland said. While some were worried about the silliness of the campaign Professor Copeland was more worried about the impression of the character of the sloth. “Associating a sloth with people being intoxicated may convey a positive appeal to people being intoxicated rather than the intended negative message,” she said.

The debate so far makes no mention of the elephant in the room: Cannabis remains an illegal drug to use, possess, grow or sell in Australia (despite moves towards legalising medical marijuana). The Northern Territory, the ACT and South Australia have “decriminalised” some marijuana offences, which means possession of small amounts becomes a revenue raiser for the state with minor fines applicable (arguably a tax on use, though unfairly distributed). In the other states, cannabis possession can lead to a criminal record (depending on the good will of prosecuting police) as well as larger fines, with repeat offenders still sentenced to jail.

In NSW, the home of #stonersloth, police can issue a “caution” to offenders caught with up to 15 grams of cannabis. There is a maximum of two cautions for each individual and police give out information about the harms associated with cannabis use and a number to call for drug-related information or referral.

These laws reflect a growing community belief marijuana usage is at worst a “victimless crime” and its widespread usage is causing unnecessary criminality. Studies show 34.8% of Australians 14 years and over have used cannabis at least once and 10.2% have used it in the last 12 months. Longer term effects of excessive use of cannabis can include memory loss, learning difficulties, mood swings and reduced sex drive. These are genuine health issues (the jury is still out on whether it causes schizophrenia) but hardly enough evidence to keep it illegal, especially when the damage done by legal drugs alcohol and tobacco is so well documented.

Stoner Sloth is a ill-designed schemozzle but its makers should be congratulated for at least putting marijuana back in the centre of public debate, however unwittingly. The road to legalisation is neither straight nor simple and requires new safeguards, taxing powers and managing community expectations. It is a complex debate our politicians don’t want to have, for fear of offending conservative media always keen to whip up outrage based on simplistic binaries of good and evil. No politician wants to be seen as soft in the “war on drugs” and the easy option is to support prohibition.

Yet support for legalisation in the wider community is growing. In Australia it rose from 26.8% in 2004 to 31.8% in 2014. The medical marijuana debate – legislation supported by Mike Baird among others – is casting a whole new light on the drug. As well as Stoner Sloth, NSW Health is also investing $9 million in clinical trials of marijuana use in pain relief. In the end it will Be Australia’s rapidly aging population and sufferers of cancer, Alzheimers, Parkinson’s Disease and more that will convince lawmakers to act. Stoner sloths are a stereotype, and just one tiny piece of a complex puzzle. It is up to the community to insist our leaders understand and solve that puzzle. Marijuana needs to come out of the shadows and be part of a wider health debate.

History of oil – The rise of Saudi Arabia

saudi oil
Dammam No. 7, the first commercial well in Saudi Arabia, struck oil in 1938. (Photo: Wikipedia)

John D. Rockefeller profited vastly from the age of oil based on the illuminant powers of kerosene. But Thomas Edison found an even better way to provide lighting, needing oil’s backers to find a new use for the fuel. It was ideal timing for the newly perfected motor car, though no one person can claim credit for the invention. Across late 19th century Europe, several manufacturers and scientists were experimenting with internal combustion engines, notably Karl Benz, Gottlieb Daimler and Rudolf Diesel. The first true car was a 1901 Mercedes designed by Daimler’s assistant Wilhelm Maybach but early vehicles were a rare extravagance.

Henry Ford’s Model T (1908) was the game-changer, the epitome of Ford’s standardised production line. Customers could have them in what colour they liked, as long as it was black and by 1914 Ford had sold one million vehicles. Despite the war in Europe, that figure doubled by 1916 and ballooned to 10 million by 1924. As Ford evolved his production processes, he passed on the cost reductions to his customers, while continuing to pay his staff well, ensuring a quality product always left the factory gates.

Ford’s enlightened generosity was unique but his business genius was matched by Alfred Sloan, head of rival General Motors. Sloan saw that 1920s customers weren’t happy with the same black car year after year. Optimistic times called for more diversified products. Sloan brought in a new model each year and he insisted his brands – Pontiac, Buick, Oldsmobile and Cadillac – were responsible for their own profit and loss. By 1927 Sloan and Ford were producing four out of every five cars in the world transforming oil from a source of illumination into a source of power.

Winston Churchill was among the first to realise the profound implications of oil-based transport. Britain had a natural advantage with coal, but in 1913 Churchill as First Lord of the Admiralty, successfully convinced his navy to switch from coal to oil. Though it meant Britain was going to have to import more oil, it was necessary to keep ahead of German naval developments. To ensure continued British energy self-sufficiency, Churchill insisted on government takeover of the bankrupt Anglo-Persian Oil Company (now BP) to manage the oil concession in Persia. The ensuing First World War merely cemented the notion that ample access to oil was crucial in mass mobilisation of military forces.

But there was already alarm about peak oil. By 1919, demand outstripped supply of American oil while supplies from Russia were almost wiped out by the Bolshevik Revolution. A sick president Wilson gave his reluctant blessing to the Sykes-Picot agreement which divvied up the Middle East between Britain and France. Britain carved out its Mesopotamian oil concessions at the 1920 San Remo conference, though Iraqi revolts in Nasiriya and Fallujah would damage western interests (not for the last time).

A puppet regime in Iraq was sworn to London under an alliance treaty. The US objected to British control over Iraqi oil and finally extracted an agreement in 1927 that involved BP, Shell, Total and Exxon-Mobil to jointly manage the concession. Similar situations emerged in the growing oil industries of Mexico and Venezuela leaving most of the world’s oil controlled by the emerging seven sisters. That only left the initially unpromisingly Arabian Peninsula in play.

London was the semi-colonial power of this forbidding desert of shifting sheikdoms. It wasn’t until New Zealand mining engineer Frank Holmes arrived in the mid-1920s that its oil potential began to be explored. Holmes was constrained by financial problems and eventually sold his concessions to Gulf and Chevron. Another key early player was John Philby (father of Soviet spy Kim) who formed an alliance with the House of Saud, who in 1925 had finally defeated the British-supported emir Hussein for control of the peninsula. King Abdul Aziz ibn-Saud’s success was based on a power-sharing pact with a 18th century puritanical doctrine of Islam called Wahhabism, but his need for money saw him eventually take the advice of Philby. He signed an oil contract with Chevron in 1933 for the whole of the eastern al-Hasa province.

Drilling in the peninsula was a dangerous undertaking and Chevron brought Texaco in as half partners to spread the risk. Together they formed a new company called Caltex. By the 1930s there was a new oil glut thanks to advances in geophysics, seismic subsurface analysis and secondary recovery methods using injected natural gas. Soviet production had recovered from the revolution and Middle Eastern oil was coming on-stream. Gasoline stations emerged to fill an exploding American domestic market for oil, along with motels and drive-ins.

With the threat of another price war, the global companies got together at Achnacarry Castle, Scotland in 1928 to form the first ever global oil cartel. The deal committed each company to freeze the status quo by fixing sales and tying pro-quota increases to consumption growth. The Gulf-Plus system fixed the cheaper world oil price to the more expensive American price with phantom freight charges. But the Wall St crash submerged the market with a huge oil glut; a situation finally rescued by the Roosevelt administration’s federal quotas. Thanks to Texas’s leadership in oil production, the Texas Railroad Commission became the de facto setter of world prices by deciding when to switch on and off its taps, a situation that lasted until 1971 (The group that eventually took over the Railroad’s role, OPEC, learned well from the Texan model).

Despite oil’s growing importance as a global fuel, it still lagged well behind coal at the outbreak of the Second World War by a production factor of four to one. America produced 60% of the world’s oil and the search for new oil was a critical factor in the strategy of that war. The Baku oilfields were more important to Hitler than taking freezing Moscow. Japan was less interested in Australia than in the oil in Borneo and Sumatra, and Allies planes spent far more time destroying the Ploiesti refineries in Romania than it did bombing Nazi death camps. By the end of the war it was clear to all strategists no war could be won without clear and ample supply of crude oil.

In America, Secretary of the Interior Harold Ickes warned President Roosevelt of the steady decline in the ratio between US oil reserves and production. The government kept the price of oil low to aid the war effort but this had the side impact of discouraging exploration. Ickes convinced the president to initiate an oil alliance with Saudi Arabia, which was now known to have huge deposits. Caltex were already there and looking for military protection in case of a German attack. In 1941, the US charged their Egyptian embassy to look after Arabian affairs and by 1943 the peninsula was recognised as vital to American “defence”, receiving Lend Lease support.

In 1945 the new relationship was cemented when Roosevelt met ibn-Saud on the USS Quincy in the Suez Canal. With the start of the Cold War, America became a net importer of oil for the first time and oil policy was at the heart of the Marshall Plan, which set a doubling of European consumption by 1951. Exxon and Mobil joined Chevron and Texaco’s Arabian venture to form the Arabian American Oil Company, Aramco. Mobil took 10% while the three other partners took 30% and Mobil’s lack of boldness cost it dear when it became apparent Arabia’s Ghawar was the largest oilfield on the planet. The companies settled in with a “fifty fifty profit sharing” partnership with ibn-Saud and by 1949, there was a pipeline in place from Arabia to the Lebanese port of Sidon. Arabian oil was about to power the world, and the American oil companies and the Saudi royal family were the biggest winners.

John D Rockefeller and the birth of the modern oil industry

John-D-Rockefeller-sen
John D. Rockefeller may have been unfairly maligned as a “robber baron”.

In his book The Age of Oil, oilman and historian Leonardo Maugeri said oil slipped abruptly into modern life via the back door. Prior to the industrial age, Mesopotamians used seeping surface oil for asphalt in roadbuilding and waterproofing and as a component in medicine. But it wasn’t until the 1850s that chemists conducted experiments to use oil as a cheap and flexible source of light. In 1854 Canadian Abraham Gesner patented Kerosene for “illumination or other purposes” and its use quickly spread around New York as a cheaper and safer alternative than existing illuminants.

Oil remained hard to get out of the ground until 1859 when Edwin Drake first used a drilling machine in Pennsylvania, adapted from earlier oil experiments at Baku, Azerbaijan. Drake built a wooden tower with a large steam-driven wheel around which he coiled a cable with an iron bit at the end. The rotation of the wheel raised the cable and when it fell back it excavated a hole. Drake drove a pipe down the hole which his men drilled inside so water and loose particles did not impede the iron bit from going deep into the ground.

Drake’s other innovation was to use the Pennsylvania 42-gallon (159 litres) whiskey barrel which would become the fundamental oil production measure still in use today. His early success attracted others to Western Pennsylvania, men (and they were mostly men) who were called wildcatters because they could hear the cries of wildcats in the isolated areas where they drilled for oil. Within two years the first oil refinery was in operation with exports shipped to London and after another four the first successful pipeline. The Black Gold Rush was on.

In the early days recurring gluts flooded the market pushing prices down and bankrupting many investors. Drake was not immune and ended his life in poverty. The dramatic roller-coaster rise of early oil prices was a source of annoyance to many and one man in particular was determined to fix the problem.

John D Rockefeller was a trained bookkeeper and trader who landed in the refinery business in Ohio in 1863. Rockefeller saw the “invisible hand” of the economy as the problem and was determined to put his own architecture on the industry by suppressing competition entirely. While he saw the wildcatting exploration business as too erratic to control, Rockefeller began to tackle the downstream processes of refining, transportation, pipelines and ships. In 1870 he founded Standard Oil in Cleveland where he decided to consolidate the entire refining business.

In February 1872 he launched the Cleveland Massacre, taking over 22 of 26 refining companies bringing almost the entire American refinery and oil service industries under his control. Those that came into Rockefeller’s tent were well rewarded for putting ceilings on their production whereas those who resisted were ruthlessly squeezed out. With the help of his partner Henry Flagler (who later developed Florida real estate in Miami and Palm Beach), Rockefeller negotiated secret deals with the railroad companies to obtain heavily discounted oil transport fees for guaranteed petroleum transport. Rockefeller even won a 25 percent fee for every non-Standard Oil barrel of oil the railroad carried.

The only hope for his rivals was to build up pipeline capacity, a technology that had to be developed from scratch. But even here, Standard Oil quickly leveraged off their industry strength to dominate by the 1880s. By then Rockefeller controlled 90 percent of US refineries and pipelines, owned most of the transport rolling stock and shipping tankers and the entire production of high-grade railway lubricant, all at a time when the US had 85 percent of the world crude production and refining.

His agents monitored the price of oil and new discoveries across America. If a competitor lowered the price of kerosene, Standard Oil would go even lower, while increasing the price elsewhere to compensate. Rockefeller’s empire was almost complete, held back only by the lack of US law for federal incorporation, making his operation fragmented. His response was the Standard Oil Trust established in 1882. Rockefeller established companies in each state Standard Oil operated. These companies transferred their shares to a Board of Trustees in New York which would allocate a proportional quantity of trustee certificates to each shareholder.

The Standard Oil Trust was kept hidden until 1889 and by then many other large companies had also established trusts. By then kerosene was the US’s largest manufactured export to the world and Rockefeller was the richest person on the planet. Yet competition was slowly emerging. The brothers of dynamite-inventor Alfred Nobel, Ludvig and Robert, were busy developing the Russian oil industry at Baku. With investment from the French Rothschilds, the Russians built a railroad to transfer kerosene from Baku to Batum (now Batumi) on the Black Sea, opening up a route to world markets.

Standard Oil tried the same tactics in Europe that were successful in America but Rothschilds launched a counter-offensive into Asia. They were helped by an English businessman Marcus Samuel who designed a new class of oil tanker capable of passing through the Suez Canal. This slashed costs compared to Standard’s Cape of Good Hope route and Samuel began building onshore terminals and storage tanks in key Asian ports.

Samuel’s emergence as a key player was cemented in 1897 as he reorganised his business into a new joint stock company which he named after his father’s shell box company, Shell Transport and Trading Company, simplified as Shell. Russian oil production surged above America’s by 1900 and the picture was complicated further by the discovery of oil in East Sumatra by the Royal Dutch Company. Marcus tried to organise a merger with the Dutch led by Henri Deterding. But Deterding out-manouevred Marcus insisting on a 60-40 split in his favour. Royal Dutch Shell came into being in 1907 but the two companies maintained separate status in The Hague and London, kept together only by Deterding’s force of will. They didn’t evolve into a single company until 2005.

A century earlier, the fulcrum of the oil world moved to Texas with enormous finds bringing the word “gusher” into the English language. New American companies rose to challenge Rockefeller’s dominance: the Texas Oil Company, Gulf Oil and Union Oil.  There was another threat in the political sphere. New president Theodore Roosevelt campaigned on an anti-trust platform. Though Rockefeller had retired in 1895 it was kept a secret and he was the most visible target of the “trustbusters”.  Rockefeller became the archetypal “robber baron” which was unfair as he kept the kerosene price low for the general public and had never turned swindling into a business practice.

But the pressure mounted on the railroads as “common carriers” to stop fee discrimination while the media used its growing power to shine a light into Rockefeller’s secretive life. The pressure finally told in 1911 when the US Supreme Court ordered the dismantling of Standard Oil into 30 independent companies. Several of what would later be called the “seven sisters” of world majors (along with Shell) emerged from the Ashes: Exxon (Standard Oil of New Jersey). Mobil (Standard Oil of New York), Chevron (Standard Oil of California) and Amoco (Standard Oil of Indiana).  The ruling ended Rockefeller’s reign of setting oil prices though did little to stop anti-competitive practices. While Rockefeller lived another four decades in quiet retirement as the symbol of 19th century capitalism, a new use beyond illumination would put oil at the heart of 20th century capitalism. The age of the internal combustion engine would change everything.