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Book Introduction
The Prize: The Epic Quest for Oil, Money, and Power is Daniel Yergin's 800-
page history of the global oil industry from the 1850s through 1990. The
Prize became a bestseller owing to its release date: it was published in
October 1990, two months after the invasion of Kuwait ordered by Saddam
Hussein and three months before the U.S-led coalition began the Gulf War to
oust Iraqi troops from that country. It eventually went on to win the Pulitzer
Prize.
The Prize has been called the "definitive" history of the oil industry, even a
"bible", some critics, though, consider the book too sympathetic to the
perspective of the oil industry, of which the author is, in a way, a part.In
1992 The Prize won the Pulitzer Prize for General Non-Fiction and has been
translated into fourteen languages. Now out of print in hardcover ¨The Prize¨
was published in a paperback edition (ISBN 0-671-79932-0) that was
released at the end of 1992, and is currently in print. The Prize is often cited
as essential background reading for students of the history of petroleum.
Prof. Joseph R. Rudolph Jr. said in Library Journal, for example, that The
Prize, "written by one of the foremost U.S. authorities on energy, . . . is a
major work in the field, replete with enough insight to satisfy the scholar and
sufficient concern with the drama and colorful personalities in the history of
oil to capture the interest of the general public. Though lengthy, the book
never drags in developing its themes: the relationship of oil to the rise of
modern capitalism; the intertwining relations between oil, politics, and
international power; and the relationship between oil and society in what
Yergin calls today's age of 'Hydrocarbon Man'."
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The "Prize":
Oil, a valuable natural resource, along with its various manifestations and
distilled products has been running through the veins of modern Industrial
Age since the end of 19
th
century. Though its discovery can be dated back to
pre-historic times but as a product of Industrial Age, it acquired significance
during the latere half of 19
th
century and has been at the forefront of
shaping political, cultural, social, economic and religious trends all over the
world since then.
In the grand tradition of epic storytelling, The Prize tells the panoramic
history of oil-and the struggle for wealth and power that has always
surrounded oil. It is a struggle that has shaken the world economy, dictated
the outcome of wars, and transformed the destiny of men and nations.
The Prize is as much a history of the modern world as of the oil industry
itself, for oil has shaped the politics of the twentieth century and has
profoundly changed the way we lead our daily lives. The canvas is
enormous-from the drilling of the first well in Pennsylvania through two
great world wars to the Iraqi invasion of Kuwait.
The Prize reveals how and why oil has become the largest industry in the
world, a game of huge risks and monumental rewards. Oil has played a
critical role in world events, from Japan's attack on Pearl Harbor and
Hitler's invasion of Russia to the Suez crisis and the YomKippur War. It has
propelled the once poor nations of the Middle East into positions of
unprecedented world power.
And even now it is fueling the heated debate over energy needs versus
environmental protection. With compelling narrative sweep, The Prize
chronicles the dramatic and decisive events in the history of oil. It is peopled
by a vividly portrayed gallery of characters that make it a fascinating story-
not only the wildcatters, rogues, and oil tycoons, but also the politicians and
heads of state. The cast extends from Dad Joiner and Doc Lloyd to John D.
Rockefeller and Calouste Gulbenkian and from Winston Churchill and Ibn
Saud to George Bush, the oil man who became President, and Saddam
Hussein.
It is a momentous story that needed to be told, and no one could tell it
better than Daniel Yergin. Not only one of the leading authorities on the
world oil industry and international politics, Yergin is also a master
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storyteller whom Newsweek described as "one of those rare historians who
can bring the past to life on the page." He brings to his new book an expert's
grasp of world events and a novelist's- indeed, a psychologist's-gift for
understanding human character. After seven years of painstaking research
and with unparalleled access to the sources, Daniel Yergin has written the
definitive work on the subject of oil. The Prize is a book of extraordinary
breadth, riveting excitement- and great importance. It may well be
described as the story of the twentieth century.

The Author:
Daniel Yergin is one of the world's leading authorities on world affairs and
the oil business. His prize-winning book Shattered Peace has become a
classic history of the origins of the Cold War. He is coauthor of Energy
Future: Report of the Energy Project at the Harvard Business School, a
seminal work on energy policy that was a best-seller
in the United States, Europe, and Japan.
Yergin is president of Cambridge Energy Research
Associates, one of the world's leading energy
consulting firms. He was previously a Lecturer at the
Harvard Business School and the John F. Kennedy
School of Government at Harvard University. He
received a B. A. from Yale University and a Ph.D. from
Cambridge University, where he was a Marshall
Scholar.







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The Prize: The Epic Quest for Oil, Money and Power
The author, Daniel Yergin, has divided the book into five major parts, each
describing a certain epic or an era of development in the history of oil during
the last century and a half.
Five parts are named as:
I) The Founders
II) The Global Struggle
III) War and Strategy
IV) The Hydrocarbon Age
V) The Battle for World Mastery

The Founders
More than anybody else, a linguistic professor named George Bissell is the
person who is to be considered as the founder of the discovery of modern
age oil as we know it. Professor of Latin and Greek at Darmouth College, he
had received samples of Rock Oil from Pennsylvania that had the properties
of being inflammable. It was the entrepreneurial spirit of George Bissell that
fueled the passion for the discovery and further drilling process of modern
day oil.
With the help of his brother-in-law Benjamin Silliman, Brissell was able to
find out that Rock Oil had the properties of being used as an illuminant for
common household use. Silliman undertook his analysis of Rock Oil and told
his partners "that the result will meet your expectations of the value of this
material."
The report, dated April 16, 1855, was released to the investors and hurried
to the printers. Though still appalled by Silliman's fee, the investors, in fact,
got more than their money's worth. Silliman's study, as one historian put it,
was nothing less than "a turning point in the establishment of the petroleum
business."
Armed with Silliman's report, which proved a most persuasive advertisement
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for the enterprise, George Bissell and his group had no trouble raising the
necessary funds from other investors. Silliman himself took two hundred
shares, adding further to the respectability of the enterprise, which became
known as the Pennsylvania Rock Oil Company.
Entrepreneurial innovation had already begun to respond to the needs of
growing industrial age for mechanical lubrication as well as industrial
lubrication in the late 1840s and early 1850s, with the extraction of
illuminating and lubricating oils from coal and other hydrocarbons. A lively
cast of characters, both in Britain and in North America, carried the search
forward, defining the market and developing the refining technology on
which the oil industry would later be based.
A court-martialed British admiral, Thomas Cochrane-who, it was said,
provided the model for Lord Byron's Don Juan-became obsessed with the
potential of asphalt, sought to promote it, and, along the way, acquired
ownership of a huge tar pit in Trinidad. Cochrane collaborated for a time
with a Canadian, Dr. Abraham Gesner. As a young man, Gesner had
attempted to start a business exporting horses to the West Indies, but, after
being shipwrecked twice, gave it up and went off to Guy's Hospital in London
to study medicine. Returning to Canada, he changed careers yet again and
became provincial geologist for New Brunswick. He developed a process for
extracting an oil from asphalt or similar substances and refining it into a
quality illuminating oil. He called this oil "kerosene"-from Keros and elaion,
the Greek words, respectively, for "wax" and "oil," altering the elaion to ene,
so that his product would sound more like the familiar camphene. In 1854
he applied for a United States patent for the manufacture of "a new liquid
hydrocarbon, which I denominate Kerosene, and which may be used for
illuminating or other purposes."
Gesner helped establish a kerosene works in New York City that by 1859
was producing five thousand gallons a day. A similar establishment was at
working Boston. The Scottish chemist James Young had pioneered a parallel
refining industry in Britain, based on cannel coal, and one also developed in
France, using shale rock. By 1859, an estimated thirty-four companies in the
United States were producing $5 million a year worth of kerosene or "coal-
oils," as the product was generically known. The growth of this coal-oil
business, wrote the editor of a trade journal, was proof of "the impetuous
energy with which the American mind takes up any branch of industry that
promises to pay well." A small fraction of the kerosene was extracted from
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Pennsylvania rock oil that was gathered by the traditional methods and that
would, from time to time, turn up at the refineries in New York.
Oil was hardly unfamiliar to mankind. In various parts of the Middle East, a
semisolid oozy substance called bitumen seeped to the surface through
cracks and fissures, and such seepages had been tapped far back into
antiquity-in Mesopotamia, back to 3000 B . C . The most famous source
was at Hit, on the Euphrates, not far from Babylon (and the site of modern
Baghdad). In the first century B. C., the Greek historian Diodor wrote
enthusiastically about the ancient bitumen industry: "Whereas many
incredible miracles occur in the Babylonian country, there is none such as
the great quantity of asphalt found there." Some of these seepages, along
with escaping petroleum gases, burned continuously providing the basis for
fire worship in the Middle East.
So the use of petroleum had a long and varied history in the Middle East.
Yet, in a great mystery, knowledge of its application was lost to the West for
many centuries, perhaps because the known major sources of bitumen, and
the knowledge of its uses, lay beyond the boundaries of the Roman empire,
and there was no direct transition of that knowledge to the West.
In the 1850s, the spread of kerosene in the United States faced two
significant barriers: There was as yet no substantial source of supply, and
there was no cheap lamp well-suited to burning what kerosene was
available. The lamps that did exist tended to become smoky, and the
burning kerosene gave off an acrid smell.
Thus by the time that Bissell was launching his venture, a cheaper quality
illuminating oil-kerosene-had already been introduced into some homes.
The techniques required for refining petroleum into kerosene had already
been commercialized with coal-oils. And an inexpensive lamp had been
developed that could satisfactorily burn kerosene. In essence, what Bissell
and his fellow investors in the Pennsylvania Rock Oil Company were trying to
do was discover a new source for the raw material that went into an
existing, established process.
It all came down to price. If they could find rock oil-petroleum-in sufficient
abundance, it could be sold cheaply, capturing the illuminating oils market
from products that were either far more expensive or far less satisfactory.
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Oil´s initial discovery and ¨pumping¨ of it started in 1859 by the sheer efforts
of Mr. William Drake who had pursued on the idea of drilling oil based on the
methods used for extraction of Salt Water beneath the surface of the earth.
William Drake was sent on this mission to Titusville by no other than George
Bissell and his other entrepreneur fellows. It was no more than a beautiful
accident that the first reserves of oil were discovered on the same day when
Mr. Drake used a letter from Pennsylvania that due to non-availability of
further funds, he should stop the work and return home!
Indeed, all the other elements-refining, experience with kerosene and the
right kind of lamp-were in place when Drake proved, through drilling, the
final requirement for a new industry, and the availability of supply. And with
that, man was suddenly given the ability to push back the night.
What followed immediately was like a gold rush. The flats in the narrow
valley of Oil Creek were quickly leased, and by November of 1860, fifteen
months after Drake's discovery, about seventy-five wells were producing,
with many more dry holes scarring the earth. Titusville "is now the
rendezvous of strangers eager for speculation," a writer had already
observed by 1860. "They barter prices in claims and shares; buy and sell
sites, and report the depth, show, or yield of wells, etc. etc. Those who leave
today tell others of the well they saw yielding 50 barrels of pure oil a day. . .
. The story sends more back tomorrow. . . . Never was a hive of bees in time
of swarming more astir, or making a greater buzz."
What might be expected of oil´s future? There were those who looked at
what had happened so quickly in western Pennsylvania and saw much
greater opportunities ahead. They envisioned the industry on a scale that
few in the Oil Regions could begin to imagine, and yet at the same time they
were also repelled and disgusted by the chaos and disorder, the fluctuations
and the frenzy. They had their own very strong ideas about how the oil
business ought to be organized and proceed. And they were already at work,
according to their own plans.



William Drake: The relentless venturer who never gave up!
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Standard Oil Company and John D. Rockefeller
John D. Rockefeller was the richest man in America. He was the man who
had created Standard Oil Trust and the man who, more than anybody else,
created the modern American economy.




John D Rockefeller, The founder of Oil Industry in United States of America

Standard Oil Company
Established in January 1870, Standard Oil Company was created by John D.
Rockefeller. A man gifted with the abilities of numbers, specially related to
money, and a passion to achieve ¨something big¨ was behind the existence
of a Company that transformed the entire oil industry- as well as the pace of
Industrial Revolution- in the decades to come.
The Company, as the name suggests itself, was created to unify the
hundreds of ever-growing independent producers of crude oil and produce a
product of uniform quality and ¨standard¨ throughout the United States.
Standard Oil at the time of its peak was controlling more than 90% of the
production, refining and transportation market in United States. It had
contracts with the railroads that offered huge rebates to the Company which
helped keep Standard´s prices lower in the market.
Standard Oil Trust
In order to keep the courts and public opinion at bay because of the
monopoly created by Standard Oil Company, John D Rockefeller created a
trust in the name of Standard Oil Trust. This was because of the fact that
there was no legal basis for the association of various refineries operating
under the auspices of Standard Oil Company. Thus, in an affidavit,
Rockefeller could later say, with a straight face and without perjuring
himself, that Standard Oil itself did not own or control a host of companies
that it manifestly did control.
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The legal concept of the "trust" was refined and formalized in the Standard
Oil Trust Agreement, which was signed on January 2, 1882. It was a
response to the judicial and political attacks of the late 1870s and early
1880s.
Because of the virtual monopoly and sheer size of it, Standard Oil along with
its founder John D. Rockefeller, was under constant attack from public and
such campaigns of hate and mistrust would be further aggrandized by ¨The
Independents¨: the people who had refused to join Standard Oil and were
operating in the market on their own. Thus they were in no position to
compete with the prices offered by those of Standard´s.
Ida Tarbell and the Dissolution of Standard Oil
Ida Tarbell, a US independent journalist, fuelled by the resentment of his
father´s losses in the oil business- for which she blamed Standard Oil for the
most of it- worked incessantly to expose the highhandedness of John D.
Rockefeller and his company.
She was able to have meetings with John D to have the inside information
about the Company and its various operations. Later, in 1902 after tracking
him for almost a year, she kept on writing his articles in Mclures Magazine
for another two years. Initially it was thought that her writings would not be
able to make it to the public in the first place because of influence of
Standard Oil all over in the industry but later on not only she was able to
write extensively but also fuelled the passion of public outrage against the
Company.
As a result of Ida Tarbell´s prolonged writings in the press, the Supreme
Court had to intervene in the affairs Standard Oil Company. This occurred
partly because of the fact that Roosevellet, then US president, had also
certain misgivings about the operations of Standard Oil and wanted to
address the concerns of US public, growing continuously over time.
In May, 1911 the Supreme Court gave its verdict against the Standard Oil
Company ruling out that the Standard Oil was an illegal monopoly and giving
6 months to dissolve itself. Finally, in late July of 1911, the company
announced its plans for dismantling itself.
Standard Oil was divided into several separate entities. The largest of them
was the former holding company, Standard Oil of New Jersey, with almost
half of the total net value; it eventually became Exxon-and never lost its
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lead. Next largest, with 9 percent of net value, was Standard Oil of New
York, which ultimately became Mobil. There was Standard Oil (California),
which eventually became Chevron; Standard Oil of Ohio, which became
Sohio and then the American arm of BP; Standard Oil of Indiana, which
became Amoco; Continental Oil, which became Conoco; and Atlantic, which
became part of ARCO and then eventually of Sun.
Ida Tarbell: The lady who brought Standard Oil to its knees!


Empires of Oil
Russian Oil
In the far flung area of Caucus, Ludwig Nobel built his oil empire in the Baku
fields in Russia. Nobel brothers, one of them, Alfred Nobel, renowned for
being Nobel Prize against his name had traditionally dealt in arms trade with
Russian and other empires but had lately entered into the oil industry
through their discoveries in Baku Fields. Mr. Ludwig was also known as the
"Russian Rockefeller".
The evidence of the Nobel Brothers Petroleum Producing Company
could be found throughout the empire: wells, pipelines, refineries, tankers,
barges, storage depots, its own railroad, a retail distribution network- and a
multinational workforce that was treated better than virtually any other
working group in Russia, and whose members proudly called themselves
"Nobelites." The rapid development of Ludwig Nobel's oil empire in the first
ten years of its existence has been described as "one of the greatest
triumphs of business enterprise in the entire nineteenth century. While Nobel
Brothers dominated distribution of oil within the Russian Empire, beyond
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those borders Russian oil was hardly a factor but the rapid expansion of the
Russian oil industry was posing a real threat to the Standard Oil Company.

Royal Dutch Shell
In east Indies (now Indonesia) was found to be part of what is now known
as Sumatra. It was under the control of Dutch Empire in 1880s. At that time,
Standard Oil controlled the market for Kerosene Oil of about 80% in the
entire world. This dominance was soon to be challenged by Royal Dutch
Shell.
Royal Dutch Shell emerged as collaboration between two people:

Henry Deterding: Founder of Royal Dutch




Marcus Samuel: Founder of Shell

Shell
Shell, the company named after the business of its owner´s father who
traded in sea shells, was basically a transportation company with reach from
east indies to the markets of Europe and Asia.
Royal Dutch
Founded by Henry Deterding, a tradesman by profession, Royal Dutch´s
main source of supplies were from Somatra oil fields but it had
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transportation and marketing problems in East Asia as well to markets of
Europe.
Standard Oil was a constant challenge to Royal Dutch. One of the tactits of it
was to decrease the prices substantially in the markets where it was
challenged by any other company and increase them in other markets so as
to maintain the balance of profits.
Royal Dutch/Shell
In November 1901, an agreement took place between Royal Dutch and Shell
by which the stocks would be jointly controlled by both the companies of
Royal Dutch and Shell. The move came not as a surprise as Henry Deterding
of Royal Dutch was in a real hurry to get access to the markets of Europe
and Asia to compete with Standard Oil.

Part II
The Global Struggle
World War I
It was supposed to be a short war, over in a few weeks or, at most, a few
months. Instead, it sank into stalemate and dragged on and on. All the
mechanical ingenuity of the late nineteenth and early twentieth century was
drafted into the conflict.
It was a war that was fought between men and machines. And these
machines were powered by oil. For, in the course of the First World War, oil
and the internal combustion engine changed every dimension of warfare,
even the very meaning of mobility on land and sea and in the air. In the
preceding decades, land warfare had depended on inflexible railway systems
that could carry troops and supplies to a railhead, as had occurred in the
Franco-Prussian War of 1870-71. From the railhead onward, the troops'
movement had been circumscribed by physical endurance, muscular
capabilities, and the legs of man and beast. How much could be carried, how
far and how fast-all that would change with the introduction of the internal
combustion engine.

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World War I brought victory to the allies and the thirst for oil would ever
increase, but could the US produce enough oil? To address the question an
American business man journeyed far and wide to look for the oil.
What would happen next would change the world completely. Americans
were just beginning to know that how critical petroleum would be in the 20
th

century.
The Door to Middle East
Calouste Gulbenkian: the man known as Mr. Five Percent
Calouste Gulbenkian was the second generation of his family in the oil
business. He was the son of a wealthy Armenian oil man and banker, who
had built his fortune as an importer of Russian kerosene into the Ottoman
Empire, and who had been rewarded by the Sultan with the governorship of
a Black Sea port.
Oil, if found anywhere in Mesopotamia, modern Iraq, could make him
tremendously wealthy. During World War I British and French discovered the
potential of oil reserves in the Ottoman Empire as it became the spoils of
war after World War I. When oil companies reached there to discover their
¨prize¨, they found one man standing between them and the oil fields:
Calouste Gulbenkina, the man who would later known to be as ¨Mr. Five
Percent¨.
At that time the world´s largest oil company- Standard Oil of New Jersey-
was headed by Walter Teagle. He was one of the members of those who
headed the legacy Standard Oil Company at the renowned ¨26
th
Broadway¨.
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Teagle was eagerly interested in exploring the oil riches of Mesopotamia but
was greatly thwarted by the fact that much of the oil concessions were
already given to Gulbenkian by the then Sultan of Turkey before World War
I. In 1912, he had setup an oil company by the name of Turkish Petroleum
Company with the help of Sultan´s support.

Mr. Five Percent
After the War both Germans as well as British were courting the prospective
people for oil. Gulbenkian invited both of them to jointly participate in the oil
business in Turkish Petroleum Company in return for his five percent share,
an arrangement that would not be possible for any of those especially after
the War. Hence the man was known as Mr. Five Percent.
Back in the United States, oil was becoming more and more of a household
commodity. Ford Motor Company had revolutionized the American society by
producing millions of cars all around the country. New roads were being built
and people were travelling as a way of recreation.
Dwight Eisenhower and Need for Roads
In July 1919, a carvan of army vehicles moved from Washington to
demonstrate the needs for highways. Dwight Eisenhower who was working
as a young captain in the army also jumped in the carvan to commensurate
the journey as a long holiday activity. The convoy was supposed to move to
San Francissco. It took 3 months for the carvan to reach from Washington to
San Francissco.
This expedition greatly reiterated the needs for highways and roads in the
country as the people in the carvan had experienced that on many places
during their travel, there were no roads at all at many places.
It was in the backdrop of such intense need for oil that Walter Teagle wrote
to the government about the need for more cooperation with the oil
companies to ensure the continuous supplies for country´s needs.
The whole mood of the government and of the oil industry at that time was
that there was going to be an imminent shortage of oil in the country.
During the war they had already put in what should be called as gasoline
guslers. One of the leading experts on oil said that US was left with the oil
reserves equivalent to 9 years and 3 months.
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American secretary of the states took notice of the urgency of the situation
and called upon the leading oil men in the industry and look for the supplies
of oil overseas. Walter Teagle was the man in charge of such projects.

Red Line Agreement
In 1920 at the annual meeting and 50
th
anniversary of Standard Oil
Company, Walter Teagle gave the following announcement:
¨Standard Oil is to be interested in ever producing area, no matter in what
country it is situated¨
Teagle strategy was very simple. He wanted crude oil and he would get it
wherever he could. That meant it could be Texan, it could be Russia,
Venezzveula or East Indies or Iraq.
It was in Iraq that the key to oil was held by ¨Mr. Five Percent¨. There took
place protracted negotiations between Gulbenkian and Teagle to finalize the
deal but Gulbenkian was insisted only and only one thing: his five percent
share of wherever the oil would be found in the region. Finally the deal took
place on his terms. On the map he drew a ¨red line¨ depicting the area of his
concessions. It was all the Middle East except Persia (modern Iran) and
Kuwait.
Destined to become world´s richest man, he took a Mediterranina cruise. One
day Gulbenkina spotted a curiously shaped ship. He asked what it was;
despite decades negotiating and fighting over oil, Gulbenkian had never seen
an oil tanker!
The basic theme of the ¨Red Line Agreement¨ was that there was going to
be a shortage of oil in the country. But in 1925, 26 major oil discoveries took
place in the state of Texas and what was soon to become a shortage turned
out to be a surplus in the oil market.
Magic of Gasoline
The transformation of America into an automotive culture was accompanied
by a truly momentous development: the emergence and proliferation of a
temple dedicated to the new fuel and the new way of life-the drive-in
gasoline station.
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There had to be a better way, and there was-the drive-in station. The
signal honor of building the first drive-in station is attributed to several
different pioneers, but according to the National Petroleum News, the
distinction belonged to the Automobile Gasoline Company in St. Louis in
1907.
The Meeting at Achnacarry
In the backdrop of over-production and persistently declining prices of oil, a
secret meeting took place among the heads of leading oil companies of the
day to decide upon the ways and means to deal with the issues of over-
production and unstable prices.
The meeting took place at a castle called Achnacarry in Glasgow, Scotland.
The participants were Heinrich Riedemann, Jersey's chief man in Germany;
Sir John Cadman of Anglo-Persian; William Mellon of Gulf; and Colonel
Robert Stewart of Standard of Indiana and of course Mr. Walter Teagle from
Standard Oil of New Jersey.
The meeting at Achnacarry was not only the work of the oil companies.
Behind the scenes, hidden from most observers, the British government was
prodding and pushing the companies toward collaboration in the pursuit of
its own economic and political goals.
"As-Is" Agreement
The two weeks of discussion that ensued on the banks of the River Arkaig
resulted in a seventeen-page document, agreed to but not signed, that was
called the "Pool Association." It became better known as the Achnacarry or
"As-Is" Agreement. The document summarized the "problem of the oil
industry"- overproduction, the effect of which "has been destructive rather
than constructive competition, resulting in much higher operating costs.
Heart of the document was the "As-Is" understanding: each company was
allocated a quota in various markets-a percentage share of the total sales,
based upon its share in 1928. A company could only increase its actual
volumes insofar as the total demand grew, but it would always keep to the
same percentage share.


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Part III
War and Strategy
Oil is the untold story of World War II. Oil had a profound impact on the
configuration of this war. It was central to the outcome and strategy of the
outcome of warring nations.
Hitler had come to power in Germany in 1933. He had a fascination for the
development of his country and brought the war ravaged country back to
work. He built the network of autobahns and the entire related infrastructure
required to put his nation back to its past glory. He had a special fascination
for automobiles and took personal care in the develpmet of this sector to
take a lead in the development of his country.
In his grand ambition to build an ¨empire¨ he wanted to ¨conquer¨ Britain as
a revenge for the horrendous defeat in the World War I. It was in the
backdrop of these ambitions that Poland was ¨blitzkreiged¨ in the first place
and Germany was able to expropriate large quantities of oil. In 1940s the
possession of oil was quite sufficient with the Germans. Due to possessions
of oil, a revengeful mind and a grand ambition to build the empire, Germany
attached London as well. During the initial stages massive damage was
inflicted to the city of London.
But this time as well, the help came from oil. Americans as well as the
Germans, during 1930s, had come up with an aviation fuel known as 100
Octane that was critical to the flight of war planes during the World War II.
With the help of 100 Octane Fuel, Britain was able to fight back the German
assault and Hitler, for the first time in the war, was able to face defeat.
Oil, once again proved critical factor of success or defeat in the War. The
Allied forces, with their complete hold and sway on the resources and
mobilization of oil, were able to defeat the grand ambitions of Hitler.




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Japan and the World War II
Japan is a land-locked country with hardly any natural resources at its
disposal. The country has to rely mainly on imports of natural resources
from abroad. Before the World War II, much of Japanese economy was
fuelled by the oil supplied by mainly United States (80%) although there
were few other sources like the East Indies and Russia.
Japan had already fought a war with China in a bid to maintain a strong hold
over the entire region and become its master. There was another unspoken
agenda related to its wars in the region: the oil supplies from the East Indies
(Indonesia). Being constantly dependent on the supplies from United States,
Japan could not become a master of the region and at the same time keep
its economy growing. Therefore, large reserves of oil, under its complete
control, were necessary.
The man who was behind the entry of Japan into the war was General Hideki
Tojo. He was among the leading men who had ambitions to build Japan as
the empire of Asia and push her towards the war.



General Tojo: The man- called "razor¨- behind
Japan´s entry in WW II.


American was concerned about Japan´s atrocities in China. President
Rosevellet started thinking about the oil embargo towards Japan. After a
long and anxious period, Americans were still not able to control Japan´s
ambitions in China.
Japanese, on the other hand, had entirely different agenda. Bent on securing
their supplies from Russia, Iran and East Indies she attacked Pearl Harbor in
1941.
20

With the attack, Japan was suddenly put into the position of defense, facing
revenge from United States and resulting in getting its oil supplies cut from
the allies.
Although the opinion in Japan about her entry into the war was divisive
within government but the fact that its decision to attack on Pearl Harbor
and the later consequences resulted incalculable damage to Japanese
economy and people. Her position was drastically weakened as a strong
state and the cut in oil supplies from United States could never be recovered
in the times to come. Ultimately, during the coming decades Japan had to
shift its industrial economy towards less oil intensive industries such as
computers and electronics.
When American armies came in Japan, they reached Tojo´s house and
ordered his arrests. He appeared at the window and said he would come
down in a few moments. Seconds later, gunshot was heard. Tojo was
transported to the hospital. The man who had pushed the Japan to war for
fear of lack of oil supplies was having his life hung in the balance not
because of the lack of doctors but the fact that they could not find an
ambulance with enough gasoline in it to take him to the hospital.
Finally, he was taken to the hospital, put on trial and executed!
Germany
Hitler too was teaming up with the dreams of oil: from Russia. In June 1941
Germany invaded Russia but soon the territory the Germans were
conquering became their enemy. Without paths and roads, German trucks
consumed twice the fuel needed to move along. As the weeks dragged into
months, dirt roads became muds. At the beginning of winters, as oil froze in
the engines of trucks, German forces were trapped on the outskirts of
Moscow. Hitler and his generals renewed their arguments over strategy. The
German generals wanted to eliminate the powerful concentration of troops
that defended the Moscow but Hitler wanted to turn southeast toward
Caucasian region for the oil fields. Hitler was of the opinion that his generals
knew ¨nothing¨ about the economic aspects of the war. In the end, Hitler
decided that the oil would be the objective. This was Hitler´s very personal
decision because he knew that his generals knew little about the importants
of occupying the oil wells in order to fight any campaign.
21

There was one general in Hitler´s army that shared his views: General
Rommel. In order to secure continuous supplies of oil for the war, Rommel
proposed the idea of invading and capturing Baku fields by launching the
attack through Africa. Hitler supported and Rommel led his army through the
African deserts.






General Rommel: Had to face retreat for scarcity of oil in the
battlefield

During the entire campaign, Rommel was always short of oil supplies. He
had to face British troops near Cairo in June 1942. Due to shortage of oil,
Rommel had to fly back to Hitler and beg for oil supplies in order to face the
British assault but Hitler was not able to offer anything else than the
promises and the title of Field Marshal.
Desperate, Rommel had to come back and face the rage of General
Montgomery from the British troops. British supplies were being continuously
assured from various sources, including United States. At last Rommel had
to call the retreat with these words:
¨The bravest men can do nothing without guns, the guns can do nothing
without ammunition and neither guns not ammunition are of much use in
mobile warfare unless there are vehicles with enough petrol to hold them
up¨
Hitler´s dream of reaching to Baku fields could not be fulfilled as his forces
faced fierce resistance on the way to those. Back in Germany, the economy
was in shambles as all the sources of energy were continuously consumed
by the war.
22

Although the Germans were the first ones to make world´s first fire jet but it
is an irony in itself that the needed farm animals in order to move the fighter
jets at the runway!
As the Russians closed in on bunkers of Hitler in Berlin, he made plans for
his own suicide and killed himself. His aides took his body and there, amidst
the ruined monuments, in what was to be the ¨thousand years´ Reich¨ they
wrenched his body with gasoline and set it aflame!!!

Part IV
The Hydrocarbon Age
America lifted petrol rationing within the 24 hours of the end of WW II. As
the nation celebrated, few worried that where the future oil would come
from and who would control it. Country after country turned towards the
pleasures and prosperity of the peace. The war had taught the governments
that the oil was the business too important to be left to the business men.
Oil had been the big business and the right business right from the
beginning and the Second World War had demonstrated more than anything
before that the oil was a key part to grand strategy essential to the power
and the position of nations. Oil was more political than ever before. This
increased the anxiety that where the oil supplies would come from, how
would they get to the market, will there be enough and safe markets? All of
this stood in much contrast to the 1930s where the issue was too much oil
and what to do about it.
The international agreements made in 1930s (recall ¨As-Is agreement at
Acnacharry) to stabilize the prices didn´t work very well. The major
companies didn´t trust each other and they and the smaller companies were
trying constantly to take markets from each other. Moreover even in the glut
years of The Great Depression, name of the game was still oil in the ground.
Saudia Arabia and the Oil Wealth
In the early 1930s the possibility of oil had brought attention of the world to
a place traditionally known for adventurers as a land of exploration, in
particular a desert kingdom and its warrior king: Saudia Arabia.
2J

It was created by the man known as Abdul Aziz Bin Abdul Rahman Bin Saud,
a man known to the west by the name of Ibn-e-Saud.







Ibn-e-Saud: Founder of modern Saudia Arabia and a "novie riche¨
from oil wealth

After the great efforts for the prospects of oil in Saudia Arabia by an
American geologist named Everette Lee DeGolyer, an advisor to the king
named as Philby, America gained the concessions for oil prospects in the
kingdom in 1933 worth $ 275,000.
SOCAL (Standard Oil of California, modern day Chevron) was busy
relentlessly scavenging for oil in the kingdom. Among SOCAL other
companies were building duplexes and new men were coming to the region
every day. Drilling took precedence over everything else. Finally after almost
five years of disappointment and destruction, oil broke out in Saudia Arabia
bringing instant riches to the land.
The Arabian American Oil Company (Aramco) was on its way with the
striking of the oil. British were also keen on entering in the market but
Americans had taken the lead in getting close relations to the King. The king
himself wanted the close association with both the countries- he infact had
shown the British the offer given to him by the Americans but Britain could
not come with any alternative or competitive offer.
Iran and Oil
In Iran, during the reign of Raza Shah Pehlvi, the nation was reeling with
anti-British fervor. Never had so much malevolence been attributed to a so
rapidly declining power. The English were regarded as almost supernatural
devils, controlling and manipulating the entire nation. Every Iranian
24

politician, wherever he might be in the political spectrum, was virtually
obliged to accuse his enemies and opponents of being British agents. Even
droughts, crop failures, and locust plagues were blamed on the evil designs
of those clever Englishmen. But the detestation centered, in particular, on
the largest industrial employer in Iran, the major source of the nation's
foreign earnings, and the all-too-tangible symbol of the intrusion of the
modern foreign world-the Anglo-Iranian Oil Company. .It was half-
owned by the British Government.
The Anglo-Iranian Oil Company was also the target of major forces of
nationalism. In 1951, the Iranians nationalized their oil. Initially the
Americans were not ¨too unhappy¨ by the developments of nationalization
campaigns in the country but when the fury really began to take it toll, they
realized the gravity of the situation.

The young pro-western Shah was little more than a figure-head in the
country. The real powers laid with an olderly aristocrat; prime minister
Mossadegh. His eccentricities included negotiating skillfully from his bed in
pajamas.
Mossadegh: The man behind Iran´s nationalization of oil
Mossadegh established a state-owned company to take control of Anglo-
Iranian assets. There were repeated attempts to work out a settlement but
they all failed. Mossadegh was an ardent nationalist; he was impeccably
anti-British; there were also at work political calculations. He told the
Americans that he couldn´t take the risk of making deals with the British
because it would destroy his political position at home. So Mossadegh had a
victory; the British were out and he controlled Iran´s oil. There was just one
problem. When he went to the world market, he found that he couldn´t sell
any of the oil. The companies put a world-wide boycott on Iranian oil and in
25

particular Ango-Persian Oil Company (later known as Anglo-Iranian Oil
Company.
As the situation deteriorated, the new Eisenhower administration in
Washington feared that the situation in Iran would lead the country towards
Soviet influence. Eisenhower agreed to a joint CIA-MI6 secret mission code
named "ajax" to support the opposition movement in Iran to topple
Mossadegh. The operation took less than two months. Mossadegh fled; he
was finished.
Raza Shah Pehlvi of Iran
The Shah was restored to his peacock throne. Embarrased by his need for
Western help he was determined not to be a figurehead but an absolute
monarch. American had helped topple Mossadegh to contain Communism;
Britain: to gain its oil interests.
Washington had now to deal with the fact that Iran was now out of the
international market for two years. A new consortium was made which
consisted 8 major and 9 independent companies. Despite pressure from the
US Government, the 8 majors were reluctant to be drawn into the unstable
polictics of Iran. They felt they had more than enough oil in Saudi Arabia but
what Washington and London wanted was to stabilize the consortium by
handling the management for its increasing oil output.
Power to the Producers
In post-war years the oil could not stay away from politics and politics could
not get rid of oil. The industry was being shaped not only by the clash of the
market place and oil´s strategic significance for the world´s economy but also
by the global rivalries of the cold war and by fiery nationalisms of the Middle
East.
In economic terms things were actually getting better for the oil producing
countries. The revenues were rising rapidly as the demand for oil increased
around the world and the economies were growing fast as well. But if you
lived in one of those oil countries, the oil companies still looked imperial and
26

impregnable; the masters of markets and technologies. Despite all that
nationalism was rising as the western world was growing more and more
dependent upon oil, the balance of power was shifting from companies to
the countries and the struggle was just beginning.
In the 1950s and 60s, tension between the oil producing countries and
companies was to grow. In Italy struggle to industrialize after WW II, energy
supplies were critical. New discoveries were celebrated in a carnival
atmosphere . Oil was discovered in ever growing quantities around the world.
Western society was transformed by the ever more abundance of fuel but
the battle was to begin for the control of this wealth.




Enrico Mattei and Italy
In October 1962 the Italian oil magnate Ricoh Mattei was plagued by
anonymous death threats. He had made enemies in Italy and abroad and
had alarmed governments and intelligence agencies in three continents.
Enrico Mattei: Italian Oil Magnate, the man called Napoleon of Oil

Mattei had attempted to change the balance of oil power in the world and
secure for Italy a place in the sun. Mattei had closed a deal with Esso and
was due to meet President Kennedy in the United States. After visitng
refiney in Sissli he boarded into his corporate jet: it was to be his last
journey. The plan crashed just one minute before landing on the land. Some
suspected sabotage.
27

Mattei had taken on Italy´s establishment. He had made many powerful
enemies. His vision of new balance of power in the oil world had challenged
the global oil system. His opponents scorned him as the Napoleon of Oil an
oil man without an oil in what was meant to be the world´s biggest business.
He had a moral motivation, he never accepted the idea that you actually
work for money. He never got his salary. Very early in his career, in one of
high moments of his grudges, he decided that all of the private oil
companies, particularly the big ones in the world, were in league to thwart
his desire. So in a moment of peak he called them the seven sisters and
the name.
He saw the groups of major international groups linked together in joint
ventures and trying to keep people like him out of the business and he was
determined to get in and get his share of the business. The major oil
companies- the seven sisters- handled most of the oil that fueled the mass
of the industrial world after the WW II. He resented the control of oil of
these companies. When major formed a consortium to run the Iranian oil
industry, he was furious that he had been excluded. He felt that his
company, ENI, was being refused entry into an exclusive Anglo-American
club. He had fought hard to build ENI as a state energy company .
He had grown up in a time of great national poverty. Generations of Italians
ahd to leave their country in search of jobs and a better life. This felt Mattei
with indignation. In Second World War, Mattei participate the war by fighting
against Musolini´s Fascist. He was the natural leader and quickly adopted the
Partisan- the group he was fighting for- technique of action, supplies and the
total dedication to cause.
As a reward for fighting the war against the Fascist, he was awarded with
being incharge of the ailing national oil company Agip. He was supposed to
wind up the company and sell it off for viable profit but when he heard
secret reports of massive deposits of oil in Italy, he ignored his orders and
decided to drill. Instead of ol, he found natural gas. The major oil companies
wanted to buy out this major rival to which he refused. Mattei had to
develop his major natural gas company fast if he was to beat the
competition of coal and oil from foreign oil companies. It was the race
against the time. He would have to cut corners and adapt the ¨Partisan¨
technique: action first, get permission later. If an irate mayor complained
that his town had been dug-up in the middle of night, Mattei would apologize
28

and offer to abandon work immediately, only to be begged to continue and
complete the work as quickly as possible.
His next move was to smarten up the image of his company. He modernized
its gasoline stations and provided restaurants and service. He even made a
cartoon film made to encourage the pump attendants to clean up their act.
Mattei´s campaign began to win customers away from the majors.
Mattei wad doing well by fighting the majors with his added service stations
but he still desperately wanted to join the club and get into the production
market. Usage his patronage and connections, he would apply his
considerable influence and connections and his own considerable political
skills to advance ENI´s interests. He was called the most important and
powerful man in Italy. The majors companies combined all aspects of
production, refinining, transportation and marketing to the one system. He
wanted to get into that end of profitable business. He devised his own ways
to do it and being a state-owned enterprise, he granted extremely generous
terms and conditions to the countries producing oil, thereby posing
considerable blows to the market share of majors in quite a few of their very
strong countries of production resources. His actions incensed the
governments of Britain and France and together with Israel, they were
determined to use the force. On October 27
th
1962, Mattei´s plan crashed.
His legacy was ENI which would become the 8
th
international largest oil
company in the world.
The world economy was making a dramatic shift from coal to oil. This was
the oil age and the oil was cheap. In America cheap and abundant oil
provided the basis for hydrocarbon society, automobile culture and the new
way of life and the vast social revolution. Tens of millions of people moved to
the suburbs. Even Marlyn Monroe proclaimed the unique virtues of gasoline.
The hydrocarbon society brought in with it drive-ins, fast-food and the new
prosperity. Millions took to the roads on new highways. The major
companies fought to stimulate brand endorsement and loyalty among
motorists. Competition was cut-throat but for their rivalry, the different
brands were virtually identical and behind the competition, the companies
worked together in joint-ventures and many of the producing countries. The
majors spanned the globe and were pouring huge investments into every
part of the business: from exploration to transportation, from refining to
marketing.
29

Perez Alfonso of Venezuela: The man behind the formation of OPEC
The countries where most of the new oil was coming from were Middle East
and Venezuela. They were unhappy with their share of the take: the profit
on oil. It was boom time throughout the industrial world and major
companies were enjoying tremendous power in terms of setting prices and
the quantities of production. As the production of oil went up, the price went
down. Governments saw that they had the vital interest in oil. Like Mattei of
Italy, Venezuela´s Van Pablo Perez Alfonso also wanted to change the rules
of the game. He wanted to collude with the oil producing nations and threat
production cuts in order to force up the price.
Alfonso believed that the oil companies were exploiting the Venezuelan oil
too rapidly and it would soon be depleted. His idea was to reduce
production. His view of the world and the need for cooperation drove him
towards seeking a compact between Venezuela and the emerging oil
producing nations of Middle East. Abullah Tariki was Saudia Arabia´s oil
minister.
Abdullah Tariki: Saudia Arabia´s oil minister and a key man behind OPEC
He also wanted to reduce the power of western oil companies. In Arab Oil
Congress in Cairo in 1959, Tariki met with the man of his views: Perez
Alfonso. The two men agreed that the oil producing nations should unite
against the oil companies but this common front to be effective, all the other
major countries had to provide their support. Feelings were running high
among the participants. The majors had arbitrarily cut the prices of oil. For
the common front to succeed, the observers from Iran needed persuasion.
They secretly rendezvoused at the art club in a suburb of Cairo. Thre they
worked out a draft agreement for mutual cooperation. Not everybody was
ready to sign. Although little more than a gentlemen´s agreement, the
J0

document could lay the basis for joint action if everybody would agree to
sign it. Manucher Farmanfarmaian, Director National Iranian Oil ( 1957-71)
who was initially reluctant to sign the document was the first one to sign it
and then followed Alfonso. But there was no guarantee that this
¨gentlemen´s agreement¨ would lead anywhere. Then, a year later, the oil
glut let the majors once again cut the price; this time by 14 cents to less
than two dollars a barrel.
OPEC was formed in Baghdad in 1960. The oil companies refused to
acknowledge its existence. For the architects, Abdullah Tariki and Perez
Alfonso, the battle was just beginning. The first general secretary was an
Iranian: Fuad Rouhani. In a secret forty-three-page report on "Middle East
Oil," in November i960, two months after OPEC's founding, the CIA devoted
a mere four lines to the new organization.When OPEC prepared to act
unilaterly for the first time in 1963, the Shah of Iran was torn.


When the 6 das war broke out between Israel and its neighbors, the Arab Oil
exporters attempted to embargo supplies to countries that supported Israel
but that effort failed because there was just too much oil around.
Libya, Occidental and a New Era in World Oil
In the 1960s, the biggest new source of oil was Libya. Here and elsewhere,
the position of majors was under attack from a new direction. As 100s of
independent companies rushed to enter the international oil business. Libya
was a very poor country. Its exports were, among others, scrap metals left
after WW II left in its battlefields and a type of grass used to make paper
money. But now the Libyan regime saw the chance to make some real
money: from oil.
The Libyans encouraged independent companies to join oil rush. These
independents were to undermine the dominant position of the majors. Dr.
Armond Hammer was one such independent. He was a trader of various
types by profession. At the age of 57, he married for the 3
rd
time and after
honeymoon returned to California. He acquired some oil wells as a tax
shelter and then bought a dormant oil company called Occidental. He was
anxious in California when there was enough money being made in the oil
J1

business. To his luck, Occidental struck a natural gas field and became an
overnight success.
Occidental became a large company through acquisitions and Hammer
needed the big oil discovery, if he was really going to hit the big time. He
made many enemies along the way including one of Occidental´s former
executive.
Libya was ruled by a devout kind Idrees. A devout Muslim but a weak
monarch, he was surrounded by corruption. For Hammer, King Idrees and
Libya were the major turning points for his riches. Hammer tried everything
for the right amount of influence. At last he found Omer Shelhi, a close
associate of King Idrees. Although Hammer had to pay commission to Omer
for every barrel of oil, but he was the right kind of influence he needed.
Occidental was able to get oil concessions in Libya. Hammer´s use of
technology enabled him to find oil on concessions previously declined by
Mobil. During the inauguration of country´s first ever pipeline, Home praised
King and his various attributes.
Then came the bombshell: Moimer Kadafi. A young army officer staged a
successful military coup. This would prove to be bad news for the oil
companies. Kadafi held a very strong hand because the world´s oil glut was
coming to an end. He wanted more control over his oil and more revenue
but the oil companies resisted. The Libyans could see that independents,
particularly Hammer, were the weak links. Libya was Hammer´s only source
of supply. The Libyans slashed his production. Hammer resisted. He begged
majors to sell him crude at his cost if he was nationalized. The majors
turned him down. Hammer was cornered.
After negotiations with the Libyans, Hammer´s surrender cost him an
immediate 30 cents a barrel and a 55% share on all profit of oil for Libyans.
This was the first time that a producing country had dictated terms
to an oil company.
Hammer´s surrender clearly marked the point at which the power began to
pass to the producing countries. Now the rise of nationalism, the
independents and the shift in supply and demand all meant a new era world
oil. The heyday of the majors was over.

J2

Part V
The Battle for World Mastery
Shrewd deal makers of OPEC learned how to play the oil game with the west
to their advantage. Now that they had all the cards, they only had to figure
out how to play with each other.
First Oil Shock
As the tide of nationalism in oil producing countries grew strong, their unity
was ever more intense to control the prices of oil. The western companies,
specially United States, joined hands with the Shah Of Iran to secure energy
supplies from Iran. With the help of Iran at a conference of OPEC countries,
the price of oil was raised by 35 cents a barrel at the proposal of OPEC.
OPEC countries were of the strong opinion that the major oil companies were
reaping far more profit than was actually ¨needed¨ and this gave them the
unity to manipulate production and prices. In Kuwait, over the years,
presence of foreigners on its soil had sowed the seeds of resentments to
local population as they were outcast in the exclusive clubs and meetings of
western oil company executives and the residences of their families. Kuwaiti
oil minister, Sheikh Ahmed AL-Sabah, had sensed the resentments of his
compatriots and rallied to address the concerns of prices and productions.
He was amply supported in the negotiations by then Saudi oil minister
Alyamani, a shrewd and ¨sweet´ negotiator as was described by his
opponents.
With the increasing resentment of Arab-Israeli conflict over the years, Saudi
King Faisal had declared strong support for Arab cause by threatening cuts
in supplies. In October 1973, Egypt and Lebanon attacked Israel on a Jewish
holiday. Initially, Arabs had big successes but the entry of United States,
Israel was soon dominant and ultimately was able to win the battle.
Although the battle was won by the Israiel but the resentment in Arab
countries united them together and the first production cut came during
these years. The effect was such that the oil prices went upto 6 dollars a
barrel. In US, the prices went up to 40% of what they had been previously.
This led to anxiety and frustration among US public.
JJ

In Japan as well, the situation was considered a strong threat to the very
existence of this country which depended, more than any country else in the
world, on the imports of oil for running its economy. The effect was such
that the Japanese industry was rapidly transformed to other businesses
requiring less consumption of oil. As a result there was a massive boom in
computers and the development of sophisticated electronic gadgets in the
Japanese markets. As such, the shock turned out to be a blessing in disguise
for Japan. In fact, it was the result of this oil shock that the production of
fuel efficient cars made in Japan gained sudden popularity all around the
world and brands such as Toyota, Honda and Mitsubishi became a household
name.
Second Oil Shock
The second oil shock resulted as an aftermath of Iranian revolution. As the
monarchy of Shah was toppled in Iran in 1979, there was a great disruption
in supplies of oil from one of the major oil producing countries of the world.
The oil prices actually touched 40 dollars a barrel. Everybody that now there
was a permanent shortage of oil. But with 20/20 hindsight you could look
back and see that there was no actual shortage, there was panic, there was
hoarding but there was no shortage that virtually no one saw at that time.
Third Oil Shock
The Third Oil Shock was in the aftermath of Iraq- Iran war but by the time
the crisis hit the world in 1980-81, much of the oil business in the world had
become more of a commodity business. What it meant that the oil, that was
a much strategic commodity was also becoming just another commodity like
gold, coffee and coco. At the beginning of 1986, the oil prices had plunged
from 39 dollars to less than 10. It meant that market forces were now
determining the oil prices and OPEC was no more able to rule.
The OPEC countries found that their market share was getting smaller and
smaller. Saudi Arabia at one point was actually producing less oil than the
British sector of the North Sea. In the oil industry, with the sudden fall in
their domestic revenues, came as a great shock and it meant that the
companies went through major and immediate crisis of contraction of cutting
budgets and employment and becoming smaller companies.
For the public, the price collapse was terrific; it meant that they were seeing
the prices they were never expected to see again.
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It didn´t very long for the supply and demand- specially after the discovery
of oil in Alaska and deep water drilling in North Sea- to catch up with the
OPEC countries. They thought that they could raise the prices as high as
they wanted and consumers would pay the price but with conservations and
alternative energy sources and with non-OPEC oil that didn´t prove the case.
In 1983, OPEC had to cut its prices. The oil from Alaska was eating into
OPEC´s market share.
Shortly after Saddam Hussain´s army invaded Kuwait, oil prices rocketed to
40 dollars a barrel. By the time Kuwait was liberated, prices had tumbled,
tumbled so low that after four wars and 3 oil shocks, the real price of a
barrel was it where it had been in mid-seventies.


Towards The Future
Our world is continually being remade by technology and innovation.
Together, they have given rise to pervasive computerization, global
communications, and an "information economy" that now coexists with the
"industrial economy" inherited from the nineteenth century. Much of the
leadership and dynamism in the modern economy has passed to what the
Japanese call "knowledge-based" industries. Yet petroleum remains the
motive force of industrial society and the lifeblood of the civilization that it
helped create. It is still the basis for the world's biggest business, one that
embodies the extremes of risk and reward, as well as the interplay and
conflict between entrepreneurship and corporate enterprise, and between
private business and the nation-state. It also remains-as was demonstrated
in the summer and autumn of 1990-an essential element in national power,
a major factor in world economies, a critical focus for war and conflict, and a
decisive force in international affairs.
And what of the years ahead? A variety of global scenarios and risks can be
identified for the future of oil and world society. But certainly one of the
lessons of the history of oil is to expect the unexpected-the "surprise"-that
becomes perfectly obvious only after the fact. Violence, wars, technological
hazards, political explosions, economic imperatives, ethnic or religious or
ideological or social conflicts-all can come as surprises, affecting access to
oil. But a surprise may also take other forms. It could be a major shift in
J5

world economic growth patterns, for instance. Or it might be a technological
breakthrough in alternative energy production, diminishing oil's importance,
that comes out of some American laboratory-or, increasingly likely, a
Japanese laboratory.
(After all, by the end of the 1980s, the Japanese government was spending
more on energy research and development than the American government.)
A surprise could arise from an environmental crisis, leading to a major
alteration in the energy economy. Or it could come from the Soviet Union.
The politics of the Soviet Union might well have a major impact on world
energy in the years immediately ahead. The USSR is the world's largest
producer, with output in 1989 more than double that of Saudi Arabia, and it
is the world's second largest exporter after Saudi Arabia. Time after time in
years past, the fortunes of Russian oil have had significant global impact,
beginning in the nineteenth century, when the development of an oil
industry in Azerbaijan around Baku broke the global grip of Standard Oil and
indeed the virtual monopoly of western Pennsylvania. The Revolution of
1905 resulted in the first politically induced interruption of significant world
oil supplies. The Bolsheviks' stepped-up export campaign in the 1920s
instigated the global price war that led to the meeting at Achnacarry Castle
in Scotland in 1928 and the "As-Is" agreement. In the late 1950s, the
"communist oil offensive," the Soviet drive for market share, stimulated the
price-cutting that gave birth to OPEC.
Today, the Soviet Union's exports of oil (and gas) are vital for its entire
system. They constitute its main "cash crop," in excess of 60 percent of the
total hard currency earnings that are essential for the purchase of
technology and food abroad. But the Soviet oil industry is in the grip of a
crisis brought on by inefficiency and low productivity, poor organization and
technological backwardness, waste and environmental neglect. "Energy
policy has been the single most disruptive factor in Soviet industry since the
mid-1970s and one of the leading proximate causes of the downturn and
stagnation of Soviet economic growth," one observer has noted. "For the
reformers under Mikhail Gorbachev no other issue of economic policy is so
great an obstacle to their plans." The accumulated problems and the
reduction in investment have meant that the long-predicted decline in Soviet
oil production is at hand. If exports also decline significantly, the effects will
be felt throughout the world.
J6

The Soviet oil industry is suffering from the same disorder and, indeed,
demoralization that afflict its society as a whole. There is great eagerness
today in the Soviet Union to bring Western capital and technology into the oil
and gas sector-reminding one of Lenin who, during the New Economic Plan
of the early 1920s, talked about putting a "quarter of Baku" up for
international auction. And the Western companies are very interested. The
Soviet Union leads the world in natural gas reserves, and they believe that
the oil potential might prove enormous as well. But the companies-and,
indeed, the industrialized nations of the world-find themselves hindered by
the disorganization, political conflict, immobility, confusion, uncertainty, and
risk that characterize the entire Soviet system. The Soviet energy sector is
also afflicted by the ethnic conflicts that have erupted throughout the nation
following glasnost and the lifting of the heavy hand of communist control. In
contrast to the heady days in the nineteenth century when Baku was one of
the world's two main sources of petroleum, the Soviet republic of Azerbaijan
today produces less than three percent of total Soviet oil, but is the main
source for the services and supplies that support the industry throughout the
country. And the civil war that broke out between Azeris and Armenians in
1989 saw a return to the bloody violence of 1904-05, only acted out now not
with single-action rifles but with AK-47S. These and other ethnic conflicts
could end up seriously impeding the production of oil, and thus reduce
further the flow of Soviet petroleum to the world market. The worry about
too much Soviet oil coming into world markets-which animated so many
critical events in the history of oil-could be turned upside down in the
1990s by significant shortfalls. Yet ultimately, if development proceeds, the
Soviet Union could end up an even more important exporter.
If there are new surprises, new crises, how well prepared are we? After the
1973 oil shock, it was clear that the oil companies could not and would not
manage future crises by themselves, and that it was up to governments to
take on that role. In the years since, the industrial countries have developed
an energy security system built around the International Energy Agency and
the strategic stockpiles, such as the U.S. Strategic Petroleum Reserve and
similar reserves in Germany and Japan, which can be brought into play to
avert a shortfall and counteract a panic. The IEA provides a framework for
coordinated response and for the exchange of timely, accurate information
among nations-an absolute requirement to head off any such panic. The
years of past oil crises have demonstrated that, given time, markets will
adjust and allocate. Those years also provided evidence that governments
J7

do well to resist the immediate temptation to control and micro-manage the
market. Of course, it is hard for governments to resist action when
uncertainty is high, panic is building, and accusations are mounting. Yet the
course of the five major disruptions from the early 1950s through the early
1980s has revealed that the logistical and supply system can adapt to such
an extent that the shortages ended up being less dire than had been
expected. Indeed, the real problem turned out not to be an absolute
shortage, but the disruption of the supply system and the confusion over
ownership of oil, with the consequent rush to reorder the system under
conditions of high uncertainty.
Even if experience points the way to better-managed reactions, there are
other important questions. During the oil crises in the 1970s, the United
States political system was paralyzed in the face of one of the biggest and
most costly disruptions of the postwar era. Anger, finger-pointing,
scapegoating-all became a substitute for the development of a rational
reaction to a very serious problem.
Watergate, of course, was part of the explanation. Still, the spectacle of that
fragmented, contentious response, characterized by the pursuit of a galaxy
of conflicting special interests, provides reason to ponder how, even after
the Gulf Crisis is resolved, the United States will respond over the long haul
to future energy needs and crises.
The Environmental Wave
Even as the world continues to move on oil and the economy to live on oil, a
new challenge to Hydrocarbon Society has emerged, this time from within,
portending a great confrontation that will probably affect the oil industry
and, indeed, our way of life in the years ahead. The industrial world is now
facing a resurgent wave of the environmental movement. The first, in the
late 1960s and early 1970s, focused on clean air and water and had a
prominent "made-in- America" label on it. It had major energy implications,
for it provided the impetus for the rapid switch from coal to fuel oil, which
was one of the main forces that tightened the world oil market so quickly,
setting the stage for the 1973 crisis. During the 1970s, as security came to
the fore and hard economic times led to renewed emphasis on jobs and
economic performance, the environmental movement lost some of its
momentum. In a second wave, it was more narrowly focused, with much
concentration on slowing or stopping the development of nuclear power. It
J8

succeeded in so doing in most of the major industrial countries, decisively
altering what had been assumed to be the major path of response to the oil
crisis.
A powerful third wave began to rise in the 1980s, and is still building toward
its crest. It has engendered wide support, cutting across traditional
ideological, demographic, and partisan differences. It is an international
phenomenon whose concerns include every environmental hazard from the
depletion of the tropical rain forests to the disposal of waste products. Its
overall concern is no less than the very character of our planet.6
Perhaps the single decisive event that catalyzed the new wave of
environmentalism had its beginnings in April 1986, when operators of a
nuclear reactor in Chernobyl, in the Ukraine, lost control. The reactor itself
was consumed in a partial nuclear meltdown, and clouds of radioactive
emissions spewed forth and were carried by winds across vast stretches of
the European continent. The initial reaction of the Soviet government was
denial, denouncing the reports of a nuclear disaster as a creation of
malevolent Western media. As the days went by, however, rumors reached
Moscow of riots at the train station in Kiev, of mass evacuations, of deaths
and disaster. International criticism mounted. Still, a blanket of silence was
maintained, fueling speculation about horrible disasters.
Finally, more than two weeks after the accident, Mikhail Gorbachev went on
television. His speech was wholly uncharacteristic of Soviet leadership and
represented a sharp break with the way the Kremlin had traditionally
communicated with its own people and the rest of the world. There was no
propaganda, no denial, in the speech; instead, it was a serious, somber
admission that a grave accident had indeed occurred, but steps were now
under way to control it. Only then did the Soviet people and the rest of the
world realize how incredibly dangerous the first few days had been. Some in
the Soviet leadership would afterwards say that Chernobyl had been a major
political turning point within the USSR for glasnost and perestroika. Those in
Western Europe who had blamed all environmental ills on Western capitalism
were forced to rethink their ideology. In both Eastern Europe and the Soviet
Union, environmentalism became one of the most important rallying points
for opposition to communism, and with good reason. For with the parting of
the Iron Curtain, it was revealed that among the leading legacies of cynical
communist rule was a frightening pattern of environmental degradation and
disasters, some of them perhaps irreversible.
J9

Environmental considerations will certainly be among the top issues for the
new democratic parliaments of Eastern Europe. Chernobyl, with its threat of
invisible but deadly danger and its warning of technology out of control,
provided a great thrust to the new wave of environmentalism.
In the United States, another event took on great importance- though
without the same risk to human health or life. It occurred at four minutes
after midnight, on Good Friday, March 24, 1989, when the supertanker
Exxon Valdez rammed into the rocky Bligh Reef in Alaska's Prince William
Sound, spilling 240,000 barrels of petroleum into those pristine waters. The
expenditure of upwards of $2 billion on the cleanup did nothing to erase the
Valdez spill from the political map. Coming as it did on top of a host of other
concerns; the tanker accident strengthened the reborn environmental
consciousness and the willingness on the part of many people to trade off
energy production in favor of environmental protection. That single event in
1989 could have a major impact on the world energy balance in the late
1990s to the degree that it tilts the scales against new oil development in
the United States, leading to even higher imports.
Oil is paramount in the environmental consciousness, for at the top of the
concerns are the consequences of hydrocarbon combustion-smog and air
pollution, acid rain, global warming, ozone depletion. Some of the most
bitterly fought issues concern the opening of new territories to oil and gas
production, whether offshore or in Alaska. Great contention also surrounds
the siting of new energy facilities, particularly electricity generating plants.
The United States and other industrial countries could experience
considerable pressure on their electricity supply systems in the 1990s,
forcing difficult and contentious choices about how the burgeoning demand
for electricity will be met with the least cost to the environment. Among the
most important effects of the environmental consensus will be a switch
toward natural gas as the least polluting energy source, particularly in
electricity generation. And there will be a new emphasis on energy
conservation, not only for reasons of security and price, as was the case in
the 1970s and early 1980s, but as a way to contain the combustion of
hydrocarbons- and to buy time.
The new environmental agenda will hardly come to pass without major
battles over the accuracy of the science and its predictions, the extent of the
risks, the proper remedies-and the costs. Though there is a widespread
sentiment that environmental improvement is essentially "free," merely a
40

matter of regulation, this is not likely to be the case. There will be a
significant, if not easily calculable, price tag. The environment, like defense
or medical care or education, is a social "good," which means that someone
has to pay for it; and as the costs emerge, there will be a growing struggle
over how the bill is to be divided up among companies, consumers, and
governments. Society does not yet know how to allocate costs between the
here-and-now-for instance, expensive pollution-control systems on power
plants and factories-and the future- the almost incomprehensible costs
and disruption in agricultural production and even in human habitation that
could result if there is a major climate change.
Yet the 1990s began not with another environmental drama, but rather
with a struggle over the oil resources of the Persian Gulf, on which the world
was again becoming heavily dependent. The Gulf Crisis thrust energy
security back onto the political agenda, spurring governments to focus anew
on ensuring supplies. It will serve to stimulate oil exploration and
development around the world. In the words of a thoughtful observer,
Joseph Stanislaw, "The rules of the race between demand growth and
production capacity in the 1990s have been changed by the Gulf Crisis. Now
secure capacity will count for a lot more." The crisis will rekindle efforts to
promote energy development within the industrial countries. Much of the
industrial world will find itself caught up in the competition of two great
themes-energy and security, and energy and the environment.
A far-reaching clash between anxieties about energy security and economic
well-being on the one side, and fears about the environment on the other,
seems all but inevitable. One point of convergence of the two themes is
energy conservation. Another may be greater utilization of natural gas. Aside
from that, the consensus necessary to solve environmental problems and at
the same time meet the requirements of security, both within and among
nations, will undoubtedly be as difficult to achieve as any other form of
economic, political, and social cooperation.
But perhaps, just perhaps, all this could eventually point to a new direction
for industrial society, and to a beneficent resolution of the conflicts between
energy and the environment. Innovation responds to need; and if properly
nurtured, research and technology will respond to environmental and energy
imperatives. However, until such time as there are new technological
breakthroughs, perhaps in solar and renewable energies, industrial society
41

has only three primary clusters of alternatives on which to rely for its new
power needs: oil, gas, and coal; nuclear power; and conservation in the
form of technological improvements and greater efficiency in the use of
energy. In the 1990s, the merits of the various alternatives will be jumbled
together in the energy and environmental debate, challenging traditional
interests and modes of thought.
The clashes will take many forms: lifestyle versus the quality of life, markets
versus regulation, controlled versus untrammeled development, economic
use versus preservation, dependence versus autonomy, cooperation versus
competition among nations-and security and economic growth versus the
environment.
Great amounts of money will be at stake, as will political standing and
power, not only within nations, but in the world arena. And so will be the
way we live. Indeed, with the fate of the planet itself seeming to be in
question, the hydrocarbon civilization that oil built could be shaken to its
foundations.
The Age of Oil
The cry that echoed in August of 1859 through the narrow valleys of western
Pennsylvania-that the crazy Yankee, Colonel Drake, had struck oil-set off a
great oil rush that has never ceased in the years since. And thereafter, in
war and peace, oil would achieve the capacity to make or break nations, and
would be decisive in the great political and economic struggles of the
twentieth century.
But again and again, through the never-ending quest, the great ironies of oil
have been made apparent. Its power comes with a price. Over almost a
century and a half, oil has brought out both the best and worst of our
civilization. It has been both boon and burden. Energy is the basis of
industrial society. And of all energy sources, oil has loomed the largest and
the most problematic because of its central role, its strategic character, its
geographic distribution, the recurrent pattern of crisis in its supply-and the
inevitable and irresistible temptation to grasp for its rewards. It will be
remarkable if we reach the end of this century without the preeminence of
oil being tested or challenged yet again by political, technical, economic, or
environmental crises-perhaps foreseen, perhaps coming by surprise.
Nothing less should be expected in a century that has been so profoundly
shaped and affected by oil.
42

Its history has been a panorama of triumphs and a litany of tragic and costly
mistakes. It has been a theater for the noble and the base in the human
character.
Creativity, dedication, entrepreneurship, ingenuity, and technical innovation
have coexisted with avarice, corruption, blind political ambition, and brute
force. Oil has helped to make possible mastery over the physical world. It
has given us our daily life and, literally, through agricultural chemicals and
transportation, our daily bread. It has also fueled the global struggles for
political and economic primacy. Much blood has been spilled in its name. The
fierce and sometimes violent quest for oil-and for the riches and power it
conveys-will surely continue so long as oil holds a central place. For ours is
a century in which every facet of our civilization has been transformed by
the modern and mesmerizing alchemy of petroleum. Ours truly remains the
age of oil.
In the end what a British statesman said over a forty years ago still stands
today: "The kingdom of heaven runs on righteousness but the
kingdom of earth runs on oil"

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0 ) ( D ( # ( ) 4 4 !O ! ) # 3 $ ( $ + $ H ! $ 0 $ B ( 9 # 3 # % + # $ $ $ $ < ' $ F ( + $ $ # 6 # ) A $ $ 3 $ 0 1 0 " %' !" % $ # $$ # (/ $ $$ # $ B ( D # %' : %!( 0 $ $ F $ # $ D # 5 ) + ( 0 $ $ B $$ # $ $ C $ ( 3 $ ( $ 3 # # $ $$ 3 ( $ 3 $ 9 .0 > A $ > 1 $ $ ) $ 3 ( 0 # $ ( (D $ > . $ 3 ( D ) $ $ ( $ $ # 3 # # # ) # $ > > # $ % % 3 $ %' ' .

( 9 # J $ $ * $ " ) F $ D J 3 ( + H ! $# # * # < 3 ( 3 $# ) ! " ) # ) 2 $ $ # ) ) $ 2 $ ( # # 3 # $ " (0 %' !E ' $ ( MD ) A $ E $ $ # $ ) $ ) $ A ( # ( $$ 2 > $ $ 2 $ $ 2 3 "# ) ( 0 # A # # $$ $ $ $ 2 $# ) $ B ) D # ( 9 A ( G ) $ ( 0 E 2 3 2 E # # $ # ) A E $ 3 $ $ $ ( 9 # $ B .0 F J) D $ 3 ( $ 5 " + " # ) ) ) 0 ) %' < F F $ 3 J + # " ( ( $ .

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' ) # $ ) + $ $ ## ( $ )$ $ B $ $ %' ! . # ( D ) " $ - E ) / $ # $ # # $( A ) (+ # ) ) A . ( $ $ $ ) $ ) $ ( $ 1 3 $ B# $ $ ( 0 .$$ $ 3 ( # ) $ B %' ! A A ) $ ) $ # $ $ $ %' ! & $ "$ ( # # $ # ) $ ( 0 # ( # $ 1 ) $ + $ A 1 $ ( # "$ %' ! . " " D $ 2 # ( 0 $ $ %' < . . $ $ )$ ) $ 3 $ ) $ %' :! $ 2 $ ) $ $ $ $( 0 ) ) $ %' ! . F ) ( + ) ) .

$ # ( D ( 0 $ $ ) ) # # ) # $ $ B # $ B ) %' ! ( 0 $ # ) ) ) D 3 $ # ( ) $ ( 0 (: ) ) $ $ $ F %' : ( ) ) +) ) $ $ $ $ ) / ( 0 $ ( D $ 6 ) $$ $ ( .+ +? / 3 0 $$ ) F $ $ $ # $ $$ $ ) $ ) # $ ) $ (0 # $ $ ) # ( $ $ ( 6 / F # # +) $# # ( +$ # $ B 3( $ +) . # 3 3 # * ) $ $ $ ( + # # 3 ) ) # 3 ( . # +) * $ ( ) C $ ) ( # +) .

6 4 %' ' H 46 5 6 1 $$ 3 9 ? D 3 + 4 ! !!! # H $ A I # 4 5 1 $ $ (F$ C 3 # $ ) ) $ ( %' ' ) $ B $ # %' ! ' + ) $ ( $ 1 # # D # # # $ $ $ ( D ) %' ! .$ $ ) # # ) 0 + $ ) # $ ) ) 3 $ ( F $ # $( $ E $ / ( 3 $ ) 3 $ ( 0 $ . # %' ! # # $ ( $ $ ) $ E $ )$ ( 2 $ ) $ # $ + $ # ) $ 3( . ) $ # $ ) $ ) ) $ $# E $ ( +$ $ ( A %' ! ' $ ( D $ # $# E ) $ B A 2$ # 3 $ ) .

$ # ( $ # 3 $ $ # $ $ " $ $ # # $ # # # 3 ) ) ( $ # ) # $ (2 . 3 ( $ ( $ F (5 ) $ ) # # ) $ # ) ) $ # ) ) $ $ (D # $ $ $ ( ) # ) ) $ # C $ . # 3 ) $ # ( 0 $ $ # 1 # $ E # # ) ) # ( (D A ) $ $ 3 ( 2 $ # ) A 3 ) E $ # ) 2 $ " $ ) ( ) $ . ) F $ A # $ # .$ # $ ) ) " C # ( + E E $ B %' ! # ' ) $ ( 0 ) > $ + ( 0 2 %' ! ' $ $ D " "# $ $ $ $ 9 B ) $ ) ( .

$ C $ ( 0 %' ! ' $ 3 $ ) ) $ ) . $ $ $ )( 0 1 ( # ) ( $ # # ) E $ $ ) ( $ ) ) $ )$ ) ) C ) # ) # B$# ) $$ 1 ) $ $ $ $ ) ) 3 $ 3 ( D $ # # 3 # # & D ) E ) ) # ) ( ) " ) # ) $ ) # $ 3# # ) $ 5 $ ( 0 # ( D # $ # # # ( 0 # # # $ # # 1 ( # ( $ E ( 0 $ # E # A # ( $ # # $ ( # ) $ $ 3 $ % & ' 3 F ) 3 ( D # 3 3 E 9 $ # .

$ ) ) & $ .0 $ # 3 ( 0 ( ) ) ( ) $ $ # $ ) ) $ A ) # $ $ # # $ F $ 3 ( 0 ( 1 # # $ $# ) $ # ) # ( 0 # E # (6 ) # $( $ ( $ ) $ ( 0 & . E $ $ # $ $ 9 & .