Oil old history fragments

Umberto Mazzei

15/05/2012

Opinión

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"The oil industry…is, from an economic standpoint, a foreign province located in our territory"
Alberto Adriani, 1931

Until the late nineteenth century oil was used only for lamps and lubricants. Everything changed when, in Germany, Siegfried Marcus invented the combustion engine, Karl Benz's assembled the first car that run on gasoline, and, in the United States, Henry Ford created, at Dearborn, his first prototypes. By the twentieth century dawn, oil moved transportation by land, sea and air.

The history of oil shows, up until the Second World War, a parade of colorful characters that shaped present oil partitions. Its history has material for several action movies, with two main actors: Standard Oil and Shell.

U.S. and Standard Oil

In 1859, Edwin Drake struck oil in Titusville, Pennsylvania and started the first U.S. oil production. Ten years later, Titusville was the largest oil field in North America. Samuel Andrews - inspired by the German chemists Liebig and Karl Enger Giusto- began, in Cleveland, refining oil to make kerosene and other products. John D. Rockefeller came by and they associated. Henry Flagler showed up and they formed the Rockefeller, Flager &Andrews. The company expanded into oil transport and pushed for a transport cartel called Standard Oil Co. Due to contracts with Vanderbilt’s railroads, the use of pipelines and by dumping, in 1880 it controlled 95% of the oil trade in the U.S. Then it expanded to other markets and sources to reach universal coverage.

British, Dutch and Shell

Astride the new century, Henry Deterding and Marcus Samuel enter the oil scene. The first, from Amsterdam, used to work in a bank and the second, from Whitechapel, traded shells. In 1900 Deterding took the helm of Royal Dutch Petroleum and Samuel had a fleet of 8 tankers, with a shell as its emblem. In 1907 they associated to form the Royal Dutch Shell. Their first wells were in Indonesia and traded in Southeast Asia. Between 1909 and 1911, there was a trade war between Shell and Standard Oil in China, which ended with market allocation. Shell then took the rivalry to the United States and Mexico. The Standard Oil (ESSO) became also a producer, so it could compete in a global struggle.

In 1925, Samuel was renamed Viscount Bearstead, after being Lord Mayor of London. In 1937, Deterding had to resign because of dealing with Germany and died the following year.

Mosul / Iraq

Since 1912, the British knew that there was oil in Mosul (Nineveh), then Turkish. In 1916, in Iraq, during the war, along with Anglo-Indian troops appeared Miss Gertrude Bell, a British aristocrat, fluent in Arabic, in charge of relations with Mesopotamia’s sheikhs. Although Mosul was promised to the French by the Sykes-Picot agreement, the British occupied Mosul and the Foreign Office created a new throne of Iraq, where Miss Bell placed her friend Feisal. It was the time when Britain planted kings throughout the Middle East.

Another character in Mosul issue was the Armenian Basil Zaharoff, "the Death Tycoon", a universal arms merchant, who was Turk, then Greek, later English and died as a Frenchman. As an English agent, he persuaded the Greek government of Eleftherios Venizelos to invade Turkey, after the First World War. A bloody distraction when the Turks, with French and American support, confronted the British over Mosul. The attack produced 300 thousand Greeks and Armenians dead, but allowed the British to occupy the area which the League of Nations finally awarded to Iraq (Great Britain). Turkey was left without oil, but, in 1927, the Iraqi Oil Company, where Zaharoff was a large shareholder, got its first oil out of the Gurgur Baba well. The Iraq Oil merged in 1954 with Anglo-Persian to create British Petroleum-BP.

Mexico

In 1904, Edward Doheny, a U.S. oilman friend of Porfirio Diaz, obtained oil concessions in Mexico. In 1908 Porfirio Diaz gave English engineer Weetman Pearson other concessions and Mexican production rose rapidly. By 1910, Mexico produced 14 million barrels a year. The American press criticized Diaz in coincidence with some sabotage. In Tampico, a Pearson’s well burned for days with 400 meters flames, visible 150 kilometers offshore. In 1911, Francisco Madero, a Mexican educated in Maryland, California and Paris, whose San Luis Potosi Plan was drawn up in San Antonio, Texas, began a revolution. It is documented that the weapons and the money came through the Northern border. Diaz left the country in 1911 and Madero was sworn president. In 1912 Madero signed a deal with Japan and Victoriano Huerta, his War Minister, had him killed in February 1913, by order of U. S. Ambassador Henry Wilson.

That was the beginning of a long civil war that shed torrents of Mexican blood, while Washington and London accused each other. In April 1914, an American fleet landed at Tampico and the United States occupied the oil zone. Argentina, Brazil and Chile protested and the US left, after Venustiano Carranza, who was admittedly funded by Doherty, was installed. It is at this juncture that Standard Oil showed up in Mexico.

In May, 1917, Carranza reaffirmed in Article 17 of a Mining Law the old Spanish legal principle that all underground minerals belonged to the state and also conditions on the purchase of Mexican land by foreigners. Shell already had a Mexican oil company, El Aguila Mexicana S. A., and was safe. Carranza was killed in May, 1920, overthrown by his War Minister, Alvaro Obregon, who in September 1923 nullified Article 17. There was once again a free for all until Lazaro Cardenas nationalized oil production in 1937.

Iran

In 1900, an Englishman, William Knot D'Arcy, explored the spontaneous fires of Hormuz and struck oil. The Shah Mozaffaredin gave him a concession to explore for oil over 1,200,000 km2, the whole country but for 5 northern provinces. The royalty was £ 20,000 and 16% of future profits. The search was fruitless and expensive and D'Arcy was broke when in April 1908, he struck oil at Maidan-i-Naftun. Because of financial difficulties, D'Arcy had to associate with Burmah Oil and the British Admiralty and because of that it was renamed Anglo-Persian Oil Co. and D'Arcy was appointed director.

In 1911 the company built a pipeline from the oilfields to a refinery in Abadan and began exporting. The low oil royalty and profits tax agreement with D'Arcy poisoned relations between Anglo-Persian and Iran for a long time, until it was annulled in December 1932. The company returned as Anglo-Iranian Oil Co. which was nationalized in 1951. It returned in 1954 as British Petroleum, after the elected government was reversed in 1953.

Russia / USSR

Czarist Russia was already producing oil. The leading company was Branobel, owned by Ludvig and Robert Nobel, brothers of Alfred Nobel. It exploited the Caucasus area (Baku). After the Russian Revolution, the British sent troops to occupy the oilfields, but only delayed Moscow’s control. In 1921, Soyouznef was created, a Soviet company to exploit the Baku oil. In 1922, production returned to 6 million tons, when the USSR was in urgent need of foreign currency. Oil was the only Russian export and England and the United States tried to boycott its sale, but in 1922, by the Treaty of Rapallo, Germany and the USSR signed a supply contract. In 1923, Italy signed a similar agreement which lasted until 1935.

Oil creates picturesque alliances. The Soviet Communists neutralized the Anglo-Saxon boycott with the help of Harry Sinclair, an oil millionaire with a Russian wife and friend of President Harding. Sinclair traveled from London to Moscow with Soviet expert Leonide Krassin and an entourage that included two senators, to make Moscow closer to Wall Street. In 1925 there was an alliance of Vacuum Oil, a subsidiary of the Standard, and Azneft, a subsidiary of Soyuzneft. In 1927, Chase Bank was financing a network of electric trains in the Caucasus, the construction of 200 tankers and a pipeline to carry Soviet oil to markets. But business was allowed only for Wall Street. When, in 1928, the Spanish government of Primo de Rivera, who created CAMPSA, made an oil supply deal with the USSR, London and Washington helped topple the Alfonso XIII monarchy, but the republic held on to the contract. In 1931, France also signed oil agreements with the USSR. Meanwhile, oil continued to help the USSR government to gain worldwide recognition.

Venezuela

Until 1917, Venezuela was a quiet agricultural country with nearly one million sq. kms, 18 000 kms. of navigable rivers, a long coastline and plenty of land for agriculture. Population was two million and main exports were one million bags of coffee and 20 tons of sugar. The location was good, closer than Tampico to New York and Europe and with a lot of oil. That year came the "Venezuelan Oil Concessions", a subsidiary of Shell. In 1921, Juan Vicente Gómez, dictator since 1908, was visited by James de Rothschild, as a sponsor of Shell. In 1922 the visitors were from the Standard Oil. The result was a new mining law, with tax exemption for the oil industry, a 10% export tax and a 7.5% royalty to the government.

Quiet Venezuela replaced bustling Mexico and roads began to be built between the oil fields. Yellow fever, malaria and alcohol wreaked havoc among the workers, but by 1938 the country exported 2.7 million tons a day - one tenth of the world total - bound for the Standard Oil refinery in Aruba or that of Shell in Curacao.

Gomez died in December 1935 and Eleazar Lopez Contreras took over. A new finance minister, Alberto Adriani, initiated changes. They demanded payment of part of the royalties in oil and building of refineries in Venezuela, to prevent oil being exported at ridiculously low prices, collecting tax on that basis and then importing expensive gasoline. A new law forced companies to provide housing for workers in the oil fields. Shortly after that, Alberto Adriani was found dead, at age 38, in Caracas, in his room at the Hotel Majestic.

The Chaco War

Bolivia has suffered three wars over raw materials. In 1879, the Nitrates War, against Chile, where it lost the coastal province of Antofagasta. In 1903, the Rubber War, when it lost Acre to Brazil. In 1931 it was the Chaco War.

Bolivian oil was given in concession to Standard Oil and the fields were in Santa Cruz, Tarija and Bermejo. A Paraguayan explorer discovered oil in Villa Montes, in the Bolivian Chaco. Crossing the Andes with a pipeline to the Pacific was then impossible. The logical way out was a pipeline from the Bolivian Chaco to Bahia Negra, a town on the Paraguay River, from where it would be transported to the Parana River and out to the Plate Estuary. Collaboration among both countries would have been mutually beneficial, but ...

Bolivia was under the influence of the Standard Oil and Paraguay was under the influence of English Bovril and Shell. If Bolivia occupied Bahia Negra the whole Bolivian oil business would go to the Standard. If Paraguay occupied the Bolivian Chaco the whole of Bolivian oil would go to Shell. Soon there was an "incident" near Fort Vanguardia, in the Bolivian Chaco and Bolivia declared war on Paraguay on May 12, 1932.

For three years, 180 thousand young people from both countries died after suffering hunger, thirst, disease and poisons in the jungle. The newspapers devoted a few lines to a distant combat while there was fighting with machetes in Villa Montes. Indigenous people in green uniform against indigenous people in yellow uniform, killing each other to convey more wealth to Standard Oil or Shell. The Bolivians reached the river Paraguay, but by losing Fort Ballivan "victory" seemed to be Paraguayan. With sudden emergency, Washington called a peace conference and the oil rested underground, alongside all those young people killed needlessly.

Commentary

Before the Second World War, the struggle between the major oil powers left many victims. Oil was also present in the World War II carnage. If you omit ideological rhetoric, contenders can be framed into two very objective fields, according to their access to oil. U.S., Britain, France and Russia on the oil rich side and on the other Germany, Italy and Japan.

Geneva 14/05/2012

- Umberto Mazzei has a PhD in political science from the University of Florence. He has taught international economics at universities in Colombia, Venezuela and Guatemala. He is Director of the Institute of International Economic Relations in Geneva.

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