The International Oil Scramble

The modern oil industry has seen many changes since the first successful well was drilled in Pennsylvania in 1859. At first the main application of oil was as a fuel for lamps. Now it has many more uses. Its distillates provide the fuels and lubricants for various types of internal combustion engines powering the means of transport on land, sea and air. It can be used as a substitute for coal as boiler fuel and as a raw material for the chemical industry. For all the changes the oil industry is still beset by the contradictions resulting from the capitalist mode of production. The leading producers operate on a world wide scale but are hampered by the nationalism of the countries they operate in. The extraction, refining and distribution of oil needs a vast social effort; yet a motley host of parasites make a fine living from it, through private property rights. As in all capitalist industry costs are cut to the bone; yet the waste that characterises the system is not eliminated.

America is still the leading national producer, but its market has expanded so much that it is also the leading importer. The early years were characterised by cut throat competition among the many producers. As the landowner has the mineral rights, an oil field can have as many producers as there owners over it. This is one aspect of waste that goes beyond duplication of effort, in that an excessive number of wells in an oil field reduces the amount recoverable from that source. In spite of the many different producers the American industry was soon dominated by Standard Oil. founded by Rockefeller in 1870, who within a few years controlled approximately 80 per cent of refinery capacity, 90 per cent of the pipelines and had large interests in railway tankcars. Hence the producers had to dance to the tune called by this firm. Standard became the dominating oil interest in the world. In 1911 it was broken into 30 companies under American anti-trust law. One of them, Standard of New Jersey (ESSO), is still the world’s largest oil company.

A number of oil fields outside America were developed before 1918. The most important was in the Baku region of Russia, which was controlled by the Nobel brothers of Sweden (of dynamite and peace prize fame). German interests had important investments in the Rumanian oil fields. They also had a share in the Turkish Petroleum Co. (now Iraq Petroleum Co.), in partnership with British interests and Gulbenkian (Mr. 5 per cent). In 1908 important deposits were found in Persia by the Anglo-Persian Co. (later Anglo-Iranian, now B.P.) and the Abadan refinery set up in 1913. The British Admiralty in 1914 switched their warships from coal to oil fuel, and also obtained a controlling interest in the firm. The main challenge to Standard Oil during this period came from the Royal Dutch Company. Operating from Sumatra, they were well placed to undercut the Americans in the important Chinese market for lamp oil. Shell was another competitor. They distributed Russian oil and cut transport costs by introducing tanker ships. In 1907 these two firms merged and five years later had carried their challenge into Standard’s home territory by setting up subsidiaries in America.

The first world-war showed the importance of oil as a strategic material. The defeat of Germany resulted in the confiscation of its oil interests, France taking over its share in Turkey. In Russia the oil fields were taken over by the state. With increasing demand competition intensified in the scramble to gain control of new sources. The main contestants were Britain and America who clashed wherever there was oil to be found. American interests were excluded from the Middle-East till 1928 when they gained a share in IPC. They were later to gain concessions in Saudi Arabia and other parts of the region. The interwar period saw Venezuela. Iran and Iraq became important producers.

The development of such synthetic materials as nylon, plastics and artificial rubber during the second world war gave rise to the petro-chemical industry and important new markets for oil. The growth of air transport, the replacing of steam by diesel traction on the railways and the increasing number of motor can, have also been factors in the continuing growth of the oil market in recent years. The main outlets are still in the industrialised areas while relatively underdeveloped regions have become increasingly important producers. This has led to conflicts over royalties, taxes and concession agreements between oil companies and governments in whose territories they are operating. One showdown came between the Anglo-Iranian Co. and the Iranian government which resulted in nationalisation of the firm’s assets. The British government replied by successfully placing an embargo on oil from Iran. Output was increased elsewhere, including areas operated by Anglo-Iranian, while the Iranian government had assets yielding less income in two years than a single day’s royalty had done before. In 1954 a new agreement was signed in which the eight leading oil companies formed a consortium to run production for a half share of the profits. Those who controlled the marketing end of the industry still called the tune.