The Prize: The Power Play for Oil Essay
The Prize: The Power Play for Oil
The world has been forcibly changed by the discovery, invention or innovation of various things throughout history, as food items, weapons and even techniques have shaped world history. However, oil stands as perhaps the premier thing to ever shape history, as oil has remained a mainstay within the global power struggle for centuries. Daniel Yergin acknowledges the power and possibility made available by oil in his renowned book The Prize, where he explains the history of oil from its initial discovery to its current place within diplomatic matters and economic stability. Yergin details the important places, people and corporations that influenced the oil business in its earliest days.
As Yergin begins, he explains how rock oil became a cash cow for Rockefeller, as he was able to maintain a monopoly for several years. The book continues into how the oil industry spread across the globe, as the United States government eliminated Standard Oil’s monopoly. Oil remains a major dependency for the United States and many parts of the world, as the non-renewable resource, according to Yergin, will eventually create a serious and unmistakable predicament for the United States and the rest of the world.
The oil industry did not begin with the wealth and promise that exists today, as speculation led to the exploration for and discovery of oil. George Bissell, interested in searching for the benefits of rock oil, realized that he himself was not equipped with the necessary skills as a lawyer. Knowing that he lacked the skills, Bissell hired Benjamin Silliman to research the properties of rock oil, since Silliman was a renowned Yale professor. Bissell, looking for any opportunity to strike it big, believed that rock oil might function as a lubricant or an illuminant for lighting. Silliman performed an extensive study of rock oil, but when Bissell failed to come up with the money to pay, Silliman withheld his findings. Believing that Silliman had validated his beliefs, Bissell convinced some of his business associates to pay Silliman what he was owed to uncover the information. As Bissell hoped, rock oil could be used as an illuminant, according to Silliman. With the newly acquired knowledge regarding rock oil, the opportunities involving oil skyrocketed.
Rock oil’s potential as an illuminant inspired Bissell and his business partners to hire Edwin L. Drake for oil exploration purposes. Drake headed to Titusville, Pennsylvania to fulfill Bissell’s request, and in the process, he and his men found oil. On August 27, 1859, Drake struck oil and the search for rock oil around the country began. Pennsylvania became a haven for oil speculators, so land across the state increased in value and a massive surge of people migrated to the state in hopes of making it rich. Drake was credited with beginning the oil speculation process, but a tangible way to transport the oil to purchasers did not yet exist. Therefore, even if oil was discovered and extracted, there was no way to transport it on a regular and reliable schedule.
Pipelines were subsequently created to allow for transportation from the oil fields of Pennsylvania to the refineries across the country. Pipelines allowed for the movement and distribution of oil, which was especially important because the infrastructure of the transportation system had not advanced very much. Also, since the pipelines ran underground, the amount of traffic was not worsened, especially since so many people were already heading into Pennsylvania. As the plans for a widespread distribution network advanced, the potential of the oil industry, in the United States and abroad, grew.
The idea of instantaneous wealth and the belief that oil could be discovered nearly everywhere created a massive influx of speculators into the market. Even with the possibility of massive wealth, investors were still skeptical of the oil industry, as its lack of proven profits prevented maximum investment. John D. Rockefeller was not one of the skeptical bunch, as he paid his partner for complete control of their joint venture oil refinery business known as Standard Oil. Rockefeller was willing to take the risk, which paid off for him, as his life forever changed as a result of his desire to be the sole proprietor of the business. Rockefeller was able to vertically integrate the business factors, as he owned the oil fields where oil was extracted and he owned the refineries that processed the oil and made it available for sale. Since Rockefeller owned the supply chain, he was able to minimize costs and maximize profits. Moreover, since Rockefeller earned profits at each stage of the supply chain, price changes affected his company the least. Competitors at each level could not compete with Standard Oil’s domination, as the barriers to entry were too immense.
On top of the oil fields and refineries, Standard Oil reaped the benefits from Rockefeller’s railroad dominance. Transporting the oil came at a substantially lower cost for Standard Oil, because oil could move across the railroads at cost, instead of with an upcharge. In order to weed out competitors, Rockefeller insisted that Standard Oil price its oil competitively, as opposed to at a monopolistic price, for the short-term. Standard Oil priced out its competition initially, which eventually allowed for the formation of a monopoly. Rockefeller became public enemy No. 1 with his railroad rebates, as the legality of his relationship with the railroad companies came into question. In response, Standard Oil was transformed into a trust. Standard Oil’s dominance spread as the exploration for oil spread, as Pennsylvania was no longer the only place for oil exploration efforts in the United States.
The domestic oil situation offered lots of promise, so foreign oil exploration began around the world. The Nobel brothers spearheaded the efforts in Russia after they abandoned their investment in wood and bought an oil refinery. Baku became a bustling oil region, and Russia became a major player within the global oil market. The Rothschilds furthered the foreign expansion of oil, as the French family also invested in Russia with the hopes of competing with the likes of Standard Oil. Standard Oil, fearful of how the foreign competition could alter the market price for oil, decided to venture into the foreign market as well. Standard Oil decided that Russia was not the place for opening an international division, so the company opened shop in the United Kingdom. Rockefeller was skeptical of foreign investment in oil, but he knew that the domestic market would not be enough to control global market price.
Transportation of oil became cheaper and cheaper over time, as shortcuts and speedier routes became popular. Marcus Samuel permitted the movement of oil across the Suez Canal, which forever changed oil transportation. Now, foreign oil could more easily reach the rest of the world, and Standard Oil’s dominance began to dwindle. Atop of the pressure from foreign oil companies, the consumer demand for oil fell sharply thanks to the creation of incandescent light. Since oil had long been used and marketed as an illuminant, its primary purpose was no longer needed. Standard Oil, amidst its greatest struggles, found hope with the invention of the automobile. Suddenly, the singular use of oil was trumped by a much larger demand for gasoline, and Standard Oil was once again in a position of growth.
Drilling had been popular in the Midwest since the initial exploration efforts in Pennsylvania, as both Indiana and Ohio had been chief targets as well. Western expansion of oil exploration efforts led to California and Texas. Once again, speculation led to large surges in populations in targeted areas. Wildcatters looking to strike it rich hovered in locations where people believed oil could be found; Patillo Higgins became one of the most famous wildcatters. Higgins was convinced that oil was within the Big Hill located in Spindletop, Texas. Higgins failed to find the oil he believed to be there, but he was not willing to completely abandon his mission; therefore, he hired on Lucas to continue exploration efforts. Ironically, Lucas struck oil, and not just some oil, but a massive amount: 75,000 barrels per day. Spindletop and the surrounding area of Beaumont, Texas became a massive oil region with populations that seemingly grew overnight.
Standard Oil feared the discovery of oil across the United States, and their fears worsened when a pipeline was constructed by the Mellon brothers between Oklahoma and the Gulf of Mexico. Suddenly, domestic oil could be transported to foreign demanders without the need for Standard Oil’s assistance. Standard Oil’s control of the global market fell even more, as the firm became a price taker instead of a price maker. The struggles for Standard Oil continued when President Roosevelt fought to eliminate Standard Oil’s control of the oil industry in the United States.
Roosevelt cited the Sherman Antitrust Act of 1890 and claimed that Standard Oil limited the free market. The United States Supreme Court corroborated President Roosevelt’s beliefs about Standard Oil, so the company was broken into smaller, regional companies. These companies remain in existence today, as Amoco, ARCO, BP, Chevron, Conoco and Sun were all once components of Standard Oil. Therefore, the power of Standard Oil, though in separate entities, remains.
The oil market boomed after Standard Oil’s break up, since industry controls substantially lessened. Automobiles also became more popular within the international markets, so the possibilities for oil companies broadened. The increase in military vehicles and equipment also boosted the demand for oil, which was seen during World War I and thereafter. After WWI, oil remained an important part of the global economy, as the many uses for oil kept its demand high. With steady demand, oil exploration efforts once again extended beyond the known locations of oil. Exploration efforts in some areas were more difficult than others, usually because of political uncertainty or governmental influence. Persia, one of the most oil-rich regions of the world, had not tapped into its oil reserves because of Britain’s rule. Aside from political concerns, the region was ill prepared for exploration and extraction, because the necessary equipment could not easily reach the areas. With increasing demand and stagnant supply levels across the world, an oil shortage began in the early years of the 20th century.
The pursuit of oil continued across the world in Mexico and South America. Mexican oil exploration efforts had been ongoing for years, but an oil strike in Tampico, Mexico renewed these efforts. Venezuela also became a major supplier of oil, which is a position the country retains even now. Oil became a nationalized product in many countries, as the potential profits for oil became too good to pass up by global governments. The United States began to fear how the international oil market would affect domestic supply, so tariffs were used in an attempt to control pricing. Unfortunately, the institution of tariffs stifled the domestic oil supply, as foreign suppliers were not interested in paying a premium to enter the domestic market. The need for oil reserves grew out of these shortages, which affected more than just the United States. As a result, the pursuit of oil in the Middle East finally began. WWI saw the need for oil in order to successfully defeat enemies, so the rise of tension within the global community saw the need for excess reserves.
The innovation of militaristic equipment necessitated a quality oil supply, so countries began looking for places where oil could best be obtained. Germany was so short on oil in WWI that the country failed to fulfill its various missions and was ultimately defeated. Therefore, Hitler wanted to invade and dominate oil-rich regions to ensure victory in future conflicts. Japan faced similar issues to those of Germany, but the country was perhaps even worse off due to its geographic location and its complete deficiency in terms of domestic oil supply. The lack of quality supply and the inability to secure regular importation of foreign oil explains why both Japan and Germany struggled immensely in WWII. After the defeat of Germany and Japan in WWII, Middle East oil exploration intensified even more.
The United States became oil deficient after WWII, as reserves were used during the war and automobiles became more affordable. The dependence on foreign oil after WWII began a period of oil importation that remains even today. Natural gas became an alternative to the dependence on oil, but natural gas has not become the mainstay that the United States and its investors had hoped. Foreign countries continued to completely control the international oil market, so the largest oil supplying countries formed the Organization of Petroleum Exporting Countries (OPEC). OPEC became a strong oligopoly that controlled a significant portion of the global oil supply and subsequently the price. OPEC was stifled by a newly discovered oil supply in Libya for some time, as OPEC could not control the oil supply and price as much as it had initially hoped.
Oil demand again surged in the 1960s and 1970s, because automobile production became cheaper and automobile demand increased. The Middle East became the prominent supplier of oil, so the relationships between various countries, including the United States, and Middle Eastern countries became increasingly important. The dependence on foreign oil has become increasingly troubling, as the Middle East continues to use oil as a weapon to obtain its demands. The Prize presents a comprehensive history of the oil industry dating back to Rockefeller and Standard Oil and developing into the American dependence on a non-renewable natural resource. The implications of this dependence trouble Yergin, as the demand for oil has not lessened, despite environmental and political warnings.