The Prize: The Epic Quest for Oil, Money, and Power

by Daniel Yergin

“A friendship founded on business is better than a business founded on friendship.” Energetic and striving, Flagler was well matched to the dour, careful Rockefeller, who was delighted to acquire a partner so “full of vim and push.” To a critic, however, Flagler looked somewhat different—“a bold, unscrupulous self-seeker [who] made no bones about conscience. He did whatever was necessary to success.” Many years later, after having made one great fortune with Rockefeller, Flagler set off on a second conquest, the development of the state of Florida. He would build the railways down the east coast of Florida, all the way to the Keys, in order to open up what he called the “American Riviera,” and was to found both Miami and West Palm Beach.

John Galey went to Beaumont and surveyed the area. As the drilling site, he chose a spot next to the little springs with bubbling gas that Patillo Higgins had found. He drove a stake into the ground to mark the spot. With Captain Lucas out of town at that moment hiring drillers, Galey turned to Mrs. Lucas and said, “Tell that Captain of yours to start that first well right here. And tell him that I know he is going to hit the biggest oil well this side of Baku.”

That commitment, however, raised a very serious problem—where was the oil to be found, would there be enough, and would it be a militarily and politically secure supply? Churchill’s great gamble was to push for conversion to oil before the supply problem had been solved. He eloquently summarized the issue: “To build any large additional number of oil-burning ships meant basing our naval supremacy upon oil. But oil was not found in appreciable quantities in our islands. If we required it we must carry it by sea in peace or war from distant countries. We had, on the other hand, the finest supply of the best steam coal in the world, safe in our mines under our own land. To commit the Navy irrevocably to oil was indeed ‘to take arms against a sea of troubles.’ ” Yet, if the difficulties and risks could be surmounted, “we should be able to raise the whole power and efficiency of the Navy to a definitely higher level; better ships, better crews, higher economies, more intense forms of war power”—in a word, “mastery itself was the prize of the venture.”

It was certainly a great victory for Gulbenkian—the culmination of thirty-seven years of concentration, and a testament to his perseverance and tenacity. It was the deal for which he had waited his entire adult life. It would be worth tens of millions of dollars to him. To mark the grand event, he chartered a boat that summer and set off on a Mediterranean cruise with his daughter Rita. Off the coast of Morocco, he caught sight of a type of ship he had never seen before. It looked very strange to him, with its funnel jutting up at the extreme stern of the long hull. He asked what it was. An oil tanker, Rita told him. He was fifty-nine years old, he had just made one of the greatest oil deals of the century, he was the Talleyrand of oil, and he had never before seen an oil tanker.18

Before the 1920s, most gasoline was sold by storekeepers, who kept the motor fuel in cans or other containers under the counter or out in back of the store. The product carried no brand name, and the motorist could not be sure if he was getting gasoline or a product that had been adulterated with cheaper naphtha or kerosene. Moreover, such a system of distribution was cumbersome and slow. In the infancy of the auto age, some retailers experimented with gasoline wagons that delivered fuel from house to house. That idea never really caught on, partly because of the frequency with which the wagons tended to explode. 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 oil trade publication reported in a small story tucked on an inside page, under the headline “Station for Autoists,” that “a new way of reaching the auto gasoline trade direct is being tried with reported success in St. Louis by the Auto Gasoline Co.” The oil man who brought the innovation to the editor’s attention had chortled and said, “Now get a good laugh out of this dump.” While the editor never personally saw the first station, he did visit Automobile Gasoline’s second station in St. Louis, and it was, in his view, truly a dump. A small tin shack housed a couple of...

No less notable were the mergers that almost happened. In 1924, Shell came close to buying a production company called Belridge, well-situated on a prolific field of the same name near Bakersfield, California. The price was to be $8 million, but Shell decided it was too high and passed on the deal. Fifty-five years later, in 1979, Shell finally got around to buying Belridge—for $3.6 billion.

Holmes’s activities alarmed, in particular, the Anglo-Persian Oil Company, which did not want anyone else operating within its “sphere of influence,” causing trouble that could interfere with its operations in Persia. The company, to be sure, was convinced that there was no oil to be found in Arabia. In the words of John Cadman, the geological reports “leave little room for optimism,” and one of the company’s directors had declared in 1926 that Saudi Arabia appeared “devoid of all prospects” for oil. (Albania, the director had added, was the promising oil play.)

The Bahrain Petroleum Company began drilling a little over a year later, in October 1931. And, on May 31, 1932, it hit oil. Petroleum had been discovered on the Arab side of the Gulf. Though only modest in production, the Bahrain discovery was a momentous event, with far wider implications. The established companies were quite shaken by the news. Over the course of a decade, Major Holmes, with his obsession about oil, had become a figure of condescension and ridicule. But now his instincts, and his vision, had been vindicated, at least to some small degree. Was he to be proved right on a much grander scale? After all, the tiny island of Bahrain was only twenty miles away from the mainland of the Arabian Peninsula where, to all outward appearances, the geology was exactly the same.

Abdul Aziz bin Abdul Rahman bin Faisal al Saud was just over fifty years old. He had an imposing physical presence; at six feet, three inches tall, with a barrel chest, he towered over most of his countrymen. The impression he had made during a visit to Basra more than a decade earlier still held. “Though he is more massively built than the typical nomad sheikh, he has the characteristics of the well-bred Arab, the strongly marked aquiline profile, full-fleshed nostrils, prominent lips and long, narrow chin, accentuated by a pointed beard,” observed a British official in Basra at that time. “He combines with his qualities as a soldier that grasp of statecraft which is yet more highly prized by the tribesmen.” Ibn Saud, also known as ‘Abd al-‘Aziz, certainly applied his talents both for war and for statecraft to a most remarkable achievement in nation building, the creation of modern Saudi Arabia. And his later amassing of immense wealth was no less remarkable for a ruler who, in his early days, could carry his entire national treasury in the saddlebags of a camel.

At a fundamental level, each side had underestimated the other. Just as the Japanese did not think the Americans were technically capable of cracking their most secret codes, so the Americans could not conceive that the Japanese would be able to mount so technically complex an operation. Indeed, in the immediate aftermath, some of Roosevelt’s senior advisers believed that the Germans had orchestrated the assault; they assumed the Japanese could not have done it alone. And each side mistook the other’s psychology. The Americans could not believe that the Japanese would do something so daring and even reckless. They were wrong. And the Japanese, for their part, counted on Pearl Harbor to shatter American morale, when, instead, the attack would revivify national morale and swiftly unite the country. That was a much greater error.

Yamamoto and his colleagues, who had endlessly reviewed America’s preponderant position in oil, all failed to grasp the significance of the supplies on the island of Oahu. An assault on those supplies was not included in their plans. It was a strategic error with momentous reverberations. Every barrel of oil in Hawaii had been transported from the mainland. If the Japanese planes had knocked out the Pacific Fleet’s fuel reserves and the tanks in which they were stored at Pearl Harbor, they would have immobilized every ship of the American Pacific Fleet, and not just those they actually destroyed. New petroleum supplies would only have been available from California, thousands of miles away. “All of the oil for the Fleet was in surface tanks at the time of Pearl Harbor,” Admiral Chester Nimitz, who became Commander in Chief of the Pacific Fleet, was later to say. “We had about 41/2 million barrels of oil out there and all of it was vulnerable to .50 caliber bullets. Had the Japanese destroyed the oil,” he added, “it would have prolonged the war another two years.”

Three structures had already been tapped in Saudi Arabia, with reserves estimated at 750 million barrels. But the identification of similar structures suggested that the reserves might be far larger. The same applied in the other countries along the Gulf. The physical hardships were worth the trouble, many times over. For DeGolyer was an oil man, and to him the barren desert of the Arabian Peninsula was an El Dorado, the stuff of legend. He was overcome by excitement, for he recognized that he was investigating something for which no precedent existed in the history of the oil industry. Even he, who had discovered a well that flowed at 110,000 barrels per day, had never seen anything on so vast a scale in the course of half a century in the business.

For his part, Gulbenkian had once again succeeded in preserving his exquisite creation, the Iraq Petroleum Company, as well as his position in it, against the combined might of international oil. His last display of artistry was ultimately to earn hundreds of millions of dollars more for the Gulbenkian interests. Gulbenkian himself lived on for another six years in Lisbon, occupying himself by ceaselessly arguing with his IPC partners and by writing and rewriting his will. When seven years later, in 1955, he died at age eighty-five, he left behind three enduring legacies: a vast fortune, a splendid art collection and, most fittingly of all, endless litigation over his will and the terms of his estate.

Suez was a watershed for Britain. It was to cause as severe a rupture in British culture as in that nation’s politics and its international position. Yet Suez did not presage Britain’s decline; rather, it made obvious what had already come to pass. Britain no longer belonged to the top echelon of world powers. The bleeding of two world wars and the divisions at home had heavily drained not only its exchequer, but also its confidence and political will. Eden had no doubt that he had done the right thing at Suez. Years later, the Times of London said of Anthony Eden, “He was the last prime minister to believe Britain was a great power and the first to confront a crisis which proved she was not.” It was as much an epitaph for an empire and a state of mind as for a man.