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

by Daniel Yergin

But, most important in shaping the legal context of American oil production, and the very structure of the industry from the earliest days, was the “rule of capture,” a doctrine based on English common law. If a game animal or bird from one estate migrated to another, the owner of the latter estate was perfectly within his rights to kill the game on his land. Similarly, owners of land had the right to draw out whatever wealth lay beneath it; for, as one English judge had ruled, no one could be sure of what was actually going on “through these hidden veins of the earth.” As applied to oil production, the rule of capture meant that the various surface owners atop a common pool could take all the oil they could get, even if they disproportionately drained the pool or reduced the output of nearby wells and neighboring producers. Inevitably, therefore, the owners of adjacent wells were in heated competition to produce as much as they could as swiftly as possible, to avoid having the pool drained by another. The impetus to rapid production contributed to the instability of both production and prices. Oil was not the same as game birds, and the rule of capture led to considerable waste and damage, to the detriment of ultimate production from a given pool. But there was another side to the rule’s effects. It created room for many more people to enter the industry and to master the required skills than would have been the case under more restrictive rules. And, by building up produ...

The next year, the first auto track race was held in Narragansett, Rhode Island. It was so slow and so boring that there was first heard the cry, “Get a horse!”

When Warren G. Harding, chosen as the Republican candidate because among other reasons he “looked like a President,” won the White House in 1920, he sought, like any good politician, to appeal to both sides in the resource debate, celebrating “that harmony of relationship between conservation and development.” But, in selecting Senator Albert B. Fall from New Mexico to be Secretary of the Interior, Harding could hardly disguise his choice of development over conservation. Fall was a successful and politically powerful rancher, lawyer, and miner—“the frontiersman, the rough and ready, two-fisted fighter,” said one magazine, “who looks like an old-time Texas sheriff and is said to have handled a gun in his younger days with all the speed and accuracy of a Zane Grey hero.” Fall’s “belief in the unrestrained disposition of the public lands was as typically Western as his black, broad-brimmed Stetson hat and his love of fine horses.” Those on the other side of the debate saw Fall differently. He was described as a member of the “exploitation gang” by one leading conservationist. “It would have been possible to pick a worse man for Secretary of the Interior,” the conservationist added, “but not altogether easy.” Fall succeeded in wresting control of the naval oil reserves away from the Navy Department and placing it in the Interior Department. The next step would be to lease the reserves to private companies. His activities had not gone unnoticed. In the spring of 1922, just bef...

Many of the geophysical innovations were adapted from technology that had been drafted into use during World War I. One was the torsion balance, an instrument that measured changes in gravity from point to point on the surface, thus providing some sense of the subsurface structure. Developed by a Hungarian physicist before the war, it was used by the Germans during the First World War, in trying to get the Rumanian fields back into production. Another innovation was the magnetometer, which measured changes in the vertical components of the earth’s magnetic field, giving further hint of what lay beneath the surface. The seismograph also joined the arsenal of oil exploration, proving to be the most powerful new weapon of all. The seismograph had originally been developed in the mid-nineteenth century to record and analyze earthquakes. The Germans put it to work during the war to locate enemy artillery emplacements. That led directly to its use in the oil industry in Eastern Europe. What was called refraction seismology was introduced into the U.S. oil industry about 1923–24, initially by a German company. Dynamite charges were set off, and the resulting energy waves, refracted through underground structures, were picked up by listening ears—“geophones”—on the surface, which helped to identify underground salt domes, where oil might be found. The reflection seismograph, introduced about the same time and soon to supplant the refraction technique, recorded the waves that bounc...

The “rule of capture” had continued to govern the industry’s operations since its early days in western Pennsylvania, and it had repeatedly been sanctioned by the courts, based upon the English common law regarding migratory wild beasts and game. To some property owners who complained to one court that their oil was being drawn off by their neighbors, the justices had scant solace to offer: “Only go and do likewise.” Because of the rule, every operator everywhere in the United States put down his wells and produced as rapidly as he could, draining not only the oil under his own property but also that under his neighbor’s property, before his neighbor drained his own. This doctrine fueled the riots of flush production and the wildly fluctuating prices that came with every new discovery. Doherty believed that the multiplication of wells and rapid production resulting from the rule of capture exhausted the underground pressure in a field more quickly than need be the case. The consequence? Much oil that might otherwise be produced would be left underground, unrecoverable, because there was not enough pressure from gas—and also from water, it was later understood—to provide the “lift,” or push, to get the oil to the surface. Recognizing how important oil had been in World War I, Doherty feared what it would mean for the United States in another war if wanton—and what he called “extremely crude and ridiculous”—production practices were to prevent vast stores of oil from ever be...

But there was also much opposition. Some feared that if the government began setting prices, it would then regard the oil industry as a public utility and start regulating profits as well.

After the outbreak of war in Europe in September 1939, the interests of the expropriated American oil companies and of the United States government diverged even more sharply. As far as the Roosevelt Administration was concerned, national security was much more important than restitution for Standard Oil of New Jersey and the other American companies. Washington did not want Nazi submarines refueling in Mexican ports, nor German “geologists” and “oil technicians” wandering over northern Mexico, near the U.S. border, or in the south, in the direction of the Panama Canal. Indeed, the United States was now busy trying to tie Mexico into a hemispheric defense system. Therefore, it was important to get the oil issue out of the way as quickly as possible. Moreover, in the event of American entry into the war, the U.S. government wanted access to Mexican oil supplies, as had been the case during World War I, and it cared increasingly little about who actually owned those supplies. The expropriation was the major obstacle to cooperation with Mexico, U.S. Ambassador Josephus Daniels told Roosevelt in 1941, and there was no sense trying to restore and defend a status “as dead as Julius Caesar.”

Twitchell returned to Saudi Arabia in February 1933 in the company of Lloyd Hamilton, a lawyer for Socal, to initiate their negotiations with Ibn Saud’s minister of finance, Abdullah Suleiman. They were up against a cunning and masterly opponent. Suleiman was the brother of the King’s private secretary. A Nadji by birth—most of the other senior administrators were Syrians, Egyptians and Libyans—he had, as a young man, been an assistant to an Arab merchant in Bombay, where he had learned much about trading and business. The King had nicknamed him “my support.” In fact, this “frail little man of uncertain age” was the most powerful person in Ibn Saud’s inner circle, with responsibility not only for finance, but also for defense and the Pilgrimage. He was “the ultimate eminence grise, always self-effacing and keeping himself in the wings,” said Ibn Saud’s interpreter, but with “power and influence so monumental that I often thought of him as the uncrowned King of Arabia.”

Financial need also fueled Sheikh Ahmad’s interest in courting concessionaires. Like all the other sheikhdoms down the coast of the Persian Gulf, Kuwait was suffering severe economic hardship. The local pearling trade had been Kuwait’s number-one industry and principal source of foreign earnings. Whether or not he knew the name, Sheikh Ahmad had good reason to be intensely annoyed with a Japanese noodle vendor from Miye prefecture, one Kokichi Mikimoto, who had become obsessed with oysters and pearls and had devoted many difficult years to developing the technique for cultivating pearls artificially. Eventually, Mikimoto’s efforts paid off, and by 1930, large volumes of Japanese cultured pearls were beginning to appear on the world’s jewelry markets, practically destroying the demand for the natural pearls that divers brought up from the waters off Kuwait and elsewhere in the Persian Gulf. Kuwait’s economy was devastated; export earnings plummeted, merchants went bankrupt, boats were laid up onshore, and divers returned to the desert. Ahmad and his principality needed a new source of revenues; the welcome prospect of oil had appeared just in time.

Over the next few years, as Tokyo elaborated its claims to a “mission” and “special responsibilities in East Asia,” Japanese politics seethed with conspiracies, ideological movements, and secret societies that rejected liberalism, capitalism, and democracy as engines of weakness and decadence. It was thought that there was nothing more noble than to die in battle for the Emperor. Yet some elements in the Japanese military were also, by the mid-1930s, focusing on the more practical question of how to wage modern warfare. Promulgating a doctrine of total war, they sought to establish a “national defense state” in which the industrial and military resources of the country would all be built up and harnessed for that grim eventuality. Those officers who had either closely observed or studied the German failure in World War I attributed that nation’s defeat to its economic vulnerability—its relative lack of raw materials and its inability to withstand the Allied naval blockade. Japan, they gloomily recognized, was far less well-endowed than Germany. Indeed, it faced a unique problem of supply. It was almost bare of the resource of oil. While petroleum held a relatively small place in the country’s energy mix—accounting for only about 7 percent of total energy consumption—its significance was in its strategic importance. Most was consumed by the military and in shipping. By the late 1930s, Japan produced only about 7 percent of the oil it consumed. The rest was imported—80 perce...

Within the Roosevelt Administration, however, there was intense and sharp discussion about how best to respond, including the ever-present question of direct economic sanctions. But Joseph Grew, the American ambassador to Japan, warned of the possible consequences. The Japanese would submit, he reported from Tokyo, to any deprivation rather than see their nation humbled by Western powers—and lose face. On a visit to Washington in the autumn of 1939, Grew met twice with President Roosevelt and later wrote in his diary: “I brought out clearly my view that if we once start sanctions against Japan we must see them through to the end, and the end may conceivably be war. I also said that if we cut off Japanese supplies of oil and if Japan then finds that she cannot obtain sufficient oil from other commercial sources to ensure her national security, she will in all probability send her fleets down to take the Dutch East Indies.” “Then we could easily intercept her fleet,” the President replied. Grew was expressing foreboding, not commenting on policies that were imminent in the autumn of 1939. There was no plan for an embargo on oil. Nor, despite his remarks, was Roosevelt willing to risk a confrontation. But oil was fast emerging as the critical issue between the two countries.

The Japanese continued their advance through China, and suddenly, with the colonial powers overrun, excepting Great Britain, all of the Far East looked truly vulnerable. As if to underline that threat, the Japanese abruptly demanded far larger supplies of oil from the East Indies, now under the sway of the Dutch government-in-exile in London. Fearful that a beleaguered Britain would withdraw its own forces from the Far East, Washington made a fateful decision; it transferred the American fleet from its base in Southern California to Pearl Harbor on the island of Oahu in Hawaii. Since the fleet was, at the time, already on maneuvers near Hawaii, the move was accomplished with a minimum of fanfare. One purpose was to stiffen British resolve. The other was to serve as a deterrent to Tokyo.

Yet, early in 1941, despite the secrecy, U.S. Ambassador Grew heard from Peru’s minister to Tokyo about a rumor that Japan was planning an attack on Pearl Harbor. Grew reported it to Washington, where it was immediately discounted. American officials simply could not believe—then or in the months following—that such an audacious assault was even possible. Moreover, officials in the Navy and State departments were astonished that an ambassador of Grew’s caliber could take seriously such an obviously ridiculous story.

When the I. G. Farben officials reported back on their conversation with Hitler, the chairman of the company said, “Well, this man seems to be more reasonable than I had thought.”

Germany’s remarkable economic growth over the preceding half century had been based largely on its own plentiful energy source—coal. Whereas in the late 1930s coal provided just about half of the United States’ total energy, it supplied 90 percent of Germany’s energy—while oil accounted for only about 5 percent. But already in 1932, Hitler was planning for the future, and oil would be essential to his ambitions. He became Chancellor in January 1933 and then, over the next year and a half, seized complete power. He wasted no time in launching a motorcar campaign that he would hail as “a turning point in the history of German motor traffic.” Autobahns, limited-access highways without speed limits, were to span the country, and in 1934 planning began for a new type of vehicle. It was called “the people’s car,” the Volkswagen.

The only real hope for keeping the synthetic fuels project alive, in the midst of the Great Depression, was with some kind of state support or bail-out. The tariff protection from the pre-Hitler Brüning government was not enough. The new Nazi regime was willing to go much further and guarantee prices and markets to I. G. Farben—so long as the company promised to increase substantially its production of synthetic fuels. Even that was not enough, for hydrogenation was still an infant technology. It needed both further development and additional political patronage in the Third Reich. I. G. Farben won support from the Air Force, the Luftwaffe, by proving that it could develop a high-quality aviation gasoline. The German Army, the Wehrmacht, also lobbied for an expanded commitment to a domestic synthetic fuels industry, arguing that Germany’s own current supplies would be woefully inadequate to the requirements of the new type of warfare that it was planning.

The question of foreign supplies and sanctions was very much on Hitler’s mind. For he was on the eve of a critical move. The next month, March 1936, he boldly remilitarized the Rhineland, on the border with France, in violation of treaty agreements. It was the first time that he flexed his muscles on the international front, taking what afterward he was to call his gravest risk—the forty-eight hours that were “the most nerve-racking in my life.” He waited to be challenged, but the Western powers did nothing to stop him. The gamble had paid off. The pattern was to be repeated.

Despite the strength of his military machine, and with a growing supply of synthetic fuels at his disposal, oil was never far from Hitler’s mind. Indeed, that concern had helped shape his basic strategic approach to war, which was based on the blitzkrieg, or “lightning war”—fierce but short battles with concentrated mechanized forces that would lead to decisive victory before petroleum supply problems could develop. Initially, the strategy worked astonishingly well, not only in Poland in 1939, but also in the spring of 1940, as Hitler’s forces overran Norway, the Low Countries, and France with surprising ease. The campaign in the West actually improved Germany’s oil position, for German troops captured oil stocks considerably in excess of the fuel they had expended in the invasions. Even though Hitler’s subsequent attempts to subdue the British Isles through massive aerial bombardment had failed by the fall of 1940, Germany seemed on the verge of dominating Europe. It had also fallen into the habit of thinking that victory was cheap. So when Hitler turned his sights east toward his next objective, he envisioned another easy victory. The target was the Soviet Union.7

From the very start, the capture of Baku and the other Caucasian oil fields was central to Hitler’s concept of his Russian campaign. “In the economic field,” one historian has written, “Hitler’s obsession was oil.” To Hitler, it was the vital commodity of the industrial age and for economic power. He read about it, he talked about it, he knew the history of the world’s oil fields. If the oil of the Caucasus—along with the “black earth,” the farmlands of the Ukraine—could be brought into the German empire, then Hitler’s New Order would have within its borders the resources to make it invulnerable. In that conception, there was a striking similarity to the Japanese drive to encapsulate the resources of the East Indies and Southeast Asia within its empire, an ambition also powered by the belief that such a resource base would make it impregnable. Albert Speer, the German Minister for Armaments and War Production, said at his interrogation in May 1945, “the need for oil certainly was a prime motive” in the decision to invade Russia.

In December 1940 Hitler issued Directive Number 21—Operation Barbarossa—ordering that preparations begin for an invasion of the Soviet Union. The Germans took care to give no public sign of displeasure to their Russian friend and, indeed, went out of their way to engage in an elaborate charade of deception and disinformation to lull Stalin into disbelief that the Germans might be contemplating such a strike. Warnings of the impending invasion came from many sources—Americans, British, other governments, his own spies—but Stalin resolutely refused to believe them. Scarcely hours before the invasion, a dedicated German communist defected from a German Army unit and slipped over to the Soviets with word of what was about to happen. Stalin suspected a trick and ordered the man shot.

The six to eight to ten weeks had already turned into months, and the Germans were now stalemated by winter. They had vastly underestimated the space over which their supply lines would have to stretch; they had no less underestimated the reserves of Soviet manpower—and the capacity of Soviet soldiers and citizens alike to tolerate hardship and deprivation. The numbers were beyond comprehension; six to eight million Soviet soldiers were killed or captured in the first year of war, and still new men were thrown into battle. In addition, the Japanese decision to attack Pearl Harbor and move into Southeast Asia, rather than attack the Soviet Union, allowed Stalin to transfer his crack Siberian divisions westward, to the German front.

The irony of Operation Blau was that the Germans ran short of oil in their quest for oil.

The city of Stalingrad, to the northwest of the Caucasus, was meant to be a sideshow to the main campaign, a secondary German objective. But, from the very beginning, its name made its fate pregnant with symbolism for both sides.

While the Soviets held on in the Caucasus, the Allies had succeeded, despite ferocious German attacks, in retaining the Mediterranean island of Malta, off the coast of Libya, which gave them a base from which to attack the Axis shipping that supplied Rommel’s forces in North Africa. The Allies were further aided by their intercepts of the German and Italian codes. Moreover, the supply aircraft of the Luftwaffe were themselves beginning to run short of fuel. The Italian supply ships were no longer getting through to North Africa. And Rommel’s very success—the incredible distance that the Afrika Korps had traveled—created a dangerous vulnerability. His own supply lines were very long, and the fuel trucks traveling from Tripoli used more gasoline to get to the front and back than they were able to carry. By driving so far and so incessantly fast, Rommel had not only called up the quartermaster’s nightmare, but had also put the Panzer Army in a position of considerable risk. Still, he thought victory was shortly to be his. On June 28, 1942, he wrote his wife to plan on a July vacation together in Italy. “Get passports!” he said.

Soon all that Rommel’s forces had left was a toehold between the forces advancing from both east and west. The legend had fallen, and in March 1943 Rommel, now regarded by Hitler as defeatist, was removed from command of the Afrika Korps. By May, the last German and Italian troops in North Africa had surrendered.17 But Rommel was called to serve the Führer again, first in Italy, and then in France, where he was badly wounded shortly after the Normandy invasion, when his car was hit by Allied bombs. Three days later, a group of army officers tried to assassinate Hitler, but failed. Rommel was suspected both of involvement in the conspiracy and of plotting a separate surrender in the West to the Allies. Hitler ordered his death, but it could not be done publicly, for Rommel was a very popular general, and the adverse impact on German morale might have been enormous. So, instead, in October 1944, two SS generals appeared at his home with an ultimatum. Either he commit a suicide that could be disguised as a natural death, or his entire family would be in danger. Rommel, holding the Field Marshal’s baton that Hitler had given him two years earlier, drove off with the two SS men. A few hundred yards from the house, the car pulled over into an open space in the woods; the area had been sealed off by the Gestapo. Rommel was given a poison pill; he swallowed it and fell forward in the seat, dropping the Field Marshal’s baton. Rommel was dead. The death was attributed to a brain hem...

Altogether, during the Second World War, synthetic fuels would account for half of Germany’s total oil production.19 It could not have happened without immense effort and all the normal tools and techniques of the Nazi war economy, including slave labor. Hitler had transformed the Viennese streetcorner anti-Semitism of his youth into a monstrous and diabolical ideology, at the center of which was the murder and destruction of the Jews. The concentration camps were the mechanisms for achieving this “Final Solution,” which was decided upon in a mere two hours at the Wannsee Conference in January 1942. But, until the “Final Solution” could be completed, those Jews who were fit—along with Slavs and other prisoners—were to be put to work to further the objectives of the Reich that had already pronounced a death sentence upon them. And so a continuing supply of concentration camp prisoners was drafted into I. G. Farben’s hydrogenation plants, as well as into its synthetic rubber plants. The company, in fact, was building synthetic fuel and rubber plants adjacent to the Auschwitz concentration camp in Poland. Auschwitz was the largest of the Nazi mass murder factories; upwards of two million people, mostly Jews, were put to death there with gas manufactured by an I. G. Farben subsidiary. The I. G. Farben officials described the Auschwitz site, with its ample supplies of coal and labor, as “very favorably located.” The synthetic fuels plant at Auschwitz was under the directorship ...

A year earlier, in 1940, when a Shell manager named H. C. Jansen arrived at Balikpapan, he had found air raid shelters already built and evacuation plans developed. In the subsequent months, the entrance to the harbor was mined, and 120 men practiced destruction exercises. They all knew that Balikpapan and the surrounding oil fields were one of the great prizes for which the Japanese would go to war. The oil men’s job would be to deny the Japanese that prize.

In mid-January 1942, with the Japanese closing in, crews in the outlying oil fields began to destroy the wells, as was being done elsewhere in the Indies. They pulled out the tubing, cut it up, and jammed it down again into the wells, along with pumps, rods, any bolts, nuts, and drilling bits they could lay their hands on, and one other thing—a tin of TNT for each well. The wells were blown up. The crews started with the least productive wells, but finally all were destroyed.

The stranded oil men had no choice but to retreat into the jungle. They broke up into small groups for what proved to be a desperate effort to find some route of evacuation through the jungle. It was a terrible ordeal. They made their way by foot or in proas, beset by hunger, exhaustion, malaria, dysentery, and fear, their parties growing smaller and smaller as the ill and dead dropped away. From natives they encountered, they learned that the Japanese had landed all over Borneo. Trapped in the jungle, they felt like rats in a cage. A few did finally escape from the island. Of the seventy-five people left behind, only thirty-five survived the jungle, the Japanese firing squads, and the Japanese prisons.

Yamamoto continued to share with other Japanese naval leaders the deep belief in and commitment to the “decisive battle,” which would knock the enemy out of the war. A quick victory was essential, he knew from his years in the United States, because of America’s oil and other resources and its industrial might. Thus, the Japanese decided to mount a major attack on Midway Island, just eleven hundred miles west of Hawaii. At the very least, the Japanese planned to use an assault on Midway to extend their defense perimeter. And if the American fleet were drawn out, so much the better, for the Japanese could make this the decisive battle and finish the job they had started at Pearl Harbor, obliterating the U.S. Navy in the Pacific. The Battle of Midway, in early June 1942, turned out to be decisive, but not in the way most Japanese expected. Instead, it was the “adults’ hour” that Yamamoto had feared. Having made a remarkable recovery from the devastation at Pearl Harbor, and with the additional advantage of being able to read the enemy’s code (which the Japanese had been slow to change because their forces were so dispersed), the U.S. Navy dealt a resounding defeat to the complacent Japanese, sending four of the Imperial Fleet’s aircraft carriers to the bottom, while losing just one of its own. Midway was the true turning point in the Pacific War, the end of the Japanese offensive. Thereafter, the balance would shift, as the relentless weight of American manpower, resources, ...

The specific weakness was the vulnerability of Japanese shipping to submarines. Military planners had given surprisingly little thought to that risk. They underestimated both American submarines and the men who would sail on them. The Japanese thought Americans would be too soft and luxury-loving to stand up to the rigors of undersea living and warfare. In fact, America’s submarines were the best in the war; and once equipped with improved torpedoes, they were a deadly weapon that weakened and then ruptured the critical shipping links between the Southern Zone and the Home Islands. The long, drawn-out confrontation became known as the Battle of the Marus, after the term the Japanese used to describe all merchantmen. But only in late 1943 did the Japanese begin to give serious attention to the protection of shipping against submarines, including the establishment of convoys. Their efforts were inadequate and incomplete. “When we requested air cover,” one convoy commander said ruefully, “only American planes showed up.” The Japanese shipping losses continued to mount.5 Moreover, convoys created their own problems, which actually aided the Allies. Assembling and directing the movement of convoys required the generation of a network of radio signals that, among other things, announced exact “noon positions.” The interception of these messages by the Americans, who had cracked the Japanese codes, provided vitally useful information for the submariners. Overall, the consequences...

Synthetic fuels were not only a failure, but an expensive failure because of their drain on resources, manpower, and management—to the degree that one analyst would comment, “The synthetic fuel industry in Japan, in terms of its absorption of materials and manpower and its meager product, was more of a liability than an asset during the war.”

The Japanese could do little or nothing to interrupt the ever more abundant flow of fuel and other supplies to the American forces in the Pacific, no matter how distant their source. The Americans developed huge floating bases—composed of fuel barges, repair ships, tenders, tugs, floating docks, salvage ships, lighters and store ships—that gave the U.S. Navy “long legs” across the vast expanse of the Pacific. Roving fueling task forces, made up of two or three giant tankers plus destroyer escorts, took up stations at designated areas, large rectangles twenty-five miles wide by seventy-five miles long, where American ships would rendezvous to refuel. When Guam became, in the second half of 1944, the major American base for bombing Japan, 120,000 barrels of aviation gasoline were supplied there daily. At that same time, Japan’s entire air forces on all fronts were consuming just 21,000 barrels per day—one-sixth of what was available just at Guam.

Premier Suzuki ordered a survey of Japan’s fighting capabilities to determine whether they were sufficient to continue the war. The study came back in mid-June 1945 with a picture of a war economy that was almost immobilized because of lack of fuel and the fury of the American aerial attacks. The numbers gave further proof of Japan’s desperate situation. Fuel oil inventories had been 29.6 million barrels in April 1937; by July 1, 1945, they were just 0.8 million barrels. Below a million barrels, the Navy could not operate. For all practical purposes, it was out of oil. To some in the Japanese government, “the utter hopelessness of our situation” was clear. But not to all, by any means. The possibility of surrender was far from accepted at the top of the Japanese government, and many bitterly rejected even its mention. The government was still pushing the slogan, “100 million people united and ready to die for the Nation.” The Army and elements of the Navy were battling to commit Suzuki’s Cabinet to a war to the bitter end.

As if to demonstrate what they had in mind, Japanese resistance to the American invasion of Okinawa in April of 1945 was fierce and fanatic and, in its organized form, did not end until June 21, 1945. The Americans experienced a 35 percent casualty rate in taking that island. Assuming that a similar ratio would hold in an invasion of the Home Islands, the American commanders anticipated a minimum of 268,000 dead and wounded on their side in the first phase of the attack. Altogether, they anticipated up to a million American military casualties—with a similar number for the Japanese, and many, many more millions in civilian deaths. The bloodiness and stubbornness of the battle on Okinawa contributed strongly to the American decision to use, if necessary, a new weapon that, though unproved, would soon be in the U.S. arsenal—the atomic bomb. The American leaders knew that Japan’s fighting capability was crumbling, but they saw no sign that its fighting spirit was fading. And, indeed, it did seem that the whole island nation was being mobilized for a suicidal battle to the death; even young schoolchildren were ordered to start sharpening bamboo shoots with which to kill Americans. The secret messages between Tokyo and Moscow that the Americans intercepted were hardly sufficient to indicate that the Japanese government was prepared to ask for peace—because it was not. Despite the ever-worsening position, the Japanese government remained ambiguous, indistinct, and tentative in i...

Twelve days later, on September 11, 1945, American officials in Tokyo arrived outside a modest one-story house on the edge of intensively cultivated fields. The house belonged to the Razor—General Hideki Tojo, the wartime premier. Tojo appeared at an open window, to be told that he was under arrest, and that he should immediately get ready to go with the Americans. He agreed and shut the window. A shot rang out. The Americans burst into the house and found Tojo sitting in an oversized chair, bleeding from a self-inflicted bullet wound just below his heart. Four years earlier, in 1941, as War Minister and then Premier, Tojo had forced Japan’s decision to go to war against the United States, arguing that the fate of Imperial Japan hung in the balance because of its shortage of oil. The cost of what Tojo and his collaborators had launched was enormous. The Pacific War in its entirety claimed upwards of 20 million lives, including about two-and-a-half million Japanese. Now, in 1945, Tojo’s own life hung in the balance, not because his self-inflicted wound was inevitably fatal, which it was not, but because of the difficulty, first, in locating a suitable doctor, and then in finding an ambulance that had any gasoline in its tank. So widespread was the fuel shortage that it proved easier to find an American doctor than an ambulance with gasoline. But finally a vehicle with sufficient fuel was located, and it arrived at Tojo’s house two hours after he had shot himself. Tojo was c...

In December 1940, with his third election safely out of the way, Franklin Roosevelt proclaimed the United States the “arsenal of democracy.” In March 1941, Lend Lease was instituted, which removed the problem of finance—or, as Roosevelt put it, “the silly, foolish old dollar sign”—as a constraint on American supply to Britain. Among those things to be “lent,” for repayment at some indefinite time in the future, was American oil. The neutrality legislation, which restricted the ability to ship supplies to Britain, was progressively loosened. And, in the spring of 1941, when oil supplies began to plummet in the United Kingdom, fifty American oil tankers were switched from supplying the American East Coast ports to carrying oil for transshipment to England. Thus, by late spring 1941, important steps had been taken to weld together the American and British supply systems and put the United States in position to fuel England’s lonely stand. In fact, the United States had a surplus, unused oil production capacity of about one million barrels per day. That was equivalent to about 30 percent of the 3.7 million barrels per day production that year. The extra capacity, a result of the federal-state prorationing system set up in the 1930s, turned out to be an invaluable security margin, a strategic resource of immense significance. Without it, the course of World War II might well have been different.

But in the last days of March, the scales tipped dramatically, and just in time. First, there was a decisive shift in the cryptanalytic balance; the Allies thoroughly broke the new U-boat codes, while at the same time they successfully closed off their own convoy ciphers to the Germans. Then the British and Americans added a new coordinated counteroffensive capability to the convoy system that included support groups designed to attack the U-boats. The Allies further improved their radar, and they also introduced newly developed longrange aircraft that could, at last, provide coverage over that part of the Atlantic previously inaccessible to air protection. The tables were abruptly and finally turned. In May 1943 alone, 30 percent of the U-boats at sea were lost. A chastened Admiral Doenitz was forced to report to Hitler: “We are facing the greatest crisis in submarine warfare, since the enemy, by means of new location devices …makes fighting impossible, and is causing us heavy losses.” On May 24, Doenitz ordered the U-boats to withdraw to safer areas. Though he denied it at the time, he was calling off the submarine campaign in the North Atlantic. Allied convoys—carrying their vital cargoes of oil, other goods, and troops—could now cross the Atlantic in reasonable safety. A combination of technical innovation, intelligence, organization, new tactics—and persistence—finally assured an abundant flow of oil from America to Britain and on to Europe and the Soviet Union. The p...

In the quest for a more manageable receptacle, the Americans, joined by the British, based their design for a five-gallon can on captured German cans. Ironic respect was paid to the German original in the nicknames they adopted; the “blitz can”; and, more commonly, the “jerrycan.” But the Americans made an important innovation in the German design. The German troops had to use a funnel, which allowed dirt to enter the engines of their vehicles. The Americans added a built-in pouring spout, which kept the dirt out.

In January 1945 the Roosevelt Administration withdrew it so that the antitrust problem and other issues could be addressed. Shortly after, efforts to revise the agreement were put into abeyance, as Roosevelt and his senior advisers set off for Yalta in the Soviet Crimea for a meeting with Joseph Stalin and Winston Churchill. Their aim was to lay the basis for the postwar international order—and to carve out the shape and size of their spheres of influence in that postwar world.

The official record was surprisingly silent about what the two men said about oil. One member of the party later reported that the President and the King did have a long talk on that subject. Whatever was or was not said, both men knew that it was central to the emerging relationship between their two countries. The New York Times foreign affairs correspondent, C. L. Sulzberger, got right to the point. Immediately after the meeting at the Great Bitter Lake, he wrote, “The immense oil deposits in Saudi Arabia alone make that country more important to American diplomacy than almost any other smaller nation.” But Winston Churchill was not exactly thrilled to see the American President conferring with monarchs in an area of traditional British influence—Roosevelt also met King Farouk of Egypt and Haile Selassie of Ethiopia. According to one account, Churchill “burned up the wires to all his diplomats in the area, breathing out threatenings and slaughter unless appointments with him were made with the same potentates after they had seen F.D.R.” Churchill rushed to the Middle East, and three days after Roosevelt, the British Prime Minister drove into the Egyptian desert to meet Ibn Saud in a hotel at an oasis.

Had the Anglo-American Petroleum Agreement any future without its champion, Harold Ickes? Support for the agreement now came from an unlikely source: Navy Secretary James Forrestal. A driving, ambitious and politically conservative former investment banker from Dillon, Read, Forrestal was one of the first senior policymakers to conclude that the United States had to organize itself for a protracted confrontation with the Soviet Union. Oil held a central place in Forrestal’s strategy for security in the postwar world. “The Navy,” he said, “cannot err on the side of optimism” in its estimates for what supplies might be available. The largest known oil reserves outside the United States were in the area of the Persian Gulf. “The prestige and hence the influence of the United States is in part related to the wealth of the Government and its nationals in terms of oil resources, foreign as well as domestic,” he said. “The active expansion of such holdings is very much to be desired.” The State Department should work out a program to substitute Middle Eastern oil for American oil, he added, and use its “good offices” to “promote the expansion of United States oil holdings abroad, and to protect such holdings as already exist, i.e., those in the Persian Gulf area.”

The shortages also drew in larger volumes of oil imports. Up through 1947, American exports of oil exceeded imports. But now the balance shifted; in 1948 imports of crude oil and products together exceeded exports for the first time. No longer could the United States continue its historical role as supplier to the rest of the world. Now it was dependent on other countries for that marginal barrel, and an ominous new phrase was being heard more often in the American vocabulary—“foreign oil.”

Given that synthetic fuels would be very expensive and offshore development was only just beginning, was there any other alternative to imported oil? There was. The answer could be seen at night, along the endless highways of Texas, in the bright spears of light that shot up from the flat plains. It was natural gas, considered a useless, inconvenient by-product of oil production and thus burned off—since there was nothing else to do with it. Natural gas was the orphan of the oil industry. Only a fraction of natural gas production was used, mostly in the Southwest. Yet the country appeared to have huge reserves of gas, which could well substitute for oil—or, for that matter, for coal—in residential heating and in industry. But it so lacked in markets that it was sold, on an energy basis, for only a fifth of what oil from the same well would cost.

Natural gas required no complex engineering processes in order to be used. The problem was transmission: how to get it to the markets in the Northeast and the Midwest, where both the large populations and the major industries of the country were to be found. That meant long-distance pipelines, halfway across the country, in an industry for which long distance had heretofore meant 150 miles. But the commercial arguments, compounded by the concerns about national security and dependence on foreign oil, were very compelling. In a judgment that found favor with Defense Secretary Forrestal, the House Armed Services Committee declared that increasing the use of natural gas was “the quickest and cheapest method immediately available to reduce domestic consumption of petroleum” and that, therefore, steel should “be made available for natural gas pipelines in advance of any other use now proposed.”

Ricardo developed the concept that was to provide the framework for the battle between nation-states and oil companies. It was the notion of “rents” as something different from normal profits. His case study involved grain, but it could also apply to oil. Let there be two landlords, said Ricardo, one with fields much more fertile than the other. They both sell their grain at the same price. But the costs of the one with the more fertile fields are much less than those of the one with the less fertile fields. The latter makes, perhaps, a profit, but the former, the one with the more fertile fields, receives not only a profit, but also something much larger—rents. His rewards—rents—are derived from the particular qualities of his land, which result not from his ingenuity or hard work, but, uniquely, from nature’s bountiful legacy. Oil was another of nature’s legacies. Its geological presence had nothing to do with the character or doings of the peoples who happened to reside above it, or of the nature of the particular political regime that held sway over the region in which it was found. This legacy, too, generated rents, which could be defined as the difference between the market price, on one hand, and, on the other, the costs of production plus an allowance for additional costs—transportation, processing, and distribution—and for some return on capital. For example, in the late 1940s, oil was selling for around $2.50 a barrel. Some grizzled stripper-well operator in Texa...

The postwar battle over rents was not exclusively limited to economics. It was also a political struggle. For the landlords, the oil-producing countries, the struggle was interwoven with the themes of sovereignty, nation-building, and the powerful nationalistic assertion against the “foreigners,” who were said to be “exploiting” the country, stifling development, denying social prosperity, perhaps corrupting the body politic, and certainly acting as “masters”—in a haughty, arrogant, and “superior” manner. They were seen as the all-too-visible embodiment of colonialism. Nor did their sins end there; they were, in addition, draining off the “irreplaceable heritage” and bounty of the landlord and his future generations. Of course, the oil companies saw it all quite differently. They had taken the risks and held their breath, they chose to put their capital and efforts here and not there, and they signed laboriously negotiated contracts, which gave them certain rights. They had created value where there was none. They needed to be compensated for the risks they had taken—and the dry holes they had drilled. They believed that they were being put upon by greedy, rapacious, and unreliable local powers-that-be. They did not think that they were “exploiting”; their plaintive cry was, “We wuz robbed.” There was yet another political dimension to the struggle. To the consuming countries in the industrial world, access to oil was a strategic prize, not only vital to their economy and ...

From his earliest days in business, the inward, vain, and insecure Getty had been driven by a powerful need to make money, matched by an extraordinary talent for doing so. “There’s always the best hotel in town and the best room in the best hotel in town, and there’s always somebody in it,” he once said. “And there’s the worst hotel, the worst room in the worst hotel, and there’s always somebody in that room, too.” Clearly, he intended to occupy the best room.

During the war, Getty was in Tulsa, managing an airplane factory, a subsidiary of one of his oil companies. By this time, his eccentricities were manifold. He not only ran the operation in Tulsa from a concrete bunker, but also lived in it, in part out of fear of being bombed by the German Luftwaffe. He made a point to chew each mouthful of food thirty-three times, and he had taken to washing his own underwear each night because of his antipathy to commercial detergents. By age fifty-five, he had had his second facelift and was dyeing his hair a funny kind of reddish-brown, all of which gave him a rather wizened, embalmed look.

Getty sought to allay his anxiety in a variety of ways. He focused on his business interests. He wandered across Europe. He spent several weeks researching Rembrandt’s portrait of Marten Looten, which he owned. Like the young John D. Rockefeller a century earlier, the sixtyish Getty relaxed by totting up his income and expenses each evening. One entry from Paris listed sums under “income” that were measured in the thousands and millions, while under “expenses” were such things as “newspaper—10 centimes” and “bus fare—5 centimes.” Coming back to the United States, he finally won his twenty-year battle for control of Tidewater Oil, bought a rare Louis XV lacquer table, and enrolled in a $178 course at Arthur Murray’s School of Dancing, with a special concentration on the samba and the jitterbug and on improving his ability to lead.