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

by Daniel Yergin

At the beginning, Rockefeller also established another principle, which he religiously stuck to thereafter—to build up and maintain a strong cash position.

A central theme underlay Rockefeller’s management; he believed in oil, and his faith never wavered. Any drop in the price of crude was not a reason for anxiety, but an opportunity to buy.

A wise old owl lived in an oak, The more he saw the less he spoke, The less he spoke, the more he heard, Why aren’t we all like that old bird?

“They had muffed numerous opportunities to attain great wealth because, perhaps, of not playing the trump card at the right time.

“We are not in business for our health, but are out for the dollars.”

He told her how he had lived in a rented house—at a time when to live in a rented house was a “confession of failure in business”—in order to be able to have more money to buy stock in Standard Oil.

“mastery itself was the prize of the venture.”8

His urgency increased when he learned that the German Navy was going forward with oil propulsion. “They have killed 15 men in experiments with oil engines and we have not killed one! And a d——d fool of an English politician told me the other day that he thinks this creditable to us.”

“The hand you dare not bite, kiss it.”

Within the red line were eventually to be found all the major oil-producing fields of the Middle East, save for those of Persia and Kuwait. The partners bound themselves not to engage in any oil operations within that vast territory except in cooperation with the other members of the Turkish Petroleum Company. So the self-denying clause of the 1914 Foreign Office Agreement was reborn fourteen years later as the Red Line Agreement. It set the framework for future Middle Eastern oil development. It also became the focus for decades of bitter conflict.

“You can’t convict a million dollars in the United States.”

“We have already several good seats and a very great part of the food on the Russian table,” he lectured Gulbenkian. “Dining is very much better in company with other people who have also got a very big interest in the dinner.”

A joint U.S.–Mexican commission, appointed by the two governments, was charged with developing a compensation scheme; it found a novel and creative solution. It simply came up with the judgment that 90 percent of all the subsoil reserves owned by the companies had already been produced by the time of expropriation!

The Burgan field in southeastern Kuwait was suggested as the most promising area. And there petroleum was struck, unexpectedly and with a surprisingly large flow, on February 23, 1938.

The “knock-out fight” to which Roosevelt referred had been precipitated by Germany’s surprise attack on the Soviet Union in June 1941, which forced a major strategic choice for Tokyo: whether to continue on its southern course or to take advantage of Hitler’s success, join in the attack on Russia from the east, and help itself to part of Siberia. Between June 25 and July 2, 1941, senior officials in Tokyo grappled with and argued fervently over the choices. Finally, they made the fateful decision: They would put off doing anything about the Soviet Union, and instead concentrate on the southern strategy—and, in particular, seek to secure control of all of Indochina, deemed necessary in order to go for the East Indies. They did so with the recognition that the occupation of southern Indochina could well provoke an all-out American oil embargo, which would be “a matter of life or death to the empire,” in the words of the Navy General Staff.

The Emperor tried to ascertain whether the senior advisers were in favor of diplomacy, first, or war, first. He could not get a clear answer. The next day, when the same question was raised again, the Chiefs of the Army and Navy General Staff remained silent. The Emperor expressed his regret that they had not seen fit to answer. He then drew a piece of paper out of his robe and read a poem by his grandfather, the Emperor Meiji: Since all are brothers in this world, Why is there such constant turmoil? The hall was silent. “Everyone present was struck with awe.” Then Admiral Nagano rose and said that military force would be used only when all else had failed. The meeting

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 4½ 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.”26

By 1940, synthetic fuel output had increased drastically—72,000 barrels per day, accounting for 46 percent of total oil supply. But the synthetic fuels were even more significant when viewed in terms of military needs. Hydrogenation, the Bergius process, provided some 95 percent of Germany’s total aviation gasoline.

A cousin of H. St. John B. Philby, the sorcerer’s apprentice of Saudi oil, Montgomery had been the best man when Philby was married in India.

“Shortage of petrol! It’s enough to make one

weep.”18

For its part, the United States lost a quarter of its total tanker tonnage in 1942.

Altogether, between December 1941 and August 1945, the United States and its allies consumed almost 7 billion barrels of oil, of which 6 billion came from the United States. Its wartime output was equivalent to more than a quarter of all oil produced in the United States from the time of Colonel Drake’s well right down to 1941.

But, finally, he struck a bargain with Socal and Texaco. The U.S. government would acquire one-third of Casoc for $40 million; the funds would be used to finance a new refinery at Ras Tanura. Further, the government would have the right to buy 51

percent of Casoc’s production in peacetime and 100 percent in wartime.

And so, even while Jew and Arab were at war in Palestine, the feverish oil development continued within Saudi Arabia, and construction proceeded on Tapline. It was finished in September 1950. Two more months were required to fill the line, and in November, the oil began to arrive at Sidon in Lebanon, the terminus on the Mediterranean, where it was picked up by tankers for the last leg of the journey to Europe. Tapline’s 1,040 miles would replace 7,200 miles of sea journey from the Persian Gulf through the Suez Canal. Its annual throughput was the equivalent of sixty tankers in continuous operation

“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.

Moreover, the fiftyfifty principle had the right psychological feel. Both politically and symbolically, it did the job that needed to be done.