A Brief History of

the International Oil

Industry
Tyler Priest
Director of Global Studies
C.T. Bauer College of Business
University of Houston
 Rising Demand for Oil and Natural
Resources
ƒ Gross World Product (GWP)
ƒ 1950 - $6 trillion
ƒ 1999 - $41 trillion
ƒ Population
ƒ 1950 - 2.6 billion
ƒ 1999 - 6 billion
ƒ Private Automobile ownership
ƒ 1950 - 53 million autos
ƒ 1999 - 520 million autos
ƒ Demand for Oil
ƒ 2005 - 80 million barrels/day
ƒ 2035 (projected) – 120-140 million barrels/day

ƒ The United States alone consumes 30 percent of all

raw materials used by the human population in any
give year
Drake Well
Titusville, PA
1859
John D. Rockefeller
Oil at Baku, 1890s
Modern Oil Transport Links at Baku
Standard Oil “Octopus”
Spindletop “Gusher”, 1901
Gulf Oil, formed in
1907 by Andrew
Mellon, purchased
Guffey Petroleum
Company, formed
in 1901 to work
the Lucas leases
at Spindletop

Sold to Chevron in
1984
Texaco formed in 1902 by James Hogg
and Joseph Cullinan to work leases at
Spindletop
 Henri Deterding Marcus Samuel
Royal Dutch Petroleum Shell Transport and Trading
Company (Shell T&T)
Standard Oil Trust broken up by the
Supreme Court, 1911
 The “Seven Sisters”
ƒ Standard Oil of New Jersey (Exxon)
ƒ Standard Oil of New York (Mobil)
ƒ Standard Oil of California (Chevron)
ƒ Gulf Oil Corporation
ƒ Texas Oil Company (Texaco)
ƒ Anglo-American (British Petroleum)
ƒ Royal Dutch/Shell

ƒ By 1949
ƒ Owned 4/5 known reserves outside U.S. and U.S.S.R
ƒ Controlled 9/10 of oil production, ¾ of refining
capacity, 2/3 of oil-tanker fleet, and virtually all
pipelines
Signal Hill, California 1920s
 Competition for New Supplies in the
1920s

ƒ Rivalry between Standard Oil and Royal

Dutch/Shell; between American and
British interests

ƒ 1928 – truce reached on supply (Red

Line Agreement) and markets
(Achnacarry Agreement, “As-Is” cartel)
Red Line Agreement, 1914 (American oil
firms admitted in 1928)
Site of First Discovery on the D’Arcy
Concession, Iran, 1908
Ibn Saud, founder of modern
Saudi Arabia
 United States-Saudi Arabian Oil Ties
ƒ 1933 – 60-year concession granted to Socal (Chevron)
ƒ 1936 – Texaco acquire’s 50% interest in Socal concession -
joint venture called CalTex
ƒ 1938 – first oil discovery
ƒ 1944 – CalTex formed Arab-American Oil Company (Aramco)
ƒ Lend-lease aid during WWII
ƒ Meeting between FDR and Ibn Saud on the USS Quincy after Yalta
Summit – legendary “oil for security” arrangement
ƒ Allocation of scarce steel for pipeline construction after the war
ƒ 1947 - Truman Doctrine
ƒ 1947 – Exxon and Mobil join Aramco
ƒ 1950 – Trans-Arabian pipeline completed
ƒ 1950 - 50-50 profit-sharing granted by Aramco to Ibn Saud
ƒ 1950 - Foreign tax credit
ƒ Royalty payments to Saudi Arabia allowed to be written off against
U.S. tax liabilities (the “Golden Gimmick”)
ƒ 1951 – payments to Saudi Arabia rose from $66 million to $110 million,
while oil company tax payments to Uncle Sam went from $50 million to
$6 million
ƒ 1973 – Saudi Arabian government acquired 25% share of Aramco
(“participation”); increased to 60% in 1974, and then 100% in 1980
Saudi oil and
gas fields

Ghawar
(discovered in
1948)

1948-2000:
60-65% of all
Saudi oil
produced by
Ghawar
Mohammed Mossadegh
Iranian Prime Minister
Mohammad Reza Pahlavi, Shah of Iran
 After Overthrow of Mossadegh
ƒ Creation of a new, viable, and stable world oil
order, anchored by Western-friendly Saudi
Arabia and Iran
ƒ Anti-trust prosecution of major oil companies
dropped by Justice Department
ƒ If the system worked, whom did it work for and
against?
ƒ Oil companies – system provided stable and cheap
supplies of oil; immensely profitable foreign
concessions and production
ƒ Western consumers – system ushered in long era of
cheap oil
ƒ Iran – system ushered in 20 years of corrupt
dictatorship and rising nationalism
ƒ Oil exporters in general – system eventually
provoked gradual shift in balance of power from
companies to host countries
 Enrico Mattei
Head of Italy’s Ente Nazionale Idrocarburi
(ENI)

ƒ 1957 concession
with Iran upset
50-50 formula
between Seven
Sisters and
oil producers
Changes in World Oil Economy during 1950s

ƒ “Independents” began searching abroad

and striking deals for new international oil
supplies
ƒ Reentry of Soviet oil exports in world
markets
ƒ U.S. import protection – Mandatory Oil
Import Quotas (1959) – put downward
pressure on international prices by limiting
U.S. demand for foreign oil
ƒ Combined effect was a growing surplus of
international oil
ƒ 1959 – majors cut posted prices, and thus
reduced host country revenues; led to
formation of OPEC
OPEC annual meeting
 Libyan Leader Muammar El-Qaddafi

ƒ Reversed
previous policy
of allowing
foreign
companies
unrestrained
production

ƒ Actions led to
series of price
increases and
renegotiations
of old
concession
agreements
North Sea Oil, 1970s
Mexico’s Cantarell Oil Field
Discovered 1979

Largest oil field

discovered in
the world in
last thirty
years; now in
steep decline
Low Crude Oil Price Regime, 1985-2000
ƒ OPEC could not enforce
production quotas
ƒ Oil price collapse, 1985-
1986
ƒ Increased competition in
“downstream” parts of
the business
ƒ U.S. foreign policy
continued to try to
maintain stability and
Western access in the
Middle East by containing
Saddam Hussein
ƒ Gulf War – U.S. oil
embargo on Iraq kept
prices from falling even
lower in 1990s
 Oil Industry Mega-Mergers
ƒ 1990s consolidation into five “Super-Majors”
ƒ BP (Amoco and ARCO)
ƒ ExxonMobil
ƒ Chevron-Texaco
ƒ Royal Dutch/Shell
ƒ TotalFinaElf
ƒ Pressure to increase shareholder value
ƒ Build up capital to finance riskier exploration and
production; “easy” oil controlled by state-owned
oil companies
ƒ Build up sufficient concentration to become a
“junior partner” with OPEC in maintaining stable
crude prices – industry push for Production
Sharing Agreements (PSAs)
“Hubbert’s Peak”