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Unlikely Oil Tycoons

Business

As late as the 1880s, John D. Rockefeller’s Standard Oil commanded fully 80% of the world’s petroleum market. The most serious threats to his hegemony were already in his boardroom, having capitulated to mergers. Or so it seemed until Royal Dutch and Shell, a pair of relative latecomers to Big Oil, appeared from nowhere to challenge Rockefeller’s near-monopoly.

This is the story that Peter B. Doran tells in “Breaking Rockefeller: The Incredible Story of the Ambitious Rivals Who Toppled an Oil Empire.” His heroes are Marcus Samuel Jr., the English merchant who founded Shell Oil, and Henri Deterding, an early executive at the Royal Dutch Petroleum Co., which would eventually merge with Shell. His villain is Rockefeller, whose cutthroat tactics Mr. Doran clearly despises.

Rockefeller’s oil trust did seem invincible. What happened? The present-day lords of Exxon and Shell will empathize. New supplies outstripped demand, creating a window for upstart challengers. The oil market has ever been thus. Though “monopoly” and “scarcity” dominate the headlines, the usual condition of the oil business is overabundance. That is why oil barons have been so tempted to form cartels.

ENLARGE
Photo: wsj

Breaking Rockefeller

By Peter B. Doran
Viking, 337 pages, $28

As Mr. Doran, vice president for research at the Center for European Policy Analysis in Washington, D.C., relates, this was so even at the dawn of the automobile age, which spurred a mad thirst for fuel. Rockefeller believed that competition “was the enemy of efficiency in the petroleum business—not its ally.” He “systematically” eliminated rival refiners via “ruinous” price-cutting and the judicious use of corporate spies. Mr. Doran advances the barbed accusation that Rockefeller “could recoup the losses from a price war in one market by raising the cost of kerosene someplace else.” He also has Rockefeller arranging for kickbacks from railroads, giving him another edge. What exposed him, finally, to competition was a pair of gushers in remote corners of the earth.

“Breaking Rockefeller” takes us to czarist Russia and the Caspian port of Baku, the so-called Black City of crude where Marco Polo had once witnessed a wondrous “fountain from which oil springs in great abundance.” The problem was the difficulty of shipping the oil to market. The obvious route—through the Suez Canal and thence to Asia—was barred by the canal authorities due to the fear of an explosion. Enter Marcus Samuel, a plucky Jewish trader from London’s East End, bookish but willing to take a risk (traits he shared with Rockefeller). He longed to penetrate the British upper crust, and the surest route was wealth. He risked his firm on the development of a new class of tanker that just might pass muster with the International Suez Commission. It worked. Samuel’s ships were named for sea shells, and the Shell logo would soon appear on gas stations across the world.

While Samuel was busy climbing the social hierarchy of England, Dutch colonists discovered oil in the remote tobacco fields of Sumatra in northern Indonesia. When their wells ran dry, the company brought in geologists who told them that they were drilling in the wrong place. The geologists, hiking through rugged terrain, discovered anticlines (hidden folds of rock in the earth), and the anticlines led them to oil—a lot of oil. Henri Deterding took over the company just after the strikes in Sumatra and methodically expanded in the Far East. “The pendulum of fortune,” Mr. Doran writes, “now swung violently in Royal Dutch’s favor.”

Royal Dutch would merge with Shell in 1907, and Mr. Doran contends that it took their combined power, along with that of the U.S. Justice Department, to finally “break” Standard Oil. “The best antitrust laws in the world,” he writes, “mattered little if there was no competing, sizable alternative for consumers.” This statement is puzzling, since the dismemberment of Standard into numerous smaller companies supplied its own competition. Nor is it clear that Rockefeller was “broken”; as Mr. Doran states, his wealth grew faster after the divestiture than before it.

Mr. Doran has a broad lens, taking in Alfred Nobel and the Rothschilds as well as the muckraker Ida Tarbell. “Breaking Rockefeller” emulates the best oil literature, in which geology and geopolitics go hand in hand. One thinks of Anthony Sampson’s “The Seven Sisters” (1974) and Daniel Yergin’s “The Prize” (1990). He relates many nice vignettes, such as how Winston Churchill pushed to convert the tradition-bound British navy from coal-burning ships to (much swifter) oil burners.

But Mr. Doran is not quite master of his material. There are too many story lines going in too many directions. We do not need virtually an entire chapter on the 1905 uprising in Baku to illustrate “country risk”; nor do we need four pages detailing Glenn Curtiss’s 1910 flight over Manhattan to observe that oil would find a large market in the sky.

A more serious problem is the author’s weakness for cliché. “Shock” is partnered with “awe”; “points” have “no return”; the past is “indelibly linked to the present.” Overstatement abounds. Observing that Rockefeller and Churchill were similarly bewitched by the commodity’s potential, Mr. Doran writes: “Both looked at oil and saw themselves.” And he writes of the antitrust case against Standard Oil, brought in 1909 and resolved in 1911: “Hanging in the balance was the future of America’s young democracy.” Actually, our democracy was neither young nor in the balance.

It is interesting to read of Samuel’s success—he did eventually earn his title, becoming the Viscount Bearsted, though his inattention to work weakened Shell and left it vulnerable to Royal Dutch. And there is a good description of Rockefeller silently presiding over ritual lunches with executives. But Mr. Doran cannot quite get his arms around the lust for profit that motivated the oil titans. He writes that “greed” was “the most implacable piece” of the “puzzle,” later that the “challenge” of greed still exists in the oil business and later still that greed remains part of the “equation” of oil. The author seems eager to say something about greed but is not sure what. He might have observed that, without it, we would not have all the oil that his story celebrates.

WSJ



3 Comments on "Unlikely Oil Tycoons"

  1. dave thompson on Fri, 27th May 2016 3:29 am 

    This book looks like a good read. It is fascinating to understand the first oil barons and wild cats of the day. When the first geologists and drillers were exploring the globe for the oily goodness of bad.

  2. rockman on Fri, 27th May 2016 9:12 am 

    dave – A little known fact: geologists had very little to do with oil exploration much before the 1930’s. Typically they used surface indications like seeps or just blind drilling to find fields.

  3. energy investor on Fri, 27th May 2016 10:53 pm 

    Most of this stuff is contained in the book “The Prize” which took me ages to read, but which also got Daniel Yergin the Pulitzer Prize…and justifiably so.

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