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BL Oil & Gas History, Economics and Geopolitics OENA8433

Topic 2, Lecture 1: World War One

Dr. Karin Oerlemans

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Recommended Reading
ƒ Yergin, D. (1991). The prize: The epic quest for oil, money and
power. New York: Free Press.

ƒ Economides, M. & Oligney, R. (2000). The colour of oil. Katy:

Round Oak.

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Unit Overview
ƒ Topic 1: Introduction – The Founders
ƒ Topic 2: The Global Struggle
ƒ Lecture 1: World War One
ƒ Lecture 2: The Age of Gasoline
ƒ Lecture 3: The Red Line Agreement and the Arabian Concessions
ƒ Topic 3: War and Strategy
ƒ Topic 4: Oil and Gas Economics
ƒ Topic 5: Oil and Gas Technology in context
ƒ Topic 6: The Energy Industry Today

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Lecture Outcomes
Upon successful completion of this lecture you should be able to:

ƒ Recount some of the events leading to the development of an

oil industry in the Middle East
ƒ Retell some of the events of World War One
ƒ Understand the historical impact of this conflict on the
development of the oil and gas industry
ƒ Begin to develop an appreciation for the role of oil as a
strategic world commodity

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Persia
ƒ For thousands of years a crossroads for trade and conquest between Asia and
West
ƒ Latter half of 19th Century, Britain & Russia competed for influence
ƒ Why?
ƒ Russia – Already there in Northern part of Persia via trade, business – a partial
integration of the Persian economy with Russia
ƒ Britain – Keep trade route to India open, protect the ‘jewel in the crown’ i.e.
British colonial power in India
ƒ Deal made in 1907 – ‘spheres of interest’

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Persian Oil
ƒ Persian Government desperately short of money
ƒ But there was oil!
ƒ Reuters had concession 1872 and 1889 but terminated
ƒ Paris 1900
ƒ General Antoine Kitabgi
ƒ Selling petroleum concession for Persia
ƒ Sought out William Knox D’Arcy
ƒ 1901 D’Arcy’s man arrived in Tehran

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D’Arcy
ƒ “A capitalist of the Highest
Order”
ƒ English
ƒ Solicitor in Australia
ƒ Organised a syndicate for
Mount Morgan Gold mine
ƒ Became very rich
ƒ Investor, speculator, put
together syndicates
ƒ Sought Persian oil concessions

William Knox D’Arcy

www.mountmorgan.com/ dArcy.html

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Oil Concession

ƒ $5k negotiation
ƒ 1901 signed concession
ƒ $20k in cash + $20k in
shares
ƒ 16% annual net profits
ƒ Concession to last 60 years
ƒ ¾ of the country
ƒ (Excluded 5 northern
provinces)

Nasir al Din Shah granted several oil right concessions before his
successor, Muzaffar al-Din signed the D’Arcy concession
Image 26 © 1991 D. Yergin, The Prize

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Difficulties
ƒ Complex social and political situation
ƒ Incredibly difficult terrain, few roads, site was 300 miles from
Persian Gulf
ƒ Had to ship equipment to Basra, then 300 miles up Tigris to
Baghdad then by man and mule to site
ƒ Hostility towards the West
ƒ No technology
ƒ Shias vs. Sunnis vs. Christians (para 2 p138)
ƒ Tribalism
ƒ Cost excess of $200k!

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Finding the Oil
ƒ Drilling began 1902 in Chiah Surkh
ƒ 1903 struck oil 1st well
ƒ But limited supply
ƒ Running out of money
ƒ Applied for a loan to British Government
ƒ Had spent £160k on exploration
ƒ Needed another £120k
ƒ loan rejected
ƒ 1904 Struck oil 2nd well

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Oil in Persia

Map p.144 © 1991 D. Yergin, The Prize

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1904
ƒ D’Arcy in deep financial strife, struck oil, but oil gave out
ƒ Moved southwest of Persia
ƒ D’Arcy turned everywhere looking for finance: British
Government, Rothschilds, Lloyds, Lyons and Company
ƒ British Government was worried
ƒ Lose out to Russia
ƒ Lose control to French
ƒ Had started to use oil in the Navy for smaller ships
ƒ British Admiralty became a matchmaker:
ƒ Investor (Lord Strathcona, headed a ‘syndicate of patriots’)
ƒ Matched a front company (Burmah Oil)
ƒ With a consultant (Boverton Redwood) acting as intermediary

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1905 – 1908
ƒ Concession Syndicate
established
ƒ Burmah Oil 90% share holder
ƒ D’Arcy as subsidiary
ƒ D’Arcy as director
ƒ Burmah – provided capital,
management and expertise
ƒ Lord Strathcona £50k
ƒ Drilling at Shardin and Maidan-i-
Naftan – the plain of oil
ƒ Masjid-i-Suleiman – fire temple
Donald Smith, later Lord Strathcona, Montreal, QC, 1871
William Notman (1826-1891)

© McCord Museum

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Anglo-Persian Oil Company
ƒ May 25, 1908
ƒ Burmah Oil sent word to Reynolds to ‘wind up’
ƒ But before letter got there --- a gusher (description p 146/7)

ƒ The Anglo-Persian Oil Company Ltd was incorporated on 14

April 1909 and took over ownership of the concession,
ƒ Burmah Oil 97% of its ordinary shares
ƒ Rest were owned by Lord Strathcona – company's first chairman

ƒ D’Arcy
ƒ Paid £895k in shares
ƒ Compensated for exploration expenses
ƒ Became a director
ƒ Died in 1917

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Anglo-Persian Oil Company

ƒ On April 19, public float of AP provided capital for:
ƒ Refinery at Abadan in the Shatt-al-Arab extended estuary of the
Tigris, Euphrates & Kurun Rivers
ƒ Pipeline from oilfield to refinery (138 km)
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ƒ Development of large oilfield (10km )
ƒ But still not enough capital & difficulties were just as
demanding
ƒ Would they be swallowed by Shell?

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The role of Fisher
ƒ 1904 Became First Sea Lord
ƒ Proponent of technological
change for the fleet
ƒ Wanted oil fuel for the ships
ƒ Became a great supporter of
D’Arcy and Anglo-Persian
ƒ “the God-father of oil”

Admiral of the Fleet The Lord Fisher

Source: www.wikipedia.com

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Churchill (and war) to the rescue!

ƒ Became first Lord of
Admiralty, 1911
ƒ Sought advice of Fisher
ƒ Crucial decision to convert
British Navy from coal to oil
ƒ Greater range and flexibility
ƒ Better speeds
ƒ But security of supply?
Britain had lots of coal but
no oil
ƒ 1914 British Government
made decision to convert
Navy to fuel oil
A young Churchill c1901
www.winstonchurchill.org

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The final steps to BP
ƒ June 17, 1914 appropriations bill passed for purchase of shares
in Anglo-Persian Oil Company
ƒ Made a large investment in Anglo-Persian Oil Company
ƒ Injected £2.2 million
ƒ 51 per cent interest
ƒ Guaranteed 20 year fuel oil contract
ƒ Beginning of British Petroleum
ƒ Govt major shareholder till Margaret Thatcher sold off the interest
ƒ By end of WW1 was producing 18,000 barrels of oil per day
ƒ 1935 – company renamed Anglo-Iranian Oil Company
ƒ 1954 – renamed The British Petroleum Company

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Oil as a Strategic Commodity

ƒ An essential for war – WW1

ƒ A reason for war – WW2

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World War 1
ƒ 1914 – 1918
ƒ The first mechanised war
ƒ Air
ƒ Sea
ƒ Land
ƒ Fuelled by oil – emphasised the value of oil as a strategic resource

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Taxis of Paris
ƒ First use of Motorised transport for War
ƒ 1914, Sept 6-8
ƒ General Gallieni
ƒ Order 3000 Parisian taxis take troops to the front line
ƒ Turning point in First Battle of Marne
ƒ Saved Paris
ƒ All were paid – by the meter!

Village of Marne, France

www.gargouilles.be/ epine/a.htm

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Internal Combustion in land War
ƒ Initially, WWI was horse & infantry war – ended up in stalemate
of trench warfare
ƒ NO MOBILITY – needed to transport troops, food, munitions to
front line
ƒ As hard for Germans as Allied forces
ƒ 1914
ƒ 827 cars
ƒ 15 motorcycles
ƒ By 1918 British alone had more than
ƒ 500 Tanks
ƒ 56,000 trucks
ƒ 23,000 cars
ƒ 34,000 motor bikes

5/6hp Clyno Machine Gun Carriers, Clyno Engineering Co, 1919 (L6292)
http://www.wolverhamptonarchives.dial.pipex.com/acc_local_ww1_factory.htm
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Tank Warfare
ƒ Invented by Ernest Swinton
ƒ Opposed by British Army
ƒ Championed by Churchill and built by Navy
ƒ ‘Tank’ was code name
ƒ 1916 First used at Battle of the Somme
ƒ 1918
ƒ 456 tanks
ƒ Helped win Battle of Amiens

World War 1 Tanks on train

mailer.fsu.edu/~akirk/ tanks/ww1/WW1.html 24
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In the air

ƒ 1903 Wright Brothers first Flight in Kitty Hawk

ƒ 1911-12 Italians first used planes against Turks
ƒ 1914 British aviation 1000 people
ƒ 1915 250 planes – 60 experimental
ƒ Initially used for reconnaissance and observation
ƒ Pilots shot at each other with rifles and handguns
ƒ 1915 German Navy mounts the first airship raid on Britain - Zeppelin’s bomb
Great Yarmouth and King's Lynn
ƒ 1915 April First fighter aircraft – German Fokker Eindekker uses synchronised
machine-gun firing through the propeller arc
1915 fighter plane
www.rafmuseum.org.uk

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In the air
ƒ 1918 – speed 120mph, 27,000 feet

ƒ 1918 April, RAF established – combined Royal Flying Corps (division of Royal
Engineers) and Royal Naval Air Service

ƒ End of War
ƒ Britain 55,000 planes
ƒ France 68,000
ƒ Italy 20,000
ƒ Germany 48,000
ƒ US 15,000

Morane Type LA
No.3 Squadron
www.rafmuseum.org.uk
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At Sea
ƒ Beginning WWI Churchill’s
decision to convert British Navy
from coal to oil ensured
Britain’s continuation over
Germany as naval power
ƒ Britain defeated Germany in
Battle of Falkland’s Islands
ƒ 1916 British Grand Fleet
defeated German High Seas
Fleet at Battle of Jutland
ƒ Britain dominated North Sea
thereafter
HMS Iron Duke, Admiral Jellicoe's flagship at the Battle of Jutland
http://www.royal-navy.mod.uk/server/show/ConMediaFile.15455 ƒ Oil difference
ƒ German coal powered
ƒ Oil – greater range, speed and
faster refuelling

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Oil and World War 1

ƒ Recall:
ƒ Britain required secure access to Middle East (Persian) oil
ƒ (Ultimately led to BP – with 51% ownership by British Government -
& political/diplomatic control over Middle East)
ƒ 1914 >1% total world output of oil from Anglo-Persian
ƒ Britain needed to protect oil fields
ƒ 1914 Turkey threatened Abadan
ƒ British protected and captured Basra
ƒ 1917 Captured Baghdad from Turks
ƒ Oil production in Persia grew from 1600 bbl in 1912 to 18,000
bbl per day in 1918
ƒ 1/5th of Naval oil supply
ƒ Anglo-Persian bought out British Petroleum – German owned
oil distribution company

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 Royal Dutch Shell
ƒ Central to British WW1 efforts
ƒ 1915 removed Toluene extracting factory from Rotterdam to
Somerset
ƒ Provided 80% of Toluene for British TNT (tri-nitro-toluene)
production
ƒ Acted as quartermaster general for British oil needs
ƒ Acquiring
ƒ Organising
ƒ Delivering
ƒ From Borneo, Sumatra and the US to France

Explosive views of reduced TNT

http://www.spectroscopynow.com/coi/cda/detail.cda?id=12222&type=Feature&chId=8&page=1

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Oil Shortages
ƒ 1916 – January ‘a dearth of petrol’ – Times
ƒ Shortage of shipping tonnage – German diesel-driven subs
ƒ Growing demand
ƒ Rationing introduced
ƒ 1917 – further shortages
ƒ Russia stopped oil supplies
ƒ Germany subs bombed US ships
ƒ Brought US into war
ƒ Standard Oil lost 6 tankers
ƒ Royal Dutch Shell lost Murex (and others)
ƒ Pleasure driving banned in October
ƒ December – oil “as vital as blood in the coming battles” French PM
Clemenceau

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Oil Mobilization
ƒ Creation of alliances between govt and private business
ƒ 1918 Established the Inter-Allied Petroleum Conference
ƒ Members were Britain, France, Italy and US
ƒ Standard and Shell major oil contributors
ƒ Introduced convoys
ƒ US est Fuel Administration – Mark Requa head of Oil Division
ƒ National Petroleum War Service Committee
ƒ 1918 Coal shortages forced factories closed
ƒ Rises in oil prices
ƒ August ‘volunteer’ maximum prices for oil set
ƒ Gasoline less Sundays
ƒ US supplied 80% of Allied oil needs

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Germany
ƒ Supplies cut off
ƒ Relied on Rumanian oil
ƒ 1916 Rumania declared war on Germany
ƒ Germany captured oil port – including refineries and storage tanks
ƒ November Germans captured Wallachian Plain oil fields
ƒ Britain sent ‘Empire Jack’ to destroy fields
ƒ November 26/27
ƒ 70 Refineries
ƒ 800k of crude oil and petroleum products
ƒ Also storage, derricks, and pipes
ƒ 5 months to rebuild
ƒ But only 1/3rd of previous production then to 80%
ƒ Denied access to Baku by Turks, Bolsheviks and finally British

Col. John Norton-Griffiths

http://homepage.ntlworld.com/neil.ashworth1/appendix_1.html

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Influence of Oil on 1st World War
ƒ Character of War changed – Stalemate of trench warfare was
overcome by:
ƒ Internal combustion engine -
ƒ Taxis
ƒ Tanks
ƒ Trucks: for moving troops and supplies
ƒ Aircraft
ƒ Other Developments: Submarines (& later, aircraft carriers)
ƒ In essence:
ƒ MOBILITY & MAINTENANCE of SUPPLY LINE
ƒ Pressures of oil supplies
ƒ Men and Machines
ƒ 13 million people died
ƒ Bérenger, “The blood of victory . . . Germany had boasted too much of
its superiority in iron and coal, but it had not taken sufficient account
of our superiority of oil” (p.183)

candace.online.fr/spip/ article.php3?id_article=68
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In Summary
ƒ The discovery of oil in Persia

ƒ D’Arcy, Churchill and Fisher

ƒ The beginnings of BP

ƒ World War 1
ƒ Mechanized
ƒ Many oil based inventions
ƒ Oil had a major impact
ƒ Blood of Victory

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Lecture Conclusion
ƒ This is the end of Topic 2, Lecture 1
ƒ You may now progress to Topic 2, Lecture 2

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