Era 03 · 1859 — 1973

Black Gold

Who gets rich

By the barrel

Pulse cycle

4.5s

Oil arrived as a curiosity — a medicine, a lamp fuel, a substitute for whale oil — and within fifty years had become the most strategic commodity on Earth. The first commercial well was drilled in Pennsylvania in 1859. By 1911 a single American family controlled most of the world's refined oil. By 1914 the British Royal Navy had switched from coal to oil at Churchill's insistence, and the country with the best oil reserves was no longer Britain. The 20th century is, in plain economic terms, the century the energy capital moved from Tyneside to Texas — and from Texas, eventually, to Riyadh.

Events in this era

Aug 27, 1859

Drake's well — first commercial oil

On August 27, 1859, Edwin Drake's drilled well near Titusville, Pennsylvania struck oil at 69 feet. The 'Seneca Oil Company' had been formed to exploit oil seeps that local farmers had skimmed for years to make a folk-medicine product. Drake's innovation was the iron drive pipe, which let drilling proceed through soft sediment without the bore caving in. Within a year, Pennsylvania had hundreds of wells, towns named Petroleum Center and Pithole, and a chaotic boom that crashed prices from $20 a barrel to under 10 cents within months. Oil's first lesson — that supply expands faster than demand can absorb — was learned in the first eighteen months of the industry.

First commercial oil well

Jan 10, 1870

Standard Oil incorporated

John D. Rockefeller and his partners incorporated Standard Oil of Ohio on January 10, 1870, with $1 million in capital. Over the next two decades, Standard absorbed nearly every refining and pipeline competitor in the United States through a combination of secret railroad rebates, predatory pricing, and outright purchase. By 1882, Standard's secret 'Trust' agreement controlled roughly 90 percent of U.S. refining capacity. By 1904, Rockefeller was the richest American who had ever lived, and Standard had become the template for every subsequent industrial monopoly. The first commodity-driven monopoly in modern American history was an energy monopoly.

Energy becomes the template for industrial monopoly

Jan 10, 1901

Spindletop gusher

On January 10, 1901, the Lucas gusher at Spindletop Hill near Beaumont, Texas blew oil 150 feet into the air at a rate of roughly 100,000 barrels per day — more than the entire rest of the world's wells combined. Within a year, Spindletop had over 200 wells, and the Texas oil industry that grew up around it produced more oil in 1902 than every Pennsylvania well had produced in their best year. American oil's center of gravity moved decisively from Appalachia to the Gulf Coast. Three of the largest oil companies in the world — Gulf Oil, Texaco, and Sun Oil — were founded directly to develop Spindletop and surrounding fields.

American oil becomes a Texas industry

May 15, 1911

Standard Oil broken up

The U.S. Supreme Court, in Standard Oil Co. of New Jersey v. United States (May 15, 1911), ordered the dissolution of Standard Oil into 34 separate companies. The successors included Standard Oil of New Jersey (later Exxon), Standard Oil of New York (later Mobil), Standard Oil of California (later Chevron), Standard Oil of Indiana (later Amoco), Atlantic Refining (later ARCO), and Continental Oil (later Conoco). Rockefeller's personal wealth roughly doubled in the months after the breakup as the constituent companies' shares were freed to trade individually — the first dramatic illustration that breaking up a conglomerate often raises its market value. The 'Seven Sisters' that would dominate global oil for the next sixty years were nearly all spun out of this single court order.

Modern oil industry created in one court ruling

1913

Royal Navy switches to oil

In 1913, under First Lord of the Admiralty Winston Churchill, the British Royal Navy committed to converting its battleships from coal to oil. The decision was technical (oil ships could refuel at sea, accelerated faster, and required smaller crews) but it was strategic disaster: Britain had infinite coal at home and no oil at all. Churchill solved the problem by buying a 51 percent stake in the Anglo-Persian Oil Company — the predecessor of BP — securing British government control over Iranian oil for the next half-century. It was the first time a Western power tied a strategic-military commitment directly to a foreign hydrocarbon supply, and the first explicit oil-for-security deal in modern history.

Energy security becomes a state-level strategic concept

Feb 14, 1945

Quincy Pact — FDR meets King Saud

On February 14, 1945, returning from the Yalta Conference, U.S. President Franklin D. Roosevelt met King Abdulaziz Ibn Saud aboard the USS Quincy in the Suez Canal's Great Bitter Lake. The two-day meeting — never fully documented — produced an informal agreement that became the bedrock of U.S.-Saudi relations: American security guarantees and military protection in exchange for Saudi oil access at favorable terms. Saudi Arabia's recoverable reserves had been confirmed by California Standard's 1938 Dammam No. 7 well; the country was about to become the world's largest oil holder. The Quincy meeting locked the U.S. into the Saudi defense relationship that has continued for eighty years.

Birth of the U.S.-Saudi security-for-oil framework

Sep 14, 1960

OPEC founded in Baghdad

The Organization of Petroleum Exporting Countries was formed in Baghdad on September 14, 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela — five governments tired of having unilateral price cuts imposed on them by the Seven Sisters Western oil majors. For the next twelve years OPEC had little practical leverage. But the structural fact had changed: the producing states now had a forum to coordinate. By 1973 they would use it to administer the largest peacetime price shock in modern economic history.

Producing states get a coordination forum

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