 The development of the Watt steam engine in the late eighteenth century spurs a wave of mechanization in Europe and the United States known as the Industrial Revolution. Coal is the main energy source driving the revolution in its beginning years. In the mid-1800s, kerosene produced from refined crude oil begins to make its way onto the market in the United States as a lighting fuel, an alternative to the dwindling supply of whale oil. Crude oil is successfully extracted using a new drilling method in Pennsylvania, which sparks a regional influx of speculative oil drilling. The first U.S. oil refinery comes online in 1861, and the United States exports its first shipment of refined oil to London. Over the next century and a half, oil supplants coal as the country’s preeminent fuel source and contributes to its emergence as a major economic power.
In 1880, the United States is responsible for 85 percent of the world’s crude oil production and refining, and kerosene is the fourth largest U.S. export. However, U.S. dominance of European and Asian oil markets is challenged by new oil finds controlled by Great Britain, the Netherlands, and Russia. Still, over the next two decades, major oil finds in states such as California, Oklahoma, and Texas help increase U.S. production from about twenty-six million barrels of oil annually to around sixty-four million barrels per year. By 1900, more than two hundred oil byproducts—including fuel for stoves and internal combustion engines, as well as lubricants for industrial machinery—begin to enter daily life. The 1901 Spindletop gusher—the largest to date—fuels a major oil rush in Texas, and U.S. oil production nearly triples in a decade.
Henry Ford’s invention of the Model T in 1908—the world’s first inexpensive, mass-produced car—helps pave the way for a significant increase in auto ownership. By 1910, U.S. consumption of petrol (gasoline) surpasses kerosene. By 1927, the United States is the most motorized country in the world, with one motor vehicle for roughly every five people. Comparatively, other major industrial countries like Britain, France, and Germany have about one motor vehicle for every forty-four people. The United States continues to lead auto ownership per capita for the next century, and refined-motor fuel becomes the country’s predominant use of oil.
By the 1880s, John D. Rockefeller’s Standard Oil owns 90 percent of the U.S. oil refineries and pipelines and the world’s largest oil tanker fleet. In 1906, the U.S. government takes the company to court for violating the Sherman Antitrust Act of 1890. The U.S. Supreme Court rules in favor of the government in May 1911. In July, Standard Oil is broken into separate entities, including those that later become Chevron, Amoco, Mobil, Conoco, and Exxon. These companies come to dominate much of the international oil market for the next six decades.
With the onset of World War I, oil becomes vital for modern warfare, fueling ships, land vehicles, and planes. German attacks disrupt U.S. oil exports to Britain and France, causing oil shortages in those countries. When the United States enters the war allied against Germany in 1917, the Wilson administration steps up efforts to supply oil to Britain and France. U.S. production cannot meet both domestic and war demand, so the United States begins importing oil from Mexico to close the gap. During the U.S. war effort, Mexican imports average between 2.5 million barrels and 4 million barrels of oil per month, supplementing U.S. production of about 30 million barrels a month. In 1919, the U.S. Geological Survey estimates U.S. oil supplies will run out in ten years, triggering the country’s first oil security fears. Though the United States produces roughly one million barrels of oil per day, or 65 percent of global oil supplies, more than 90 percent is consumed domestically. By 1920, crude prices increase to $3 a barrel, more than double the price in 1914. Congress passes the Mineral Leasing Act of 1920 [PDF], which requires leasing of federal lands for energy prospecting for the first time. In response to British and French attempts to shut U.S. oil companies out of their Middle East protectorates, the law includes a provision denying access to U.S. mineral rights by any foreign entities whose governments deny similar access to U.S. companies. U.S. oil companies also begin pursuing concessions in Latin America.
Following British and French attempts to shut U.S. oil companies out of regions they control in the Middle East, the U.S. government begins active oil diplomacy, insisting on an “open door” policy that would allow all companies to compete for foreign concessions regardless of national origins. But the doctrine fails to take hold. Instead, a consortium of seven oil companies is given financial interest in the Iraq Petroleum Company, and the companies agree to not independently develop oil in an area that spans from Turkey to Iraq and Saudi Arabia, but excludes Egypt, Iran, and Kuwait. This 1928 Red Line Agreement with its “self-denial clause” allows seven companies, five of which are American, to control the bulk of Mideast oil production by the early 1930s.
Technological breakthroughs and increasing oil production in Latin America, the Middle East, and the United States lead to overproduction. Disproving shortage projections by the U.S. Geological Survey, in less than a decade U.S. oil production more than doubles from what it was in 1920. Britain’s attempt to stabilize European oil prices through the 1928 Achnacarry Agreement, which limits sales by oil producers, is met with mixed success. In 1931, oil prices plummet to just a few cents a barrel. In 1933, the U.S. government imposes a production quota system for states and a duty tax on imported oil to keep cheap oil from flooding the market. Though the Supreme Court overturns the federal quota system in 1935, U.S. oil-producing states voluntarily continue it and prices begin to recover.
Governments begin to take a more active role in the oil industry. Iranian leader Reza Shah Pahlavi in 1932 cancels the concession of the British oil company Anglo-Persia but then later retreats after striking a deal for a fixed royalty and an increase in Persian laborers employed by the company. Meanwhile, European governments impose import quotas, set prices, and require fuel blending with ethanol made from excess crops, as well as requiring investment in domestic oil infrastructure. In 1938, the Mexican government nationalizes the oil industry and revokes U.S. oil concessions. The U.S. government does not retaliate, in part due to fears Mexico will align with Germany in World War II. Mexico’s actions foreshadow a wave of oil nationalizations that will follow in the decades after the war.
At the start of World War II, the United States is responsible for 60 percent of world production, followed by Russia and Venezuela. Japan, heavily reliant on U.S. oil imports, begins stockpiling oil and equipment shortly before it invades Indochina. In response, the U.S. government imposes controls on oil exports to Japan, effectively cutting off oil supplies in the summer of 1941. On December 7, Japan attacks Pearl Harbor but fails to target the Navy’s on-island oil storage—about four million barrels—leaving it to fuel the surviving Pacific fleet.
By 1941, oil shipments from the United States to allies in Europe are impeded by German U-boat attacks. When the United States enters the war, it embarks on a nationwide rationing plan that includes gas coupons and limiting driving speed to thirty-five miles an hour. Efforts also are made to bolster U.S. oil production and transport. Meanwhile, Venezuela enacts a new “fifty-fifty” oil law, which gives the country half of all oil profits but leaves U.S. concessions in place.
In 1938, Saudi Arabia is found to have vast quantities of oil. In 1943, with concerns growing about the diminishing U.S. oil production capacity, President Franklin Roosevelt declares Saudi oil vital to U.S. security and provides financial support. In February 1945, Roosevelt and Saudi King Abdul Aziz meet aboard a U.S. ship on the Suez Canal to discuss closer ties. A few years later, the world’s biggest oil field is found in Saudi Arabia, and the country quickly becomes the world’s largest exporter of oil—though it does not become a significant U.S. supplier for several decades.
At the end of World War II, the United States is an economic and military superpower. The country plays a central role in the global recovery, including providing energy aid to a devastated Europe. The war’s end also brings about the end of U.S. gas rationing. The U.S. auto industry booms, with the number of cars in the United States jumping from twenty-six million to forty million in the five years after the war. In the decades that follow, the transportation sector’s (mainly automobiles) share of oil consumption rises from about 50 percent to more than 70 percent.
The European Recovery Program, also known as the Marshall Plan, helps war-torn Europe get access to petroleum imports. Over the course of the forty-five-month program, the United States supplies more than $11 billion in oil aid, about 10 percent of the total aid provided by the program. The continent begins to become more dependent on oil for its energy needs as Europeans turn away from coal. But European oil needs begin to be increasingly met by the Middle East and not the United States. The United States is a net oil exporter in 1945, but by 1950 it is importing nearly one million barrels a day and within two decades the country is importing over six million barrels per day—more than a third of U.S. demand.
In August 1953, the Iranian military, with the help of British and U.S. intelligence agencies, overthrows Iranian Prime Minister Mohammad Mossadeq—who nationalized the country’s oil industry two years earlier. The U.S. government works with U.S. oil majors and the Iranian government—now run by the Shah—to bring Iranian oil back online following a British embargo of oil shipments. Iran’s oil remains nationalized, but in October 1954 the government agrees to a consortium of mainly U.S. companies to manage Iran’s oil industry. To prevent running afoul of U.S. antitrust laws, U.S. oil majors relinquish a small portion of their share in the consortium to allow independent U.S. producers to buy in. |
By the end of the 1970s, the United States was in economic decline in part because of
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