Any of a number of greasy combustible substances that are not soluble in water—a vital economic and strategic commodity.
Oil was the energy source that enabled the internal combustion engine to revolutionize industry, society, and the conduct of warfare in the twentieth century. Control of oil became a primary element of the national strategies of the great powers—the United States, Great Britain, France, Germany, and Russia—after 1900 and underpinned American hegemony after 1945.
Drilling first recovered subsurface oil in Pennsylvania in 1859. Until the late 1800s oil was primarily refined into kerosene, which was used for illumination. John D. Rockefeller’s Standard Oil Company ruthlessly undercut competitors, and by 1880 Standard Oil controlled 90 percent of domestic production and 90 to 95 percent of refining capacity. Standard established a trust, or monopoly, to manage its domination of American oil production and distribution, but competition soon arose from new companies in Russia, Indonesia, and Texas. Legal challenges dissolved the trust in 1911 into 11 major companies: Standard Oil Company of New York, Atlantic Refining, Standard Oil of New Jersey, Standard Oil of Ohio, Standard Oil of Kentucky, Standard Oil of Indiana, Standard Oil Company of Louisiana, Waters-Pierce, Standard Oil of Nebraska, Continental Oil Company (Conoco), and Standard Oil of California (Socal). In addition, another 24 minor companies were spun off of Standard Oil, most of them either pipeline companies or tank lines.
Electricity replaced kerosene lamps after the 1880s, but internal combustion engines created a new market for oil in the 1890s. In 1911, Britain’s Royal Navy converted to oil propulsion, and other navies and commercial fleets followed suit. Oil permitted at-sea refueling and greater speed and range than coal. The British government purchased 51 percent of the Anglo-Persian Company (later British Petroleum, or BP) to ensure an independent oil supply. World War I showed that future warfare would lavishly consume oil, and controlling oil became a major strategic objective. From 1918 until 1922, Britain and France dismembered the Ottoman Empire, installed client regimes (regimes they controlled) throughout the Middle East, and divided the region’s oil.
Private ownership of automobiles exploded worldwide after 1920, and American oil production increased 430 percent from 1910 to 1930. Discoveries of large oil reserves in California, Oklahoma, Venezuela, and Mexico in the 1920s and in Kuwait and Saudi Arabia in the 1930s ensured that gasoline remained abundant and cheap. In 1928, the major oil companies created an informal global cartel to fix prices and allocate production quotas.
Oil decisively affected the course and outcome of World War II, which was characterized by vastly greater use of mechanized forces and aviation than World War I. Germany strove to capture Soviet oilfields and develop synthetic fuels, while Allied bombers attacked German oil production. America supplied 80 percent of Japan’s oil until July 1941, when the American oil embargo forced Japan to enter the war with the goal of seizing the Indonesian oilfields. Fuel shortages seriously hampered Axis operations after 1944, and Allied access to U.S. oil ensured the ultimate victory of the Allies.
Rapid postwar economic growth required new sources of supply. Between 1945 and 1956, America replaced British influence in the Middle East, using cheap oil from huge new Middle Eastern fields to fuel postwar recovery and keeping Europe and Japan in the anti-Soviet camp through economic aid. World oil production increased nearly eightfold between 1940 and 1970 as industries converted from coal to oil power and suburban consumers bought automobiles and plastic products (plastic is an oil-based synthetic material). The dollar’s role as an international currency (many commodities, including oil, were priced in dollars) and the dominant position of American oil companies were important sources of American economic power from 1945 until 1970.
Oil surpluses mounted in the 1960s with new discoveries in Libya and Nigeria, but by 1970, cheap oil no longer served American interests. Indeed, President Richard Nixon hoped to employ oil price increases to derail economic integration of European nations and brake post-World War II German and Japanese economic growth. Thus, the U.S. government restrained competition among oil companies by preventing other countries from raising their prices, and it refused to back the companies that opposed demands by the Organization of Petroleum Exporting Countries (OPEC) for higher prices and greater royalties. The 1973 Yom Kippur War and resulting oil embargo triggered a sharp price increase, but Germany and Japan compensated for higher energy costs with accelerated export-led growth throughout the 1970s. Prices jumped temporarily again after the 1979 Iranian revolution, but North Sea, Mexican, and Nigerian oil soon offset the loss of Iranian production. Oil prices plunged in the 1980s, partly because the administration of President Ronald Reagan sought to bankrupt the Soviet Union, which depended heavily on oil revenues. Prices spiked again after Iraq invaded Kuwait in 1990, but increased Saudi production stabilized the situation. The second Gulf War has reduced U.S. reliance on Saudi oil.
Global energy demand should double from 2002 to 2020, mainly because of Asian economic growth. Expanding production to stabilize prices may prove impossible, and therefore alternative energy sources should become increasingly cost-effective. Environmental concerns, particularly those relating to emissions of carbon dioxide, are certain to affect the industry significantly. Some analysts argue that world oil production will peak as soon as 2004, although the U.S. Geological Survey expects production to peak after 2037.
