Energy Reality: What They Don’T Want You to Know

Synopsis

I t started with Rockefeller and the United States’s oil, followed by Nobel and Rothschild with Russia’s oil. The Dutch went after Indonesia’s oil, while Great Britain signed a sixty-year lease for Iran’s oil, except for the oil in northern Iran, which Russia coveted. Germany obtained Turkey’s OK to drill for the oil within a forty-kilometer rail corridor between Berlin and Basra. In 1892, Rothschild opened the Chinese market to kerosene through the Suez Canal. The following year, President Harrison’s secretary of state, John Watson Foster, helped establish the United States’s first Pacific link to China with the overthrow of the Hawaiian monarchy. John Watson Foster’s son-in-law Robert Lansing, President Wilson’s secretary of state, took his two grandsons, John Foster Dulles and Allen Dulles, to the Paris Peace Conference to make sure the United States got its part of Mesopotamia’s oil.

In 1918, Warren Bechtel’s second son, Steve, while driving a carful of his classmates to a country club dance, ran down three pedestrians, killing two of them and seriously injuring the third. The police arrested him and charged him with manslaughter. Then, something odd happened: the charges were dropped. Early in 1933, Warren was invited by the Soviets to visit Moscow. He died suddenly on August 28. No autopsy was performed. Steve Bechtel took over the family business.

My entrance into the world of energy started in 1963, as a civil engineer working on the California State Water Project. My career in developing large energy projects throughout the world culminated more than twenty years with Bechtel on the Big Dig in Boston.

With Bechtel, I helped develop the feedstock and a pipeline to the LNG facility located in Ache Province, Indonesia. I worked at two coal-fired power plants on the Mississippi, two nuclear power plants in Georgia, and a nuclear refueling at the Pilgrim Nuclear Power Station in Plymouth, Massachusetts. I helped manage the facilities needed to push more oil out of the ground at Prudhoe Bay in Alaska, a seawater treatment plant fabricated in Korea that was then sent to Alaska to clean up the seawater before being injected into the ground to push more oil out of the ground. I was involved with modules fabricated in Japan that were sent to New Zealand for processing and transforming offshore natural gas into a liquid fuel.

I know how the energy game is played among the big boys.

In 1928, Mr. Calouste Gulbenkian drew a Red Line around Middle East oil and went on to collect his 5 percent commission on all the oil produced with the Red Line. In 1932, Standard Oil of California (Socal) discovered oil in Bahrain. The following year, Socal bribed their way into a sixty-year concession on all of Saudi Arabia’s oil. Socal then asked Bechtel to start developing their Saudi oil during the height of World War II. Franklin Delano Roosevelt told Winston Churchill that the latter could have the oil in Iraq and Kuwait, saying that Saudi Arabia’s oil belonged to the United States. After Yalta, FDR met with Ibn Saud and gave him a Douglas DC-3 as a signing bonus for the right to Saudi Arabia’s oil. Churchill gave Ibn Saud a Rolls-Royce as Great Britain’s inducement. Ibn Saud, preferring the DC-3, gave the Rolls-Royce to his brother.

The Early Cartels

Wood

H e who dared saw off a tree limb in the king’s forest could be fined a ruinous amount or, if unable to pay, lose a hand, get his eyes ripped out, or have his testicles cut away.

Royal wood monopolies made sea coal a necessity for the average person’s survival. When ignited, seal coal’s fumes poisoned the air. In 1258, a Royal Commission concluded that sea coal was dangerous to the health of all: The air is infected and corrupted to the peril of those frequenting … and dwelling in those parts [where sea coal is burned]. So noxious were the fumes that one group of London smiths decided their artisans should not work at night on account of the unhealthiness of coal and damage to their neighbors.

Coal

Coal use began not with the well-known ore extracted from subterranean seams but from a similar substance washed up along the coast near Durham in England’s northeast: sea coal.

Edward I delivered a proclamation in 1307 against using coal: An intolerable smell diffuses itself throughout the neighboring places and the air is greatly infected … to the injury of their bodily health.

Coal cartels began in the church. A successor Newcastle cartel, not controlled by the church or the Crown, started the business cartel hosted by honorable men. Lasting for centuries, these Hostmen hosted other merchants and traders, squeezing all they could for profit. They invented the calculated energy shortage.

In 1578, Elizabeth I owned the coal lands of the Newcastle region and decided to take a piece of the profit by establishing ninety-nine-year leases. She incorporated the Hostmen into a syndicate as a guild with a royal charter. What these lords of coal could not achieve through ruthless business tactics, they accomplished with bureaucratic maneuvering.

In 1623, a parliamentary statute ruled against all monopolies, with just one exception: the Hostmen of Newcastle. A journal of record states that of the many monopolies spoken of, … only ten men may sell coal throughout England.

Oliver Cromwell decided to prevent the Hostmen from profiting from Newcastle coal. His men blockaded the River Tyne. Misery walked the streets and alleyways of London as coal supplies dried up. Londoners shivered during the winter. Dried dung, straw, and anything else combustible was burned to stay warm. By force of arms, Cromwell loosened the Hostmen’s ironclad monopoly and revoked their leases, which opened the coal trade up to others.

The Ludlow Massacre

M ore than two thousand miles separated John D. Rockefeller Jr.’s estate from southern Colorado.

On September 17, 1913, an official call went out for the coal miners in Colorado to go on strike. They were confident they would win. All they wanted were improved working conditions, better wages, and union recognition.

Colorado Fuel and Iron Company Vice President Lamont Bowers said to Rockefeller: Our net earnings would have been the largest in the history of the company by $200,000 but for the increase in wages paid the employees during the last few months.

Rockefeller said to Bowers at the beginning of the strike: We feel that what you have done is right and fair and that the position you have taken in regard to the unionizing of the mines is in the interest of the employees of the company. Whatever the outcome, we will stand by you to the end.

Federal mediator Ethelbert Stewart commented on the situation:

Theoretically, perhaps, the case of having nothing to do in this world but work, ought to have made these men of many tongues, as happy and contented as the managers claim. … To have a house assigned you to live in … to have a store furnished you by your employer where you are to buy of him such foodstuffs as he has, at a price he fixes … to have churches, schools … and public halls free for you to use for any purpose except to discuss politics, religion, trade-unionism or industrial conditions; in other words, to have everything handed down to you from the top; to be … prohibited from having any thought, voice or care in anything in life but work, and to be assisted in this by gunmen whose function it was, principally, to see that you did not talk labor conditions with another man who might accidentally know your language—this was the contented, happy, prosperous condition out of which this strike grew. … That men have rebelled grows out of the fact that they are men.

Rockefeller: You are fighting a good fight, which is not only in the interest of your own company but of other companies of Colorado and of the business interests of the entire country and of the laboring classes quite as much. I feel hopeful the worst is over and that the situation will improve daily. Take care of yourself, and as soon as it is possible, get a little let-up and rest.

On April 6, 1914, John D. Rockefeller defended open shop before a congressional committee: These men have not expressed any dissatisfaction with their conditions. The records show that the conditions have been admirable. … A strike has been imposed upon the company from the outside.

On Monday, April 20, 1914, the first shot was fired at Ludlow in one of history’s most dramatic confrontations between capital and labor. The Ludlow Massacre took place at the mines of the Rockefeller-owned Colorado Fuel and Iron Company.

The face-off raged for fourteen hours. The miners’ tent colony was pelted with machine-gun fire and ultimately torched by the state militia. A number of people were killed, among them two women and eleven children, who suffocated in a pit they had dug under their tent to hide in. The deaths were blamed on Rockefeller.

The New York Times’s account of the massacre on April 21, 1914: "The Ludlow camp is a mass of charred debris, and buried beneath it is a story of horror imparalleled [sic] in the history of industrial warfare. In the holes which had been dug for their protection against the rifles’ fire the women and children died like trapped rats when the flames swept over them. One pit, uncovered [the day after the massacre], disclosed the bodies of 10 children and two women."

Rockefeller on April 21, 1914: We profoundly regret this further outbreak of lawlessness with accompanying loss of life.

Socialist writer Upton Sinclair’s open letter to Rockefeller on April 28, 1914, reads in part as follows:

I intend to indict you for murder before the people of this country. The charges will be pressed, and I think the verdict will be ‘Guilty.’ I cannot believe that a man who dares to lead a service in a Christian church can be cognizant and therefore guilty of the crimes that have been committed under your authority. We ask nothing but a friendly talk with you. We ask that in the name of the tens of thousands of men, women and children who are this minute suffering the most dreadful wrongs, directly because of the authority which you personally have given.

Rockefeller’s version of the events was quite different. On June 10, 1914, he wrote, There was no Ludlow massacre. The engagement started as a desperate fight for life by two small squads of militia against the entire tent colony. … There were no women or children shot by the authorities of the State or representatives of the operators. … While this loss of life is profoundly to be regretted, it is unjust in the extreme to lay it at the door of the defenders of law and property, who were in no slightest way responsible for it.

Abby Rockefeller to John D. Rockefeller Jr. in September 1914: I am writing more and more to urge you to leave to me the petty details of the houses, places, etc. even though I realize they will not be as well or as inexpensively done; and throw the full force of your thought and time into the big, vital questions that come before you.

From Rockefeller’s testimony before the US Commission on Industrial Relations on January 26, 1915: I should hope that I could never reach the point where I would not be constantly progressing to something higher, better—both with reference to my own acts and … to the general situation in the company. My hope is that I am progressing. It is my desire to.

Rockefeller spoke to the miners on September 20, 1915: We are all partners in a way. Capital can’t get along without you men, and you men can’t get along without capital. When anybody comes along and tells you that capital and labor can’t get along together that man is your worst enemy. We are getting along friendly enough here in this mine right now, and there is no reason why you men cannot get along with the managers of my company when I am back in New York.

A public relations expert who was a spokesperson for the Rockefeller family for more than two decades said the Koch brothers were following the same template established by John D. Rockefeller Jr., who hired the publicity expert Ivy Lee to salvage his image after the Ludlow Massacre. Taking Lee’s advice, Rockefeller visited the miners’ tent camp, expressing a personal interest in his workers’ well-being. It was all about humanizing him, Fraser P. Seitel, the aforementioned spokesperson for the Rockefeller family, noted. It’s much harder to loathe someone if he is open available and approachable.¹

United Mine Workers’s leader John Lawson commented on Junior’s visit: I believe Mr. Rockefeller is sincere. … I believe he is honestly trying to improve conditions among the men in the mines. His efforts probably will result in some betterments which I hope may prove to be permanent. However, Mr. Rockefeller has missed the fundamental trouble in the coal camps. Democracy has never existed among the men who toil under the ground—the coal companies have stamped it out. Now, Mr. Rockefeller is not restoring democracy; he is trying to substitute paternalism for it.

Teapot Dome

N amed for the shape of a geological structure in Wyoming, Teapot Dome was one of three oil fields that were set aside as naval oil reserves (the other two were in California). The United States, like Great Britain, worried greatly about the possibility of what one US naval officer called a failure of supply … menacing the mobility of the fleet and the safety of the nation. So, after the US Navy converted from coal to oil in 1911, the Taft and Wilson administrations established naval petroleum reserves in areas where the oil was produced. They were to constitute a supply laid up for some unexpected emergency. But oilmen had other ideas. They wanted to exploit them for profit.

After Warren G. Harding won the White House in 1921, he, like any good politician, wanted to appeal to both sides to celebrate that harmony of relationship between conservation and development. He selected Senator Albert B. Fall from New Mexico to be secretary of the interior. Harding could not disguise his choice of development over conservation. Fall was a successful politically powerful rancher, lawyer, and miner described as The frontiersman, the rough and ready, two-fisted fighter, who looks like an old-time Texas sheriff and is said to have handled a gun in his younger days with all the speed and accuracy of a Zane Grey hero.

Fall believed in the unrestrained disposition of public lands. Some described him as a member of the exploitation gang. It would have been possible, but not altogether easy, to pick a worse man for secretary of the interior. Harding took control of the naval oil reserves away from the Navy Department and placed them under the Interior Department.

In the spring of 1922, just before the oil leases were to be signed, Walter Teagle of Standard Oil unexpectedly appeared in the office of advertising man Albert Lasker, who directed Harding’s publicity campaign and was now head of the United States Shipping Board. I understand, Teagle told Lasker, the Interior Department is about to close a contract to lease Teapot Dome, and all through the industry it smells. I’m not interested in Teapot Dome. It has no interest whatsoever for Standard Oil of New Jersey, but I do feel that you should tell the presiden that it smells.

After Lasker informed the president, Harding paced up and down behind his desk, saying, This isn’t the first time that this rumor has come to me. But if Albert Fall isn’t an honest man, I’m not fit to be President of the United States.² Both propositions would soon be tested to the limit.

Fall leased Teapot Dome to Harry Sinclair in an exceedingly sweet deal. Fall also leased a more bountiful California reserve, Elk Hill, to Edward Doheny. Both were among the best-known oilmen in the United States. They were the new men, the entrepreneurs who rose up on their own merits and abilities and who created major enterprises outside the old Standard Oil Trust.

Doheny was something of a legend. He began his career as a prospector. Laid up after he had broken both legs falling down a mine shaft, he put his time to good use and became a lawyer. Using his legal skills, he amassed a vast fortune by the 1920s. His company, Pan American, was actually a larger crude oil producer than any of the Standard Oil successor offspring companies. Doheny himself scrupulously made it a point to patronize and befriend politicians of both parties.

Harry Sinclair, the son of a small-town druggist in Kansas, lost the family drugstore at age twenty. Broke, he initially made a living selling lumber for drilling rigs. He then started buying and selling small oil properties in southeast Kansas and the Osage Indian territory of Oklahoma. He was a forceful, assertive businessman with unbridled self-confidence who deferred to no one, least of all his investors. Said one of his colleagues, Where he sat, there was the head of the table. He simply insisted on getting his way. He put all his chips on the Glenn Pool in Oklahoma and made a fortune from it. He bought into the newly discovered Oklahoma oil fields at ten cents a barrel, threw up steel storage tanks, filled them with oil (again, at ten cents a barrel), and then waited for the pipelines before selling his oil for $1.20 a barrel. By World War I, Sinclair was the largest independent oil producer in the midcontinent. Having to sell to the large established integrated companies galled him to no end. In 1916, he raised $50 million and put together his own integrated oil company, which soon ranked among the ten largest in the country. One of the things he did want was Teapot Dome.

Doheny and Sinclair signed their contract with the Interior Department in April 1922 amid swirling rumors, as one conservationist said, about Mr. Fall being quite friendly with large interests of an oleaginous nature.

Senator Robert La Follette began to investigate and eventually discovered that the naval officers who opposed the shift of the reserves from the Navy Department to the Interior Department had been transferred to distant and inaccessible stations.³

In March 1923, Fall resigned as secretary of the interior as the Harding administration was sinking into a deep mire of scandal. Harding struggled to cope with accusations that he was maintaining a full-time mistress. I have no trouble with my enemies, the president said as his private railroad car rolled across the Kansas plain. I can take care of them. It is my friends that are giving me my trouble.

A short time later, in San Francisco, Harding died from what a doctor said was an embolism. A newspaper editor claimed it was an illness that was part terror, part shame, and part utter confusion! Harding was succeeded by his vice president, Calvin Coolidge. Meanwhile, the Senate’s Public Lands Committee was taking up the Teapot Dome matter. There were still no hard facts. Some were saying the whole thing was nothing more than a tempest in a teapot. Then, things started to get more interesting. Fall was undertaking extensive and expensive renovations on his New Mexico ranch at the time he was leasing Teapot Dome. He also bought a neighboring ranch, partly with hundred-dollar bills he pulled out of a small tin box.

Pushed on the question of the sudden improvement in his finances, Fall brushed it off, saying that he had received a $100,000 loan from Ned McLean, the publisher of the Washington Post. Interviewed in Palm Beach, McLean admitted to writing the check, but he said that Fall had returned the check uncashed. More embarrassing revelations came to light when Sinclair’s secretary testified that Sinclair had told him that he should give Fall $30,000 if he ever asked for it.

Sinclair departed for Europe and hastily left Paris for Versailles to dodge reporters. Then came another bombshell: on January 24, 1924, Edward Doheny told the Senate committee that he had given the $100,000 to Fall, and that his son had personally delivered to it him, in cash, in a little black bag. It was not a bribe—definitely not, Doheny insisted—just a loan to an old friend. He even produced a mutilated note supposedly signed by Fall, with the signature portion ripped off. Doheny told the committee members that his wife held the signature portion, so as not to embarrass Fall with a demand for an inconvenient repayment should Doheny happen to die. His was but a friendship loan compounded with thoughtfulness.

Fall claimed he was too sick to testify, which reminded some of an incident only a few years earlier when Fall was one of the two senators who went to the White House in 1920 to investigate Woodrow Wilson’s health to determine if the president was really suffering from a stroke or, as some claimed, had actually lost his mind. Mr. President, we all have been praying for you, Fall earnestly declared on that day in 1920. Which way, Senator? the feeble Wilson asked.⁴

Now, people were saying Fall’s illness should be investigated. Reputations were being ruined as the bizarre story unfolded. Harry Sinclair, on trial for contempt of the Senate for refusing to answer questions, hired the Burns Detective Agency to shadow members of the jury.

Washington was wading shoulder-deep in oil. Newspaper correspondents wrote of nothing else. In hotels, on the streets, and at dinner tables, oil was the sole subject of discussion. Congress abandoned all other business. With the 1924 presidential election at hand, Calvin Coolidge stayed as far away as possible from the subject of oil to avoid any taint from the Teapot Dome scandal. Coming to Coolidge’s defense, one Republican congressman proclaimed that Coolidge’s only connection to Teapot Dome was that he had been sworn in by the light of an oil lamp. Even that was too close for comfort.

The Democrats, however, also had a problem. They were doing the investigation but had to take into consideration that Doheny, a Democrat, had also provided lucrative employment to at least four former members of Woodrow Wilson’s cabinet. He paid $150,000 in legal fees to William McAdoo, Woodrow Wilson’s son-in-law, in his bid for the 1924 Democratic nomination. Doheny also discussed an oil proposition in Montana with the Democratic Senator who just happened to be the head of the Senate’s investigation of Teapot Dome.⁵

Coolidge counterattacked. He fired Harding’s underlings, denouncing their wrongdoing, and appointed twin special prosecutors (one Democratic and one Republican), trying to distance himself from the scandal. During the 1924 presidential campaign, he became known as Silent Cal.

His strategy worked. The Teapot Dome scandal never became an issue during his campaign. Coolidge won, but the scandal dragged on. In 1928, it was discovered that Sinclair had channeled several hundred thousand dollars to Fall through a bogus company, the Continental Trading Company. Finally, in 1931, Fall went to jail, the first cabinet officer convicted and imprisoned for a felony committed while in office. Sinclair was sentenced to prison for six and a half months for contempt of both the court and the Senate. On his way to jail, he stopped by to attend a board meeting of the Sinclair Consolidated Oil Corporation, where the directors formally tendered him a public vote of confidence.

Doheny was found not guilty and did not go to jail. As one Senator accurately said, You can’t convict a million dollars in the United States.

The scandal spread even further when investigators revealed that Continental Trading was really a mechanism by which a group of prominent oilmen received kickbacks in the form of government Liberty bonds on purchases of oil made by their own companies. Harry Sinclair used part of his kickback as payoff money to Fall. Sinclair also gave some of the bonds to the Republican National Committee.

Colonel Robert Stewart, chairman of Standard Oil of Indiana, was a broad-faced bulky man who rode with Teddy Roosevelt’s Rough Riders. Unlike the heads of many of the other major oil companies, he’d never had a day of practical oil field experience. He went to work for Standard of Indiana as an attorney. After years of evading questions about his involvement with Continental Trading and the Liberty bonds, Stewart finally admitted he had received about $760,000 in bonds.⁶

The largest stockholder of Standard of Indiana urged Stewart to remove any just ground for criticism and resign. Stewart would not cooperate.

By profession, John D. Rockefeller Jr. was a philanthropist, not an oilman. Junior made it his habit to stay away from directing the business of his father’s successor oil companies. To many in the country, his father was still a great villain. Now, the son broke with tradition and became a reformer.

John D. Rockefeller Jr. told a Senate committee that, in the affair of Colonel Stewart, nothing less than the basic integrity of the company, and indeed of the whole industry, was at stake.

Junior held 15 percent of the company stock. When Stewart refused to resign voluntarily, Rockefeller launched a proxy fight to oust him. Stewart counterattacked vigorously, saying, If the Rockefellers want to fight, I’ll show them how to fight. Some saw the bitter struggle as a battle between the new and the old.

In March of 1929, John D. Rockefeller Jr., with 60 percent of the stockholders’ vote, drove Stewart out. One angry supporter of Stewart wrote, If you look up the record of your father in the early days of the old Standard Oil Company, you will find it pretty well smeared with black spots ten times worse than the charges you lay at the door of Col. Stewart. There is not enough soap in the world to wash the hands of the elder Rockefeller from the taint of fifty years ago. Only people with clean hands should undertake to blacken the character of other and better men. A college professor disagreed: No endowment of a college nor support of a piece of research, he wrote, could have done more it seems to me to educate the public toward honest business.⁷

The entire Teapot Dome scandal, from Fall, Doheny, and Sinclair to Stewart, projected a nefarious image of the power and corruption of oil money.

In 1901, the Santa Fe Railroad had just one oil-fired locomotive; in 1905, it had 227. Steamship companies, as well, rushed to switch from coal to oil.

Beginning in 1901, a string of oil discoveries in Oklahoma culminated in the great Glenn Pool, near Tulsa, in 1905. More strikes followed in Louisiana. Meanwhile, north Texas ranchers who were trying to drill for water instead encountered oil, setting off another boom. Still, Oklahoma, not Texas, became the dominant producer in the area, with over half of the region’s total production in 1906. Only in 1928 did Texas recapture the number one rank, a position it would continue to hold in the United States until the present day.⁸

The publication of Ida Minerva Tarbell’s The History of the Standard Oil Company was a major event. It was described as the most remarkable book of its kind ever written in this country. The publisher Samuel McClure told Tarbell, You are today the most generally famous woman in America. … People universally speak of you with such reverence that I am getting sort of afraid of you. Later, from Europe, he reported that even in the Continental newspapers, your work is constantly mentioned.

As late as the 1950s, the historians of Standard Oil of New Jersey, hardly friendly to Tarbell’s book, were to declare that it probably has been more widely purchased and its contents more widely disseminated throughout the general public than any other single work on American economic and business history. Arguably, it was the single most influential book on business ever published in the United States. I never had an animus against their size and wealth, never objected to their corporate form, Tarbell explained. I was willing that they should combine and grow as big and rich as they could, but only by legitimate means. But they had never played fair, and that ruined their greatness for me.

Ida Tarbell was not yet quite done with her story. She followed up in 1905 with a final attack, a furious personal portrait of Rockefeller. She found him, her biographer wrote, guilty of baldness, bumps and being the son of a snake oil dealer. Indeed, she took his physical appearance, including his illness-induced baldness, as a sign of moral decrepitude. Perhaps it was the ultimate revenge of a true daughter of the oil regions. As she was finishing that last article, her father, one of the independent oilmen who had fought Rockefeller and been vanquished, lay dying in Titusville. As soon as she completed the manuscript, she rushed off to his deathbed.

And what of Rockefeller’s reaction? As the articles were coming out, an old neighbor, dropping in to visit the oil tycoon, brought up the subject of what he called Rockefeller’s lady friend: Ida Tarbell.

I tell you, Rockefeller replied, "things have changed since you and I were boys. The world is full of socialists and anarchists. Whenever a man succeeds remarkably in any particular line of