Introduction:

Oil has always been a commodity, which has shaped the world politics. Post world war
era till the rise OECD, the world was dominated by a cartel called ‘Seven Sisters’.
Strategic Importance of oil
Prior to the discovery of oil, coal was the primary source of energy for commercial purposes
and in the Royal Navy whereas whale oil was used in households. The first principal use of
whale oil was as an illuminant in lamps and as candle wax and later for lubricating machines
of the industrial revolution
Oil offered a large amount of energy in an easily portable form. Also it burnt till the last drop
without leaving any residue. In 1882, petroleum had little commercial interest. The
development of the internal combustion engine had not yet revolutionized world industry.
Increasingly, the British realized a revolution in the technology of naval power was required
if the Royal Navy was to continue its unchallenged hegemony of the seas. That required a
radical shift in British foreign policy. The revolution in technology was the shift from coal to
oil power, as petroleum offered no ‘tell-tale’ smoke, while a coal ship's emission was visible
up to 10 kilometres away. It required 4 to 9 hours for a coal-fired ship's motor to reach full
power, an oil motor required a mere 30 minutes and could reach peak power within 5
minutes. To provide oil fuel for a battle ship required the work of 12 men for 12 hours. The
same equivalent of energy for a coal ship required the work of 500 men and 5 days. For equal
horsepower propulsion, the oil -fired ship required 1/3 the engine weight, and almost one-
quarter the daily tonnage of fuel, a critical factor for a fleet whether commercial or military.
The radius of action of an oil-powered fleet was up to four times as great as that of the
comprable coal ship.
Churchill stated in this regard, “We must become the owners or at any rate the
controllers at the source of at least a proportion of the oil which we require.”

Commercialization of oil as commodity:

Till the beginning of 19th century no oil had been obtained except from the surfaces of springs
and streams. Oil was found far below the surface of the earth independently at various points
in Kentucky, West Virginia, Ohio and Pennsylvania by persons drilling for salt-water used in
manufacturing salt. The water they found was mixed with a dark-green, evil-smelling
substance, which was recognized as identical with the well-known “rock-oil.”
The first use made of the oil wells was medicinal. By the middle of the century it was the great
American medicine. It was recommended for cholera morbus, liver complaint, and bronchitis.
However, by 1972 oil got the prominence as commodity with combined production in US was
40.000.000 barrels of oil and it was forth-largest commodity to be exported. New markets were
found as the production soared which was well above the domestic demand in US. Over forty
ports in Europe, East and West Indies, South America and Africa received supplies from
American vendors. The trading in oil started with grading of oil, a certificate was given as a
proof of this and this certificate was tradable although a full time oil exchange was established
in New York City as early as 1866.
Crises in Iran and Iraq:
The combination of the Iranian revolution and the Iraq-Iran War cause crude oil
production to fall about 10 percent lower than what it was before 1979 and as a
result prices increased to more than double from $14 in 1978 to $35 per barrel in
1981.

Gulf War (1991):

When Saddam Husain of Iraq invaded Kuwait in 1991, price of crude oil shoot up for
a short period of time and once rose above $40 a barrel. However, after Iraq got
defeated by Americans price again fell back to normal.

Birth of Standard Oil Company

In June 1870, Rockefeller formed Standard Oil of Ohio, which rapidly became the
most profitable refiner in Ohio. Standard Oil grew to become one of the largest
shippers of oil and kerosene in the country.

Standard Oil as Monopoly

In 1870, Standard Oil was producing about 10% of the United States output of
refined oil, which quickly increased to 20% through the elimination of the
competitors in the Cleveland area.

Standard Oil gradually gained almost complete control of oil refining and marketing
in the United States through horizontal integration. In the kerosene industry,
Standard Oil replaced the old distribution system with its own vertical system.
Standard’s most potent weapons against competitors were underselling, differential
pricing, and secret transportation rebates.
Although claims have been made that Standard Oil secretly secured preferential
rates from regional rail roads, such a scheme never came into effect, and a more
plausible explanation for the rise of Standard Oil was its ability to continuously lower
its costs and thereby the cost to the consumer. The resulting competitiveness of
Standard Oil compelled the competition to sell out or face bankruptcy, until Standard
controlled most of the refining capacity of the U.S
However, over time foreign competition and new finds abroad eroded his
dominance. Rather than try to influence the price of crude oil directly, Standard Oil
had been exercising indirect control by altering oil storage charges to suit market
conditions. Rockefeller then decided to order the issuance of certificates against oil
stored in its pipelines, which led the foundation of National Petroleum Exchange,
opened in Manhattan in late 1882 to facilitate the oil futures trading.

Break Up Of Standard Oil Company and US Antitrust Laws

In 1980’s the government sought to prosecute Standard Oil under the Sherman
Antitrust Act. It was the first Federal statute to limit cartels and monopolies in the
market. The government said that Standard raised prices to its monopolistic
customers but lowered them to hurt competitors, often disguising its illegal actions
by using bogus supposedly independent companies it controlled.

Thus on May 15, 1911, the US Supreme Court declared the Standard Oil group to be
an “unreasonable” monopoly under the Sherman Antitrust Act. It ordered Standard
to break up into 34 independent companies with different boards of directors. Two
of these companies were Jersey Standard (“Standard Oil Company of New Jersey”),
which eventually became Exxon, and SOCONY (“Standard Oil Company of New
York”), which eventually became Mobil.  
If not for that court ruling, Standard Oil would be worth more than $1 trillion today.
Some economist argued about the negative economic impact of the ruling, the
thought behind the criticism was the scale of operation of Standard Oil and thus
lower per barrel prices of oil products it would have been able to offer.

Texaco
It was founded at Beaumont, Texas in 1902. It primarily purchased and transported oil
from Spindletop oilfield. In April 1902 the Texas Fuel Company formed the new
corporation under the name fo Texas company.
After World War I, the Texas Company developed and patented the Holmes-Manley
refining process, the first continuous process for refining crude oil, which
significantly increased the yield of gasoline from each barrel. With the acquisition of
California Petroleum Corporation in 1928, the Texas Company became the first oil
company to market refined products in then all forty-eight states. In 1936 the Texas
Company began supplying the nationalist rebels in Spain, providing 3,500,000 barrels
of oil. In 1950’s it went into merger and acquisitions, in 1947 it merged its British
operations with Trinidad leaseholds to form Regent, in 1959 acquired a Canadian
company and changed its name to Texaco.

Gulf Oil 
Gulf Oil was a major global oil company from the 1900s to the 1980s. The business
that became Gulf Oil started in 1901 with the discovery of oil at Spindletop, Texas. A
group of investors came together to promote the development of a modern refinery at
nearby Port Arthur to process the oil. The Gulf Oil Corporation itself was formed in
1907 through the amalgamation of a number of oil businesses, principally the J.M.
Guffey Petroleum and Gulf Refining companies of Texas
By 1980, Gulf exhibited many of the characteristics of a giant corporation that had
lost its way. It had a huge but poorly performing asset portfolio, associated with a
depressed share price. The stock market value of Gulf started to drop below the break-
up value of its assets. Such a situation was bound to attract the interest of corporate
raiders, although a corporation in the top 100 of the Fortune 500 was in the early
1980s thought immune to takeover risk.

ROYAL DUTCH SHELL (UK)

The Royal Dutch/Shell Group was formed from the 1907 merger of the Netherlands-based
Royal Dutch Petroleum Company and the British-based Shell Transport and Trading
Company. Both parent companies trace their origins to the Far East in the 1890’s.
In 1897, after realizing the potential for supplying kerosene from the newly developing
Russian oilfields around Baku to the large markets in China and the Far East, Samuel formed
the Shell Transport and Trading Company. August Kessler was leading a Dutch company to
develop an oilfield in Sumatra in the Dutch East Indies. In 1896 Henri Deterding joined
Kessler and the two began building storage and transportation facilities and a distribution
network in order to bring their oil to market.
The expansion of both companies was supported by the growing demand for oil in automobile
and oil-fuelled ships. In 1901 Shell began purchasing Texas crude, and soon both companies
were engaged in fierce competition with John D. Rockefeller’s Standard Oil. Faced with the
might of Standard Oil, two companies were combined into a single group, with Royal Dutch
owning a 60 percent share and Shell a 40 percent share
The group grew rapidly, expanding East Indies production and acquiring producing interests
in Romania (1906), Russia (1910), Egypt (1911), the US (1912), Venezuela (1913), and
Trinidad (1914). By 1938, Shell crude oil production stood at 11% of the world total. The
post-war period saw the development of new oilfields in Venezuela, Iraq, the Sahara, Canada,
Colombia, Nigeria, Gabon, Brunei, and Oman.

Anglo-Persian Oil Company (UK)

The Anglo-Persian Oil Company (APOC) was founded in 1908 following the discovery of a
large oil field in Iran.  It was the first company to extract oil from the Middle East. In 1935
APOC was renamed the Anglo-Iranian Oil Company (AIOC) and in 1954 became the British
Petroleum Company (BP)
Volume production of Persian oil products eventually started in 1913 from a refinery built
at Abadan, for its first 50 years the largest oil refinery in the world. In 1913, shortly before
World War I, APOC managers negotiated with a new customer, the middle-aged Winston
Churchill, who was then First Lord of the Admiralty. At Churchill’s suggestion, and in
exchange for secure oil supplies for its ships, the British government injected new capital into
the company and, in doing so, acquired a controlling interest in APOC. The British
government became de facto hidden power behind the oil company
The “Consortium for OIL”:
 Anglo-Persian Oil Company (United Kingdom).
 Gulf Oil (United States)
 Royal Dutch Shell (Netherlands/United Kingdom)
 Standard Oil of California (“Social”) (United States)
 Standard Oil of New Jersey (Esso) (United States)
 Standard Oil Co. of New York (“Socony”) (United States)
 Texaco (United States)
The seven sisters together accounted for 70% of the world production and 77% of the Middle
East production of oil.

The Oil Cartel: The cartel enabled the seven sisters to exert considerable power
over “Third World” oil producers. By the end of the ‘sixties, in spite of the
opposition of OPEC and the competition from intruders, the seven sisters still
dominants in world oil. Between 1960 and 1966 their share of oil production
outside North America and the Communist countries, had gone up from 72 to 76
percent, leaving only 24 percent for other companies. The companies argued
with OPEC that this expansion was essential to create a market for the oil, but
fact remained that these seven had built themselves up into some of the biggest
corporations in history primarily through the ownership of concessions in
developing countries, and predominantly in the Middle East. In Washington, it
suited the State Department to separate the foreign policy of the oil companies
from their own, particularly concerning Israel. In the Foreign Office in London,
the diplomats at the ‘oil desk’ were told not to interfere with the commercial
policies of the great oil companies. The Western governments, in Washington,
London or The Hague, largely accepted the advantages of this detachment.

Certainly the growth of the industry was so rapid, so unpredictable and

accidental, that it was beyond the control of any man or group of men to plan it
or circumscribe it. The black fluid seemed often to be itself the real master,
spurting up and subsiding from bleak corners of the world, teasing the West by
its combination of indispensability and maddening inaccessibility. Exxon could
boast of being the first multinational, and Shell of its cross-postings between
nations. But the fact remained that their shareholders were predominantly
American and British; and their boards represented only their own country and a
small segment of that.
As Rockefeller and Standard Oil in the nineteenth century had become bigger
than individual states of the Union, so these giant companies had become larger
and richer than most national governments. They had romped across the world,
ahead of most other multinational corporations.
Rise of OPEC
The rise of OPEC is tied to a shifting balance of power from the multinational oil companies
to the oil producing countries. Lacking exploration skills, production technology, refining
capacity, and distribution networks, oil-producing countries were unable to challenge the
dominance of the oil companies prior to World War II. Initially Arab countries did not
confront but suddenly they realized that in terms of oil they were getting exploited by these
big MNC’s. This agitation among these oil-producing countries gave rise to the formation of
what is known as “The Organization of Petroleum Exporting Countries” (OPEC).
OPEC rose to international prominence during this decade, as its Member Countries took
control of their domestic petroleum industries and acquired a major say in the pricing of crude
oil on world markets. The purpose of OPEC, as with any cartel, is to limit supplies in the hope
of keeping prices high.

While world oil demand grew during the 1950s, they were outpaced by the growth in
production. The problem was exacerbated by the fact that the “fifty-fifty” deals were
based on “posted” prices rather than “market” prices. Given that posted prices were
fixed, oil-producing countries had an incentive to grant additional concessions to
expand oil revenue.
The increases in supply drove market prices even further down and eroded the profits of the
multinational oil companies. The downward push on prices led to a policy debate in
Washington. Although the United States had been a net exporter of oil until 1948, the
expansion of cheaply produced oil from the Middle East led to rising imports. The U.S.
responded with an import quota. The quota kept domestic prices artificially high and
represented a net transfer of wealth from American oil consumers to American oil producers.
By 1970, the world price of oil was $1.30 and the domestic price of oil was $3.18.

In order to recapture profits, the multinational oil companies tried to cut the “posted” price
from 1958 onward. The U.S. responded with an import quota. The quota kept domestic prices
artificially high and represented a net transfer of wealth from American oil consumers to
American oil producers. By 1970, the world price of oil was $1.30 and the domestic price of
oil was $3.18.
US, Kyoto protocol and Energy Lobby:
Energy lobby is the umbrella term used to name the paid representatives of
large oil, gas, coal, and electric utilities corporations who attempt to influence governmental
policy.  Big oil and gas companies are consistently among the top highest-spending industrial
lobbyists.
The Kyoto Protocol sets legally binding targets for developed countries to reduce greenhouse
emissions within 7 years, to about 5% below 1990 levels. To reach this goal, countries have to
look for alternative energies and to replace fossil fuel (gas) energy, which is a real threat to
the oil and gas companies of the developed nations like US.
In 2000, when US president was almost ready to sign the deal but suddenly in 2005 onwards
President Bush has repeatedly stated saying that that he will not adopt such protocols if they
harm American economy.
This can be visualize very easily by seeing the amount of money they are contributing during
the various election terms in US
2006 election – 19 million dollars, 82% contributed to republicans and 18% to democrats.
2004 election- 25 million dollars, 80% contributed to republicans and 20% to democrats.