Ludwell DennyCHAPTER THREE
THE London Government after the Armistice set out to get British control of the worlds oil resources. A Cabinet Petroleum Imperial Policy Commission was organized. During the war the Government temporarily had taken over Dutch-Shell stock of British citizens. The new Petroleum Commission and Sir Henri now arranged for British private control of Dutch-Shell in peace-time and for quick transfer to direct governmental control on threat of war. Lord Long, war-time Petroleum Minister, was named First Lord of the Admiralty. Completion of the process of converting the coal-burning remnant of the navy into oil-burning ships was ordered. Similar conversion of the merchant marine was encouraged. By 1921 the Government was able to announce that over 90 per cent of the British navy is oil-fired [compared with 45 per cent prewar], as is a rapidly increasing proportion of her merchant marine. A permanent oil reserve, sufficient for one year of war operations, was stored in England.
The Foreign Office strengthened its diplomatic lines to defend and extend claims to concessions in the Near East and elsewhere. British companies were encouraged to become more aggressive in seeking and obtaining lands and rights in foreign countries.
In addition to Dutch-Shell activities in this direction, two organizations were chosen to furnish scouts and shock troops for the new foreign concession drive. These were the DArcy Exploration Company, an Anglo-Persian subsidiary which the London Government owned directly, and British Controlled Oilfields, Ltd., having a specially organized board of trustees with two Government representatives.27 One of the latter was Mr. Pretyman, former Civil Lord of the Admiralty and author of the earlier secret arrangement whereby Anglo-Persian had been kept from foreign hands and saved for the British Government.
As a final touch to the campaign plan, Great Britain tightened her Empire exclusion policy preventing Americans from acquiring petroleum lands or stock in British companies.
The plan worked well. There was much exulting in informed quarters in London. By May 1919, the London Times was quoting Mr. Pretyman, M.P., in this vein:
When the war came, the position was that the British Government, with its vast interests in the whole world, controlled about two per cent of the worlds petroleum supplies ... [Now] he thought that when adjustments were completed the British Empire would not be very far from controlling one-half of the available supplies of petroleum in the world.
These adjustments, to which Mr. Pretyman referred, brought Great Britain increasingly into conflict with the State Department and American companies, and resulted in an American awakening.
Americans had been thinking about the oil lessons of the Great War. News of the British drive for world oil hegemony began to come across the Atlantic. Then there was that 1919 article by Sir Edward Mackay Edgar. It was widely reprinted in the United States. These repeated British jibes that America was rapidly exhausting her supply and would soon 6e dependent upon Great Britain, who dominated the worlds oil future, produced an American reaction which was a mixture of oil consciousness and of anti-British nationalism.
British writers are inclined to shrug their shoulders over this American awakening. They attribute it chiefly to Standard Oil Company propaganda and influence in Washington. Perhaps. If so, the British themselves had painted the picture which lurid touches of Rockefeller artists could not make more alarming.
That Standard was hard hit in the world market by its growing British competitors was clear. The American oil king was in danger of being overthrown by the British Napoleon. The king 25 years earlier had a near-monopoly hold on European and Far East markets. After 1900 heavy Russian production of the Nobel-Rothschild interests, and rise of Royal Dutch and the Shell group had challenged Standards sway. King John D. tried to dispose of his most dangerous European rival, Royal Dutch, by the same tactics which had defeated his many American competitors. He planned to buy out Royal Dutch or, failing in this, start a price-war to force Royal Dutch into his hands by the bankruptcy route. When Standard in 1898 had forced Royal Dutch close to surrender, it was the then obscure Mr. Deterding who saved the day. He got a loan from the Paris Rothschilds. Since then the French have held a minority non-controlling interest in Royal Dutch.28 Having obtained financial reinforcements for continuing the price-war with Standard, Mr. Deterding in 1902 made a working agreement with Shell for joint action against the American trust. This led in 1907 to the Dutch-Shell merger.29 The former Dutch clerk began to earn the title of oil emperor. He took some of the European territory from Standard. After another long and costly battle, the two agreed in 1911 to divide equally the Chinese and Japanese markets.
Soon Dutch-Shell renewed the attack, this time invading the United States. Beginning in 1912, Mr. Deterdings agents started to organize or purchase in this country producing companies such as California Oilfields Ltd., and Roxana Petroleum Company. He also was reaching southward into Mexico and the Caribbean area through such companies as La Corona, Mexican Eagle.30
Standard met Dutch-Shell expansion into the United States by stirring up the Washington Government and by loosing British peril propaganda. Mr. Deterding countered the Rockefeller propaganda by permitting American investors to buy minority shares in the Dutch-Shell American companies. He thereby incidentally let Americans furnish most of the actual capital for the British penetration of this country. So rapid was British development of wells that over half of Dutch-Shells world production was soon coming from American fields. Standard charged the alien trust with pushing production here and holding back its non-American fields, deliberately to exhaust United States reserves.
This situation was reaching a critical point in 1917. But then the United States entered the Great War. On Washingtons orders anti-British propaganda was suddenly turned into pro-British propaganda. The Kaiser was elevated into Mr. Deterdings place as arch-fiend. There followed an Anglo-American oil truce, with Yankee wells and tankers furnishing 80 per cent of the blood of battles which won the war.
After the signing of the Armistice, however, the new British oil drive was centred especially in the United States. After acquiring in 1919-20 the Union Oil Company of Delaware, Dutch-Shell grabbed for the Union Oil Company of California.31 With the avowed purpose of checking British penetration, an American syndicate rescued the latter organization by restricting Dutch-Shell to 26 per cent of the capital stock.
In the midst of these manoeuvres and counter-manoeuvres, the London Financial News on February 24, 1920, announced as a modest estimate that Great Britains present command of the worlds oil resources runs to no less than 75 per cent of their entirety, compared with two per cent when that country entered the war. But a greater one was to describe the situation in which the British had obtained world oil power and the Americans had awakened too late.
As regards competition, the fight for new production deserves our special attention, Sir Henri said in his 1920 annual report.32 This struggle became especially keen when the significance of fuel oil became generally manifest. ... The advantage of having production not concentrated in only one country, but scattered all over the whole world, so that it may be distributed under favourable geographical conditions, has been clearly proven. It needs hardly be mentioned that the American petroleum companies also realized, although too late, that it was not sufficient to have a large production in their own country. As regards our own group in this respect, its business has been built up primarily on the principle that each market must be supplied with products emanating from the fields which are most favourably situated geographically. It goes without saying that we are now reaping the benefits resulting from this advantageous position. In order, however, to maintain our position in the world market it is not sufficient to be satisfied with the advantages already obtained. We must not be outstripped in this struggle to obtain new territory. Our interests are therefore being considerably extended; our geologists are everywhere where any chance of success exists.
The Americans might be too late, as Sir Henri and others claimed, but they were prepared at least to make a lot of noise about it.
The Senate in March 1920 asked the State Department what were the foreign government restrictions against American acquisition of oil fields abroad. Also the Senate wanted to know what the United States Government was doing to defend the sacred American foreign policy of the Open Door. The State Departments answer damned its late ally in the crusade for liberty, the British Government. In the preceding year the Department had sent out its renewed instructions to diplomats and consuls to help the American companies and report on activities of foreign companies and governments. So it was ready when the Senate called.
The policy of the British Empire is reported to be to bring about the exclusion of aliens from the control of the petroleum supplies of the Empire and to endeavour to secure some measure of control over oil properties in foreign countries, the Department charged.33 This policy appears to be developing along the following lines, which are directly or indirectly restrictive on citizens of the United States:
1. By debarring foreigners and foreign nationals from owning or operating oil-producing properties in the British Isles, colonies, and protectorates.
2. By direct participation in ownership and control of petroleum companies.
3. By arrangements to prevent British oil companies from selling their properties to foreign-owned or controlled companies.
4. By Orders In Council that prohibit the transfer of shares in British oil companies to other than British subjects or nationals.
It is understood that the British Government has a controlling interest in the Anglo-Persian Oil Company and that it has also assisted in the development of the Papuan oil fields by bearing one-half of the expense and contributing experts.
Congress promptly passed a mineral leasing law prohibiting acquisition of public lands by nationals of countries denying such rights to Americans.34 The law, however, did not apply to private lands and therefore could not stop Dutch-Shell penetration here as British regulations excluded American producers from most of the Empire. A bill for that purpose failed.
While the State Department and Congress were indicting British policy, the London Government was negotiating secretly with France to get virtual British control in most of the major fields of the Eastern Hemisphere. The natural riches disposed of by the two Powers in that agreement belonged neither to Great Britain nor to France, but to Russia and the peoples of the Near East who had been freed from the menace of German enslavement by the war to make the world safe for democracy.
The San Remo Agreement of April 24, 1920, in addition to pledging mutual support in Roumanian and minor fields, provided in written or unwritten form for the following: A British-controlled company to take over the Mosul and Iraq fields, France receiving the 25 per cent share of the Turkish Petroleum Company sequestrated from Germany and agreeing to construct outlet pipe-lines across Syria; France to support the British drive for monopoly concessions in Russia; Great Britain to get distribution and sales contracts with the French Government and French private consumers, and, in payment, to hand over Syria to France as a League of Nations mandate.
Articles of the written part of the pact relating to Russian and Iraq-Turkish fields state:
In the territories belonging to the former Russian Empire the two Governments will give their joint support to their respective dependents in their common efforts with the view to obtain petroleum concessions and facilities for export, and to assure the delivery of petroleum supplies.
The British Government binds itself to concede to the French Government, or the representative appointed by same, 25 per cent of the net production of crude oil at the current market price which His British Majestys Government may draw from the Mesopotamian petroleum regions in the event of these regions being made productive 6y virtue of Government exploitation; or in the event the Government has recourse to a private company to exploit the Mesopotamian petroleum regions, the British Government will place at the disposal of the French Government a participation of 25 per cent in the said company. The amount to be paid for a participation of this kind should not exceed the amount paid by any other participant in the said petroleum company. It is also agreed that the said petroleum company is to be under the permanent control of Great Britain.
It is mutually agreed in the event of the private petroleum company being constituted as aforesaid the Government of the country or other local interests are authorized, if they so desire, to participate up to 20 per cent in the shares capital of said company. The French are to contribute one-half of the first 10 per cent of such a local participation and the balance will he furnished by each participant in proportion to his holdings.35
As it worked out France got Syria but Great Britain did not get all the oilor, at least, has not yet. Great Britain was blocked partly by the Bolshevist regime in Moscow and from another angle by the Washington Government.
American public opinion was aroused by statements of Secretary of the Interior Lane and other officials.36 Politicians on the Senate floor competed with each other in denouncing Great Britain. A movement was started to beat London at its own game by putting the United States Government directly into the business of obtaining foreign concessions in competition with the British Government companies. Senator Phelan of California introduced an unsuccessful resolution in May 1920 proposing organization of a Federal companyThe United States Oil Corporationto direct a general American oil drive overseas and itself acquire foreign concessions.37
The State Department, under pressure of the public, Congress, and Standard, struck hard and fast. Diplomatic notes shot back and forth between Washington and London filled with charges and counter-charges.
Washingtons notes emphasized the American impression that Great Britain as a general policy was preparing quietly to monopolize the Mosul and Iraq fields.38 London replied with denials. The State Department answered with a quotation from the San Remo agreement that the company (Turkish Petroleum Company) exploiting the Mosul-Iraq fields shall be under permanent British control.39 Downing Street countered with the charge that the United States Government had used its power in Costa Rica and Haiti to secure the cancellation of oil concessions previously and legitimately obtained by British persons or companies.40 In contrast to this, Great Britain had not driven Standard out of Canada.
The State Department finally challenged the British-French division of Near East spoils on the ground that the United States as one of the Allied victors should not be disassociated in the rights of peace from the usual consequences of association in war. The British press screamed: Hypocrites.
One observes that the [American] high-sounding note of the principle of economic equality [Open Door] has now sunk into the lower note of the principle of `sharing the swag,' was the way Davenport and Cooke put it41 How had the mighty fallen! The United States had originally set a fine example of charity by virtuously declining to take a mark of German reparations or a square mile of the German colonies, but after four years was found making an exception to its self-denying ordinance in the case of the oil fields in Mesopotamia.
Only an occasional Briton questioned the wisdom of the British policy. Beeby Thompson, the geologist, wrote: In the development of her [Americas] oil fields, foreigners have equally participated with American citizens, and it is therefore the more remarkable that our [British] Government should adopt an attitude of antagonism to the legitimate and national aspirations of our American friends.42 But this was not popular doctrine in London.
American protests served to delay League of Nations ratification of the mandate. Standard continued to stir up the American public. Senator Frank B. Kellogg, before his defeat by the voters of Minnesota and subsequent party promotion as Ambassador to London and Secretary of State, kept up the agitation in Congress. The State Department went on writing provocative notes.43
While the Americans talked and wrote, the British acted. Sir Henri pushed on into new foreign fields. He arranged with the Netherlands Government for Dutch-Shell to receive a monopoly concession in the new oil fields of Djambi, then believed to be the only resources in that area not already controlled by the British company. Standard and Sinclair interests, both angling for the concession, learned of the Deterding deal. The State Department wrote another note on the sanctity of the Open Door, this time to The Hague.
William Phillips, American Minister, after verbal protests to the Foreign Minister wrote to him April 19, 1921: My Government is very greatly concerned when it becomes apparent that a monopoly of such far-reaching importance in the development of oil is about to be bestowed upon a company in which foreign capital other than American is so largely interested.43 Mr. Phillips threatened retaliation by excluding Dutch companies from American private, as well as public lands, if the Government of The Hague persisted in its discriminatory policy:
I have pointed out that the United States has for years carried the burden of supplying a large part of the petroleum consumed by other countries, that Dutch capital has had free access to American oil deposits and that the petroleum resources of no other country have been so heavily drawn upon to meet foreign needs as the petroleum resources of the United States. I have pointed out that in the future ample supplies of petroleum have become indispensable to the life and prosperity of my country as a whole, because of the fact that the United States is an industrial nation in which distance renders transportation difficult and agriculture depends largely on labour-saving devices using petroleum products. In these circumstances, my Government finds no alternative than the adoption of the principle of equal opportunity, with the proviso that no foreign capital may operate in American public lands unless its Government accords similar or like privileges to American citizens; and furthermore I have submitted that in the light of the future needs of the United States such very limited and purely defensive provisions as the above might become inadequate should the principle of equality of opportunity not be recognized in foreign countries.
An unsatisfactory reply from the Dutch Government brought from Washington the intimation of a possible boycott of Dutch industries by American capital generally. I have just received, the Minister wrote, a further telegraphic instruction from the Secretary of State advising me that in view of the wide publicity which the matter of the Djambi concession is receiving in the United States, the practically complete exclusion of American interests from the Dutch oil industry did create an unfavourable impression and a situation of general discouragement to prospective American participants in other branches of Dutch industry.45
But these protests to The Hague were as ineffective as the Washington notes to London had been. Dutch-Shell got the Djambi concession. Nor did Washington carry out its threatened retaliation of excluding Dutch-Shell from the United States or of a general capital boycott of Dutch industry. Loss of the Djambi field was serious defeat of the Rockefeller firm. When that concession went to Mr. Deterding, there disappeared one of the few remaining opportunities for Standard to get what it had sought so long, a major producing field in the Far East.
Despite Standards propaganda, the State Departments report to the Senate in 1920, the diplomatic controversies over Mosul and Djambi, and sporadic gusts of anti-British sentiment, apparently the American public did not realize the full significance of the oil war until publication of the long-awaited Report of the Federal Trade Commission, on Lincolns Birthday 1923. The commissions summary, which was a sensation at the time, said:
The more important facts developed in this report may be concisely stated as follows:
1. The Royal Dutch-Shell group, a combination of the Royal Dutch Company and the Shell Transport and Trading Company of London, has world-wide oil investments, including numerous refineries, an immense fleet of tank ships, and petroleum production in many lands, which, in 1921, was no less than 11 per cent of the world output.
2. The Royal Dutch-Shell group in February 1922 consummated a merger of the principal properties and investments of the Union Oil Company [Delaware] with its chief American subsidiaries in a new company, the Shell Union Oil Corporation.
3. The Shell Union Oil Corporation now controls over 240,000 acres of oil lands in the United States; has about 3.5 per cent of the total output of crude petroleum; owns extensive properties in refineries, pipelines, tank-cars, and marketing equipment; and is one of the larger companies in the domestic petroleum industry.
4. The Union Oil Company [Delaware] owned about 26 per cent of the stock of the Union Oil Company of California, but, to prevent the Royal Dutch-Shell group from gaining control, certain stockholders of the Union of California organized an American-controlled holding company, which now owns more than half of its issued stock.
5. The most important instances of discrimination by foreign governments against citizens of this country are the exclusive policies of the Governments of Great Britain and the Netherlands in respect to the oil fields of India and the Dutch East Indies, and the 1920 San Remo Agreement of Great Britain and France covering the undeveloped oil fields of Mesopotamia and of the British and French colonies.
6. Denial of reciprocity of treatment to citizens of this country appears to exist with respect to the petroleum industry of Australia, British Borneo, certain African colonies, British Honduras, British Guiana and Trinidad; France and French possessions; Italy, and the Netherlands and its dependencies.
7. Thus forced to modify its historic policy, Congress in 1920 enacted a mineral leasing law for public lands which forbids the acquisition of properties by the nationals of any foreign country that denies reciprocity to Americans, in consequence of which certain applications for petroleum leaseholds have been denied to the Royal Dutch-Shell group.
What further efforts may be made by this combination to acquire privately-owned petroleum lands or competing oil companies, it is, of course, impossible to predict, or how far anti-trust laws may be effective to prevent them.
The supply of crude petroleum in this country is being rapidly depleted to meet the requirements of a growing domestic consumption and foreign trade. The sources of supply of the domestic industry are concentrated within its own borders and in Mexico, while those of its principal competitor are widely distributed throughout the whole world. It appears obvious that a nation having widely distributed supply and storage facilities and owning the means of distribution will have certain advantages in world trade against one having concentrated supply.46
The British, not content with excluding Standard and other American companies from the Near East and Far East and with penetrating the United States, had begun another successful flank attack on American entrenchments in Mexico and the Caribbean countries. This was a tactical error. The Washington Government had special interests in that area.
An oil Administration was in power in Washington. President Harding was an avowed friend of the Big Business interests which contributed so liberally to his campaign fund. Mr. Harding knew oil. Immediately after election he had gone out to the centre of the domestic oil fields in Oklahoma, and made a speech to the effect that: Next to agriculture and transportation the petroleum industry has become, perhaps, the most important adjunct to our civilization and well-being. In Mr. Hardings Cabinet were several men with close oil connexions.
The most notorious was Albert B. Fall, Secretary of the Interior. Mr. Fall was an associate of Mr. Harry F. Sinclair and Mr. Edward L. Doheny, next to the Rockefellers the then largest American oil magnates. He accompanied the Sinclair party to Moscow seeking oil concessions. He had Mexican oil holdings in the Doheny companies. This was the patriot who sold out the United States naval oil reserves to Mr. Doheny and Mr. Sinclair. As the United States Supreme Court later found in the Teapot Dome case: He was a faithless public officer. There is nothing in the record that tends to mitigate the sinister significance attaching to that enrichment. ... Fall had been willing to conspire [with Sinclair] to defraud the United States. Of the Fall-Doheny deal in the Elk Hills reserve lease, that high court said: The whole transaction was tainted with corruption.47
But before these things were known, he had become a power in the international oil war. In Mexico City, in Moscow, in many capitals, policies were being shifted, concessions lost and won, because Mr. Fall was the Washington Governmentor was supposed to be.
Open DoorMonroe DoctrineStandard OilDoheny and SinclairFall in the Harding Cabinet. Here were ingredients of an international explosion. An American payment of $25,000,000 had been arranged to settle Colombias Panama Canal claims, partly to stop the British oil drive in Colombia. Now an American naval vessel was sent to the Tampico oil fields of Mexico. An American note was sent to London. The note was so strong, the diplomats decided it was not fit to print. It shook even the British officials. Members of the London Government, who considered its function of maintaining friendly relations with the United States more important than its functions as an oil company, insisted on a general oil compromise.
For the betterment of Anglo-American relations the British Government fell to bribing Standard Oil; the bribes were to be paid in the oil of Persia and Mesopotamia, say the Britons, Davenport and Cooke. But, they lament: Did anyone suppose that Standard Oil could be silenced by sops from two of the worlds oil fields as long as it did not control the rest?48
The British Government chose Sir John Cadman to make the deal with New York and Washington. Sir John had been the British negotiator and signer of the San Remo Agreement. He was now an official of Anglo-Persian. He came to the United States with the British compromise offer. Standard was promised permission to continue its Palestine exploration, which had been blocked by the British. There was bigger bait. Standard also was to get an equal share with Anglo-Persian in the north Persian concession49 (not to be confused with the Anglo-Persian monopoly concession over the remaining central and southern Persia), and a minor share in the Turkish Petroleum Company which was to have control in the Mosul field. These terms were acceptable to Standard and Washington, at least as a basis for later negotiations. The threatening State Department notes ceased. The much-stressed issues of Non-discrimination and the Open Door disappeared for a moment.
In the end this plan for an Anglo-American petroleum entente failed. Secretary Falls ally, Mr. Sinclair, had been neglected. While the British and Standard were agreeing to share the north Persia fields, Sinclair representatives were negotiating with the Shah for the same concession. Franco-British conflict in the Near East and Turkeys claim to Mosul sovereignty caused some doubt as to whether Britain in any case would have this field to divide with Standard as promised. Sir Henri tried to exclude Standard and Sinclair from Russia. Emergence of Venezuela and Colombia as major fields of the future, and revival of the long Mexican dispute, set the British and Americans to fighting again in the dangerous Monroe Doctrine region.
27. Cf., Chap. V.
28. De la Tramerye, supra, p. 45.
29. Federal Trade Commission, supra, pp. 3, 8, 11.
30. Ibid., p. 14.
31. Ibid., pp. 21-32, 70-88.
32. Ibid., p. 13.
33. 66th Congress, 2nd Session, Senate Document No. 272.
34. 66th Congress, 1st Session, Senate Document No. 3334.
35. Federal Trade Commission, supra, pp, 103-105.
36. Interior Department, Report of the Secretary, Year ending June 30, 1919.
37. 66th Congress, 2nd Session, Senate Document No. 4396.
38. Note of May 12, 1920.
39. Note of Nov. 20, 1920.
40. Notes of Aug. 9, 1920, Feb. 28, 1921.
41. Davenport and Cooke, supra, p. 120.
42. Tulsa Oil and Gas Journal, Nov. 11, 1921.
43. 68th Congress, 1st Session, Senate Document No. 97, pp. 47-57.
44. Ibid., p. 70.
45. Ibid., p. 72.
46. Federal Trade Commission, supra, pp. ix-x.
47. New York Times, March 1, 1927.
48. Davenport and Cooke, supra, p. 112.
49. Federal Trade Commission, supra, p. 127.