EGEE 120
Oil: International Evolution

The Prize, Chapter 9 and The Quest, Chapter 2 Overview


The Prize, Chapter 9  and The Quest, Chapter 2 Overview

Overview, The Prize - Chapter 9: The Blood of Victory

While previous wars depended on men and horses, WWI depended on men and machines powered by oil intensifying the extent of damage and destruction. It is interesting that in wars with horses, planning required one horse for every three men and 10 times the food of each man for every horse! WWI was characterized by oil and the internal combustion engine. And to have the oil required rapid development and exploitation of Persia, and as we shall see, what is now Iraq.

For a period of more than two years, the battle lines hardly moved more than 10 miles in either direction until the British turned to technology to break the stalemate by designing, developing and building a new vehicle funded by Churchill’s Navy under the codename “tank”. With the tanks and motorized transport, suddenly speed and mobility became possible as the tanks moved on traction, impervious to machine guns and barbed wires, and amplified the devastation. Towards the end of the war, the British had 56,000 trucks, 23,000 motorcars and 34,000 motorcycles. The US entered the war in 1917 with another 50,000 vehicles to France—all powered by gasoline! Eventually more than 13 million died during World War I, and victory of the truck over the locomotive was demonstrated.

Aviation technology also advanced during the war and provided strategic importance and advantages of the air with a bird’s eye view of the battlefield (reconnaissance and observation) and the ability to bomb enemy positions and airplanes. The planes powered by oil as fuel provided another reason to maintain access to petroleum products. The advanced aviation technology yielded fighter planes that had greater lethality and were much faster. The Germans actually took the lead in strategic bombing with the use of Zeppelins and Strategic Bombers. The war constantly pushed innovation for larger numbers, faster, and better planes. In fact, by 1915, all machines that had been in the air at the beginning of the war were obsolete. The war proved Churchill and Fisher right in their conversion of the British fleet to oil as it provided advantages over the German fleet powered by coal--greater range and speed and faster refueling. Oil also proved useful not only for transportation fuel to power all of these new pieces of equipment, but as a new, better source of toluene- needed to make TNT.

The more things change, the more they stay the same. During this period we see more inter-company squabbling and the desire by companies to be more integrated, leading Anglo Persian to acquire British Petroleum.

Many military aspects of WWI are actually rooted in oil. The German U-boat attacks were meant in large part to disrupt the access to oil for the allies. In return, many battles were fought with the intent to disrupt oil fields and transportation routes. Dealing with this supply challenge led to the entry of the United States into the fray, and it was the lack of a secure oil supply that eventually led Germany to surrender. By October 1918, the situation of Germany with respect to oil was desperate as Germany was anticipating a crisis in the coming winter and spring, and within a month a worn-down Germany surrendered. The Armistice or Peace treaty was signed at 5 AM on Nov 11, 1918, and went into effect 6 hours later, ending the war. The impact of oil in the war is eloquently summed up by Lord Curzon of Britain, “The Allied cause had floated to victory upon a wave of oil,” and by Senator Bérenger of France, “Oil-the blood of the earth was the blood of victory. Germany had boasted too much of its superiority in iron and coal, but it had not taken sufficient account of our superiority in oil. As oil had been the blood of war, so it would be the blood of the peace.”

It must be noted that while it was the governments who wanted this secure supply, it was the private companies that made it happen. It was a mutually beneficial engagement- the companies had a secure demand, and the government was able to leverage the reach and know-how of the oil giants.

The supply shortage and high demand resulted in rapid increases in the price of oil. The price changes clearly had no negative effect on the demand as the demand remained strong even with the increasing prices. Thus, the demand for oil had become relatively inelastic, or oil was exhibiting inelastic demand in economic terms.

The Quest - Chapter 2: The Caspian Derby

Fast forward to the end of the Cold War and we see a somewhat similar scenario to pre-WWI. Like the fall of the Ottoman Empire into many smaller new nations looking for a foothold in the world order, the dissolution of the Soviet Union also led to new nations. And like with the Ottoman Empire-derived new countries, the post-Soviet Era countries had a wealth of oil; they only needed to find a way to play in the global marketplace. Hence the Caspian oil region was born, and these new places were now dealing with the likes of Russia, Great Britain, the United States, Turkey, Iran, and at one point China.

The new opening up of the Caspian region would bring up recurring rivals, most notably Russia and Britain, and continual competition and striving for control and influence. But the situation would take on new characteristics in the 20th Century, revolving around oil transportation. The oil in Baku was essentially landlocked. The advances in tanker technology would do nothing for transporting this oil. It would require a network of pipelines to get the crude from the drill point to the consumer. The many countries surrounding the Baku Oil Region would all want their piece of the pie. Each country would want to negotiate individual terms for oil to travel through a pipeline over their land.

The Prize

Chapter 9 - The Blood of Victory: World War 1

Sections to Read
  • Introduction
  • The Taxi Armada
  • Internal Combustion at War
  • Anglo Persian Versus Shell
  • The Man with the Sledgehammer
Major Themes to Ponder as You Read:
  • What was one of most transformative impacts to the oil industry?
  • What was new in regard to waging war?
  • What about oil was critical to survival and decisive in World War I?
  • How were oil prices different than supply and demand responses?

The Quest

Chapter 2 - The Caspian Derby

Sections to Read
  • The New Great Game
Major Themes to Ponder as You Read:
  • How did countries perceive the pipeline in regard to revenue?
  • What did the pipelines need?
  • Who was deemed responsible for monitoring the pipeline?
  • In addition to spills and cleanup, what other concerns were there?