In Lesson 6 you might get the impression this is in part a history class on World War II. But the underlying message is that oil plays a key role in global conflicts. It may not be the cause of the conflict, but it surely can influence it. We shall cover the war in the Atlantic and in Europe and the role oil played in the war as well as how oil impacted American society because of the war.
It was after World War II that the world saw the establishment of the Middle East as an oil powerhouse. We will find out how America, and not Britain, became the major power in Middle East oil and politics. We will learn when and how America became a net importer of oil and discuss how the Red Line Agreement was finally abandoned, paving the way for major American involvement in Middle East Oil. Lesson 6 highlights how over history, the issue of energy independence and being a net exporter vs. importer has notable implications for national security.
By the end of this lesson, you should be able to:
This lesson will take us one week to complete. Please refer to the Course Syllabus for specific time frames and due dates. Specific directions for the assignment below can be found within this lesson.
Activity | Location | Submitting Your Work |
---|---|---|
Read | The Prize: Chapters 18, 19,& 20 (select sections) The Quest: Chapter 14 (select sections) |
No Submission |
Discuss | Participate in the Yellowdig discussion | Canvas |
Complete | Complete Quiz 3 | Canvas |
Each week an announcement is sent out in which you will have the opportunity to contribute questions about the topics you are learning about in this course. You are encouraged to engage in these discussions. The more we talk about these ideas and share our thoughts, the more we can learn from each other.
The high/low rollercoaster relationship Japan had with oil characterizes their fortunes and misfortunes in World War II. Concerns over supply was a big driver to get them into war, but they quickly secured access and quantity and were riding high and feeling victory was imminent. We may not typically think of Asia as an oil source today, but we see how important that region’s reserves were for Japan. And when Japan brought America into the war, the first thing we thought to do was secure our supplies and interrupt theirs.
With the ever-tightening blockade on Japan by the submarines, “The shortage of liquid fuel was Japan’s Achilles' Heel.” Oil imports that had risen to their peak in the first quarter of 1943 had decreased by about half at the same time in 1944 and had completely disappeared/dried up by the same time in 1945. Desperate, Japan tried many forms of improvisations as the oil situation worsened. Industrial oil was made from soybeans, peanuts, coconuts, and castor beans. Potatoes, sugar, rice, and sake were even converted to alcohol to be used as fuel. By 1944, civilian gasoline consumption was down to 257,000 gallons, just 4% of the 1940 figure. Japan revived its 1937 synthetic fuel attempts, and in 1943, Japan’s synthetic fuel production amounted to 1 million barrels – only 8% of the target amount. Over half of this value was in Manchuria, which was useless in late 1944 and 1945 due to the blockade. Besides, synthetic fuel was a drain on resources, manpower, and management and was more of a liability than an asset.
The overall consequence of the oil shortage caused the naval strength of the Japanese fleet to be divided when it truly needed to be combined. Part of the fleet was based in Japan waiting for new aircraft and pilots, and the heavy battleships were stationed near Singapore closer to the East Indies supply. The shortage worsened in 1945, and navigation training for flight pilots was eliminated. Unfortunately, another solution for aviation fuel shortage was the introduction of the kamikaze pilots- as they only needed half the fuel of a normal mission!
While Japan’s condition continued to worsen, the Americans had an abundant fuel supply in the Pacific with huge floating bases made up of fuel barges, repair ships, tenders, tugs, floating docks, salvage ships, lighters, and store ships that gave the U.S. Navy long legs across the Pacific. This is indeed ironic in that the Pacific is home to Japan but incredibly far away for Americans!
In 1937, before the outbreak of war and in anticipation of war, a special committee was formed to examine the possibility of Britain adopting an “oil from coal” synthetic fuels strategy similar to what Germany had done in WWI. The strategy was rejected, as importing through many ports was deemed less vulnerable than easily bombed hydrogenation plants. Besides, it would have been more costly compared to the cheaper and readily available oil. Also, 85% of Britain’s domestic refining marketing was in the hands of three western/friendly companies, Shell, Anglo-Iranian, and Standard Oil of New Jersey’s (SONJ) British subsidiary, and two of these had their home in Britain. The British government also decided in 1938 that in case of war the entire British oil industry would be run under one organization and not through three separate competing companies.
Fears of oil shortage led to rationing being imposed on recreational vehicles in Britain, which led to a big boom in bicycling. Under the threat of German invasion, 17,000 gasoline stations in England were shut down, leaving 2,000 stations that could at least be defended.
The two critical questions of importance to Britain for war with the Germans were whether oil would be available and if they could pay for it. The United States was responsible for two-thirds of total world production and, therefore, the answer to whether oil would be available was yes. To help Britain overcome the question of payment, on March 1941, the Lend-Lease was instituted. This removed the problem of finance as a constraint on American supply to Britain, since, with the Lend-Lease, American oil could now be lent and repaid later. The neutrality legislation which had placed restrictions on the shipment of supplies was also gradually lifted to help loosen restrictions on shipment of supplies to Britain. Thus, by spring 1941, all the important steps had been taken to ensure an adequate flow of oil from America to Britain.
We have learned so far this semester that having access to oil reserves is not helpful if you cannot get to it and move it around. Vulnerability of supply lines could result in shortages even if there is plenty of oil. The vulnerability issue became a key element of World War II, and we think of it as the German U-Boat crisis.
An alternative to tanker shipment came into being when pipeline construction (dubbed Big Inch) from Texas to the East Coast, was initiated in August 1942. Within a year and a half of construction, Big Inch was carrying one-half of all crude moving East through its 1,254 miles by the end of 1943. Little Inch, which was 1,475 miles, was built between April 1943 and March 1944 to carry gasoline and other refined products also from the Southwest to the East Coast. By the end of 1944, about 42% of all oil was transported to the east coast through pipelines, compared to just 4% at the beginning of 1942. We see as history unfolds that pipelines revolutionize the oil industry, even in peacetime.
Coordinating unity among the many competing US forces (Congress, the Administration, the companies, the press, etc.) in the US was very difficult. To address this challenge, an effective government-industry partnership was gradually established and sought antitrust exemption from the Justice Department. Although there were temporary shortages, there was never a serious oil supply crisis in the US. The overall production record in the US was quite good. Meanwhile, between December 1941 and August 1945, the Allies consumed 7 billion barrels of oil, 6 billion of which came from the United States. It is also interesting to note that the wartime oil output was more than 25% of all oil produced in the US from the time of Colonel Drake to 1941!
To accommodate the war oil output, consumption/rationing was considered. Efforts were made to get industrial users to switch from oil to coal, and President Roosevelt took strong interest in the potential of America’s largely underutilized natural gas resources. However, gasoline was still the focus of contention. America, which had rejected voluntary conservation, now accepted enforced rationing because there was a war.
Oil clearly was demonstrated to be essential in WWII as it played a significant role for the Army. Before WWII, the Army did not even keep records of its oil use. While WWI had been a static, more relatively stationary war, WWII was a war of motion, and, at the peaks, the American forces in Europe used one hundred times more gasoline in WWII than in WWI. A number of innovations were also created to facilitate the use and flow of petroleum. A simple innovation that had a profound effect on the conduct of the war was the 5-gallon gasoline can. This was based on an improved design on captured German cans that led to the common nicknames “jerrycan” and “blitz can.” Other innovations included the all-purpose motor fuel and all-purpose diesel fuel and the development of the 100-octane fuel, through catalytic cracking, for better aircraft performance. The 100-octane fuel provided greater bursts of speed, more power, quicker takeoff, longer range, and greater maneuverability.
We will learn in chapter 20 that the general belief was that the center of gravity of world oil production would shift from the Gulf-Caribbean area to the Middle East. In 1940, for example, the Arabian Peninsula produced less than 5% of world oil, and the U.S. produced 63%. The report coming from a man with great respect in oil exploration clearly predicted the end of oil domination by the US that had produced nearly 90% of the oil of the used by Allies in WWII.
The British sphere of influence in the Arabian Peninsula was huge relative to the US. However, the US knew there were enormous potential oil reserves in the area, and the American orientation to Saudi Arabia and the Middle East was changing.
America’s entry into the war in 1942 and 1943 caused a whole new outlook to be placed upon Middle Eastern oil. Oil was recognized as a critical strategic commodity that was essential for national power and international predominance. The single resource that shaped military strategy and could cause defeat was oil. The U.S. single-handedly fueled the Allies during WWII, which significantly drained its oil reserves. Fear of shortage began to grow, and the explosive growth with discoveries in the 1920s and 1930s had fallen off sharply, resulting in additions becoming more difficult, expensive, and limited (i.e., the law of diminishing returns was in effect). These assessments led to the conclusion that the U.S. was destined to become a net importer of oil, with potentially grave security implications. This gave rise to the “conservation theory,” which suggested that the U.S. government had to control and develop foreign oil reserves to reduce the drain on domestic supplies and conserve them for the future and guarantee America’s security. And the foreign reserves had to be the Middle East. In essence, American policymakers had arrived at the same standpoint that Britain had held since WWI, the centrality of the Middle East.
The focus shift to the Middle East introduced a whole new suite of issues, many rooted in the mutual distrust between America and Britain.
Socal & Texaco were the only private companies involved in Saudi Arabia, and they knew the size of the Saudi Arabian oil reserves. They were afraid the British, through the financing of Ibn Saud, would help get them kicked out of the country. Besides, Saudi Arabia was only 20 years old, and they were unsure if the Kingdom and oil concession would survive the King himself. They also realized that it was one thing to throw out private companies and another to take on the most powerful power in the world. Thus, the policy of solidification, or direct involvement by the American government in Saudi Arabia, was an easy argument since it would help reduce the risk of expropriation as happened in Mexico. The implementation of the Lend-Lease approach was a mechanism to assure access.
Once again, we see the risk of overproduction and price crashes. If the U.S. was not going into the oil business, there was still another avenue to consider: British Partnership in managing the world oil market. Both the British and Americans saw a coming postwar glut from the Middle East and potential for all-out competition. Also, many in the U.S. feared the exhaustion of US reserves and wanted a fundamental transformation in supply arrangements whereby Europe could be supplied primarily from the Middle East and not from the U.S. reserves. The British campaigned hard on negotiations on the Middle East oil. Both sides recognized that after the war, the Middle East countries that depended on the oil royalties were going to put incredible pressure on the companies to increase production to increase their royalty revenue. This, in turn, was going to lead to a glut and intense competition, as failure to meet the demands of the countries would result in vulnerability of the oil concessions. Thus, the U.S. government explored partnerships with Britain to manage the world oil market ahead of the problem.
The U.S. was soon finding that it could not sustain itself on its production alone, as it was on its way from being a net exporter to being a net importer. Everything that wartime negotiators sought to prevent was soon found to be coming true: competition, chaos, and instability. In the absence of an International Petroleum Agreement, oil companies moved quickly to work out their own salvation in the Middle East for the postwar world.
This is a review of the development of the oil industry in the Middle East. Throughout the lessons, this can get confusing and lack big picture coherence. So, this one page of review brings the Middle East pre-World War II development back. Now, we just had our lesson about when the realization of the oil opportunities in the Middle East are truly coming to light. Just to see the foundation for the Middle East Oil Industry as the greatest Prize.