Summary: “The Prize” by Daniel Yergin


The Prize: The Epic Quest for Oil, Money and Power

Title: The Prize: The Epic Quest for Oil, Money and Power
Author: Daniel Yergin
Scope: 4 stars
Readability: 4.5 stars
My personal rating: 5 stars
See more on my book rating system.

Topic of Book

Yergin overviews the history of the petroleum industry with particular emphasis on oil companies, nations and economic development.

Key Take-aways

  • The petroleum industry has had a powerful effect on economic development, military conflict and global politics.
  • The industry started in the United States (Pennsylvania and Texas) and Russia (Baku).
  • The industry started with many small independent companies and then gradually consolidated into seven large oil companies.
  • Starting in 1938 with the nationalization of  the Mexican oil industry, government-owned monopolies in the oil producing countries have dominated the industry.
  • Petroleum played a very important role in the rise of American and Soviet power.
  • The enormous price increases of the 1970s were a major cause in the long-term decline of economic growth in the West.
  • The decline in oil prices in the late 1980s played a key role in the fall of the Soviet Union.
  • Every recession since World War II had been preceded by a spike in oil prices.

Important Quotes from Book

“Three great themes underlie the story of oil.

The first is the rise and development of capitalism and modern business.”

“The second theme is that of oil as a commodity intimately intertwined with national strategies and global politics and power.”

“A third theme in the history of oil illuminates how ours has become a “Hydrocarbon Society” and we, in the language of anthropologists, “Hydrocarbon Man.” ”

“Indeed, all the other elements—refining, experience with kerosene, and the right kind of lamp—were in place when Drake proved, through drilling, the final requirement for a new industry, the availability of supply. And with that, man was suddenly given the ability to push back the night.”

“By 1879, the war was virtually over. Standard Oil was triumphant. It controlled 90 percent of America’s refining capacity. It also controlled the pipelines and gathering system of the Oil Regions and dominated transportation”

1879 “the world’s first attempt at a long-distance pipeline”

1901 Spindletop “The Texas oil boom was on”

“Spindletop was to remake the oil industry, and with its huge volumes move the locus of American production away from Pennsylvania and Appalachia and toward the Southwest. Spindletop also helped open up one of the main markets of the twentieth century and the one Marcus Samuel was championing—fuel oil “This, however, was more by default rather than design; the Texas oil was of such poor quality that it could not “be made into kerosene by existing processes. So it went, primarily, not for lighting, but for heat and power and locomotion. A host of industries in Texas converted almost immediately from coal to oil. The Santa Fe Railroad went from just one oil-fired locomotive in 1901 to 227 in 1905. Steamship companies, as well, rushed to switch from coal to oil. These conversions, the result of Spindletop, pointed to a major shift in industrial society”

“Standard’s position of overwhelming dominance was receding. Its control of refining capacity declined from over 90 percent in 1880 to only 60 to 65 percent by 1911.

As a result of the explosion of production on the Gulf Coast, the Old House also saw its control over crude oil production in the United States—and its ability to “establish” prices—slipping away. At the same time, development of crude sources abroad was reducing its power in the international marketplace”

“But then in 1909, in the main antitrust suit, the Federal court found in favor of the government and ordered the dissolution of Standard Oil”

“A new era had quickly come into existence in the oil industry, around the turn of the century. It was born of several coincidences: the rapid rise of the automobile; the discovery of the new oil provinces in Texas, Oklahoma, California, and Kansas; new competitors; and technological advances in refining. Added to all these, of course, were the far-reaching implications of the break-up of Standard Oil and the resulting restructuring of the industry.”

“The completion of the amalgamation in 1907 meant that the world oil market was now dominated by the original giant, Standard Oil, and a growing giant, the Royal Dutch/Shell Group.”

“Between 1904 and 1913, Russia’s share of world petroleum exports dropped from 31 to 9 percent”

“The three naval programs of 1912, 1913, and 1914 constituted the greatest addition—in terms of sheer power and cost—in the history of the Royal Navy up to that time. All the ships of those three programs were based on oil—not a coal-burning ship among them.”

“American oil had become an essential element in the conduct of the European war. In 1914, the United States had produced 266 million barrels—65 percent of total world output. By 1917, output had risen to 335 million barrels—67 percent of world output. Exports accounted for a quarter of total U.S. production, with the bulk going to Europe”

“Germany’s timely capture of the Rumanian oil industry, along with the Rumanian grain, “made just the difference between shortage and collapse” for the German side. But only for a time”

“The denial of Baku at that juncture was, in fact, a decisive blow for Germany. The pressure on its oil supplies was growing ever more acute. By the desperate month of October 1918, the picture was grim. The German Army had all but exhausted its reserves, and the German High Command was anticipating a grave petroleum crisis in the coming winter and spring. In October, it was estimated in Berlin that the battle at sea could be continued for only six to eight months. The war industries that operated on oil would run out “of supplies within two months; the entire stock of industrial lubricants would be exhausted within six months. Limited land operations could be carried out with supplies on a strictly rationed basis. But air and mechanized land warfare would cease absolutely within two months.”

“The impact of the automobile revolution was far greater on the United States than anywhere else. By 1929, 78 percent of the world’s autos were in America. In that year, there were five people for each motor vehicle in the United States, compared to 30 people per vehicle in England and 33 in France, 102 people per vehicle in Germany, 702 in Japan, and 6,130 people per vehicle in the Soviet Union. America was, indubitably, the leading land of gasoline. The change in the basic orientation of the oil industry was no less dramatic. In 1919, total United States oil demand was 1.03 million barrels a day; by 1929, it had risen to 2.58 million barrels, a two-and-a-half-times increase. Oil’s share of total energy consumption had over the same period risen from 10 to 25 percent. By far the biggest growth was registered by gasoline—more than a fourfold increase. Gasoline and fuel oil together accounted for fully 85 percent of total oil consumption in 1929. As for kerosene, its production and consumption were negligible by comparison. The “new light” had given way to the “new fuel.”

“Many of the geophysical innovations were adapted from technology that had been drafted into use during World War I. One was the torsion balance, an instrument that measured changes in gravity from point to point on the surface, thus providing some sense of the subsurface structure.

“Another innovation was the magnetometer, which measured changes in the vertical components of the earth’s magnetic field, giving further hint of what lay beneath the surface.

The seismograph also joined the arsenal of oil exploration, proving to be the most powerful new weapon of all.”

“Another important innovation was the analysis of microscopic fossils – micropaleontology—brought up from various drilling depths”

“The Oil Code, established under the National Industrial Recovery Act, gave Ickes an extraordinary additional power—to set monthly quotas for each state… “It was a historic act, a fundamental alteration in the way the industry operated. The days of flush production were over. With prorationing, the rule of capture was overturned.”

“It became standard practice for European governments to compel foreign companies to participate in national cartels and to divide the market between foreign and local companies. In country after country, the government insisted that the foreign companies help build up local refining capacity.”

1938 Mexico nationalizes oil companies.

“the Mexican expropriation was the biggest trauma that the industry had experienced in many years—since the Bolshevik Revolution, perhaps even since the 1911 dissolution of the Standard Oil Trust. For Mexico, the settlements with the foreign companies confirmed the rightness of its course. The 1938 nationalization was seen as one of the greatest triumphs of the revolution. Mexico was the complete master of its oil industry, and Petróleos Mexicanos—Pemex—would emerge as one of the first and most important of the state-owned oil companies in the world. Mexico had, indeed, established a model for the future”

“Germany’s remarkable economic growth over the preceding half century had been based largely on its own plentiful energy source—coal. Whereas in the late 1930s coal provided just about half of the United States’ total energy, it supplied 90 percent of Germany’s energy—while oil accounted for only about 5 percent. But already in 1932, Hitler was planning for the future, and oil would be essential to his ambitions”

“From the very start, the capture of Baku and the other Caucasian oil fields was central to Hitler’s concept of his Russian campaign”

“Hitler also saw Soviet might as a permanent threat to the Ploesti oil fields of Rumania, Europe’s largest source of petroleum production outside the Soviet Union. They had been a major German objective in the First World War. Now, Rumania was a German ally, and Germany had become heavily dependent upon Ploesti, which provided 58 percent of Germany’s total imports in 1940”

“The great potential claimed for strategic bombing was far from being realized. “Oil, which was Germany’s weakest point,” wrote the British military historian Basil Liddell Hart, “was scarcely touched.”

“On May 12, 1944, a combat force involving 935 bombers, plus the fighter escorts, bombed a number of synthetic fuels factories, including the giant I. G. Farben plant at Leuna. As soon as Albert Speer realized what had happened, he rushed by plane to Leuna to see the damage for himself. “I shall never forget the date May 12,” he later wrote. “On that day the technological war was decided”

“In 1946, 77 percent of Europe’s oil supply came from the Western Hemisphere; by 1951, it was expected that a dramatic shift would take place—with 80 percent of supply to come from the Middle East. The synchronization of Europe’s needs and the development of Middle Eastern oil meant a powerful and timely combination”

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