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The Oil Industry

Summary and Keywords

The modern oil industry began in 1859 with Edwin Drake’s discovery of oil at Titusville, Pennsylvania. Since then, this dynamic industry has experienced dramatic episodes of growth, aggressive competition for market share, various forms of corporate organization and cartel-like agreements, and governmental efforts at regulation and control, as well as monopoly, mergers, and consolidation. The history of the oil industry reflects its capital-intensive nature. Immense sums of money are spent on oil discovery, production, and refining projects. Marketing, transportation, and distribution systems likewise require enormous amounts of financing and logistical planning. Although oil is often produced in conjunction with, or in wells pressurized by, natural gas, the oil industry is distinct from the related natural gas industry. Since its origins in the mid-19th century, the oil industry has developed an industrial structure that emphasizes scale and scope to maximize profits. Profits can be huge, which attracts entrepreneurial efforts on individual, corporate, and national scales. By the late 20th through early 21st century, the oil industry had begun confronting questions about long-term viability, combined with an increasingly influential environmental movement that seeks to reduce fossil fuel consumption and prevent its toxic waste and by-products from polluting human, animal habitats, and natural habitats.

Keywords: oil, petroleum, Titusville, Pennsylvania, Standard Oil, John D. Rockefeller, Spindletop, East Texas Oil Field, 1973 Oil Embargo, OPEC, Exxon

The oil industry has been a vital component of modern industrial society. Crude oil, or petroleum, and its refined derivatives provide energy for transportation, manufacturing, and a wide variety of industrial processes. In its natural state, petroleum is a dark liquid, with moderate to high viscosity. Chemically, it is a hydrocarbon consisting of hydrogen and carbon compounds. Oil is often referred to as a fossil fuel because it derives from once living organisms, particularly plankton and algae. In the modern era, oil has typically been refined into kerosene, fuel oil, and various grades of gasoline. Petroleum derivatives are also used as lubricating fluids and in the manufacture of hundreds of products, including asphalt, fertilizers, floor coverings, insecticides, medicines, plastics, road pavement, roofing materials, synthetic fibers, and waxes among others. Crude oil is classified by grade according to various features, including chemical composition, physical characteristics and geographical source.1

During the second half of the 19th century, the United States pioneered the birth of the modern oil industry. Petroleum played a particularly important role in the build-up of the United States’ economic, political, and military power and continues to do so in the 21st century. It has provided the energy necessary for economic growth. The global demand for this essential commodity has led to the formation of large energy companies and multinational corporations; oil’s value as a commodity has inspired innovation in developing and structuring corporations. After World War II, however, United States’ dominance of world oil began to decline as producer nations, particularly in the Middle East and in conjunction with the formation of the Organization of Petroleum Exporting Countries (OPEC), increasingly exerted control over their own oil resources.

The world’s crude oil reserves are located in relatively few regions of the globe. By 2017, Middle Eastern nations controlled an estimated 66 percent of the world’s proved crude oil reserves. Saudi Arabia alone accounted for approximately 267 billion barrels of oil—or about 18 percent of worldwide oil reserves. Venezuela has reported increasing reserves of approximately 301 billion barrels. Iran and Iraq accounted for about 158 and 143 billion barrels respectively; Kuwait, the United Arab Emirates, and the Russian Federation each reported reserves of about 102 billion barrels. As of 2016, the United States had approximately 37 billion barrels of oil reserves.2


It was not until the mid-19th century that oil began to power emerging modern industrialization. Until that time, for as many as five thousand years, humans had utilized crude oil that seeped to the earth’s surface. Often referred to in this context as “asphaltic bitumen,” it was used primarily in buildings, medicine, roadwork, and the waterproofing of everything from ships’ hulls to baskets and mats. The earliest known attempts to refine crude oil occurred in about ad 100, when Coptic alchemists in Egypt and Syria developed a method to distill, or refine, it. When oil was available, it was sometimes used for military purposes to create “Greek fire” as an offensive weapon in battle. In the Middle Ages, armies used oil in grenades and other armaments that they deployed against opposing armies and their fortifications. During the age of European transatlantic exploration, asphalt deposits became increasingly important for waterproofing ships. Europeans exploring in the Americas noted that Native Americans used oil for medicinal purposes. Subsequently, Europeans began using oil as an ointment to treat a variety of ailments, including headaches, rheumatism, and toothaches.3

By the mid-19th century, the increasing medicinal use of petroleum in the United States had increased the public’s awareness of this fungible commodity. Samuel Kier, who was an owner of a canal boat operation, began manufacturing and marketing a product he called Rock Oil as a cure for numerous ailments; he recommended, for example, that three doses per day might cure blindness. Kier was not the first promoter to sell medicinal oil, but his marketing efforts were aggressive and widespread. He claimed that he had sold about 240,000 half-pint bottles of medicinal oil for $1.00 each.4

Kier’s marketing efforts brought increased attention to petroleum and its possible uses. Other potential entrepreneurs and scientists were also interested in it, for both its potential curative powers and more practical purposes. An attorney named George H. Bissell, from New York, conjectured that Kier’s Rock Oil might be very similar in chemical composition to coal oil, derived from the distillation of bitumen and used for lighting.5

Believing that there were large underground oil supplies in eastern Pennsylvania, Bissell and a partner, J. G. Eveleth, found investors in New Haven, Connecticut, to help finance the purchase of land in Titusville, Pennsylvania. The investors required that the partners personally visit the land and then commission a scientific report on the properties of any oil that had been discovered there. Benjamin Silliman Jr., a professor at Yale University, and Luther Atwood, a chemist and pharmaceutical manufacturer, drafted a report in April 1855. It confirmed Bissell’s belief that oil could successfully be utilized as an illuminant. The New Haven investors then stipulated that the new company be incorporated in Connecticut. Bissell and Eveleth formed the Pennsylvania Rock Oil Company on September 18, 1855, and leased 1,200 acres of land.6

The next step was to locate sufficient quantities of oil. James M. Townsend, president of Pennsylvania Rock Oil Company, hired Edwin L. Drake to drill for oil at Titusville, Pennsylvania. A thirty-eight-year-old former dry goods salesman and express agent for the Boston and Albany Railroad, Drake was a conductor for the New York, New Haven, and Hartford Railroad. He was not an experienced oil man. He relocated to Titusville to work on the project, and Townsend sent him mail addressed as “Colonel” Drake to improve Drake’s standing among local residents. Drake, in turn, hired W. A. “Uncle Billy” Smith, an experienced salt-well operator, to do the drilling. On August 28, 1859, they struck oil at sixty-nine-and-a-half feet.7

The Titusville discovery marked the birth of the modern oil industry. Crude oil, however, was not easily utilized. It had to be refined into a more usable form, such as kerosene. Taking advantage of this opportunity, in 1861 D. S. Stombs and Julius Brace of Virginia established the first significant oil refinery to produce kerosene for lighting.8 The new fuel quickly became popular, and in the 1870s and 1880s, kerosene lamps provided most of the domestic illumination in the United States and abroad.

Nineteenth Century Beginnings: Standard Oil

The burgeoning oil industry attracted many ambitious entrepreneurs. In 1863, a partnership of Maurice B. Clark, Samuel Andrews, and John D. Rockefeller formed the Excelsior Works refinery in Cleveland, Ohio. The young Rockefeller decided that from this point forward, he would focus his attention exclusively on oil. As energy historian Joseph A. Pratt has noted, Rockefeller “took control of the Cleveland refining industry—by any means necessary. He then asserted dominance over other refining centers. Rockefeller acquired the largest and best refineries.”9 He began this process by buying out Clark in 1865, the year their oil refinery became the largest in Cleveland. By 1869, the Cleveland refinery complex had become the largest in the world and produced one-tenth of the nation’s refined petroleum output.

In 1870, a variety of related partnerships were consolidated into the Standard Oil Company (Ohio) with John D. Rockefeller as president. Rockefeller was a ruthless businessman who moved aggressively to buy out competitors, principally through exchanges of stock. As Standard grew larger, Rockefeller’s ability to pressure competitors to sell out to him increased. By 1872, Standard controlled virtually all Cleveland’s daily refining capacity of 12,000 barrels, or one-fourth of the industry’s total refining capacity. Pittsburgh and the New York–New Jersey area were also large centers of petroleum refining. Standard sought to control the U.S. refining business and thereby dominate the entire industry.10

The intensely competitive nature of the rapidly expanding oil industry resulted in price wars and business takeovers. Attempts to bring stability to the industry came in many forms. Given the lack of industry regulation, the oil corporations themselves had the most influence in shaping the domestic oil market. Standard Oil, for example, was involved in numerous attempts to bring supply and price stability to the otherwise volatile industry. One such organizational attempt was the pooling agreement. In 1871, Tom Scott of the Pennsylvania Railroad invited several petroleum refiners, including Standard Oil, to participate in an oil pool. Under the auspices of a newly formed company, the South Improvement Company, the Pennsylvania planned to coordinate the allocation of oil shipments with the selected oil refineries; members of the South Improvement would receive rebates and commissions on its shipments, whereas nonmembers would pay the full published rates. After news of the scheme became public, angry oil producers and other refiners attempted to boycott members of the South Improvement Company. The company never transacted any oil, but this scheme and other cases of rebating and cutthroat competition publicly stigmatized Standard Oil and the entire industry for years to come.11

Rockefeller continued to pursue the goal of controlling production and prices. A group of refiners formed the National Refiners Association, in 1872, with John D. Rockefeller as president. The association sought to make pricing agreements with the Petroleum Producers Association. This arrangement was also short-lived because new producers continued to enter the business and to bring more oil to market, effectively nullifying any agreements, as well as the ability to achieve a complete monopolization of the industry.12

Standard thereafter sought to control the market primarily through its own corporate power instead of pooling agreements or associations. It gained control over petroleum pipelines and railroad transportation routes, squeezing out other refiners and forcing them to merge with Standard. By 1879, Standard controlled more than 90 percent of total U.S. refining capacity.

Standard Oil also pioneered the “trust” corporate organizational form in 1882. The newly formed Standard Oil Trust was based on a legal agreement by which trustees managed all of the Standard Oil properties. From 1882 through 1911, the Standard Oil Executive Committee directed the corporation’s policies. After organizing the trust, Standard incorporated subsidiaries in other states. As part of this corporate consolidation and to be closer to the New York financial center that supplied essential financing for expansion, Rockefeller moved the company’s executive headquarters from Cleveland to new offices at 26 Broadway in Manhattan.13

Standard’s rise to dominance in the oil industry did not come without criticism and at times intense opposition. Indeed, Rockefeller and Standard had many detractors. In the press, writers often referred to Standard as the “Octopus” for its demonstrated ability to dominate not only the oil industry but government as well. Ida Tarbell’s famous exposé The History of Standard Oil Company (1904) revealed the company’s business practices and fanned anti–Standard Oil opinion. The company continued to lose market share in the early 20th century for reasons beyond its control; nonetheless, it remained dominant in the industry. Then the discovery of massive oil fields in the Southwest, first at Spindletop, Texas, led to the emergence of significant domestic competitors.

During the Progressive Era, the federal government decided to act against Standard Oil’s industry dominance. In 1906, the U.S. Justice Department filed an antitrust suit against Standard Oil. In 1909, a U.S. Circuit Court ruled that Standard Oil was violating antitrust laws, and in 1911, the U.S. Supreme Court heard Standard Oil’s appeal. That court affirmed the circuit court’s ruling. The Standard Oil corporate structure was split into numerous separate firms, largely along state lines. These included Standard Oil of New Jersey (which eventually became Exxon); Standard Oil of New York, or Socony (Mobil); Standard Oil of California, or Socal (Chevron); Standard Oil of Indiana (Amoco); Standard Oil of Ohio, or Sohio (later part of British Petroleum); Continental Oil (Conoco); and Atlantic (ARCO).14

The dramatic expansion of the oil industry during the late 19th century had brought forth other efforts to impose government regulation on big business. Issues related to rebates and pricing, in particular, eventually led to concerted congressional action. The Interstate Commerce Commission (ICC), established in 1887 to regulate railroad transportation, became the federal agency charged with regulating oil pipeline transportation. Later, the Elkins Act (1903) and the Hepburn Act (1906) enhanced the ICC’s regulatory power to prohibit rebates and impose penalties on firms that offered them. The Hepburn Act also expanded the scope of the ICC over interstate oil pipelines.15

The U.S. government exercised more control over the oil industry during World War I. Recognizing the vital role of petroleum in national security and national defense, president Woodrow Wilson, in 1917, created the Fuel Administration that, among other responsibilities, had the authority to work with U.S. oil companies to ensure a stable petroleum supply for the Allied governments. This joint industry-government cooperation led to the formation of the American Petroleum Institute after the war, in 1919, an industry trade association established to develop industry standards, statistics, and research. Some independent oil firms believed that the institute favored the large integrated, or major, oil firms.16 Independents, such as Tom Slick, vocally opposed its attempt to set national standards, and small producers later formed the Independent Petroleum Association of America to represent their interests.17

International Oil

European entrepreneurs and governments, through state-owned enterprises, also entered the oil industry in the 19th century. Marcus Samuel of Britain established Shell Transport and Trading. Shell began operations in the 1870s as a trade and transportation company, and it originally transported and marketed crude oil produced in Russia. Shell established a worldwide system of oil tankers and storage tanks to move the Russian oil to market. In 1906, Royal Dutch merged with Shell to become Royal Dutch Shell.18

The British government, having “lost” Shell to the Netherlands, decided to re-enter the oil industry. It purchased the Anglo-Persian Oil Company and transformed it into British Petroleum (BP). BP developed substantial oil-producing properties in the Middle East, while Shell worked in Russia, Mexico, and the East Indies. In Russia during the 1870s, Robert Nobel and Ludwig Nobel from Sweden entered the burgeoning oil business at Baku. Later, members of the Rothschild family established an oil firm to operate from the Caspian Sea. Russia quickly became a leading oil-producing nation.

In the early 20th century, various intercompany agreements sought to stabilize an increasingly volatile and global oil market. In August 1928, Walter Teagle of Standard Oil (New Jersey), John Cadman of BP, and Henry Deterding of Shell met at Achnacarry Castle in Scotland. The three men agreed to follow a seven-point plan, known as the As-Is Agreement, to end the global price wars that had created corporate instability. Not long afterward, four other firms—Gulf, Standard of California (Socal), Texaco, and Standard Oil (New York)—joined the pact and together formed the famed “Seven Sisters.” Despite ongoing disagreements and other problems, the Seven Sisters group persisted until the early 1970s.19

The Seven Sisters operated as an oil cartel (a group of companies that effectively control production and distribution) and corralled a significant portion of the world oil industry. Collectively, the Seven Sisters developed fields in Latin America, North Africa, and the Persian Gulf. By 1950, they controlled about 90 percent of world oil production, excluding the United States and the Soviet Union, and 80 percent of refining and 70 percent of marketing operations. The Seven Sisters had a variety of relationships with the oil-producing countries, including partnerships, profit-sharing arrangements, and concession systems. The Seven Sisters retained their dominance in world oil during the two decades following World War II, although their market share gradually diminished as new firms and oil-producing nations entered the industry.20

In the 1920s, Middle East nations attracted the attention of Western oil companies. A consortium of European and U.S. firms established the Iraq Petroleum Company in 1928. This company consisted of four partners holding equal 23.5 percent shares including British Petroleum, Comaigne Française des Pétroles, Royal Dutch Shell, and the Near East Development Corporation (representing U.S. interests), and the entrepreneur Calouste Gulbenkian with a 5 percent share. In conjunction with Iraq Petroleum, the corporate participants signed an additional agreement, later known as the Red Line Agreement. This agreement essentially prohibited all the oil companies operating within the defined boundaries of the old Ottoman Empire from competing with each other. Considering the size of the signatory firms, the Red Line Agreement effectively established a new Middle Eastern oil cartel.21

The Iraq Petroleum Company was soon overshadowed by a new entrant. In 1936, Socal purchased, for $50,000, a concession to develop oil in Saudi Arabia. Both Standard Oil of New Jersey and Gulf Oil had previously passed on the opportunity to develop the concession. Socal later formed a partnership with Texaco called Caltex. After oil production commenced in 1939, Socal and Texaco formed the Arabian-American Oil Company (Aramco). At one point during World War II, the U.S. government, responding to security concerns, sought to purchase Aramco through the Reconstruction Finance Corporation, but the effort failed because of serious policy disagreements between the American officials and the oil companies.22 Ultimately, U.S. Navy Secretary James Forrestal best reflected American policy when he stated that he didn’t “care which American company or companies developed the Arabian reserves’ as long as they are American.”23

More U.S. companies did answer this call. Aramco controlled a vast oil supply, but it lacked markets. King Saud pushed Aramco for additional revenue, and the company considered adding partners. In 1946, Standard Oil of New Jersey and Socony-Vacuum Oil Company (later renamed as Mobil) joined Aramco. Together these firms offered Aramco access to an international oil-distribution system and capital. Because this was essentially a partnership between major U.S. oil firms and Saudi Arabia, Aramco’s operations effectively put intense pressure on the companies operating under the Red Line Agreement.24

Host nations increasingly sought to have more control over their oil. In Latin America, foreign oil-producing companies confronted nationalist tendencies. American and British oil firms had developed Mexican oil fields in the early 20th century, and by the 1920s, imported Mexican oil accounted for more than 20 percent of total U.S. oil consumption. The Mexican Eagle Oil Company, originally established by Sir Weetman Pearson (Weetman Dickinson Pearson), a British engineer, produced about 65 percent of Mexico’s oil. The young American geophysicist Everette Lee DeGolyer assisted in that firm’s early major oil discoveries.25 Later, Mexican popular opinion, bolstered by the labor activism of the oil workers’ unions, including the Confederation of Mexican Workers, railed against the U.S. companies (including Standard) that were producing most of the remaining 35 percent, paying their workers low wages and demanding long working hours and generally manipulating the Mexican oil industry. As a result, the Mexican government nationalized its oil industry in 1938 and subsequently consolidated it under Petróleos Mexicanos, or Pemex.26 In Venezuela, where Shell and Exxon operated, the government passed a law in 1948 calling for a fifty-fifty profit-sharing agreement. Soon thereafter, King Saud in Saudi Arabia also demanded a fifty-fifty system. An agreement was reached in 1950 that effectively lowered Aramco’s U.S. tax liability and greatly increased Saudi Arabia’s oil revenue. Similar arrangements were made between Kuwait and the Kuwait Oil Co., Ltd., a partnership of Gulf Oil and BP.

The struggle for control of oil supply occurred most dramatically in Iran. After unsuccessful negotiations to raise Iran’s share of oil revenue in its partnership with BP, the Iranian government nationalized the domestic oil industry and placed its assets under the newly formed National Iranian Oil Company (1948). Foreign oil companies then refused to purchase Iranian oil, just as Iran’s communist Tudeh Party was growing in power, creating political concerns for the U.S. government. Political turmoil in Iran forced the shah to flee the country. Dr. Mohammed Mossadeq, the former chairman of the Iranian Oil Commission, assumed political power as prime minister. In 1953, a subsequent coup supported by the U.S. Central Intelligence Agency brought the shah back to power. In 1954, an Iranian oil consortium was established that included five major U.S. oil firms (holding 8% each), BP (40%), Shell (14%), and Compagnie Française de Pétroles (6%).27

Texas Oil and Regulation

On January 10, 1901, a team led by Anthony F. Lucas hit oil at Spindletop, near Beaumont, Texas, on the Gulf Coast. The Lucas Gusher produced an estimated 100,000 barrels a day and marked the beginning of the Texas oil boom. In 1902, Spindletop produced more than seventeen million barrels of oil; after production there began to decline, new drilling efforts commenced throughout the region.28 Many new oil companies benefited from of the Spindletop discovery, some of which became large oil firms. These included the Texas Company (later Texaco), Gulf Oil Corporation (later merged with Chevron), Sun Oil Company, Magnolia Petroleum Company, and Humble, which merged with Standard Oil of New Jersey in 1919.

New oil discoveries in Texas solidified that state’s growing reputation as the nation’s most important oil-producing state. In particular, Columbus M. “Dad” Joiner’s discovery, in 1930, of the massive East Texas Oil Field set in motion a new era of government regulation of the oil industry. Eventually comprising about 140,000 acres of land with reserves of an estimated 5.5 billion barrels, it was the largest oil field yet discovered. But it was H. L. Hunt, after purchasing Joiner’s 4,000 acres of oil land for approximately $1 million, who struck it rich in East Texas. Rampant and aggressive drilling began immediately after the initial discoveries, and within three years there were 12,000 wells in the region. East Texas oil flooded the market.29

The proliferation of “wildcat” drilling (drilling in an unproven area) in the East Texas field had several ramifications. The unrestrained East Texas oil production flooded the market with oil. The price of high-grade oil at the time of the Joiner’s discovery was $1.10 per barrel. A year later, in 1931, the price of East Texas crude fell to below $.10 per barrel and forced oil prices to a similar level nationwide. The price plummet caused many U.S. oil producers to temporarily halt production. In addition, issues related to conservation, of both oil and the underground water that forced the oil to the surface, became paramount. These concerns led to prorationing, or the establishment of regulatory limits on production.30

The Texas Railroad Commission attempted to gain control of the East Texas situation. The commission sought to impose a prorationing scheme on East Texas oil producers in order to control production in an equitable manner. Many oil producers opposed any type of production controls and ignored the prorationing policy. In August 1931, Texas governor Ross Sterling declared martial law and sent troops into the oil fields to prevent production and sale of “hot oil,” or oil produced in violation of prorationing guidelines.31

Oklahoma and Texas, among other states, formed the Interstate Oil Compact in 1935 with the purpose of coordinating the member states’ prorationing plans. The Interstate Oil Compact Commission (renamed the Interstate Oil and Gas Compact Commission in 1991) implemented the provisions of the compact. States, however, lacked adequate enforcement authority until 1935, when Congress passed the Connally Hot Oil Act. The act prohibited the interstate movement of illegally produced oil and gave the Texas Railroad Commission, other state commissions, and the Interstate Oil Compact Commission the authority it needed to regulate intrastate oil production. The commission played a particularly important role in managing the conservation and stability of the U.S. and global oil markets.

World War II created new challenges for the oil business. As it had during World War I, the federal government became actively involved in the industry. The Petroleum Administration for War, led by Harold Ickes, sought to coordinate the petroleum industry during the wartime emergency. The administration centralized U.S. petroleum policies and coordinated supply allocations. After German U-Boats began sinking the U.S. oil tankers that were transporting petroleum from the Gulf Coast up the Atlantic seaboard, the Reconstruction Finance Corporation agreed to finance two “war emergency pipelines,” nicknamed “Big Inch” and “Little Big Inch,” to alleviate the oil shortage in the northeast and ensure the wartime oil supply. This effort represented a remarkable episode of wartime business-government cooperation and was a historic example of a public-private industrial partnership. After the war, the federal government auctioned the so-called Inch Lines as war-surplus property to Texas Eastern Transmission Corporation, which converted the Inch Lines for natural gas transportation.32

Cartelization to Energy Crisis

A cartel of oil-producing nations, the Organization of Petroleum Exporting Countries (OPEC), was a nationalist response to foreign corporate control of the member nations’ oil. Five nations—Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela originally formed OPEC at a meeting in Baghdad in 1960. The OPEC members wanted to receive a stable income for their oil rather than a fluctuating market-based revenue.

Later, other countries, including Libya, Nigeria, and Indonesia joined OPEC. Substantial oil discoveries in Libya had been more recent. In 1959, Standard Oil of New Jersey struck high grade oil at Zeltin, Libya. Libya soon thereafter ranked as the sixth-largest oil exporter, accounting for 10 percent of worldwide oil exports.

Occidental Petroleum, led by Armand Hammer, also participated in the Libyan oil boom. After winning concessions in 1965, Occidental struck huge oil deposits, including one at the Idris field that became one the highest producing oil fields yet discovered. Libya was outside the Middle East, and its oil supply was not subject to the same political strife or require access via the Suez Canal. After Muammar al-Qaddafi’s military coup in 1969, however, Hammer and other oil company representatives negotiated with the new government to remain active in Libya. The oil companies were allowed to stay after they agreed to royalty and tax payment increases. This Libyan episode restarted the earlier movement of producer-nation control over its own natural resources.33

U.S. dominance in the global oil industry shifted dramatically during and after 1973, when the Arab oil-producing nations used oil as an economic weapon against the United States and other countries that had supported Israel in the Yom Kippur War. After the United States agreed to resupply Israel during that war, the Organization of Arab Petroleum Exporting Countries (OAPEC), a subgroup of OPEC, agreed to either reduce or terminate oil exports to nations that supported Israel. In particular, OAPEC initiated an embargo against the United States and curtailed overall production. This caused spot prices to increase six-fold from their pre-embargo levels. Nations that depended on oil imports bid for spot market oil, and prices increased dramatically, from $3 per barrel to $20 per barrel, during the next several months. At the time, the United States was importing approximately 36 percent of its oil supply.34

In 1979, another oil supply crisis occurred. An Islamic revolution in Iran forced the shah to flee the country. The turmoil of the Iranian revolution thrust that nation’s oil industry into disarray, and its daily oil production of three- to four-million barrels virtually ceased. In September 1979, Iraq attacked Iran, and the Iraq-Iran war effectively removed Iraq’s three-million-barrel daily production from the market. Once again, the worldwide cost of oil increased dramatically. The price of OPEC-produced oil increased from $16 per barrel in September of 1979 to more than $36 per barrel by January 1980. This price increase had enormous global economic implications. In the United States, a serious economic downturn followed. Long lines of cars at gasoline stations symbolized this period.35

The oil disruptions of the 1970s prompted the United States to seek and promote “energy independence.” The National Energy Security Act of 1980 set in motion a new U.S. policy designed to promote energy conservation and reduce U.S. dependence upon foreign oil. The act established the Synthetic Fuels Corporation (SFC) to develop methods for extracting oil and gas from coal. Although the company was originally capitalized at $88 billion, it became a casualty of the Reagan administration, which disliked government involvement in energy. There was also renewed interest in developing coal; new oil sources, such as those in Alaska; and nuclear power systems.

The United States did establish an emergency oil supply. In 1975, president Gerald Ford signed the Energy Policy and Conservation Act. The act created the Strategic Petroleum Reserve with the intent of storing up to a billion barrels of petroleum. By policy, the reserve is the United States’ emergency supply of crude oil. Oil is stored in large underground salt caverns located on the Gulf of Mexico coastline. The U.S. president has the authority to allow a withdrawal of oil during an emergency. The first oil deliveries the took place on July 21, 1977, consisting of 412,000 barrels of Saudi Arabian light crude. In the 20th century, the government withdrew oil only during Operation Desert Storm, in 1991. In 2002, the Strategic Petroleum Reserve contained approximately 561 million barrels of oil, out of a total capacity of approximately 727 million barrels. By late December 2009, the reserve was filled essentially to capacity.36

Oil and the Environment

The oil industry had fueled U.S. prosperity in the 1950s and 1960s, but the 1973 Arab oil embargo served as a wake-up call to the reality that American global dominance was not guaranteed. Indeed, the obvious conclusion was that the U.S. oil industry, not to mention the U.S. economy, was part of a global network and that disruptions of foreign oil could occur again, for any number of reasons. This prompted renewed efforts to develop domestic supply, and new offshore discoveries along the Gulf Coast, the coasts of California and Alaska, and in the North Sea brought additional supply to the United States and world market. In the North Sea, massive offshore oil platforms produced oil and gas, often in extremely dangerous conditions. The 1968 Prudhoe Bay discovery in Alaska represented the largest petroleum reservoir ever discovered in the United States. It is, however, located in a climatologically extreme environment.37

The increasing volume of oil production and transportation created more opportunities for major accidents, and the oil industry became a chief concern of the emerging environmental movement. On January 29, 1969, Union Oil Well A-21, located on federal leaseholds off the coast of Santa Barbara, blew out. The well itself was quickly capped, but a fissure on the ocean floor associated with the well released 235,000 gallons of crude oil into the ocean waters off California. The spill created an oil slick that killed birds and fish, interrupted commercial fishing, and created difficulties for local tourism from Santa Barbara to San Diego. The Santa Barbara oil spill galvanized environmental action on the West Coast and led to a moratorium on drilling new wells on state-owned submerged lands.38

An even more serious oil spill occurred in 1989 at Prince William Sound, Alaska. The Exxon Valdez oil tanker grounded on Bligh Reef, causing a rupture of its oil storage tanks. Eleven million gallons of oil spewed into the sound and spread across 10,000 square miles of water and 1,300 miles of shoreline. It was estimated that from 300,000 to 645,000 sea birds and 4,000 to 6,000 marine mammals died as a result of the spill, the worst in U.S. history. Exxon subsequently spent $3.8 billion on the cleanup, including fines and related expenses.39

Consolidation and “Energy Independence”

During the 1980s and 1990s, major oil firms began to consolidate and through corporate mergers create gigantic multinational oil firms. In 1984, Standard Oil of California acquired Gulf Oil; the new company became Chevron Corporation. Three years later, British Petroleum completed its acquisition of Sohio, or Standard Oil of Ohio, the original Standard Oil firm. In 1998, BP acquired another former Standard Oil company when it purchased Amoco, formerly Standard Oil of Indiana. International competition, conservation efforts, and environmental liability continued to influence industry development.

Even larger mergers took place during the next several years. In 1999, Exxon (formerly Standard Oil of New Jersey) and Mobil (formerly Standard Oil of New York) combined. By 2001, the new Exxon Mobil Corporation ranked number one on the Fortune 500 list of the largest U.S. corporations, with total revenues of $210 billion and assets of $149 billion. Not far behind was the combined ChevronTexaco Corporation, with approximately $100 billion in revenues. In the early 21st century, the corporate trend continued to favor merger and consolidation. Clearly, this is a response to increasing pressure on the global and U.S. oil industry. As oil historian David S. Painter pointed out, “The U.S. share of world crude oil production fell to 8.1 percent in 2003, and imports increased from 47.1 percent of the U.S. oil supply in 1990 to 61.1 percent in 2003.”40 U.S. foreign and domestic policy has certainly been motivated at least in part to the potential threat to its appetite for oil.41

Despite the actions of OPEC and other major oil-producing nations, the global oil market has experienced volatile price and supply swings. The relative price of oil had by the late 1990s fallen to levels approximate to those prior to the oil crises of the 1970s. Additionally, the number of rotary oil rigs working in the United States has varied considerably since the 1940s and, following an upswing after the 1970s oil crises, has generally declined. The weekly rig count reached a high of 4,530 on December 28, 1981, and hit a low of 488 on April 27, 1999, despite new technologies that permit the enhanced oil recovery of low-yield oil wells, 3-D seismic technology, and directional drilling techniques.

In the 21st century, major oil corporations confront increasing pressure from environmentalists and increasing drilling and production costs. Hydraulic fracturing, or “fracking,” first developed in 1947, is a technique that has become more widespread and also controversial. Generally, the method involves injecting, under very high pressure, fluids (typically comprised of water, sand, and other chemicals) into natural-gas or oil-bearing formations. The pressurized fluids then literally crack the deep-rock structures allowing the oil or gas to flow more freely. In the United States, fracking has been a highly controversial process, and there is some evidence that hydraulic fracturing may be responsible for otherwise unexplained seismic activity in the areas where it is used, and that is has the potential to cause groundwater contamination. In addition to environmental concerns, broader cultural issues also impact the modern oil industry, as evidenced in the controversy related to the 1,100-mile Dakota Access Pipeline running over ancestral lands belonging to the Standing Rock Sioux.

Future Outlook

Oil is a limited natural resource. The United States, despite its policy to reduce its dependence on foreign oil, has imported increasingly higher volumes of oil since World War II. Imports in 1950 accounted for about 13 percent of total U.S. consumption, rising to 19 percent in 1960, 23 percent in 1970, 40 percent after the 1973 embargo, and about 50 percent (or nine million barrels per day) by the mid- to late 1990s. Buoyed in large part by shale oil production, overall U.S. oil production began increasing significantly after 2006, corresponding to a sizeable decline in imports, which had reached a high of about fifteen million barrels per day in the late spring of 2006. By 2016, the United States was importing about ten million barrels per day. As the more easily produced oil is used, the oil companies will expend increasing amounts of money, labor, and time exploring for and producing oil that is more difficult and costly to locate and produce.

Yet despite ongoing concerns about supply, environmental issues, and geopolitical challenges, oil will continue to be a primary fuel source for the foreseeable future. Indeed, recent concerns that the oil supply would soon decline dramatically now seem somewhat less immediate. These realizations have prompted many in the industry to echo comments such as that of energy historian Tyler Priest: “Miraculously, the U.S. energy outlook suddenly brightened. In just the last few years, thanks in part to soaring oil prices, technology has opened up spectacular new oil and gas frontiers that might alter the map of world supply.”42 Despite the new exploration and production technologies, the long-term perspective appears to favor a growing reduction in fossil fuel utilization. As energy historian William Childs has stated, “Environmental politics have continued to shape the long transition from carbon-based to greener alternative energy sources. The low price of oil since 2014 has so far had no effect in stemming the progress. And there are indications that the transition will continue to accelerate.”43

Discussion of the Literature

There is no shortage of literature on the history of the oil industry. It ranges from scientific papers and company histories to biographical and policy studies, and from environmental perspectives to cultural studies, among other approaches. Ida Tarbel’s Progressive Era book, History of the Standard Oil Company, originally published in serial form in McClure’s magazine) provides an important historiographic perspective on the 19th-century oil industry.44 Tarbell’s exposé contributed to the decision of the U.S. Department of Justice to bring the antitrust case against Standard Oil that resulted in the monopoly’s breakup in 1911. But notwithstanding Tarbell’s “muckraking” exposé, much of the scholarship on the oil industry through the 1960s was laudatory and heroic.

Allan Nevins’s seminal work John D. Rockefeller: The Heroic Age of American Enterprise represents the hagiographic approach to the industry’s most famous entrepreneur and is an excellent source on early oil-industry history. The two-volume study of Harold F. Williamson and Arnold R. Daum, The American Petroleum Industry: The Age of Illumination, 1859–1899 and The American Petroleum Industry: The Age of Energy, 1899–1959, remains the best overall source of detailed information about the empirical development of the U.S. oil industry through 1959.45 Historiographically, these works represent a focus on business and industrial growth that takes place without regard to labor, gender, imperialism, or the environment.

The history of Standard Oil, as well as of its founder, has accounted for some of the most extensive and in-depth work on the industry. Pioneering in Big Business: The History of the Standard Oil Company, 1882–1911 by Ralph Hidy and Muriel Hidy is a more academic and studious account of the early growth and development of Standard Oil; it is part of a series of books on the history of Standard Oil. The Hidys’ approach was of course aided by their careful research skills and also by their access to far greater amounts of public information about Standard Oil than had been available to Tarbell. The history of Exxon series includes the recent addition by Joseph A. Pratt, Exxon: Transforming Energy, 1973–2005.46

As with U.S. historiography in general, the emergence of a social history perspective in the 1960s, development of the environmental movement, and the 1973 Oil Embargo hastened a slew of new approaches to understanding and explaining the history of the U.S. oil industry. Seminal work by Roger M. Olien and Diana Davids Olien, including their books Oil in Texas: The Gusher Age, 1895–1945 and Oil and Ideology: The Cultural Creation of the American Petroleum Industry, provides insight into the development of the industry. Focusing on policy and politics, political scientist David F. Pringle, in Petroleum Politics and the Texas Railroad Commission, had earlier opened new perspectives on state-policy history. And business historian William R. Childs, in The Texas Railroad Commission: Understanding Regulation in America to the Mid-twentieth Century, built upon Pringle’s work to develop new approaches to understanding business-government relations. Regarding the historical California oil market, see Paul Sabin’s Crude Politics: The California Oil Market, 1900–1940.47

Biographical studies abound and include a wide variety of approaches. These include Ron Chernow’s in-depth biography The Life of John D. Rockefeller, which can be compared and contrasted to Nevins’s earlier work. More-focused biographies such as Ray Miles’s “King of the Wildcatters”: The Life and Times of Tom Slick, 1883–1930 provide narratives of important but much lesser-known oil men. And Houston Faust Mount II’s book Oilfield Revolutionary: The Career of Everette Lee DeGolyer covers the fascinating career of one of the industry’s pioneering geophysicists, who also worked in Mexico during the early period of its oil industry development.48

Daniel Yergin’s The Prize: The Epic Quest for Oil, Money and Power continues to be a good single source on the history of the international oil industry, as does Anthony Sampson’s The Seven Sisters: The Great Oil Corporations and the World They Shaped. An excellent collection of recent essays on the oil industry, broadly conceived, can be found in a special issue of the Journal of American History titled “Oil in American History: A Special Issue.”49

Primary Sources

There are a variety of digital primary source collections that contain useful information for further research or general information. These include

American Oil and Gas Historical Society.

Briscoe Center for American History. The American Energy History Collections.

Panhandle Eastern Corp. Historical Records, Rice University, 1927–1997. Woodson Research Center, Rice University.

The Petroleum Museum.

University of Louisville Digital Collections, Standard Oil (New Jersey) Collection.

Tyrrell Historical Library Digital Collections.

University of Houston Petroleum Institute Records.

One of the best sources of statistical information about the petroleum industry is the Energy Information Agency.

See also the National Archives and Records Administration, records of the Federal Energy Regulatory Commission and the Department of Interior.

Further Reading

Bamberg, John H. The History of the British Petroleum Company. Vol. 2, The Anglo-Iranian Years, 1928–1954. Cambridge, UK: Cambridge University Press, 1982.Find this resource:

    Castaneda, Christopher J. Invisible Fuel: Manufactured and Natural Gas in America, 1800–2000. New York: Twayne, 1999.Find this resource:

      Castaneda, Christopher J., and Joseph A. Pratt. From Texas to the East: A Strategic History of Texas Eastern Corporation. College Station: Texas A&M University Press, 1993.Find this resource:

        Chernow, Ron. The Life of John D. Rockefeller. New York: Random House, 1998.Find this resource:

          Childs, William R. The Texas Railroad Commission: Understanding Regulation in America to the Mid-twentieth Century. College Station: Texas A&M University Press, 2005.Find this resource:

            Clark, James A. The Chronological History of the Petroleum and Natural Gas Industries. Houston: Clark Book Co., 1963.Find this resource:

              Clark, John G. Energy and the Federal Government: Fossil Fuel Policies, 1900–1946. Urbana: University of Illinois Press, 1986.Find this resource:

                Clark, John G. Political Economy of World Energy: A Twentieth-Century Perspective. Chapel Hill: University of North Carolina Press, 1991.Find this resource:

                  Davis, Margaret Leslie. Dark Side of Fortune: Triumph and Scandal in the Life of Oil Tycoon Edward L. Doheny. Berkeley: University of California Press, 1998.Find this resource:

                    Hidy, Ralph W., and Muriel E. Hidy. Pioneering in Big Business, 1882–1911. New York: Harper and Row, 1955.Find this resource:

                      Miles, Ray. “King of the Wildcatters”: The Life and Times of Tom Slick, 1883–1930. College Station: Texas A&M University Press, 1996.Find this resource:

                        Mount, Houston Faust, II. Oil Field Revolutionary: The Career of Everette Lee DeGolyer. College Station: Texas A&M University Press, 2014.Find this resource:

                          Nevins, Allan. John D. Rockefeller: The Heroic Age of American Enterprise. New York: Scribner’s, 1940.Find this resource:

                            Olien, Roger M., and Diana Davids Olien. Oil and Ideology: The Cultural Creation of the American Petroleum Industry. Chapel Hill: University of North Carolina Press, 2000.Find this resource:

                              Olien, Diana Davids, and Roger M. Olien. Oil in Texas: The Gusher Age, 1895–1945. Austin: University of Texas Press, 2002.Find this resource:

                                Pratt, Joseph A. The Growth of a Refining Region. Greenwich, CT: Jai Press, 1980.Find this resource:

                                  Pratt, Joseph A., Tyler Priest, and Christopher J. Castañeda. Offshore Pioneers: Brown and Root and the History of Offshore Oil and Gas. Houston: Gulf Publishing, 1997.Find this resource:

                                    Priest, Tyler. The Offshore Imperative: Shell Oil’s Search for Petroleum in Postwar America. College Station: Texas A&M University Press, 2007.Find this resource:

                                      Rees, Judith, and Peter Odell. The International Oil Industry: An Interdisciplinary Perspective. New York: MacMillan, 1987.Find this resource:

                                        Sabin, Paul. Crude Politics: The California Oil Market, 1900–1940. Berkeley: University of California Press, 2004.Find this resource:

                                          Sampson, Anthony. The Seven Sisters: The Great Oil Companies and the World They Shaped. New York: Bantam, 1975.Find this resource:

                                            Stobaugh, Robert, and Daniel Yergin, eds. Energy Future: Report of the Energy Project at the Harvard Business School. New York: Vintage, 1979.Find this resource:

                                              Tarbell, Ida. The History of the Standard Oil Company. New York: Firework Press, 2015.Find this resource:

                                                Vietor, Richard H. K. Energy Policy in America since 1945. Cambridge, UK: Cambridge University Press, 1984.Find this resource:

                                                  Williamson, Harold F., Ralph L. Andreano, Arnold R. Daum, and Gilbert C. Klose. The American Petroleum Industry: The Age of Energy, 1899–1959. Evanston, IL: Northwestern University Press, 1963.Find this resource:

                                                    Williamson, Harold F., and Arnold R. Daum. The American Petroleum Industry: The Age of Illumination, 1859–1899. Evanston, IL: Northwestern University Press, 1959.Find this resource:

                                                      Yergin, Daniel. The Prize: The Epic Quest for Oil, Money and Power. New York: Simon and Schuster, 1991.Find this resource:


                                                        (1.) See American Petroleum Institute Gravity classifications at U.S. Energy Information Agency, Available online.

                                                        (2.) Central Intelligence Agency, “The World Factbook.” Available online.

                                                        (3.) Harold F. Williamson and Arnold R. Daum, The American Petroleum Industry: The Age of Illumination, 1859–1899 (Evanston, IL: Northwestern University Press, 1959), 4–10.

                                                        (4.) Williamson and Daum, 22.

                                                        (5.) Williamson and Daum, 18–24, 54–57.

                                                        (6.) Williamson and Daum, 72–74.

                                                        (7.) Williamson and Daum, 79.

                                                        (8.) Williamson and Daum, 266.

                                                        (9.) Joseph A. Pratt, “Exxon and the Control of Oil,” Journal of American History 99, no. 1 (2012): 146.

                                                        (10.) Williamson and Daum, American Petroleum Industry, The Age of Illumination, 1859–1899, 353.

                                                        (11.) Daniel Yergin, The Prize: The Epic Quest for Oil, Money and Power (New York: Simon and Schuster, 1991), 40–42.

                                                        (12.) Williamson and Daum, American Petroleum Industry: The Age of Illumination, 356–358.

                                                        (13.) Williamson and Daum, 466–468.

                                                        (14.) Yergin, Prize, 106–110.

                                                        (15.) See, Ari Hoogenboom, A History of the ICC from Panacea to Palliative (New York: W. W. Norton, 1976).

                                                        (16.) For background on the American Petroleum Institute, see Joseph A. Pratt, “Growth of Clean Environment? Responses to Petroleum-related Pollution in the Gulf Coast Refining Region,” Business History Review 52, no. 1 (1978): 1–29.

                                                        (17.) See Ray Miles, “King of the Wildcatters”: The Life and Times of Tom Slick, 1883–1930 (College Station: Texas A&M University Press, 1996).

                                                        (18.) Yergin, Prize, 86–87, 125–127.

                                                        (19.) Yergin, 260–265.

                                                        (20.) See Anthony Sampson, The Seven Sisters: The Great Oil Companies and the World They Shaped (New York: Bantam, 1976).

                                                        (21.) Sampson, Seven Sisters.

                                                        (22.) Sampson, 95–97.

                                                        (23.) Quoted in Yergin, Prize, 412.

                                                        (24.) For a good overview of the origins of Aramco, see Chad H. Parker, Making the Desert Modern: Americans, Arabs, and Oil on the Saudi Frontier, 1933–1973 (Amherst: University of Massachusetts Press, 2015).

                                                        (25.) Houston Faust Mount II, Oil Field Revolutionary: The Career of Everette Lee DeGolyer (College Station: Texas A&M University Press, 2014), 36–69.

                                                        (26.) Yergin, Prize, 274–277.

                                                        (27.) See John H. Bamberg, The History of the British Petroleum Company, vol. 2, The Anglo-Iranian Years, 1928–1954 (New York: Cambridge University Press, 1982); and Yergin, Prize, 450–478.

                                                        (28.) Harold F. Williamson and Arnold R. Daum, The American Petroleum Industry: The Age of Energy, 1899–1959 (Evanston, IL: Northwestern University Press, 1963), 20.

                                                        (29.) Diana Davids Olien and Roger M. Olien, Oil in Texas: The Gusher Age, 1895–1945 (Austin: University of Texas Press, 2002), 28–46.

                                                        (30.) David F. Prindle, Petroleum Politics and the Texas Railroad Commission (Austin: University of Texas Press, 1981), 25–26.

                                                        (31.) Yergin, Prize, 248–252. Also see, William R. Childs, The Texas Railroad Commission: Understanding Regulation in America to the Mid-twentieth Century (College Station: Texas A&M University Press, 2005), 202–224.

                                                        (32.) See Christopher J. Castaneda and Joseph A. Pratt, From Texas to the East: A Strategic History of Texas Eastern Corporation (College Station: Texas A&M University Press, 1993). For a historical overview of the natural gas industry, see Christopher J. Castaneda, Invisible Fuel: Manufactured and Natural Gas in America, 1800–2000 (New York: Twyane, 1999).

                                                        (33.) See Aramand Hammer, Hammer, with Neil Lyndon (New York: G. P. Putnam’s Sons, 1987).

                                                        (34.) Yergin, Prize, 606–612.

                                                        (35.) Yergin, 699–706.

                                                        (36.) See Bruce A. Beaubouef, The Strategic Petroleum Reserve: U.S. Energy Security and Oil Politics, 1975–2005 (College Station: Texas A&M University Press, 2007).

                                                        (37.) Yergin, Prize, 570–572, 576.

                                                        (38.) Robert Easton and Ross Macdonald, Black Tide: The Santa Barbara Oil Spill and Its Consequences (New York: Delacorte, 1972).

                                                        (39.) See Joseph A. Pratt, Exxon: Transforming Energy, 1973–2005 (Austin: Dolph Briscoe Center for American History, 2013).

                                                        (40.) David S. Painter, “Oil and the American Century,” Journal of American History 99, no. 1 (2012): 37.

                                                        (41.) Painter, 37.

                                                        (42.) Tyler Priest, “The Dilemmas of Oil Empire,” Journal of American History 99, no. 1 (2013): 249.

                                                        (43.) William R. Childs, Origins: Current Events in Historical Perspective. Published electronically by the History Departments of The Ohio State University and Miami University, January 26, 2016.

                                                        (44.) Tarbell, History of the Standard Oil Company.

                                                        (45.) Nevins, John D. Rockefeller; Williamson and Daum, American Petroleum Industry: The Age of Illumination, 1859–1899 and Williamson and Daum, American Petroleum Industry: The Age of Energy, 1899–1959.

                                                        (46.) Ralph W. Hidy and Muriel E. Hidy, Pioneering in Big Business, 1882–1911 (New York: Harper and Row, 1955); and Pratt, Exxon.

                                                        (47.) D. Olien and R. Olien, Oil in Texas; and Roger M. Olien and Diana Davids Olien, The Cultural Creation of the American Petroleum Industry (Chapel Hill: University of North Carolina Press, 2000); David F. Pringle, Petroleum Politics and the Texas Railroad Commission (Austin: University of Texas Press, 1984); Childs, Texas Railroad Commission; and Sabin, Crude Politics.

                                                        (48.) Ron Chernow, Life of John D. Rockefeller (New York: Random House, 1998); Miles, “King of the Wildcatters”; and Faust Mount, Oil Field Revolutionary.

                                                        (49.) Yergin, Prize; Sampson, Seven Sisters; and Oil in American History, special issue, Journal of American History 99, no. 1 (2012).