Tuesday, March 04, 2014

Oil and Free Enterprise

The trouble with oil was competition. Competition drove down prices and made it hard to make a buck. John D. Rockefeller was perhaps the first to do something about it, by establishing the vast cartel of Standard Oil and dominating all aspects of oil in the United States, and most of the rest of the world. Government got into the act in a big way in World War I, when Churchill and others converted the fleet to oil propulsion, and got the UK to invest directly in oil production in Persia.

After the war, the explosive growth of the automobile and other machines propelled by internal combustion produced first shortages and then the discovery of vast new oil fields, notably the enormous East Texas field. Its enormous production drove the price of a barrel of oil down by a factor of ten, and everyone in the business was losing their shirts.

The Texas economy, and perhaps law and order, were on the verge of collapse. 3

For some time, Texas Governor Ross Sterling, a founder and former chairman of Humble Oil, had been vacillating about what to do. But now he had no choice; he had to act. He, in effect, declared war on East Texas. On August 17, 1931, he announced that East Texas was in a “state of insurrection” and “open rebellion,” and sent in several thousand National Guardsmen and the Texas Rangers, who showed up on horses, as the recent rains had made the roads impassable to motor vehicles. They set up their base on what was to be dubbed “Proration Hill” and, operating from horseback, shut down production within a matter of days. An eerie quiet settled in over East Texas as work in the oil fields ceased. Even the chickens, which had happily feasted on the millions of insects drawn each day by the continuous gas flares, were forced to “return to the prosaic ante-petroleum practice of scratching for worms.”

Yergin, Daniel (2011-04-05). The Prize: The Epic Quest for Oil, Money & Power (pp. 233-234). Free Press. Kindle Edition.