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The British Government and the Oil Companies 1912–1924: the Search for an Oil Policy*

Published online by Cambridge University Press:  11 February 2009

G. Gareth Jones
G. Gareth Jones
Affiliation:
Corpus Christi College, Cambridge
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Extract

The overwhelming majority of studies of the relationship between the British government and private industry in the nineteenth and twentieth centuries are, in reality, merely studies of the government's policy towards industry. The attitude of private industry towards the government has been almost entirely neglected, and this has inevitably led to a distorted understanding of the relationship as a whole. It is, for example, hardly ever made explicit in the extensive literature on the growth of state intervention in the British economy that in the decades before 1914 the assault on laissez-faire was pardy led by private industry itself. This development was most noticeable overseas, where the British government became involved in commerce and trade largely in response to requests for diplomatic support from British firms faced with growing competition from continental and American commercial interests, often supported by their respective governments.

Type
Articles
Information
The Historical Journal , Volume 20 , Issue 3 , September 1977 , pp. 647 - 672
Copyright
Copyright © Cambridge University Press 1977

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References

1 Historians have been reluctant to include the growing government role in support of British commercial interests overseas in the debate about laissez-faire. The topic is not mentioned in, for example, Taylor, A. J., Laissez-faire and state intervention in nineteenth-century Britain (London, 1972).CrossRefGoogle ScholarPlatt, D. C. M. in his study of the growth of government support of overseas trade, Finance, trade and British foreign policy 1815–1914 (Oxford, 1971)Google Scholar, does directly relate his subject to the debate about laissez-faire, but unfortunately only in order to maintain the untenable thesis that laissez-faire broke down first at home rather than abroad. See Platt, , p. xxxiv.Google Scholar

2 Henriques, R., Marcus Samuel (London, 1960), pp. 400–1, 535.Google Scholar In 1907 Shell had merged with the Dutch oil company, Royal Dutch. The effective head of the Group (as the new combination was usually referred to) was the Dutchman Henri Deterding. Henriques wrote the biographies of the two leading British members of the Shell Group at this time, Marcus Samuel and Waley Cohen (London, 1966). These books are very idiosyncratic and must be used with extreme caution.Google Scholar

3 Spender, J. A., Weetman Pearson, First Viscount Cowdray 1856–7927 (London, 1930), p. 203.Google Scholar

4 Even in these areas British diplomatic support was sometimes considered to be a valuable asset. Waley Cohen argued in ign that the Shell Group should operate in Russia through a British company, since they ‘should then enjoy the support of British diplomacy in Russia’. Quoted in Gerretson, C., Geschiedenis der ‘Koninklijke’ (5 vols., Baarn, 1971–1973), III, 418. All references to Gerretson in this article are to the Dutch edition as the Dutch work not only has footnotes but has been extended in the two last volumes from 1914 to the early 1920s.Google Scholar

5 The British oil company in Persia experienced several changes of name. The original D'Arcy Concession was granted in 1901. In May 1903 the First Exploitation Co. Ltd. was formed. In May 1905 the Burmah Oil Company agreed to provide capital for the concession, and the company was renamed the Concessions Syndicate. In April 1909 the company became the Anglo-Persian Oil Company. Brief accounts of the company's early history in Persia are given in Longhurst, H., Adventures in oil (London, 1959)Google Scholar, and Longrigg, S. H., Oil in the Middle East (3rd edn, London, 1968).Google Scholar

6 ADM(iraIty papers), P.R.O., ADM 116/3807, no. A.G. 050, minute by Miller, Gordon, 3 Nov. 1905.Google Scholar

7 ADM 116/1208, First report of the royal commission on fuel and engines, p. 368. This extremely untactful suggestion was typical of Samuel's unfortunate manner when dealing with government departments and illustrates one reason why the British leaders of Shell were regarded with considerable distaste by many permanent officials.

8 The most recent account of the Foreign Office Agreement of March 1914 is in Kent, M., Oil and empire: British policy and Mesopotamian oil 1900–1920 (London, 1976).CrossRefGoogle Scholar Deterding was so annoyed at the British government's behaviour during these negotiations that in March 1914, when he thought that Shell was about to be completely excluded from the TPC in favour of APOC and the Deutsche Bank, he threatened to sue the British government. See Kent, , Oil and empire, p. 92. Eventually Shell secured 25% of the TPC, the Deutsche Bank another 25% and the D'Arcy interests 50%. Calouste Gulbenkian secured his famous 5% drawn equally from the shares of the APOC and Shell.Google Scholar

9 For a general view of the diplomatic support given to British commercial interests in order to forward British political interests in areas such as Persia see McLean, D., ‘Finance and informal empire before the First World War’, Economic History Review, 2nd ser., XXX (1976). ‘It seems important’, Lord Cranbome (the permanent under secretary at the Foreign Office) had written in July 1901 when the question of support for the D'Arcy Syndicate was discussed, ‘that we should convince English enterprise that the Foreign Office is not merely neutral but definitely on its side.’ F(oreign) O(ffice), P.R.O., F.O. 60/731, minute by Cranbome on draft letter to Mr W. K. D'Arcy.Google Scholar

10 The tank steamer shortage was world–wide and it forced even Standard Oil (New Jersey) to abandon its policy of reliance on chartered vessels and begin the construction of its own fleet. See Gibb, G. S. and Knowlton, E. H., History of Standard Oil Company (New Jersey): The resurgent years 1911–27 (New York, 1956), p. 158.Google Scholar

11 For the 1905 Burmah and the 1912 APOC agreements with the Shell Group, see Gerretson, , Geschiedenis, III, 204–6, 467.Google Scholar

12 APOC was also interested in securing a contract to supply the Indian Railways, who offered a potentially very conveniently situated market.

13 A leading British tanker owner, T. Bowring, in his evidence before the royal commission on fuel and engines, offered the Admiralty reduced charter rates to the Persian Gulf provided they would contract for a ten-year period. See ADM 116/1209, Second Report, p. 21. APOC would have been unable to charter tonnage over a long period without a secure long–term market, and would therefore have had to pay the prevailing market rates.

14 APOC repeatedly told the government after 1912 that it needed a substantial increase in its capital. Although large amounts of British capital flowed into, say, the Russian oil industry before 1914, the Persian company at times had considerable difficulty in raising further capital. In 1905 the Admiralty, using the famous petroleum expert Boverton Redwood as an intermediary, persuaded the Burmah Oil company to invest in the Persian fields in order to prevent them falling into the hands of foreigners for want of British capital. The Persian venture, however, proved very capital–intensive and by 1912 APOC needed a further large increase in cash. The stock exchange was generally hostile to small oil companies after the fiasco, of the 1910 boom in ‘Maikop’ companies, a factor which explains why so many small companies such as APOC looked to the government as a possible substitute source of finance. Investors were, in addition, very wary of speculative Persian ventures (see Platt, , Finance, trade and British foreign policy, pp. 228–9). Persian oil was very speculative – APOC paid no dividends until 1915.Google Scholar

15 For a detailed narrative account of the tortuous interdepartmental negotiations over APOC between 1912 and 1914, see Jack, M., ‘The purchase of the British government's shares in the British Petroleum Company 1912–1914’, Past and Present, 39 (1968).CrossRefGoogle Scholar

16 In October 1912 Deterding ruled out a ten-year oil-fuel contract as ‘absolutely impossible’. SHELL Archives, Deterding, H. to Loudon, H., 7 Oct. 1912. Deterding was prepared to make long–term contracts in this period only with the proviso that they could be cancelled with ‘two years notice on either side’.Google Scholar

17 Paradoxically the real trend was in the opposite direction, especially in the United States where the Standard Oil domination of the oil industry was in decline even before the 1911 Supreme Court decree which dissolved the company. See Nash, Gerald D., United States oil policy 1890–1964 (Pittsburgh, 1968), pp. 7–8.Google Scholar

18 SHELL, Waley Cohen to Loudon, H., 8 Nov. 1912.Google Scholar

19 Gerretson, , Geschiedenis, III, 467Google Scholar, Waley Cohen to Loudon, H., 7 Feb. 1913.Google Scholar

20 F.O. 371/1486 no. 49104, minute by Mallet, L., Nov. 1912.Google Scholar

21 Henriques, Robert repeated Samuel's complaints about the Admiralty in his books. See Marcus Samuel, pp. 390,481–2,514Google Scholar, for references to the alleged Admiralty bias against Shell. These complaints should, however, be seen in the general context of Marcus Samuel's proclivity towards blaming others for his misfortunes – a habit which in 1905 had led the Petroleum World to describe Shell as ‘the Martyr Company’ (Petroleum World, 2 Jan. 1905, p. 70). The Admiralty did feel unease at the foreign control of Shell after 1907 and was suspicious of its monopolistic intentions, but Admiralty policy towards Shell was not as consistently hostile as Henriques, following Samuel, has argued.22 The pre–War U.S. Secretary of the Navy, Josephus Daniels, directly blamed the oil companies for the rise in the price of the oil supplied to the Navy, and he and his officials formulated plans for the Navy's direct participation in oil production and refining. See DeNovo, J. A., ‘Petroleum and the United States Navy before World War I’, Mississippi Valley Historical Review, XLI (1954–5).Google Scholar

23 ADM 116/1242, no. C.P. 18365/1911, minute by Black, F. W., 28 July 1911.Google Scholar

24 Churchill's statement to parliament in June 1914, Parliamentary debates, Commons, 5th Series, 1914, lix. Churchill privately recognized that the rising petroleum prices of the period were due less to oligopolistic pricing policies than to rising demand, and the attack on Shell seems to have been largely in order to secure a parliamentary majority for the APOC measure. CAB(inet papers), P.R.O., CAB 37/115, Churchill's memo of 16 June 1913. For Churchill's subsequent exclusion of Deterding from his attack see Gerretson, , Geschiedenis, III, 571.Google Scholar

25 E.g. Report of the royal commission on the supply of food and raw materials in time of war, Command Paper 2643 (1905), esp. pp. 5785–834.

26 Hurwitz, S. J., State intervention in Great Britain 1914–19 (New York, 1949), p. 64.Google Scholar

27 Imports of petroleum products increased from 646–7 million gallons in 1914 to 1,324–5 million in 1918. Mitchell, B. R. and Jones, H. G., Second abstract of British historical statistics (Cambridge, 1971), p. 74.Google Scholar

28 (Ministry of) POWE(r), P.R.O., POWE 33/1, Second report of petrol control committee, 19 Dec. 1916. An account of the various petroleum control organizations is given in History of the ministry of munitions (12 vols., London, 1920–1924), VII, ch. x.Google Scholar

29 See History of the ministry of munitions, 1.

30 (Ministry of) MUN(itions), P.R.O., MUN 5/215 1970/17, Committee for the regulation of petroleum supplies, interim report.

31 There are brief discussions of the oil shortage in Fayle, C. E., Seaborne trade (3 vols., London, 1920–1924), III, 175–6, 196Google Scholar and Marder, A. J., From Dreadnought to Scapa Flow (5 vols., London, 1961–1970), 1, 271 and IV, 189.Google Scholar

32 Ministry of) T(ransport), P.R.O., M.T. 25 1/39837/1917, minute by fourth sea lord, 24 June 1916 (presumably the correct date was 1917).

33 M.T. 25 20/51774/1918, no. N.S. Coal 01200/17, minute by M. Seymour, 1 June 1917.

34 Speech to the Inter–Allied Petroleum Council, 21 Nov. 1918: quoted in full in Delaisi, F., Oil: its influence on politics (London, 1922), pp. 86–91.Google Scholar

35 M.T. 25 20/51774/1918, no. N.S. Coal 01200/17, minute by Waller, M. M., 1 June 1917.Google Scholar

36 Thomas, H., The Suez affair (London, 1970), p. 39.Google Scholar

37 Sir Edmond Slade (1859–1928), D.I.D. 1907–9, Commander-in-chief East Indies 1909–12, promoted to vice-admiral April 1914. Before 1914 he displayed a keen interest in British business abroad. While in the East Indies he acquired some knowledge of the Persian oilfields. Arguably the most important – and controversial – figure behind the growth of APOC in the war years.

38 In 1909 Rear-Admiral Bacon, a former director of naval ordnance, became managing director of the Coventry Ordnance Works, while in 1912 Sir Charles Ottley, Slade's predecessor as D.I.D., joined the board of Armstrongs.

39 F.O. 371/2721, no. 53167/36846, minute by Parker, A., 17 Mar. 1916.Google Scholar

40 ADM 1/8537/240, Greenway, C. to Barnes, G. (Board of Trade), 3 Mar. 1916.Google Scholar

41 Deterding and Greenway were particularly hostile to one another. Calouste Gulbenkian retrospectively wrote of Deterding's ‘great contempt for the personality of [Greenway]’, adding that ‘whenever he happened to mention his name, [he] always did so in a most ruthless way’. Greenway, Gulbenkian added, ‘reciprocated [Deterding's] feelings and considered him as a man of no breed’. SHELL, ‘Memoirs of C. S. Gulbenkian with particular relation to the origins and foundation of the Iraq Petroleum Company’, 16 Sept. 1944, p. 12.

42 F.O. 371/2721, no. 36846/36846, Greenway, C. to F.O., 24 Feb. 1916.Google Scholar

43 ADM 1/8537/240, no. 151 loo.memoon British Petroleum by Greenway, C., 13 Oct. 1915.Google Scholar

44 ADM 1/8446/13, E. Slade, ‘Anglo–Persian Oil Company’, 8 July 1915.

45 F.O. 382/320, no. 72576/69862, Foreign Office to Anglo–Saxon Petroleum Company, 9 June 1915.

46 F.O. 382/469, no. 151100/133419, minute by Parker, A., 3 Nov. 1915.Google Scholar

47 ADM 1/8537/240, Letter to Smith, L. H. (Board of Trade), 8 Aug. 1916.Google Scholar

48 SHELL, Deterding to Bataafsche Petroleum Maatschappij, 10 Dec. 1914. Some of the Dutch members of the Group who remained in The Hague were, initially at least, more cautious about any policy that might contravene Holland's neutrality. See Gerretson, , Geschiedenis, IV, 66–7.Google Scholar

49 SHELL, Deterding, H. to Pleyte, C. M., 1 Mar. 1915.Google Scholar

50 See Henriques, Waley Cohen, ch. XI, for an account of Shell's wartime services to the British government.

51 ADM 116/1687B, no. C.P. 72530/17, minute by Waller, M., 1 Sept. 1917.Google Scholar

52 F.O. 371/2721, no. 36846/36846, F.O. to Admiralty, 2 Mar. 1916. For this letter and for a brief discussion from a rather different point of view of the wartime oil company amalgamation schemes (which are discussed below), see Kent, , Oil and empire, pp. 127–36.Google Scholar It is important not to overestimate the importance of departmental minutes as opposed to concrete actions. Although the Foreign Office letter of 2 March did indicate a shift of opinion within that department, the practical effect of that change was rather slow to appear. The Foreign Office was not even represented at an interdepartmental conference held at the Board of Trade on 8 March which rejected the Shell–Burmah amalgamation scheme. See India Office Library, Political and Secret Subject Files L/PS/10/302, P783, minute by Kershaw, 9 Mar. 1916.Google Scholar

53 ADM 1/8446/13, no. C. P. 28293/16, minute by assistant director of contracts, 10 Feb. 1916.

54 F.O. 371/2721, no. 72085/36848, Admiralty to Foreign Office, 15 Apr. 1916.

55 Marder, , From Dreadnought to Scapa Flow, V , 208.Google Scholar

56 POWE 33/1, W. Long to prime minister, 26 June 1917.

57 SHELL, Gulbenkian, C. S. to le président, 15 May 1917.Google Scholar

58 Fayle, , Seaborne trade, III, 196. The use of ‘double-bottoms’ in Eastern waters had been instigated by the Anglo-Saxon Petroleum Company (the transport company of the Shell Group) as early as 1915.Google Scholar

59 CAB 24/23, Cabinet Paper G.T. 1704.

60 Details of the above reorganization are in POWE 33/1.

61 POWE 33/6, 57th meeting of Petroleum Pool Board.

62 POWE 33/3, Cadman, J. to MrBatterbee, , 24 July 1917.Google Scholar

63 SHELL, Deterding, H. to Cadman, J., 25 Jan. 1919.Google Scholar

64 There is a copy of the initialled agreement in Kent, , Oil and empire, pp. 178–82.Google Scholar

65 POWE 33/40, APOC to the Treasury, 2 Aug. 1918.

66 APOC production in Persia grew from 273,000 tons in 1914 to 897,000 in 1918 and 1,385,000 tons in 1920. The war, with its greatly increased demand for Persian oil and its opportunities for APOC to acquire ‘enemy’ concerns such as B.P., proved highly advantageous to the company's growth and largely accounts for the speed in which APOC was able to establish itself as a major oil company.

67 ADM 116/1687B, no. C.P. 29097, minute by Pretyman, E., 24 Jan. 1918.Google Scholar The agreement was rescinded in January 1918. R. W. Ferrier argues that the agreement of December 1916 was a personal challenge to Greenway by Slade. The Admiralty papers, however, clearly indicate that Pretyman (the civil lord) was a party to the arrangement. See Ferrier, R. W., ‘The early management organisation of British Petroleum and Sir John Cadman’, in Hannah, L. (ed.), Management strategy and business development (London, 1976), p. 135. Dr Ferrier's article, which is based on research in the B.P. archives, is in general– a useful introductory survey of the early management problems of APOC.Google Scholar

68 According to the Navy List Slade retired from active service in October 1917, but was retained in the Admiralty on ‘Special Service’ until 1920.

69 POWE 33/45, Slade to Harcourt, 7 Oct. 1918. For Slade‘s memos – and Hall's support for them – see ADM 1/8537/240. Dr Kent mentions Slade's papers but apparently does not find his behaviour peculiar. See Kent, , Oil and empire, pp. 125–6.Google Scholar

70 CAB 24/59 Cabinet Paper G.T. 5267, 29 July 1918.

71 See Rothwell, V. H., ‘Mesopotamia in British war aims 1914–1918’, Historical Journal, XIII, 2 (1970), 289–91.Google Scholar

72 E.g. POWE 33/45, Slade, E. to Long, W., 24 Sept. 1918. In this letter Slade quoted a number of intercepted letters which appeared to show that the Dutch part of the Shell Group were buying machinery from Germany. The full texts of the intercepted letters are in the Transit Letter Bulletins in T(reasury) Solicitor papers), P.R.O., T.S. 14, 35–70.Google Scholar

73 This was one of several instances of tension between the ‘operations’ side of the Admiralty (headed by the first sea lord and including the intelligence division) and the ‘maintenance’ side (including the contract and stores branches) in 1918. The last year of the war had seen their increasing separation. See Marder, , From Dreadnought to Scapa Flow, V, 11, note 17.Google Scholar

74 POWE 33/45, Long to Geddes, 18 Sept. 1918.

75 CAB 24/64, G.T. 5710, ‘A note in reference to Admiralty memo G.T. 5267’, 17 Sept. 1918. Geddes repeated Pretyman's point that Slade's paper could be read as an ‘ex parte statement on behalf of the Anglo–Persian Company’.

76 Details of the internal Admiralty conflict are given in ADM 1/8537/240, no. NID 0243.

77 SHELL, Waley Cohen to General Avery D. Andrews, 4 May 1923.

78 For a full account of British Middle Eastern oil policy in these years see Kent, , Oil and empire, ch. VIIIGoogle Scholar, and, for a rather more thorough analysis, Davies, C., British oil policy in the Middle East 1919–32 (Edinburgh, Ph.D. thesis, 1973), ch. III. The following paragraph is included merely to give some indication of the chaos in British policy in this period.Google Scholar

79 SHELL, Deterding, H. to Cadman, J., 3 May 1919.Google Scholar

80 F.O. 371/4209, 135088/19165, minute by Kidston, G., Nov. 1919. Cowans' action, complained Kidston, threatened ‘to knock the bottom out of our policy of forbidding, pending the decision of the Peace Conference, the initiation of all commercial enterprises on a large scale in occupied enemy territory’.Google Scholar

81 Davies, C., British oil policy, p. 432, has put forward the ingenious suggestion that this lack of clarity in British oil policy may at times have been an asset as it allowed greater ‘flexibility’ when negotiating with other powers.Google Scholar

82 SHELL, Stuart, A. J. C. to Deterding, H., 15 Aug. 1919. Stuart drew attention to the threatened ‘opposition from other governments (Mexico and N. America)’.Google Scholar

83 SHELL, Deterding, H. to Colijn, H., 3 Nov. 1919.Google Scholar

84 Gulbenkian and the Shell interests had worked closely with H. Bérenger during the war (see Gerretson, , Geschiedenis, IV, 330–44) and because of this they were able to arrange (apparently without the knowledge of the British government) that Shell would control the company formed to exploit whatever share of Mesopotamian oil France obtained after the war. Some details are given in SHELL, Memoirs of C. S. Gulbenkian. The delays were so prolonged that a new French government (under Poincaré) came to power and cancelled the arrangement.Google Scholar

85 The most recent account of the merger schemes is in Davies, British oil policy, ch. IV.

86 SHELL, Waley Cohen to August Philips, 27 Dec. 1923.

87 SHELL, Waley Cohen to August Philips, 30 Nov. 1923.

88 ADM 116/3452, no. CP 4743, memo by director of contracts, 10 Dec. 1923.

89 In March 1922 the Admiralty told the cabinet committee on oil company amalgamation that their contract with APOC was ‘far more advantageous to H.M. Government as a buyer and consumer of oil than to the Company’, CAB 27/180, Cabinet committee on the proposed amalgamation of Royal Dutch, Shell, Burmah and Anglo-Persian Oil Company, statement of Admiralty views, 11 March 1922, O.S.C. 5. Cheap oil was of great importance to the Admiralty since Admiralty estimates and, especially, the plans for establishing a world-wide oil reserve were under constant attack from the Treasury throughout the 1920s.