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

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The British Government and the Oil Companies 1912-1924: The Search for an Oil Policy Author(s): G. Gareth Jones Source: The Historical Journal, Vol. 20, No. 3 (Sep., 1977), pp. 647-672Published by: Cambridge University PressStable URL: http://www.jstor.org/stable/2638433Accessed: 02-06-2015 19:46 UTC

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The Historical Journal, 20, 3 (I977), pp. 647-672. Printed in Great Britain

THE BRITISH GOVERNMENT AND THE OIL COMPANIES 1912-1924: THE

SEARCH FOR AN OIL POLICY*

G. GARETH JONES Corpus Christi College, Cambridge

I

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 partly 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.'

One of the most noticeable assaults by private industry on laissez-faire came from the British oil companies. The oil companies before 1914 repeatedly attempted to involve the government in their affairs - even to the point of offering to place themselves under state 'control'. In March 1902, for instance, Marcus Samuel offered the government a 'controlling voice' in his oil company, the Shell Transport and Trading Company, with a government director on the board. In January I 9 I I Samuel - since 1907 the most prominent British director of the 6o % Dutch-owned Royal Dutch Shell Group - again suggested that a government director, preferably his friend Admiral Fisher, should be appointed to the Shell

* I would like to thank Shell for their generosity in allowing me access to their archives, the Social Science Research Council for its financial support, and Mr R. C. Trebilcock and Captain S. W. Roskill for their continual help and encouragement.

I 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, A. J. Taylor, Laissez-faire and state intervention in nineteenth- century Britain (London, 1972). D. C. M. Platt in his study of the growth of government support of overseas trade, Finance, trade and British foreign policy I8I5-I9I4 (Oxford, I97I),

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.

647



648 G. GARETH JONES

board.2 Marcus Samuel was not alone in his enthusiasm for a government connexion. Government departments and commissions were almost be- sieged by oil companies seeking to involve the State in their affairs. The royal commission on fuel and engines, I9I2-I4, heard such pleas from companies operating in Newfoundland, Egypt, Nigeria and the Scottish shale oil interests. In December I9I3 the Mexican Eagle Oil Company asked for a loan of ?5 million from the government and in return offered the State an element of control over its affairs.3 The greatest and most successful pleader of them all was the Anglo-Persian Oil Company (APOC), which played the leading role in persuading the British government to acquire its majority shareholding in the company in 19I4.

This superficially puzzling enthusiasm on the part of the oil companies to place themselves under government 'control' stemmed from the peculiar situation of the government in relation to the oil industry. The British government - directly through the Admiralty and indirectly through the State-owned Indian railway system - was potentially a huge consumer of oil fuel, while through its diplomatic and military influence in certain regions of the world it could also affect the granting of oil concessions - the supply side of the equation. The goodwill of the British government was therefore a commercial asset of first-rate importance: worth, indeed, having a government director on the company board. The companies made no secret of their desire to secure diplomatic support for their overseas ventures. The majority of the world's production of oil in 1914, and the overwhelming majority of British investment in oil, was in areas such as Russia and the United States where direct British diplomatic support of commercial enterprise was either unnecessary or ineffective.4 However, in other regions where oil had been located or was believed to exist, such as the Middle East and the territories of the British Empire, diplomatic assistance was highly valued by the companies. William D'Arcy was continually asking for British diplomatic support and military protection for his drillings in Persia from I90I onwards.5 In 1905

2 R. Henriques, Marcus Samuel (London, I960), pp. 400-I, 535. 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, I966). These books are very idiosyncratic and must be used with extreme caution.

3 J. A. Spender, Weetman Pearson, First Viscount Cowdray i856-I927 (London, I930),

p. 203. 4 Even in these areas British diplomatic support was sometimes considered to be a

valuable asset. Waley Cohen argued in I9II 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 C. Gerretson, Geschiedenis der' Koninklijke' (5 vols., Baarn, 1971-3), 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.

5 The British oil company in Persia experienced several changes of name. The original D'Arcy Concession was granted in I901. In May 1903 the First Exploitation Co. Ltd. was



THE SEARCH FOR AN OIL POLICY 649

the Burmah Oil Company made an oil fuel contract with the Admiralty on condition that it received help from that department in its relations with the government of India.6 Marcus Samuel, in his evidence before the royal commission on fuel and engines in i9i2, blatantly made his offer of an oil-fuel contract conditional upon Shell receiving full British diplomatic support all over the world.7 The importance of this support in Turkey was emphasized in March 1914 when the British and German governments rearranged the Turkish Petroleum Company (TPC) to the disadvantage of the Shell Group and in favour of their respective proteges - APOC and the Deutsche Bank.8 However, although the desire to secure diplomatic support explains why some companies pursued a close relationship with the government, it does not explain why other companies such as APOC did so. APOC, as a British company in a strategic area which was the scene of rivalry with Russia and Germany, received Foreign Office support without any direct government participation in its affairs.9

Indeed, APOC and certain other oil companies sought to establish a close connexion with the government because they valued it as a market for their products. Before the development of 'cracking' in the I920S, the proportions of petroleum by-products - such as kerosene, benzine and fuel oil - produced from a given crude oil were relatively fixed, those proportions varying according to the different chemical composition of the different crudes. Those producers, therefore, whose fields produced a 'heavy' crude, which gave a high percentage of fuel

formed. In May I 905 the Burmah Oil Company agreed to provide capital for the concession, and the company was renamed the Concessions Syndicate. In April I909 the company became the Anglo-Persian Oil Company. Brief accounts of the company's early history in Persia are given in H. Longhurst, Adventures in oil (London, 1959), and S. H. Longrigg, Oil in the Middle East (3rd edn, London, i968).

6 ADM(iralty papers), P.R.O., ADM I I6/3807, no. A.G. oso, minute by Gordon Miller, 3 Nov. 1905.

7 ADM i I6/I208, 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 M. Kent, Oil and empire: British policy and Mesopotamian oil I900-I20 (London, 1976). 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 so %. Calouste Gulbenkian secured his famous 5 % drawn equally from the shares of the APOC and Shell.

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 D. McLean, 'Finance and informal empire before the First World War', Economic History Review, 2nd ser., xxx (1976). 'It seems important', Lord Cranborne (the permanent under secretary at the Foreign Office) had written in July i9oi 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 Cranborne on draft letter to Mr W. K. D'Arcy.



650 G. GARETH JONES

oil, saw the Admiralty as potentially a very large and secure customer, and one particularly valuable because the large-scale use of oil fuel in the merchant navies, railways and factories of the world outside Russia was only just beginning in the early twentieth century. Marcus Samuel's eagerness to see a government director on his board in the early I9OOS

should be seen within the context of his campaign to persuade the Royal Navy to switch from coal to oil-burning, and his control, for a brief period, of two very rich sources of fuel oil in Borneo and Texas. After I9IO there were a growing number of foreign navies, merchant ships and railway systems using oil fuel and prices consequently tended to rise. Neverthe- less, there were still several producers who found the Admiralty market very attractive. Among these were the D'Arcy interests in Persia, who had struck oil in commercial quantities in May I908. The small Persian company had neither a tanker fleet to move its products from the refinery at Abadan to any potential consuming country - a problem exacerbated in the years 1912 and 1913 by the high freight rates in the tanker market'0 - nor the marketing facilities to sell them once they arrived. APOC's parent company was not in a position to assist in either direction, and so APOC followed the precedent set by Burmah Oil in 1905 and concluded a marketing agreement with the world-wide Shell Group. In 1912 APOC made an arrangement with the Asiatic Petroleum Company (the marketing company of the Shell Group) under which Asiatic marketed all APOC's kerosene and benzine," the former product in the Eastern markets and the latter mainly in Europe. The APOC directors, however, wished to avoid total dependence on the Shell Group and they therefore looked anxiously towards one of the few other consumers capable of taking large quantities of fuel oil and able to transport it from Abadan - the British Admiralty.12 The Admiralty had a growing tanker fleet of its own and it could also charter freight on easier terms than APOC.13 It was in these circumstances that APOC launched its campaign after 19 1 2 to secure the oil-fuel contract with the Admiralty and some form of government financial support to enable it to develop its oilfields sufficiently to supply the Admiralty requirements.14

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 G. S. Gibb and E. H. Knowlton, History of Standard Oil Company (New Jersey): The resurgent years I9II-27 (New York, 1956), p. I58.

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

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 II 6/1209, Second Report, p. 2 1. 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 191 2 that it needed a substantial increase in its capital. Although large amounts of British capital flowed into, say, the Russian oil




APOC's campaign was brilliantly successful. In May 1914 the government subscribed ?2,200,000 to the company's capital and concluded a long-term Admiralty oil-fuel contract. The reasons for the company's success lay in the fortunate coincidence of its needs with the policies of a number of government departments.15 The Foreign Office, for political and diplomatic reasons rather than out of any clear realization of the potential strategic value of petroleum, was anxious to preserve an all- British company in such sensitive areas as Persia and Mesopotarnia. Meanwhile the Admiralty by I 9 I 2 was finally converting the fleet in large numbers to oil-burning. With its submarines and destroyers already burning oil, in 191 2 the decision was taken to build a Fast Division of five oil-fired super Dreadnoughts. Unfortunately, the Admiralty entered the oil-fuel market at a difficult time. The world-wide increase in demand for oil fuel raised prices and reduced the number of suppliers prepared to meet the very exacting Admiralty fuel-oil specification.- By 1913 the fall in the amount of oil fuel offered in response to Admiralty tenders and the rise in its price forced the Admiralty to lower its specification for oil fuel and to seek to replace its established system of annual cont0racts by long-term forward contracts - something very few producers were prepared to commit themselves to."' APOC's offer of an apparently abundant supply of high-quality fuel on a long-term forward contract basis could hardly have come at a better time.

Nevertheless it took nearly two years before the details of the government's arrangement with APOC were finally settled. The company's proposals for government financial participation in their concern proved very hard for some departments - notably the Admiralty and the India Office - to swallow, and the deal was only finally clinched through APOC's skilful use of the 'Shell menace'. By the early twentieth century the oil industry appeared to outside observers to be falling under the domination of two large 'monopolistic' companies - Standard Oil of the

industry before 19I4, the Persian company at times had considerable difficulty in raising further capital. In I905 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 thein falling into the hands of foreigners for want of British capital. The Persian venture, however, proved very capital-intensive and by I912 APOC needed a further large increase in cash. The stock exchange was generally hostile to small oil companies after the fiasco. of the I9I_ 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.

15 For a detailed narrative account of the tortuous interdepartmental negotiations over APOC between I9I2 and 1914, see M. Jack, 'The purchase of the British government's shares in the British Petroleum Company 1912-1914', Past and Present, 39 (1968).

16 In October 1912 Deterding ruled out a ten-year oil-fuel contract as 'absolutely impossible'. SHELL Archives, H. Deterding to H. Loudon, 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'.

23 HIS 20



652 G. GARETH JONES

United States and the Shell Group.17 The smaller British oil companies frequently used the supposed menace of the large companies as a lever to secure assistance for themselves from the British government. APOC used the same tactic, and in its negotiations with the government after I9I2 repeatedly emphasized that it was threatened with absorption by Shell, that Shell was now 6o % Dutch, and that the Netherlands were very vulnerable to pressure from Germany. In reality the threat to APOC's independence from Shell was nowhere near as pressing as APOC led the government to believe. Although the Shell leadership did regard the APOC as, in Waley Cohen's words, 'rather a serious menace in the East', they also considered that that menace had been successfully neutralized by the I9I2 marketing agreement.18 Shell did indeed hope to secure control of APOC eventually, but less through ruthless aggression than by demonstrating 'the much better way in which [Shell] can manage the refining and treatment of their oil than they can themselves'.19 APOC's tales of an aggressive foreign monopolist seemed, however, convincing to the Foreign Office, especially since in the years preceding 1914 Shell did indeed absorb prominent British oil companies in Russia, Egypt and California. The government choice, wrote one official, lay between the formation of a 'foreign controlled monopoly' or the 'maintenance of competition by keeping the Anglo-Persian on its legs'.20

The permanent officials at the Admiralty proved less easy to persuade. This was partly because they lacked any coherent oil policy which could have acted as a criterion for a major policy decision. Interdepartmental oil committees, meeting between I904 and I906 and from I91 I onwards, and on which the Admiralty was represented together with the Colonial and India Offices, had begun the formulation of an embryonic oil policy for British colonies, but generally the Admiralty had no systematic policy on most oil matters. There were, however, several tendencies, as opposed to policies, within the Admiralty which prejudiced its officials against the APOC proposal. The Admiralty contracts department was far less willing to accept 'responsibility' for a commercial company than the Foreign Office. There was also a noticeable lessening of the suspicion in which the oil 'monopolists' were held in the years before I9I4, a process regrettably disguised by Marcus Samuel's constant complaints about the Admiralty's bias against his company.21 Given the degree of public

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 i9i i Supreme Court decree which dissolved the company. See Gerald D. Nash, United States oil policy i89o-i964 (Pittsburgh, I968), PP. 7-8.

18 SHELL, Waley Cohen to H. Loudon, 8 Nov. 1912. 19 Gerretson, Geschiedenis, III, 467, Waley Cohen to H. Loudon, 7 Feb. 1913. 20 F.O. 371/1486 no. 49104, minute by L. Mallet, Nov. I9I2. 21 Robert Henriques repeated Samuel's complaints about the Admiralty in his books. See

Marcus Samuel, PP. 390, 481-2, 514, for references to the alleged Admiralty bias against Shell. These complaints should, however, be seen in the general context of Marcus Samuel's




distrust of the large oil companies and compared to the hostility of United States Navy officials to the 'monopolists ',22 the Admiralty in fact displayed a surprising amount of willingness to recognize that the large oil companies might be more efficient at opening up the new sources of supply badly needed by the Admiralty than the smaller companies. In Igi I the director of contracts even tentatively welcomed the arrival of Shell -

'an admittedly able and enterprising concern with capital behind it' - in Egypt.23 TIhis process was aided by the Admiralty's increased contact with the Dutch leader of the Group, Henri Deterding, who made a far more favourable impresssion on the Admiralty than the untactful British (and Jewish) leaders of Shell. A major oil-fuel contract was concluded with Shell in December 1913. The growing recognition of the value of Shell in addition to the Admiralty's traditional reluctance to become involved in a commercial enterprise resulted in considerable resistance by Admiralty officials to the APOC proposals. This resistance was only overcome by the pressure of APOC, the Foreign Office, and of the Admiralty's own political master, the first lord, Winston Churchill.

The APOC agreement was finally ratified by parliament in June 1914.

It was the fortuitous product of a convergence of uncoordinated policies pursued by different government departments stimulated into action by the persistent lobbying of APOC. The acquisition by the British government of a majority shareholding in an oil company has frequently been seen as convincing proof of the decline of liberal economic ideas within the government - the culmination of a growing number of inter- ventionist measures in the economy. In reality, as could only have been the case given the way the agreement was achieved, it represented a remarkable reassertion of traditional economic ideas. The measure was justified before parliament by Churchill as an attempt to maintain competition in the oil-fuel market - it was recognized that the bulk of the Admiralty's supplies would continue to be drawn from outside Persia. Churchill made great use of the alleged dangers of the Shell 'octopus' in order to support his case for the acquisition of APOC, though he was later careful specifically to exclude Deterding from his attacks.24 The use

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 J. A. DeNovo, 'Petroleum and the United States Navy before World War I ', Mississippi Valley Historical Review, XLI (1954-5).

23 ADM I I6/1242, no. C.P. 18365/191 1, minute by F. W. Black, 28 July I9 II. 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

23-2



654 G. GARETH JONES

of government money to maintain the liberal ideal of free competition was less orthodox - though even here the government was far from apostate in relation to the dictates of laissez-faire. Although the government was to have certain powers of veto 'in matters of general policy' and was to nominate two ex officio directors to the board, it agreed to abstain from any interference in the commercial affairs of the company in which it, after all, was now the largest shareholder. The form of the APOC agreement showed clearly the State's continuing belief that it could not run a commercial concern as well as private enterprise could. Indeed, if this had not been the case, and if the oil companies had not been quite convinced that government 'control' would consequently never become nationalization, they would never have pursued their assault on laissez- faire.

II

The First World War was eventually to bring a considerable change in the government's relations with the oil companies. It was also to bring Britain dangerously close to a complete breakdown in oil supplies. There were, however, few portents of these developments before I 9 I 6. Govern- ment controls and regulations over petroleum were conspicuous by their absence. This was not surprising. Although the problem of the supply of petroleum products in wartime had received some attention before 19I 4, little thought had been given to the possibility that seaborne supplies to Britain might actually be physically halted, and hence no plans to meet that contingency had been formulated.25 This was a reflexion of the wider strategic assumption that either the Royal Navy would dominate the sea in wartime or the war would be lost. Shipping tonnage was not indeed a major problem at least until I9I6 and so it was hardly to be expected that any scheme for 'control' or rationing would be devised by the government, especially given the inadequate nature of the State's bureaucracy, the lack of empirical statistical data about the economy in general and the uses of petroleum products in particular, and, above all, the widespread belief that government intervention in trade would actually hinder the war effort. Nothing is more indicative of the strength of laissez-faire ideas even by I9I4 than the government's reluctance to control even essential goods such as armaments and petroleum in the opening years of the war.26

By I9I6, however, growing tonnage shortages were beginning to affect imports of food and raw materials. Petroleum products presented a

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/I 15, Churchill's memo of i6 June 1913.

For Churchill's subsequent exclusion of Deterding from his attack see Gerretson, Geschiedenis, III, 571.

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 S. J. Hurwitz, State intervention in Great Britain I9I4-I9 (New York, 1949), p. 64.




particularly difficult problem since they were used in just those sectors that expanded - and had to be allowed to expand - as the war continued. The growing numbers and use of oil-fired ships increased monthly Admiralty fuel-oil consumption from 80,500 tons in January I9I5 to over I90,000 tons in January I9I7. The unexpected advent of trench warfare led to a sharp rise in the demand for high explosives such as T.N.T. The gasworks which before the war had supplied the toluol necessary for the manufacture of this high explosive were unable to keep up with the increased demand and toluol produced from petroleum had to be extensively used. There was also considerable mechanization in the Army, which expanded its fleet of motor lorries from I00 to 6o,ooo between August I914 and the Armistice. In addition, the new weapons developed during the war - tanks, submarines and, most importantly, the aeroplane - were all fuelled and lubricated by petroleum products. Civilian consumption of petroleum expanded with the use of large-scale machinery in war factories. Again, the transfer of so many men into the forces led to a large expansion in the use of kerosene-driven machinery in agriculture.27

The government until I9I6 relied entirely on the 'patriotism' of the oil companies to operate an elementary and voluntary rationing system for civilian petroleum supplies. Various committees of trade represen- tatives were established to advise the government. By I9I6 very serious shortages had nevertheless developed in petrol supplies. This problem was exacerbated by the action of the Admiralty, which, faced by rising oil-fuel expenditure, requisitioned so many oil tankers to meet its own requirements that there was not enough tonnage left to carry petrol. As a result, stocks of petrol fell from 36 million gallons on I January I9I6

to I9 million on I July and to I2-5 million by 3I July. The government was prompted by this growing shortage to take more

positive action. The Board of Trade appointed the petrol control committee under a businessman, Oliver Bury, on 20 April I9I6. It was given power, under the Board of Trade, to give executive effect to any measures it decided were necessary to ensure that an adequate supply of petrol was available for war purposes. The committee found itself imme- diately handicapped by a lack of reliable data. Soon after the formation of this committee, Bury wrote to the ministry of munitions asking for information as to the total petrol requirements of munitions firms. It transpired that no such statistics existed. The committee therefore began its work by taking a census to ascertain the consumption of petrol by the various classes of users. The census, taken between 20 June and 20 July, found that, although the estimated requirements of the civilian popula- tion for the next year were I50 million gallons of petrol, the petrol-

27 Imports of petroleum products increased from 646-7 million gallons in 1914 to I,324-5

million in I9I8. B. R. Mitchell and H. G. Jones, Second abstract of British historical statistics (Cambridge, 1971), p. 74.



656 G. GARETH JONES

importing companies thought that only 75 million gallons would be available. Government-imposed rationing became a clear necessity. The petrol committee licensed some 50 % of the monthly requirements that had been shown in the census, with private motor cars receiving pro- portionately less of their estimated requirements than essential industrial users. By December I9I6 petrol stocks had risen to over 371/2 million gallons.28

Other government departments had also experienced similar shortages of petroleum products and they responded, just as they had done in 1915 when faced by munitions shortages, with their own ad hoc committees.29 On August i9i6 a committee for the regulation of petroleum supplies had been established by the ministry of munitions. It discovered that consumers had been using large quantities of kerosene as a substitute fuel to avoid the controls on petrol. When, however, the petroleum supplies committee attempted to undertake a survey of petroleum products as a whole it ran into the obstinate resistance of the petrol control committee. Bury, determined to be successful in his allotted assignment of maintaining petrol supplies, refused to give the petroleum supplies committee any information 'which might result in the Admiralty taking back any tankers which had been furnished for the conveyance of petrol '.30 A new attempt at co-ordination was made with the appointment of an inter-departmental petroleum committee under the civil lord of the Admiralty, E. G. Pretyman, in February 1917. Yet this too only added to the growing bureaucratic menagerie. The War Office and the Admiiralty refused to accept its directions, and without authority over them Pretyman's committee was incapable of performing its function of balancing the competing petroleum needs of the various departments. Pretyman's committee, composed of civil servants, also fell foul of the petrol control committee, composed of businessmen, and the two bodies were soon engaged in an acrimonious contest to secure domination over the other. Government departments, it seemed, were no more capable of agreeing on a co-ordinated and consistent oil policy in war than they were in peace.

The deficiencies of the government's administrative system, with its lack of a central body able to adjudicate between the claims of the different petroleum products or to represent petroleum against the claims of other imported essentials, were rapidly revealed by the German campaign of unrestricted submarine warfare beginning in February 1917. The impact of this campaign has usually been seen in terms of the threat to Britain's food supplies. It also had, however, a most serious effect on

28 (Ministry of) POWE(r), PRO., POWE 33/I, Second report of petrol control committee, i9 Dec. I9I6. An account of the various petroleum control organizations is given in History of the ministry of munitions (I2 vols., London, I920-4), vii, ch. x.

29 See History of the ministry of munitions, i. 30 (Ministry of) MUN(itions), P.RO., MUN 5/2 15 1970/17, Committee for the regulation

of petroleum supplies, interim report.



THE SEARCH FOR AN OIL POLICY 657 the supplies of petroleum products. The only surprising thing about the resulting crisis is that so little attention has been subsequently given to it. Of all Britain's essential raw materials, oil was the most dependent on imports from abroad, and it was therefore an immediate sufferer from any serious interruption in Britain's seaborne supplies. The Admiralty were indeed convinced that oil tankers were receiving special attention from the U-boats.31

The most serious aspect of the crisis was its impact on Admiralty oil-fuel stocks. The approved stock level was six months' consumption. In fact stocks which had stood at 5 v I months' consumption in February I 9 I 7 had been reduced to 2v9 months' by May. On 24 May the fourth sea lord had to warn the first sea lord, Jellicoe, that the situation regarding naval oil-fuel stocks was one of 'extreme seriousness '32 By I June the director of the mobilization division was warning that the situation was critical, and would be 'more than critical unless improvement can be made in the amount of oil coming into this country'.33 The crisis had a dual aspect. Just as the B.E.F.'s activities on the Western Front in early I9I5 had been limited by shortages of shells, so now the Royal Navy's mobility was for a time seriously reduced by the decline in oil-fuel supplies. Jellicoe, a man always inclined towards pessimism, became seriously concerned about the threat to Britain's oil supplies. On 24 May he told the war cabinet that he had had to restrict the cruising of the Grand Fleet owing to the fuel shortage. Destroyers were limited to 20 knots speed and the fleet was as a whole directed to remain in harbour as much as possible. Lord Curzon later observed in his famous postwar 'floating to victory' speech how the fleet had 'had to restrict its exercises and was becoming seriously handicapped in its duties '.34 The main crisis in June I9I 7, however, was psychological. Serious tanker losses coincided with a sharp upward reappraisal of expected naval oil-fuel consumption over the following year. Between I I May and I June Admiralty estimates of oil fuel consumption for the following year increased by 700,000 tons. Admiralty officials made dire prognostications should these two trends continue. By I June the director of stores was calculating that within six months Admiralty stocks would be reduced to only six weeks' consumption.35 The full implications of the Royal Navy's dependence on foreign fuel supplies were dramatically revealed. Urgent and humiliating telegrams were despatched to the United States warning that the Royal Navy would

31 There are brief discussions of the oil shortage in C. E. Fayle, Seaborne trade (3 vols., London, 1920-4), III, 175-6, I96 and A. J. Marder, From Dreadnought to Scapa Flow (5 vols., London, I961-70), I, 27I and iv, I89.

32 M(inistry of) T(ransport), P.R.O., M.T. 25 1/39837/1917, minute by fourth sea lord, 24 June I9I6 (presumably the correct date was I917).

33 M.T. 25 20/51774/I9I8, no. N.S. Coal 01200/17, minute by M. Seymour, i June 1917. 34 Speech to the Inter-Allied Petroleum Council, 2I Nov. I9I8: quoted in full in F.

Delaisi, Oil: its influence on politics (London, 1922), pp. 86-9I. 35 M.T. 25 20/51774/I9I8, no. N.S. Coal 01200/17, minute by M. M. Waller, I June 1917.



658 G. GARETH JONES

be immobilized unless the American government made available more tonnage to carry the necessary supplies of naval fuel to Britain. This was the real beginning of the fear - compared by a recent writer to a castration complex - of Britain's oil supplies being cut off, which was to haunt government policy-makers from then until the Suez crisis and beyond.36

III

The war had, meanwhile, brought further developments in the government's relationship with the oil companies. APOC, after its great success in I914, found its relationship to the government further cemented by the appointment of Vice-Admiral Sir Edmond Slade, a former director of the intelligence division at the Admiralty (D.I.D.) and chairman of the Admiralty commission which had investigated the Persian oilfields in I 9I 3, as one of the two government directors on the board of APOC.37 It was not unusual for retired service officials to become directors of firms holding government contracts.38 Such men frequently retained some contact with their old ministries - indeed they were often appointed because they 'knew the ropes'. Slade, however, combined his work as a director with continuing active service at the Admiralty. There he acted as a senior adviser on petroleum matters, being appointed chairman of the Admiralty standing committee on liquid fuel. He also advised on contraband questions, and became soon after the outbreak of war the vice-chairman of the restriction of enemy supplies committee. He combined these occupations with fervent support for APOC, being unable, as one Foreign Office official noted, 'to see anything but perfection in that Company'.39 With Slade as the Admiralty representative on the APOC board, the company was soon claiming to be, in the words of its chairman, Charles Greenway, 'virtually a Government department desirous of doing its best for the Nation '.40

The full significance of this claim and of Slade's support for APOC can only be appreciated when it is remembered that the pre-war tension between APOC and the Shell Group continued after the outbreak of war. The conflicting commercial interests of the two companies were intensified by the personal antagonism between their respective

36 H. Thomas, The Suez affair (London, I970), p. 39. 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 9 gog 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. 371/272I, no. 53I67/36846, minute by A. Parker, I7 Mar. I9I6. 40 ADM 1/8537/240, C. Greenway to G. Barnes (Board of Trade), 3 Mar. I9I6.




leaders.41 During the war APOC launched a campaign to use its hard- won relationship with the government to forward its own interests and correspondingly damage those of Shell. APOC's campaign was in three main directions. First, the APOC leadership attempted to exclude Shell entirely from Mesopotamia and to secure complete control of the TPC. In February I9I6 the company told the Foreign Office that it assumed it would receive 'complete oil rights' over those parts of Turkey that came under British influence.42 Secondly, APOC wished to establish a distribution organization within the United Kingdom. In particular the company wanted to acquire a number of German companies which, as enemy concerns, had been put under government supervision at the outbreak of war. The most important of these was the British Petroleum Company (B.P.). B.P., an oil-distributing company which until I9I7 had a contract to distribute Shell motor spirit, had obvious attractions for APOC which lacked precisely such an organization in Britain. It would supply his company, Greenway argued in October I9I5, 'with a ready-made organization which otherwise it would take years to make '.4 Thirdly, APOC wished to rid itself of the I912 marketing agreement with Shell which the Persian company now found restrictive. Claiming that APOC had been forced to sign the contract because of Shell threats and the Burmah Oil Company's weakness, APOC unsuccessfully pleaded for government support in breaking the agreement.44 The APOC repre- sentations for government support in these areas were supported by the now standard references to the foreign and monopolistic nature of Shell. Greenway and Slade also made the more serious charge that the Group was supplying oil to Germany through its Scandinavian and Rumanian subsidiaries, information clearly derived from Slade, to whom the interests of national security and of APOC were clearly one.

Indeed for a time APOC's commercial interests and the interests of certain government departments did continue to coincide. The Foreign Office soon had its worst pre-war fears about the reliability of the Shell Group confirmed. They were profoundly annoyed in I 9 I 5 by the activities of the Group's three Scandinavian subsidiaries, particularly the Anglo-Swedish Oil Company, which was strongly suspected of supplying oil to the Germans. Suspicion in the Contraband Department clearly fell on the British directors of the Group and not merely on the foreign

41 Deterding and Greenway were particularly hostile to one another. Calouste Gul- benkian 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', i 6 Sept. 1944, p. 12.

42 F.O. 371/272I, no. 36846/36846, C. Greenway to F.O., 24 Feb. I9I6. 43 ADM 1/8537/240, no. 151 ioo, memo on British Petroleum byC. Greenway, I3 Oct. 1915.

4 ADM 1/8446/13, E. Slade, 'Anglo-Persian Oil Company', 8 July 1915.



66o G. GARETH JONES

subsidiaries.45 These events stimulated the Foreign Office to consider more ambitious anti-monopolist schemes, with attention being directed to all petroleum products rather than just towards the oil fuel used by the Admiralty. The Foreign Office, wrote an official in November I9I5,

was 'impressed with the desirability of breaking the existing monopoly of the U.K. market by the Shell and Standard Oil companies by the establishment of a competing all-British controlled company' which could 'reduce existing prices, especially of kerosene, which are unduly inflated '. As a first step towards that end, the department assisted in the first stages of the process which eventually led to the acquisition of B.P. by APOC.46

There was also strong support for APOC in the Admiralty, tkmugh less from those departments directly concerned with oil supplies, such as contracts and stores, than from the powerful D.I.D., Reginald Hall. The friendship and trust between Hall and Slade, a former D.I.D. himself, provided the personal connexion between the intelligence division and APOC. But Hall also fully shared Slade's analysis of the oil question. Hall, like Slade, argued that oil would soon replace coal as the navy's major fuel. It was therefore essential that what oil there was in British territories should be exploited by British companies rather than by 'immensely wealthy and possibly unscrupulous foreign oil companies'. Consequently Hall gave his support to Slade and APOC. On August I9I6 he wrote 'privately' to the Board of Trade supporting the acquisition of B.P. by APOC. 'Now is the golden opportunity', he concluded, 'to break down the monopoly which has obtained in the last few years in the United Kingdom and to secure freedom of action for ever.'47 B.P. was duly transferred to APOC at the beginning of I9I7.

Unfortunately by this time the most potent weapon in the APOC armoury was becoming far less effective. By I9I 6 the Shell Group was proving itself less a 'menace' than a vital element in the Allied petroleum supply organization. Deterding, in spite of his irritation over the British government's agreement with APOC, was resolutely pro-Ally during the war. He lived in London and used his influence in the Shell Group in favour of the Allies. In December 1914 he wrote to his Dutch colleagues putting forward his view that Group companies 'provided they do not cause a breach of neutrality to be committed by the country in which they are established... must commit no act which may be injurious to the interests of Holland or Great Britain and their Colonies '.48 Although, as Slade alleged, subsidiary companies in Sweden and Rumania did supply

4 FO. 382/320, no. 72576/69862, Foreign Office to Anglo-Saxon Petroleum Company, 9 June 19I5.

46 F.0. 382/469, no. I5II00/I334I9, minute by A. Parker, 3 Nov. 1915.

47 ADM I/8537/240, Letter to L. H. Smith (Board of Trade), 8 Aug. I9I6.

48 SHELL, Deterding to Bataafsche Petroleum Maatschappij, I0 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.



THE SEARCH FOR AN OIL POLICY 66I

some oil to Germany this was a reflexion of the local autonomy enjoyed by those companies rather than of any pro-German sympathies of Deterding. Early in the war he resigned from the board of the Group's Rumanian company, the Astra Romana, on the grounds that he 'must absolutely refuse to be connected as chairinan with a company who would supply enemies with contraband .9 In Britain, Deterding, Marcas Samuel and Waley Cohen soon became vital components of Britain's oil supply organization,50 while Calouste Gulbenkian was appointed Group representative in Paris to perform similar services for the French government.

The war, meanwhile, had simultaneously emphasized to government departments both the importance of oil in a modern war economy and the weakness of the British position regarding oil supplies, and this prompted a reassessment of attitudes towards the oil companies. The shortage of tankers forced Britain to draw some 8o % of its supplies from the nearest available source, North America. In September I9I7 the Admiralty director of stores noted gloomily that 'without the aid of oil fuel from America our modern oil-burning fleet cannot keep the seas . Serious consideration began to be given to the problem of how to relieve the humiliating and, given the growing number of experts who claimed that American oil supplies would soon fail, possibly dangerous dependence on the United States.

The Middle East offered one area of apparently great potential, and by early I 9 I 6 the Foreign Office was becoming convinced that the oilfields of Egypt and Mesopotamia must be developed after the war by British companies. It was at this point that the interests of APOC and the government, the compatibility of which had hitherto brought so much success to the company, began to diverge. The Foreign Office was provoked into reconsidering its attitude by the APOC claim for 'monopoly oil rights' in Asiatic Turkey. This claim, and the various other attempts by the company to use its special relationship with the government to further its own commercial ends, irritated the department. More seriously, it began to have strong doubts about the ability of APOC and the other small British companies to develop the Middle Eastern oilfields. Neither the Burmah Oil Company nor APOC, the Foreign Office told the Admiralty in March I9I6, appeared to 'dispose of the economic independence, the areas of supply or the commercial ability' to undertake the necessary development work.52 There was much to be

49 SHELL, H. Deterding to C. M. Pleyte, I Mar. 1915. 50 See Henriques, Waley Cohen, ch. xi, for an account of Shell's wartime serviccs to the

British government. 5' ADM i i6/I687B, no. C.P. 72530717, minute by M. Waller, I Sept. 1917. 52 F.O. 371/2721, no. 36846/36846, F.O. to Admiralty, 2 Mar. I9I6. For this letter and for

a brief discussion from a rather different point of view of the wartime oil company amalgamation schernes (which are discussed below), see Kent, Oil and empire, pp. 127-36. It is important not to overestimate the importance of departmental minutes as opposed



662 G. GARETH JONES

said for this view. Even by I9I8 APOC was technically and commercially primitive, while the company's administrative system on the oilfields was the subject of outside criticism from Slade's Commission onwards.

The next stage in the argument was obvious. If oil was too important to be left to adolescent oil companies, then the facilities of the large oil companies would have to be acquired for Britain. Most of the oil outside the United States, the Foreign Office told the Admiralty in their important March letter, was controlled by the Shell Group. It followed that the Group should be 'brought under British control by an amalgamation with the Burmah and Anglo-Persian Companies'. Once the management was British, or mostly British, the Group could be supported when concessions in the Middle East were given after the war, and relied upon to use its great resources to develop oilfields in Britain's national interests. The various departments concerned with securing Britain's immediate oil needs had independently arrived at a similar conclusion. These supply departments were forced to rely on the Shell Group both for certain specific petroleum products and for technical advice. The ministry of munitions was vitally dependent on the toluol supplied exclusively from the Group's fields in the Dutch East Indies. The War Office was dependent on Shell Spirit for aviation fuel, and appointed Waley Cohen (by then the most influential of the British directors of the Group) as petroleum adviser in April I9I7. The various voluntary trade bodies established by the government to give advice and, later, to implement rationing policies, were dependent for their success on the large oil companies, notably Shell and Standard's British subsidiary, Anglo- American. APOC production, meanwhile, was completely absorbed in supplying the Royal Navy in the Mediterranean and the Army in Meso- potamia. Even within the Admiralty, an assistant director of contracts was moved to write, in February I9I6, that the Shell Group had been 'most efficient and indeed indispensable contractors'. The conclusion he drew from this experience was to wonder whether it was not 'practical to secure British control of the company in some way rather than alienate it or arouse its hostility .53

The Shell Group, fully alive to the commercial advantages of having the British government's support, was willing enough to put itself under British 'control', though not government ownership. In I9I5 it put forward a plan for the establishment of a new company, 'The Imperial Oil Company', with its capital held jointly by Shell, Royal Dutch and

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/IO/302, P783, minute by Kershaw 9 Mar. I9I6.

53 ADM I/8446/I3, no. C. P. 28293/I6, minute by assistant director of contracts, io Feb. I9I6.



THE SEARCH FOR AN OIL POLICY 663 Burmah Oil, and with a small British majority on the board. By I9I6 schemes on these lines were being supported by the various supply departments and the Foreign Office. The plan was examined by a cabinet committee on oil in November I9I6 and approved. Negotiations, however, subsequently fell through, largely because of the Admiralty. The Admiralty's official attitude, as opposed to the thoughts of its contracts department, was moving under the influence of Hall and Slade in exactly the opposite direction to that of the rest of the government. The reluctant investors in APOC were becoming its most partisan supporters. In I 9I 6 they therefore opposed the Shell merger scheme with a rival plan drawn up by APOC under which that company would merge with Burmah Oil, acquire B.P. and form a 'real' all-British company.54

IV By the spring of 1917 even the Admiralty had to- admit that the Germans posed a greater threat than Shell. The U-boat assault finally forced the government to make a detailed examination of its administrative machinery. On 22 May the war cabinet instructed the secretary of state for the colonies, Walter Long, to examine the whole question of petrol supplies. Long's greatest admirers, as one observer has remarked, could not call this Conservative squire clever,55 yet he did possess the great asset of being able to work in harmony with his professional advisers. He found the perfect such adviser in John Cadman, the petroleum adviser to the Colonial Office. On 26 May Long reported to Lloyd George that the petrol question was 'an awful tangle'. In order to undertake the required unravelling Long asked for, and received, emergency powers over all petroleum products.56

The oil shortage of spring 1917, although precipitated by the U-boat sinkings of oil tankers, had its underlying cause in the continuation of the peacetime supply and distribution system in the world into the war, and the inability of that system to cope with the greatly increased demand for petroleum products. The only permanent solution lay in the reorganization and rationalization of the world petroleum distribution organization. This need was perceived fairly rapidly by many in the oil industry. Calouste Gulbenkian, the Shell representative in France, pointed the facts out strongly to the French government in a letter written in May 1917, where he argued that there was sufficient tonnage available to supply all the Allies 'si les routes maritimes suivies par ces bateaux etaient etablies en prenant pour base le principe que tout pays consommateur doit etre approvisionne6 par le centre de production dont il est le plus rapproche', and he consequently called for a conference of

54 FO. 371/2721, no. 72085/36848, Admiralty to Foreign Office, I5 Apr. I9I6. " Marder, From Dreadnought to Scapa Flow, v, 208. 56 POWE 33/I, W. Long to prime minister, 26 June I9I7.



664 G. GARETH TONES

the leading Allied governments, Standard Oil and Shell in order to formulate such reorganization schemes.57 Gulbenkian's diagnosis was correct but conflicting interests continually delayed the implementation of such rationalization schemes. Eventually the institution in the world petroleum market of the principle of supply from the nearest source, together with the defeat of the submarine menace by the convoy system, did give the Allies a secure supply organization, but both these factors had only a marginal impact on the tonnage situation until at least the New Year. Indeed the most immediate relief for Britain came from the use of the ballast tanks of liners and cargo steamers as fuel-carrying 'double bottoms', a step authorized by the war cabinet in June 1917. By the middle of November the 443 ships which had been so fitted had brought some 243,519 tons of oil, or the equivalent of the total capacity of fifteen oil tankers.58 Yet although the use of double bottoms removed the immediate possibility of the Navy being immobilized by lack of fuel, the general situation remained far from satisfactory. The conversion of the ships to carry oil fuel led to such a serious fall in the tonnage available to import other essentials that the shipping controller suggested to the cabinet in August 1917 that the Royal Navy should cease building any further oil-burning ships and revert to coal, a step strenuously resisted by the Admiralty.59 Furthermore, periodic shortages of petroleum products other than oil fuel, such as kerosene and aviation petrol, continued to cause the gravest concern until the following summer.

The central task facing Long and Cadman was, given this continuing tonnage shortage, to build an administrative system capable of allocating priorities and preventing shortages developing in any crucial section. By early June an administrative reorganization was well under way. The terms of reference of Pretyman's and Bury's committees were revoked, and a new petrol committee and inter-departmental committee established. The chairmen of these bodies, and of the various other petroleum committees, were formed into a co-ordinating committee under Long. In December Long's executive powers were formalized in a new government department - H.M. Petroleum Executive - with John Cadman as its director. This centralized administrative system at least enabled a clear statement of the position of all petroleum products to be formulated. Cadman requested all departments to provide regular summaries giving the desired level of stock for each product, the actual stock levels and figures for monthly consumption. The Petroleum Executive was thus able to present a clear claim for tonnage to the ministry of shipping and, later, the Allied Maritime Transport Council.60

5 SHELL, C. S. Gulbenkian to le president, I5 May I 9I 7. 58 Fayle, Seaborne trade, iII, I96. 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 I9I5.

59 CAB 24/23, Cabinet Paper G.T. I 704. 60 Details of the above reorganization are in POWE 33/I.



THE SEARCH FOR AN OIL POLICY 665 The government continued to rely on the co-operation of the oil

companies for the implementation of its domestic controls on petroleum products. This reflected the continued lack of a positive dynamic view of state intervention as an effective means of increasing economic efficiency rather than as merely an unpleasant means to combat a particular emergency when all else failed. As the supply crisis became acute, government dependence on the oil companies became more rather than less important. In March 1917 a petroleum pool board, with a government chairman, was formed by the leading oil companies to prevent over- lapping of functions. The effectiveness of this body was greatly hindered by the same endemic trade rivalry between the companies which delayed the implementation of a proper world-wide petroleum organization. By December the Petroleum Executive was pressing for increased powers for the chairman and the complete elimination of competitive trade between the companies. At one meeting in December 1917, Long warned that, if the steps were not taken voluntarily, he would have to take 'more drastic measures' which, however, he 'did not want even to contemplate unless absolutely compelled by force of circumstances '.61 Obviously he was not so compelled since disputes between the companies delayed the signing of a new Pool Board agreement until August I9I8. The vital function of distribution was performed throughout the war by the companies. The reluctance to coerce the companies was matched by a reluctance to impose severe restrictions on the consumer unless absolutely necessary. Only in October 1917 was an effective end put to all motoring for pleasure purposes.

The Petroleum Executive also lent further support to those in the government who saw a need to establish a new relationship with the large oil companies, especially the Shell Group. This need for closer relations with Shell became increasingly important in government thinking about both immediate and long-term oil policy. Government departments, argued Cadman, 'had been in the habit of treating the Shell Group with a reserve which does not cultivate good feeling. I hope we shall be able to remove this state of affairs.'62 One sign of this new attitude was the despatch of Waley Cohen with the Admiralty director of contracts on an official mission to the United States to plead the case for more oil supplies.

The attempts at securing British control of the Shell Group were intensified with the support of the Petroleum Executive. The achieve- ment of this goal was considered to be so important to Britain's post-war position in oil that it became the main preoccupation of the petroleum imperial policy committee, which had been established in May i9i8 under Lord Harcourt to develop a long-term oil strategy for Britain. At first the negotiations with Shell were difficult, and the committee rejected a

61 POWE 33/6, 57th meeting of Petroleum Pool Board. 62 POWE 33/3, J. Cadman to Mr Batterbee, 24 July I917.



666 G. GARETH JONES

Shell proposal to acquire the government's shares in APOC. Progress began to be made after the Armistice. The British domination of most of the areas in the Middle East where oil was suspected proved a strong incentive to the Group to make itself amenable to the government's wishes. The promises of oil concessions, above all in Mesopotamia, were made conditional on the rearrangement of the Group in such a way as to give British interests a majority shareholding. The prospect of Shell's management of the Mesopotamian oilfields, Deterding wrote to Cadman in January I9I9, was 'the main thing which induced [him] to all the other considerations'.63 The agreement, as initialled between Lord Harcourt and Henri Deterding in March IgIg, did indeed re-establish the Group's strong position in the TPC which it had lost because of the British government in I914. The Shell Group was to have an equal 34 % share with APOC in any company formed to exploit the Mesopotamian oilfields, as well as control of that company for the first seven years of its existence. In return, the Shell Transport and Trading Company and a certain number of the Group's operating companies in various parts of the world were to become controlled by British subjects with a government nominee, the governor of the Bank of England, on their boards.64

The APOC management viewed the government's negotiations with Shell, with their implication that APOC might soon be displaced as the 'government's special oil company', with considerable unease. By the summer of I9I8 the company was convinced that the government was going to halt its ambitious plans for expansion outside Persia. The hard-won government connexion, which in 1914 had seemed essential to the company's expansion, now paradoxically seemed destined to limit the company's activities and perhaps even to force it into an arrangement with its old rival Shell.65 At the same time the company was emboldened by its rapid wartime growth. By I9I8 APOC had rapidly increased its Persian production, acquired a distribution company and a tanker fleet and, since I9I7, paid respectable and increasing dividends." Conse- quently the company launched a major counter-attack, beginning in December I9I7 when Charles Greenway floated in the press -to the horror of the Petroleum Executive which was trying to improve the government's relationship with Shell and Standard - another scheme for an APOC-centred 'all-British oil company'.

Slade and Hall were as dissatisfied as Greenway with the general trend

6' SHELL, H. Deterding to J. Cadman, 25 Jan. I9I9.

4 There is a copy of the initialled agreement in Kent, Oil and empire, pp. 178-82. s POWE 33/40, APOC to the Treasury, 2 Aug. I9I8.

" APOC production in Persia grew from 273,000 tons in 1914 to 897,000 in I9I8 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.




of government policy and continued instead to support a policy of hostility to the 'cosmopolitan monopolists' and support for the expansion of APOC. Slade's own position was now increasingly odd. In December I9I6 Greenway had agreed, at Admiralty instigation, to retire as chairman two years hence in favour of Slade. This was apparently an attempt by the Admiralty to bring the APOC under a tighter rein.67 In January I9I7

he resigned as a government director and soon after became a full-time director and vice-chairman of APOC. Yet he continued to act as the Admiralty's special oil expert.68 Prompted by the apparent threat to APOC's expansion in the summer of I9I8, Slade wrote a series of papers for the Admiralty putting forward his long-held views on oil. Emphasizing the importance of oil, he called for the exclusive British exploitation of the Persian and Mesopotamian oilfields. He continued to consider the Royal Dutch as hostile to Britain, and called - as he wrote to Lord Harcourt - for the government 'to develop the Anglo-Persian- Burmah Group to the very utmost and to use it to eventually obtain control of the petroleum markets'. 69

The Admiralty - or more exactly the operations side of the board - continued to support Slade. One of his papers, 'The petroleum situation in the British empire', was forwarded to the war cabinet in July I 9I8 with a glowing endorsement from Wemyss, the first sea lord.70 This paper, at least in so far as it referred to the need for British control of the oil-producing regions of the Middle East, seems to have made a very profound impression on Hankey (the secretary of the war cabinet) and through him on Middle Eastern oil policy as a whole.71 The inspiration for the official Admiralty endorsement of Slade's paper came from the intelligence division. It was also through Hall that Slade continued to have access to secret government information about various contraband matters, which allowed Slade to buttress his case by repeating the old allegations about Shell's continued commercial, and other, links with Germany. Many of these accusations were supported by information

67 ADM i I6/i687B, no. C.P. 29097, minute by E. Pretyman, 24 Jan. I9I8. The agreement was rescinded in January I9I8. R. W. Ferrier argues that the agreement of December I9I6 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 R. W. Ferrier, 'The early management organisation of British Petroleum and Sir John Cadman', in L. Hannah (ed.), Management strategy and business development (London, x976), p. x35. 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.

f According to the Navy List Slade retired from active service in October I9I 7, but was retained in the Admiralty on 'Special Service' until I920.

69 POWE 33/45, Slade to Harcourt, 7 Oct. I9I8. For Slade's memos - and Hall's support for them - see ADM I/8537/240. Dr Kent mentions Slade's papers but apparently does not find his behaviour peculiar. See Kent, Oil and empire, pp. x25-6.

70 CAB 24/59 Cabinet Paper G.T. 5267, 29 July I9I8. 71 See V. H. Rothwell, 'Mesopotamia in British war aims I9I4-I9I8', Historical Journal,

XIII, 2 ( x970), 289 9I



668 G. GARETH JONES

derived from the period after he had become a full-time director of APOC.72

Slade's war cabinet paper acted as a catalyst in the long-incipient conflict between the different schools of thought in the government. E. G. Pretyman, the civil lord of the Admiralty, protested against the Admiralty endorsement of Slade's paper on 12 September. It emerged that neither he nor the fourth sea lord, the head of supply matters, had seen the paper before it went to the cabinet.73 If he had done, he would have strongly opposed the Admiralty endorsement of such an 'ex parte statement by the APOC'. The Petroleum Executive, angered that APOC through Slade appeared to have special access to the war cabinet, was infuriated when Slade subsequently claimed that he had not consulted them because someone in their department was leaking information to Shell. Slade's behaviour, Long complained to the first lord, Geddes, on i8 September, was not 'in accordance with the laws of cricket'.74 Geddes had in fact taken action even before receiving this severe condemnation of Slade. The day before he had written to the war cabinet limiting the Admiralty endorsement of that part of Slade's paper which emphasized the importance of Middle Eastern oil to Britain.75 On the i8th Geddes warned Hall that, though his interest in oil was 'right and proper' he 'must not exceed the functions with which his office [was] charged '.76

V

The British government ended the war as it had begun it, with interdepartmental conflicts about oil policy reinforced by the lobbying of the various companies. Nevertheless the war had brought some changes. A co-ordinated supply organization had eventually been created, whose efficiency was reflected in the fact that an oil shortage never seriously handicapped the British war effort. Again, by the time of the Armistice there was a general consensus that 'oil' was an important issue and that something had to be done to reduce the British empire's dependence on foreign-controlled sources of supply. Unfortunately the removal of the

72 E.g. POWE 33/45, E. Slade to W. Long, 24 Sept. I9I8. 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) S(olicitor papers), P.R.O., T.S. I4, 35-70.

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 I9I8. The last year of the war had seen their increasing separation. See Marder, From Dreadnought to Scapa Flow, v, II, note 17.

74 POWE 33/45, Long to Geddes, i8 Sept. I9I8. 75 CAB 24/64, G.T. 57I0, 'A note in reference to Admiralty memo G.T. 5267', I 7 Sept.

I9I8. 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 I /8537/240, no. NID 0243.




restraining influence of the war crisis had the effect of destroying any consensus on how this aim was to be achieved, with the result that for the next four or five years Britain was without an effective oil policy. The Petroleum Executive, the one organization that could have achieved some co-ordination between the various interested government departments, was rapidly converted into the truncated Petroleum Department, which lacked executive powers and whose views, as Waley Cohen pointed out, had 'no great influence upon the other departments of the government '.7

The chaos in post-war British oil policy was at its greatest over Middle Eastern questions, and especially in Mesopotamia where large quantities of oil were believed to exist.78 Entirely different Mesopotamian oil policies were pursued by a variety of different groups within the government, with dramatic policy changes occurring at regular intervals as these different policies collided. In December I9I8 Lloyd George and Clemenceau agreed that France would transfer to Britain (in return for British diplomatic support in Europe) the oil-rich Mosul region of Mesopotamia which had been allocated to France under the Sykes-Picot agreement in I9I6. Neither premier appears to have told their respective foreign ministries about this arrangement, and it was June I919 before the British Foreign Office discovered its existence. Also unaware of the prime minister's arrangement, Walter Long and John Cadman had long negotiations with the French petroleum minister, Henri Berenger, with the aim of securing an Anglo-French agreement on petroleum matters. The resulting Long-Berenger agreement was, however, never implemented, as Lloyd George, who had been unaware of the negotiations, cancelled the agreement when he found out about it in May I9I9.

Meanwhile Deterding early in I919 had recruited, with the knowledge and approval of Walter Long, the former quarter master general of the Army, Sir John Cowans, to go out to Mesopotamia in the service of the TPC to 'secure any rights which natives or others may have in the way of baling wells, refining, selling or anything'.79 This action was dia- metrically opposed to the policy of the Foreign Office and Cowans eventually had to be withdrawn after Foreign Office pressure.80 Back in Europe, by December I919 the new British minister-in-charge of petroleum affairs, Sir Hamar Greenwood, had negotiated another petroleum

77 SHELL, Waley Cohen to General Avery D. Andrews, 4 May I923. 78 For a full account of British Middle Eastern oil policy in these years see Kent, Oil

and empire, ch. viii, and, for a rather more thorough analysis, C. Davies, British oil policy in the Middle East 191_-32 (Edinburgh, Ph.D. thesis, I973), ch. iii. The following paragraph is included merely to give some indication of the chaos in British policy in this period.

79 SHELL, H. Deterding to J. Cadman, 3 May I9I9. 80 F.O. 371/4209, 135088/I9I65, minute by G. Kidston, Nov. 1919. Cowans' action, com-

plained 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'.



670 G. GARETH JONES

agreement with Berenger, but this agreement (which in turn was dependent on the implementation of the 'initialled' Shell agreement) was wrecked by a sudden cabinet decision in January 1920 that the British government itself, and not a private oil company, would directly work the British share of the Mesopotamian oilfields. Eventually in 1920 yet another Anglo-French agreement was signed, the San Remo agreement of April I920, but the hostility it aroused in the United States led to increased American demands for an 'open door' in Mesopotamia and consequently to a further period of chaos in British oil policy.81

The closely related negotiations with the Shell Group soon lapsed into a similar state of disorder. Although the 'initialled agreement' was approved by the cabinet on 8 May I9g9, it was never implemented, and the following year witnessed an excruciating period of re-negotiation, much of it concerned with highly complex international taxation problems. Nevertheless at times an agreement seemed close, and within the Shell Group plans were made for Deterding's retirement on the successful completion of the agreement and his succession by H. Colijn. However, as the negotiations dragged on, the apparent inability of the British government to live up to its Mesopotamian commitments to Shell together with a growing realization that in certain parts of the world British 'control' of Group companies could be a commercial liability, led several Dutch leaders of the Group to question the usefulness of the whole arrangement.82 By October I 9 I 9 the Shell negotiators were insisting that the Group's Mexican interests, and its future acquisitions in the United States and Venezuela, would have to remain under Dutch control. Soon more and more Shell companies were excluded from British 'control', Deterding reflecting that he could not be bound by negotiations 'which either in I9I9 or in the year 2000 may come into effect'.83 The main inducement to Deterding continued to be the promise of control over the Mesopotamian oilfields, though even here the continual delays dis- rupted the Shell plans, especially as regards the securing of control of the company being formed in France to exploit that country's share of Mesopotamian oil.84 Even when the Group's 25 % share of the TPC had finally been secured, however, the prospect of the extensive British

81 C. Davies, 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.

82 SHELL, A. J. C. Stuart to H. Deterding, I5 Aug. I919. Stuart drew attention to the threatened 'opposition from other governments (Mexico and N. America)'.

83 SHELL, H. Deterding to H. Colijn, 3 Nov. I9I9.

84 Gulbenkian and the Shell interests had worked closely with H. Berenger during the war (see Gerretson, Geschiedenis, Iv, 220-44) 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 Poincare) came to power and cancelled the arrangement.



THE SEARCH FOR AN OIL POLICY 67I

diplomatic support that might be expected from bringing Shell under British 'control' continued to have its attractions, especially in Russia where all Shell's massive investments had been sequestrated. Shell was also interested in securing a close arrangement with APOC, which, with the end of the I9I2 marketing agreement in I922, again threatened to be a 'serious menace in the East'. Consequently a series of merger proposals were floated by Shell (as well as by some government departments) in the years I92I-4, involving the sale of the government's holding in APOC and its merger with Burmah and Shell to form a giant, all-British oil company.85

The obsession with securing British 'control' of the Shell Group was perhaps the most consistent element in government oil policy in the early I920S. It was seen as being capable, almost at a stroke, of reducing Britain's dependence on foreign oil. Yet this policy, understandable enough in the xenophobic war years, looked increasingly irrelevant in the I920S. Even if all Shell's Mexican, Venezuelan and Rumanian companies had been registered in Britain with a majority of British shareholders, this would have done nothing to lessen Britain's dependence on foreign produced oil or to guarantee that Britain would be supplied with oil during a war. The Shell leaders fully recognized this fallacy in government thinking, and supported the merger schemes solely for what they considered their very real commercial advantages. 'The whole question of control' reflected Waley Cohen, was 'very largely non- sense. It is a matter of sentiment, but if by transferring control to the Hottentots we could increase our security and our dividends I don't believe any of us would hesitate for long'. 86 The merger schemes, thanks to the energetic support they received from several government departments and Shell, came very close to fulfilment. By November I923

Cohen was writing to his Dutch colleagues predicting success -

providing that the 'amazing stupidity in the Admiralty' could be overcome.87 It was a large proviso, for the Admiralty in accordance with its now well-established tradition of pursuing a different oil policy from the rest of the government was implacably hostile to any scheme to sell off the government's holding in APOC or to merge that company with Shell. By the early I920S the ideas of Slade and Hall had become pre- eminent even in mate'riel departments such as contracts which before the war and during the war had softened their attitudes towards Shell. 'Winston Churchill had in I9I3 described the Shell Group as an octopus,' reflected the Admiralty director of contracts in I923, 'and the experience of the Admiralty since that date has not disclosed that its tentacles are fewer or less extensive.'88 The now financially very favourable oil fuel

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 I I6/3452, no. CP 4743, memo by director of contracts, io Dec. 1923.



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contract with APOC, and the knowledge that no purely commercial company would now negotiate such a contract, were undoubtedly the major factors in Admiralty policy by this time.89 It was perhaps appro- priate that the chimeric schemes for guaranteeing Britain's future oil supplies were finally wrecked by the anachronistic opposition of the Admiralty.

By I924 Britain was as dependent on foreign oil as in I9I4. The Turkish Petroleum Company had yet to produce any oil in Mesopo- tamia, and in any case it was already clear that American and French interests would control 50% of that company. APOC was by then producing large quantities of Persian oil, but even there rising nationalism threatened the long-term security of this source of supply. In late I924

the attempts to secure British 'control' of Shell were finally abandoned. Sharp departmental conflicts over oil matters continued to exist. The war, it seemed, had brought few real changes in Britain's oil situation or even in the government's relations with the oil companies. It was to take the new economic and political conditions of the later I920S to give a clearer direction to government oil policy and to bring about a new pattern of government-company relations.

89 In March I922 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, ii 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 I92os.



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

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