Book Review: Breaking Rockefeller, the incredible story of the rivals who toppled an oil empire

By Peter B. Doran

Any economist worth his salt will tell you that our economy is built around fossil fuels. If the price of oil goes up, the price of everything else goes up as well. Despite all the talk about a low-carbon economy being just around the corner, our society is still reliant on a small number of oil producing countries in South America and the Middle East. A sound grasp of energy policy is of paramount importance if one wishes to understand the global economy, yet I would wager that few know the history of the oil industry, let alone how the precious black liquid that gives us respiratory disease and makes our planet increasingly less habitable is extracted from the ground. In Breaking Rockefeller Peter Doran tells the story of how a pair of swashbuckling entrepreneurs joined forces during the early twentieth century to dethrone one of the richest men who ever lived and change the petroleum industry forever.

When oil wells were discovered in the US Midwest during the nineteenth century, it triggered an oil rush where countless fortunes were made and many more were lost. Boomtowns sprung up virtually overnight, where the usual assortment of con men, fortune tellers and prostitutes suckled from the teat of low grade kerosene.  No one disliked this heady euphoria more than a soft-spoken accountant named John D. Rockefeller from Richmond, New York. As a young man, he travelled to ramshackle boomtowns like Titusville in Pennsylvania, and learned firsthand about the conditions for oil men on the ground. Gifted with a knack for business that bordered on genius, he drew two important conclusions that eventually made him the wealthiest man in the world. Firstly, that crude was worthless unless it had been refined, and whoever controlled the refineries was in command of a vital chokepoint that the entire industry relied on. Secondly, that by exercising monopoly power he could eliminate “wasteful” competition that drove down prizes and hurt profits. During the following decades he went about acquiring several oil refineries and rigged the marked in his favor by collaborating with railroad magnates to suppress his competition. Those who refused to pay fealty to Standard Oil were subjected to savage prize wars that Rockefeller’s multi headed hydra could endure but mom and pop oil producers could not. In the waning years of the nineteenth century, Rockefeller dominated the global petroleum industry from Standard Oil’s monolithic headquarters on 26 Broadway in New York. From his swiveled chair in the boardroom, he looked down on twin rows of formerly mighty oil magnates who payed fealty to him like cowering satraps.

Meanwhile, in London ‘s bustling Houndsditch, an enterprising merchant by the name of Marcus Samuel had made himself a fortune selling mementoes and gifts adorned with seashells to vacationing brits. His business, the Shell transport and trading company, had come a long way since those early days, and his business interests now spanned the globe. Marcus was a hard working businessman with an eye for making a good deal, and when great quantities of viscous black oil suitable for kerosene was discovered in Baku, Samuel was not about to miss out on the action. His contacts in the far east would gladly buy as much kerosene as he could bring them, but this would not be easy. Since the oil tankers of his day were little more than barges filled with highly flammable liquid, and sailors liked to enjoy a cigarette or two after a stressful day of sailing, oil tankers were barred from passing through the Suez Canal. This meant that Marcus’s kerosene had to sail halfway around the world reach his prospective buyers in the far east, and the increased costs this entailed meant there was no way he could compete with Standard Oil. In a brilliant example of disruptive technology, that gadfly word we read in management journals but no one really understands, Samuel hired the best and brightest engineers to manufacture a new kind of oil tanker, one that was safe enough to traverse the Suez Canal. This revolutionary new supertanker included many safety features that had never before been incorporated on a seagoing vessel, and their basic design is similar to what you would find on today’s oil tankers. His new fleet enabled Samuel to transport kerosene to his eastern markets at competitive prices and compete with Standard Oil.

On the wind-swept island of Sumatra, the Royal Dutch Oil Company was in a bind. Their existing oil wells were running dry, and to stay in business they needed to find a new well as soon as possible. The inhospitable climate meant that equipment was soon corroded with rust, thick mud impeded transportation and a host of exotic diseases culled the workforce at an alarming rate. It was a sign of the company’s desperation that they abandoned the tried and true method of simply digging into the ground at random and hoping to strike an oil well, and instead turned to a team of geologists. During the early twentieth century, any bare breasted oilman would have scoffed at the ridiculous notion of sending out scientist to discover oil, but this time it worked, and Royal Dutch was saved from bankruptcy when the geologists uncovered a vast new well. Henceforth, scientific methods would play a big role in finding new reserves of oil.

The growing number of gasoline powered cars meant that kerosene was no longer the most prized petroleum commodity. For Royal Dutch, this meant that the useless transparent liquid they used to dump in abandoned quarries and light on fire was now worth holding on to. When an energetic young man named Henri Deterding assumed control of Royal Dutch in 1900, their new Sumatran oil wells were overflowing with petrochemical bounty and the future of the company looked bright.

Meanwhile, in the United States, public opinion turned against the towering monopolies, so called trusts, that dominated the American economy. Legendary progressive journalist Ida Tarbell ran several exposes on Standard Oil’s questionable business practices that led to a growing clamor to break up the company. Behind a seemingly impenetrable wall of carefully concealed secrets and bolstered by an army of lawyers, Rockefeller and his directors prepared themselves for a lengthy siege.

At the height of his mercantile powers Marcus Samuel could have engineered a joint venture with Royal Dutch that was hugely beneficial to his own business, but poor judgement meant that he squandered his chance to make the deal of a lifetime. His work at Shell was soon overshadowed by his wish to climb the social ladder. Serving as the mayor of London and receiving a baronetcy meant that he started to manage his business poorly. He soon became easy pray for the dynamic Deterding, who exploited Samuels vulnerability once Shell started going into the red, and forced him to sign a merger deal that consigned the former seashell merchant into a largely ceremonial role. The newly formed Royal Dutch Shell, the company that me and you would call Shell, whose crimson seashell now adorns countless gas stations, was born.

This merger was a threat to Standard Oil, but according to Doran, Rockefeller could probably have fended them of if his business wasn’t fighting a protracted legal battle against the federal government at the same time. In 1911, the Supreme Court ruled that Standard Oil had to be broken up. The Standard Oil trust was duly chopped up into thirty-four smaller pieces, several of which, like Chevron and Exxon, remain in business today. For an in depth look at the heady days of the so called progressive era, I recommend that you read Doris Kearns Goodwin’s splendid The Bully Pulpit, previously reviewed on this blog, but it is sufficient to say that this was heralded as a triumph of the ordinary man against the omnipotent trusts. In reality, Standard Oil’s regional departments were able to weather the storm since they were well stocked with hidden capital and assets. Like the reinforced bulkheads between the separate compartments on Marcus Samuel’s oil tankers, the individual pieces of Standard Oil swiftly became highly profitable. As a matter of fact, Rockefellers own vast fortune grew larger after the carve-up. Despite this, Standard Oil’s dominion over the global petroleum marked was broken and the oil business looked vastly different from the way it had done a decade before The Standard was split up.

Mr. Doran tells the tale of these tumultuous, petroleum soaked times with a sure grasp of the facts, which he manages to present in a way that is digestible for the layman. Breaking Rockefeller is very well written and at times it feels as much of a page turner as a bestselling novel. The cast is full of eccentric and memorable characters and the dramatic plot gives an insight into how the fate of the global economy became intertwined with the market price of crude oil. As Doran himself notes at the end, the future of the energy industry is uncertain and nothing can be known for sure other than that we are probably going to be using oil for the foreseeable future. After reading Breaking Rockefeller I would wager that the landscape of tomorrow’s energy market will be decided by a combination of technological advances and tally ho entrepreneurs with an eye out for making a deal.