The richest man in the world and the world’s largest oil company dominated the oil market in Norway long before milestones were found on the Norwegian continental shelf and the Norwegian Oil Fund.
Though it may seem, Norway’s oil history didn’t start with the great Ekofisk discovery in 1969 by Phillips Petroleum Co. It didn’t even start with the Balder discovery a few years earlier or Norway’s claim to large areas of the North Sea in 1963 .
A better place to look for some kind of beginning is the late 19th century. The story is about one of the richest men of all time, John D. Rockefeller, and his giant company, Standard Oil.
It’s also the story of how governments in small countries struggle to fight economic giants.
Heavy methods
“In the first phase from 1890 onwards, the Norwegian, Swedish and Danish oil markets were dominated by the large global oil company Standard Oil, which did not hesitate to control the market with rather persistent tactics,” says Espen Storli Professor in the Department of Modern History and Society of the NTNU.
This aspect of Norwegian and Scandinavian oil history has not been explored in such depth, but Storli and his colleague Pål Thonstad Sandvik talk about this period in an article in the Scandinavian economic history review.
“Standard Oil’s approach is a typical example of how large companies try to gain advantage and monopoly by leveraging their financial power and taking control of value chains,” says Sandvik.
The richest private person in the world
In terms of the money, both Standard Oil and the company’s famous owner, John D. Rockefeller, had more than enough.
If you don’t include royals and dictators who ruled entire countries, Rockefeller is perhaps the richest person in history. He became the first billionaire in the United States at a time when an ordinary industrial worker was earning about $ 500 a year. In relative terms, Rockefeller was far richer than Amazon’s Jeff Bezos, who is now the richest living person in the world.
Ron Chernow, who wrote a biography of Rockefeller, described him as follows:
“He could be extremely violent in trying to force competitors into submission. At the same time, he did not use this pressure casually, preferring patience and reasoning rather than intimidation. ”
Rockefeller’s wealth came largely from his oil company Standard Oil, which he helped found in 1870. Ingenuity, cunning, acquisitions and a not too small use of muscles made the company completely dominant in the national and global oil sector. Ultimately, this applied to all parts of the value chain.
Market access
At the beginning of the last century, only a few European countries had known oil reserves. As a result, oil companies in Norway competed most for access to the sale of products such as kerosene and gasoline, rather than for extraction rights or other parts of the value chain.
“Product sales were also where the oil companies collided most directly. The authorities quickly realized the need for regulation, ”says Sandvik.
For inexperienced politicians and civil servants, however, this task was anything but easy. Your opponent used different tactics and had a lot more experience and money.
The Danish company became a farmer
In Scandinavia, Standard Oil used Det Danske Petroleums Aktieselskab (DDPA) as farmers. Standard Oil bought DDPA as early as 1891 and later owned half of its shares.
In practice, DDPA became a division of Standard Oil because the management in Denmark had to consult the American company on all important decisions.
The Danes had a solid position in Scandinavia even before Standard Oil joined, but only with American money things really turned around. Sometimes the methods were brilliant.
For example, DDPA had long-term contracts with sellers of petroleum products. These sellers were not allowed to sell products from suppliers other than DDPA. If the sellers broke these contracts, they had to pay heavy fines, not to DDPA, but to local charities. This was likely a smart strategy as it was more difficult to protest against a company that appeared to be running a charity.
DDPA and Standard Oil eventually managed to take over large parts of the market, but never secured a complete monopoly. Actors like the European Petroleum Union and Pure Oil gave them solid competition at times, even if they were proportionally much smaller companies.
Most people were worried
Standard Oil’s dominant position gradually became a problem for more than just the authorities and competitors.
“The debate about Standard Oil gradually grew, but given the power of the company, it was not easy for the authorities to take action. For small countries with limited resources it was difficult to respond to cartel activity and cooperation between companies that took advantage of their position in the oil market, ”says Storli.
But the company could not hold its position without the Norwegian politicians being fully involved.
“Standard Oil’s influence on the Scandinavian oil market has gradually weakened due to competing companies,” says Sandvik.
This was partly due to the company not being able to continue operating in the same way following a US court ruling.
Got too big
Standard Oil got too big, and by 1911 the United States Supreme Court had enough. The court tried to liquidate the company because it used illegal methods to gain monopoly-like power over the US oil market. Standard Oil was then split into 34 different companies.
Standard Oil’s successors were also big in Scandinavia until 1939, if not as dominant as before. Some of the companies that emerged from this split remain among the largest in the world, such as Amoco, ExxonMobil, Marathon, and Chevron.
Rockefeller himself gradually withdrew from business life beginning in 1896 and eventually concentrated mainly on philanthropic activities. He died in 1937 at the age of almost 98.
Lasting effects today
The effects of the then strong oil dominance can still be seen today.
“The abuse of market power by the oil companies was exactly what Norwegian politicians wanted to avoid. This experience was important when the Norwegian Parliament passed tough competition laws and comprehensive regulation of Norwegian natural resources such as hydropower, forests and minerals, ”says Sandvik.
“This experience was important when the Norwegian Parliament passed tough competition laws and comprehensive regulation of Norwegian natural resources.”
These regulations would come in handy a few decades later when it turned out that Norway is sitting on large oil reserves itself. Unlike many other countries, the country has largely managed to maintain large parts of this wealth, in large part because the Norwegian authorities already had extensive experience in regulating natural resources.
“Norwegian politicians and bureaucrats were well informed about the phenomenon of market power in the oil industry. This affected the relationship with the major foreign oil companies in the 1960s and 1970s, ”says Storli.
“Of course, it’s always difficult to tell where politicians and officials get their perceptions of reality, but it’s not surprising that home experiences were an important factor,” he says.
Reference: “The search for a non-competitive market: Standard oil, the international oil industry and the Scandinavian countries, 1890–1939” by Päl Thonstad Sandvik and Espen Storli, August 2, 2020, Scandinavian economic history review.
DOI: 10.1080 / 03585522.2020.1786448