Sub-contracting national defence to private industry during the Second World War: a case study of oil companies
Photo: Thomas Kelley, Unsplash
During the Second World War Anglo-American cooperation in oil was based on the personal contacts between corporate personnel seconded to the Governments. There is substantial continuity between the leading members of the inter-war cartel and the industry committees in the wartime collaboration. These were corporate managers who effectively decided what could be achieved carried out British wartime oil relations. Their close working relationship with the British Government contrasts with the rivalry between Service and civilian departments in the United States. As the American Services tried to reduce the influence of the companies, their efforts were thwarted by resistance from the British state and companies, supported by the major oil American companies.
In contrast with the traditional state-centric model which focuses on the behaviour of senior politicians from different states, transgovernmental relations refers to the relatively autonomous activities of lower-level bureaucracies, rather than those of top leadership.[1] As corporate personnel were integrated into the wartime machinery on both sides of the Atlantic they filled the types of operational positions where their expertise was irreplaceable. It was their autonomy in operations that made possible the transgovernmental coalition against the Service departments.
The co-option of leading British oilmen in the United Kingdom is intriguing. The committees which they established were formally under Government control, but in practise there was little effective supervision. Their most important work was in assuring supplies from the United States in the period before the United States formally joined the Second World War. After the United States formally entered the war the oilmen were effectively asked to manage global oil supply for the Allies. Many of these individuals had shaped the international oil trade in the inter-war period and I trace the continuity of personnel from the As Is system. In particular, Harold Wilkinson of Shell was the most senior British oil representative and the pivot of Allied co-operation.
1939–42: THE BEGINNING OF INFORMAL COLLABORATION
Before American entry into the war both aspects of the wartime oil organisation, demand and supply, were organised from London with assistance from oil company personnel using pre-war contacts with oil companies and company personnel in the United States. Many of the most senior managers of the Allied oil supply were the architects of the inter-war society of majors. Their corporate diplomacy was now translated into Allied diplomacy.
During the First World War, Sir John Cadman, who in 1927 became chairman of the Anglo-Iranian, was the director of the Petroleum Executive. Through such means as convening an Inter-Allied Petroleum Conference in London in April 1918, he had managed to secure oil for Britain. Eighty-five per cent of her supplies came from the United States.[2] The British Government hoped that the companies could achieve this again and contacted the firms in 1938.[3] The companies agreed with the proposals and became responsible for importing oil into Britain and effectively distributing it. Shell, Anglo-Iranian and Jersey were most significant as they, together with their industry partners, controlled ninety per cent of the petroleum business in Britain with the result that wartime distribution of oil was in the hands of the main peacetime suppliers.[4] The three most significant bodies we shall be looking at are the Tanker Tonnage Committee, the Overseas Supply Committee and the Petroleum Board, which were either company committees or comprised of firms.[5] The Tanker Tonnage Committee arranged for tanker allocation, fixing rates, and chartering neutral flag tonnage. This was managed by Heath Eves of Anglo-Iranian.[6] Godber of Shell managed the Overseas Supply Committee, which would make arrangements for supplies, which necessarily had to be imported from abroad. The Petroleum Board managed the internal distribution of products.[7] It is not the case that public officials had no influence in the oil machinery; simply that they were secondary to the oilmen.
The Government had been eager to subcontract these functions to the companies arguing that, “The oil industry is well organised and efficiently run. A large part of the world trade is in the hands of a relatively small number of big groups, who also own a very large proportion of the tanker fleets, and normally use a considerable part of the tankers owned by neutrals.”[8] For this reason, “the Trade Committee I propose would be staffed by employees of the big Oil Supply Companies and that, therefore, such a scheme can only be put into operation with their agreement. The only alternative, if they refuse to fall in with the proposal, is for the Government very materially to strengthen its own organisation to deal with Overseas Supply and Tanker Tonnage allocation, an unsatisfactory alternative which I sincerely hope it will not be necessary to adopt.”[9]
The informal machinery that developed between the British and American Governments first arose from the British need to acquire oil. The ad hoc attempts to coordinate oil policies in the period when the United States was still neutral operated through informal corporate channels to by-pass the isolationists. In January 1940, Jersey transferred thirteen tankers to the Panamanian flag to provide assistance after the passage of the Neutrality Bill.[10] Fifty-five British flag vessels belonging to Jersey, Socony-Vacuum, and Standard-Vacuum, also came under the control of the Tanker Tonnage Committee.[11]
Such assistance tendered during a time of neutrality might appear to foster the idea of a cooperative ‘Special Relationship’ between Britain and the United States. However, there are contrasting perspectives on the ‘Special Relationship’ during the Second World War. These often focus on the effects of Lease-Lend. On 7 December 1940 Churchill informed Roosevelt of British inability to pay cash for shipping and supplies. On 17 December Roosevelt used the example of loaning a garden hose to a neighbour to put out a fire in his house. You need not want to sell the hose, only demand the return of the hose after the fire. This was his justification for the policy of Lease-Lend. There are different assessments of its effect on Britain. For Corelli Barnet, Lease-Lend reduced Britain into an American satellite warrior-state.[12] On the other hand, without the supplies made under Lease-Lend, “the viability of the British war effort would have been even more seriously in doubt.”[13] By end of 1945 United States aid to Britain totalled $26 billion while reverse Lease-Lend from Britain to the United States accounted for $6 billion. However, there were also costs. Article VII attacked the tariff system promoting imperial preference. Lease-Lend could not be used by British manufacturers and exporters to compete with United States goods, particularly in Latin America, and British financial reserves had to be kept down.[14] Such a view regards the relationship as competitive, with the Americans imposing conditions on the British.[15]
The debate about Lease-Lend is related to the debate about the utility of the war. For writers like Charmley, Chamberlain was broadly justified in his attempt to maintain British power through peace with Hitler or a limited war in 1940–1.[16] The value of British private foreign investment amounted to approximately twenty-three thousand million dollars in 1938. Over one-third of this was realised during the war to purchase required materials.[17] David Reynolds, on the other hand, persuasively argues that Germany had proven itself to be untrustworthy with regard to international agreements and was in active pursuit of global power. In these circumstances Britain needed the United States.[18] I think that the British recognised the need for American support and shaped this diplomacy from a position of weakness, largely through effective use of their close relations with the British companies.
Between the attack on Pearl Harbour and the end of the Second World War, the Allies consumed almost seven billion barrels of oil, of which six billion barrels came from the United States. This was not surprising since, in 1940, the Middle East only produced about five per cent of world oil compared to sixty-three per cent for the United States.[19] Britain depended on American supplies with the result that there were two main issues — tanker allocation and production and allocation of aviation spirit. The supply of petroleum products from the United States was to constitute ninety per cent of the total supplied to the Allies during the war.[20] The use of transgovernmental relations minimised the impact of this disparity and limited American preponderance.
When the United States declared war following the attack on Pearl Harbour, the British feared that official American participation in supply matters would lead to increased interest in overseas oil supply and would bring to light the discrepancy in the relative contribution of the partners. This could well jeopardise British control over her oil supply. They had learned this lesson from the comprehensive Anglo-French arrangements, which had prepared a permanent organisation dealing with different aspects of supply.[21] The main problem which the French faced was that whenever they approached the British they were dealing as junior partners because the oil supply was owned and controlled by the British.[22] It was, perhaps, this experience that persuaded the British that the informal approach would prove more effective in their relations with the United States than inter-governmental bargaining from a position of weakness. It has been argued that, “In the procedures of a combined committee British and Americans would have confronted one another from prepared national positions in circumstances which would dramatise differences and give mutual conflicts of interest the character of a national conflict of wills. In such collisions it was the British who would have to give way, just as the French had done to the British two years earlier, and for the very same reason — their dependence on supplies controlled by their partner.[23]
There was a Combined Food Board, Combined Munitions Assignments Board, Combined Raw Materials Board, Combined Production and Resources Board and Combined Shipping Board, “in fact, a combined board on everything except oil.”[24] Formal arrangements had been considered but rejected because of the risk of “putting too much control in Washington. Likewise we felt we might do better in a somewhat more unorthodox and more free manner.” This involved something of a “‘personal racket’ among the few of us dominating the oil situation here.” The arrangements were resented by some Governmental actors in the United States but, “It has been a matter of no small pride that within a few months we have seen junior officers who ‘belonged to the club’ as it were, conniving with us to thwart the evil intentions of ‘three ring’ Admirals and the like, — a situation not often found in Washington.”[25]
In striking contrast to Anglo-French relations in September 1939 the Anglo-American cooperation in oil matters predated the formal partnership at the end of 1941. In August 1940 the Chairman of the Petroleum Board, Sir Andrew Agnew, a retired director of Shell, went to the United States. He provided the Americans with a picture of British oil projects and problems; and also, at the British Government’s request discussed the dollar payments problem with them. Continuing after this meeting, the Americans began to take British oil needs, particularly of aviation spirit, into account in planning their own production.[26] The British suffered from two shortages — tankers and aviation fuel. Both were due to military reasons.
The French had prepared for an attack through the Low Countries. However, the schwerpunkt of the blitzkrieg attack on France was the Ardennes sector north of the Maginot Line and German tanks blasted to the Atlantic coast. Yet although the Germans could now attack Atlantic and Channel shipping more easily they did not get control of French ships. The Royal Navy in denial operations destroyed those that resisted British control, for instance, at Mers-el-Kebir.[27] However, from bases on the Atlantic attacks on tankers could easily be made, in particular, by the U-boats. Tankers had to be re-directed from the east coast to the west coast of Britain. The limiting factor for oil imports was the shortage of suitable vessels for the east coast ferry service.[28] The eventual closure of the south and east coasts was more significant than this tanker shortage for the drop in oil imports by one half in September and October compared to May and June 1940.[29]
However, from June to November 1940, an average of 400,000 tons per month was lost. In spring 1941 the Royal Navy suffered further reversals in the eastern Mediterranean and North Africa, particularly the loss of Crete at the end of May. Following the ‘destroyers for bases’ deal in which British bases were exchanged for American destroyers, between mid-May and mid-June, Roosevelt sent ships through the Panama Canal, agreed to relieve the British garrison of Iceland and thus begin the escort of convoys. His envoy, Hopkins, was sent to Britain in July to prepare the way for the first meeting between Roosevelt and Churchill. He also went to Moscow to confer with Stalin. Their mutual trust of Hopkins and his recent talks with Stalin helped the productivity of the meeting of 9 August. This culminated with the Atlantic Charter but more immediately important was that the United States accepted responsibility for the western Atlantic from September 1941.[30]
The other problem was shortage of aviation fuel since the superiority of German troops on the ground in Europe meant that a British counter-attack had to be through the air. The Battle of Britain from mid-July to the end of October ensured that the Luftwaffe did not develop air superiority, which would have enabled an attack on southern Britain. The 704 planes of RAF Fighter Command faced 980 German fighters and 1,480 bombers.[31] Large quantities of this specialist product came from Iran, but Anglo-Iranian’s supply of black oils continued to decline because the tanker shortage had led to the adoption of the short haul policy, which directed tankers on the shortest route. With the Mediterranean closed to Allied shipping, Iran could not supply markets west of Suez. However, this decline was reversed when the Japanese captured Burma since the Burmah Oil Company destroyed the oilfields so effectively that the Japanese were unable to restore production and Persian Gulf production was needed to replace the loss of Indonesian production.[32]
The Japanese attack on Pearl Harbour was partly driven by the imperative to reduce her dependence on potentially hostile raw material suppliers, particularly for oil. The Australian Government had been interested in a concession in East Timor in 1940 mainly because of the Japanese. Standard-Vacuum was invited to secure the political objective, as the names of British companies should not appear.[33] Roosevelt believed that the Japanese threat he faced was aimed at British and Dutch oil-producing territories, not the United States. Hull and the Japanese ambassador, Nomura, held forty-five meetings in 1941. On 16 June Ickes held up a shipment of petroleum from Philadelphia to Japan. Roosevelt came down hard on him, but contrary to the clear recommendation of the Navy, a total oil embargo was implemented from July, whatever the foreign policy ‘decision’ might have been among all these competing agencies.[34] “This embargo became the policy of the U.S. Government, as it were by default.”[35] This episode shows how the blend of implementation and bureaucratic politics undermines the proposition that the state is a rational and unitary decision-maker and actor.[36]
What was Ickes doing? The overseas operations of American companies were organised under the Foreign Operations Committee set up in December 1941 and also working under the control of the Petroleum Administration for War (PAW). For foreign oil policies and programs the Foreign Operations Committee advised P.A.W. Production and refining in the United States was organised by industry committees under the control of the PAW. There were seven hundred oilmen working at the district level, and seventy-eight industry leaders worked for the Petroleum Industry War Council.[37] “For staff, the P.A.W. and its predecessors turned to the oil companies, asking for qualified executives of long experience familiar with every aspect of the business.”[38]
The American oilmen were soon called to develop more formal links with their British counterparts. On 10th December 1941, three days after the attack on Pearl Harbour Germany and Italy joined their Axis partner by declaring war on the United States and the Anglo-American working partnership of 1939–1941 became the full war alliance of 1942–45. But another step in this direction had already been made with the advent of Lease-Lend in March 1941. The Neutrality Act had prevented the granting of credit to belligerents with the result that sums due for shipments had to be paid prior to loading.[39]
In conclusion, the persistence of comfortable and effective relations between Britain and the oil majors during the war through the process of transgovernmental policy coordination is all the more surprising in view of the extreme dependence of the Allies on United States oil supplies coupled with American sensitivity about the relatively strong supply position the British would enjoy after hostilities ceased because of their strong position in Middle East concessions. Their use of the transgovernmental coordination and their exploitation of the less happy relations prevailing between Washington and the oil majors enabled the British to slow down the transfer of hegemony to the United States. The use of company experts to organise oil supplies during the war contributed to greater British influence in the oil supply issue than would have been possible had matters been arranged directly between Governments. In spite of continual American attempts to formalise the management of Allied oil supplies, the companies and the British Government combined to prevent this.
[1]Robert Keohane and Joseph Nye, “Transgovernmental relations and international organizations,” World Politics 27.1 (1974): 43.
[2]BP 72492, Dr Ferdinand Friedensburg, “Notes on Petroleum Industry During World War I”, 1939, abbreviated and translated by A.C. Hearn, 37.
[3]Jim Bamberg, The History of the British Petroleum Company: Volume 2 — The Anglo-Iranian Years, 1933–1954 (Cambridge: Cambridge University Press, 1993), 207.
[4]Shell SC7/P14, Notes of a meeting held at the Mines Department, 16 September 1938, 7.
[5]D.J. Payton-Smith, Oil: A Study of War-time Policy and Administration (London: HMSO, 1971): 77.
[6]PRO POWE 33, 1998, Meetings with the Mines Department, September 1938; Memorandum, “History of the Scheme”, September 1938, 7–9. Shell Magazine, “The Story of the Petroleum Board”, July 1948, vol. 28, 101.
[7]Shell SC7/P1/2, Article 2, Petroleum (№1) Order 1940 made the Petroleum Board the sole supplier of petroleum products in Britain.
[8]PRO POWE 33, 1104, “Memorandum by the Secretary for Mines”, 27 March 1940, 3.
[9]PRO POWE 33, 1104, “Memorandum by the Secretary for Mines”, 27 March 1940, 7.
[10]BP 27775, New York Office War Diary, September 1939-May 1945.
[11]BP 37134, Legh-Jones to Wilkinson, 19 January 1940.
[12]Corelli Barnet, The Audit of War: The Illusion and Reality of Britain as a Great Nation (London: Macmillan, 1986).
[13]David Sanders, Losing an Empire, Finding a Role: British Foreign Policy since 1945 (London: Macmillan, 1990), 33.
[14]Robin Edmonds, The Big Three: Churchill, Roosevelt and Stalin in Peace and War, 213–5.
[15]Randall Woods, A Changing of the Guard: Anglo-American Relations, 1941–1946 (Chapel Hill: University of North Carolina Press, 1990). William Roger Louis, Imperialism at Bay, 1941–1945: The United States and the Decolonization of the British Empire (London: Oxford University Press, 1978); William Roger Louis, “American anti-colonialism and the dissolution of the British Empire”, International Affairs, 61.3 (1985): 395–420.
[16]John Charmley, Churchill’s Grand Alliance: The Anglo-American Special Relationship, 1940–57 (London: Hodder and Stoughton, 1995), Foreword, xiv.; J. Charmley, “The Complicated Relationship”, Review of International Studies 10 (1984): 165–173.
[17]A.G. Kenwood and A.L. Lougheed, ed rev. ed. The Growth of the International Economy, 1820–1990 (London: Routledge, 1992), 251.
[18]David Reynolds, The Creation of the Anglo-American Alliance, 1937–41: a study in competitive cooperation (London: Europa Publications, 1981), 63–92, passim.
[19]Daniel Yergin, The Prize: The Epic Quest for Oil, Money and Power (London: Simon and Schuster, 1993), 379, 393.
[20]Daniel Yergin, The Prize, 393.
[21]PRO POWE 33, 1446, K.L. Stock, “Information about French oil supplies and requirements”, 27 November 1939. Daily Telegraph, 18 November 1939, There were six executive committees.
[22]PRO POWE 33, 608, Starling to Agnew, 20 December 1939.
[23]D.J. Payton-Smith, Oil: A Study of War-time Policy and Administration, United Kingdom Civil Series of the History of the Second World War (London: HMSO, 1971), 252.
[24]PRO POWE 34, 12, Wilkinson to Butler, 10 March 1945.
[25]PRO POWE 34, 12, Wilkinson to Butler, 10 March 1945.
[26]PRO POWE 33, 32, Report by the Representatives of the Office of Petroleum Co-ordinator and British Petroleum Department, “Supplies of Aviation Fuel and Lubricating Oils”, 10 February 1942.
[27]Robin Edmonds, The Big Three: Churchill, Roosevelt and Stalin in Peace and War (London: W.W.Norton and Company, 1991), 172–5.
[28]PRO POWE 33, 621,Faulkner to Rear Admiral H.R. Moore, 29 August 1940.
[29]PRO POWE 33, 597, Churchill to Lord Leathers, Minister of Transport, 13 December 1940.
[30]A.P.Dobson, “Economic Diplomacy at the Atlantic Conference,” Review of International Studies 10 (1984) 143–163; Robin Edmonds, The Big Three: Churchill, Roosevelt and Stalin in Peace and War, 225. See Shell file: SC7/ P25 for a discussion of how new port facilities and storage depots, and an internal transport system had to be developed. Canals were used and pipelines were built between January and July 1941.
[31]Robin Edmonds, The Big Three: Churchill, Roosevelt and Stalin in Peace and War, 176–7.
[32]PRO POWE 33, 653–8, Burma — rehabilitation of oil industry, March 1942 to May 1945.
[33]BP 42974, Taylor to Kisch, 5 August 1940; BP 42974, Taylor to Lees, 30 August 1940; BP 42974, Memorandum of Consultation with Dr Idelson, 10 July 1940.
[34]Robin Edmonds, The Big Three: Churchill, Roosevelt and Stalin in Peace and War, 248–9.
[35]Robin Edmonds, The Big Three: Churchill, Roosevelt and Stalin in Peace and War, 249.
[36]Irvine Anderson, The Standard-Vacuum Oil Company and United States East Asian Policy, 1933–1941 (Princeton:Princeton University Press, 1975).
[37]BP 52984, New York Management File, September 1939 to December 1944.
[38]Enterprise in Oil, 558–9.
[39]BP 27775, New York Office. War Diary, July 1940.