The Enduring Legacy of Standard Oil

Michael Teague  |

Standard Oil is one of the most storied companies in American history.

In many senses, it is a success story that is straight out of the American dream. John D. Rockefeller built what would eventually become the world's first multi-national corporation on humble beginnings, manoeuvering his way through the Cleveland oil-industry and eventually to the top of it.

Rockefeller entered the business in 1863 at a time when Cleveland's refining sector was suffering from a surplus of production capacity. By 1970, however, Standard Oil was officially incorporated, the consolidation of a partnership between Rockefeller, Samuel Andrews, and Henry FLagler, and was running the largest refineries in the area.

By 1880, the Standard Oil Company would have at least 90 percent of the American oil market firmly in its grasp.

Rockefeller's strategy was viciously simple; first, he established Standard's foothold in the oil market through horizontal expansion in the refining sector. It was from this foundation that the company would begin to expand vertically, eventually creating a corporate entity the likes of which the world had never seen.

Standard Oil's unprecedented size and dexterity brought with it unprecedented benefits. The company's significant holding's in various railways, for instance, entitled it to discounts that were simply beyond the reach of competitors. But the company's size also allowed for a streamlining of production and logistics operations that provided the advantage in terms of overhead costs.

The company introduced a new notion of efficiency into the oil industry through its then-innovative practice of recycling waste material for re-use and even profit. While competitors would pollute streams with their waste products, Standard developped means of recycling the waste material into fuel for its industrial facilities.

But Standard Oil's success brought with it greater scrutiny from both Federal authorities and competitors, and it is this initial scrutiny that led the company to what might be its most significant innovation, one that would be copied many times subsequently, the trust. In early 1882, Rockefeller and his colleagues organized their wide-ranging businesses under the direction of a single board of trustees.

The cunning strategy had been introduced as a response to various State and Federal attempts to enforce anti-trust laws. Standard Oil was unafraid to push those boundaries from the outset, however, and this can be seen as early as 1872 when the Pennsylvania State legislature revoked the charter for an organization by the name of the South Improvement Company. Rockefeller had joined the company that year, in an attempt to secure rebates on shipping fees, as well as compensation for shippments of competitors. The intervention of the State legislature assured, at least in this instance, that no oil was ever shipped under the terms of the Rockefeller-South Improvement agreement.

Having elicited and engaged the authorities on multiple occasions may have paid off in the formof unheard of profits and power, but it also made the company a preferred target when the Sherman anti-trust law was passed in 1890. The Sherman law is considered the origin of anti-trust legislation, as it sought to restrict the means by which companies could trump their competition through the use of consolidation.

It was the Sherman law that would eventually be the mechanism through which Federal authorities were able to break the company into 34 different parts, many of which survive as the oil industry's biggest concerns. By 1911, however, Standard Oil's share of the market had been knocked down rather drastically to between 60 and 65 percent, and while still enormously profitable, had perhaps been showing signs of giving way to newer companies, companies that had been inspired by its own pioneering tactics over the previous decades. Those companies include what would eventually become Royal Dutch Shell ($RDS.A), Texaco, and Union Oil.

The fragmentation of Standard Oil in its time was considered a significant blow to any company who would engage in such practices, but the Justice Department's victory in 1911 has shown itself to be, at times, very incomplete. 

For instance, two of the company's components emerged in the form of Jersey Standard, the precursor to Exxon (XOM) , and Standard Oil Company of New York (Socony), which in 1963 would be renamed Mobil. Following the breakup of Standard, both companies set out on a similar path as their predecessor, making acquisitions and expanding into all manner of businesses with synergistic potential.

In the 1930's, Jersey Pacific had refining operations in Indonesia, but was lacking a marketing network. It was a need that Socony was willing and able to accomodate with its own choice of marketing outlets. The 50-50 joint venture that resulted from this partnership, Standard Vaccuum Oil Co., would go on to operate in 50 countries around the world before its eventual dissolution in 1962.

But Standard has left behind it a number of well-known and successful descendents; Standard Oil of Ohio would later on become BP (BP) , Standard of Indiana would become Amoco, a partnership between Standard Atlantic and the company Richfield would result in ARCO, Standard California and Kentucky would go on to form Chevron (CVX) , the Ohio Oil Co. is now known as Marathon Petroleum (MRO) , one of the world's biggest independent refiners, and the Anglo-American Oil Co. still exists as Esso UK.

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The companies left behind by Standard Oil still dominate large swathes of the market, and have over the years shown themselves more or less able to adapt to and evolve with changing markets, technologies, and economic conditions. But while Standard is no more, the precedents it set during its existence have left their mark on the industry, as they were instrumental in shaping a consensus over its goals, as well as the means to be used to achieve them.

[Image: Standard Oil Refinery #1, Cleveland, Ohio, 1889. Courtesy of Wikimedia Commons]

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