Swedish Nobel Family and Russian Oil Industry

The largest US foreign direct investment (FDI) in Latin America was focused on extracting minerals, particularly nitrates and copper in Chile, copper, lead, and zinc in Peru, and tin in Bolivia.

The first oil well in the world was drilled in Pennsylvania in 1859. The primary use of petroleum was as kerosene for heating and lighting, but its role evolved with the invention of the internal combustion engine, leading to its use as gasoline and fuel oil.

Standard Oil Company became the largest corporation in the world, holding a controlling interest in much of the US pipeline and refinery capacity. This centralized control allowed the company to become a major oil exporter, establishing refineries abroad to process imported American oil.

Despite its dominance in the US, Standard Oil made modest investments in oil production outside the US. The company's focus was primarily on exporting refined oil from its domestic production, which met the global demand at the time.

The rise of European oil firms was heavily influenced by the vast oil resources of Eastern Europe, particularly Russia.

The Nobel family, originally from Sweden, modernized the outdated Russian oil industry by introducing advanced technology.

The Nobel family's company, operating mainly within Russia, produced a significant portion of Russian oil in the late 19th century.

Despite Swedish management, the Nobel family's oil company wasn't solely Swedish, with ownership spread across various European nations.

German banks played a substantial role as shareholders in the Nobel family's oil company, highlighting the company's international financial connections.

The Anglo-Persian Oil Company, later known as British Petroleum (BP), was established in 1908 to exploit oil concessions granted by the Iranian government. This company's formation was motivated by the British government's desire for secure and affordable oil supplies for the Royal Navy, particularly in the context of dependence on foreign oil sources.

The First World War (WW1) highlighted the strategic and commercial significance of oil, while also raising concerns about the exhaustion of existing oil reserves. This led to an intensified global search for new oil sources.

A major oil discovery occurred in Iraq in 1927. This discovery came after an intense period of competition among companies, backed by their respective governments, to secure oil concessions in the Middle East, fueled by the belief that the region held substantial oil reserves.

The oil industry faced a challenge of overcapacity, a problem exacerbated by the economic downturn of the Great Depression. This contrasted with the earlier fear of oil shortages.

The period of the Great Depression, following the period of intense competition for oil concessions in the Middle East, resulted in overcapacity in the oil industry. This is an example of how economic conditions and competition can influence the market dynamics of a specific industry.

The Anglo-Persian Oil Company's development illustrates the importance of government influence on the oil industry, as they actively sought to secure reliable oil supplies for national interests. This example highlights the tight relationship between government and oil companies.

The global search for oil after WW1 exemplifies how events such as war can catalyze important developments in industries. It underscores the interdependence of energy resources and global affairs.

The story of the Anglo-Persian Oil Company, from its formation to becoming BP, illustrates the evolution of a company driven by both market forces and government interests. This dynamic interplay of market forces and government influence is a recurring theme in the oil industry.

Profitable opportunities in natural resource extraction, like oil and gas production or mining, attracted Foreign Direct Investment (FDI). This is due to the potential profit from the resources.

Early overseas natural resource exploration was driven by many small firms or individual prospectors. This was the case in the 19th century.

Mining is a high-risk industry. The profitability of a mine or oilfield can be affected by factors like exploring, cost estimations, completion time, fluctuating prices, and logistical challenges like lack of infrastructure.

Countries with strong established industries and resources had a technological advantage when investing in foreign natural resource extraction. This gave them a competitive edge.

The US, being a major producer of copper, lead, and petroleum gave its firms the skills and technology needed for overseas resource extraction.

France, a leader in bauxite production, and Britain, a dominant producer of tin, copper, and lead before the 1850s, used their home country expertise to expand their mining operations overseas.

Foreign firms often possessed greater knowledge of market conditions and customer demands in their home countries. This gave them a competitive advantage.

Multinational firms had access to advanced technology and skilled professionals trained in Europe or the US, giving them an advantage in overseas resource ventures.

Multinational corporations (MNCs) began investing heavily in the exploitation of natural resources in the 19th century, marking the first sector where businesses saw cross-border opportunities for value creation.

Renewable resources like agriculture and forestry, and nonrenewable resources like mining and petroleum, are two main categories of natural resources.

While industries like mining are similar in their capital-intensive nature and geological dependence, different minerals vary greatly in availability.

The development of global economies in the 19th century was significantly driven by MNCs exploiting natural resources. These strategies, like resource extraction, were crucial in integrating the world economy.

MNCs established themselves in the natural resource sector, which drove the growth of the first global economy. Many of these early MNCs became industry leaders, and their dominance persists even today.

The types of multinational corporations involved in natural resource extraction vary greatly depending on the specific resource and the industry.

The unique characteristics of natural resources, including their location, availability, and extraction methods, influence the types of MNCs that emerge and their strategies.

The extraction of natural resources often requires significant capital investments and carries substantial risks, particularly in the mining and petroleum sectors.

The costs associated with finding, accessing, and using resources, including negotiating and enforcing contracts, are often referred to as transaction costs.

The tendency for market participant's behavior to be driven by self-interest, even if it might harm others, is known as opportunistic behavior.

Variations in the information available to market participants can create uncertainties that lead to information asymmetries. For example, a seller might have more information about a product than the buyer, leading to an uneven playing field.

When assets are made specifically for a particular transaction or relationship, they are said to have physical asset specificity. These assets are less easily transferable or adaptable to other uses and create a dependence between the parties involved.

Vertical integration occurs when a company controls multiple stages of production, such as extracting raw materials, refining them, and distributing the finished product. This strategy can reduce transaction costs, but it requires significant upfront investment and resource allocation.

The Bolivian tin industry differed from the Southeast Asian tin industry due to differences in the physical properties of the ores. Bolivian tin ores were more complex and required specialized processing techniques, leading to physical asset specificity in the industry.

The extent to which transactions are done within a company rather than through external markets is called internalization. It often occurs when transaction costs are high or when special assets are involved.

The theory of transaction costs helps explain the patterns of vertical integration in industries like minerals and agriculture. It suggests that companies are more likely to integrate when transaction costs are high due to issues like opportunistic behavior, information asymmetries, or asset specificity.