On 7 September 1914 the Admiralty, ‘not satisfied with the reasons adduced for the failure to carry out [his] clear duty in either attacking the enemy or heading him off’, decided to recall Rear-Admiral Troubridge to face a Court of Inquiry over the escape of Goeben and Breslau.[1] Perhaps aware that recriminations would also eventually commence to explain the failure to prevent Turkey’s adherence to the Entente, Ambassador Mallet got in the first shot when he declared, as early as 11 September, that ‘There is already an impression that, by manner of detaining Turkish men-of-war, and by letting the Goeben escape we are largely responsible for the present difficulties’.[2] This was directed, in particular, at Churchill but could Mallet have also meant that the ships had been allowed to escape as a matter of policy?[3] It was also in September that Mallet, in an unguarded moment, confessed that Britain had conspired to let in Goeben and Breslau ‘because she had a “lively interest” in not allowing the Straits to fall into Russian hands.’[4] The presence of the two modern ships would, so the theory went, forestall a Russian seaward descent upon Constantinople. Naturally, however, this ‘excuse’ conveniently spared Mallet’s blushes in having to admit that the ships had escaped by virtue of superior German strategic awareness and British bungling on a massive scale,[5] all of which, additionally, occurred while Mallet was away from his post on leave in the belief that nothing would happen on the international scene! Nevertheless, it is possible to find other references which also imply that the escape was not a blunder but a deliberate act of policy.

                On 10 August, for example (the day Souchon finally reached the Dardanelles), a discussion took place in the Quai d’Orsay involving Isvolsky, the Russian Ambassador, and French officials at which mention was made of Turkish fears concerning Russian designs on the Straits. In that case, the French considered that ‘it might be advantageous for us to draw Turkey to the number of our enemies in order to make an end of her.’ The presence of the German ships would, it was thought, give the Turks no option other than to join the Central Powers and, when eventually defeated, there would then be ‘nothing to prevent us in the liquidation of the war, in settling the question of the Straits conforming to our views.’[6] However, whatever the French might have said to Isvolsky, these views might not necessarily have encompassed a Russian occupation of Constantinople. Similarly, the assiduous wooing of Greece fostered the belief that the British desired to put the Greeks in Constantinople for the sole purpose of keeping the Russians out.[7] By October Admiral Kerr’s involvement, and the possibility of his leading a Greek force to capture the Gallipoli Peninsula (as proposed by Churchill) was an open secret amongst the British naval personnel in the Mediterranean.[8] Yet, as the evidence I have produced previously indicates, if there were a conspiracy afoot to see the German ships in Constantinople it originated not in London or Paris, but in Athens.[9]

                Indeed Sir Edward Grey, to some extent misled on the political situation in Constantinople by the over-optimistic reports of Mallet, was eager to maintain Turkish neutrality for as long as possible to avoid Muslim agitation in India and Egypt; he made his position on this known to the French and Russians within days of the outbreak of war.[10] The Russians were also separately informed on 13 August that, should Turkey accrue Russian territory as a result of a successful attack, the position would be rectified in the terms of peace. Indeed, during that week a series of assurances and warnings were given regarding Turkish territorial integrity of which it has been said that ‘These statements may not have amounted to a clear promise to deliver Constantinople and the Straits to Russia in the event of a Russo-Turkish war, but they went a long way towards it.’[11] However, Grey’s position remained somewhat in advance of that of Sazonov, who, in September, still intimated that the Turks would be allowed to remain in Constantinople.

                Sazonov’s ambivalent attitude soon changed following the closure of the Straits on 26 September; the fate of Constantinople was once more on the agenda. The Russian plans to attack Turkey through Persia caused immediate alarm when they became known in Whitehall. The day after the British declaration of war against Turkey in November 1914 the Russian Ambassador in London was notified by Sazonov that the launching of his country’s offensive would, of necessity, violate Persian neutrality. Grey was concerned on two fronts: the threat of Muslim agitation, and the possibility that the planned offensive might spread to include British political and oil interests in Mesopotamia. The Foreign Secretary took the initiative on 9 November in suggesting to Sazonov that, with the defeat of Germany, the fate of Constantinople and the Straits could not but be decided other than in conformity to Russia’s interests.[12] This opinion was also shared by the King, who declared to the Russian Ambassador that, ‘In regard to Constantinople, it is clear that it must be yours.’

                If it was the case that the Foreign Secretary was prepared to hand over Constantinople to the Russians, what other prize was worth the sacrifice? Grey became distinctly nervous at the thought of Russian encroachment in Persia, which directly threatened British interests in the Gulf and, more seriously, India itself. Maintaining Persia as a buffer therefore assumed paramount importance in the counsels of the Foreign Office. This, in itself, was a suitable reason for Grey not to have been overly concerned when balancing the scales by hoping to trade Constantinople for a free hand in Southern Persia and the Gulf. But was there another, underlying, reason to explain the British desire to maintain their position in Persia? To what extent was the Royal Navy dependent upon the vast reserves of oil believed to exist beneath the inhospitable desert? How did Grey and Churchill view the German participation in the Baghdad railway project and the German quest for oil for their own navy, which appeared as if it would lead to confrontation in the desolate wastes of Mesopotamia? Was the Constantinople ‘deal’ a simple equation — the Straits for Russia and the oil for Britain? To begin to answer these questions it is necessary to return to 1901 when William Knox D’Arcy obtained an oil concession in Persia.[13] This was soon turned to advantage when, the following year, the Russians proposed to build an oil pipeline from Northern Persia to the Gulf which, while not serving the obvious purpose of delivering oil, provided a convenient excuse for Russian peaceful penetration in an area where they were decidedly unwelcome. The Russian scheme was quashed by offering the Shah the loan he was seeking in the form of an advance from D’Arcy.[14] In such a roundabout way D’Arcy had performed his first service for the British Government.

                At the same time and after a series of exhaustive tests – first in stationary boilers on shore, then in dockyard trials, and finally on seagoing warships – the Admiralty decided to adopt oil fuel; initially, however, it would be only as an auxiliary to be burnt in conjunction with coal. Oil would be brought into use gradually; to begin with seven battleships and three armoured cruisers were converted so as to be able to utilize, in part, the new fuel. On 11 November 1903 the Admiralty Oil Fuel Committee met for the first time with a remit to investigate actual and potential sources of supply existing in British territory or within British spheres of influence and with a guiding principle that it was ‘inexpedient to depend in peace time upon resources which would probably fail in war time.’ The results were not encouraging. Russia and Roumania were soon eliminated as no reliance could be placed on certainty of war time supplies, while, in the U.S. – which initially appeared a more promising prospect – a coal strike in 1902 had created an increased home demand for oil, leaving little to be exported; there was also the additional disadvantage that Texas oil had to be specially desulphurized for naval use. It was evident to the Committee then, ‘that the quantities of fuel oil available and in sight are much less than has hitherto been supposed, and there can be little doubt that, at the best, only sufficient will be obtainable for use as an auxiliary to coal. Oil must therefore be regarded as a supplement not a substitute.’

                Because of this scarcity and the impossibility of relying upon casual purchases, the Committee recommended the formation of a substantial reserve of oil fuel with contracts arranged for definite supplies over a period of years. This recommendation was acted upon by the Admiralty on 19 July 1904. Two problems immediately presented themselves: first, that where oil existed or was thought to exist in British territory, foreign syndicates might intervene ‘whose policy is to secure control of any oil deposits of a promising character, not necessarily with the object of working them, but of shutting them down and excluding would-be exploiters, in order to curtail competition and artificially manipulate the world’s supplies…’ Second, even by 1905, world production of crude oil amounted only to 30 million tons (compared with 900 million tons of coal), with the bulk of the supply being drawn from non-British sources.[15]

                When all the other competing sources were eliminated Persia appeared to offer the best prospects of promising supplies in a British sphere of interest. There, D’Arcy’s concession had been ‘acquired in British interests, and negotiations have privately taken place between him and the [Oil Fuel] Committee, with a view to keeping the enterprise, as far as possible, under British influence, and to give the Admiralty a call upon the production.’ By 1907 however D’Arcy’s syndicate had expended large sums with little to show for it; furthermore, his work was continually being hampered by native tribes disinclined to recognize a concession granted by the Shah. In the meantime such exotic substances as Scotch shale oil and Russian ostatki (best residual oil) in addition to oil from Burma, Borneo and Barbados had all been tried satisfactorily in British ships, although the principal source continued to be Texas oil with its attendant problems. By late 1907 tank storage for 20,000 tons had been erected at Portland and a further 25,000 tons was stored in leased tanks by the Thames.[16]

                Fisher’s accession as First Sea Lord in October 1904 ensured a rapid build-up of oil fired ships. Long a convert to the benefits of oil, Fisher had been advocating its adoption to Lord Selborne as early as December 1901.[17] He wasted no time in transforming thought to action, starting with the ocean-going torpedo boat destroyers and first class torpedo boats of the 1905-06 programmes, which were all designed and built to burn oil only. Unfortunately, Fisher’s mania for oil came at an awkward moment as D’Arcy was in trouble: harassed, short of funds, and on the point of giving up the search. The outcome, following secret negotiations, was that the Admiralty persuaded the Glasgow-based Burmah Oil Company to inject new capital and take over D’Arcy’s concession — this assured that drilling would continue but did not solve the immediate problem as the new syndicate could not find oil either.[18]

                Edged out of Persia following the take-over, D’Arcy himself continued in his efforts to obtain an oil concession in Mesopotamia, convinced that deposits could be found there even if his faith in the potential of this region was shared by few others. As honorary attaché in Constantinople in 1905 Mark Sykes had gathered information from European investigators sent to the area, which he combined with findings from German engineers who had worked in the region four years previously. With this evidence he produced an ambitious report – The Petroliferous Districts of Mesopotamia – in which he urged that British consuls in the area should be directed to validate his findings before competitors moved in. His recommendations were quietly filed away at the Foreign Office.[19] In Persia meanwhile, by the start of 1908 the Burmah Oil syndicate, thoroughly discouraged, had had enough. Then, in a scene more reminiscent of Hollywood, just as all seemed lost, the first great oil strike was made in May — at the last possible moment. Upon the basis of this strike, the Anglo-Persian Oil Company (APOC) was floated on the London Stock Exchange in April 1909, the shares being taken up within half an hour of being offered.[20] With Persia now guaranteed as a source of fuel and the concession firmly in British hands attention focused again on Mesopotamia where D’Arcy was making little headway in his attempts to obtain the concession there.[21]

                By 1911 the British had a new menace to contend with: German peaceful penetration into the Persian Gulf, an unwelcome addition to Russian encroachment from the north. Information was received privately by Sir Arthur Nicolson at the Foreign Office in July of that year ‘of the efforts being made by the Germans to extend their influence in these parts.’ Germans, it was reported, were buying large quantities of grain at heavy losses and then, on the basis of the resulting shipments, were publishing statistics showing that their trade in the region was increasing by leaps and bounds: ‘on this showing, Germany, it is anticipated, will claim an interest, and endeavour to exert an authority in Gulf matters, which do not properly belong to her…’[22] This raised serious implications given the Navy’s headlong rush to construct oil-only ships, a trend which was furthered when another oil ‘maniac’, Churchill, was transferred to the Admiralty in October 1911. By that time there were 189 vessels built or building depending wholly or in part on oil, and consuming 200,000 tons annually. Yet Churchill found that, instead of the expected ‘considerable reserve’ of oil fuel, all that existed was enough for four months’ expenditure for ships using oil only and three months’ for ships using oil and coal![23]

                Without hesitation Churchill set up a Departmental Committee, under the auspices of Captain William Pakenham, the Fourth Sea Lord. The terms of reference were simply defined:

1. How can a sufficient supply of oil be obtained and a sufficient reserve stored in the United Kingdom to enable us to use oil fuel only in all new construction?

2. What steps should be taken to establish the reserve of oil fuel? From what sources, in what ships, and along what routes should it be obtained?

3. In what circumstances, at what expense, and up to what date will it be possible to convert the four battleships and one cruiser of the 1911-12 programme into ‘oil only’? What addition to the existing reserves of oil fuel would be necessary on this account alone?

4. Generally to report on the advantages, or otherwise, of relying upon oil for the Naval Service including effects on personnel, and cost.[24]

As a result of the Committee’s findings, in addition to a recommendation of twelve months’ wartime supply, it was decided to lay down a division of fast battleships; to design a fast, light armoured cruiser; and to continue the destroyer programme with the aim of achieving an even higher speed. There was one casualty however for, with the prospect looming of a 26 knot battleship, ‘the battle cruiser was put into temporary and perhaps permanent abeyance.’[25] As far as the smaller vessels of this new programme were concerned the point of no return in relation to oil had been reached. As Churchill admitted, ‘The light armoured cruisers simply could not be constructed on a coal-burning basis. They would have to be greatly increased in length, in which case they would become too expensive craft for the numbers and service required, or they would lose from 3 to 4 knots speed, and be consequently quite unfitted for the tactical duties for which they were designed. Without the permanent use of ‘oil only’ this excellent type would be permanently denied us…’ A similar argument applied to the destroyers.[26]

                For a sizeable portion of the Navy therefore the possession of guaranteed supplies of oil had become essential. Churchill subsequently maintained that he ‘found that no difficulty had been experienced in buying all the oil that was needed’ — but it was not that simple, as Francis Hopwood discovered when dining with Watts, the Director of Naval Construction, who contrived to mix oil with the wine. Hopwood, an additional Civil Lord at the Admiralty, informed Churchill that Watts ‘rather astonished me by saying that there was no difficulty whatsoever in designing a Dreadnought to use oil only…but that it had never been done because “we have not got the oil”. This gives me a clearer understanding of Fisher’s attitude as to construction going hand in hand with oil purchase.’ Hopwood also learned that the German Government had acquired ‘very large oil interests’ in Galicia and Roumania by the ‘interesting device’ of buying sufficient shares in indigenous companies to acquire voting control. ‘By this method’, he argued, ‘the [German] Government is not put in the awkward position of owning and managing a great commercial undertaking in a foreign country but they are in a position to regulate price, output and destination of supply!’[27]

                In an attempt to find a solution to the problems of supply Churchill now proposed the appointment of a Royal Commission on Oil Fuel, with none other than Fisher as chairman. But the voluble old sea dog had fallen out with Churchill over the question of the appointment of, amongst others, Sir Berkeley Milne to command the Mediterranean Squadron. Churchill thereupon took the opportunity of a Mediterranean cruise aboard the Admiralty yacht in May 1912 to rebuild bridges: Fisher, then residing at Naples, was reluctant at first to accept the First Lord’s offer but succumbed to a judicious mixture of flattery and pleading from Churchill (and Asquith, who was also present). Churchill put it to Fisher thus: ‘Find us oil in sufficient quantities and at a reasonable price in peace, & without interruption in war, make us feel we can count on it & swim on it…’[28] Presented with such a challenge Fisher at first accepted — and then declined! He wished to enlarge the terms of reference of the proposed Commission to cover design as well, with particular emphasis on his pet project for an ‘internal combustion engine’ battleship.[29] Churchill gave Fisher some leeway by allowing that, so long as the ‘old controversies’ were not needlessly revived, and the Committee’s representative character was maintained, he did not ‘care a damn whom you choose to assist you’. However, Churchill strenuously declared, the Royal Commission would have to be advisory and not executive: ‘It will assemble facts & state conclusions. It cannot touch policy or action.’[30] Fisher relented once more.[31] Captain Philip Dumas, who was appointed Secretary to the Commission, quickly realized what he was in for: at preliminary meetings with Fisher he discovered the latter already bent on subjugating certain members of the Committee. Dumas resignedly noted in his diary that ‘it seems to me all it is being called together for is to register foregone conclusions on the part of Fisher and Churchill.’[32]

                The Admiralty’s problems had by no means been solved after the Persian oil strike of 1908: the oil had indeed been found but many years would pass before refineries could be built and pipelines constructed. It was only in May 1912 that the first cargo of oil was ready to leave. Furthermore, the APOC was a relatively small player in the oil game and found that its markets were already at the mercy of the large combinations Standard Oil and Shell.[33] Shell, in particular, sought favour at the Admiralty, but with a 60% holding owned by Royal Dutch Petroleum, the company was thought to be susceptible to German influence and was viewed with suspicion.[34] Official dislike of Shell was not ameliorated when it became known in August 1912 that, in his quest for the Mesopotamia oil concession, D’Arcy now faced competition from the Turkish Petroleum Company (TPC) which was owned 50% by the National Bank of Turkey,[35] 25% by the Deutsche Bank, and 25% by a subsidiary of Royal Dutch-Shell.[36] Then, in October, financial necessity induced the APOC to sign an agreement with Shell by which the latter purchased large amounts of crude and refined products, though not fuel oil.[37] Shell had already tried before, unsuccessfully, to force a merger between themselves and the APOC and were now using their attempt to obtain the concession in Mesopotamia as a lever to attain their goal. With Shell ensconced on their flank in Mesopotamia, Anglo-Persian would be extremely vulnerable. Charles Greenway, APOC’s managing director, predicted that, if victorious in the race for the Mesopotamiam concession, Shell would start a price war which would leave the APOC exposed and unable to resist a merger; once this objective had been achieved Shell could then force the price up, with dire consequences for the Navy.[38] Greenway’s alarmist views prevailed at both the Foreign Office and the Admiralty, as was made clear when Nicolson informed Marling, who was in charge in Constantinople while Lowther was on leave, that:

After consulting with the Admiralty, who do not at all like the idea of a foreign syndicate having control of large oil supplies in Mesopotamia, we have…told the National Bank that we are unable to support their request for a concession. Of course our main reason is that we have already advocated and supported the demands of the Anglo-Persian Oil Co., and it would certainly be unfair to the latter to encourage a competitor who is largely backed up by foreign capital. The reason which we have given to the National Bank is simply that we have already pledged ourselves to support Mr D’Arcy and company and that it is therefore impossible at a late hour to encourage another competitor, but we are going to verbally tell Babington-Smith [a director of the Bank] confidentially that after considering the whole matter our Government do not like the idea of entrusting to a syndicate which, though nominally British, is in reality composed of two very powerful foreign syndicates the control of so large a supply of oil fuel…[39]

Having thus seen off the competition in Mesopotamia, Greenway turned his hand towards strengthening the precarious financial position by brazenly suggesting that his company might receive a Government subsidy.[40]

                Greenway gave evidence at Fisher’s Royal Commission on 19 November 1912 and outlined the perceived threat from Shell.[41] When Fisher had finished his questioning Sir Frederick Black, the Director of Navy Contracts, then took the opportunity to clear up the subject of German influence. Suppose, he asked Greenway, Anglo-Persian and Shell were compelled to come to an arrangement and that the Foreign Office then backed both companies in the attempt to obtain the Mesopotamian concession — was Greenway suggesting that, in that eventuality, German influence would necessarily come in? ‘Absolutely,’ was Greenway’s less than reassuring answer. Greenway claimed that, in Persia, the APOC held the biggest oil concession ‘perhaps in the whole world’ and there was a distinct possibility that the Mesopotamian oilfields would be just as valuable as the Persian; however they had now arrived at the stage of actual production and had ‘to make up their minds whether to attach themselves to the Admiralty or the Shell Group’ who were pressing them to come to an understanding. Greenway proposed that the Admiralty should enter a contract with the APOC, either directly or through the Indian Government, for half a million tons of fuel oil per annum: a contract over fifteen or twenty years ‘would meet their requirements and would prevent their being absorbed by the Shell Combine, provided they have a guarantee and a subsidy’. Greenway placed a suggested figure on the subsidy of £100,000 per annum.[42]

                As wily as ever, Fisher, anticipating the fact that witnesses before his Commission might request Government financial aid, had prepared a draft memorandum five days before Greenway appeared. The proper course, he felt, was for the Commission to obtain all the useful information they could for the guidance of the Government, and leave it to the Government to decide. In a further blow to Greenway’s crusade, Fisher was not, at that stage, unduly concerned with the nationality of the sources of supply, being ‘confident that available supplies of oil-fuel for the next 20 years will be so abundant that we need not trouble about national control or trade monopolies, and that we may safely go on buying in the cheapest market for the time being, though the removal of all cause for anxiety will only be completely achieved by getting sufficiently large stocks of oil accumulated within the next few years, and to this end there should be a steady progressive programme of Government storage to provide fully for a great war, and keep us independent of any sudden rise of prices engineered by the trade.’[43]

                Fisher was not entirely convinced by Greenway’s performance on 19 November and, at one point, caustically inquired whether the APOC’s ‘magnificent patriotism’ was not a convenient excuse for making large profits. Equally however, Captain Dumas, the secretary, was unhappy when, after lunch, it was the turn of Marcus Samuel to give evidence. Although the summary of his evidence conceded that the Royal Dutch had ‘absolutely a controlling voice in the policy of the Shell Company’ so that, if they won an Admiralty contract, ‘the foreign directors or foreign influence would have to concur’. Samuel was confident this would not be a problem: ‘but, of course’, he sanguinely maintained, ‘they would concur as, fortunately, they are extremely pro-British.’[44] It was not difficult however to see the cause of Dumas’ unease: he felt that Samuel had given himself away by acknowledging that oil could not be supplied without the consent of the foreign directors. ‘As they are Dutch’, Dumas recorded in his diary, ‘and again controlled by the Deutsche Bank our condition in time of war can better be imagined then described unless we possess ample reserve storage in England.’ Not content with leaving the matter there, Dumas (somewhat unconstitutionally) ‘Wrote a long letter to Sir A. Nicolson on the possible gains by supporting the Anglo-Persian oil fields’[45] and, to lend added emphasis, he included with his letter to Nicolson a clipping from the Financial News of 14 November suggestively entitled “Will Germany control the Oil Supply for our Navy?”[46]

                Dumas need not have been unduly concerned as the Foreign Office was ahead of the Admiralty in accepting the need for Government support for Anglo-Persian. The following morning, 20 November, a meeting was held at the Foreign Office between representatives from the Admiralty, India Office and Board of Trade. Despite the evidence of the previous day, when he had interrogated Greenway about the alleged extent of German influence, Sir Frederick Black was still loathe to consider the question of a subsidy, preferring the Admiralty to remain a free agent. Following the meeting Grey wrote to the Admiralty to ascertain if they no longer cared that the APOC might be swallowed by Shell? In that case, ‘if there are not sufficient public grounds on which to give the Anglo-Persian Oil Company more than diplomatic support the Foreign Office cannot urge them to hold out against the advantageous invitations to throw in their lot with the Shell combine.’[47] The Admiralty did not reply to this transparent threat until 28 December.

                Long before this, on 27 November, Fisher’s Royal Commission had produced its first report. The members were left in no doubt as to the advantages of oil: the ‘oil-only’ ship possessed a marked superiority of speed over the ‘coal’ or ‘coal and oil’ ship; the radius of action using oil was increased by 40% for the same weight of fuel; oil enabled a fleet to refuel at sea; this, in turn, conferred on the British fleet a special advantage in not being forced to leave its fighting position in order to refuel (the strength of the fleet would be ‘thereby increased by at least 25%’); oil was easy to load and store, whereas coaling was lengthy and laborious; oil allowed a much more rapid increase in steam production; in a coal ship when part of the coal had been burnt the ship could not attain full power except by taking men from the guns to trim coal in the bunkers; and oil also held out the hope of producing ships fulfilling given conditions of speed and armament but upon lesser dimensions and, therefore, at smaller cost.[48] With regard to reserves, the members were of the ‘decided opinion that the stock of oil-fuel should never be allowed to fall below at least four years’ current peace consumption.’ In the meantime, ‘Every acceleration in the accumulation of this reserve will directly increase the security of the nation against war risks, price combinations and fluctuations of supplies.’[49]

                Still Dumas remained uneasy: although he confided that in going so far as to recommend, perhaps unexpectedly, a four year peace reserve ‘everyone [was] equally pleased & surprised & rather frightened at what they’ve done’ he was forced to admit that it was also ‘rather a tall order & based on nothing really logical & it is this aspect which worries me as I foresee it will devolve upon me to justify it from the evidence.’[50] Dumas’ conviction that it would fall to him to argue the case stemmed in large part from the fact that Fisher, in line with the condition he had already attempted to impose, had been diverted and now seemed more interested in his latest project — the internal combustion engine battleship. Fisher had become convinced that the Germans were ahead in these ‘motor’ ships: ‘They have killed 15 men in experiments and we have not killed one!’ he lamented to Esher.[51] Fisher took his infatuation so far that he had already threatened to resign from the Royal Commission unless Churchill agreed to lay down an internal combustion battleship.[52]

                The First Lord had other things to worry about. While confirming the Admiralty view to the Foreign Office – that the APOC should not receive direct financial support as, by so doing, the Admiralty might risk cutting off other sources of supply – Churchill raised the question which, though often otherwise unstated, would bedevil the negotiations. By lending whole hearted support to the Persian oil fields the time might come when naval and military action could be needed to protect the operation.[53] In addition, the Royal Commission’s recommendation regarding reserves had caused consternation in the Admiralty, where it was reported that there was a considerable faction wanting to revert to coal for the new ‘fast’ division of battleships two of which – Queen Elizabeth and Warspite – had already been laid down. However, when an attempt was made to debate the Commission’s report at the C.I.D. on 7 January 1913, Asquith promptly declared that ‘it was a matter of high policy and so for discussion by the Cabinet alone.’[54] Churchill’s strategy of getting Fisher to preside over a tame Royal Commission which would do no more than reiterate the importance of oil had backfired spectacularly. ‘The only consequence of prescribing impossible standards like those proposed by the Royal Commission,’ he fumed to Battenberg the day after the C.I.D. meeting, ‘will be to arrest the adoption of oil in the British Fleet with consequent loss.’

                Having been foiled by Fisher, Churchill instead instructed Battenberg to set the War Staff on the problem. Acting under Battenberg’s directions, the War Staff, Churchill ordered, ‘must be the prime authority for prescribing the reserve of fuel oil…This is a question of principle which is governed solely by military considerations.’ Not content with overthrowing at a stroke the Commission’s recommendation, Churchill also dictated the guidelines for the War Staff investigation: it was not up to the War Staff to concern themselves ‘with question of price or market ‘corners’ or other commercial aspects. It may be assumed that for a purpose so vital as the supply of oil to the Fleet in time of war the British Government could afford to pay a price which, so far as commercial considerations go, would command a market.’ Churchill could not understand why, with British command of the sea, there should be any difficulty ‘in bringing the necessary oil ships to British ports safely’ thus obviating the need for over-generous reserves.[55] The Director of the Operations Division was put to work to produce a memorandum on the transportation of oil: he reported that, although the supply of Persian oil might become unreliable in the event of trouble with Russia, its shipment to the U.K. presented no great problem so long as Britain maintained maritime supremacy in the Indian Ocean ‘on a scale sufficient to make it very improbable that our command of those seas could be disputed with a reasonable chance of success.’[56]

During January 1913 the conflict between the relative merits of Anglo-Persian and Shell deepened. A blow was struck against Shell when a memorandum on Oil Supplies was prepared for the Cabinet which highlighted the alleged cartel believed to be operated by Standard Oil and Shell, the two giants of the industry. Furthermore, Shell’s capital was thought to derive in considerable part from German financial sources (with the Deutsche Bank being especially involved) and it was known that German financial interests were active in seeking oil in Galicia, Roumania, Russia and, now, were chasing the Mesopotamian concession.[57] Yet, while this detracted from Shell other factors operated in its favour, particularly the favourable impression made upon Fisher by Henri Deterding, the Managing Director and guiding light of the company, as opposed to Marcus Samuel, the Chairman and figurehead.[58] On the other hand, to the APOC’s detriment, Greenway’s continual bleating was beginning to wear thin. Louis Mallet, then still at the Foreign Office before replacing Lowther in Constantinople, complained:

I do not like the attitude of the Anglo-Persian Oil Company who have hitherto posed as being ultra-imperialist. Mr. Greenway first comes to me and hints that, if the Shell obtain the Mesopotamian oilfields it will be difficult for the Anglo-Persian Oil Company to resist coming to an agreement with them — unless the Admiralty can give them a contract. I did not at that time understand that an agreement meant more than an understanding as to the sale price of oil. Greenway now threatens complete absorption with the Shell unless the Admiralty give him a contract and the question of the Mesopotamian oilfields seems to have dropped out entirely…[59]

Mallet laid a trap for Greenway. During discussions on 9 January Greenway was forced to admit that as, without Admiralty support, Anglo-Persian would inevitably have to merge with Shell, the company no longer needed Foreign Office assistance in its attempt to obtain the Mesopotamian concession. This threat of the withdrawal of diplomatic support was confirmed by letter on 5 February.[60] The ruse worked in that not only did Greenway declare that he personally strongly opposed the merger with Shell, but he also confided that Shell was attempting to gain control of the Mexican oilfields and that, ominously, Anglo-Persian had been approached by the German Government to quote for oil supplies in anticipation of a long-term contract.[61]

                The focus then shifted back to the Royal Commission which continued to take evidence before submitting its second report on 27 February 1913. On the day before the report was delivered Deterding himself gave evidence in an attempt to defuse the anti-Shell testimony. When asked – given the controlling interest of Royal Dutch in Shell – what would happen if in a war Germany threatened Holland, Deterding insouciantly maintained ‘We could snap our fingers at Germany. What can the German Government do? They can write very nasty letters and say anything they like to the Dutch Government, but that has not anything to do with us…’ Sir Frederick Black, still on the trail of the German influence, asked Deterding directly whether there was any German element of any importance in the combine: ‘Not a penny’, came the none-too-convincing answer.[62]

                Although Fisher continued to be impressed the second report paid little heed to Deterding’s last ditch efforts to reassure the Commission about Shell. With recent evidence pointing to the Royal Dutch-Shell combination acquiring control of a large proportion of the available supply the Commission found its apprehension justified that:

unless forward contracts for deliveries of oil-fuel extending over a number of years are promptly made with producing companies at present independent, much higher prices will have to be paid, and that in certain circumstances which may arise it might be impossible to obtain at any price supplies from some of the more important of the existing sources.

Although the Commission reiterated its previous stance against deciding upon the relative merits of the competing claims it was now felt desirable ‘as a general principle, for the Government to give financial help in cases where such help may be necessary for the preservation of independence of control of important sources of supply already developed.’[63] By thus supporting the APOC’s existing Persian fields the company would thereby have the capital to develop the neighbouring Mesopotamian fields, assuming of course they were successful in obtaining the concession.

                Lending urgency to the recommendation for forward contracts was the rapid increase in the price of oil, making it all the more important for the Admiralty to try to take advantage of fixed prices; conversely, in a rising market, the prospect for the oil producers of being tied to a price years ahead was not generally attractive.[64] Looking five years ahead, the only increased supply predicated by Sir Frederick Black came from Persia: with all the other sources remaining constant, Persia was forecast to increase from 2,000 tons per month in 1913-14 to 16,000 tons per month for 1917-18.[65] These figures were too low for Churchill’s liking, the result in part of the demanding Admiralty specification; Black was instructed to rework the figures on the basis of an altered specification[66] which allowed greater use to be made of oil extracted from shale. Excluding this, the greatest increase Black felt justified in allowing was still from Persia on the basis that the APOC ‘before they get their fresh capital for development, might in time of war divert about 70,000 tons of oil now sold to other customers.’ The forecast was now for 25,000 tons of Persian oil per month by 1917-18; Black was confident that war supplies would be obtainable ‘providing that a certain definite line of contract policy were adopted.’[67] But time was running out.

                ‘Daily the prices of oil are rising’, Churchill was warned by an internal memorandum in March 1913, ‘and daily the supplies are becoming more restricted through far-seeing users anticipating their requirements and getting a lien on production.’ As an illustration of this unsettling prediction the writer noted that, when appearing before Pakenham’s committee early in 1912, Marcus Samuel had offered to supply, to Admiralty specification, a million tons a year on a long contract; he had immediately been interrupted by Deterding who, more cautiously, offered half a million tons. Now, in 1913, Deterding was offering only 100,000 tons, and this to his own specification, ‘the fact being that in the meantime prices have risen very greatly and he has pledged all his oil supplies for years ahead.’ However, the writer added somewhat acerbically, the Navy need have no fear of an oil famine as long as it was prepared to pay the price for, when asked if he could guarantee supply if price were no object, Deterding’s reply had been commercially honest, if politically insensitive. ‘Absolutely,’ he had declared. ‘It is entirely a question of price. If the Admiralty pays £4 or £5 a ton (taking a figure at random) you will always get supplies with no difficulty.’[68]

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