Armand Hammer: Portrait of an Oil Prospector

Armand Hammer, an American industrialist and art collector of the twentieth century, was among the pioneers of the oil industry in the Western world. His father's contacts in Russia enabled Armand Hammer to develop his entrepreneurial spirit, which led to the acquisition of Occidental Petroleum, an oil and natural gas exploration and development company. Libya's political instability led to Occidental Petroleum's negotiations with Libya in the early 1970's. This article will explore the impact of Armand Hammer, in his role as a pioneer of the oil industry.

Armand Hammer's father, Julius, was in the business of medicine and drug manufacturing, but had made a powerful ally in Lenin. Through Julius Hammer's associations with Lenin, Armand Hammer engaged in trade negotiations with Russia. On the eve of the rise of the Stalinist regime, Armand and his brother Victor returned to the United States, intent on selling the Russian art they brought with them. It was as a wealthy Art Gallery owner that he purchased a failing and bankrupt oil company called Occidental Petroleum. Within five years he increased Occidental's sales to $700 million. When Nikita Khrushchev came to power, Hammer renewed his contacts with the Soviet Union and acted as a mediator between the United States and Russia through the course of seven United States presidencies.

Occidental won Libyan concessions in 1965. Armand Hammer's persistence in drilling the plots of land that Occidental purchased, had paid off. Within a year, Occidental had struck "one of the most prolific deposits of oil in the world." By 1967, the six-day war which led to the shut-in of the Suez canal caused Libyan oil resources to become more valuable than before. At which point, Occidental was in possession of three billion barrels of recoverable reserves.

The United States government's concern regarding political stability in Libya was not without warrant. An unforeseen consequence of Occidental Petroleum's refineries in Libya was about to shift. The death of King Idris was answered by a series of coups that resulted in Muammar al-Qaddafi usurpation of Libyan military power. Qaddafi applied pressure to Occidental and forced a reduction in oil production. According to Daniel Yergin, author of The Prize: The Epic Quest for Oil, Money, and Power, despite Egyptian former president Gamal Abdel Nasser's suggestions in cooperation with Hammer and Occidental Petroleum, Qaddafi modeled his military structure after Nasser. Despite Nasser's sentiments of cooperation, Qaddafi had no intention of engaging in 'fair play' with Occidental Petroleum. Instead, Qaddafi persisted with a force of military strength. The next negotiations with Abdel Salaam Ahmed Jalloud, Libya's Deputy Prime Minister, guaranteed another 20% increase in royalties for Libya. "The Libyan agreements decisively changed the balance of power between the government of the producing countries and the oil companies."¹ This was of particular significance, considering Occidental Petroleum was the first western oil company to engage in negotiations with Libya. In addition, this reopened "exporters' campaign for sovereignty and control over their oil resources, which had begun a decade earlier with the foundation of OPEC." The agreement granted Libya 55% of the revenues of Occidental Petroleum's oil facilities in Kufra, Libya. It destroyed the stranglehold that other large oil companies such as British Petroleum and Shell had enacted upon Libya. The agreement compelled other oil companies to accede to Libya and Arab demands for increased oil revenues to the Arab producers as well as an increase in the price of oil. By 1979, Occidental and other companies were already working on shale oil technology as an alternative to a perilously short supply of world oil.

Armand Hammer, as an American industrialist and pioneer of the oil industry, was a highly persistent and shrewd individual. Through his trade associations with the Soviet Union he amassed the wealth that enabled him to purchase Occidental Petroleum when it was bankrupt. Notorious for his foreign associations with Russia, it was his contacts which enabled him to draw concessions from Libya in the form of land tracts, from which he struck one of the largest sources of oil for production. Hammer's negotiations with al-Qaddafi, in addition to the OPEC conference that endorsed the 55 percent minimum led to a series of leapfrogging prices. In search of alternatives to one-sided negotiations, excessive price hikes, and a potentially limited or short supply of oil, Occidental Petroleum and other oil companies began to look towards shale oil within the United States.