Actual Blood for Actual Oil: When Standard Oil Invaded Paraguay

In our increasingly corporate world, we often have paranoid fantasies about corporations starting wars solely for the sake of their shareholder’s profits. The vast majority of the time, these fears are nonsense. The US of A didn’t invade Iraq for the sake of Halliburton any more than Hitler sent the Jews to concentration camps for the sake of I.G. Farben.

But, at least once, it really did happen: between 1932 and 1935 Paraguay was invaded by an army of tanks, machine guns, and airplanes operating at the behest of Standard Oil of New Jersey.

John D. Rockefeller, the founder of Standard Oil, and the man who—despite the breakup of Standard Oil in 1921—was still the largest shareholder in each of its 10+ successor companies

John D. Rockefeller, the founder of Standard Oil, and the man who—despite the breakup of Standard Oil in 1921—was still the largest shareholder in each of its 10+ successor companies

The early 1930s were a very difficult time for the great American oil companies, by which I mostly mean the various Standard Oils of _______ who, despite the break-up of the original Standard Oil in 1911, still operated as a loose, if unwieldy, cabal. First, there was the Great Depression which, as you might expect, considerably reduced the demand for gasoline. Second, a massive sea of oil was discovered in East Texas.

This picture of an East Texas town comes from the 1950s, but it still shows how overwhelming the oil reserves of East Texas were.

This picture of an East Texas town comes from the 1950s, but it still shows how overwhelming the oil reserves of East Texas were.

This meant that at that moment of worldwide economic weakness, the oil didn’t just flow out of Texas, it flooded out of Texas, lowering the price of a barrel of oil on the Wall Street exchanges to the price of a sandwich. Had not Franklin Roosevelt, upon ascending to the Presidency in 1933, immediately intervened to change the mineral laws and force the both Standard and Texan oil companies into an organized, government-encouraged cartel, the great American oil companies, the corporations that would later grow up to be Exxon and Mobil and Gulf and Texaco and Chevron and Marathon and British Petroleum, might have all collapsed.

Texas, however, didn’t hold a monopoly on oil fields. There had been significant oil strikes in Russia, in Iran, in Indonesia, in Romania etc. There had even been a few finds here and there in South America. Around the same time as the Texas strike, Standard Oil of New Jersey (probably the most aggressive of Standard Oil’s children and the one that would eventually grow up to be ExxonMobil) found what it thought were some pretty impressive pockets of crude in the hills around the town of Villa Montes in southeastern Bolivia, on the edge of what was called the Gran Chaco.

The Gran Chaco was sort of the Wyoming of South America. It was vast, it was flat, it barely got any rain, and hardly anyone lived there expect a half-handful of savages and lunatic cattle ranchers. Because of this, Bolivia and its neighbor Paraguay had never really gotten around to settling who controlled what. Both countries claimed all of it, but neither country cared enough to make their claims a reality. They built a few forts. They fought a few skirmishes. They created a line of de facto control. But, impoverished and beaten down by their neighbors, the two landlocked countries mostly just let the nearly uninhabited wasteland between them be just that—a no man’s land.

The Gran Chaco at its most verdant.

The Gran Chaco at its most vibrant.

Peering out from Villa Montes, however, Standard Oil and its team of geologists started to wonder if maybe there was oil underneath the Gran Chaco. Maybe there was a ton of oil. Maybe there was a second Texas. The more they drilled in Villa Montes and the more they thought about it, the more convinced they became that there was an ocean of oil sitting out in the miserable disputed scrub brush between Bolivia and Paraguay waiting for any Tom, Dick, or Harry with a drilling rig to claim it.

As you might expect, the idea that there was bountiful wealth sitting underneath the Gran Chaco didn’t stay a secret. All of a sudden, everyone in the world seemed as convinced as Standard Oil of the Gran Chaco’s potential. Word spread that representatives from Standard Oil’s great international rival, Royal Dutch Shell, were spotted hanging around in the Paraguayan capital of Asuncion. In Argentina, government officials (who tended to arrogantly think of Paraguay as a puppet state) gloated about how much more powerful they would be once oil from Paraguay started rolling down the Rio de la Plata, and Buenos Aires businessmen licked their chops knowing full well that impoverished Paraguay could never afford to exploit the oil on their own and would certainly need their “investment.” Even if there weren’t yet wildcatters piling onto every boat steaming up the Parana River into the depths Paraguayan Chaco, the sharks were circling.

Instead of transforming their pupils into dollars signs, the Gran Chaco sent the good people at Standard Oil of New Jersey into more or less a blind panic. The last thing they needed was more oil. Especially bountiful, uncontrolled oil. After only a couple years of production, the East Texas fields had brought the American oil industry to its knees. The Gran Chaco could kill it. It could drive down oil prices drop to sub-sandwich levels. It could make oil so cheap they’d start giving away barrels of black gold in boxes of cracker jacks. Something had to be done. The Chaco had to be controlled.

Thankfully, the Bolivian government was an ideal candidate for manipulation. Having only recently been installed in a coup, their legitimacy was questionable. Their governance was often ineffectual. Their economy was a disaster (it was the Great Depression after all).  Standard Oil and its derricks at Villa Montes were essentially the one ray of prosperous light in the interminable darkness of Bolivia’s poverty. The Gran Chaco could turn that ray into a supernova. As anyone in the Middle East or North Dakota will tell you, discovering massive oil reserves is the national equivalent of winning the lottery. Money would rain from the sky, if not on the Bolivian people, than at least on the Bolivian rulers.

But not without the help of Standard Oil. Extracting oil requires engineers, pipelines, trucks, refineries, access to international commodity markets, stuff that Bolivia didn’t have any hope of acquiring on its own. If Bolivia was going to be transformed overnight from the old sick man of South America to the America of South America, it’s important to remember that it was only going to happen by the good graces of Standard Oil of New Jersey and its respective shareholders.

Milkshake

And so, given the choice between a war that promised them massive wealth and a peace that offered them only continued, if not greater, poverty, the Bolivians chose war.

Using a supremely generous line of credit from Standard Oil, the Bolivian army went on a European killing machine shopping spree. They bought an assortment of British tanks, fancy German airplanes, water-cooled machine guns, elaborate mobile artillery batteries—even Czech and German military officers found themselves packed into cargo crates bound for Bolivia.

Vickers_E

One of Bolivia’s most treasured purchases was a set of Vickers Six-Pound tanks, which required more than a year to drag all the way from England to the Chaco.

Bristling with Standard Oil-purchased weapons, Bolivia had what complete military supremacy over Paraguay, a nation whose army had only one gun for every three soldiers, the rest relegated to resisting invasion merely with machetes. All that was left was to do was invade.

But who could lead that invasion? Certainly not a Bolivian. Bolivia had lost every war it had ever fought. Instead there was only one man the Bolivians dared trust with their shiny, new, heavily-mortgaged army: Hans Kundt.

Look at that mustache. It practically screams leadership.

Look at that mustache. It practically screams leadership.

Kundt was a legendary figure in Bolivia. 20 year before, he had been sent by Germany on a goodwill mission to whip the Bolivian army into shape and impressed everyone by being A) German, B) German, and C) actually taking an interest in whether or not the Bolivian soldiers, not just the officers, had things like food and clothing. After WWI, Bolivia had invited the now unemployed Kundt back, appointed him a general, and more or less let him run the military all through the 1920s. In the ‘30s, they briefly exiled him, but now that die would soon be cast, they quickly summoned back the greatest soldier Bolivia had ever known to lead the greatest military triumph Bolivia would ever know.

It turned out, though, that Hans Kundt was a bit of a McClellan—organizationally gifted, beloved by the troops, able to instill discipline and order, but utterly incompetent when it came to actually fighting. Like so many Bolivians, he let himself believe that the war was already won. He didn’t organize supply systems. He didn’t plan any sort of long term combat operations. He didn’t even visit the Chaco once to get a grasp of what the terrain and climate were like where he was going to be fighting. His war plan was almost literally:

Step 1: March forward

Step 2: Whatever

Step 3: Paraguay immediately surrenders

Step 4: Victory parade!

He didn’t even have any interest in using any of the fun toys the good people at Standard Oil had gone through so much trouble to buy Bolivia. Tanks? Airplanes? Who needed them! He was Hans Kundt and he was going to invade Paraguay the old fashioned way: with just an undulating blob of soldiers, like it were 1914, if not 1870.

Initially things went relatively well for the Bolivians, if only because they vastly outnumbered their enemies, with Kundt advancing deeply into the Chaco, capturing a whole slew of poorly defended but strategically important forts, and menacing Paraguay’s second most populous city, Concepcion. The deeper he went, however, the more difficult things became.

First and foremost, instead of realizing their conquest was imminent and disintegrating like a herd of cats during a rainstorm, the Paraguayans fought harder and harder. Paraguay had spent its whole national life being ravaged by bigger, stronger, richer enemies. During the War of the Triple Alliance, Argentina and Brazil had overwhelmed the small isolated nation, stripping it of over half its territory and killing 90% of its young men. Now, faced with a repetition of that miserable fate, they refused to surrender one dusty inch of land to their assailants. Forts that were supposed to fall with ease took weeks of bloody siege fighting to capture, if they fell at all. Formations thought smashed to oblivion by Bolivian firepower would reform again and again to carry on the fight.

Tenacity, though, wasn’t the only reason the Paraguayans were able to do this. They also had remarkable leadership.  While their soldiers were mostly assorted indigenous and peasant conscripts armed all too frequently with machetes instead of guns, many of their officers had spent time in the French Army during WWI. Unlike Kundt, they had realized that WWI was a horrible way to fight a war in temperate Europe, let alone in a scrub brush desert. While Kundt reportedly disdained the very idea of trying to flank an enemy, the Paraguayan commanders switched fluidly back and forth between trench warfare and guerilla warfare, planted mines, lured Bolivians into traps, and communicated in the indigenous Guarani language instead of Spanish so as to keep the Bolivians confused and oblivious to their movements.

A group of a Paraguayan soldiers being reviewed by an officer. Notice many of them don’t have shoes.

A group of a Paraguayan soldiers being reviewed by an officer. Notice how many of them don’t have shoes.

Kundt’s second problem was water. In the great, dry expanses of the Gran Chaco, thirst became for the Bolivians what winter would be for the Germans a decade later in Russia: their doom. At the apex of the Bolivian advance, as many soldiers were dying from dehydration as Paraguayan bullets. As the war dragged on and on and tens of thousands of Bolivians found themselves wandering the Chaco, as desperate for water as they were fearful of their enemies, the war began to be called La Guerra de la Sed, or the War of Thirst.

After six months of measured success, the Bolivian advance finally broke down at a place called Nanawa where Kundt, true to his WWI roots, ordered his army to assault a heavily fortified Paraguayan position again and again and again until thousands of his soldiers were dead. Exhausted, poorly supplied, and dying of dehydration, the Bolivian army then found itself facing a counterattack from the Paraguayan army it had thought was too feeble to even resist. Suddenly Kundt and his army were forced to flee in terror from their bulwarks outside Nanawa, abandoning thousands of shiny, new rifles, machine guns, and artillery pieces—weapons that radically increased the fighting capabilities of their enemy. Even in the rout Kundt remained obstinate. When the Bolivian air force would report that his retreating troops were being surrounded, Kundt would laugh off their warnings as the exaggerations of excitable, unserious, insufficiently Germanic pilots. By retreat’s end, this had led to the capture of thousands of Bolivian soldiers and the destruction of most of the Bolivian army.

A pair of Bolivian soldiers driving about in one of their tiny, British tanks.

A pair of Bolivian soldiers driving about in one of their tiny, British tanks.

Even after Kundt resigned at the end of 1933 and was replaced by marginally less incompetent commanders and a second army raised from ambivalent Quechua farmers, Bolivia’s once gleaming military was never able to regain the initiative in the fighting. The Paraguayans drove them back further and further, eventually expelling them from Paraguay and even invading Bolivia itself, capturing the very forts from which the invasion was launched. The Paraguayan army even besieged Villa Montes with its oh-so-precious oil wells that had sent Standard Oil clamoring for war in the first place.

With their coffers bankrupt and their government collapsing, the Bolivian army once again exiled their own president and sued for peace in 1934. Submitting the land dispute to the arbitration of a group of South American diplomats, the vast majority of the Gran Chaco was awarded to Paraguay with Bolivia retaining only the hills of Ville Montes and a few strips of useless swamp.

And what about the oil that was going to make everyone from Chile to Buenos Aires to New Jersey rich?

Villa Montes was it. Though they drilled and drilled, not one of the speculators from Argentina or Royal Dutch Shell was ever able to produce a single barrel of oil from the barren, blood-soaked wastes of the Gran Chaco. Over a hundred thousand people had died—5 for every square mile of wasteland—and the profit for Paraguay, Bolivia, and Standard Oil was nothing.

Wars are a sucker’s investment. They’re too immense, too complicated, too prone to spiraling wildly out of control to ever reliably turn a profit. Even the smallest of wars stumble outward into history with nearly limitless consequences—as Standard Oil of New Jersey was about to dismally learn.

In 1937, a group of young, socialist-minded military officers and intellectuals who had all served in the so-called “War of Thirst” seized control of the Bolivian government. Blaming Standard Oil for the economic, political, and financial chaos of their nation, they seized all of the American giant’s holdings: all the offices, all the storage facilities, all of the refineries, and all the wells. There were no questions, no chances for apology, no compensation. Everything Standard Oil of New Jersey had ever invested in Bolivia, totaling tens of millions of dollars, was lost in an instant. The Standard Oil seizure was the first “nationalization” of a foreign company’s assets in Latin America, setting the pattern for similar seizures all around the world in years to come. So soured, in fact, was the image of American oil companies by the Chaco War that as major oil discoveries were made in Brazil, Venezuela, and Argentina, those countries refused to let their reserves be controlled by foreign companies. To this day, for all the billions of dollars’ worth of oil that flow out of South America, Standard Oil of New Jersey—now renamed ExxonMobil—hardly extracts a cubic centimeter of it.

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