Teapot Dome Scandal Summary

  • Last updated on November 10, 2022

The Teapot Dome scandal resulted in the establishment of the Federal Oil Conservation Board and increased federal regulation of the U.S. petroleum industry.

Summary of Event

In 1921 and 1922, Secretary of the Interior Albert B. Fall, after transferring U.S. federal lands designated for naval oil reserves from the secretary of the Navy’s jurisdiction to his own department, awarded leases on the Teapot Dome area in Wyoming and Elk Hills, California, to the Mammoth Oil Company and the Pan-American Petroleum and Transport Company. Senate investigations of Fall’s actions, conducted in October, 1923, revealed that Fall had accepted $400,000 in loans from executives of those companies. The resulting political scandal forced Fall to resign and heightened public concerns over federal regulation of petroleum resources. On December 18, 1924, President Calvin Coolidge, under pressure from the American public, conservationists, and a number of leaders of the petroleum industry, created the Federal Oil Conservation Board (FOCB), which was composed of the secretaries of war, navy, interior, and commerce. The FOCB was to bring greater federal involvement in petroleum conservation regulation, but it also provided a forum for the industry to voice its concerns to the federal government. Teapot Dome scandal Oil Reserves scandal Elk Hills scandal Presidency, U.S.;Warren G. Harding[Harding] Federal Oil Conservation Board Oil industry [kw]Teapot Dome Scandal (Oct., 1923) [kw]Scandal, Teapot Dome (Oct., 1923) Teapot Dome scandal Oil Reserves scandal Elk Hills scandal Presidency, U.S.;Warren G. Harding[Harding] Federal Oil Conservation Board Oil industry [g]United States;Oct., 1923: Teapot Dome Scandal[05860] [c]Crime and scandal;Oct., 1923: Teapot Dome Scandal[05860] [c]Trade and commerce;Oct., 1923: Teapot Dome Scandal[05860] [c]Government and politics;Oct., 1923: Teapot Dome Scandal[05860] Fall, Albert B. Daniels, Josephus La Follette, Robert M. Walsh, Thomas J. Harding, Warren G. Coolidge, Calvin Pinchot, Gifford Sinclair, Harry F. Doheny, Edward L.

The idea of reserving petroleum-bearing lands for exclusive federal use, especially for the military, went back to the early twentieth century. The U.S. Navy had changed its coal-burning engines to petroleum-based internal combustion engines in 1904, and the army would increasingly use trucks and automobiles. Thus the U.S. military was becoming dependent on petroleum products. On September 27, 1909, President William Howard Taft issued an executive order that withdrew from private use 3,041,000 acres of land in California and Wyoming for exclusive federal use. From late 1909 through 1910, the federal government withdrew lands in western states for the maintenance of petroleum reserves.

The issue of federal petroleum reserves came to the forefront during World War I. American oil played a crucial part in the war effort, and thus petroleum was established as a commodity of strategic importance. Secretary of the Navy Josephus Daniels, seeking to ensure that the Navy had an adequate supply of oil during and after the war, in 1917 planned to have lands set aside for exclusive federal petroleum reserves. In 1920, as the Navy faced a shortage of oil and as pressure from private interests to open up federal lands for oil production intensified, Daniels drafted an amendment to the general Mineral Leasing Act of 1920 Mineral Leasing Act (1920) allowing the secretary of the interior to grant leases to private companies to produce crude oil on federal lands, thus making petroleum supplies available to the Navy.

High production levels during the war, fed by rising prices and endless federal demand, heightened concerns over waste, exhaustion of oil reserves, price, and industrial stability. Production across the nation rose from 265 million barrels of oil in 1914 to 355 million in 1918. Oil production continued to increase, at an even greater rate, after the war, rising from 472 million barrels in 1921 to 732 million in 1923. Oil prices fell from $3.08 per barrel in 1920 to $1.78 in 1921, then to $1.34 in 1923. The price remained around $1.30 for the rest of the decade before declining precipitously with the economic depression of the 1930’s. Leaders of the oil industry feared an immediate and severe price deflation and consequent economic collapse in the industry. In addition, with production levels reaching new highs each year, conservationists, government officials, and a number of oil executives began to fear exhaustion of domestic petroleum reserves in the near future. During the early 1920’s, fears of an oil shortage were overshadowed by concerns of oversupply, price deflation, and economic chaos for the petroleum industry. Conservation of petroleum increasingly came to be seen as an answer to each of these problems. It was in this context that pressure from the Teapot Dome scandal led to creation of the FOCB.

When Albert B. Fall became secretary of the interior under President Warren G. Harding, he faced immediate suspicion from conservationists. Fall, a former U.S. senator from New Mexico, represented southwestern interests that advocated unrestrained development of natural resources by the private sector. In May, 1921, using the amendment that Daniels wrote to the Mineral Leasing Act of 1920, Fall had authority over federal reserves transferred from the secretary of the Navy to the Department of the Interior. In July, 1921, Fall leased federal lands in Elk Hills, California, to Edward L. Doheny of the Pan-American Petroleum and Transport Company. Pan-American Petroleum and Transport Company[Panamerican Petroleum and Transport Company] In April, 1922, Fall leased the Teapot Dome tract in Wyoming to Harry F. Sinclair, president of the Mammoth Oil Company. Mammoth Oil Company

The transfer of naval reserves to private interests not only further enraged Fall’s critics but also gave them something to focus on. Fall already had been branded as anticonservationist by critics such as Senator Robert M. La Follette (a Republican from Wisconsin) and Gifford Pinchot, former chief forester under Theodore Roosevelt. Daniels, who had drafted the amendment allowing the secretary of the interior to oversee the naval supply, distrusted Fall’s intentions. With Daniels’s support, in 1923 Pinchot and La Follette investigated Fall’s actions. Ultimately, La Follette persuaded Senator Thomas J. Walsh, a Democrat from Montana and a member of the Senate Public Lands Committee, to open Senate hearings on the matter.

A rising tide of protest against Fall forced him to resign even before the hearings began in October, 1923. The Senate investigation revealed that Fall had accepted $400,000 in loans from Sinclair and Doheny in return for the public land leases. Historians have noted that had Fall truly desired to profit by exploiting his office, he could have obtained much larger loans from oil interests. Both Doheny and Sinclair were acquitted of bribery, but Sinclair spent several months in jail in 1929 for contempt of the Senate and of court. Fall was later found guilty of accepting a bribe while secretary of the interior and was sentenced to a year in jail.

The Teapot Dome scandal, coming to attention during the presidential election campaign of 1924, occurred in the context of a public arena of heightened political rhetoric. The scandal resulted in much more focus being placed on federal regulation of the petroleum industry. Calvin Coolidge, who became president after Harding’s death in 1923, created a Naval Petroleum Reserve office in the Department of the Navy in March, 1924. He attempted to shift federal policy from private exploitation back to federal conservation. Coolidge also came under pressure from public opinion, conservationists, and a number of leaders from the petroleum industry to increase federal regulation of the oil industry.

On December 18, 1924, Coolidge created the Federal Oil Conservation Board (FOCB). The purpose of the FOCB was to study the government’s responsibilities, with cooperation from representatives of the oil industry. The FOCB was to focus on the three main industry concerns: the size of crude oil reserves, the technical conditions of production, and the economic disruption caused by overproduction. Coolidge commented on the direct relationship between oil conservation and economic stability, stating that overproduction encourages low prices, which in turn led to wastefulness. The FOCB would also advise the president on the best policy to ensure the future supply of fuel oil for the U.S. Navy and to safeguard national security through conservation of oil. From its inception the FOCB was cooperative with and even deferential to the petroleum industry, especially to the American Petroleum Institute American Petroleum Institute (API), the major trade association for the industry.

Significance

In 1926, the FOCB held hearings and attempted to build consensus among the representatives of various concerns within the petroleum industry on the conservation issue. The FOCB encountered an industry divided on the issue of production controls but united against federal intervention. Larger integrated companies traditionally supported production controls, and smaller companies opposed restrictions. Representatives from the API stated to the FOCB during these hearings that there was no danger of exhausting petroleum reserves, that waste was negligible, and that the government should let the oil industry determine its own prices.

The hearings and subsequent actions of the FOCB focused on technical problems of petroleum production. The API’s assertions of the industry’s ability to regulate itself were undermined by continued heavy production in the mid-1920’s. Nevertheless, there were no significant federal production controls imposed in the 1920’s.

As production levels increased across the nation in the 1920’s, oil prices continued to fluctuate but primarily fell. The industry and the API abandoned the policy of relying solely on the market to determine prices, realizing that more stringent cooperative private efforts at production control were needed. In early January, 1929, the API announced a policy of voluntary production controls to limit production for the next three or four years, based on 1928 levels. The FOCB approved a version of this code on May 28, 1930. In December, 1928, industry leaders and members of the API set out to institute an industrywide code of ethics designed to eliminate price and nonprice competition in an attempt to bring stability. In July, 1929, the Federal Trade Commission approved this code, with deletions of restrictions on price cutting and extension of credit. The FOCB still refused to implement federal production controls, stating that voluntary efforts would have to be the largest part of any production control program. In March, 1930, the FOCB initiated a program of demand forecasts to help the petroleum industry project market need and produce accordingly. In 1932, the FOCB worked out a system of voluntary informal restrictions with the leading oil importers in the United States. In all these actions, the FOCB helped the petroleum industry to regulate itself.

These efforts at industrial self-regulation and production control were swamped by new and even more productive fields in Oklahoma City in late 1929 and East Texas in late 1930. President Herbert Hoover, formerly a member of the FOCB as secretary of commerce under Coolidge, took an even stronger laissez-faire approach, stating that the FOCB had no legal power to control production. Hoover believed that responsibility for such actions lay with the Congress, not the executive branch. The FOCB ultimately urged various forms of self-regulation and left the industry to solve its own problems. The problem of oil conservation regulation was left to the industry itself and to state governments until Franklin D. Roosevelt assumed the presidency in 1933. The Teapot Dome scandal returned federal policy on naval reserves back toward conservation and preservation. Ironically, despite the political scandal Fall created, his policy may have been the more correct one. Within a decade after the scandal, planners for the Navy realized that some of their reserves had been depleted as a result of drainage. This occurred when production crews drilled on private property adjacent to the federal lands and drained the neighboring petroleum reservoirs.

With the New Deal programs of President Franklin D. Roosevelt, Roosevelt, Franklin D. [p]Roosevelt, Franklin D.;New Deal the federal government generally increased its regulatory role. The Petroleum Administration Board Petroleum Administration Board (PAB) continued in the manner that the FOCB had established. The PAB replaced the FOCB, assuming its duties and taking over its files. The PAB came to an end in May, 1935, when the Supreme Court ruled the National Industrial Recovery Act National Industrial Recovery Act (1933) unconstitutional. The PAB had been created under that act. The Bureau of Mines then began forecasting demand for the oil industry. In response to continuing problems of overproduction, Congress passed the “Hot” Oil Act of 1935, restricting interstate shipment of oil. It also set up, under the Department of the Interior, the Federal Petroleum Board (FPB), which enforced the prohibition against “hot” oil. This federal regulatory agency, like the ones before it, worked closely with the industry and with the state regulatory commissions.

The concept of maintaining strategic petroleum reserves was renewed during World War II and the Korean War, when concerns again arose over exhaustion. President Roosevelt created the Petroleum Reserves Corporation Petroleum Reserves Corporation (PRC), a government corporation that would exploit Saudi Arabian oil reserves, to conserve petroleum in the United States and counteract British influence in that region. The PRC was short-lived, however, because of opposition from U.S. oil companies, which did not want federal interference in their private efforts to produce oil in the Middle East. During the Korean War, Congress passed the Defense Production Act of 1950, which enabled President Harry Truman to establish the Petroleum Administration for Defense Petroleum Administration for Defense (PAD), which, like the FOCB, made demand forecasts for the industry. The PAD facilitated collective voluntary efforts from nineteen of the largest oil companies to coordinate petroleum supplies. The PAD was dissolved after the war, but in 1954 President Dwight D. Eisenhower began to implement a policy of maintaining reserves equal to 20 percent of domestic annual production. Also in 1954, Eisenhower created the Committee on Energy Supplies. Composed of the secretaries of state, treasury, interior, and commerce, this committee studied the extent of available domestic petroleum resources as well as the growing problem of U.S. dependence on oil imports from the Middle East.

As the United States grew increasingly dependent on oil imports from the Middle East in the 1960’s and 1970’s, the idea of national strategic petroleum reserves was again revived. The Strategic Petroleum Reserve was begun in 1973; as of 2005, it continued to operate, with a capacity of 727 million barrels and an actual inventory of about 700 million barrels. Teapot Dome scandal Oil Reserves scandal Elk Hills scandal Presidency, U.S.;Warren G. Harding[Harding] Federal Oil Conservation Board Oil industry

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Bates, J. Leonard. The Origins of Teapot Dome: Progressives, Parties, and Petroleum, 1909-1921. Urbana: University of Illinois Press, 1963. Focuses primarily on the political events that led up to the Teapot Dome scandal rather than on the actions and policies of the Federal Oil Conservation Board. Useful for its thorough account of the development of the Mineral Leasing Act of 1920, the political debates over federal lands policy, the naval reserves issue, and pressures for legislation during this period.
  • citation-type="booksimple"

    xlink:type="simple">Davis, Margaret Leslie. Dark Side of Fortune: Triumph and Scandal in the Life of Oil Tycoon Edward L. Doheny. Berkeley: University of California Press, 1998. Biography of one of the leading figures in the Teapot Dome scandal. Includes photographs, bibliography, and index.
  • citation-type="booksimple"

    xlink:type="simple">Melosi, Martin V. Coping with Abundance: Energy and Environment in Industrial America. New York: Alfred A. Knopf, 1985. Excellent overview of the growth of the major energy industries in the United States includes a concise yet detailed account of the Teapot Dome scandal and the formation and actions of the Federal Oil Conservation Board.
  • citation-type="booksimple"

    xlink:type="simple">Nash, Gerald D. “After Teapot Dome: Calvin Coolidge and the Management of Petroleum Resources, 1924-1929.” In United States Oil Policy, 1890-1964. Pittsburgh: University of Pittsburgh Press, 1968. Excellent source for an introduction to the development of the U.S. petroleum industry and the growth of federal and state regulations. Deals especially well with the relationship between the industry and the federal government. Includes thorough discussion of the Teapot Dome scandal and the Federal Oil Conservation Board.
  • citation-type="booksimple"

    xlink:type="simple">Noggle, Burl. Teapot Dome: Oil and Politics in the 1920’s. 1965. Reprint. Westport, Conn.: Greenwood Press, 1980. Deals with the politics of petroleum and the U.S. government. Focuses mostly on the Teapot Dome scandal, but includes brief discussion of the Federal Oil Conservation Board and the concerns of the petroleum industry in oil conservation regulation.
  • citation-type="booksimple"

    xlink:type="simple">Stratton, David H. Tempest over Teapot Dome: The Story of Albert B. Fall. Norman: University of Oklahoma Press, 1998. Biography places the Teapot Dome scandal within the context of Fall’s life and times. Includes illustrations and index.
  • citation-type="booksimple"

    xlink:type="simple">Yergin, Daniel. The Prize: The Epic Quest for Oil, Money, and Power. New York: Simon & Schuster, 1991. Deals only briefly with Teapot Dome and the Federal Oil Conservation Board but provides a useful, informative, and readable account of the growth of the oil industry in the United States and in the international arena.
  • citation-type="booksimple"

    xlink:type="simple">Zimmerman, Erich W. Conservation in the Production of Petroleum. New Haven, Conn.: Yale University Press, 1957. Excellent monograph on the development of petroleum conservation policies in the United States. Deals at some length with the Federal Oil Conservation Board. Intended for readers who have some familiarity with conservation issues.

First Pulitzer Prizes Are Awarded

Republican Resurgence Ends America’s Progressive Era

Scandals of the Harding Administration

Coolidge Is Elected U.S. President

Hoover Becomes the Director of the U.S. Bureau of Investigation

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