Postwar Germany and Bosch’s Dream

The Versailles treaty clause providing that the Allied countries did not have to return seized German industrial property was a blow, of course, to the I.G. companies. But at least they were confident that the confiscated plants and patents could not be used to build up serious competition in the postwar dyestuff market. The non-German personnel in their foreign plants had not been entrusted with any of the vital technical information and know-how.

The foreign patents had been intentionally worded so that only those with the know-how could work them. The French had solved their problem by going into partnership with the I.G. companies to make dyestuffs in France—an opportunity afforded by the Bosch-Frossard deal at Versailles. The Americans, on the other hand, tried at first to develop a domestic dyestuff industry on their own, without the Germans. U.S. Army Ordnance still believed that a strong, independent American dyestuff industry was critical to national self-defense.

Du Pont, Army Ordnance’s chief hope, expended great sums of money in a futile attempt to make dyestuffs according to the specifications of the confiscated German patents. However, as Irénée du Pont, the firm’s president said,

“. . . an ordinary chemist couldn’t work them. They were drawn for Germans who spent their life in the dyestuff field.” 1

It was finally decided to feel out Carl Bosch, the most international-minded of the top I.G. men, about a possible joint Du Pont-I.G. dyestuff venture. A Du Pont executive met with Bosch in Paris in November 1919, but Bosch was totally uninterested. He brushed the proposal aside with the explanation that he was not free to act on a dyestuff arrangement without the unanimous approval of all the other I.G. companies. 2

Du Pont was apparently not in the same strong negotiating position as the French had been: the dyestuff plants in Germany were no longer threatened with demolition under the Versailles disarmament provision. Perhaps of equal importance, Du Pont had no Frossard to do the negotiating.

Since Du Pont could not obtain the critical German dyestuff know-how through a partnership agreement, it resorted to a more direct method. In late 1920, a Du Pont representative, Dr. E. C. Kunze, succeeded in recruiting four Bayer chemists. Each signed a contract for $25,000 a year for five years—a tremendous sum at the time compared to what a chemist received in Germany. Dr. Kunze spirited the four chemists and a trunk containing drawings, formulas, and other important industrial information out of Germany. But the trunk was seized by the Dutch authorities when they accidentally discovered its contents, and, at the request of the Cologne prosecutor, a warrant was issued for the arrest of the four chemists for industrial espionage. 3

The German press treated the episode as a major scandal. Newspapers carried stories with such headlines as

“FOUR TRAITORS,”

“AN AMERICAN PLOT AGAINST GERMAN DYESTUFF INDUSTRY,” and

“THE POWER OF THE DOLLAR.” 4

Two of the men, Joseph Flachslaender and Otto Runge, managed to make their way to the United States. They were detained at Ellis Island on the strength of the arrest warrant, but Du Pont was able to effect their release. 5 The other two chemists, Max Engelmann and Heinrich Jordan, had a more difficult time. Meade wrote Irénée du Pont, The Bayer Company has pretty effectively succeeded in getting the German government to do its will, in view of the fact that it has held Dr. Jordan in Holland and I presume by this time, under the Extradition Treaty, has had him returned to Cologne.

Dr. Engelmann... cannot secure a passport to this country under what we believe is a general order issued by the German government forbidding the issuance of passports to any German chemists. 6 Du Pont did not intend to be blocked in its efforts to import German dyestuff technology. It called on the United States Army for help. One day in May 1921, a Washington, D.C., attorney named Clement Lincoln Bouvé appeared at the headquarters of the U.S. Army of Occupation in Coblenz.

Bouvé, who had been an officer of the U.S. Army of Occupation, now belonged to a prominent Washington, D.C., law firm that included Robert Lansing, secretary of state under Woodrow Wilson. Bouvé was on no ordinary mission. Major General Henry T. Alien, commanding general of the U.S. forces in Germany, called in Captain H. E. Osann, chief of the Military Secret Police of the U.S. Army of Occupation in Coblenz, and assigned him, along with a company of soldiers, to Bouvé’s project.

This, the general explained, was to bring Dr. Engelmann and Dr. and Mrs. Jordan from unoccupied Germany to the American sector. Although the chemists were under German police surveillance, the skillful maneuvering of Bouvé and Osann made the mission a success. On July 5 the party arrived at Hoboken, New Jersey, on the U.S. Army transport Somme. 7

Within days they were in Wilmington, Delaware, working in the Du Pont laboratories. Du Pont was now in a position to compete effectively with I.G. in the world’s dyestuff market. By the fall of 1922 the Germans were finding it difficult to meet the reparations quotas required by the Versailles treaty, most of which were in the form of raw materials and manufactured goods then currently being produced in Germany.

The French were inflexible in their demand that these quotas be met. They could never forget Bismarck’s brutal terms of the peace treaty ending the Franco-Prussian War. “We will leave them only their eyes to cry with,” the Iron Chancellor had crowed. But the French had not cried. In a burst of national pride they had paid the five billion francs demanded by Bismarck as war reparations. It was a pain the French would long remember.

The French, therefore, were not disposed to treat lightly Germany’s failure to meet its reparations obligations set forth in the Versailles treaty. In late September 1922, the French filed a complaint with the Allied reparation commission that the Germans were delinquent in deliveries of sawed wood and telegraph poles. The commission, after an investigation and a hearing, found the Germans delinquent and ordered that delivery of the materials indicated in the reparations schedules be resumed. The Germans, either unwilling or unable, refused.

For several months the French took no direct action. On January 10, 1923, however, President Harding, bowing to popular sentiment in the United States, withdrew the American occupation forces from the Rhineland. The French took advantage of this American action and promptly moved into the vacated area, as well as into the industrial Ruhr. This move signaled the opening of what has come to be called the Ruhr war.

The German government responded by declaring a policy of passive resistance and the factories along the Rhine and in the Ruhr came to a complete halt. By mid-May 1923, the BASF plants had been idle for four months. As a result, they also had fallen far behind in the delivery of dyestuffs and nitrate fertilizers required for reparations payments. On May 22, Bosch received an urgent message from an informant that the French army would occupy the BASF plants the next day and members of the managing board would be arrested, charged with deliberately preventing the shipment of the reparations goods. 8

Bosch immediately issued orders to dismantle the high-pressure Haber-Bosch equipment with utmost speed and remove it to Leuna, in unoccupied Germany. Within hours the massive machinery was loaded on rafts and hauled across the Rhine. At the same time the members of the managing board fled to Heidelberg and hid out under assumed names.

Bosch’s information had proved correct. For the second time since the end of the war, French troops moved into the BASF plants at Oppau and Ludwigshafen. The employees, acting under Bosch’s orders, refused to cooperate with the invaders. Bosch, when asked by the press about the French occupation of the Ludwigshafen dyestuff plant, responded with a bitterness spiced by arrogance, “The French may be able to make bricks, but never dyestuffs.” 9

A French military court was convened at Landau, Germany, and the officials of BASF were charged and tried, in absentia, for impeding the delivery of fertilizers and dyestuffs to France. All were found guilty, fined 150 million marks, and sentenced to long prison terms. August von Knieriem, BASF’s chief legal counsel, received the heaviest penalty, ten years, because he had signed the orders to the BASF workers directing non-cooperation. The other directors, including Carl Bosch and Hermann Schmitz, were sentenced to eight years each. 10

All the members of the BASF managing board of directors were now fugitives from the French Army of Occupation. By the summer of 1923, Germany was in near chaos. The rate of inflation, which had been accelerating since the end of the war, had become truly terrifying. The German mark was now worth a five hundred billionth of its 1918 value, and the world became used to pictures of German workers carting their wages in wheelbarrows. In mid-August, a new chancellor, Gustav Stresemann, assumed office to try to cope with the financial crisis.

He concluded that Germany would have to settle its differences with the Allies before it could achieve any kind of stability at home. In late September, he announced the end of the government policy of passive resistance to the French and the resumption of reparations payments. It was only a short time before the I.G. plants in the Rhineland started operation again. And by November, Hjalmar Schacht, the head of the Reichsbank, had managed to stabilize the mark, an accomplishment that brought him his first public acclaim.

The shutdown of most of the I.G. plants during the Ruhr war had given the foreign dyestuff industries a golden opportunity. Without German competition American producers were now supplying almost ninety-five percent of the U.S. market. Du Pont dyestuff production, of course, had received an extra boost from the technical aid of the I.G. chemists they had spirited out of Germany in 1921, as well as from the active cooperation of Army Ordnance.

The French also took advantage of the shutdown. Since early 1921 the I.G. companies, in accordance with the Bosch-Frossard agreement, had been supplying the Compagnie Nationale with their industrial secrets and know-how in the production of dyestuffs, in exchange for which under their partnership agreement they would receive fifty percent of the profits for the next forty-five years. 11

But in 1923 the Compagnie Nationale was absorbed by Etablissement Kuhlmann, the large French chemical and metallurgical concern. Shortly thereafter, Kuhlmann nullified the contract entered into by Frossard and Bosch on the ground that the I.G. companies had failed, during the shutdown, to supply the French with the dyestuff chemicals called for in the contract. 12 In effect, the Germans once again were thrown out of the French dyestuff market. The I.G. officials were extremely bitter, contending that the unilateral abrogation of the contract was illegal.

The French now had I.G. know-how, for which the I.G. companies had received almost nothing in return. However, because of the delicate political situation. Bosch took no immediate action. By the fall of 1923 the growing strength of foreign competitors convinced Duisberg that a basic reorganization of the foreign business of the I.G. companies was demanded. He proposed that the foreign sales agencies of all the German companies be merged into a single organization. 13

Independently Bosch also had been giving thought to consolidation of the I.G. companies. But his horizons were much broader and his schemes more imaginative. For him the new technology, especially the high pressure chemistry which his own genius helped create, opened up boundless opportunities. But Bosch was no stranger to reality. BASF’s resources were inadequate to support the staggering financial requirements of his soaring imagination. A broader and more substantial corporate base was needed.

Using Duisberg’s modest suggestion of consolidating the foreign sales agencies as a springboard, Bosch took a quantum leap beyond. He proposed that all the I.G. companies merge into a single corporation bringing all their industrial activities and financial strength into a gigantic monolithic entity. Once having set his course, Bosch was impossible to derail. Despite the reluctance of the other concerns to surrender their individual identities and their independence, Bosch’s will and logic prevailed. By 1924 a firm agreement was reached by all eight I.G. companies to merge into a single corporation. 14

All through 1924 and 1925 Bosch and his financial adviser, Hermann Schmitz, prepared the ground for the new entity. For a time it appeared as though the incorporation would be delayed because of an impasse reached by the two immovable objects, Bosch and Duisberg, over the name of the new organization. Bosch wanted to abandon the designation of the 1916 cartel, I.G. Farben. He argued that to retain the name would be misleading since the enterprise would no longer be an interessen gemeinschnft. Instead, he recommended as more appropriate Verein Deutscher Teerfarbenfabriken (Union of German Coal Tar Dye Firms).

Duisberg regarded this suggestion as commercially infantile. He refused to abandon the enormous value of the worldwide acceptance of the I.G. Farben name. This was a commercial decision and Bosch’s genius had no currency in that area. The other I.G. executives unanimously supported Duisberg and Bosch capitulated. On December 9, 1925, in a procedure by which the other seven companies were incorporated into BASF, the merger was finally concluded. The name of the new entity was I.G. Farbenindustrie Aktiengesellschaft.

Carl Duisberg was elected chairman of the supervisory board, retiring from an active managerial role in the new company. Henceforth he would limit his activities to matters of major policy. Bosch was elected chairman of the managing board, which made him chief executive officer of the company. From then on, wherever Bosch sat was the head of the I.G. table.

Fritz ter Meer, a leading I.G. executive and scientist, later summed up the meaning of the company:

“The opening up of hitherto unknown chemical fields was the motif of the new combine.” 15

Its prospects quickly caught the fancy of the investing public and, despite the very low ebb of the German economy, the value of the I.G. shares more than tripled during 1926. By any standard I.G. Farben was the largest corporation in Europe and the largest chemical company in the world.

Armed with vast financial resources the new company also took aggressive action in already established fields. One of its first moves was to gain control of Germany’s munitions industry, including such dominant firms as Dynamit A.G., Rheinische-Westfaelische Sprengstoff A.G., and Koeln-Roettweil A.G. In this way I.G.’s nitrate plants were vertically integrated with the leading explosives concerns that had been their chief customers. I.G. also moved to strengthen its position in the foreign dyestuff markets.

In the United States, for example, it formed the General Dyestuff Corporation and a little later the American I.G. Chemical Company. Through these vehicles it regained almost all of the properties seized from the I.G. companies by the U.S. alien property custodian during World War I.

In France, however, I.G.’s efforts met with a certain amount of failure. During the summer of 1926 it undertook to purchase secretly the shares of the Kuhlmann company, by now the largest dyestuff manufacturer in France. I.G. concealed its identity by buying through Dutch and Swiss cloaks organized by Schmitz. In seven weeks of feverish activity on the Bourse, Kuhlmann stock rose from 450 to 1000 francs. An investigation revealed that I.G. Farben-industrie was behind the “raid” and in fact had already succeeded in its goal of buying control.

The I.G. assault on Kuhlmann caused a furor in France. As the New York Times noted:

“To have such a vital part of the nation’s defense in the hands of its late enemy would be intolerable for the French War Ministry, and there is every reason to believe that now the French dye companies are aware of the danger, everything will be done to prevent the complete success of the German plans.” 16

Something was done. Kuhlmann, with the support of the French War Ministry and a law quickly enacted by the Chamber of Deputies, issued a block of 100,000 new shares of capital stock that carried the controlling voting rights and was reserved for registered shareholders, who were required to be French citizens. The secret German owners were in this way rendered relatively powerless since their shares carried no voting rights.

The result was the regaining of French control of Kuhlmann. With this action, I.G.’s takeover of Kuhlmann collapsed. Instead of retreating entirely, however, I.G. suggested to Kuhlmann a reestablishment of the original Bosch-Frossard cartel. The result was an agreement, signed in 1927, that provided for price fixing, common sales agencies, exchange of technical information, and division of markets. I.G. agreed to stay out of the French market and the French agreed to stay out of the rest of the European market. 17

In effect, if I.G. could not own the French dyestuff plants, it would at least exercise dominion over the French by cartel agreement.

By far the most ambitious undertaking of the new I.G. was a project which had become Bosch’s dominant interest and, in fact, had been the real impetus for his insistence on the merger of the I.G. companies into a single financially powerful giant. It was Bosch’s dream to liberate Germany from dependence on foreign oil wells. Without a single domestic oil well worthy of the name, Germany had been strangled by the British fleet during the war. Bosch would do for oil what he had done for nitrates. Through the magic of high pressure chemistry and his own genius he would convert Germany’s plentiful coal into a torrent of gasoline. He would recreate a past triumph in a new setting.

Events were already taking shape in Germany that provided a pressing demand for oil. Clandestine rearmament through systematic violations of the Versailles treaty was under way. In 1924 mobilization plans projected a sixty-three-division army. The Black Reichswehr required a “safe” source of gasoline. In the mechanized war of the future the need for liquid fuel would be astronomical.

The lure of great profits in peacetime also entered into Bosch’s calculations. The automobile boom was on its way, consuming great portions of the available gasoline, and promising to consume continually greater amounts. The immediate energy question confronting the industrial countries of the world was whether oil discoveries could keep up with the accelerating demand.

The reply of oil authorities was generally negative, some even predicting the imminent exhaustion of the world’s oil reserves. In the United States President Calvin Coolidge gave official recognition to this dismal prophecy by creating the Federal Oil Conservation Board, composed of the secretaries of war, navy, interior, and commerce. The board’s mission was to investigate and report on the state of the world’s reserves of petroleum. 18

The fact that it was considered necessary to involve such a commission was itself regarded as a grim portent. To the prescient the signs were already discernible that oil would be the vortex of international diplomacy and power politics. Such developments foreshadowed the time when the wealth of nations would be measured by the dipsticks of oil.

Finally, there was a more immediate concern nudging Bosch. His company’s domination of the world’s synthetic nitrate industry was coming to an end. He had given France a plant as well as the secret of the Haber-Bosch process, and the other major industrial countries were developing their own nitrate capabilities. The time was fast approaching when these foreign plants would lead to a glut of the world’s supply. Soon, Bosch recognized, he would have to shut down a large part of the costly, high pressure installations at Leuna and Oppau. Finding a new and profitable use for their expensive equipment became a pressing matter.

To push the project forward, Bosch decided to acquire the Bergius process for converting coal into oil under high pressure. Bosch was aware that Bergius, like Haber, could carry out his process successfully only in the laboratory. All attempts during the war at large-scale industrial production had failed. It was a problem made to order for Bosch. He had the supreme confidence that what he had done for Haber he could do for Bergius.

Only one impediment confronted him, but that was monumental: cost. Acquisition of the Bergius patents would be expensive enough; however, the outlays required to adapt the process to large-scale industrial production were beyond even the resources of BASF, already hobbled by the loss of the war. Only the combined financial resources of the merged I.G. companies could support such a project. It was also probably to this end that Bosch was so insistent that his private financial wizard, Hermann Schmitz, assume the post of chief financial officer of the new company.

In fact, in 1925, when it was certain that the merger would soon take place, Schmitz, at Bosch’s direction, had purchased the Bergius patents on behalf of the yet to be formed I.G. Farbenindustrie. It took all of Schmitz’s skill at financial legerdemain, using Swiss banks and other cloaks, to swing the deal. Before long, work was under way to adapt the Oppau plant from nitrate synthesis to the conversion of coal into oil.

Although Bosch’s plan was to rely on the financial resources of I.G. to develop domestic production, he planned to bring in an American company like Standard Oil (New Jersey) as a partner in the worldwide exploitation of the process. Moreover, Standard had more than enormous financial resources: it had a huge and well-staffed research and development organization that had achieved important breakthroughs in petroleum technology.

Standard, the dominant force in the American oil industry, was also one of its more imaginative members. Since the early 1920s, when depletion of the world’s natural oil reserves first became a matter of concern, Standard had searched for alternatives to crude oil. It pioneered in testing shale as a commercial source, and in 1921 it even purchased 22,000 acres in Colorado in the hope that a commercially adaptable method of extracting oil from shale could be found. 19 *

* In late 1916 the United States Geological Survey announced that, after a three-year survey, the agency’s experts had concluded that the Colorado hydrocarbon shale beds would yield more than twenty billion barrels of crude oil, from which more than two billion barrels of gasoline could be extracted by ordinary methods.

Standard was also exploring the feasibility of the Bergius process since the United States, like Germany, had tremendous coal deposits. In 1922, Frank A. Howard, head of the Standard Oil Development Company, had sent a young assistant to Germany to study the Bergius process but had been advised that it was still far from ready for commercial exploitation. 20

In the spring of 1925 Bosch dispatched several senior BASF executives to the United States to explore the interest of the Standard Oil Company. When they arrived in the United States, the BASF representatives were given a tour of the refineries in the New York area and then invited to lunch with the Standard directors. Wilhelm Gaus, spokesman for the BASF group, made a speech of thanks in halting English.

He said that he had been very impressed by the size and efficiency of the refineries and by Standard’s new research and development organization. He then mentioned, almost as an afterthought, the progress that Bosch and his staff had been making in the development of the Bergius process—information that Bosch had specifically instructed Gaus to mention. 21 Gaus suggested that Howard visit Ludwigshafen when he was in Europe the next spring to see for himself, and Howard accepted the invitation.

In March 1926 Howard arrived at Ludwigshafen, as he had promised, and was given a tour of the BASF laboratories, by now officially a part of I.G. Farbenindustrie. He was stunned. Although Howard was the head of research and development of one of the world’s largest and most scientifically advanced corporations, he reported that he was “plunged into a world of research and development on a gigantic scale such as I had never seen.” 22 He was especially overwhelmed by BASF’s experiments in synthetic oil.

Howard fired off a message immediately to Walter C. Teagle, president of Standard Oil, then on a visit to Paris, to come to Ludwigshafen without delay:

Based upon my observations and discussions today, I think that this matter is the most important which has ever faced the company since the dissolution [the breakup of the Standard Oil Trust by a Supreme Court decision in 1911]. The Badische [BASF] can make high grade motor fuel from lignite and other low quality coals in amounts up to half the weight of the coal. This means absolutely the independence of Europe in the matter of gasoline supply. Straight price competition is all that is left. 23

The urgency of Howard’s message brought Teagle to Ludwigshafen within a few days. An examination of BASF’s high pressure installation left him just as impressed as Howard:

“I had not known what research meant until I saw it. We were babies compared to what they were doing.” 24

When Teagle and Howard retired to their quarters, they talked over “the effect the startling scientific developments... would have on the world’s oil industry.” 25 For Standard’s own protection, it was obviously imperative to find a way for closer cooperation with I.G. The vision of thousands of obsolete oil wells was enough of a spur.

At first Howard and Teagle considered the possibility of purchasing the world rights to the Bergius synthetic oil patents from I.G. However, millions had already been spent on the process, and it was obvious that only a tremendous price would be acceptable to I.G. At the moment Standard was not prepared to make a large expenditure on a process that was still in the early stages of development and not yet ready for commercial exploitation.

Teagle and Howard decided to proceed cautiously. They concluded that at least for the present the most sensible arrangement was a simple partnership to develop and perfect the process without any large financial commitment. Bosch agreed in principle to the proposal. Although he would have preferred a broader agreement, it nevertheless was a concrete demonstration of Standard’s interest.

Until this meeting Bosch had limited the hydrogenation project to a few experimental high pressure furnaces. After the reaction of the Standard executives, he threw caution to the winds. On June 18, he ordered a huge Bergius plant to be built next to the Haber-Bosch plant at Leuna. He had decided that the process was sufficiently advanced for I.G. to start mass-producing synthetic oil--100,000 tons a year. It was a step that many I.G. officials considered financially imprudent in view of the fact that the process still had some way to go before it was perfected. But Bosch was too powerful to be thwarted.

On September 1, 1926, at the first stockholders meeting of the incorporated I.G., plans were announced for construction of the big new synthetic oil plant at Leuna. 26 The wisdom of pushing the project seemed to be corroborated a few days later when President Coolidge’s Federal Oil Conservation Board submitted its preliminary report on the question of “national petroleum conditions” in the United States.

The board found that,

“the total present reserves in pumping and flowing wells... has been estimated at about 4½ billion barrels, which is theoretically but six years’ supply... future maintenance of even current supplies implies the constant discovery of new fields and the drilling of new wells.” 27

Even the worst pessimists were taken by surprise by the six-year estimate.

Shortly after the announcement of I.G.’s new synthetic oil plant, Bosch himself arrived in the United States to begin negotiations with Standard. He was interested mainly in financial support. By now Teagle and Howard realized that their enthusiasm and stunned appreciation of the hydrogenation process had reduced their bargaining power with Bosch. They decided to put on a counterdemonstration. Teagle invited Bosch to accompany him on his annual tour of Standard’s vast properties. For three weeks they drove across the United States inspecting Standard facilities.

On the trip it became clear to Bosch that the Standard Oil officials were not ready to make the large payment to I.G. he had expected. In mid-December he returned to Germany without a definite agreement or financial commitment. Again he slipped into the depression that periodically afflicted him. 28 It took until August of the next year for Teagle and Bosch to reach a relatively limited understanding.

Standard agreed to embark on a cooperative program of research and development of the hydrogenation process to refine crude oil. It also agreed to build a new plant for this purpose as soon as possible in Louisiana. In return Standard was given the right to exploit the process in the United States and to share half of the royalties with I.G. on licenses to other parties. 29

However, Standard was not entitled to exploit the process in any of its far-flung plants outside the United States. Modest as the arrangement was, the New York Times, in its news story of the agreement dispatched by its German correspondent, was almost euphoric about the possibilities of I.G.’s synthetic oil process.

What experts in chemical fields admit is that the world is on the threshold of a new fuel era. and that the often predicted failure of the gasoline supply is now shoved centuries in the future.... The discoveries in these fields are more marvelous than inventions which enable rapid strides in the development of radio, other uses of electricity and in airplanes, a prominent industrialist told the correspondent of the New York Times.

It was estimated by “conservative authorities” that twenty percent of the gasoline used in 1928 would be synthetic and that within a very few years Germany would be completely self-sufficient. So great was the confidence in making synthetic oil, concluded the New York Times article, that the price for the synthetic fuel was expected to be less than that of natural oil imported from the United States and the Soviet Union. 30

The story was a public relation man’s dream. The true situation was quite different. The Bergius plant at Leuna, which had begun production in June, was beset by operational failures and extremely serious technological problems. Expenditures had soared so far beyond the original estimates that if continued they would threaten the very financial structure of I.G. Farben itself.

In the following months, pressure developed within the I.G. managing board to scrap the synthetic oil project entirely. Bosch paid no attention to the carping of his colleagues: “Nitrogen production took fifteen years to reach today’s levels,” he told them. “Obviously gasoline production has to be given more time before it becomes profitable.” 31

As usual Bosch’s power in I.G. was decisive. The managing board agreed to continue the costly synthetic oil project, at least for the time being. However, it was obvious that Bosch would have to find a way to relieve the severe financial strain on I.G. or face more trouble from the board.

In the meantime, Standard Oil officials, probably unaware of I.G.’s problems, had become increasingly bullish about the prospects for the Bergius-Bosch process. A research staff under the direction of Robert T. Haslam, a professor of chemical engineering on leave from M.I.T., had gone to work at the new experimental plant in Louisiana on the hydrogenation of crude oil, and Standard had already concluded that the process was the most important scientific development that had ever occurred in the oil industry.

The application of the hydrogenation process to crude oil was nothing less than amazing. In the past, two barrels of crude oil had been required to produce a barrel of gasoline; with hydrogenation, only one barrel of crude would be required. However, under the terms of the 1927 agreement with I.G., Standard’s affiliates all over the world were still not permitted to use the process. It could be exploited by Standard only in the United States and then only in conjunction with crude oil, not coal.

In August 1928, Teagle and other top Standard officials went to Germany hoping to convince Bosch and his I.G. advisers to expand the I.G.-Standard partnership to allow joint exploitation of the Bergius-Bosch process all over the world and to give Standard the right to apply the process to coal as well as crude oil.

Bosch brushed the Standard request aside. Although he did not say so, he was having enough troubles with his I.G. colleagues about the cost of the hydrogenation project in Germany. This was obviously not the time for I.G. to embark on an expensive program of world exploitation even in partnership with Standard.

What Bosch really wanted was a large lump payment from Standard to extricate I.G. from its present financial difficulties and still enable him to continue the hydrogenation project in Germany. With the help of Hermann Schmitz Bosch devised a counterproposal that he did not believe Standard could afford to refuse. He offered to sell the world rights to the Bergius-Bosch hydrogenation process for the production of gasoline.

The only territorial exception was that the rights in Germany were reserved to I G. 32 Obviously, the German authorities would never permit I.G. to surrender to a foreign company the German rights to a process so crucial to military and economic self-sufficiency. Even so, I.G. did not reveal to its government that it was selling the hydrogenation rights to Standard. As Bosch anticipated, Standard jumped at the offer.

The parties negotiated their agreement in the manner of two great powers forging a treaty to divide the world into separate spheres of influence. They agreed to observe the sovereignty of each in their respective fields. In the words of a Standard official, “The I.G. are going to stay out of the oil business—and we are going to stay out of the chemical business.” 33 To set up a mechanism to carry out the terms of the agreement the parties agreed to create the Standard-I.G. Company, incorporated in the United States, owned eighty percent by Standard Oil and twenty percent by I.G.

This retained for I.G. a minority interest in any future success. I.G. then transferred the world patent rights (except for Germany) on the hydrogenation process to the new enterprise. In return, Bosch finally secured what he so desperately wanted. Standard turned over to I.G. two percent of its entire common stock: 546,000 shares valued on Standard’s books at $35 million! 34 As a slight bonus for I.G., Teagle agreed to serve on the board of I.G.’s newly formed holding company in the United States, the American I.G. Chemical Company.

After the agreement was concluded, Bosch undertook to interest Standard in a borderline technological development. It involved the manufacture of a synthetic rubber called Buna, which Bosch believed had the potential for rivaling, even supplanting, natural rubber as the raw material for tires.

At the moment the I.G. laboratories were producing Buna experimentally from coal, but the cost was far too high to compete with natural rubber. Using oil instead of coal, however, promised to make the cost more competitive. With this purpose in mind, Bosch dispatched Carl Krauch to the United States to interest Standard in setting up a cooperative organization to develop a number of processes using oil as a raw material with particular emphasis on Buna. 35

Krauch’s mission was a success. In 1930 the Joint American Study Company (known as Jasco) was formed, owned equally by I.G. and Standard. Its stated purpose was to test and license new processes developed by either party in the “oil-chemical” field. Bosch had high hopes that Jasco’s success in developing a Buna rubber from oil would lead to the offering of licenses to the American tire industry. With more automobiles in the United States than in the rest of the world combined, the potential market for the joint enterprise was full of promise.

Hardly had the I.G.-Standard marriage been completed than it received a series of staggering blows. The Great Depression, combined with the discovery of enormous oil reserves in Texas, dropped the price of oil so drastically that Standard abandoned any immediate hope for worldwide development of the conversion of coal into oil. The drop in the price of natural rubber was even more precipitous.

Buna could not possibly compete. Standard’s interest in Buna lay dormant until the clouds began to gather for World War II, and it took the Arab oil boycott in 1974 to rekindle Standard’s interest in making gasoline from coal.
 

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