In his executive dining room on the 22nd floor, the chairman of an oil company paused over a generous helping of ham last week and stretched his neck slightly within the confines of a starched white collar, remember his first thought a week earlier at the news that war had broken out in the Persian Gulf.
"I thought, 'Thank God we get our crude oil from Nigeria,"' said Henry A. Rosenberg Jr., chairman of Crown Central Petroleum Corp.
The fact caused Crown's stock to jump from about $25 to $29 a share as the world nervously watched the Middle East during the first week of the war.
Rosenberg took a bite of ham. As he spoke, it was a splendid, crisp day outside and you could look from the 22nd floor across Baltimore's Inner Harbor to the long ranks of giant oil and gasoline holding tanks along the docks in the distance -- the stored lifeblood of industry and civilization for much of this region.
Rosenberg's thought about Nigeria was comforting to him, but only somewhat. In fact, Rosenberg knew, if the Iranian-Iraqi war dragged on, or if it spread, the world oil glut would be sucked up as big oil companies scrambled to buy and hoard supplies.
That would put pressure on Nigerian supplies While Rosenberg guessed that the Nigerians would honor their long-term supply contract with Crown, he had a chilling thought: What if they jack up the price on Jan. 1, which they can do under the contract, to something I can't afford? o
Rosenberg knew that this would have the effect of throwing his company out among the wolves fighting for dwinding supplies in world oil markets as prices soared.
If motorists in America panicked at the same time -- a likely event in case of a big Middle East blow-up -- then there again would be lines at the pumps as motorists topped off their tanks, draining even more millions of barrels of scarce gasoline into "movable storage" in their cars.
Rosemberg had these thoughts late on Sunday, Sept. 21, after hearing radio news reports that Iran and Iraq were battling that day with gunboats, planes, rockets and artillery.
But he didn't pick up the phone right away. Crown was safe for the moment. "You had to let the dust clear first, then see what the hell you could do about it," he said.
At 7:30 a.m. the next day, Monday, Rosenberg was meeting with his top executive in the plush offices of their headquarters here -- the beginning of a quiet, watchful drama for Crown that continues today as warplanes continue to cast their shadows over the Persian Gulf.
Washington area motorists know Crown for its scattering of brightly clean, high-volume, full-service stations in the Maryland and Virginia suburbs -- each one pumping five times the amount of gasoline sold by the average service station.
These stations, the company's headquarters here in Baltimore and a long history of Rosenberg family ownership and participation in management combine to make Crown a well-known local business institution.
But it is more than that. Crown has its own refinery in Houston, a London office, oil wells in the West and new offshore drilling rights in Nigeria. Sales shot to more than a billion dollars last year and profits were up 285 percent as the company became the 274th largest industrial corporation in the United States, according to Fortune magazine.
Still, Crown is considered only a medium-sized independent oil Company, Through its 200 service stations in the East and Southeast and through bulk sales to oil jobbers, it sells about 1 percent of the gasoline used in America every day.
Since the protracted energy crunch began after the Arab oil embargo of 1973-74, Rosenberg and his managers have made a number of key moves that have turned to gold for them.
First, they stopped buying their crude oil from other oil companies and negotiated directly with producing countries. Thus Crown went into last year's gasoline panic with an assured supply that enable it to keep its stations open longer hours than many others.
Crown also boosted the overall capacity of its refinery and spent millions to increase it ability to produce unleaded gasoline, which is more and more in demand as the nation's auto fleet changes to newer cars that require it.
Finally, on the theory that nobody likes to buy gasoline, Crown is happy to be ahead of the industry in making the shift.
Being a mid-sized oil company has inherent advantages, too.The management team is small. Brags A.J. (Jack) Morris, the savvy old oilman who just retired as Crown president and who remains on as a consultant: "We can turn on a dime." c
One of the first impacts of the war, the Crown executives learned early that Monday, was to dry up the world spot market in crude oil -- an informal market-place where bulk cargos and shiploads representing about 5 percent of the world's oil supplies are traded at fabulous sums by oil companies and international speculators.
"All of a sudden a number of trading offers to us on the spot market were suddenly gone," recalled J.E. (Johnny) Pellaton, Crown's vice president for international supply who operates out of Houston. "We kept searching for more trading opportunties, but the whole industry stood still as people tried to ascertain what was going to happen." Companies held onto the oil they had, thinking they might need it, and speculators held on hoping to make a killing. They still are.
Even though trading virtually stopped, the spot market prices for crude oil being paid for the few trades that did take place quickly jumped upward to near the contract prices being paid under long-term contracts.
Earlier this week, they continued to hover there as the situation in the Middle East remained uncertain. If it gets worse, they will skyrocket; if better, they will drop again and spot market oil will again be widely available for sale.
One of the first pieces of information Rosenberg needed that Monday was a readout on Crown's own stocks of oil. Calls went out to Houston and the answer came back: high. The company has never emphasized development of a huge storage capacity because of the costs of carrying inventory, but the tanks it does have were nearly full.
The same was generally true throughout the American oil industry that day. Stocks were among the highest in history, so high that companies and speculators were storing it in tankers offshore. They still are -- $30 million or $40 million "riding on an anchor," in Rosenberg's phrase, costing up to $50,000 a day per ship in ship rental, insurance and interest.
The Crown executives were able to determine on Monday that their supplies were ample for the short term -- three weeks. But, that very day, Iraqi war-planes struck deep into Iran, and on Tuesday full-scale war erupted and spread to the oil fields as the invading Iraqi army set fire to the world's largest oil refinery at Abadan, Iran. The Crown exectives wondered if the three-week estimate might turn out to be on the optimistic side.
By midweek Iran's main oil terminal at Kharg Island had been bombed and the flow of oil exports to the world from both Iran and Iraq -- about 3.5 million barrels a day or 7 percent of worldwide consumption -- was cut off. Most of that oil had been going to Europe, 15 percent to Japan, and only 10 percent to the United States.
"So the French and Italians had to scramble to get oil elsewhere," said George W. Jandacek, a tall, white-haired man who recently took over from Morris as Crown's president. "They will get it from existing [excess] inventory in the world, but sooner or later you drive that inventory down and there will be an imbalance between supply and demand."
That could mean, Jandacek said, higher prices at the pumps and possibly gasoline lines. Rosenburg said that could happen in 30 to 60 days if the war continues, and sooner if the war spreads and blocks all exports of oil from the Persian Gulf, where 30 percent of the world's daily oil needs are produced.
In London that Monday morning, Peter G. Hills, the general manager of Crowncen International -- Crown's two-man oil purchasing arm and worldwide listening post -- got to the office early to read the European press and make phone calls to his oil community contacts.
Hills had a five-hour lead on Baltimore and six hours on Houston because of international time differences, and he wanted to have plenty of information for Crown executives in those cities when they arrived at work.
"We called people in the industry here and in Europe," Hills said in a telephone interview. "Some [big oil] companies have better lines of communication [directly into the Middle East], and on something like this, you talk to your counterparts in the supply groups of these other companies."
In this way, the oil companies -- normally very competitive -- work together during a crisis to assess the damage to the world's oil supplies.
Later in the week, the London office was able to report to Pellaton in Houston that the Abadan refinery was thought by key international oilmen to be 80 percent destroyed -- "a total writeoff." Press reports in America still had not gone that far by yesterday, saying only that the extent of damage at Abadan is unclear.
If the oil companies trade news like this, they are again on their own and sharply competitive when it comes to bidding for supplies and lining them up for the future. That was the broader concern of Crown's London representatives that first Monday of the war.
"Pellaton and his guys [the London office reports to him] are working out what [oil supply deals might be negotiated] with Tunisia and Algeria," said William R. Snyder, Crown's vice president for administration. He said that the price for Crown's Nigerian oil has already been set for the rest of the year, but will be set at a new, undoubtedly higher, level on Jan. 1.
So on that Monday, Snyder said, the war began to sharpen the focus of Crown's long-term hunt for oil supplies. "Pellaton is saying to himself, 'Hey, we gotta get moving.'"
In the midst of all this, the Crown executives were themselves in a little war with some of their Maryland dealers.
Some of the dealers, in Crown's opinion, weren't selling enough gasoline. The company wrote letters to them strongly hinting that the dealers should cut into their profit margins to lower prices and raise volume. Letters were written saying that if the stations didn't, their stations would be taken away from them as provided in their contracts.
The dealers, for their part, think Crown should cut into its profit margin, instead, to achieve the same result.
"The dealers think they're holy cows -- not holy cows, but sacred cows," said Rosenburg. "This fuss about the damn dealers getting hurt is just a hoax." It's a hoax, he said, because not one of the dealers is making less than $100,000 a year in net take-home pay.
Vic Rasheed, executive director of the Greater Washington-Maryland Service Station Association, which represents dealers said: "We're looking an energy crisis in the face and here's old Henry pushing dealers to sell 300,000 gallons a month. It just doesn't set well."
Rasheed called the $100,000 figure "a lot of baloney," although he added: "Sure, they've made good money in the past."
On Tuesday, the Houston management group flew to Baltimore and on Wednesday Rosenberg held a meeting of his key executives.They reviewed their supply picture, refinery runs, pricing policies and other aspects of their business and decided that no major changes should be made for the time being.
"Obviously if that war had occured in the country we're lifting oil from it would have been a little different for us," said Jandacek.
Rosenberg doesn't think that will happen. "We've been dealing with the Nigerians for years, and we know each other and we feel reasonably comfortable," he said. "They've had some coups but they seem to have settled down and put some stability into it. They want us over there."
last Friday Morris, the retired company president, was wandering around the offices jingling the change in his pocket and chatting with people, apparently restless in his new freedom.
He noted the high level of the world's oil storage and said: "Everybody's just waiting to see what happens. If this war had to happen, now's the best time for it."