meant to be the foundation of a new home he was building for himself and his new wife, Liz, a local woman whose family owned a chain of department stores. But construction might have to be suspended because he feared he was running out of money. Koch Industries was suffering huge losses because of decisions he had made, and he worried the company might go out of business. “I was worried that if the company went under, this house would take me under as well,” Charles Koch later wrote. He had won control over the Pine Bend refinery, only to be blindsided by market forces outside his command.
The trouble started on October 6, 1973, when Egypt and Syria launched a surprise military attack against Israel. The United States assisted Israel in its defense, causing Arab nations to retaliate in a novel way. The oil-rich nations banned oil exports to the United States entirely, while also cutting overall production by 5 percent. In every ensuing month, the Arab nations would cut an additional 5 percent of production.
It was not obvious at first just how catastrophic this retaliation would be. Up until that point, Americans had felt secure in their abundance of oil. The 1960s were the era of the all-American gusher, but the age of abundance was about to end. American demand for fossil fuels had been slowly outstripping domestic supplies. In 1968, the oil economy pivoted from surplus into scarcity as oil drilling outpaced oil supplies for the first time, by 0.07 percent. American oil drillers were essentially operating with the pedal to the metal and still were not able to entirely meet growing demand. Oil imports nearly tripled between 1967 and 1973. With US demand for imports so strong, there was virtually no cushion of extra oil supplies on global markets to help absorb a shock to supplies. The Arab embargo kept about 4.4 million barrels of oil a day off the market: 9 percent of the total supply. For the first time in its history, the United States could not make up for the loss.
The shock was unprecedented. Gasoline prices, which had hovered along at the same level year after year for decades, spiked. In some markets, crude oil prices jumped from $5.40 a barrel to $17 a barrel—a 600 percent increase in a matter of weeks. There were shortages and long lines at gas stations that were open for limited hours if they were open at all. Fist fights broke out, black market auctioneers sold gasoline at exorbitant prices, and people hoarded gas when they could find it.
The price shock caused a calamity inside Koch Industries. Charles Koch had been quietly expanding a profitable segment of the company, a shipping division that carried crude oil on oceangoing tankers. Strong demand for US oil imports created a small boom for oil tankers, and Koch Industries signed leases to carry crude around the world. The money was so good that Charles Koch decided to make a giant bet on the business by building a “supertanker” of his own. He named it after his mother, Mary R. Koch, then in her midsixties. What Charles Koch didn’t realize was that he was making a giant, one-directional bet on the future of oil imports. When production plummeted, the bet left him exposed. The shipping market was plagued by crippling excess capacity, almost overnight. The value of the Mary R. Koch plunged, and Koch was obligated to money-losing shipping leases.
The mid-1970s were a period of economic crisis for both Koch Industries and the United States. The years of inflation, recession, and energy shocks transformed America’s political and economic landscapes. This period also shaped Koch Industries. In response to the crisis, Charles Koch began to transform the company into an institution that was built for the new era of volatility. The changes made during this time laid foundations for Koch Industries that remained in place for decades. Charles Koch aimed to build a corporation that would not only survive the brutal swings of the marketplace, but profit from them. He built a company that learned constantly from the world around it and prized information discovery above almost everything. It was a company that embraced change and hated permanence, one where every division would be up for sale all the time. He built a structure with centralized control—which emanated from his boardroom—but that also gave managers and employees a remarkable level of freedom. He fused the sophisticated management techniques he learned as a consultant in