In the real world the oil in Libya was discovered in 1958 (Source, the Encyclopaedia Britannica). In this version of history the oil is discovered in 1918 and:
- Planning for the wells and the supporting infrastructure begins in 1920;
- Construction begins in 1925 (which enables Mussolini to take credit for it);
- The first wells go into production in 1930;
- Production steadily rises until Italy is self-sufficient in oil by 1935 and large quantities are being exported in the second half of the 1930s.
Note that self-sufficiency includes replacing coal (which Italy also had to import) with oil. For example the steam locomotives on the Italian railways and thermal power stations are converted to burn oil instead of coal. By 1935 the only coal they have to import is coking coal for steel making.
This will have to be a state-owned or at least a state-sponsored project due to the expense. I did the POD so early so that the work (and the cost) could be spread out over a longer period. This means that Italy accumulates a larger National Debt between 1920 and 1940, but after 1930 the extra interest that the Italian Exchequer has to pay will be increasingly offset by the revenues generated by the Libyan oil industry.
If Italy can't develop the drilling technology to extract the oil and/or design the pipelines to take it to the ports itself the "know-how" will have to be imported. This will be a drain on Italy's foreign currency reserves, but after the oil comes on stream the Italian balance of payments will improve dramatically and so will is reserves of foreign currency - in particular Italy's Dollar reserves.
The quantities of steel needed to build the oil wells, pipelines, storage tanks and expand the ports in Libya might be beyond the capacity of the Italian steel industry and therefore it would have to be imported. This would put more strain on the Italian balance of payments before 1930. However, between 1930 and 1935 the Depression means the price of American steel falls and the oil coming on stream means the Italians have more Dollars to pay for it.
The gap of 12 years between the discovery of the oil in Libya and the start of production is also because the capacity of the Libyan ports has to be increased and the road system has to be improved. My other Libyan pet-project the standard gauge railway line from Tunisia to Egypt with a branch to the iron ore mines in the interior of Libya is begun in the first half of the 1920s and completed in the first half of the 1930s. The coastal railway is built for prestige purposes and to create work for Italian firms, but it will have military uses after June 1940.
Italy As A Petro-State
Part Two - The Italian Economy After Italy Becomes A Petro-State
Extract from Rise and Fall of the Great Powers, by Paul Kennedy,
Finally in the light of Mussolini's evident eagerness to go to war against France and sometimes even France and Great Britain combined, it is worth noting that Italy remained embarrassingly depended upon imported fertiliser, coal, oil, scrap iron, rubber, copper and other vital raw materials - 80 per cent of which had to come past Gibraltar or Suez, and much of which was carried in British ships. It was typical of the regime that no contingency plan had been prepared in the event of these imports ceasing and that a policy of stockpiling such strategic raw materials was out of the question, since by the late 1930s Italy didn't even have the foreign currency to cover its current needs. This chronic shortage also helps to explain why the Italians also could not afford to pay for the German machine tools so vital for the production of the modern aircraft, tanks, guns and ships which were being developed in the years after 1935 or so.
In this version of history Italy becomes self-sufficient in oil between 1930 and 1935. This includes converting the parts of the Italian economy that ran on coal to oil and by 1935 the only coal Italy imports is coking coal for the steel industry. I don't know enough about the chemistry, but if Libya had right kind of oil, Italy would also be self-sufficient in fertiliser and rubber. Self-sufficiency in oil, fertiliser and rubber would save more foreign currency. I don't know by how much, but for the purposes of this essay it is enough to considerably increase their imports of other raw materials to increase the output of Italy's manufacturing industry in peace and also to build up larger war reserves.
The Italians double the size of their merchant marine between the middle 1920s and 1940. This has nothing to do with the early discovery and exploitation of the Libyan oil, it's because I think it is something the Italians should have done regardless. The primary objective of this is to make Italy self-sufficient in merchant shipping during the course of the 1930s and use the foreign currency saved to import more raw materials. The second goal is to increase the capacity of the Italian shipbuilding industry.
Extracts from the Regia Marina website:
In 1926, a law aimed at modernising the merchant fleet resulted in the construction of passenger liners, some of them highly prestigious, but the cargo fleet had not been upgraded.
During the Ethiopian War, shipping companies snatched up a large number of old tubs, bought abroad, to meet the Army's replenishment needs: so there were many ships, but all old and of poor quality.
The state of the Merchant Marine was reviewed after the conquest of Ethiopia and the Spanish adventure, and found to be poor. Therefore, provisions were made to renew cargo fleet, trying to avoid the pitfalls of the past. These provisions were set down with Royal Decree no. 330 of 10 March 1938.
The act provided incentives to shipyards and shipping companies, with an annual allocation of 103 Million Lire for ten years with the goal of building 2,500,000 gross tons of merchant ships. Italian shipping companies ordered about 50 ships right away, and almost all Italian shipyards were involved.
The Regia Marina website says the merchant marine had nearly 800 hulls of over 500 tons, gross totalling 3,300,000 tons and about 200 ships of 100 to 500 tons. [Italy had a merchant marine of 3,300,000 GRT on 30th June 1938 according to the Encyclopaedia Britannica Book of the Year 1939.] About 200 ships of 1,200,000 tons were outside the Mediterranean in June 1940, almost all of them were sunk or captured by the enemy. About 200 ships of 800,000 tons were completed between June 1940 and September 1943, but 460 ships of 1,700,000 tons were sunk over the same period.
Here the POD is the 1926 Law, which also provides for a large expansion of the cargo fleet. By June 1940 the Italian merchant marine has nearly 1,600 hulls of over 500 tons, gross totalling 6,600,000 tons and about 400 ships of 100 to 500 tons. All other things being equal twice as many ships, i.e. about 400 of 2,400,000 tons would be outside the Mediterranean in June 1940 and almost all of them would be sunk or captured by the enemy. Partly because of the stock piles of iron ore and coking coal the Italian shipyards would have completed twice as many ships between June 1940 and September 1943, that is about 400 of 1,600,000 tons between June 1940 and September 1943. However, their merchant ship losses over the same period might be less than the 460 of 1,700,000 tons lost in the real world.
Ideally all the extra ships would be built in Italian shipyards from Italian steel. However, it would take time for Italian shipbuilding and steel industries to double their production capacity. Before about 1935 this means importing more steel and more new ships abroad. This would mean spending even more foreign currency in the short term. However, Italian invisible earnings will increase as the Italian merchant expands and after 1930 there would be a further improvement in the Italian balance of payments as oil production builds up. Furthermore the Depression means there would be plenty of American steel works and British shipyards desperate for work so their prices might be lower.
Self-sufficiency in oil allows the Italian Government to encourage car ownership and expand the road transport sector so that by 1938 there are twice as many cars and lorries on Italian roads. There would be an increase in imports for a few years while the supply of Italian motor vehicles caught up with the increase in demand, but Italy has the extra foreign currency to pay for them.
However, if Italian motor vehicle production for 1938 was doubled to 118,000 cars and 24,000 commercial vehicles it is still well behind France (182,400 cars and 45,000 C.V.s) and Germany (205,100 cars and 55,700 C.V.s). Italy would be even further behind Great Britain which produced 341,000 passenger cars and 103,800 commercial vehicles in 1938.
If the number of licensed road vehicles at the end of 1937 was doubled, Italy would have, 636,000 cars, 216,000 lorries and 357,000 motor cycles. However, France had a total of 2,200,000 motor vehicles licensed on 31.12.37 of which 558,000 were commercial vehicles. Germany had 1,108,433 passenger cars, 320,016 lorries, 17,294 buses and 1,327,189 cycles licensed at 01.07.37. Great Britain had 1,944,394 cars, 87,730 hackney vehicles (taxis, buses and coaches), 590,397 commercial vehicles and 462,375 motor cycles licensed at 30.09.38 a grand total of 3,084,896 motor vehicles.
A secondary reason for the drive to motorise the Italian economy was so that the land needed to grow the fodder for the horses could be used to grow food for people instead and therefore reduce food imports. The Italians would also double their production of agricultural tractors and other farm machinery. However, the only statistic I have on this is that Italy produced 628,200 metric tons of oats in 1937. I don't now much that could be decreased by in this version of history if there were fewer horses to feed.
According to my sources Italian steel production fell from 2.1 million tons in 1929 to 1.4 million tons in 1932 and then climbed back to 2.2 million tons in 1935. So Italy might have been able to build up the oil industry, its supporting infrastructure and more merchant shipping in the first half of the 1930s without having to import steel. Production fluctuated at between 2.0 and 2.3 million tons for the next 3 years. It jumped to 3 million tons in 1939 and fluctuated between 2.8 and 2.9 million tons for the next 3 years before plummeting to 1.1 million tons in 1943. [Source, Encyclopaedia Britannica books of the year. The 1929 to 1937 statistics are in short tons, but after that they are a mix of short tons and metric tons.]
Italy's next priority would be to treble steel production from the 2 million tons produced in 1929 to 6 million tons in 1939, rather than the 50% increase of the real world. Like the expansion of the merchant marine and the motorisation project this has noting to do with the earlier discovery of the oil other than it makes it possible to import the required raw materials. If the Italians can't build the blast furnaces and other paraphernalia itself it imports whole steel works from the Americans who do have the industrial capacity to do it and because it was during the Depression the American firms would be glad for the work. This is also how the Italians increase the capacity of their motor manufacturing industry and they learn American mass production techniques as a useful by product.
In the real world the Italian Government was forced to barter arms that were badly needed for its armed forces for raw materials. For example in 1940 it sold 4 destroyers and several hundred aircraft to Sweden in return for iron ore. In this version of history the Italians would have built up an even bigger arms industry and some of this would be used to make more barter agreements. One possibility is that it bartered 55 fighters and some oil to Sweden for iron ore in place of the 55 British Gloster Gladiators it bought in the real world. Another is to barter one cruiser, 12 destroyers and some oil to Argentina in exchange for beef in place of the cruiser and 7 destroyers (the Argentines wanted 12) they bought from the British. Brazil bought 6 British destroyers just before the war in the real world, here the Italians might get the work by bartering ships and oil for Brazilian rubber.
Libya was very vulnerable to air attack and invasion from the British in Egypt and the French in Tunisia. These nations also had a strong navies in the Mediterranean. Therefore the Italian Armed forces build up a bigger stockpile of oil in Italy than they did in the real world. That is it was sufficient to satisfy their estimated requirements for a 2-year war with Great Britain and France. The Italian Economics Ministry also builds up its own stock of oil so that it can keep the civilian economy running for two years if the supply from Libya was cut off. It was also able to build up larger stockpiles of other raw materials that were likely to be hard to obtain in the event of a long war.
Therefore by June 1940 Italy has a merchant marine twice the size of the real word; a shipbuilding industry double the size of the size of the real world; a steel industry twice the size of the real world; a motor industry twice the size of the real world and much bigger stockpiles of raw materials. I did want to build up an even bigger steel industry with quadruple the production and a motor industry with quintuple the production, but I thought that was pushing it too far.
The Italian arms industries including naval shipbuilding and the aircraft industry will be covered in Part 3.