The Politics of International Oil

Gov 365P/MES 322K: Class 8

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Review from last time: Non-governmental ways of regulating supply and demand: oil regimes of

• monopoly : John D. Rockefeller (1839-1937)
• oligopoly : Red Line Agreement = Iraq Petroleum Co. cartel (ex Ottoman=everything except Kuwait and Persia)
  • 23.5% - Royal Dutch Shell
  • 23.5% - Anglo-Persian (BP)
  • 23.5% - Near Eastern Development Co (Exxon plus...Gulf and Mobil)
  • 23.5% - Compagnie Francaise de Petrole
  • 5% - "Mr. Five Percent" Caluste Gulbenkian
• oligopoly : The Seven Sisters - with 90% of total 1946 production:
  • 21% - Royal Dutch Shell (CEO Henri Deterding at Achnacarry)
  • 22% - British Petroleum (formerly Anglo-Persian...then Anglo-Iranian)
  • 28% - Exxon (Standard Oil of New Jersey - Walter Teagle at Achnacarry))
  • 5% - Mobil (Standard Oil of New York)
  • 2% - Chevron (Standard Oil of California)
  • 3% - Texaco
  • 9% - Gulf Oil
• Achnacarry: "As Is" market shares, price cif ("cost, insurance, and freight") at place X= Platt's Oilgram Galveston FOB + phantom freight from Galveston to X.
• London Committee 1934 surveillance...(By 1948 a "two point system" whereby the point of equalization, where cif was identical whether the oil was from US and Middle East, had moved from Italy to the UK)

The Kuwait Challenge

• BP-Gulf 1938 Burgan "elephant" (12 X Daisy Bradford "Giant") - Gulf was relatively "weak" so how trust it, or even BP for that matter?
• long term contracts wth competitors: Shell/Gulf and BP/Exxon-Mobil - the biggies giving up market in return for cheaper oil, the producers giving up some profits for secure markets...and corporate hostages like Exxon or Mobil - for Shell & BP could contain Saudi Arabian production!

The Saudi Challenge

• Socal + Texaco "weak hands"--Blue Line agreement of 1936 = Caltex (which runs the refinery of BAPCO in Bahrain)
• 1947 Exxon + Mobil (after breaking Red Line agreement by buying out Calouste Gulbenkian)
• Aramco (Arabian American Co):
  • 30% Socal (Chevron)
  • 30% Texaco
  • 30% Exxon
  • 10% Mobil
• supermajority 2/3 vote (hence Exxon-Mobil veto)
• underlift to take the profits (Exxon, if Mobil wanted more)

The Iran Challenge

• Mohammed Mossadegh 1951-1953
• the failure of oil nationalization: Cartel power and international law - British colonial power's last gasp before Suez crisis of 1956
• Operation Ajax ("the foaming cleanser") - CIA to the rescue
• Restructuring the INOC (ex Anglo-Persian)
  • BP 40%
  • Shell 14%
  • Exxon, Mobil, Gulf, Chevron, Texaco 7% each
  • CFP 6%
  • 9 American independents 5%
  • 70% supermajority - i.e. 30% = "heavies" (Aramco 4 + Gulf make 35%, as do Shell+Exxon+2 other majors if BP gets greedy) could veto increases in production.
  • NSC trumps US anti trust!

The Challenge of the Independents (weak hands)

• J.P. Getty
• Bunker Hunt
• Enrico Mattei - ENI (the Italian international oil company)
• Occidental: Armand Hammer in Libya
• examine Moran Table 2: from 1947 to 1966 this third tier of companies increased their production from 1% to 16% despite diminishing reserves.
• high price margins 1946 to 1966 - helped in part by consuming governments to protect high cost oil and other energy substitutes.

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Sept. 23, 2009

Department of Government, University of Texas at Austin.

Questions, Comments, and Suggestions to chenry@mail.utexas.edu