Robert Engler, The Politics of Oil: A Study of Private Power and Democratic Directions (Chicago: Phoenix Books, 1961), Chapter 4, "Toward World Government," pp. 65-79


The economics of oil, like the needs of modern industrial society, transcend national boundaries. In Western Europe crude production is scant; and although there is far less dependence on petroleum than in the United States, it ranks as the largest single import. In America the accelerating rate of consumption has accentuated the relentless search for new sources of supply. Intensive leasing, exploration and drilling efforts are carried on in Canada, Latin America, the Middle and Far East and Africa by the older industrial powers and their corporate representatives. Oil is a finite and nonreplaceable resource. But the vast reserves thus far unearthed have eased, if not eradicated, fears of any imminent end to the world's supply. In 1945, for example, global reserves were estimated at under one hundred billion barrels, while in 1959 petroleum geologists accepted 290 billion barrels as a conservative calculation of the pools of oil they considered economically recoverable. Two-thirds of this was believed to be in the Middle East. Kuwait was credited with 60 billion barrels and Saudi Arabia with 50 billion. Iran had 35 billion and Iraq had 25. Communist areas were assigned 30 billion barrels and Venezuela 18. Reserves in the United States were generally set at about 33 billion barrels.

There are variations in the estimates, and many believe that the figures are actually considerably higher than the oil companies care to indicate. Wallace E. Pratt, an internationally respected geologist who formerly worked for Jersey Standard, has concluded from his own studies and questioning within the industry that there are over 300 billion barrels of proved reserves in the non-Communist areas of the world. The major difference is explained by new data on the Middle East, and to a lesser extent by improved techniques for recovery. This means that three-fourths of the world's known oil lies in this politically tense region. To these estimates must be added 1,250 billion barrels of oil that are generally regarded as ultimately recoverable. Of this, 250 billion barrels are within the United States. These totals do not include the abundant oil shales.

In 1959 the United States provided about 43 per cent of the non-Communist world's supply of crude oil, and Venezuela produced 16 per cent. The Middle Eastern countries produced 27 per cent, increasing from 10 per cent in 1946. During the same period produclion in the United States rose over 50 per cent, but its percentage of the total dropped from nearly 70 per cent to its current 43 per cent. it appears obvious that as demand increases with rising living standards, the Middle East will become the major source of supply of natural crude.1

Seven integrated enterprises dominate the international oil scene. Holding at least two-thirds of the world's proved reserves, they also control the bulk of world production, refining, and cracking. The major pipeline systems are in their hands. The tanker fleets are largely at their command, regardless of ownership. The Royal Dutch/Shell Group (Royal Dutch Petroleum Company and Shell Transport and Trading Company, Ltd.), which has extensive holdings in the United States, is British- and Dutch-controlled. Its assets are about $8.5 billion, making it the world's largest non-American private industrial organization. The British Petroleum Company, Ltd., formerly known as the Anglo-Iranian Oil Company, is a British organization with assets of over $2 billion. It controls over 20 per cent of world oil reserves. A majority of the shares are government-owned. This arrangement dates back to the beginning of World War I when First Lord of the Admiralty Winston Churchill insisted that the Navy must own or control its own oil supplies, while warning that "to commit the Navy irrevocably to oil was indeed 'to take arms against a sea of troubles.'" 2
The five American giants, Standard (New Jersey), Socony Mobil, Gulf, Texas, and Standard of California, began to make their serious overseas ventures in the early twenties. Spurred on by rising domestic costs, fears on the part of government and industry officials about war shortages, and their own alarm over the prospects of complete foreign domination of new crude sources, these corporations proceeded to extend their empires wherever oil was found or marketed where they could gain an entry. In 1959 the American companies had a gross investment in overseas fixed assets estimated at $9 billion. Their contracts covered 64 per cent or more of the proved reserves of the Middle East, where they had perhaps $2 billion invested. The British and Dutch companies had 31 per cent. The Americans also control 70 per cent of production in Canada, where output has leaped from 21,000 barrels a day in 1946 to 508,000 in 1959, and production is at half-capacity because of marketing difficulties. They also account for 68 per cent of Venezuela's production.3

Corporate profits are heavily dependent upon this plentiful and cheaply produced foreign crude. In 1946, for example, oil from Bahrein was estimated to cost $0.25 per barrel to produce, including a $0.15 royalty to the local ruler. It was selling at $1.05 and more at the Persian Gulf. Oil from Kuwait, produced for less than $0.10 a barrel, has sold for $1.85. A study by the Secretariat of the United Nations Economic Commission for Europe in 1955 calculated that the net profit on a barrel of Saudi Arabian oil selling at $1.75 was $1.40. That year the American-owned Arabian American Oil Company netted about $272 million on its 300-million-barrel crude production operation alone, after paying a comparable sum as royalty and taxes to Ibn Saud.4 A full profit picture would have to include the total earnings from the handling of this oil in all the stages from welihead to consumer. About 80 per cent of the Jersey Standard corporation's crude oil production and about 75 per cent of its net income are derived from its overseas investments. (Jersey has access to reserves equal to the total proved reserves within the United States.) Creole in Venezuela is the company's greatest single source of revenue. Two-thirds of Gulf's income is derived from foreign operations.

With these discoveries of new crude supplies have come new economic challenges. The original fear of scarcity is supplanted in industry minds by the specter of uncontrolled plenty. For where the average American well produces less than 15 barrels per day, the average output in the Middle East is around 5,000 barrels. On a daily average during April 1956, the 175 flowing wells of Kuwait, a sheikdom not much larger than Connecticut, were producing one-sixth of the daily yield of the United States' 500,000 wells. Saudi Arabia's 164 wells provided over one million barrels a day that month. An appreciable increase of supply anywhere on this globe can disturb existing price levels, just as even a relatively small amount of independently and competitively refined oil can upset established marketing patterns. Yet new reserves must be sought constantly for future needs.

In this setting the giants have learned to appreciate their areas of mutual self~interest, just as they have recognized the costliness of much rivalry, whether for the markets of China or the fields of Mexico. Under the guidance of older European hands who had few illusions about the benefits or rationality of free competitive enterprise, the oilmen have negotiated for the establishment of codes for orderly behavior. The American members were and remain publicly indignant over a description of such arrangements as cartels. But the controls they had previously established in Venezuela and elsewhere in Latin America suggest that they were somewhat less than innocents abroad in relation to monopoly. And they were eager to get a stake in the exclusive leases and relationships in the East. From this situation there evolved the framework of the private international government of oil.

Through a series of "treaties," the international companies marked off regions as open, closed, or postponed for concessions, and developed patterns of cooperation in obtaining leases and in drilling. The most notable of these apportioned petroleum rights within a red line drawn around Iraq and the Arabian Peninsula areas of the old Turkish Empire broken up in World War I. Through this 1928 agreement Jersey and Socony joined Anglo-Persian, Royal Dutch/ Shell and Compagnie Française des Pétroles in ownership of the nonprofit Turkish Petroleum Company and control of what was then believed to be the richest Middle Eastern oil plum. Gulf, at that time partners with Jersey and Socony in the Near East Development Company and hence a tentative adherent to the agreement, turned over to Standard of California its option rights to explore in the Persian Gulf islands of Bahrein, since it was not supposed to have individual concessions in this area.5 Monopolistic grants from feudal potentates are shared and individual operations have been converted into joint affairs, as was done, for example, by Jersey Standard, Gulf, and Shell in Venezuela. Such treaties are favored for keeping any one company from gaining too much of an advantage in reserves while, at the same time, they serve to present a united non-competitive front to the governments involved as well as to "outside" oil interests. Widespread joint ownership of affiliates also provides meeting places for planning concerted action. When Standard of California, which was outside the "red line" pact, found oil in Bahrein and then moved to drill in Saudi Arabia, the other giants sought, over a period of years, to bring this oil within their operating control. California eventually sold a half-interest to The Texas Company in return for an equivalent portion of the latter's marketing facilities east of Suez. Standard of California and Texaco share ownership of a large cluster of subsidiaries in Europe and Asia. Together with Jersey Standard and Socony, who bought into the Saudi Arabian holdings, thus providing additional markets for the Arabian flow, they also own the Arabian American Oil Company (Aramco) and the Trans-Arabian Pipe Line Company (Tapline). Jersey, Shell, Socony, and the British Petroleum Company own the Iraq Petroleum Company and its subsidiaries. Gulf and British Petroleum are directly linked through ownership of the Kuwait Oil Company. Royal Dutch/ Shell is Gulf's largest single customer for Kuwait production. So-cony and Jersey are the parents of the Near East Development Company with installations in Europe, Africa, and Asia. A "consortium" of the big seven now operates the Iranian government's facilities in a complicated manner arrived at after a three-year impasse created by ex-Premier Mossadegh's nationalization of the facilities of the long-resented Anglo-Iranian Oil Company. British Petroleum retains a 40 per cent interest. Each of the American companies has 7 per cent. Shell has 14, and Compagnie Française des Pétroles has 6. A final 5 per cent is split among eight other American companies acting through the Iricon Agency, Ltd. This latter feature was added in response to the strong protests to the American government by several smaller American companies. It served also to take the onus off an apparent government sponsorship of a cartel-like organization.

The list of such ownerships is a long one, and made complex by many interlocking ties among affiliates. After studying a map of the world of oil and the tables of organization of the companies, one gains a rough appreciation of the problems of big government, whether public or private. And one can understand the admission of Socony's board chairman who, when asked about certain affiliates in Australia, Japan, and Madagascar, replied, "There are a lot of our companies in which we own interests directly that I don't have knowledge of. . . ." Generally, the negotiations for arriving at these relationships have been protracted and involved, suggesting the intricacy of oil diplomacy. But the over-all objectives and resulting patterns remain constant and clear.

Perhaps the most famous of the attempts to stabilize marketing in the oil world was the Achnacarry agreement of 1928. Here the heads of the big three of international oil--Shell, Anglo-Iranian, and Jersey--formulated the principles of a mutual security program for the acceptance of the industry:

Up to the present, each large unit has tried to take care of its own overproduction and tried to increase its sales at the expense of someone else. The effect has been destructive rather than constructive competition, resulting in much higher operating costs.7

Their Pool Association agreement then proposed "the acceptance by the units of their present volume of business and their proportion of any future increases in consumption." Existing facilities of all adherents to this "as is" pact were to be made available to one another at lower costs than new construction for exclusive use would require, but not lower than actual costs to the owner. The duplication of facilities was to be avoided and new ones were to be built only when there was an increase in demand. Geographic divisions of markets were to be respected and reinforced with supplies to be drawn from the nearest producing area. The agreement also sought to keep prices in a given geographic area noncompetitive. Surplus production (that is, production in excess of the estimated market demand at industry prices) was to be checked to preclude the possibility of dumping. Competitive practices that would increase costs or prices were to be avoided. Thus new reserves as well as demand were to be integrated within the existing oil system.

Presumably because of the danger of American participants running into the antitrust laws and adverse public opinion, direct Amerir --markets and trade were excluded from this written charter. Nevertheless it was anticipated that the United States oil operations would be bound to the new world government. For this agreement had a direct impact on the economic performance of the integrated industry leaders of the United States whose overseas activities were included. The domestic policies of these corporations, their joint export programs, their trade association efforts, and the industry-wide "conservation" measures were to provide the key links.

The specific instruments for implementing the Achnacarry agreement were complex; they required an administrative structure for handling information and facilitating the exchange of supplies, the pooling of transportation, and the operation of a multiple basing point system that would keep the price of crude oil uniformly low for cartel members. Meanwhile, Gulf-plus prices were to continue to govern the world market for nonmembers. This made possible a single delivered price in any given market for comparable grades of petroleum and petroleum products, regardless of geographic source, based on the published prices of the higher cost of American products, f.o.b. Gulf of Mexico ports. These prices, justified on the grounds that the United States has been the largest consumer and exporter, actually have been greater than those the majors generally pay for American oil in their contractual or integrated relationships. This artificial price pegging, coupled with the "phantom" freight frequently involved, has made for tremendous profit on the more cheaply produced Caribbean and Middle Eastern oil.

The ambition of its scope led the authors of the Federal Trade Commission staff report on The International Petroleum Cartel and other trained observers to conclude that Achnacarry was more a statement of broad objectives than a working blueprint for complete world control. The plans were subsequently modified and implemented by separate corporate alliances and local marketing pacts. Quotas were redefined. The "as is" agreement was broadened and tightened under the jurisdiction of separate "as is" committees in charge of supply and distribution sitting in New York and London. Intention of price changes required advance notice and discussion among participants. Competitive measures such as advertising were to be curbed, and economic sanctions were to be applied against violaters of the agreements.

Four world-wide developments during the thirties challenged the effectiveness of those plans. The discovery of fields in America and the Middle East with enormous reserves brought new participants rushing onto the oil scene. The great depression came at the same time, and the pivotal United States prices went plummeting as privately controlled pricing became difficult. The focus upon recovery and reform efforts everywhere forced public governments into more active participation in the economic arena. Help was extended to stricken industries, but with the ever present potential of investigation, public accountability, and regulation. In the United States the scarcity-oriented practices of economic "royalists" were viewed as a root factor in bringing about the depressed conditions. And finally, with the outbreak of World War II, public planning of resources became an unchallenged matter of survival as the nations involved intensified measures for assuring themselves of adequate supplies. Many of the formal cartel arrangements of the world oil government ended in the face of these demands upon national loyalty. From the perspective of the European nations, the world's production center had shifted from the Western Hemisphere to the Middle East. Under governmental pressures prices were lowered as Gulf-plus was modified and the Persian Gulf came to be recognized as a second basing point. This meant some saving for the importing countries, but the price system fundamentally remained tied to the United States standard despite the sharp percentage decline of its exports in world trade. In the United States, disclosure of Jersey Standard's restrictive patent tie-ups with Germany's I. G. Farben provoked great if short-lived public indignation, and the corporation signed a consent decree pledging itself not to become involved in price, production, or patent agreements in the future.

American oilmen have repeatedly insisted that the era of cartels, if it ever existed, has passed. In 1946 Jersey and Socony successfully challenged as restraints of trade some of the "red line" limitations they had accepted for so long. "There has been a substantial change in the attitude of the American public and Government toward restrictive agreements . . . ," explained Jersey.8 Sensitivity to popular opinion undoubtedly was a growing business consideration in oil's postwar planning, especially in the Jersey corporation. But this particular action was less a conversion to faith in antitrust or loyalty to the teachings of public relations than in Jersey's determination to
move into Saudi Arabia where oil was becoming more attractive, and to do this without its foreign associates.

The decision-making power that goes with bigness and integration remains. The tie-ups among the majors, reinforced by such practices as long-term buying contracts and world-wide patent-pooling licensing, continue. There are parallel movements of prices. Divisions of territories and functions are still respected. Legislative investigations in the United States and abroad, the Federal Trade Commission's cartel report, antitrust suits, and the United Nations study all document the continuing mechanism of monopolistic control of price and supply by the big seven.

When Iran oil was nationalized there was talk of a world shortage. This had been the largest Middle Eastern crude source and Abadan the world's largest refinery. But oildom quickly stepped up production elsewhere in the Middle East to fill the gap. Premier Mossadegh discovered that, thanks to an economic blockade by the giant oil companies and the prohibitive financial requirements of the undertaking for smaller companies or cooperatives, he could not market his oil in meaningful quantities. The issue was not resolved until the summer of 1954 when, with the aid and urging of the American and British governments, the industry and the successors to the overthrown Mossadegh negotiated an agreement for the gradual reabsorption of the Iranian flow into oil markets. This was to be done "in an orderly manner" by meeting the anticipated annual increase in world demand without upsetting the new equilibrium and current prices.

Meanwhile, in April 1953, the Attorney General of the United States replaced a criminal suit based on the cartel report and similar data with a comprehensive civil suit before a federal court. This charged the American international oil interests with continuing their restrictive practices in every aspect of the industry-from exploration to research. Their unlawful combination and conspiracy for the monopolization of products and maintenance of prices harmed American consumers. Domestic production was curtailed through their power to manipulate imports and restrict exports. Competition in foreign markets was eliminated. Even the government was subject to its powers:

Pursuant to a request for bids on crude oil on February 10, 1950 by the Armed Services Petroleum Purchasing Agency of the United States Government, defendants Jersey, Socony, Gulf, Socal and Texas, directly and through subsidiaries and jointly owned companies, submitted identical bids of $1.75 per barrel f.o.b. the Persian Gulf. Likewise, on a similar invitation for bids for crude oil dated May 29, 1950 by the Armed Services Petroleum Purchasing Agency, defendants Jersey, Socony, Texas and Socal, and Caltex, submitted identical bids of $1.75 per barrel f.o.b. Ras Tanura. 9

As always, the American oil replies to such allegations are couched in the accepted idioms of "free enterprise" and "higher type of competition." The Texas Company, for example, told the court that the charges were "completely at variance with the whole spirit and purpose" of its enterprise. The interchanges of property and territories and the close working relations with Standard of California (Socal) and other companies had meant progress for Caltex-"the substitution of a strong integrated organization for the separate, unintegrated and comparatively weak organizations out of which it grew."

Texas, from the date of its origin in 1902, has been an aggressive and independent company acting competitively in the best interest of its stockholders (now numbering over 120,000). Any transaction between it and any other oil company has been for the sole purpose of advancing that interest and not for the purpose of creating a monopoly or restricting competition 10

Socony's answer was that "instead of being pursuant to a world-wide plan and agreement to monopolize and throttle commerce," its record of international cooperation had been "the very result of competition." Deriving from a need for crude supplies for its vast marketing organization that would place it "in a position to survive and compete" with the fully integrated world companies, these activities reflected the "dynamic character" of the industry. 11 In 1960, Gulf and Jersey entered into a consent judgment that prohibited future agreements to fix prices, divide markets, or allocate production with any competitors in the world market. Both companies declared that the agreement would not upset their practices.

In its original defense, the Gulf Oil Corporation simply denied the truth or knowledge of practically every allegation.12 A Gulf statement of a somewhat different sort before a Swedish investigating committee in 1946 is more pertinent:

Hitherto, to the best of our knowledge, it has never been considered reprehensible for businessmen within a particular business to meet for discussions of mutual interests for the purpose of bringing order in the market. Insofar as the oil companies have tried to realize a somewhat uniform price level, the elimination of extra rebates, a reduction of the number of distributing points, etc., all this must be considered permissible and reasonable. . . . If in one point or another there has been achieved a regulation, it has never been unfair or uneconomical for the consumers. Considered objectively, it can never be wrong to maintain uniform prices and conditions for gasoline which for the most part is a standard product. Had the prices been set too high, or if any other criticism were to be made about the other conditions, then there would be an excuse for fault finding. 13

And a Standard of New Jersey analysis submitted in 1955 to the Attorney General's National Committee to Study the Antitrust Laws suggested a fundamental difficulty faced by the international companies in securing oil for the American nation:

We in the United States are dedicated to a free competitive economy. In this respect, however, the United States is virtually alone among the nations of the world. At the other extreme stands state socialism which completely repudiates the free enterprise system that we wish to preserve. Between this and our system is the intermediate ground taken by many nations which encourage private enterprise but also permit and frequently insist upon cooperative action among members of industry to "rationalize" competition. In such nations quotas, price agreements, market allocations and the like are not only legal; they are regarded as necessary mechanisms to temper what are considered to be excessive and undesirable competitive pressures.

When in the Middle East or Europe, one had to follow Middle Eastern or European patterns. To impose antitrust assumptions on transactions beyond American borders was to penalize the companies involved and offend other sovereign nations:

Most Western business methods and concepts are without meaning in the Middle East. The corporation was unknown there until very recent years. Local business is conducted according to ancient Islamic law supplemented by the dictates of monarchs, like the late King Ibn Saud, who has been described as a "desert prophet, not a modern or even a medieval man but one of the last great figures of the Old Testament." In the end, it is monarchs such as he who determine the nature of the economic and political institutions of the countries. Once the method by which oil is to be produced has been elected by the monarch, it is impossible to believe that he will abandon that method because of a United States court's view that it is not compatible with a competitive economy.

Thus, regardless of action taken by our courts, the joint producing venture will doubtless remain in the Middle East. The British, the Dutch, and the French, the Iraquis, and the Saudi Arabs will see to that. We would accomplish nothing except great harm to ourselves by insisting that American companies comply with standards to which their foreign competitors are in no way obligated to adhere. This would simply straitjacket American companies in their oil operations in the Middle East and put them at a disadvantage with foreign concerns which are free to deal with Middle East countries according to the wishes of those countries. It may in the end lead to the forced withdrawal of American business interests from operations in those countries with all the damage to the interests of the United States which that would entail.

The fact that the United States cannot, through the medium of its antitrust laws, effectively deal with business conditions in the Middle East states where the ventures operate does not leave it powerless to prevent conduct prejudicial to United States interests. This country is at all times free to employ its immense political power and prestige through diplomatic channels to persuade the Middle East governments to recognize legitimate United States interests in Middle East petroleum. But persuasion through the State Department is one thing; it is quite another for the United States to institute under its laws judicial proceedings in which intimate internal affairs of the Middle East states are exposed in public litigation and made the subject of attempted control by a United States court. 14

In a fundamental sense, then, this is the case for what one executive once referred to as the "brotherhood of oil merchants." They have developed the capital reserves to provide energy for growing technological needs. In an industry with the experience as well as the potential for competitive waste, instability, and even chaos, there has
been established a functional peace among presumably sovereign corporate units that is world-wide and flexible.

They do not always agree and there is distrust. Conflicting national pulls, as between the British and American governments in the Middle East where the former has long played an active and direct role in formulating oil policy, at times keep unity tenuous within the empire of oil. At times individual companies, such as British Petroleum, feel the great need to accelerate their sale of crude. One can also exaggerate the omniscience of oil management, forgetting that much of their power derives from their sitting atop a basic energy resource that the industrial world wants and for which it has to pay tribute. They are not supermen, and their supercorporations do make miscalculations. Their price controls are not perfect. Then too, the current search for overseas reserves by aggressive "smaller" companies, acutely sensitive to present and future crude oil needs-and hence susceptible to the tougher contractual demands of producing countries-does upset the supply picture and profit margins. Since much of this oil is prevented from entering the United States, it may be offered at less than the going price set by the majors in world markets by companies pressed to recoup their investments.

The Soviet Union's stepped-up trade drive also poses a potential challenge to the world government of oil. In 1959 Russia began a seven year plan for the expansion of its petroleum industry, and it is replacing Venezuela as the world's second-ranking oil producer. The small but growing exports that Russia offers on attractive discount or barter terms are finding their way into many countries, including Italy, Sweden, Brazil, Cuba, and Japan. India, for example, which needs oil for basic economic development and is pressed for hard currency to pay for oil, has used Russian prices, along with technical and financial aid, as levers to force the international companies operating in India to reduce their prices. Producing countries, in turn, have resented such price cuts, made without their consultation, and see themselves as the losers. By chartering idle Western tankers the Soviet Union also rocks the artificial transportation pricing system. Jersey Standard, Standard of California, and several other companies warned that they would black-list tanker owners or brokers who leased to the USSR. This threat was made public after the regime of Fidel Castro had seized Texaco, Shell, and Jersey refineries subsequent to their refusal to process Russian oil, as demanded by Cuba, in place of some of the higher-priced Venezuelan crude of the private cornpanies. The Russian oil, bartered for sugar, was shipped in European tankers. American oilmen are impressed by the Russian industry, and some have sought their government's "diplomatic representation" to advise allies against dealing with the disrupters. Meanwhile, some international oil officials feel that the wisest solution is to accept Russia's right to a share of the market and thus let business sense lead the Communists into the brotherhood of oil.

There is the precedent and machinery for private adjudication along lines of mutual advantage within the industry. The integrated companies with overseas installations have to chart a foreign policy that will enable them to utilize cheaper Eastern oil while not discouraging home production or depressing their own domestic prices. They have to be sensitive to the real pressures for high royalties coming from feudal rulers riding the nationalistic wave and from American independent producers riding the politically potent free enterprise bandwagon for high prices. If admittedly prices are artificially pegged, the London Economist reasoned in reviewing the United Nations Economic Commission report, the alternatives of "depressed prices, dismay and anger in the Middle East, and delay to the progress and economic benefit that oil has conferred on Western Europe" could be deplorable. "There is much that is not diabolical in the present price arrangements and they are at least the Devil that everyone knows." 15

One might also argue that the industry leaders are generally wise enough not to set prices as high as oil's economic power might allow. Price increases were quickly instituted in 1957 during the Suez Canal closing. Again, one could also note that the industry's private government was able to redeploy its global facilities so that Europe could receive most of her oil needs. There was a good price for this service paid by consumers and their governments. But as oil men reminded their critics, that is how private enterprise works. And with justifiable pride they could underscore the conviction that in oil it does work- even if the "it" is a very different apparatus than that described in their advertisements or in the literature of capitalism. It is also significant that in the calm after the European oil lift, the British Petroleum Company raised the prices of its Persian Gulf crude. Other Middle Eastern producers were expected to follow "to meet competition." This action in the direction of bringing Middle Eastern prices in line with those of the Western Hemisphere served to protect the gains made during Suez while toning down the demands of American producers without overseas reserves. The latter, having won their crude increase, now feared the competition of cheaper overseas crude, and were seeking more stringent import controls.

In the planning of oil leaders, United States oil was destined to serve primarily the needs of its own country, with the amount regulated in relation to increasing imports from Venezuela and other Caribbean centers which no longer are major suppliers of Europe. These prices would remain closely linked with those at the Gulf of Mexico. Europe was to receive its crude oil from the Middle East. (Discoveries in North Africa have modified this arrangement somewhat. But while transportation costs are lower, discovery costs in Algeria and Libya are considerably greater than in the Middle East.) Prices were to remain balanced within a range that kept Middle Eastern oil priced high enough so that Caribbean oil could enter Western Europe and low enough to allow Middle Eastern crude to be transported to United States Atlantic Coast markets when necessary. The producing areas of the world were to be noncompetitive with one another in terms of price. Marketing areas were to remain apportioned so that the Middle Eastern refineries owned by the giants would supply petroleum products to Eastern countries, the postwar European refineries would take care of that continent's needs, and the Western Hemisphere would get its products from North American and Caribbean refineries. Thus, while the American government was in a quandary as to how to reconcile conflicting political pressures over imports with national needs, and countries like England were struggling for the survival of their economies, if not their empires, the government of oil was moving imperfectly but with purpose to redress the grievances of its constituents and maintain the rationale of its system. Reflecting on the live-and-let-live arrangements of international oil, A. A. Berle in 1954 observed that "as an experiment in world economic government, the corporations cannot on this record be accused of failure.16


Footnotes

CHAPTER 4: Toward World Government (Pages 65-79)

1. See, for example: Peaceful Uses of Atomic Energy, Report of the Panel on the Impact of the Peaceful Uses of Atomic Energy, Joint Committee on Atomic Energy, U.S. Congress, 84th Congress, 2d Session (Washington, 1956), Vol. 2, estimates of Wallace E. Pratt, pp. 89ff.; Petroleum Survey, Preliminary Report of the Committee on Interstate and Foreign Commerce, U.S. House of Representatives, 85th Congress, 1st Session (Washington, 1957), pp. 9-12; Eugene Ayres and Charles A. Scarlott, Energy Sources--The Wealth of the World (New York, McCraw Hill, 1952); Harrison Brown, James Bonner, and John Weir, The Next Hundred Years (New York, Viking, 1957), pp. 95-102 and passim; Oil and Gas Journal, Dec. 31, 1956, pp. 105-106; July 29, 1957, pp. 167-168; Dec. 29, 1958; Dec. 28, 1959; Coqueron and Pogue, Investment Patterns in the World Petroleum Industry (New York, 1956), pp. 49-55; Pogue and Hill, Future Growth . . . of the World Petroleum Industry (New York, 1957), passim.

2. For an account of the conversion from coal to oil, the role of Lord Fisher as the chief advocate, and of Churchill as First Lord of the Admiralty, see Winston Churchill, The World Crisis (New York, Scribner's, 1931), especially Book I.

3. Economic Development in the Middle East 1954-1955, Supplement to World Economic Survey, 1955, United Nations, Department of Economic and Social Affairs (New York, 1956), pp. 56-57. Investment Patterns in the World Petroleum Industry, op. cit., pp. 21ff.

4. The Price of Oil in Western Europe, Economic Commission for Europe, United Nations Economic and Social Council (Geneva, 1955), p. 15; Petroleum Arrangements with Saudi Arabia, Part 41, Investigation of the National Defense Program, Hearings before a Special Committee Investigating the National Defense Program, U.S. Senate, 80th Congress, 1st Session (Washington, 1948), pp. 24978-24981, 25008-25010, 25022; Senate Emergency Oil Lift hearings, Part 2, testimony of F. A.Davies, James Terry Duce, and Douglas Erskine of Arabian American Oil Company, pp. 1391 ff.

5. The International Petroleum Cartel, Staff Report to the Federal Trade Commission, released through Subcommittee on Monopoly of Select Committee on Small Business, U.S. Senate, 83d Congress, 2d Session (Washington, 1952), pp. 47-112. For text of "red line" agreement, see Current Antitrust Problems, Hearings before Antitrust Subcommittee (Subcommittee No. 5) of the Committee on the Judiciary, U.S. House of Representatives, 84th Congress, 1st Session (Washington, 1955), Part 2, pp. 1004-1054. See also United States of America v. Standard Oil Company (New Jersey), Et Al.,Civil Action No. 86-27, District of Columbia, April 1953.

6. Senate Emergency Oil Lift hearings, Part 2, p. 1535. Many affiliates of the giants are "paper" companies, maintained for legal or fiscal reasons.

7. The International Petroleum Cartel, op. cit., p. 200; see also pp. 197-274.

8. Ibid., pp. 101, 104.

9. United States of America v. Standard Oil Company (New Jersey), Et Al., op. cit.

10. Amended Answer of Defendant The Texas Company, United States of America v. Standard Oil Company (New Jersey), Et Al., Civil Action No. 86-27, pp. 2, 14.

11. Answer of Defendant Socony-Vacuum Oil Co., reprinted in Current Antitrust Problems, op. cit., Part 2, Pp. 8 39-902.

12. Answer of Defendant Gulf Oil Corporation, United States of America v. Standard Oil Company (New Jersey), Et Al., Civil Action No. 86-27.

13. The International Petroleum Cartel, op. cit., p. 307.

14. Current Antitrust Problems, op. cit., Part 2, pp. 822-823, 826.

15. "What Price Oil," The Economist, Feb. 26, 1955, pp. 739-740.

16. A. A. Berle, Jr., The 20th Century Capitalist Revolution (New York, Harcourt, Brace, 1954), p. 157.