Does this sound like oil is a rare substance or a plentiful but controllable resource that is kept cartellized?

By the end of World War I the central place of petroleum in world strategy had become obvious, and the dramatic thirst of military operations had led to fears that there would be a global oil shortage, and to quick appreciation of the profits to be made in such circumstances. American companies, who had been unwilling to explore abroad when vast oilfields were being discovered at home in Texas and California, began to look overseas, and the American government began to use considerable political and economic pressure to try to force American companies into the European-dominated consortia in the Middle East. However, new fields came on line in the 1920s, and the big companies were soon worrying instead about an oil glut. By 1928 there were negotiations between BP, Shell, and Exxon* in a Scottish castle, and the so-called Achnacarry Agreement set out working principles to avoid competition at the marketing end of the oil industry. The agreement specifically excluded the US market because of its powerful anti-trust legislation, but there is no question that the companies had no intention of serious competition there if they could hammer out an agreement for the rest of the world.

The Economist of London praised the Achnacarry Agreement as “an example of the effectiveness of international cooperation in oil marketing.” The Economist was pleased with the “stability” of the prices of oil and gasoline, but it’s not clear whether the articles was written with the seller or the consumer in mind. Mobil, Gulf, and Texaco had joined the three founder companies by 1932, to make six. The results for producers were very rewarding: stable (but higher) prices gouged the consumer for decades, and “pirates” were dealt with summarily whenever possible.

With the Achnacarry Agreement in hand, each large company could feel that it would be able to negotiate a market share for its oil without seeing petroleum prices crash. The stage was now set for serious prospecting, and for staking out major oilfields, even though every company could see that it would not be in a position to pump all the oil that it found. After 1928, therefore, the era of the great Middle East oil strikes began, though Middle East production remained low.

In 1928 the six-year negotiations over Iraq were completed, and the Iraq Petroleum Company was re-divided. 5% went to the formidable Mr. Gulbenkian, and the other 95% was shared equally between the British (BP), the Dutch (Shell), the French (CFP, the Compagnie Française Pétrole), and a Rockefeller-controlled American group (Exxon + Mobil). The Iraq company was essentially set up as an accounting company, to share the production costs and the crude oil between the partners.

On June 1, 1932, Socal (now Chevron) struck oil in Bahrain, the first strike in the Arabian peninsula. In 1933 BP extended its Iranian lease for another 60 years. Gulf joined with BP to explore a Kuwaiti concession in 1934. But 1938 marked the major turning point in Middle East oil history: Gulf and BP struck the Burgan field in Kuwait, and Chevron struck oil in Saudi Arabia.

*I have used the modern names of oil companies in the discussion that follows to save confusion: thus, “Exxon” rather than “Esso”; I call the largest oil companies “the majors”.

Read the rest at OPEC and Crude Oil.

So what exactly qualified a person or persons as “pirates”?

See here and here for why I post this.

One thought on “Does this sound like oil is a rare substance or a plentiful but controllable resource that is kept cartellized?

  1. Pingback: “Conservation” for Cartels | Mark Horne

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