The Seven Sisters The Great Oil Companies and the World They Made
Anthony Sampson Hodder and Stoughton, 1975, ISBN 0 340 19427 8 Chapter 13 - part 3 The Reckoning Governments and Companies From the first moment of the embargo it was once again evident to Washington that oil was too important to be left to oilmen. The old notion of oil companies as the instruments ol foreign policy had been turned on its head, as the companies appeared to be making foreign policy, and the buffers had clearly broken down. The White House and the State Department were confronted with the problems they had so often sought to avoid. The first attempts at an energy policy were more apparent than real. In November 1973 President Nixon had made a stirring television speech, proposing his Project Independence: the United States must become self-sufficient in energy by 1980, by increasing its drilling and use of other fuels, and by massive spending on nuclear research -- a new kind of Manhattan project. It was certainly in keeping with all the old optimism of the oil pioneers, that just when one source of oil is drying up another one will appear somewhere else. But now, at least within the United States, there was little justification for such confidence. By the end of the year Project Independence was a joke, and self-sufficiency by 1980 inconceivable; by the end of 1974 the United States was more dependent than ever on Arab oil. The Defence Secretary, James Schlesinger, began hinting that the embargo might lead the government to use force in the Middle East; and hints continued to be dropped from the Pentagon. But there was little sign that the hints were taken seriously in OPEC. In February 1974 Dr. Kissinger convened a conference of thirteen major consuming nations in Washington, to try to establish a common energy policy; but the conference only served to reveal publicly what was already obvious privately, that there were major differences between the Americans and the Europeans, who were too thoroughly dependent on Middle East oil to want a confrontation with the Arabs. The chief outcome of the conference was a theatrical attack on American policy by the French delegate, Michel Jobert; the British and Germans appeared to take the American side, but soon afterwards, to Kissinger's anger, the French summoned another conference of Europeans only to meet with the Arabs. The European nations at the peak of the energy panic were now each desperately trying to secure their own sources of oil, by-passing the oil companies, to make separate deals with the Arabs. The British conservative government had sent out a special emissary, Lord Aldington, to Saudi Arabia to secure oil supplies, to the annoyance of the oil companies: 'waiting to kiss the hem', as one Shell director put it, 'of any passing galabea.' The French sent out a special mission to Saudi Arabia, seeing a chance to break into the all-American preserve, the chasse gardŽe, which they had been trying to enter for the past quarter-century. The fact that Saudi Arabia, the critical source of oil for Europe, was in the hands of an all-American consortium, was now more than ever exasperating to the Europeans, who saw their oil dependent on the vagaries of American companies. Kissinger retorted by attacking the bilateral 'beggar my neighbour' policies of the Europeans, and insisting that only by working together could the West be effective. But in the meantime the Americans, too, were busily fostering their own bilateral relationships; and in June Prince Fahd and Sheikh Yamani from Saudi Arabia were received in great style in Washington, to prepare a new agreement for massive American technical and military aid, to cement the most special of special relationships. With the Shah, too, the Americans were determined to strengthen both their own bonds and to make profitable arms deals: in 1974 Iran bought more than $4 billion worth of arms from the United States. The chaos of Western rivalries now revealed the exact opposite of the position in the early years of OPEC: now it was the Arabs who were united, and the West divided. Out of this chaos there gradually emerged a new instrument of Western collaboration, which was Kissinger's special brain-child, the International Energy Agency, which was to be the instrument of Western oil collaboration. Before long all the major consuming nations had joined it, except France -- who was still determined not to antagonise the Arabs. By November 1974 the IEA had agreed on a plan for mutual assistance, to ensure that no member would be victimised in a future embargo or other sanctions; but there was great disagreement as to the wider alms of the agency. Dr. Kissinger saw it essentially, though he did not publicly say so, as a counter-cartel, to confront OPEC and break it; and his abrasive assistant, Thomas Enders, later (April 1975) openly stated that his aim was to break the OPEC cartel. But the European members had no wish for such a confrontation, and preferred to meet with OPEC members on a much less provocative basis. ------------ The British government's relations with the oil companies had now taken a curious new turn, due to the discoveries in the North Sea, whose estimated reserves were steadily increasing. By the end of 1974 ministers were privately foreseeing large exports of oil by the 'eighties, so that the quadrupled oil price might in the end prove the salvation for Britain's balance of payments. The exploration, however, was now so expensive that it was only economic with a fairly high price (if the Arabs had not at least doubled the oil price the future of the North Sea would have been much more problematical). Thus, although Britain faced huge oil import costs for the next five years, her long-term interests were coming much closer to OPEC's, and the last thing the government wanted was a permanent drop in the oil-price. But the North Sea and the energy crisis made the question of controlling the oil companies much more urgent. The parliamentary report of 1973, revealing the past generosity in handing out concessions and giving tax relief, had made politicians on both sides more wary. Both Conservatives and Socialists considered taking closer control over BP, now more than ever the Frankenstein monster, through more serious government representation (particularly after the collapse of the Burmah oil Company in 1975 whose 20 percent holding in BP were then taken over by the Bank of England, giving the government the choice of a more dominating influence); and government relations with BP were icy. But the Foreign Office insisted that intervention would damage BP's relations in other countries, particularly in Alaska (the former head of the Foreign Office, Sir Denis Greenhill, was now a director of BP). Instead, the notion began to take root that the British government, like the Arabs, should engage in 'participation'. Once oil was discovered, the British felt the same need to have control over their own resources, and this applied particularly to the Scots, in whose waters most discoveries were made, and who were talking menacingly about the exploitation of their own oil and threatening secession. Ted Heath was already coming round to the idea of participation before the general election of February 1974: and one of the last acts of the Tory Minister for 0il, Patrick Jenkin, was to recommend it. The arrival of the Labour government and the energy crisis gave a new fillip to participation, and Lord Balogh, the practised critic of the companies who came back into government was convinced that only participation could extract the true facts from the companies and safeguard Britain's oil -- particularly in the context of the Common Market. The British government therefore proposed to buy 51 percent of the shares of each of the North Sea concessions, and to form its own British National Oil Corporation, BNOC, based on Glasgow, to look after its interests. 'No other government outside the United States', said Eric Varley, the Minister for Energy, 'has thought it wise to be completely dependent on the oil companies'. (House of Commons, April 30, 1975.) The oil majors were furious, particularly BP, to whom the proposal was a clear indication of distrust. Sir Eric Drake had agreed to barbed negotiations with the Labour energy minister Eric Varley, only because, as he explained, he felt obliged to discuss any governmental proposal, 'even if it was to put a Hottentot on the board'. (BBC Radio Interview, May 1, 1975.) But participation was really an updating of Churchill's old insistence that the government 'must become the owners, or at any rate the controllers' of their own oil supply: extending from 51 percent of a company to 51 percent of a sea. The American oilmen now bracketed the British with the Norwegians as being the 'blue-eyed Arabs' and the 'Sheikhs of the North': but the State Department made clear to the British government that they would not interfere. It was certainly ironic that the British government, having protested against participation so vigorously in the Middle East, and having denied it to the Iraqis over the past fifty years, should so quickly insist on it for themselves. But it was characteristic of oil that once found in anyone's territory, it made the world look very different. Trustbusters International While the Western governments were developing new ways of controlling the oil companies, the trustbusters were trying once again to separate them, or break them up. This time they they were at work not just in Washington but in several Western capitals. The global scandal seemed at last to be provoking a global response, as Rockefeller's scandal had provoked a federal response a century before. In Washington the new anti-trust chief Thomas Kauper was less obtrusive and more detached than his predecessor McLaren, also quietly persistent. With the new solidarity of the OPEC cartel, however, the trustbusters faced a more difficult problem. The sisters had continued to get anti-trust permission for joint bargaining with OPEC up to the last negotiation in Vienna in October 1973 on the grounds that this was in the consumers' interests. But the new kind of bargaining was not necessarily concerned with keeping prices down. For the companies were now more concerned to keep their access to the 'buyback' oil; and the negotiations with the Saudi Arabian government, for instance, showed some signs of being in restraint of trade. But the task was now much harder, for the participation agreements had bound the companies to the producing governments, and the basic cartel was one of sovereign states. As Kauper put it in June 1974: 'you are also dealing with another party to the transaction, a party which is a sovereign nation, and that makes questions of anti-trust relief in the domestic courts of the United States rather difficult.' (Testimony to Multinational Hearings: Part 9. June 5, 1974.) The political thrust behind the anti-trust movement was now again very forceful, not only against the oil companies, but against all giant corporations. With the growth of the conglomerates and multinationals, individualism was more than ever threatened, and the 'Age of Combinations' which Rockfeller had proclaimed, had arrived on a global scale. And because it was global, the anti-trust problem was much more difficult. This is how a top anti-trust official put it to me in June 1974: Indent There have been two major changes; first OPEC are now owners of oil; second, the negotiations are about control over the crude, not about pricing. And at the same time there's been a growing concern about the question of size as such, not so much for sophisticated economic reasons, as for political and social reasons. People feel they have lost their say over their destinies in their communities, because of the giant companies: conglomerates like ITT added to the worry, but the chief concern is just with size. The difficulty for us is to establish exactly what is objectionable legally: people have an uneasy feeling, but no-one is quite sure why. It may be like the 1880s when there was a powerful popular feeling against the trusts, like Standard 0il; but without a very effective intellectual argument. And the competition with foreigners always complicates the question. When a foreign company comes in, there's pressure to ease controls at home. The argument that we need big companies abroad to compete with theJapanese is very plausible; but of course you can't have big companies abroad and small companies at home. Anti-trust has become much more an international problem. And it is now often hard to know the genuine nationality of a big company, as it was with the states of the Union in 1880. What nationality is Aramco now? There's some doubt whether it's possible for us to break it up, because it's now part of a sovereign power. End indent As the groundswell of indignation against the oil companies spread, it set in motion waves of anti-trust cases all over the industrialised world. In May 1974 Japan's anti-monopoly organisation, the Fair Trade Commission, brought its first major case against price-fixing: it charged twelve oil companies including Shell (but no other sisters) with conspiring to fix prices since 1973. (New York Times, May 29, 1974.) But the case would take years to be tried. In West Germany, the cartel office -- perhaps the most effective anti-trust body -- began an investigation into the price rises in 1973, accusing the companies of acting in unison to exploit the crisis. The German activity quickly reacted back in Washington: 'Why is it that the German cartel office has to be in the forefront?' Jerome Levinson, the chief counsel of the multinationals subcommittee, asked Thomas Kauper. Kauper explained that the Germans could act on the basis of 'abuse of economic power', in circumstances where he could not act. But the German cartel office had concluded that there was not much any individual country, at least of the size of West Germany, could do about it. (See Multinational Hearings, Part 9. Also The Economist, May 4, 1974.) In France the repercussions were specially rough, for the energy crisis appeared to be a humiliating defeat for French government policy which had always been more defined and more interventionist than the rest of the West. The French national assembly in June 1974 appointed a commission of deputies to examine the oil companies operating in France, and their relationships with the State, and five months later they published an outspoken report, written by the conservative deputy Julien Schvartz. Since the French had lost their unique access to Algerian oil in 1970, he complained, they had become still more dependent on cheap Middle East oil, just when OPEC was becoming more effective: 'in this matter technocracy had taken over from politics'. The French policies towards their own companies were now thoroughly muddled: CFP, the French equivalent of BP, had become equally uncontrollable and virtually a multinational company like the others. French oil policy had become merely the result of struggles between different powers, in which the public interest was forgotten. There should henceforth be an autonomous organisation for controlling French oil policy, concluded the Report, accountable to the Assembly, and the French companies must be answerable to the public. (Sur les SociŽtŽs Petrolires OpŽrant en France: Rapport de la Commission d'Enqute Parlementaire. Paris, November 1974.) In the meantime the public anger had been further stirred up by the public prosecutor in Marseilles, who in February 1974 indicted the chief executives of 43 companies, including the French heads of Exxon, Shell, Mobil and BP, on charges of discriminating against independent distributors. The European Community also reacted to the oil companies with unaccustomed firmness. They commissioned a full report on the oil companies' behaviour during the crisis, and in November 1974 the Commissioner for Competition, Albert Borschette, sent a complaint to each of the seven sisters in Holland accusing them of having abused their dominant position during the shortage, by cutting back supplies to the smaller Dutch oil companies. (The Economist, November 16, 1974.) This broadside from Brussels provoked very different reactions from the Europeans. While France and Germany were in a radical mood against the sisters, Britain and Holland were much more protective -- both because they were the home ground of two of them, and because they both now had oil and gas of their own. The British oilmen's attitude to the anti-trust suit was fairly contemptuous: 'The independents make their money from surpluses', said one Shell director: 'to save them is like lending a bed to your wife's lover'. But that was what worried the trustbusters everywhere; that the shortage strengthened the hand of the giants. Anti-trust actions had certainly gained momentum from the oil crisis. But there remained a deep division of attitudes, according to interpretations of the whole history of the companies. Was the crisis for the West so serious that they could not afford the democratic luxury of anti-trust -- as the State Department had decided in encouraging the Iranian consortium twenty years before? Or were the companies now really part of the cartel on the other side, underpinning the new cartel of sovereign states? And if so, how could any committee of lawyers be effective against that combination? Against that line-up, was the only ultimate anti-trust action -- as some hawks were beginning to suggest -- a war? [continued: Chapter 14, The New Cartel] ------------------------ Yahoo! Groups Sponsor ---------------------~--> Buy Stock for $4 and no minimums. 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