by Anthony Sampson
We have formed a very exclusive club... Between us we control ninety percent of crude exports to world markets, and we are now united. We are making history.
-- Perez Alfonso, 1960
IN July 1960, in the Rockefeller Center in New York, the new chief executive of Exxon, Monroe Rathbone, faced a decision which he knew would have world-wide implications. Rathbone was a man who had come up through the traditional pipeline; educated as a chemical engineer, he had worked his way to the top of Standard Oil of Louisiana. He made his adopted home in Baton Rouge, the great refinery centre, before he moved over to Exxon in New York. He was not a man of great international sensitivity; but he was regarded as one of the more far-sighted of Exxon's bosses, with a reputation for taking advice from others.
Rathbone's problem was the glut. It was bringing about price-cuts all over the world, and the Russians, as he saw it, were using oil to upset the economy of the West with dangerous results. (Benjamin Shwadran: The Middle East, Oil and the Great Powers (revised edition) New York, 1973, P. 536.) In Italy, Mattei had just made a deal with the Russians to buy crude oil at sixty cents below the Middle East price; in Japan, oil was being sold at huge discounts, made more damaging because they were publicly known. Worse still, the Russian oil was now invading India as had happened in Deterding's price-war in the 'twenties. The Indian government had told the three big refineries -- each owned by one of the sisters -- that they had been offered Russian oil cheaper than the oil from the parent sisters, forcing the companies to undercut their own posted prices. For Rathbone this was the most serious aspect: 'the tremendous amount of price discounting to third parties,' he told a reporter, 'is bad enough. If it now spreads to affiliates, the fat's in the fire." (Wanda Jablonski in Petroleum Week, July 22, 1960.)
Exxon and the other sisters were caught in a painful fork. On one prong they were compelled to reduce prices in the marketplace. On the other they were still sticking to the same posted prices which were the basis for their fifty-fifty taxes to the producing countries, so that they were having to pay the countries much more than fifty percent. Yet the countries had come to plan their whole budgets on the confident expectation of these taxes. The basic flaw in the fifty-fifty agreements, which had looked so neat was now very evident. They were like plans to give factory-workers a shareholding in a company; fine when profits were booming, explosive when they were slumping.
The companies managed to create the impression that their profits were falling dangerously low, but in fact they were still able to pay for their vast expansion from the profits from Middle East oil. 'Throughout the period,'wrote Professor Edith Penrose, I the majors were able to finance from their own funds the construction of an enormous volume of transport facilities, refineries and distribution networks, and succeeded in maintain- ing their dominating position in an industry expanding at around eight percent per year.' But the sisters nevertheless felt threatened, because the independents were making their markets less assured: 'certain of the normal functions of prices, long rusty with disuse, began to reassert themselves'. (Edith Penrose: The International Petroleum Industry, p. 195.)
They had already made one cut in the posted price in February 1959, of eighteen cents a barrel -- a reduction which meant that the four major producing countries in the Middle East would receive about ten percent less in taxes, or $132 million dollars a year. But it was not altogether unexpected, for basically it restored the price to the level before the increases negotiated by the oil companies after the Suez Crisis two years earlier. (See Chapter 6.)
Now Rathbone, surveying the price-cuts round the world, resolved that he must cut the posted price still further. It would be clearly explosive. There were already warnings from the producing countries that they could not tolerate a further cut and the New York magazine, Petroleum Week, having got wind of Rathbone's resolve, emphasised that no-one 'was anxious to face the uproar such a move would undoubtedly precipitate'. There was also heated opposition from some of the Exxon directors. Howard Page, who was concerned with the Middle East, and politically the most sophisticated, was emphatic about the danger: all hell, he said, would break loose. If the board insisted, they should at least share the loss of revenue with the governments. Page's view was shared by another director, William Stott, who was in charge of marketing, and who thought that Exxon should increase its marketing profits, to compensate for its losses in production. But Stott and Page were over-ridden by Rathbone and the rest of the board.
The original plan was to cut the posted price everywhere, including Venezuela. But Exxon's relations with Venezuela had recently been stormy, and when the board instructed their man in Caracas, Arthur Proudfit, to enforce the cut, he threatened to resign, believing that it would wreck Exxon's position in Venezuela, so the board climbed down. On August 8, 1960, Exxon made its announcement; that the posted prices in the Middle East would be cut by an average of ten cents per barrel. This historic decision, which so drastically diminished the income of the chief Middle East countries, was taken inside the boardroom of a private corporation.
The reaction of many Middle East old hands was one of horror -- particularly within BP, with their huge stake in the region. Harold Snow, the vice-chairman, the silent mathematician who had patiently negotiated the Iranian agreement six years before, was observed by a colleague to be in tears when he heard the news. And the chairman, Maurice Bridgeman, took the unusual step of making a public statement deploring the price-cut: BP, it said, had hoped that such action could be deferred, and heard the news with regret. Shell believed that if there were to be a price cut it should also be made in Venezuela, and they nearly went it alone there; but they were dissuaded at the last minute.
The sisters were all so interdependent that they all had to follow Exxon. A few days later BP cut its price by 41 cents and the other companies hovered between different prices until they were all down, and all level. The companies were solidly confronting the Middle East.
All hell did break loose.
There had been earlier attempts to bring together the oil exporting countries. The Venezuelans, as we have seen (see Chapter 5), influenced by the shrewd Perez Alfonso, had for long been determined to safeguard their own conservation policy by spreading it abroad. With their very limited reserves, their long history of independence, and their bitter resentment of the United States, they were much more militant than the Arabs, and their proselytising had helped to establish the principle of 'fifty-fifty' in the Middle East. The Arabs had a growing, if vague, realisation of the importance of collaborating over oil, ever since the Arab League was formed in 1945 with oil in its terms of reference.
President Nasser of Egypt, in his own book The Philosophy of a Revolution, first published in 1954, described petroleum as one of the three chief components of Arab Power. Like so many Arab radicals, he had got his ammunition from America. He had then just been reading a treatise on petroleum published by the University of Chicago, which revealed to him that it cost only ten cents to extract a barrel of oil from Arab countries; and that the average output of a single Arab oilwell was 4,000 barrels a day, compared to eleven barrels in America. 'Petroleum', Nasser told his Arab brothers, 'is the vital nerve of civilisation, without which all its means cannot possibly exist'. But the Arabs with the most oil, led by the Saudis, were not keen on sharing their revenues with Egypt who had almost none, and it was not until after the revolution in Iraq in July 1958 that there were the beginnings of some unity. The Iraqis, who were soon negotiating with the IPC, felt the need for support from other Arab countries. The new oil adviser in Saudi Arabia, Abdullah Tariki, was a radical who was determined to unite the producers. Tariki was one of a new generation of Arabs who had seen the oil industry from the inside; he had been educated at the University of Texas, had been a trainee in Texaco -- a bitter ordeal -- and was married for a time to an American girl. He was left with a detailed knowledge of oil and of the anti-trust arguments inside America: once again, America was educating its adversaries.
The first price-reduction in 1959 had provided the first spur to unity. Two months later the first Arab Petroleum Congress was convened in Cairo, including observers from Iran and Venezuela, and recommended that there should be no reduction in the posted price without consultation with the governments. And there were private talks between Tariki and Perez Alfonso, which led to a secret gentleman's agreement which, according to Alfonso, 'constituted the first seed of the creation of OPEC'. But the oil company men at the congress were not too worried, and Iraq, the most militant producer, was too angry with Egypt to attend.
But the second reduction, led by Exxon, transformed the whole atmosphere in the Middle East. In Iraq, it came just when the oil companies were deadlocked in their negotiations, and the Iraqis suspected it was aimed at bringing pressure upon them. They were determined to fight back, and on September 9, a month after the announcement, they convened a meeting at Baghdad of five countries who were responsible for eighty percent of the world's exports of oil: Saudi Arabia, Iran, Iraq, Kuwait and Venezuela. The key alliance was between Saudi Arabia and Venezuela, and the meeting was dominated by Tariki and Perez Alfonso. The two men already trusted each other: Tariki had been much influenced by Alfonso's arguments about conservation, and the fact that Venezuela had been excluded from the posted price cuts enabled Alfonso to show the advantages of being tough, and made him more determined to show unity with the Arabs.
The Shah, too, was furious about the price-cuts, of which he was given no warning: 'even if the action was basically sound,' he said afterwards, 'it could not be acceptable to us as long as it was taken without our consent.' (Zuhayr Mikdashi: The Community of 0il Exporting Countries, London, 1972, p. 33.) In his indignation he was now prepared to join up with the revolutionaries of Iraq, and the Shah's support was very important to the new movement. But he still kept aloof from the Arab members, continuing to supply oil to Israel (David Hirst: Oil and Public Opinion in the Middle East, London, 1966, p. 112), and he was not at all confident of the power of the producers: 'I must admit we were just walking in the mist,' he explained to me fifteen years later: 'not in the dark, but it was a little misty. There was still that complex of the big powers, and the mystical power and all the magic behind the name of all these big countries.'
The new price-cut was most serious for Iran, which had far the biggest population, but it also came at a bad time for Saudi Arabia which was just embarking on a massive expenditure on social services. Some other Arabs did not mind the thought of the Saudis having to cut down: thus the Egyptian Economic and Political Review, which was close to the Arab League, commented with some gratification that the loss of revenue 'should mean fewer Cadillacs in Arabia'. (Benjamin Shwadran: The Middle East, Oil and the Great Powers, New York, 1973, p. 516.) But among the oil producers the price-cut generated a surge of unity, between the conservative kingdoms of Saudi Arabia, and the anti-monarchists of Iraq; and between the Arabs and two states, Iran and Venezuela, right outside the Arab world.
The Birth of OPEC
The five nations met in Baghdad in a mood of excited confidence: 'It was quite clear from the start', wrote the ebullient owner-editor of the Middle East Economic Survey, Fuad Itayim, 'that the price cuts might precipitate the establishment of what some delegate chose to call "a cartel to confront the cartel". It had precisely that effect!' They decided on the foundation of the Organisation of Petroleum Exporting Countries, or OPEC. The first resolution made clear that their chief enemy was the oil companies, and they stated:
that members can no longer remain indifferent to the attitude heretofore adopted by the oil companies in affecting price modifications; that members shall demand that oil companies maintain their prices steady and free from all unnecessary fluctuation; that members shall endeavour, by all means available to them, to restore present prices to the levels prevailing before the reductions ...
The preamble expounded the common predicament of all the oil exporters, with unexceptionable logic: that they all depended on oil income to finance their development, and balance their budgets; that oil was a wasting asset, which must be replaced by other assets; and that fluctuations in the price of oil dislocated not only their own economies, but those of all consuming nations.
Would OPEC, or some such body, have formed itself at about this time, without the urgent prodding from the oil companies? Certainly the tide was already flowing towards militancy. The tide which moved the Mexicans to nationalisation, which gave the Venezuelans their toughness, and which swept Mossadeq into power in Iran was now carrying the Arabs to the awareness of their potential, and these countries would have found common cause before long. But the critical point about Exxon's decision was that it was unilateral, with no attempt at consultation; and it compelled the countries to respond in the same fashion. Confronted by the unity of the seven, they had to oppose with the same kind of unity. As one Kuwaiti insisted to me: 'OPEC couldn't have happened without the oil cartel. We just took a leaf from the oil companies' book. The victim had learnt the lesson.'
The founders of OPEC owed much to the oil companies, and to their critics in the West. The new generation of young Arab technocrats like Tariki knew the history of conservation in Texas, and they had followed carefully each attack on the 'oil cartel'. The facts from the Federal Trade Commission's report in 1952 were repeated through OPEC speeches. Like the anti-colonialists in the British Empire, they took their weapons from their masters, and the awakening could be interpreted as a reflection of American democracy as much as of Arab nationalism. The concept of the cartel provided an ideal common enemy; and the oil companies were very conscious of being isolated and unloved. As one director of Shell recalled: 'OPEC could count on some support from the consuming countries in putting forward their notion of a cartel. When the industry was attacked, it was without friends.'
OPEC began with a flourish. A month after its foundation, the Arab Petroleum Congress held another meeting in Beirut, attended by oil-company men. Tariki took the opportunity to lash out at them, accusing them of rigging their profits to deprive the producing countries of more than two billion dollars over the previous seven years. He accused Aramco of having concealed from the Saudi Arabians that they received a discount on their oil; so that the fifty-fifty agreement was really 32-68. The oil companies protested, but would not reveal the true figures: the extent of their Middle East profits, buried in their complex accounting, remains hidden to this day. Tariki had made his point to the other delegates, that the companies were concealing the facts, and the common indignation gave a new fillip to OPEC.
The new organisation was duly set up in Geneva, with an Iranian Secretary-General, Fuad Rouhani. He was an urbane and very moderate man, an international lawyer and a talented musician, and he was determined (as he recalled to me) to keep OPEC out of both politics and religion: he would tour the offices to make sure that officials stuck to oil and economics. But he soon realised that the oil companies were determined to pretend that OPEC simply did not exist; and insisted on negotiating separately with each country. So he turned up at each negotiation, 'wearing a different hat'. While the companies insisted that OPEC was a would-be cartel, Rouhani observed that the companies were clearly in cahoots, co-ordinating their terms with each country.
From the beginning, OPEC achieved one important aim: it prevented further reductions in the posted price, even though competition was becoming still more intense. As Nadim Pachachi, a later Secretary-General, described it, OPEC froze the 'managerial prerogative' of unilateral fixing of prices. The companies tried to get individual countries to give tax rebates in return for extra production: but they stood firm and resisted the temptation. (James Akins: 'The Oil Crisis', Foreign Affairs, April 1973.) But it did not restore the posted prices to the previous levels, which was another of its aims. And, more serious, its members could not agree about how to fix prices, or to restrict production. At the second conference, in Caracas in January 1961, OPEC resolved to make a detailed study to arrive at a 'just pricing formula'. But each of the members desperately wanted a bigger share of the market, and the notion of conservation, however much preached by the Venezuelans, had little appeal in the free-for-all. The countries were back in the predicament of the oil-drillers in Pennsylvania a century before: divided and ruled by the men who controlled the market.
And the Russians, who could have helped the Arabs to cut back the glut, were still insistent on spoiling the market. At one point they actually showed interest, through Rouhani, in becoming members of OPEC, but they took it no further. Instead they explained to successive meetings of the Arab Petroleum Congress that they wanted to get back their position as major oil exporters, and they would not support artificially high prices. For the time the Russians were the chief bogey, both for the Arabs and the companies, and the Americans became increasingly worried that the Russian 'dumping' of oil was an attempt to sabotage the West. In November 1962 the National Petroleum Council in Washington produced a long report analysing the dangers, which reckoned that Soviet exports had cut the income of producing countries by $490 million in five years. However the Russian threat soon afterwards faded away, as the Russians needed more oil for themselves and their satellites; by the late 'sixties they were actually importing oil from the Middle East. (Shwadran: pp. 503-538.)
The first surge of OPEC unity did not last long. The Iraqis, preoccupied with their own problems, did not turn up at the meetings. The radical Arabs resented the moderate Rouhani: he was eventually succeeded by an Iraqi, Abdul Rahman Bazzaz, who encouraged talk of both religion and politics. Tariki fell into disfavour and was replaced as oil minister in March 1962 by a young lawyer who seemed a much more pre-Western influence. Sheikh Zaki Yamani, then only thirty-two, was the son of a judge in Mecca, who had studied law first at Cairo, then at New York University, then at Harvard. He had come back to Saudi Arabia, sophisticated and westernised, to start a private law practice.
His appointment as oil minister and as director of Aramco was very welcome to the four companies in Aramco: he became friendly with the directors, and loved visiting New York. And the State Department, as well as Aramco, had taken pains to cultivate the Saudi royal family. King Saud, who had succeeded his father Ibn Saud in 1953, had been an increasing embarrassment to the diplomats: but by 1962 he had been ousted by his brother King Feisal, whose hooked nose and sinister expression had so struck Dean Acheson sixteen years earlier. King Feisal was still implacable on the question of Israel; but he was also deeply conservative and very wary of the Arab radicals, particularly after Nasser was threatening the Saudis through the war in Yemen. The King looked to Washington as an anti-Communist ally, to maintain the most special of special relationships. Moreover King Feisal, though his revenues were increasing, could always spend more, and had no wish to hold back production to help his Arab rivals.
OPEC was still totally failing to achieve any kind of effective pro-rationing of oil production between its members, of the kind that had maintained prices in Texas for the past thirty years. Saudi Arabia was becoming the Texas of the Middle East: if they would not restrict production, no-one else would. But they showed no interest in restriction, and the problem was now harder than in 1960, for new oil-producers were starting up all the time, including Nigeria, which was right outside OPEC. Iran and Iraq were proposing 'programming' production according to population -- both having large populations -- but others wanted programming according to need. At the ninth OPEC conference, in Tripoli in July 1965, members set limits for each country's increase on an experimental basis: Saudi Arabia and Iraq would go up 9 percent in the next year, Iran 14 percent, Kuwait 5 percent, Libya 33 percent. But Saudi Arabia was not at the meeting, having had a row with Iraq about an apology, and the Saudis vetoed the decision: their increase for the year was in fact 18 percent. 'The argument was really nothing to do with programming as such,' said Yamani afterwards, 'it was about resources and economic factors.' (Interview with author: February 1975.) By 1967 OPEC had given up the attempt.
The companies were not now seriously worried by the threat of OPEC. They continued to deal separately with each government, and to play them against each other; while the governments remained in some awe of the power of the companies. But OPEC did have one significant achievement. In June 1962 they resolved to establish a uniform rate for royalties in each country, which would not be deductible from the income tax paid to them. The companies resisted stubbornly, claiming at one point that it would reduce their profits by a quarter, and the argument dragged on for over two years. Eventually in Geneva in December 1964 they reluctantly agreed, thus enabling the producers to increase their revenue at a time when the price was going down. To the oil companies it seemed a generous concession, involving an extra four cents a barrel, and to OPEC it seemed a great victory. But they had not touched the central question of the price of oil, for they were quite unable to control the flow of it.
One man who did take OPEC seriously was the veteran lawyer-administrator JohnJay McCloy, who was then regarded as a kind of chairman of the American 'Establishment' (Richard Rovere: The American Establishment, New York, 1962, p. 11) and was to become the key figure in oil diplomacy. McCloy, then sixty-six, had moved effortlessly through the revolving doors of government and business. His origins were modest; he was born, as he liked to recall, on the wrong side of the tracks in Philadelphia, and worked his way up through Harvard Law School. Patient, philosophical and humorous, he was a natural mediator, and before long he was a top lawyer in Wall Street, and a confidant of the Rockefellers. During the war he was Assistant Secretary of War, and he had been High Commissioner for Germany, President of the World Bank, and Chairman of the Chase Manhattan.
When President Kennedy took office in January 1961 McCloy advised him on such questions as arms control, security, defence and Germany. At the same time he was practising as a very highly-paid lawyer, in the prestigious firm of Milbank, Tweed, Hadley and McCloy, and from that office, it later transpired, he represented the anti-trust interests of all seven of the seven sisters (Multinational Hearings: Part 6, p. 290): 'My job,' as he described it to me later, 'was to keep 'em out of jail.' In the midst of a world of conflicting and disconnected interests, McCloy appeared as part of that discreet 'supra-government' which remains while Presidents come and go, and it was natural that Kennedy should turn to him for advice on oil, too.
Kennedy was concerned about a Middle East confrontation with the Russians after his talk with Krushchev in Vienna in June 1961. He talked to McCloy who then warned Kennedy about the possible consequences of OPEC: if OPEC were to succeed in joint action, he said, it might be necessary for the oil companies on their side to be given authority for collective bargaining. Kennedy 'right then and there' arranged for McCloy to see his brother Robert, the Attorney-General, to whom McCloy repeated the warning. Robert Kennedy assured him that, if and when the companies contemplated joint action, he would be glad to discuss the possibility. McCloy thereafter made it his business to call on each successive Attorney-General, to repeat the warning: first to Katzenbach, then to Clark, then to Mitchell; though it was a decade before the expected eventuality arose. (Multinational Hearings: Part 5, PP. 2.55-7.) The principle was established: that for the sake of security of oil supplies and for reasons of foreign policy, the anti-trust laws would be waived again.
While OPEC was failing to control production, it was the sisters who were trying to reconcile the demands of the countries, and in effect determining their future growth rates. Each country was desperate to push up production to secure a higher revenue without worrying too much about the world low price; the companies were trying to hold back the production, to prevent the price going lower -- the precise opposite of the apparent situation a decade later.
It was clear that in the midst of the glut the companies were agreeing between themselves to hold back production. However the producing governments could not discover exactly how they were taking their decisions, and their arrangements were carefully shrouded. What was evident was that, since the formation of the Iranian Consortium (which included all seven or eight) all the sisters were interlinked in joint ventures, which made the task much more manageable. At the centre of the ring was Exxon, who was a partner in Aramco, and in the Iranian Consortium, and in the Iraq Petroleum Company: and the ringmaster was their Middle East negotiator, Howard Page, their director for twenty years, who had already shown his ingenuity in Iran in 1954. Patient, conciliatory and calculating, it was Page who master-minded the strategy to restrain the demands, and to divide and rule the potentates.
Page's provenance was unlikely for diplomacy: he was a Californian brought up at the refinery at Oleum, near San Francisco, which his father ran for Union Oil; and to young Howard the acrid smell of a refinery had always been the smell of home. He rose up, like most senior oilmen, through the pipeline of chemical engineering, and designed refineries in Texas. Then he joined Exxon, who posted him to supervise refineries in Europe, where he encountered a quite different world. He lived in Paris, married an English girl working for Exxon, and learnt to speak French. Dealing with Continentals he became aware of quite other views: 'I began to think that perhaps they couldn't all be wrong except me.' After the war, when he worked in Washington, he began to work for Exxon in the Middle East; coming fresh to it, he did not have the fixed assumptions of the old timers, or any emotional involvement with 'the sanctity of contracts': he was essentially a pragmatist. He had learnt his cardinal rule in negotiating: always prepare beforehand a range of alternative solutions so that, if one proposal breaks down, you can be immediately ready with another: sometimes the most unlikely alternative was the most acceptable. With this experience behind him, Page came to Teheran, a quiet, unassuming man, with an easy smile and sharp eyes; the look of a genial lizard.
Page saw the market like a bulging balloon; 'push it in one place, it comes out in another ... If we acceded to all those demands, all of us, we would get it in the neck.' The balloon was pressed harder with each new discovery. New sources of oil were opening up along the Gulf, in Qatar, in Dubai, in Oman, and most spectacularly in the small Sheikhdom of Abu Dhabi, which by 1970 was producing a million barrels a day. And the most irresistible new opportunity was in Libya, where Exxon was the leader. But the more they took from the new sources, the less they could take from Iran or Saudi Arabia. Although Exxon was spending huge sums on new exploration, the last thing they wanted was new production. Howard Page was once told by one of the Exxon geologists, who had just come back from Oman; 'I'm sure there's a ten billion oilfield there.' Page replied, 'Well then, I'm absolutely sure that we don't want to go into it, and that settles it. I might put some money in it if I was sure that we weren't going to get some oil, but not if we are going to get oil, because we are liable to lose the Aramco concessions.' (Multinational Hearings: Part 7, p. 309.)
Any country that made too many difficulties for the oil companies provided a useful excuse to cut back: as Howard Page put it: 'sometimes they made it easy to cut down by breaking an agreement, as in Iraq; then we could tell 'em to go to Hell.' (Interview with author, September, 1974.) Iraq was held out as a new warning to the others, like Iran under Mossadeq, to 'co-operate, or else'.
But in fact Iraq had had good reason to be sceptical of the oil companies' good faith, ever since the Iraq Petroleum Company had begun operations in 1928. The company had refused to grant the Iraqis 20 percent participation, and had repeatedly delayed new production (See Chapter 4), against the stipulations of the original San Remo agreement. The delaying tactics of the IPC had been criticised in the Federal Trade Commission's report of 1952, but this portion had been excised for reasons of 'national security', and was not published until 1974. (See Multinational Report: p. 101 and Chapter 6.)
The Dance of the Sisters
Ownership links between the major international oil companies including Compagnie Francaise Des Pétroles (CFP) and the major crude oil producing companies in the Middle East
Source: Multinational Hearing Part 5
The resentment of Iraq against the companies became much fiercer after the revolution of 1958. Iraq helped to radicalise the other Arabs, and to bring about OPEC, but in the meantime her oil production lagged behind -- even though her reserves were bigger than Iran's. With the past history of delays and concealments, the Iraqis promulgated in 1961 the contentious Law 80, which proposed to nationalise most of the concession. It began a long period of uncertainty, and the confusion increased after the assassination in 1963 of Qasim, and his replacement by a succession of dictators. The oil companies, the partners in IPC, all now had large sources of oil elsewhere, and most were quite glad to restrict production and investment, and even to disinvest from Iraq. If Iraq had produced more, Page's task would have been harder; as it was, when he was asked 'can you swallow this amount of oil?' he replied 'of course, with Iraq down'. (Multinational Hearings: Part 7, p. 309.)
The two main oil-producers were now Iran and Saudi Arabia, and in spite of their coming-together in OPEC they were old rivals with quite different motivations. Iran had a population of thirty million, relatively short-lived oil reserves, and a Shah with an impatient ambition to modernise, industrialise and militarise his nation. Since his 'White Revolution' of 1963 which had begun to redistribute land, the Shah had for the first time felt sure of his throne and the support of his people, and he was more determined to show his independence from the West.
Saudi Arabia was thought to have only around six million people (there had been no proper census) with vast oil reserves, and with sporadic ideas about what to do with the money. Each country wanted to be master in the Persian Gulf -- or the Arabian Gulf. Exxon and the other sisters tried to hold the ring between them, to prevent too much oil reaching the market. The balancing-act was made much easier by the fact that the four sisters in Saudi Arabia were also partners in the Iranian Consortium: with Exxon as the chief go-between.
Ever since 1954, when Iran began exporting oil again after the Mossadeq crisis, the balance had been precarious. Howard Page had persuaded the old King, Ibn Saud, with some difficulty to restrict his expansion to make room for Iran, to prevent it from going Communist. (Multinational Hearings: Part 7, p. 304.) The Shah first insisted on a fixed rate of increase of eight percent a year, but Page eventually dissuaded him on the grounds that anything above that fixed rate would be demanded by the Saudis, and gave the Shah instead a promise that the Consortium's growth would keep pace with the Middle East. (Multinational Hearings: Part 8.) In fact, with the prevailing oil-boom, the Iranians soon increased production by much more than eight percent. But as the Shah found his confidence and learnt the game, he became more ambitious; and he realised that Iran had not regained its position before the Mossadeq crisis of being the biggest oil-producer in the Middle East.
But it was a long time before the Shah learnt the secret system of how the companies actually agreed to restrict production. Both Iran and Saudi Arabia had secret 'offtake agreements' by which a partner was penalised if he took more oil than a carefully-calculated mean of all the partners' total demands: so that the biggest companies could set a norm for production, above which the others would have to pay a higher price. The big companies could justify this commercially on the grounds that each had contributed its share to the capital costs of development, and it was unfair for any company to take more than its share without paying extra. (Multinational Hearings: Part 7, p. 285. See also Chapter 6.) But the mechanism was really a device for restricting production, and as such it was politically explosive.
In the first place the companies that desperately needed more oil were exasperated by the companies that had too much oil -- notably Exxon, Socal and Texaco. In Aramco it was those three, the 'thirty percenters', who wanted to hold back production, while Mobil, who had only a ten percent share, consistently wanted more oil. Mobil even threatened to do a deal with BP to take oil from Kuwait unless the agreement was modified. In Iran, it was again Exxon, Socal and Texaco, together with Gulf ('the four bears') who wanted to hold back production: while the French company CFP and the American independents were continually trying to increase it. The big companies tried to close their ranks, while the newcomers tried to break in, fighting both the giants and each other: 'these larger companies showed us no mercy,' said E. L. Shafer of Conoco, 'but I also did not see any mercy from any of my brother independent competitors.' (Multinational Hearings: Part 7, p. 257.)
But in the second place these restrictive agreements were ammunition to the producing governments, for they implied that the economic growth of their countries was being secretly dictated by the boardrooms of private companies: and in the growing mood of nationalism and self-awareness this was increasingly unacceptable.
The Saudis were becoming more worried by the Iranian competition, and King Feisal could not make full use of his oil revenues with his long-term plans for economic development. His oil minister, Yamani, suspected that Howard Page was basically pro-Iranian, having negotiated the Iranian settlement, and always suspected the Shah of getting a better deal. Page had to persuade both sides that he was not playing favourites, and even resorted at one point to the different Iranian calendar in order to avoid straight comparisons. 'It wasn't really a system,' said Page's deputy and later successor as Middle East director, George Piercy: 'it was really a game of catch-as-catch-can.' (Interview with author, September, 1974.)
But the Shah was the more demanding. By 1966, he had become impatient of restraints, particularly in the light of his ambitious fourth five-year plan and his growing military expenditure. He inspired a press campaign attacking the companies and threatening to deprive them of part of the concession, or to sell oil to the East. The Shah was convinced that the Iranian agreement was more restrictive than Saudi Arabia's, and he complained to BP, who complained to the British government, who in turn complained to the State Department. In October, 1966, the five American sisters went to Washington to seek help from the State Department, who promised that the American Ambassador would do his best to keep the lid on the Shah's demands. But the companies made clear that they did not want the government involved in the substance of this problem.
The Shah was still unsatisfied and the situation was precarious. On November 16 a very specific warning reached Eugene Rostow, the Under-Secretary for Political Affairs in the State Department, from Walter Levy, the international oil consultant in New York. Levy told Rostow about the Iranian secret offtake agreement, revealing that it carried much higher penalties for 'overlifting' than the Saudi Arabian agreement; if negotiations broke down, he warned, 'the very fact that a restricted secret agreement exists would be political dynamite in the hands of the Iranians.' But a State Department memo stressed that the agreement was 'a highly sensitive, inter-company commercial policy matter' and it was 'desirable for the U.S. government to limit its involvement'.
Levy's apprehensions were shared by others, including the British Ambassador in Iran, Sir Denis Wright, and they soon proved well-justified. The French partners in the Consortium, CFP -- infuriated by the restrictions on their own production -- soon leaked (their partners alleged) (Multinational Hearings: Part 7, p. 720) the secret partners' agreement including the controversial clause, to the Shah, and the fat was in the fire. By September 1967 Howard Page, on behalf of the big companies, was forced to modify the agreement to allow a 'half-way price': which halved the extra cost to the partners of oil lifted beyond the mean. This still did not satisfy either the Shah or the smaller companies -- who both had the same interst in increasing production -- and soon afterwards the Shah learnt that Aramco had settled on a 'quarter-way' agreement which still further reduced the cost of extra oil: the other partners suspected Mobil, now desperate for more oil, of leaking this one.
The Shah complained to the State Department, and the oil expert in the American Embassy, Robert Dowell, added his own misgivings in a revealing letter to the State Department's oil expert, Jim Akins. Dowell reckoned that the American sisters, particularly Texaco, were using the agreement to do down their competitors, and complained that 'the net practical effect smacks of restraint of trade'.
Akins, in his reply, was shocked by Dowell's use of that phrase, and his reply was equally revealing about sensitivity to criticism of the oil companies.
We were surprised to see the accusation put into a telegram which was given fairly wide distribution in the government. But fortunately the strong anti-oil company voices in Treasury and Commerce do seem not to have picked up the matter. They couldn't get very far, in any case, given the fact that the American companies were given specific exemption from anti-trust legislation when they entered the Consortium.
Akins could not agree with the Shah's complaints, and suggested that if the Iranians were too aggressive, they would share the fate of Iraq. The companies reluctantly agreed to a compromise. The Consortium would relinquish a quarter of its concession, and give up some oil to the National Iranian Oil Company; who in turn agreed that, to avoid upsetting the Western markets, it would only sell its oil in exchange for goods behind the Iron Curtain.
Was this balancing-act simply a discreet extension of the old cartel of the seven? John Blair, the irrepressible economist who had been responsible for the famous Federal Trade Commission report of 1952, later produced his own analysis of the new system. He maintained that the period from the late 'twenties until the late 'forties was the 'cartel era' in international oil, while the post-war era was the period of 'oligopolistic interdependence'. The seven majors, he insisted, without necessarily direct collusion, shared common assumptions about the rate at which the industry should expand. The seven companies had achieved an amazingly stable increase in output between 1950 and 1972, averaging at 9.55 percent a year. In spite of sudden drops from individual countries, like Iran in 1951 or Iraq in 1957, or sudden new sources, like Libya or Nigeria, the majors were able to 'orchestrate' the countries into 'a smooth and uninterrupted upward trend in overall supply'. (Multinational Hearings: Part 9.) And the majors instinctively limited their expansion and underestimated demand, knowing that their rivals were doing likewise, according to the pattern of 'imperfect competition'.
Certainly this control system, as Dowell complained, 'smacked of restraint of trade'. The joint ventures between the seven sisters in each country provided a network of understanding and gave each company an interest in not damaging the others. But unlike the pre-war cartel the system was visibly unsuccessful in keeping up prices to artificial levels; and by the late 'sixties it was hard to see (as Howard Page insisted) how prices could have fallen much lower. If more independents had moved into the Middle East, with a freer hand, they could have done more quick deals to sell surplus oil cheaply, in countries like Libya. But they would also be much more vulnerable to pressures and squeezes from the producing countries as was to happen in Libya (see Chapter 10). It is quite possible, as many oilmen argue, that the rule of the seven, as opposed to seventy-seven, could keep prices down, by holding a firm front against the claims of the producers. It may have been a cartel, but it was a cartel on the side of the consumers. Its principal purpose, in other words, was to screw the producers.
Certainly to the producing governments it was an increasingly sinister cartel, for it was keeping prices low at a time when most other commodities were rapidly climbing. They began to realise that, faced with a more fragmented industry, the producing countries would be much stronger. And if they wanted an example to prove it, they only had to look across Africa, to Libya.
The Six-day War
In the meantime the growing tensions between Israel and the Arabs were threatening to short-circuit the two opposite elements of American foreign policy to produce an explosion. On June 4, 1967 Israel invaded Egypt. President Nasser immediately claimed that Israel was supported by Britain and the United States, and the foreign ministers of the Arab states gathered in Baghdad. King Feisal of Saudi Arabia, who had only three weeks before talked in London about his fears of Nasser's aggression, was now committed to support his Arab brother in time of need. Following the lead of Iraq, the Arab states agreed to shut down the oil-wells and to boycott the Western imperialists. The war, it seemed, had given the Arabs the crucial incentive to unity.
But it was very short-lived. The oil producers quickly realised that they were damaging themselves more than anyone else, for two key members of OPEC, Iran and Venezuela, had no intention of joining the boycott and were soon benefitting from the resulting shortage. King Feisal was faced with an imminent financial crisis, and on the advice of Yamani he quickly limited the boycott to the two countries that were regarded as the aggressors, Britain and the United States (neither of whom anyway then took much oil from Saudi Arabia). By the end of the month, after the Saudis had lost $30 million in revenue, Aramco was allowed to resume normal exports; and the other Arab states followed.
The end of the Six-Day War left the Arab members of OPEC much worse off than before. Iran had taken advantage of the boycott to push up her exports to Britain and West Germany; Venezuela, too, had moved further into Europe; and even Libya was able to export more to West Germany. The United States, which was supposed to suffer most from the boycott, had hardly been touched. And the closing of the Suez Canal which resulted from the war had not seriously damaged the West, for the new giant tankers anyway went round the Cape. Sheikh Yamani admitted that the use of the oil weapon had been a fiasco: if we do not use it properly, he said, 'we are behaving like someone who fires a bullet into the air, missing the enemy and allowing it to rebound on himself.' At an Arab Summit in Khartoum, two months after the war, the oil-producing countries had to face up to their failure, and each agreed to follow its own policy for the export of oil.
Some of the Arabs also decided to form their own club parallel with OPEC, called OAPEC, which first met in Beirut in September 1968. It seemed at the time a retreat from political action. The first members were Saudi Arabia, Kuwait and Libya (still under King Idris) who had all been damaged by the failed boycott, and excluded Egypt and Syria, while Iraq refused to join. The first Secretary-General was Sheikh Yamani, and he and the Saudis insisted that the organisation must keep out of politics. By 1970, after the revolution in Libya, OAPEC had taken on a more radical character, with new members including Algeria, and eventually the Saudis were compelled to agree to let in Iraq. Bold projects were approved, including an Arab tanker fleet, an Arab dry dock in the Gulf and an Arab service company. But OAPEC was still not taken very seriously by the oil companies, for it was a forum for all the squabbles between its disparate members, and it seemed to be undermining OPEC rather than enforcing it.
The Shah was determined to extract the maximum reward for not having joined the Arab boycott. By November 1967 he was insisting to the State Department that he must have an increase in production of twenty percent a year, compared to the past average of twelve percent. This would be partly as a reward for running 'grave political risks', but also (as the diplomats privately revealed) because he had miscalculated the oil income for his fourth five-year plan -- an error which he could not publicly admit. He now wanted his oil income to be linked to the cost of the plan. The State Department replied that the companies could not allocate production in terms of reward or need.
But in March 1968 Eugene Rostow nevertheless called the five American sisters to the State Department, headed by Ken Jamieson and George Piercy from Exxon, together with two independents, Gendron of Atlantic and Shafer of Conoco. Rostow explained that the Middle East situation had deteriorated and that Iran might join a future Arab embargo if the companies refused to increase production. The sisters replied that Iran must be given equal treatment with Saudi Arabia, and the independents complained that they were still not given enough incentive to lift extra oil. The Shah insisted on more revenue and as a desperate expedient the companies shifted their annual payments from the Gregorian calendar to the Persian calendar to buy three months' time.
As for OPEC, the whole basis of its unanimity now seemed to be in ruins. The Shah was trying to make gains at the expense of the Arabs, while the Arabs, after the fiasco of the war, were again disunited. Nasser and Egypt were discredited in the eyes of the Saudis, and the Aramco partners were again confident that they could safely depend on Saudi Arabia for increased supplies. King Feisal would not again ally himself with the militant states to the north. 'Exxon seemed certain that the Arabs could never get together', recalled a former Exxon executive, 'their image of the Arabs was taken from the film of Lawrence of Arabia.' And in Washington, too, the sensational victory of Israel had encouraged the disdain for the Arabs, and the conviction that oil and Israel could still be kept in separate compartments.
Oil from the North
OPEC was in disarray, but Exxon, having helped to provoke the formation of OPEC, was now taking precautions lest it might one day gain real power and control. After long arguments within the board, in the early 'sixties, Monroe Rathbone, the chief executive, pushed forward a massive programme for exploration. It was to cost $700 million in the three years from 1964, and it concentrated on territories outside OPEC. (There is some doubt among Exxon executives as to how far this exploration was caused by political prescience, or how far it was induced by the need to plough back the very high profits.) The programme was eventually successful, and was to put Exxon further ahead of its rivals. By the early 'seventies they were getting oil from S.E. Australia, and opening up new fields in the Mackenzie River Delta in Canada; and most important of all, they had found vast reserves in Alaska and the North Sea.
Exxon, later followed by the others, soon faced more intimate political problems as the price of their success. These discoveries closer to home did not much diminish the West's dependence on OPEC, but they brought the sisters face to face with their home governments, and raised more acutely the political question of how to control them.
The Alaska discovery was not in fact pioneered by Exxon, but by one of the most enterprising of the independents, Atlantic (soon to become Arco). The company had recently been revived by a daring financier, Robert Anderson, who, realising its desperate shortage of crude oil, gambled on exploration in the Arctic. In June 1968 Arco struck oil in Prudhoe Bay -- a reserve which was eventually to prove as important as Texas. But Arco ran short of money, and the classic story of Standard Oil repeated itself. They were forced to bring in Exxon, who became the dominant partner.
BP, in the meantime, had been looking for oil in Alaska for nine years. Like Exxon, they wished to reinsure themselves against their dependence on the Middle East. They were desperate to have a stake in the North American oil business and having been unable to buy an American company they had gambled on finding indigenous oil. Nine months after the Arco find they too struck oil in Alaska -- a historic breakthrough for a British intruder. The whole of this vast new reserve was controlled by three companies, with BP owning fifty-two percent. But BP had the problem of finding outlets for the coming flood of oil. After some anti-trust difficulties they acquired part of the Sinclair Oil Company, and soon afterwards they arranged a complicated deal progressively to take over Standard Oil of Ohio, another of the original Rockefeller companies, with a large network of filling-stations in its home state.
This in turn attracted the attention of Washington, and of the ardent anti-trust chief Richard McLaren, then in the first flush of his crusade against mergers, who tried to restrict it. Protests followed from London, with implied threats of reprisals against American companies, and BP's chairman, Eric Drake, complained to the Attorney-General, John Mitchell. The merger went through. But BP, with its huge hopes for expansion, was now to be a kind of hostage against any British action against American companies.
Exxon, having found its Alaskan oil, was in no hurry to get it out, since they still had ample and far cheaper supplies from Arabia and Iran. The other American sisters were greatly worried that a rush of oil from Alaska would upset their whole balance -- particularly Socal, who saw their Californian markets being threatened from the North. (Socal Memo from S. E. Watterson, December 6, 1968. Multinational Hearings: Part 79 p. 360-3.) Arco and BP were desperate to push ahead fast; but Exxon were moving very slowly. They experimented with sending an ice-breaker, the SS Manhattan, to force its way through the North-West Passage as a means of bringing the oil through by sea. But BP, though they had to collaborate to 'show they were good Americans', suspected that it was basically a delaying tactic by Exxon to put off building a pipeline. Drake became so impatient that, as he told me, he threatened the chief executive of Exxon, Ken Jamieson, with bringing an anti-trust suit.
Intense opposition to the pipeline was now to come from a completely different quarter. Conservationists on the West Coast discovered that the proposed pipeline would transform the wild life of the whole region; the warm oil would create a wide river in the midst of the ice, thus preventing the migrations of cariboux. The conservationists were strikingly successful, to the growing worry of BP and Arco, who were waiting thirstily for the oil. But Exxon still appeared unconcerned and the suspicion arose in the minds of several BP men: might Exxon be secretly backing the conservationists, as an excuse to delay the production of the oil? The protests of the ecologists set back the transporting of Alaskan oil by four years and the Alaskan alternative was too late to save the West from its dependence on OPEC when the crunch came. It was not until the energy crisis had broken on America that the objections were rapidly overruled.
Over in Europe the North Sea had much more far-reaching implications for the companies and governments. It gradually opened up the possibility of at last lessening Europe's dangerous dependence on the Middle East. But it also began to transform the attitudes of the European governments -- particularly of the British and Dutch governments to their two majors, Shell and BP. The interests of companies and governments, which had for so long been assumed to be roughly parallel -- to get oil as cheaply and reliably as possible -- cut across each other as soon as oil was found in home waters.
The first important prospect in the North Sea had emerged in the 'fifties before the formation of OPEC. Exxon and Shell -- the two biggest companies -- had been exploring together in Holland, in a joint company. The collaboration was a throwback to the days of the pre-war cartel, when in 1933 Teagle and Deterding had signed a joint agreement for exploration in North-West Europe, and Shell were still bound by the agreement, which they were bitterly to regret: 'we did all the work in the North Sea,' complained a director, 'Exxon got rich on our backs.' In 1959 the joint company found natural gas off the coast of Holland at Groningen -- a discovery which was to do more for the economy of Holland than the Dutch East Indies ever did. The first find held the promise of oil, but it was not until 1963 that the North Sea attracted large-scale exploration, for Middle East oil seemed limitless, and discoveries in North Africa seemed safe from nationalism. The European governments involved were very slow to perceive the significance of oil. The Danes even awarded the entire rights for offshore exploration to a single consortium, as if they were Arabs in the 'thirties. The consortium was led by a Danish shipowner, A. P. Moller, and included Shell and Gulf; having no competition, it was in no great hurry to develop, which eventually led to a major political uproar.
The oil companies were sufficiently aware of the opportunities in the North Sea to establish the legal basis for concessions. They pressed for negotiations which finally led to the Continental Shelf Act of 1964, defining the boundaries of the North Sea. But the British government were very casual and too anxious to get the boundaries settled to argue with Norway. Thus the British were allocated only thirty-five percent of the North Sea, when they might, according to most legal authorities, have obtained a much larger area by taking the issue to the International Court at the Hague.
By 1965 BP had found natural gas off the coast of England. The likelihood of oil now seemed greater, and other majors, and a few independents, were joining in the search. But the British government, which as a consumer had helped the companies drive many hard bargains with the Arabs and Iranians, was now on the receiving end of the companies' pressure. It was Britain as a producer that was in danger of being exploited; and the government was visibly lacking in the expertise, or the will, to supervise the companies.
The first huge areas of the sea, of a hundred square miles each, were leased to the companies as generously as though Britain were a gullible Sheikhdom, with concessions running for forty-six years. And the British government would gain almost nothing in taxes, for the tax system, which Aramco had achieved in 190o and which the British and other governments had followed, had now given the companies a huge balance of tax credits from their tax payments to the Arabs. The Ministry of Power, who made the arrangements, later explained that they did not wish to be too harsh to the companies lest they encouraged the OPEC countries to be harsh too. But this explanation revealed a curious assumption of Britain's ability to influence the Arabs: asLord Balogh remarked: 'the Arabs have experts who have forgotten more than the Foreign Office ever knew'. (The North Sea Blunder: The Banker, London, March 1974.) And it also revealed an odd conception of the government's role, that it had a greater duty to protect oil companies abroad than to tax oil companies at home.
More plausibly the Ministry argued that it was essential to attract the maximum possible exploration, as quickly as possible in view of Britain's difficulties with balance of payments. This argument had weight, since the terms could always later be made more stringent. But this was to lead to the accusation against the British government, which they had so often themselves made against the Arabs, that they had broken contracts that were sacred.
It was not until December 1969 that the North Sea at last yielded oil, when Phillips, the American independent, discovered the giant Ekofisk field in the Norwegian sector. The next year BP made the first great British discovery, in the Forties field north of Aberdeen, and a year later Shell and Exxon, still in their giants' partnership, found the Brent field off the Shetlands. The North Sea would clearly now provide a huge prize for the companies, and a whole new economic perspective for Britain. The estimates of the reserves steadily went up, until it became clear that they could make Britain self-sufficient in oil for thirty years, and could supply Norway with far more than her needs.
A hundred years after the birth of the industry, the British, who had so long operated oil by remote control, were now experiencing both its opportunities and its disruptions in the home ground. Texans moved into Aberdeen or London bringing with them the nomadic spirit and the gambling language of oil; referring to Britain as simply an 'oil province', and to the whole North Sea operation as the 'U.K. play'.
Roustabouts for the oil rigs were recruited from the Highlands at four times the average wage: Aberdeen became a kind of dour Houston of the North, with the workers from the rigs drinking away their savings while oil company scouts tried to pick up hints of new strikes. The prospect of a local Texas was a huge relief to governments battling to hold up the pound, but the dangers were equally evident. Oil soon began to show the politically divisible effects that it had shown in Canada, Texas or Biafra, fuelling the new Scottish movement for secession or autonomy.
The British were quite unprepared for the industrial opportunities for making the equipment itself. The two British companies, though they had operated abroad for a half-century, were in no position actually to provide rigs, platforms and pipelines. It was not until 1972 that the government commissioned a report on the industrial prospects, when British companies had already lost much of their opportunity. Nearly all the technology and the services were at first supplied from abroad, from Holland, Norway, Japan and specially from Texas. Britain still kept the psychology of being a consumer country, while she was about to become a producer.
The sisters were once again dominant. In allocating the concessions the British government had tried through its discretionary powers to favour both British companies and smaller companies, to avoid the supremacy of the American majors -- as the Libyans had done ten years before, and as the Norwegians and Dutch also did. Favoured treatment was given to British groups, including the Gas Council and local syndicates. But the majors with their greater resources for exploration and capital once again emerged as the chief beneficiaries. The British sisters achieved a good share: by 1973 BP controlled twenty percent of the North Sea 0il, and Shell controlled fifteen per cent. But the majority was controlled by the Americans, and the most successful fields included all the familiar sisters, Exxon, Texaco, Mobil, Socal and Gulf, and also the French CFP (Total).
The British government were frightened of antagonising the oil powers, and BP's stake in Alaska had made them more sensitive to reprisals. Even after oil had been discovered they continued to give out concessions on the same generous terms. In the fourth round in 1971 they tried auctioning some of the blocks as an experiment with spectacular results: for fifteen blocks the successful bids totalled £37 million. But the other new blocks were then allocated in the previous way; and the companies still had the apparent prospect of a tax-free bonanza with little benefit to the State or balance of payments. The discovery of oil had caused the same schizophrenia in British governments as had afflicted Washington since the first imports of oil after the Second World War. Were they defending the companies against foreign demands, or defending, themselves against the companies? Was it the government or the oil companies which were in control?
It was not until seven years after the first round of concessions that the British parliament eventually caught up with the extent of the companies' bonanza. Lord Balogh, who had been economic adviser to the Labour Prime Minister, Harold Wilson, had repeatedly warned that the public were being cheated, and eventually an enquiry was instituted in 1971 by the Chairman of the Public Accounts Committee, Harold Lever. The resulting report had the same kind of historical importance to Britain as the Congressional Report of 1910 on the Standard Oil Trust. Once again, oil was helping to provoke a national counterattack, and the Report, published in February 1973, was a powerful indictment of the inadequacy of the civil service in controlling industry.
Its conclusions (allowing for the kid-glove language of such British reports) were devastating. The British Exchequer, reported the committee, would receive a much smaller share of oil revenues than other countries, and British taxes were being preempted by the tax demands of administrations abroad. The Committee was 'surprised' that the Department of Trade had not examined the opportunities for British industry until eight years after the first round of concessions. They advised legislation to increase the tax, and a thorough review of licensing. The new Labour government, returning to office in 1974, duly pushed ahead the changes against angry opposition from the companies -- including BP which was now vigorously campaigning against the government which owned 48 percent of its shares.
The government of Norway, in the meantime, after the discovery of the great Ekofisk field, took a much sterner line with the companies. They first followed the British in their discretionary system of handing out concessions, but became much tougher with the companies as soon as oil was discovered. The reason was clear: having no international oil companies, the Norwegians had no reason to sympathise with them. At a time when OPEC was becoming more vocal, they were tempted to see their own country, with its small population and sense of separateness from Europe as having much in common with OPEC.
As the OPEC countries became more interested in conservation of their resources, so the Norwegians were determined not to extract their oil too fast, and they decided to take only enough for their own needs, rather than to export rapidly to the rest of Europe. They encouraged their own industrialists to supply equipment and formed their own company to make oil rigs. They kept in touch with the OPEC experts, and particularly with Yamani. The Texans referred to Norwegians sourly as the 'blue-eyed Arabs'.
The hopes that the North Sea, and Alaska, would rescue the companies from their dependence on OPEC had been partially fulfilled, but with an ironic twist. For the companies, coming up. against their home governments, were to find that they, too, had learnt something from the Arabs.
Next: 9 - Sisters Under Stress
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