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Unformatted text preview: 14. “Friends” – and 14. Enemies Enemies 1 Major Themes International oil cartel forms Rising nationalism Increasing tension between producing countries & oil companies Efforts to expropriate & renegotiate concessions or contracts 2 The 1928 Quail Hunt in Scotland Henri Deterding Oil production was surging from US, Venezuela, Rumania, and Soviet Union Invited some of the top oil industry leaders to his estate in Fort William, Scotland in Aug 1928 Mission: to find a solution to the dilemmas of overproduction and overcapacity in the industry Flooding the market , weakening prices and threatening “ruinous competition”
3 Achnacarry Castle Does the elimination of competition promote efficiency? 4 Why is Achnacarry a pipedream? Achnacarry “As-Is” Agreement Also called Pool Association 17 page document that was agreed to, but not signed A few months later, the industry leaders agreed to control production as well The agreement fell apart companies resumed 5 attacking one another’s markets Each company was allocated a quota in various markets Agreement excluded domestic US market to avoid violating US antitrust laws Anglo-Persian & British Policy AngloPersian had 2 choices: Churchill & British gov’t gave its firm support to Cadman’s (Greenway’s successor) efforts to form “alliance” with Shell
6 Fight way into markets Set up Joint Ventures The Big Three Jersey, Shell, & Anglo Persian Tried to reformulate an alliance in 1930 dealing with the European Markets Attempted to make local arrangements, dividing market shares with “outsiders” System proved ineffective due to rising volumes of American, Russian, and Rumanian oil 7 Updated As-Is Agreement Came up with a new “AsIs” understanding: “The Heads of Agreement for Distribution”, of December 1932 Initial adherents: Royal Dutch/Shell, Jersey, AngloPersian, Socony, Gulf, Atlantic, Texas, and Sinclair 1934: Devised the Draft Memorandum of Principles Attempted to deal with increasing problems in the oil industry due to the Great Depression Provided looser corporation agreements “AsIs” was more effective with the Draft Memorandum 8 Updated As-Is Agreement Three factors contributed to the success of the agreements: In the U.S., Ickes, leading the federal and state government, finally brought production under control In the Soviet Union, industrialization stimulated domestic demand for oil, constricting the amount that was available for exports Some of the large companies in Rumania finally imposed some control on oil output 9 Rise in Nationalism During the 1930s, governments imposed import quotas, set prices, and placed restrictions on foreign exchange Autarchy and bilateralism were the order of the day in the 1930s due to the Depression Oil companies sought to protect themselves from government intervention Political and economic nationalism intensified throughout the world “Operations in the oil business… 90 % political and 10 % Oil.” 10 10 Shah’s New Terms Shah Reza Pahlavi of Persia Was set on modernizing Persia Outraged by plummeting royalties Nov 16, 1932: Abruptly cancelled AngloPersian’s concession Issue was sent to the League of Nations 5 months later Cadman went to Tehran to salvage the situation 11 11 Shah’s New Terms April 1933: New agreement was finally forged Persia was guaranteed fixed royalty of 4 shillings per ton It would receive 20% of the company’s worldwide profits A minimum annual payment of 750,000 pounds was guaranteed The duration of the concession was extended from 1961 to 1993
12 12 Tensions Rising in Mexico Dispute over a section of the Mexican Constitution of 1917
Nationalistic challenges to the oil companies Clause in 1917 constitution stated that the subsoil belonged not to those who owned the property, but the Mexican state Tensions rose so high in 1927 that a rupture between Mexican and American governments seemed imminent Mexico was losing its ability to compete in the world market, especially to Venezuela Higher production costs, increasing taxation, and the exhaustion of existing fields Production had dropped by 80% in only one decade (499 K BPD in 1920s vs. 104 K BPD in 1930s) 13 13 Cardenas Former War Minister who became President at the end of 1934 The most radical of any Mexican Presidents Aggressively pushed land reform, education, and an expansive program of public works Fervent nationalist – had developed a considerable dislike for foreign oil co.’s 14 14 Tensions Rising in Mexico Mexico was the sharpest example of rising nationalism and growing confrontation against foreign companies Oil workers’ union went on strike in May 1937, with other unions planning to undertake a general strike in support President set up a commission to review the companies’ books and activities Commission declared that oil co.’s had been making lucrative profits while doing nothing for Mexico’s economic development It recommended higher wages, a host of new benefits, and for all foreign technicians to be replaced by Mexicans within 2 years The companies’ appealed the commission’s recommendations 15 15 Gov’t confirmed recommendations with retroactive penalties! Cardenas Takes Over the Industry Mexican Supreme Court upheld the judgment against the co.’s March 18, 1938: Britishled embargo only caused Mexico to find new markets Nazi Germany became its #1 petroleum customer, with Fascist Italy 2nd Cardenas met with his Cabinet He informed them that he intended to take over the oil industry Severed diplomatic relations with Britain in response to British complaint 16 16 Mexican Takeover What are the relative merits of government ownership? How does this play politically in Mexico? QuickTime™ and a YUV420 codec decompressor are needed to see this picture. 17 17 Mending Ties with Mexico U.S. attempted to fix ties with Mexico Wanted to tie Mexico into a hemispheric defense system In autumn of 1941: Washington decided to push for a settlement The commission proposed a $30 million “take it or leave it” compensation settlement over several years Obtained a much better deal than the Americans $130 million Mexican Eagle and Shell did not settle with Mexico until 1947 Both British and Americans could agree on one thing The Mexican expropriation was the biggest trauma that the industry had experienced since the Bolshevik Revolution, or possibly the dissolution of Standard Trust
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This note was uploaded on 04/19/2011 for the course EGEE 120 taught by Professor Considine,timothy during the Spring '07 term at Pennsylvania State University, University Park.
- Spring '07