The oil game

Nicholas Davenport

Reading these 'two books* one marvels that we never had a world oil crisis long before 1973. The

cavalier way in which the major oil companies — Exxon, Royal Dutch-Shell, Mobil, Texaco, Gulf,

Standard 'Oil of California and British Petroleum — conducted the exploitation of the oil fields of the Middle East, Africa and Venezuela was bound sooner or later to enrage the governments of these developing countries. We Westerners had it coming to us. Our own governments, as I have said before in these columns, made a big mistake in not taking over the negotiations from the ,big seven' companies when OPEC (Organisation of Petroleum Exporting Countries) was set up in 1960. How could a few oil tycoons be expected to stand up to the angry governments of the oil-rich nations?

To understand how and why the

Oil crisis blew up Oil: The Biggest Business by Christopher Tugend

hat and Adrian Hamilton is essen tial reading. The first part of the book — written by Mr Tugendhat (now Conservative member for the City of London) in 1968 when he was oil correspondent for the

Financial Times — covers the

history of the oil industry from the first well in America up to the

formation of OPEC. It is a fascinating story, The pioneers — Rocke feller (Standard Oil of New Jersey), Marcus Samuel (Shell), Deterding (Royal Dutch) and Gulbenkian (Iraq Petroleum) — were a tough, ruthless lot who made fabulous fortunes. Deterding used to draw a tantieme of up to 3 per cent, I believe, on the Royal Dutch turnover. though it is not mentioned in this book. He and Rockefeller Were the dynamic creators of the modern oil industry whose major companies now produce nearly 30,000,000 barrels of oil a day — about two-thirds of the total world Production. Marcus Samuel of Shell was the marketing genius. I once asked him about the price of petrol When I was oil correspondent of the Manchester Guardian many

decades ago. "The price of petrol,

!I:1Y boy," he replied without a smile, is what it will fetch." The Arabs Only Caught up with that truth some forty years later.

The Biggest Business Christopher Tugendhat and Adrian Ha(Eyre Methuen E6.25) Power and Politics Mordecai 'low (Francis Cass £4.50)

Gulbenkian was more of a financial promoter than an industrial pioneer but he was extremely clever and lucky to hang on to his 5 per cent commission in shares and leave a cultural Foundation to collect the dividends after his death. Cowdray was also lucky. He made a huge fortune out of his chance discovery of oil in Mexico, when he was building a railway south of Tampico, for these limestone oil deposits only lasted some twenty years. This amazing success story Mr Tugendhat strangely skimps but he gives a full coverage to that other spectacular British success — the discovery of oil in Persia by D'Arcy (Anglo-Persian).

Considering the knavish tricks which the oil pioneers played for their own trading profit it is small wonder that the governments of the producing countries finally got exasperated and turned the tables on them. The biggest trick of all dates back to 1928. Deterding invited Teagle, chairman of Standard Oil of New Jersey, to a secret meeting with Cadman, head of Anglo-Persian, at a hunting lodge in the Scottish highlands. There they agreed upon a world cartel, sharing each other's facilities (each field to supply the markets nearest) and freezing all markets in agreed proportions among themselves. World export prices were then fixed at the posted price at the Gulf of Mexico plus the cost of shipping from the US to the point of delivery. To quote Mr Tugendhat: "It made no difference to the buyer where the oil actually came from and if he could be supplied from a field nearer than the Gulf of Mexico all the savings went to the cartel company."

There is no doubt that the cartel worked very efficiently. The oil majors may have behaved like bandits, but they brought great blessings to mankind, especially to the industrial nations of the West. Huge oil fields were discovered and developed in the Gulf states, in Saudi Arabia, in Libya and Algeria,

in Nigeria and in Venezuela,—and_ 7-the refined products were put in the hands of the consumers throughout the industrial world at an extremely low price. Everyone was better off but it was the oil companies who made the killing. For example, when war-time controls were lifted and the posted prices were raised the American navy .found itself paying over $2 a barrel

for Persian Gulf crude oil which was costing the companies 40 cents a barrel to produce in Saudi Arabia and 25 cents in Bahrein.

Naturally the producing countries became increasingly determined to get a larger share of the oil riches extracted from their soil. Persia was the first to erupt when Mossadegh nationalised the Anglo-Persian Oil in 1950. He was overthrown by a military coup and this brought in the formidable Shah of Shahs. The Anglo-Persian concessions were taken over by an

international consortium of oil companies and the Shah has now got them working virtually as agents for the increasing wealth of Iran. The OPEC members, of which the Shah is one (although he did not join the Arab embargo in the last Middle East war), began to press for better terms as soon as they were organised. The long tale of the rows which followed is told in the second part of this book by Adrian Hamilton (who took Mr Tugendhat's place at the Financial Times) and I must say that it makes heavy reading. Starting with a swingeing increase in the taxation of the company profits the OPEC members went on to demand participation in the concession companies and it is now only a matter of time before all these companies are nationalised.

What the revolution means is that the major oil companies, 'which used to run the entire oil business of the OPEC countries, have now become merely agents of the respective governments. If they do not agree to the terms offered — that is, so much discount off the posted price for their take of oil — they will be thrown out. After all the OPEC governments, having quadrupled the price of oil, have enough money to build tankers and refineries and distributing plant and go into competition with the major oil companies, except, of course, in the United States, which has wisely imposed oil import quotas. So the oil crisis ends with the greatest irony in oil history. The world cartel which the major oil companies so cunningly set up, has been demolished by the producer countries whose governments in turn have set up a world cartel themselves — far more powerful and aggressive than anything seen before in the commercial world. The have quadrupled the price of oil — now selling at $10 to $11 per barrel.

Reading Oil, Power and Politics by Professor Mordecai Abir one marvels also that such a strong and aggressive cartel could have been established by states so widely different in their political and social structures and so distrustful of each other's intentions. This book consists of four brilliant essays which the Professor wrote on the tangled politics of Arabia during 1972 and 1973 ending with the present conflict in the Horn of Africa — Eritrea. The most important essay is the one on Saudi Arabia which holds the key to the precarious future, especially as the military men in the US are calmly working out the plan of invasion in the event of war. One concludes that while the threat to world peace still hangs over the Arab-Israeli conflict the chances of a peaceful settlement have not been improved by the formation of this aggressive Arab oil cartel. But whether the cartel can survive a world slump — the oil producing states are already cutting their output — some quite drastically — seems to me doubtful.

Nicholas Davenport who writes regularly for The Spectator has recently published his Memoirs of a City Radical (Weidenfeld and Nicolson 0.50)