Seven Sisters by Anthony Sampson: petroleum Majors (Learning material Text)
The Seven Sisters
The Great Oil Companies and the World They Made
by Anthony Sampson
Sisters Under Stress
If this international institution did not exist it would be necessary to invent one.
-- J. E. Hartshorn, 1962
By the end of the 'sixties, in spite of the opposition of OPEC and the competition from intruders, the seven sisters were still the dominant powers in world oil. Between 1960 and 1966 their share of oil production outside North America and the Communist countries, had actually gone up from 72 to 76 percent, leaving only 24 percent for all other companies. (See Edith Penrose: The International Petroleum Industry, London, 1968, p. 78.) Their profits, whatever their protestations to OPEC, and despite the falling prices, were still huge compared to most other industries. The rate of return of most of them was higher in 1966 than it had been in 1960 (Penrose: p. 146), and the companies were able to finance most of their exploration, their tanker fleets, refineries, tank farms, trucks and filling-stations, together with their expansion into the lucrative new business of petrochemicals, out of the profits of their crude oil abroad. The companies could and did argue with OPEC that this expansion was essential to create a market for the oil which would otherwise be unsellable. But the remarkable fact remained that these seven had built themselves up into some of the biggest corporations in history primarily through the ownership of concessions in developing countries, and predominantly in the Middle East.
They gave every appearance of permanence and stability, with their self-perpetuating boards and bureaucracies and their evident ability to survive two world wars and countless revolutions across the continents. Their engineering achievements commanded the awe of governments and publics. Great refinery complexes rose up along the coastlines, with their grotesque skylines of strange shapes -- spheres, towers, and cylinders interwoven with twisting pipes and surrounded by white tanks -- which looked like giants' kitchens which had outgrown any human fallibilities. They seemed to mark the triumph of technology over man. The whole style of the corporations, grown smoother and more confident over the decades, suggested a lofty superiority to all governments. It was hard to remember, behind all this grandeur and hardware, that they all rested, like upside-down pyramids, on the most perilous political base.
The anatomy of these strange industrial organisms has often baffled the economists, as well as the politicians, who looked into them. J. E. Hartshorn, analysing them in 1962, had described how they appeared to live on an imaginary island -- 'the Shell Company of Atlantis'. The companies have frequently seemed to inhabit a no-man's land between the defined areas of governments and business -- an impression increased by the strange lifestyle of the oil executives, who seem hardly to touch ground between their international adventures. The detachment from national governments has, as we have seen, been an important part of the political justification of the companies, as the 'buffers' between nations, performing what Hartshorn calls 'the business in between'. (J. E. Hartshorn: Oil Companies and Governments, London, 1967, pp. 375-388.) They can make their long-term investments across the oceans with both greater resources, and greater insulation from political pressures, than the national governments at both ends.
The Western governments, in Washington, London or the Hague, largely accepted the advantages of this detachment. In Washington, as we have seen, it suited the State Department to separate the foreign policy of the oil companies from their own, particularly concerning Israel. In the Foreign Office in London, the diplomats at the 'oil desk' were told not to interfere with the commercial policies of the great oil companies, which did such wonders for the balance of payments; and the disaster of the Suez adventure was an object-lesson in the dangers of governments trying to intervene without being asked. Shell were able to point out that they were able to do business in Cairo soon after the Suez War, while the British diplomats were still thoroughly non grata. Likewise after the Six-Day War of 1967, American oil executives could boast that they were still very well received in the Arab countries, while diplomats from the State Department were quite unacceptable. Even in Paris, where the French government had long regarded the chief oil company, CFP, as its chosen instrument, the oil executives became increasingly separate from the Quai d'Orsay.
The appearance of neutrality encouraged the oil companies to treat governments cavalierly, and to present themselves as the guardians not only of the security of the West, but of the peace of the world. Yet this neutrality was always illusory: as soon as they were in fundamental difficulties, like Aramco in wartime or BP in 1951, they would fly to their governments for help. And despite the companies' posture as the fearless champions of adventurous free-enterprise, it was sometimes the governments who pushed them into their exploits: as the State Department pushed the companies into Iraq in 1920, or into Iran in 1954.
Looking back on the history of their industry, American oilmen are prone to use the well-worn simile 'It was like Topsy, it just growed'. Certainly the growth of the industry was so rapid, so unpredictable and accidental, that it was beyond the control of any man or group of men to plan it or circumscribe it. The black fluid seemed often to be itself the real master, spurting up and subsiding from bleak corners of the world, teasing the West by its combination of indispensability and maddening inaccessibility. But the companies were not quite like Topsy. From the beginnings, when the chaos of Pennsylvania led to the order of Rockefeller, the industry was controlled, first by one master, then by several, taking very deliberate decisions. And later the Western governments, though reluctant and often incompetent, intervened at a few decisive moments of history to change the whole balance of the business -- as they were soon to intervene once again.
Between times, inhabiting their no-man's-land, the companies could claim with some justification to have become uniquely internationalised, with their world-wide affiliates, their polyglot managers, and their consciousness of politics everywhere; Exxon could boast of being the first multinational, and Shell of its cross-postings between nations. But the fact remained that their shareholders were predominantly American and British; and their boards represented only their own country -- and a small segment of that. They may well have believed that they were dispassionately representing not just their own interests, but the world's; but the whole environment in which they worked and lived was dominated by the need for home profits, with minimal taxation. The rapidly changing face of the developing world had found very little reflection in the upper hierarchy of the great companies which had elected itself over the decades. As Professor Penrose put it in 1968: 'the deeper root of the problem is simply that international firms, including the oil companies, have not yet found a way of operating in the modern world which would make them generally acceptable as truly international institutions.' (Penrose: p. 263.)
And however much the more enlightened company-men might see themselves as carrying the burdens of the whole world, they were not accountable to any body that could judge their performance. As Rockefeller and Standard Oil in the nineteenth century had become bigger than individual states of the Union, so these giant companies had become larger and richer than most national governments. They had romped across the world, ahead of most other multinational corporations, and way ahead of any effective international authority or regulation. For some observers, this simply meant that they were the forerunners of world government. They would stimulate global organisations as a counterweight to their own power, rather perhaps as Rockefeller had stimulated the Federal counterweights in Washington a century before. But such an organisation was clearly a long way in the future. In the meantime the great companies -- if they were serious about their unique international burden -- had a unique responsibility to provide their own counterweights, to show themselves honestly to the rest of the world, and to play the part of economic statesmen, as well as pursuers of profits.
The seven companies shared these same international opportunities and limitations, as they had grown up together, with their network of joint ventures and consortia closely interlocked. But each of them saw the world with a different perspective, influenced by its own needs to sell or buy oil; and each still bore the marks of its own history, and lived partly in 'the long shadow of its founder'.
Two of the sisters, Exxon and Shell, still dominated the world's oil as they had done for the past fifty years. In the oilfields they kept on coming together in their global quadrille, whether in the Iranian Consortium, or in the North Sea. But at the selling end they competed with visible intensity, the yellow signs of Shell and the red signs of Exxon or Esso staring at each other from filling-stations across the world. They still in some respects had opposite outlooks, dating back to their very different sources of oil.
The old Rockefeller companies are still sometimes called by their critics 'The Standard Oil Group'; and the Rockefeller family still owns shares in the three Standard sisters: 2 percent in Exxon, 1.75 percent in Mobil, 2 percent in Socal. But they have each developed in different directions.
Mobil was for long regarded as Exxon's little sister, dependent on her bigger rival both for advice and for oil -- for Mobil had always been hungry for crude. In the pre-war years their association was close: for thirty years from 1930 the two companies had a joint subsidiary called Stanvac which sold oil in fifty countries abroad, until it was broken up by anti-trust action in 1960. But since then Mobil has become apparently independent, and in 1966 it dropped the last hint of its Standard Oil origins, changing its name from Socony-Mobil simply to Mobil. And it has emerged as the most aggressive, and in many ways the most sophisticated, of the American sisters; proudly associated with New York, much concerned with communications and image, subsidising the TV 'Masterpiece Theatre' and advertising relentlessly about the problems of oil.
In 1969 Mobil acquired a chairman and chief executive, Rawleigh Warner, who was determined to assert Mobil's independence. He is an aristocrat of oil, with the looks of an old-fashioned film star and a Princeton education. His father was the head of an independent oil company, Pure 011, and he first joined another independent, Continental, when it was expanding abroad, before he moved over to Mobil. He astonished the oil world by appointing as President a man from right outside the old Wasp tradition of the oil boards; a lawyer-accountant called Bill Tavoulareas, the son of a Greek-Italian butcher from Brooklyn, whose name few oilmen could pronounce. 'Tav' was already a phenomenon within Mobil; an irreverent, fast-talking numbers-man who had the crucial Rockefeller talent for lightning mental arithmetic. Like other Greeks in the oil business he had an instinctive global awareness. (The Greeks had traditionally been the diplomats in the old Ottoman Empire, dealing with Arabs on behalf of their Turkish masters.) He was a forthright Brooklyn boy, outspoken and impatient with the slow style of the company. As Mobil became more dependent on the Middle East consortia, particularly Aramco, so Warner decided that there was only one man in Mobil who could really understand the accounting well enough to hold his own with the Exxon expert, Howard Page: he thus promoted Tavoulareas to be Middle East negotiator. Tav would then explain to his Mobil colleagues, when battling with Exxon: 'this is what they want, this is how they'll try to get it, and this is how we'll stop them'; and he did.
Tavoulareas is now widely regarded as the ablest of the major oilmen. He sits in shirt-sleeves, talking at top speed, blinking, twitching and staring, running to the telephone like an imp let loose; saying gimme and lemme, whadda ya want. In the Middle East, Tav was determined to increase Mobil's share, and was much more prepared to consider new partnership arrangements, which antagonised the other sisters, but also brought him closer to the producers; and he formed a close friendship with Yamani in Saudi Arabia. But Mobil was always in the minority, and while it was more open-minded than most, more inclined to explain its problems, it lacked any really far-sighted policy about the future of oil.
Over in Pittsburgh, the headquarters of Gulf convey the unique character of the company, a huge self-contained family firm. The great stone skyscraper with its high lobby in the grand style of the late 'twenties, like a tomb, evokes a sense of calm permanence. Beside the entrance is an office of the Mellon Bank, and all round it other skyscrapers have risen up -- the aluminium tower of Alcoa, the black cross-cross shape of U.S. Steel, the palace of Koppers -- all Mellon companies. The word Mellon is blazoned round the city, from banks, from a gallery, from a university -- while on the freeways the orange Gulf signs outnumber all other names. The scene makes the point; that Pittsburgh, Gulf and the wealth of the Mellons have grown up together, since the family first financed Gulf seventy years ago.
The Mellons kept much bigger holdings than the Rockefellers, and they still rival the Rockefellers in wealth. By 1973 the Mellons still held over 20 percent of the shares in Gulf -- an astounding chunk of the tenth biggest American corporation -- and there were two representatives on the board: Jim Walton, a grandson of William Larimer Mellon, and Nathan Pearson, the family's investment adviser. The Mellon influence may have been critical in achieving Gulf's biggest coup, when Andrew Mellon helped to get half the oil from Kuwait. Andrew's nephew, Richard King Mellon, 'the General', later dominated Pittsburgh and kept a close eye on the companies (when asked what he did for a living, he said 'I hire Company Presidents'). But his sons are not interested, and Paul Mellon, now the head of the family, long ago fled to Virginia, where he hunts and collects English water colours.
Gulf still has many Pittsburgh qualities, including its proud conservatism. But the real roots of the company management are not in Pennsylvania but in Texas: in Gulf too the top executives have nearly all come from the South West. E. D. Brockett, who became chairman in 1965, began as a roughneck in Crane, Texas; Bob Dorsey, who succeeded him, was a chemical engineer at the University of Texas; Jimmy Lee who became President under him, began his career at Port Arthur. And the sources of the company's great wealth has been first Texas and second Kuwait. Since Gulf first struck oil in Kuwait in 1937 they floated to greater and greater profits on its oil, hectically trying to find new outlets for the flood. The Pittsburgh executives could never quite come to terms with this strange alliance with a tiny territory at the other end of the world. They took most of their political advice from their partners BP, who gave them patronising lectures on how to deal with the Arabs. They tried to escape from their perilous dependence. They invested heavily in Angola, only to find it a much more dangerous territory, a battleground between black and white. They moved into coal and nuclear energy; they bought an insurance company (CNA), an industrial centre in Florida, and a whole new town outside Washington called Reston. But they never had another bonanza to compare with Kuwait, and in the meantime, as we will see, they were caught up in political scandals over their bribes to foreign governments.
Two of the American sisters, Socal and Texaco, have remained bracketed together in the minds of the others for the past forty years, as the outsiders of the industry, the terrible twins, the people who always say no. Their close association began when Socal invited Texaco to join them in their Saudi-Arabian adventure in 1936, and they formed a joint marketing company called Caltex, to transport and sell the oil through the world -- until in 1967 the joint company was broken up in most of Europe. The two companies, with their long experience together and with their Far-Western attitudes, still have much in common, most of all a stubborn resistance to change: though like many hawks, as we will see, they have tended to switch suddenly from total intransigence to total capitulation.
Over in San Francisco, Socal makes a positive cult of conservatism: 'this', one of the officials boasted to me, 'is a very stuffy company.' On the eighteenth floor, the directors are served by reverent black flunkeys and timid secretaries: it is only in the last few years that Socal has allowed women secretaries. The board has been peopled with engineers from California and Texas, and much of the company's business has always been done by the local law firm of Pillsbury, Madison and Sutro, whose former senior partner, James O'Brien, an anti-trust expert, now sits on the board. An important influence on the company, too, has been the former head of the CIA, John McCone, a shareholder in Socal, whose relationship with government has been shrouded in mystery. The chairman from 1966 was Otto Miller, a chemical engineer from Michigan who had planned the great Ras Tanura refinery in Saudi Arabia, and later took charge of the Eastern Hemisphere. A stolid Republican and backer of Nixon, he was always suspicious of the liberals in the East.
Behind all the confident Californian facade, the company's prosperity has been built on a single country 10,000 miles away. Ever since it first found oil in Saudi Arabia, its dependence has steadily increased, so that by the 'seventies half its oil came from its share in Aramco. Once it flowed, the main problem was to find outlets, and to minimise taxes by intricate arrangements of transfer pricing within its subsidiaries, at which Socal is specially expert. In all its dealings abroad, it has been obsessed by this Arabian jackpot, reluctant to share it with any new partner, whether from the West or the East. In the late 'sixties George Ball, the former Democratic Under-Secretary of State who became a director of Socal, advocated that in view of the political dangers of the all-American ownership of Aramco, European companies should be permitted a share. But Miller would not consider it, and soon afterwards Ball -- who was also very critical of President Nixon -- was not reappointed a director.
'We all hate Texaco,' said an Exxon man. 'If I were dying in a Texaco filling-station,' said a Shell man, 'I'd ask to be dragged across the road.' The other sisters are united in their resentment of Texaco, and it is not hard to see why. Texaco has always taken pride in being the meanest of the big companies, the loner in the Western, refusing to contribute anything except for profit (apart from their patronage of opera), while their return on capital has been consistently the highest. The flag of the skull-and-crossbones, which their founder, Joe Cullinan, flew over his offices, still seems an apt emblem.
They are not in fact more Texan than the others. Ever since Joe Cullinan was ousted in 1913, they have been run from New York, where they now inhabit part of the Chrysler skyscraper. From there they established a tradition of skinflint management and centralised control which was reinforced by the man who dominated it for two decades: Gus Long, a granite-faced salesman from Florida, joined the company through his first father-in-law, who was Cullinan's attorney, and he soon made his name as a 'no'-man. He resigned as chief executive in 1964, but was brought back six years later; he is still a director on the executive committee, at the age of seventy-five, and the board is full of Long's men.
Former Texaco men lovingly exchange stories about the company's penny-pinching, totting up tiny expenses, or refusing to allow their experts to contribute to industry meetings. In Libya, it was said, when Texaco cabled the revolutionary government announcing a new price involving millions of dollars, they cabled by the cheap night-letter rate. Texaco, with its selfishness and greed, is a convenient candidate for the role of the baddy, the more so with its growing international involvements: in selling its Arabian oil, it has become much more politically visible in Europe; in 1956 it bought out the Regent Oil Company in Britain, and in 1966 it bought one of the biggest German oil companies, Deutsche Erdöl. Some oilmen maintain that without the negativity and lack of foresight of Texaco and Socal, the whole industry could have made more imaginative moves in the Middle East.
But it is also argued that Texaco is the most honest and the least self-deceiving of the companies, that its parsimony simply shows responsibility to its shareholders. It has never pretended to be anything more than it is: a concern for making money, as quickly as possible, not a benevolent institution for world peace. If the politicians want that, is that not the government's responsibility? The case of Texaco raises in its extreme form, the question which runs through this book; what do we really expect oil companies to be?
Across the Atlantic, Royal Dutch/Shell has presented itself in a much nobler light than Texaco, or any of the American sisters. More than any company it has seen itself as an international institution, and neither in Holland nor in Britain has it been fiercely attacked by anti-trust or other critics, as have Exxon and the rest. Since the wild days of Deterding it has taken precautions that it should never again be controlled by a dictator, and has erased 'that old bandit' (as one of the current directors called him) from its corporate memory. The Group is run by a committee of seven or eight, and each chairman is ruthlessly retired at sixty.
Since Deterding's departure, after a period of demoralisation, a succession of respectable chairmen inspired the confidence of their home governments. John Loudon, who was chairman for nine years until 1965, was a Dutch Jonkheer and a British knight, with the style of a Prince of the Industry, patiently suffering the insults of the populace: 'I don't know why,' he said to me in 1962, 'but oil always seems to have a smell to it ... the dogs may bark, but the caravan moves on.' His successor for two years was a Dutch engineer, Jan Brouwer, and he was succeeded by a British baronet, Sir David Barran; the son of the former head of Shell's Venezuelan company, he added to the impression that the Group was a public service. Both in the Hague and in London, the great company was regarded as an indispensable part of the nation's economy, a steady contributor to the balance of payments, and the Treasury always made special exceptions for Shell in enforcing exchange control. The public image was duly fostered by patronage, elegant Shell guidebooks, and the slogan 'You can be sure of Shell'; a stockbroker's rule was 'Never Sell Shell'. The British Shell executives, mostly graduates from Oxford and Cambridge, were inclined to talk about oil not as a profitable fluid, but as part of a public duty: as one rebel complained to me: 'I wish they'd stop talking about it as if it was a bloody faith. Anyone would think it was a church.'
And Shell were able to present themselves, with more justification than the other companies, as being genuinely international. The Anglo-Dutch condominium, which had been in rivalry under Deterding, had settled into peaceful co-existence, making both sides more tolerant of other foreigners. Shell's long dependence on foreign oil forced them to be more attentive than Exxon to susceptibilities abroad. The shock of the Mexican nationalisation had made them more subtle in their dealings with Venezuela, their most crucial source of post-war oil. It had induced a careful programme of 'regionalisation', trying to buy in the local elites throughout their world empire -- presenting Deutsche Shell, Shell Italiana, or Shell Senegal as essentially local companies. Despite its ponderous headquarters, Shell men insisted that 'the Group' was really a federation of modest companies, which just happened to have a committee of managing directors who were English or Dutch. In Shell Plaza in Houston, the local directors of the U.S. subsidiary (which is 30 percent American-owned) like to emphasise that they are wholly autonomous.
Shell certainly appears more open-minded than the others, more prepared to discuss political problems, less confident of its ultimate rightness. Its need to buy oil from others, ever since its beginnings, has forced it to live more continually on its wits, and to balance its client countries. Unlike Exxon, it has never been able to retreat into self-sufficiency, back to a domestic stronghold. Yet behind the picture of the global federation there has always been a very large qualification. It is not only that Shell remains very firmly Dutch-English, preoccupied in the end by its home shareholders and governments, still treating everyone, as Churchill complained, with 'the full rigour of the market'. It is also that Shell, having had a greater opportunity than the others to adapt itself more genuinely into a new kind of international corporation, to involve the producing countries and their leaders more deeply, has not really faced up to it. In the events in the following chapters, Shell can claim to have been the most far-sighted of the seven, and to have shown more responsibility than the others. But that could be expected from its uniquely international genesis. With its long global experience, it was still painfully slow in catching up with the changing face of the world.
In the City of London a new skyscraper was completed in 1967 which surprised even other oilmen with its extravagance. With a high lobby with marble pillars, acres of panelled conference halls, a self-contained village of canteens, shops and recreations, and a garage beneath with a fleet of company Jaguars. Above the entrance was the proud name, Britannic House, and in front was a wide piazza with a flagpost flying the green shield of British Petroleum. In the middle of the piazza a metal object 1ike a modish sculpture revealed the source of much of this conspicuous wealth; an old 'Christmas Tree' well head from the Iranian oilfields, which had first flowed with oil in 1911 and which had carried a total of fifty million barrels.
In the sixty years since, it was the oil from Iran and the Persian Gulf which had built BP into one of the world's biggest companies, and financed its successes in the North Sea and Alaska. The British government's half share was little evident in its commercial dealings, yet there was no doubt that BP had a very special sense of patriotic confidence among the sisters. The company still raised the awkward question: who is an oil company responsible to?
Inside the building, the answer is not immediately clear. On the one hand BP, in its relationships abroad and with other companies, is determined to appear just another international company: it carefully uses only its initials to disguise its Britishness. BP men indignantly deny that they lean on the support of the British government, and like to mock the incompetence of politicians. At the same time their whole regimental pride, and also their low profits -- consistently the lowest return on capital of the seven -- appear to be linked to the sense of government service. The board has the look of a miniature House of Lords. In 1974 the fourteen directors included six peers, including (as one of the government directors) the former head of the Foreign Office, Lord Greenhill; an ex-head of the Bank of England, Lord Cobbold; an ex-chief of the Defence Staff, Lord Elworthy; an ex-ambassador to Moscow, Lord Trevelyan. The BP senior staff has always been peppered with ex-military men and ex-government officials. It is the kind of meeting of government and industry that would leave the trust-busters from Washington gasping.
At the head of this dignified board, a new chairman was appointed in 1969 who expressed well enough the confident spirit. Eric Drake (soon Sir Eric) had come in as an accountant and a Cambridge rowing-blue: he was general manager in Iran at the time of the Mossadeq crisis of 1951. He appears to be afflicted with few doubts about his role: he puffs a pipe, puts his thumb in his braces, and talks with tolerant amusement about the problems of other companies. For his part he can always get in to see the Prime Minister when he wants; Britain is the only country with sensible relations between government and oil companies. The British government sometimes helps with possible concessions, and BP in turn keeps them informed. But the government agrees not to interfere in commercial decisions, which actually makes BP less vulnerable to government than many private companies. Sir Eric regards the British government with affectionate contempt for their ignorance of oil: 'to give them their due', he told reporters in 1975, 'they did try to understand the problem'. Sir Eric's attitude, and that of other BP officials, seems all very persuasive. Why don't Americans realise that all this conflict between government and companies is wasteful, that they all have the same interest?
To outsiders it might look as if these British oilmen and diplomats -- both with their own Oxbridge education, their Kensington addresses -- share the same perspective; but the reality is otherwise. The government officials are still inclined to regard BP, as they did in 1951, as a kind of Frankenstein monster. They complain that BP's pride is really based on an elaborate self-deception; that the company cannot face up to its dependence on its colonial origins and defence agreements. It pretends to the government to have an independence it doesn't have, and having got into trouble comes running home, too late. The diplomats are elaborately briefed by the company, but BP does not take advice from the Foreign Office. And in the meantime the Treasury men have periodically tried, without success in spite of their being half-owners, to extract the truth about BP's sources of profit. (Ironically, it was a Labour government, in 1966, which allowed the government's holding to fall to 48.5 percent, thus theoretically losing control; but the Bank of England in 1975 acquired another 20 percent holding after the crash of Burmah Oil.) The relationships with both departments were soon to be much more strained in the oncoming crisis. On one front, in the North Sea, which brought the question of taxation to a head; and on the other, in the critical confrontations with OPEC which pressed home the point that oil was too important to be left to oil men.
By the early 'seventies the oil lobby in America was a less formidable and solid political force than in its heyday in the 'fifties. Sam Rayburn, the Texan Speaker of the House, who had been one of oil's greatest champions, was long dead, and Lyndon Johnson was retired. Even Wilbur Mills was before long to become discredited by his relationship with the 'Argentine firecracker'. The new generation of Congressmen were more representative of the big-city voters from non-oil states, so that the chief lobbyist of Shell 0i1, Carter Perkins, could complain to the American Petroleum Institute: 'no longer can we rely on Congressmen in leadership positions to recognise and take into account the seriousness of proposed legislation on the petroleum industry ... it may have been foolish for our industry ever to have relied on a few knowledgeable and influential Congressional leaders.' (Speech to API: Houston, 1972.)
These relationships are not perfected in a group of cigar-smoking individuals conniving in unison in a smoke-filled backroom. If any arrangements exist, this study has no knowledge of them. Rather, it is joint agreement reached by gentlemen who think alike, business leaders whose protection of and concern for one another makes an instinct for self-survival, people and institutions who through very reciprocal favors, men of substance interested in the preservation of wealth and power, and deft operators whose very least operational techniques would be to pursue an objective frontally with full disclosure. (The American Oil Industry: the Marine Engineers Beneficial Association, New York, 1973, p. 120.)
While the companies had no obvious get-togethers, and while many of the independents -- like Getty and Hunt -- had never actually met each other, they shared the incentives and interests of the self-contained world of 'oildom' -- a kingdom which had extended far abroad since the days of Rockefeller, but which seemed paradoxically to be more self-contained as it was more scattered. For the more oilmen travelled, the more they were caught in each other's company in desert outposts where oil was the chief common subject. The consortia of companies in the Middle East provided a legitimate meeting ground between the companies, particularly the Iranian Consortium which included all seven and several independents, which had its meetings in London. London -- a traditional haven from anti-trust -- was in many respects the capital of the international industry: oilmen could move easily from the Riveroaks Club in Houston to the River Club in New York to Les Ambassadeurs in London. There were many Anglo-American intermarriages, like the Pages or the Strathalmonds, and the world of oil was still -- with only a few exceptions like Tavoulareas of Mobil -- emphatically Wasp. There were still very few Jews in the business, even in Shell which was founded by a Jew; and the old Wasp tradition had been reinforced by new pressures from the Arab states -- particularly on Aramco, whose New York office excluded Jewish employees.
The common interests of the oilmen had been bound together by a network of communications, banks and accountants specialising in the arcane science of oil accounting and taxation. The Morgan Guaranty Bank provided underwriting for most of the sisters -- Exxon, Mobil, Shell Oil and Texaco -- while the Chase Manhattan and the First National City provided much of their international services. The chairman of the Chase, David Rockefeller, has been the subject of great curiosity in the oil business, as the grandson most actively involved in finance. He does not sit on the board of any Standard Oil company, but he and his family still have holdings in all the Standard sisters; and Rockefeller himself has close contacts with the Middle East, which he visits frequently. The figure of John McCloy stands at the crossroads of several different Rockefeller worlds -- the oil companies, the Chase Manhattan and the personal interests of the Rockefeller brothers represented by his law firm. All oil companies have interlocking directorships with banks and investment houses, and the great oil foundations bequeathed by the founders of the industry have linked the prosperity of the companies to the world of philanthropy. In 1971 the Rockefeller Foundation and the Rockefeller Brothers Fund together owned $250 million in Mobil; three Mellon foundations between them owned shares worth $435 million in Gulf. (See The American Oil Industry, 1973, p. 106.)
Since tax-avoidance is the critical element in the oil companies' financial power, the role of the accountants has been specially critical. The firm of Price Waterhouse, who vetted the members of the Iranian Consortium in 1954, has for long been the special favourite of the majors. In 1971 they were accountants in the U.S. for four of the majors: Exxon, Socal, Gulf, and Shell. The oil accounting systems are intricate enough thoroughly to confuse any layman. When Price Waterhouse in 1973 produced a survey of the accounting practices in thirty oil companies it revealed such a variety that (in the words of Les Aspin, the Democrat Congressman from Wisconsin) 'no serious students of business economics could adequately compare the relative financial positions of any two of the thirty corporations.'
The tax-avoidance of the companies was their most striking common achievement. These were the figures for their federal tax-payments inside the United States for 1971:
U.S. taxes paid by the American sisters xx 1972 1962-1971 Company Net income before taxes ($ billions) % paid in U.S. taxes Net income before taxes ($ billions) % paid in U.S. taxes Exxon 3.700 6.5 19.653 7.3 Texaco 1.376 1.7 8.702 2.6 Mobil 1.344 1.3 6.388 6.1 Gulf 1.009 1.2 7.856 4.7 Socal 0.941 2.05 5.186 2.7 Source: Multinational Hearings 1974, Part 4, p. 104.
In avoiding taxation the oil lobby was certainly successful, both in America and in Britain -- perhaps too successful, for the public indignation in both capitals when the details came to light was furious. But in the field of foreign policy, as the events of the next chapters will show, their success was much less marked -- most particularly on the Arab-Israel question. In Britain, it was true, the oil companies were well pleased by the emergence in 1970 of the 'Harrogate Speech', in which the Conservative Foreign Secretary, Sir Alec Douglas-Home, moved away from total commitment to Israel. But the speech had originated inside the Foreign Office -- where it had been lying around in draft for a year before -- rather than in the boardrooms of Shell or BP. And in Washington the oil companies, while trying hard to change U.S. foreign policy, were faced with a heavy disappointment; most of all after the inauguration of President Nixon in 1969.
Nixon had always been regarded as a likely friend of the oil companies, with his Californian base and his Texan allies. The 'Slush fund' of $18,000, whose exposure in 1956 nearly wrecked his vice-presidential campaign, included much oil money, including some from Herbert Hoover Junior. In the 1968 campaign he again promised to defend the oil depletion allowance, and was once more heavily backed by big oil, including $60,000 from Robert Anderson of Arco and a disclosed contribution of $215,000 from the Mellons. But soon after his election, Nixon agreed to the reduction of the depletion allowance from 27.5 to 22 percent (a change which affected the smaller companies rather than the majors, whose real tax advantage came from the foreign tax credits). In foreign policy, Nixon was no more obliging. After his election a delegation of oilmen called on him, to explain the need to placate the Arabs. This included Sidney Swensrud of Gulf (who was specifically invited by Nixon), Rawleigh Warner of Mobil, Robert Anderson of Arco, John McCloy and David Rockefeller. Nixon, who was accompanied by Henry Kissinger, was very sympathetic, and explained that one group to which he was not indebted for his election was the Jewish vote. But a few days later, as Warner later complained, United States policy was back where it had been before. The lobby, then and later, was singularly ineffective on Middle East policy: 'we could always get a hearing, but we felt we might just as well be talking to that wall.' (Rawleigh Warner: interview with author, September 1974.)
But the companies continued to contribute generously to the Republican Party, and President Nixon's fundraisers, Maurice Stans and Herbert Kalmbach, leaned heavily on them to help finance the notorious 1972 campaign. Four of the sisters contributed substantially, mostly through individuals. Officials of Exxon gave $217,747 led by the chairman, Ken Jamieson ($2,500), the presidentJim Garvin ($3,200) and the head of their Greek affiliate, Thomas Pappas ('the Greek bearing gifts') ($101,672): while the Rockefeller family gave $268,000. Socal gave $163,000, led by their chairman, Otto Miller ($50,000) and including $12,000 fromJohn McCone. Mobil gave only $4,300, and Texaco (whether through caution or meanness) apparently gave nothing. By far the biggest contributor was Gulf whose offerings included a million dollars given clandestinely by Richard Mellon Scaife, a major Gulf shareholder with his own political ambitions; and at least $100,000 which was produced through the Bahamas subsidiary of Gulf by the chief lobbyist of the company, Claude Wild. The eventual discovery of these illegal gifts, and of others, was to bring back all the old public suspicions of the corruptions of oil money. (See Congressman Aspin's figures in Congressional Record, January 23-24, 1974. Also testimony of Claude C. Wild to the Ervin Committee, November 14, 1973.)
But these generous gifts, as we will soon see, did the oilmen little good on the central question of foreign policy in the Middle East. When they came to seek serious help from the administration, whether over Libyan oil, or over Saudi Arabia, the oil money could not offset the old distrust of the companies, or the reluctance of governments to involve themselves.
The global scope of the oil money, however, was not to emerge until 1975, when the Securities and Exchange Commission began investigating political contributions. In April 1975 Gulf were eventually compelled to admit, in their 1975 proxy statement, that between 1960 and 1973 'approximately $10.3 million of corporate funds were used in the United States and abroad for such purposes, some of which may be considered unlawful'. Soon a succession of countries -- Venezuela, Bolivia, Peru, Ecuador -- demanded to know whether their politicians had been bribed, and Peru even expropriated Gulf's properties. Eventually the chairman of Gulf, Robert Dorsey, had to confess to having paid bribes of $4 million from 1966 onwards to the ruling party in South Korea; and to having given another $350,000, together with a helicopter, to the late General Barrientos in Bolivia. The limelight then shifted to Exxon, whose chairman, Ken Jamieson, had to admit in May 1975 that his company had made political contributions in Canada and Italy; and a new uproar ensued.
What was disturbing was not just the huge bribes themselves; but the fact that they could for so long, and so effectively, have been buried within the company accounts. The ability of a giant corporation, in spite of its auditors, thousands of shareholders and elaborate controls, to conceal such huge sums through underground routes, spotlighted the fact that the big oil companies were, in both the technical and general sense, unaccountable.
The seven sisters' shares of world crude oil production -- 1972 Company Production in U.S. (Thou. b/d)
% of total U.S. production
Production in Middle East(2) & Libya (Thou. b/d)
% of total M.E.(2) & Libya production
Production in all OPEC (Thou. b/d)
% of total OPEC production
Production(1) world-wide (excluding E. Europe & China) (Thou. b/d)
% of world production (excluding E. Europe & China)
Exxon 1,114 9.9 2,527 12.9 4,050 15.2 6,145 14.7 Texaco 916 8. 1 2,155 11.0 2,674 10.0 4,021 9.6 Socal 528 4.7 2,155 11.0 2,614 9.8 3,323 7.9 Gulf 651 5.8 1,887 9.7 2,409 9.0 3,404 8.1 Mobil 457 4.1 1,178 6.0 1,477 5.5 2,399 5.7 BP - - 3,903 20.0 4,506 16.9 4,659 11.1 Shell 726 6.5 1,372 7.0 2,877 l0.8 5,416 12.9 Total 4,392 39.1 14,165 77.6 20,607 77.1 29,367 70.0 1 Taken from company annual reports.
2 Excludes Bahrain.
Source: Multinational Hearings: 1974, Part 4, p. 68.
There was now little hard evidence of an effective conspiracy of oil interests, as there had been forty years before at Achnacarry Castle. The chief meeting-place of the industry, the American Petroleum Institute (API), which had been described in 1934 by Clarence Darrow as 'the switchboard for the controlling companies', was now muddled with crossed lines; it recorded all the discords between the majors and the independents, disunited in their attitudes to foreign oil. It was true that the relationship between the majors in their production abroad was sufficiently close to regulate with great subtlety the supplies of oil in ten nations: they moved in parallel, watching each other anxiously in their common preoccupation to avoid an uncontrolled glut. But the cosy arrangements were already being disturbed by the rude invasions of the independents, and it was hard to define them legally as amounting to a conspiracy. In the words of one recent radical study of oil interests:
World's 12 largest manufacturing corporations ranked by assets in 1972 Rank Company Assets ($000) Sales ($000) Rank 1* Exxon 21,558,257 20,309,753 2 2* Royal Dutch/Shell 20,066,802 14,060,307 4 3 General Motors 18,273,382 30,435,231 1 4* Texaco 12,032,174 8,692,991 10 5 Ford 11,634,000 20,194,400 3 6 IBM 10,792,402 9,532,593 7 7* Gulf 9,324,000 6,243,000 12 8* Mobil 9,216,713 9,166,332 8 9 Nippon Steel 8,622,916 5,364,332 17 10 ITT 8,617,897 8,556,826 11 11* BP 8,161,413 5,711,555 15 12* Socal 8,084,193 5,829,487 14 * Indicates one of the seven sisters. Source: Fortune Magazine, May and September, 1973.
The organisation that Rockefeller established a century before had long ago expanded into a self-perpetuating managerial corporation. The three thousand senior executives were systematically recruited from the universities, earmarked and watched for promotion: they climbed up through the escarpments of managers and 'co-ordinators', towards the plateau of the Main Board, and the five-man Executive Committee. Planning was no longer a question of hunches. Forecasts for long-term supply and demand were compiled each year in the Exxon Green Books. Once a year, in October, came the exhaustive budget review, which involved more money and longer forecasting than the budgets of most countries where Exxon operated. First the Economics and Planning Department gave its overview, country by country. Then the functional co-ordinators gave their budget breakdowns; followed by the production co-ordinator, the refinery co-ordinator, the transportation co-ordinator and the marketing co-ordinator. Finally the Investment Advisory Committee weighed up the demands, and passed its findings to the Executive Committee, who decided.
The chemical engineers still came up through the refineries to join the board or become chief executives, in a steady progression. Monroe Rathbone gave way in 1965 to another engineer, Michael Haider, and Haider gave way in 1970 to Ken Jamieson, the Canadian from Medicine Hat, who was now really an honorary Texan. The rule of the engineers was not surprising in an industry which invested so hugely in hardware -- rigs, platforms, refineries, pipelines. But their overwhelming predominance on the Exxon boards -- as on other oil boards -- was also a reflection of the distorting effects of taxation. Ever since the oil companies had achieved their relief from U.S. taxes in 1951, on top of the earlier relief through the depletion allowance, they had adjusted their internal accounting to take as much profit as possible 'upstream' -- from producing crude oil abroad -- on which they paid no U.S. taxes; rather than 'downstream', from selling oil products to customers. And they were easily fooled by their own accounting into supposing that downstream did not matter.
Selling oil was regarded less as a source of profits, than as a problem of finding 'outlets': the attitude was revealed in the word itself, and in the multiplication of filling-stations, duplicating themselves along the freeway ('they seem to be born in litters', complained Harold Ickes). The indifference to 'downstream' profits was reflected on the board, where the marketing men lost caste over the engineers, with much less say on policy decisions (as in the disastrous 1960 decision to reduce the posted price). The ascendancy of the engineers seemed assured so long as the profits from crude oil were secure. But once they were threatened by OPEC, the imbalance became very dangerous; for the companies desperately needed to find profits downstream, with little expertise to help them. It was one of the oddest facts about these giants, with all their resources and commercial instincts, that they were not very good at selling oil.
But the more serious and evident weakness of the Exxon engineers was their lack of international perspective. Only one member of the board, 'Pete' Collado -- who had been Acheson's economic adviser at Bretton Woods -- had experience of international diplomacy; and after the retirement of Howard Page in 1970 Exxon had no real oil statesman. The self-perpetuation of the board, their separation from their shareholders -- including the Rockefellers -- made the possibility of adapting more difficult. Their character -- as Richard Funkhouser had warned twenty years before -- was becoming dangerously like a dinosaur's. As Exxon became more exposed to politics, both in the Middle East and Washington, so its lack of world outlook became more evident. As one former Exxon executive, now in government, put it to me: 'they won't solve their problems until the Rockefellers or the Chase Manhattan intervene, to put in a chief executive who understands world politics.'
Exxon, like many other multinationals, is full of the rhetoric of global responsibilities; it likes to stress that it serves not only its American shareholders but all the nations where it operates. In some respects an international outlook is forced upon them, for the heads of their big subsidiaries abroad, of Esso Europe or Esso Japan, have considerable bargaining power. But their global outlook is severely limited, not only by their shareholders, but by the narrowness of their board, and their ultimate sense of dependence on the U.S. government. Exxon have seen themselves as spreading American ideals, as they revealed in a famous passage in their annual report in 1962: 'the public statements made by our managements, our written communications, and our advertising, seek to emphasise the benefits of free competitive enterprise and private international investment.'
Exxon were still inclined, when in trouble abroad, to look for help to Washington, to wield the 'big stick'. Their clumsiest blunder was in their dealings, not in the Middle East, but in Peru. Their subsidiary there, called the International Petroleum Company, or IPC, had been in dispute with the Peruvian government ever since 1918, when they cut off oil supplies through their tankers to enforce their terms. By the 'sixties, with the new government of Belaúnde, the argument became more bitter, with the Peruvians insisting on a share in the company and back payments of taxes. Exxon stood firm, and invoked the support of the State Department, who in 1964 began withdrawing aid from Peru for two years to exert pressure. Washington later relented, but in the meantime the IPC issue had become more explosive, taken up by the left-wing opposition. When eventually in 1968 Belaúnde announced a settlement over the IPC question, the issue helped to trigger off a military revolt, and the coming to power of the new junta, which swiftly nationalised the IPC properties. Exxon's alliance with Washington had done nothing to help their own interests; and had served to discredit the Peruvian elite. (A.J. Pinelo: The Multinational Corporation as a Force in Latin American Politics, New York, 1973, p. 18.)
In the Middle East, Exxon had come to be regarded as the leader of the American companies or, when the consortia were in dispute, as the mediator between them: Ken Jamieson saw himself in a more conciliatory role than his predecessor, Michael Haider. Exxon had now been involved in the Middle East for fifty years, had seen Kings and Sheikhs come and go, new countries invented, economies transformed. With their continuous history, and their great resources, they were in a unique position to take the long view of the future, to prefer long-term stability to short-term quick profits. But in the events in the following chapters there was little sign of such statesmanship. When they saw the age of concessions coming to an end, they could not resist hanging on to them till the last moment, with their huge profits. When threatened, they ran once again to Washington.
The Seven Sisters
The Great Oil Companies and the World They Made
Hodder and Stoughton, 1975, ISBN 0 340 19427 8
The Seven Sisters (from a phrase first popularised by Italian oil tycoon Enrico Mattei): Exxon (Esso), Shell, BP, Gulf, Texaco, Mobil, Socal (Chevron) -- plus an eighth, the Compagnie Francaise Des Pétroles (CFP-Total).
Chapters 8-14 full-text online
1. Who Controls?
2. The Rockefeller Inheritance
3. Oil and Empire
4. The Carve-up
6. Iran and Democracy
7. The Intruders
The Birth of OPEC
The Six-day War
Oil from the North
9. Sisters Under Stress
10. Libyan Ultimatum
The 'Poisoned Letter'
'Beware the Oil Kings'
The House of Cards
11. The Crunch
The King's Message
13. The Reckoning
Governments and Companies
14. The New Cartel
Riches and Poverty
Shah v. Sheikh
15. The Seduction