Ludwell DennyCHAPTER ELEVEN
ANGLO-AMERICAN sales conflict is not limited to the war for Eastern markets and Russian supplies, described so luridly by press statements of Standard and Sir Henri Deterding.
Sales competition exists in all world markets as the inevitable result of competition between the same companies for the worlds producing fields.196 Often it is easier to get the oil than to get rid of it. Within the last two or three years marketing problems have been more difficult than exploration or exploitation. This is due partly to overproduction, creating a glutted market and intensified sales competition. Of more lasting importance is the swing in non-producing countries toward restrictive marketing regulations and State distributing monopolies. Such restrictions or monopolies exist in some form in Spain, Italy, Russia, Poland, Turkey, Greece, Argentina, Australia, and are contemplated in France, Japan, China, Colombia, Chile, and Peru. This movement started in countries where American and British trusts gouged the local public, either through single private monopoly or by combining temporarily in price-fixing agreements. It spread to other countries, even to countries where British and American competition has benefitted native consumers. Apparently State monopoly control of gasoline and other petroleum products is part of the general tendency toward governmental regulation of industry, stimulated in this instance because the corporations affected are foreign-owned.
This new development cuts across the older and continuing Anglo-American competition either for retail trade or for wholesale contracts with State trusts. Such increased competition has forced greater distributional efficiency, narrower range of profits, and in many cases complete reorganization, involving establishment of refineries and treating plants in consuming countries.197
Solution of these increased marketing problems is especially important to American companies. United States domestic exports of crude oil and refined products amounted in 1926 to almost 124,000,000 barrels, 86 per cent more than in 1921. The value of these exports in 1926 was more than $554,000,000. The increase continues. For the first nine months of 1927 the total was almost 98,000,000 barrels compared with 92,000,000 barrels for the same period of 1926. Refined oils constitute the largest single group of United States manufactured exports. This countrys production of refined products in 1926 exceeded any preceding year, gains ranging from one per cent in fuel oil to more than 15 per cent in gasoline. This increase was possible because of steadily rising domestic and foreign consumption. The United Kingdom took in 1926 almost 15,000,000 barrels of gasoline, an increase of 78 per cent. Cuba tripled her order. France, Holland, Scandinavian countries, Australia, and New Zealand imported more American petrol.
What portion of these United States production and export totals represents output and shipments by American-owned companies, and how much by British companies operating in this country? Rough estimates give Dutch-Shell about one-tenth of the crude production here, compared with 3½ per cent in 1923.198 No exact data are available, thanks to the secrecy under which the British trust operates in acquiring nominally American companies.
What is the relationship between United States export of manufactured petroleum products and of total sales by American companies, including their crude and treated products which do not go through this country? Accurate answers are unobtainable.
A monetary measure exists, however, which gives some idea of the extent of American capital interests involved in the international sales competition. Officials conservatively estimate marketing investments of American oil companies abroad, exclusive of producing capital, at $1,500,000,000. This $1,500,000,000 is a gauge of the interest of Standard and the State Department in alleged unfair conditions in the marketing conflict, embracing both the competition with British companies and the foreign political movement toward State sales monopolies and expropriation of American plants.
After stressing the large amount of American capital investment involved, Mr. John H. Nelson, Department of Commerce, says: It is perhaps needless to point out that the extended development abroad of nationalization, sales monopolies and refining capacity will seriously restrict, if not jeopardize, the continued profitable employment of a large portion of capital.199
These problems and attendant diplomatic disputes are expected to multiply with growth of foreign consumption. British petroleum imports, including those for re-export, amounted to almost 2,000,000,000 barrels during the first nine months of 1927, compared with less than 1,500,000,000 in the same period of 1925. In the first half of 1927 such German imports increased 25 per cent, and in Spain almost 35 per cent. Italian imports are increasing about 25 per cent a year.
There will be accelerated rise in foreign consumption with wider use of automobiles and oil-fuel ships. The ratio of oil-fired ships to total world merchant shipping tonnage increased from 2.65 per cent in 1914 to 28.37 per cent in 1927, while oil motor-ships increased from 0.47 per cent to 6.14 per cent, the Berlin Dresdner Bank estimates.200
In many countries educational campaigns are being carried on to demonstrate that the automobileusually of American manufactureis not a toy or luxury but an economy machine. American industrial prosperity and supremacy are shown in these campaigns to follow the upward curve of automobile sales here, the moral being that other countries can duplicate this process. With only six per cent of world population, the United States in 1927 had 80 per cent of the automobiles. The ratio of persons per automobile here was five, compared with 11 in Canada, 43 in the United Kingdom, 45 in Argentina, 46 in France, 196 in Germany, and 294 in Italy. But with world production increasing from 18,000,000 cars in 1924 to 28,000,000 in 1927, an increase of about 50 per cent, foreign consumption in the same period rose almost 200 per cent to a total of 6,000,000.
Larger gasoline consumption abroad precipitates disputes over refineries.201 Standard and other producers are torn between three-fold conflicting demands to treat their crude product in established American plants, in the country of origin, like Venezuela, and in the consuming countries. Standard and Dutch-Shell hesitate to make heavy investments required to construct and operate manufacturing plants in countries where they fear revolutions or Socialistic legislation. Hence much Mexican oil has been refined outside that country, usually in the United States. In the case of Venezuelan production, Dutch-Shell has built its refineries in the neighbouring Dutch West Indies. American companies in Venezuela are shipping their raw product to this country, though Standard contemplates erecting plants either in the Dutch West Indies or in Venezuela, depending upon the kind of bargain the Caracas Government is willing to make. Often American and British trusts are encouraged to build treating plants in the consuming countries to escape a tariff differential fixed for that purpose. In other countries, as in Argentina and probably soon in Colombia and Peru, the State operates its own refineries, either under discriminating competition with American and British distributors or under a complete governmental monopoly. Sometimes the State prefers a joint arrangement for control of refineries with a foreign producing trust, as in the case of the Australian Government and Anglo-Persian.
Spain has gone the whole way.202 In 1927 it established a marketing monopoly under Government auspices and seized American properties valued at $30,000,000. Washington and London made diplomatic representations. Over half of the expropriated property belongs to American companies, chiefly Standard. Dutch-Shell is the second largest owner. Standard and Dutch-Shell struggled for years for supremacy there. The Rockefeller trust was on top when the State intervened with its monopoly. Of the annual requirements of more than 2,000,000 barrels, Standard of New Jersey supplied about 50 per cent, in addition to the business of Vacuum, a Standard subsidiary, and other American firms. Dutch-Shell had about 35 per cent. Well over half of the products sold there came from American and British supplies in the United States. These exports mounted in 1926 to almost $8,000,000. It was a trade worth fighting for. But in that year Moscow entered the Spanish market, selling wholesale to American, British, and Spanish distributing companies about 12 per cent of the total market demand.
Then the Madrid Government decided to take over the industry. Royal decrees in June and October 1927 gave exclusive monopoly for importation, storage, distribution, and sale of all oil products, to a consortium of 37 Spanish banks under Government auspices. Throughout the autumn the monopoly organization seized American and other foreign plants and installations, preparatory to taking over complete operation of the companies the first of the year 1928.
The State Department announced December 29 it was watching the situation closely and has from time to time issued appropriate instructions to the American Embassy at Madrid to make representations in order to protect American oil properties in Spain. A telegram from the American Charge dAffaires at Madrid, dated December 27, stated: `Interviewed the Premier yesterday and, at his suggestion, Minister of Finance. Seizures and compensations were fully discussed and appropriate representations made. Both Ministers gave assurances that valuation of property seized or products seized would begin immediately; that the entire industrial property of the companies involved will be directed by the monopoly; that interest payments will be made from the date of seizure and that compensations will follow as rapidly as possible. Both stated that it was the Governments intention to deal generously with expropriated interests.203
Standard and Dutch-Shell are using all their influence in an unsuccessful attempt to break the State monopoly. As soon as the calamity occurred, they summoned diplomatic reserves from London and Washington. But the British and United States Governments are handicapped. Under international law, foreign governments cannot, or at least should not, interfere in the domestic affairs of another sovereign state. When this rule is broken the victim is a government which cannot defend itself or whose friendship is not desired by the larger Powers. Dictator de Rivera obviously was a person to be dealt with gently and with observance of due diplomatic form. The issue of discrimination could not be raised. Diplomatic representations by London and Washington, therefore, were limited to requests for Spanish assurances of equitable compensation for expropriated properties. The dispute now centres on this question. Properties are appraised by the companies at a much higher figure than the Government will pay. There is also disagreement regarding method of payment. Madrid intimates it might pay five per cent interest, pending amortization of the total debt. The companies insist on more. The companies also want to be reimbursed for their trade loss or intangible assets in addition to physical properties.
Fines up to 25,000 pesetas are provided by the Royal decree for obstruction of seizures. The Cabinet is empowered to impose heavier penalties in some cases. Ordinary legal redress for the companies is precluded by special processes provided for disposing of complaints and fixing compensations.
With establishment of the State trust, competition began for its wholesale contracts. Standard has not participated, as the Government anticipated, in this competition to get back indirectly the business lost to the State organization. Like governments, Standards specific interests in one country often conflict with its larger interests in other countries. In such cases the companys international policy determines its tactics. If Standard were to compromise with the State monopoly and expropriation in Spain, other countries in which the American trust does business would be encouraged to follow the Spanish example. To keep its hands free to block such governmental measures elsewhere, Standard is now outlawing the Madrid trust. Standards only remaining weapon is sabotage through its partial control of international credit, which in this instance probably will be insufficient. Dutch-Shell apparently is following Standards boycott tactics, though some of the unsuccessful British bids for a State contract indirectly may have represented the Deterding combine.
American independent companies and Russia got the State wholesale contracts in 1928. Reports conflict regarding the share of each. The Soviet Naphtha Syndicate announced it would supply 520,000 tons, or about 60 per cent of Spains estimated consumption. The rest is furnished by the Petroleum Export Association of New York, subsidiary of American Republics Corporation, which claims 50 per cent.204 According to the latter it has contracts for all of Madrids crude oil and 25 per cent of refined products, running five years from January 1, 1928. The Petroleum Export Association represents small independent companies, who took advantage of relaxation of American anti-trust laws under the Webb-Pomerene Export Act to enter foreign trade in competition with the American and British trusts.
France for several years has been flirting with the idea of a State marketing monopoly. Standard as the chief sales organization there is affected. The situation is more complicated than in Spain. It is not limited to a sales problem. All of the international oil issues are involved: competition of French with British and American capital in foreign producing fields; French imperialist policy and requirements for continuance of French military hegemony over Europe; conflict between local and foreign marketing organizations in the domestic market; efforts of a strong Left party to establish a complete State monopoly for importing, treating, and selling all oil products; compromise measures by the Government involving discriminatory tariffs and taxes against foreign companies, State regulation of imports, and quasi-governmental participation in refining and distribution.
France has virtually excluded foreign exploiters from her own small producing fields and from her colonies. The Federal Trade Commission in 1923 stated: It is not clear what the laws of France might provide regarding the matter of petroleum development in continental France or the French colonies, but the evidence indicates that the grant of concessions is subject to the discretion of the Government, which would probably grant concessions only to companies at least 67 per cent French controlled. The commission was informed by the Sinclair Consolidated Oil Corporation that `in practice it has been found that France and the French colonies are more completely closed to development than in any other part of the world.'205 This exclusion is part of French military policy.
Before the Great War the Paris Government tried unsuccessfully to follow Great Britains lead in assuring adequate supplies for use in the anticipated hostilities with Germany.206 But French capital preferred the safer policy of distributing its investments in British, Russian and Roumanian companies rather than assume the risk of majority financial control and industrial management of an international producing trust. Besides this handicap, French marketing companies saddled their country with import restrictions and tariff differentials for the protection of a national pseudo-refining industry. French plants were not complete refineries. Therefore at the outbreak of the war France lacked refining and storage facilities as well as raw supplies and tanker transport. As a result the Government during the war was almost wholly dependent upon American wells, refineries and tankers. Several times, especially in the first years of the war, France was close to capitulation and defeat because of inadequate petrol supplies for her land and air forces, according to Premier Clemenceau.207 This experience made France at the close of the war perhaps the most oil-conscious country in the world. Realization of the importance of oil in peace and war, which had grown gradually in Great Britain, and which was to come much later in the United States, was concentrated in France in the period of secret pacts during and after the war. French diplomacy in the early secret treaties with Great Britain acquired the Mosul fields. Later Frances share was scaled down to 21.25 per cent by Great Britain, which took majority control.
The Paris Government was more successful in the oil fields of its military satellites, Poland and Roumania. French capital controls about 85 per cent of Polands annual production of 5,800,000 barrels. Under the Franco-Polish agreement of 1922, the French-owned product has a privileged export status. French capital, in addition to heavy direct holdings in Roumania, controls indirectly most of the nominally Roumanian companies. Through her military alliance France obtains many intangible privileges in competition with Great Britain and the United States, in the Roumanian fields. This favouritism is important under the Roumanian nationalization law. Similarly in Czecho-Slovakia, France has used her power as political and military monitor to obtain shares in concessions previously promised to Standard.
The French Rothschild group had large holdings in Tsarist Russian fields.208 After the Revolution and nationalization, Great Britain with superior military forces in the Near East was in a better position than France to seize the Caucasian oil districts. Because Bolshevist rule made future French operation of these fields exceedingly doubtful, and because the British through political-military dominance and petroleum strength of Dutch-Shell and Anglo-Persian had an advantage, the Rothschilds were glad to unload their Russian shares. Standard bought them. Minority French financial groups retained Tsarist oil shares, but these holdings were relatively unimportant. Hence Frances only hope of getting supplies from Russia now is through purchase from the Soviet State trust.
Minor fields acquired by France from Germany in the war have increased French domestic production only to about 525,000 barrels, or seven per cent of the amount imported. The country thus remains dependent on foreign supplies. Most of these have been furnished by Standard, under a close working agreement with the Government.
Standard took this market away from Dutch-Shell and Anglo-Persian. Twenty-five years ago Standard dominated in France as in the entire world market. Then the two British companies won the French price war, resulting from their challenge to Standards supremacy there. In this earlier struggle Sir Henri sought financial support from the Paris Rothschilds. That was the origin of the minority French interest in Dutch-Shell which continues to this day. Standard recaptured the French market during the Great War. Dutch-Shell and Anglo-Persian wells and tankers were supplying the British navy. While Standard furnished French war supplies, it made governmental and commercial contacts and built up a distributing system which after the Armistice gave it a favoured position in the revived Anglo-American competition.
But all the while France was planning to liberate herself from the dominance in war and peace of either Standard or Dutch-Shell. Immediately following the Armistice the Paris Government formed the Compagnie Française des Pétroles, a combine of the French distributing organizations whose pre-war activities had hampered national defence plans. This loose native organization was to exploit exclusively all oil fields in France and future foreign acquisitions. The company is limited to French capital and its directors must be approved by the Paris Government. It receives preferential treatment in marketing, which in some instances forces Standard and other foreign sales trusts to operate with the national organization. A State institution was formed to supervise production and distribution.
To stimulate domestic alcohol production the Government requires petroleum importers to purchase fixed amounts of alcohol. This scheme for industrial national defence has met with difficulties, however, because of the Governments inability to supply stipulated amounts of alcohol. On the basis of 1926 imports companies should have received from the Government 106,000 tons of alcohol, while the amount available for this purpose was less than 23,000 tons.209
Despite these manifold efforts of the Paris Government, involving domestic monopoly control of production, diplomatic manoeuvres to acquire foreign producing fields, and State interference with foreign marketing organizations, France has made little headway toward petroleum independence. She has been dependent upon Standard for fully 60 per cent of her supplies and upon the British for most of the remainder.
Out of this situation grew demands of the Left political bloc in 1926 for a complete State import and marketing monopoly, similar to that since established in Spain.210 The proposal was approved in March 1926 by the Finance Committee of the Chamber of Deputies. M. Margaine, author of the measure, supported his argument with figures of alleged excessive prices extorted by Standard. The idea of the Finance Committee in approving the proposal was that the Government would make these profits for the almost empty French treasury, and at the same time obtain storage and distributing facilities essential for defence purposes.
Standard appealed to the Washington Government to head off the Bolshevist menace threatening American capital in capitalistic France. Washington made repeated informal diplomatic representations, and used against France its effective weapon of virtual credit boycott. France could not afford, in its impoverished condition and in its need for American political support in European diplomacy, to ignore Washingtons desires. So for a while American oil company investments in France, amounting to $20,000,000, were safe.
Under the law of April 1926, the State was given control of petroleum imports, effective a year later. Details of the import monopoly were to be worked out in the interim. American pressure was partly responsible at the end of the year for a law postponing creation of the monopoly until January 1928. French companies and banks also increased their opposition. Le Courrier des Pétroles, organ of the native oil interests; led the protest campaign. It argued that the Government under the existing system was receiving more than 1,000,000 francs annually from oil tariffs and taxes, and that the allegedly infinitesimal additional revenue to be gained under the State monopoly system would not compensate for this loss and for the large capital investment necessary to institute the new system. Less than six weeks before the monopoly was to become effective, Premier Poincaré under this local and foreign pressure proposed a compromise plan.
In the Chamber debate in the spring of 1928 Deputies Pioquemal and Margaine charged that the Government modified its original proposal on orders from the American companies and American Government. In its denial the French Government made these charges a question of confidence and was upheld by the Chamber, 318 to 202.211
The Poincare measure, or some modification of it, is expected to be enacted in 1928.212 Though not entirely satisfactory to Standard, it is a relief from the spectre of complete Government monopoly spreading from Spain to France.
The bill provides for State control through a licensing system of all importation of petroleum and by-products. Licences for crude shall not exceed 15 years and for derivatives three years. The State shall participate directly or indirectly in organizations established to acquire storage reserves, which may be requisitioned by the State from foreign owners. Foreign importing companies, with an established trade before promulgation of the law, may obtain special licences running five years for annual imports equal to their pre-war imports. The Government shall have access to the importerss plants and accounts. Under the compromise measure the State expects to derive a maximum petroleum revenue with no direct commercial risk, at the same time building up a national storage reserve of 25,000,000 barrels and forcing construction within the country of refineries with a potential capacity equal to national consumption. The latter result is to be accomplished by an increase in general import duties, with counter-balancing decreases in interior taxes and privileged rates for products refined inside the country. This differential in favour of domestically refined products would amount to about 30 francs per 100 litres of gasoline.
American, British, and Soviet companies in 1928 were perfecting tactics for competition under the proposed restrictive arrangement. The Phillips Petroleum Company, an independent American concern which is extending its production holdings from Oklahoma to Peru, negotiated with the Paris Government in 1927-28. Mr. Phillips appeared before a special committee of the Chamber of Deputies by request. This American Independent is anxious to extend its competition with Standard from the United States and Peru to France. Captain J.K. Robison, retired, is investigating the French field for the Petroleum Conversion Corporation of New York, a Franco-American syndicate.213 This is the officer who attained notoriety while in charge of American naval oil reserves in permitting their transfer to Messrs. Sinclair and Doheny. The Soviet trust in October 1927 sold the French navy 33,000 tons of oil, its third contract of the kind within 18 months. Moscow at the same time was negotiating for wholesale contracts with French distributing companies. Russian oil was partly responsible for the decrease in 1927 of oil imports from the United States, which fell from 66 per cent to 56 per cent of the French total.
French hopes of escape from foreign-controlled petroleum supplies have been revived by the Mosul gushers, in which France through the Turkish Petroleum Company apportionment has 21.25 per cent interest. The Paris press publishes extravagant prophecies of French oil independence by 1930. The idea seems to be that the Mosul producing industry will be organized by that time, the long pipe-line to the sea completed, and supplies shipped directly to France in the still small French tanker fleet.
Other things being equal, France perhaps may attain a large measure of independence from Standard and Dutch-Shell, say, by 1935. This dream assumes, however, that the British with controlling interests in Turkish Petroleum, and the Americans whose minority interest equals the French, do not sabotage the Paris plan in order to retain their French market. France must hurdle political and financial obstacles if she is to acquire adequate tankers and refineries for her prospective Mosul oil. Aside from the great technical problems yet to be solved in exploiting the Mosul field and constructing the pipe-line, there remain the major disagreements among the British, Americans, and French within Turkish Petroleum, regarding the pipe-line route or routes.214 Until this dispute, involving the larger conflict of Franco-British political and military interests in the Near East, is settled, large scale Mosul production cannot materialize for France or anyone else. Great Britain, anxious to run the pipe-line through Palestine-British territory, has not agreed to the French-Syrian route, and probably will not unless she is bought off by France. Such eventualities may not prevent the old French dream of oil independence from coming true eventually, but they promise increased international diplomatic intrigue over Mosul in the interim.
Italy, like France and Spain, is without important domestic petroleum reserves. In practice the Government has refused to grant concessions to aliens, according to the Federal Trade Commission report.215 Premier Mussolini is watching the monopoly marketing experiment of his fellow dictator, General de Rivera. Already Italy has a semi-monopoly, somewhat different in form from either the Spanish or French plans. As in the other two countries, Standard is the largest distributor and hardest hit by State participation in the industry. Italy produces only 60,000 barrels, about two per cent of its annual consumption. Il Duce has been looking afield in Albania, where Anglo-Persian is drilling, and toward northern Africa, and the Near East for a larger Fascist empire including oil.
He has organized the Azienda Generale Italiana Petroli, a State-subsidized company. It operates as a disciplinary machine, regulating the markets by selling at cut rates. Within less than two years it lost about 500,000,000 lire, more than twice its original capital. Standard of New Jerseys subsidiary, Societa Italio Americana de Petroles, therefore tends to lose profits in competing with the State organization selling below cost and charging the loss to the national treasury. Fascist propaganda attempts to make the public purchase from the State firm as a matter of patriotism. The foreign competitor allegedly has exploited the Italian people for years. Signor Mussolini denies that his semi-monopoly scheme is intended to force Standard and British distributors out of business. But these companies consider the present arrangement as a first effective step toward complete governmental monopoly, probably similar to the Spanish system.
The struggle between Standard and the British trusts for markets of eastern Europe, the Near East, and the Orient has been shifted, as we have seen, by Russian products. British companies have the advantage in these markets of nearer producing fields. Anglo-Persian has the south Persian monopoly, producing nearly 37,000,000 barrels annually and capable apparently of almost unlimited production. Dutch-Shell has its Dutch East India fields. Standard has only small holdings in the Roumanian field, less than the British there. Hence the importance of the Russian-Standard sales alliance. Russian supplies are enabling Standard for the first time to compete effectively with Sir Henri in eastern Europe, the Near East, and the Far East.
While in the Near East and Orient this competition narrows down to Standard and the British, in eastern Europe Russia contests the market with the other two.
The Soviet Naphtha Syndicate in its relations with France, Italy, and Spain sells directly to the naval ministries, to the State monopolies and pseudo-governmental organizations. In central and eastern Europe, as in England, the Russians operate directly. Russia continues to compete in England despite the vicious Deterding propaganda attacks and price war, and despite the break in diplomatic relations. In Germany the Russians in 1928 were negotiating with the Gallia Oil Sales Company for formation of a 10,000,000 mark firm to sell Baku products. In Sweden Russia is trying to challenge Standards supremacy by selling at cut prices through the Nordiska Bensin Aktiebolaget. As a result Swedish gasoline prices in 1927 fell 30 per cent. Russian exports in the fiscal year 1926-27 to western Europe amounted to about 1,300,000 tons, compared with less than 500,000 tons to eastern Europe and the near East. These total Russian exports doubled the Tsarist exports of 1913.
There is Standard-Soviet competition in Czecho-Slovakia, which in 1926 used over 45,000 tons of Baku crude, compared with total imports of 93,000 tons. In the Czech market Standard draws on its Roumanian wells. Standard subsidiary, Vacuum, has the advantage in the Czech gasoline market because of its refineries in that country and nearby Hungary, Vacuum Oil of Czecho-Slovakia is erecting new plants at Prerov and increasing its capital 30-fold to 60,000,000 crowns. Its 1926 profits exceeded 300 per cent on capital investment. In 1928 Moscow closed advance contracts in Prague for 100,000 tons of crude, in addition to smaller contracts for gasoline and refined products.
Ramifications of Russias extensive direct and indirect foreign marketing system are shown in the following official statement:
The [Soviet] Oil Syndicate sells oil products both in the domestic and world markets through its offices and direct representatives. Besides, it is connected with a number of foreign companies, through which it sells its products. Such companies, the shares of which are in a large part owned by the Oil Syndicate, are Derunaft in Germany, Societe des Produits du Napthe Russe in France and Russian Oil Products, Ltd., in England and in the British colonies.
The Oil Syndicate and the foreign firms allied with it deliver petroleum products to foreign firms and government departments (for instance, the French and the Italian Ministries of the Navy), in many instances, on long-term contracts.
Among the principal purchasers of Soviet Oil products are: The Vacuum Oil Company and the Standard Oil Company of New York, in the United States; Lubricating Fuel Oil Company, Ltd., Medway Oil and Refining Company, Independent Oil Distributing Company, in Great Britain; Petrofina Frangaise, Desmarais Freres, Petrol Block, Bigard Freres, in France; Purfina Belgo-Caucaisenne des Petroles, Societe dArments, in Belgium; Rotterdamsche Oli Import blaatschapij Rotol, in Holland; Deutsche Petroleum A.G., Benzolverband Reichskraftsprit, Oelwerke Schliemann, Mineraloelwerke Albrecht, Gallid, Eriag, Nitag, in Germany; Societa Nazionale Olii Minerali, Rafineria di Olii Minerali in Italy, and Banca Arnus in Spain.216
Poland is a declining competitor for the eastern European markets. In 1926 it sold Czecho-Slovakia 26,000 tons. Only about seven per cent of Polands annual production of 5,800,000 barrels is American. The French-controlled Polish industry operates under a national combine system. An older federation was reorganized as a cartel in 1927 on a five-year basis. A central sales export organization is to be established under observation of officials appointed by the Warsaw Government. Prices and sales conditions for individual companies dealing directly with their own customers are to be fixed by the cartel. Disagreement between the Pilsudski dictatorship and this syndicate prevents the State-owned refinery from joining the cartel. Inclusion of the State organization, creating a more complete monopoly, will depend probably upon the syndicates willingness to grant a larger measure of governmental control.
The Polish oil industry, it is evident, is seriously concerned regarding the continuously decreasing output of crude oil, which, concurrently with increasing internal consumption, raises the question whether Poland, within a year or two, may cease to be an oil-exporting country, according to a 1928 report of the American Trade Commissioner in Warsaw.217
More important than the four-cornered competition among Polish-French, British, Standard, and Russian interests in the eastern European markets is the Standard-British conflict in the Near East and the Orient.218 Standard purchase on long-term contract of Baku products has virtually eliminated Russia from the Near East trade, or rather has substituted Standard as the marketer of Russian oil in those regions where it is Great Britains natural competitor. Thanks to the decline of Russian production under Tsarist inefficiency, subsequent slow rehabilitation during the revolutionary and counter-revolutionary periods, Caucasian oil had practically disappeared from the world market. By this default the British were given a virtual production and sales monopoly in the Near East for several years. This situation is largely responsible for the present dominant international commercial position of the British trusts and their high profits, despite the costly competition with Standard in western Europe and the Americas. In challenging Great Britains monopoly in the Near East, Standard is now with this Russian weapon striking at the very heart of the British trusts.
Domestic marketing in that area is insignificant compared with the struggle for producing fields and competition for fueling naval and merchant ships on the Suez Canal route. Among the domestic markets there are monopoly obstacles confronting Standard.
In Greece the Anglo-Persian Oil Company (Ltd.) received from the Government an exclusive concession for all petroleum rights in eastern and western Macedonia for an exploration period of five years, with an option for a 50-year exploitation concession in certain districts, according to the Federal Trade Commission ?219 Greece has a kerosene monopoly, and in 1928 was negotiating with Dutch-Shell for a British gasoline monopoly. Close relationship between the Athens and London Governments gives Anglo-Persian and Dutch-Shell advantage over the New York company. The gasoline monopoly negotiations are said to turn on a promise by Sir Henri to float a highway development loan for Greece. While these conversations were going on, however, the Washington Government late in 1927 suddenly granted to Greece the unused balance of the post-war American reconstruction credit which had been withheld for several years. This may make Greece less dependent financially upon Dutch-Shell and more favourably disposed toward Standard.
Semi-state monopoly in Turkey competes with Standard, chief foreign distributor there.
Standard and the British divide Palestines market, which uses annually about 6,000,000 gallons of kerosene and 2,000,000 of gasoline. No petroleum is produced, though both British and Americans have carried on extensive explorations. After the Great War the London Government, holding Palestine as a Mandate, tried to prevent Standard from continuing geological examinations under concessionary rights acquired before 1914. The State Department protested to London, the diplomatic argument continuing from 1921 to 1924.220 London finally agreed to permit Standard to continue investigations providing its data were turned over to British authorities and on condition that the Government remain free to withhold concessions.
Farther east the American and British trusts compete in India, Australia, and China. American kerosene exports to China in the last 10 years amounted to $381,000,000. Australia virtually excludes foreign companies from exploiting its lands. State-subsidized exploration has failed to produce oil in commercial quantities. The State Commonwealth Oil Corporation in 1927 discontinued shale operations in New South Wales, explaining that world over-production necessitated temporary abandonment of otherwise profitable fields. The country therefore remains dependent upon imports, which were about 272,000,000 gallons in the fiscal year 1926-27.221 British and American companies shared this business about equally, with Standard of New York a leading figure. Atlantic Refining, a Standard subsidiary, and Union Oil of California in 1928 extended their operations in that market. The Australian Government through Commonwealth Oil Refiners operates State-subsidized treating plants and sales organizations at financial loss. In New Zealand State railways in 1928 divided kerosene contracts between British and American trusts, the latter getting onethird. At the same time the gasoline tax was increased.
At the strategic gateway to India, the Ameer Amanullah of Afghanistan in fear of British penetration rejected London concession pleas and in February 1928 promised a 50-year exclusive concession for exploitation of the minerals and oil of his country to New York interests.
American and other foreign companies are prevented in effect from owning oil-producing properties in British India. The London Government has stated that prospecting or mining leases have been in practice granted only to British subjects or to companies controlled by British subjects.222 This restriction extends to transfer of British holdings to foreigners. Much attention was devoted to India, especially Burmah, by the Federal Trade Commission report of 1923. American consular dispatches describe the British Government policy there, regarding ownership and production, as one of entire exclusiveness.223 Standard of New York informed the State Department that it was not even allowed to purchase a warehouse in Burmah.224 Twenty-five years ago the British Shell Company, before the Dutch-Shell combine and its close connexion with the British Government, was excluded from India on the strength of a rumour of combination between Shell and Standard. The Indian Government of the day believed that this state of affairs existed, went to the assistance of the [British] Burmah Oil Company and put a duty on the importation of petroleum into British India, which created the first monopoly that was created in the oil trade, the Shell managing director explained to the British House of Commons later; I admire the [British] Government of India for having protected that industry, and thereby being the means of creating a strong and powerful company.225 Many times since that amusing instance Standard, Sinclair, and other American companies have tried unsuccessfully to obtain Indian lands.
The British big three, Dutch-Shell, Anglo-Persian and Burmah Oil, the latter two interlocking in the Government-owned company, have those rich producing fields to themselves. The Burmah Oil Company is partly owned by the Anglo-Persian Oil Company, in which the British Government is interested, the Federal Trade Commission pointed out in this connexion.226 Burmah Oil and Dutch-Shell have now merged their interests to fight Standard.
Under the British conservation policy, Indias production for 15 years has been held down to an annual rate of about 8,000,000 barrels. In 1927 production was reduced 500,000 barrels. The United States Geological Survey estimates Indian reserves at 1,000,000,000 barrels. Meanwhile India imports much of its supply for current consumption. These foreign supplies come chiefly from the British-owned fields in the Dutch East Indies and Persia, and smaller quantities from the United States. In addition to the production monopoly, the British have had a virtual gasoline sales monopoly. American competition with the British until recently was limited to kerosene. Annual kerosene consumption is about 175,000,000 imperial gallons, the Americans supplying about one-third. But this competition now includes gasoline. Standard of New Jersey is importing from its new colonial field in the Dutch East Indies, which it obtained despite Deterding protests.
The Indian sales war is described in the words of the participants themselves in the preceding chapter. Chiefly with cheap Russian oil, Standard is attacking successfully the British stronghold. Sir Henri is resorting to tactics which saved him in his first struggle with Standard a quarter of a century ago. Then he federated and later merged Standards small competitors, the Royal Dutch and Shell firms. Now he is bringing Burmah Oil, with its Anglo-Persian and British Government connexions, into his Dutch-Shell combine.
It is charged by persons usually well-informed that Sir Henri seeks control of Anglo-Persian and is taking advantage of the fall in Burmah stock to acquire that company, which owns 28 per cent of Anglo-Persian. He is also said to have obtained much of the 16 per cent bloc of Anglo-Persian stock held by the public, though the British Governments 56 per cent is still intact.
With the battle going against the British allied companies, Burmah Oil in March 1928 appealed to the Government of India for a tariff wall to shut out Standard. The Government appointed an inquiry board and may raise the requested barrier.227 As the British Government is the Indian Government and as the British Government is directly connected through Anglo-Persian with the Burmah Oil Company, it would appear that the British Government is appealing to itself. It would appear further that this fight in the last analysis is between an American company and the British Government.
Dutch-Shell tried unsuccessfully in the spring of 1928 to make an Indian peace with Standard with the proposal that native (Dutch-Shell-Burmah) production be apportioned 70 per cent of the kerosene sales market, the British and Standard to divide equally the remaining 30 per cent imported.
Compromise may be possible later if Sir Henri is willing, as Standard was willing 15 years ago in a similar struggle in China, to divide the Indian trade equally and hoist prices jointly. But at this point the Deterding commercial interests may conflict with British Empire policy. Officials watching the struggle think the London Government will not permit the American trust to extend its sway in that vital part of the Empire, unless there is a trade in which Great Britain gains elsewhere.
Much more than commercial oil supremacy and profits is involved in the Standard-British conflict in India and the Near East. There is the issue of British Imperial defence, of naval needs and trade routes of the Empire. Standards partial alliance with Russia, its Turkish Petroleum Company shares, its prospective fields in the free Masul blocks and in north Persia, make the American trust an unwelcome power in that strategic region which Great Britain hitherto has dominated as by Divine Right.
This is the sequel to the London Governments concession drive toward the Panama Canal. America, in turn, heads toward the Suez Canal. It is not necessary to suppose that this retaliation is by State Department design. But it is apparent that Standard, invading the British Empires eastern stronghold, will have the vigorous support of the Washington Government.
196. Unless otherwise credited, statistics in this chapter are from Commerce Department publications: Commerce Year Book, 1926, Commerce Reports, April 1927-April 1925; Foreign Trade Notes, September 1927-April 1928; British Petroleum Trade in 1925; Petroleum Refinery Statistics, 1926.
197. Tulsa Oil and Gas Journal, Supplement 1927, Petroleum Refineries.
198. Federal Trade Commission, supra.
199. John H. Nelson, The Economic Outlook for Exports of Petroleum Products, p. 13; an address delivered by the Chief of the Petroleum Section, Commerce Department, to the American Institute of Mining and Metallurgical Engineers, February 1928, and published by that society.
200. London Petroleum Times, Nov. 26, 1927.
201. Cf., Tulsa Oil and Gas Journal, Dec. 29, 1927. Petroleum Facts and Figures, supra, pp. 167-180.
202. Cf., New York Times, Nov. 10, 1927, Jan. 1, 1928. Wall Street Journal, Jan. 13, 1928. Soviet Union Information Bureau, Washington, press release, Jan. 14, 1928.
203. New York Times, Dec. 30, 1927.
204. Ibid., Jan. 6, 1928. Soviet Union Information Bureau, Washington, press release, Jan. 14, 1928.
205. Federal Trade Commission, supra, p, xviii.
206. Cf., Francis Delaisi, Le Petrole, 1920, for earlier phases of French policy.
207. Cf., Chap. II.
208. Cf., Chap. X.
209. Commerce Department, Foreign Trade Notes, Nov. 19, 1927.
210. Cf., Paris Le Courrier des Petroles, periodical of the French industry, for current discussions.
211. New York Times, March 3, 7, 8, 1928.
212. A modification of the Poincare measure was passed by the French Parliament March 15, 1928, providing State control of imports of petroleum and derivatives. At the same time a companion law was enacted changing import duties and internal taxes on such products.
213. New York Times, Nov. 17, 1927.
214. Cf., Chap. IX.
215. Federal Trade Commission, supra, p. xxi.
216. Soviet Oil Industry, supra, 25-26.
217. Commerce Department, Commerce Reports, Feb. 27, 1928.
218. Cf., texts of Deterding and Standard statements, Chap. X.
219. Federal Trade Commission, supra, p. xxi.
220. Texts of 12 notes, Sept. 15, 1921-March 14, 1924, in 68th Congress, 1st Session, Senate Document No. 97, pp. 59 ff.
221. For Australia and New Zealand, cf., London Petroleum Times, Dec. 17, 1927. Commerce Department, Foreign Trade Notes, Oct. 8, Nov. 5, 19, 1927. New York Times, Nov. 10, 12, 1927.
222. Federal Trade Commission, supra, pp. xvii, 101.
223. Ibid., p. 43.
224. Ibid., pp. 40, 44.
225. Ibid., p. 43. Cf., London Petroleum Review, March 10, 1906.
226. Federal Trade Commission, supra, p. xvi.
227. New York Times, March 26, 1928.