One of the many pleasant side effects of Al Gore’s movie is that Big Oil will soon be a big, if not the biggest, issue in the next few elections. A while back, I came across this “History of Oil” lecture by Richard Cowen of UC Davis:
http://www.geology.ucdavis.edu/~cowen/~GEL115/115CH13oil.htmlI learned a whole lot you'll never hear from the Corporate Media. Some interesting clips:
By the end of World War I the central place of petroleum in world strategy had become obvious, and the dramatic thirst of military operations had led to fears that there would be a global oil shortage, and to quick appreciation of the profits to be made in such circumstances. American companies, who had been unwilling to explore abroad when vast oilfields were being discovered at home in Texas and California, began to look overseas, and the American government began to use considerable political and economic pressure to try to force American companies into the European-dominated consortia in the Middle East. However, new fields came on line in the 1920s, and the big companies were soon worrying instead about an oil glut. By 1928 there were negotiations between BP, Shell, and Exxon in a Scottish castle, and the so-called Achnacarry Agreement set out working principles to avoid competition at the marketing end of the oil industry. The agreement specifically excluded the US market because of its powerful anti-trust legislation, but there is no question that the companies had no intention of serious competition there if they could hammer out an agreement for the rest of the world.
The Economist of London praised the Achnacarry Agreement as "an example of the effectiveness of international cooperation in oil marketing." The Economist was pleased with the "stability" of the prices of oil and gasoline, but it's not clear whether the articles was written with the seller or the consumer in mind. Mobil, Gulf, and Texaco had joined the three founder companies by 1932, to make six. The results for producers were very rewarding: stable (but higher) prices gouged the consumer for decades, and "pirates" were dealt with summarily whenever possible.
With the Achnacarry Agreement in hand, each large company could feel that it would be able to negotiate a market share for its oil without seeing petroleum prices crash. The stage was now set for serious prospecting, and for staking out major oilfields, even though every company could see that it would not be in a position to pump all the oil that it found. After 1928, therefore, the era of the great Middle East oil strikes began, though Middle East production remained low.
But the most creative way for the majors to maximize their global profits and to satisfy the producer nations at the same time was to take advantage of tax legislation in the United States on "foreign tax credits." Suppose that Exxon pumped oil in Slobbovia, and paid tax at 35% on its operations there, at a time when company tax rate was only 15%. The foreign tax credit specified that Exxon could calculate the "extra tax" of 20% it had paid the Slobbovian Government, and could deduct that amount from its tax bill in the United States. As critics pointed out, this essentially involved the American tax payer in a direct subsidy to the Slobbovian government, except that the check was written on the American taxpayer by Exxon. All the majors used this tax avoidance scheme from the early 1950s, and it helped to maximize their profits.
How? Surely they were paying the same tax bill, even though the US taxpayer received a smaller amount than before? The trick used by the companies was to have the producer nation increase its tax rate instead of its royalty rate. If the Saudis had pressed for increased royalties, the companies could have deducted that expense only from their profits. Because the Saudis (who didn't care where the money came from) took their cut in taxes, the companies could deduct the same amount, not from their profits, but from their US tax bill. Careful calculation and negotiation between the companies and the producer countries could allow the companies to gain the maximum benefit by manipulating this tax loophole.
The US National Security Council was involved with the US Treasury in promoting this scheme, even though it meant a major shortfall in the US government's tax revenue. Tax lawyers were even sent by the US Treasury to Saudi Arabia in 1950 to help that country formulate the necessary company tax laws to start the scheme. In 1951 the Kuwait contract was revised in the same way; Iranian taxes on the new Iran consortium were set up in the same way in 1954; and the pipelines through Lebanon were taxed in 1956.
And so we have the major oil companies with a history of using foreign cartels to evade US Anti-Trust laws, and the Saudis who have a record of working hand and glove with the same oil companies to avoid US taxes. Interesting, huh?
All-in-all it’s a great read and, IMHO, worthy of one’s time.
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