dollar shortage and oil surplus in 1949-1950

dollar shortage and oil surplus in 1949-1950
ESSAYS IN INTERNATIONAL FINANCE
No. II, November 1950
DOLLAR SHORTAGE AND OIL
SURPLUS IN 1949-1950
HORST MENDERSHAUSEN
INTERNATIONAL FINANCE SECTION DEPARTMENT OF ECONOMICS AND SOCIAL INSTITUTIONS
PRINCETON UNIVERSITY
Princeton, New Jersey
The present essay is the eleventh in the series
ESSAYS IN INTERNATIONAL FINANCE published by the
International Finance Section of the Department of
Economics and Social Institutions in Princeton University. The author, Dr. Horst Mendershausen, has
been associated with the National Bureau of Economic
Research, Bennington College, and the United States
Military Government for Germany. He is now an
economist with the Federal Reserve Bank of New
York. Nothing in this study should be considered an
expression of the views ofthat institution.
While the Section sponsors the essays of this series,
it takes no further responsibility for the opinions
therein expressed. The writers are free to develop
their topics as they will and their ideas may or may
not be shared by the editorial committee of the Section
or the members of the Department.
•
GARDNER PATTERSON, Director
International Finance Section
DOLLAR SHORTAGE AND OIL
SURPLUS IN 1949-1950
BY HORST MENDERSHAUSEN*
,
•
I. SURVEY OF ISSUES
ECOVERY from the effects of World War II led the Western
European countries on to a broad issue: Should they seek economic viability in a progressive integration of the non-Soviet
world or in narrower frameworks implying some discrimination against
United States commerce? Since their dollar needs showed a persistent
tendency to exceed dollar availabilities during the recovery period and
their dollar reserves proved either too small or too volatile, many countries, in particular Britain, found it necessary to make preparations for
the latter alternative. During the postwar years, the United States exerted its influence in the direction of closer economic interdependence°
of countries throughout the world and effectively supported its persuasive
efforts by grants and loans, particularly under the European Recovery
Program (ERP). But, while relieving the foreign dollar needs inherent
in the progress toward more effective cooperation with poorer nations,
the United States was not able to still the fears abroad that within a
few years—the year 1952 used to be considered as the critical breals—
'. the supply of American dollars might decline greatly and that such a
• decline might worsen the prospects of economic improvement and political ,stability in many parts of the world. Since 1941, Lend Lease, relief
•
arid recovery programs—amounting to forms of international redistributionhad given essential support to the livelihood of associated
nations and strengthened the economic and political bonds between them.,
But the scope of redistributive i-neasures seemed destined to shrink,'
perhaps excessively and prematurely in view of the world political situatIon. Market processes alone offered a frail substitute for the cumber'some yet resilient dual system of international economics that had developed since the war: foreign trade plus foreign aid. These fears
encouraged discrimination against the United States trade in the name
of dollar saving.
The economic developments of 1949, in particular during"the first
three quarters of the year, seemed to confirm the apprehensions. The
dollar supply to the outside world declined as a result of •a business
The author gratefully acknowledges the assistance of Mr., Ernest Bloch in the
preparation of the study and the advice of Mr. Walter Levy arid other experts in oil
companies and government agencies.
recession in this country and other factors, and the,British dollar posi'-:
tion deteriorated rapidly. No major new foreign financing program from
the United States was indicated, and the prospective decline of the existing ones was reaffirmed time and again. This hastened general provisions for restrictions of dollar expenditures over an indefinite period
of time, in particular the British program of curtailing the dollar outlays
of the entire sterling area by 25 per cent. It also led to specific measures
against sales by American oil companies abroad. These sales cause foreign dollar expenditures although they come mostly from oil fields and
refineries located outside the United States and do not constitute United
States exports.
The foreign activities of American oil companies offered an obvious
target for dollar saving efforts. Sales of American oil companies abroad
constitute a major dollar expenditure to many countries. In 1949, the
British Government estimated that more than half of the sterling area's
current dollar deficit for fiscal 1950 would arise through the deficit on
oil transactions. Transactions with American oil companies alone would
account for more than a quarter of the deficit. Eleven per cent of the
value of all Economic Cooperation Administration (ECA) shipments to
participating countries up to the middle of 1950 consisted of oil.
• During the ERP period, Britain, France and other countries felt it
necessary to prepare for a lessening of their dollar outlays on oil. These
preparations followed different lines: expansion of facilities to produce
crude oil, refined oil, and oil industry equipment; limitation of civilian
demand for oil products; and, finally, the restriction of oil purchases
from American companies. Since no foreign country could afford an
actual lessening of its oil consumption under the conditions of 1949,, the last mentioned course was open only to those who had access to
rapidly available supplies. Only Britain was in that position. Toward
the end 'of 1949, Britain's major oil companies, which have been sharing the markets outside the United States with the American companies
on a roughly half-and-half basis, became able to supply some additional
oil in substitution for American company oil. Britain, therefore, took,
the lead in imposing discriminatory measures against the so-called dollar oil.
The measures taken by the British Government will be discuSsed below. Together they seem to have restricted the sale of refined oil products by American-controlled companies in the sterling area and elsewhere by about 6.75 million tons or 9 per cent of the overseas production of American companies.1 (At least this may be said to have ben
•
1 Testimony of Assistant Secretary of State Willard L. Thorp before the Houk
Inter-State and Foreign Commerce Sub-Committee on Petroleum, April 5, 1950, reprinted in Effects of Foreign Oil Imports on Independent Domestic Producers, Report
2
'
their potential effect by mid-1950; they never became' fully effective in
reality.)- Further limitations on the sales of American oil companies
abroad for dollars had to be expected in the course of time as new facilities were completed in the Middle East and Europe. France for instance has been aiming at eliminating all dollar expenditures on oil imports by 1952 and at relying thereafter oh sterling and franc oil, chiefly
,crude oil from Iraq. But in 1949 more than half of France's oil imports
• were paid for in dollars, with the help of ECA, and no practical alternative was available.
Britain's measures took the form of stipulations in bilateral trade
agreements with countries outside the sterling area (Egypt, Sweden,
Brazil, Argentina, and others) providing for larger shipments of sterling
oil to them, restrictions on the use of sterling owned by other countries
for payments to American accounts, including those of the oil companies, and, finally, the partial substitution of sterling for dollar oil in
the markets of the-sterling area.
The British measures were received with sharp opposition by the
American oil companies and the State Department and led to protracted
negotiations that seemed deadlocked up to the early summer of 1950.
Then several compromise arrangements were made between the British
, government and individual American companies which reduced the effects of the restriction measures considerably and practically left not
much more of them than the "whereases." These compromises were facilitated by the relative improvement of the dollar position of the sterling area following the devaluation of sterling as well as the renewed
expansion of the American domestic market for oil following the general upswing of business in the early half of 1950. The outbreak of hostilities in Korea did not bring about the compromises, but it signaled
the beginning of a new great economic effort in the western world that
could not fail to increase greatly the effective demand for petroleum
products and other fuels, and, more generally, signified a renewal_ and
intensification of the community of interests. It is not likely that the positive restrictions against dollar oil will be tightened again unless general
demand and dollar supply prospects take another turn for the worse.
of the Sub-Committee on Oil Imports to the Select Committee on Small Business,
8ist Congress, 2nd Session, House Report No. 2344, Washington, D.C., 1950, p. Ioo.
This committee report is henceforth referred to as: Effects of Foreign Oil Imports.
2 The terms dollar oil and sterling oil mean different things to different people. The
British government has used the word sterling oil to describe•the oil offered by "British-controlled companies," and dollar oil that offered by "American-controlled corn'panies." American oil men have stressed that dollar oil is oil that has to be produced
at dollar cost, that most oil in the world has some dollar production cost, and that the
distinction therefore is one of degree. In this study the British definition will be adhered to since it became operative in the British government's measures.
3
At home there developed simultaneously a conflict over imports of
crude and fuel oil. While oil imports into the United States had been
growing rapidly since the war, it happened only in 1949 that their
growth was accompanied by a curtailment of domestic production—by
about 8 per cent as compared with 1948—and the formation of a developed reserve capacity of about 5o million tons of crude oil per year
—about 18 per cent of 1949 domestic production—that could be exploited in keeping with "sound conservation practices." The growth of
the demand for oil had fallen behind the' development of domestic production facilities. Strong efforts were exerted by oil and coal interests
to restrict oil imports.
In the market, both of these phenomena—restrictions on dollar oil
abroad and on production at home—appeared as expressions of an oil
surplus.3 It is the purpose of this essay to examine the causes of this
apparent oil surplus of 1949, and the involvement of the sdomestic oil
industry with its assets of $18 billion, the American oil industry abroad
(assets over'$3 billion) and the multi-billion dollar British oil enterprises. We shall also. consider the involvement of certain countries of
Latin America and the Middle East whose economic development de-:
pends so heavily on the operations of the British and American oil
companies.
Part II of the essay is focused on the British-American conflict, part
III on the controversy over oil imports into the United States and national oil policy. The fourth part of the study deals with the way in
which the conflicts were resolved and aims to show how the troubles
of this dynamic international industry reflected the difficulties of moving'
toward a more effective economic integration of the United States,
Western Europe, and the areas of new development.
II. DOLLAR OIL ABROAD
i. Pattern
of International Oil Industry
The larger part of the world oil market, 62 per cent in 1948, is in
the United States. About 90 per cent of it is supplied from the domestic
production of a variety of American oil companies including the Shell
Oil Company, a subsidiary of the Royal Dutch Shell group.4 The remainder is imported by the Standard Oil Company (N.J.), the Gulf
3 Both were anticipated at the time of the conclusion of the as yet unratified AngloAmerican petrojeum agreement of 1945. See Herbert Feis, Seen from E.A., New
York, 1947,'p. 181.
4 Sixty-five per cent of the common stock of the Shell Oil Company, a Delaware
corporation, is owned by Shell Caribbean, a New Jersey corporation, which in turn
is owned Ioo per cent by Batavian Oil Company, a Dutch corporation.,The British/
Dutch Shell group is referred to as British in this paper.
4
Oil Corporation, Socony-Vacuum, and about eight other large companies including the two British-controlled organizations, Shell Oil and
Shell Caribbean.
Outside North America and Eastern Europe the oil industry is shared
fairly evenly by a few large American and ,British company groups,
with third groups holding a minor, although now increasing, share. The
American share is somewhat greater in crude oil reserves and production, the British in refined products.(See Table 1.) The chief source
•of crude oil produced by American companies abroad is in Venezuela-where the American share is about twice as large as the British—followed .br,Saudi Arabia and other Middle East areas, where output has
risen rapidly since the war. The British companies have their main
sources of crude in the Middle East (particularly Iran) and the East
Indies, where their share is greater than the American, and in the
Caribbean area. (See Table 2.)
British and American oil interests throughout the world. are interwoven in a very intricate manner. The major international company
groups in the United States, in particular Standard of New Jersey, Caltex, Socony-Vacuum, Gulf, and the two British groups, Shell and AngloTABLE I
BRITISH AND AMERICAN COMPANY SHARE IN WORLD RESERVES
AND AVAILABLE SUPPLIES OUTSIDE NORTH AMERICA AND
EASTERN EUROPE
American British Others
Total
companies companies
(million
(Percentage Shares)
metric tons)a
Proven crude oil reserves, January 1, 1950
Crude Oil available,
' 1948, annual rateb
Refined products available, 1948, annual rateb
Total
6,236
50
46
4
Ioo
150
53
44
3
Ioo
123
43
49
8
I00
a Throughout this study the following conversion factors have been used: i metric
ton =7.3 barrels. I metric ton per year =50 barrels per day.
b Including supplies obtained from North America. The difference between the availabilities of crude and refined oil is largely due to gross exports to North America and
Eastern Europe and stock changes.
Sources: ECA, Statistical Summary of Individual Plans for the Development of
World Oil Production, Refining and Trade (Excluding North America and Eastern
Europe), 1948 to 1953, Washington, D.C., September 12, 1949, Tables 8 and 9. ECA,
Congressional Presentation Material, March To, 1950; published in Petroleum Study,
Hearings'before a subcommittee of the House Committee on Interstate and Foreign
Commerce, February to May 1950, Washington, D.C., 1950, p. 118. These hearings
are subsequently referred to as: Petroleum Study.
5
Iranian, are linked together by jointly held concessions, by joint ownership of wells, refineries, pipe lines and other -facilities, and by the sharing of output and inter-company purchase agreements.' In the disposal
of products, certain standard percentage shares of the companies have
evolved in some markets and assumed a measure of stability; e.g., 28'1/2
and 7 per cent, respectively, for the shares of Jersey Standard and Caltex affiliates in the United Kingdom gasoline market. Market sharing
has been encouraged by governments of importing countries through
the allotment of import quotas to major suppliers.
Interlacement of production and market sharing seems,to have superseded generally the acute struggle for supremacy between the British
and American companies that was so pronounced in the 1920's and
1930's, although the emergence of Caltex as a. major factor has invigorated competition. Such competition as does exist is often more
pronounced between American companies than between the American
and British companies as groups, largely as a consequence of exchange
controls. On the whole, the two groups at present seem content to proceed with the orderly sharing of major existing markets and to limit
their competition to marginal areas.' While the British restrictions of
dollar oil sales have been explained by some domestic oil men as part of
a major drive to conquer the international oil market for the British companies, neither the stated intentions of the British Government
nor the timing of the restrictions, nor finally the nature of the settlements gives support to this explanation.' The. preference of the British
5 For example, Standard (N.J.) and Socony own the Iraq Petroleum Company
jointly with Shell, Anglo-Iranian and a French government company, and share output
in the same proportions as their capital. Gulf shares the Kuwait concession with AngloIranian, is bound by contract not to sell in any marketing areas served by AngloIranian, and regularly sells most of its crude oil from this source to Shell. Standard
(N.J.) and Socony have a 20-year agreement with Anglo-Iranian for large purchases
of Iranian oil. Standard (N.J.), Socony-Vacuum, and Anglo-Iranian jointly own the
Middle East Pipeline Company. (Raymond F. Mikesell and Hollis B. Chenery, Arabian
Oil, Chapel Hill, 1949.) Other joint Anglo-American oil ventures can be found in
Canada, Germany, Austria, the East Indies and South America.
6 In 1948, American companies had 39 per cent of the total refinery throughput of
the world excluding North America and Eastern Europe, British companies 52 per
cent, others 9 per cent. On the basis of independent company estimates for 1953, the
share of American companies in that year has been put at 37 per cent, that of the British
at 47 per cent, and that of others at 16 per cent. The ratio of American to British
throughput volume remained constant at i to 1.3. Source: ECA, Petroleum Branch,
Statistical Summary of Individual Plans for the Development of World Oil Production,
Refining and Trade, 1948 to 1953, Washington, D.C., September 12, 1949 (mimeo.),,
Table 2.
7 Herbert Feis, economic advisor of the State Department during the last war, judged
similarly the view expressed by American oil companies in 1943 that the British were
exerting themselves to oust or injure their American rivals in the Middle East. ."They
were imprints left by the earlier struggle to gain admission into a secluded and guarded
area. Diligent questioning revealed little more than a state of mind." op. cit., p.
6
gcATernment for a stable sharing of international oil 'markets appeared
' as no less definite than that of the American companies as a group. The
intricate connection between government and oil companies in Britain,
including the controlling share of the British government in the AngloIranian group, is of course well known; but it 'is of no gr,eater significance for Britain's conduct in the recent oil conflict than is the close
cooperation existing 'on many issues between the major American oil
companies and the United States Government.
In both countries, international oil matters are recognized as being,
of greatest importance to foreign commercial, political and strategic relations. Since World War I, both the British and American governments
'have frequently lent active support to the expansion of their nationals'
interests in oil abroad ;8 and American and British commercial and political interests have clashed repeatedly in the process., But in the setting
of,INJ? that historic conflict hardly offered a satisfactory explanation
of Anglo-American disagreement over oil. In both countries, companies
and governments were drawn into a dispute over oil markets by tensions
in broad demand and balance-of-payments developments that arose in
the joint pursuit of greater over-all interdependence. These tensions prdduced the general problem of sterling inconvertibility as well as the
particular and confusing division between dollar oil and sterling oil.
To ascribe them primarily to a commercial or political imperialism was
temptingly easy but deceptive.
Dollar Cost of Oil
- Dollar outlays related to oil may appear in the purchase of oil products, or in their production, processing, transportation and distribufion.
Oil bought from American companies normally leads to a dollar claim
on the foreign exchange supply of the buyer's country. American oil
com-panies operating abroad, like domestic concerns, seek dollar earnings
from their sales not only to remit profits and to amortize invested capital, but usually also to pay dollar salaries and buy dollar input supplies.
The production and handling of oil costs dollars wherever royalties or
taxes to concession-granting governments, must be paid in dollars or
some equivalent (e.g. gold) and whenever drilling, piping or refinery
equipment must be bought from American firms, "dollar tankers" must
be employed, or American patents or other services must be paid for.
As far as the trade in oil is concerned, only American companies necessarily have to claim conversion of their earnings into dollars, at least
2.
- 8 For an account of policy' developments, see Hearings,', Special Senate Committee
Investigating Petroleum Resources, American Petroleum Interests in Foreign Countries,
Washington, 13.C., 1946, passim; and Willard L. Thorp, Effects of Foreign Oil Imports, op. cit., p. 95.
in part, while in production, refining, transportation and marketing an
oil company con/trolled by nationals from any country may,have to make
dollar expenditures. When the impact of the oil trade on a country'
balance of payments is to be established, dollar outlays on oil purchases
and on oil production, etc., have to be considered.
Until 1949/1950, American international oil companies could'be considered as dealing almost completely in dollar oil in both the trade and
production sense. They claimed full payment in dollars for oil sold;
they paid most of their royalties and taxes, e.g:, to the Venezuelan and
Saudi-Arabian governments, in dollars or instruments bought with dollars (gold sovereigns); they bought the bulk of their material, equipment, and commissary supplies from the United States and hired their,
non-native personnel there.
The British companies on the other hand were only partially engaged,
in dollar trade. A large part of production expenses in Iraq, Indonesia
and other Eastern Hemisphere areas could be paid in sterling and related currencies. But in Venezuela, Shell had to pay royalties and takes
=recently upward of so per cent of profits—with dollars and, like
American companies, buy all local currency needed with dollars—at a
special and unfavorable exchange rate. Except for the profits remitted
to owners in Britain, Holland, etc., and some salary payments, practically all the outlay Of Venezuelan Shell took the form of dollars. Also,
in Iran the British government had to convert a sizeable part of AngloIranian royalty payments to the Shah's government into dollars to satisfy,
its requirements for imports from the United States. Much of the oil
equipment needed for expansion and maintenance of facilities anywhere
in the world had to be bought in the United States in the early postwar
years, and American or Panamanian tankers had to be chartered. On
the other hand, income from the oil sold by British companies in the
sterling area and many other countries came in sterling form. Only in
the United States, Canada and some Latin countries did they sell for
dollars and, in the case of Shell, earn dollar profits through the domestic
operations of American subsidiaries. These dollars had, of course, to
be turned over to the British Government's dollar pool, which in turn
provided the dollars for the companies' expenditure.
This difference between British and American-controlled companies
with regard to dollar costs probably increased in 1949. Growing supplies
of oil, transportation equipment, materials and shipping services became
available outside the United States, particularly in Britain, and were
sought by or allotted to British companies under their government's, if
not ECA's, admonitions to save dollars. The British oil equipment industry more than doubled its export deliveries from 1946 to mid-1950
8
and broke'the near-monopoly of the American industry that existed before the war. Since the fall of 1949, Iran's conversions of royalty earnings into dollars have probably declined, owing to the opening up of
non-dollar sources of goods.' Thus, the British companies lowered the '
dollar .component in the cost of their oil. This probably was not the
case with the American companies operating in Latin America, the Middle East and Far East, partly owing to a lack of the pressures to which
the British companies were subject, partly owing to British policies
aimed at preventing the intrusion of American companies into the flow
of sterling within the sterling area and between Britain and her trade
agreement partners. This policy made it difficult for certain American
companies to carry out a program of gradual shifts of input, purchases
from dollar to non-dollar sources that was conceived in the later part
Of 1949. Some American companies even shifted purchases from British
and other foreign to United States sources in 1949 as the recession
eased supplies and prices in this country.
Thus it came about that at the end of 1949 the dollar cost of British
and American company oil to Britain differed very greatly. In an important memorandum issued in February 1950 to the American oil companies via the State Department, the British government provided data
that made it possible to estimate the difference." For 1950; Britain expected to pay about $535 million in dollars in connection with the production,'marketing, etc., of 8o million tons of crude oil and oil products
by British-controlled oil companies inside the sterling area and elsewhere." She expected the operations of American companies in the
sterling area to lead to dollar claims amounting to about $350 million
(plus $12 million in other currencies) in return for about 13 million
tons of oily The dollar cost of oil operations of the British companies
appears as $6.6§ per ton (gross) or about 92 cents per barrel, that of
the American-company oil sold in the entire sterling areas as $27.00 per
ton—on the assumption of full conversion of sterling earnings into
,dollars—or about $3.69 per barrel, i.e. four times as much.'
. These estimates refer to extremely complex commercial, financial.
and possibly transport transactions. Since their basis has not been published it is impossible to check their comparability, in terms of inclusive9 The monthly average of British exports to Iran in the first five months of 195o
was 5 per cent above, that of United States exports 48 per cent below, the 1949 average.
10 This memorandum was published in the Journal of Commerce on February 14, 1950.
It is henceforth called the February Memorandum.
11 Thirty million
tons in the United Kingdom and the sterling area, 50 million tons
elsewhere.
12 On the other hand, the British companies expected to earn $26o million in dollars
through their trade with North America. The net dollar cost of, their operations to
Britain thus appeared as $3.44 per ton of oil handled.
9
ness,. product composition, etc. The British data have been criticized as
inconsistent and misleading by American oil men, but no alternative
over-all computations have been published.
According to another estimate, reported by ECA to Congress in
February 1950, the British Government placed the dollar cost of producing Oil by British companies at -20 per cent of total f.o.b. value in
the Middle East and 6o per cent in Venezuela." Since, in 1949, 61 per
cent of the oil supply of British companies came from the low-dollar-cost
facilities of the Eastern Hemisphere and only 39 per cent,from the
Caribbean area, the weighted average of the two percentages would
probably have to be near 35 per cent. This would be somewhat higher
than the figures presented above, which showed the British companies'
dollar component as one-fourth of that of the American companies trading with the sterling area. Still another statement that has a bearing
on the matter has been made in connection with the agreement between
Caltex and the British Government of July 18, 1950. The American
company was reported to have undertaken to reduce its dollar cost component to "close to 30 per cent'to meet the gross dollar component of
British company oil. One may suppose that the average gross dollar
component in the f.o.b. value of all British company oil in 1949/50
was somewhere between 35 and 25 per cent, probably moving from the
upper toward the lower part of the range.
The difference between the dollar components of American- and British company oil as estimated in early 1950—as far as outlays by Britain
are concerned—must not be considered as permanent. It was very large
at that time and the American companies were considering ways of reducing it, gradually and piecemeal. The British government apparently
sought to give momentum to the change and decreed a curtailment of
the -markets for American company produced oil. This brought about
the conflict.
It is hard to believe that the British government expected the American companies and the United States Government to accept quietly the
market restrictions; but it is possible that such an illusion arose in the
later part of 1949 at least in some branch of the British government,
and that the Treasury, the driving force in dollar saving, forced the
issue over the warnings of others. Following devaluation in September,
British officials explained the impending substitution program in Washington and allegedly received "nothing beyond expressions of regret"
from the American side." But the State Department quickly expressed
13 ECA added: "The American companies question this estimate." Senate Foreign
,Relations Committee, Extension of European Recovery-1950, Washington,
February-March 195o, p. 57.
14 Journal of Commerce, July 19, 1959.
15 See the letter of the British Colonial Secretary to the Kenya government pub-,
lished in the New York Times, January 1, 195o.
I0
its "emphatic concern" when the program was announced, and a British
embassy spokesman in Washington subsequently explained the quoted
phrase as an "example of excessive British understatement."
3. Demand and Supply Development:s
The conditions of late 1949 were favorable to a move by the British
Government aimed at a lowering of the dollar claims of the American
companies and a raising of their sterling expenditures while maintaining
their share in the markets outside the United States. They were unfavorable to an attempt to lower their market share drastically.
After World War II, production of petroleum rose considerably in
the United States and the world as a whole. The rise was accelerated by
the heavy pressure of demand in 1947/48 and the undertaking of large
expansion projects all over the world. But in 1949, this general upward
trend was broken by the decline of production in the United States caused
by a stagnation of demand in the face of rising imports. Production of
American companies in the Caribbean declined likewise, by about 7 per
cent. In the Middle East and the East Indies, by contrast, the production
of both the American and British companies advanced considerably, by
39 and 21 per cent, from 1948 to 1949, respectively (see Table . 2). Production in Canada, Egypt and Europe also continued to grow.
Domestic demand for oil and oil products was expanding in Western
Europe. Oil consumption in Europe (excluding the U.S.S.R.) had risen
by i5 per cent from 1948 to 1949 (6 per cent from 19.47 to 1948) and
in the entire world outside the United States, by II per cent, while consumption in the United States remained about the same."
The American companies as a group were therefore anxious to maintain their share in foreign markets. It seemed most unlikely that they
would acquiesce in a systematic lowering of that share at a time when
the domestic market appeared unable to absorb increasing supplies from
domestic and foreign sources and when a considerable expansion of
American production facilities outside the United States was under way.
In 1947, 1948 and 1949, the 30 leading American oil companies spent
a total_of about $1 billion on the expansion of their production, refining
and distribution facilities abroad ($6 billion on their facilities at home),"
most of this in the field of crude oil production. In Saudi Arabia, Bahrein
and Kuwait, established American companies were increasing the -exploitation of their rich concessions, while newcomers, such as the American Independent Oil Company," paid high "entrance fees" to gain new
16 World Oil, July 15, 1950, p. 40. The rise of demand in South America slowed
down considerably in 1949.
17 J. E. Pogue and F. G. Coqueron, Financial Analysis of Thirty Oil Companies,
Chase National Bank, New York, annual volumes.
18 This joint enterprise of nine American firms, with Phillips in the leading role,
obtained concessions in the neutral zone between Kuwait and Saudi Arabia.
I'
TABLE 2
CRUDE OIL PRODUCTION: WORLD SUMMARY('
(In thousands of tons)
1948
American
British
Companies Companies
Major Exporting Areas
Venezuela, Colombia
Peru
Middle East
East Indies
Total
Importing Areas
OEEC Countries
Others'
Total
Sub Total
Per cent of subtotal
United States°
Eastern Europe('
WORLD TOTAL
Per cent of world total
Others
Total
50,900
23,600
2,100
76,600
28,000
31,400
5,000
64,400
• Too
900
1,000
79,000
55,900
7,100
142,000
450
1,400
1,850
78,450
49.8
276,000
500
1,150
1,650
66,o5o
42.0
800
11,100
11,900
12,9oo8.2
1,750
13,650
15,400
15
17
0,0
47
0
354,450
66,050
14.1
75.4
36,700
49,600
10.5
276,000
36,700
470,100
100.0
1949
American
British
Companies Companies
47,450
32,950 2,900
83,300
Others
Total
28,000
37,800
6,400
72,200
Ioo 75,550
950 71,700
9,300
1,050 156,550
450
2,450
2,900
86,200
49.5
252,100
550
1,200
1,750
73,950
42,5
338,300
72.8
73,950
• 15.9_
1,200
2,200
11,650 15,300
12,850
17,500
13,900 174,050 _
8.o
100.0
- 252,100 _
38,400 38,400
52,300 464,550
11.3
I00.0
a Partly estimated.
b Canada, Mexico, Other Latin America, Other Asia, Africa.
c Includes American subsidiary of British Shell group.
d Includes that portion of Austrian production which has been or is likely to be unavailable to the Austrian economy.
Source: ECA, Congressional Presentation Material on Crude Oil, and Petroleum Products and Petroleum Equipment, March 10,
1950; Petroleum Study, Washington, D.C.; 1950,. p. 117.
conceSsions Jr1 Arabia. American companies also shared to a little Jess
than one-third in the extensive program of refinery expansion in the
,ECA countries (see Table 3). They could not reasonably be ekpected
- to withdraw -or turn gradually into sales agents for British company oil.
' British and other companies were of course similarly expanding, the
- former allotting the equivalent of about $438 million annually to new
,oil equipment," mostly overseas, and additional sums to plant expansion.
In 1949, the total fixed investments of the British companies may have
corresponded to about io per cent of aggregate fixed capital formation
in the United Kingdom. The expansion of the foreign companies probably was somewhat held in check by ECA's reluctance to provide dollars
for European refinery expansion projects that might duplicate American-owned facilities abroad. Total ECA funds hitherto approved for
European refinery expansion amount to $24 million—a small amount
compared with the $971 million of ECA procurement authorizations for
dollar oil imports into the participating countries through June, 1950.
'EGA financing is scheduled to cover 15 per cent of the cost of refinery
projects having a capacity of 5,725,000 tons per year, which amounts
to less than per cent of the expansion projects of non-American companies in participating countries to be completed by 1953. ECA made
no commitments for the bulk of British company projects within the
ERP area (see Table 3) and none for those outside that area. For every
ECA dollar allotted to the petroleum equipment purchases of British
companies, Britain has been spending $19 of her "free" dollars on such
purchases in fiscal 1950, and planned to spend $30 in fiscal 1951."
Britain obviously is straining her resources to maintain the relative
, position of her companies in this politically -and economically vital field.
A systematic growth of the market share of the British at the expense
of the American companies may or may not have been in prospect. In
any case the British companies had some leeway for tactical maneuvering. Jf the expansion of oil demand in the sterling area could be held
in check through rationing, high oil prices and other means, the British
companies apparently expected to be able to replace about 4 million tons
Of dollar oil supplies with their oil, the new supplies coming in part from
their large crude reserves and expanded refining facilities and in part
from a- cessation of the practice in Iranian oil fields of pumping fuel
oil back into the ground to increase oil pressure. This capacity, chiefly
in fuel oil, together with control over demand, was the basis for the
British "substitution" thrust in the late days of 1949. It was question19 Including $83 million in United States dollars. Planned expenditures as reported
in ECA, Congressional Presentation Material, March 10, 1930; Petroleum Study,
Washington, D.C., 1930, p. III.
20 /bid., p. 104.
13
TABLE 3
REFINERY-EXPANSION PROGRAMS IN ECA-PARTICIPATING COUNTRIES
BY COMPANY NATIONALITY AND TYPE OF FINANCING
(Thousand metric tons per year of crude oil intake)
Ownership
1. Capacity, refineries existing at
end of 1948
2. Expansion projects completed
or under construction, Total
(A) ECA financed
(B) Not requiring ECA
financing
(C) Financing undecided
American
British
Other
Total
5,800
11,050
7,400
24,250
9,350
14,005
4,480
27,835
Oa
4,435
1,290
5,725
8,700
650
2,215
7,355
1,970
1,220
12,885
9;225
25,055
11,880_
52,085
3,420
5,300
13,665
3. Capacity, fiscal 1953 with present projects completed
15,150
4. Additional expansion proposals
in OEEc long-term program
(adjusted)b
4,945
5. Capacity, fiscal 1953, assuming
execution of all projects proposed in OEEC programs
20,095
28,475
17,180
65,750
a Two American-owned refinery projects in France that benefit from ECA financing
to the extent of $2.3 million will increase lubricants and cracking capacity, but not
total crude runs.
b Includes changes reported subsequent to OEEC long-range report.
Source: ECA, Petroleum Branch, Congressional Presentation Material, March 10,
1950; Petroleum Study, p. 106.
able, however, whether British companies actually could muster a surplus
of 4 million tons in 1950.
At that time, then, it was doubtful whether the British companies
would be able to challenge the relative market position of the American
companies in the long run; but since they were able to do so in the short
run, the British government apparently sought to use this short-term advantage to improve the prospects of its long-run dollar balance and to
reap some fiscal advantages on the side.
4. The Conflict
Two important British Government measures of 1949 brought the
sterling-dollar oil conflict to a head. By arrangement with the British
14
Exchange Coptrol Board, American oil companies had.been selling oil
to the sterling area for convertible sterling. At the end of June 1949,
how,ever, the Exchange Control Board began to curtail import licenses
for such oil; the American companies were not permitted to accept nonconvertible sterling in payment for oil on the same basis as British-controlled companies. The British Treasury also declared itself unwilling
to transfer sterling credits of other countries to American oil companies
for their general (uncontrolled) use." Britain undertook to substitute
sterling oil for the 42 per cent of Argentina's crude and fuel oil imports
that had previously come from American companies. As a result, outlets for dollar oil were greatly reduced, in Argentina (by 2 million tons),
in Denmark (by 30 per cent of her oil imports), etc.
In December 1949, the British Ministry of Fuel and Power announced that beginning January I, 1950, British-controlled companies
would be able to supply an additional 4 million tons of refined oil to
the sterling area. The Ministry directed importers in the sterling area
to cut back their purchases of dollar oil products as sterling products
became available." For the United Kingdom, the Ministry proposed to
eliminate in 1950 all dollar fuel-oil imports and one third of the dollar
gasoline imports. Sales of dollar crude oil to the sterling area or to British-controlled companies, expected to cost Sioo million, were left un21 Developments in Japan illustrate the ensuing situation. Since the summer of 1949,
Japanese refineries twice received permission from SCAP to invite offers of crude oil,
to be paid for in sterling from Japanese sterling accounts, one purpose being to save
GARIOA expenditures on oil. In both cases sterling-company tenders were rejected,
dollar-company tenders accepted. American companies proposed to buy Japanese textiles for sterling, presumably to sell them in the United States. (The Economist, January 7, 1950.)
But the British-Japanese trade pact signed in 1949 required all invitations to tender
in sterling to contain the phrase "Bids must have the approval of the appropriate
sterling exchange control." In January 1950, a British Trade Mission advised, SCAP
that American oil companies might sell oil in Japan for sterling only if they:(I) supplied oil from sterling sources, (2) used sterling proceeds to buy Japanese goods (i.e.
did not seek to convert the sterling into dollars or British goods), (3) shipped those
products to the sterling area, and (4) took the proceeds in nonconvertible sterling.
(New York Times, January 13, 1950.) American companies thereupon complained of
British discrimination against them.
The London Times of December 30, 1949, criticized discrimination in favor of American oil against cheaper British oil in Japan on alleged technical grounds. After the
British Trade Mission had made its statement, the Times reported, the sterling tenders
awarded to American oil were canceled, and the oil was delivered .by American companies on government account.
On February 15, the Journal of Commerce reported that some contracts for sterling
oil sales to Japan had been concluded, amounting, however, only to one quarter of the
volume agreed to in the British-Japanese trade agreement for 1949/50.
.22 The Indian Government and the colonial government of Kenya at once notified
American oil companies of the prospective elimination of dollar fuel-oil imports in
1950. (The recent Indian intake of dollar fuel oil was at an annual rate of about
18o,000 tons.)
15
curfailed, although the British companies had supplies available for substitution. As a result of substitution, the market share of the United
States companies in total oil imports of the sterling area, estimated at
29.5 per cent for fiscal 1950, was expected to decline to 22.0 per cent
by fiscal 1952. Previously it had been expected to rise to 30.2 per cent
by that time. And the rise of total oil imports into the United Kingdom
and the other sterling area countries during the interval was to be slower
than previously expected.'
In late 1949, two major American 'companies made proposals to the
British government aiming at a reduction of British dollar outlays on
American oil through "sterlingization."
The Caltex group proposed to sell oil for sterling to the extent that
it could replace dollar purchases of goods and services by purchases'
from sterling sources and could use sterling for crude oil purchases from
Arabia, for the operations and the expansion of its refineries in Europe
and the Middle East, and for purchases of assorted goods that might be
sold for dollars subsequently. Besides drawing on the 6o per cent share
of is parent companies in ARAMCO, an exclusively American enter;
prise in Saudi Arabia, Caltex's subsidiary, the Bahrein Petroleum Company, operates oil fields and a refinery in Bahrein, which is in the sterling
area and defrays its local expenditures and royalties there in rupees. Its
operations resembled those of British-controlled companies in so far
as Caltex turned its dollar earnings (e.g. from Bahrein sales to the
United States Navy) into the British Treasury and received a dollar
allotment from it for its dollar expenditures to ARAMCO and on
Bahrein operations. Still under the British formula, all of its, oil was
to be treated as dollar oil.
The Standard Oil Company of New Jersey proposed to ,set up, a new
subsidiary under British law; sell to it Venezuelan, Iraqui and Arabian
crude oil for sterling at special prices; and convert into dollars 50 per
cent of its gross sales proceeds after taxes." This powerful company
which, beside its large market share, plays an outstanding role in Britain's refinery expansion program (its subsidiary, Anglo-American, is
expanding the capacity of the Fawley refinery from i million tons per
year to 5 1/2 million tons) found itself in a less favorable position in the dollar oil conflict than Caltex, since most of its foreign supplies consisted of dollar expensive oil from Venezuela. Gulf was in the, most favored position of all American companies. The bulk of its crude oil
23 Derived from ECA estimates presented to Senate Foreign Relations Committee:
Extension of European Recovery-195o, Washington, D.C., 1950, p. 61.
24 Neither the Caltex nor the Standard proposal has been published in sufficient
detail to permit a. satisfactory judgment of their provisions and implications. For a
summary of the Standard proposal, see Journal of'Commerce, February 2, 1950.
16
output in Kuwait, and a large part in Venezuela, is sold to Shell for
dollars under a long-term contract, and this contract was left intact
under the British measures. The company played no active role in the
,dollar oil conflict.
The British Government did not accept either of the two sterlingization proposals for dollar oil as a basis for reconsidering the substitution
order. It only postponed the effective'date of the order to February 15,
1950. In the February Memorandum, the British declared their opposition to any:
(a) accumulation of blocked sterling by American companies—because "there is, naturally, continuous pressure for conversion, direct or
indirect, and the existence of additional balances of this kind, even when
effectively blocked, impairs the strength of sterling";
(b) use of sterling earnings for investment purposes in the sterling
area—because "they involve us in a recurring dollar liability in respect
of profits and dividends, and ultimately, in some cases, for the repatriation of capital";
'• (c) use of earnings for purchases of an uncontrolled variety of sterling-area goods:
(i) for consumption in the sterling area—because "United States
companies operating there are, like British companies, expected in any
• case to switch their procurement from dollar to non-dollar sources
whenever possible"; or
_ (ii) for export—because Britain does not want to encourage United
States companies "to go in for merchanting to U.S.A. sterling area
goods which can: be sold there anyway."
Britain offered, however, an "incentive program" to the American
companies to recoup their market shares lost through substitution without earning additional dollars. The companies might sell more oil for
dollars, i.e. for sterling acceptable for conversion into dollars, If they
bought with dollars certain sterling area products for their own current
use, the list of purchases to be determined by negotiation. While assuring the American companies of "the same access to materials, equipment, etc., and the same priorities as the British companies," the British
insisted that the purchases must be "additional" according
government
•
to be found by negotiation. Britain also offered "British
formula
some
to
to American companies (1) operating mainly in the
treatment"
company
registered and taxable in the United Kingresident,
(2)
area,
sterling
dom, that would (3) lower substantially the overall dollar cost of their
operations to Britain. This "treatment" meant non-discrimination inside
and outside the sterling area. In a later memorandum, June 1950, the
' British government specified that exemption from substitution could be
17
obtained for American oil with a dollar content not exceeding the gross
over-all dollar component of British oil,/ (30 per cent), and "British
company treatment" dould be granted to American companies meeting
the net average dollar component of British oil (15 per cent)..
The British government offered to avoid additional restrictions on
imports of dollar oil products into the sterling area—beyond those referred to above—until 1952, and i,t did not put in question the full convertibility of earnings arising from sales within the set limits; but it
indicated that as supplies became available the substitution might be
shifted increasingly from fuel oil into the more profitable gasoline trade.
• Regarding the attempts of American companies to sell oil for sterling
outside the sterling area, the British government stated that the difficulties experienced by the American companies there were solely due to
the dollar shortage, for which "the United Kingdom is not responsible,"
and which it could not be expected to alleviate.
The reaction of the affected American companies to the British offensive was, first, to contest the validity of the motive to save dollars
and, second, to offer various counterproposals. The companies held that
the saving of $50 millions of dollar outlays per year which the ,British,
hoped to achieve through substitution could be made without curtailing
their market shares. American oil from the Middle East could be supplied at a dollar cost far below that of the British companies in Venezuela, if Britain only permitted the use of sterling by the Americans
for royalty and other payments. They argued that the marginal dollar
cost of the sterling oil to be used by Britain for the substitution should
not be compared with the average dollar cost of dollar oil, but with the
dollar cost of the marginal quantity that they would be ready to supply
if substitution were rescinded. Standard (N.J.) and Caltex made proposals to Britain, never fully presented in public, that provided for the
sale of the marginal quantities to their British subsidiaries for sterling,
on the condition that only part of the earnings of the subsidiary would
be claimed in dollars. For the British "incentive program," the American
companies had no use at all since they did not wish to spend dollarS to
buy sterling goods.
The State Department actively supported the protests of the American
companies and suggested to the British that "American companies be
permitted to compete to sell oil for sterling in the sterling area and in
third markets to the extent that their own oil has been displaced. . . .
For such sales, they would receive in dollars the average dollar cost of.
producing an equivalent amount of sterling oil, and the remaining sterling would have to be used for certain types of expenditures in the
sterling area. It could not be accumulated in burdensome amounts!"2
25 Testimony of Willard L. Thorp, Assistant Secretary
of State, April 5, 1950, Effects
of Foreign Oil Imports, p.
i8
'This -suggestion meant "British company treatment" for 30 per cent
dollar oil.
Meanwhile, Britain's measures came in for sharp 'criticism in Congress. In January 1950, Senator Tom Connally of Texas, chairman. of
the Senate Foreign Relations Committee-, called them "a British act of
hostility directed at our economy," and advocated the withholding of
ECA allocations to Britain until she ceased to discriminate against dollar oil. Criticism of Britain's oil policy became part of a wave of disIztcontent with British economic policies and political developments that
Swept over the United States political stage in 1949 and early 1950.
"It's ideology, not economics, that guides Brifish oil policy," exclaimed
an editorial in a New York financial newspaper.
ECA did indeed suspend assistance to expansion projects of the British oil industry, but no rash measures were taken to withhold allocations
to Britain in general. Such action might have led to a further cut in
British dollar oil purchases besides straining insufferably the relations
With our main ally abroad. Moreover, the British effort of dollar saving deserved sympathetic consideration since it had been advocated in
a general and emphatic manner by the United States government itself.
Enn if that purpose could not be found to validate the British oil policy
in a short-run sense—and that was the contention of the American companies—it might justify it in a long-run sense. British companies undoubtedly have greater potentialities of dollar saving in the long run.
A drastic curtailment of the dollar-expensive operations of Shell in
Venezuela, informally suggested by the American companies, would not
necessarily, be a sensible long-run alternative to Britain since output
from that source is largely sold in dollar markets and probably produces
net dollar earnings for Britain. These earnings could be raised further
by increased sales in North America on the one hand and by a conversion
of dollar into sterling outlays in Venezuela on the other, provided the
Venezuelan government agreed to it, that is to say, were ready to shift
some of its imports from the United States to Britain."
It is noteworthy that the conflict over the markets for dollar oil did
not lead to any price war between the American and British companies.
The supply and demand situation in 1949 for crude oil seemed to call
for a lowering of the price; but the strategic United States price remained at the level reached during the shortage period at the end of
1947, 126 per cent above the 1945 average, and the price of crude in
26 Actually Shell's output in Venezuela, like that of American companies, was somewhat less in 1949 than in 1948 and was reduced further in February 1950, as a reaction
to the threat of import restrictions in the United States. But total Shell imports into
the United States rose substantially throughout 1949 and 1950, in fact at a higher
percentage rate than the imports of American companies. (Effects of Foreign Oil Imports, p. 27.)
9
Europe was lowered only slightly, by about 13 per cent from mid-1948
to September 1949, as a result of shifts of the "price equator" of Caribbean and Persian Gulf crude oil westward across the Atlantic toward
the Eastern seaboard of'the United States." Product prices, weakened,
however, particularly for' fuel oil.
The devaluation of sterling in.September 1949 was not used by the
British companies to attempt an underselling of their American competitors, nor'was it used by the latter to keep the British from rai*sing
their profits on sterling oil. Dollar prices remained unchanged and sterling prices were raised to maintain price equality. After devaluation,
from August to November 1949, the domestic price of fuel oil in the
United Kingdom and the Netherlands rose by 34 per cent, in Belgium
by 6 per 'cent.' In India and other devaluing countries the price of imported oil, sterling and dollar, apparently rose by 44 per cent. It seems
that neither side expected to gain markets by unilateral price concessions.
Both maintained price discipline despite the sharp conflict between them.
Thus the world "oil surplus" of 1949 was accompanied by rising oil
prices in many foreign markets and constant crude oil prices in the
United States. Net earnings of leading oil companies fell, in this country and in Britain, without however lowering dividends, and invest-,,
ment outlays were curtailed by the American companies, but not by the
British.
III. OIL AND ECONOMIC POLICY AT HOME
We shall now turn to the conflict over oil imports into the United
States that developed in 1949. Imports of crude oil continued their rise
throughout the year and into 1950 despite the stagnation of the domestic
market. From 1948. to 1949 they increased by 3 1/2 million tons, or
20 per cent, and onward to the first five months of 1950 by a total of
5.4 million tons (annual rate), or 30 per cent above 1948." Imports of.
residual fuel oil (heavy heating) increased from 1948 to 1949 by
2.9 Million tons (40 per cent), and to early 1950 by a total of 8.7 million tons, or 119 per cent above 1948. Almost all United States oil imports presently come under these two categories.
Simultaneously, the domestic production of crude oil was curtailed
by 23 million tons from 1948 to 1949, or by,8 per cent; to early 1950, by
27 The "price equator". is the geographic line at which delivered prices from the two
sources are equal. For refined products, the equator still seems to rest somewhere in
the Mediterranean. Source: Effects of Foreign Oil Imports on Independent Domestic
Producers; Hearings, House Select Committee on Small Business, 8ist Congress, 1st
Session, part 2. Washington, D.C., 1950, p. 539 and passim.
29 United Nations, Economic Bulletin for Europe, Third Quarter 1949, vol. 1, no.
3, p. 9. In France, no price change was registered.
29 American Petroleum Institute, Statistical Bulletin, June 19, 1950, and later reports.
20
9 per cent-. This curtailment was ‘administered by the State conservation
authorities, in particular the Texas Railroad Commission, thr'ough a
lowering of "allowable production" and prorating.30 It affected all oil
Companies operating in the United States, including the domestic elements of the large American companies operating abroad and importing." While the domestic output losses .of the importers were cushioned
by growing imports, the exclusively domestic concerns, the so-called
Independents, felt the full weight of output restrictions. From their
ranks• sprang a mOvement to restrict imports, sponsored by senators
and representatives from several oil states.
1. Controversy over Oil Imports
In May 1949, General Ernest 0. Thompson, chairman of the Texas
Railroad Commission, proposed that a quota be imposed to keep imports of crude oil and refined products from exceeding 5 per cent of
the domestic market demand that obtained in the same quarter the year
before." The Thompson quota appeared in proposals to amend the Reciprocal Trade.Agreements Act and the Tariff Act, sponsored by Senator
Elmer Thomas- of Oklahoma. Simultaneously, several bills were introduced in the House designed to raise the excise taxes on imported oil;
e.g., one by Representative Gossett of Texas aimed at a tax of 2 1/2
cents per gallon for crude and fuel oil." Representative F'atman and
Speaker Rayburn, both of Texas, urged President Truman to invoke
the escape clause in reciprocal trade agreements with Venezuela and
Mexico to make higher excise rates on imported oil possible.
Extensive hearings held by the Subcommittee on Oil Imports of the
House Select Committee on Small Business brought to light that many
30 The Overt purpose of this output control is to serve "the best principles of conservation." Effects on supply and price are of course unavoidable, even if they are
not intended.
31 Tlie domestic' elements of these companies typically are much bigger than the
foreign, and they also form an important part of total domestic crude oil produciion.
In 1938, the ten major importers owned one-third of domestic crude production. TNEC,
Monograph No. 39, Control of the Petroleum Industry by Major Oil Companies.
32 If this quota had been in effect in the first quarter of 3950, imports would have
been about one-third of what•they actually were.
33 Import prices for crude recently were at 4 1/2 to 5 cents per gallon, for residual
fuel at,3 1/2 cents per gallon.
Oil imports are not subject to customs duties, but since 1932 imported oil has been
charged an excise tax. The original rates of that tax were lowered through international agreements in 3942 and 1947 to 1/4 cent per gallon for crude oil and heavy fuel
oil,. I 1/4 cents per gallon for gasoline, and 2 cents per gallon for lubricating oil; these
are the rates now in force. The rate on crude and fuel oil imports that exceed 5 per
cent of United States refinery consumption during the preceding year will double automatically, when the present trade agreement with' Mexico expires at the end of 1950,
unless some new trade agreement restores the situation.
21
"independent" producers Wanted impori restrictions to gain 'relief from
restrictions on their crude oil output. They were supported by the governors of the oil states. The National Petroleum Council, an advisory
body of the industry With the Department of the Interior, issued an
ambiguous statement in early 1949—"imports should supplement, not
'supplant domestic production"—but later in the year, a committee of
the Council declared that the "sharp increase in imports has hurt the
domestic industry." The major importers, however, denied that imports were "supplanting" domestic production—except for two,.Cities
Service and Standard of Indiana, who do not produce oil abroad. The
majors claimed that imports were "supplementary," reasonable, and subject to long-range plans that could not be changed to fit temporary market situations. They recalled the active support of the United States Goveinment•to their oil development projects in the Middle East and noted
that the markets for this oil in the Eastern Hemisphere were now endangered by the dollar shortage and the British measures. While some
of the major companies announced downward revisions of their import
plans, nearly all of them continued to raise their imports in 1949 and
early 1950, chiefly from Western Hemisphere sources." In 1949, the
tonnage of import increases over 1948 had been less than one-third of
the curtailment of domestic crude output. But from 1949 to the first 5
months of 195o, total oil imports rose by nearly twice the tonnage of
the additional curtailment of domestic crude.
The importing companies found strong support in 'the State Department. Pointing to the involvement of important American oil concessions
abroad and to the vital importance of Venezuelan dollar earnings ffom
oil for American exports to Venezuela and for the economy of that
country in general, the Department opposed the demands for import
_ restriction." The Department of the Interior and the Defense Department gave less emphatic support (see below). Consumer interests were
not aroused by the threat of import restrictions on crude oil since the
importing companies did not hold out promises of lower prices through
imports, and other business interests showed rather little concern about'
the crude oil situation.
The case of fuel oil aroused stronger reactions in the business community. On the one hand, fuel oil distributors felt dependent on larger
imports because of the tendency of the domestic industry to turn out as
little heavy fuel as possible and to produce instead greater proportions
of the more profitable lighter products, gasoline, etc., through more
Effects of Foreign Oil Imports, p. 27.
Of late, go per cent of Venezuela's foreign exchange and more than two-thirds of her government's receipts were derived from oil operations. In
1949, Venezuela was
our fourth largest market for commodity exports in general.
34
85
22
elaborate refining. With domestic,consumption of residual fuel oil holding up well in the latter part of 1949, stocks declining, and imports making up as much as one-third of the total supply on the Eastern seaboard,
the distributors expected prices to rise considerably if the inflow of fuel
oil from abroad were to be curtailed. They sided with the importing
companies.
On the other side, in early 1950 the Independents suddenly,found new
allies in the coal industry. The national coal strike of September 1949
had accelerated the conversion of railroads to diesel traction and, together with other factors, stimulated a considerable expansion of oil
and gas home heating, partly at the expense of coal heat. Coal companies, coal carrying railroads, John L. Lewis's Mine Workers and
some railroad unions joined hands and attacked the "dumping of foreign oil." "Every barrel of foreign oil brought into this country means
one less barrel of oil that can be produced in this country," said one
of the Oklahoma Oil Independents. "A million barrels of dumped foreign residual oil would displace 250,000 tons of coal and 250 mine workers," said the National Coal Association." Senator Matthew Neely of
West Virginia opened hearings aiming to protect the coal market by
making fuel oil scarcer. There the attacks of the coal interests on the
import and price policies of the large oil companies clashed with statements by the latter that fuel oil had not displaced coal in 1949, but that
both coal and fuel oil had been displaced by natural gas in homes and
utilities and by domestic diesel oil in railroads.'Indeed, the advance of
natural gas pipelines to the East coast threatened the outlook for fuel
oil, held its price down and possibly foreshadowed .some limitation of
the imports of residual fuel in the future. But coal 'state senators felt
that oil should take the loss now, and one suggested that fuel oil imports be taxed at a higher rate than imports of crude.
Facets of National Oil Policy
The struggle over oil imports, paralleled by the conflict with the British, was conducive to statements of national oil policy. Such statements
came forth from the Departments of Defense, Interior, and State, ECA
and other agencies. None of the agencies was prepared to favor either
domestic or foreign (although American-produced) oil supplies under
conditions of a stagnant domestic market. Statements of preferences
were conditional, and some statements implied the hope that no choice
would have to be made at all. This optimism was justified by the later
developments of 1950.
2.
36
Effects of Foreign Oil Imports, pp. 47 and 49.
23
The Defense Department indicated that it gave' highest priority to
oil development in the continental United States,'second to the Western
Hemisphere, and third to other world areas." Assuming a long period
of relative peace, it would favor maximal shut-in reserves in the United
States and the current use of supplies from distant areas. This might
mean relatively low crude production but continued exploration at home
(which would not harmonize easily) and sizable iniports. But preparedness for an early conflict, in the Department's view, would require a
high level of developed production in the several areas, in accordance
with their priority rating (that is, preferably at home) and a. level of
,imports that would not endanger that 'objective. Taking the short-term
outlook at the time, the Defense Department favored a "reasonable balance for the Western Hemisphere between imports and exports,' that is,
between imports from the Near and Far East and exports to the Eastern
Hemisphere. Curtailment of imports from the Eastern Hemisphere into
the, United States was not opposed; but a reduction of imports from the
Western Hemisphere sources was held dangerous."
The Department of the Interior felt "that it is possible to import too
little as well as too much," and that there was at that time "no evidence
to indicate that we are importing too much." It suggested that the high
rate of drilling activity in the United States showed the health of the
industry. Indeed, drilling and completion of new wells remained at
record levels in 1949, despite output restriction. But there could be some
doubt whether this reflected the health of the oil industry or the income tax rules applying to it. In computing taxable income, oil producers may deduct 27 1/2 per cent of their gross income as an ,allowance
for depletion, plus the amount of their expenses on new drilling." Moreover, new wells come under prorating rules only after about one year
of operation. These are powerful incentives to new oil development,
even in times of a slack market, at least as long as prorating prevents a
lowering of crude oil prices.
The State Department held that the domestic oil industry had not
been seriously injured by imports in 1949/50, and the Department of
Commerce added that the leveling off of domestic demand, the decline
of exports, and the transition from stock building to withdrawals from
stock were more important factors. Finally, ECA revealed its difficult
position as an agency aiming simultaneously at a greater independence
37 Testimony of Rear Admiral Burton B. Biggs, June 15, 1949. Effects of Foreign
Oil Imports, pp. 93-94.
88 See in this connection Bernard Brodie, Foreign Oil and American Security, Yale
Institute of International Studies, New Haven, September 15, 1947.
89 The Administration's request to lower the oil depletion allowance to 15 per
cent
of gross income after deduction of development expenditures was not heeded by the
Congress in 1950.
24
of Europe from dollar oil supplies and at the maintenance of market'
,outlets for American-owned oil. The latter seemed very difficult in the ,
long run under a persisting dollar Shortage, although the oil companies
conceivably might be able to deflect the effects of the dollar shortage
from themselves to other American exporters. The agency explained
that it was trying "to follow a balanced approach" and argued convincingly that, in the absence of its aid,.the foreign markets for dollar oil
abroad would have shrunk much faster."
The problems of formulating an American oil policy thus appeared
in their full complexity—or,almost so: little attention was given to the
oil price and to the issue of cheapening oil for American consumption
-by relying on low cost sources. This consideration would strongly favor
greater imports from the Middle East, where oil still is produced at so
Much lower cost than in the Western Hemisphere that it could overcome
the disadvantage in transportation." (In the Eastern Hemisphere, likewise, the cost advantages of Middle East oil probably could be translated into greater price reductions than made hitherto; and ECA has
pressed for action in this direction.) It appeared that the relevant area
to which policy is to be applied is in flux, with the continental United
States, Canada (rapidly increasing her oil output), the Caribbean area,
and, finally, the Middle East attracting varying emphasis on the supply
side; the United States and Western Europe on the demand side. The
total national fuel.situation is in flux, with natural gas pressing on oil
and coal, and with synthetic liquid fuel from shale, if not 'from, coal,
gradually becoming competitive." The structure of the oil industry is
in flux, in terms of refining policy, regional specialization, etc. All
these problems were raised simultaneously by the joint crisis of dollar
oil abroad and oil imports. The material gathered by the Congressional •
hearings on these issues gave a broad view.
• The issues were not resolved by drastic decisions. By the time they
had been clarified they had lost their urgency. Oil demand in the
United States resumed its increase, Britain's dollar position improved,
and the beginning of a rearmament economy in the later part of 1950
even eased the position of the domestic coal industry. We must now
turn to 'the resolution of the conflicts.
40 See also Walter J. Levy, "Foreign bit Development and the World Dollar
Shortage," address to the American Institute of Mining and Metallurgical Engineers,
February 13, 1950.
States
41 It is interesting to note that Canadian imports of crude oil from the United
and Venezuela declined by almost i million tons from 1948 to 1949 while those from
the Middle East rose by 700,000 tons. This suggests some substitution.
cost of a gallon
42 According to the Bureau of Mines, (July 4, 1950), the production
of oil from coal is io.8¢, from shale 7.3¢, which is said to be close to the price based
on crude oil.
25
I
IV. RESOLUTION OF CONFLICTS
,.
I. Bogus Oil Surplus
In more than one way, the oil surplus of 1949/50 seemed absurd.
The formation of a 50 million ton shut-in production reserve in this
country was not unreasonable; in some respects it was desirable. The
expansion of sterling oil production that made the displacement of
dollar oil possible abroad was desirable in itself and expected, although
the displacement was not. To interpret the difficulties of selling dollar
oil abroad and their reflection in this country as signs of an oil surplus seemed fantastic indeed at a time when the rest of the world was
consuming oil at a rate of 197 Kwh. per capita per year to the United
States' 4,832 Kwh.;" when the per capita oil consumption of the
United Kingdom was less than one fourth of ours, that of ERP Europe
as a whole less than one tenth, that of India little more than one twohundredth; when strict import quotas and gasoline rationing 'were in
force in many countries; and when high oil prices—even before taxation—were holding demand in check in the United States and abroad.
To prepare for a long-run reduction of oil production in this -country,
Venezuela, or the Middle East or to stop the expansion of either the
American or the foreign companies seemed a desperate course of act,ion—real failure of economic statesmanship.
We came rather close to such a failure. The loss of expansive im=
petus in the world economy in 1949, particularly in the United States,
the lag of an aggressive approach to economic development in Asia,
Africa, and elsewhere, and the pressure for dollar saving provoked by
the prospect of declining foreign financing from the United States did
create an unfavorable climate for the oil industry. Output was restricted
in Venezuela and Arabia, foreign investment of American oil companies was curtailed—although the decline was cushioned by long range
commitments—while the domestic price of crude oil was kept at the
shortage level.of 1948, that of gasoline above it, and foreign oil prices
were raised in the process of devaluation. Vast demand potentials in
many countries remained locked up. Both the international and domestic conflicts arose over shares in restricted markets, but the forces that
had caused the restrictions received less attention than the possible
advantages that competitors might find under, the restrictions. There
was danger then that the prospects of economic improvement would
be lost in mutual recrimination and that political instability would be
increased in the Caribbean and the Middle East areas.
48 World Petroleum, February 1950, p. 29. Figures are
for 1948. For energy derived
from coal the inequality is considerable too but not quite as great as for oil,
i.e. 6,205
Kwh. per capita for the United States, 742 Kwh. for the rest of the world.
26
2.
Demand Improves—Import Problem Solves Itself
puring the winter of 1949/50, it had become obvious that the confraction of the domestic refiners' margin would either make necessary
a lowering of the price of crude oil or a raising of the price of gasoline.
In April 195o, the major companies raised the gasoline price. Growing
numbers of cars on the road and in production promised greater consumption. Likewise, rapidly growing sales of domestic oil heating equipMent and railroad diesel engines in early 1950 promised a faster growth
of distillate fuel oil sales. Official and private estimates of the rate of
increase of domestic oil consumption for the year were boosted by more
.than 50 per cent within a few months. The Texas Railroad Commission
increased the monthly allowable production of crude oil steadily, from
a low of 1.9 million barrels per day in March to 2.8 million in September
1950, and the market took rising quantities of crude at the stable price,
in the form of higher-priced refined products. By June 1950, the Eastern
refiners' margin had risen by 50 per cent above the January level, i.e.,
to 860 out of an average price of $3.48 per barrel for the major refined
products; and the quarterly earnings of 30 leading companies were 15
per cent higher than a year before, after having been 16 per cent below
- that standard in fhe first quarter of 1950. Thus the renewed updrift
in the national economy found its reflection in the oil industry.
At the time of the Korean invasion the problem of oil imports was
about to solve itself. It was buried by the new events. At once demand
rose sharply on the West Coast and heavy fuel oil prices went up; within
a few weeks the Texas Independents publicly withdrew their opposition
to oil imports.- Since, at the same time, the demand for coal increased
spectacularly, the anti-import campaign lost all support. The Votes of
House and Senate committees turning down proposals to increase taxes
oh oil imports in June and July, came as an anticlimax. In its July report on the investigation of the import problem, which drew wide praise,
the Keogh Comsmittee wisely counselled against rash restrictive measures. Of course, the development encouraged oil production in Venezuela.
But in the midst of the disintegration of the protectionist movement,
a boon fell to its protagonists. On the day before the Korean invasion,
the State Department cancelled the trade agreement with Mexico and
thereby invalidated its tariff-lowering provisions, which affected imports from all sources through the most-favored-nation clause. The reasons for the Department's actions were far removed from oil protectionism. They lay outside the field of oil entirely. But unless new measures are taken, 64 per cent of United States oil imports will pay a tax
of 2iq per barrel beginning January 1, 1951, instead of 10.5 cents.
Ironically, this bit of protectionism will come into effect at a time when
27
, we may, be closer to an oil shortage than to a surplus. For as early as
August 1950, the domestic crude oil output broke previous records and
refineries approached capacity operations, while ahead there loomed further demand increases as well as the possibility of a slowing down of the
gas pipeline building program. Import restriction failed, but an additional cost factor slipped into the oil price structure.
3. Compromises on Dollar Oil Abroad
In early June, The Economist commented: "Where trade expands,
interests can be reconciled." The reconciliation of American and British
oil interests began in May 1950. It proceeded piecemeal, company by
company, in relation to various occasions and markets and on different
terms. A general settlement on matters of principle was not reached;
and the conflict may flare up again at some future time.
•
The summary table of agreements (Table 4) may help to put the 'development into perspective. The series opened with the Stanvac agreement, which conceded sterling oil treatment inside, but not outside, the
sterling area to the American company for its production in the East
Indies, and wide freedom in the use of its sterling earnings. Part of these
earnings will accrue to the Indonesian government. The agreement remained notable for the low dollar conversion allowance set as the target.
In past years, Britain used to convert 50 per cent of the company's sterling earnings into dollars. While this agreement broke the ice, it could
not be regarded of major importance, since the company always enjoyed a relatively favorable position with Britain, owing in part to its
marketing of Anglo-Iranian oil.
The derationing of gasoline in Britain brought an altogether new
element into the picture. Following by a few days upon the defeat of a
motion by the opposition to increase the gasoline ration, the abolition
of rationing opened the way to an increase of consumption. Sharing
of the two important American gasoline suppliers in the increase was
both a prerequisite for the move—British companies did not have
enough gasoline to spare—and an opportunity to break the deadlOck
in the Anglo-American negotiations. The agreement was advantageous
to Britain in so far as it did not involve any dollar outlay whatever
on the additional supplies from American companies—the corresponding
additional supplies from BritiSh companies did—and required direct
spending of the companies' sterling in Britain. Nor did the agreement
affect the substitution program, except in so far as it lowered further
British company supplies available for substitution. New Zealand and
India (urban areas) were soon to follow Britain's example. Estimates
of the consumption of ration-free gasoline at higher prices naturally
were tentative.
2-8
With the third agreement, on oil drawn from Iraq, the meeting of
minds entered the critical'Middle East area. This agreement gave the
British subsidiaries of the two affected United States concerns "British
Company treatment" inside the sterling area and conceded the conversion
into dollars of their net earnings after taxation. Selling Iraq oil outside
the sterling area, the two American companies can earn as much sterling.
as they can pass on to the Iraq Petroleum Company in payment for crude
oil, the sterling share in such purchases not to exceed 75 per cent. The
,Iraq Petroleum'Company's dollar earnings benefit the dollar pool of the
sterling area. This has been the only agreement lifting the ban on sterling
earnings by American companies outside the sterling area. It was the
first to bring a tax advantage to the British government, for it placed
the entire profit element in the internal price structure of the companies
—as far, as sterling area sales are concerned—within the reach of the
British income tax.
The fourth, agreement was of critical importance. It permitted the
major American producer in the Middle East to dispose of sterling and
thus opened the way for its four parent companies to, utilize sterling in
,large amounts. Aramco is entitled to pay in sterling up to 25 per cent
of its, royalties to the Saudi Arabian government, now estimated at
abbut 220 per barrel. Its concession contract allows for sterling payment; but the sterling equivalent of the "gold shilling" is not fixed and
will hblve to be bargained out, as the dollar equivalent had previously.,
Agreement was also reached on the purchase of various sterling goods
for the'company's operations.
(i)-1 the basis of this compact, two of Aranico's parents, organized in
Caltex, concluded the .fifth agreement. It is patterned 9n "British company treatment." The mixture of Bahrein and Arabian oil produced
by the company in Bahrein can be sold inside the sterling area through
a new operating subsidiary of Caltex in Britain. Caltex (U.K.) Ltd. will
acquire supplies from the parent partly for dollars, partly for sterling.
Dollar claims on the United Kingdom arising from the subsidiary's ,oil
purchases and from the transfer of its profits after taxation are to be
reduced to about 30 per cent of the value of the products by 1952. Tankers.are now-being built in Britain for the Bahrein trade, and their utilization is expected to sterlingize the freight charges in a few years' time.
Other sterling income is to be used in Bahrein, or passed on to Aramco,
\ or spent elsewhere on sterling goods. The agreerrient seems quite favorable to the operation of the American concern in the sterling area but
makes no provision for sales outside the area for sterling..
These agreements reduced the disabilities placed on American company oil abroad and restored an estimated 1.5 million tons of the loss
suffered/ through substitution. Also, in the spring, Standard (N.J.),
29
TABLE 4
BRITISH-AMERICAN OIL AGREEMENTS, SUMMER 1950
U.S. Companies Affected
Date of
Announcement
Source
of Oil
1. Standard-Vacuum
May 23
Indonesia
Any
Sterling area
East of Suez
About 2,500,000 from
Indonesia, including
soo,000 affected by
substitution; plus marketing of Iranian oil.
2. Standard N.J.
and Caltex (Derationing of gasoline
in Britain)
May 26
Any
Gasoline
United Kingdom. Addition to previous import
quota.
400,000-500,000 rising Sale for sterling, earnings
to perhaps 700,000 as to be spent on tanker conother sterling area
struction, sterling area
countries deration.
goods, refinery construction in Britain. No conversion into dollars allowed.
Other sterling area countries permitted to make
similar arrangements.
3. Standard N.J.
and SoconyVacuum
,
June 9
Companies'
23.75 per cent
share in
I.P.C.
Crude and Inside and
products
outside sterling area
' •'
Affected
Type of
Oil
Market for
•
Oil
Estimated Quantity
Covered, Tons Per
Year
Companies' total share
in Iraq crude: about
1,500,00o. Uncertain
how much of this involved.
Provisions
About 85 per cent of company's marketing, customarily •sold in the sterling
area for sterling, to be
treated as 'sterling oil."
Percentage of Stanv,ac's
conversion of sterling earnings into dollars to decline
from 40 to 15 per cent in
2 to 3 years.
Sales within _ sterling area
to be handled by British
subsidiaries, buying parents' share in Iraq crude at
cost price for sterling, sell-
ing for sterling and converting full - profit after
taxation into dollars. Sales
outside sterling area permitted for sterling to extent of 75 per cent of the
crude cost price paid to
I.P.C., a British concern.
Remainder of Cost to , be
paid in dollars.
Crude and Parent
products
companies
4. Aramco
July 7
Saudi Arabia °
5. Caltex
July i8
Bahrein (2/5), Products
refined in
and Saudi
Arabia (3/5) Bahrein
from 6o per
cent share
in Aramco.
Unlimited (Total.I95o Up to 25 per cent of royalproduction may be 24,- ties may now be paid( in
sterling, to be obtained
000,00o)
from parent companies tinder agreement (5), possibly (2), and future agreements. Sterling commodity
purchases planned.
Sterling Area 3,500,000, including
about 1,003,000 affected by substitution
"British company treatment" inside sterling area.
British Caltex subsidiary to
sell for sterling, buy Bahrein and Arabian • oil for
sterling and dollars, with
dollar share to decline. to
about 30 per cent. Percentage includes conversion of
subsidiary's profit after
taxation. Equipment, tankers" ordered in Britain:
Texas and Socony recovered pait of the Argentine market in a setting
Marked by difficult Anglo-Argentine trade talks and the provision of a
$125 million Export-Import Bank loan to Argentink The substitution.
provisions for Standard (N.j.)'s Arabian and Venezuelan oil in the
sterling area remained in force. But with the improvement of the world oil market in 1950 this limitation was less painful to the company and
probably also largely ineffective.
To Britain, the agreements brought increased opportunities for shipbuilding and other production for -export markets, fiscal gains, and'a
program .of gradual reduction of dollar outlays on at least part of the
American companies' oil sold in the sterling area. The bulk of American
company sales, not affected by substitution, continue to require full dollar payment. Her shipyards were set to build several tankers for American companies while the last tanker under construction in the United
States was approaching completion. (Some dollar savings and trade advantages also fell to France and Italy when some American companies
agreed to accept more francs and lire for local. purchases.) It is next to
impossible to determine whether Britain saved/earned any dollars during the foreshortened period of restriction, compared with other Courses
of action that she might have taken; but under the conditions developing
in 1950 the agreements proved quite advantageous. They made some
American oil supplies available to Britain that she would have had to
buy anyway, at a reduced cost in dollars. Of course, to the extent that
Britain succeeded in raising claims on her exports, through the sterlingization of American company spending, the intervening change to,boorn
and rearmament conditions may sour the fruits of victory. Export outlets are likely to lose priority to some extent as Britain's rearmament gets
under way, and even dollar saving and earning may for a while become
less urgent concerns.
To the oil producing countries of the Middle East, in which American.
companies hold concessions, the developments brought a renewed exPan- ,
sion of output and of the income derived therefrom. Like the concessionaires themselves, they were now to affect some shift of imports to
European sources. Employment of 'American personnel declined.
Although the principles of dollar oil treatment as announced , in the
"February Memorandum" were compromised in the agreements a.nd
modified in a later British Memorandum to the State Department,"
they were not abandoned in favor of a broad agreement on non-discrimination in the oil trade. This is a fact of long-run significance.
4. 'Renewed Expansion into Uncertain Future
The progressive improvement of the oil market and the easing of the
tensions discussed above stimulated further expansion in various sec"See Journal of Commerce, June 23, 1950.
32
iions of the oil industry abroad. Pipe line projects in the Middle East
and refinery construction in Europe are being speeded along. Expectations of high demands in the near future are leading the American companies to increase their stake in production outside the United States.
A'returnof the slack market does not seem imminent; but it may happen again. The experience of the recent conflicts points to some of the
problems that may be anticiPated for such a time.
There is no indication that Britain will forsake reliance on her powerful oil industry to bolster her foreign trade and exchange position.
Should,this position weaken again in relation to the dollar area, Britain
is likely to apply her control over the financial and commercial policies
of the •areas politically and economically affiliated with her to restrict
operations of American oil companies that cause dollar outlays to her.
Since in the long run British companies have greater possibilities to free
themselves of dollar expenditures, and since the affected trade is a very
sizable one, the American companies run the risk of losing market outlets, or at least the profitability of the markets in dollar terms, and of
finding their foreign investments in jeopardy, particularly in crude productiori. There is also the danger that such difficulties abroad may coincide with a slack oil market at home and a renewed resistance to the
importation of oil from their foreign properties.
In maintaining and increasing their foreign operations, the United
States companies are relying on a long-run development toward a freer
convertibility of European currencies and dollars, in so far as they
are not counting on the increasing absorption of their foreign output
•in the domestic market. Such a development seems likely only under a '
continuing and ever closer economic cooperation between the United
States and the European countries and a relatively ample and predictable
dollar supply to the outside world. Whether this supply will be provided by our foreign commerce and lending or by arrangements of international redistribution of dollar purdhasing power does not matter here.
The international oil companies cannot expect to maintain their position
abroad over a period of systematic restriction of foreign dollar resources
and dollar spending. As sellers of a dollar commodity and ultimately
even as holders of dollar investments abroad, their position would prove
'vulnerable.
This suggests a rationale for the recent Anglo-American disagreement on oil. The American companies had reason to be disturbed over
the British tendency to tighten rather than loosen the controls.dividing
sterling from dollar oil, particularly at the time of a slack domestic market'for soil; the British in turn had reason to be disturbed over the possibility of a failure to exploit their long-run international advantage in
this field, which is needed to offset their disadvantageous position in
33
food and'other fields. It was the renewed expansion of world demand
for oil and of general economic activity, chiefly in the United States,
that made it possible for the British to realize their advantage without
causing a net loss of markets to the American companies. Without the
inteivention of those events, both parties might have lost and their con-,
flict might have become even more disturbing.
The problem of dollar oil abroad is partly a problem'of economic integration in the Atlantic community and of a productive contribution of
that community to economic development in other parts, partly a problem of steady growth in the United States economy. When progress in
these directions seemed to slacken in 1949, the foreign operations of the
American oil companies were immediately endangered. When dollar
supply and world demand improved in 1950, the international surplus
of dollar oil came to a rapid end. Fresh evidence of this country's intent
to lead in the defense and the economic development of the community
of free nations made it less likely that crises of that sort would recur.
in the near future.
4
34
OTHER RECENT PUBLICATIONS OF
INTERNATIONAL FINANCE SECTION
Survey of United States International Finance-1949. Prepared
by Gardner Patterson. (August 1950)
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PRINCETON STUDIES IN INTERNATIONAL FINANCE
1. Monetary and Foreign Exchange Policy in Italy. By Friedrich A. and Vera C. Lutz.(January 1950)
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PRINCETON UNIVERSITY PRESS
The International Finance Section also publishes from time to time
papers in the present series Essays in International Finance. These are
distributed without charge by the Section to interested persons. Copies
may be obtained Ihy addressing requests directly to the International
Finance Section, Princeton University. Standing requests to receive
new essays as they are published will be honored. Only the following
numbers are still in print:
1. International Monetary Mechanisms: The Keynes and White Proposals. By Friedrich A. Lutz.(July 1943)
9. The Marshall Plan and European Economic Policy. By Friedrich
A. Lutz. (February 1948)
io. The Cause and Cure of "Dollar Shortage." By Frank D. Graham.
(January i949)
. Dollar Shortage and Oil Surplus in 1949-1950. By Horst Mendershausen. (November 1950)
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