# Oil and American Foreign Policy **URL:** **By** Leonard P. Liggio **Published:** August 1, 1979 --- “Two major areas are being overlooked in the current discussion of our energy crisis; not surprisingly, both of them have to do with history.” Two major areas are being overlooked in the current discussion of our energy crisis; not surprisingly, both of them have to do with history. The first is an insistence on the part of our military establishment which dates back as far as 1911 that oil production must be controlled to ensure conservation for military purposes. The mechanism that was worked out over the years was one in which the federal government delegated a great deal of regulatory power to the states; federal agencies were brought into the picture relatively late in the name of “national security,” to fill in with “emergency” powers some of the gaps that developed in state regulation. The second historical trend that is often ignored is the interaction between oil companies and the U.S. government in the field of foreign policy. The companies were able to use the State Department as a negotiator and sometimes as a threat in their attempts to gain oil concessions abroad. Later, when these oil concessions had been obtained, a large part of our foreign policy was aimed at protecting and fostering them—as is a large part of our defense posture today. In the following discussion of these policies, it may be instructive to keep in mind that many of our most active State Department officials have been men with some ties to oil companies; often they have been lawyers with oil companies as clients. Charles Evans Hughes, the Secretary of State who was instrumental in gaining oil concessions from England in the 1920s, had been Standard Oil’s counsel. Nelson Rockefeller, appointed to coordinate Inter-American Affairs in the State Department in 1940, was of course a major Standard Oil stockholder since he was the son of John D. Rockefeller, Jr. And John Foster Dulles, Secretary of State under Eisenhower, had also been a Rockefeller lawyer, while Dean Acheson, who preceded him, had worked for the Morgan banking interests which had large holdings in both American and British oil companies. Although some independent domestic producers have from time to time tried to get on the government-regulation bandwagon, it is primarily the large international oil companies, the so-called Seven Sisters—Royal Dutch-Shell, British Petroleum, Standard Oil of New York (Mobil), Standard Oil of New Jersey (Exxon), Standard Oil of California (Chevron), Texaco, and the French government’s company, P.C.F.—whose partnership with government power has brought us to our present oil policy, also known as the Energy Crisis. In the late nineteenth century, even John D. Rockefeller didn’t realize how important the ownership of oil resources was going to be. He was able to control much of world oil refining, transport and marketing through his Standard Oil Company without ever bothering to own an oil field. During those early years, oil was dirt cheap and there seemed always to be someone to find more wells from whom he could buy. At the turn of the century, however, the control over oil fields became a hotly contested political issue. European countries moved further and further from the classical liberal ideals of international peace and free trade among nations, and began reasserting older statist, mercantilist values, the values of military might, empire, and imperialism. Nationalism became a paramount concern, and competition for colonies among European nations increased international tensions. America, too, turned in the direction of foreign expansion, looking toward Asia and a mythical “China market.” Alongside these growing concerns with military might came the growth of oil-powered navies and the need to secure access to oil as a means of fueling expansionist thrusts. The British government took a financial interest in large oil-exploration companies, with the German, Dutch and French governments not far behind. In America, “conservation” became a code word for military and naval interest in oil. At the insistence of two successive Secretaries of the Navy, federal lands in California were taken off the market and made into naval oil reserves in 1911 and the Teapot Dome and South Alaska fields were similarly treated in 1913. Foreign policy and oil began to be associated—an association which has continued to the present day. A State Department official wrote in 1945 that the diplomatic history of the United States for the 35 years following 1910 “will show that petroleum has historically played a larger part in the external relations of the United States than any other commodity.” ## World War I A disagreement over oil concessions was one of the contributing factors in the outbreak of World War I, which was ignited in the heat of clashing imperial ambitions. Britain wanted the entire oil reserves of the Persian Gulf to remain within its sphere of influence, and objected to the fact that the German government—a latecomer to imperial expansion—was using the German Deutsche Bank (which financed the Berlin to Bagdad Railway) to demand a quarter share of an oil consortium being formed to explore for oil in Iraq. During World War I, the issue of oil was a central one for the Allies. Britain and France signed an agreement in May 1916, agreeing to partition the Turkish Empire (in the event of an Allied victory) into a northern sphere of influence for France and a southern sphere of influence for Britain, with Palestine to be international territory controlled by the interests of the three religions to whom it was a homeland—Judaism, Christianity, and Islam. A year later, the British issued the Balfour Declaration, offering a homeland for Jews in Palestine to match the large Christian and Islamic homelands already there. With the coming of Allied victory, Britain sought the lion’s share of the loot in the Middle East. It supported its own candidate for the throne of Syria (supposedly in France’s sphere of influence) and then persuaded France to give up its control of northern Iraq in exchange for what had been the Deutsche Bank’s quarter share of the Iraqi oil exploration company. Finally, Britain decided not to live up to the Balfour Declaration but to take control of Palestine, in order to control the area around the Suez Canal and to keep Standard Oil of New York out of the area. Add to this conflict of interests the fact that American and British firms were also involving their governments in attempts to control the Caspian oil fields in the new Soviet Union, and it is not surprising that a major United States-England war scare ensued. It was fanned by the activities of the British-government-controlled Royal Dutch-Shell Company in Mexico, Venezuela, and the East Indies. In order to resolve the international tension, the British were forced to make concessions in Venezuela and to listen to the request of the U.S. State Department that Iraq be opened to American exploration. In 1928 a conference was called by Royal Dutch-Shell in Scotland at Achnacarry to which British Petroleum and Standard Oil of New Jersey both sent their heads: a conference which ended in the signing of the so-called Red Line Agreement. Not only was a quarter share in the Iraqi oil exploration company given jointly to Standard Oil of New York and Standard Oil of New Jersey, but all the companies involved agreed to the status quo in their markets; that is, agreed there would be no competition. “Overproduction,” with resulting lower prices was also to be controlled, by cutting off surplus production and limiting the number of new refineries. Meanwhile, the United States Navy had been succeeding in a campaign to establish government control and regulation of the American oil industry. A huge step in this direction occurred during World War I, when President Wilson established the United States Fuel Administration and appointed a Herbert Hoover protege to head its Oil Division, a man who was an advocate of price stabilization for the industry by means of industry cooperation against competition, and of a strong government input. What trusts, pools, and other price-fixing gimmicks had not been able to achieve in the industry in a free market—someone could always profit by breaking such agreements—the wartime cooperation for defense and “conservation” achieved. Competition was eliminated, and government-industry consultation to achieve price stabilization was introduced. After the war these policies were continued, and in addition, Navy spokesmen and public figures like Secretary of Commerce Herbert Hoover urged that American companies establish overseas oil resources. This led in turn to further desire for price stabilization, and Hoover pushed for federal action to get cooperation from the oil industry. The Naval Conservation Board was established in 1924, to be followed by a successor Federal Oil Conservation Board, both tying together conservation and naval oil interests in “price stability,” that is, restricted competition. At Hoover’s suggestion, The American Petroleum Institute (an outgrowth of the industry-government cooperation during World War I) drafted a model statute for state legislation, limiting production of oil through conservation of oil resources which were to be regulated by state conservation boards, and urged federal legislation in 1927 to encourage conservation. After Hoover became President, his Secretary of the Interior recommended that the oil producing states form a compact to coordinate their restriction of production. In Texas and Oklahoma there was what amounted to a free market insurrection against this state regulation, because of the Depression. Rugged individualists refused to stop pumping oil, in defiance of state restrictions on production which were intended to keep the price up. Martial law was declared in both states, and the National Guards were called out to stop the oil from flowing—4000 militia were sent into East Texas under the command of the chief general counsel of Texaco, also a General in the Texas National Guard, Jacob Walters. When the matter was taken to court, judges trained in the common law struck down the state restrictions. The Chief Justice of the Oklahoma Supreme Court ruled: “In my opinion, prorationing of oil was born of monopoly, sired by arbitrary power, and its progeny is the deformed child whose playmates are graft, theft, bribery, and corruption.” When Franklin D. Roosevelt took office in 1933 he was faced with the flouting of these regulations by the free marketers of East Texas who had begun flooding the country with so-called “Hot Oil”—that is, oil which was in excess of the allowable production set for wells and fields. The United States Supreme Court began to look with favor on state restrictions on the production of oil. Federal regulation seemed to be the answer. A section was inserted into the National Industrial Recovery Act by Senator Tom Connally which outlawed the interstate transport of hot oil, and federal agents swarmed into East Texas and Oklahoma to enforce it. The National Industrial Recovery Board directed the Bureau of Mines to estimate allotted production by states in order to command the best possible price for oil. Shortly thereafter, the Interstate Oil Compact Act created the Interstate Oil Compact Commission—Congress delegated regulation of oil production to the states. Oil producing states joined the Compact Commission and accepted its rules. ## Oil and New Deal foreign policy Cordell Hull, Roosevelt’s Secretary of State who made the foreign policy that led the United States into World War II, later presented an economic interpretation of the origins of World War II. He said that the Depression made countries without colonies—and thus without access to raw materials and markets—increase the price competition in order to gain new markets. He gave the examples of Germany and Japan. So we can deduce that to the State Department, the price cutting and competition of these countries were taken as a _causus belli_. American competition with Germany and Japan for foreign oil was strong in Latin America. In 1938, President Roosevelt decided that Mexico could be a model for a new concept of partnership between Latin American economies and the United States. New Deal politicians were afraid of coalescing Latin American nationalism and of German-Japanese competition to Anglo-American economic dominance in Latin American countries. Both these concerns came to a head when the Mexican government decreed that German and Japanese buyers could market Mexican oil. A special investigatory mission was sent to Mexico by Roosevelt, a mission headed by John D. Rockefeller, Jr.’s son, Nelson Rockefeller. He proposed a new American policy for Latin America, to include 1) aid for establishing basic industries, 2) aid to develop infrastructure, such as roads and harbors, 3) purchase of agricultural surpluses, 4) technical assistance programs, including FBI missions to train secret service agencies, and military missions to train paramilitary forces, and 5) loans to finance the sale of arms. Meanwhile, German military victories in the European War in the spring of 1940 were causing concern in Washington. Roosevelt’s chief confidante, Harry Hopkins, said in May, 1940, “Suppose that Germany wins the war in the next two months and does on the economic fronts what they have done on the military fronts. What will they do in South America, presuming they win, and then, what are we going to do about it?” What America did about German victory was to appoint Nelson Rockefeller as coordinator of inter-American affairs in the State Department. Vice President Henry Wallace was sent to Mexico to initiate the new program for Latin America, implemented by the Export-Import Bank as well as Rockefeller’s Office of Inter-American Affairs. Concurrently, the Rockefeller Foundation established its principal agrarian research center in Mexico, and the Rockefeller-owned Basic Development Corporation developed industries in Venezuela, accompanying favorable government programs in those countries. With the support of American business and labor, credits were extended to Latin American countries by the United States government to aid development by easing the purchase of American goods. Adolph Berle supported the Export-Import Bank as the vehicle for this aid as well as a vehicle for “stabilizing”—i.e., limiting competition in—commodity markets by the purchase and storage of Latin American commodity surpluses. In a 1940 address to business editors, President Roosevelt declared: “That is a new approach that I am talking about to these South American things. Give them a share.” The program was also defended by Frank Knox, publisher of the _Chicago Daily News_ and later to be made bipartisan Secretary of the Navy, in these words: “Care must be taken . . . to put the emphasis on participation by American firms in South American enterprise as partners with South American interest in the business rather than giving it the appearance of exploitation by our people.” Nelson Rockefeller’s letter of congratulation to Roosevelt on his reelection in 1940 said: “Today as never before the opportunity exists to make permanent the cultural and commercial ties between the American Republics which you have done so much to strengthen during the past few years.” Lloyd Gardner has noted about this Latin American program: It was especially appealing to many New Deal Keynesians, who were looking ahead to the postwar era. If the continuing expansion of exports to Latin America could be thus sustained, an expanding economy at home could be assured. Keynesians repudiated Adam Smith all right, especially \[competitive theory\]. . . but, as Gunnar Myrdal suggests, they often sought ways to bring up to date his ideas on international trade. Lord Keynes himself was doing it within the British imperial system. ## World War II From the beginning of the war, the most significant economic dispute between England and the United States on the one hand, and between them both and the Soviet Union on the other, was over oil. The principal area of conflict was the Middle East. A very close relationship was established between the State Department and the Aramco Company, the American-Arabian oil company formed for Saudi Arabia by some of the American Seven Sisters. This relationship was at one time explained by Admiral Leahy, Roosevelt’s confidential adviser, as necessary “so that we, particularly our navy, would have access to some of King Ibn Saud’s oil.” The Aramco Company arranged for Saudi Arabia to receive Lend-Lease aid from the United States government to counterbalance the fact that the British refused to recognize Saudi Arabia as an American sphere of influence. In addition, a major Lend-Lease administration was established for the Middle East in Cairo. The importance of these activities for the Navy was summed up in a letter from Secretary of the Navy James Forrestal to the Secretary of State in December, 1944, in which he wrote, > “The prestige and hence the influence of the United States is in part related to the wealth of the government and its nations in terms of oil resources, foreign as well as domestic. It is assumed, therefore, that the bargaining power of the United States in international conferences involving vital materials like oil and such problems as aviation, shipping, island bases, and international security agreements relating to the disposition of armed forces and facilities, will depend in some degree upon the retention by the United States of such oil resources.” Another economic issue which was of major concern to United States policy makers was Britain’s Sterling bloc, which had become less and less dependent on trade with America. Price-fixing abroad had been legalized for U.S. firms by the passage of the Webb-Pomerene Act of 1918. By the time of the Depression, American companies had entered into hundreds of agreements to fix prices and divide markets abroad. Although the domestic policy of the New Deal to deal with the Depression was one of economic self-sufficiency, the State Department’s concurrent foreign policy was not to allow equal autarky to other countries. Once the outbreak of war had eliminated German and Japanese competition, the State Department turned its attention to attempting to destroy the Sterling bloc. The British pound was being subsidized by the fact that all of the countries that had signed the Red Line Agreement had agreed to pay for Iraqi oil in Sterling. A first major step in the attack on the Sterling bloc was the Lend-Lease Act, by which American goods sold abroad were paid for in dollars. The effort was furthered by the International Monetary Fund, and by postwar loans—but a continuing aspect of the struggle was related to petroleum: the conflict over payments in Sterling or payments in dollars for oil. The program of economic assistance for Saudi Arabia which was jointly created by the Secretaries of State, War and Navy at the end of the war was a program designed to make Saudi Arabia “independent” of all foreign countries except the United States. During World War II, the United States government had promoted the production of oil by aiding in major continental pipeline construction, by building plants and refining facilities for oil companies, and by subsidizing oil tanker construction—a major shift from the earlier policy of price stabilization through _curtailing_ production. In the process, the government had increased its involvement with the industry. As one major commentator said: > World War II firmly crystallized government’s role as arbiter of the American economy, and proved that such a relationship was both practical and efficient. . . . On the basis of the consensus fashioned during the New Deal, government and business leaders further developed a complicated network of administrative relationships to facilitate their cooperation in the solution of common problems. These included the maintenance of economic stability in the petroleum industry and the conservation of oil. By 1945 the responsibilities of state and federal governments in regulating a wide array of industry practices to achieve these ends was rarely questioned. . . . Slowly, in the course of a generation the once new relationships had won wide acceptance. And in 1945 there was little reason to believe that they would be seriously disrupted in the postwar decades. At the end of the war, the Oil and Gas Division of the Interior Department was created to coordinate federal policies for the oil industry, continue wartime administration policies, and serve as the three-way link between federal government, state regulatory agencies, and major oil companies. The Division forecast the expected need for oil in the coming month; the state regulatory agencies then used this forecast to establish the rate by which oil production was to be strangled; and the accompanying National Petroleum Council of the chief executives of the major companies (also an Interior Department creation) in turn advised the Oil and Gas Division about long range planning for the industry. As one observer commented, “the Truman administration, therefore, did not inaugurate centralized federal control over oil production. Rather, it continued policies of loose coordination, as inaugurated in earlier years by the Federal Oil Conservation Board in the 1920s and the Petroleum Administrative Board in the 1930s.” The National Petroleum Council submitted a report which urged a national oil policy to implement the government’s desire to conserve oil for military reserve purposes and the industry’s desire to stabilize prices through limiting and controlling production. “The existing network of relationships between them,” commented the same observer, “succeeded in the attainment of their common goals.” Thus, the report urged retention of the depletion allowance and scientific aid by the United States Geological Survey and the United States Bureau of Mines. The council strongly favored state conservation laws, implemented by the Connally Hot Oil Act. And they strongly urged U.S. diplomatic support for American oil companies in foreign lands . . . the federal government was to encourage conservation. Since the states controlled most of the details concerning regulation of conservation practices, the prime effort of the national government in this sphere would be through enforcement of the Connally Act to supplement state regulatory efforts. In the half dozen years after World War II, leaders in government and industry worked out a consensus governing oil policies which implemented programs that were first crystallized by the New Deal. The U.S. government was also facing the problem of gaining a larger share of foreign oil output. At the end of World War I, the Western Hemisphere had been the center of world oil production. During World War II, the Middle East became the center, and England controlled four-fifths of the Middle East output, with only 16 percent controlled by the United States. By 1953, British ouput in the Middle East had fallen to 31 percent while the United States’ share had jumped to 60 percent. How did the United States do it? Especially when the American public was not only disinterested in foreign policy, but had elected a Republican Congress with a strongly isolationist leadership? In 1946, President Truman created a committee of internationally oriented bankers and businessmen, headed by Winthrop Aldrich (brother-in-law of John D. Rockefeller, Jr. and president of Chase National Bank), to coordinate public and private funds for government-set goals. One of the primary goals was a large share of world oil production—and in order to gain it, a major new thrust in American foreign policy had to be developed, a thrust which has been described by one observer as “the use of the state to sustain American power in the world, ultimately for economic and necessarily related strategic ends.” The new policy was effectuated by the Truman Doctrine of March, 1947, and by Secretary of State Marshall’s Plan of June, 1947 (the Marshall Plan was the original conception, and the Truman Doctrine provided the psychological push to get it through Congress). _Time_ magazine noted of the debate over the Truman Doctrine (which was strongly opposed by isolationists) that it did not seem to be coincidental that Standard Oil of New Jersey had just denounced the Red Line Agreement of 1928 and American oil companies were in the process of repudiating it. “The loud talk was all of Greece and Turkey,” _Time_ reported, “. . . but the whispers behind the talk were of the ocean of oil to the south.” In the House of Representatives, a key isolationist leader, George Bender, lashed out at the Truman program: > I believe that the White House program is a reaffirmation of the nineteenth century belief in power politics. It is a refinement of the policy first adopted after the Treaty of Versailles in 1919 destined to encircle Russia and establish a “Cordon Sanitaire” around the Soviet Union. It is a program which points to a new policy of interventionism in Europe as a corollary to our Monroe Doctrine in South America. Let there be no mistake about the far-reaching implications of this plan. . . . Mr. Truman urged the Congress to authorize a program of military collaboration with all the petty and not so petty dictators of South America. Mr. Truman submitted a draft bill which would authorize the U.S. to take over the arming of South America on a scale far beyond that involved in the $400,000,000 handout to Greece and Turkey. Mr. Truman continued his campaign for universal peacetime military training in the U.S. . . . military control at home is a part of the emerging Truman program. The Truman administration is using all its propaganda resources in an attempt to soften up the American people to accept this idea. Yes, the Truman administration is busy in its attempt to sell the Charles Evans Hughes, Standard Oil lawyer who later became Secretary of State. idea of military control to the people of America. And hand in hand with the propaganda campaign go secret meetings for industrial mobilization. This is the kind of thing which is taking place behind barred doors in the Pentagon Building, about which the people of the United States learn only by accident. This is a part of the emerging Truman program. Despite this warning, and the opposition of other isolationist Congressional leaders, including Howard Buffett in the House and Senators Robert A. Taft of Ohio and Kenneth Wherry of Nebraska, the Marshall Plan was given Congressional approval. The Marshall Plan has been described as the “economics of conservatism.” It aimed to use the money of the American taxpayer, the middle class, not only to subsidize the exports of the wartime inflated, government-financed industrial capacity, but to engage in long-range shaping and restructuring of the European economy. Arthur Ekirch in _The Decline of American Liberalism_ has described some effects of these economic programs: Nationalism in the guise of internationalism was most attractive to the postwar group of business, political and military leaders whom C. Wright Mills dubbed “the sophisticated conservatives.” . . . the foreign aid program, with its stimulation to American industry, became the “spinal nerve” of the sophisticated conservatives’ postwar plans for the expansion of American export markets. Admirably suited to the conservatives’ purposes were the solid ties forged among industry, armed forces, and State Department—ties that were constantly being strengthened under the duress of the cold war—the policy of a permanent war economy. Aided by the widespread propaganda in behalf of a bipartisan foreign policy, these new-type conservatives were able to assume a dominant position in both major political parties. Such vast military expenditures naturally gave the armed forces increasing influence within the government. . . . The practical results of the new integration of American foreign and military policy was the continued acceptance of the doctrine of peace through strength. The first step in this direction had been the wartime Allied insistence on the unconditional surrender of the Axis powers and the military occupation of their territory. . . . The military’s lifelong identification with the use of force and contempt for the workings of diplomacy was viewed in the long run as likely to lead the United States into war. Even if such a contingency were avoided, there was the danger that the almost exclusive reliance on armed power in the conduct of American foreign relations would go far to stifle the workings of democracy at home. ## Wherry’s investigation The Republican leader of the Senate in the 80th Congress was Kenneth Wherry of Nebraska, an isolationist who has been singled out by some libertarian scholars as a model compared to whom even Senator Taft pales. He undertook a major investigation of the oil cartel system in America. Never known as an opponent of business that was operating competitively, Wherry singled out the myths of conservation and energy crisis as the causes of the destruction of free enterprise in oil production. The assumptions and consequences of the role of the public agencies in the cartel system were examined by the Wherry Committee, especially that of the Texas Railroad Commission, which acted as the bellwether of the Interstate Oil Compact Commission and of the Bureau of Mines, which issued a monthly statement estimating market demand, to be used as the basis for allocating production to the states. One analyst later described this process: Production in excess of the prorationing orders violates state laws and is subject to confiscation, just as interstate shipment of such “hot oil” violates the Interstate Transportation of Petroleum Products Act (Connally Act). This law has been administered by the Federal Petroleum Board in Interior’s Oil and Gas Office, and since 1958 in Geological Survey. It puts a federal power behind the state agreements and serves as a weapon against the frantic and often secretive trade of determined producers frustrated by low allowables. The oil industry thus neatly avoids the twin horrors of competition and antitrust action. It obtains from the government services that support its private price fixing and that would be unlawful if provided by the API or another trade association. In a speech to petroleum men in 1954, Assistant Secretary for Mineral Resorces Felix E. Wormser depicted with pride the success of this operation: > “I asked the Bureau of Mines to give me a total figure covering all of the forecasts made monthly from July 1935, when it started, through July 1954, and the actual crude oil production reported for the same period. I was astonished to find that the total amounted to approximately 32 billion barrels and the difference between the forecast and actual production has been less than one percent.” Wherry demanded the suspending of the Connally Hot Oil Act because of its use to create scarcity and maintain price levels. Truman rejected this demand. Wherry was horrified by the blending of public power and privilege for the oil industry, and especially by the role of federal agencies in creating the planning while state governments then carried out the dirty deeds. The Wherry Committee charged, “There is a mechanism controlling the production of crude oil to market demand (or below) that operates as smoothly and effectively as the finest watch.” Wherry also published a previously supressed report— “The International Petroleum Cartel”—which demonstrated the role of American conservation programs in world oil cartelization, as well as the role of the American Petroleum Institute in pushing conservation in order to gain controls which could be used to benefit the large producers. Who benefitted from the Marshall Plan and its foreign aid? More than one tenth of the United States’ economic aid to Europe between 1948 and 1952 was spent on petroleum products, and this does not count the building of refineries under the Marshall Plan. Standard Oil of New York and Jersey Standard built major refineries in England through the Marshall Plan system. This subsidy undercut independent American refineries in European markets. Also under the Marshall Plan, the government purchased Middle East oil from U.S. companies which cost them fifty cents a barrel to produce, at the Texas Gulf price of $2.65. Walter Levy, who transferred from Standard of New York to head the Marshall Plan’s oil division (which set the price for Marshall Plan oil purchases) said, Without the Marshall Plan, the American oil business in Europe would already have been shot to pieces.... Without \[Marshall Plan\] aid, Europe would not have been able to afford during the last year, and could not afford during the next three years, to import large quantities of American oil—from either domestic or foreign sources controlled by American companies. . . . \[The Marshall Plan\] does not believe that Europe should save dollars or earn foreign exchange by driving American oil from the European market. Isolationists had already publicly charged that Aramco oil delivered to Haifa in Palestine was charged on the basis of Texas Gulf prices plus tankerage from Houston to Haifa, doubling the price of oil before it was shipped from Haifa to European ports. The difference in price was being made up by the American taxpayer. Marshall Plan officials also prevented European countries and oil firms from expanding refinery capacity and output of crude oil. Meanwhile, American corporate interests were on both sides of a growing Sterling oil–dollar oil controversy during 1949 and 1950. The Morgan interests were lending money to Shell and British Petroleum and getting Dean Acheson to authorize England to loan Marshall Plan funds to countries buying Sterling oil. The resulting cheaper prices created economic inroads into Jersey–Socony interests which were called by a Texas senator “an act of hostility to our economy.” In January of 1950 the Vice President of Jersey Standard warned Congressmen that “unless some means are developed which will prevent the British government from marketing the so-called ‘surplus oil’ of British and British-Dutch oil companies \[read British Petroleum and Royal Dutch-Shell\], the foreign business of American oil companies might well be liquidated in a relatively short period of time. The effects of such an unfortunate result upon the United States national security . . . are obvious.” None too soon, the Korean War came and absorbed the world surplus, which ended the conflict. But even before the Korean War, Congress was becoming resistant to Truman’s foreign aid programs. A new system to succeed the Marshall Plan in providing dollars to European and other countries so that they could pay for U.S. products—Point Four Programs—was passed by only a single vote. State Department officials began a series of cross-country speeches stressing the role of foreign aid in national security, and Truman made a “non-political” tour to attack isolationist Congressmen. Congressional resistance to the Administration was so strong that Congress even refused to let Secretary of State Dean Acheson report on his trip to Europe to a joint session when he requested it at the end of May 1950. However, the advent of the Korean War the next month solved the Administration’s problems, enabling it to attack and smear the isolationists—Taft, Herbert Hoover, Wherry, Joseph Kennedy, and Colonel McCormick’s _Chicago Tribune_—as Communist agents. ## National security and oil conservation During the post war period, both industry and government claimed that “national security” required their continued close cooperation. The Department of the Interior had its Military Petroleum Advisory Committee, the American Petroleum Institute its Defense Services Committee, the National Petroleum Council its Committee on National Emergency. All of these bodies stressed the importance of oil conservation. The National Petroleum Council produced a major report on _National Oil Policy for the United States_ for the Interior Department in 1949. It emphasized the importance of oil policy to national security, suggesting the conservation of the domestic oil supply for defense purposes and the importation of foreign oil while discovering but not using new American reserves: > The normal operations of the oil industry, under which oil is produced at optimum rates \[!\], provide the United States and other countries with a continuing reserve of potential productive capacity. In the event of a protracted national emergency, during which essential petroleum requirements might increase rapidly, this reserve productive capacity could be drawn upon to satisfy peak demands. . . . It is clearly in the interests of national security that peacetime conditions which encourage the development of available reserves by private industry should be promoted. An active program of exploration by the industry is essential. . . . Procedures for government-industry consultation should be maintained on a permanent basis so that plans to meet emergencies can be adjusted continually to changing conditions. . . . The operation of the American petroleum industry is grounded on state regulation of oil and gas production in the interest of conservation. State regulation under our constitutional system evolved as the legal and most effective answer to the problem of a widely dispersed natural resouce. State authorities have proved effective in their protection of the public welfare, and the decentralized approach has been highly successful in meeting the wide variety of conditions that prevail in different areas. When oil-conservation problems have arisen involving coordination among states, instrumentalities have been developed to deal with them effectively, such as the Interstate Oil Compact. The Defense Production Act of 1950 led to the creation of the Petroleum Administration for Defense, which exempted firms that it viewed as aiding the federal government from both antitrust laws and FTC rulings and also provided special financial assistance for the development of oil production facilities. The agency declared, We can never forget that once we have passed the immediate problem of supply for the military and essential civilian needs we have come squarely against the longer-range problem: How can we assure that in case of all-out war there will be enough oil and gas to fuel the Free World’s defenses? Since oil, unlike other materials, can’t possibly be stockpiled in sufficient quantities above the ground, all that we can provide by way of an emergency reserve is a reserve of potential capacity. There has to be oil, known, proved and at least partially developed, underground beyond present production to serve as a reservoir for tapping in case of need. In June 1952, Truman’s President’s Material Policy Commission (headed by CBS chairman William S. Paley) issued a report on the possibility of a national security threat if Western Europe’s supplies of oil from the Middle East were cut and Europe had to rely on the United States. At that time, huge exports of Soviet oil to Western Europe did not exist. During the past twenty years, a whole range of government actions dealing with oil has been taken on the basis of National Security Acts or of national security clauses in other acts, all of which give the president vast emergency powers to interfere with the economy. Who actually exercises these powers? Russell Brown, spokesman for the Independent Petroleum Association of America, said that, under both Truman and Eisenhower, federal agencies were bein dominated by Standard Oil of New Jersey. He declared, Too often when we find a government agent fostering destructive proposals we see the shadow of these companies at his elbow. We have watched with concern the ease with which officials of our State Department, the Department of Commerce and other agencies are interchangeable with officials of the importing company. When an employee of that company, placed in a responsible federal position, continues from this high perch to reflect the view of his former employer, it is time to raise the question of the soundness of his position. which should be truly national in purpose is unduly influenced by domestic special interest groups.” American independent oil companies have tellingly pointed out that the international oil companies are subsidized not only by the huge American military budgets for the purchase of oil for its establishments around the world, but also by the cost of the defense establishment itself, including the Strategic Air Command, required to protect American holdings. A statement by the Texas Independent Producers and Royalty Owners Association put it this way on August 15, 1956: > Although Middle East oil is so abundant that it can be developed at a fraction of the cost of our own, it is far from “cheap.” On the contrary, Middle East oil may already be the most expensive in the world market today when consideration is given to the fact that vast amounts of public funds are spent on the defense mechanism which is intended largely to protect American interests in Middle Eastern oil fields. Moreover, in these troublesome times that oil could become costly in American lives as well.... About three months later, in November, 1956, the Anglo-French-Israeli invasion of the Suez Canal took place, and for a tense period it did indeed seem as if armed conflict might erupt on an international scale. What does our foreign policy history add up to? Except for a brief period during World War II, the American government has consistently followed policies which curtailed domestic production in the name of conserving reserves in the ground for future military and “national security” emergencies. Simultaneously, the American government has encouraged American-based international oil companies to operate abroad, especially in the Middle East; in effect subsidizing these operations by maintaining elaborate military and naval establishments in the entire area surrounding the Middle East as well as by having underwritten the building of European refineries and by offering the companies exceptional tax benefits. A similar view was expressed by the English observer J. E. Hartshorn in the early 1960s: To the foreign observer, who is frequently lectured by American oil companies operating overseas about their utter and immutable opposition to anything approaching state control or the protection of indigenous fuels against low-cost imports, it is somewhat paradoxical to find that in the United States these companies, and a host of smaller, even more rambunctiously “free enterprisers” in the domestic oil business there, get on very comfortably thank you with state agencies telling them how much crude oil they can produce, how much they can buy and who from, and of late, federal agencies telling them how much crude and products they can import. \[R\]ecognize from the beginning that the privately-owned oil industry, in its own home, is subject to a very large degree of government influence. The Marshall Plan had financed a refinery-building program in Europe for the internationals. Independents were excluded from Iran and the Middle East. These facts struck the American independent producers as attacks on them. But rather than speak out boldly against controls, too often the spokesmen for the independent domestic oil producers have tried merely to equalize their effect. For example, since domestic producers were forced to restrict production in the name of national security, they saw no reason not to generalize this statism to impose (again, for reasons of national security) restrictions on the importing of oil by international companies. The chairman of Jersey Standard lashed back at this proposal with a belated concern for the market. “The full benefits of world trade can never be obtained if a policy Now we are faced with an energy crisis. And domestic oil companies are being blamed for curtailing domestic production (which has been mandated by state regulatory agencies) while the Arab OPEC cartel is exclusively charged with the responsibility for the high price of Mideast oil. In fact, the “crisis” which the government is now being asked to counter is the crisis of its long history of favoritism toward the American international oil and business interests, all of which has been carried out at the expense of the American taxpayer. The exceptional financial benefits (military sale, favorable regulation, Marshall Plan subsidies, government price fixing, and defense of foreign properties) which the international oil companies have obtained over the years have made their substantial tax payments to the United States treasury negligible in comparison. What the government now wants is not to encourage domestic production but to cut American consumption by non-market means—allocation and rationing and artificial shortages. Isn’t it time that the taxpayer decided to stop relying on governmental “protection” and crisis handling, and instead let Washington know his dissatisfaction with controls? A return to the free market for the first time in this century could solve the energy crisis, reduce swollen government expenditures, and increase everybody’s freedom in the bargain. Historian Leonard Liggio is editor of _The Literature of Liberty_, and an associate editor of LR.