The Illuminati: JFK: Farewell America, by James Hepburn (pseudonym): French intelligence's Kennedy conspiracy theory: conspiracy president john kennedy french intelligence sdece assassination jfk

JFK: Farewell America, by James Hepburn (pseudonym): French intelligence's Kennedy conspiracy theory: conspiracy president john kennedy french intelligence sdece assassination jfk

Farewell America

10
Oilmen

"The American Beauty Rose can only be coaxed to that degree of splendor and fragrance that enchants us by sacrificing the other buds growing around it. In the business world, the same operation is the result not of an unhealthy trend, but simply of a law of nature and of God."

JOHN D. ROCKEFELLER, Jr.

Oil is the lifeblood of modern civilization. It provides the fuel for our planes, our ships, our trucks, and our 180 million automobiles, and it is the source of some 300,000 petro-chemical products. Oil accounts for more than half of the maritime freight tonnage, and furnishes more than 60% of the world's energy. It is the number one industry in the world today.

The budget of the oil industry is larger than the budget of the United States government. The annual revenue of the largest oil company in the world, Standard Oil of New Jersey, is greater than the revenue of the government of Canada. Directly or indirectly, through American domestic production⁽¹⁾ as well as overseas holdings, the American oil industry controls 80% of the world market.⁽²⁾

Through their overseas domination and the steady growth of the oil market in the past fifty years, the big companies have grown increasingly bigger.⁽³⁾ Their interests, however, do not always coincide with those of the continents and the peoples they control. Europe, which consumes 25% of the oil produced in the world today, accounts for only 0.7% of world reserves, and for only 1.4% of world production. In the coming decade and probably until the end of the century, Western Europe's major problem will be how to obtain enough oil.⁽⁴⁾

Oil is no longer an exclusive capitalist commodity. The International (mainly American) Consortium that dominates the world market, after attempting unsuccessfully following World War I to gain control of Russian resources, saw them pass under Soviet control. In 1962 the Soviet Union (with an annual production of 1.3 billion barrels) had little surplus oil to export, but since then the situation has changed. Soviet production in 1968 is estimated at more than 2.1 billion barrels. Simultaneously with its ideological and political transformation, the USSR is converting its coal-burning industry (including its armaments industry) into an oil-burning consumer industry. In a few years it will have the same proportion of consumer to heavy industry as the countries of Western Europe. Its desire for international commercial expansion and its need for foreign currency have led the Soviet Union to abandon its socialistic oil policy. The consequences of this change are these:

- an increase in production, in order to export more oil;

- the creation of a distribution network which, because the USSR has relatively few tankers, is largely dependent on the COMECOM pipeline which runs to the heart of Western Europe;⁽⁵⁾

- the adjustment, with certain exceptions (barters such as that practiced with Italy, or agreements based on political considerations, as with Cuba) of Soviet prices to bring them into line with the prices of the Consortium.

At the present time, the USSR is feeling its way into the world petroleum market. This has led to a change in its Middle East policy following a series of instructive failures in the area. The neo-Soviets have come to understand the ground rules of the petroleum industry, and Soviet influence in the Middle East is steadily rising. By 1980, Soviet oil production is expected to exceed 3.5 billion barrels. Through the pipeline, it will provide an increasing percentage of Western European consumption. But before that date the conflict of interests between the Soviet Union and the International Consortium will either be resolved or will come to a head. In the latter event, there will be economic warfare; in the former, the United States and the Soviet Union will set revolutionary principles aside to carve up the world oil market among themselves.

If Soviet expansion continues at its present rate, the oil market in the 1980's will be dominated by a Communist-capitalist cartel that will swallow up Western Europe while continuing to juggle with the Middle East. For beneath the golden sands of the Persian Gulf lie the most important oil reserves on the globe, $300 billion worth (in terms of current prices), on which the Consortium hopes to earn $75 billion at its usual rate of commission.

About one-fourth of the price of refined oil goes to the companies of the Consortium in the form of clear profits. In the Middle East, another fourth goes to the countries that own the concessions. The remaining half not only covers the cost of production, transportation and refining, but provides profits comparable to those earned in other industries.

Oil as an industry is in a class by itself. No other economic activity offers such high profits, to the detriment of the consumers and the producing countries. In the Middle East, the people gain nothing from the riches extracted from their soil. The royalties paid by the Consortium go to the rulers and their relatives, the ruling classes, high government officials, and a few local businessmen. By supporting the emirates of the Persian Gulf and protecting their rulers, Great Britain, now supplanted by the United States, has contributed to the preservation of archaic social structures and paved the way for revolution.⁽⁶⁾

In 1968, the overseas investments of American oil companies total more than $30 billion (nearly 40% of all American investments abroad.⁽⁷⁾ The giants of the oil industry not only control the world market, but governments and foreign and military policy as well. In the United States, the Republican and a portion of the Democratic Party get much of their financial backing from the oil industry. The State Department and the White House and a substantial portion of the press give systematic support to the industry. Even college graduates in quest of jobs are warned of the danger of opposing it.⁽⁸⁾

Four oil companies were classed in 1966 among the ten largest American corporations: Standard Oil of New Jersey, which ranked third (after General Motors and Ford), Socony Mobil, fourth, Texaco, seventh, and Gulf Oil. which ranked tenth. But this list is open to question. It fails to take account of the most important factor in economics, profits.

Although the combined personnel of these four oil companies totaled only 346,846 (388,016 persons are employed by General Motors alone), their net profits, $2,661,684,000, exceeded those of the entire automobile industry ($2,603,638,000) -- in other words, the combined profits of General Motors, Ford, and Chrysler, which together employ four times as many people. But General Motors, Chrysler, and Ford, together with deficit-ridden American Motors, comprise almost the entire American automobile industry . The fourteenth, fifteenth, and sixteenth places on the list of the top 500 companies are held by Shell Oil, Standard Oil of Indiana, and Standard Oil of California, whose combined net profits exceed $1 billion, and further down the list are 15 other oil companies whose profits add another million to industry profits. It can be said that the combined profits of the American oil industry (which in addition to these 22 top companies include several thousand smaller ones) are greater than the annual turnover of General Motors.⁽⁹⁾

Standard Oil of New Jersey is symbolic of the oil industry. It is also its moral leader. At first glance, it looks like just another corporation. In theory, it is what is left of the empire created by John D. Rockefeller, which was broken up by anti- trust legislation in 1911.⁽¹⁰⁾ But half a century later Jersey Standard, which theoretically neither produces nor refines nor transports nor sells any oil, controls one-fifth of the world market. It owns the largest private tanker fleet in the world (126 ships totaling 5,096,000 tons), ranking 12th in 1967 on the world list of fleets, along with the national fleets of Panama, Sweden, Denmark and Spain. It has a security department eight times larger than the security department of General Electric, employing about 30 special agents who are graduates of the CIA or the FBI. Its 14 top executives control more than 300 subsidiary companies, one-third of which rank among the largest corporations in the world.⁽¹¹⁾

The history of Standard Oil is the history of the oil industry, which was born a little more than a century ago at Titusville, Pennsylvania in 1859.⁽¹²⁾ Oil, however, has always existed. In ancient times it was used for eternal flames and torches, but no one ever thought of commercializing it. Until the 19th Century commerce was based on grain, and it was there that personal fortunes were made and power won.

Standard Oil was founded in 1860, and for nearly half a century the oil industry and the life story of John D. Rockefeller were one. During 51 years Standard eliminated its competitors by every means at its disposal, corrupting public officials and violating or getting around the laws, until it was dissolved in 1911.

Around 1890, its world monopoly began to slip. The Russo-Swedish Nobel group inaugurated operations in the Caucasus, and between 1891 and 1901 Russian production actually exceeded that of the United States. The British Rothschilds, realizing the future possibilities of oil, in particular with regard to modern shipping, aided the Royal Dutch Company to escape the control of Standard and conquer some of Rockefeller's markets in the Far East.⁽¹³⁾ In 1907 Royal Dutch merged with the Shell Transport and Trade Company, which until then had specialized in mother-of-pearl. With the backing of the Foreign Office and the privileges it enjoyed in the British and Dutch colonies overseas, the Anglo-Dutch company, headed by Henry Deterding, expanded rapidly. Contrary to Standard, which had patterned its commercial policies after the isolationist principles of Theodore Roosevelt and Taft and sought only markets abroad, Royal Dutch Shell carried out explorations and extended its operations throughout the world.⁽¹⁴⁾ In 1912 it began operating in the United States and soon controlled half of American production. It also forced its way into Mexico, where it bought out the Pearson group that owned the No. 4 well at Potrero del Llano, with a production of 91 million barrels. By 1921 Mexican production equaled 40% of United States production, but foreign companies (British and American) sacrificed everything to the present and devastated the Mexican reserves. Gas pressure was wasted and the Golden Way oil field near Tampico was invaded by salt water. By 1930 Mexican production had dropped far behind, and she was soon eclipsed by her neighbor to the south, Venezuela. In 1963, Mexican production equaled only 4% of American and 20% of Iranian production.

In the Middle East, where oil reserves are at least 100 times greater than those of the United States, a British adventurer, William Knox d'Arcy , obtained a concession from the Shah of Persia in 1901 covering five-sixth of his lands. In 1908 the Anglo-Persian Oil Company (later the Anglo-Iranian Oil Company, and later still British Petroleum or BP) was founded. The British Navy had just switched to oil-burning ships, and Winston Churchill, First Lord of the Admiralty, persuaded His Majesty's government to purchase a majority share in the new company.⁽¹⁵⁾ At that very moment, America and Europe discovered the automobile. In 1908 Henry Ford began producing his famous Model T. The rush was on. In 1911 there were 619,000 automobiles. By 1914 there were 2 million, and by 1924 there were 18 million cars on the road, 16 million of them in the United States. That year the United States alone consumed more oil than Europe consumed in 1960.

The war revealed the strategic importance of oil. Not only did it contribute heavily to the allied victory, but it became part of the stakes of the game. Wilhelm II wished to destroy British oil domination and give Germany a share in Mesopotamian oil. He built the Berlin-Bassorah railway (via Constantinople and Baghdad) to compete with the route of the Indies. Once Germany had been defeated, the British and the French divided up the oil of the former Turkish Empire.⁽¹⁶⁾ In 1920, Royal Dutch Shell circled the globe. It had subsidiaries in the United States, Mexico, Venezuela, Trinidad, the Dutch East Indies, Ceylon, Romania, Egypt, the Malay Peninsula, North and South China, Siam, the Philippines, and Burma. In association with other British companies it acquired concessions in Colombia and Central America, and it was trying to establish itself along the Panama Canal. Soon it would extend its activities to Honduras, Nicaragua, and Costa Rica. It also bought out the Rothschild holdings in Russia for far less than they were worth. Banker Sir Edward Mackay declared that ..all of the known, probable or possible oil fields outside the territory of the United States were either British property, under British direction or control, or financed by British capital," and added that "the world was solidly barricaded against an attack from American interests."⁽¹⁷⁾

Jersey Standard realized that Woodrow Wilson's policy of isolationism and pacifism represented a threat to its future. A. C. Bedford, President of Jersey Standard, declared, "What we need is an aggressive foreign policy," and the Interstate Commerce Commission recommended that the United States give diplomatic support to the acquisition and exploitation by American companies of oil properties overseas. The State Department dispatched a series of diplomatic notes, the tone of which grew more and more violent, demanding that the United States be given a share in the Turkish and German holdings.

In 1922 talks opened between Bedford and Sir Charles Greenway, President of Anglo-Iranian. They dragged on for six long years, but Gulf in the meanwhile had obtained a concession on the island of Bahrain (which it later ceded to Standard of California) which the British geologists had somehow overlooked. At the same time Socony Mobil (which when Standard Oil was dissolved in 1911 had inherited most of its Asian interests) and Shell were engaged in a struggle to the death in India. Their price war brought prices down all over the world. In 1928 Sir Henry Deterding (founder and promoter of Royal Dutch Shell) invited Sir John Cadman of Anglo-Iranian and Walter C. Teagle, new President of Jersey Standard, to his home in Scotland. At the conclusion of what has since been known as the Achnacarry Conference, it was agreed that outright competition had resulted in excessive overproduction. The Big Three decided:

1. to maintain the status quo of 1928 (in other words their respective positions) on the world market;

2. to fight overproduction and the waste of new, non- competitive installations;

3. to fix uniform production prices;

4. to supply markets from their closest source of supply through a series of reciprocal agreements between companies;

5. to avoid producing in excess of demand.

The companies signing the agreement explained that these measures were designed to protect the consumers from price hikes resulting from a multiplicity of separate operations. In actual fact, they laid the foundations for an arrangement by which the members of the international cartel would cooperate in the most profitable exploitation of world oil reserves. They brought the war between Shell and Socony to an end by making it possible to fix prices in India, and prevented a new price war in Mexico. A sort of line of demarcation was drawn between the British and American zones of influence. It was nothing short of a monopoly.

American anti-trust legislation was no problem. It was expressly stipulated that the Achnaccary Agreement did not apply within the United States. But in 1929, 17 companies joined to form the Oil Exporters Association, which set quotas and established prices, which were aligned with the highest costs in the country, those prevailing in Texas and the Gulf of Mexico. The British had no objection to this arrangement, as it enabled them to make high profits on their low-cost crude from Iran and Iraq. As for the American companies, which were already making good profits from domestic production, they intensified their overseas explorations, which would earn them even higher profits.

The "Red Line" agreement concluded in 1929 consecrated America's entry into the Middle East. The holdings of Turkish Petroleum were divided up again, this time between four partners which joined to form the Iraq Petroleum Company: Anglo-Iranian (still controlled by the British government), Royal Dutch Shell, the Compagnie Francaise des Petroles, and Standard Oil of New Jersey (in association with Socony Mobil). Each was given a 23.75% share in the venture.⁽¹⁸⁾ The Red Line agreement stipulated that the four associates undertook to maintain the same percentages in all of the countries that lay within a red line on the map. The red line ran all the way around the Middle East.

At the time that the Iraq Petroleum Company was founded, Iraq was the only oil-producing country in the region. But Standard of California discovered oil at the edge of the sea on the concession it had acquired from Gulf at Bahrain. As it had no distribution network in the Orient, it signed an agreement with the Texas Company (becoming Caltex in 1936). Standard of California also began operating in Saudi Arabia, on the territory of El Hasa which King Saud had seized from the bedouin princes. With Texaco it formed the Arabian American Oil Company (Aramco).

Caltex and Aramco soon proved to Standard and Socony that the reserves on their concessions far exceeded those of Iraq. The latter two companies regretted having signed an agreement to share their future discoveries with the French and the British. But American solidarity and Jersey's power soon overcame that obstacle. Jersey Standard, Caltex and Socony joined with Aramco, excluding Royal Dutch Shell, Anglo-Iranian and the Compagnie Francaise des petroles. Great Britain already controlled sufficient resources in Iran, Venezuela, the Malay Peninsula, and Burma. France was traditionally a non-commercial country, and she had no petroleum policy. Like Gulbenkian, she was given an indemnity.

The Iraq Petroleum Company faced the difficult problem of income taxes. In order to benefit to the maximum from American and British tax provisions that favored the overseas activities of their companies, it was decided that any profits earned would not go to IPC, but would appear instead on the balance sheets of the constituent companies. Obviously, this was contrary to the interests of the government of Iraq. IPC sold oil to Iraqi consumers at its usual Texas-based prices, and the company was not eager (or perhaps unable) to calculate its actual net cost, which would have brought its excessive profits to the attention of the Iraqi government.⁽¹⁹⁾

By the time of the Second World War, the world had been divided up between the Big Seven (Jersey Standard, Royal Dutch Shell, Socony, Texaco, Gulf Oil, Standard of California, and BP). The war caused a few minor annoyances, and there was concern as the Germans neared the Caucasus and Egypt, but the oil business was booming.⁽²⁰⁾

The requirements of the war nevertheless led the Allies to impose quotas on raw commodities throughout the world, and even the distribution of oil was controlled. The experts on the War Production Board demanded that the United Nations be given the power to administer world stocks of raw materials, and in Britain the Labour Party proposed a similar plan. In 1945 at the Washington Conference, Sir Anthony Eden and Secretary of State Cordell Hull legalized and completed the old Achnacarry Agreement that divided up the world's oil reserves between Great Britain and the United States. Highly displeased, the Soviet Union that same year signed the Moscow Agreement with France.

In 1947 the International Cooperative Alliance proposed that the petroleum industry in the Middle East be nationalized in order to eliminate the nascent rivalry between Russia and the West, raise the living standards of the Arabs, and diminish the price of oil to the consumer. It proposed that the United Nations create a special agency to control the petroleum resources of the Middle East and admit all buyers on an equal footing, in accordance with the Atlantic Charter. But when the United Nations Economic and Social Council voted on the measure on August 12, 1949, only Norway and Colombia supported it. Eight member countries abstained (including the Communist states), and eight others voted against it, including the United States, Great Britain and the Netherlands.⁽²¹⁾

The international oil cartel was in greater danger when, in December 1952, the Economic and Financial Commission of the UN approved a joint Iranian-Bolivian resolution in favor of the right of nationalization. The United States was the only country to vote against it.

Iran was Britain's private preserve. Sinclair (42nd largest American corporation in 1966, with $1,377 billion in sales) and Standard had carried out some explorations there, but had withdrawn at London's insistence. In 1959 Iranian Prime Minister Mossadegh demanded an increase in royalties, the rate of which had remained unchanged since before the war, as well as a 50-50 split in profits. Anglo-Iranian refused, whereupon Mossadegh nationalized the company,⁽²²⁾ and the crisis was on. The American firms profited from the operation. Aramco's production rose from 196 to 280 barrels, that of Kuwait from 126 to 266 million. In 1955 Iran began to export oil in small quantities and at reduced prices to non-producing countries such as Italy and Japan. But the Consortium regarded Iran as an ominous sign. To its great relief, the CIA went into action, and Mossadegh was replaced by Zahedi.⁽²³⁾

The American intervention aroused a storm of ill-feeling against the United States that has not yet been dissipated. The Iranians claimed they had been exploited by Anglo-Iranian for forty years.⁽²⁴⁾ John Foster Dulles turned the Iranian problem over to Herbert Hoover, Jr., who formed an alliance of five big companies (Jersey Standard, Socony, Texaco, Gulf, and Standard of California) which formed a common front in the interminable negotiations with the British and demanded that the Iranian holdings be divided equally between Anglo-Iranian and themselves. The new company was called Iranian Oil Participants, Ltd. The British (who received an indemnity of $510 million) kept their majority with 54% of the shares (40% went to Anglo-Iranian, now BP, and 14% to Shell), while the five American concerns got 8% each.⁽²⁵⁾ The new agreement was signed on October 21, 1954 and ratified by the Iranian Parliament, which recognized the validity of the new Consortium for a period of 40 years.⁽²⁶⁾

But the American independent companies were annoyed. They felt the Big Five were deliberately shutting them out from their overseas treasure chests, while continuing to benefit from domestic sales prices for their low-cost crude from the Middle East and Venezuela.⁽²⁷⁾ The Consortium, however, was more concerned about the reaction of the other oil-rich states, which were carefully scrutinizing every clause of the agreement signed with Iran. The latter country had obtained nothing more than a 50% share of the profits, the same accorded the other producing states, plus the promise of a gradual increase in production. This new agreement raised the American share in the oil production of the Persian Gulf to 55% in 1955 (as compared to 14% in 1938). The British and the Dutch were declining in power.

In 1956 came the Suez crisis. On July 26, Egypt nationalized the canal. Since that date, the Middle East has become a battleground of vested interests⁽²⁸⁾ where the member countries of the Consortium, the United States, Britain and France, struggle for predominance under the interested gaze of the Russians, whose problems are simpler because, unlike the French, they have enough oil for their own needs, unlike the British their power does not depend on their position in the Persian Gulf, and unlike the United States they are not subjected to private industrial pressures.

The USSR is content to sit back and watch as the cracks grow wider between the Western powers, between the Western powers and the Arab states, and between the Arab states themselves. In 1956 half the oil consumed in Europe was imported from the Persian Gulf, and 60% of it was shipped through the Suez Canal.⁽²⁹⁾ Britain and France risked a war to ensure control of their oil supplies, and only the intervention of the United States stopped them. During the winter of 1956- 1957, American companies took advantage of the European shortage to raise the price of fuel oil $1.50 a ton, and the price of crude $2 a ton. The price hikes affected American consumers as well. They cost the Americans $1.25 billion and the Europeans $500 million. Suez brought Jersey standard $100 million in additional profits. Toe Big Five beat all records for profits during the first quarter of 1957. Jersey Standard's profits rose 16% (compared to the last quarter of 1956), Texaco's 24% and Gulf Oil's 30%.⁽³⁰⁾

The Persian Gulf brought the Consortium more than $1 billion a year. Continuing the policy followed by the Department of State since 1920, John Foster Dulles lent his support to the big American oil companies, and when necessary the intelligence services and the military backed him up. The Middle East was almost completely encircled, and Britain was losing her foothold. In 1957 the King of Jordan, hitherto subsidized by the British, switched his allegiance to the Americans. Saudi Arabia's King Saud renewed his country's agreement with the US Air Force and the Strategic Air Command in exchange for $10 million in weapons. The London Times wrote, somewhat maliciously, that "The bizarre combination of a large American company (Aramco) and an ancient feudal kingdom constitutes a real threat to Anglo-American cooperation in the Middle East."

The growing demands of the Saudi Arabian King were not the only problem the Consortium had to face. It had managed to gain a foothold in the Sahara,⁽³¹⁾ but it was deeply concerned when the Italian firm ENI (Ente Nazionale Idrocarburi) proposed an agreement giving the government of Iran a 75% share of profits (at a time when a 50-50 split was still the rule in the Middle East).⁽³²⁾ ENI's President, Enrico Mattei, had the courage to defy the Consortium. He declared: "The oil companies have built their power by concentrating control of production and distribution in a few hands, by maintaining a relationship of supplier to client with the consumers in a closed and rigid market, by refusing to grant compensation other than tax revenues to the countries owning the reserves, by excluding all agreements and arrangements between states for a more rational organization of the market, but they have also created the conditions for a breaking up of the system or its transformation under the pressure of new forces and new problems . . . The price of crude oil is based not on production costs in the Middle East, but on the much higher costs in the United States . . . As a result of the rivalry between the various nations and the Western oil companies, oil has become an element of disorder and instability that gives rise to nationalist demands in the oil-rich countries and arouses the jealousy of those states that have none.

"Italy, France, Belgium, Germany and Japan are anxious to free themselves from their subservience and that of the consumers to the traditional organization of the oil industry . . . For the first time in a century we have the possibility of substituting a buyers' market for a sellers' market. An orderly market is necessary if we are to change the order established by the big international companies. The supremacy of what is known as the international cartel is not 'taboo,' and Italy is not obliged to respect it when this supremacy is breached on all sides by public and private initiatives.

"Oil is a political resource par excellence. What must be done now is to see that it is made to serve a good policy which is free, in so far as possible, from all imperialist and colonialist reminiscences, devoted to the preservation of peace, to the welfare of those whom nature has provided with this resource, and of those who make use of it in their industry." A short time later, in 1962, Enrico Mattei was killed in the crash of his private plane.⁽³³⁾

At the beginning of the Sixties, the Consortium's problems multiplied. The evolution of the market revealed growing competition,⁽³⁴⁾ but what was even more serious was the wave of popular revolts. Fortunately, for every Mexico⁽³⁵⁾ there were two or three Venezuelas,⁽³⁶⁾ but nations all over the world were suddenly becoming conscious of the importance of the minerals in their soil. Those that had been bypassed by nature realized that the balance of their economy depended on the security of their supplies. The Consortium knew that the Italian ENI, the French ERAP, the Mexican Pemex, and the Argentinean YFP could easily be copied elsewhere. It began to pay special attention to its sources of supply in the Middle East and to its principal clients in Western Europe.⁽³⁷⁾ Their hatred of the foreigners who depleted their soil, however, was not strong enough to forge the peoples of the Middle East into a powerful and united community.

In January, 1968, the principal oil-exporting countries of the Middle East -- Saudi Arabia, Kuwait, Iran, Iraq, Qatar, Syria and Libya -- joined with Indonesia and Venezuela to form an organization to commercialize the oil of its member states, to defend their economic and commercial interests, and to examine ways to develop the oil industry and its derivatives. The principal object of this agreement was to raise prices and create a fleet of tankers and a petrochemical industry under the control of the producing countries themselves.

The Consortium is fighting every foot of the way, but it is beginning to realize that its days in the Middle East are numbered. On the other hand, it has sufficient political power to maintain its position for the moment in Venezuela. Caution, however, has led it to concentrate its exploration efforts in South America and Africa, where the oil fields of Libya, the Sahara, Nigeria, and Gabon produce more than 700 million barrels. For Jersey Standard, the future lies in Africa.

The Consortium also had problems in Europe. In 1966 Western Europe consumed 2.9 billion barrels of oil, only 126 million of which came from her own soil. Britain is a member of the Consortium. Her oil policy is patterned after that of the United States, and despite the promise of important oil discoveries in the North Sea, she remains dependent on her concessions in the Persian Gulf and has not yet resolved her coal problem.⁽³⁸⁾ The Common Market is a bigger headache for the Consortium. Germany produces only 56 million barrels of oil a year, plus an additional 14 million barrels in Libya, but the distribution networks in Germany are almost entirely controlled by American concerns. (Texaco was able to buyout DEA, an important Germany company, with only one-fourth of its annual profits.)

Italy is less aggressive but just as realistic as France. Her oil policy is that defined by Enrico Mattei, and she is linked to the Soviet COMECOM pipeline at Trieste. The Italians have undertaken explorations in the Adriatic, Somalia, the Sinai, the Gulf of Suez, Tunisia, and the Persian Gulf. In December, 1967 they obtained a 12,000 square kilometer concession at Rub El Khali in Saudi Arabia, together with permission to construct a petrochemical complex.

In France the present Minister of Agriculture and former Prime Minister, Edgar Faure, wrote in 1939 that "If the government has an oil policy, the leaders of the oil industry will have a policy in the government." Until 1939 France too was dominated by the Consortium. Since De Gaulle's accession to power in 1958, and in particular since 1963, France has stood in direct opposition to the interests of the American oil industry. The French government already controlled a portion of the third-largest non-American company in the world, the Compagnie Francaise des Petroles, and it spent several billion dollars drilling for oil in the Sahara. When political considerations forced De Gaulle to give the Sahara back to the Algerians, the government, desirous of obtaining oil independence, began looking in other directions. A state oil company, ERAP, was created which today ranks 17th in the world, and whose activities and policies in the Middle East (notably in Iraq and Iran) run contrary to the methods and interests of the International Consortium.⁽³⁹⁾ Today, France is the most active supporter of the idea of a Common Market oil organization. Such a body is indispensable to Europe, but it is contrary to the interests of the Consortium in other words, to the interests of the big American companies.⁽⁴⁰⁾

In November 1966, Walter J. Levy, an American expert, submitted a 52-page confidential report to the European Economic Community (Common Market). Levy noted that "eighteen percent of the oil importations of the Common Market are controlled by the companies of the Common Market.⁽⁴¹⁾ As things stand now, this figure is destined to drop." Levy recommended the adoption throughout the Common Market of fiscal measures of the type already existing in France, which are aimed at stimulating oil explorations. These measures are specifically directed at the oil industry and are nearly as favorable as the tax privileges granted oil companies in the United States, with the difference that in France any amount deductible from taxes must be reinvested within five years in explorations or related activities. Levy suggested that this provision be included in any fiscal measures adopted by the Common Market countries.

This report, which was submitted to Dr. Walter Hallstein, was an indication of the Common Market's preoccupation with the development of the oil industry of its member states in order to be able to compete with the Consortium.⁽⁴²⁾

This orientation of the oil policy of the Common Market was hardly welcomed by the Consortium. The battle was on.⁽⁴³⁾ The measures proposed by France and Walter J. Levy to enable the Common Market to regain its oil independence were identical to those that had enabled the United States to gain control of the market.

The oil industry has dominated the American economy formerly 40 years.⁽⁴⁴⁾ The 1930 crisis enabled it to eliminate the independent prospectors and made possible the establishment of federal and especially state controls the likes of which existed in no other industry, and which had the effect of maintaining artificially high prices for petroleum products. You will find no mention of price fluctuations for crude oil and gas in any financial publication. Almost all of the world's raw commodities are quoted on the stock exchange, with the exception of oil.⁽⁴⁵⁾

The oil market is no freer in the United States than it is in the rest of the world.⁽⁴⁶⁾ The rules that govern the activities of the Oil Empire within the United States are particularly advantageous for prospectors and land owners,⁽⁴⁷⁾ which explains why there are more than a million oil wells on US territory, and why 400,000 of them produce, or are permitted to produce, only 10 barrels a day (while one well in Mexico has an annual production of 7 million barrels, and several wells in Iraq produce more than 500,000 barrels a year).

Mackay, the British oilman, once remarked, "The Americans are plundering their natural resources." Under the rules that have governed the American oil industry for nearly 40 years, two-thirds of the United States reserves have been wasted. Henry M. Bates, Dean of the University of Michigan Law School, remarked in 1935 that "the losses resulting from the rule that any oil discovered belongs to the property owner can be evaluated at several billion dollars and constitute the most ruthless and the most unjustifiable destruction of our natural resources ever perpetrated by the American people."

Nevertheless, the oil industry justifies its privileged position by pointing to the need to conserve American oil reserves, a major part of the wealth of the nation and a strategic necessity in time of war. But, as Harvey O'Connor remarks, the word "conservation" must be taken with a grain of salt. When oilmen talk about conservation, they are speaking of the conservation of their profits.

The problem emerged for the first time in 1930, when the immense reserves of the East Texas oil fields upset the balance of the market. It was decided that production quotas would be established each month in accordance with the demand. A national quota was set, and in each oil-producing state a special body was established to see that it was respected.⁽⁴⁸⁾ In Texas, this task was assigned to the Texas Railroad commission, which had been created in 1891 to regulate the railroads. In 1919 its authority was extended to the oil industry. Given the dominant position of the state of Texas in the Oil Empire, the Texas Railroad Commission serves as a model for the other state regulatory bodies. The annual variations in the quota bear no relation to scientific conservation techniques.⁽⁴⁹⁾ Nor are the consumers represented on these commissions. The system is, in effect, a monopoly, and it enables the oil industry to top all other American industries in sales per employee⁽⁵⁰⁾ and to maintain a steady rate of profits regardless of the national economic situation and international events.⁽⁵¹⁾

The system of "posted prices" is one of the pillars of the industry. These prices do not represent the net cost increased by a normal margin of profit. Instead, they are fixed by the Consortium. While it is difficult to determine the actual net cost of crude oil, it can be estimated at one-tenth the wholesale sales price. The companies of the Consortium and the company-backed local rulers (in Venezuela as in the Middle East) pocket most of the difference.⁽⁵²⁾ The Consortium's profits were and are excessive when calculated on production costs in Texas, but the latter, which already include profits for the local operators, are four or five times higher than net costs in the Middle East, and three times higher than net costs in Venezuela.

The American independent producers are constantly urging higher production quotas for themselves. In 1954 twenty-nine companies were forced to lower production as a result of competition from foreign oil. Even Standard of Indiana complained that imports had increased by 35% between 1951 and 1954, while at the same time its Texas production had been ordered cut by 35%. (It was as a result of these complaints that the members of the Consortium agreed to sell the independents 5% of the shares in their Iranian operations}. But the independents' protests had little effect. The big corporations had friends in Washington. In 1952 a commercial treaty concluded with Venezuela set the import duty for Venezuela oil at 2% of its value, rather than the 20% requested by the American producers. The National Security Resources Board, backed by the Mutual Security Agency, recommended that import duties be abolished altogether "if necessary."

In 1955 the government considered limiting oil imports to 10% of national production, but the big corporations promised not to exceed their importation level of the preceding year, and this apparently satisfied Eisenhower. Actually, Jersey Standard and the other members of the Consortium had little to fear from any restrictions imposed by Congress. Their foreign market was growing steadily, and they had diversified interests within the United States. Their importations of foreign oil brought them super-profits, but they made money from their integrated operations in Texas, Oklahoma, and Louisiana as well.

Conflicting interests can rarely be reconciled. Texas and Venezuela seemed destined to clash, but the men from Jersey Standard were well versed in the art of the most profitable compromise. The big integrated corporations make profits on all four sectors of their activities: extraction, transportation, refining, and retail sales. Distribution is sometimes run at a loss and pipeline profits are largely fictitious. Refining is an indispensable intermediate operation of which the independents are purposely deprived. Extraction is the main source of revenue, but it is the interlocking operations as a whole that provide the profits.⁽⁵³⁾

The profit margins of small, strictly producing companies are extremely precarious, particularly in the case of the independent refineries, which are at the mercy of a slight increase in the cost of crude or a slight drop in the price of gasoline.⁽⁵⁴⁾

The independent, integrated producers and the small producers of crude are in a somewhat better position. They benefit not only from the posted prices, but also from the special tax privileges accorded the oil industry as a whole. These fiscal privileges enable the Big Five to earn colossal profits while guaranteeing super-profits to the big independent and integrated companies. They also provide large profits for the medium-sized concerns, particularly the producers, and it is to them that the small producers, which in any other sector of the American economy would have been swallowed up long ago, owe their survival.⁽⁵⁵⁾

A booklet entitled "An Appraisal of the Petroleum Industry of the United States," published in 1965 by the Office of Oil and Gas (headed by Rear Admiral Onnie P. Lattu) devotes only one line in 96 pages to the depletion allowance.⁽⁵⁶⁾ But Milton Friedman, who can hardly be accused of being a socialist, wrote a whole article on the subject in the June 26, 1967 issue of Newsweek:

"Few US industries sing the praises of free enterprise more loudly than the oil industry. Yet few industries rely so heavily on special governmental favors. These favors are defended in the name of national security. A strong domestic oil industry, it is said, is needed because international disturbances can so readily interfere with the supply of foreign oil. The Israeli-Arab war has produced just such a disturbance, and the oil industry is certain to point to it as confirmation of the need for special favors. Are they right? I believe not.

"The main special favors are:

"1. Percentage depletion. This is a special provision of the Federal income tax under which oil producers can treat up to 27.5% of their income as exempt from income tax -- supposedly to compensate for the depletion of oil reserves. This name is a misnomer. In effect, this provision simply gives the oil industry (and a few others to which similar treatment has been extended) a lower tax rate than other industries.

"2. Limitation of oil production. Texas, Oklahoma, and some other oil-producing states limit the number of days a month that oil wells may operate or the amount that they may produce. The purpose of these limitations is said to be 'conservation.' In practice, they have led to the wasteful drilling of multiple wells draining the same field. And the amount of production permitted has been determined primarily by estimates of market demand, not by the needs of conservation. The state regulatory authorities have simply been running a producers' cartel to keep up the price of oil.

"3. Oil import quotas. The high domestic prices enforced by restriction of production were threatened by imports from abroad. So, in 1959, President Eisenhower imposed a quota on imports by sea. This quota is still in effect. Currently it is slightly more than 1 million barrels a day (under one-fifth of our total consumption).

"Foreign oil can be landed at East Coast refineries for about $1 to $1.50 a barrel less than the cost of domestic oil. The companies fortunate enough to be granted import permits are therefore in effect getting a Federal subsidy of this amount per barrel -- or a total of about $400 million a year .

"These special favors cost US consumers of oil products something over $3.5 billion a year. (Gibert Burck, Fortune, April, 1965). This staggering cost cannot be justified by its contribution to national security.

"The following points indicate the basis for this judgment:

"1. Restricting imports may promote the domestic industry, but why pay a $400 million subsidy to oil importers? A tariff of $1.25 a barrel would restrict imports just as much -- and the US Government rather than the oil importers would get the revenue. (I do not favor such a tariff but it would be less bad than a quota).

"2. Oil from Venezuela -- after the U.S., the largest oil producer in the world -- is most unlikely to be cut off by international disturbances threatening our national security. Yet it too is covered by the import quota.

"3. Restrictions on domestic oil production at least have the virtue that domestic production could be expanded rapidly in case of need. But such restrictions are an incredibly expensive way to achieve flexibility.

"4. The world oil industry is highly competitive and far-flung and getting more so. The Mideast crisis has let large oil-producing areas undisturbed. Moreover, the Arabian countries themselves cannot afford to refuse to sell for long. Only World War III is likely to produce severe disruptions of supply -- and then the emergency is likely to be brief.

"5. If all the special favors to the oil industry were abandoned, prices to the consumer would decline sharply. Domestic production also might decline -- but then again, if the industry were freed of all the artificial props that raise costs and stifle initiative, production might rise rather than decline. In either event, a vigorous and extensive domestic industry would remain, protected by the natural barrier of transportation costs.

"If domestic production did decline, we might want to insure against an emergency by stockpiling oil, paying for holding reserve wells in readiness, making plans for sharp reductions in nonessential consumption, or in other ways. Measures such as these could provide insurance at a small fraction of the $3.5 billion a year the US consumer is now paying.

"The political power of the oil industry, not national security, is the reason for the present subsidies to the industry. International disturbances simply offer a convenient excuse.⁽⁵⁷⁾ Indeed, the American oil industry enjoys extraordinary political power. When Kennedy entered the White House, the American fiscal system, and in particular the system of the depletion allowance, had enabled a few operators in the oil industry like H. L. Hunt to amass in only a few years the kind of fortune it had taken Rockefeller a half-century and a great deal of patience to accumulate.

If a person had enough capital, speculation in oil operations carried virtually no risk. He could take capital which normally would have been taxed at the rate of 90% and invest it in new oil wells. A speculator with $900,000 in this tax bracket could drill nine wells (at an average cost of $10,000). The odds were that one well out of nine would be productive. The eight dry wells would have cost him $10,000 each, all tax-free, and the ninth would earn him a fortune. With a little perseverance, any speculator could make a million.

Pools or joint ventures enabled citizens with more modest revenues, but whose income was still partly taxed in the 90% bracket, to do the same thing. These persons would purchase fractional interests in an oil well. Some of them never even got to see "their" well, but every tax dollar they invested represented a gain of approximately 25% on their capital. In the war and immediate post-war period, investment in the petroleum industry was one of the most obvious and attractive ways of reducing personal income tax liability. For the non-professionals this system was still, to a certain extent, a speculation, but the same was not true of the big companies, which employed experienced geologists and commanded unlimited capital.⁽⁵⁸⁾

These special privileges constituted an international anomaly, and they cost the nation several billion dollars every year.⁽⁵⁹⁾ It has been estimated that the abolition of these favors would have enabled the government to avoid the 1951 tax increase that applied to taxpayers earning as little as $4,000 a year. The oilmen, conscious of the importance of these privileges, have always claimed that their abolition would hinder new explorations. But the fantastic number of wells drilled in the United States represents a waste of natural resources.

In 1963, the oilmen advanced other arguments.⁽⁶⁰⁾ They noted that the market for American crude had grown from 1 billion barrels in 1930 to nearly 2 billion in 1950 and almost 3 billion in 1963, and they made known their "concern" about a future shortage. Their cautious and seemingly pessimistic prognostics, however, were not confirmed by more independent-minded experts. Professor A. I. Levorsen of Stanford University had declared in 1949 that world oil reserves were sufficient to cover the world's needs for the next five centuries, and other scientists estimated that only l/1,000th of the surface of the earth and sea had been explored thus far.⁽⁶¹⁾

The oilmen also complained that it was becoming harder and harder to find oil in sufficient quantity to make it as easily extractable and as profitable as in the past. Between 1956 and 1967, it took twice the number of new field wildcats to make one profitable discovery compared with 10 years earlier.

These arguments became the theme song of the National Petroleum Council, the only lobby representing c private interests that enjoys official standing. The NPC was founded in 1946 and is composed of representatives of the front offices of the big companies. It elects its own President. In reality, it is the NPC that defines the oil policy of the federal government, in the spirit of John Jay's maxim: "The country should be governed by those who own it."⁽⁶²⁾ The President of the United States has no business interfering.

A half-century ago, the oilmen lacked the influence in the White House that they had over Congress. They regarded the President with suspicion. For them, the country had been going to the dogs since McKinley. The power of the oil lobby was a concern to every President who entered the White House after the accession to power of Jersey Standard and its little brothers and sisters. In 1920 President Harding was elected with the massive backing of the oil industry. Two members of his Cabinet were oilmen (Hughes of Standard and Fall, an associate of Sinclair). Coolidge, and after him Hoover, did nothing to displease the oil magnates. On the day of Franklin D. Roosevelt's death, a San Antonio oilman threw a huge party to celebrate. Roosevelt, nevertheless, had not been particularly aggressive towards the oil industry. The pre-war climate was hardly favorable, and the war, which was still going on at the time of his death, had brought a boom in the oil business.

In 1950 President Truman examined the depletion allowance system, and the oilmen learned that the President felt that an exoneration that withheld such amounts from the Treasury was not equitable. That same year Hubert H. Humphrey, then a political neophyte and regarded as a liberal, introduced an amendment to the tax bill that would reduce the depletion allowance. The amendment was rejected. It was re-introduced in 1951 but rejected again by a margin of 71 to 9. In 1952 President Truman turned again to the problem, but any decision he might make was at the mercy of Congress, and Harry Truman liked the quiet life. Nevertheless, during his last days in office he adopted one of Roosevelt's ideas and declared that the continental shelf (an extension of the American coastline) was part of the national reserves and should be placed under the control of the Department of Defense. The value of the oil beneath the sea had been estimated at $250 billion, and Truman felt it would be madness to let this oil, which was vital for national defense, fall into private hands, obliging the government to buy it back at high prices.

In 1952 Eisenhower received heavy financial backing from the oil industry in his campaign against Adlai Stevenson. Ike knew how say thanks. When Truman's bill came up before Congress, the House rejected it in favor of a measure recognizing the property rights of the states over any oil discovered within ten and a half miles (twelve for Texas and Florida) of their coastline. The federal government was left with only a right of preemption over the resources of its former territory .The bill was later voted into law by the Senate.⁽⁶³⁾

In 1954 Senator Humphrey's timid offensive was taken up by Senators Douglas (Illinois) and Williams (Delaware), both of whom introduced amendments concerning the depletion allowance. Senator Douglas noted that in 1953 one company with a net income of $4 million had paid only $404 in taxes, that another had paid nothing on a revenue of $5 million, and that a third company with profits of $12 million had received a $500,000 subsidy. The amendments were rejected.

On March 27, 1957, Senator Williams again introduced an amendment that would reduce the depletion allowance from 27.5% to 20% .He explained to Congress that this privilege had been instated during the First World War, when it amounted to only 5%. Later it had been increased to 12.5%, then to 25%, and finally to 27.5%. Originally it had been a discovery depletion, permitting the recovery of the investment, "but the present 27.5% oil depletion rate obviously gives a special tax advantage to the oil industry above that enjoyed by other taxpayers." He added that when the present rate of 27.5% had been adopted in 1926, the corporate tax rate had been approximately 14% .The depletion allowance therefore did not represent a huge sum of money. But in 1957, "with our present corporation rate, this 27.5% gross sales deduction, or depletion allowance, represents a tremendous tax-free bonanza.⁽⁶⁴⁾

"The importance of percentage depletion is more glaringly emphasized in connection with the operations of foreign companies," he continued. "The Treasury Department has submitted three examples as to how this works. Corporation A with total earnings of approximately $200 million reported a United States tax liability of $103,887,000. They paid foreign taxes which are deductible from United States taxes in the amount of $103,323,000, leaving a United States tax liability of $564,000. This company has a total allowable depletion allowance of $91,879,000.

"Corporation B reported an income of approximately $150 million. Their total allowable depletion was $123,977,000, and they reported a United States tax liability of $78,961,000. The taxes reported as paid to foreign countries by Company B amounted to $98,319,000, and the credit allowed for foreign taxes paid was $77,087,000, leaving a United States tax liability after foreign tax credit of $1,874,000. Corporation C reported an income of approximately $33 million. The total allowable depletion of Corporation C was $44,895,000. The United States tax liability of this company was $17,325,000, and foreign taxes paid were of the same amount, with credit being given for the full total, leaving Company C with no United States tax liability."

Senator Williams cited and inserted in the Congressional Record the testimony of Mr. Paul E. Hadlick, general counsel of the National Oil Marketers Association, to the Senate Finance Committee. Mr. Hadlick had prepared a list of the incomes and taxes paid by the 23 largest oil companies. His figures indicated that Humble Oil had paid $30 million in federal income taxes on a net income of $145 million, that Socony Vaccuum Oil had paid $51 million on a net income of $171 million, that Standard Oil of California had paid $40 million on an income of $174 million, and that the Texas Company had paid $47 million in taxes on an income of $181 million.

Senator Barrett (Wyoming) retorted that "the depletion allowance is based upon the great risk involved in drilling and discovering oil," and he drew Senator Williams' attention to the fact that "our first line of defense will rest in air power, but the planes will not be able to deliver the bombs without high octane gasoline and plenty of it, I might say."⁽⁶⁵⁾ Senator Carlson (Kansas) declared: "Those of us who are familiar with the reserves in the stripper well are in a position to know that the producers must have the 27.5% depletion allowance and any other encouragement they can get, or the United States will lose millions of barrels of oil, which will never come out of the ground." Senators Monroney (Oklahoma) and Martin (Pennsylvania) joined in the chorus. Senator Williams quoted a statement by the Secretary of the Treasury in 1937: "This is the most glaring loophole in our present revenue law." Nevertheless, he noted, depletion had not been discussed during the 1937 hearings, and the committee had made no recommendation in its report on the subject "because of lack of time."

"Mr. President," Senator Williams continued, "today we hear the same argument: lack of time." Senator Williams spoke for another 15 minutes and then called for a vote. Senator Johnson (Texas) suggested the absence of a quorum. But there was a quorum, the vote was held, and the amendment was rejected.

Senator Douglas of Illinois then introduced his amendment, which maintained the percentage of 27.5% on revenues not exceeding $1 million, but lowered it to 21% for revenues of between $1 and $5 million, and to 15% for revenues exceeding $5 million. Senator Aiken (Vermont) supported the Douglas amendment. "I believe that when these enormous depletion allowances are given to one segment of our economy, it means that other people must dig into their pockets to make up for them," he said, adding that in 1955, "the total depletion deductions were approximately $2,800,000,000. Since the corporate tax would have been 52%, this resulted in a tax saving of $1,500,000,000 to the oil companies. "My amendment," he continued, "would save approximately $700 million for the Treasury. I wish to emphasize again that it would not hit the small driller. The weight would fall almost entirely upon the big companies." He went on to cite examples of oil companies that didn't pay a cent of taxes (on $7 million in income), or 1% of taxes (on $1,800,000 in income), or 6% (on $95 million in income), while in other industries companies were taxed at the rate of 52%.

The parade of lobbyists for the oil industry began. Senator Long (Louisiana) declared: "I must oppose this amendment. I submit that in many respects it works out to be the absolute epitome of unfairness and injustice. This is an amendment which proposes to say: Oilman Rich can earn and receive $1 million a year and still retain the 27.5% depletion allowance. On the other hand, Grandma Jones who does not have the importance or prominence of an independent oil and gas man owns $200 worth of stock in an oil company, and she receives an income of $20 a year from that ownership . . . I would like to protect Grandma Jones' little $20 dividend."

Senator Johnson (Texas) again suggested the absence of a quorum. The legislative clerk called the roll. Eighty-seven Senators were present. There was a quorum. Senator Douglas then asked for the yeas and nays, but his request was not sufficiently seconded. The yeas and the nays were not ordered, and the amendment was rejected. The Senate turned to the examination of an amendment concerning transportation taxes, which were considered too high for the Western states.

The following year, on August 11, 1958, Senator Williams introduced his amendment once again. He was obliged to wait for four hours until there were enough Senators present. He reminded them of what Senator La Follette had said in 1942: "In my opinion this percentage depletion is one of the worst features of the bill, and now it is being extended. We are vesting interests which will come back to plague us. If we are to include all these things, why do we not put in sand and gravel; why do we not provide for the depletion the farmer suffers through erosion of the soil of his farm?"

Senator Taft had followed up Senator La Follette's remark with one of his own: "I think with the Senator from Wisconsin that the percentage depletion is to a large extent a gift . . . a special privilege beyond what anyone else can get." Senator Dirksen (Illinois) made a long speech declaring that the problem of national defense needs and the precarity of oil supplies in the Middle East "is worth infinitely more than a question of whether the oil companies get a few million dollars more or a few million dollars less . . . the oil companies," he added, "which have given their best to the country."

Senator Williams acknowledged that "it is always popular to defend the little fellow, but what is small about a man with a million dollar income?" He noted that in 1955 depletion deductions for all corporations had totaled $2,805,500,000, and that 67% of these deductions had benefited companies with net assets of more than $100 million. He asked why the deduction for oil depletion wasn't the same as that for metal (15%) or coal (5%). He concluded: "One of the really major loopholes in the tax code is the method by which capital gains may be applied to oil and gas properties," and he produced a document which explained exactly why the leaders of the oil and natural gas industry were opposed to a reduction in the tax rate for the highest income brackets.⁽⁶⁶⁾ Such a reduction, which was supported by the majority of the nation's corporations and taxpayers, would mean a decrease in the incomes of the oilmen.

Senator Williams' amendment was put to a vote and defeated by a margin of 63 to 26. A similar but less liberal amendment introduced by Senator Proxmire (Wisconsin) was also defeated, this time by a majority of 58 to 43. Senator John Kennedy (Massachusetts) voted against the Williams amendment and in favor of Senator Proxmire's amendment. When the vote on the second amendment was announced, Senator Johnson (Texas) remarked, "Mr. President, I do not think we should ask the Senate to stay any later this evening."

The oilmen and their representatives in the Senate were all the more concerned about these amendments because 1957 had been a record year for oil production in the Middle East, and everything indicated that the expansion would continue. (In fact, Middle East production rose from 6 billion barrels in 1958 to 9.7 billion barrels in 1963.) In 1959 President Eisenhower imposed import quotas on foreign oil. The sales price of domestic American oil, which had been steadily rising since the end of the Depression and had dropped in 1959, held steady in 1960.⁽⁶⁷⁾

On June 18, 1960 Senator Douglas re-introduced his amendment. He noted that the total depletion allowances taken could amount to $4 billion that year. He presented his Congressional colleagues with 20 pages of documents, remarking that if the other Senators were unable to hear him (for there were only three other people on the floor), they could perhaps read them. The following day, June 20, his audience was larger. Senator Douglas described his amendment as "a very moderate attempt to reduce the greatest tax racket in the entire American revenue system. It is probably safe to say," he continued, "that the depletion allowances given to the gas and oil industry now amount to well over $2.5 billion a year. I have put into the Record time and time again the records of 28 oil companies -- which I do not name, and which I identify only by letter, but which I could name -- that show that there was one company which in 5 years had net profits of $65 million and not only paid no taxes, but received $145,000 back from the Government. There are many other corporations which have a similar favored record.

"My proposal is a modest one. I do not propose to abolish the depletion allowance. I do not propose to reduce it across the board. I merely propose to introduce a moderate, graduated reduction. On the first $1 million of gross revenue there would be no reduction whatsoever. That would remain at 27.5%. On gross income from $1 million to $5 million, the depletion allowance would be 21 percent. On gross income in excess of $5 million, the depletion allowance would be 15 percent. This is a very moderate proposal.

"Mr. President, this issue has faced the Senate and the Nation for at least a decade. It is now before us again. We must make our decision as to what we shall do. It is time that we put our fiscal system in order. In our fiscal system some people pay too much because others pay too little. The time has come when we should deal with this issue. The depletion allowance can continue without any time limit. It occurs after depreciation has been allowed and fully taken account of. As long as the oil and the gas run, the depletion allowance can continue to be taken. There are cases in which the amount of the depletion is many, many times the total original cost, which bear in mind has already been deducted under the depreciation practice. I think the Senators are aware of the issues at stake. I wish to say to the gas and oil industry, which has been fighting this amendment for years, that if they are once again successful in beating this amendment, as they may well be, there is likely to arise in the country a storm of indignation."

But indignation is not a common emotion in the Senate. Senator Douglas' amendment would have resulted in a $350,000,000 loss to the oil industry. A vote was held, and the amendment was defeated by 56 to 30.⁽⁶⁸⁾ Senator John Kennedy (Massachusetts) voted in favor of it.⁽⁶⁹⁾

At the 1960 Democratic Convention, the representatives of the oil states, headed by Sam Rayburn, supported the candidacy of Lyndon Johnson, but Kennedy won the nomination. In the spring of 1961, Mr. Morgan Davis⁽⁷⁰⁾ remarked during a private luncheon, "It's impossible to get along with that man."

As a Senator, John Kennedy had not been popular with the oilmen, but they weren't afraid of him. They knew that his father Joseph had invested a large part of his fortune in the oil business, and they couldn't conceive that his son, even if he were to become President, would dare take a position that would go against his own and his family's financial interests.⁽⁷¹⁾ H. L. Hunt expressed the same opinion when he confided to Playboy in 1966, "Catholics are known for being anti-Communist, and I had never seen any evidence of fiscal irresponsibility in the Kennedy family."

The oilmen were wrong. The new President decided to broach the issue. Although he didn't go as far as John Ise,⁽⁷²⁾ he felt, like Roosevelt, that the control of the national economy should not be allowed to continue in the hands of the few, but should be enlarged to include millions of citizens or be taken over by the government, which in a democracy is responsible to the people. But he knew also that any re-examination of the principles of profit-making and free enterprise from the moral, social or even national point of view would be rejected not only by the oilmen, but also by a good many other citizens as an attack on the American way of life. In the past, such attacks by the administration and the Justice Department had been defeated.⁽⁷³⁾

The only chance for a modification of the structures of the Oil Empire lay in a major crisis, internal or external -- an economic crisis or a war. But President Kennedy was working for peace and economic expansion, and he knew that his objectives could not be attained unless the principles of the American autarchy were re-examined and their destructive action brought progressively to a halt.

A year after he entered the White House, in 1962, the new President studied the reports of his advisers and decided to act. He had reacted with violence to the dictates of the steel industry; in the case of oil, he laid his plans more cautiously. On October 16, 1962, a law known as the Kennedy Act removed the distinction between repatriated profits and profits re-invested abroad in the case of American companies with overseas operations. Both were henceforth subject to American taxation. The law also sought to distinguish between "good" earnings resulting from normal commercial operations, and "suspicious" revenues siphoned off at some point in the commercial circuit by subsidiary companies located in tax havens abroad.

This measure was aimed at American industry as a whole, but it particularly affected the oil companies, which had the largest and most diversified overseas activities.⁽⁷⁴⁾ At the end of 1962, the oilmen were estimating that their earnings on foreign invested capital, which in 1955 had equaled 30%, would fall to 15% as result of these measures.

But Kennedy's second measure was far more important and infinitely more dangerous. It affected not only the companies with overseas investments, but all companies which, in one way or another, benefited from the privileged status of the oil industry. It called into question both the principle and the rates of the fiscal privileges, the improper use of tax dollars, and the depletion allowance. If adopted, it would undermine the entire system upon which the Oil Empire was based.

On January 24, 1963, in presenting his bill to Congress, President Kennedy declared, "Now is the time to act. We cannot afford to be timid or slow." For him, the fact that it was going to be difficult made it all the more necessary to act. But the Oil Empire wasn't the steel industry. Its leaders were of a different mettle. Ludwell Denny had said, "We fight for oil." By tangling with the oilmen, Kennedy was commencing the last year of his life. He considered his fiscal measures as the first step in a vast national reform.

As George Washington said to Henry Lee on October 31, 1786, "Precedents are dangerous things." The oilmen thought so too. "Think" is the motto of the businessman. Once they had determined what had to be done, they set about choosing their battleground and meticulously laying their plans.

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NOTES

1. The evolution of world oil production between 1860 and 1966 was as follows:

	1860	1930	1966

USA	476,000 b	861 million b	2.9 billion b
USSR		135 million b	1.9 billion b
Venezuela		140 million b	1.2 billion b
Middle East		42 million b	3.3 billion b
Rest of the world	21,000 b		2.2 billion b

2. Of the 20 largest oil companies in the world with an annual turnover in the neighborhood of $57 billion, 14 are American ($42 billion), one is Anglo-Dutch and another British ($1 billion), and one is Belgian ($700 million). But American influence extends even to these foreign companies.

Company	Country	Turnover
		(in millions of dollars)

Standard Oil (NJ)	USA	$12, 191
Royal Dutch Shell	GB-Holland	7,711
Mobil Oil	USA	5,253
Texaco	USA	4,427
Gulf Oil	USA	3,781
Shell Oil	USA	2,789
Standard Oil (Ind.)	USA	2,708
Standard Oil (Calif.)	USA	2,698
BP	GB	2,543
Continental Oil	USA	1,749
Phillips Petroleum	USA	1,686
Sinclair Oil	USA	1,377
Union Oil California	USA	1,364
CFP	France	1,140
ENI	Italy	1,093
Signal Oil and Gas	USA	847
ERAP	France	806
Petrofina	Belgium	704
Ashled Oil and Refining	USA	699
Industry Oil	USA	695