Multinational Corporations - Federal power versus the power of the multinationals: the oil dilemma

A power with great wealth and influence, the oil industry has often been seen by historians as a sovereign entity capable of dictating the terms and conditions under which oil is produced and sold throughout the world. Although this view is still widely held, it was especially prominent during the energy crisis of the 1970s, when a slew of books was published highly critical of oil's alleged power over the public weal. Inter-industry correspondence and memoranda, first revealed in congressional hearings in the 1970s, seemed to substantiate this view. So did the outcome of an antitrust action that the Department of Justice brought in 1953 against the five major U.S. oil corporations—Standard Oil of New Jersey (Exxon), Gulf, Socony Mobil (Mobil), Standard Oil of California (Socal), and Texaco—and two alleged coconspirators, Royal Dutch Shell and Anglo-Iranian Oil (now British Petroleum), charging them with maintaining monopolistic control of oil from the Middle East. The case was so sharply curtailed before it was settled in 1968 that it left the multinational giants' control of oil from the Middle East largely intact. For this reason it seemed to provide additional support to the argument that the multinational giants dictate federal policy.

There can be little doubt about the historic power of the oil industry to influence—and sometimes dictate—federal policy. If anything, however, the oil cartel case of 1953–1968 reveals that it was the federal government that used the oil corporations for foreign policy purposes rather than the other way around. In perhaps the darkest period of the Cold War, the oil cartel ensured a cheap supply of energy to western Europe and Japan. It also ensured a certain degree of stability in a troubled area of the world and was a way of limiting Soviet influence in the region, a matter of great concern to policymakers in Washington. Through tax policies that allowed the oil companies to offset increased royalties to host nations with decreases in taxes paid to the federal government, the oil companies also provided a useful conduit of financial aid to Arab producing nations without providing a cause of action on the part of the strong pro-Israeli forces on Capitol Hill.

Through the fifteen-year history of the oil cartel case, in fact, officials of the Department of Justice remained at loggerheads with the Department of State about pursuing the case, with antitrust officials in the Justice Department anxious to prosecute the defendants and the State Department opposing prosecution on the basis of national security and the national interest. In the end, the Department of State prevailed.