The Great Depression of the 1930s, beginning with the crash of the stock market in 1929, affected multinational corporations worldwide. As purchasing power overseas dried up, and as governments sought to protect existing markets by erecting high tariffs and other trade barriers, some U.S. corporations closed or sold factories and other foreign facilities and curtailed or stopped entirely making investments abroad.
At the same time, however, other American businesses sought to leapfrog obstacles to trade and protect existing markets by entering into business arrangements with foreign concerns, such as licensing and market-sharing agreements. With all the major world currencies having gone off the gold standard and become nonconvertible (that is, not convertible into gold or other currencies like the American dollar or the British pound), most multinational corporations simply chose or were forced by host governments, as in the case of Nazi Germany, to reinvest their foreign profits.
In Latin America, American corporations also continued to invest, sometimes with assistance from Washington, in the development of resources, such as copper in Chile and Peru and lead and zinc in Argentina (although overall investments in South American mining dropped dramatically), and in public utilities including railroads. In the Middle East, American oil companies continued to challenge British oil hegemony by investing heavily in production facilities in Saudi Arabia, Kuwait, and Bahrain. Gulf Oil Company negotiated an oil concession from Kuwait. Standard Oil of California (Socal) established the Bahrain Oil Company and received a concession to look for oil in Saudi Arabia. Texas Oil Company (Texaco) acquired a half interest in the Bahrain Oil Company and in the California Arabian Oil Company (now Aramco) organized by Socal to develop its Arabian fields.
These same companies also entered into a number of agreements among themselves and with two British and Dutch companies, Anglo-Iranian Oil (now British Petroleum, or BP) and Royal Dutch Shell, to control the sale of crude oil and finished products to independent refiners and marketers. Of these agreements the most significant were the so-called "Red Line" and "As Is" agreements of 1928, which placed severe restrictions on where, with whom, and under what conditions the signatories could explore for oil and develop oil fields in the Middle East. Between 1928 and 1934 the As Is partners entered into three supplementary agreements to carry out these purposes. So successful were they that by 1939, seven oil corporations, five of which were American, monopolized the oil industry in the Middle East and controlled much of the world's other oil supplies.
More generally, multinational corporations were able to weather the depression of the 1930s reasonably well. Between 1929 and 1940 total direct foreign investment by American firms declined only slightly, dropping from about $7.53 billion in 1929 to $7 billion in 1940. In Europe they increased from $1.34 billion in 1929 to $1.42 billion in 1940, while in South America they stayed the same, at about $1.5 billion for both years. In Europe manufacturing remained dominant, edging up slightly from about $629 million in 1929 to about $639 million in 1940. The most significant increase occurred in the petroleum sector, rising from $239 million in 1929 to $306 million in 1940. In contrast, in South America public utilities jumped from $348 million to $506 million during these same years, while petroleum actually dropped from $512 million to $330 million and mining fell from $528 million to $330 million; by 1940, public utilities had become the leading sector for direct American foreign investment in South America.