The case of Petroperú well illustrates the difficulties inherent in setting up a model in which development is led by an autonomous and efficient state enterprise sector linking effectively with international technology and the world market. The difficulties in the Peruvian case were essentially political and managerial, although Petroperú suffered to some considerable extent from the vagaries of Peruvian geotogy. One conclusion may be that, whereas state enterprise is a feasible solution in countries where oil reserves are known to be abundant (Mexico) or where the domestic market is more important than domestic oil production (Brazil), state oil companies are not equipped to take major risks unless these are restricted to a minor part of their overall activity. Even more central is the fact that the creation of a successful state oil company is a difficult matter which requires a considerable degree of political as well as technical sophistication. Problems of economic policymaking do not disappear when foreign companies are nationalised.

The early politics of Petroperú 1969–71

After the expropriation of ipc in 1968–9 by the incoming military government, the state company Petróleos del Perú (Petroperú) appeared to have a considerable number of initial advantages. These stemmed from several different factors. One of the most important of these was the enormous amount of emotional capital invested in Petroperú. During the whole course of the debate on IPC, a main argument used by the opponents of nationalisation was the incompetence of state enterprise in Latin America.

Unlike Pemex and Petrobrás, which have operated as largely autonomous public enterprises, YPF has generally been identified much more closely with the Argentine government. A large part of the reason for this has stemmed from the fact that there was never a real base for public enterprise desarrollismo in Argentina. Indeed, there has been little political continuity of any kind in that country and YPF has suffered many of the consequences of frequent political upheaval. While the effects of these political upheavals upon policymaking were by no means confined to YPF, the development of the state oil company was particularly difficult as a result of the early politics concerning oil in Argentina. As we have seen, the Radical Party was unable to consummate its relationship with oil nationalism in the 1920s, but instead retained its visions of a romantic past during later years when both the party and the issue had shown signs of age. For much of their period in office the Peronists, who replaced the Radicals as the most popular party in Argentina, were committed to ‘redistribution of income without growth, participation without social restraint and nationalism without efficiency’. Such policies, not surprisingly, were unhelpful to YPF. For Argentine conservatives, on the other hand, YPF was an embarrassment – an illegitimate offspring which had to be maintained in some fashion but which could not be allowed independence and still less a real part in national politics.

By the beginning of 1976, when Petrovén formally came into being, the Venezuelan oil industry was in a technical sense already showing signs of age. In 1970, 2.7 of the 3.7 million daily barrels of oil produced came from six fields. These were Lagunillas, Tía Juana, Bachaquero, Lama, Lamar and Centro, discovered in 1926, 1928, 1930, 1937, 1938 and 1959 respectively. All of these were in the area of Lake Maracaibo and all were onshore; there was significant oil production from the east of the country but offshore work had hardly begun. Until large-scale new oil discoveries could be made, it was the job of the new state company to keep the oil flowing from these fields for as long as possible. This required increasingly sophisticated recovery work and, thus, some continuing reliance on the main international centres of technology.

At the same time, the nationalisation took place when the international balance of oil power was moving sharply away from the companies and consumer interests to the governments of oil-exporting countries. Naturally there were advantages for Venezuela in this process. There were also important policy decisions to be made as Venezuela moved away from the protective shelter of technical and marketing agreements with the foreign companies which had been carefully constructed as part of the nationalisation. The nationalisation also raised political questions: how would the creation of a public enterprise of such size and economic power affect Venezuelan democracy?

We have already considered the international dimension of oil conflicts in Latin America. It remains to look at conflicts which have taken place within particular Latin American countries. Ten case studies will be presented, all of them culminating either in some form of expropriation or exclusion of foreign companies, but, as will be apparent, they differ in a number of significant ways. They include a number of genuine confrontations (Mexico 1938, Peru 1968 and Bolivia 1969) but also a number of more ambiguous cases in which conflict coincided with a considerable degree of mutual accommodation. Naturally, selecting as case studies relations which culminated in expropriation does focus the presentation clearly on conflict; cases can be found of long-term and relatively harmonious relations between foreign company and host government and these have been excluded here, or at best considered only when they came to an end. However, while it should certainly be recognised that fairly harmonious government–company relationships have occurred at various times, with differing consequences for the domestic economy and political society, cases of overt conflict have been more frequent. All of the oil-producing countries of Latin America (with the very recent exception of Guatemala) have set up state oil companies and most have promoted the expansion of these companies by some combination of expropriation or exclusion. The more spectacular nationalisations or nationalist campaigns, moreover, have entered the Latin American folk memory, even if not always quite in the manner in which they actually took place.

For Latin America, the 1920s was a decade of open, expanding, competitive capitalism of which foreign companies took full advantage. Nowhere was this more true than in the oil industry. While the expansion of the foreign oil companies was underpinned by the support of the us State Department and the British Foreign Office, it was certainly not based entirely, or even mainly, on coercion. Latin American elites generally welcomed the inflow of foreign oil investment in the hope of quick fortunes. The 1930s, however, were years of retrenchment and concentration; oil had become abundant and the industry became concerned to avoid the consequences of oversupply. Management rather than discovery became the key to oil company behaviour.

The 1930s was made up of two distinct periods. Until 1934, the slump led to a fall in demand and the companies cut back production wherever they could. After 1934, however, there was a partial recovery and production and profits picked up, but the market was still vulnerable and vertical integration remained essential to the position of the major companies. In the late 1930s, war appeared increasingly probable and strategic aspects of the international oil industry became more and more important, although these were by no means uniform in their effect.

Achnacarry and the slump 1928–34

For the oil industry, the pattern of the 1930s was largely shaped by the Achnacarry agreement of 1928, which was made by the major oil companies just before the depression but after it had become clear that the world market was in fundamental oversupply.

In the introduction to this section (chapter 7) we considered the assumptions lying behind two influential approaches to government-company relations; the bargaining model and what, for want of a better term, may be described as a ‘class’ model. Now that the main cases of oil expropriation or exclusion of foreign companies have been discussed, it will be useful to return again to the question of how these conflicts are best conceptualised and understood. It should be said at once that all models are abstractions from reality and it would therefore not be difficult to uncover cases in which particular assumptions do not apply. While such an exercise might provide a useful antidote to an excessively dogmatic or arrogant presentation of a particular case, it would not by itself take us very far. It is much better to begin by considering the advantages of each framework before considering how they might usefully be combined, supplemented or modified.

If we take the bargaining model first, it is necessary to proceed by making an assumption of what host government objectives really are. Let us then assume that all Latin American governments wish to take control over their domestic oil industries to the greatest extent possible, and that they will therefore expropriate or exclude foreign capital unless the cost to themselves is high or unless the oil companies or their parent governments have a great deal to offer.

The Mexican oil expropriation was one of the most dramatic in Latin American history and it had major implications both for the international oil industry and for the Mexican Revolution. The Cárdenas presidency (1934–40) did much to institutionalise the Mexican Revolution as Lázaro Cárdenas looked for support beyond the small secular elite which had triumphed under Carranza. He organised the Mexican working class and peasantry and incorporated his supporters into the Revolutionary Party. The oil nationalisation of 18 March 1938 was one of the high points of his programme and Mexican politics subsequently evolved in a far more conservative direction. The nationalisation marked a dramatic assertion of economic independence from the major oil companies and their parent governments and it was certainly widely supported within Mexico. Beyond this, however, lie some very difficult problems of interpretation and many of Cárdenas's own motivations remain shrouded in mystery, as do his relationships with key political insiders. The British diplomat who complained at the beginning of 1938 that ‘a kind of oriental fog of secrecy and intrigue and misrepresentation covers the struggle going on all the time between the President, his advisers, the syndicates, the Generals and so on’ was probably no less well informed than many later historians.

It is certainly clear, however, that the initial impetus towards oil nationalisation came not from diffuse popular pressure but from the political elite.

When the Ecuadorian military took power in February 1972, it found an oil industry which was economically quite well developed but which remained a mystery to almost all Ecuadorians. Ecuador had produced some oil ever since 1918 but the amounts had been small and successive regimes had hardly concerned themselves with oil policy. For many years, Ecuador levied few taxes, had no state company and knew extremely little about the industry. In some ways, therefore, the events of the years 1972–6 may be regarded as providing something of a learning process for Ecuador, after which policy became less dramatic and rather more settled. The 1972–6 period was extremely eventful, both nationally and internationally, and a great deal was telescoped into a very short period of time. Ecuador began large-scale exports of oil in June 1972 and by 1974 the Ecuadorian Oil Minister had become President of OPEC. Only in 1977 did some kind of conservative ‘normality’ return, and this was followed in 1979 by the election of a reformist civilian government.

Expansion and renegotiation 1969–73

The Ecuadorian oil boom got seriously underway in 1967 when a major discovery was made in the Oriente. Until that time Ecuador's smallscale oil production had come entirely from the coastal area; it was widely believed that there was oil to be found in the Oriente but until then no commercially attractive discovery had been made.

There are, broadly speaking, two ways in which the international oil system can be analysed. One of these is essentially derived from liberal economic theories and stresses the importance of factor endowments and comparative costs in explaining international trade. The other is basically Marxist (although shared by some conservatives) and argues that trade, even where it does not follow the flag, is nevertheless mainly determined by international power relationships. Now that evidence has been presented, it may be interesting to consider how these different approaches can be applied to the oil system in the twentieth century.

To begin with the first approach, it is certainly true that the history of international oil has been made up in large part by such environmental factors as the international distribution of population and potentially oil-bearing territory. Moreover, policy can very often be understood in terms of these factors. Let us therefore consider the geological conditions that have existed in Latin America during the course of the century and their effect upon policy.

Two Latin American countries, Venezuela and Mexico, have been actually or potentially oil rich during most of the century in the sense that there was not only enough oil to be found and exported on a large scale but also adequate technology for the purpose as well as geological conditions which made these sources relatively low cost.

The middle 1950s was a high-water mark for the major companies. The Iranian challenge had been defeated and producer governments were quiescent. Rapidly increasing demand in Europe allowed the progressive development of the highly profitable Middle Eastern finds without creating major tensions elsewhere. The major oil-exporting countries were still being developed almost exclusively by consortia in which the major companies had controlling interests, and elaborate schemes had been arranged to regulate the supply of oil from these countries. In the following 15 years, however, this position was steadily eroded; the actions of producer governments, although essentially defensive, became increasingly important after the formation of OPEC in 1960, but the immediate challenge to the majors came from the independent companies – the newcomers – who were becoming increasingly prominent in the search for foreign oil supplies. Under these circumstances, world prices began to erode and this erosion brought further tensions and conflicts into the international oil market.

The first significant erosion of the major companies' control over the most important non-us oil reserves came in Venezuela, where in 1956 Pérez Jiménez offered a massive new round of concessions to the highest bidders. Good oil prospects, proximity to the USA and a government eager to supplement its major source of income all attracted independent us companies which were willing to undercut established suppliers in order to find marketing outlets.