If the position of the oil companies and their parent governments appeared highly insecure in 1941, apparent stability had returned by 1955. A part of this stability depended upon the ‘Pax Americana’, for the USA had emerged from its pre-war isolation to take over the leadership of what came to be known as the ‘Free World’. As a result, although the countries of Latin America enjoyed considerable attention from the USA during the war years, they came to be regarded increasingly as peripheral after 1945 when Washington's relations with Europe and the Middle East came to take priority. Moreover, the full importance of the oil discoveries in the Middle East became increasingly clear in the decade after 1945, and the attention of the major companies was also directed eastwards.

For the major oil-exporting countries, the 1942–55 period fell into two distinct phases. Until around 1948 the oil market was tight; the war had increased demand for oil and destroyed capacity, and the immediate post-war reconstruction also sharply increased world demand. Demand continued to rise after 1950 but could now easily be met from the prolific oilfields of Iran, Kuwait and Saudi Arabia; even the boycott of Iranian oil between 1950 and 1953 (which followed the nationalisation of Anglo-Iranian) barely affected the international market. As a consequence, the power of producer governments – considerable in the 1940s, when the Venezuelan government was able to pioneer a major shift in profit-sharing arrangements between government and company – was far less in the 1950s.

For many Latin Americans, oil is el excremento del diablo. More recently similar perceptions have come to be shared in far wealthier oilimporting countries. In the popular imagination, and not only there, the progressive and beneficial side of the oil industry – provision of lighting, heating, travel opportunities and the astonishing innovations in petrochemicals – has been tied in inextricably with a darker side which has featured massive corruption, the fomentation of political upheavals within particular countries and the concentration of power on an international scale in a way which has led to large-scale but unpredictable shifts in the structure of the world oil system.

Market economists have tried to explain the oil industry in terms of the familiar logic of cost and price, supply and demand, but have always found it necessary to bring the concept of oligopoly into their explanations. Oligopolies are rarely popular and some writers appear to have believed that by denouncing Standard Oil or opec, they could persuade them to go away. Others have tried to demonstrate that the oil market is inherently unstable unless controlled – for a time – by some form of cartel, even though cartels themselves may collapse in the long term. The fact of oligopoly, however, denotes at least some distance between the imperatives of the market and the decisions of the major producers.

For some observers, the nationalisation of Gulf Oil appeared sudden and dramatic and a reflection of little more than the political instability within Bolivia. It will be argued here, however, that while there is a ‘spur of the moment’ element in any decision there were also a number of longer-term aspects of this nationalisation and that there was a broad ‘logic’ to this outcome. There were three elements in this. First, there was the nature of the initial Gulf contract itself and its effect upon the state company, YPFB. Second, and more important, there was the existence and growing strength of the nationalist faction within the army. Finally, there was Bolivia's own revolutionary tradition and history. In order to bring these out it will be necessary to begin this account in the mid-1950s.

The MNR period

The mnr leadership, which came to power with the 1952 Revolution, had never been opposed to all foreign investment in principle, although it had taken strong nationalist stands at various points in its history. Moreover, President Paz (who had earlier been Finance Minister in the 1943–6 government) believed that there were plentiful oil resources in Bolivia and that these needed to be developed if the country was to escape from its unrewarding and dangerous dependence on tin. However, given the lack of success with which pre-1952 governments had sought to attract foreign oil investment, it was evident to the MNR leadership that active co-operation from Washington was necessary.

The starting point of the modern oil industry has traditionally been placed in 1859 with the drilling of the Drake well in Pennsylvania. During the rest of the nineteenth century, the USA in general and Standard Oil in particular established a dominant, even if not entirely unchallenged, position in the world oil market. In the mid-1860s the USA, by far the world's largest producer, exported well over half of its total production, having first refined most of it. In 1879 Standard Oil carried out its first foreign investment, in a marketing outlet in Spain.

The last three decades of the nineteenth century were also a period of rapid technical change. The oil industry, partly in consequence, became increasingly concentrated as Standard Oil built up its dominant position within the USA while facing increasingly intense political attack from its Populist and Progressive opponents. In the international market, Standard Oil was also a major force but nevertheless faced competition from Russian oil (which began to be produced around 1880) marketed by, among other companies, Shell and Royal Dutch (which merged in 1907).

Until the First World War, crude oil was abundant. Standard Oil built up its position by controlling transportation and refining within the USA and, to a lesser extent, marketing outlets outside it. Thus, at the turn of the century, the us oil industry was in an almost classic vent-for-surplus situation.

The 1970s saw a fundamental shift of power over oil markets from the oil companies and their home governments to the most important producer governments. Oil prices increased sharply, ownership of oil passed from the oil companies to the host governments and key members of opec began to take effective responsibility for the level of world oil production. On the other side of the same coin, there was clear loss of influence on the part of the USA and a massive transfer of income from the importers of oil to the exporters. This transformation was also largely (although not solely) responsible for a general slowdown in the rate of economic growth in the OECD countries after 1973, which was reflected in slackening demand for oil and oil products. Nevertheless, with little effective substitution for oil, the balance of market power was not greatly altered by world recession, although at the end of the decade Mexico was emerging as a new world supplier on a significant scale. Over all, the fundamental market strength of the main opec countries appeared more and more evident as the decade went on, and the effect of this transformation upon Latin America was very marked indeed.

Latin America's oil exporters

Venezuela was one of the main beneficiaries of this oil market revolution. As can be seen in table 5.1, export prices and income increased sharply in the 1970–4 period, despite the fact that the volume of crude oil production actually fell.

The great depression set in motion a train of events which completely transformed the Brazilian economy. The past 50 years have been a period of rapid industrial growth while other sectors of the economy have also maintained a considerable momentum. This industrial growth and the consequent rise in oil consumption have brought the question of oil on to the political agenda in a way quite unknown in Brazil before 1930. Moreover, in the years after 1930 there developed two tendencies whose interaction was largely to determine the course of Brazilian politics and which were to take on new and important forms during the course of the post-1945 oil debate. On the one hand, there was the gradual development of a centrally directed technocratic state, as successive governments came to concern themselves increasingly with the pursuit of industrial development. On the other, the process of urbanisation and industrialisation generated possibilities of popular mobilisation and opportunities for radical politicians. Nowhere was the uneasy compromise between these two more clearly revealed than during the debate over Petrobrás.

In the years before 1930, and for some time afterwards, there was no oil issue. In 1930 Brazil's oil industry was almost classically underdeveloped. Oil consumption was less than a third of that of Argentina, less than one half of that of Mexico and oil made up less than 10% of Brazilian imports.

I began working on the oil industry when I started my doctoral thesis on the Peruvian oil industry in 1972. I am grateful to Alan Angell, Laurence Whitehead and Rosemary Thorp for their excellent supervision and to Malcolm Deas who, as one of my examiners in 1975, suggested that I should write a general book on the subject of Latin American oil.

Apart from my interview sources, acknowledgement is due to Rory Miller, Christopher Abel and Brian McBeth for their help on the 1920s; to Alan Peters and Fred Parkinson for help on the post-war environment; to Jorge Katz and Paul Cammack for help with the section on state companies; to Peter Alhadeff, Colin Lewis, Ed Early, Julio Fidel and Celia Szustermann for Argentina; to Laurence Whitehead and Manuel Contreras for Bolivia; to Charles Gedge, George Hawrylyshyn, Hari Bhat, Sue Cunningham and Getúlio de Carvalho for Brazil; to Malcolm Hoodless, Miguel Basañez, Manuel Tello, Andrés Viesca and Lief Adelson for Mexico; to Stan Rose for Peru; and to Dave Corkill and Norman Cox for Ecuador. I must also thank Seibke Hirst for her translations from Dutch (the other translations are mine) and Eileen Gregory for her secretarial help. Any errors which remain are entirely my own.

In a political system as centralised and finely balanced as that of Mexico, the position of a major public sector company is particularly interesting. For Pemex itself, the question is how far the technical and financial needs of the state agency could be fulfilled within the fairly tight constraints of Mexican politics. For other sections of the Mexican government the emphasis has appeared differently; how could effective political control be maintained over this agency without the danger of seriously damaging its performance? For outside observers, the nature of this relationship casts an interesting light on the whole question of state ownership of the oil industry: if Pemex can be accounted a success, then what conditions have made this possible? If a failure, then what have been the most important obstacles?

Pemex in formation 1938–50

The birth of Pemex was not easy and the prospects of the infant were not generally regarded highly. Indeed, the us government took so dim a view of its future that it sought only to contain the agency in the expectation that it would eventually die an almost natural death. The early Pemex was itself deformed; it was well endowed with crude oil reserves, but there were difficulties with transportation equipment and a serious lack of refineries in a suitable condition to supply the increasingly important domestic market. Moreover, most of the senior technical and administrative staff of the companies were foreign and left Mexico at the time of the expropriation.

Argentina was the first Latin American country to set up an effective state oil company and one of the first to take strong legislative measures limiting the activities of the private companies. The underlying motive for these measures lay as much in Buenos Aires's distrust of the provinces as in the behaviour, or even the presence, of the oil companies themselves. Moreover, to a considerable extent the story of Argentine oil nationalism is that of the growth and development of the state oil company, Yacimientos Petrolíferos Fiscales (YPF). If these were the underlying factors, however, it is also true that Argentina saw the first major oil nationalist campaign, led by Yrigoyen in 1928, which raises questions about the nature of the political support that a movement of this kind could attract. All the same, it is best to begin with a discussion of the way in which the industry itself developed.

The Argentine oil commission 1907–22

In December 1907 a team belonging to the Argentine Ministry of Agriculture was apparently drilling for water at Comodoro Rivadavia when it struck oil in a shallow depth of what proved to be a huge field from which one billion barrels were ultimately recovered. Some observers have expressed doubts as to whether this find really was accidental and there was certainly an air of mystery surrounding its immediate circumstances.

Following the example of Argentina and facing the general withdrawal of American capitalism during the 1930s, many Latin American countries took steps to increase state control of their oil industries. Generally speaking these steps were not as dramatic as the Mexican nationalisation and not as fully and popularly debated as the Argentine oil campaign had been (or as the Brazilian campaign was later to be), but they nevertheless played their part in the politics of oil in Latin America. Three less well-known cases will be discussed in this chapter.

Chile

Until the mid-1920s Chile had not found it necessary to define its oil policy. Chilean territory had, immediately after the First World War, attracted a certain amount of company interest. However, survey results were not promising and as a further disadvantage there was no specific oil legislation in operation at the time, with the consequence that the oil companies would have found it necessary to buy up small land titles piecemeal from local landowners. Company interest therefore subsided.

The first company to take a major initiative in Chile was Pan American which, at the end of 1926, persuaded the Chilean Congress to pass a draft law permitting oil companies to take concessions up to a maximum of half a million hectares. This also made it clear that an area of this size would shortly be offered to Pan American (a subsidiary of Standard Oil of Indiana).

Petrobrás 1954–61: the enterprise matures

Petrobrás was not set up completely from scratch; by 1954 the CNP'S total investments amounted to some $165m. and a major refinery, with a capacity of 45,000 b/d, was under construction at Cubatão. These assets were then passed over to Petrobrás. Nevertheless, the agency was still small and inexperienced when compared with what it had been set to do, which was to produce and refine enough oil to make Brazil self-sufficient with only the limited help of two small privately owned refineries. The first President of Petrobrás, Juraci Magalhães, later recalled that ‘the state company began as a real “encampment”. Everybody installed himself where he could, and the desk which he [Juraci] began using had been bought from an engineer who worked in the same office block in which Petrobrás had been installed.’ Nevertheless, the agency began with many opportunities in the most important areas: those relating to the formation of financial, human and political capital. For the first seven years, these were generally used to advantage.

Looking back on the period 1954–60, W. J. Levy concluded that, while Petrobrás had certainly not faced serious financial problems, ‘it is clear that a major part of Petrobrás' profitability cannot be regarded simply as earnings from operations. Behind it is a deliberate policy of public support.’ It was not difficult to find evidence for this assertion.

The Venezuelan nationalisation took place 53 years after oil production first began. Although the roots of the nationalisation in some ways go back as far as the companies themselves, the takeover followed many years of relative tranquillity. Moreover, the nationalisation was (as far as any step of this magnitude can be) a quiet, consensual affair which showed, as clearly as anything could, the lack of serious political conflict within the country. Nevertheless, despite the lack of acrimony or drama at the time of the final takeover, the nationalisation was the logical, perhaps the only, response to a gradually woven web of political and economic constraints which fit into place during the 53 years of oil production.

During this time, massive income had found its way to the Venezuelan Treasury and Venezuelan society. The high profits which the companies earned for many years, the massive corruption of certain of Venezuela's rulers and even the relative weakening of the country's market position after about 1957 were not sufficient to check the impact of oil wealth. With its oil income, the country's political order had been consolidated by successive Venezuelan presidents. Gómez had contented himself with buying the allegiance of Venezuela's military and political elite; López Contreras and Medina Angarita expanded the public service to provide employment for the growing Caracas middle class and the civil service grew in size from 7,000 in 1935 to 47,000 in 1941 and 95,535 in 1954 (by which time it had reached 10% of the non-agricultural labour force).