Fitzgerald, E. “The Power of the Weak, and the Weakness of the Strong”. Business and Economic History, 23.2 (1994): 108-127
Fitzgerald, E. “The Power of the Weak, and the Weakness of the Strong”. Business and Economic History, 23.2 (1994): 108-127
In the fifteen years after the Second World War, the value of the Middle East in the global petroleum industry changed significantly (Fitzgerald, 1994). Petroleum production in the region was marginal prior to 1939, but twenty years after the war the Middle East became the largest crude oil producer only second to the United States of America. In the pre-war era, a sole company, British Petroleum, managed oil production in the Arabic region, but soon after the war American companies entered the region breaking BP’s dominance.
In view of the facts, American corporate leadership is responsible for the expansion of oil production and integration of the Middle Eastern region into the international oil trade. The emergence of the American influence reflects the entry of Exxon and Mobil into American- Arabian Oils Company (Aramco) leading to the Great Oil Deal. The deal introduced extensive marketing networks for the partners with Exxon and Mobil gaining immense access to crude oil reserves.
The members of the American consortium were five, but the consortium eventually sold out to Exxon and Mobil. However, its opposition, the Red Line Regime (coalition between BP, Total, Mobil, Shell, and Exxon) formed a union in an attempt to monopolize and control oil production in the region. The dissolution of the Red line Regime is a paradox in the sense that strong members of the consortium who had the power to fight Exxon and Mobil did not contest. Instead, the weak CFP (Total) without the capacity to match Exxon and Mobil contested it.
In 1946, at the verge of Aramco striking an agreement with Texaco and Chevron with the potential for the ultimate “Saudi Arabian Oil Deal Plan”, the French CFP (Total) reacted rejecting the imminent new petroleum order in the Middle East. To Total’s surprise Shell and BP did not seek to block the plans of the Americans. Total launched legal, diplomatic, and political campaign and demanded maintenance of the Red Line Regime and a proportional share of Aramco. Edward Peter Fitzgerald (1994) seeks to explain the corporate pattern of behavior. It tries to understand why significant members of the Red Line Regime (Shell and BP) did not prevent the breakup of the regime. The paper also tries to explain why Total tackled Aramco directly.
In view of the behavior of Shell and BP, and the Aramco attack on the Red Line Regime, the explanation is that Aramco bribed them. In view of the small and the giant corporations, the general lesson is that all the companies had a stake in the American deal. British petroleum and Shell did not gain any direct benefit from the American deal. However, they had a concern for the stability of prices and markets. The corporations benefitted indirectly from the discipline imposed by Aramco on the marketing of the Middle East Crude.
In addition, Aramco had the goal of safeguarding the petroleum trade against oversupply. In conclusion, Total’s immense reaction to the Aramco attack of the Red Line Regime stemmed from its self-consciousness of how weak it was. Its strength during the struggle is its status as a weak corporation in the industry run by the strong. It became a source of strength that rendered the Total (CFP) immune to the logic of collective interest, and the giants had no choice but to respect.
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