How transnational corporations shape foreign policy: some ideas based on a case study of oil companies between 1939–1954
To what extent and in what ways does big business affect foreign policy? To answer these question I looked at company records in BP and Shell as well as British government sources for the years 1939–1954. I selected those years as they were the most recent for which I could secure access to corporate archives.
The first thing I noted that that there was no coordinated or clearly articulated British official policy on oil before the negotiations for the first Anglo-American Oil Agreement in 1944. A pattern of extensive informal collaboration had developed between the state and British firms. Indeed, the foreign oil relations of the British Government between 1939 and 1954 may be said to have been subcontracted to the companies, whose representatives responded by formulating policies that respected the interests of the state and the British economy as well as their own, and could accordingly look with confidence to the state for diplomatic support when requested.
This diffusion of policy-making is hard to believe given the public importance of foreign oil relations during this period. The main issues of direct concern to the British state relating to oil were the Allied oil supply programme during the Second World War, the negotiations for the Anglo-American Oil Agreement in 1944 which may be seen as a forerunner for other world commodity agreements, Cold War issues in Azerbaijan in 1946, and the increasing assertiveness of Persian Gulf countries more generally. The growing resistance to British influence culminated in the expropriation of the Anglo-Iranian Oil Company in 1951 which was only overturned after a joint Anglo-American covert action against Iran’s democratically elected Prime Minister, Muhammad Musaddiq, in 1953. Logistics in time of war, great power territorial rivalries, and the assertiveness of rising powers are core concerns of the state. My research uncovered that, surprisingly, these areas had been sub-contracted to the oil companies.
Moreover, relations between firms were highly institutionalised due to the oil cartel that operated during this period. There was an effective system of private global governance or “governance without governments” in this period. It is possible to draw an analogy with Hedley Bull’s concept of international society. Bull argued that states retain their independence but are also tied together by a sense of society based on common norms. The society is supported by five pillars — diplomacy, war, international law, the balance of power, and great power management.[1] In the same way as it is possible to interpret Hedley Bull and the English school as constructivists, so it is possible to see how the oil majors at one and the same time constructed, and were constructed by, the cartelised world oil market.
Constructivism simply means that the meanings that actors have influence the world they believe themselves to operate in. The ‘rules’ of the cartel did not merely regulate the market but made the market possible. In the same way as an analysis of a game of football would be hampered if it were restricted to noting the behavioural regularities without understanding what the players were running for, and what the small signs and signals meant, so analysis of the oil cartel comes alive by treating it as a society whose discourse and subjective self-awareness significantly shapes the identity and interests of its member firms.
To look at the international influence of the oil companies we can trace the beginning of this private international society to a secret meeting at Ahnacarry Castle in 1928. The corporate diplomacy of the inter-war period, 1919–1939 provided the model and personnel for Anglo-American governmental oil diplomacy during the Second World War. Securing such privileged positions these corporate diplomats tried to manage the trade war caused by the disruption of pre-war trade agreements. The postwar Anglo-American Oil Agreements can be seen through the lens of transnational law rather than public international law. It is important to examine the ways in which war and uncertainty during the oil negotiations had encouraged corporate balance of power behaviour that fed into Cold War rivalry in the Middle East. The establishment of a stable balance of power enabled the seven great powers of the international oil industry to form a great power condominium to frustrate the nationalisation movement in Iran between 1951 and 1953.
Firms changed the behaviour of the British Government by various means. The Government permitted and encouraged companies to develop private global governance agreements during the period from 1919–1939. These private corporate relations were then translated into transgovernmental relations between Britain and the United States conducted by corporate executives co-opted into Allied service during the Second World War, 1939–1945. As implementation of oil policy that was left to the discretion of the companies in many respects the implementers became the decision-makers. The role of non-state actors in the decision-making process was surprising.
Both the companies and the state constituted ‘British’ oil relations for British ‘identity’ and ‘interests’ were not determined prior to interaction with other firms and states, but actually constituted through it. By studying the co-construction of firm and cartel, and the construction of ‘British’ oil relations by both firms and state, the construction of international relations becomes apparent. ‘British’ and ‘American’ identity and interests were co-constructed by the interplay of firms and states. National identities and interests are endogenously shaped through domestic political praxis — they are not fixed preferences. The anarchy of the international system is what states and firms make of themselves through the interrelated engagements of inter-firm, firm and state, and inter-state relations.[2]
Historians often think of the period between 1919–1939 as where in which international trade declines in favour of states turning inwards and protecting their own industries., the expectation of a breakdown in cooperation between states in the leaderless inter-war period is contradicted by unprecedented Anglo-American agreement on oil, and the key to this is a prior development of inter-corporate cooperation, a factor neglected in the excessively statist vision of hegemonic stability theory. This posits that an open international system depends on the overwhelming dominance of a power that supports a liberal trade policy.
A second historiographic revision helps resolve an awkward contradiction between the Anglo-American ‘special relationship’ and the apparent clash of economic interests between these two Allied powers. Allied oil supply during the Second World War were based on established pre-war patterns of ‘diplomacy’ between the companies. This confirms a link between the pre-war cartel committees and the co-opted wartime public administration of oil supply and in turn suggests that Allied cooperation in oil owed more to inter-firm cooperation, working against the grain of rivalries between the Governments of the United States and Britain, than to the ‘Special Relationship’ between the two states of later British Cold War imaginings. The British Government took advantage of its closer and more comfortable relations with major companies working in transgovernmental Allied committees to resist United States plans to place international oil collaboration on a more public footing.
It is fascinating to trace the continuation and development of private agreements during the war, challenging the view that all cartel and cartel-inspired arrangements had ended by 1939. During the Second World War some companies took the opportunity to try to change the status quo by abrogating past agreements, but the principle of inter-corporate agreement remained and this private ‘war’ over market share took place in the context of the web of inter-corporate social relations, not against it. Hostilities between firms may thus be seen as one phase or aspect of orderly relations between them, rather than a total breakdown of these relations. Underlying the trade war was shared recognition within the industry that world oil production would shift from the Americas to the Persian Gulf in the post-war world. The war between the companies was provoked by doubts about how different companies would accommodate themselves to these changing circumstances. The salient feature is that an ‘international society’ approach to these developments exposes greater continuities than might have been expected between the mercantilist 1930s and the liberal post-war era.
The negotiations surrounding the Anglo-American Oil Agreements of 1944–8 are extremely interesting. More threatening than the trade war to this web of corporate international society than the disruption caused by the Second World War was the attempt by the United States to either enter into, or to regulate, the international oil industry, and the companies duly united with the British Government to oppose it. The failure to impose public regulation does not equate with a failure of international law as has been implicitly accepted by most commentators. Since what amounted to a (virtual) war between the oil majors during the Second World War has remained hidden, writers have felt justified in treating the Agreements in intergovernmental terms which, because neither of them was ratified, makes them unimportant. The trade war explains the position of the companies in the negotiations around the Anglo-American Oil Agreements and the importance of these negotiations. Taken in a longer historical perspective it becomes clearer that the Agreements were signalling devices, or what is today referred to as transnational law. They indicated norms of significance to private agencies rather than providing publicly enforceable articles. The main importance of the Anglo-American Oil Agreements of 1944 was that the companies accepted changes to the previous order which had been embodied in international contractual agreements. The importance of this was that the ‘legal order’ of the companies (lex mercatoria or transnational law) was upheld as the basis for the international oil market while its content was adapted to accommodate greater United States corporate participation in increased Middle East production.
Uncertainty over the outcome of the oil talks and concern about competition from the American companies led British companies to seek concessions in northern Iran. However, in 1944 Iran was still occupied by the Allies, by the British and Americans in the south, and the Soviets in the north. When Shell tried to win a concession, some American companies also made a bid. The Soviets became anxious about a western presence on their southern flank and provided a third bid, supporting this with threats to support secessionists in the north. The impasse in Iranian Azerbaijan was one of the first Cold War crises. Here the effect of taking relations between international firms seriously is to contribute to a growing post-revisionist literature on the origins of the Cold War. This has shifted attention away from traditional concern with Soviet aggression and the revisionist preoccupation with the expansion of United States capital by considering the role of third actors. In this case Iran’s resistance to British international capital and residual political influence was the primary motive behind the invitation to United States interests which in turn provoked Soviet fears. Once established, the link between oil companies, Middle East oil, and the Cold War became embedded in United States foreign policy. This stance affected American attitudes to the nationalisation of oil in Iran in 1951.
The balance of power manoeuvres between the companies had resulted in the weaving together of corporate interests in Middle East oil. Continuing the international society analogy, this made possible “great power management” by the leading international firms against the nationalisation of Anglo-Iranian in 1951. Joint management made it possible to enforce an embargo and prevent distress to Anglo-Iranian which stiffened their back in resisting political solutions from the United States, even at the cost of straining Anglo-American relations. The Americans had continually put pressure on the British to make concessions to secure an agreement. The boycott limited the opportunities of the Iranian Government to undertake reforms calculated to maintain stability while also stiffening Anglo-Iranian’s resistance to conciliatory schemes originating in the State Department or the Foreign Office. They made negotiations more difficult while their boycott increased discontent in Iran raising the spectre of Communism. The boycott caused economic discontent in Iran while British agents and supporters tried to replace the Government though political intrigues. When the limits of intrigue became apparent they enlisted American assistance for covert action. The culmination of oil embargo and intrigues contributed to Musaddiq’s psychological closure concerning his objective of excluding all British influence, especially the Anglo-Iranian Oil Company. Even when this was conceded he ‘saw’ Anglo-Iranian behind the demand that compensation for nationalisation be fixed by an international tribunal and, therefore, rejected it. British actions contributed to his psychological closure, and the fact that it took two years to accept that compensation was the main issue to be settled. Far from accepting United States hegemony in the post-war world this reveals the power of British resistance in the post-war world, but of a British resistance that was expressed as much through corporate as through state power.
Bringing together inter-state, inter-corporate, and state-firm relations in this single issue area chips away at the clarity of the 1944 boundary between mercantilism and liberalism, helps resolve seeming contradiction in the post-war relationship between the British and American states, qualifies what has often been judged the failure of Anglo-American oil negotiations, de-emphasises bipolar accounts of the Iranian crisis by allocating Britain a more central role in the drama, and, more generally, supports a more gradualist and nuanced account of the decline of British power and the transition to bipolarity.
Revelation of the extent of company involvement in foreign policy makes it necessary to widen the scope of foreign policy analysis. It is important to embrace studies on transgovernmental relations, implementation, bureaucratic politics, standard operating procedures, and psychological approaches to crisis management to include non-governmental actors together with public bodies. At a theoretical level, the constructivist account of firms and states through the processes of the corporate international society and foreign policy has implications for method. It shows how methodology is shaped by ontology — how studying the state depends on what we think the state is. Through archives the interpenetration of corporate and national policy became clearer thereby questioning the assumption of ‘British’ identity and interests. The stabilisation of ‘British’ identity as state identity to which rational interests are ascribed is only made possible by forgetting, silencing or subjugating the history of non-state actors in constructing and constituting ‘British’ identity and interests. Examination of corporate archives compels us to rethink the concept of the ‘state’ as a unitary and rational actor and thus undermines the neo-realist and neo-liberal synthesis which has dominated the discipline of international relations in recent years.
[1]Hedley Bull, The Anarchical Society: A Study of Order in World Politics (New York: Columbia University Press, 1977).
[2]Alexander Wendt, “Anarchy is What States Make of it: The Social Construction of Power Politics,” International Organization 46.2 (Spring 1992): 391–425. Wendt retains the focus on states in his title while problematising both state interests and identity. My inquiry into ‘British’ oil policy demonstrated the considerable role of the firms in the endogenous process of constructing ‘British’ oil identity and interests.