And all efforts to stabilize market share and support prices risk being undermined by new deliveries that are not covered by the agreement. In the 1920s, there was competition between oil companies. This was evident in India between Standard Oil of New York and a subsidiary of Royal Dutch Shell. With the As-Is agreement, seven principles were adopted to limit “excessive competition”, which would have led to overproduction. These included the distribution of markets (geographically according to the Red Line agreement, by oil fractions), price fixing and limiting the development of production capacity. The agreement slowed the development of oil production capacity in the Middle East by limiting price competition in the commodity market and supported the price of crude oil products from the United States and Canada, i.e. politically safe areas. The strategy was a geo-referenced pricing structure, in which sellers calculated their Free On Board (FOB) prices based on one or more reference factors from a table plus standardized freight costs. For Middle Eastern crude oil, which had to be extracted with little effort, this system means that production capacity development was delayed until World War II by the exploitation of existing concessions and that reserves in the United States and Canada were exploited. In 1928, the agreement reduced more than a third of the world`s crude oil production.
Companies were concerned that the low cost of producing low-cost oil in the Middle East, without market expansion, would increase their costs if there was competition. The distribution of production among Middle Eastern countries and the increase in decolonization trends among populations were most pronounced in Iraq and Iran. The agreement established a model for guaranteeing profits in the oil sector, which OPEC then attempted to emulate. Henri Deterding rented Achnacarry Castle for three thousand pounds for August 1928 and invited some of the leading oil industry leaders to this Fort William property in Scotland for “hunting and fishing.” However, the real task was to find a solution to the dilemmas of overproduction and industrial overcapacity; 1.3.1990, point 1.3.100. Oil production from the United States, Venezuela, Romania and the Soviet Union increased, flooded the market, weakened prices and threatened “ruinous competition” among them. Henri Deterding (Royal Dutch/Shell), Walter Teagle (Standard Oil of NJ), Heinrich Riedemann (SO of New Jersey`s man in Germany), Sir John Cadman (Anglo-Persian), William Mellon (Gulf) and Colonel Robert Stewart (Standard Oil of Indiana). This happened a year before the Great Depression of 1929 and two years before Dad Joiner hit oil in east Texas. In a way, the “As-Is” agreement should not only be a defence against overproduction and depression, but also against the emergence of political forces in Europe and in producing countries.
In the 1930s, political pressure on oil companies took many forms. Governments imposed import quotas, set prices and limited currencies, and autocracy and bilateral trade were also commonplace as a result of the depression.