Achnacarry Agreement

“It was perhaps the most amoral agreement ever drawn up by a group of industrialists. Moreover, the Achnacarry agreement was so secret that it was unknown even to the governments of the main participants.¬†And any efforts to stabilize market share and support prices risk being undermined by new deliveries that are not covered by the agreement. “All these developments will have a clear tendency to slow down the pace of increase in consumption,” the agreement warned. The agreement consisted of seven “principles” to limit “excessive competition,” which had led to huge overproduction by distorting markets, setting prices, and limiting the increase in production capacity. The agreement has had an impact on the evolution of oil production capacity in the Middle East by limiting price competition in product markets and thus supporting the prices of high-priced products, mainly american. This strategy was implemented as a “basis point”, in which all sellers calculated delivery prices as the sum of FOB prices at one or more specific locations – basis points – plus a standardised transport charge from that point to the place of delivery. Such a system is very effective because it ensures that all sellers display the same prices and that low-cost manufacturers cannot take advantage of this advantage to increase their market share by passing on low costs. Recently, Venezuela has encouraged the creation of regional oil initiatives for the Caribbean (Petrocaribe), the Andean region (Petroandino) and South America (Petrosur) and Latin America (Petroamerica). Initiatives include support for oil development, investment in refining capacity and preferential oil prices. The most developed of these three is the Petrocaribe initiative, during which 13 nations signed a provisional agreement in 2005. Under Petrocaribe, Venezuela will offer Caribbean countries crude oil and petroleum products on preferential terms and prices, with Jamaica being the first to sign in August 2005. In a way, the “true” agreement should not only be an instrument to fight against overproduction and depression, but also against the emergence of political forces in Europe and in the producing countries. In the 1930s, political pressure on oil companies took many forms.

Governments imposed import quotas, set prices and limited foreign currencies, and autocracy and bilateralism were also commonplace because of the depression. In the second half of the 1930s, oil companies tried to protect themselves from state intervention after the worst of the depression ended. .

This article was written by: SignEx