Searching for the Seven

BROUGHTON, EDINBURGH – They called them the Seven Sisters. Seven companies which ruled the world.

It all began in August 1928, at a castle called Achnacarry. It’s in the Highlands, near Ben Nevis – about half an hour’s drive from Fort William. The castle is the historical seat of the Cameron clan and isn’t often open to the public, but it’s seen plenty of visitors through the ages. One of the most notable instances of this would occur later during WW2, where the estate was used to train some 25,000 British Commandos in the art of combat.

On this occasion Achnacarry was similarly home to visitors with grave intentions. But these men were much fewer, much wealthier, and much more discreet.

While they carried guns, these were for blasting at deer and grouse to let off steam; their real firepower was in their wallets. Where money was concerned, the four men who met at Achnacarry that fateful August carried a much more intimidating arsenal. They were already some of the wealthiest men in the world (this little retreat cost the man who organised it two hundred grand in today’s money) – but more importantly, they controlled vast swathes of what the world will always be hungry for: energy.

These were “oilmen”, executives in the rising petroleum industry. Coal was still the dominant form of energy at that time, but “black gold” was catching up fast. It was a volatile, cut-throat industry however, and tensions were running high – between the companies who extracted and refined it, and the nations those companies operated in.

The man in charge of this particular getaway had a solution in mind. His name was Sir John Cadman, head of the Anglo-Persian Oil Company – you know it today as BP. His guests were his greatest competitors: William Mellon, the founder of Gulf Oil; Walter Teagle, chair of Standard Oil; and Henri Deterding of Shell.

Together, they made a secret pact. They would cease their competition and begin co-operating heavily instead. They would share facilities to reduce costs, build new refineries together, and agree on their oil output ahead of time. With their combined dominance over the oil market, they could determine the oil price to their maximum mutual benefit.

As they were effectively creating a cartel (and breaching anti-trust laws), no legal documents relating to their new relationship were signed. This was a “gentleman’s agreement”, and nobody could know of it.

Their first move as a cartel was to bankrupt their competitors. East Texas Crude was in high demand at the time, and had attracted numerous smaller enterprises (“wildcatters”) to the oil industry in search of riches. Ramping up the combined oil production power of the cartel, they crushed the price of ETC by almost 90% in four years, running the newcomers out of town with empty pockets.

The original four would grow and evolve to become the “Seven Sisters”: BP, Shell, Exxon, Mobil, Chevron, Texaco, and Gulf. They would continue to bend the world’s oil supply to their maximum benefit, exerting enormous influence on corporations and countries alike, and reaping huge rewards for themselves – and their investors.

The sheer power of the Seven is hard to overstate. By 1950, the Seven owned 70% of the world’s oil refining capacity outside communist countries and North America, almost all of the pipeline networks and over 60% of the world’s private oil tankers. Most impressive of all, in their prime they would control an incredible 85% of the world’s oil reserves.

The reign of the Seven would end, ironically, in the seventies, when oil-producing nations wrested back control of the oil production within their borders, often via nationalisation. A new cartel was born, of countries rather than companies: OPEC. While many of the Seven still exist, they are a shadow of their former self.

But I believe we may see a new Seven Sisters in the future. Another group of companies that shall band together to dominate the energy market and extract enormous profits from consumers and countries who can’t afford to say no.

In fact, these companies may already be with us. You might already be able to buy a fat stake for pennies on the pound in what could become one of the most powerful organisations on earth…

Just as in 1928, a new form of energy is coming to the fore. It’s not yet dominant, but it’s growing rapidly, and is large enough to have geopolitical consequences.

I’m speaking of course about renewable energy. As sure as history rhymes, if renewable energy can deliver on its promises, I expect a band of the larger players will scheme together to control the global green energy market. And as emissions targets and green policies become ever more politically popular, the companies that can offer governments a “get out of oil card” will have even more leverage.

If this is the case, investors who can identify those few companies today… stand to straddle a multidecade run of riches.

It just so happens that one of our editors here at Southbank Investment Research agrees with me – and he’s on the hunt for the New Seven Sisters too…

All the best,

Boaz Shoshan
Editor, Capital & Conflict

Category: Economics, Geopolitics

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