40THE OIL AGE ARRIVESrents to the state. The IOCs typically demurred. The Seven Sisters
remained beholden to the terms of the then- secret 1928 Achnacarry
Agreement, which required companies to maintain tight control over the
amount of oil reaching global markets in order to avoid overproduction,
which would bring down prices and damage profits. To comply with the
conflicting demands of host governments and the oil market, IOCs went
as far as drilling in areas they knew would yield no oil.^30
Western oil companies used other techniques to maintain control,
such as deploying pipelines to extend the crude oil value chain across
international borders. This diluted the bargaining power of host govern-
ments because their fates were linked with those of neighboring coun-
tries, which dealt separately with the IOCs. Decentralization also thinned
concentrations of workers who might be tempted to strike.^31
Despite these efforts, the companies’ leverage began to slip. Over time,
the advantage shifted to host governments. The irrefutable fact was that
IOCs had constructed fixed assets worth billions of dollars on the
sovereign territory of their concession partners. These “facts on the
ground” could not be picked up and moved. Built infrastructure pro-
vided the initial leverage for host governments to demand changes in
the terms of their concessions. Host governments also held legal juris-
diction over their territories and their subsurface resources. They held
the power to reassert control in the national interest. The shift in advan-
tage from foreign investor to host government became known as the
“obsolescing bargain.”^32
ULTIMATUMS AND THE CREEP
OF NATIONALIZATIONIn 1938, Mexico provided a dramatic example of the power of a politi-
cian willing to shred a concession— and the inability of Western IOCs
to do a thing about it. Mexican President Lazaro Cardenas, fed up with
insulting treatment at the hands of British and American concession-
aires, ordered the overnight expropriation of all foreign oil assets.