Oil, Money & Power

The book paints a comprehensive picture of the history of the oil industry – the struggle for money and power surrounding oil. This struggle shook the global economy, reflected the consequences of world and regional wars, and changed the destiny of humanity in general and individual nations in particular.

The global financial markets were shaken in August 1982, but hasty measures taken during Mexico Week and the days that followed stabilized the global financial system. Mexico's debt was extended; however, once the global oil crisis had passed, the "power of oil" turned out not to be as strong as people had thought.

For an oil-exporting nation, oil is not only a strength but also a weakness. Furthermore, another transition is imminent. In this transition, the oil crisis will become an international debt crisis, with oil-exporting nations as the debtors, having borrowed based on the belief that oil would always sell at high prices.

While Mexico was teetering on the brink of bankruptcy, another small bank, Penn Square, located in an unassuming shopping mall in Oklahoma, was also facing default. It was a bank specializing in energy-based loans.

Penn Square Bank became the focus of intense debate between the Federal Reserve and other regulatory agencies. But why so much attention was being paid to a small bank nestled in a suburban shopping district, while Mexico was on the verge of bankruptcy?

The reason was that the bank issued large loans for oil and gas, most of which were problematic. It then resold approximately two billion dollars worth of these loans to major money market banks such as Continental Illinois, Bank of America, and Chase Manhattan. But Penn Square held a portfolio of worthless debt. The bank was unable to repay its debts and had to close. However, that wasn't the end of it.

Nationally, the most active bank in energy-based lending is Continental Illinois, the largest in the Midwest and the seventh largest nationally. Overall, it's the fastest-growing lending bank and has won awards for best management. Its chairman has been named "Banker of the Year." Continental Illinois is a formidable competitor with a rapidly growing market share in oil and gas-based debt lending, among other sectors. The Wall Street Journal has called Continental Illinois "the unbeatable bank."

When oil prices fall, it's clear that Continental Illinois, with its massive portfolio of energy-based loans transferred from Penn Square and other sources, is in a precarious situation.

As a result, 1984 marked the largest number of bank withdrawals in world history. Banks and other companies globally withdrew money en masse. Continental Illinois' credit rating showed very pessimistic signs. Following this, the entire banking system was also in dire straits.

The federal government was forced to intervene with a $5.5 million guarantee of new capital, $8 million in emergency loans, and of course, a new management team. Something unprecedented in the US, at least up to that point, was the nationalization of Continental Illinois. The consequences of such a large-scale operation without a timely response were dire.

With the decline of Continental Illinois, energy-based lending immediately became less attractive. Any bank intending to or able to lend to energy companies had to reconsider its operating procedures more strictly. This made obtaining oil and gas loans much more difficult than before. Without capital, they would be unable to exploit or develop, even during a boom in oil prices.

Source: https://znews.vn/quyen-nang-cua-dau-mo-lon-toi-dau-post1650725.html