Economic Policy and Foreign Capital in the Creation and Rise of Copec

Abstract

In the early twentieth century, Chileans dreamed of producing and exporting oil, but the reality was that they remained dependent on imports supplied by two large multinational companies, Shell and Esso. As consumption of oil products grew, Chileans’ frustrations increased. During the Depression, a shortage of foreign exchange, continuing devaluation, price controls and lukewarm diplomatic support seriously affected the oil companies, while nationalist criticism of their duopoly intensified. With the support of the Alessandri government, a group of young engineers formed COPEC (the Compañía de Petroleos de Chile) in 1934. Although the multinationals initially opposed COPEC, they proved unable to resist its entry into the market without support from their home governments; eventually the three firms signed a market-sharing agreement in 1937. The multinationals found that ultimately this benefited them by allowing them to establish closer relations with government officials and private-sector businessmen. The Chilean state thus proved able to take advantage of favourable circumstances, control the activities of the foreign companies, and provide openings for local capitalists. The cartel persisted until 1978 when the military government of General Pinochet liberalised the market. In response, Copec became a much more diversified business group with investments in a range of activities.