moving our oil on Greek ships supplied by Mr. Onassis.
He created for King Saud these exciting and cloudy visions of
Saudi Arabia becoming a great maritime nation. We contended that
the requirement was a violation of our concession rights under the
original concession agreement, which provided explicitly that we
would be free to move the oil on ships of our own choosing. And
most of the oil, as you know, was sold as crude oil to purchasers
who picked it up in their own ships at the docks in Saudi Arabia.
We didn't transport it all on our own ships by any means. The
fleets of the world came in there and loaded up oil - customers of
all four of the owners.
That undoubtedly was the most important international
arbitration of the last fifty years. 1
1. See Chapter IX below -for more information on the Aramco
arbitration.
160
VIII INDONESIA: 1964-1966
Background; Oil and Resolution
Hicke: Did the Indonesian problem come along before you became Socal's
vice president for legal affairs?
O'Brien: It came on just before and just after.
Hicke: Well, maybe you could talk about that.
O'Brien: Now that's '64, '65, '66.
Hicke: You became vice president in '66?
O'Brien: Yes, '66. Things had been going from bad to worse in Indonesia for
quite a long time. In the first place, [President] Sukarno's
relationships with the United States had deteriorated very badly
and he seemed to be moving into a Communist orbit. The Communist
party in Indonesia was becoming stronger and stronger - the
so-called PKI, which was the name of the Communist party. In
consequence, he was gradually taking over all of the foreign oil
companies in his country.
Hicke: One after the other, or how was this being done?
O'Brien: Well, they were being either bought out or forced out in some way,
and the international situation was deteriorating. He adopted all
sorts of tactics. He was very shrewd. He didn't want to adopt a
decree of expropriation in so many words, but he was making life so
miserable and so difficult and so unprofitable that most people
were ready to throw in the towel. Shell, Jersey, Mobil and the
rest of them all got out of the country.
161
Among other things, he had a special oil rate and exchange
rate, which was a way of milking the oil companies. Finally, the
thing came to a head for Caltex Indonesia when he manufactured a
lot of riots, and we had people banging on the doors and shouting
and yelling - what we see too typically in protests around the
world now. These were all phoney-baloney riots, as a consequence
of which he adopted a decree putting our operations, in effect,
under protective custody allegedly in order to keep us out of the
hands of these rioters. And "to protect" our interests, he put in
a supervisory team to run our business.
The chief executive in Indonesia at that time was one of the
greatest guys I ever met. His name was Art Brown. Art Brown was a
tall, spare, graying man with enormous energy and absolutely
imperturbable style, endless patience, and very smart. He had
served in Venezuela and had had other overseas assignments. We
were fortunate as well that the president of the company was a
famous Indonesian by the name of Julius Tahiya. Tahiya had been a
war hero in Indonesia in the wars of revolution to throw the Dutch
out of Indonesia, and I believe that he was an officer himself in
the Indonesian army. But he was a fellow of infinite skill, highly
respected, with great courage, because now things were really
getting pretty dangerous.
Hicke: Was he seen to be a traitor to the enemy?
O'Brien: Oh, I don't know that he was - it's very hard for me to say. We
talk about the Chinese being inscrutable, but I often think that
the Javanese are far more subtle than the Chinese and the
Orientals.
In any event, a decree was adopted, as I say, that put teams
in to run our business for us. And these were largely made up of
peoples' committees, and those committees were in turn made up of
some of the labor leaders, things of that sort. So they came and
sat down in the manager's chair and took his automobile over and
all that and started to run our business.
I got called in then - I was a partner in PM&S - to advise
with the company as to how we should respond. Mr. Follis felt
great concern and anxiety over these developments, particularly
since the United States government despised Sukarno. Howard Jones,
who was our ambassador and was the senior member of the diplomatic
corps in Indonesia, was constantly being humiliated by Sukarno. As
the senior diplomat in the corps he usually, at receptions and
public affairs, sat very close to Sukarno, who just practically
spit in his face. And the United States government had just about
had it with Mr. Sukarno.
162
But Howard Jones, bless his soul, insisted that we ought to
hang in there, that we ought to stay. Meanwhile, here was Caltex
gradually and effectively being driven down to the shore and poked
with a sharp stick and no longer able to control its affairs and
with government intervention and so on. I think Mr. Follis was
very much concerned about the security of our people. We had an
expatriate corps and we had a lot of Indonesian employees who might
suddenly go through some blood bath. We were aware of the internal
rumblings that were going on in the country.
Hicke: Were you the only oil company left? You said that the others had
gone.
O'Brien: I think we were. We were the largest; we always have been and
still are the largest producers in Indonesia, and at that time we
were probably generating at least 50 percent of the country's
revenues .
There had been an earlier revolution, or attempted revolt, in
Sumatra against Sukarno, which the United States government was
suspected of having possibly engineered but certainly supported, by
a fellow named Nasation. I think the CIA might have been involved
in that, at least that's what the press reported. In addition,
Indonesia was at war with Malaysia, and President Johnson had
announced that he was sending foreign aid and military equipment to
Malaysia.
So here we had the situation of our affiliate controlling the
major oil production that fueled Indonesia's military, its ships,
its airplanes, its tanks, its military armada, if you like, all in
the hands of foreigners who were openly supporting a country with
which Indonesia was at war.
Hicke: A very odd situation, certainly.
O'Brien: Yes, an odd situation. Anyway, I was in very close contact with
the State Department and with some of the other agencies of the
U.S. government. Once or twice I went to Hawaii or Hong Kong -
I've forgotten which - and Art Brown and Julius Tahiya flew there
from Indonesia because I couldn't get into Indonesia. I guess
there must have been a Texaco representative there, but I can't
remember - I'm not sure there was.
In any event, we would figure out, plot and plan as to how we
ought to handle ourselves. Mr. Follis was toying with the idea of
shutting down completely, because obviously this was a very
dangerous and explosive situation. Moreover, it was not a very
good example for other places in which we held important
concessions. If Indonesia could effectively get away with this
rinky-dink of running your business and protecting you against the
163
angry populace that was being exploited by the wicked oil company
and all that kind of jazz - feeling these great nationalistic
surges - it would be an unfortunate example of our weakness and
passivity if we couldn't counter in some way.
Legal Principles of the Concession
O'Brien: I got into this because Mr. Follis asked me to give the company an
opinion on the question of whether we were legally entitled to shut
down. I wrote an opinion saying we were not.
Hicke: What was that based on?
O'Brien: Well, a study of the concession agreement and the legal principles.
It was based on a construction of provisions of the concession. I
remember remarking that there were some very broad provisions in
the concession agreement that said that we had to act in the
interests of the great nation of Indonesia, and that we could be
challenged for failure to perform our part of the contract if we
shut down through a failure to recognize the spirit of that
provision which in some vague ways obligated us to support
Indonesia in its independence. I suppose that opinion could be
resurrected. I wrote such an opinion.
In any event, we played along, and as I say, I went to the
Pacific a couple of times and met Art Brown and Julius Tahiya, and
then they flew back to Indonesia and I flew to Washington to talk
to the State Department and to others to keep them apprised as to
what was really happening and not let them get so outraged and
indignant that the U.S. would break off relationships with
Indonesia. Then the fat would really be in the fire; we'd be done.
Hicke: You'd really be stranded then.
What would be the legal consequences, had you shut down in
violation of the concession?
O'Brien: Well, we'd forfeit the concession, perhaps. We would have provided
the government of Indonesia an excuse to rescind the contract, to
cancel it, and given them the excuse of saying, "Well, that's that,
it ' s over. "
Anyway, fate intervened. That was the time when the palace
guard murdered all the generals, threw their bodies down the well,
and destroyed everybody except Suharto, who rallied his troops and
overcame the rebels who were inspired, I guess, by Sukarno.
Meanwhile, we were privately negotiating all the time with the
16A
foreign minister and other people. I can't remember all their
names, but I'll tell you an interesting story.
I saw last week an article that said that the foreign
minister - Sukarno's foreign minister - has been in jail ever
since that thing happened. His name was [Dr.] Subandrio, a really
wicked man. Subandrio, the New York Times reported a week or two
ago, offered to tell the Indonesian government finally where some
billions of dollars in gold had been secreted by Sukarno if they'd
let him out of jail finally. He's been in jail since 1966, '67.
Hicke: You'd think he would have thought of this before.
O'Brien: Yes.
Hicke: Did it say they actually came up with the money and freed him?
O'Brien: No, they haven't done that and a lot of people - the Swiss and
others - say it would be impossible for anybody to have hidden
away that much gold in Switzerland or other places. So I don't
know whether there's anything to the story or whether he's just
trying to get out.
Some of the other people in Sukarno's inner group were left
out in the wet to die after this takeover attempt which failed.
And the Communist party, the PKI, was effectively destroyed in
Indonesia. Nobody knows how many people died in that great
revolution. There were reports coming out, but very meager
reports, that all of the great rivers in Indonesia were just full
of bodies that clogged the harbors. They probably destroyed three
or four or five hundred thousand people.
What started out as a revolution to rid themselves of
Communist influence in their country, I guess turned into a few
other sorts of bloodbaths that involved paying off old scores. The
Chinese suffered a great deal because they were the merchant class
and the Indonesians felt no affection for them. Anyway, it went on
for months and the country was essentially sealed off, and nobody
knew the extent of the deaths or how the whole thing would turn
out. But ultimately, Suharto emerged in control of the country.
One of the first official acts that happened to me after I
became a vice president of Standard Oil Company was this: I was
about to leave with Bud Lund, who wanted to take me and Mary Louise
O'Brien and an entourage of explorationists on a trip all through
South America to visit all of the places where we were producing
oil - Columbia, Venezuela, and elsewhere - and introduce me
around and show me a little bit about the foreign exploration and
production business.
165
Almost the day before we were to leave Otto Miller called me.
He was now president, and he was keenly interested in everything
that was happening in Indonesia and watching it very closely along
with Mr. Follis. He called me in and said that Ibnu Sotowo, the
general who was a confidant of General Suharto and who was now the
minister of petroleum after months of silence and no really
detailed communications between us and our people who were keeping
their heads down, was going to the Netherlands and he would like
very much to see representatives of Socal and Texaco in Amsterdam.
Hicke: That was the wrong direction for you.
O'Brien: Yes. A gentleman named Harvey Cash from Texaco, who was a very
senior director and officer of the company, and I met in Amsterdam
and spent a day talking to Ibnu. Julius Tahiya was there. I can't
remember whether Art Brown was there or not. Anyway, we said,
"We're practically flat on our back. You've manipulated the
exchange rights and taken over our business. But if it's your
intention really to honor your contractual arrangements with us, if
you'll correct some of these basic things that are fundamental to
our being able to continue to operate, we're prepared to continue
to make the investment to get the country going again, to start
producing oil in substantial quantities that will provide the
revenue for this new government to make its way."
Ibnu Sotowo is blacker than the ace of spades, shiny, speaks
pretty good English, was smart as the dickens, very bright, very
cunning, very Javanese. And within a few weeks, he fixed most of
those things; they fixed the currency rates and so on. We began
again, and we've enjoyed a wonderful relationship with the
Indonesians. They keep trying to get more money out of us all the
time, but it's one of the biggest moneymakers on the Standard Oil
balance sheet.
Hicke: That was a nice bit of advice you gave on not giving up on the
concession - it saved Socal 's operations there.
O'Brien: Well, there wasn't any other advice to give. But now we couldn't
go on the way we were, and they had gone through a bloody
revolution, and they needed support and encouragement. If you look
at the thing from a geopolitical point of view, it was probably the
most important event after World War II, and I'll explain why.
n
166
Geopolitical Implications
O'Brien: In the '60s, China - huge, mysterious, menacing with a billion
people - was our mortal enemy. Around the perimeter of China, you
have Korea, Japan, Taiwan, Philippines, Indonesia, Australia, New
Zealand, and on through the Straits of Malacca into the Indian
Ocean and the Middle East. Those countries on the perimeter of
China are all part of the free world except for North Korea. The
great sea routes from the Middle East into the Far East run through
Indonesia and the Straits of Malacca. If the Chinese, in effect
through the PKI, had prevailed and Indonesia had ceased to be part
of the free world, that would have blocked the most important
strategic gateway into the Far East from the Middle East.
Here are nations that became a showcase of industrial
development in the Far Pacific - the South Koreans, the Japanese,
the Taiwanese - all had this incredible industrial growth. The
Philippines lagged only because of their inability to get their act
together - their political problems and so on. But because the
Communists lost in Indonesia, all of those nations continued to be
part of the free world and part of an open Pacific basin, if you
like, and we are still moving.
Look at Japan today: it has no indigenous oil production
today, one of the greatest - the greatest - industrial nations in
the world in terms of their financial condition today, relying
totally on supplies of oil produced in the Middle East. They had
modified their refineries, at our urging and salesmanship and
marketing, to use Indonesian crude. Caltex was partners in Japan
with the biggest company, the Nippon Oil Company, in the
construction of some of the largest refineries to use Indonesian
crude, because it was practically free of any sort of pollution.
It was a very heavy, waxy crude that had almost no sulphur in it.
So it made a profound contribution to the situation in a country
that's consumed by air pollution.
All of those things were important, and the United States,
after General Suharto emerged victorious from this struggle, took
tremendous interest in Indonesia and its survival. I'll tell you
another little story just before we quit. They became the darling
of the World Bank in the days when Mr. [Robert] McNamara was
running the World Bank, and it made substantial loans to Indonesia.
And Indonesia gradually came to be "run" in an economic sense by a
bunch of Ph.Ds from Berkeley, a bunch of Indonesians who taken
their doctorates at Berkeley and were called the Berkeley Mafia in
Jakarta.
167
I'll give you an example. At that time in the United States
we had oil import restrictions, and only so much foreign oil could
be brought into the United States. It was controlled by a system
of granting so-called tickets, import tickets, given to those
traditional importers who had received supplies in the United
States from foreign countries. It occurred to Tom Powell and me
that maybe we could greatly increase the market for Indonesian oil
if we could get the import control program modified in a way to
permit the shipment of Indonesian oil to the United States and
particularly into the Los Angeles area where it would have a
tremendous effect on the pollution problem there. I thought it
would require new legislation, and Mr. Powell and I drafted such
legislation.
Hicke: Federal?
O'Brien: Federal legislation. We went to Washington and we presented it to
the Interior Department and then we went over and presented it to
the State Department. We saw a gentleman, an assistant secretary
of state in the State Department who was in charge of monitoring
all of Indonesia's foreign debt - the debt it owed to all foreign
countries - and working out patterns of rescheduling their debt so
that they could balance their payments of their debt with the
revenues that they were generating in their own economy, all that.
When we explained this program of ours, he practically jumped
out of his chair, he thought it was so great. He was so eager to
do it, and I said, "Well, wait until we talk to the Interior
Department, at least. They're the ones that have control of this."
Anyway, to make a long story short, that eventually happened, and
Indonesian oil was given a place, over the resistance of most of
the other domestic oil companies who opposed this. After hearings,
the regulations on oil imports were modified to permit the
importation of Indonesian oil, which added to Indonesian revenues.
Eventually, they actually shipped Indonesian oil to New York.
Hicke: They need it also [to diminish pollution],
O'Brien: Indonesian oil occupied a very important strategic role in the mind
of the United States.
Hicke: I'm thinking back to that moment when you told Mr. Follis that he
shouldn't close the concession. That was pretty crucial.
O'Brien: I wasn't aware of all the strategic considerations.
Hicke: Well, obviously you couldn't see what was going to happen, but
looking back on it, that was certainly a crucial point.
Visit to an important discovery well in Central Sumatra, March 1970.
O'Brien and Douglas Magee.
James E.
168
O'Brien: Veil, another thing that worried me at the time was that we had
undertaken an obligation to Indonesianize our operation. That
meant that maybe 90 percent of everybody connected with the
operations in Indonesia had to be Indonesian. I wanted to make
sure that we couldn't be caught out of school on how that provision
was interpreted and whether we had met, in every category of our
operations, that 90 percent requirement.
And there are other things like that that would be a concern
to any lawyer reading the agreement, about whether we were
absolutely on solid ground in shutting down our operations. Maybe
we could have done it by suspending them, or something of that
sort, but Sukarno had us right down onto the shore, and almost any
step we took might have provided him with an excuse. My role was
really trying to preserve our legal position, so that if the ax
finally fell, we would have an international arbitration against
Indonesia, because we had a very airtight contract which provided
for international arbitration. But more importantly, once you're
out of business, you're out of business. You couldn't have made
water run uphill, I'm afraid.
In any event, for whatever reason, we managed to worry our way
through the thing. I wound up with a profound affection for the
country, for the people, and I've enjoyed going back there from
time to time. Still have friends there.
Hicke: During this blackout period, did you maintain telephone contact
with Julius Tahiya, or cable?
O'Brien: Well, the company did, yes.
Hicke: They were able to get -
O'Brien: Well, they would fly to Singapore and telephone.
Hicke: Oh, I see.
O'Brien: I think that was the way it was probably done. You had to get out
of the country a little bit.
Hicke: Can you tell me a little bit more about General Suharto?
O'Brien: Well, no, I can't tell you very much.
Hicke: Did you know him personally?
O'Brien: No. He was just reelected for another term, another eight years.
Someday they're going to have to turn the country over to the
civilian operation again: It's still effectively a military
dictatorship, although they have this huge parliament. It has not
169
been what you'd call a functioning democracy. There have been
tremendous accusations over all the years of corruption among the
generals. I don't know what truth there is in it. Even the
newspapers in Indonesia have been bold enough to accuse Mrs.
Suharto of lining her pockets.
Hicke: Building up the shoes in her closet and so on?
O'Brien: Well, I don't think she's Mrs. [Imelda] Marcos. If any of that's
true, she's probably just a good businesswoman.
Hicke: And did you ever get your tour through the oil-producing
countries of South America and the Pacific?
O'Brien: Yes, after I saw Ibnu Sotowo, I flew to New York and from there
to Caracas and picked up this company plane that was flying Bud
Lund and Mrs. Lund and a dozen other people, including Mrs. [Mary
Louise] O'Brien; she went with them. I joined them in Caracas
and we did some of the rest of the trip.
Edward H. Hills and the Gambling Casino: An Aside
[Interview 11: November 30, 1988 ]##
Hicke: You indicated that you remembered a story about the Edward H.
Hills estate up at Nevada.
O'Brien: Yes. This is just sort of an asterisk. Edward Hills who was the
senior member of this Hills tribe- -Hills [Bros.] Coffee Company- -
had a lovely summer home at Lake Tahoe. The only problem was
that next door was a big gambling casino. One day he called
Marshall Madison to say that he had heard from his caretaker that
the gamblers- -let' s say the place was Stateline; I don't remember
whether it was Stateline or CalNeva - the gamblers had bulldozed
down all the man-proof fences between Hills' property and the
gambling casino and started building a string of bungalows to
house their guests. Naturally, Mr. Hills was much alarmed and in
considerable uproar.
Marshall handed over the problem to me and I - after some
lengthy conversations with Mr. Hills- -engaged an attorney in Reno
to represent him. We promptly filed a suit against the gambling
170
casino and sought a temporary restraining order and permanent
injunction against their trespass on Mr. Hills ' s property.
We got the temporary restraining order and construction of the
bungalows was suspended, but it seemed to be impossible to get the
case to trial. I hired some private detectives to check out the
gamblers who were listed on the casino's license. I did that
because I had the impression that perhaps the true owners were some
Chicago hoods for whom the recorded licensees were just fronting.
Those investigations took several months and in the end it appeared
that all the licensees really had Ph.D degrees in gambling, since
all of them had long arrest records in other states for gambling
violations .
Hicke: You said that these were the famous Pinkerton detectives that you
called in.
O'Brien: Well, I called them Pinkertons. They were a number of
investigating agencies, because these gamblers were fairly mobile
and had operated in various states of the United States.