"Voluntary" Renegotiation of Previously Binding Contracts.

My posting of yesterday, immediately beneath this, reports that the Irish are to seek "agreement by consent" to a change in the conditions of the terms under which certain senior debt is held by some of Ireland's financial institutions. A devious way of stating the first step on the slippery downwards slide towards sovereign default is about to be taken. I have some experience of the consequences of so-called "voluntary" renegotiating contracts previously considered inviolable if not indeed sacrosanct. I regret a little detailed historical background is required for readers some decades later to understand the enormity of the events described. In the post WWII years, world crude oil supplies were controlled by the seven "major" oil companies. These seven, sometimes known as the seven sisters, (five American, one British and one Anglo-Dutch) determined which new supplies be brought on stream and when to ensure adequate supply at fixed prices. In order to meet the desire of the larger oil producing states around the Persian/Arabian Gulf to have their national income grow at a reasonable rate, the major oil companies, unwilling to offer any price increases, committed to increasing their liftings from the main producing countries at an annual rate of six per cent. (It is interesting to note, as a complete digression from my main point in this explanation, that these cheap and growing supplies of fixed price energy particularly aided the nations of Europe, the six Common Market Club members of which were at that time typically involved in endless quarrels over butter mountains, wine lakes and other pointless one upmanship and beggar my neighbour point scoring which they continue to this day. Economic growth was actually fuelled by all this fixed price oil flooding into the market, the paricular US major by which I was employed to seek homes for such supplies expanded its refining base in the late sixties in Europe from two to five oil refineries). Such a cosy arrangement did not, of course, suit everyone; Colonel Gadaffi in Libya for one fumed at having large reservoirs of light, low sulphur crude oil locked beneath his deserts yet tantalisingly close to the lucrative European markets. Gadaffi brought in smaller but nevertheless international US oil companies (known as independents, typified by Occidental and Conoco) to develop his reserves and bring them to market. Once these new supplies came on stream he bagan to apply pressure to hike the prices, which the independents found difficult to resist given the large investments they had already made in production and export facilities. The majors in an attempt to stiffen resistance to Gadaffi offered the independents alternative supply arrangements. These, of necessity were in the middle east, requiring massive additional transportation to reach their markets in Europe. Occidental, anticipating an exercise of such safety net arrangements, went on to the tanker charter market and contracted significant numbers of tankers at premium rates. Although tanker charters were not handled on the Baltic Exchange, the renowned philosophy belonging to that institution "my word is my bond" held true, and Charter Parties once agreed could up to that point never be renegotiated. As oil prices began to rise, in contradiction of normal market rules, because it was becoming increasingly difficult to find a home for the annual six per cent oil production increases, the safety net offered to Occidental was no longer needed and Oxy had no need for or proper employment for the chartered tonnage. The company's founder Armand Hammer (Arm and Hammer?) determined that the charters would be re-negotiated and that was effected. Concurrently fixed price oil contracts could no longer be honoured at the new higher prices, sovereign oil producing states in the West who should have known better, such as the UK and Norway, enforced changes to their Oil Licence and Production Agreements to capitalize on the higher price, as they justified it, to share in the "windfall" profits. Honesty in contract law became history in energy related industries (although resistance to renegotiating Charter Parties was fought for by some until the mid-nineteen-eighties) thus the seeds of the deep slump, for which Margaret Thatcher is still blamed by certain fools to this day, took root. If Ireland proceeds to gain consent for changing the terms under which its banks foolishly borrowed money, there can be no calculating the consequences. Feeding greed never pays as can be seen, I believe, in the consequences of the events I describe above.