In Mandate Palestine, the oil industry was dominated by Shell Palestine (a subsidiary of Royal Dutch Shell), Socony-Vacuum (a subsidiary of Mobil Oil) and British Petroleum. In the decade following the establishment of the State of Israel in 1948, the oil industry experienced a dramatic change when these multinational companies were replaced by Israeli companies: Delek, Paz and Sonol. How and why did this process happen?
In this paper I examine the transition based on documents from the archives in Israel, the US, the UK and Germany, alongside personal papers, memoirs and newspapers. I argue that the reasons for this localization were the dwindling foreign currency reserves which led the state to establish Delek, a state-owned enterprise in 1951, and to the use of a third of the reparations from Germany to purchase oil. Additionally, the withdrawal of the multinational firms from the country due to Arab pressures, led to their replacement with the Israeli privately-owned companies, Paz and Sonol, towards the end of the 1950s. These three companies dominated Israel's energy market for decades to come.
The localization of Israel's oil industry was a public-private enterprise, involving local banks, transportation and shipping companies, and investments by Jewish capitalists from the US and the UK. Considering the socialist ideology of Israeli leaders, their developmentalist agenda and oil's centrality for Israel's economic and military needs, why wasn't the oil industry nationalized? I argue that there were two main factors for this "privatized nationalization" policy: economically, the Israeli state lacked the capital needed for such an expensive project; politically, the backdrop of the Cold War favored a more moderate approach.
The transition to a local oil industry sheds light on the nexus between state and capital during the formative period of Israel's existence.