But the Pine Bend refinery, as everyone called it, had a secret source of profits. And this source of profits could be traced to exactly the kind of government intervention that Hayek hated most. In the 1950s, President Dwight Eisenhower capped the amount of oil that could be imported into the United States, in one of the federal government’s many ploys to protect domestic oil drillers. (Imported oil was often cheaper than domestic oil, so US drillers wanted it kept out.)
But there was a loophole in that law that allowed unlimited imports from Canada. As it happened, Canada was the primary source of oil processed at the Pine Bend refinery. Pine Bend was one of only four refineries in the nation that was able to buy cheaper imported oil in unlimited quantities, giving it a huge advantage over firms that were forced to buy mostly domestic oil. The four companies who benefited from this loophole received a second advantage from the government. Thanks to a complex voucher system for oil imports, companies like Koch were able to “double dip” and exchange their voucher tickets for domestic oil in a scheme that gave them a subsidy of $1.25 per barrel. This loophole boosted profits, and Fred Koch had been happy to remain a minority shareholder and enjoy the windfall. (834-K)