On July 9, 1981, President Reagan, Vice President Bush and a number of aides met in the White House with a delegation of six oilmen organized by the Independent Petroleum Association of America.

The petroleum association and the oilmen wanted billions of dollars of tax breaks to be included in the president's 1981 tax bill, then before Congress.

Their ultimate goal was an exemption from the "windfall" profits tax for the first 1,000 barrels of daily production, a step that would effectively have eliminated the tax for virtually all independents, at a cost to the Treasury of $25 billion over five years.

The president had already agreed to cut by half the windfall profits tax on newly discovered oil. This break, worth $3.2 billion over the next five years for the oil industry, would go primarily to the independents, the wildcatters and entrepreneurs whose business is the search for domestic oil and gas.

The president, however, was not yet prepared to make additional concessions. Instead, he declared in vague terms that he looked forward to a day when he and the oilmen could burn the profits tax "like a mortgage."

The oilmen, recalling Reagan's detailed campaign denunciations of the "windfall" profits tax, went away angry and dissatisfied, but fully prepared to move on other fronts.

Their anger was not based only on a campaign promise left unfulfilled. Five of the six oilmen--Cary M. Maguire of Dallas; Gene Miller of Allegan, Mich.; James E. Russell of Abilene, Tex.; Dalton J. Woods, of Shreveport, La.; and Lew Ward, of Enid, Okla.--had put their money behind their political convictions.

For the 3 1/2 years from 1979 through the first half of 1982, these five men and their close relatives were good for $305,300 in federal campaign contributions, almost all of it to Republican candidates and GOP committees.

Their largess provided the Republican National Committee with $113,000, the Republican senatorial, congressional and a network of federally registered state GOP committees with $65,750, and the Reagan campaign and committees supporting it a total of $29,750.

The five oilmen were part of a major transformation of the upper echelons of GOP fund-raising. Money for political parties and candidates comes from several basic sources: small donors, political action committees and large donors. In this last category of individuals willing to give $500 to $20,000 a year, independent oil has emerged as the single most important special interest in the financing of the Republican National Committee and the National Republican Congressional and Senatorial Campaign committees.

There is a long history of political giving by the oil industry, whose profits are influenced heavily by government tax breaks and price regulation. In the past, oil money flowed freely to both major par- ties.

But beginning in the late 1970s, oil contributions made a shift to the Republican camp, and the sharp rise in oil and gas prices seemed to cement a new alliance between the petroleum industry and the GOP.

Now, abruptly, that alliance is in trouble. Falling oil and gas prices are undercutting the wealth of the independents just as new political and economic pressures on Congress and the Reagan administration threaten their tax and regulatory goals.

In July, 1981, however, the oil industry was still riding high. Undeterred by the presidential rebuff, the industry turned to powerful allies: a dozen oil-state congressmen whose votes would decide the outcome of the tax debate. Both the administration and House Democrats wound up bidding for the support of these "Boll Weevil" conservative congressmen, and the stakes of the bidding were tax breaks for independent oil.

After forcing the White House into this bidding process, the independents joined the administration in lobbying for the tax bill that passed a critical test on the House floor by 238 to 195 on July 29, and was signed into law August 13, 1981.

With only slight exaggeration, Lloyd N. Unsell, vice president of the Independent Petroleum Association of America, would write later: "Despite its divisiveness, the oil tax issue ironically became the glue that held together important elements of the coalition that produced the Reagan tax victory in the House."

The cost of that "glue" was $6.05 billion in tax breaks over five years directed primarily toward the independents--twice what they had before the July 9 session at the White House.

Passage of the tax bill represented the zenith of power for the independent oil industry, which had begun a nine-year, fast-track revival in 1973.

For the previous 20 years, from the early 1950s to the emergence of a powerful international oil cartel in 1973, the price of domestic crude oil was stagnant, moving from $2.68 a barrel in 1953 to only $3.39 in 1972, a drop in prices after accounting for inflation.

During this period, the independents watched in anger as Exxon, Mobil, Gulf and the rest of Big Oil imported relatively cheap foreign oil and profited all along the chain from production and refining to distribution and sale.

But the escalation of oil prices imposed by the Organization of Petroleum Exporting Countries in 1973 and 1979 gave the independents a piggyback ride up the profit ladder. From $3.89 in 1973, the price per barrel shot up to $8.84 in 1976, to $14.27 in 1979, to $23.26 in 1980 and was up to $33.76 in July, 1981, when the oilmen met with Reagan.

As oil prices rose, the center of gravity in Republican fund-raising shifted from Wall Street and Chi- cago into the heart of the Sun Belt.

The Republican National Committee's big givers, who contributed at least $10,000 a year, are called "Eagles," and for years New York had more Eagles than another other city. Now, however, it has been eclipsed by Houston, the center of the oil industry. Moving up fast have been Oklahoma City, Tulsa, Dallas and Midland, Tex., a city with 84,200 residents but in the top 10 on the Eagle list, thanks to its location on the rim of the oil- and gas-rich Permian Basin.

In the heart of these longtime, bedrock Democratic states, the interests of the oil industry were protected from the 1930s into the 1960s by some of the most powerful figures in Congress. Sens. Robert Kerr (D-Okla.) and Lyndon B. Johnson (D-Tex.) in the Senate and Rep. Sam Rayburn (D-Tex.), House speaker during a period of Democratic control from 1940 through 1961, determined the membership of the tax-writing committees and channeled oil money to help keep northern Democrats in line.

The last two decades, however, have seen a steady erosion of this relationship. The reign of Johnson and Rayburn ended in the House and Senate in the early 1960s; the rise of liberal influence in the House Ways and Means Committee led to the partial repeal in 1975 of the oil depletion allowance and the end of oil's control of the tax-writing panel.

Then in 1979, in the midst of a gasoline shortage, President Carter demanded that removal of government price controls on oil be accompanied by a "windfall" profits tax, a special levy on the industry's gains from decontrol of prices. The administration's campaign for the tax was punctuated with repeated complaints about oil industry profits.

"President Carter pushed all the oil people into the Republican Party," said Chet Upham, an independent oilman and chairman of the Texas Republican Party. "There is no question about it: the principles of the Republican Party are more akin to the things that oil and gas people are seeking."

The rightward bias of the oil community, however, has precedents dating to well before Johnson and Rayburn's departures from Congress.

It found expression at least as far back as 1948, when oil money lubricated then-Democrat Strom Thurmond's 1948 Dixiecrat presidential campaign, and in the 1950s, when such prominent independent oilmen as Hugh Roy Cullen, H.L. Hunt and Clint Murchison channeled support to the anti-communist campaigns of Sen. Joseph R. McCarthy (R-Wis.). On behalf of McCarthy, who was known as "Texas' third senator," they were hosts of only the second $100-a-plate dinner for a Republican in Texas history. Oilmen funneled $6.1 million in secret contributions to Richard M. Nixon in 1972.

The explosion in oil and gas prices during the second half of the 1970s coincided with the height of the conservative Republican movement, and the contributions of independent oilmen to this drive have been immense:

Of the $8.433 million in contributions of $500 or more to the Republican National Committee (RNC) for all of 1981 and the first half of 1982, $2.202 million came from only three major oil-producing states: Texas, Louisiana and Oklahoma. Although these states have only 9.4 percent of the nation's population, they supplied just over 26 percent of the major contributions to the RNC.

In contrast, the Democratic National Committee (DNC) raised a total of $2.633 million in contributions of $500 or more during all of 1981 and 1982. Of this, only $73,950, or 2.8 percent, came from Texas, Louisiana and Oklahoma.

Of the $5.71 million raised by the RNC from persons who would qualify as Eagles by giving $10,000 or more, $1.48 million, or 25.9 percent, was from persons with direct ties to the oil industry, and the overwhelming majority were independent oilmen, not officials of major oil companies.

Of all individual contributions of $500 or more to the DNC in 1981 and 1982, persons with identifiable ties to the oil industry gave $62,950, or 2.4 percent of the total of $2.6 million.

In a separate, murky fund-raising arena where the contributions are known as "soft" money and, for the most part, are not required by law to be publicly reported to the Federal Election Commission, independent oil in 1980 was to the Republican Party much as organized labor is to the Democratic Party: a major source of private cash for the presidential general election campaign over and above the $29.44 million given each candidate in public financing.

Herbert E. Alexander, head of the University of Southern California's Citizen Research Foundation, estimated in a study of the 1980 election that each party spent about $19 million in "soft" money. Under legislation passed in 1979, the money could be used for state "volunteer" and "get-out-the-vote" activities. For the Democrats, about $15 million of this came from organized labor.

No formal records were kept, but, in the case of Reagan's presidential campaign, sources estimate that at least a third of the soft money came from oil states. One September, 1981, dinner in Houston raised $2.8 million for what was called the Texas Victory Committee.

Former RNC finance director Robert Perkins, who ran the soft-money drive for the Reagan campaign with Robert Mosbacher, a Houston independent oilman, and Ted Welsh, a Tennessee developer, said: "$20,000 was sort of the price of what we asked people to do. We basically raised it in $20,000 chunks." He said it is impossible in retrospect to determine how much was from oil states or from persons tied directly to the industry.

In addition to the role of oil in the presidential campaign and in financing national Republican committees, Houston, Dallas, Oklahoma City, Midland and Tulsa have become meccas for Republican congressional candidates, particularly conservative Republicans seeking to oust liberal incumbent Democrats.

Then-Rep. Steve Symms (R-Idaho) showed the way by going to Texas early in 1980 and returning with $150,000 to get his successful campaign against Sen. Frank Church (D-Idaho) off the ground. He was followed by a steady march of northern Republicans seeking oil money, and they were not disappointed.

At the same time, independent-oil political action committees with names like DALLENPAC and HOUPAC began to spring up throughout the Southwest, channelling money to conservatives and acting as forums for candidates to make their pitches to groups of oilmen flush with rising profits.

The oil communities stood out as bastions of Republican conservatism in the Texas-Oklahoma terrain of "Yellow Dog Democrats"--voters who, in the local vernacular, "back the Democrat even if he is a scraggy yellow dog and the Republican is Jesus Christ, incarnate."

Democrat Garry Mauro, for example, was elected Texas lands commissioner last year with over 60 percent of the statewide vote. "I carried all but six of the state's 254 counties," Mauro said, "but in Midland, I got 22 percent of the vote."

Rep. Kent R. Hance (D-Tex.) successfully engineered Midland out of his district when the lines were redrawn after the 1980 census. "For a Democrat to have Midland in his district is like trying to represent Munich in 1938," another member of the Texas congressional delegation commented.

In Oklahoma, Rep. Mike Synar, a pro-oil Democrat, noted that "Bartlesville a town of 36,000 people is Phillips Petroleum . . . . I got 38 percent of the vote there compared with 54 percent district-wide in 1980 . I was told I could campaign there day in, day out, and I might get 40 percent."

The ideological and partisan commitment of oil money in national politics stands, however, in sharp contrast to the practices at the state level, particularly in Texas, where Democrats are dominant and preservation of political influence outweighs loyalty to the GOP.

"For Texas businessmen, politics is a participation sport, not a spectator sport," said Martin (Sandy) Sanford, an Austin lobbyist and partner in Houston-based Vinson & Elkins, the premier oil law firm. "We didn't come to watch, we came to play. And business in Texas is the oil business."

During the 1982 gubernatorial contest, the oil community lined up behind William P. Clements Jr., the first Republican governor since Reconstruction, helping him raise a record $13.2 million. But within a month after Clements lost, Mark White, the victor, held a series of "get on board the late train" fund-raisers that produced $3 million from many of the original Clements backers.

At the same time that oilmen in Texas were covering their losing bets on Clements by putting their money behind Governor-elect White, some of the same oilmen, along with a strong contingent from Oklahoma, were starting to break new and dangerous ground.

Not content with seeking the defeat of marginal liberal Democrats, they began to channel money against pro-oil, oil-state Democratic congressmen, men who had fought tough battles for oil on the floor of the House and in its committee rooms.

NEXT: Energy bubble bursts