While operating as part of an international financial system, and as the energy that made it possible to imagine the limitless growth of ‘the economy’, oil was a fluid that petroleum workers in production fields in different parts of the world recovered from beneath the ground, stored in tanks, processed in treatment plants, pumped into pipelines, loaded onto tankers and transported across oceans. The drilling rigs, pumps, pipelines, refineries and distribution networks of the oil industry were not as vulnerable to stoppages or sabotage as the carbon energy networks of the coal age. Nevertheless, as the Middle East replaced Latin America as the world’s second-most-productive oil region after the United States, the possibilities for local disruption increased.1
Governments eventually came to power in Iraq, Algeria, Syria and Libya that were independent of British and French political influence, while the two American client states, Iran and Saudi Arabia, began attempting to loosen foreign control of their oil. These changes allowed local disputes and disruptions to be built into something more effective. Interrupting or reducing the supply of oil could become an instrument to be used for larger political purposes, aimed at altering the control of oil or changing other aspects of the political order in the Middle East. The construction of this instrument is usually described in terms of the emergence of a new political consciousness: the growth of a more assertive Arab nationalism. Equally important, however, were the practical forms of recalcitrance: the rerouting of oil supplies, the building of new refineries, and the acts of sabotage that made possible the first sustained challenge to the way Western oil companies managed the flow of oil.
During the 1960s, the oil-producing states of the Middle East sought a way to take national control of their oil reserves without suffering the fate of Iran a decade earlier. When the government of Muhammad Mossadegh nationalised the assets of the Anglo-Iranian Oil Company in 1951, Iran had taken over the production of oil but was unable to sell it. The British blockaded exports from the refinery at Abadan, persuading tanker fleets and major oil companies to refuse to handle the oil. Anglo-Iranian made up the lost supplies by doubling production in the neighbouring oilfields of Kuwait, which became the largest producer in the Middle East. Since oil formed a large part of Iran’s export revenues, the blockade threw the country into economic crisis, leaving the government an easy target for the Anglo-American-organised military coup of August 1953. The coup removed Mossadegh’s parliamentary-based government, restored and enhanced the oligarchic rule of the shah, and exposed the left to violent repression.
Iraq was the next focus of the struggle between the oil firms and the producer countries. Like Iran it had a large agrarian population, while its cities were growing with the migrant poor driven from the countryside by the concentration of land in the hands of large landowners whose control over rural life and livelihoods had been consolidated under the British. In the oilfields, the railway yards and the textile mills, the workforce had formed active trade unions. The leadership of these and other popular political forces came largely from the Communist Party of Iraq, the largest and best-organised party in the country. The left campaigned for jobs, housing and other improvements to collective welfare, for ending the private control of large estates that caused misery in the countryside, for democratic rights in place of political repression and for ending foreign control of the oil industry.2
As the control of oil became the focus of popular political forces, it led to their undoing. The power of sabotage – the capacity to block or slow the flow of oil, a capacity that had previously been monopolised largely by the international oil companies – would be organised not by the workers who operated the oil industry, but by the state. When nationalist army officers led by Abd al-Karim Qasim overthrew the British-backed monarchical government in 1958, they relied initially on the Communists for popular support while trying to unify the country around a campaign for the control of oil. For Qasim and his successors, taking state ownership of the country’s petroleum resources would offer a way to finance social reforms while bypassing those modes of wealth-creation that make the well off vulnerable to egalitarian demands. Oil revenues would remove the need to create national wealth through a radical redistribution of land and a large increase in manufacturing.
In other parts of the world (in much of East and South Asia, for example), effective agrarian reform was a critical instrument for building more egalitarian and democratic ways of life. Limiting the size of farms to the area that a family could work on its own removed from the wealthy the option of earning large rentier incomes from land, obliging those seeking to accumulate wealth to build it through the development of manufacturing. Such a change has a double effect, creating more equality (and smaller, more productive farms) in the countryside, while making those with capital gradually vulnerable to the power of an industrial workforce. Democratisation has generally depended on engineering such forms of vulnerability. The vulnerability arises not because manufacturing allows workers to gather and share ideas, or form what is called a ‘social movement’, but because it can render the technical processes of producing concentrations of wealth dependent on the well-being of large numbers of people.
The new Iraqi government attempted a redistribution of large agrarian estates, but struggled to implement the programme in the face of landlord opposition and a succession of serious droughts. It set the upper limit on landholding at 250 hectares (over 600 acres) of irrigated land, and double that area of rain-fed land.3 In East Asia, governments driven by the fear that peasants and their allies might try to emulate the Communist revolution in China carried out land reform programmes that set limits on owning irrigated land as low as three hectares. Retaining their large estates, those with capital in Iraq had no need to take the difficult path of earning wealth through manufacturing, and would later enjoy the opportunities in trade, contracting and other services required by a government steadily enriched by oil. While manufacturing depends on complex human–mechanical processes that are vulnerable to sabotage, giving large industrial workforces the ability to make effective political demands, national control of oil would place its revenues in the hands of the state, gradually strengthening the powers of government and reducing its initial dependence on popular forces.4
Among the four large oil-producing countries of the Middle East in that period – Iran, Iraq, Saudi Arabia and Kuwait – Iraq’s situation was peculiar. It was the country where the companies that controlled the world’s major oil regions least wanted to produce more of it. The industry was under the management of the Anglo-Iranian Oil Company, now renamed British Petroleum. From the creation of the Iraqi oil industry in the 1920s, BP had sought to develop the country’s oil more slowly than production in neighbouring countries. The company produced oil on behalf of a consortium, the Iraq Petroleum Company, in an arrangement similar to that in the neighbouring countries (including Iran after 1953). BP’s partners in Iraq, however, included not only other members of the ‘seven sisters’, the cartel formed by BP, Shell and the five major US oil firms, but the French oil consortium Compagnie Française des Pétroles (known today as Total) and its ally Calouste Gulbenkian, the go-between who had built the consortium. Raising production in Iraq increased the market share of the French and Gulbenkian, whereas growth in the other three countries was shared only among the cartel.5 As a result, oil production in Iraq grew at a much slower rate than among its neighbours.
BP delayed the completion of the pipeline to export the oil, deliberately drilled shallow wells to avoid discovering additional supplies, and plugged wildcat wells that yielded large finds to conceal their existence from the government. Although Iraq’s reserves were comparable to those of the other three countries, its production in the 1950s and 1960s was kept at about half the level of the others, or less. BP and its partners used Iraq as the swing producer, with a large undeveloped capacity that was increased only to meet exceptional demand.6
Compared to Iran, where nationalisation had already been defeated, Iraq’s position was even weaker. The bulk of its oil was exported by pipeline through Syria to the Mediterranean, so it did not control the point of shipment. It had a small refinery to process oil for domestic consumption, but the main refinery supplying regional markets was placed at the Mediterranean end of the pipeline, leaving Iraq no independent means of processing oil for export.
When Qasim and his fellow army officers overthrew the British-backed monarchical government in 1958, they realised that these weaknesses would enable the major oil companies to defeat any attempt to nationalise the industry. Qasim’s initial goal was to construct the equipment to overcome this vulnerability. He proposed that the Iraq Petroleum Company (IPC) lay a pipeline from the Mosul oilfields in the north to Basra in the south, and build a refinery there for export. The oil companies refused. They had no wish to give Iraq the ability to process and export its own oil. Unknown to Qasim, moreover, there was already more than enough oil in the south. IPC estimated that the North Rumaila field near Basra might be the largest or second-largest oilfield in the world. In negotiations with the Iraqi government, however, BP kept this secret, noting that it would not be prudent at this stage ‘to mention latent possibilities of greater Rumaila development’.7
The annual dividend BP paid its shareholders had grown from 16 pence per share in the early 1950s to 43 pence in 1954, or 43 per cent of the original value of each share. Given the postwar economic austerity in Britain and the demand of Iraq and other producer countries for a greater share of the income, the senior minister at the British Treasury had become embarrassed by the level of shareholder profits, and demanded in private that it be reduced. ‘It is impossible to go on with these stooges’, he wrote in an internal memo, threatening to publicly repudiate the directors of ‘this unpatriotic organization’. BP refused to bend, pointing to the criterion that mattered most: its rival, Shell, paid higher returns. The 43 per cent return was soon surpassed; BP increased its dividend to 75 pence per share in the late 1950s, and to 117 pence in 1960.8 Since increased production would lower prices and threaten this extraordinary rate of surplus income, BP was anxious not to see a new field like North Rumaila developed.
Unable to nationalise IPC, Iraq planned to develop a national oil industry alongside it. It proposed that the company relinquish part of the concession area, which covered almost the entire country. Under the original concession agreement of 1925, IPC had been required to relinquish all except about 0.5 per cent of the concession area within thirty-two months of starting exploration, but the consortium had forced the government to remove this provision from the revised agreement of 1931. BP and its partners now agreed to discuss giving up 50 per cent of the area – an offer later increased to 54 per cent – provided the area given up was expressed in square miles rather than as a percentage of the total (to make it more difficult for other countries to demand an equivalent deal).9 The companies also insisted on deciding which areas to relinquish. Iraq was willing to let IPC keep all currently producing wells and areas with proven reserves, but wanted a say in which remaining areas were given up, so as to have attractive prospects to offer other companies with which it might work. The Foreign Office in London feared that Iraq might respond by annexing Kuwait, previously a dependency of Basra province. By depriving BP of the Kuwaiti oilfields it had used to replace Iranian supplies when it imposed its embargo on Iran in 1951, Baghdad could make it harder for BP to impose an embargo on Iraq in the event of nationalisation.10 To the disquiet of officials at the Foreign Office, who found Iraq’s proposals on relinquishment ‘not in fact unreasonable’, the oil companies rejected them.11
The oil companies preferred to provoke a crisis. As the Foreign Office noted, the IPC owners ‘may prefer to have 75 per cent taken away from them than to surrender 54 per cent, in view of implications in other areas’.12 Forcing Iraq to act unilaterally would give the impression that IPC had no say in the matter, and make it harder for other countries to request similar arrangements. More importantly, it would enable the IPC partners to threaten litigation against any company that agreed to work in the confiscated areas, as BP had done successfully in Iran in 1951. Unable to reach an agreement, in December 1960 Iraq passed Law 80, cancelling the 1931 concession agreement and expropriating 99.5 per cent of the concession area, leaving IPC its producing wells but not the fields it had refused to develop, including North Rumaila. Its remaining 0.5 per cent share corresponded to the area it would have been allowed to retain under the original 1925 concession. The oil companies resolved ‘to wait out Qasim’, in the words of the authorised history of BP, ‘hoping for a change of government’.13
The US and Britain, it seems, had already decided to eliminate Qasim. The CIA’s attempt to kill him in February 1960 failed, as had an effort to assassinate him the previous year, but he was removed from power and murdered in the military coup of February 1963.14 The US supplied the new government with the names of more than a hundred leftists for its death squads to hunt down, many of them prominent intellectuals, and Britain reported within a week that the ‘winkling out’ of the Communists was succeeding and ‘the army has the situation under control’.15 Large numbers of the leadership and rank-and-file of the country’s popular political movement were killed, and thousands more imprisoned. James Akins, an American diplomat in Kuwait, from where the US was said to have liaised with the coup plotters, returned to Baghdad following the coup. ‘We were very happy’, he later recalled. ‘They got rid of a lot of communists. A lot of them were executed, or shot. This was a great development.’16 The military government requested that IPC turn over a disused pumping station to house political prisoners, asking the oil company ‘to help equip the station and build it up into a concentration camp’ capable of holding 1,200 political prisoners. IPC preferred not to become involved in the construction of a concentration camp – the term used by the government – but agreed to supply piped water to the desert prison.17
With Qasim out of the way and the left and the labour movement eliminated or ‘under control’, America and Britain were disappointed to discover that IPC was still uncooperative. The British embassy in Baghdad told London that ‘the whole basis of the IPC concession here is out of date’ and should be replaced with a partnership with an Iraqi state enterprise.18 IPC, however, demanded that the new regime rescind the expropriation of its concession area. While continuing to pump the limited supplies of oil it wanted from Iraq, the consortium persuaded the US government to pressure independent oil companies not to take up any oil contracts offered by Iraq as long as the dispute over Law 80 was unresolved, and meanwhile delayed settling the dispute.19
The method of provoking a crisis and delaying its resolution was aided by a series of regional crises. In 1966, Syria tried to obtain higher transit fees from IPC for using the pipeline that carried Iraqi oil to the Mediterranean. Rather than pay the higher fees, IPC preferred to halt the pumping of oil through the pipeline. The closure lasted from November 1966 until the following March, and reduced Iraq’s oil income by two-thirds.20 BP was happy to shut down Iraqi production, as this offered a way to deal with the problem of oversupply, while causing a further crisis with Iraq. In June 1967, Israel launched the Six-Day War against Egypt and Syria, and in protest the Syrian government cut the pipeline again.
The strategy of crisis and delay gained the major oil companies a decade, but came to an end in the aftermath of the 1967 war. In August 1967, Iraq rescinded a proposal to restore the large North Rumaila field to IPC, a plan favoured by the Oil Ministry but blocked by nationalist opposition to the role of the international oil companies. Over the following months the government made agreements for the state-owned Iraq National Oil Company, established in 1964, to develop the country’s oil resources with partners not susceptible to pressure from the oil majors or the US government. In December 1967 it agreed a joint venture with a French state-owned oil company, and the following April it invited bids for technical support to develop North Rumaila and build a pipeline to a new refinery at Basra, to be operated not as a partnership but as an enterprise run directly by the Iraq National Oil Company. An offer from the Soviet Union was finalised a year later, after a coup in July 1968 that brought to power right-wing army officers allied with the Ba’th Party. Iraq was now able to build the independent capacity to process and export oil that Qasim had first sought in 1959.21
Arab states that had developed oil industries outside the jurisdiction of the world’s seven large oil firms had already established national control. Syria nationalised its small petroleum industry in 1964, Algeria took majority ownership of its French-built industry in February 1971, and Libya began to nationalise foreign-owned oil production in December 1971. The following year, Iraq became the first Middle Eastern producer to wrest control of oil from the dominant Anglo-American cartel. When production from the Rumaila field began in April, IPC cut its production in the north by 50 per cent. After preparing austerity measures and taking two leaders of the Communist party into the cabinet to ensure popular support, on 1 June 1972 the Ba’thist government nationalised the Iraq Petroleum Company.22
In the oil-producing states the powers of sabotage over which oil workers and oil firms had struggled were being increasingly taken over by governments – which were equipping themselves with the palace guards and intelligence services that by the late 1960s made them immune to further foreign- or domestic-organised military coups. In industrialised countries, the ‘power of inhibition’ underwent a different change.23 The rise of oil had weakened the old alliance of coal, which brought together miners, railwaymen and dockworkers, allowing them unprecedented power. By 1948, spurred by the role of the Marshall Plan in subsidising the switch from coal to oil, the era of the mass strike was over. In its place emerged a new method of making political claims, based on new ways of interrupting industrial processes.
In 1958 the French sociologist Serge Mallet studied workers at the CalTex oil refinery at Bec d’Ambes on the Gironde Estuary, near Bordeaux. CalTex was a joint venture created by the owners of Aramco to market oil from Saudi Arabia, originally operating in Africa and Asia. In 1947, when construction began on the Tapline to bring Saudi oil to Europe, CalTex took over the former Texaco refinery near Bordeaux, which had been destroyed during the war, and rebuilt it with Marshall Plan funds to handle the new shipments from Saudi Arabia. So the Bec d’Ambes refinery was part of the equipment installed to manufacture a less recalcitrant labour force in Europe.
Ten years later, unaware of this history, Mallet described the formation at Bec d’Ambes of what he called the ‘new working class’.24 The oil refinery exemplified a form of industrial production, dating from the 1930s but spreading rapidly since the 1950s, based on the automated processing and synthesising of materials. Unlike the old assembly-line methods in which workers directly constructed objects, Mallet argued, in a refinery or petrochemical plant workers supervised a flow of substances and managed the automated assembling of complex new materials. In oil refining, synthetic chemicals, electrical energy and telecommunications, workers were now managers, governing automated, computer-controlled processes. The same methods of automated processing were spreading to car manufacturing, railways, steel making, and even coal mining. Work was becoming technicised, eliminating many of the differences between manual labour and lower management: ‘Between the operator of a cracking unit who, in a white collar, watches over the continuous flow of oil and the diverse pressures to which it is subjected and the engineer or higher level technician who supervises him, there is no longer a difference in kind, simply a difference of hierarchical situation.’25
The rise of forms of labour based on the supervision of continuous, automated processes did not eliminate industrial action. It produced a new form of strike. Rather than attempting to shut down an enterprise indefinitely through a total stoppage of work – an action difficult to sustain given its impact on the income of strikers – workers were now able to use their technical knowledge and critical role in automated processes to bring about ‘the systematic disorganization of production’ by causing limited work stoppages, ‘spread out along the production process at the most sensitive places’. Brief interruptions aimed at vulnerable points or critical moments within an industrial process could paralyse an industry for months, without workers feeling the impact on their household income.26
From the 1880s to the 1940s, workers had built the power to sabotage critical processes at the level of national coal-based energy systems. They had used this power to organise mass parties and win radical improvements in their conditions of social vulnerability. By the 1950s and 1960s, the location, scale and duration of effective sabotage had shifted, now focusing on critical points and flows in complex chemical, metallurgical, communication and other processes. Its more localised scale made this power appear less revolutionary. But the strike waves of the later 1960s, Mallet argued – including the great upheavals of 1968, in which his writings became influential – suggested workers could use this power to acquire greater control of production.
By the late 1960s, as a struggle over the control of energy supplies unfolded in the Middle East, in the industrialised world the efforts among the forces of labour to protect or improve levels of income and conditions of work had intensified. The conflicts were found in the new manufacturing processes, but also in an older industry where the coordinated flow of materials could still be successfully interrupted: transportation. Disruptions to railways, shipping and docking, and increasingly aviation, accounted for 35 to 40 per cent of world labour unrest in the 1950s and 1960s. Shipping and docking, where stoppages had the most power to affect multiple upstream and downstream processes, accounted for more than half this unrest.27
The most effective challenge to these struggles once again made use of oil. A generation earlier, the switch to oil as a source of fuel for motive power was decisive in the defeat of the coal miners. The vulnerability of rigid regional energy networks carrying coal had been overcome with flexible, transoceanic energy grids, which isolated the producers of primary energy from those who put it to work in the main industrial regions. Once again, the fix that petroleum offered was partly spatial, and was based on the introduction of more fluid processes.28 This time, the transoceanic separation rested on the use of cheap oil to transport a standardised metal box.
This second change was made possible by containerisation. The introduction of metal shipping containers of standard dimensions that could be carried by road, rail and sea allowed goods to be moved in bulk without using labour to unload, stack and reload the individual merchandise as it switched from one mode of transport to another. Much as the fluidity of oil allowed energy to move easily over great distances because it could be pumped onto tankers, eliminating coal heavers and engine stokers, the shipping container made the movement of solid, manufactured goods into a fluid, uninterrupted process. Earlier attempts to introduce the use of containers had failed because different shippers preferred different sizes, making it difficult to stack the containers or build trucks, trains and ships to an optimum size. The escalation of the American war against the Vietnamese people in 1965 produced a logistics crisis as the supply of military goods overwhelmed Saigon’s port facilities, leading the US military to introduce containerisation and speed the adoption of standard container dimensions. In 1969, shipping companies introduced huge new custom-built ships that could carry more than 1,000 containers in their holds and on deck. Containers eliminated most of the skilled labour and unionised power of dockworkers, and helped bring a halt to the ‘unprecedented advance’ in the conditions of labour in industrialised countries in the two decades after 1945.29
The container did more than reorganise relations of control at the narrow point where dockworkers could exercise power. Combined with the cheap oil of the 1960s, it made possible the moving of manufacturing overseas, just as the supply of energy used in industrialised countries had earlier been outsourced. After delivering military supplies from the US to Vietnam, the container ships returned empty. Looking for ways to earn additional income, the shippers began to stop in Japan and pick up manufactured goods to carry back to the US, cutting dramatically the cost of shipment and creating the boom in Japanese exports to the US.
Industrial labour could now be threatened with lower costs and unemployment, caused by outsourcing production to Japan and other countries with less unionised, lower-paid workforces. In the decade after 1966, the volume of international trade in manufactured goods increased at double the rate of the volume of global manufacturing.30 The expansion of global shipping increased the demand for oil, helping create conditions that contributed to an increase in oil prices. The jump in oil prices in 1973–74 interrupted the development of outsourcing, as savings from containerisation were suddenly offset by much higher fuel costs for transoceanic shipping. In 1976, however, stable energy prices and the introduction of a new generation of even larger container ships allowed the growth of outsourcing to resume. At the same time, as we will see, the oil crisis and its market laws provided the ‘shock’ to explain the ending of improvements in conditions of labour, and a gradual reappropriation of the political powers and more egalitarian forms of life won over preceding decades.
In 1964, the British government had tried to encourage the new military government in Baghdad to settle the dispute with the foreign owners of the Iraq Petroleum Company by offering it something in exchange: weapons. At a meeting with the Iraqi prime minister to discuss the oil law passed by the Qasim government before its overthrow the previous year, the British ambassador ‘took the opportunity of making a reference to our supplying Iraq with arms and equipment’. Reporting that he ‘merely juxtaposed the two things’, he told London that its plan to use the sale of military equipment to gain concessions in the oil dispute was unlikely to succeed, since ‘they are really doing us a favour in buying arms from us’. The Iraqis were supporting Britain’s weakening trade balance by ‘paying large sums in sterling’, he explained, and at the same time were ‘well aware of our desire that they should not seek alternative sources of supply’. A month later the Foreign Office noted in the same file that Iraq was now purchasing arms from the Soviet Union, and that ‘partly as a result of poor after-contract performance by major British firms’, Britain would ‘have to fight hard to persuade the Iraqis to continue to buy British’.31
Although the ambassador pretended that oil and weapons were merely juxtaposed, in fact the two fit together in a particular way: one was enormously useful, the other importantly useless. As the producer states gradually forced the major oil companies to share with them more of the profits from oil, increasing quantities of sterling and dollars flowed to the Middle East. To maintain the balance of payments and the viability of the international financial system, Britain and the United States needed a mechanism for these currency flows to be returned. This was especially a problem for the US, since the value of the dollar was fixed in relation to gold, and provided the basis for the Bretton Woods financial system. Arms were particularly suited to this task of financial recycling, for their acquisition was not limited by their usefulness. The dovetailing of the production of petroleum and the manufacture of arms made oil and militarism increasingly interdependent.32
The conventional explanation for the rapid increase in arms sales to the Middle East, beginning in the mid-1960s, relies on the arguments offered by the arms salesmen, and by the governments that supported their business. Since the arms trade encouraged the militarisation of Middle Eastern states, its growth shaped the development of carbon democracy. To understand this dimension of the relationship between oil and democracy, we need to unpack the justifications used for selling weapons and provide an alternative account.
The purchase of most goods, whether consumable materials like food and clothing or more durable items such as cars or industrial machinery, sooner or later reaches a limit where, in practical terms, no more of the commodity can be used and further acquisition is impossible to justify. Given the enormous size of oil revenues, and the relatively small populations and widespread poverty of many of the countries beginning to accumulate them, ordinary goods could not be purchased at a rate that would go far to balance the flow of dollars (and many could be bought from third countries, like Germany and Japan – purchases that would not improve the dollar problem). Weapons, on the other hand, could be purchased to be stored up rather than used, and came with their own forms of justification. Under the appropriate doctrines of security, ever-larger acquisitions could be rationalised on the grounds that they would make the need to use them less likely. Certain weapons, such as US fighter aircraft, were becoming so technically complex by the 1960s that a single item might cost over $10 million, offering a particularly compact vehicle for recycling dollars. Arms, therefore, could be purchased in quantities unlimited by any practical need or capacity to consume. As petrodollars flowed increasingly to the Middle East, the sale of expensive weaponry provided a unique apparatus for recycling those dollars – one that could expand without any normal commercial constraint.
Since 1945, the United States had relied upon the ‘institutionalised waste’ of peacetime domestic military spending to soak up surplus capital and maintain the profitability of several of its largest manufacturing corporations.33 It enhanced this mechanism of waste with spending on the Korean and Vietnam wars. When projections for expenditure on Asian warfare began to drop in the later 1960s, America’s two dozen giant military contractors were in urgent need of new outlets for their hardware. No longer able to rely on increased purchases by the US government, they sought to transform the transfer of weapons to foreign governments, previously a relatively small trade financed mostly through US overseas development aid, into a commercial export business.34 The financiers concerned with dollar recycling now had a powerful ally.
Meanwhile, for the autocrats and military regimes of the Middle East, arms purchases provided a relatively effortless way to assert the technological prowess of the state. More importantly, once the West turned the supply of arms from a form of government-to-government aid into a commercial business, a space opened for middlemen to operate as brokers between the local state and the foreign firms. Members of ruling families, their in-laws and their political allies were well placed to fill this role, allowing a part of the revenues from oil, recycled as arms purchases, an easy diversion into prodigious levels of private accumulation.
After 1967, Iraq turned to France and the Soviet Union for arms, rewarding the countries that were helping it develop a national oil industry. For Britain and the US, the main recycling point was Iran, which imported almost three times as much weaponry as Iraq in the decade after 1967.35 In 1966, the shah of Iran agreed to a large purchase from General Dynamics of its new F-111 fighter-bomber, an aircraft that was over budget, failing to meet performance targets, and frequently crashing in test flights.36 He then persuaded the Western oil consortium to increase production by 12 per cent a year to finance this and future military spending. The following year the companies were able to increase production by double that amount, thanks to the Arab oil embargo during the June 1967 Arab-Israeli war, but in 1968 and 1969 Iran demanded even larger increases in revenue. As the supply of weapons and equipment accelerated, increasing numbers of arms contractors, bankers, construction companies, consultants, public relations firms and military officers began to profit from the flow of finance, building themselves into the capillaries and arteries through which it flowed. US banks and arms manufacturers, aided by their British, French and Italian counterparts, transformed the export of weapons into one of the West’s most profitable export industries.37
Since arms sales were useful for their uselessness, and there was no precedent for the volume of weapons sold, they needed a special apparatus of justification. The work of transforming the superfluous consumption of weaponry on a gargantuan scale into necessity was performed by a new rhetoric of insecurity, and by a series of US actions to produce or sustain the required experience of instability and uncertainty.
The old rhetoric of the postwar period about a communist threat to American interests in the Middle East was proving hard to keep alive. Having finally found a foothold in the oilfields of the Gulf, the Soviet Union had failed to threaten supplies of oil to the West, despite the warnings of Cold War experts. Soviet aid in exploiting the vast reserves of North Rumaila, offered in 1968, would allow Iraq to produce oil from a field whose development Western companies had spent four decades trying to delay (or seven decades, if one counts back to the days of the Baghdad Railway). Instead of threatening the security of the West’s oil supplies, the Soviet Union was threatening to increase them.
The Arab defeat in the June 1967 war weakened Arab nationalists and strengthened the conservative, Western-backed regimes in the Gulf. The defeat also hastened a financial crisis in Britain. The brief Arab oil embargo and the closing of the Suez Canal interrupted the supply of Britain’s sterling oil from the Gulf, creating a balance of payments crisis that forced the Labour government to devalue the pound and abandon its postwar effort to maintain sterling as an international trading and reserve currency. To address the financial crisis, Britain announced in January 1968 that it would end its role as an imperial power in the Middle East, withdrawing all military forces from the sheikhdoms of the Gulf within four years.38
Militarists at right-wing think tanks in Washington, in particular the new Center for International and Strategic Studies, began to warn that the British withdrawal would create a ‘power vacuum’ in the region. In reality it was thanks to the creation of a vacuum, or at least a ‘deflation’ in local power, that Britain could justify ending its military presence in the Gulf. Since the ‘revolutionary Arabs’ had been ‘completely deflated’ by the 1967 defeat, the Foreign Office noted, the sheikhdoms of the Gulf could survive without a British military presence.39 The State Department official responsible for the Arabian peninsula agreed, arguing that the claim of the US ambassador in Tehran that hostile forces were ready to fill ‘a vacuum’ in the Gulf caused by the British departure was ‘overdrawn if not inaccurate’. He pointed out that the major Arab powers, Egypt, Syria and Iraq, ‘are pinned down elsewhere by the Israelis and Kurds’ (whose rebellion in northern Iraq was funded by Israel), while the conservative Arab states saw an armed Iran ‘more as a threat than a reassurance’.40
The shah of Iran seized the opportunity of Britain’s departure to portray the large Iranian military purchases already underway as a scheme to turn Iran into the region’s policeman. The only significant threat the shah faced was the growing number of domestic political opponents his government hunted down and imprisoned, a form of police work that had no need for most of the weapons he wished to purchase. He nevertheless demanded to buy ever more sophisticated and expensive arms, and to be given the increased oil revenue and large US government loans to pay for them. The US ambassador relayed to Washington the arguments the shah picked up from the American arms manufacturers, reporting his view that increased arms sales ‘would benefit US industry (he mentioned DOD [was] obliged to bail out Lockheed), substantially help difficult US balance of payments situation, and serve our own vital strategic interests in Gulf and Middle East’.41
The arms manufacturers helped promote the doctrines of regional insecurity and national military prowess, instructing their agents to discuss arms sales not as commercial arrangements but in terms of strategic objectives. In September 1968, Tom Jones, the chief executive of Northrop Corporation, wrote to Kim Roosevelt (the former CIA agent who had engineered the overthrow of Mossadegh in 1953, and whose consulting firm now facilitated arms sales to the shah) about trying to sell Iran Northrop’s P530 lightweight fighter, for which it had been unable to find buyers: ‘In any discussions with the Shah’, Jones explained, ‘it is important that they be kept on the basis of fundamental national objectives, rather than allow it to take the appearance of a sales plan.’42
In 1969 the newly elected administration of Richard Nixon inadvertently offered the arms manufacturers and their clients a new term for these ‘fundamental national objectives’ – the so-called Nixon Doctrine. On a trip to southeast Asia in July, the president made some off-the-record remarks to the press at a stopover in Guam, intended to reassure the American-backed military dictatorships of the region that his promise to begin withdrawing forces from Vietnam did not imply any overall change in US policy, which would continue to rest on arming and assisting its client states to fight the threat of popular and democratic movements – or what Washington called ‘subversion’ – with the US intervening overtly only when local counterinsurgency programmes failed. The remarks about the limited role of direct intervention also provided cover for the action on which the Nixon government was secretly embarking, behind its public promise – a large escalation of the war against Vietnam and its extension into Cambodia and Laos. Since the reassurance about continuing to arm client states was off the record and could not be quoted directly, the US press started referring to it in shorthand as the Guam Doctrine, and then simply as the Nixon Doctrine, a term later adopted by Nixon’s foreign policy team. This continuation of longstanding American military relations with client states was heralded in the American media as marking a new direction in American policy, a claim subsequently echoed in almost all academic scholarship on US foreign policy and the Middle East.43
The advantage of turning existing US counterinsurgency policy into a ‘doctrine’ was that rulers like the shah, and his allies in American arms firms and think tanks, could now appeal to it and demand to be given the same role as the south-east Asian dictatorships. Insisting that Washington either subsidise his weapons purchases with Congressional loans or pressure the American oil companies to pump more Iranian oil to pay the arms bills, the shah told the US ambassador ‘he could not understand why we did not want to help him implement [the] Nixon doctrine in [the] Gulf area where our and our allies’ interests were also threatened’.44
Deploying the Nixon doctrine enabled the shah and his supporters to overcome opposition in the State Department and other parts of the US government. By 1972 the American ambassador to Tehran was writing to Henry Kissinger, the national security advisor, criticising those in Washington who argued that the US should do what was possible ‘to prevent Iran, in our studied wisdom, from overbuying’. Using a back-channel communication to bypass the State Department, he warned that Britain, France and Italy were competing for arms contracts, and insisted ‘there is no reason for us to lose the market, particularly when viewed over the red ink on our balance of payments ledger’. In the margin of the message Kissinger added a handwritten note: ‘In short, it is not repeat not our policy to discourage Iranian arms purchases.’45
Facing a collapse in the value of the dollar, and increased lobbying from the arms firms, the Nixon administration decided to sell the shah all the weapons that he and his American lobbyists were demanding, allowing the sales to circumvent the normal governmental reviews and creating what a Senate report called ‘a bonanza for US weapons manufacturers, the procurement branches of three US services, and the Defense Security Assistance Agency’.46 Since Congress was unwilling to finance additional military sales credits, and the large New York banks were beginning to voice concerns about the shah’s ability to maintain payments on the money they were lending him to buy weapons, the US government also began to push for an increased price of oil to pay for them.47 The decision to weaponise the oil trade with Iran, and later other oil states, was announced as an extension of the ‘Nixon Doctrine’ to the Gulf, supplying the extraordinary levels of arms transfers with the equipment needed to explain them. Subsequent histories of these events faithfully reproduce this apparatus of justification.
As we will see in the following chapters, the Nixon administration also blocked the efforts of the UN and the Arab states, and at times even its own State Department, to settle the Palestine question, helping to maintain the forms of instability and conflict on which American ‘security’ policy would now increasingly depend. In Kurdistan, the other conflict keeping Arab states ‘pinned down’, Washington was unable to prevent Iraq from reaching a settlement with the Kurds in 1970, but responded to this threat of stability in the Gulf two years later by agreeing with Israel and Iran to reopen the conflict with renewed military support to one of the Kurdish factions. The aim was not to enable the Kurds to win political rights, according to a later Congressional investigation, but simply to ‘continue a level of hostilities sufficient to sap the resources of our ally’s neighboring country [Iraq]’.48
The arms sales to Iran and their supporting doctrine played no important role in protecting the Gulf or defending American control of the region’s oil. In fact the major US oil companies lobbied against the increased supply of weapons to Iran and the doctrine used to justify them. They argued that political stability in the Gulf could be better secured by America ending its support for Israel’s occupation of Arab territories and allowing a settlement of the Palestine question. The Nixon administration had also initiated a large increase in the sale of arms to Israel, although weapons sent to Israel were paid for not with local oil revenues but by US taxpayers. Arming Iran, an ally of Israel, the companies argued, only worsened the one-sidedness of America’s Middle East policy. The oil companies also objected to the extraordinary level of weapons sales to Iran because the increased oil revenues Tehran required to pay for the weapons would force them to switch more production away from the Arab states, weakening the companies’ relations with those states and benefiting the European oil firms and independent US firms that shared production in Iran. It might also lead Iran to demand an even higher share of profits.49
The absurdity of the scale of arms sales to the oil states later became apparent, when the hyper-armed Iranian state was brought down by street protests and a general strike led by oil workers in the 1979 revolution, and when the tens of billions of dollars Saudi Arabia spent on weapons left it helpless in 1990 against Iraq’s occupation of Kuwait. Whatever the excess, however, the arms sales also militarised the oil states, with continuing consequences for local populations. The Kurds of Iraq had already discovered this in the 1960s, when the government used its British-supplied weapons against them, and would discover it again when Iran and the US abruptly cut off support for the Kurdish insurgency in 1975. Protesters in Iran felt the consequences when the government deployed American-supplied helicopters to fire on political demonstrations in 1978–79, and in countless other episodes. The militarisation also lined up numerous interests in the US that preferred to see regional crises unresolved and wars in the Middle East prolonged.50
Iraq had assembled the political power to take control of its oil by developing an oilfield, a pipeline and a refinery. Taking full control of oil required more: not just the ability to produce oil independently of the major American and British oil companies, but the coordinated ability to cut back production as a means of putting pressure on the companies. Up to this point, producer states had been individually demanding an increased volume and share of production. They now sought to construct the collective capacity to limit production. Libya was the first producing country to achieve this, but the ability to cut back was assembled out of wider acts of sabotage.
To reach refineries and markets in Europe, where most of it was consumed, oil from the Middle East was carried in pipelines running from Iraq and the Gulf to the Mediterranean, and in oil tankers along another narrow conduit, the Suez Canal. These conduits and the points where they branched, narrowed or terminated were among the most significant parts of the energy system. Their control was a leading concern of the handful of transnational oil companies that, until the 1970s, still dominated the production of oil in the Middle East. This control was not simply a question of keeping the conduits open. The oil majors also wanted the power to limit the flow of oil, in order to deal with the persistent threat of oversupply, and thus declining prices and lower profits. They tried to limit the development of independent conduits outside their control that would undermine their agreements on production quotas and price-fixing. And they needed to maintain a grid of alternative supply routes and sources. These would function like an electrical grid, so that particular production sites or transmission routes could be shut down or bypassed if they were disrupted or subject to disputes.
Until the late 1960s, this management of oil flows remained largely intact, surviving a series of crises in the 1950s and early 1960s. It even survived the Soviet threat. This was not the imaginary threat discussed in public, ever since the Soviet attempt to keep American oil companies out of northern Iran had been used in the manufacturing of the Cold War in 1946 – namely that the Soviet Union might try to seize the oilfields of the Middle East, imagined as a continuation of the ‘Great Game’ of Russian expansion to the south, whose invention we encountered in Chapter 2. The more serious concern was that the USSR might find a way to connect its Caspian oilfields and the extensive new fields of the Volga region and western Siberia to customers in western Europe, thereby subjecting the multinational oil companies to the threat of price competition. In the 1950s, after recovering from the wartime destruction of the Caspian fields, the Soviet Union began trying to export oil to Europe. The multinationals blocked these sales, relying on their control of distribution channels and on the US government, which pressured NATO members on ‘security’ grounds not to allow Soviet oil into Western Europe.51 With the containment of the Soviet threat, the main challenge to the oil majors in the 1960s had been the rise of smaller, independent producers, refiners and distributors. These had begun to build a small share of the oil trade by undercutting the prices fixed by the cartel of major companies, forcing the majors to discount downstream prices (in refining and distribution) and rely increasingly on their enormous profit margins from production in the Middle East.52
From the late 1960s the situation began to change. In the June 1967 Arab-Israeli war, the Iraq–Syria pipeline was cut again, the Suez Canal was blocked to shipping, oil workers in Bahrain shut down two refineries, and a general strike by oil workers in Libya stopped exports from Tripoli. The Arab states imposed an embargo on oil supplies to the US and other states that supported Israel’s attack, including Britain and West Germany. Iraq proposed that the embargo be extended for three months from 1 September, on the grounds that only by restricting supplies during winter would the embargo have an effect. Iraq also called for the nationalisation of local oil-production companies. But Saudi Arabia succeeded in getting the embargo lifted, while the Libyan government ended the oil strike and imprisoned its leaders.53
In May 1969, a Palestinian resistance group blew a hole in the Tapline, the pipeline that carried oil from Saudi Arabia to the Mediterranean, where it passed through a part of Syria now occupied by Israel. Although such acts of sabotage were normally repaired within a few hours, Israel refused to allow Aramco to repair the pipe unless it agreed to pay Israel a fee for protecting it. The dispute kept the pipeline closed for four months.54 Israel was simultaneously maintaining the closure of the other major conduit for carrying oil to Europe, the Suez Canal. Its invasion of Egypt in 1967 blocked the Canal, and its rejection of UN and American proposals for a peace settlement based on a return to the pre-1967 borders kept the waterway closed.
Although the story is little known, the blocking of the Canal enabled Israel itself to become an oil conduit. The Israeli government collaborated with Iran to build a pipeline from Eilat to Ashkelon, financed in secret by West Germany. The pipeline carried Iranian oil from the Red Sea to the Mediterranean, bypassing the Suez Canal, allowing Iran to loosen the control of the major oil companies over its oil industry. It also enabled Israel to export oil it took from an Egyptian oilfield in Sinai, which its forces had seized in the war.55 To evade the oil majors’ control of marketing, Iran and Israel sold the oil through a Swiss-registered joint venture, Trans-Asiatic Oil Ltd, shipping most of it via Romania to Spain, where the fascist government under Franco had successfully excluded the international oil companies from operating.56 Meanwhile, Egypt tried to build a pipeline to bypass the Suez Canal on the other side, connecting the Gulf of Suez to the Mediterranean, but its efforts to open a conduit outside the control of the oil majors were blocked by the British government.57
The closing of the Suez Canal also hastened another weakening of the oil majors’ control over supply routes. Western Europe began to obtain significant supplies of oil from the Soviet Union, evading the embargo the transnational companies had tried to enforce since the Second World War. Following the first closing of the Suez Canal in 1956, the Italian state oil company, ENI, led by Enrico Mattei, had begun to obtain oil from the Russians. In 1968 the Soviet Union completed a pipeline to the Baltic Sea, terminating at Ventspils on the Latvian coast. Soviet oil could now be shipped cheaply to northern Europe.58
These disruptions and alterations to the flow of Middle Eastern oil had further effects. Since the grant of the first oil concession in southern Iran in 1901 – which was partly motivated, as we saw in Chapter 2, by an earlier effort to block the export of Russian oil – Western oil companies had controlled the flow of oil from the Middle East, using this control to manage its price around the world. Seven decades later, within three years of the upheavals of the 1967 war, that ability had been destroyed.
On 1 September 1969, a group of army officers seized control in Libya and removed the monarchy from power. They released from prison the thirty-six-year-old leader of the 1967 oil strike, Mahmud Sulaiman al-Maghribi, and appointed him initially as prime minister and the following April, after Captain Muammar Qaddafiemerged as leader of the coup and took al-Maghribi’s place as prime minister, as head of a team to renegotiate the terms of the country’s contracts with foreign oil companies.59 Talks with Exxon and Occidental made no headway, until Libya’s position was reinforced by a Syrian bulldozer. On 3 May 1970, a mechanical excavator laying telephone cable in southern Syria near the Jordanian border cut the Tapline. The Saudis called the incident ‘planned sabotage’.60 Using the interruption in supplies to negotiate higher transit fees, Damascus refused to allow repairs and kept the line closed for nine months.61 Two weeks after the pipeline was ruptured, the Syrian oil minister met with his Libyan and Algerian counterparts (Algeria was demanding a revision of its oil agreement with France), and agreed to ‘set a limit to the lengthy and fruitless negotiations’ with the oil companies, implement their demands for a higher share of the oil income by unilateral action if necessary, and set up a fund for mutual support in any confrontation with the oil companies.62 With 500,000 barrels a day of Saudi supplies to Europe cut off, Libya was able to pressure Occidental Petroleum, a relatively small California-based company with no alternative sources of oil, to agree to a new tax rate, breaking the united front among oil companies. Libya became the first producer country to use an embargo on supplies to win an increase in the level of taxation of oil production.
Reinforced by the interruptions in supply from the Gulf, the Libyan embargo had broken the ability of the oil companies to dictate to the countries with large oil reserves the tax they would pay on their profits from the production of oil.
Since the 1930s, world oil prices had been governed by the international oil companies, which attempted to limit the supply of oil from the Middle East, in collaboration with a system of government production quotas and import controls in the United States. Overseas, the cartel agreement made between the seven major international oil corporations in 1928, in response to the large discoveries in Iraq and to the ‘oil offensive’ from the Soviet Union, established exclusive territories for each company and set quotas intended to maintain world prices at the level of US prices.63 From 1932 the Texas Railroad Commission set quotas to regulate domestic US production.64 As production in the Middle East began to increase after the Second World War, threatening to lower the price of oil, Congress pressured the major oil companies to protect US oil prices by limiting imports from the Middle East. In 1954 the Oil Policy Committee, an industry-government body, established regular US import quotas, formalised by a proclamation by President Eisenhower in 1959, limiting imports to 9 per cent of domestic demand.65 The blocking of imports allowed domestic US production to continue expanding despite the availability of oil at much lower costs of production in the Middle East. As a result, American oil reserves were exhausted more quickly than those of other regions. By 1971, US production had started to decline, as the volume of reserves in the lower forty-eight states passed their peak. Declining production, coupled with continually rising demand, meant that the US no longer had the surplus capacity required to regulate prices.
In 1960, in response to the drop in demand for non-US oil caused by Eisenhower’s import quotas, Venezuela and Saudi Arabia – together with the other three large Gulf producers, Iraq, Kuwait, and Iran – set up the Organization of Petroleum Exporting Countries (OPEC). For Venezuela, where a revolution had overthrown the military government and brought an elected government to power, the aim was to imitate the collective arrangement among US states for restricting production, in order to negotiate an increased share of oil revenues and conserve supplies, and thus to allow an orderly process of economic growth and avoid a premature depletion of reserves. Initially the Middle East producers were trying to maintain their tax revenues from oil by increasing the volume of production. Only a decade later were they in a position to increase revenues by adopting the US method of limiting the volume of production.66
Part of the difficulty facing the producer states in negotiating the tax revenues to be paid by the production companies was that, before the mid-1960s, there was no ‘market’ price for crude oil. US prices were established by government production and import quotas, while elsewhere most crude was transferred by the large firms to their own refining affiliates, or traded from one major to another at low prices under long-term contracts. The level of tax paid to the producer countries was calculated in reference to an artificial figure called the ‘posted price’ – a benchmark set by the oil firms, with the tax per barrel set at 50 per cent of that figure. Following Eisenhower’s introduction of import quotas, the companies lowered the posted price, thereby reducing their tax payments to the producer states. When the latter responded with the creation of OPEC, the companies agreed after 1960 to leave the benchmark at a fixed level. This guaranteed the producer states a set income per barrel of oil produced, even as the price of oil outside the US began to decline due to competition from independent oil companies and from the Soviet Union. Since the posted price was not adjusted for inflation, however, the real tax rate per barrel of oil fell, especially in the later 1960s when the value of the dollar began a rapid decline.
Meanwhile, a group of independent, mostly German oil dealers started to publish regular figures on the price of refined oil products in Europe. An American oil economist, Morris Adelman, was able to take these figures, deduct known costs for refining and shipping, and infer for the first time an approximate ‘market price’ for Middle Eastern oil (it would take another decade to create a functioning global oil market). His figures showed that in 1960 the oil companies were producing oil at a cost of 10¢ cents per barrel, including a 20 per cent return on invested capital, and earning a profit above that return of 68¢ per barrel. For the major oil companies, Adelman later remarked, ‘a market price was an uninvited intruder’.67
The general public failed to notice the intruder for almost a decade – an ignorance from which the oil companies continued to benefit. Negotiations over rates of taxation on the extraordinary profits that international firms were earning from Middle Eastern oil took the form of attempts to raise the posted price. Unaware that the ‘posted price’ was simply a device for calculating tax rates, the news media and the public assumed these were negotiations over the price of oil. The companies could then portray the increased taxation of their windfall profits from oil as an increase in its ‘price’ – an increase that they would be obliged to pass on to the consumer.
Following the success of Libya in winning a new tax rate in 1970, OPEC was in a position to challenge the setting of tax rates by the major US and European companies. Iran led the OPEC states in demanding a general increase in the posted price, along with an increase in the tax level based on that price from 50 to 55 per cent. This represented an attempt by the producer countries not to increase the price of oil, but to return real tax rates to the levels they had enjoyed before inflation, Israel’s closing of the Suez Canal and other factors had pushed up the oil price in the later 1960s.
Supported by the State Department, which arranged for the Justice Department to waive anti-trust regulations, the companies met together and decided to accept an increase in the benchmark. Undersecretary of State John Irwin had circulated a memo following the Libyan deal pointing out that, given the import quotas that made crude oil prices in the US much higher than in Europe, an increase in Middle East prices would be to America’s benefit:
Many claim that access to cheaper energy sources has given European producers an advantage over goods produced in the United States, particularly in certain industries such as petrochemicals. The Libyan settlements will increase energy costs to Europe (and probably to Japan) and could reduce whatever competitive advantage those areas enjoy over the US because of access to lower cost oil.68
By April 1971, the companies had agreed with OPEC to raise the posted price from less that $2 per barrel to more than $3. The price at which oil from the Gulf actually traded remained at just over half the posted price, rising from about $1.30 to $1.70 per barrel – still below the level of the mid-1950s in nominal terms, and well below that level when adjusted for inflation. Meanwhile, refined oil products were selling in Europe at a price of more than $13 per barrel, 60 per cent of which represented government taxes in the consumer country. Following the 1971 OPEC tax increase, in other words, European states were still earning about four times as much revenue from each barrel of oil as the OPEC states.69
The 50 per cent increase in tax rates was only a temporary measure. It ensured the OPEC countries a higher share of oil profits, but the system of allowing international companies to earn all the profits from oil and then attempting to tax those profits was itself coming to an end. Led by Iraq, the large producer states had gradually built the infrastructure and the expertise to take control of production themselves. Iraq announced its nationalisation of the British-controlled Iraq Petroleum Company in 1972. Iran had already warned the oil companies that, when the 1954 consortium agreement expired in 1979, it would expect a radically different arrangement.70 Saudi Arabia negotiated a gradual transfer of ownership of Aramco to the state, threatening the company with the same fate as the Iraq Petroleum Company if it refused to negotiate. By the end of 1972, the other large producers in the Gulf, Kuwait and Iran, were making similar arrangements.
Facing the loss of their control of the oilfields in the Middle East, the international oil companies now needed a means of generating a large increase in the price of oil. A much higher price would enable them to open up new production sites in less accessible areas, such as the North Sea and Alaska. It would also allow them to realise a greater share of profits from the downstream refining and marketing, compensating for the loss of profits from producing Middle Eastern oil.
There were three changes that would allow the reorganisation of the mechanisms for pricing oil. First, following the successful collaboration developed to raise the Libyan oil price, the producer states had to take over from the oil companies the system of restricting production, to prevent surplus oil from lowering the price. This would be easier for a group of sovereign states to achieve than for a cartel of oil companies liable to anti-trust investigation if they were seen to be forcing prices up.
Second, the international firms, which would process and market oil for the new state-run production companies, had to find ways to sell more oil and protect it against rival sources of energy. To raise the price of oil, it was not enough for those producing it to make the supply scarce. A higher price would simply drive consumers to switch to cheaper alternatives. The oil companies needed ways to ‘sabotage’ the supply not only of oil, but also of coal, natural gas and nuclear power. For this reason, as we will see in the following chapter, what is now remembered as the 1973–74 oil crisis was first discussed not as a problem of oil, but as an ‘energy crisis’. Since oil was the largest commodity in world trade and shaped the international flow of dollars, the transition to a new petroleum order also began as a financial crisis.
Third, to maintain demand for oil as its price increased, the international oil companies needed to open up new markets. The largest market to which their access was restricted was the United States. The US import quotas helped prevent lower-priced Middle Eastern oil from competing with domestic production, which in the first half of 1971 was selling for $3.27 a barrel – almost double the new price of oil from the Persian Gulf. However, the import controls had become a mechanism of the postwar international financial system, protecting the value of the dollar. By restricting imports of oil into the United States, Washington reduced the flow of dollars abroad, limiting the accumulation of dollar reserves overseas. Later it tried to give further support to the dollar’s value by interventions in the London gold market. When these two mechanisms proved insufficient, a third technique was added: the rapid increase in arms exports to oil-producing countries, especially Iran.
The oil companies needed an alternative to the use of oil (and escalating arms sales) to control dollar flows. The quota on US oil imports was denying them access to the world’s largest petroleum market, and the drive to sell arms to Iran was putting pressure on them to increase production there. The solution for which the oil companies had begun to argue was to abandon Bretton Woods.71
In March 1967, Chase Manhattan Bank, the Rockefeller financial house closely tied to Standard Oil of New Jersey (Exxon), proposed that the United States abandon the gold standard. The American Bankers Association condemned the proposal, and Chase quickly offered a retraction. Questioning the automatic convertibility of dollars into gold was considered a threat to the stability of the postwar international monetary system and to America’s political and financial authority. Eight months later, however, Eugene Birnbaum, senior economist at Standard Oil, published a report entitled Changing the United States Commitment to Gold. The report called for the US to end the Bretton Woods system unilaterally by rejecting the obligation to convert dollars into gold. Birnbaum’s arguments were critical to making the idea of abandoning Bretton Woods acceptable.72
A year after Birnbaum’s report, in November 1968, America’s decade-long effort to support the value of the dollar collapsed. The US tried to transform Bretton Woods into a mechanism that allowed the gold peg to float. In an effort to combat inflation by lowering domestic oil prices, Washington began removing the controls on oil imports in 1970, but this caused more dollars to flow abroad. By the following year, the US had used up most of its non-gold reserves, and only 22 per cent of its currency reserves were backed by gold. When European banks requested payment for their dollars in gold, the US defaulted. Abandonment of the gold standard in August 1971 amounted to a declaration of bankruptcy by the US government.73
The transformation in methods of controlling flows of oil and finance was completed in the 1973–74 crisis, to which the following chapter turns. We do not know for certain how far these changes were planned by the oil companies, and how far the transformation came about through the rivalries between them, their conflict with the producer countries, and the changing agendas of the US government. But there was no doubt that the creation of a crisis made it easier to blame outside forces for the radical alterations that occurred.
1 Oil production in the Middle East and North Africa surpassed that of Latin America and the Caribbean in 1953, and of the US ten years later. DeGoyer & MacNoughton, Twentieth Century Petroleum Statistics, Dallas: DeGolyer & MacNaughton, 2009.
2 Hanna Batatu, The Old Social Classes and the Revolutionary Movements of Iraq: A Study of Iraq’s Old Landed and Commercial Classes and of its Communists, Ba‘thists, and Free Officers, Princeton: Princeton University Press, 1978: 764–865; Joe Stork, ‘Oil and the Penetration of Capitalism in Iraq’, in Petter Nore and Terisa Turner, eds, Oil and Class Struggle, London: Zed Press, 1980: 172–98.
3 Edith Penrose and E. F. Penrose, Iraq: International Relations and National Development, London: Ernest Benn, 1978: 240–8.
4 Studies of the impact of oil on democracy fail to consider these questions. Michael L. Ross, ‘Does Oil Hinder Democracy?’ World Politics 53: 3, April 2001: 325–61, for example, demonstrates a negative correlation between oil exports as a percentage of GDP and degree of democracy, as estimated in the Polity data set. The data are derived from an evaluation of the institutional procedures by which the candidate for chief executive is selected, elected and held accountable. The narrowness of this conception of democracy, the unreliability of its measurement, and the assumption that diverse institutional arrangements can be compared and ranked as embodying differing degrees of a universal principle of democracy, are among the many problems presented by the data. Ross is unable to establish reasons for the statistical relationship between oil exports and Polity data ranking, or to account for places, such as Venezuela and Indonesia, that experienced a different relationship between the development of oil and the emergence of more democratic forms of rule.
5 Independent companies had a token share in the Iran consortium, but in Iraq the CFP/Gulbenkian share was a much more significant 27.5 per cent. The operating companies in Kuwait and Saudi Arabia were not, strictly speaking, consortiums, but jointly owned subsidiaries of the parent companies.
6 Twentieth Century Petroleum Statistics; John Blair, The Control of Oil, New York: Pantheon Books, 1976: 81–5; Gregory Nowell, Mercantile States and the World Oil Cartel, 1900–1939, Ithaca: Cornell University Press, 1994: 270–5.
7 United Kingdom, Foreign Office, ‘Searight’s Account of His Interview with the Prime Minister’, 9 April 1959, FO 371/141062, and ‘IPC Believes Rumaila Oilfield Has Huge Potential’, 14 June 1961, FO 371/157725, National Archives of the UK: Public Record Office: Foreign Office: Political Departments: General Correspondence from 1906 to 1966, referred to in subsequent notes as FO 371, followed by the piece number. For a detailed history of the negotiations between IPC and the government of Iraq, see Samir Saul, ‘Masterly Inactivity as Brinkmanship: The Iraq Petroleum Company’s Route to Nationalization, 1958–1972’, International History Review 29: 4, 2007: 746–92.
8 James Bamberg, History of the British Petroleum Company, vol. 3: British Petroleum and Global Oil, 1950–1975: The Challenge of Nationalism, Cambridge, UK: CUP, 2000: 131, 135.
9 ‘IPC Negotiations with Iraqi Government’, 30 July 1959, FO 371/141068.
10 ‘Nationalization of IPC’, 1 April 1959, FO 371/141061.
11 ‘IPC: Points Causing Breakdown in IPC Meeting’, 2 October 1959, FO 371/141069.
12 ‘IPC Relinquishment’, June 1959, FO 371/141066.
13 Bamberg, History of British Petroleum, vol. 3: 167.
14 Penrose and Penrose, Iraq: 288; Thomas Powers, ‘Inside the Department of Dirty Tricks: Part One, An Isolated Man’, Atlantic Monthly, August 1979; Roger Morris, ‘A Tyrant 40 Years in the Making’, New York Times, 14 March 2003: A29; Malik Mufti, Sovereign Creations: Pan-Arabism and Political Order in Syria and Iraq, Ithaca: Cornell University Press, 1996: 143–4. Brandon Wolfe-Hunnicutt assesses the evidence from these sources and explains the shifting battle in the US government between those open to working with Qasim and those arguing for his elimination: ‘The End of the Concessionary Regime: Oil and American Power in Iraq, 1958–1972’, PhD thesis, Department of History, Stanford University, 2011: 26–90.
15 ‘Assessment of Iraqi Regime’, 14 February 1963, FO 371/170502. On the list of names, see Wolfe-Hunnicutt, ‘The End of the Concessionary Regime’: 84–6.
16 Frontline, ‘The Survival of Saddam’, Interviews: James Akins, at www.pbs.org/wgbh/pages/frontline/shows/saddam/interviews/akins.html. See also Douglas Little, ‘Mission Impossible: The CIA and the Cult of Covert Action in the Middle East’, Diplomatic History 28: 5, 2004: 663–701.
17 ‘IPC Considers Options’, 12 September 1963, FO 371/170505.
18 ‘Assessment of the Iraqi Regime’, 14 February 1963, FO 371/170502.
19 ‘US Government Concerned About the Non-Cooperative Position Seemingly Adopted by IPC’, 15 May 1963, FO 371/170504; see also FO 371/175777 and FO 371/17578. After Iraq asked the Italian company ENI for technical support in the event of nationalisation, the British embassy in Rome tried to pressure the Italian government to prevent ENI’s collaboration (FO 371/157725). In February 1964, the US and Britain again asked the Italian government to dissuade ENI from taking up any oil contracts in Iraq (FO 371/175777). See also Wolfe-Hunnicutt, ‘End of the Concessionary Regime’: 144–74.
20 George Ward Stocking, Middle East Oil: A Study in Political and Economic Controversy, Nashville: Vanderbilt University Press, 1970: 270–99; Marion Farouk-Sluglett and Peter Sluglett, Iraq Since 1958: From Revolution to Dictatorship, 3rd edn, London: I. B. Tauris, 2001: 99–100.
21 On the details of these developments, see Wolfe-Hunnicutt, ‘End of the Concessionary Regime’: 209–62.
22 Bamberg, History of British Petroleum, vol. 3: 171, 469–70.
23 Thorstein Veblen, ‘On the Nature of Capital’, Quarterly Journal of Economics 23: 1, 1908: 106.
24 Serge Mallet, The New Working Class, translation of La nouvelle classe ouvrière (1969), transl. André e Shepherd and Bob Shepherd, Nottingham: Bertrand Russell Peace Foundation for Spokesman Books, 1975: 85–118.
25 Serge Mallet, Essays on the New Working Class, ed. and transl. Dick Howard and Dean Savage, St Louis: Telos Press, 1975: 41.
26 Ibid., 43.
27 Beverly Silver, Forces of Labor: Workers’ Movements and Globalization Since 1870, Cambridge, UK: CUP, 2003: 98–100.
28 On the ‘spatial fix’, see David Harvey, Spaces of Capital: Towards a Critical Geography, Edinburgh: Edinburgh University Press, 2001.
29 Marc Levinson, The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger, Princeton: Princeton University Press, 2006: 4.
30 Levinson, The Box: 11, 184–8.
31 ‘Roger Allen, Ambassador in Baghdad, to Foreign Office’, 8 February 1964, FO 371/175780; cover note added 12 March 1964.
32 Nitzan and Bichler offer an important study of this relationship. They locate its dynamic in the dominant place of arms manufacturing among leading US corporations and the superior profitability of arms exports over supplying domestic government demand. However, they downplay the role of dollar recycling and the deliberate wastefulness of military sales, especially in the case of oil states for which alternative spending options were limited. Jonathan Nitzan and Shimshon Bichler, ‘The Weapondollar-Petrodollar Coalition’, in The Global Political Economy of Israel, London: Pluto Press, 2002: 198–273.
33 Thorstein Veblen noted the role of ‘conspicuous waste’ in The Theory of the Leisure Class: An Economic Study of Institutions, New York: Macmillan, 1899: 36–42, but did not connect it with military spending, even in his subsequent discussion in Imperial Germany and the Industrial Revolution, New York: Macmillan, 1915.
34 See Nitzan and Bichler, ‘Weapondollar-Petrodollar Coalition’: 206–10, where the core arms firms are identified. In the 1950s about 95 per cent of US arms exports were financed by government aid; by the 1990s the figure was about 30 per cent. Ibid.: 216.
35 Arms Transfers Database, Stockholm International Peace Research Institute, at www.sipri.org/databases/armstransfers.
36 The smaller naval variant of the aircraft, the F-111B, had so many faults it was cancelled soon after going into production and replaced with the Grumman F-14, the plane eventually delivered to Iran in a deal that saved Grumman from bankruptcy. Marcelle Size Knaack, Encyclopedia of US Air Force Aircraft and Missile Systems, vol. 1, Washington, DC: Office of Air Force History, 1978: 222–63; Anthony Sampson, The Arms Bazaar, London: Hodder & Stoughton, 1977: 249–56.
37 Nitzan and Bichler, ‘Weapondollar-Petrodollar Coalition’: 198–273; James A. Bill, The Eagle and the Lion: The Tragedy of American-Iranian Relations, New Haven: Yale University Press, 1988.
38 Steven G. Galpern, Money Oil and Empire in the Middle East: Sterling and Postwar Imperialism, 1944–1971, Cambridge, UK: CUP, 2009: 268–82.
39 Foreign Office Minute, May 1971, FCO 8/1311, cited in William Roger Louis, ‘The Withdrawal from the Gulf’, in Ends of British Imperialism: The Scramble for Empire, Suez and Decolonization: Collected Essays, London: I. B. Tauris, 2006: 877–903, at 888. For a similar US assessment, see Central Intelligence Agency, ‘National Intelligence Estimate 34-69-IRAN’, 10 January 1969, in US Department of State, Papers Relating to the Foreign Relations of the United States, 1969–76, vol. E-4: Documents on Iran and Iraq, 1969–1972, ed. Monica Belmonte and Edward C. Keefer, Washington DC: US Government Printing Office, Document 1, available at history.state.gov, referred to in subsequent notes as FRUS.
40 William D. Brewer, ‘Memorandum from the Country Director for Saudi Arabia, Kuwait, Yemen and Aden to the Country Director for Iran’, 27 February 1970, FRUS, Document 51; Douglas Little, ‘The United States and the Kurds: A Cold War Story’, Journal of Cold War Studies 12: 4, 2010: 71.
41 DOD refers to the Department of Defense. Douglas MacArthur, ‘Embassy in Iran to the Department of State’, 19 March 1970, FRUS, Document 55.
42 Cited in Sampson, Arms Bazaar: 248.
43 Jeffrey Kimball, ‘The Nixon Doctrine: A Saga of Misunderstanding’, Presidential Studies Quarterly 36: 1, 2006: 59–74. Mahmood Mamdani, Good Muslim, Bad Muslim: America, the Cold War, and the Roots of Terror, New York: Pantheon, 2004: 63–118, traces the continuity in US counterinsurgency strategy.
44 MacArthur, ‘Telegram 1019’.
45 Harold Saunders, ‘Memorandum for Dr Kissinger’, 14 July 1972, FRUS, Document 212; see also Wolfe-Hunnicutt, ‘End of the Concessionary Regime’: 273.
46 Bill, The Eagle and the Lion: 200.
47 On the New York banks, see MacArthur, ‘Telegram 1019’.
48 Bill, The Eagle and the Lion: 205; Little, ‘The United States and the Kurds’: 74–85.
49 Wolfe-Hunnicutt, ‘End of the Concessionary Regime’: 242–3.
50 Nitzan and Bichler, ‘Weapondollar-Petrodollar Coalition’.
51 Sweden provided the main exception to this embargo. It was not a member of NATO, and its coal, iron and steel, and petroleum refining conglomerate, A. Johnson and Co., was powerful enough to act independently of the oil multinationals and trade with the Russians. Hans de Geer, ‘Trading Companies in Twentieth-Century Sweden’, in Geoffrey Jones, ed., The Multinational Traders, New York: Routledge, 1998: 141–4; and Peter R. Odell, Oil and World Power, Harmondsworth: Penguin, 1979: 48–71.
52 Stocking, Middle East Oil, 416–33.
53 John Wright, Libya: A Modern History, Baltimore: Johns Hopkins University Press, 1982: 105; M. S. Daoudi and M. S. Dajani, ‘The 1967 Oil Embargo Revisited’, Journal of Palestine Studies 13: 2, 1984: 71–2, 80. The Saudis had already allowed Aramco – the US company that controlled the Trans-Arabian Pipeline, or Tapline, which carried oil from the Saudi fields to the Mediterranean – to resume pumping oil, even though a few miles of its route cut across the northeast corner of the Golan Heights, the part of southern Syria now under Israeli occupation.
54 The Tapline Company agreed to pay for the repair and cleanup and to cover the cost of protecting the pipeline. James Feron, ‘Israel in Accord with Aramco on Repair of Damaged Tapline’, New York Times, 11 July 1969: 7; ‘Israeli Jets Strike Military Targets in Egypt and Jordan’, Washington Post, 17 September 1969: A26.
55 Uri Bialer, ‘Fuel Bridge across the Middle East: Israel, Iran, and the Eilat-Ashkelon Oil Pipeline’, Israel Studies 12: 3, 2007: 29–67. The pipeline replaced a smaller one, built using 200 kilo-metres of pipes, together with pumps and other equipment stolen from Egypt during Israel’s 1956 invasion of Sinai, and used to bring smaller quantities of Iranian oil to the refinery at Haifa. The post-1967 pipeline secured supplies to Israel, but was also intended to reduce Europe’s dependence on Arab oil.
56 In the 1970s, the trader who handled the Israeli pipeline oil, Marc Rich, used it to break the contract system for oil sales and create the spot market in oil, which would end the method of pricing oil through agreements within and among the large oil companies and allow the development of speculative markets in oil futures. Previously part of the Bretton Woods mechanism for limiting the global threat of financial speculators, oil would itself become a medium of financial speculation. Daniel Amman, The King of Oil: The Secret Lives of Marc Rich, New York: St Martin’s Press, 2009: 64–86.
57 Elie Podeh, ‘Making a Short Story Long: The Construction of the Suez-Mediterranean Oil Pipeline in Egypt, 1967–77’, Business History Review 78: 1, 2004, 61–88.
58 Marshall I. Goldman, ‘The Soviet Union’, in Raymond Vernon, ed., The Oil Crisis, New York: Norton, 1976: 130. Enrico Mattei also maintained contacts with the FLN in its independence struggle against the French in hydrocarbon-rich Algeria (P. H. Frankel, Mattei: Oil and Power Politics, London: Faber & Faber, 1966: 120).
59 Joe Stork, Middle East Oil and the Energy Crisis, New York: Monthly Review Press, 1975: 153–7.
60 Francisco Parra, Oil Politics: A Modern History of Petroleum, London: I. B. Tauris, 2004: 122.
61 ‘Hopes Rise for Tapline Repair’, Washington Post, 6 December 1970: 25; ‘Pipeline in Syria is Reopened After Nine Months’, New York Times, 30 January 1971: 3; Paul Stevens, ‘Pipelines or Pipe Dreams? Lessons From the History of Arab Transit Pipelines’, Middle East Journal 54: 2, 2000: 224–41.
62 ‘Chronology: May 16, 1970–August 15, 1970’, Middle East Journal 24: 4, 1970: 500.
63 Alzada Comstock, ‘Russia’s Oil Off ensive’, Barron’s, 30 January 1928: 17. See also Chapter 4.
64 The Texas quota system was reinforced by the federal Connally Act, known as the ‘Hot Oil’ Act, of 1935. Harold F. Williamson, The American Petroleum Industry, 2 vols, Evanston: Northwestern University Press, 1959–63, vol 2: 543–4. Thirty years later, OPEC took the Texas system as a model for its system of international quotas. Anthony Sampson, The Seven Sisters: The Great Oil Companies and the World They Made, London: Hodder & Stoughton, 1975: 92.
65 Williamson, American Petroleum Industry: 543–4. ‘Overland’ imports were exempt from the import quota, to protect Canadian suppliers whose pipelines gave them no alternative market. Mexican suppliers had no pipelines to carry oil to the US, but took advantage of the same exemption: tankers that had previously shipped Mexican oil to New Jersey were diverted to Brownsville, Texas, from where the oil was carried in tanker trucks twelve miles south across the Mexican border and then re-imported overland. Richard H. K. Vietor, Energy Policy in America Since 1945: A Study of Business–Government Relations, Cambridge, UK: CUP, 1984: 130.
66 Parra, Oil Politics: 89–109.
67 Morris Adelman, ‘My Education in Mineral (Especially Oil) Economics’, Annual Review of Energy and the Environment 22, 1997: 21; and The Genie Out of the Bottle: World Oil Since 1970, Cambridge, MA: MIT Press, 1995: 41–68.
68 Cited in Tore T. Petersen, Richard Nixon, Great Britain and the Anglo-American Alignment in the Persian Gulf: Making Allies out of Clients, Brighton: Sussex Academic Press, 2009: 38.
69 Parra, Oil Politics: 110–34; V. H. Oppenheim, ‘Why Oil Prices Go Up (1): The Past: We Pushed Them’, Foreign Policy 25, Winter 1976–77: 24–57; Morris Adelman, ‘Is the Oil Shortage Real? Oil Companies As OPEC Tax-Collectors’, Foreign Policy 9, Winter 1972–73: 86.
70 ‘Telegram 7307 From the Embassy in Tehran to the Department of State, December 23, 1971, 1300Z’, Documents on Iran and Iraq 1969–1971, Document 155, available at history. state.gov.
71 The major oil companies wanted the import quotas rationalised, to remove the hundreds of exemptions that favoured mostly small operators, and steadily increased. Vietor, Energy Policy in America: 135–44.
72 Eugene Birnbaum, Changing the United States Commitment to Gold, Princeton: Department of Economics, Princeton University, 1967.
73 Fred Block, The Origins of International Economic Disorder: A Study of United States International Monetary Policy from World War II to the Present, Berkeley: University of California Press, 1977: 164–202; William Engdahl, A Century of War: Anglo-American Oil Politics and the New World Order, 2nd edn, London: Pluto Press, 2004: 127–49. In contrast to Engdahl, Block makes no mention of the oil dimension of the crisis.