John Rose

 

Israel: The Hijack State

 

Oil and Imperialism

 

How Britain and America took control of the cheapest oil in the world

The American bombing of Libya, backed only by Britain and Israel, raised once again the spectre of US imperialism and its allies’ control of the Middle East.

Imperialism in this part of the world has always meant oil, and who controls it. While it is true that the US is relatively less dependent on Middle East oil than it used to be, this is only temporary. By the year 2000 the US will again depend for its energy needs on the huge oil potential of the Middle East, which still contains more than half the world’s untapped reserves. As Time magazine put it on 14 April 1986: “The US can ill afford to give up reserves since it holds only 4 per cent of the world’s known supply, in contrast to about 55 per cent in the Middle East.” The Financial Times translated this into the terms of world power:

The stakes are immensely high. Not just for the stability of the region but for Western interests for the remainder of the century. Social and political turmoil in the next few years could, at worst, bring to power governments which would more ruthlessly exploit the renewed importance of Middle East oil expected in the 1990s. [1]

This vital connection between Western “interests” and oil is often ignored or misunderstood. Hence it is important to trace its evolution this century, and observe how this is mirrored and coincides with the evolution of Zionism.

The great imperialist war of 1914-18 made all Western governments only too painfully aware of the importance of oil. Their dependence on oil for survival became obvious as the war developed – not only were airplanes and tanks fuelled exclusively by petrol or oil, but all transport, including warships and supply ships, was increasingly switching from horse-drawn and steam power to oil. “The allies,” said Lord Curzon, the British foreign secretary, “floated to victory on a wave of oil.” [2]

Oil was so important to Britain that just before the outbreak of the war Winston Churchill, then First Lord of the Admiralty and therefore responsible for the naval protection of Britain’s colonies around the world, insisted that the British government take control of the privately-owned Anglo-Persian Oil Company. Churchill perceived that Britain’s imperialist needs were more important than the free-enterprise ethic. As he put it: “We must become owners, or at any rate the controllers at the source ... of supply ... of oil.” [3]

The British government acquired a 51 per cent stake in the Anglo-Persian Oil Company (which much later became known as BP). It had just recently signed a “concession”, as the action which cheated local rulers out of the true value of their oil was diplomatically titled, to start drilling for oil in Persia (now Iran). The concession covered nearly 500,000 square miles – an area twice the size of Texas – in exchange for 20,000 cash and 16 per cent of the profits.

The era of cheap Middle East oil had begun.

This concession meant that the supply of oil for the British Navy was not only plentiful but also the cheapest in the world. It also meant that every time the company declared its handsome dividends, the Treasury, as Churchill never tired of boasting, would collect its half-share.

The discovery of oil in Iran quickly led to the realisation that a great deal more might be lying under the deserts of the Middle East, then largely ruled by the disintegrating Turkish Ottoman Empire. There followed a scramble between the Western powers to grab parts of the region, and Turkey was made to pay for its defeat in the war by having its dwindling possessions carved up between Britain and France. As Anthony Sampson puts it in his book on the oil companies, The Seven Sisters:

Both countries, while pretending that oil was not foremost in their minds, were specially concerned with two regions along the river Tigris in Mesopotamia (soon to become Iraq), the regions of Baghdad and Mosul which were suspected of containing huge oil reserves. [4]

Britain in fact drew the boundaries of the new country to be called Iraq, making certain they included the crucial oil areas under British control. “Curzon, while hardly mentioning the squalid word oil, came near to threatening war over the issue.” [5]

The cheapest and most plentiful supply of oil was indeed lying beneath the sands of lands inhabited by Arab peoples, most of whom were still living in 11th-century conditions. And Britain controlled most of it.

The US government was furious. It too was in desperate need of new oil supplies. As Britain’s staunchest ally in the “Great War”, it insisted that its oil companies too be let in on the oil bonanza in Iraq. The British government could hardly say no. It is interesting to note that the major US oil companies, which so often boast of their pioneering independent spirit, had to be dragged into the Middle East by their own government. A new consortium was put together, mostly of US and British oil companies. Called the Iraq Petroleum Company, it would serve as a “model” for all future operations in the region.

This was the turning point for British and increasingly American domination of Middle East oil. In 1928 the Red Line Agreement was signed. This amazing agreement gave the Iraq Petroleum Company oil-drilling rights in every part of the old Ottoman Empire – hence excluding outsiders. Since no one was quite sure what area this covered, a red line was simply drawn on the map. This enclosed all future oil-producing areas except Iran and Kuwait and stretched from Turkey down through modern Jordan, Syria and Iraq to the southern tip of Saudi Arabia.

For “allowing” this oil-rush on “its” land, the new British-controlled puppet government of Iraq (it was part of the British Empire until 1932) was granted just “four gold shillings” per ton of oil. Some idea of the super-profits that were creamed off is indicated from the accounts of Exxon, one of the main US oil companies. Between 1934 and 1939 Exxon made a profit of 52 cents per barrel of oil, more than twice the sum they paid the Iraqi government. For an investment in Iraq of 14 million dollars in 1932, Exxon’s share in the Iraq Petroleum Company in 1937 was reckoned to be worth 130 million dollars.

An even greater supply of cheap oil soon came on tap in the desert kingdom of Saudi Arabia, “that stupendous source of strategic power, and one of the greatest material prizes in world history”, as it was described in a US State Department analysis in 1945. [6]

That year, at the end of the Second World War, this posed a special problem for the American government. The Saudi kings, inbred in their ancient conservatism, were content to be comfortably parasitic off the US oil enterprises which had already begun operations. But at the same time they were extremely hostile to the state of Israel, which emerged in 1948 and was backed to the hilt by the Americans. The Americans were determined to gain a much larger and decisive stake in Saudi oil and aid Israel at the same time. They devised a simple solution to the dilemma.

The US government, having pushed their major oil companies into Saudi Arabia, left them alone to pursue their own relationship with the Saudi government. Hence ARAMCO – the Arabian-American Oil Company – which was a consortium dominated by three US and one British oil company, was left deliberately “free” to be as “pro-Arab” as it wished.

This strategy and its relation to Israel was made clear in recently declassifled State Department documents which stated categorically: “Certain advantages flowed from this separation of identity, particularly during the early days of the development of Israel.” [7]

The Saudi king was further placated by the agreement that ARAMCO would pay tax to him rather than to the US government in Washington. This “Golden Gimmick”, as it became known (it was secret for several years), may well have deprived the US Treasury of millions of dollars but it was considered an effective way of buying off the Saudi opposition to US support for Israel.

After the Second World War the United States replaced Britain as the world’s dominant imperialist power. US ownership and control of oil supplies increasingly replaced British control. Simultaneously, the US became Israel’s primary sponsor when the British mandate crumbled in Palestine.

The turning point in the control of oil came in Iran. In 1951 a militant nationalist, Dr Mossadeq, took power and nationalised BP’s oilfields. The British government fumed, but was wary of military intervention. Instead it proposed a boycott of Iran’s nationalised oil – to which the American government and the oil companies agreed. Meanwhile the American CIA prepared a coup and in 1953 overthrew Mossadeq and replaced him with the Shah. Once again, the American government had to twist the arms of the reluctant oil companies to take a stake, alongside the much-weakened BP, and regain control of Iranian oil for the West.

Hence on three critical occasions: Iraq in 1928, Saudi Arabia in 1948, and now Iran in 1953, the US oil giants had to be led to the oil by their government.

Britain certainly did not do too badly out of the new arrangements. By 1956 BP and the joint British-Dutch company Shell were reckoned to be responsible for more than half of Britain’s receipts from all overseas investments.

This renewed buoyancy from oil may explain why Britain risked a twilight imperialist adventure in the same year by bombing Egypt and invading to seize Suez and Port Said, with the support of France and Israel, when Egypt’s leader, Nasser, nationalised the Suez Canal. Two-thirds of the traffic through the canal was oil. As the British historian Hugh Thomas wrote of Suez: “Ever since Churchill converted the navy to the use of oil in 1911, British politicians have seemed to have a feeling about oil supplies comparable to the fear of castration.” [8]

For fifty years the cheap oil flowed to Britain, America and the rest of Western Europe and Japan. The Seven Sisters made super-profits and plenty of smaller oil companies made a hefty killing. Although the Seven Sisters have kept their profits a closely guarded secret, the US Department of Commerce estimate in 1970 of the net assets of the petroleum industry in the Middle East came to 1.5 billion dollars, yielding profits of 1.2 billion dollars, a return on investment of 79 per cent. This compares with only 13.5 per cent return from smelting and mining industries in other third world countries. [9]

Meanwhile the vast majority of the region’s approximately one hundred million Arabs continued to suffer abject poverty. For hundreds of years they had been oppressed by one foreign power after another. Now, as unimaginable fortunes literally gushed out of their deserts, their rulers simply lined their own pockets and continued to allow foreign powers to take advantage of their resources. Added to this, first the British and then the Americans had established a foreign enclave, Israel, in their midst. Israel had not only expelled nearly a million fellow Arabs from their native land of Palestine, but was maintained by the US as an armed camp in the Middle East. This brought war – in 1948, in 1956, and in 1967.

In 1973 an event occurred which appeared to overturn this scenario. The oil-producing countries, which had come together in the 1960s to form the OPEC cartel, now demanded both a better deal from the West in return for their oil – so that the proceeds could be used for the development of their own countries – and some restraint of Israel. OPEC backed this demand by threatening to cut off oil supplies to the West. When the demand went unheeded they put this oil-boycott into action.

The most vocal exponent of the use of the oil-boycott as a strategy against Western imperialism was the ruler of Libya, Colonel Gadaffi, which partly explains why he has been made such a hate figure in the West. Gadaffi had triggered the first oil price rise in 1970 after he had topped King Idris of Libya the previous year. He cleverly played off the independent oil companies against the Seven Sisters – threatening them in turn with a shutdown of Libyan oil supplies. As Anthony Sampson put it:

“The wild men of Libya” dispelled the mystique of the Sisters and revived the whole confidence of OPEC. [10]

However, the oil-boycott was successful only because it temporarily united the most radical of the oil-producing countries with the most reactionary – including the two most decisive and pro-American, Saudi Arabia and Iran.

This was clearly the most serious challenge to Western control of Middle Eastern oilfields ever undertaken. What’s more, its impact was increased because it coincided with the onset of a world-wide economic recession, while the Americans were still reeling from their defeat in Vietnam and Washington was racked by the Watergate scandal.

Furthermore, the fusing together of the two demands, for an oil price rise and for restraint on Israel, graphically illustrated a perceived connection between American access to cheap oil and American support for Israel. Even the oil companies pleaded with Washington to stop supporting Israel, taking full-page advertisements in the American press to call for a Middle East settlement.

The two-pronged strategy of the US government – allowing or encouraging the US oil companies to be pro-Arab while itself maintaining a pro-Israeli foreign policy – was in danger of collapse. The then US president, Nixon, was very much the oil companies’ candidate. The Seven Sisters contributed heavily to the Republican Party – including making massive “illegal” contributions at the time of Watergate. The “oil” contributions to Nixon’s 1972 campaign are estimated to have been at least 2.7 million dollars. [11] Nixon had in fact boasted to the oil-men that he was an American president not at all indebted to the American Jewish vote. [12] (An old accusation, wrongly assumed to explain American backing for Israel.)

Yet when it came to the crunch, with the 1973 Israeli-Arab war combined with the implementation of the oil-boycott, Nixon and his Middle East advisor, Kissinger, ignored both the oil companies and the pro-American OPEC countries. In other words, faced with the seemingly stark choice between Israel or oil, America supported Israel.

In fact there was no hesitation. The OPEC threat and the 1973 war made support for Israel even more imperative, as Kissinger himself later made clear:

The United States saved Israel from collapse at the end of the first week by our arms supply ... Some have claimed it was American strategy to produce a stalemate in the 1973 war. This is absolutely wrong. What we wanted was the most massive Arab defeat possible. [13]

The military defeat, by severely weakening the Arab countries, would also weaken OPEC. Kissinger again:

What was our strategy in 73? First, we sought to break up the Arab united front ...

And this is exactly what happened. The West learnt to live with the quadrupling of oil prices. As indeed did the oil companies. Exxon’s profits for the third quarter of 1973 were up 80 per cent on the previous year. Gulfs were up 91 per cent. Exxon’s profits for the whole year turned out to be an all-time record for any corporation, anywhere, at any time: a total 2.5 billion dollars. [14]

After the 1973 war and the ending of the oil boycott, America resumed the initiative in the Middle East. First, both the Saudi King and the Shah of Iran came begging for arms with all their newly acquired oil-dollars. They were happily accommodated. The Shah spent no less than four billion dollars on US military equipment in 1974. Second, Kissinger renewed the Middle East “peace process” which furthered the aim of breaking up the Arab united front by detaching Egypt altogether and preparing the way for the Camp David Accords, Egypt’s “peace” agreement with Israel.

Thus the structures of American-Israeli military power in the Middle East ensured at the height of the oil crisis that American power – though weakened by OPEC – was maintained. The fall of the Shah of Iran before the end of the decade made this structure even more important to the US.

Early in 1986 oil prices collapsed. Paradoxically, far from bringing cheers at the weakening of OPEC, it sent shivers down the spine of the US administration, with fear of impending chaos, both in the oil-producing countries and those that depend on them for vital oil revenues, US Secretary of State George Schultz referred to the mass exodus from the Persian Gulf of thousands of migrant workers – mainly Egyptians, Palestinians and Pakistanis, laid-off because of falling oil revenues – and how this could over-burden their native lands “and stir political unrest”:

History teaches US that nations in deep economic distress are more vulnerable to political instability, to the simplistic appeals to demagogues who preach siren songs of war and confrontation as a diversion from home. [15]

Appropriately, Schultz was speaking at a luncheon in honour of Israeli prime minister Shimon Perez. He might have added that history has also taught successive American governments the vital importance of its military watchdog in the Middle East, Israel.

 

 

Notes

1. Quoted in Socialist Worker, 26 April 1986.

2. Quoted in Anthony Sampson, The Seven Sisters (London 1975) p.77.

3. Sampson, p.72.

4. Sampson, p.82. The “Seven Sisters” are the seven major oil multinationals: the US-owned Exxon, Texaco, Gulf, Chevron and Mobil, British-owned BP, and the joint British-Dutch Shell. Exxon is the world’s largest corporation and the other six rank among the top eleven. They control the lion’s share of Middle East oil.

5. Sampson, p.83.

6. Cited in Noam Chomsky, The Fateful Triangle: The United States, Israel and the Palestinians (London 1983) p.17.

7. Sampson, p.142.

8. Sampson, p.151.

9. Sampson, p.245.

10. Sampson, p.259.

11. Sampson, p.224.

12. Sampson, p.218.

13. The Kissinger Memorandum: An interview with US Jewish leaders (The Klutznik Group), quoted in MERIP Report, May 1981.

14. Sampson, pp.278-9.

15. Time magazine, 14 April 1986.

 


Last updated on 4.8.2001