John C. Campbell, "Oil Power In The Middle East", Foreign Affairs, October, 1977

Summary by Alison Cozby

 

Main Point:  The rising power of oil producing countries, their ability to dictate prices for the rest of the world, is led by the two largest producers, Iran and Saudi Arabia, each with a different history and different plans for the future.  Both, however, have goals to make internal improvements, and gain more regional and global influence using their extraordinary new income.  Such improvements are dependent upon supplies and aid for the West and the United States.  Thus it is not in the oil producers' best interest to cause chaos or depression in the West by raising prices, unless they want to impede their own growth.  It is not in the interest of the West to take over these areas with force as there would be world-wide resistance.

 

 

Summary

 

I- Brief historical background

 

In Iran, Shah Mahammed Reza Pahlavi believes that the country has a great imperial past and a greater imperial future and is already acting as if the country is a power comparable to Britain or France due to its rising influence in the Persian Gulf region and nearby reaches of the Indian Ocean.  Meanwhile, Saudi Arabia is gradually extending power in Arab world, Sheikh Ahmed Zaki Yamani, Saudi minister of Oil and Industry, leads OPEC and dictates world price of oil while speaking for his king.  Can please Americans with a "moderate" oil price, but also can push for expectation to move Israel toward a settlement acceptable to Arabs.  The U.S. is comforted by having a friend in Riyadh who extends friendship to the U.S. primarily because he distrusts others more.

 

Oil-producing countries of the Mediterranean and the Middle East, following Libya, demonstrated that they could dictate terms to the great international oil companies (formerly symbols of Western capitalism) in this sellers' market for the oil industry.  Consuming countries' governments have choices to use economic and military power if a showdown were necessary.  The U.S. seeks alternative routes to violence, leading to a dependence on the Shah and King of Saudi Arabia, who maintained the security and stability of Persian Gulf Region.

 

Oil power is the ability to dictate private companies and governments.  Arabs used this to achieve political goals by implementing an oil embargo, and also cuts to production and export just as OPEC quadrupled prices in 1973.  This caused panic in Western Europe and Japan, but the US less vulnerable and claimed it would not bend policies (i.e. would not support Israel) because of economic pressure.  Secretary Kissinger did not disguise his feeling that Europeans had been pusillanimous in the crisis and had let their NATO ally down.  The most important consequence were the West had to give more thought to OPEC and also had to deal with a rift between western powers.

 

Was this a great turning point? A weak country dictating will to those with greater military strength and more developed industry, would this lead to OPEC -type organizations for copper, bauxite and other material that could give the third world power?

 

No…OPEC has only redefined relationships between oil producers and consumers.  It has not generated OPECs for other commodities, has not emancipated the Third World.  The Conference on International Economic Crisis in Paris, which grew out of the oil crisis, have now come to an end without significant agreement.  Any revolution will be far in the future and occur slowly as sides continue to blame one another.

 

The Revolution is, in part, already here.  Independent diplomacy and political power have come overnight to Iran and Saudi Arabia, but they have two distinct stories to tell.

 

II  Iran   

 

The memory of the Persian imperial past always remained through the later centuries of weakness.  The country avoided annexation and partition, but eventually had to yield.  For example, the Anglo-Russian occupation of the country in WWII forced abdication of Reza Shah (the founder of the modern Iranian state), in favor of his son Mohammed Reza, also brought pledges to respect Iran's sovereignty and to end the occupation after the war.

 

Iran was grateful to U.S for help ending Soviet occupation after they had lingered and fostered a separatist revolution in the northern province, Azerbaijan.   The U.S. and Britain fought over the handling of the crisis that followed nationalization of the Angli-Iranian Oil Company by the government of Mohammed Mazaddeq in the early 50's enabled Iran to end up with a new deal on oil, but Mosaddeq disappeared from the political scene.  US helped to bring back the Shah (had left in 1953), and was a protecting power, with military, economic and technical assistance…drawing Iran into its worldwide alliance system.   The policy of industrialization and modernization, begun by Reza Shah, was carried on with American help by his son with the plan to strengthen Iran against any power, including the U.S., which might be tempted to encroach on its independence.

 

During the Cold War Iran knew how important Iran’s oil is to US strategy, but it also knew how dependent it was on U.S.   A message was sent to Washington.. when Iran made favorable responses to Soviet courting by drafting terms of a Soviet-Iran treaty.  Iran instead signed security agreement with the U.S. in   1959, but had made a statement by flirting with the Soviets.   The Shah later made a pledge to Moscow that Iran would not grant strategic base to any foreign power.  This put the Shah in a position where he must balance between eastern and western powers.  He wanted a stronger base to do this with, and so began to build his military.

 

Iran’s search for a regional role was at first defensive, against many fronts.  The Soviet Union was a major threat, also the radical Arab nations were second represented by Nasser's Egypt, and after the revolution of 1958 in Baghdad the radical regimes in Iraq.  Shah took measures that he could.  He used western relations, cooperated sub rosa with Israel, and kept Kurdish rebellion in Iraq.  However he wanted more autonomy to keep things in check without involving other powers, but this would mean he had to gain more influence in world affair councils.

 

Iran’s larger goals to gain more regional power and independence, were the same before and after the oil revolution of 1973.  So how did they use oil power to achieve their goals?

1. Armed strength- spent $11.8 billion on arms from 1971 to 1976, claimed would not go nuclear. but no doubt would if other middle powers did
2. Transformed economy…investment into basic industry and infrastructure for further expansion
3. Asserted foreign policy of independence
4. Asserted voice as a regional power

Iran healed the breach with Egypt, created an informal alignment of modern states along the axis Tehran-Riyadh-Cairo to checkmate radical forces.  It has sent troops across the Gulf to help the sultan of Oman put down rebellion in Aden, assumed role of protector of the integrity of Pakistan from Indian and Afganistan, but has also mended fences with India.

 

A larger role in its region would imply more world power, and Iran did gain a larger voice, but this was more due to OPEC than to its rising number of armed forces.

 

III  Saudi Arabia

 

Saudi Arabia had a tradition of independence as it avoided being conquered by outsiders, and tribes unified.   People could look back to a golden era, but for centuries the society was thrown on itself with only limited contact to the outside world.  A sudden decision of Ibn Saud in 1933 to grant oil concession to American company, caused anxiety about forsaking the people and their traditional lifestyle.

 

Saudi Arabians problems included the struggle against Nasser's Egypt for leadership of the Arab world. Also there was conflict with the Egyptian military intervention in Yemen's civil war, the real target of which was not the mountains and tribes of Yemen but the oil of Saudi Arabia.

 

Before oil revolution Saudi Arabia was not driving for power, but oil was changed its relationships.  Income from the 50/50 formula for splitting profits with the Arabian-American oil Company (Aramaco) was huge for a country of some five million people.  In 1950 Saudi Arabia was the leading producer in the Middle East.   Saudi Arabia maintained a positive relationship with the U.S. and did not want to take nationalistic stance like that of Iraq that set the offensive for the international oil companies.  Saudi Arabia had been a member of OPEC since its founding in 1960, and would not line up with companies against its members. 

 

King Gaisal had two very specific concerns, on was the anti-communist cause and the other was the recovery of Palestine, particularly Jerusalem, for the Arabs.  Oil power helped him gain a voice in these matters.  He encouraged Egypt to expel its soviet military advisors, asked Americans to make Israel come to terms (despite the U.S. attempts to separate oil country issues from the Arab-Israeli conflict). 

 

Quadrupling of oil prices in1973 stemmed from feeling that it was time for the Middle East to assert itself and change terms of relations with the west, not really due to Arab-Israeli war nor embargo and production cuts associated with it.   The was a sudden and huge income for Saudi Arabia.  What has happened with the money? How have goals changed  since 1973?

 

1. Saudi Arabia aimed for rapid economic development, new construction, new machinery, new imports, new people, and more generally…new ways.  This would ultimately change traditional society.  This marked the first time for primitive country to have such wealth at its disposal, and they undoubtedly wanted to use it so they could diversify and prosper beyond the oil revolution.
2. Like Iran, they spent large sums to modernize weapons, and military forces.

Even with drastic spending on development, Saudi Arabia still had 20.1 billion left over.   This created influence in Middle East and world.  Other oil-producing countries were not able to maintain such a surplus.  Egypt and Syria did not produce enough for a comparable income.  Iraq and Algeria used all they earn from export.  Iran loaned some of its reserves, and used the rest- had only small surpluses.  Kuwait was conservative minded, and even though it earned a great deal it kept the surplus small and used money for aid in development of other Arab states.  Libya also earned enough, but was also conservative, and aimed to keep the surplus low and used funds to encourage revolutions, but could not really exert power.  Saudi Arabia will use its oil money in the Arab cause.

 

 

IV  Limitations of Iran and Saudi Arabia

 

Both Iran and Saudi Arabia were limited by various factors in their goals to develop and gain regional and global power.  The limitations are as follows:

1. Military expansion in both the cases of Iran and Saudi Arabia is questionable.  In Iran, a build-up of weapons and military may only cause the U.S.S.R. to bulk up military and weapons in Iraq, while Eqypt and other unify against and Iran.  This would only contradict their goal to gain regional leadership.  In the case of Saudi Arabia it is the acquiring of weapons and distributing them to others that is powerful. Power of the purse, not of the army.
2. Paradox- strengthening independence through military and industrial strength is dependent upon U.S.
3. Big projects strain resources, manpower, and social fabric.  haste made waste.
4. Political uncertainty and unrest; no way to easily transfer power from leader to successor, and also no real way to ousts ineffective leaders.

 

V    OPEC

 

OPEC-even though the world seems to hold its breath for this organization has some weak points.

1. It has no internal unity.  It only sets prices to the advantage of its members, and is not dedicated to new international order
2. Rulings are heaviest and most decisive when Saudi Arabia and Iran rule together, but falls to Saudi Arabia alone if they are not in agreement because it can raise or lower its productions by millions per day if so desired
3. There is no desire to subject the west to "strangulation" (as Kissinger put it) by buying control of their industries.  Expenditures are for the commitments to their own peoples, and this is the counter dependence to west's dependence on their oil.  Too high of a price would not benefit them as recession or chaos would have an adverse effect on their prosperity.

These rising oil powers made international relations at the height of importance.  It would have been impossible for the west to take oil by force unless there was a total breakdown of the produce/consumer partnership.  The oil producers retained the need for us support to ensure strength against Soviet threat.

 

Only if circumstances changed, then they could look to Soviet Union, but this was unlikely.  They did not want to unite first and second world against west, only wanted more bargaining power with the west.  This creates a test: how well their relationships serve their national and regional goals and, in the case of Saudi Arabia, Arab goals.

 

Saudi-Egyptian relations were crucial as Egypt had economic problems and exploding population..  Egypt could look to Saudi Arabia for domination as Nasser did, or look for help as Sadat did. 

 

US role was significant, but needed to maintain a calm in the region without filling the power gap with US forces.  The area is a threat to world peace- the conflict between the Arab states and Israel especially dangerous.  Saudi Arabia could use oil power against the west and against Israel.  The problem about the continuing fight, is that now with the U.S. playing a mediation role, with out an Arab-Israeli settlement an anti-US mentality could develop in the Arab world.

 

VI  U.S. reaction- conclusion

 

Due to the vulnerability of the U.S., Carter reduced energy proposals to minimum that would increase bargaining power.  Producer consumer relations were recognized as a two way street where the west needs oil, while Iran and Saudi Arabia need help with internal development and against regional threat.   Thus OPEC cannot push industrial countries too far with price policies without hurting themselves, and western countries cannot take over with force without upsetting other countries and having grumbling from within.

 

It became important to accept interdependence for prosperity while industrial nations try to shorten this time of oil dependency by developing other forms of energy. This must remain the goal, and the U.S. cannot allow a lethargic approach.