The Political Economics


the Persian Gulf War









The Iraqi Invasion

Hussein’s Motives

Bush’s Motives

Cheap Oil

Or Expensive Oil

Diplomatic Evidence

Business Gains From High Priced Oil

American Hegemony?

What About Recession?         

Bush’s Vision?

Resistance is Possible

Resistance is Necessary



What is going on in the Persian Gulf?  Why are we at war?  Should we back the president, or oppose his policies? These are not easy questions to answer.  They were not easy to answer in the early stages of the Vietnam War; they were not easy to answer in Central America.  Yet we must try, for many lives hang in the balance.  In what follows, I want to share my present thinking about some of the political economic issues at play in the current situation.  Although I don’t pretend to have all the answers, what I do see is not pretty and it suggests to me the need to mobilize against current American policy both at home and abroad.


The Iraqi Invasion


First, how are we to judge Hussein’s invasion and takeover of Kuwait?  Have his actions liberated the people of Kuwait from the unjust rule of an illegitimate feudal Emir?  Or have they been enslaved by an even worse tyrant?  Certainly we cannot take as our basis of judgment the principles of national sovereignty that the Bush Administration would like to use.  Not only have they been ideological tools dragged out to justify some policies (Bush’s actions in the Gulf) and quickly forgotten when inconvenient (Bush’s actions in Panama), but also they ignore the very real differences within countries between the ruled and their rulers. It is better, it seems to me, to simply ask ourselves whether most people living in Kuwait are likely to be better or worse off under the rule of Hussein than they would be under the restored rule of the House of Sabah with or without a new parliament (which the House of Sabah has promised to allow). 


If the condition of the people living in Iraq versus those living in Kuwait is any indication, those in Kuwait (including vast numbers of foreign workers) are very likely to suffer as a result of the invasion.  Even a quick perusal of Amnesty International or Middle East Watch’s assessments of the human rights situation in Iraq and Kuwait will suggest to anyone that an average Arab or foreign worker (as opposed to highly paid Western technicians) would choose Kuwait as the lesser of two evils. The past rule of the Kuwaiti Emirs has perhaps been less barbaric than that of some other dictatorships in the area it was hardly enlightened, especially for the non-citizens who make up the vast bulk of the citizenry.  Nor does it seem likely that it would be much better under a reconstituted Kuwaiti parliament elected by only a tiny minority of the population. Despite these considerations, expectations based on Saddam Hussein’s rule in Iraq as well as news of his army’s conduct in Kuwait since the invasion can only be bleaker. The torture-murder-disappearance of literally thousands of Iraqi citizens, the poison gassing and forced relocation of thousands of Kurds, and the systematic military imposition of what can only be called fascist rule bodes nothing but ill for subjugated Kuwaitis and all other workers caught by Hussein’s invasion. There is nothing to celebrate in his actions and everything to oppose.


Saddam Hussein’s Motives?


Saddam Hussein’s political economic motives for taking over Kuwait are relatively transparent. Hussein needed money.  He needed money to rebuild after the long war with Iran while maintaining his army to cope with continuing internal resistance to his rule from the Kurds (whom he has repressed and slaughtered), from the millions of foreign workers employed in Iraq (whom he has ruthlessly exploited), from Communists and Islamic fundamentalists (whom he has executed as quickly as he could identify and round them up) and from almost everyone else not part of his highly centralized political and military machine.  He needed money to spread his Ba’athist ideology of Pan-Arabism and to build his own influence and power throughout the Arab world. He would unite the Arab world —under his own hand and subject to his own whims.


Prior to the invasion Hussein had threatened force to end the Kuwaiti (and United Arab Emirates) practice of producing and selling more crude oil than their OPEC quota allowed, an action which increased supply and lowered oil prices, reducing Iraqi income from its own oil exports.  Those threats achieved an OPEC capitulation on July 27 and agreement to cutbacks that would raise prices, but only about $3 a barrel.  Hussein had also demanded some $30 billion in aid from the government of Kuwait and the other oil producers of the Gulf.  The rulers of Kuwait were less than forthcoming.  They reminded Hussein of their previous support during the war with Iran, of his outstanding debts to them and offered little more money. Kuwaiti refusal to comply with his demands created an obstacle to the realization of Hussein’s goals. He sent in his army to remove the obstacle.


On the basis of Hussein’s past performance in Iraq, of his motives in taking over Kuwait and of his actions since the invasion I see no alternative to publicly condemning his actions and supporting the struggles of both Iraqis and Kuwaitis against him.  We must begin to discuss not only alternatives to war (which will only liberate Kuwaitis from his grip while restoring that of the Emir), but also how to support opposition to him inside Iraq.


George Bush’s Motives?


But if Saddam Hussein’s motives are clear enough, and condemnable, what of George Bush’s. Why did he order American troops into the Gulf?  We can reject out of hand the explanation currently stressed by the White House —to resist aggression— as simply unbelievable in the light of the Contra war, Panama, Grenada and the Bush Administration’s silence on Israel's occupation of the West Bank and the Syrian takeover of Lebanon.  However, we must still take seriously the alternative, economic explanations that have been offered by the White House.


First, of course, is the argument, made originally by Bush himself, that the troops were sent to defend “our way of life,” i.e., cheap oil, cheap gasoline, gas guzzling cars and boats. Second, suggested at the same time and reinforced later by Baker, was the argument that defending cheap oil supplies also defends “jobs” —helps stave off recession and rising unemployment, such as that which followed the first “oil shock” in 1973-1974. Such arguments have some credibility because they have had some truth in the past or might have some in the future.  But should we believe them today?


Cheap Oil?


It is easy to show that American policy toward the oil producing nations of the Gulf, and elsewhere, has at times been designed to guarantee steady supplies of cheap oil.  Certainly this was the case in the post-World War II period and explains, among other things, the CIA overthrow of the Mossedegh government in Iran in 1953 which was seen as endangering Western control over Iranian oil.  In those days cheap oil fueled post-war reconstruction in Western Europe and economic growth in the U.S.  There are also reasons to think that U.S. policy makers wanted a reduction in the price of oil in the early 1980s. The attack on the price of oil can be seen as part of a more general anti-inflationary policy that was really an anti-wage policy.  That time policy makers achieved their ends less with direct force (unless you include the bombing of Libya) and more with global recession induced by tight money and high interest rates —a recession which dramatically reduced the demand for oil and thus its price. Such policies have always lent great credence to traditional charges of imperialism, of the shaping of foreign policy for the profits of American business.


Or Expensive Oil?


But at other times, American foreign policy has favored not cheap but expensive oil, as in the early 1970s when American negotiators let it be understood by OPEC that the U.S. was not opposed to an increase in the price of crude oil.  In those days high priced oil achieved a variety of ends. It helped the Gulf countries cope with internal instability by providing them with more resources. It undercut European competitiveness because it hurt Europe more than the United States.  In the U.S. (and around the world), it undercut real wages which had been rising faster than productivity (and thus hurting profits) by causing inflation while simultaneously making vast amounts of money available to Western business as the OPEC countries deposited their trade surpluses in Western commercial banks.  As recently as April of 1986, then Vice President Bush hurried to the Persian Gulf to pressure Saudi Arabia and other Gulf states to cut production and raise prices —pleading “national security” and the economic needs of oil men and their bankers in the U.S.


So, which is the case today?  What does the Bush administration hope to gain?  Cheap oil or high priced oil?  Certainly, in the short term its military actions and the blockade of Iraqi and Kuwaiti oil have driven up the price of oil dramatically (from about $18 dollars a barrel to over $40, dropping since to about $30).  Although OPEC production has surged and already made up for blockaded Iraqi and Kuwaiti exports, prices remain high based on fears of future conflict and future shortages. The persistence of conflict keeps prices high.  So far Hussein's troops have only been able to inflict very minor damage on Saudi production and shipping facilities but any substantial destruction in the oil fields could reduce oil supplies and further drive up prices. 


If Bush’s policy advisors do want cheap oil, only in the long term can current actions be argued to be consistent with such an objective —assuming that preventing Hussein from controlling Iraqi and Kuwaiti oil would help hold down prices in the long run.  Against the argument that Hussein’s control over the combined oil exports would result in higher oil prices we must set what we know about the workings of the international crude oil market and the behavior of its major suppliers.  As OPEC was beginning to discover, even before the global recession brought on by the Reagan Administration in 1982, persistent high oil prices lead to increased conservation, the development of alternative energy sources and new supplies, all of which tend to bring down the price and reduce OPEC’s share of the market.  Any country with very large oil reserves, such as Saudi Arabia, has a vested interest in keeping prices at a level below that which would bring about such problems.  A Saddam Hussein able to control the flow of oil from both Iraqi and Kuwaiti oil fields into world petroleum markets would be such a country.  It is hard to see why he would act against his own long-term interests by raising the price much above that favored by the Saudis.


What about the possibility that what the Administration has wanted, and will want for the foreseeable future, however the war is terminated, is really a high priced oil policy while claiming to want cheap oil —the kind of thing that was done in the early 1970s?  There is some evidence of this, partly to be deduced from the actions of the Administration, partly from that of its allies in the Gulf, especially the Saudis. 


Diplomatic Evidence


According to press reports, last January a former U.S. ambassador, “still used by the Bush Administration for foreign policy missions,” told one of Hussein’s closest associates that Iraq should engineer higher oil prices to get it out of its difficult economic situation. Moreover, leaked tapes of conversations between U.S. ambassador April Glaspie and Hussein shortly before the invasion suggest American agreement with Hussein’s desire for higher prices (as well as a more widely discussed “neutralism” with respect to inter-Arab disputes whose articulation is widely interpreted as having left Hussein with the impression, apparently mistaken, that he could take over Kuwait with impunity). Furthermore, before the invasion the Iraqi pressure for OPEC cutbacks and price hikes had been supported by the Saudis who apparently had threatened not only Kuwait but also the United Arab Emirates with no military protection because they were exceeding their OPEC quotas.  Thus, the White House’s closest ally, the Saudis, took a position similar to that of Hussein, at least with respect to oil prices.  In the midst of this intra-OPEC feud, the White House backed up Iraq by opposing Congressional economic sanctions against that country.


It is also of interest that the petroleum industry, in whose interests the Bush Administration has acted repeatedly, seemed quite content with Saddam Hussein’s new role as a forceful policeman of OPEC.  In the wake of the July 27th OPEC agreement in which Kuwait and the UAE capitulated to pressure to cut back production, the Petroleum Intelligence Weekly, for example, saw a future of high, but not too high, and much more stable oil prices. Since then, Businessweek has commented on the satisfaction felt by the oil companies with prices stabilizing around $20-25 a barrel.


Business Gains from High-Priced Oil


What does the Bush Administration, and the business interests it represents, gain from high oil prices?  To start with, they gain some, but not all, of the same advantages they did in the mid-1970s:


1. Oil producers and those tied to them would have more resources to cope with internal stability —a serious problem in the wake of the debt crisis and domestic protests in countries such as Jordan, Iraq, Iran, Nigeria, Trinidad and Venezuela.


2. Generalized inflation would cut real wages everywhere, again transferring wealth from workers to business via international banks.  The Saudis alone may have a $20-$30 billion current account surplus available next year to invest in the West.


3. Because of increased efficiency abroad, stronger economies and a declining dollar, increased oil prices would have less of a recessionary impact on Western Europe and Japan than on the U.S., but real oil shortages would hit them more than the U.S. which imports far less of its energy needs.


Added to these old advantages are some new ones:


4. The militarization of the Gulf is a devastating blow to workers in that area, both local and foreign “guest” workers.  The repression of foreign workers (including Palestinians) in Kuwait (who have fled by the thousands across the border into Jordan), the expulsion of hundreds of thousands more from Saudia Arabia into Yemen and the dramatic drop in repatriated wages have wrought havoc among workers of the whole area.  Such violence undercuts these workers’ struggles to share the oil wealth of the area and strikes back against the kind of upheaval mentioned in point #1 above.


5. The Gulf conflict and associated oil price increases are providing the White House and its friends in the energy industry with an excuse to set aside environmental controls in the name of “national security.”  Reversing previous support for some limitations on offshore drilling, the Administration is now pushing hard for drilling off the coast of California and in the Alaskan Wilderness (which has so far been resisted by Congress).  There is a parallel effort to use the crisis to help revive the defeated nuclear industry.


6. High oil prices will help Bush’s new “partner” Mikhail Gorbachev attract foreign investment to the stagnating Russian oil fields, obtain the resources (from payment for oil exports) to carry out perestroika and avoid a destabilizing break-up of the USSR. 


7. At the same time high oil prices will help impose even stiffer austerity on the peoples of Eastern Europe making them more pliable to integration into the global economy as a new source of cheap labor —especially since the USSR followed up last summer’s cuts in deliveries by charging hard currency for its oil exports since January 1991.


8. The Gulf War provides the military industrial complex the reasons it has lacked for continued heavy defense expenditure for the rest of the century.  The end of the cold war spelled crisis for that complex and the possibility of new “peace dividends” for others.  Bush has already begun to use the Gulf War as a model (following Panama and Grenada), to argue for vast sums of new money —to replace destroyed equipment and to prepare for future actions.


9. Simultaneously, the “need” for sustained military expenditures provide Bush with an excuse for continuing the attack on social services, entitlements, student loans and subsidies for low income housing, in other words, a continuation of the social repression of the last ten years.


10. Last, but perhaps not least for oil man Bush, increased oil prices have raised the profits of American oil producers and are encouraging more production —which hit a 26 year low in 1989. They would also raise the value of oil real estate and the viability of many loans, especially in the Southwest, whose falling values have contributed to the current financial crisis in both the Savings & Loan and banking industries.


Beyond these specific advantages, there is the more general question of the American search for control over the oil supplies and oil producing labor force that is of so fundamental importance in the world capitalist economy.


American Hegemony?


For decades, the White House has sought a manageable distribution of power in the Gulf region. Prior to the Iranian revolution in 1978 and rise of a Fundamentalist Islamic regime in that country, the Shah of Iran was armed and supported as a sub-imperial center pole of American influence in the region (a Northern pole as opposed to the Israeli Southern pole).  Unable to deal effectively with a Fundamentalist Iran (one or two arms-for-hostages deals notwithstanding), the White House “tilted” toward Iraq during the Iraq-Iran war and began to lay its money on Saddam Hussein.  Hussein, it obviously felt, could serve to keep both Khomeini in the East and Assad in the West in check.  Since the rise of OPEC, the meaning of “U.S. hegemony” in the region has been, first and foremost, an arrangement of power in which local rulers would and could continue to keep both local and imported workers pumping oil at wages and prices profitable to both oil exporters and oil importers.  In other words, hegemony in the Persian Gulf has meant keeping the local economy functioning within the global order supplying one of its most fundamental energy sources. 


As long as political and military competition among the major powers of the region (armed by American, West European and Soviet military-industrial complexes) kept them occupied, the U.S. could largely rely on each country to regulate its own labor force and on Saudia Arabia to regulate OPEC output and price levels.  If it is true, as it seems to be, that the U.S. was collaborating in a strategy to raise oil prices by forcing Kuwait and the United Arab Emirates to cut back their production and that the U.S. essentially gave Hussein the “green light” to pressure the House of Sabah, then Bush’s opposition to his invasion would seem to derive more from disagreement over methods than from disagreement over ends. “Pressure” in the Administration's mind did not, apparently, include such a major rearrangement of national boundaries and of the distribution of control over oil reserves and the oil producing labor force.  Hussein either misunderstood Washington’s attitude or simply decided he could get away with taking over Kuwait. Bush’s immediate and massive military response shows that in either case, the consensus in the White House was that Hussein’s move was unacceptable.  What is unclear is whether the White House will be satisfied with “disciplining” Hussein by forcing him to withdraw from Kuwait or has now decided that Hussein is such an unreliable ally that he must be “taken out.”  In either case war will have the effect of militarizing the region and giving whichever set of local rulers are left after the crisis much greater power to manage the local and imported labor force on which so much of the rest of world capitalism depends.


What About Recession?


Against this list of advantages we can examine the apparent disadvantages of high priced oil.  The most obvious of these would seem to be the way higher energy costs and military expenditures will tend to accentuate both trade and federal budget deficits and add to recessionary pressures that were accumulating even before the invasion and produced an actual downturn in the fourth quarter of 1990.  Did the Administration want recession?  It never said so, of course, no American policy maker ever does, even when desired —at most euphemisms such as “cooling off the economy” are used.  Remember: Reaganomics was touted as producing cost free growth at the very moment its continuation of Carter’s tight money policy precipitated the sharpest depression since the 1930s. 


Last year’s behavior on the part of the Federal Reserve, which refused to loosen up on the money supply as recession loomed,  showed that it was willing to contribute to a downturn. The Fed’s five-year plan to reduce inflation to zero echoed the same rhetoric and policy objectives that characterized the earlier Reagan-Bush period, albeit with less publicity.  Even before Hussein took over Iraq the business press was bemoaning rising inflation due to wage increases exceeding productivity gains.  After the invasion, “the fact that the central bank chose not to push interest rates lower in the early stages of the Persian Gulf crisis,” wrote The New York Times, “may prove to be the deciding factor in hastening an economic downturn” —which it probably was, along with reduced consumption expenditure due to public uncertainty in the shadow of the growing Gulf conflict. 


In the Reagan-Bush period of the early 1980s anti-inflationary depression brought a drop in oil prices at the same time it cut employment and wages.  Today the uncertainties of war, and the Administration’s refusal to sell off any substantial amount of the US strategic stockpile, have kept oil prices high despite the downturn. There was only a brief restriction of oil supplies followed by a glut due to increased output and user stockpiling.  Therefore, despite recession, oil prices rose sharply, fell somewhat, but still remain high.  Since the fall, the Fed has loosened the monetary strings slightly but hardly enough to counter increasing uncertainty, falling sales and production accentuated by the Gulf War.


Such recessionary aspects of the Bush Administration's Gulf policy will eventually be partially or totally offset by the expansion of military expenditure and a renewal of our familiar Keynesian permanent arms economy.  As mentioned in Advantage #8 above, the military-industrial complex delights in current policies.  Post-Great Depression American history has provided ample testimony to the efficacy of expanded military expenditure in stimulating general economic expansion.  World War II, the Korean War, the Vietnam War, and the Reagan arms buildup all contributed, to a greater or lesser degree, to economic expansion.  A renewal of such policies can be expected to have similar effects.


Bush’s Vision?


But suppose such stimulation does produce growth; what kind of growth will be produced by vast military expenditures and slashed human services, reduced real wages and accentuated exploitation of the environment?  It can only be a continuation of the kind of growth we have seen in the last part of the 1980s: one of a military industrial complex that expands rapidly at the expense of production to meet people’s needs.  What is Bush’s vision?  Has he decided to cede the international competitive race in civilian high tech production and consumption to Europe and Japan in favor of an American economy based on low wages, a permanent underclass and the production of the arms necessary for the US to police world capitalism?  Is Bush’s vision that of a post-industrial America whose place and power in the world is narrowly redefined as Global Cop?      


It is hard not to be appalled by such a prospect, whether the result of a vision or the lack of vision.  The only legitimacy that capitalism has ever been able to claim has been its “ability to deliver the goods,” i.e., to raise standards of living.  Yet now we are being presented with a set of political economic policies that promise only increased militarization and decreased standards of living both at home and abroad for the vast majority of people.  What we seem to be faced with at the end of the Twentieth Century is a morally, socially and politically bankrupt business leadership, totally unable to address itself to the meeting of people’s needs.


Resistance is Possible


Of course, all these policies may fail —not only in the long run, but even in the short run.  The danger of the crisis for the Administration and its business allies —as well as the opportunity for those who oppose them— is that instead of producing submission and willingness to accept sacrifice, a great many people have already begun to respond militantly and to demand dramatic changes in policy.  The danger of using the Gulf War as an excuse to strike out in all directions, to tip the balance against many foes, at home and abroad, is that those foes will recognize their common enemy and unite against the White House and its patrons. 


The last time American policy makers sought to make use of OPEC actions and high oil prices to undermine wages in the West and to stabilize the Middle East —1973-1974— resistance was widespread.  In Egypt, when Sadat gave in to banker pressures to impose austerity on his people in 1976 by cutting subsidies and raising the price of basic foodstuffs, they rose up instead and forced him to reverse the price increases.  While the oil price increases gave more money to America’s primary ally in the Persian Gulf (the Shah of Iran), he was forced to concede growing amounts of it to popular demands. Despite such concessions, the victims of his bloody rule soon overthrew him in 1978.  In many countries of the Third World, the refusal of people to accept dramatic cuts in real income through increased imported oil prices forced their governments to support them with increasing amounts of recycled petrodollar debt. In the United States and Western Europe workers fought to defend their real wages by forcing money wages up as fast as inflation, even as unemployment rose, thus adding a new word to the economists’ vocabulary: stagflation. 


That the threat of war, and war itself, can be used to achieve political economic ends by other means is a lesson those of us in the United States learned the hard way.  Vietnam taught us to recognize such methods and we learned how to resist them. 


When President Jimmy Carter used rhetoric about the energy crisis being the moral equivalent of war to try to gain support for “collective sacrifice”, i.e., wage cuts, Americans refused to go along.  Not long after that Carter, his generals and the Committee on the Present Danger tried to use the specter of limited nuclear war to achieve acquiescence to their political and economic policies in the U.S. and Western Europe.  Instead they got the biggest peace movement in history. 


Ronald Reagan and Alexander Haig sought a real war in Central America, but a reborn anti-war movement mobilized in response to the reinstitution of draft registration and prevented direct American military invasion.  We then had to fight support for the Contras and must continue to oppose aid to the torturers and murderers of El Salvador and Guatemala —but we have prevented direct military intervention.  Only in Grenada and Panama have we failed to prevent the direct use of the White House’s mailed fist.  Now Saddam Hussein has given George Bush a new opportunity to test the limits to the American people’s resistance to the use of military force for covert goals.  The Congress failed that test by voting to support war.  It is up to the rest of us, once again, to counteract that failure.


Resistance is Necessary


War in the Persian Gulf hurts us all.  The longer the war goes on, the more the consequences will be devastating, both for the people in the area (soldiers and civilians) who are suffering growing casualties and spreading destruction, and for the rest of us who are experiencing higher priced oil, lower wages and a White House campaign to achieve all the goals mentioned above.  The only ones to profit are the rulers and businesses who will remain on top when the flow of blood stops and only those of oil and dollars remain.  We have failed to prevent the war.  The best we can do now is to try to bring it to an end as quickly as possible while also moving to counter the Administration on every other front as well (e.g., offshore drilling, social programs, military spending and so on). The threat of war provoked popular mobilization against it, all around the world.  The onset of war has accelerated that mobilization in America despite the inevitable outpouring of mindless patriotism and racism, renewed COINTELPRO operations and the FBI intimidation of the Arab-American community.  When the current air war becomes a ground war and [if] the press overcomes government efforts to hide the return flow of thousands of body bags, the anti-war movement will expand rapidly and attract ever more diverse groups of people.


So far, anti-war organization has shown, quite vividly, that the “Vietnam Syndrome” is far from over. However much our efforts contribute to ending the war, we must also prepare to counter the inevitable arguments that peace was achieved only through the use of arms and that military expenditures must be kept high to deal with future threats to the “new world order.”  A quick settlement will minimize the ability of the White House and OPEC to prolong the maintenance of high prices and maximize everyone’s ability (around the world) to fight for higher wages, a real “peace dividend” of improved social services and sensible energy and environmental policies.  At the same time, the oil-producing workers of the Gulf will be in better shape to influence and then deal with the outcome of any settlement.  Moreover, if in the course of the struggle against the war, we link our critique of American policy in the Gulf to a wider critique of American policies elsewhere in the Middle East, e.g., the Palestinian question, we will improve the chances for using the resolution of the Gulf Crisis to the achieve other goals elsewhere.  


In the light of all these considerations, it seems to me, our current political agenda ought to look like this: first, having succeeded in building an anti-war movement, we must press for a cease-fire and negotiated end to the conflict; second, to achieve this we must mobilize every group whose interests are threatened by Bush’s bellicose high oil policies; third, in the process of that mobilization we must encourage the elaboration of positive demands for change (e.g., improved energy policies and improved social services) in preparation for the post-War period.



January 1991

Austin, Texas