Norman Stone - The Atlantic and Its Enemies

Various other factors came into play. The first was the weirdness of American policy. Oil had been protected against cheap imports, because it was a strategic commodity, and under Harold Ickes there had been sensible regulation — reserves were created, from the surplus, and in the war crises of 1951, 1956 (Suez) and 1967 the reserves had been used, to offset interruptions in supply and keep prices down. From 1957 to 1963 the surplus had amounted to 4 million barrels per day. However, the artificially high price, through protective tariffs, of imported oil then made it profitable for reserves to be used, and these ran down, falling to one million barrels as against an output of over 11 million. If for whatever reason prices suddenly rose, then there would be no American reserve with which to flood the market and bring prices down again. In March 1971 the Texas authority for oil allowed full-capacity use for the first time. Imports followed. The world was in effect becoming dependent upon Middle Eastern oil — demand had risen to 21 million barrels per day, and the Middle East, producing 13 million barrels more, was therefore in the position of meeting two thirds of the rise in demand — despite the emergence of other fields, in Nigeria and Indonesia. Besides, alternative fuels were either undeveloped, or under attack.

Various ideas had already appeared for the use of wind or solar power: they involved much trial and error and great expense at a time when oil was cheap. The fact that there were oil reserves in Alaska was known, but by now the environmentalists were at work and the technology, given the geology and climate, was exceedingly difficult and expensive. In 1972 human genius went into a discovery that there were reserves under the oceans — the North Sea, for instance — but, again, there were environmental fears, as an oil slick destroyed thirty miles of Californian beach. In 1972 the Club of Rome — an informal but weighty international group, supposed wise men of the world — issued a warning called The Predicament of Mankind , which took the consumption figures for that year and reckoned that ‘sometime within the next hundred years’ energy and food would run out because the population was growing so fast and ‘the limits to growth on this planet will be reached’. There were also alarms as to the effect of industrialization, in its modern form, on the climate, as carbon dioxide built up in the atmosphere. Nuclear power was in some quarters regarded as an answer — the Soviet Union and France went ahead — but elsewhere there were fears of accidents and in any case, in some countries — Great Britain especially — coal had an almighty presence. There, a mixture of bad conscience (the miners had been chief victims of the British Slump of the 1930s) and misbegotten policy ensured that coal would have a predominance that prevented the development of a nuclear policy such as the French (to Margaret Thatcher’s subsequent admiration) had had. But coal itself was under some threat, because of environmental considerations. There had been a great ‘smog’ in London in the late autumn of 1958, the last of the Dickensian ‘London partiklars’, and a Clean Air Act had followed, inhibiting domestic use of coal. More oil, in other words. As things were, America, through the quota system, had made matters doubly bad. Oil was not produced, in order to keep prices artificially high. The major companies just agreed among themselves, and took the profits without much effort. On the other hand, world prices were low, and this discouraged exploration of, or at any rate investment in, new sources of oil. There already were alarms — power cuts in the harsh winter of 1969-70. By summer 1973 the USA imported 6 million barrels every day, as against 3 million three years before.

The final element in all of this was financial: the dollar. The Shah, for instance, had embarked upon a colossal attempt to modernize Iran and turn it into something commensurate with the Indo-European (as distinct from Arab or Turkic: ‘Iran’ instead of ‘Persia’ is itself something of an artifice, since it refers to ‘Aryan’, as in blue-eyed, blond, etc.) origins of the Persians, as he understood them. In 1971 he had even staged a great ceremony, inviting anyone interested, at the old capital of Persepolis, complete with Peacock Throne and elaborate use of tiles and gold. His view of the history of Persia was a hard-luck story: on the one side elaborate white clothing, dignified attitudes, elegant and moving poetry, imposing architecture, and on the other side (mainly) Turks, bringing to the work of destruction a glee that civilized Persians could not have been expected to resist, the more so as their potential allies had stabbed them in the back. That the modern-day Turks had made a considerable success of national independence and Westernization was another tiresome element: the Shah would show the Middle East how it could be done. Now, the dollars with which he had been doing his accounts were proving unsafe. Prices per barrel of oil were low enough, in any event — $2 — and inflation was already proceeding in the West at a noticeable pace. The Kuwaiti oil minister said, ‘What is the point of producing more oil and selling it for an unguaranteed paper currency?’ Indeed.

OPEC was by nature divided. But this time agreement was easy enough, and there was a ready excuse to hand. One thing worked on the surface in the Arab world, advancing the anti-Zionist argument. Israel: the great enemy of the Arabs; seemingly successful only because of American support; oil properly used would create such trouble in the West that it would just stand by and let Israel be crushed. So long as oil-producing Arab countries were ruled by pliant monarchies, such arguments remained largely hot air. However, in Libya there was a coup against one such monarch; an army officer, Muammar al-Gaddafi, came to power, in 1969, with the intention of extracting as much as he could from the oil companies who exploited Libya’s high-quality oil. He could quite easily play one country off against others — particularly, his neighbour and former colonial master, Italy, could be used — and into the whole picture there now crept a malignant figure, Armand Hammer, whose appearance at anything generally meant trouble. He had made money out of revolutionary Russia, and profits from that let him buy up coal and oil in America, when prices were at their lowest in the Depression. His company, Occidental Petroleum, no doubt benefited from advance notice of Soviet sales, as these would affect prices on offer in particular markets; and Hammer in return offered services to the Communist Party. Later on, Robert Maxwell did much the same. Unlike Maxwell, Hammer was not found out: though in reality he, too, had built up a mountain of debt, which was concealed by apparent philanthropic activities (they did not extend to his sister-in-law, who had borrowed $15,000 from him; in his will he gave instructions that every cent was to be re-extracted). Hammer had already built up a Libyan connection, perhaps through his Soviet allies, and Gaddafi wanted to have a better deal. Libyan oil supplied a third of the European market, and Hammer allowed him 55 per cent of the profit — a decisive breach of the fifty-fifty principle that soon had Iranian and Venezuelan feet tapping (September 1970). As the dollar declined, there were further demands for price rises, and the position of OPEC became quite strong, since America was now a net importer, and by April 1973 the surplus capacity within the USA was down to a week’s consumption.

At this point, the various oil countries began to threaten even a form of nationalization — ‘participation’, i.e. a share of the oil resources previously covered by concessions. The companies resisted but were not supported by their own governments — the time for gunboats, or even covert operations of the type that had overthrown Mossadegh, was past, and the Americans relied on the Shah. In fact Libya went ahead with nationalization: Hammer was thrown out. It was upon this tense scene that the Israeli-Arab war (Yom Kippur) of October 1973 broke out.