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The Tyranny Of Oil
HOW AND WHY THE UNITED STATES GOT INVOLVED IN THE MIDDLE EAST
December 1976 | Volume 28, Issue 1
In October, 1973, Arab states clapped an embargo on oil shipments to the United States. All at once the nation had to go on daylight-saving time, throttle back on the highways, and turn down thermostats. Millions of baffled Americans found themselves lining up, sometimes for hours, at filling-station pumps. Up to that moment Americans had paid little heed to the quarrels of the Middle East. Until the Second World War that part of the globe had been strictly a British problem. Now suddenly the impact of events in the blazing deserts east of the Mediterranean fell hard upon the United States.
It was oil that got us so deeply involved in the Middle East. America’s commitment to Israel, important as the immediate cause of the embargo, was a later development; in the beginning was the oil.
The United States involvement came about through a unique and, in its day, aggressively successful cooperation between the federal government and four or five international oil companies. Born in the First World War, thirty years before Israel came into existence, this cooperative policy sought to get American oil companies into foreign countries that might have oil and, by American control of reserves thus amassed abroad, to promote the national security.
War forged this collaboration. The realization that petroleum was absolutely vital to waging modern war compelled the Wilson administration to set aside its antipathy to the monopolistic character of the United States oil industry. Fearful that the supply of petroleum might run out, the government entered into close cooperation with the industry—at home granting the 1918 depletion allowance and other tax benefits to induce prospectors to seek out new fields; abroad pushing open doors for Standard Oil of New Jersey (now Exxon), SoconyVacuum (Mobil), and other big companies to locate and tap oil to supplement American sources. With State and Commerce Department help, the companies made big discoveries in such Western Hemisphere countries as Venezuela, Peru, Argentina, and Colombia.
In the Middle East, where the British controlled oil and everything else, American interventions had less success. Though President Harding’s Secretary of State, Charles Evans Hughes, whom some called the Secretary for Oil, trumpeted: “This government has stood for the Open Door principle,” the British Foreign Office kept American oil prospectors out of Turkey, Iran, and Iraq. With peace, fears of an oil shortage began to subside. Harding’s Interior Secretary, Albert Fall, went so far as to lease the Navy’s Teapot Dome oil reserve in Wyoming to the oil magnate Harry F. Sinclair (and was later imprisoned for taking Sinclair’s bribe). By the midigao’s the situation was reversed, and there was too much oil for the world’s markets. So great was the glut that in 1928 the biggest petroleum companies, Standard Oil of New Jersey and Socony-Vacuum among them, got together at Achnacarry, Scotland, and secretly set up schedules for “stabilizing” production and prices around the globe. At that time American companies made their first entrance into the Middle East: Jersey Standard and Socony obtained shares in the British-controlled Iraq Petroleum Company, which was just beginning to exploit oil deposits, known since biblical times, along the Tigris and Euphrates rivers.
The price of entrance was joining in the so-called Red Line Agreement. During the negotiations Calouste Gulbenkian, a wily old Armenian who held a 5 per cent share in Iraq Petroleum for his part in landing the original concession from the Turks, took a map of the Middle East and with a red pencil marked a line that approximated the boundary of the old Turkish Empire. Within its limits all the participants, including the two American firms, bound themselves to joint development of all oil discovered. The line encompassed not only Iraq but the whole Arabian Peninsula, with the one small exception of Kuwait, a tiny principality on the Persian Gulf that could be classified as a British protectorate. Iran was also omitted—but Iran’s oil was totally controlled by Anglo-Iranian (British Petroleum), a company in which Winston Churchill had bought a majority interest for the British government in 1914 to assure a supply for the Royal Navy. Altogether the Red Line Agreement assured that Middle East oil would be opened up at the leisurely pace the British desired.
One major United States company that had no part in these arrangements was the Standard Oil Company of California. Even in Rockefeller’s day the California company was the one part of the Standard Oil trust that had its own fields, pipelines, refineries, and marketing facilities; after the trust was split by government action in 1911, it was the successor company least amenable to control by the owners in New York. Its tough, conservative bosses began to look for opportunities abroad on their own. In 1928 “Socal” picked up a concession at Bahrein, a British island in the Persian Gulf, and in 1931 it struck oil there. It was not a big find, and the British finally allowed Socal to incorporate a wholly owned subsidiary in Canada and begin tapping the oil. But the Socal men on Bahrein thought there must be more oil on the western shore of the Persian Gulf, visible across the water twenty miles away.