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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
But now Europe and Japan were buying four times more oil than they had when OPEC started, and the world petroleum supply was considerably tighter. Lured by the foreign tax credits devised to help Ibn Saud, not only the majors but numerous other U.S. oil companies had all but abandoned domestic for overseas exploration. In Libya, in contrast with Saudi Arabia and Iran, many concessions had gone to independent companies. Ignoring the majors, Qaddafi zeroed in on the smaller companies, one at a time, and soon brought them, and then the majors, to terms that altered in his favor the fifty-fifty profit split that had prevailed in the Middle East for two decades.
After that the majors saw the hand-writing on the wall, accepted one price rise after another, and began surrendering their exclusive control over oil production in the Middle East. Protecting themselves, they passed on the price boosts to their European and Asian customers. And at the same time another big new factor came into the picture.
Not since the grand international system had been built had the United States ever taken more than 6 per cent of the Middle East’s oil output. Never had the United States drawn upon what Harold Ickes had been pleased to call its “reserves” in Saudi Arabia. Now, however, what Ickes and Forrestal had foreseen thirty years before had happened: with its prodigious appetite America had consumed its petroleum resources faster than it had located new ones, and neither domestic supplies nor imports from nearby Canada or Venezuela could meet its burgeoning demand. The only place where there was oil enough was in the Middle East. And the only place in the Middle East with the spare capacity equal to the large amounts America would need at expected levels of demand was Saudi Arabia.
Now when America for the first time needed Saudi Arabian oil and Aramco proposed to boost output from five to eight million barrels a day to provide it, the subject of American support for Israel came up again. But by this time Saudi Arabia owned 25 per cent of Aramco, and the state-owned Saudi Arabian Oil Company was preparing to buy out the rest. Obviously the time had long passed when Aramco’s payments to the king could be counted as U.S. “aid.” When, to counter huge Soviet arms shipments to Egypt and Syria, the United States sent $1.5 billion worth of arms to Israel in 1971-73, State Department men got nowhere reminding the Saudis that oil-company payments were bigger than that—three times bigger. Without a more “even-handed” American policy, said Ibn Saud’s son King Faisal, there could be no increase in Saudi output. Aramco nevertheless pushed ahead with its expansion. By late 1973 the United States was getting 18 per cent of its oil imports from the Middle East. United States dependence upon Middle East oil had become a reality.
Then the Arab-Israeli war of 1973 exploded, and when Washington air-lifted emergency arms aid to Israel, the Saudis ordered the American companies to enforce an embargo on oil shipments to the United States. The companies, faced with commercial extinction, complied—and thereby defined themselves as multinationals, with interests anything but identical with those of the United States. The United States and the U.S.S.R. rushed to arrange a cease-fire between the Arabs and Israelis, and when that arrangement faltered, the U.S. went to a nuclear alert, the first one since the Cuban missile crisis of 1962. Thereafter OPEC put up the price of Persian Gulf oil to $11.65 a barrel, and while Americans queued at the gas pump the companies obediently enforced the price.
The companies said they had lost their “leverage”; others said they had become mere tax collectors for the new cartel of oil-producing states. Certainly the international system built to save Europe had ceased to exist, though the oil continued, after the political interruptions of 1973-74, to flow through more or less the same channels to more or less the same markets. The United States, now virtually alone in its support of Israel at the United Nations, was receiving some 16 per cent of its imports from Saudi Arabian wells. Whether, for how long, and at what price it would continue to do so, however, was up tc OPEC . Controlling the production OPEC now controlled the system, and Saudi Arabia controlled OPEC .