The Tyranny Of Oil

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The second United States policy change affecting oil and the Middle East was much more sweeping. Just when the United States was establishing its dominance in Saudi Arabia, all the country’s difficulties with its war-time Russian ally seemed to be coming to a head, and a grave confrontation with the Soviet Union loomed. Once again the two parent companies that had reckoned to develop the Aramco concession on their own grew fearful about the political future. They were unsure whether the United States under the Truman administration would maintain a strong presence in Europe, much less in the distant Middle East areas beyond the Mediterranean. Great Britain and France still controlled Palestine, Syria, and Lebanon, the states through which their pipelines would run; those powers also controlled the Suez Canal, which their tankers must transit. In Saudi Arabia itself there was always the chance that some morning a less friendly ruler would succeed Ibn Saud. Most of all, now that the Red army occupied much of Europe, the American companies feared a Communist move into the Middle East. Having spurned out-and-out government partnership, they nonetheless felt the need for firm diplomatic support.

 

They got it. Their Saudi concession bordered the shores of the Persian Gulf—and no official in the U.S. State Department could forget a document that came to light when the German Foreign Office papers were captured in 1945. Soviet Foreign Minister Vyacheslav M. Molotov had written the Germans in November, 1940: The territorial ambitions of the Soviet Union lie south of Soviet territory in the direction of the Persian Gulf and the Indian Ocean.

In fact, Russian forces had moved south to occupy northern Iran during World War n, in a kind of curtain raiser for the Cold War. But early in 1946 the western Allies, led by Secretary of State James Byrnes, provoked the first big postwar showdown debate in the United Nations. On the strength of their still-mobilized war might, and other considerations, they persuaded Stalin to pull his forces out of Iran. Although Byrnes proceeded to sign peace treaties with Bulgaria, Hungary, and Rumania that paved the way for Communist takeovers in those countries—and Standard Oil of New Jersey and other big American oil companies had to give up hope of repossessing Rumanian oil fields and eastern European marketing properties that they had owned since the nineteenth century—American oil interests in the Persian Gulf were comforted.

The United States’ strong diplomatic stand gave Socal and Texaco a chance at last to exploit their rich Saudi concession. For this they needed capital—because now they were going to build the big pipeline to the Mediterranean themselves, as well as a refinery and port installations at Ras Tanura. And they also needed more marketing outlets for the huge pools of oil to be tapped. The new American preponderance in the Middle East, enforced by the cooperative policy of the State Department and the big oil companies, practically dictated where they would turn for help. Jersey Standard and Socony, the old-line American internationals, had plenty of cash. And with their extensive marketing facilities around the globe, they knew all about how to fit the enormous potential of the Persian Gulf into the world production and marketing system. With the State Department’s blessing (and apparent acquiescence from Attorney General Tom Clark, who asked to see all the papers but took no action), Socal and Texaco on March 12, 1947, entered into a half-billion-dollar deal that cut in Standard Oil of New Jersey and Socony as partners in Aramco. Jersey got a 30 per cent slice, and Mobil 10 per cent of what Socal’s chairman accurately described as “the most important and valuable foreign economic interest ever developed by U.S. citizens.”

For Jersey Standard and Socony the deal required breaking the Red Line Agreement, which they had signed in 1928, but the cooperative policy of the State Department and the oil companies took care of that. The British needed a $3.5-billion postwar U.S. loan too badly just then to be stiff about oil arrangements, and Jersey and Socony promised long-term contracts to buy enough British-produced oil from Iraq and Kuwait to ensure that the British partners, British Petroleum and Royal Dutch-Shell, would not be undercut by the Arabian oil. When Gulbenkian and the French partners in the old original Iraq Petroleum combine sued the Americans for breaking the Red Line, they were bought off with bigger allotments of Iraqi oil. Gulf Oil came in, too, as the fifth American giant in the Persian Gulf parlay by reason of its half share in the Kuwait pool.