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Wednesday, September 14, 2005

Oil Addiction: The World in Peril - 23

by Pierre Chomat (Universal Publishers, 2004)

translated from the French by Pamela Gilbert-Snyder

Part III. The Power of America: Rooted in Dependency

Chapter 23. False Hopes

After World War II it was clear that in order to fuel the technological marvels now in the service of the captains of industry and the military generals, the world would need secure energy sources. On both sides of the Iron Curtain, East and West, everyone depended on black gold. Although the Soviet bloc possessed sufficient reserves of its own, the West did not. Its future depended on the mineral resources located most abundandy in the Middle East. The Persian Gulf countries were quick to realize the importance of their new subterranean wealth. As they began to gauge the extent of their hidden riches, they realized that the industrialized nations had already been plundering them for decades. But the means at their disposal for forcing greater recognition of their property rights were very weak. The powers that they had to confront drew their very strength from Middle Eastern soil. The Western nations were like bears after honey and, like bees, the Middle East was helpless to defend itself.

Iran was the first to try. In 1950, Russian troops still stationed in northern Iran were sent home due to international pressure, as were British troops from the south. Shah Pahlavi {a} could claim to have reunified his country. Around this time, the idea of nationalizing Iran's hydrocarbons was taken up in the corridors of the Majlis, the Iranian Parliament, under the leadership of law professor and parliamentarian Mohammad Mossadeq. After much debate, the Majlis created a parliamentary oil committee to analyze the issue.

Dr Mossadeq was a bold legislator and a great proponent of democracy. He believed that in a matter of this importance, the Iranian people must have a voice. He also believed that the Shah too often neglected to consult the parliament, the representatives of the people, and that his commitment to the British was such that he was betraying his nation's interests. The blood of Iran seemed to flow through Mossadeq's veins. He loved his country and could no longer abide seeing its wealth being squandered for the benefit of foreign as well as certain domestic special interests.

The British, through the Anglo-Iranian Oil Company (AIOC), had never really respected their partnership agreement with Iran. They had simply helped themselves to Iranian oil, practically without compensation. An Iranian delegate to the United Nations soon remarked that, "The profits of AIOC in the year 1950 alone, after deducting the share paid to Iran, amounted to more than the entire sum of GBP 144 million paid in royalties to Iran in the course of the past half century". {35} The AIOC "now owned refineries in France, Israel, and Australia; a worldwide tanker company; and partnerships in oil companies throughout the Gulf and as far away as Burma". {36} Iran had never received its fair share of these profits. It was clear to the Iranian parliament that the AIOC had acquired its assets with proceeds from the sale of Iranian crude. It was only logical that Iran be a shareholder in these concerns and receive revenues from them in accordance with the percentage of its stake in AIOC. Naturally, this idea did not find much support in Britain, which, in 1950, still very much wanted a colonial empire.

The year 1951 was pivotal in the history of energy. Mossadeq was elected Prime Minister and successfully wrested power from the Shah. The Iranian parliament approved the nationalization of the country's petroleum resources and related assets. This was the first time that an oil-producing nation had unilaterally taken back the entire foreign oil infrastructure located on its soil. The British brought the matter immediately before the United Nations Security Council, denouncing the nationalization as an act of theft and asserting its right to Iranian oil. "How can an Empire be prohibited from colonizing?" was the general attitude of the British press. Until then, the Anglo-Iranian Oil Company egosystem had functioned flawlessly. "Since 1920, AIOC had not had to raise a single cent; its phenomenal growth over the past thirty years had all been capitalized by reinvested profits - money that had been siphoned off before Iran was given its share of the proceeds". {37}

The British were not the only ones to worry. Every nation sending tankers to the Persian Gulf to support its growing, unrestricted habit of guzzling gas suddenly felt a twinge of anxiety. Nationalization posed a serious threat to them. What if the movement spread to other countries with hydrocarbon reserves, in the Middle East or elsewhere? The major oil companies reacted immediately by boycotting Iranian oil. They also granted a few financial favors to other oil-producing nations in order to break any momentum that might be building toward solidarity with Iran.

In 1952, Europe and the United States declared a total embargo on Iranian oil. It became increasingly difficult for Dr Mossadeq to hold out as he began receiving reports of secret CIA-backed coups prepared against him at home. In 1953, he was finally forced to capitulate. The United States had already made the necessary arrangements for the Shah's return to the throne, but the Shah understood that, from then on, he was beholden to America. The British Empire had just lost its iron grip on Iran. The Shah joined the clan of monarchs subject to the authority of the new American "empire of oil addicts". Dr Mossadeq's attempts to establish a responsible democracy in his country, so that it could decide its own future based on the principle of self-government, had unwittingly led to Iran's subjugation by the United States.

Companies on the other side of the Atlantic rushed to join a new consortium, Iran's obligatory partner in all petroleum operations, which consisted of British Petroleum (40%); Gulf Oil and the American members of Aramco (40%); Shell Oil (14%); and the Compagnie Francaise des Petroles (6%). In America such a consortium would have been considered an illegal trust. From 1953 on, the United States steadily increased its influence in Iran, using the country's money to build the Shah's enormous army and to discreetly install thousands of American advisors in Iran. There was an intense focus on national security and political stability in order to prevent what had occurred under Mossadeq from ever happening again. For nearly three decades, American influence would be referred to as aid for the peaceful development of Iran. But when we see in the next chapter how this "peace" played out on the ground, it will not be difficult to understand why millions of Iranians were willing to risk everything to join the revolution of Ayatollah Khomeini at the end of 1978.

Mossadeq's efforts had not been entirely in vain. He had helped his country to take the first step. Iran's oil was now its own. The National Iranian Oil Company (NIOC) was born. Iran could also claim to be an oil-exporting nation, not a passive bystander to the plundering by foreign oil companies of its resources. Unfortunately, however, Iran was forced to deal with the powerful Consortium, which prevented it from setting prices as it wished. This meant that Iran's national budget was determined by factors over which the country had no control and which did not take into account its own development.

In the years that followed, other countries imitated Iran and nationalized their hydrocarbon resources as well. Although theoretically the producers of a very rich substance, these countries were, in reality, no more than vassals to their Western overlords.

A new glimmer of hope emerged for the oil-producing nations in April of 1959, when Juan Perez Alfonzo, Venezuela's oil minister, quietly invited representatives of Iran, Iraq, Saudi Arabia, Kuwait and Qatar to a meeting in the gardens of the Mahdi Yacht Club in Cairo. There they signed a Gentlemen's Agreement laying down the initial foundations of OPEC {b}, the Organization of Petroleum Exporting Countries. According to the Iranian signatory, Manoucher Farrnanfarmaian, "... as long as we had no control over prices, the [oil] companies owned our countries. Stopping their unilateral control over this important part of our economy would be our next aim ..."

OPEC was officially created the following year, but it had almost no influence over the international market, where the "majors" controlled the price of crude: "In September 1960 an invitation arrived [in Tehran] from Baghdad to attend the next oil meeting ... Taraki was there from Saudi Arabia, accompanied by an American advisor ... The Shah ... did not expect OPEC to have much clout for some time. The result was that OPEC became little more than a circus, offering its members the chance to travel around the world accomplishing nothing. It took thirteen years for this to change". {38} Meanwhile, OPEC's member countries spent these years being manipulated by the petroleum-buying nations. The members' great political, philosophical and religious differences also stood in the way of a closer union. The exporting nations were not dealing with the importing nations, with whom they might have been able to negotiate more generous development terms. Instead, they had to deal direcdy with the oil company cartels, which extolled the principles of free enterprise while, in fact, they were quietly and single-mindedly taking control of the market.

It was not until the Yom Kippur War of 1973 that the first movement toward solidarity took hold in OPEC and that Saudi Arabia, in particular, finally stopped behaving like just another American corporation. The price of crude oil, which had hovered consistently at around a dollar a barrel in 1960, and two dollars in 1970, reached historic highs in the 1980s before stabilizing at around twenty dollars a barrel.

Although the 1970s were red-letter years for OPEC, its achievements cannot be considered great victories for many of the oil-exporting nations. Crude oil prices had increased tenfold in just three years, the oil-producing nations had asserted their existence, and the tabloids were screaming that the world's banks would soon belong to OPEC, but oil prices were still far too low to guarantee a solid future for its members. One thing was certain, however: Aramco could no longer cycle dollars through its egosystem at the same speed at which crude oil flowed.


{a} The Qajar dynasty occupied the throne of Persia from 1786 to 1925, when Reza Shah Pahlavi was brought to power in a coup d'etat carried out largely with British support. In 1941, Pahlavi was forced to abdicate and go into exile due to his pro-German leanings. He was replaced by his son, Muhammad Reza Shah Pahlavi.

{35} Manucher Fatmanfarmaian and Roxane Farmanfarmaian, Blood and Oil (New York: The Modern library, 1999), 271.

{36} Ibid, 254-255.

{37} Ibid, 254.

{b} As of 2004, OPEC has thirteen members: Algeria, Saudi Arabia, the United Arab Emirates, Ecuador, Gabon, Indonesia, Iraq, Iran, Kuwait, Libya, Nigeria, Qatar, and Venezuela.

{38} Farmanfarmaian, Blood and Oil, 344.

Bill Totten


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