Oil and Military Power


Part I

Black World Today

By Michael Tanzer

February 28, 2002

The aim here is to analyze the relationship between oil and gas in the Caspian region and the Middle East to past and possible future military actions in those areas. Towards this end, my focus will be on the broader historical background of oil and energy in the world economy in relation to military power, with emphasis on the middle East, particularly Iraq and Iran, since they seem to be the focal point for possible military attack by the United States in the not too distant future.

The starting point for my analysis is that throughout the history of the international oil industry, there has been a close relationship between military power and oil power. As a result of Anglo American success in World Wars I and II, the oil industry has been dominated by U.S. and British companies, as evidenced by the fact that the "Seven Sisters" which controlled the world's oil supply for so many years (until the OPEC revolution in 1973) consisted of five U.S. companies and two British companies. (Exxon, Mobil, Chevron, Texaco and Gulf Oil, and British Petroleum and Royal Dutch Shell).

On the other hand, the principal defeated military powers in the two world wars, Germany, Italy and Japan, had their attempts at obtaining overseas oil concessions completely snuffed out. France, as a victor, but a greatly weakened one, found itself in an intermediate position.

Thus, if we go back to the infancy of the industry, British Petroleum, which got its start in Iran in the early 1900s as the Anglo Persian oil company, owed its very life to British state power. British gunboats and troops protected the key British concession of 1901 from its archrival in Persia-namely, Russia. Then, in 1914, Winston Churchill, first Lord of the Admiralty, moving to ensure a wholly British controlled source of oil for the Navy, induced the British government to invest more money in Anglo Iranian and take over majority control of the company.

The U.S. government, on the other hand, fought a continuing battle on behalf of U.S. oil companies to get them a foothold in Iran, using at that time it's only weapon, diplomatic pressure. But, since Britain was the reigning military power in the region it was able to brush off this pressure. Only when British military and economic power had been drastically weakened by the enormous costs, both material and human, of World War II, could British Petroleum's monopoly in Iran be broken by the U.S.

This effort culminated in the overthrow of the nationalist Mossadegh government in Iran in 1953 and the restoration of the Shah to the throne. The overthrow was due mostly to U.S. oil and military power, first in organizing an oil company boycott of sales of Iranian oil and then more directly in providing CIA leadership in the overthrow. Following the overthrow, 40 percent of the oil industry of Iran was awarded to U.S. companies.

Historically, Iraq also was a football for continuing struggles among the major Western powers and oil companies to Mesopotamia, now Iraq, was controlled until the end of World War I by Turkey and was one of the prizes of that bloodbath. After the war, the British government, being the main military power on the scene, blocked Exxon and Mobil's exploration efforts In Iraq while giving full support to those of British Petroleum and Royal Dutch Shell.

The British move led to a hot exchange of diplomatic notes and pressures between the two governments, with the State Department telling the U.S. companies, according to a Gulf Oil official, " to go out and get it" and a British foreign office official claiming that " Washington officials begin to think, talk and write like Exxon officials."

Finally, after years of complex negotiations, as part of a comprehensive 1928 agreement among the major oil companies to divide up the world oil markets, Iraq's oil was awarded to a joint company in which Exxon and Mobil together got one-fourth, Thus, thanks to the U.S. government, U.S. oil interests got their first foothold in the Middle East.

A similar protracted struggle took place over what were to become the two golden concessions of the Middle East, Saudi Arabia and Kuwait. In Saudi Arabia in 1933 Chevron outbid the Iraq Petroleum company and got a 60 year concession for all of Saudi Arabia's oil for a total of $250,000 in golden coins.

British -American rivalry heated up in Saudi Arabia during World War II. While the war brought Saudi production to a virtual standstill, King Saud still needed oil revenues. Chevron arranged to get the U.S. government to give him the money, using US wartime assistance to Britain as the conduit. However, when the British then sent a team of geologists into the country along with a military expedition, in 1943 the aid to the King was given directly by the United States.

(As an interesting footnote, since in effect the U.S. taxpayer was funding the Saudi concession, U.S. Petroleum administrator Harold Ickes wanted the U.S. government to set up a public corporation to own the Saudi concession, but the oil companies had this defeated in Congress). After the war, the U.S. government provided huge amounts of very scarce steel to build a thousand mile pipeline from Saudi Arabian oil fields to the Mediterranean, thus providing a key link for shipping Saudi oil to foreign markets.

If Saudi Arabia was an unequivocal victory for the United States, in Kuwait compromises again had to be made with British power. An independent entrepreneur had originally gained the oil exploration concession in all of Kuwait in the 1920s, and after British Petroleum refused to buy it from him he offered it to Gulf Oil (now part of Chevron), which readily accepted. Before Gulf could nail down the deal, however, the British government, which had sovereignty in Kuwait, intervened to block it. A long tug-of-war then developed between the British and U.S. governments over who was to get the concession, with the stalemate finally settled in 1933, when Gulf Oil and British Petroleum agreed on a 50-50 joint venture to take over the concession.

Lest anyone think that these exertions of diplomatic and military power are things of the musty past, or just of the Middle East, we have only to look at recent events in Venezuela for our latest example. Since Colonel Hugo Chavez was elected president in 1998, he has been an increasingly irritating thorn in Washington's side. For one thing, he reversed the State oil company's plans for pumping out enormous quantities of crude oil regardless of their prices, and Venezuela played a key role in the historic March 2000 OPEC meeting which agreed to limit production, thereby causing crude oil prices to almost quadruple from their early 1999 lows.

Further, the new Constitution of Venezuela, adopted at Chávez' instigation, prohibits the privatization of Venezuela's state oil company. Then, in October 2000 Venezuela launched the Caracas Energy Accord, under which for the first time Cuba was included under a program of subsidized oil sales to Caribbean countries..

Most recently, two weeks ago, Chavez fired the head of the state oil company, an army general described by the Financial Times as one who " despite lacking previous oil industry experience, won the confidence of oil companies after a year in the job." Even more ominously for the oil industry and the U.S. Government, his replacement was described by the same paper as " a leftist banker...who helped draft legislation that led to the nationalization of the oil industry in the 1970s, and later opposed the opening up of the industry to foreign capital in the 1990s." (Financial Times, Feb 11, 2002)

With growing tensions within Venezuela, especially between the lower classes, which are the mainstay of Chavez support, and the middle and upper classes, and between Washington and Caracas, Venezuela seems to be fast approaching a situation like Chile in 1971, even down to middle-class marches with pots and pans and rumblings of possible coup's in the officer corps.

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