The Kuwaitis wisely adopted a position of resolute neutrality between the conservative and radical camps in the Arab world. They declared their non-alignment in the Cold War by immediately establishing diplomatic relations with the Soviet Union.
Nothing did more to enhance Kuwait’s position than efforts it made to share its new wealth with its less fortunate fellow Arabs. In the year of independence it set up the Kuwait Fund for Arab Economic Development to provide long-term low-interest loans for vital development projects in the other Arab states. The Fund was a pioneer of its kind in the developing Third World.
The rulers of the other Arab Gulf states who were in treaty relationship with Britain – Bahrain, Qatar and the tiny emirates of the Trucial Coast – still saw neither the need nor the possibility of abandoning British protection for full independence. In 1958 oil had been found in vast quantities in Abu Dhabi, which was called a ‘new Kuwait’, but its population was less than a quarter of Kuwait’s and it seemed too small even to become another oil city-state. When the British Labour government decided in 1966 to abandon South Arabia, including the Aden military base, it was assumed that it would reinforce its military base in Bahrain. The British prime minister Harold Wilson still dreamed of a British quasi-imperial role east of Suez. However, in 1968 a drastic British financial crisis caused a sudden volte-face and Britain informed the ruling Arab emirs that it would be finally withdrawing from the Gulf by 1971. This so concentrated the rulers’ minds that for the first time they discussed subsuming their rivalries in a federation. Bahrain and Qatar, with the bare minimum of income and population to remain unattached, opted for independence, while the seven shaikhdoms of the Trucial Coast formed the federation of the United Arab Emirates with their capital in Abu Dhabi, the largest and richest of the members. Abu Dhabi’s shrewd and able ruler Shaikh Zaid became president of the federation, which has survived into its fourth decade in the face of considerable scepticism.
The wealth of the Arab Gulf states and their role in the international oil industry has given them a significance in the affairs of the Middle East and the rest of the world out of all proportion to the size of their populations. However, this does not mean that the oil-producing states of the Middle East – including those like Iran or Iraq with much larger populations – acquired any significant role in world affairs in the 1950s and 1960s as a consequence of their increasing revenues. They had only a minor share of control over the export and marketing of their crude oil and gas – their largest, and in some cases their only, national resource. Control remained in the hands of the major international oil companies, and the example of the failure of Mohammed Mossadegh’s attempt to acquire full control of Iran’s oil industry through the act of nationalization served as a potent warning. In 1956 and 1967, attempts by the Arab oil-producing states to use oil as a bargaining counter against Western support for Israel were half-hearted and ineffective and were speedily abandoned. However, this did not mean that these countries abandoned all hope of acquiring more power over their major national resource by means other than nationalization – they all felt a strong sense of grievance. In the 1950s and 1960s, the great flow of cheaply produced oil from the Middle East actually caused the price of oil to fall in absolute terms and even more in real terms. In 1959 the major oil companies twice cut crude oil prices in Venezuela and the Middle East without consulting their host governments. The exasperated reaction of the governments of Iraq, Iran, Kuwait, Saudi Arabia and Venezuela was to form the Organization of Petroleum Exporting Countries (OPEC), which was pledged to restore prices and to force the oil companies to consult OPEC members before any future price changes.
As all the major producing countries joined OPEC, its members accounted for 90 per cent of oil exports outside the communist world. But OPEC was in no way an effective cartel, as its members lacked both the means and the determination to impose pro-rationing – that is, the limiting of production on a quota system – which would have been the only way to raise prices. This still did not mean that they had abandoned their objective of gaining sovereignty over the development of their natural resources. They soon realized that the key was the acquisition of knowledge and experience in the oil industry by their own nationals. Despite the failure of Mossadegh’s adventure, Iran, with much the oldest oil industry in the Middle East, had the advantage of a surviving National Iranian Oil Company which from 1957 onwards gained valuable experience in partnership with the Italian state oil company AGIP outside the principal oil-producing areas controlled by the consortium of major American, British and French companies. Iraq, Kuwait and Saudi Arabia all followed Iran’s example by establishing their own national oil companies in the 1960s. In 1961 Kassem of Iraq made an ill-advised attempt to make a short cut to control of the country’s oil resources by issuing Law 80 expropriating without compensation all the Iraq Petroleum Company’s concession area except for the 0.5 per cent of this area in which it was already operating. The company refused to accept the unilateral decision and drastically cut back production and exports so that Iraq, like Iran in 1952, lost its position among the major Middle East oil producers.
However, the oil companies were not to remain triumphant and contemptuous of OPEC for long. In the late 1960s there was the first complete reversal in the international oil market in favour of the oil-producing countries. The closure of the Suez Canal (from 1967 to 1975) and the intermittent closure by the Syrians of the pipeline across their territory caused a shortage of some 25 million tonnes of oil for Europe. This placed a premium on the oil of Libya, where the young anti-Western Colonel Qadaffy replaced the elderly and conservative King Idris in 1969. Libya could exploit the fact that it was dealing with small ‘independent’ US oil companies outside the magic circle of the major companies. Libya secured an increase in price; it was modest, but a new trend had been set. As the oil companies feared most, what they called a ‘leap-frog’ effect took place as the three biggest Middle East producers – Iran, Saudi Arabia and Iraq – negotiated through their experienced and Western-trained oil ministers the Tehran agreement of 1971, which secured a further small increase. The agreement was supposed to run until 1976, but in 1973 the fourth Arab–Israeli war broke out (see below, page 331), the Arab states declared an oil boycott of countries supporting Israel – the first remotely effective use of the ‘oil weapon’ – and in the ensuing sellers’ market caused by a panic fear of shortages among the industrialized nations the price of oil increased at a pace that previously would have seemed unimaginable. By the end of 1974 the price had quadrupled – from about $3.5 a barrel to $15.
This huge shift in income – and hence of power and influence – to a few Middle Eastern states had important political and economic consequences. The symptoms appeared immediately, as within a few days of the ending of the war the nine countries of the European Economic Community and Japan issued a joint declaration on the Arab–Israeli problem which was unprecedentedly favourable to the Arab standpoint.
The shift in power was most immediately apparent in the case of Iran, with its ambitious westernizing shah and its population comparable only to that of Egypt in the region. Although Iran was not involved in the Arab–Israeli war or the Arab oil boycott which triggered the new price rises, it took the lead in exploiting the situation within OPEC, demanding even higher increases in oil prices to compensate for the inflation (partly caused by the price increases themselves) in the prices of industrial goods imported from the West. The shah greatly extended his aim of establishing Iran as a regional superpower, declaring in various press interviews that Iran would become one of the half-dozen leading industrial powers in the world by the end of the century. He dramatically increased the already high spending on Iran’s armed forces (the USA having none of the reservations about supplying weapons to Iran that it felt about Israel’s Arab neighbours). As part of his determination to impose a ‘Pax Iraniana’ on the Gulf region and to exclude radical pro-communist elements, he sent some 3,000 troops to Oman to help
its sultan against left-wing rebels in Dhufar supported by the quasi-Marxist state of South Yemen. At the same time the original estimates for state expenditure under Iran’s fifth five-year plan, for 1973–8, were more than doubled, with the emphasis on the development of the infrastructure and industrialization.
The effect of the price rises on Saudi Arabia was equally spectacular, if somewhat different. Before the oil boom Saudi Arabia, like Iran, had been spending heavily on economic infrastructure, education and health, while about a quarter of its revenues were devoted to defence. Under King Feisal’s wise and prudent leadership, the kingdom had moved in a decade from being in debt to having a large surplus. Although it still had huge development needs and much of the population was still living on the edge of poverty, there was no way in which the pace of development could keep pace with the increasing revenues. Similarly, despite the high spending on the armed forces, Saudi Arabia was still a long way from being a significant military power. The kingdom was faced with the novel problem of having to dispose of its surplus income. The quadrupling of oil prices in 1973 raised this problem to a quite different level. Revenues rose from $2.7 billion in 1972 to just under $25 billion in 1975. The Saudi state was receiving every hour as much as its revenues for an entire year in the 1930s.
The pace of Saudi development was enormously accelerated. The second five-year plan, for 1975–80, called for the spending of $142 billion, or ten times that envisaged by the first plan in real terms. The prospect of completing all the main infrastructure projects – roads, airports and sea-ports and power stations – by the end of the decade was now attainable. But the fundamental objective, which had already been decided in the early 1960s, was to make use of the country’s gigantic oil and gas resources as the basis for a variety of other industries. The centrepiece of this plan was the creation of two entirely new industrial cities – one at Jubail on the Gulf and the other at Yanbu on the Red Sea. The cost was initially estimated at $70 billion, which was more than that of putting a man on the moon. It was undeniably the biggest single industrial project in history.
Despite these astronomical costs, it was still possible to bring immediate benefits to the Saudi people through a variety of subsidies and the abolition of the few existing taxes.
Saudi Arabia also became one of the world’s biggest aid donors, through either its own Saudi Development Fund, created in 1974, or a variety of international agencies. In the 1970s the Saudi Arabian aid programme accounted for more than 10 per cent of the kingdom’s GDP – a far higher proportion than that of any of the major industrialized countries. But, despite this massive spending, Saudi Arabia by 1975 had accumulated greater financial reserves than those of the United States and Japan combined.
In less than a generation the impoverished desert kingdom had acquired immense international responsibilities as a financial superpower. It was a key member of the International Monetary Fund and the World Bank. Because it was by far the biggest non-communist oil exporter, with one-third of the proved reserves in the non-communist world, it became OPEC’s ‘swing’ producer, which meant that by raising or lowering its level of output it could influence the international price of oil. The Saudi oil minister, Ahmed Zaki Yamani, became in the 1970s one of the best-known personalities on the world scene.
The assassination of King Feisal in April 1975 by a deranged nephew was a tragic loss for the kingdom which he had brought through a period of peculiar difficulties into an era of international prominence which brought new problems. However, the succession of his brother Khaled was smooth. The new king was in poor health and had little appetite for government. Crown Prince Fahd, an able man with an easy-going temperament but a powerful appetite for administration, took over the main responsibility for running the government (as he continued to do when he succeeded on King Khaled’s death in June 1982). The replacement of the austerely aristocratic Feisal by the affable Fahd meant a change of style rather than substance; essentially, Saudi policies remained the same. At home the breakneck pace of economic development was combined with extreme conservatism in social mores. Abroad, Saudi diplomacy was quiet, cautious and generally conciliatory, even when championing the cause of Islam and the Arabs.
In Iraq – the third major oil-state in the Middle East – the Baathists recovered power in 1968, through a military coup after five years in the wilderness. In time they succeeded in gaining a firm grip on the country, largely due to the efforts of the civilian vice-president of the Revolutionary Command Council, Saddam Hussein, a natural leader of ruthless determination who established control over the internal security services and the military wing of the Baath to emerge as the strongman of the regime. President Bakr had little power. In June 1972 Saddam Hussein took the bold step of nationalizing the Iraq Petroleum Company. Times had changed in the twenty years since Iran’s attempt to nationalize and the ten years since Kassem had expropriated most of the company’s concession area. IPC’s parent companies had been losing heavily through their cutback in Iraq’s production. After vigorously protesting, they accepted the act of nationalization in return for fair compensation.
The breaking of the twelve-year impasse in its oil industry combined with the quadrupling of prices in 1973–4 transformed Iraq’s economic outlook. Revenues rose from $584 million in 1972 to $7.5 billion in 1974. The prospect of realizing the country’s huge natural potential, which had been hampered for so long by political instability, seemed more easily attainable. However, Iraq’s perennial problem with its large Kurdish minority, which had threatened its stability since its foundation as a nation-state, remained. In 1970 Saddam Hussein hoped that this problem had been laid to rest when he reached an agreement with the veteran Kurdish leader Mullah Mustafa al-Barzani and his followers, providing for the appointment of a Kurdish vice-president in the central government and the creation of a Kurdish Autonomous Region in the north-east where the Kurdish language would have equal status with Arabic. But although relations improved for a time, they deteriorated again during the four-year proposed transitional period, and in March 1974 Barzani rejected Baghdad’s offer of autonomy as hypocritical and inadequate and rose once again in rebellion. The war between Iraqi forces and Kurdish irregulars was renewed with customary ferocity.
The Kurds conducted their war with support from Iran and from sanctuary inside Iranian territory. Relations between the shah’s government and the Iraqi Baath, with territorial disputes and mutual charges of subversion, had been bad for some years and at times on the brink of war. Saddam Hussein decided on drastic action. In March 1975 he accepted public reconciliation with the shah at an Algiers summit meeting of OPEC states. According to the terms of the ensuing agreement, the shah cut off his aid and closed his borders to the Iraqi Kurds. The Kurdish revolt collapsed and Barzani went into exile. However, in return, the Iraqis had to concede that the Iran–Iraq frontier on the Shatt al-Arab waterway – the joint outlet of the Tigris and Euphrates rivers to the Gulf – should pass along the thalweg or median line rather than the eastern shore, as had been agreed in 1937 when Iraq had been diplomatically supported by Britain. The resentment felt by the Iraqi Baathists over this concession to its larger neighbour at a time of weakness rankled deeply and would return to the surface in a few years.
The end of the Kurdish rebellion was only temporary, but with the greater feeling of security and vastly increased revenues Iraq was able to play a more prominent role on the Arab stage, where it had been marginalized for some years. Saddam Hussein, who succeeded as president in August 1979, used harsh and dictatorial methods but he showed considerable qualities of leadership. In accordance with his pan-Arab ideology, he invited tens of thousands of Egyptians to settle in Iraq and assist in the country’s accelerating development. He also went out of his way to conciliate Iraqi Shiite Muslims who, although numerically superior, had always been dominated both politically and socially by the Sunnis. The sense of Iraqi nationhood received a powerful boost among its Arab population. The new, more dynamic I
raq, with its radical ideology, began to cause some alarm among its more conservative neighbours in the Arabian peninsula.
The intensification of the rivalries between the oil-producing states of the Middle East did not alter the fact that collectively they had gained immensely in world importance as a consequence of the sudden transformation of the international oil industry. In the first place they had formed the vanguard among Third World countries in fulfilling the 1966 UN General Assembly resolution which called for all states to acquire permanent sovereignty over their natural resources. Iraq and Algeria were the first to succeed in nationalizing their oil industries. The more conservative states, such as Saudi Arabia and Kuwait, preferred the course of acquiring increased state participation in the companies operating in their territory. The result was the same: within the decade from the mid-1960s, the role of the international oil companies had been reduced to one of drilling for oil, producing it and marketing it on contract to the owner states.
A History of the Middle East Page 36