by John Perkins
Other Arab ministers were reluctant to agree to such a radical plan, but on October 17 they did decide to move forward with a more limited embargo, which would begin with a 5 percent cut in production and then impose an additional 5 percent reduction every month until their political objectives were met. They agreed that the United States should be punished for its pro-Israel stance and should therefore have the most severe embargo levied against it. Several of the countries attending the meeting announced that they would implement cutbacks of 10 percent, rather than 5 percent.
On October 19, President Nixon asked Congress for $2.2 billion in aid to Israel. The next day, Saudi Arabia and other Arab producers imposed a total embargo on oil shipments to the United States.1
The oil embargo ended on March 18, 1974. Its duration was short, its impact immense. The selling price of Saudi oil leaped from $1.39 a barrel on January 1, 1970, to $8.32 on January 1, 1974.2 Politicians and future administrations would never forget the lessons learned during the early to mid-1970s. In the long run, the trauma of those few months served to strengthen the corporatocracy; its three sectors — big corporations, international banks, and government — bonded as never before. That bond would endure.
The embargo also resulted in significant attitude and policy changes. It convinced Wall Street and Washington that such an embargo could never again be tolerated. Protecting our oil supplies had always been a priority; after 1973, it became an obsession. The embargo elevated Saudi Arabia’s status as a player in world politics and forced Washington to recognize the kingdom’s strategic importance to our own economy. Furthermore, it encouraged US corporatocracy leaders to search desperately for methods to funnel petrodollars back to America, and to ponder the fact that the Saudi government lacked the administrative and institutional frameworks to properly manage its mushrooming wealth.
For Saudi Arabia, the additional oil income resulting from the price hikes was a mixed blessing. It filled the national coffers with billions of dollars; however, it also served to undermine some of the strict religious beliefs of the Wahhabis. Wealthy Saudis traveled around the world. They attended schools and universities in Europe and the United States. They bought fancy cars and furnished their houses with Western-style goods. Conservative religious beliefs were replaced by a new form of materialism — and it was this materialism that presented a solution to fears of future oil crises.
Almost immediately after the embargo ended, Washington began negotiating with the Saudis, offering them technical support, military hardware and training, and an opportunity to bring their nation into the twentieth century, in exchange for petrodollars and, most important, assurances that there would never again be another oil embargo. The negotiations resulted in the creation of a most extraordinary organization, the United States–Saudi Arabian Joint Commission on Economic Cooperation. Known as JECOR, it embodied an innovative concept that was the opposite of traditional foreign aid programs: it relied on Saudi money to hire American firms to build up Saudi Arabia.
Although overall management and fiscal responsibility were delegated to the US Department of the Treasury, this commission was independent to the extreme. Ultimately, it would spend billions of dollars over a period of more than twenty-five years, with virtually no congressional oversight. Because no US funding was involved, Congress had no authority in the matter, despite Treasury’s role. After studying JECOR extensively, David Holden and Richard Johns state, “It was the most far-reaching agreement of its kind ever concluded by the US with a developing country. It had the potential to entrench the US deeply in the Kingdom, fortifying the concept of mutual interdependence.”3
The Department of the Treasury brought MAIN in at an early stage to serve as an adviser. I was summoned and told that my job would be critical, and that everything I did and learned should be considered highly confidential. From my vantage point, it seemed like a clandestine operation. At the time, I was led to believe that MAIN was the lead consultant in that process; I subsequently came to realize that we were one of several consultants whose expertise was sought.
Because everything was done in the greatest secrecy, I was not privy to Treasury’s discussions with other consultants, and I therefore cannot be certain about the importance of my role in this precedent-setting deal. I do know that the arrangement established new standards for EHMs and that it launched innovative alternatives to the traditional approaches for advancing the interests of empire. I also know that most of the scenarios that evolved from my studies were ultimately implemented, that MAIN was rewarded with one of the first major — and extremely profitable — contracts in Saudi Arabia, and that I received a large bonus that year.
My job was to develop forecasts of what might happen in Saudi Arabia if vast amounts of money were invested in its infrastructure, and to map out scenarios for spending that money. In short, I was asked to apply as much creativity as I could to justifying the infusion of hundreds of millions of dollars into the Saudi Arabian economy, under conditions that would include US engineering and construction companies. I was told to do this on my own, not to rely on my staff, and I was sequestered in a small conference room several floors above the one where my department was located. I was warned that my job was both a matter of national security and potentially very lucrative for MAIN.
I understood, of course, that the primary objective here was not the usual — to burden this country with debts it could never repay — but rather to find ways that would assure that a large portion of petrodollars found their way back to the United States. In the process, Saudi Arabia would be drawn in, its economy would become increasingly intertwined with and dependent upon ours, and presumably it would grow more Westernized and therefore more sympathetic to and integrated with our system.
Once I got started, I realized that the goats wandering the streets of Riyadh were the symbolic key; they were a sore point among Saudis jet-setting around the world. Those goats begged to be replaced by something more appropriate for this desert kingdom that craved entry into the modern world. I also knew that OPEC economists were stressing the need for oil-rich countries to obtain more value-added products from their petroleum. Rather than simply exporting crude oil, the economists were urging these countries to develop industries of their own, to use this oil to produce petroleum-based products they could sell to the rest of the world at a higher price than that brought by the crude itself.
This twin realization opened the door to a strategy I felt certain would be a win-win situation for everyone. The goats, of course, were merely an entry point. Oil revenues could be employed to hire US companies to replace the goats with the world’s most modern garbage collection and disposal system, and the Saudis could take great pride in this state-of-the-art technology.
I came to think of the goats as one side of an equation that could be applied to most of the kingdom’s economic sectors, a formula for success in the eyes of the royal family, the US Department of the Treasury, and my bosses at MAIN. Under this formula, money would be earmarked to create an industrial sector focused on transforming raw petroleum into finished products for export. Large petrochemical complexes would rise from the desert, and around them, huge industrial parks. Naturally, such a plan would also require the construction of thousands of megawatts of electrical generating capacity, transmission and distribution lines, highways, pipelines, communications networks, and transportation systems, including new airports, improved seaports, a vast array of service industries, and the infrastructure essential to keep all these cogs turning.
We all had high expectations that this plan would evolve into a model of how things should be done in the rest of the world. Globetrotting Saudis would sing our praises; they would invite leaders from many countries to come to Saudi Arabia and witness the miracles we had accomplished; those leaders would then call on us to help them devise similar plans for their countries and — in most cases, for countries outside the ring of OPEC — would arrange World Bank or other debt-ridden methods for
financing them. The global empire would be well served.
As I worked through these ideas, I thought of the goats, and the words of my driver often echoed in my ears: “No self-respecting Saudi would ever collect trash.” I had heard that refrain repeatedly, in many different contexts. It was obvious that the Saudis had no intention of putting their own people to work at menial tasks, whether as laborers in industrial facilities or in the actual construction of any of the projects. In the first place, there were too few of them. In addition, the royal House of Saud had indicated a commitment to providing its citizens with a level of education and a lifestyle that were inconsistent with those of manual laborers. The Saudis might manage others, but they had no desire or motivation to become factory and construction workers. Therefore, it would be necessary to import a labor force from other countries — countries where labor was cheap and where people needed work. If possible, the labor should come from other Middle Eastern or Islamic countries, such as Egypt, Palestine, Pakistan, or Yemen.
This prospect created an even greater new stratagem for development opportunities. Mammoth housing complexes would have to be constructed for these laborers, as would shopping malls, hospitals, fire and police department facilities, water and sewage treatment plants, electrical, communications, and transportation networks — in fact, the end result would be to create modern cities where once only deserts had existed. Here, too, was the opportunity to explore emerging technologies in, for example, desalinization plants, microwave systems, health care complexes, and computer technologies.
Saudi Arabia was a planner’s dream come true, and also a fantasy realized, for anyone associated with the engineering and construction business. It presented an economic opportunity unrivaled by any in history: an economically developing country with virtually unlimited financial resources and a desire to enter the modern age in a big way, very quickly.
I must admit that I enjoyed this job immensely. There was no solid data available in Saudi Arabia, in the Boston Public Library, or anywhere else that justified the use of econometric models in this context. In fact, the magnitude of the job — the total and immediate transformation of an entire nation on a scale never before witnessed — meant that even had historical data existed, it would have been irrelevant.
Nor was anyone expecting this type of quantitative analysis, at least not at this stage of the game. I simply put my imagination to work and wrote reports that envisioned a glorious future for the kingdom. I had rule-of-thumb numbers I could use to estimate such things as the approximate cost to produce a megawatt of electricity, a mile of road, or adequate water, sewage, housing, food, and public services for one laborer. I was not supposed to refine these estimates or draw final conclusions. My job was simply to describe a series of plans (more accurately, perhaps, “visions”) of what might be possible, and to arrive at rough estimates of the costs associated with them.
I always kept in mind the true objectives: maximizing payouts to US firms and making Saudi Arabia increasingly dependent on the United States. It did not take long to realize how closely the two went together. Almost all the newly developed projects would require continual upgrading and servicing, and they were so highly technical as to assure that the companies that originally developed them would have to maintain and modernize them. In fact, as I moved forward with my work, I began to assemble two lists for each of the projects I envisioned: one for the types of design-and-construction contracts we could expect, and another for long-term service and management agreements. MAIN, Bechtel, Brown & Root, Halliburton, Stone & Webster, and many other US engineers and contractors would profit handsomely for decades to come.
Beyond the purely economic, there was another twist that would render Saudi Arabia dependent on us, though in a very different way. The modernization of this oil-rich kingdom would trigger adverse reactions. For instance, conservative Muslims would be furious; Israel and other neighboring countries would feel threatened. The economic development of this nation was likely to spawn the growth of another industry: protecting the Arabian Peninsula. Private companies specializing in such activities, as well as the US military and defense industry, could expect generous contracts — and, once again, long-term service and management agreements. Their presence would require another phase of engineering and construction projects, including airports, missile sites, personnel bases, and all of the infrastructure associated with such facilities.
I sent my reports in sealed envelopes through interoffice mail, addressed to “Treasury Department Project Manager.” I occasionally met with a couple of other members of our team — vice presidents at MAIN and my superiors. Because we had no official name for this project, which was still in the research and development phase and was not yet part of JECOR, we referred to it only — and with hushed voices — as SAMA. Ostensibly, this stood for Saudi Arabian Money-Laundering Affair, but it was also a tongue-in-cheek play on words; the kingdom’s central bank was called the Saudi Arabian Monetary Agency, or SAMA.
Sometimes a Treasury representative would join us. I asked few questions during these meetings. Mainly, I just described my work, responded to their comments, and agreed to try to do whatever was asked of me. The vice presidents and Treasury representatives were especially impressed with my ideas about the long-term service and management agreements. It prodded one of the vice presidents to coin a phrase we often used after that, referring to the kingdom as “the cow we can milk until the sun sets on our retirement.” For me, that phrase always conjured images of goats rather than cows.
It was during those meetings that I came to realize that several of our competitors were involved in similar tasks, and that in the end we all expected to be awarded lucrative contracts as a result of our efforts. I assumed that MAIN and the other firms were footing the bill for this preliminary work, taking a short-term risk in order to throw our hats into the ring. This assumption was reinforced by the fact that the number I charged my time to on our daily personal time sheets appeared to be a general and administrative overhead account. Such an approach was typical of the research and development/proposal preparation phase of most projects. In this case, the initial investment certainly far exceeded the norm, but those vice presidents seemed extremely confident about the payback.
Despite the knowledge that our competitors were also involved, we all assumed that there was enough work to go around. I also had been in the business long enough to believe that the rewards bestowed would reflect the level of Treasury’s acceptance of the work we had done, and that those consultants who came up with the approaches that were finally implemented would receive the choicest contracts. I took it as a personal challenge to create scenarios that would make it to the design-and-construct stage. My star was already rising rapidly at MAIN. Being a key player in SAMA would guarantee its acceleration, if we were successful.
During our meetings, we also openly discussed the likelihood that SAMA and the entire JECOR operation would set new precedents. It represented an innovative approach to creating lucrative work in countries that did not need to incur debts through the international banks. Iran and Iraq came immediately to mind as two additional examples of such countries. Moreover, given human nature, we felt that the leaders of such countries would likely be motivated to try to emulate Saudi Arabia. There seemed little doubt that the 1973 oil embargo — which had initially appeared to be so negative — would end up offering many unexpected gifts to the engineering and construction business, and would help to further pave the road to global empire.
I worked on that visionary phase for about eight months — although never for more than several intense days at a time — sequestered in my private conference room or in my apartment overlooking Boston Common. My staff all had other assignments and pretty much took care of themselves, although I checked in on them periodically. Over time, the secrecy around our work declined. More people became aware that something big involving Saudi Arabia was going on. Excitement swelled, rumors swirled. The vice presiden
ts and Treasury representatives grew more open — in part, I believe, because they themselves became privy to more information as details about the ingenious scheme emerged.
Under this evolving plan, Washington wanted the Saudis to guarantee to maintain oil supplies and prices at levels that could fluctuate but that would always remain acceptable to the United States and our allies. If other countries, such as Iran, Iraq, Indonesia, or Venezuela, threatened embargoes, Saudi Arabia, with its vast petroleum supplies, would step in to fill the gap; simply the knowledge that they might do so would, in the long run, discourage other countries from even considering an embargo. In exchange for this guarantee, Washington would offer the House of Saud an amazingly attractive deal: a commitment to provide total and unequivocal US political and — if necessary — military support, thereby ensuring their continued existence as the rulers of their country.
It was a deal the House of Saud could hardly refuse, given its geographic location, lack of military might, and general vulnerability to neighbors like Iran, Syria, Iraq, and Israel. Naturally, therefore, Washington used its advantage to impose one other critical condition, a condition that redefined the role of EHMs in the world and served as a model we would later attempt to apply in other countries, most notably in Iraq. In retrospect, I sometimes find it difficult to understand how Saudi Arabia could have accepted this condition. Certainly, most of the rest of the Arab world, OPEC, and other Islamic countries were appalled when they discovered the terms of the deal and the manner in which the royal house capitulated to Washington’s demands.
The condition was that Saudi Arabia would use its petrodollars to purchase US government securities; in turn, the interest earned by these securities would be spent by the US Department of the Treasury in ways that enabled Saudi Arabia to emerge from a medieval society into the modern, industrialized world. In other words, the interest compounding on billions of dollars of the kingdom’s oil income would be used to pay US companies to fulfill the vision I (and presumably some of my competitors) had come up with, to convert Saudi Arabia into a modern industrial power. Our own US Department of the Treasury would hire us, at Saudi expense, to build infrastructure projects and even entire cities throughout the Arabian Peninsula.