The Chairman

by Kai Bird

  McCloy then flew to Bonn, where he managed to have Willy Brandt issue a timely statement saying that any troop reductions would leave “the irradicable impression that the United States is on its way out of Europe.” These efforts had their intended effect. As Kissinger later wrote, “The media reaction showed that the old foreign policy Establishment still carried quite a wallop.” Major newspapers across the country editorialized against “Senator Mansfield’s Folly,” and finally, on May 19, the Senate voted the measure down by a hefty sixty-one-to-thirty-six margin.41

  McCloy was relieved, but the episode underscored for him what he felt was an “apparent malaise of spirit and will which the Vietnam war, the demonstrations, the violence and the lack of community and individual responsibility in this country seem to have induced.” He thought Mansfield had simply forgotten that U.S. troops were sent to Europe in the first place for political, not military reasons. “If anything,” he wrote in an article The New York Times decided not to publish, “the political need which was the primary cause for placing the troops in Europe is perhaps greater now than it was then. Contrary to some present contentions, we did not then fear a Soviet ground attack in spite of all the harassments in Berlin. . . . What we did fear was the political and psychological effect in Western Europe of the presence in Eastern Europe of large undemobilized Soviet ground forces with nothing more convincing to offset their influence than the rather illusory commitments of the NATO pact alone.” In other words, the troops were always needed in order to shore up America’s political allies in Western Europe, and not because Washington ever thought the Kremlin intended to wage aggressive warfare.42

  Throughout the 1970s and ‘80s, McCloy used whatever platform he could to preach his “Atlanticist” message of West European unity. Each year, he visited Germany, and as chairman or board director of the Council on Foreign Relations, the Atlantic Council, the American Council on Germany, the German-Marshall Fund, and the Aspen Institute he continued to exert his influence on journalists, academics, and selected politicians. Conveniently, it just happened that these particular public-policy organizations controlled most of the travel funds, the conference monies, and the publication subsidies that financed the policy debates on NATO’s future, German-American relations, and the course of the Cold War. McCloy presided over their activities, setting the tone and general direction, while men closely identified with his career, such as Shepard Stone, who headed the Aspen Institute’s Berlin office; Joseph Slater, another Aspen Institute officer; and David Klein, who headed the American Council on Germany, did the day-to-day staff work. Well into the 1980s, these elite opinion-making institutions continued to set the parameters of what the Establishment considered to be “legitimate” debate on America’s European policies.

  Kissinger might regard him as a “jovial gnome,” an old man with a “time-consuming . . . penchant for anecdotes,” but in New York McCloy was not treated with condescension.43 He was still the single most powerful partner at Milbank, Tweed, and the law firm’s premier rainmaker. Well into his late seventies, he still played a hard game of tennis and several times a year waded into frigid Canadian and New England streams for a few days of fly-fishing. One summer, he took a trip to Alaska, where he shot an enormous Kodiak bear, which he had stuffed and placed at the entrance of his son’s Vermont hunting cabin. In the summer of 1970, he took his family on a hunting safari in Botswana.

  In September 1970, Egypt’s Gamal Abdel Nasser suddenly died of a heart attack, and Nixon asked McCloy to attend the funeral as part of an official U.S. delegation. On a few hours’ notice, McCloy packed a bag and boarded a windowless U.S. Air Force 707 oil-refueler plane converted for passenger use. On the long flight to Cairo, he stayed up all night, entertaining his companions with old war stories. Accompanying him were retired Ambassador Robert Murphy, Undersecretary of State Elliot Richardson, Special Assistant to the President Donald Rumsfeld, and a Foreign Service officer named Michael Sterner. When they arrived in Cairo, more than a million people were in the streets mourning the popular Arab nationalist. At the funeral, McCloy went through the receiving line inside a large tent set up for dignitaries and shook hands with Anwar Sadat. Egypt’s new president had fainted during the chaotic funeral procession and was sweating profusely. Afterward, McCloy and his colleagues were given a chance to talk privately with Sadat.44 They also had a chance to meet the young Libyan leader, Colonel Muammar Qaddafi, who had come to power in a coup d’état the previous year. Shaking hands with the colonel was an unforgettable experience. Sterner remembered he had a dreamy, faraway look in his eyes and seemed distracted and genuinely grief-stricken at the sudden death of his political idol. Sterner told himself, “This man is the first deranged Middle East head of state.”45

  McCloy had an interest in sizing up the mercurial Libyan leader: a number of his Milbank, Tweed clients were currently having considerable difficulties with the colonel. Earlier in the year, he had demanded a 40-cent-per-barrel increase in the royalty paid by all the oil companies pumping Libyan oil. The State Department’s chief oil expert, James E. Akins, told the companies that this was not an entirely unreasonable increase. A tall, imposing man, Akins had Quaker attitudes and blunt opinions that had won him a reputation in the Foreign Service as an iconoclast. As he later explained to the Senate’s Subcommittee on Multinational Corporations, he had “the same slide rules that the Libyans” used to calculate the value of Libyan oil as compared with Persian Gulf oil. In fact, for some time the companies had been lying to the native producers. While telling the Libyans that their low-sulfur oil gave them a 10-centper-barrel price differential, they simultaneously told the Venezuelans that their high-sulfur oil was worth 50 to 70 cents less than Libyan oil. Akins worried that, if the Libyans “concluded they were being cheated,” it might lead to a complete breakdown in relations. The Saudis, Venezuelans, and other OPEC producers were not only more educated and sophisticated in the mores of the industry than ever before, but they could see that Western consumer demand for imported oil had risen dramatically. In the previous decade, the U.S. market had absorbed more oil than all the oil produced in the previous one hundred years. Akins knew it was in the U.S. consumers’ interest to keep the price of oil “fairly low.” But he also thought it was in the U.S. interest to have a “reasonable working relationship with the Libyans” and other producers.46

  The companies, led by Exxon, ignored Akins’s recommendation and announced they would not pay more than 5 cents per barrel extra. Qaddafi shrewdly responded by singling out one of the smaller independent oil companies, Armand Hammer’s Occidental Oil Company, and ordered a cutback in its production quota. Unlike Exxon or the majors, Occidental depended entirely on Libyan oil, and by July 1970 Hammer was desperate. He had to get access to other oil supplies to honor his contracts, or cave in to Qaddafi’s price demands. In a grim mood, he went to see Ken Jamieson, CEO of Exxon, and asked if Exxon could supply Occidental with oil at cost. There had always been bad blood between the “Seven Sisters” and the independents, and Jamieson was suspicious of Hammer’s request. He told the seventy-two-year-old oil man that he needed some time to think about the matter. After two weeks, he sent word to Hammer that he would not sell at cost, but would be willing to sell him oil “at our lowest third-party price.” By this time, Hammer had given up on Jamieson and, fearing that Qaddafi might nationalize his operations at any minute, flew off in his company jet to make a deal with the Libyans. On September 4, 1970, Qaddafi announced that Occidental had agreed to a 30-cent price increase, with an additional 2 cents over each of the next five years. Henry Schuler, an oil man then working for Bunker Hunt, thought this was the beginning of the end. “Maybe Hammer was right that prices had been too low,” Schuler later said. “But the way he did what he did set in train the oil price rises of the 1970s.”47

  Three days after Hammer’s capitulation, McCloy flew to Washington with a group of his oil-company clients for a meeting with Secretary of State William Rogers, Undersecre
tary U. Alexis Johnson, and Jim Akins. He was alarmed by what Hammer had done. Libya was producing 3.6 million barrels per day and was supplying 25 percent of Western Europe’s oil. The twenty-eight American companies operating in Libya had a $1.5-billion investment at stake, and their profits were contributing over $700 million to the U.S. balance of payments.48 McCloy felt the Libyan demands confronted the American oil industry with a fundamental challenge. It was a question of control over a global industry essential to U.S. national security and economic well-being. Price was another issue. He favored low prices, but in the long run it was much more important that the major oil companies—the “Seven Sisters”—maintain a reasonable working relationship with the native producers and control over the marketing of this essential resource.

  It was no accident that the crisis had erupted in Libya, since that was the one major oil-producing country where the independents had managed to establish a significant foothold. A disproportionate number of oil concessions had been parceled out by the Libyans to small independents in the belief that such companies had a greater interest in aggressively exploring for oil and marketing it once it had been discovered. Companies like Occidental had every reason to pump as much oil as they could. This was not necessarily true for the majors, who always had more oil than they wished to sell. Historically, the industry had been plagued by profit-cutting episodes of overproduction which were only solved when the majors became large enough to establish what were essentially worldwide production quotas. For decades, the global price for oil generally mirrored the production quotas set by the Texas Railroad Commission, which was run as an unofficial industry association. For a long time, the majors were able to reject any demands for higher production in one country simply by threatening to raise production in another.

  As the crisis broke in the wake of Occidental’s September 4 settlement with Qaddafi, it was McCloy’s intention to invoke his Justice Department antitrust waiver, and persuade the companies to form a common front.

  Qaddafi, however, moved quickly. Within two weeks, a consortium of three other independents—Continental, Marathon, and Amerada-Hess—capitulated. Only in late September, when the Libyan colonel turned his attention to one of the majors, did he encounter resistance. The chairman of Shell Oil, Sir David Barran, a Briton who wore a monocle and affected the pose of an English country gentleman, was determined to try “to stem the avalanche.” When he refused to capitulate, Qaddafi ordered a complete shut-in of Shell’s production quota of 150,000 barrels per day. Barran happened to be in New York that day and told the British foreign secretary, who was attending the annual U.N. General Assembly, that he felt the companies could hold out—if the British and American governments stood firmly behind them.49

  McCloy agreed with him, and the very next day he led another delegation of oil-company executives down to Washington for a meeting with Undersecretary Johnson. The oil men were severely disappointed with what Johnson had to say. When the SOCAL and Texaco executives repeatedly asked “what the U.S. government would do to back up the companies in any stand they might take,” Johnson kept telling them that the United States had “virtually no economic or political leverage in Libya” and that “in our view the Libyans are in a very strong position in their confrontations with the companies both financially and geographically.”50 It seemed there was nothing the U.S. government was willing to do to encourage the companies to hold the line.

  Afterward, McCloy flew back to New York in an Exxon jet, together with Jamieson and Shell’s Sir David Barran. The British oil man was in a black mood and told him that he thought the game was up, that his American colleagues would soon concede. This happened only a few weeks later, when Texaco and SOCAL agreed to the large price hikes demanded by Qaddafi. McCloy now feared that other OPEC member countries would demand a renegotiation of their contracts. This OPEC did on December 28, 1970, when it called for a “general uniform increase in the posted price” of oil and gave the companies only two weeks to begin negotiations. If these negotiations failed, OPEC warned it would enforce a price increase “through a concerted and simultaneous action by all Member countries.”51

  Upon hearing this news, McCloy rushed back down to Washington and told Attorney General John Mitchell, “Unified action by the governments required unified action by the companies.”52 He requested written assurances that the Justice Department did not contemplate any antitrust actions if his oil-company clientele met to negotiate jointly as an industry with OPEC. Mitchell gave his oral approval, and a few days later the antitrust division drafted a “business review letter” with the language McCloy wanted.53 A Justice Department lawyer, Dudley Chapman, and the State Department’s energy man, James E. Akins, were assigned to monitor the talks.

  So it was that on Monday, January 11, 1971, Chapman took the noon shuttle flight to New York with McCloy. Akins joined them at the airport, and the three men were driven to McCloy’s plush offices at One Chase Plaza, where a meeting of oil-company chiefs was already in progress.54 Instead of taking them into the meeting, however, McCloy ushered Akins and Chapman into his office, where they chatted briefly. The room was decorated with memorabilia of McCloy’s long years of public service. Above the couch hung a painting by Alice Acheson, depicting a view of the Rhine McCloy had so loved during his years as high commissioner. The walls were adorned with black-and-white photos—McCloy jokingly referred to them as his “rogues’ gallery”—of Lyndon Johnson, John Kennedy, Dwight Eisenhower, Richard Nixon, Jerry Ford, Dean Rusk, Henry Kissinger, George C. Marshall, General George S. Patton, James Forrestal, Konrad Adenauer, General John J. “Blackjack” Pershing, Lucius Clay, Omar Bradley, and his beloved “Stimmie,” Henry Stimson. With the notable exception of Nixon’s photo, each one was autographed with a personal inscription.55 After hanging up his winter coat, McCloy escorted his two guests into an anteroom adjoining Milbank, Tweed’s expansive reception room. The oil men were gathered in another room, opposite the reception room. Despite this curious arrangement, neither Akins nor Chapman asked why they had not been invited to listen to the actual deliberations. Akins was “uncomfortable” about it, but said nothing.56 And though Chapman was there to make sure the oil executives confined their discussions to dealing with OPEC, he and his Justice Department colleagues knew these oil men had been meeting in private with McCloy for years.57

  The unspoken assumption was that private citizen McCloy could watch out for the public’s interest. It wasn’t until 1974, when Congress was investigating the energy crisis, that any questions were asked about this remarkable arrangement. Even then, Senator Clifford Case only in passing wondered aloud how McCloy could have “represented everybody, including the U.S. government without the U.S. government knowing what was being done until you [McCloy] told them about it.” But in January 1971, the fact that one man could “wear so many hats,” as Senator Case put it, did not seem inappropriate. On McCloy, all the hats fit.58

  The rest of that afternoon, McCloy shuttled back and forth between the meeting of the oil-company executives and the anteroom where Akins and Chapman sat. From time to time, he came out to show the government representatives drafts of two documents, the first a public statement informing OPEC that the companies would only negotiate as a group, not individually, and the second a secret agreement specifying that all the companies would share in any cutbacks in production ordered against any one company in Libya. Chapman and Akins reviewed both documents and suggested some minor amendments. At the end of the day, the two officials returned to Washington, and later that week the Justice Department officially gave McCloy its blessing for the arrangements. In the meantime, McCloy continued his meetings with the oil men, sometimes in his office, sometimes in the ornate University Club, and sometimes in Mobil’s skyscraper on 42nd Street.59

  McCloy was relieved that he had cajoled the oil men into taking a common stand. But he felt their collective-bargaining strategy with OPEC would be greatly helped if the U.S. government used its influence to pressure t
he OPEC governments, many of whom, after all, were close allies. So, on January 15, he took another delegation of oil-company CEOs to see the secretary of state. He told Rogers that “it would be wise if the government could enter into this thing and get the heads of the countries involved to moderate their demands.” A “person of dignity, with clout,” he said, should be sent to the Middle East.60 The very next day, Undersecretary of State John N. Irwin II boarded a plane bound for the Middle East. He carried in his pocket a personal message from Nixon to the shah of Iran, King Faisal of Saudi Arabia, and the sheikh of Kuwait, encouraging them to moderate their demands.

  The trip did not, however, have the intended effect. A Sullivan & Cromwell corporate lawyer, Irwin was a political appointee with no experience in the oil business or the Middle East. When he and Jim Akins arrived in Teheran, they were met by the U.S. ambassador, Douglas MacArthur II, who reported that the Iranians were unhappy about the letter the oil companies had sent insisting upon a single set of negotiations with OPEC. In their meeting with the shah, the Iranian monarch made it clear that there had to be two sets of negotiations. Convinced that the companies had no choice in the matter, Irwin cabled Washington and recommended that there be two sets of negotiations, one in Teheran for the Persian Gulf producers, and one in Tripoli for Libya. McCloy thought this a serious blow to his collective-bargaining strategy, because there was nothing to prevent the OPEC countries from “leapfrogging” their price demands. An agreement reached in Teheran might easily set the stage for increased demands in the second set of negotiations, in Tripoli. And though he knew that the shah could be stubborn, he was disturbed that Irwin and MacArthur had caved in so quickly to the monarch’s demands. MacArthur, he thought, was acting “more Persian than the Persians.”61