A History of the Middle East (47 page)

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 Iraq, 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.

Within the Arab world, the shift in weight and influence from the traditional political power centres of Cairo and Damascus eastwards to the Arabian peninsula, which was already perceptible in the 1960s, now became fully apparent. Not only manual workers but also those with high skills and professionals from the Levant
states and Egypt looked to the eldorado of the Arab Gulf countries as a means of transforming their living-standards.

However, it was their enhanced role in the world economy which gave the oil-producing states their new international status. The decisions of OPEC – in which the Middle East countries were overwhelmingly dominant – were headline material; the investment of the ‘petro-dollars’ of its members’ huge and growing surpluses affected not only international currency markets but the business climate in many of the advanced industrial countries.

There was a reverse side to all this. In the first place the oil states – invariably personified in the Western media as ‘the Arabs’ – became the target of widespread hostility and resentment. The wealthier industrialized countries blamed them for the global inflation of the 1970s; Third World states without oil of their own saw their development plans shattered by the huge increase in the price of imported fuel. Where the Arab oil states were able to use their increased influence to secure some improved international appreciation of the Arab position on Palestine, those hostile to their cause attributed this to ‘oil blackmail’. Israel understandably did everything to encourage this view.

The OPEC states soon discovered the limitations to their power. At the time of the 1973 war the Arab states declared that they would continue their embargo of Western countries supporting Israel until Israel had withdrawn from all occupied Arab lands. But the real fear that the United States and its allies, faced with disaster to their industrialized economies, might invade and occupy their oilfields forced the Arabs to lift the embargo in March 1974. As this fear receded, it became apparent that the quadrupling of prices was leading to a reduction in the rate of consumption and that this, combined with the increase in output, would soon result in a world oil surplus. The industrialized countries, having been startled into awareness of the dangers of dependence on cheap oil, began to seek to conserve their own resources and to exploit alternative sources of energy such as coal, nuclear power or oil-bearing shale deposits. The threat of a collapse in oil prices showed that OPEC was far from being a
monolithic bloc – there was a huge difference in outlook between those countries such as Iran or Algeria whose needs exceeded their revenues and those such as Kuwait, Libya or Abu Dhabi, with small populations, which could afford to cut back production in order to maintain prices. This placed additional responsibility on Saudi Arabia as the OPEC ‘swing’ producer, responsible for one-third of OPEC’s output and, with its immense spare capacity, capable of doubling or halving its production in order to reduce or raise prices on the international market.

As a sharp and sometimes acrimonious debate continued within OPEC, it seemed at times that the organization might break up, and its demise was regularly foretold by some international economists. But this did not happen. When disaster threatened, the necessary minimum agreement on the sharing of output was reached. Much of the credit for this was due to Saudi Arabia’s willingness to use its power to stabilize the market. OPEC even survived a new and potentially disastrous surge in oil prices in 1979–81 caused by a panic among consumers on the outbreak of the Iraq–Iran war. The artificial boom, which took prices as high as $34 a barrel, was followed by a prolonged glut in the 1980s, during which OPEC with difficulty maintained prices at around $18 a barrel.