Origins of the Cold War in Soviet and Western commercial rivalries in Iran
INTRODUCTION
Commercial rivalry between British and American oil corporations as well as intergovernmental rivalry between the United States and Soviet Union shaped the Cold War. The companies engaged in balance of power manoeuvres with each other. Vattel has provided the classic statement of the balance of power: “such a disposition of things that no one potentate or state shall be able, absolutely, to predominate and prescribe laws to others”.[1] To balance the expansion of other companies’ Persian Gulf activities Anglo-Iranian and Shell tried to increase their own stakes through concession hunting in the northern provinces of Iran. When this failed, and when the Anglo-American Oil Agreements confirmed that it would be legal to do so, they supplemented this internal strengthening with external alliances. The main mechanism for alliance-building was developing joint venture partnerships.
Two forms of joint venture were used — the equity joint venture in which the companies held shares in a subsidiary and the contractual joint venture through which companies blended core activities while remaining formally separate. The contractual joint ventures established in this period include the two sale of oil contracts between Anglo-Iranian and Socony-Vacuum, and the sale of oil agreement between Anglo-Iranian and Jersey, and Gulf and Shell. This supports the argument that the balance of power was contrived rather than fortuitous, and that in terms of Bull’s distinctions we are examining an international society rather than an international system. Hedley Bull clarifies the distinction by referring to the aims of the parties. A fortuitous balance would be “simply a moment of deadlock in a struggle to the death.” By contrast, a contrived balance “presupposes that at least one of the parties, instead of pursuing the goal of absolute expansion of its power, seeks to limit it in relation to the power of the other.”[2]
All the parties had a societal interest in an orderly expansion of production and consumption. Since the negotiations around the Anglo-American Oil talks had clarified the scope of private global governance agreements, the companies now seized the opportunity to compete for positions in the Middle East, while simultaneously cooperating to ensure an orderly expansion from which they would all benefit. Martin Wight argued that the balance of power served three important functions in an international society. First, that the balance of power maintained the independence of states. Second, since the balance of power guaranteed independence, the stability that a balance promoted might be considered in the longer-term interests of all states in contrast with a short-termist policy of national-oriented power maximisation. Finally, Wight proposed that international law could only be effectively established on the foundations of a balance of power. He approves Oppenheim’s argument that: “an over-powerful state will naturally try to act according to discretion and disobey the law.”[3]
Analyses of the origins of the Cold War may be placed into three categories — orthodox, revisionist, and post-revisionist.[4] The orthodox case was that the Soviet Union followed an aggressive ideology, which predisposed it to world domination. The United States was forced into a defensive strategy, which led to the Cold War. The revisionist accounts of the origins of the Cold War, which became popular contemporaneously with the Vietnam War, stressed that economic development in the United States had reached such a point that further corporate expansion tended to be international. The Government supported this expansion and, therefore, laid the foundation for American imperialism. However, neither of these stories was archive-driven.[5]
The post-revisionist case restates the primacy of politics in the containment strategy, in particular uncertainty about Soviet designs, and also supports the original claim that the pro-American powers during the Cold War frequently invited American influence. However, it also specifies the ways in which economic means were used to attain political ends, and thus, concedes a link between corporations and Government to serve mutual ends. Examination of American policy in Saudi Arabia highlights the mutual element of the relationship. Over Middle East oil United States corporate and Government short-term aims were clearly linked. Yet British companies and the Government still held the dominant position in these territories. The way in which the British actors, specifically the oil companies, sought to maintain their position becomes crucial in understanding the unfolding of the Cold War in the Persian Gulf.
The six sections examine how the companies were engaged in balance of power manoeuvres while the Governments stumbled into the Cold War in the Persian Gulf. The fact that the United States Government and companies entered into negotiations for concessions in the northern territories of Iran, in Iranian Azerbaijan, increased Soviet insecurities over its borders, and thus precipitated the Azerbaijan crisis. However, they were invited in by the Iranians themselves, who were, in turn, responding to British oil policy in Iran.[6] Thereafter, American companies and Government developed common interests while playing different games in Kuwait and Saudi Arabia.
BACKGROUND TO THE AZERBAIJAN CRISIS
On 18 June 1945 there was a meeting between senior directors of Anglo-Iranian and Jersey. Orville Harden observed that, “Jersey — for reasons which were well known could not adhere formally to ‘As-Is’ but they wanted no greater percentage of the trade than they had previously enjoyed and they were ready to continue to observe the principles which had governed the trading of the groups over the last fifteen years.” The alternative to “orderly adjustments between the half dozen companies concerned” would be a struggle for markets, and it was “urgent for all concerned to try and work out a peaceful solution.” Jersey and Shell needed to purchase oil products and Anglo-Iranian wanted Iranian production to enjoy pre-war levels of world market share. There were fears that Caltex would cut prices worldwide in order to establish markets for themselves. Jersey were frustrated since they had markets for these products but found themselves limited in their relationship with Caltex by the Red Line agreement. The parties agreed to meet again, next time also including Shell.[7] Until these issues were resolved, the companies which were short of products, such as Shell and Jersey began a struggle for a concession in Azerbaijan to strengthen themselves internally. Once it was clarified that the pre-war arrangements such as the Red Line agreement and restrictive clauses could be removed, during the Anglo-American oil negotiations, the companies made compensating external alliances matching the strengths of other companies, for instance, the Gulf Oil Company’s share of Kuwait Oil Company production with Shell’s need for products.
The role of the Iranian crisis as a turning point in relations between the wartime Allies has been widely noted. Some have interpreted it as a classic Great Power scramble, others as a United States reaction to Soviet aggression, yet others as a confluence of United States domestic economic, and international, state agendas.[8] More recently, Louise Fawcett has demonstrated the extent of the British contribution to the crisis and thus the importance of the United Kingdom as a Cold War actor, and also of the non-European space in the development of the Cold War.[9] However, one drawback of her account in common with much of the existing literature has been the limits imposed by its examination of the story from the perspective of the great powers.
Stephen L. McFarland who looks at local Iranian factors pulling in the United States has provided the best counterbalance to this bias.[10] However, the importance of the local factor in Iran can only be appreciated in the context of British policy in Iran, which threatened the territorial integrity of Iran, and the decisive factor in British policy in Iran at this time was British capital. Balance of power manoeuvres aimed at the American majors were the motive force behind British capital. Hence, the Azerbaijan crisis of 1946 must also be understood in the context of Anglo-American commercial rivalry.
Britain remained the dominant foreign power in Iran till the Allied occupation of Iran. Operation Barbarossa, the Nazi attack on the Soviet Union on 22 June 1941, brought about a rapprochement between the Soviet Union and the Allies, who had been disenchanted since the Molotov-Ribbentrop Pact. Soon afterwards the new Allies invaded Iran claiming that Iran was a base for Nazi efforts in the Middle East.[11] What is clear is that the invasion made it possible to secure objectives including the establishment of a supply route to the Soviet Union, and the complete use of Iranian assets, primarily oil, without any interference from the Iranian Government.[12] The Allied economic policies have been described as “a case of armed robbery against a desperately weak and poor nation.”[13]
The British also dominated the political system. While they replaced the autocrat Reza Shah with his weakwilled and inexperienced son, Muhammed Pahlavi, they did not support the creation of a constitutional monarchy. The lower house, the Majlis, was continuously infiltrated and undermined. A report on Majlis ‘intrigues’ led the Foreign Office to comment that “Persia was not ripe for democracy…unless the Majlis is sat on, it becomes a nuisance.”[14] Thus, British-supported candidates headed six of the ten administrations during the occupation. A sample of the interference from the British Embassy in Tehran is provided by the case of Muhammed Ali Furughi who became Prime Minister while Reza Shah was departing. He was instructed by the Foreign Office to provide an eulogistic account of British policy. It should be “written from the British viewpoint, but so as to appeal to Iranians”.[15] Just as Reza Shah had tried to combat British dominance by turning to Germany, so his successors would turn to the United States employing the age-old Iranian strategy of movazaneh (equilibrium) to play off the foreign powers against each other.[16] In part, this involved offering oil concessions to the United States.
Meanwhile, the political interference of the British was not restricted to Tehran. Britain had long maintained relations with the southern tribes such as the Bakhtiari Khans. Britain’s oil interests were also in the south and it was felt that these interests might be promoted through relations with the tribes in case the domination in Tehran was weakened.[17] A policy of closer relations with the tribes was thus held in reserve, even though some senior officials such as ambassador Bullard in Tehran opposed it. He pointed out that it was “undesirable to encourage the tribes…the object is to get the civil administration running, and we cannot have one policy at the centre and another in the tribal areas.”[18]
However, Bullard’s view was not decisive. It was widely rumoured that General Wilson, Commander-in-Chief in the Middle East, was subsidising the activities of Nasir Khan and the Qashqa’i tribe. He reasoning was, “If you don’t fight and don’t bribe, what do you do?”[19] At first blush it appears that Bullard and Wilson were supporting contradictory policies and thus this episode might be used as evidence of bureaucratic rivalry in policy making with Bullard promoting the role of the Embassy and Wilson that of the military. However, on reflection it becomes clearer that the bureaucratic politics took place, not in policy formulation (where the ‘bureaucratic politics’ approach is usually applied), but in the implementation of ‘policy’. For one does not find a carefully formulated London policy being applied in Iran; rather, different agencies took different initiatives. In practise, there were contradictory policies in Iran, one of promoting efficient civil administration on a nation-wide level through the Embassy, and another supporting tribes through bribes in the provinces. Local agencies had developed set procedures for dealing with situations and implemented them regardless of the other Government agencies.
In the early days of the occupation it was suggested that Britain and the Soviet Union form a joint commission, which later developed into Bevin’s proposals for a tripartite commission.[20] The Tripartite Treaty, signed in January 1942, was only reluctantly accepted by the Iranian Government for in practice both the Soviets and British ignored clauses six and seven of the Treaty, which protected Iranian sovereignty.[21] When Sayyid Zia, a pro-British Prime Minister, produced a long list of complaints against the Soviets for British consideration in 1944, they only took up the issue of unpaid customs duties. One Foreign Office specialist reasoned: “If the allies win the war, we will owe the Russians a great deal, and whatever happens we owe the Persians nothing. If therefore the Russians are determined to protect their southern frontiers by acquiring further territory in the north, and if we have no means of preventing it, it would surely be advisable to put the best face we can on the matter.”[22] The Petroleum Division also decided “not to resist the granting of a concession to the Russians because the ultimate depiction of Iranian independence is in any case conjecture.”[23] An example of Britain’s willingness to accommodate Soviet plans was Bullard’s idea of introducing a form of local self-government through the establishment of provincial councils.[24] Local Government would provide all provinces with a measure of autonomy, so that through its representatives in the south Britain could ensure that its interests were protected. Moreover, it might forestall a demand from Azerbaijan for wider concessions. This scheme came to nothing though Bullard continued to raise this issue with every subsequent Prime Minister. It convinced the Iranians that the British wanted to conciliate the Soviets.
United States policy in the developing world was influenced by two main considerations — the first being the containment of communism, the second was the fear of mineral shortages in the United States. By promoting raw materials production in the developing world it was hoped to prevent a United States shortage while simultaneously promoting development as a buttress against communism. During the inter-war period the United Kingdom and United States controlled, commercially or militarily, an estimated forty-eight per cent of the world’s iron reserves, fifty-three per cent of coal, seventy-four per cent of zinc, seventy-six per cent of petroleum, seventy-nine per cent of copper, and eighty-one per cent of lead. Anglo-American naval dominance made it possible to deny these critical materials to the Axis powers. Despite shipping problems in the first phases of the war, the Allies suffered no shortages of critical raw materials. Yet consensus regarding the depletion of United States reserves, the underestimate of current mineral reserves in the United States, and the overestimate of future consumption levels provided an impetus for negotiations with the British and also with developing world countries. In the case of oil this implied Middle Eastern countries.[25]
However, Britain maintained an independent policy as regarded the Soviet Union. Relations between 1917 and 1941 had been suspicious and hostile. Once the threat of Germany had been removed they resumed the normal pattern. Britain would not provoke tensions and was prepared to accept a Soviet sphere in eastern Europe but not into the region of British interests. So long as the Soviets did not encroach upon British interests they could expand their own sphere of interests.[26] While the British became increasingly concerned about the growth of Soviet influence in Iran, this concern was directed towards the preservation of British interests, not the exclusion of Soviet interests. In particular, there was recognition that the Soviets might want a belt of territory in Iranian Azerbaijan to ensure the safety of the Caucasian oil fields.[27]
This was very typical of the generally pro-Soviet view taken by many Foreign Office people and by E.H. Carr writing in ‘The Times’.[28] The reasoning was that the Soviets were entitled to a defensive sphere of influence and, moreover, that the United States would withdraw into isolationism again after the war, leaving Britain and the Soviet Union dominant in west and east Europe, respectively. In this case concessions to the Soviets could be justified on the basis of ensuring post-war good relations in Europe, as well as essential for the security of British interests in the Middle East and Asia. Applied to Iran this policy was to lead to a collapse of British power.
SOVIET PRESSURE IN AZERBAIJAN
The conciliation of the Soviets came to a head over the issue of oil concessions in the northern provinces. The scramble for a new concession can be traced to the trade war and concern over Middle East oil which was being discussed at this time in Washington in the Anglo-American oil talks. The political results were that the United States supported concession seeking by its nationals, which the British also did.[29] This Anglo-American scramble for oil provided the Soviets with an opportunity to press their own claims in the northern provinces. Correspondence between Beaverbrook and Fraser reveals that Fraser was aware that Shell “with the support of H.M.G.” had sought a concession in the south. So, also had the Sinclair Oil Company, like the Getty Oil Company, one of the larger ‘Independents’. Yet another interested party was Standard-Vacuum, the joint venture between Socony-Vacuum and Jersey. As these negotiations became public, the Soviets formally asked for a concession in the north toward the end of September. Fraser argued that the Iranians were “foolish not to anticipate it [the Soviet demand] and not to have refused discussions with other interests”, but remained confident that Anglo-Iranian could compete with the Soviets provided that the concession involved “normal commercial terms.”[30]
Bullard observed: “As to Russia’s need for oil, it is certainly no part of our policy to prevent Russia from obtaining oil in north Persia. Indeed the Soviet Union is the natural market for north Persian oil. We do not wish to put any obstacle in the way of the Russians obtaining a concession in Persia by normal methods if and when the Persians are prepared to negotiate.”[31] The Majlis decision to postpone the oil discussions worried the British more in the possible negative consequences for its own assets, than the exclusion of the Soviets. The Ministry of Fuel and Power observed:
We are naturally very concerned that any designs which Russia may have on Persia should not adversely affect our established position there, or the possibility of our getting the additional concession now being negotiated by Shell…One wonders if the Persian Government is going to deny the aspirations of the Russians in the north, it might not have the effect of increasing Russian interest in Persia in areas in which they are apparently not concerned. If means could be found for an amicable settlement, resulting in the grant of a concession to Russia at the same time as the Persians grant a concession to Shell, one would have thought from the point of view of British interests on oil, that such a solution would have much to recommend it.[32]
The real problem for Britain, as elucidated by W.H. Young at the Foreign Office, was the conflict between Britain’s petroleum and political interests.[33] Although Bullard felt that the risks inherent in the Soviets obtaining a northern concession were “far graver” than the risk of its attempting to cancel the Anglo-Iranian concession, the Ministry of Fuel and Power won the day, arguing the financial case for a new British concession. While aware of the possible political consequences arising from the award of a northern concession to the Soviets, the Ministry of Fuel and Power insisted that if only “political considerations” could be excluded, the best course would be for the Soviets to get its concession.[34] No public statement was made against the Soviet demand, nor did the British Government attempt to close the door on future negotiations.
British appeasement was largely responsible for the more aggressive Soviet posture in the north of Iran yet unable to contain this, they increasingly relied on the United States. After the Yalta Conference of January 1945 failed to produce any Soviet guarantees about intentions in Iran, Churchill wrote to Roosevelt warning of Soviet departure from the Tehran Declaration and of the danger that “Russia would get what it wanted by use of the big stick.”[35] The surrender of Iranian Government troops to the Azerbaijan nationalists supported by the pro-Soviet Tudeh party in the autumn and winter of 1945 only confirmed to officials such as Bullard that the Iranians were incapable of self-government and that the United States was the only chance for a united Iran.[36]
Realisation that Britain was prepared to see Iran fragmented through its attitude to Soviet pressure in the north and its support for local autonomy provoked a nationalist backlash. Once the connection had been made between national unity and oil concessions the position of the Anglo-Iranian was seriously weakened. Even in 1944 one Majlis deputy attempted to find support for a bill to revoke the Anglo-Iranian concession.[37] The Iranians looked to the Americans to maintain their territorial integrity while the British looked to them for support against the Soviets. However, in the longer term such involvement would prove inimical to Britain’s twin interests in Iran — the oil concession and its informal influence. For the United States were equally determined to promote their own oil interests and to dismantle Britain’s Empire, formal and informal.[38]
This did not alter Britain’s greater concern for oil interests than Iranian sovereignty. They supported the linking of the withdrawal of Soviet troops with the granting of a concession to the Soviets. This was a major miscalculation, for the failure to agree on troop withdrawals meant that these troops were available for use in support of the Azerbaijan nationalists/secessionists later. At the time the British hoped that the strong-arm tactics might restart oil negotiations. In March 1946 representatives from Shell had called to suggest the resumption of the negotiations which had been broken off in 1944. The Ministry of Fuel and Power gave their support to these new talks in May 1946.[39]
In a circumvention of the 1944 Majlis decision the Soviets were indeed granted an oil concession. Britain’s only objection to this agreement which was clearly made under duress in violation of the Tripartite Treaty was that the proposed Irano-Soviet company appeared to offer more favourable terms to Iran than the Anglo-Iranian concessionary agreement of 1933.[40] A draft report on the question of southeast Iranian oil stated: “A mixed company of the kind suggested would make it impossible to secure the essential flexibility in the operation of British oil resources. During the recent war, British and American companies have been able…to increase or decrease production as required. This would not have been possible had the exploitation of the oil resources in question been operated by joint companies through which the local Government would have been able to insist upon a rate of output to accord with their view of their own interests. It would hamper the British companies at every turn in the task of obtaining the best possible results from an oil field, if the local Government were associated with them in the ordinary day-to-day operations in the field.”[41] Soviet-supported rebellions in Azerbaijan were expected although the British did not subscribe to the annexationist theory of Soviet policy. However, developments in Azerbaijan caused a reassessment.
Russian activities in Persia do not square with the theory of a defensive policy. They square well with the theory of a tentative, but essentially offensive policy. If the Russians, seizing a moment of Anglo-American discord, chanced their luck and got away with the absorption of Persia without having to fight for it, their position would be immeasurably strengthened, both for defence and for eventual future aggression. They would acquire the warmwater ports which have been almost a pathological craving since Peter the Great. They would interpose between Baku and India a vast defence area…They would acquire oil resources of great value, and shake Britain’s whole position in the Middle East to the point of collapse.[42]
The advent of the Azerbaijan nationalists to power led to an assessment that the situation in Azerbaijan was as near to the “classical pre-revolutionary situation of the Leninist textbooks as nature and art can make it.”[43] Soviet and American involvement in Iran began to displace British dominance. When Qavam became Prime Minister in January 1946 Young thought that he was neither pro-German nor pro-Allied but was “merely concerned to be well in with both sides without committing himself to either — a normal Persian game.”[44] In fact, Qavam was anti-British rather than pro-German. Rather than recognising the election of Qavam as the result of widespread anti-British sentiments, it was analysed as due to the “frivolity and irresponsibility of the Persian character”. Allegedly, the Majlis vote, which confirmed Qavam, was “an absurd operation” whereby the Majlis Speaker “sodden with opium” cast the decisive vote to shift the balance in Qavam’s favour.[45] This was not fair though it seems from the records to have been not untypical for the ‘old hands’ of his generation. For this reason it could also be found in the attitude of the Anglo-Iranian board and it was to become an important, though unquantifiable factor in the nationalisation crisis examined in the next chapter. In fact, a more important factor in the weakness of the Majlis was the lack of a party system.[46]
THE DECLINE OF BRITISH STATE AND CAPITAL IN IRAN
Meanwhile the conspicuous role of the left leaning Tudeh in the labour unrest presented the opportunity for a different strategy. Significantly, LeRougetel, who had played an important role in the negotiations surrounding the Anglo-American Oil Agreements, had replaced Bullard as ambassador. This appointment reflected the link between British oil interests, the foreign policy system, and Iran. He thought that the southern unrest was symptomatic of a new countrywide trend in which the right was losing out to the left.[47] The growing threat from the left provided Britain with the opportunity to rally further the support of the United States on issues that had become the chief focus of concern for them — the Soviet threat and the credibility of the United Nations. One minute noted that, “Neither we nor the United States Government can view with indifference the prospect of Persia’s reduction to the status of a satellite under the very eyes of the Security Council with the consequent weakening of world confidence in the United Nations Organization. Further, neither of us wish our great oil interests in the Middle East to be at the mercy of the Soviet Union acting through satellite Governments or subversive agents. The Soviet campaign of weakening what they regard as the Anglo-US combine has begun with Tudeh agitation against the AIOC [Anglo-Iranian] and may well be extended to Iraq, Kuwait, Bahrain and Saudi Arabia.”[48]
To prevent any future problems the Government made suggestions to the company, but there were limits to the British Government’s influence over the company. Though Anglo-Iranian had once conducted its affairs through the legation, now it acted independently, only “on matters of high policy keeping H.M.G. informed.”[49] What argument could he give, the Foreign Secretary asked during a conversation with the Anglo-Iranian chairman William Fraser, to anyone who claimed the right to nationalise Persian oil, while the Labour Government was nationalising companies “left and right” in Britain? He even suggested that Britain abandon its concessionary rights and “follow the Soviet Union’s example in offering a 50–50 deal.”[50]
This early British version of the ‘domino theory’ did, however, have special appeal to United States policy makers, many of whom were beginning to formulate their ideas about ‘containment’ of the Soviet Union. Melvyn Leffler has argued that they were responding to British weakness leaving vacuums of power, and possible revolutionary movements drawing on socio-economic dislocation.[51] The United States and Britain did little to reassure the Soviets that mutual cooperation was possible, and of their peaceable intent.[52] In fact, recent research demonstrates that Stalin’s role models were not Marx or Lenin, but Peter the Great and Ivan the Terrible. His motivations were less world revolution than Russian great power status. Although a native of Georgia he became a Russian patriot in the same way as the Corsican Napoleon and French nationalism and the half-American Churchill and British imperialism.[53] From 1945 through 1952 reports clarified that the Soviets were not ready for war. The Soviets were indeed far less aggressive than depicted in the United States writings which lent credence to the campaign in Azerbaijan in 1946, the 1947 Truman Doctrine arming Turkey and Greece, and the later policies confusing Third World nationalists as pro-Soviet, for instance, Musaddiq and Nasser.[54] In this context we examine Le Routegel’s fear of the possible extension of Tudeh and Soviet influence, as he spoke of the “prime necessity for establishing a definite frontier between the USSR and Iran”. He became explicit when he suggested that the Persian Government “may be wise to run the risk of losing this rich province rather than allow the Azerbaijan communists to enter the new Majlis and jeopardise their national independence.”[55]
In the event Qavam was able to secure Soviet withdrawal on the basis of promising the Soviets a concession. However, once Soviet troops had left Azerbaijan, and the United States and the United Nations stood prepared to guarantee Iranian territorial integrity, Qavam claimed that he was powerless to influence the Majlis who would not approve it. Iranian troops were able to take control of Azerbaijan once again. Secure of United States support, the Majlis overcame Soviet pressures and rejected the oil concession outright through the single article law of 22 October 1947.[56]
The episode is significant, “For it was the first time that the new tougher American attitude took force as policy. It also represented a shift in the East-West contention from Eastern Europe to a new periphery of conflict that involved a collision in what had been traditionally British and Russian spheres. Finally, it became the first public breach among the superpowers. The United States also took the lead away from Britain and sought to make the Russians back down by playing to the gallery of world opinion.”[57] British oil policies helped to establish the Azerbaijan crisis as a landmark in the emerging Cold War, while also contributing to the decline of British power in the region.[58] Awareness of Iran’s strategic importance and attempts to maintain a balance of power in the region as Britain’s influence waned attracted American intervention.
The policy of containment developed before Kennan’s famous ‘Long Telegram’ from Moscow and was applied as a worldwide policy, and not only a policy for Europe. The United States aimed to reform not demolish colonialism, which partly explains why it misconstrued revolutionary nationalism. The wars in Korea and Vietnam paved the way to revive Japan’s relationship with its Asian periphery.[59] Even if we conceive of the Cold War in strategic terms, the economic circumstances of developing countries were an important dimension of the conflict. The relationship between Government and business may have been as significant in the United States as the developing world. This link is central to the corporatist model which argues that the new, organised capitalism of technocratic instrumentality, transnational coordination, bureaucratic planning, associative politics, and state regulation straddled both sides of the Second World War.[60] However, corporatist writers may argue that American economic goals were not necessarily incompatible with Soviet security, and that Stalin’s policy in Eastern Europe set up the Cold War.[61] In other words the link between Government and industry in the United States was an important, though not decisive, factor in the origins of the Cold War. Local conditions, actors, and struggles were also significant.
THE UNITED STATES, THE ARAMCO SETTLEMENTS, AND THE NEW CORPORATE BALANCE OF POWER
The Red Army presence in Iran, the struggle between Communists and Royalists in Greece, and the Soviet territorial demands on Turkey together constituted a crisis in the Near East, an area traditionally within the British sphere.[62] The British Government did not seek to provoke a shift in American policy, but was merely responding to Britain’s own economic imperatives, when Britain no longer provided aid for Greece or Turkey. This precipitated the ‘Truman doctrine’.[63] The link between oil and the Truman doctrine was not lost on contemporaries. One report noted that, “The loud talk was all of Greece and Turkey, but the whispers behind the talk were of the ocean of oil to the south.”[64] Another commented, “Observers generally agree that President Truman’s aim behind giving dollar transfusions to Greece and Turkey is to keep Soviet Russia away from the Middle Eastern oilfields. Besides playing power politics, the U.S. is also playing the old game of oil diplomacy.”[65]
Through the war years United States Government and corporate officers continued to maintain that the United Kingdom was undermining political and commercial interests in Saudi Arabia.[66] One way in which the United States tried to combat this tendency was to provide Lend-Lease for Saudi Arabia from February 1943; others included the proposed part-ownership of Aramco by the Petroleum Reserves Corporation (PRC) discussed in the previous chapter. Since the oil companies were very important in the demise of the PRC. plan, it has also been assumed that they were important in the advent of Lend-Lease support. For instance, Benjamin Shwadran called Lend-Lease for Saudi Arabia “the crowning achievement of almost three years of effort on the part of The Texas Company and the Standard Oil Company of California.”[67] Many writers share this view.[68] They rely on a conversation between Texaco board chairman, W.S.S. Rodgers, and Harold Ickes in early February 1943 in which Rodgers spoke of the dangers of British policy and proposed a reserve in Saudi Arabia for United States military use. Ickes is supposed to have discussed these matters with Roosevelt on 16 February, which resulted in the announcement of Lend-Lease for Saudi Arabia on 18 February. In fact, Ickes’ diary reveals that what he spoke about was the question of the United States Government buying into the Aramco concession. In other words, Rodgers’ comments were a starting point for the PRC; Lend-Lease provision came from another source.[69] The Department of State Near Eastern Division came to see Arabian reserves as crucial. Thus, they established a consulate in Jidda in April 1942. Its head, Paul Alling, had come to the decision, by December, that Saudi Arabia should be given Lend-Lease. His recommendation was authorised by Roosevelt on 18 February, two days after he had met Ickes to talk about the opportunity for Government financial interest in the Arabian concession. Indeed, Ickes categorically denied that he had discussed Lend-Lease with the President.[70]
To Anderson, this suggests that the decision was made for strategic rather than economic grounds, and that the effective recommendation originated from the executive rather than companies.[71] In mid-1944 Anglo-American rivalry in Saudi Arabia extended to aviation. The United States wanted to construct facilities in Dhahran to support the Pacific theatre. However, the construction of military projects was also aimed at providing the United States with a post-war advantage. General H.H. Arnold told the Air Transport Command in 1942 that it should “take action to insure [sic] that our military transport rules and facilities are establishing and furthering our post-war position in the air transport field.”[72] The British were well aware of this dimension to the construction of air facilities. In 1938 they had carried half of all civil air traffic, the United States only one-ninth. However, the Lend-Lease agreements gave a near monopoly on the building of air transport planes and bombers to the United States and the Air Transport Command was United States-run. Excluding the Air Transport Command directed traffic, by 1943 British air carriers were responsible for only twelve per cent, while the United States now carried seventy-two per cent of traffic.[73] Truman had made a speech about the Four Freedoms which would govern the post-war world. In November 1944 the United States presented the Fifth Freedom at the International Civil Aviation Conference being held in Chicago. This meant deregulation of aviation on the terms of the United States. Later, some officials hinted that Lend-Lease and post-war aid might not be easily obtained unless Britain agreed to the Fifth Freedom.[74] The United States were able also to offer financial largesse to the Saudis to establish their airport over British protests. By 1947 the United States had replaced the United Kingdom as the major foreign power in the Kingdom.[75]
This change over was also visible in the construction of Tapline. It will be recalled that the domestic companies and the State Department opposed the Petroleum Reserves Corporation scheme for the Arabian pipeline. This meant that the international companies would have to find the money to build it themselves. To achieve this they sought to widen the membership of Aramco. This required some consideration of both the Saudi and United States Governments. In an interview, Dr Al-Saleh revealed that, “His Majesty Ibn Saud insisted that the new partners in Aramco be American companies. He was still suspicious of the intentions of the British Government regarding Saudi Arabia. Thus, before the membership of Aramco was enlarged to include Jersey and Socony-Vacuum in 1947, he specifically demanded assurance on this point, and only then he gave permission for the two new companies to join.”[76]
The United States Government had also wanted to ‘solidify’ the American oil concession by widening its membership. In this the State Department took advantage of the changes agreed during the negotiations for the Anglo-American Oil Agreements — the abrogation of the Red Line Agreement and the restrictive marketing agreement between Gulf and Anglo-Iranian in the Kuwait Oil Company. Moreover, the British companies also wanted to increase Middle Eastern production. The only losers were the French Government and Calouste Gulbenkian whose concern was that increased production in Saudi Arabia and Kuwait would limit the increased production from the Iraq Petroleum Company in which they held shares. Finally, a Group Agreement was signed in November 1948 which opened the way for a new order in Middle East oil.[77] Socony-Vacuum and Jersey could provide the capital and market outlets in Europe, which would permit the further development of the Aramco concession, and Socony-Vacuum in particular had lost production facilities in East Asia.[78]
This new order in the Middle East was not only made up from changes to the equity joint venture in Saudi Arabia, but there were also contractual joint ventures formed by long-term sale of oil agreements. The sale of oil contracts were not conventional arm’s length contracts. They involved long periods, large quantities, unusual pricing and conditions of sale, and restrictive marketing agreements. For instance, the 1947 agreement between Gulf and Shell regarding Kuwaiti oil was designed to last for twenty-two years. Profits would be shared by an intricate formula for calculating the amount of profits realised on the production, transportation, refining, and marketing of the oil sold to Shell. Gulf did not receive a fixed price for the oil but a fifty per cent financial interest in Shell sales in the eastern hemisphere. This system was referred to as netback pricing.[79]
The Anglo-Iranian agreements with Jersey and Socony-Vacuum grew out of the continuing negotiations in which Anglo-Iranian and Jersey were engaged after 1945. An early result was the Heads of Agreement with Jersey, which soon involved Socony-Vacuum as well.[80] These arrangements were soon formalised.[81] The sale involved between one quarter and one third of Anglo-Iranian’s daily production in Iran and Kuwait combined. “The two companies, in fact, acquired such a substantial interest in Anglo-Iranian’s crude-oil production over a twenty-year period, with special terms as to price and other matters, that they became, in effect, junior partners in Anglo-Iranian’s crude-oil-producing enterprises in Iran and Kuwait.”[82]
The selling price was calculated on a cost plus basis. For the Jersey contract and first Socony-Vacuum contract this was the cost of production and delivery plus a fixed money profit per ton. For the second Socony-Vacuum contract it was the cost of production plus one-third of the gross profits per ton. Such pricing terms would require knowledge of each item of cost. There were independent auditors specially retained for this task, and Anglo-Iranian were obliged to provide “any and all information” which Socony-Vacuum or Standard might “reasonably” request. The contracts also specified the target market. For Jersey, this was defined as the “reference area” — it included Europe, north and west Africa. The first Socony-Vacuum contract of September 1947 dealt with the “reference area” plus the countries and islands of the eastern Mediterranean, the second contract of March 1948 dealt with the United States.[83]
The Anglo-Iranian contracts were originally an integral part of the plan for the formation of Middle East Pipelines Ltd. (MEPL). While owned by Anglo-Iranian, Jersey, and Socony-Vacuum, some capacity would be also allotted to Gulf and Shell based on their share in financing Anglo-Iranian’s majority share of 60.9%.[84] When the pipeline was not constructed, Supplemental Agreements were made so that at least ninety-five per cent of oil should be shipped to the agreed destinations. If more than five per cent went to eastern markets, Anglo-Iranian would penalise the offending company.[85] One very important point was the importance of Anglo-Iranian, the pivot of these contracts. At its own discretion it could supply from either Iran or Kuwait, but its oil was going to agreed markets, whether in the Gulf contract with Shell for supplies from the Kuwait Oil Company, or Jersey or Socony-Vacuum contracts. Underlining this is a comment made about Anglo-Iranian director, Sir William Fraser, during the 1948 negotiations with the Iraq Government over MEPL — “everyone in Iraq believed that it was he and he alone who had the final word with the [Iraq Petroleum Company] group.”[86]
Apart from these large-scale arrangements, there were many smaller agreements. In some instances, these were related to pre-war arrangements. For instance, the “cancellation of the reciprocal supply arrangement at present operating between the two companies automatically reinstates the Benzine Agreement of the 24th May 1935, since its suspension was specifically related to the reciprocal supply arrangements by the memorandum signed…on the 1st October 1942.”[87] However, in the changed circumstances new agreements needed to be established and a new Benzine Agreement was reached followed by a Mutual Supply Arrangement.[88] Across a range of issues William Fraser of Anglo-Iranian and George Legh-Jones of Shell held talks between April 1948 and December 1949.[89] Then, there were agreements covering benzine, aviation fuel, lubricants, and bunker fuels as well as the long term supply agreement between Anglo-Iranian and Shell.[90] At the same time, Anglo-Iranian entered into long-term contracts in the western hemisphere.
These corporate manoeuvres also furthered United States domestic policy objectives as Middle East oil enjoyed a competitive advantage in price over domestic and Latin American production. Compared to their average cost of $1.28 per barrel, Middle East oil only cost about 90c. per barrel. The combination of American companies could, therefore, help develop an American overseas concession but also when necessary regulate production in favour of fields in the Americas. Thus, the Justice, War and Interior Departments approved the merger of December 1946. Socal, Texaco, and Jersey each took a thirty per cent share, while Socony-Vacuum took a ten per cent share in the consortium.[91]
The Socal and Texas directors in the United States took this more global view than the field operatives in Saudi Arabia. A global pricing and market share war with Jersey and Socony-Vacuum relying on oil from their bases in the Americas would reduce everyone’s profits, and given the lack of market outlets, it was not a foregone conclusion that Socal-Texas, the Caltex interests, would win. The raids they had engineered during the trade war had not proved decisive, which was discussed in chapter five. In this context, the negotiations around the Anglo-American Oil Agreements were a series of peace talks and the new corporate balance of power in the Middle East a new corporate order. Here was an opportunity to win market share, and thus secure a larger share of the profits in the European market at the cost of reducing their shareholding from fifty per cent to thirty per cent. All of these benefits depended on the transport of oil from Saudi Arabia to the eastern Mediterranean for supply to Western Europe. Jersey and Socony-Vacuum immediately agreed to finance almost half of Tapline’s costs though the formal widening of Aramco did not take place till three years later.[92] A Tapline Company was created to finance, build and run the pipeline.[93] Later, as the United States continued their support for the Zionist homeland the investment of the companies came under threat.[94]
The easiest way to reassure the King was to re-route the pipeline away from Palestine. Thus, negotiations started with Lebanon and Syria. The company had not decided which terminal to prefer.[95] The Maronite Christian dominated state suggested making the terminus near Beirut, which was fast becoming the financial centre of the Middle East. Negotiations with Quwatly of Syria were far more protracted. It was hoped that Quwatly might be replaced in the July 1947 elections. To this end, Miles Copeland, the Central Intelligence Agency (CIA) station chief in Damascus during the late 1940s, later admitted to “promoting pro-American candidates” by a “discreet nudge here and there.”[96] After Truman’s recognition of Israel on 15 May 1948, it appeared even harder to get Syrian agreement. In January 1949 Aramco started spending money to get support in the parliament and press, while the CIA were considering a coup headed by Colonel Husni Zaim, Syrian chief of staff. On 30 March, he seized control, imprisoned thousands of ‘Communists’, and started peace talks with Israel. He signed an agreement with the Tapline Company. The State Department promised the Tapline Company that even if Syrian radicals challenged the legality of Zaim’s action, diplomatic support to the company would be provided. When Zaim was overthrown and executed in August, the State Department kept its promise.[97] Covert action in support of oil interests had become an established part of American strategy in the Middle East.
In March 1950, George McGhee, Assistant Secretary of State for Near Eastern, South Asian, and African Affairs inspected the pipeline which had secured United States foreign policy goals, including halting the depletion of reserves in the Americas while providing cheap fuel for West European recovery, and revenues to pro-Western Arab states.[98] Weaving their separate agendas together, United States diplomats and oilmen had secured vital strategic interests. Shared interests rather than a hijacking of the state explain the close relationship between state and firms during this period. It challenges the view that, “The documentation shows how the petroleum industry has harnessed public law, Governmental machinery, and opinion to ends that directly challenge public rule…In the name of national interest it has received privileges beyond those accorded to other industries…In the name of freedom, the oil industry has received substantial immunity from public accountability.”[99]
However, it is important to realise just how wide-ranging and significant this cooperation was. “The outstanding characteristic of the world’s petroleum industry is the dominant position of seven international companies.”[100] In 1949 they held sixty-five per cent of the world’s proven oil resources. If we exclude the nationalised industries of Mexico and the Soviet Union, and the relatively competitive market of the United States, the figure rises to ninety-two per cent. The majors also controlled seventy-seven per cent of the world crude refining and eighty-five per cent of the world cracking capacity, outside of the United States and Soviet Union. Their control over the cracking process involved the creation of higher-valued products, including high octane fuels and chemical bases for synthetic rubber and many plastics. Thus, their control over cracking affected a broader segment of the world economy than crude-refining capacity.[101]
The area of pipelines sheds light on a major feature of oil company behaviour, the “maze of joint ownership.”[102] Jersey, Texas, Casoc, and Socony-Vacuum owned Tapline. In the areas of production and marketing Texas and Socal owned the Bahrain Petroleum Company, and the Iraq Petroleum Company comprised Jersey, Socony-Vacuum, Shell and Anglo-Iranian, with minority interests for the French national oil company — the Compagnie Francaise des Petroles — and Calouste Gulbenkian. Whereas the majors were pleased to ignore the Red Line agreement, the French company and Gulbenkian were less pleased and needed to be placated.[103] The Kuwait Oil Company comprised Anglo-Iranian and Gulf, while Socal and Texas made up the Caltex group which controlled the Bahrain Petroleum Company and Aramco, until Aramco ownership was widened to include Jersey and Socony-Vacuum as well. These global dynamics of alliance-building helped rebuild the corporate balance of power. Yet they also fed into Cold War strategic concerns regarding Saudi Arabia. For another example of Government intervention in the Aramco concession independently supporting the dynamics of corporate behaviour took place in 1950.
Ibn Saud was demanding greater revenues and amid the tensions of the Korean War, in November 1950, George McGhee met with representatives of Aramco’s parents. Recalling the Mexican expropriations of 1938 McGhee feared that a tougher negotiating stance would only encourage the nationalists. Furthermore, expropriation in these circumstances might further consolidate pro-communist forces in the region. The Middle East had become even more important in 1950 than it had been at the time of the Azerbaijan crisis of 1946. It is interesting to look closely at the Aramco agreement of 1950 for many reasons. First, it established the fifty-fifty profit split between the host Government and companies in the Middle East, but it also demonstrates the role of the United States Government on the one hand and the activism of local political forces in the Kingdom of Saudi Arabia on the other. For it established “a concession agreement — or an economic development contract as it might well be called.”[104] The ‘economic development contract’ was also a form of contractual joint venture, a partnership between the Government and industry, and it led to an increase in revenue as the fifty-fifty share of net profits gave a three to four-fold increase.[105]
In his book, The Control of Oil, Blair argued that the United States Government used the foreign tax credit provision in the tax law which allowed Aramco to offset its increased liability to the Kingdom of Saudi Arabia against its net liability to United States corporate taxes, as a means of subsidising the Kingdom.[106] However, Irvine H. Anderson, who is a major authority on the early history of Aramco, reveals that there is no documentary evidence for the exchange between the National Security Council and Treasury with the former leaning on the latter.[107] Examining the Saudi side of the episode also supports such an interpretation. While there is no access to Aramco archives I was able to interview a leading expert, Dr Al-Saleh. His testimony was revealing insofar as he attributed the origins of the Aramco profit-split to the arrival of new American companies in the Kingdom. (Incidentally, this also demonstrates the usefulness of taking a longer timeframe for analysis as it brings out continuities that may be overlooked in studies of discrete events). He recalled that:
The arrival of the Independents in the Middle East transformed the negotiating strength of the host states. The deal with Getty in the Neutral Zone in 1948–49 provided a royalty of 55c. per barrel, whereas the old concessions in Iran and Iraq only provided for royalties of 16 ½ c.[108]
Across the desert it was difficult to establish definite boundaries and by the Ojair agreement of 1924 a neutral zone was established in which tribes retained grazing and watering rights and along which no forts would be built. In June 1948 Sheikh Ahmad of Kuwait granted concession to Aminoil (a consortium of small American companies) and February 1949 J. Paul Getty’s Pacific Western Company successfully bid for one from Saudi Arabia.[109] The growing awareness of the potential negotiating power of the host states coincided with a growing demand for finance. He continues, “Just as a financial shortage had been the catalyst for the original concession so also the fifty-fifty deal was born out of the decline in royalties during 1949.” He notes that, “We took a very pro-active approach to increasing the rent from the concession. We did not wish to hurt the company through increasing the royalty payments. By retaining a tax consultant in the United States, it was discovered that a device existed called the foreign tax credit. Through imposing taxes on Aramco we would increase our rent from the concession. At the same time, this would not affect the company as they could deduct the tax paid in Saudi Arabia from their taxes to the United States Government.”[110] If royalties had been increased, this would affect the companies but through the tax credit, Saudi Arabia could increase her revenues without depriving the companies of any income. American taxpayers were effectively subsidising the increase in Saudi Arabian revenues.
Dr Al-Saleh was both compelling and insistent when discussing the origins of the agreement. It appears that the Government had been informed of earlier use of the formula and pressed for it independently. This suggests that the fifty-fifty profit split agreement did not work itself downward from the United States Government to the Aramco consortium to the Saudi Government. Such a movement would confirm classical realist arguments about the primacy of state over firm (United States over Aramco), but also great power over small power (United States over Saudi Arabia). Quite the opposite. The local power took the initiative against a company, which was then accepted by its parent Government. While state enjoyed primacy over firm, the smaller power had its policy confirmed by the greater.
Plans to bring antitrust cases against the majors foundered as the State Department developed a mutuality of interests with them. Earlier the British Government had reacted strongly against the extra-territorial assertion of American antitrust legislation.[111] They advised the Anglo-Iranian not to pass over any documents which did not relate to the United States or which might prejudice interests of the Her Majesty’s Government.[112] Now, however, the State Department rather than the Justice Department was considered more important in American policy. “Truman and Eisenhower believed it was necessary to rely on the major firms and understandably so considering that these firms were the only ones in the 1950s with established facilities for refining and distributing Mideast oil.”[113] Domestic production, and imports from the Caribbean and South America met United States demand, but western European oil was supplied from Middle East which also supplied Africa and, together with the Netherlands East Indies, also supplied Asia.[114] Solberg claims that by 1950, “cooperation between Government and big oil had grown so close that the industry operated in every sense as an insider.”[115] Oil was crucial to post-war United States strategy. Maintaining access to economically vital overseas areas provided the basis for a strategic force with overseas strike capability.[116] For instance, the Middle East was the most defensible location for a strategic air offensive.[117]
CONCLUSION
The main historical point of this essay has been to draw attention to the role of British Government and capital in creating the destabilising influences in the Persian Gulf which provoked the local states to seek United States assistance which was freely given as part of the containment strategy against Soviet communism. The key theoretical insight is the role of standard operating procedures, which frustrates attempts to portray Government policy as deliberate and ‘rational.’ The relationship between history and theory is that the local agents of the British Government in Iran were accustomed to dominating the local political and economic system of Iran. When the British companies responded in ‘balance of power’ manoeuvres to the uncertainties of the Anglo-American oil negotiations the local British agents followed standard operating procedures to support them. However, this only weakened the position of the British Government and companies, in the longer term. This chapter thus stands aside from the other chapters insofar as on this occasion support of the companies did not lead to greater resources in the oil issue area.
Examination of corporate agendas and dynamics highlight the rivalry and cooperation of companies as well as states contriving a balance of power in Middle East oil. The corporate balance of power has two components, one internal based on increasing resources, and the other external based on alliance building to compensate for internal weaknesses and generate new strengths. After the failure of the companies to increase their individual strength through new concessions in northern Iran, the main mechanism for alliance building was the joint venture. Long-term sales of oil agreements constituted contractual joint ventures in marketing and sales, while joint ownership of pipelines and concessions tied companies together in equity joint ventures. Two features of this balance stand out — its careful and deliberate construction, and arising from this, its inclusive quality weaving together the majors into one web, rather than opposed camps.
Another part of the originality lies in setting the Anglo-American oil negotiations and the Iranian crisis and Aramco settlement side-by-side. This exposes interplay and continuity between the events. British fear about the course of the oil talks of 1944 led them to prematurely support Shell in seeking a concession in Azerbaijan. This triggered the concession race, which precipitated the political crisis of 1946. It was British capital rather than Soviet expansionism or American capital, which lay behind the Azerbaijan crisis. Contemporaneously, the success of the oil talks opened the way for a new balance of power in Middle East oil. As American companies began to expand Middle East production the United States Government supported them diplomatically. In Azerbaijan this active support soon came into conflict with United States aims to support Iranian sovereignty. In Saudi Arabia the two interests dovetailed.
The local state was significant. Both Iran and Saudi Arabia welcomed the United States Government and business as a way of reducing British influence, which supports the idea that the United States was frequently invited by local powers.[118] However, while United States anti-colonial rhetoric and financial assistance helped to partially displace British paramountcy in Iran and Saudi Arabia, experiences in Syria over the transit rights of the Tapline Company demonstrated clearly that the end of British Empire did not mean independence for the local powers. As the Cold War came to the Middle East the pro-western, indeed pro-American, alignment of the local state became an important objective.
United States antitrust laws prevented transparent systems of joint ownership, but through pipelines, technical processing and licensing companies, tight patterns of control did emerge. Texas and seven domestic companies owned the Great Lakes Pipe Line. The Shell Oil Company, a Shell subsidiary, Jersey, and four domestic companies owned the Bayan Pipe Line system. Socony-Vacuum, Texas, and Standard of Indiana owned the Wyco Pipe Line Company. Jersey and Socal dominated in Canada. They participated in joint exploration. The close association of policy-making officials played an important role for “with decision-making thus concentrated in the hands of a small number of persons, a common policy may be easily enforced.” (p.29)
Apart from their powerful position in world tanker fleets which was discussed the majors also owned the major pipelines. In the Middle East these were the Iraq Petroleum Company pipelines from Kirkuk to two destination points at Haifa (621 miles) or Tripoli (532 miles), and the Anglo-Iranian network in Iran. There was also the a 34 mile jointly owned pipeline between the Bahrain Petroleum Company (BPC) and Arabian American Oil Company (ARAMCO) carrying Saudi crude to the island of Bahrain. As Saudi production increased the Trans-Arabian Pipeline Company (Tapline) built a 753 mile pipeline which carried Saudi crude to the Mediterranean.
The European market was dominated by three groups: Caltex; the Companhia Africana de Petroles comprising Anglo-Iranian, Shell, Jersey, and Socony-Vacuum; and United Petroleum Securities Corporation, owned by Gulf and New Jersey. In Latin America, there were two groups. On one side Socony-Vacuum, Socal, Texas; on the other Jersey, Gulf, and Shell. In the Far East there were four main groups: the Anglo-Iranian and Shell cluster of joint ventures; Caltex; the Jersey and Socony-Vacuum subsidiary, the Standard-Vacuum Company; and N.V. Nederlandsche Nieuw Guinee Petroleum Maatschappij comprising Jersey, Socony-Vacuum, Texas, Socal, and Shell.
This claim is effectively a summary of the important hearings conducted by Senator Frank Church’s subcommittee of the Senate Foreign Relations Committee, which investigated the influence of multinational corporations on United States foreign policy. These hearings took place in 1974 and also provided the basic impetus and material for Anthony Sampson’s book, ‘The Seven Sisters’.[119]
If we return to the original sources we find the following very significant exchange between Senator Church and Ambassador McGhee:
Senator Church: Upon the recommendation of the National Security Council, the Treasury made the decision to permit Aramco to treat royalties paid to Saudi Arabia as though they were taxes paid to the Arabian Government…The effect of the decision was to transfer…[funds]…out of the US Treasury and into the Arabian Treasury…to give Arabia more money…Isn’t that correct?
Ambassador McGhee: Yes, that is one way of looking at it.[120]
Elsewhere, Senator Church charged the treatment of Aramco royalty payments as double taxation as an “ingenious way” to subsidize Saudi Arabia “without ever needing [an] appropriation or authorization from the Congress.”[121]
[1]Cited in Martin Wight, Systems of States (Leicester: Leicester University Press, 1991), 166.
[2]Hedley Bull, The Anarchical Society: A Study of Order in World Politics (London: Macmillan, 1977), 105.
[3]Martin Wight, Systems of States, 167. Also, H. Bull, Anarchical Society, 106.
[4]John Lewis Gaddis, “The Emerging Post-Revisionist Synthesis on the Origins of the Cold War,” Diplomatic History 7 (1983): 172.
[5]Ibid., 172–181.
[6]Lloyd C. Gardner, Economic Aspects of New Deal Diplomacy (Madison, 1964), 229; L. P. Elwell-Sutton, Persian Oil: A Study in Power Politics (London: Laurence and Wishart, 1975), 1–42.
[7]BP 43853, Basil Jackson, “Summary of meeting at Britannic House on 18 June 1945,” 25 June 1945.
[8]Richard Cottam, “The United States, Iran and the Cold War,” Iranian Studies 3 (Winter 1970): 4–5; G.R. Hess, “The Iranian Crisis of 1945–1946 and the Cold War,” Political Science Quarterly 89.1 (March 1974): 119, 146; Richard Pfau, “Containment in Iran, 1946: The Shift to an Active Policy,” Diplomatic History 1 (Fall 1977): 359, 372; Daniel Yergin, Shattered Peace: The Origins of the Cold War, Rev. ed. (New York: Penguin, 1977), 179; Bruce Kuniholm, The Origins of the Cold War in the Near East: Great Power Conflict and Diplomacy in Iran, Turkey, and Greece (Princeton: Princeton University Press, 1980), 304.
[9]Louise L’Estrange Fawcett, Iran and the Cold War: The Azerbaijan crisis of 1946, Cambridge Middle East Library, no.26 (Cambridge: Cambridge University Press) 1992.
[10]Stephen L. McFarland, “A Peripheral View of the Origins of the Cold War: The Crises in Iran, 1941–47,” Diplomatic History 4 (1980): 333–51.
[11]PRO FO 371, 27206, FO to Jeddah, 22 August 1941; PRO FO 371, 35069, “Middle East Security Summary,” 13 January 1943.
[12]PRO FO 371, 27184, Tehran to FO, 15 August 1941; Leopold Stennett Amery, The Empire at Bay. The Leo Amery Diaries, 1929–1945 ed. John Barnes and David Nicolson (London: Hutchinson, 1988), 711; Frank Brenchley, Britain and the Middle East: An Economic History, 1945–1987 (London: British Academic Press, imprint of I.B. Tauris, 1989), 54.
[13]Homa Katouzian, Political Economy of Modern Iran (London: Macmillan, 1981), 143.
[14]PRO FO 371, 31385, FO minute, 10 April 1942.
[15]PRO FO 371, 27185, Tehran to FO, 26 September 1942.
[16]Homa Katouzian, Musaddiq and the Struggle for Power in Iran (London: I.B. Tauris, 1990), 56–61.
[17]PRO FO 371, 27169, FO to Tehran, 6 December 1941.
[18]PRO FO 371, 27233, Tehran to FO, 1 October 1941.
[19]PRO FO 371, 31386, War Office to FO, 4 November 1942; ibid., FO to War Office, 26 November 1942.
[20]PRO FO 371, 27233, Memorandum to the Soviet ambassador in London, 27 September 1941.
[21]Treaty of Alliance between the United Kingdom and the Soviet Union and Iran, HMSO, 1942.
[22]PRO FO 371, 31413, FO minute, 22 April 1942; PRO FO 371, 31388, FO minute, 17 January 1943. 59.
[23]BP 79663, Folder 18, Discussion in Petroleum Division, 3 January 1945, Official Note, 8 January 1945.
[24]PRO FO 371, 27233, Memorandum to the Soviet ambassador, 2September 1941; ibid., India Office to FO, 27 September 1941.
[25]Robert A.Pollard, Economic Security and the Origins of the Cold War, (New York: Columbia University Press, 1985), 199.
[26]Geoffrey Warner, “From ally to enemy: Britain’s relations with the Soviet Union, 1941–1948,” in Diplomacy and World Power: Studies in British Foreign Policy, 1890–1950 ed. Michael Dockrill and Brian McKercher (Cambridge: Cambridge University Press, 1996), 221- 243.
[27]PRO FO 371, 31388, Kiubyschew to Foreign Office, 18 January 1942.
[28]Charles Jones, E.H. Carr and International Relations: A Duty to Lie (Cambridge: Cambridge University Press, 1998).
[29]PRO FO 371, 40241 for details of the British application.
[30]BP 43853, William Fraser to Beaverbrook, 18 October 1944.
[31]PRO FO 371, 40188, Tehran to FO, 10 November 1944; PRO FO 371, 43430, Eastern Department minutes, 20 January 1946.
[32]PRO FO 371, 40241, Ministry of Fuel and Power to FO, 10 October 1944; ibid., 18 October 1944.
[33]PRO FO 371, 40241, FO minute, 11 October 1944.
[34]PRO FO 371, 40243, Ministry of Fuel and Power to Cadogan, 15 December 1944; ibid., Tehran to FO, 29 December 1944; PRO FO 371, 40241, FO minute, 11 October 1944.
[35]PRO FO 371, 45433, Tehran to FO, 20 July 1945.
[36]PRO FO 371, 45434, Tehran to FO, 21 August 1945.
[37]PRO FO 371, 40243, Tehran to FO, 4 December 1944; L.P. Elwell Sutton, Persian Oil, 111–112.
[38]See further Bruce Kuniholm, The Origins of the Cold War in the Near East, 178–89.
[39]PRO FO 371, 52728, FO to Tehran, 1 March 1946; ibid., Ministry of Fuel and Power to FO, 3 May 1946.
[40]PRO FO 371, 52667, Moscow to FO, 13 March 1946.
[41]PRO FO 371, 52728, Draft report on southeast Persian oil (undated, circa April 1946).
[42]PRO FO 371, 45434, FO minute, 10 July 1945.
[43]PRO FO 371, 45478, Tabriz, “Six monthly report”, 23 August 1945.
[44]PRO FO 371, 40180, Tehran to FO, 26 January 1944; ibid., FO minute, 28 March 1944. See also PRO FO 371, 56278, “The devious way of Mr. Qavam,” 24 April 1946, report by Michael Foot, Member of Parliament, following a visit to Iran.
[45]PRO FO 371, 52667, “Russia and north Persia,” 15 March 1946.
[46]Ervand Abrahamian, “Factionalism in Iran: Political Groups in the 14th Parliament (1944–1946),” Middle Eastern Studies 14 (January 1978): 32–35; L.P. Elwell-Sutton, “Political Parties in Iran, 1941–1948,” Middle East Journal 3.1 (January 1949): 46.
[47]PRO FO 371, 52677, Tehran to FO, 9 June 1946.
[48]PRO FO 371, 52677, Tehran to FO, 9 June 1946, Dominions Office circular, 15 June 1946.
[49]BP 43850, Report of Meeting Sir W.Fraser and Sir Maurice Peterson (FO), 8, 3, 1943
[50]PRO FO 371, 52735, FO minute, 52735, 20 July 1946; William Roger Louis, The British Empire in the Middle East, 1945–1951: Arab Nationalism, the United States, and Postwar Imperialism (Oxford: Clarendon Press, 1984), 69–70.
[51]Melvyn P. Leffler, “National Security and U.S. Foreign Policy,” in Origins of the Cold War: An International History, ed. Melvyn P. Leffler and David S. Painter (London: Routledge, 1994), 15–52.
[52]James L. Gormly, From Potsdam to the Cold War: Big Three Diplomacy, 1945–1947, (Wilmington, DE: Scholarly Resources) 1990.
[53]Robert C. Tucker, Stalin in Power: The Revolution from Above, 1928–1941 (New York: Norton, 1990) 17–23, 60–64, 276–282, 482–486.
[54]Richard W. Cottam, “U.S. and Soviet Responses to Islamic Political Militancy” in Nikki R. Keddie and Mark J. Gasiorowski (eds.) Neither East nor West: Iran, the Soviet Union, and the United States (New Haven: Yale University Press, 1990), 265–288.
[55]PRO FO 371, 52685, Tehran to FO, 29 October 1946.
[56]See PRO FO 371, 61974, “Summary of the Soviet-Persian oil agreement”, 13 October 1947.
[57]Daniel Yergin, Shattered Peace, 179.
[58]Louise L’Estrange Fawcett, “Invitation to the Cold War: British policy in Iran, 1941–47,” in Britain and the First Cold War ed. Ann Deighton (London: Macmillan, 1990), 199.
[59]Gabriel Kolko, The Politics of War: The War and United States Foreign Policy, 1943–1945 (New York: Random House, 1968), Introduction.
[60]Michael J. Hogan, “Corporatism: A Positive Appraisal,” Diplomatic History 10 (Fall 1986): 357–372.
[61]Robert A. Pollard, Economic Security and the Origins of the Cold War.
[62]John W.Young, Winston Churchill’s Last Campaign. Britain and the Cold War, 1951–1955 (Clarendon Press: Oxford, 1996).
[63]Robert Frazier, “Did Britain Start the Cold war? Bevin and the Truman Doctrine,” Historical Journal 27 (1984): 715–27. James Petras and Morris Morley, Empire or Republic? American Global Power and Domestic Decay (New York: Routledge, 1995).
[64]BP 35997, “Oil: The Blue Chip Game,” Time, 24 March 1947.
[65]BP 35997, News review, 10 April 1947.
[66]Philip J. Baram, The Department of State in the Middle East, 1919–1945 (Philadelphia: University of Pennslyvia, 1978), 223–39; John A. De Novo, “The Culbertson Economic Mission and Anglo-American Tension in the Middle East, 1944–1945,” Journal of American History 63, (March 1977): 913–916, 922, 930–932; Barry Rubin, “Anglo-American Relations in Saudi Arabia, 1941–1945,” Journal of Contemporary History 14: 253–267.
[67]Benjamin Shwadran, The Middle East, Oil and the Great Powers (New York, Praeger, 1955), 309. Financial reasons were also decisive in obtaining the concession. Leslie McLoughlin, Ibn Saud: Founder of a Kingdom (Basingstoke: Macmillan, 1993), 126–128.
[68]Gerald D. Nash, United States Oil Policy, 1890–1964: Business and Government in Twentieth Century America (Pittsburg: University of Pittsburgh Press, 1968), 171; George W. Stocking, Middle East Oil: A Study in Political and Economic Controversy (London, Penguin, 1971), 96–98; Anthony Sampson, The Seven Sisters: The Great Oil Companies and the World They Made, 3d ed. (London: Hodder and Stoughton, 1993), 75; Mira Wilkins, The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970 (Cambridge, MA: Harvard University Press, 1974), 276–277; Gabriel Kolko, The Politics of War: The War and United States Foreign Policy, 1943–1945 (New York: Random House, 1968), 295–296.
[69]Aaron David Miller, Search for Security: Saudi Arabian Oil and American Foreign Policy, 1939–1949 (Chapel Hill: University of North Carolina Press, 1980), 71.
[70]Irvine H. Anderson, “Lend-Lease For Saudi Arabia: A Comment on Alternative Conceptualisations,” Diplomatic History 3 (1979): 417–419.
[71]Ibid., 422.
[72]John A. Miller, “Air Diplomacy: The Chicago Civil Aviation Conference of 1944 in Anglo-American Wartime Relations and Postwar Planning” Ph.D. diss., Yale University, 1971), 85.
[73]James L. Gormly, “Keeping the Door Open in Saudi Arabia: The United States and the Dhahran Airfield, 1945–1946,” Diplomatic History 4.2 (Spring 1980): 189–205; John A. Miller, “Air Diplomacy,” 4–5, fn. 19.
[74]John A. Miller, “Air Diplomacy,” 5–10, 110–30.
[75]James L. Gormly, “Keeping the Door Open in Saudi Arabia: The United States and the Dhahran Airfield, 1945–1946,” Diplomatic History 4.2 (Spring 1980): 197–203.
[76]Dr Muhammed Al-Saleh, interview by author, 20 July 1998.
[77]BP 20366. The Aramco Release. Iraq Petroleum Company Ltd 1948 Documents Heads of Agreement and Supplemental Documents. 45–7, 3 November 1948.
[78]Anthony Sampson, Rev. ed., The Seven Sisters, 139–142.
[79]Daniel Yergin, The Prize: The Epic Quest for Oil, Money and Power, London: Simon and Schuster, 1991), 419–420.
[80]BP 66823, Heads of Agreement between Anglo-Iranian and Jersey, and side letter adding Socony-Vacuum, 20 December 1946.
[81]BP 26936, Supply Agreement between Anglo-Iranian and Jersey, 25 September 1947; BP 62375, First Supply Agreement between Anglo-Iranian and Socony-Vacuum, 25 September 1947; BP 64736, Second Supply Agreement between Anglo-Iranian and Socony-Vacuum, 1 March 1948.
[82]Congress, Senate, Staff Report of the Federal Trade Commission on the International Petroleum Cartel, Subcommittee on Small Business of the United States Senate, 22 August 1952, 198. [Hereinafter FTC, Report] 146.
[83]BP 20366, Folder 12, Heads of Agreement between Anglo-Iranian, Socony-Vacuum Overseas Supply Company and Socony Vacuum, 1 May 1952, contains a discussion of the previous agreements in the late 1940s. Folder 3 contains a copy of the agreement between the Anglo-Persian Oil Company and Gulf Oil Company, 14 December 1933, which gave rise to the restrictive marketing clauses.
[84]BP 59377, Memorandum of Articles and Association of Middle East Pipeline Ltd, BP 64734, Socony-Vacuum, Middle East Pipelines Ltd, and Jersey Middle East Pipeline Agreement, 23 March 1948. BP 64735, Interim Supply Agreement with Socony, 24 March 1948.
[85]BP 54006, Supplemental Agreement between Anglo-Iranian and Jersey, 5 April 1949; BP 54006, Supplemental Agreement between Anglo-Iranian and Socony I, 5 April 1949; BP 64736, Supplemental Agreement between Anglo-Iranian and Socony II, 5 April 1949; BP 59376, Supplemental Pipeline Agreement, 5 April 1949.
[86]FTC, Report, 158.
[87]BP 93975, J.P. Berkin to H.E. Snow, 27 February 1948.
[88]BP 64661. Memorandum, “Summary of Supply Arrangements with Shell, 1933–1949,” 19 January 1949. Supplies were regulated by the Benzine Agreement of 1935 between January 1933 to December 1941, by the Reciprocal Supply Arrangement of 1942 till April 1946 and thereafter by the Benzine Agreement of March 1946 and Mutual Supply Arrangement between May 1946 and February 1948.
[89]BP 66845, Negotiations with Shell.
[90]BP 95158, T.G. McLintock to A.R. Magwilliam, 3 February 1950. BP 93081, Agreement between Anglo-Iranian and Shell, 31 January 1950, BP 113811 contains the text of the Long Term Agreement of 31 January 1950, the Aviation Agreement, and the Bunker Memorandum.
[91]Aaron D. Miller, Search for Security, 159.
[92]Henrietta Larson, Evelyn H. Knowlton, and Charles Popple, History of Standard Oil Company (New Jersey), vol.3, New Horizons, 1927–1950 (New York: Harper and Row, 1971), 738.
[93]BP 13222, Convention Regulating the Transit of Mineral Oils by Trans-Arabian Pipeline Company through the territory of Saudi Arabia, 10 November 1947.
[94]On King Abdul-Aziz and the threat to United States investment, see William Roger Louis, The British Empire in the Middle East, 193–199.
[95]BP 79663, Folder 27, L.F.L. Pyman to N.A. Gass, 18 February 1948.
[96]Miles Copeland, The Game of Nations: The Amorality of Power Politics (London: Weidenfeld and Nicolson, 1969), 45.
[97]Douglas Little, “Pipeline Politics: America, TAPLINE, and the Arabs,” Business History Review 64 (Summer 1990): 275–280.
[98]George C. McGhee, Envoy to the Middle East: Adventures in Diplomacy (New York: Harper and Row, 1983), 199–201.
[99]Robert Engler, The Brotherhood of Oil: Energy Policy and the Public Interest (Chicago: University of Chicago Press, 1977), 9.
[100]FTC, Report, 22.
[101]FTC, Report, 23.
[102]FTC, Report, 29.
[103]Daniel Yergin, The Prize, 413–419.
[104]Henry Catten, The Evolution of Oil Concessions in the Middle East and North Africa, Parker School of Foreign and Comparative Law (New York: Oceana Publications, 1967. vii, Foreword, Fred Davies, former chairman of Aramco.
[105]Ibid., 10.
[106]John M. Blair, The Control of Oil (London: Macmillan, 1976), 196–199.
[107]Irvine H. Anderson, Aramco, the United States and Saudi Arabia: A Study of the Dynamics of Foreign Oil Policy, 1933–1950 (Princeton: Princeton University Press, 1981). He continued research in this area and his conclusions differ in more recent writing. Irvine H. Anderson, “The American Oil Industry and the Fifty-Fifty Agreement,” in Musaddiq, Iranian Nationalism and Oil, ed. James A Bill and William Roger Louis (London: I.B.Tauris, 1988), 156.
[108]Dr Muhammed Al-Saleh, interview by author, 20 July 1998. BP 65668. Copy of an agreement dated 1 October 1948 between the Government of Saudi Arabia and Aramco in respect of offshore rights and the relinquishment by Aramco of their rights in the Kuwait Saudi-Arab Neutral Zone.
[109]Christopher Tudendhat and Adrian Hamilton, Oil: The Biggest Business (London: Eyre and Spottiswoode, 1968), 133.
[110]Dr Muhammed Al-Saleh, interview by author, 20 July 1998.
[111]BP 35501, “The Business World: Comity and the Oil Companies,” The Economist, November 22, 1952, 536.
[112]BP 71283, Geoffrey Lloyd to Anglo-Iranian, 2 October 1952.
[113]B.I. Kaufman, The Oil Cartel Case: A Documentary Study of Antitrust Activity in the Cold War Era (Westport, CT: Greenwood Press, 1978), 12.
[114]BP 35983, Elmer Patman, Report on Third World Petroleum Congress.
[115]Carl E. Solberg, Oil Power: The Rise and Imminent Fall of an American Empire (New York, 1976), 116.
[116]Ian O. Lesser, Oil, the Persian Gulf, and Grand Strategy: Contemporary Issues in Historical Perspective (Santa Monica, CA, 1991).
[117]Peter L. Hahn, The United States, Great Britain, and Egypt, 1945–1956: Strategy and Diplomacy in the Early Cold War (Chapel Hill, CA: University of California Press, 1991).
[118]Bruce Kuniholm, The Origins of the Cold War in the Near East; Geir Lundestad, “Empire by Invitation? The United States and Western Europe, 1945–1952,” Journal of Peace Research 23 (August 1986): 263–276; John Lewis Gaddis, “The Emerging Post-Revisionist Synthesis on the Origins of the Cold War,” Diplomatic History 7.3 (Summer 1983): 171–190.
[119]Anthony Sampson, The Seven Sisters,
[120]Blair, The Control of Oil, 198 quoting from US Congress, Multinational Corporations, Hearings, part 4, 88–89.
[121]US Congress, Multinational Corporations, Hearings, part 4, 89.