Oil Bites Back
A generation had passed since the oil companies brokered their first Middle East oil deals. World oil consumption had exploded during the immediate post-war years and the Middle East was the source of much of that growth. None of this was lost on a new set of leaders in the Middle East who resented the carve-up of their region by the colonial powers and the cut-price concessions the major oil companies had negotiated. In a world dependent on hydrocarbons, the Middle East could and should get a greater share of the profits, the producing nations reasoned. The time had come to challenge the majors.
The catalyst for this challenge came not from some cavalier Lawrence of Arabia figure or even from Soviet meddling. It came from Venezuela where, in 1948, a populist government had passed a new petroleum law. It ensured Venezuela would now share all “rents” – the market share profits plus extra fees that took into account various costs of production – in a 50/50 split with the major oil companies. The companies, realizing that the US government wasn’t going to back them up and fearful that they might lose everything if Venezuela nationalized its oil business, agreed to the new deal.
Word of the Venezuelan deal spread and by 1949, Saudi Arabia was demanding the same terms. Aramco might have rebuffed the Saudi government had it not been for a new group of independent oil men, epitomized by Oklahoma millionaire J Paul Getty who offered far higher terms for Saudi concessions. If this American was prepared to pay so much, then obviously the majors were taking the Saudi government for a ride. Soon, Kuwait and Iraq had also cut their own 50/50 deals.
Iran also tried to get BP, the sole operator in the Anglo Iranian Petroleum Company, to agree to such a deal, but its chairman, William Frasier rejected it outright. It would prove disastrous for BP. In 1951, the new prime minister of Iran, Mohammed Mossadegh called for the nationalization of Iranian oil and the seizure of BP’s oil fields. BP retaliated by organizing a boycott of Iranian oil effectively depriving Iran of its primary source of income.
Mossadegh’s revolt was a direct affront to Western interests in the Middle East. If BP could be thrown out of Iran, what would that mean for the other majors in the region? The US and Britain may have been concerned about the Soviet threat in the region but they were more worried about their companies losing their sweetheart deals. So, in a move that continues to affect Iranian attitudes to the West today, the CIA, at Britain’s prompting, staged a coup and forced Mossadegh out of office. In his place they put the young Shah Reza Pahlevi on the Peacock throne. The West, it was clear, would let no one interfere with its control of Middle East oil.
Mossadegh’s message of resistance was carried on by Egyptian dictator Colonel Gamal Abdel Nasser. He was not just a nationalist and anti-colonialist, he also sought to unite the Arab world in a campaign for the dissolution of Israel. Nasser was perfectly candid about the role oil played in his revolutionary thinking, calling it “the vital nerve of civilization” and vowing to use oil as a weapon to overcome imperialism.
The only problem for Nasser was that Egypt didn’t have any oil. But it did have the Suez canal which carried the majority of Middle East oil shipments to Europe even though stewardship of the canal was still controlled by Britain and France. In just a few months in 1955 Nasser successfully scared the hell out of US and Western Europe by turning to the Soviet bloc in search of weapons and raising the prospect that the canal might fall under Communist control.
Britain and France, fearing an economic catastrophe and also furious at the latest demonstration that their colonial power had crumbled, took an aggressive step – they decided to invade the Suez to protect the canal. Israel, already smarting for a fight to topple Nasser, volunteered to come along for the ride. The only ally they neglected to tell was the US who could only look aghast, not so much at the attempt to overthrow Nasser, but at the damage caused to Arab diplomacy by Western paratroops fighting together with Israeli troops.
The Suez drop was a huge embarrassment for the Europeans. Arab oil nations promptly banned all oil shipments to Britain and France and the US also declined to bail them out. The Europeans immediately retreated and with them disappeared their influence in Middle East affairs.
Three years later, Nasser again unsettled the West when he helped engineer a military coup against the British backed Hashemite royal family in Iraq. The new Arabist regime put pressure on the major oil companies and in 1960 it revoked 99.5 percent of the concession granted to the Iraq Petroleum Company, leaving the Seven Sister companies with only the three fields it was then producing. The Arab nations were beginning to flex their muscles. Oil they realized could give them great power if they worked together.