During World War II, US policymakers began to turn their attention to the Middle East. The Middle East contained one-third of the world’s known oil reserves and offered better geological prospects for the discovery of additional reserves than any other area. A US government-sponsored oil mission that surveyed the Middle East in late 1943 concluded that "The center of gravity of world oil production is shifting from the Gulf-Caribbean region to the Middle
East - and is likely to continue to shift until it is firmly established in that Area.
Before World War II, the US government invoked the Open Door principle and provided diplomatic support to help private US oil companies gain concessions in foreign countries. Under wartime conditions, the Franklin D. Roosevelt administration contemplated creating a government-owned Petroleum Reserves Corporation to take over concession rights in Saudi Arabia, where Standard Oil Company of California (SOCAL) and the Texas Company held the concession rights. It later proposed having the US government construct and own an oil pipeline stretching from the Persian Gulfto the Mediterranean as a means ofsecuring the US stake in Middle East oil. By the war’s end, the US government had also worked out an agreement with Britain that called for guarantees for existing concessions, equality of 762 opportunity to compete for new concessions, and a binational petroleum commission to allocate production among the various producing countries.
SOCAL and the Texas Company refused to part with their valuable property, and the oil industry - except for SOCAL, Texas, and Gulf, which would benefit from the pipeline - opposed government involvement in that project. Oil companies whose operations were primarily domestic opposed the Anglo-American Oil Agreement because they feared it would allow cheap foreign oil to flood the US market. These concerns found support in Congress, and all three initiatives failed. Different segments of the oil industry could agree only on a return to Open Door diplomacy, according to the principles of which the government limited direct involvement in foreign oil matters but maintained an international environment in which private oil companies could operate with security and profit.
Utilizing private oil companies as vehicles of the national interest in foreign oil soon required the United States to take an active interest in the security and stability of the Middle East. During World War II, British and Soviet forces had jointly occupied Iran. At the same time, 30,000 US troops operated a supply route through Iran to the Soviet Union and American advisers assisted the Iranian government and military. Iran was important to Britain because it was a source of oil and because it was located astride the lines of communication of the British Empire. The Soviet Union’s interest in Iran was scarcely less vital; Iran provided a back door to the Soviet Union and bordered on the center of Soviet oil production in the Caucasus. US leaders viewed Iran as a strategic buffer between the Soviet Union and US oil interests in the Persian Gulf. Writing to President Roosevelt in August 1943, Secretary of State Cordell Hull warned that "it is to our interest that no great power be established on the Persian Gulf opposite the important petroleum development in Saudi Arabia."763
Efforts by the Iranian government to attract US oil companies to balance British and Soviet influence led to a scramble for concession rights in the fall of 1944. When the Soviets demanded exclusive oil rights in northern Iran, the Iranian government announced that it had decided to postpone its decisions on oil until after the war. Following the crisis, the British concentrated on protecting their position by increasing their interference in Iranian politics. The United States focused on getting foreign troops out of Iran, seeking to
Provide the Iranian government with greater freedom of action. Determined to maintain some influence in this important border region, Soviet officials supported separatist movements in Iranian Azerbaijan and Kurdistan, delayed withdrawing their occupation forces from northern Iran, and renewed their demand for oil rights in Iran’s northern provinces. After the Iranian government promised to allow the Soviet Union to participate in oil development in northern Iran and to seek a peaceful settlement with the separatists, the Kremlin withdrew its forces in May 1946.
In a report sent to President Harry S. Truman in September 1946, White House Special Counsel Clark Clifford warned that access to Middle East oil was threatened by Soviet penetration into Iran, and argued that the United States should be ready to use force to guard its vital interests. Similarly, the Joint Chiefs of Staff (JCS) reported on October 12 that it was "to the strategic interest of the United States to keep Soviet influence and Soviet armed forces as far as possible from oil resources in Iran, Iraq, and the Near and Middle East." According to the JCS, loss of access to Persian Gulf oil would force the United States and its allies to fight an "oil-starved war." Conversely, without access to the region’s oil, the Soviet Union would not have sufficient oil to fight a major war.764
Circumstances differed greatly in Greece, Turkey, and Iran, but US officials interpreted events in all three as part of a Soviet plan to dominate the eastern Mediterranean and the Middle East. Secretary of Defense James Forrestal feared that, without Middle East oil, European recovery would falter and Europe would go Communist.765 On March 12, 1947, Truman went before Congress and pledged that the United States would resist Communist expansion anywhere in the world. Although mention of oil was deliberately deleted from the president’s address, concern over access to the region’s chief resource played an important role in the shift in US foreign policy.766
Meanwhile, the Iranian government, with US support, had retaken control of its northern provinces and brutally crushed the separatist movements. Then, in October 1947, the Iranian parliament (the Majlis) rejected Soviet participation in oil development. The Majlis also forbade the granting of oil concessions to foreigners and prohibited foreigners from forming joint-stock companies to develop Iranian oil. It also instructed the government to do whatever was necessary to recover Iran’s rights to its natural resources, especially the oil concession held by the Anglo-Iranian Oil Company in southern Iran.
Iran’s actions, coupled with US aid to Greece and Turkey under the Truman Doctrine, consolidated the American position along the northern tier of countries and protected US interests in the eastern Mediterranean and the Middle East. By excluding the Soviets from the Middle East, the United States retained the region’s oil for Western recovery. Likewise, by nurturing the development of Middle East oil production, the United States reduced the pressure on western hemisphere reserves. US policymakers also recognized the importance of the profits that British oil companies made in the Middle East for easing Britain’s balance-of-payments problems. In addition, US and British strategic planners wanted to keep the Soviets out of the Middle East because the region contained the most defensible locations for launching a strategic air offensive against the Soviet Union in the event of a major war.
At the same time as the US government was announcing its determination to contain Soviet expansion in the Near East, the major oil companies secured their position in the region by joining forces with each other. The centerpiece of the "great oil deals" was the expansion of the ownership of the concession in Saudi Arabia to include Standard Oil of New Jersey and Socony-Vacuum. In addition, Gulf contracted to sell its share of Kuwaiti production to Shell, and Standard Oil of New Jersey and Socony signed long-term contracts to buy oil from the Anglo-Iranian Oil Company. The result was a private system of worldwide production management that facilitated the development of Middle East oil and its integration into world markets. To help consolidate this system, the US government supported fifty-fifty profit-sharing arrangements between the major oil companies and host governments. The US tax code granted US corporations credits for taxes paid overseas. This solution to host-country demands for greater revenues transferred the cost of higher payments from the oil companies to the US Treasury.
The emerging postwar petroleum order underwent its first test with the Palestine issue. Truman’s decisions to support the UN plan to partition Palestine in November 1947 and to recognize the new state of Israel in May 1948 went against the advice of the State Department, the military, and the newly formed Central Intelligence Agency (CIA). They feared that US support for the creation of a Jewish state in Palestine could undermine relations with the Arab world and provide an opening for the Soviet Union to extend its power and influence at a time when the West needed Middle East oil for
European and Japanese reconstruction. Loss of access to Middle East oil, one study warned, would force the United States to choose between curtailing domestic consumption and making oil available to Europe to ensure the success of the Marshall Plan.767
US officials refrained from sending troops and arms to enforce the UN decision. They did not want to alienate the Arabs and provide an opening for Soviet influence. This strategy succeeded in minimizing the threat to US strategic and economic interests. While official relations with the Arab states suffered because of US support for Israel, the oil companies managed to maintain a degree of distance from government policy and thus escaped Arab displeasure.
Before World War II, Western Europe had depended on coal for over 90 percent of its energy requirements. Wartime destruction, dislocation, and overuse drastically reduced Western European and British coal production. Although oil accounted for a little less than 10 percent of Europe’s total energy supply in 1947, it was the only source of fuel for aviation and road haulage and an increasingly important source of fuel for inland and ocean shipping and railway transport.
Soviet expansion into East Central Europe left the Soviet Union in control of most of Europe’s indigenous oil reserves as well as important sources of coal in Poland. As a result, nearly half of Western Europe’s oil in 1947 was supplied by US-owned companies and required payment in dollars. Oil was the largest single item in the dollar budget of most West European countries, and its sharp price rise largely accounted for the deterioration of Europe’s dollar-denominated current accounts.
US leaders feared that the dollar shortage could lead to economic distress and Communist gains in Western Europe. To fuel economic recovery, the United States provided this critical area with the dollars it needed to purchase oil. From April 1948 to December 1951, the Marshall Plan provided more than $1.2 billion for the purchase of crude oil and refined products, more than 10 percent of the total aid extended under the European Recovery Program. Over half (56 percent) of the oil supplied to Marshall Plan countries by US companies during this period was financed by the Economic Cooperation Administration (ECA) and its successor, the Mutual Security Agency (MSA).768
Oil increased its share of West European energy consumption from 13.5% in 1950 to 32.3% in 1960, and of Japanese energy consumption from 6.5% in 1950 to 39.6% in 1960. Oil fueled the automobile industry, which played a key role in economic growth in Western Europe and Japan. Automobile registrations rose tenfold in Western Europe from 1950 to 1974 and at an even faster rate in Japan.769
Marshall Plan aid not only provided Western Europe with the energy it needed for recovery; it also helped maintain markets for US oil companies at a time when potential customers otherwise would not have had the means to acquire their oil. This aid was especially important to US companies with concessions in the Middle East since most of their oil went to markets in Western Europe.
Marshall Plan aid altered patterns of trade. Before World War II, Western Europe had relied on the western hemisphere for the bulk of its oil imports, with only 20% coming from the Middle East. By 1947, the Middle East supplied 43% of European oil imports, and by 1950 the figure was 85%. Although rising dependence on Middle East oil increased European and Japanese vulnerability to disruptions in supply, controlling access to essential oil supplies helped the United States reconcile its goal of German and Japanese economic recovery and integration into a Western alliance with that of ensuring against the recurrence of German and Japanese aggression.
World History
