Skip to comments.Brilliant, MUST READ! The Poisoned Well of Arab Oil
Posted on 10/17/2003 8:35:58 AM PDT by the_greatest_country_ever
The Poisoned Well By FOUAD AJAMI
It was not so much the guns of Oct. 6, 1973, and the assault of the Egyptian and Syrian armies against Israel, that changed contemporary history and remade our world. It was the use 11 days later of the "oil weapon," and the price increases that followed, which tipped the scales of history. By the time OPEC unsheathed the oil weapon, 30 years ago today, the tide of battle had turned. Israel had regained the initiative: its soldiers had crossed to the western side of the Suez Canal, and were within striking distance of Damascus as well.
It was then, on the edge of yet another Arab calamity, that the Saudi monarch, King Faisal, broke with his American protectors and began what turned into a frontal assault on the very bases of the post-World War II international order.
On Oct. 17, 1973, the Organization of Petroleum Exporting Countries raised the price of oil to more than $5 a barrel from $3 a barrel; a day later it cut production by 5 percent a month; three days later, it imposed an embargo on petroleum exports to the United States. Then the shah of Iran struck with a rebellion of his own.
In Tehran, just before Christmas, he secured the consent of the other oil-producing nations for yet another price increase, to $11.65 a barrel.
In the "Thousand and One Nights," the recurring theme is of the beggar becoming king and the king a beggar. So it was when OPEC imposed its embargo. It was an attempt to turn the stuff of fantasy into reality, to make the largest transfer of wealth in the annals of nations.
Secretary of State Henry A. Kissinger was among those who realized this. "Never before in history," he wrote in his memoirs, "has a group of such relatively weak nations been able to impose with so little protest such a dramatic change in the way of life of the overwhelming majority of the rest of mankind."
No tears were shed, though, for the old order of things in those countries rich with oil, or in the large stretches of the Arab-Muslim world on their periphery. The peoples of those lands had long dreamt of just such a moment. They hadn't quite foreseen how the dream would play out.
Still, the modern nationalisms of the Arabs and the Iranians had always revolved around the use of oil; the grievances of these nationalisms were tales of how Western prospectors and explorers, and their powerful world-spanning companies, had worked their way on the politics of the Arab Middle East and brought about its subjugation.
These lands, it seemed, were now done with that history. Everywhere in the Arab world there was a palpable sense of excitement, of defeats avenged. Nothing was out of reach.
New wealth would bring the latest technology and training and secure the withdrawal of Israel from the lands it occupied in 1967. Modern history itself could be short-circuited; poor, unskilled societies would be able to join the era of technology and industry.
For a historically minded people, this new wealth signaled the return of history, the bestowing of a second baraka (blessing) on the Arabian Peninsula. The first, of course, had been the rise of Islam in the first half of the seventh century. But Islam's power, and its center of gravity, then shifted to other lands to Damascus, Baghdad, Córdoba, Cairo, Istanbul.
When the balance of power tilted back to the Arabian Peninsula, it was said to be piety's vindication. Lands hitherto left to pestilence and anarchy in the desert domains, locusts were a common source of protein before the age of oil made possible more lavish meals were given a sign of divine favor and its material rewards.
In the days of scarcity, Kuwaitis had led a harsh, simple existence: they were pearl divers and fishermen who sailed their dhows to ports in India and the Arabian Sea. They had known hunger and need.
Now the world came calling on Kuwait. The cities of the Levant and the Fertile Crescent, which had brokered the meeting of the civilization of the West with their own, were reduced to begging for a share of the new wealth.
There was a diminishment of Beirut, Damascus, Cairo, Tunis, and a new ascendancy of the oil states. Hucksters and peddlers of every kind and contraption descended on the oil states.
The wealth worked its way into these societies with astounding velocity. A world that had been whole, where people had little but shared more, was bulldozed. The social balance was ruptured.
A fault line opened between those who fell into riches and those left behind. The ditch was even deeper if measured by cultural pretensions; there were those who succumbed to the ways of the glamorous foreign world and those who watched and lamented as their world and its verities spun out of control.
This second group soon fell back on an aggrieved nativism. The new wealth had a new nemesis: Americanization was overtaken by a fierce anti-Americanism, a mighty wind of wrath and resentment.
A Pied Piper rose in Iran: a turbaned mullah, Ayatollah Ruhollah Khomeini, who summoned his people back to the safety of tradition. A middle class created by the oil wealth, educated men and women who would live to regret their new religious zeal, rallied to him.
The shah of Iran, Muhammad Reza Pahlavi, had been one of the chief architects of OPEC's policy; he had wanted to turn his country into an Asian Germany, to extirpate the role of the religious class and to herd his people into the modern age. He was the first victim of oil's curse. A bare five years after he engineered the big price hike, he gathered a handful of soil, left his country, and started roaming the world in search of a place of exile.
From the distance of three decades, we can see oil's curse and its ambiguous gift.
It wasn't just Iran that was undone by sudden wealth. On the shores of the Mediterranean, Algeria succumbed to barbarous slaughter; a war erupted between that country's rulers and insurgents who draped their wrath, and the fury of their dispossession, in Islam's banners: Hezbollah (the Party of God) on one side, Hizb Fransa (the Party of France) on the other. For nearly 15 years, the slaughter went on in the cities of the country, while the work of oil continued uninterrupted in the Sahara.
The killer squads of the regime and the merciless insurgents both fought for oil's bounty.
In Iraq, the ruin had a different story line: here oil was tethered to state terrorism, and a displaced peasant thug from the town of Tikrit, fired up by the dreams of money and oil, set out to wreck his country and to plunge the world into endless discord.
We are still in the grip of that historical moment. That wayward son of Arabia, Osama bin Laden, is a child of the oil revolution. He came of age amid the new wealth; it was petromoney that he took to the impoverished mountainous land of Afghanistan.
And it was petromoney that brought about the demographic explosion that has swamped and unsettled Arabia. Thirty years ago, less than 7 million people lived in Saudi Arabia; today the estimate is about 17 million. For every member of the lucky generation that came into its own in the years of plenty, there are several more younger claimants now choking on failure and disappointment.
The mind plays tricks here: as the wealth of 1973 was evidence of divine favor, so the retrenchment is a sign of divine disfavor, and a call on the faithful to rectify the course of history. Belligerent piety now fills the void, gives order and meaning to the capricious cycle of history, its boom and bust.
Men and women are not given the gift of foresight. If they were, would the crowds that thrilled to what October 1973 represented have been so triumphant, knowing the heartbreak and ruin that lay in store for them, and for us all?
Fouad Ajami, professor of Middle Eastern studies at Johns Hopkins University, is author of "Dream Palace of the Arabs: A Generation's Odyssey."
OPEC did not actually refuse to export oil to the U.S. -- it refused to sell oil on the world market for U.S. dollars. OPEC nations were smart enough to figure out that the U.S. was about to embark on a period of deliberate inflation of the U.S. dollar, thereby serving as a disincentive for foreign exporters to accept dollars as payment for their products.
. . . the Organization of Petroleum Exporting Countries raised the price of oil to more than $5 a barrel from $3 a barrel . . . he secured the consent of the other oil-producing nations for yet another price increase, to $11.65 a barrel.
The primary theme of this article is meaningless unless the author first puts these numbers into context. How much of the increase in oil prices was attributable to the production cuts, and how much was attributable to the declline of the U.S. dollar against other world currencies?
You might be interested in this thread
But if you try and warn people that this happened once and is likely to happen again (and soon), you get jumped on and called a commie liberal Bush-hater...and those are the more polite names ;)
Putin is no fool -- he's been to Texas enough time to realize that there is no future in selling oil to Europeans who work 35 hours a week, bathe once a month, and drive around in cars made out of popsicle sticks and aluminum foil.
If nothing else, I would hope that this discussion will drive the U.S. government to clean up its finances in a big way.
I don't think the inflation of this time was deliberate. It was stupid, yes. But I don't think it was a deliberate policy of the Treasury to cheapen the dollar. Gerald Ford's administration fought inflation, timidly to be sure, and "stagflation" brought Carter's administration into the cross hairs of Reaganomics.I believe the inflation of the 70's was caused more by ignorance and hubris, than by design.
Economists remind me of aeronautical engineers that do not have pilots licenses, because they are afraid to fly. They can, with some authority, explain flight, but they can't and don't fly themselves. They shouldn't be allowed on the flight deck of Air Force One, but we allow their economic equivalent on the flight deck of government.
Agreed, Putin is no fool, which is why I think he might actually be serious about switching to euro-based oil sales. Think about it...the dollar has lost 20% against the euro in the past several months. That means that the $30 they were getting for a barrel of Rusky crude only has $24 of purchasing power. From the looks of things, the Fed wants to see the dollar weaken even more, maybe twice as much as it has already. That would make that same $30 worth $20. One of two things has to give...either they start demanding more dollars per barrel (a lot more), or they start pricing oil in a currency that isn't being inflated.
In my opinion, the current strength of the euro cannot be maintained. A few years ago one of the leading Danish economists wrote an extensive article in which he predicted that Europe is going to experience a decades-long economic malaise along the lines of what we've seen in Japan. And the roots of this malaise will be the same as Japan's -- stagnant population growth, coupled with enormous government pension liabilities.
As strange as this may seem, the porous southern border of the United States is precisely what is going to keep the U.S. from experiencing a similar spiral.
I am aware of LBJ's policies and the subsequent inflation of both the war in Vietnam and "Poverty". I kept my remarks to the 70's for simplicities sake. However, I stand by the drift at the end of my post that I don't believe anybody really knows what is actually true and what is merely theory in economics. If the Oil Sheiks really did foresee the inflation of the 70's, they missed some other economic indicators of the 80's and 90's. In short, I believe economics is, at all levels of human experience and at all levels of expertise, essentially a crap shoot. Economists, are no more than "handicappers" with diplomas.
You also said, "If nothing else, I would hope that this discussion will drive the U.S. government to clean up its finances in a big way." I see this hope as utterly vain. Maybe if the real GDP per capita of the USA is reduced to, say, Ecuadorian levels, then maybe.
There was a pretty good novel in the 70's called _The Sheep Look Up_. Sentimentally lefty and green, as was the fashion, and hopelessly optimistic about "the masses" being able to see reality. That is why the 3rd International people called themselves the "Worker's Vanguard". Not that they were seeing reality, not at all, just a bunch of self deluding fools. Humans are like that.
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