*UE News*
December 2002

Blood and Oil-A Middle East Primer for UE Members


The Middle East, the home of ancient civilizations and holy lands - and war. The crises of the Middle East seem to defy understanding or solution.

The history of the region does suggest answers, however. In the Middle East, politics and the incessant drumbeat of war, ultimately have everything to do with a substance more valuable than gold: Oil.

The modern problems in the region result not from ancient hostilities but from the actions of modern governments on behalf of big business. To understand what's going on in the Middle East today, we need to go back only a hundred years.

A century ago, the map looked much different. There was no Iraq, no Jordan, no Israel, no Lebanon. The Ottoman Empire, stretching from the Balkans to North Africa, enveloped much of the region. Powerful, industrialized European nations with empires of their own - especially Great Britain - had a keen interest in the Middle East.

Britain had already seized the southwestern tip of the Arabian peninsula from the Ottoman Empire and forced the rulers of small territories along the Persian Gulf to sign treaties placing their foreign affairs in British hands. Britain backed Ibn Saud, whose family had been the traditional leaders of a fundamentalist Islamic sect, in his bid to become the ruler of a small peninsular kingdom.

Britain's goal was to safeguard the sea route (through the Suez Canal) to India, then a valuable part of its worldwide empire. To head off the Russian empire's advances southward, Britain signed a treaty with Russia in 1907 that divided Iran (Persia) into three zones, one British, one Russian, one neutral - without the Iranian government's knowledge or involvement.

Britain was already interested in oil, Iranian and otherwise. Today's British Petroleum can be traced back to the Anglo-Persian Oil Co., founded in 1909. The British government soon acquired a controlling interest in the company.


The outbreak of World War I in 1914 and the Ottoman Empire's alliance with Germany gave Britain and other imperial powers new opportunities to help themselves to the region's riches. Britain and Russia reached a new agreement in 1915, dividing up Iran and Turkey. Britain and France likewise made plans to divvy up much of the Middle East between them once the war was won.

At the same time, Britain encouraged Arab revolts against the Ottoman Empire with the promise that victory would lead to a united Arab nation, reaching from the Red Sea to the Persian Gulf. And in November 1917, British Foreign Secretary Arthur Balfour wrote to the Zionist leader Lord Rothschild promising British government support for "the establishment in Palestine of a National Home for the Jewish People." (The Zionist movement, which originated in Europe, sought creation of a Jewish state.)

The British government had promised the same country to two nations.

At the war's end, private interests hopeful of exploiting the region's oil urged their governments to ignore war-time promises to Arab leaders. A variety of small, divided Arab states would be much easier to maneuver into oil deals than a large, independent Arab republic. The European powers agreed. France assumed control of Syria and Lebanon. Britain took Palestine and Mesopotamia. London granted local control to kings and sheiks favorable to British interests. These arrangements were ratified by the League of Nations; Britain's Palestinian colony was officially a League "Mandate."


The new states needed boundaries. Five days of wrangling over the borders (at a conference in Baghdad) ended when Sir Percy Cox, British High Commissioner, arbitrarily drew the boundary lines setting off Iraq, Kuwait, Jordan and Saudi Arabia.

The Ottoman Empire's three Mesopotamian provinces of Mosul, Baghdad and Basra became a new nation, Iraq. What had been an adjunct of Basra became a separate political entity, Kuwait. Tiny Kuwait obtained 310 miles of coastline, Iraq just 36. Britain offered the Iraqi throne to the Bedouin leader Faysal, Kuwait to the al-Sabah family, Transjordan to the Hashemite leader Hussein and confirmed Ibn Saud as ruler of Saudi Arabia (the world's only country named after its ruling family).

Britain backed up its plans for the new oil-rich nations with military might. A nationalist revolt demanding the promised independence quickly spread throughout Iraq. The British army mustard-gassed Shia rebels while the Royal Air Force bombed the Kurds. (Winston Churchill, then Secretary of State for War, recommended dropping mustard gas on the Kurds, too.)

The opening up of Palestine to Jewish settlements, meanwhile, served imperial strategy by furthering division in the region and by establishing a beachhead for British interests.

World War I made British ruling circles appreciate the importance of oil supplies. "During the war," writes Mamed Abbasov, "the United States furnished almost 80 percent of Allied oil requirements. Now Britain realized the necessity of ensuring its own permanent reserves." The postwar settlements guaranteed British access to oil in Iraq, Kuwait and the Arabian peninsula; British money and military-backed diplomacy ensured British control over Iran. British dominance faced competition from U.S. capital, however.


The confirmation of oil beneath Iraqi soil led to intense wrangling among imperialist interests, resulting in the 1928 "Red Line Agreement." The Anglo-Persian Oil Co., Royal Dutch/Shell, the French oil company CFP, Standard Oil of New Jersey (Exxon), Mobil, Atlantic Petroleum, Gulf Oil, and Standard Oil of Indiana (Amoco) formed a joint venture called the Near East Development Co. The new company was required to cooperate with the Turkish Petroleum Co. - itself 50 percent-owned by Anglo-Persian. The agreement allowed for oil drilling rights in the old Ottoman Empire - with a red line drawn on the map to indicate the boundaries of the bonanza. The line ran from Turkey through Jordan, Syria and Iraq to the southern tip of Saudi Arabia, excluding Kuwait and Iran.

Thanks to backing from the U.S. government, Exxon and Mobil together gained a guarantee of one-fourth of the oil produced. The British-controlled Iraqi government received just four shillings per ton of oil. Exxon's profits per barrel between 1934 and 1939 were more than twice the royalty paid to Iraq.

The oil rush that began in Iraq soon embroiled the Arabian peninsula. Standard Oil of California (Chevron) gained the Bahrain concession on the Persian Gulf in 1929. Four years later, Chevron outbid the Iraq (formerly Turkish) Petroleum Co. to obtain a 60-year concession for Saudi Arabia's oil - for $250,000 in golden coins. In 1933 Gulf Oil and British Petroleum agreed on a 50-50 joint venture that controlled Kuwaiti oil. In 1936, Chevron joined with Texaco to found the Arab-American Oil Co. (Aramco) to better exploit Arabian oil reserves.

These deals began the process that would lead to the U.S. replacing Britain as the dominant power in the region.

During World War II, the U.S. government subsidized the Saudi government, because the war had severely limited Saudi production. And, writes Michael Tanzer, "After the war, the U.S. government provided huge amounts of a very scarce steel to build a thousand-mile pipeline from Saudi Arabian oil fields to the Mediterranean, thus providing a key link for shipping Saudi oil to foreign markets." The developing alliance between the Saudis and the U.S. government coincided with the U.S. emergence from the war as the world's greatest power. A State Dept. analysis in 1945 described Saudi Arabia as "that stupendous source of strategic power, and one of the greatest material prizes in world history."

As it began to assume Britain's burden of empire, the U.S. faced its first imperial crisis in the Middle East with the creation of the State of Israel.


Israel's origins lie in the period between the two world wars. At the end of World War I, Palestine's indigenous population was largely Arab and Muslim, with a Christian Arab minority and smaller Jewish minority. Relations among these groups were fairly harmonious. Jewish immigration into Palestine grew steadily under the British Mandate. From just 12 percent of the population in 1922, Jews represented almost a third of Palestine's population 11 years later. Jews emigrated to Palestine for religious reasons, to leave behind centuries of discrimination in Europe, and, increasingly, to escape the murderous anti-Semitism of the Nazis.

The growth of the Jewish settlements began to cause friction with their neighbors. This was due in part to land purchases in Palestine, which, as Stephen R. Shalom writes, "were often morally questionable as they sometimes involved buying land from absentee landlords and then throwing poor Arab peasants off the land. Land thus purchased became part of the Jewish National Fund, which specified that the land could never be sold or leased to Arabs."

Arabs regarded the Balfour Declaration and its support of a Jewish homeland a betrayal of commitments made during World War I. In 1936 Arabs in Palestine launched an unsuccessful but widespread rebellion against British rule and Jewish settlement.

British policy took its direction both from its competition with the U.S. over Arab oil and strategic considerations as war approached. A British commission in 1937 concluded the Mandate was unworkable and recommended partition of Palestine into Arab and Jewish regions. But a new government in 1939 announced a new policy: no partition, no Jewish state, limits on Jewish immigration and a ban on land sales to Jews. Within six months, however, World War II was underway and policies were on hold.


Zionists regarded the British retreat from Balfour as a betrayal. Extreme reactions came from the Revisionist Party, which clashed with Labor Zionists as well as Arabs and the British government. The Revisionists demanded the entire Palestine Mandate as a Jewish state with a Jewish majority. Two terrorist organizations fought to achieve those goals - the Irgun and Lehi (better known as the Stern Gang), operating independently of the official Zionist defense force.

Lehi founder Avraham Stern and his followers rejected any compromise with Britain and opposed Jewish enlistment in the British army to fight Nazism. Stern argued that Hitler was less of a threat than Britain. Further, Stern was prepared to work with Hitler, informing Nazi Germany that "Common interests could exist between the establishment of a New Order in Europe in conformity with the German concept, and the true national aspirations of the Jewish people."

The Stern Gang became a byword for terrorism, carrying out bombings and assassinations, most prominently those of Lord Moyne, the British government's Middle East representative in 1944, and Count Folke Bernadotte, the UN's special mediator on Palestine in 1948. (Yitzhak Shamir, a Lehi leader and future Israeli prime minister, was implicated in both assassinations.) The Irgun planted bombs in Arab markets and other public facilities. On July 22, 1946, the group blew up Jerusalem's King David Hotel, killing 91 people - Jews, Arabs and British. Menachem Begin (a future Israeli prime minister) was sought by British authorities in connection with the bombing. A year and a half later, Irgun detonated a truck loaded with explosives in the Arab city of Jaffa, killing 26 and wounding around 100.

Irgun and the Stern gang were despised by Labor Zionist David Ben-Gurion, first prime minister of Israel.


Britain's post-war government handed the problem of Palestine to the newly created United Nations. The UN heard sharply divergent proposals. Zionists insisted on a Jewish state, with full control over immigration, a sanctuary for refugees and Holocaust survivors. Palestinians argued for an independent Palestine, with full civil rights to the Jewish minority. But, says Stephen Shalom, "They were not willing to give this minority the right to control immigration and bring in more of their co-religionists until they were a majority to take over the whole of Palestine."

Jews in 1947 accounted for just one-third of Palestine's population and owned only 6 percent of the land.

The UN General Assembly in November 1947 voted to divide Palestine into two independent states, one Arab, the other Jewish, joined by an economic union. Jerusalem would be internationalized.

The UN action took place in the context of the collapse of the wartime alliance between the U.S. and Soviet Union and the growing Cold War between the two superpowers. Writes Shalom, "Moscow favored partition as a way to reduce British influence in the region; Israel was viewed as potentially less pro-Western than the dominant feudal monarchies." The U.S. also backed the creation of Israel, but for different reasons.


Palestinians rejected partition. Some took up arms and battled Zionist military forces. Britain withdrew in May 1948. Israel declared its independence on May 14, three and a half months before the date specified in the UN resolution. President Truman immediately recognized the new nation. Arab armies entered the next day.

Israeli leaders had worked out a deal with King Abdullah of Jordan that his armies would invade only the area assigned to the Arab state, not the Jewish territory. "Since Jordan was closely allied to Britain, this scheme also provided a way for London to maintain its position in the region," observes Shalom. "The other Arab states invaded as much to thwart Abdullah's designs as to defeat Israel. The fighting was largely confined to Palestinian areas or Jerusalem.

"When the armistice agreements were signed in 1949, the Palestinian state had disappeared, its territory taken over by Israel and Jordan, with Egypt in control of the Gaza strip," points out Shalom. "Israel now held 78 percent of Palestine. Some 700,000 Palestinians had become refugees."

To put it another way, only 133,000 remained of the 860,000 Arabs who had lived in areas of Palestine that became Israel. The forcible expulsion of Palestinians has been compared to the ethnic cleansing in the former Yugoslavia in the 1990s. "Arab villages were bulldozed, citrus groves, lands, and properties seized, and their owners and inhabitants prohibited from returning," says Shalom. The UN General Assembly in December 1948 passed Resolution 194 which called for the right of return or compensation. Israel refused to accept its terms.


The U.S. now faced the dilemma that had bedeviled the British, as it increasingly assumed Britain's role in the region. The crux of the problem was described in 1948 by a British labor newspaper: "There are two oil pipe lines from Iraq to the Mediterranean; one through Syria to the Coast, and the other through Transjordan to Haifa. Thus it is necessary to placate or force the ruling groups in each of these territories to favour the production and transport of oil on behalf of Western capitalists."

On the one hand, Israel physically divided the Arab world and provided a base that would help safeguard Western interests. On the other, the U.S. needed to build firm alliances with conservative, anti-democratic Arab kingdoms opposed to Israel. Reactionary rulers attempted to channel popular discontent over lack of democratic rights into opposition to Israel. As the U.S. moved closer to both Israel and Saudi Arabia, U.S. policy placed Washington at odds with Arab workers and peasants who accepted neither Israel nor feudal rulers.

What mattered to powerful interests in the U.S. was oil, not justice. Washington delegated foreign policy, in part, to the Arab-American Oil Co. (Aramco). Aramco could be as pro-Arab as business required, with the government's approval, while Washington was publicly pro-Israel. "Certain advantages flowed from this separation of identity, particularly during the early days of the development of Israel," according to a State Dept. document.


The commander of the U.S. Mediterranean Fleet told a British newspaper in late 1947, "American forces will be allocated wherever there are American interests, in closest cooperation with the British." U.S. assumption of Britain's role in the Middle East meant facing the challenge posed by nations with plans for their oil that did not always coincide with decisions made in American corporate boardrooms. In the case of Iran, the U.S. responded in a way contrary to American ideals.

Iran had been ruled since 1925 by a military dictator who crowned himself Shah with the blessing of the British government. A joint British-Soviet invasion ousted the Shah in 1941 when he appeared sympathetic to the Nazis and installed his 22-year-old son instead.

In January 1952, democratic elections produced a majority for a grassroots political party, the National Front. The Shah had little choice but to appoint Dr. Mohammad Mossadeq, a National Front leader, as prime minister.

A reformer with years of public service, Mossadeq was European-educated and pro-American. (He led a post-war fight to deny the Soviet Union oil concessions in northern Iran.) Mossadeq considered foreign control of his country's oil riches as a barrier democracy and independence. His government nationalized the Anglo-Iranian Oil Co., to the joy of the Iranian people and horror of corporate executives and policy-makers in Britain and the U.S.

Britain took its grievance to the UN, but got no satisfaction. So Britain imposed an embargo on Iranian oil and other economic sanctions. After two years of economic hardship, Mossadeq considered selling oil to the Soviet Union. This, and his government's cooperation with the left-wing Tudeh ("Masses") Party, gave the new Eisenhower Administration an excuse for action. The Central Intelligence Agency received authorization to jointly organize a coup with British secret service to destroy the democracy movement and restore the power of the Shah.

CIA operatives disguised as Mossadeq supporters harassed and threatened religious leaders. General Norman Schwarzkopf (father of the Gulf War general) smuggled more than $1 million into Iran. The CIA staged riots and bribed top military and police officials. In August 1953 the Shah returned to power, backed by the military, the U.S. and Britain. The following month the U.S. granted the Iranian government $45 million.

The brief period of democracy and independence ended. Formerly a kind of British colony, Iran was now firmly in the U.S. sphere of influence.

In 1954, a consortium of oil companies, including British Petroleum, Exxon, Mobil, Texaco, Chevron, Gulf, Royal Dutch/Shell and CFO, negotiated an agreement with the Iranian government for oil production. Amoco signed an agreement with the Shah in 1958.


In Egypt, the military government of Abdul Nasser in 1956 nationalized the Suez Canal, owned by French and British investors owned the canal. Nationalization of the canal, and Nasser's encouragement of Arab unity, triggered a joint Anglo-French-Israeli invasion. (Nasser had come to power in 1952 in a coup approved by the CIA.) According to British historian Hugh Thomas, "Ever since Churchill converted the navy to the use of oil in 1911, British politicians have seemed to have a feeling about oil supplies comparable to the fear of castration."

In Iraq, a nationalist military uprising in 1958 removed a pro-British dictator. The U.S. government feared the consequences for the hugely profitable oil concessions in Iraq and Kuwait.

Also that year, civil disorder erupted in Lebanon when the government was accused of rigging the election. Facing opposition from Arab nationalists opposed to Western interests, the Lebanese government asked for U.S. assistance. This provided the Eisenhower Administration an opportunity to send a message to Iraq. The U.S. government declared a nuclear alert and sent 14,000 marines to Lebanon in 1958. U.S. forces left once the Iraqi government agreed to "respect its obligations." Meanwhile, British troops moved into Jordan to support the monarchy, which also faced a pro-Nasser nationalist movement.

To defeat an uprising against the Sultans of Oman in the 1960s, Britain sent special forces and officers to command Omani units. In the early 1960s, British troops battled insurgents seeking to end British rule in Aden, in the western corner of the Arabian peninsula, and rebels seeking to topple a British-friendly ruler across the border in Yemen.

Kuwait declared its independence from Britain in 1961; Iraq's General Quasim threatened to annex Kuwait, which Iraq still considered part of the province of Basra. Britain pledged to defend Kuwait.

The new Iraqi republic instituted agrarian reform, breaking up the huge landholdings of feudal owners, and industrialization. Another military uprising in 1963 brought a new regime, pledged to neutrality and cooperation with neighbors Syria, Turkey and Iran, and Egypt. This government declared war on Israel and subsequently severed all ties with the United States during the 1967 Arab-Israeli War.


Anticipating an attack by Arab armies, Israel launched a war on its neighbors in June 1967. Its military prevailed - and Israel seized the West Bank and East Jerusalem from Jordan, the Gaza Strip and Sinai Peninsula from Egypt and the Golan Heights from Syria. Large numbers of Palestinians - in cities, towns and villages, as well as refugee camps - suddenly found themselves in Israeli-controlled territory.

Israel announced that Jerusalem, not Tel Aviv, would henceforth be its capital, and began to establish settlements in the newly seized West Bank and Gaza. The Geneva Conventions prohibit a conquering power from settling its population on occupied territory. The UN Security Council, in November 1967, unanimously called for the "withdrawal of Israeli armed forces from territory occupied in the recent conflict. Resolution 242 also called for all countries in the region to end their state of war and to respect the right of each country "to live in peace within secure and recognized boundaries."

After the war, the U.S. became Israel's chief weapons supplier (replacing France) as well as Israel's principal diplomatic backer. The U.S. declined to push for Israeli implementation of Resolution 242. "U.S. officials determined that Israel would be an extremely valuable ally in the Middle East, writes Stephen Shalom.

Given the importance of Middle Eastern oil, U.S. support for Israel would be self-defeating if the conflict were simply Israel versus the Arabs. But instead, the U.S. has brokered an uneasy alliance of Israel and conservative Arab states against radical Arab nationalism - at the expense of the millions of Arabs living in poverty despite the region's oil wealth.

In 1970, the net assets of the petroleum industry in the Middle East totaled $1.5 billion, with a return on investment of 79 percent.


U.S. government strategy came under severe strain in the early 1970s. The Middle Eastern nations within the Organization of Petroleum Exporting Countries (OPEC) in 1973 demanded a better share of oil profits from Western oil corporations and Western restraint of Israel. These demands were followed by higher prices and a boycott. As John Rose writes, "the oil-boycott was successful only because it temporarily united the most radical of the oil-producing countries with the most reactionary - including the two most decisive and pro-American, Saudi Arabia and Iran."

Later that year, Israel decisively repulsed a joint Egyptian-Syrian attack. "The United States saved Israel from collapse at the end of the first week by our arms supply," stated Henry Kissinger, then U.S. Secretary of State. "Some have claimed it was American strategy to produce a stalemate in the 1973 war. This is absolutely wrong. What we wanted was the most massive Arab defeat possible."

Specifically, what the U.S. government wanted, in Kissinger's words, was "to break up the Arab united front," in order to return to the previous alliances and maintain U.S. corporate control of Middle Eastern oil. After the war, the U.S. readily agreed to sell Saudi Arabia and Iran military hardware worth billions of dollars. Kissinger's strategy led eventually to the 1979 Camp David Accords, with an Israeli withdrawal from the Sinai peninsula in exchange for Egyptian recognition of Israel. Egypt had been detached from "the Arab united front."

The big oil companies, meanwhile, had done quite well. Exxon's profits for 1973 set an all-time record for any corporation.


In the late 1970s, the Israeli government began providing direct and indirect funding to the Islamic Association, the parent organization of the Palestinian terrorist group, Hamas.

According to Tony Cordesman, Middle East analyst for the Center for Strategic Studies, "the Israelis wanted to use [Hamas] as a counterbalance to the PLO (Palestinian Liberation Organization)." A former senior CIA official told journalist Richard Sale that Israeli support for Hamas "was a direct attempt to divide and dilute support for a strong, secular PLO by using a competing religious alternative."

An Israeli general reportedly told U.S. officials that he helped bankroll "Islamic movements as a counterweight to the PLO and communists."

The real goal, some observers believe, was to undermine prospects for negotiations that might give concessions to the Palestinians. The financial support of the Islamic Association/Hamas took place under the government formed in 1977 by the Likud Party, organized by Menachem Begin and other veterans of 1940s Jewish terrorist organizations.


In Iraq, the government established by a 1968 coup nationalized the country's petroleum industry and directed its wealth toward economic development. That coup consolidated the government in the hands of top Ba'ath Party leaders, among them Saddam Hussein. Hussein directed purges and assassinations aimed at eliminating opposition within and outside of the ruling party. In 1979 Ahmad al Bakr resigned as Iraq's ruler, replaced by Hussein, who became president, commander of the military and secretary-general of the party.

In the 1970s the U.S. provided the Shah of Iran with billions of dollars in arms and advisers to train his army and secret police. But the Shah's autocratic methods, repression, perceived corruption, and tolerance of Western domination united much of the population against him. Installed in 1953 by the U.S. and Britain, the Shah was toppled by strikes and popular protests in early 1979. A referendum led to establishment of an Islamic republic led by the Ayatollah Khomeini, just returned from exile, and other radical clerics. The West had lost one of the pillars of its Middle Eastern policy.

Coming in January: Part Two -The U.S. arms and aids, then goes to war, with Saddam Hussein