Thursday, January 4, 2018
The Oil Kings, by Andrew Scott Cooper
After World War II, and especially after Operation Ajax, Iran became an important client state for the United States. Its shared border with the Soviet Union made it an ideal location for CIA bases, and it also controlled one side of the strategic mouth of the Persian Gulf, an important waterway for the transport of oil from Saudi Arabia, the United Arab Emirates, Kuwait, and Iraq to Europe and Japan. A blockade of the Strait of Hormuz, the mouth of the Persian Gulf, could strangle the western powers by cutting off their oil. Having Iran as a strong, friendly power in the region was vital to U.S. global security.
As the Vietnam War dragged on, Nixon began pursuing a policy of localization. This policy, known as the Nixon Doctrine, would arm and equip local powers with hardware provided by America and other Western powers so they could handle local security threats and fend off the encroachment of the Soviet Union and other communist powers. Mohammad Reza Shah had always sought newer and better technology for his military, but American policy had put strict limits on what Iran could buy so the Shah didn't wreck his nation's economy on a military spending spree. With the Nixon Doctrine, Nixon and Henry Kissinger chose to let the Shah buy however much military hardware he wanted, including everything but the atomic bomb. This led the Shah to go on a spending spree, buying planes and hardware he simply didn't have the people or infrastructure to maintain, much less use, such as orders for dozens of F-14 fighters. (F-14s incidentally are carrier-based aircraft. Iran had no aircraft carriers at the time so there was no advantage to using F-14s over other aircraft.)
In order to pay for these military toys the Shah had to get revenue from somewhere, which is where another agreement with Nixon and Kissinger became important. The Shah asked Nixon if, with the cooperation of OPEC, he could raise oil prices. Nixon and Kissinger gave their assent, assuming the Shah only meant to raise the price of oil by only a small amount. The Shah, however, meant to raise oil prices to a point where alternate energy methods, such as shale oil and the gasification of coal, became competitive with crude oil, bringing in significantly increased revenues for Iran. On top of his military spending, the Shah intended to launch a massive industrialization program for Iran, turning it into a modern economy. The end result was the price of OPEC oil went up by 400% in the course of one year.
Needless to say, when a basic commodity which is necessary for fuel, as well as dozens if not hundreds of other derivative products, increases by that much in a year there are going to be aftereffects. Especially when Europe, Japan, and the United States relied on oil imported from OPEC. Recession, financial panic, inflation, shifts in international balances of payment, loss of consumer confidence, all this and more threatened to topple the governments of western Europe and the global economy. The situation was only exacerbated when the United States, to help stem the tide of dollars flowing into Iran, increased the prices of its military equipment. This only spawned a spiral of increased oil prices to pay for the more expensive equipment.
Attempts by the United States to get the Shah to stop or at least slow down the oil increases proved unsuccessful and so a gap began growing between the United States and its client state. Eventually the United States shifted its Persian Gulf strategy from Iran to Saudi Arabia, especially after the Saudis broke an OPEC price hike in 1976. Dramatic decreases in Iran's oil revenue meant that the Shah had to drastically cut back not only on his military spending but on his civil spending as well, which in turn caused Iran's own economy to falter. By 1979 the economic troubles in Iran had toppled the Shah and ushered in a new Islamic republic.
I have really only summarized this book, and very poorly at that, because it goes into so much detail and makes use of so many sources, such as transcripts from the Nixon white house, Henry Kissinger's own meetings and phone calls, cables from the Iran embassy, state department papers, treasury department papers, and information from foreign governments as well. Cooper does an excellent job of researching this text and provides a vivid economic picture of the 1970's and U.S. relations with Iran, providing additional explanation as to why the Shah's government was overthrown in 1979 and the tension between the United States and Iran to this day.
If you're interested in Middle Eastern history, twentieth century history, economics, Richard Nixon, Henry Kissinger, or getting a better understanding of Iran this book is definitely a must read. Cooper does make some allusions to the 2007 crisis which saw a spike in oil prices as well, but the comparison gets vaguely mentioned at best so I consider it hardly a major topic for the book. But as history of where economics meets politics this is an excellent read.