Where we continue with the historic and economic background to current events in Iran:
Where the Oil Money Went
As I wrote in previous posts, the workers who pumped out Iran’s oil wealth in the 1950s were paid 50¢ per day. Most of the proceeds, at least 82.5%, went to England and America. Iran was permitted to keep whatever was left (and sometimes got really ripped off, due to fictitious bookkeeping on the part of the oil companies), but the Shah managed to do a lot with his measly percentage. He had numerous palaces, and enjoyed such amenities as a gold telephone and gold-tipped pens in his office, as well as solid gold taps in the bathroom. He also had a thing for sports and luxury cars—his collection included five Ferraris, seven Lamborghinis, three Porsches, a Maserati, a Bizzarrini, and numerous Rolls Royces and Mercedes-Benzes.
In 1968, due to economic difficulties and the necessity to cut public expenditures, Prime Minister Harold Wilson announced that Britain would withdraw its troops from the Persian Gulf by 1971. At that time, the Middle East was sending 25 million barrels of oil a day, six million of them from Iran, to Europe, Japan, Israel, and the United States. Based on this trade, the U.S. agreed to arm the Shah and let Iran safeguard the shipping lanes.
In 1973, the New York Times reported that Iran would buy $2 billion in arms over the next several years, which would be paid for using oil revenues. Naturally the Shah favored the most advanced weaponry available: helicopter gunships, fighter-bombers, supersonic interceptors, the same type of laser bombs that we used against the Vietnamese, and so on. In other words, beyond the Shah’s taste in expensive toys, even more oil money that could have improved the lives of the Iranian people was instead sent elsewhere—into the pockets of United States arms manufacturers.
But that’s not the end of it. Over the whole period that the Shah ruled Iran, he and his relatives stole billions, probably around $20 billion, from Iran’s economy using a fake foundation and Swiss bank accounts.
Neither the Iranian nor the American people were polled regarding the Shah’s popularity during his reign, but he certainly had fans in this country. Nelson Rockefeller publicly compared the Shah to Alexander the Great: “He’d soon teach us how to govern America.” Henry Kissinger said, “There’s not a greater man around.” According to Richard Nixon, [He’s] “our best friend. [I wish] there were a few more leaders around the world with his foresight. And his ability to run…a virtual dictatorship in a benign way.”
Benign? Understandable that he would see it that way. If, like Nixon and Kissinger, you’ve recently murdered a few million Vietnamese, Laotians, and Cambodians, the torture and murder of a few thousand by the Shah’s secret police might seem insignificant.
Breaking the Alliance
A combination of factors, as usual largely economic, led to the Shah’s downfall.
In 1973 the Arab members of OPEC (the Organization of Petroleum Exporting Countries) imposed an oil embargo on the United States because of its military support of Israel during the Yom Kippur War. The Shah of Iran had not gone along with the embargo, which endeared him to American officials including President Gerald Ford and Secretary of State Henry Kissinger. But in 1974, when the United States was in a recession because of high oil prices and Ford was therefore in trouble with the electorate, the Shah rejected the president’s request to reduce oil prices. Instead, he announced a plan to increase them by 20-25%.
Although the CIA coup had put the Shah in power, he apparently thought he no longer needed to kowtow to the United States. “No one can dictate to us,” he said at the time. (Some decades later, Saddam Hussein of Iraq made that same mistake.)
The Shah had good reason to insist on the increase. According to Kissinger, the United States had been overcharging Iran 80% for military equipment, and the Shah was well aware of it. At the same time, the Iranian economy was in trouble. In addition to overpaying for American weaponry, squandering money on luxuries, and stealing billions, the Shah had plans to use oil revenue for development projects. According to Andrew Scott Cooper’s report in Middle East Journal, spending was “well in excess of its oil revenues; $30 billion worth of commitments…against $21 billion in revenues.”
Cooper writes that by 1976 “Iran’s cities were hit hard with food shortages, power blackouts, and transportation bottlenecks. Unskilled young Iranians from rural areas flocked to the cities in search of work; much of what they saw and experienced turned them against the regime.” The consumer price index doubled each year, and inflation rocketed to 20%, then 30% and more.
Prof. James G. Scoville is in agreement: “By the late 1970s, the urban labor market was a shambles. Unskilled migrants had been pouring into the cities, especially Tehran; manufacturing jobs had failed…Several million unemployed and grossly underemployed…were roaming the streets of Iran’s cities.”
As I wrote in Part 1, most people will endure an oppressive regime as long as they have enough to eat. When that ceases to be the case, they rise up. Officials in the U.S. government were either oblivious or, as Cooper documents, were actively hostile to the Shah.
Kissinger, on his part, was pro-Shah, but seems to have been blind to the consequences of the Iranian economic situation. In August 1976 he arranged a trade deal in which the United States, over a four-year period, would sell Iran $34 billion in goods and services, of which $10 billion would be military, and the Iranians would sell the United States $16 billion worth of goods, including $14 billion for oil. The plan also included supplying the Shah with eight nuclear reactors, beginning in 1980.
Meanwhile Saudi Arabia had moved in. In July their delegation walked out of an OPEC meeting rather than go along with another oil price increase. OPEC backed down. President Ford was grateful.
Then, at a 1977 meeting in Doha, Qatar, when the other members of OPEC did agree to a price hike, Saudi Arabia announced it would sell at a reduced price to undercut the competition. The Saudis were particularly interested in squeezing Iran and they succeeded. Iran’s oil exports declined 34.7%. It was forced to cancel spending projects and take out a $500 million loan from United States and European banks.
By early 1977, articles fawning on the Saudis had appeared in major U.S. newspapers. Cooper’s report concludes that “Iran had been replaced in America’s affections by the more compliant Saudis…. Within a remarkably brief period of time, the Saudis had eclipsed Iran as America’s most loyal ally in the Gulf.” He quotes an unnamed American as saying that Saudi Arabia “is the best goddamn base we have ever had.”
My next post will be about the first Iranian Revolution, in 1979.
However, I can’t resist jumping ahead to note what appears to be a U-turn in United States relations with Saudi Arabia. In a debate on November 19, 2019, candidate Joseph Biden called that country a “pariah state” for murdering Jamal Khashoggi the previous year, and said that the U.S. would no longer sell the Saudis weapons. But now, because high prices at the pump are threatening Democratic prospects in the upcoming elections, President Biden has been to Riyadh to make nice with the crown prince of Saudi Arabia. It didn’t work. The prince, who orchestrated Khashoggi’s murder, has a big ego—as did the Shah and Saddam Hussein—and obviously hasn’t forgiven Biden’s previous remarks. He is cutting back on oil production.
It’s all about oil, indeed. And the colossal conceit of men in power.
Great story, Martha, making it easy to understand the current events. I´ve read all your published material and enjoyed all of it. Your writing is graceful and shows history the way it can be understood, without the academician accent of so much history I have read. Thank you for saying the truth that other writers hide.
No, Martha thank You! Your writing si enlightening!