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Forty years on, the effects of the 1973-74 oil crisis still shape British foreign policy in the Middle East

Yesterday marked the 40th anniversary of the start of the 1973 oil shock. Its consequences are still echoing across the world today.

Photo - dailyalternative.co.uk

Forty years ago this week the 1973-74 oil crisis began, as the producers’ cartel OPEC significantly raised prices and, shortly after, cut off supplies to several Western countries in retaliation for their support for Israel in its war with Egypt and Syria. Britain’s ambassador to Saudi Arabia commented that the oil price rise represented “perhaps the most rapid shift in economic power that the world has ever seen” whilst the Foreign Office observed that the Saudi kingdom had ascended “to a position of world influence” (both quoted by the historian Mark Curtis in “Secret Affairs”). This was a turning point in recent history for all sorts of reasons, but the implications for Britain specifically are worth dwelling upon.

The crisis underlined the importance of oil to the world economy in no uncertain terms. At that time, oil provided more than half the world’s energy needs; a state of affairs that was not expected to change for the foreseeable future. Five of America’s twelve leading firms were oil companies, as were Britain’s top two: BP and Shell. The Gulf region provided 30 per cent of total world production and 65 per cent of known reserves. Seventy per cent of British oil imports originated from the Gulf, 30 per cent from Saudi Arabia itself. “The disappearance of cheap oil has transformed the world in which British foreign policy has to operate” noted the Foreign Office (quoted by Curtis), with industrialised nations seeing their trading surpluses transformed into deficits almost overnight.

In the preceding decades, the producer states had gradually managed to secure themselves better deals with the oil majors, from (typically) a concession sum plus a small royalty rate in the early twentieth century to a fifty-fifty split of the profits after World War Two. The formation of OPEC in the 1960s helped the producers to further improve the terms in their favour, including significant ownership stakes and, crucially, real control over prices. As Fred Halliday puts it in his seminal work “Arabia Without Sultans”, the 1973-74 crisis sealed “an enormous shift of wealth and…a parallel shift of power, between the advanced capitalist and oil-producing states”.

From 1973-74 onwards, greater revenues would flow into the coffers of the oil producers, and in turn, greater investments would flow from those states into the global economy. Effectively, the outcome of the oil crisis was the recalibration of the imperial-capitalist system on terms whereby the oil producing countries increased the benefits accruing to them. However, by attracting the surge in petrodollars into their financial industries (to perform the same stabilising function as the recently expired Bretton Woods system, amongst other benefits) the US and Britain were also able to turn these events to their own advantage.

Saudi policy during the oil crisis was far less hostile to the West than it might have appeared on the surface. The six month price freeze and the lifting of the embargo in early 1974 were both Saudi diplomatic achievements, as it sought to contain the influence of the more militant oil producers, reassure its western allies and improve its market position in the process. Over the course of the crisis, the Saudis, with British support, were instrumental in softening the OPEC position. Along with Abu Dhabi, they provided Britain with the relief of additional oil supplies from 1974 to early 1975, while lobbying within OPEC for prices to be lowered. Whitehall was reaping the rewards for refusing to help the Nixon administration support the Israelis during the war. Curtis notes that the archives of internal government documents from this time are full of British praise for the Saudis’ “moderating” role, which appreciation preceded a significant deepening of cooperation between the two states.

In the last days of the 1970-74 Conservative government and the early days of the incoming Labour administration, Britain and Saudi Arabia sealed what Curtis describes as “a profound economic alliance, the consequences of which are still evident”. In addition to the influx of the new surplus oil revenues into the City of London, Whitehall also sought investment in the wider British economy, as well as investment opportunities for British industry in the Gulf. In 1975, Harold Wilson was briefed to tell Prince Fahd that “Your country now has a major stake in Britain and you will naturally be closely interested in the progress of the British economy”. By that stage, the Saudis held the equivalent in today’s prices of around £20 billion worth of investment in the British economy, as well as supporting the pound by holding large proportions of their surplus funds in sterling.

The massive oil reserves of the Gulf region had long been recognised by London and Washington as being not only of enormous material value, but also the crucial strategic prize in any effort to secure geopolitical supremacy. Ensuring that the regimes of the region maintained a consistent orientation towards Western power was key to the maintenance of the US-led imperial-capitalist order to which British power had committed itself after World War Two. But the importance of petrodollars to the international economy from the 73-74 crisis onwards increased the value of the alliance with the Saudis and other Gulf regimes considerably. From that day to this, British foreign policy in the Middle East has been defined, above all, by the huge stake British capital and the British state have in the survival of the most conservative forces in the Arab world.

Throughout the 1970s, the Saudi National Guard continued to be trained by the British army on their duties protecting the King, while the Saudi oil minister was guarded by a team of former SAS personnel. Britain entered into a £250 million deal with the Saudi kingdom in 1973 to train its air force pilots and service its aircraft. Today, the “al-Yamamah” series of arms contracts first signed by Margaret Thatcher are thought to be amongst the largest such deals in history, and Britain also provides arms and training to the security forces of the various Gulf regimes.

The Arab uprisings of the last two years have seen the UK playing a complementary role to the counter-revolutionary position of Saudi Arabia in a number of respects. The Tory-Liberal government’s hawkishness on Syria has dovetailed with the Saudi kingdom’s attempts to hijack the uprising in that country to serve its own regional agenda. Both London and Riyadh have lent solid support to the Saudi-satellite regime in Bahrain, which violently crushed a peaceful, broad-based pro-democracy movement in the spring of 2011 and continues to reject any serious reforms. David Cameron’s administration has been energetic in its pursuit of yet deeper economic ties with the states of the Saudi-led Gulf Cooperation Council. And there have even been suggestions that the British military’s 1971 withdrawal from the Gulf may soon be reversed, in what would constitute a massive strategic vote of confidence in some of the most authoritarian states in the Arab world, and a slap in the face to all those who have taken huge risks and paid real personal costs, not least over the last two years, to advance the cause of democracy and human rights in the region.

Any hopes arising in early 2011 that the Arab world would see a political springtime comparable to that in Eastern Europe in 1989 have long-since disappeared. One explanation for the discrepancy with the (comparatively) swift and painless collapse of the Soviet bloc is the sheer strength of the conservative forces in the Middle East today, and the commitment of their external allies to keep them in place. The events of 1973-74 helped to deepen an already powerful bond between Britain and the Arab monarchs and emirs, and London is not alone in having a huge stake in the survival of those regimes, given their control over stupendous energy resources and their willingness and capacity to invest abroad.

This is certainly not to write-off the prospect of democratic change in the region. Irrespective of short-term oscillations in the fortunes of democratic forces, the Arab states will experience persistent and growing pressure from below until their broken economic models are fixed in favour of their increasingly exasperated and politically aroused populations. But the prospects of those calling for greater freedoms will be shaped, to a significant degree, by the obstacles that the Arab autocrats’ international supporters help to place in their path. For citizens of this country, understanding the roots of Britain’s conservative role in the Middle East is the precondition to any wider campaign to stop our government being part of the problem.

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About the author

David Wearing researches British-Saudi-Gulf relations at the School of Oriental and African Studies, where he teaches courses on politics and political economy in the Middle East. Follow him on Twitter: @DavidWearing.


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