CHAPTER SEVEN:
OIL AND THE NEW WORLD
ORDER OF BRETTON WOODS
A New Empire rises from
the ashes of war
Following six years of a war
spanning the entire globe that had left more than 55 million dead in its wake,
the world in 1945 had changed in many significant ways. However, for vast
regions of the world, most especially in Eastern Europe and the less-developed
regions in the southern hemisphere, 1945 merely marked a transition to a new
form of chronic war--most often, economic.
In 1919, following the Versailles
Peace Conference, the British Empire was at its largest extent, its dominion
covering one quarter the entire surface of the world, the Empire ‘upon which
the sun never set.’ A mere thirty years later, by 1949, the British Empire was
disintegrating in every region, as demands for colonial independence were made
against the oppressive mother country. The British Empire was in the throes of
the largest upheaval of perhaps any Kingdom in history.
Following the mutiny of the Indian
Royal Navy in February 1946, the postwar British Government of Labour Prime
Minister Clement Atlee appointed Viscount Mountbatten of Burma to be the last
Viceroy of India, with the task of arranging the fastest possible withdrawal of
English forces and government administration. Mountbatten's partition of the
vast Indian subcontinent into a bizarre quilt of East and West Pakistan with
predominantly Muslim population, separated by India, was completed by August
15, 1947, five months after Mountbatten's arrival in India.
Within a few short years, Britain
had ceded formal colonial control over large parts of her empire in Africa, the
Pacific, the Mediterranean. It was not out of beneficence, and a sudden burning
passion for the principle of self-determination of subject peoples, but rather
driving necessity, which dictated a reshaped form of postwar dominion in the
late 1940's and early 1950's.
As a consequence of the War, the
trading mechanisms of the Empire which had formed the foundation of British
financial power were shattered. Vast overseas investments had long-since been
sold to pay war costs. The English National Debt had soared to unheard-of
heights. Domestically, England's plant and equipment were rotted and worn out,
even electricity supply no longer reliable, housing stock dilapidated, the
population exhausted. By the end of the war, British export trade had withered
to a mere 31 percent of its 1938 pre-war level.
Britain was utterly dependent on
the postwar support of the United States. For its part, the United States, or
rather, the internationalist elements of the East Coast Establishment as it was
becoming known, realized that if it were to dominate the post-war world, it
needed the vast worldwide expertise and cooperation of London. The
long-discussed new concept of Empire, first introduced in the early years
before World War I by Lord Lothian, Lord Milner, Cecil Rhodes and the Round
Table circle, as we mentioned earlier, was rapidly becoming reality. Britain
after 1945 would exert global influence indirectly, through developing and
deepening a ‘special relationship’ with the United States.
The seeds of this ‘special
relationship’ had been carefully planted following Versailles, with the
simultaneous establishment of the Royal Institute of International Affairs and
the New York Council on Foreign Relations, as conduits of strategic policy
debate.
During the War a new element was
added. While England and the United States agreed to a full integration of
military command, the still-fledgling U.S. intelligence operations, under the
Office of Strategic Services (OSS), worked principally out of a London command
center in joint cooperation with the British Special Operations Executive
(SOE). The emergence of the postwar American Central Intelligence Agency, and
the entire array of U.S. covert government institutions evolved directly out of
these wartime British ties. The consequences for later American policy were to
be as enormous as they were tragic.
A signal turning point in
redirecting American energies and policy in the immediate postwar period was
the intervention by the British into the domestic American debate. In a
supremely calculated move, Winston Churchill came to Fulton Missouri, President
Truman's home state, to deliver his famous ‘Iron Curtain’ speech on March 5,
1946. What is generally not discussed are the policy gains for the postwar
British position secured by Churchill's calculated rhetoric. Granted, Stalin
was indeed violating letter and spirit of various wartime agreements made with
Churchill and Roosevelt. But Churchill's aim at Fulton was to manipulate the
naive and inexperienced American president into a renewed Anglo-American
‘special relationship.’
Shortly after Churchill's
extraordinary visit, during which he deliberately lost $75 in playing a game of
poker with Truman, the former Prime Minister had turned events to the distinct
favor of England. The prototype of the CIA was established on the wartime
network of the London-trained OSS. American defense policy was based on joint
US-British sharing of intelligence and military defense secrets. Truman began
to purge his administration of any anti-British elements, most notably
Agriculture Secretary and anglo-phobe, Henry Wallace. US and British
intelligence agencies resumed close collaboration in many key
areas.
The Dollar Standard,
'Big Oil' and New York Banks
Anglo-American petroleum interests
emerged from the Second World War in a position enormously more powerful. In
the final agreement for a postwar New World Order in monetary and economic
affairs, hammered out between British and American negotiators in 1944 at
Bretton Woods, New Hampshire, Anglo-American hegemony over world petroleum
played a central role in the thinking of Lord Keynes and his American
counterpart, Harry Dexter White, Assistant U.S. Treasury Secretary.
The Bretton Woods System was to be
built around the ‘three pillars’ of an International Monetary Fund, whose
member country contributions would constitute an emergency reserve available in
times of balance of payment distress; a World Bank, which would loan to member
governments for large public projects, and a General Agreement on Tariffs and
Trade, designed to create a managed agenda of ‘free trade.’
But there were certain clauses
skillfully designed by Lord Keynes and his American counterparts, to ensure a
postwar Anglo-American hegemony over world monetary and trade affairs. First,
de facto voting control was given to the United States and Britain within the
IMF and World Bank. Second, Bretton Woods created what was called a Gold
Exchange System. Under this system, each member country's national currency was
pegged to the U.S. dollar. The U.S. dollar was in turn set at an official rate
of $35 per fine ounce of gold, the rate set by President Roosevelt in 1934,
during the depths of the Great Depression, and before a world war.
Because the New York Federal
Reserve Bank had accumulated the bulk of the world's official gold reserves
during the war, and because the Dollar emerged from the ravages of the war as
the world's strongest currency, backed by what was unquestionably the world's
strongest economy, few were in a position to argue with what amounted to a
postwar U.S. Dollar Standard.
Among those least inclined to
complain about the terms of the Bretton Woods monetary order, were the large
American petroleum companies, the Rockefeller companies of the Standard Oil
group, together with the Pittsburgh Mellon family's Gulf Oil. They had secured
a major stake in concessions for oil in the Middle East, above all in Saudi
Arabia. Partly through the clever diplomacy of President Roosevelt, and the
bungling of Britain's Winston Churchill, Saudi Arabia slipped from the British
grip during the war. Saudi King Abdul Aziz gained an unprecedented Lend-Lease
agreement in 1943 from Roosevelt, a gesture to ensure Saudi goodwill to
American oil interests after the war.
Roosevelt acted on advice of Harold
Ickes, then Petroleum Coordinator for National Defense, and the State
Department which in December 1942 had noted, ‘It is our strong belief that the
development of Saudi Arabian petroleum resources should be viewed in the light
of the broad national interest.’ This was the first time American national
security had been officially linked with the fate of the desert kingdom more
than 10,000 miles from its shores on the Persian Gulf. It was not to be the
last time. State Department planners realized that the implications were that
U.S. foreign policy, at least in key areas, might become more imperial, along
British lines of controlling strategic interests in lands far from its shores,
as the pillar of its postwar power. 1
But few other Americans realized
the implications in the first years after the end of the Second World War. They
were far too preoccupied with returning to normal life after depression and
war.
Marshall Plan forms
postwar oil hegemony
Little attention has been paid to
the role of oil in the postwar European Recovery Program, the Marshall Plan,
named after its architect, Secretary of State George C. Marshall. From its
inception in 1947, the largest single expenditure by ERP recipient countries in
Western Europe, was to use Marshall Plan dollars to purchase oil, oil supplied
by primarily American oil companies. According to official records of the State
Department, more than 10 percent of all U.S. Marshall aid went to buy American
oil.2
By the end of the war, U.S. the oil
industry had become every bit as international as its British counterpart. Its
main resources were in Venezuela, the Middle East and other far away places.
After the war, Big Oil, as the five U.S. companies were called--Standard Oil of
New Jersey (Exxon), Socony-Vacuum Oil (Mobil), Standard Oil of California
(Chevron), Texaco and Gulf Oil--moved to take decisive control of Europe's
postwar petroleum markets.
The ravages of war had severely
hurt European dependence on coal as the primary energy source. Germany had lost
her eastern coal reserves and coal output in the war-torn west was only 40
percent of prewar levels. British coal output was 20 percent below the level of
1938. The oil of eastern Europe fell behind what Churchill called the Iron
Curtain, inaccessible to the west. In 1947, half of all western Europe's oil
was being supplied by the five American companies.
The American oil majors did not
hesitate to take advantage of this remarkable opportunity.
Despite some Congressional inquiry
and mid-level bureaucratic protest at the obvious misuse of Marshall Plan
funds, the American oil majors forced Europe to pay a dear price, a very dear
price. They more than doubled the price they charged European customers between
1945 and 1948, going from $1.05/barrel to $2.22/barrel. Though the oil was
supplied from the inexpensive Middle East reserves of the U.S. companies, the
freight rates were calculated in a deliberately complex formula, tied to
freight rates from the Caribbean to Europe, a far higher cost.
Even within European markets, there
were staggering cost differences the companies charged. Greece was forced to
pay $8.30/ton for fuel oil, the same fuel oil for which Britain paid only
$3.95/ton. Further, the U.S. companies, with support of the Washington
government, refused to allow Marshall Plan dollars to be used to build
indigenous European refining capacity, further tightening the lock-grip of
American Big Oil on postwar Europe. 3
As the two major British oil
companies, Anglo-Persian and Shell recovered their capacities, the American
five were forced to expand to seven companies, parceling out the oil markets of
postwar Europe and the rest of the world. By the 1950's, the position of the
Anglo-American oil companies appeared unassailable. They controlled incredibly
cheap Middle Eastern supplies, and captive markets in Europe, Asia, Latin
America and North America.
The price of petroleum seemed a
constant of daily life during the 1950's. The companies reaped enormous profit
for their dollar sales of oil to the new world market. The automobile and its
surrounding industries had become the single largest component of the American
economy. U.S. tax dollars poured billions into construction of a national modern
highway infrastructure under the Eisenhower National Defense Highway Act, using
the pretext that fast motorways were required to flee cities in event of Soviet
nuclear war. The railroad infrastructure was greeted with neglect and allowed
to decay to the advantage of far less energy-efficient motor transport. This
was the time when a Secretary of defense, Wilson, former chairman of a major
Detroit automobile corporation, could say without flinching, ‘What's good for
General Motors is good for America.’ He should have added, good as well for
Exxon, Texaco and the oil majors. Oil had become the most important commodity
to fuel that economy.
The power of New York
Banks tied to U.S. Oil
A little-noted consequence of this
extraordinary global market grab by the major American oil companies following
the Second World War, was the parallel rise to international dominance of the
New York banking groups tied to oil. Increasingly since the period of the Dawes
reparations loans and related lending of the 1920's, New York banks had
oriented their business to the international arena, away from domestic finance.
As U.S. petroleum companies became an ever larger element in international oil
supply during World War II, New York banks benefited from the capital inflows of
world oil trade. The powerful New York banks exerted influence to modify the
original Bretton Woods scheme devised by Keynes and Dexter White to preserve
this advantage.
During the early 1950's, a wave of
little-noted New York bank mergers contributed to increase the already enormous
political and financial influence of the New York banks over domestic U.S.
policy. In 1955, Rockefeller's Chase National Bank merged with the Bank of
Manhattan and the Bronx County Trust to create the Chase Manhattan Bank. The
National City Bank of New York, also, like Chase, closely tied to the
international operations of the Standard Oil group, acquired the First National
Bank of New York to form the First National City Bank, later Citibank Corp.
Bankers' Trust took over the Public Bank & Trust, Title Guarantee &
Trust and several other regional banks to form another powerful group, while
the Chemical Bank & Trust merged with the Corn Exchange Bank and the New
York Trust Co. to form New York's third largest bank group, Chemical Bank New
York Trust, also tied to Standard Oil. J.P. Morgan & Co. merged in the same
time with Guaranty Trust Co. to form Morgan Guaranty Trust Co., the fifth
largest bank.
The net effect of this postwar
cartelisation of American banking and financial power into the tiny handful of
banks in New York strongly oriented to the fortunes of international petroleum
markets and policy, had enormous consequence for the following three decades of
American financial history, overshadowing all other policy influences in U.S.
and international policy, with the possible exception of the Vietnam war
deficit financing.
New York banks had traditionally
oriented abroad, but now it concentrated disproportionate power over world
finance unlike ever before. It resembled the power of the old London imperial
banking groups such as Midland Bank, Barclays and such. By 1961 the deposits
concentrated into the five largest New York banks were fully 75 percent of all
bank deposits of the entire metropolitan region, America's largest economic
region. 4
The membership of the
increasingly-influentiual New York Council on Foreign Relations during the
1950's, also reflected this concentration of financial and economic power. CFR
chairman was the Wall Street lawyer John J. McCloy, also chairman of Chase Bank
and a former lawyer for the Rockefeller Standard Oil interests.
While most Americans during the
early postwar years in the 1950's only dimly realized the ominous implications
of the concentration of economic and financial power into a small number of
hands in New York banking, corporations and related law firms, the point was
not lost on their English cousins in the City of London. American society was
increasingly being reshaped along lines of British ‘informal empire,’ with finance,
raw materials control and control of international terms of trade, rather than
the traditional American foundation of technological and industrial progress,
as its underpinning.
Mohammed Mossadegh
takes on Anglo-American oil
While Britain during the 1950's
appeared to be losing her most extensive attributes of Empire, she held
tenaciously to a re-ordered set of colonial priorities. Rather than stake all
on maintaining the extensive formal empire reaching to India, she regrouped
around the far more profitable empire of world oil and strategic raw material
control, with the assistance of the United States. Thus, Egypt, and the Suez
Canal, through which the bulk of Middle East oil flowed into Europe, became
strategic priority, as did maintenance of British interests in the
oil-producing Middle East Gulf, especially Iran, where the British Government,
through its Anglo-Iranian Oil Company, continued to hold a lock-grip on the
country's political and economic fortunes, despite the pressures of world war.
Since the earlier-described efforts
of the British at the time of William Knox d'Arcy in 1901-2 to gain monopoly of
Persian oil rights, Britain had fought like a tiger to control what became of
Iran's oil minerals. During the Second World War, Britain played an especially
perfidious role, persuading Stalin's Russia to join forces in invading Iran on
the flimsy pretext that presence of a handful of German engineers in the
neutral territory of Iran constituted a casus belli. A month after British and
Russian forces occupied Iran in August 1941, the Shah abdicated in favor of his
son, Mohammed Reza Pahlevi, who was disposed under the circumstances to
accomodate the Anglo-Russian occupation.
The British occupation forces,
later complemented by a smaller American contingent, sat idly by while their
wartime ‘ally’ Russia requisitioned most food supplies from the Northern zone
of Iran occupied by the Soviet army. Tens of thousands of Iranians died of
hunger while 100,000 Russian and 70,000 British and Indian troops were given
priority in supplies. Typhoid and typhus became epidemic. Diversion of supplies
along the Iranian railroad to carry Anglo-American Lend-Lease goods to Russia
during the winter of 1944-5 killed thousands more for want of heating oil in
the bitter winter. British policy during the entire period was systematic
humiliation of nationalist Iranian elements and the government, while
encouraging the most superstitious and feudal reaction inside the country.
In a desperate bid to seek help
from a third party, the Iranian government asked American aid, and in 1942 an
American military official, General M. Norman Schwartzkopf (father of the
commander of U.S. forces in the 1990-91 Operation Desert Storm), went to Iran
where he trained a national police force, for a six year period until 1948.
Schwartzkopf and his Iranian army contacts were to later prove crucial in the
toppling of Iran's nationalist Premier Mossadegh in August, 1953.
Despite the solemn declaration of
the wartime Teheran Conference, signed by Stalin, Churchill and Roosevelt
regarding the restoration of postwar Iranian sovereignty, Russia demanded an
extensive exclusive oil concession in the northern part of Iran bordering
Azerbaijan, while England demanded further concession for the government-linked
Royal Dutch Shell. In the midst of this blatant foreign blackmail from what
amounted to occupation forces on Iranian territory, in December 1944 Iranian
nationalist leader Dr. Mohammed Mossadegh introduced a bill in the Iranian
Parliament which would prohibit oil negotiations with foreign countries.
Mossadegh cited a November 2,
1944 Times of London editorial which proposed a postwar
partition of Iran among the three powers, England, Russia and the United
States. The resolution passed, but it explicitly left for a later debate the
resolution of the Anglo-Iranian Oil Company concession in southern Iran, the
old d'Arcy concession from 1901.
By 1948, following a bitter fight
including taking the case before the new United Nations, Iran had finally
succeeded in forcing a withdrawal of foreign troops from her soil. But the
country and its economy were still under the effective lock-grip of the British
Government through the Anglo-Iranian Oil Company. Iran's southern region
contained the richest oil province then known in the entire world, and it was
controlled under the exclusive concession given decades earlier to the British.
Since 1919 British administrative officials had de facto run the administration
of the country to secure this vital monopoly. Niceities of Iranian sovereignty
were pushed to the side.
But following the end of the Second
World War, with the anti-colonial movement emerging from India across Africa
into Asia, Iran no longer would tolerate such an abrogation of its national
sovereignty. In late 1947, the Government of Iran proposed to the Anglo-Iranian
Oil Co. to increase the ridiculously low revenue share Anglo-Iranian allowed
the Government of Iran for the world's most profitable oil exploitation.
Iran cited the case of Venezuela
where the American Standard Oil companies had agreed to pay 50-50 percent to
the government of Venezuela. Iran noted that had she had such terms, instead of
getting a paltry $36 million per year for draining its precious natural
resource, it would have accrued $100 millions, at that time a significant sum.
As it was, Iran calculated that Anglo-Iranian and the British were de facto
paying total royalties of a mere 8 percent of their net profit. Britain held
exclusive concession over a vast area comprising 100,000 square miles on which
it was refusing to engage in significant new exploration. Iran had calculated
that in 1948 on its production of 23 million tons of Iranian oil, the Anglo-Iranian
Oil Co. made a profit of $320,000,000, while paying Iran a royalty of
$36,000,000. The government of Iran suggested in light of the data presented,
that the original concession be renegotiated with the principle of justice and
fairness in mind. (5).
This suggestion was not greeted
with joy in London. BBC radio began broadcasting faked news accounts designed
to embarrass the Iranian Government by charging that Foreign Minister
Esfandiari had agreed to humiliating concessions to British Foreign Minister
Ernest Bevin for amending Iran's Constitution. That was only the initial
response.
The talks over changing the
Anglo-Iranian agreement dragged on through 1949 without significant concession
from the British side. Their strategy was to stall and delay, while working
always to weaken the Iranian government. But in Iranian parliamentary elections
towards the end of 1949, Dr. Mossadegh and his small National Front party
campaigned on the issue of the oil negotiation. The National front won six
seats in the new parliament and by December, Mossadegh was named head of a
Parliamentary Commission on the oil issue. Iran had asked 50-50 percent
profit-sharing as well as Iranian participation in the management of
Anglo-Iranian Oil Co. British refusal to meet Iran even half way continued, as
one government after another fell over the contentious issue in Iran until
April, 1951 when Mohammed Mossadegh was made Prime Minister. Contrary to
subsequent propaganda from various circles in Washington and London, Mossadegh
was not a proxy for the Tudeh communists or Russia or any wild extremist, but a
passionate patriot of Iran and a staunch enemy of Soviet Russia, whatever his
other faults may have been.
Already on March 15 the Iranian
Parliament, the Majlis, had voted to accept Dr. Mossadegh's commission
recommendation and nationalize, with fair compensation, the Anglo-Iranian Oil
Company. The final nationalization plan was approved by the Majlis the day
before Mossadegh was asked to form his government, on April 28, 1951.
In British eyes, Iran had committed
the unforgivable sin. It had effectively acted to assert national interest over
British interests. Britain promptly threatened retaliation and within days
British naval forces arrived near Abadan. Here the hypocrisy of the British
came to light. Previously, the British Foreign Office had refused to intervene
into negotiations between Anglo-Iranian Oil Co. and Iran, claiming it would not
interfere in the affairs of a ‘private company,’ despite the fact that 53
percent of Anglo-Iranian was held by His British Majesty's Government. Now,
with Anglo-Iranian nationalized by Iran, ‘the British government not only
intervened in the negotiation between Iran and the company but also backed up
its demands by dispatching units of the Royal Navy to Iranian waters, and
threatened the occupation of Abadan by paratroopers for the ostensible reason
of protecting British interests.’ Abadan was the site of the world's largest
oil refinery, part of Anglo-Iranian Oil Co. 6
In all the 28 months of Mossadegh's
premiership, the British labored under one overwhelming obstacle. Iran was
fully within its legal rights to nationalize a company on its territory so long
as she offered just compensation, which is what Mossadegh's government had
offered. As well, Iran would guarantee to Britain the same level of oil supply
she had enjoyed before nationalization, as well as offering to continue to
employ British nationals in Anglo-Iranian.
By September, 1951 Britain had
declared full economic sanctions against Iran, including embargo against
Iranian oil shipments as well as a freeze on all Iranian assets in British
banks abroad. British warships were stationed just outside Iranian coastal
waters as well as land and air forces to Basrah in British-controlled Iraq,
close to the Abadan refinery complex. The British embargo was joined by all the
major Anglo-American oil companies. Economic strangulation was to be the London
and Washington response to assertions of national sovereignty from developing
states which interfered with vital assets. British secret intelligence
corrupted informants within the Iranian central bank, Bank Melli, and other
parts of the government to gain a minute-by-minute reading of the exact effect
of their economic sanctions on the country.
Prospective buyers of nationalized
Iranian oil were warned by the Anglo-American oil companies they would face
legal action on grounds that a compensation agreement had not yet been signed
between Anglo-Iranian Oil Co. and Iran. This tortuous legal argument covered a
self-fulfilling strategy. The company and the British refused to sign any
compensation agreement. Meanwhile, as month rolled into month, the bite of the
embargo on Iran's fragile economy took hold, and the economic troubles
besetting Mossadegh's regime multiplied. The major source of the country's
export earnings, oil revenues plummeted from $400 million in 1950 down to less
than $2 million between July 1951 and the fall of Mossadegh in August
1953.
Mossadegh personally came to the
United States that September to address the UN Security Council, which timidly
voted to defer the matter, whereupon Mossadegh went to Washington in a vain
effort to enlist American help for his country's position. The major political
blunder made by Mossadegh was his lack of appreciation of the iron-clad cartel
relationship of Anglo-American interests around the vital issue of strategic
petroleum control. U.S. ‘mediator’ W. Averill Harriman had gone to Iran,
accompanied by a delegation packed with people tied to Big Oil interests,
including State Department economist Walter Levy. Harriman recommended Iran
accept the British ‘offer.’ When Mossadegh went to Washington the only
suggestion he heard from the State Department was to appoint Royal Dutch Shell
as Iran's management company.
When the British insisted the case
be brought before the World Court for arbitration, Mossadegh, himself educated
in law in Belgium and Switzerland, argued his country's case successfully and
the Court denied Britain jurisdiction, referring the matter back to Iran's
internal jurisdiction, on July 22, 1952.
Commenting on the situation,
journalist Ned Russell of the New York <I>Herald Tribune<P> in
October, 1952 noted accurately, there were few, if any, leaders of small
nations with Mossadegh's courage, who, watching their country suffer under a
massive financial and economic blockade imposed by Britain, and now the United
States, would tell Truman and Churchill, 'no.' Russell noted that Churchill's
ploy was to ‘pit the United States and Britain together against Dr.
Mossadegh.’
By 1953 Anglo-American intelligence
had its response ready. In May of that year, the new US President, Dwight
Eisenhower, turned down Mossadegh's request for economic aid, on advice of his
Secretary of State John Foster Dulles and the CIA chief, Allen Dulles. On
August 10, CIA Director Allen Dulles met with US Ambassador to Teheran, Loy
Henderson, and the Shah's sister in Switzerland. The same time Gen. Norman
Schwartzkopf, Sr. arrived in Teheran in August, 1953, after a five years
absence, to see ‘old friends.’ He was close to the Shah and to key army
generals he had earlier trained, who were being promised power in the event of
a successful coup against Mossadegh.
With the aid of royalist elements
in the Iranian armed forces, British and American intelligence staged a coup
and forced Mossadegh's arrest, his influence severely undermined by two years
of unrelenting Anglo-American economic warfare against the country, combined
with subversion of key support for the government. Britain's Secret
Intelligence Services had convinced the CIA's Allen Dulles and his brother,
Secretary of State John Foster, who then convinced Eisenhower, that the
overthrow of Mossadegh was indispensable.
The CIA, under code name Operation
AJAX, cooperated fully with British SIS in the overthrow of Mohammed Mossadegh
in August 1953. The young Reza Shah Pahlevi was backed by the Anglo-Americans
as opposition to Mossadegh. The Shah returned, and economic sanctions were
lifted. Anglo-American oil interests had prevailed and had shown what they were
prepared to do in the postwar era to anyone who tried to challenge their
mandate. Ironically, those same Anglo-American interests would turn on
the Shah himself some 25 years later. 7
The U.S.-Soviet Cold War period in
the immediate postwar years provided a marvelous opportunity to British and
American intelligence services. Any significant opposition which stood in the
way of major policy initiatives, could conveniently be painted with a red brush
as a communist or ‘communist-leaning.’ Nowhere was this easier to apply than
against little-known leaders of developing or newly-independent former colonial
nations. This was the tactic used by London and by Washington all too often
during the postwar decades. As a consequence, Mohammed Mossadegh was to become
known in western accounts as an irresponsible wild radical who was working with
communists against vital western strategic security.
Italy attempts independence
in oil and development
One European company expressed
interest in purchasing oil from Mossadegh's nationalized oil supply. This was
in Italy. More specifically, it was the founder of a new Italian state
enterprise, who later would cause severe headaches for the Anglo-American oil
cartel, Enrico Mattei.
Enrico Mattei had Entschlossenheit or
decisiveness in the classical Prussian meaning of the term. He was the leader
of the largest non-communist resistance organization in Italy during the Second
World War. When Alcide de Gasperi formed his Christian Democratic government in
1945, he named Mattei to become the head of the north Italian region for a
moribund entity created two decades earlier called Azienda Generale Italiana
Petroli, or AGIP.
Despite the fact that Italy had
switched sides in 1943, two years of Allied fighting and bombing up the
peninsula following more than two decades of Mussolini fascism, had left the
country in ruins. In 1945 Italy's Gross National Product was only at the level
of 1911, and had fallen in real terms by 40 percent from the level of 1938. A
large increase in population despite war losses, came as a result of
repatriation from lost colonies. Starvation threatened, and the standard of
living was alarmingly low.
In this situation, Enrico Mattei
set out to create indigenous energy resources to begin the reconstruction of
Italy's postwar economy. Despite a mandate to prepare AGIP for privatization as
rapidly as possible, Mattei set about to find oil and gas. This he did with an
aggressive exploration effort under the Po Plain in the north of Italy, with a
series of increasingly significant discoveries, first in 1946 near Caviaga,
then a major find south of Cremona at Cortemaggiore in 1949, where not only
natural gas but also the first oil in Italy was found. Mattei was given carte
blanche to build his enterprise after these finds, having become overall head
of AGIP.
Efforts by the jealous American oil
majors to co-opt this new rival in the Italian energy market were resisted.
Mattei was a staunch Italian nationalist determined to build the economy of the
nation as a self-sufficient country. The drain on the precious dollar reserves
of Italy to pay oil imports from the American and British oil majors, was the
largest problem in the postwar balance of payments deficit of Italy. Mattei
tackled this problem with a boldness which cut across awesome obstacles. A
2,500-mile long network of gas pipelines was constructed, to bring the natural
gas from Cortemaggiore into the industrial cities of Milan and Turin. The
revenues from the new gas finds were used to finance the expansion of the
industrial infrastructure of AGIP across Italy's industrial north.
It was Mattei, referring to the
ruthless cartelization of world oil markets, who coined the term, ‘Sette
Sorelle’ or Seven Sisters, to refer to the seven Anglo-American companies who
ruled the world of oil in the 1950's. Mattei was determined that Italy not be
subjugated to the power of these Seven, whom he accurately accused of pursuing
a worldwide policy of limiting production to maintain highest prices for their
holdings, and selling their crude to oil poor Europe at prices rigged to
maintain their production price in the expensive Continental United States.
Mattei set out to secure maximum production and supply at the lowest price
possible. Needless to say, he soon came into bitter conflict with those seven
powerful companies and their friends in government.
In February 1953 Mattei
successfully lobbied for passage of a new law which created a central
semi-autonomous state energy holding, Ente Natzionale Idrocarburi or ENI as it
came to be known. ENI, with Mattei as its founding president, subsumed AGIP for
oil and gas and refining, and the pipeline subsidiary SNAM and was soon to
develop tankers and a network of gasoline stations across Italy, surpassing
those of Esso and Shell in quality and customer service, the first to
incorporate modern restaurants and other conveniences. Using the same
development formula he had applied in AGIP, Mattei used the proceeds from ENI
to invest in construction of oil refineries, a giant chemicals plant, a
synthetic rubber plant using ENI natural gas as feedstock, a heavy engineering
subsidiary which constructed all ENI refineries and related infrastructure, as
well as acquisition of an oil tanker fleet to haul ENI crude oil from abroad,
independent of the Anglo-American shipping monopoly.
By 1958 total proceeds from ENI's
Italian natural gas sales alone topped the considerable sum of $75,000,000
yearly. This was money saved which otherwise would go to spend precious Italian
dollar reserves for import foreign oil and coal. Perhaps no single individual
accomplished more in the decade-and-half after the war to develop industry in
Italy. 8
As early as 1954, the U.S. Embassy
in Rome had become visibly alarmed at the activities of Enrico Mattei. ‘For the
first time in the economic history of Italy,’ stated an American Embassy
memorandum to Washington, ‘a government-owned entity has found itself in the
unique position of being financially solvent, capably led, and responsible to
no one other than its leader.’ 9
Mattei's bold
development initiative
If Mattei's efforts to secure
energy independence within Italy had irritated the Seven Sisters and
Anglo-American interests behind them, Mattei's growing efforts to secure
independent supplies of crude oil from abroad turned that annoyance into a
rabid hatred of the Italian industrialist. This, most notably, when the
Anglo-Americans learned what kind of negotiations the Mattei was willing to
sign with especially developing countries.
When the Shah of Iran returned
after the fall of Mossadegh with the active backing of British and American
intelligence, he did not move to completely undo the work of his defeated Prime
Minister. The National Iranian Oil Company was to remain a state entity with
control over all subsurface oil and gas reserves. But by April 1954, less than
a year after the coup, the Anglo-American companies, joined by their ‘little
sister,’ France's state-owned CFP, entered into negotiations with the
Government of Iran and NIOC to secure a 25 year participation agreement for
exploitation of oil on 100,000 square miles of Iranian territory.
Anglo-Iranian Oil, which that same
year changed its name to British Petroleum, was given the lion's share of its
old d'Arcy concession, or 40 percent. Royal Dutch Shell got the second largest,
14 percent, giving the British companies the majority or 54 percent of Iran's
output from the area. The American majors divided 40 percent of the oil
including among them a handful of selected ‘independents’ which were part of
the old Standard Rockefeller group. France's CFP got 6 percent. Mattei
approached the Seven Sisters to discuss a small ENI participation in the Iran
concession, and was given what he later called a ‘humiliating’ rejection by the
Anglo-Americans.
Not to be thwarted, in 1955, a year
before Britain's own humiliation at Suez, Mattei entered into successful
negotiations with Egypt's new nationalist leader Gamal Abdel Nasser. ENI
secured a share of the concession to develop the oil of Egypt's Sinai
peninsula, which by 1961 had grown into a considerable volume of some 2.5
million tons/year of crude oil, the vast bulk of which was then refined in ENI
refineries to fill the rapidly expanding demand in Italy for petroleum, all
without having to be paid for in scarce US dollars.
But Mattei's real challenge to the
Anglo-American major oil companies came in Iran in 1957. Mattei began
negotiations in the spring of 1957 with the Shah for an unprecedented
arrangement. Under its terms, the National Iranian Oil Company was to be
partner with ENI in a deal whereby Iran got 75 percent of total profits, ENI 25
percent in a new joint venture, Societe Irano-Italienne des Petroles (SIRIP),
which had a 25-year exclusive right to explore and develop on some 8,800 square
miles of promising petroleum prospects in the non-allocated regions of Iran. A
senior British official stated at the time, ‘The Italians are determined
somehow or another to muscle in on Middle East oil.’
The view of Washington and London
was much the same as that of the Seven Sisters. Mattei's revolutionary
initiatives, if allowed to go unchecked, would upset the entire global world
oil order. The standard agreement from the major US and UK companies with developing
countries was 50-50 percent on the crude oil, with ample margin for
manipulation of downstream profits built in. If Mattei were ‘let into the club’
of the Sisters, they feared that Belgian and German and other companies would
also demand a rightful share of oil possibilities. Thus, the US and British
governments officially protested to the Shah's government against the pending
deal with Mattei.
But to no immediate avail. In
August, 1957 Mattei and the Iranians had secured their revolutionary agreement.
Speaking about the potentials of his new contract, Mattei declared his view
that ‘the Middle East should now be industrial Europe's Middle West,’
signalling his intention of using the oil agreement as a first step towards the
European building of significant industrial and technological infrastructure in
the Middle East.
By March 1961 the first ENI oil
tanker, ‘Cortemaggiore,’ landed at the Italian port Bari, with the first fruits
of the new Iranian partnership, 18,000 tons of crude oil from the Persian Gulf.
Mattei had pioneered some of the first successful underwater oil explorations
in his SIRIP joint venture.
Inside Italy itself, Mattei
continued pressure on the Seven Sister companies through a policy of
progressive price reductions at the gasoline pump for consumers, as well as
persuading the Italian government to reduce the severely high excise tax on
gasoline. As a direct result of this policy, in which the Anglo-American
companies were forced reluctantly to acquiesce, gasoline prices in Italy
dropped 25 percent between 1959 and 1961, a factor which is credited with
significantly aiding Italy's first real postwar economic
revival.
And outside Italy, Mattei continued
an active foreign policy of seeking out those regions which had been
deliberately neglected by the Anglo-Americans as ‘too small’ to warrant
attention. ENI and Mattei personally went to newly-independent countries of Africa
and Asia, and discussed prospects unlike any then being offered these forgotten
former colonies.
Mattei would build local oil
refineries in the given country, which would then be owned by the country. This
broke with the ironclad Seven Sister control of the vastly more lucrative
refining end of the business. The supplier country would no longer be merely a
primitive raw material source, but would begin to develop the basis of modern
indigenous industry from the proceeds of its mineral wealth. In return, ENI
would get a guaranteed return on its capital invested in the country, it would
secure the exclusive engineering and construction contracts for the refining
facilities, as well as being the exclusive worldwide marketer for the oil.
But it was in October, 1960 that
Enrico Mattei blew the fuses inside the White House and 10 Downing Street, as
well as in the headquarters of the Seven Sisters. Italy's leading
anti-communist resistance leader, life-long Christian Democrat, Enrico Mattei,
was in Moscow. Once again, Moscow and the vast Russian petroleum resources
became the focus of European negotiations as in the 1920's at Rapallo. And,
once again, the Anglo-Americans stood dead opposed to the success of the
negotiations.
Since 1958, ENI had contracted to
buy a small volume of crude oil from the Soviet Union, less than 1 million tons
annually. But word leaked out in the West that a far more ambitious undertaking
was being discussed in Moscow between Mattei and Soviet Foreign Trade Minister
Patolitschev. On October 11, 1958 Mattei signed an agreement whereby, in
exchange for guaranteed delivery of 2.4 million tons of Soviet oil annually,
over a five year period, ENI would ensure a significantly expanded Soviet oil
export capability into the West. The oil would not be paid in cash, but rather
in kind, in the form of deliveries of large-diameter oil pipe. This would
enable construction of a huge pipeline network bringing Soviet oil from the
Volga-Urals into Czechoslovakia, Poland and Hungary. When complete, that
pipeline network would bring some 15 million tons annually of Soviet crude oil
into Eastern Europe, where it was to be exchanged for industrial goods and food
products to the USSR. At that time the USSR had a desperate need for large
diameter oil pipe, and lacked capacity to produce such in the necessary volume
and quality.
ENI secured the support of the
Italian Government and the state-owned Finsider Group was commissioned to build
a new steelworks in Taranto with a capacity to deliver 2 million tons of large
diameter pipe annually. The Taranto plant was rushed into completion, and began
to produce pipe for the Soviet market by September 1962.
Italy was able to buy crude oil
from the Soviet Union at a price of $1.00/barrel f.o.b. Black Sea, compared with
a cost in Kuwait of $1.59/barrel plus an added $ .69/barrel for shipping costs,
and for the United States in the early 1960's for oil of comparable quality of
$2.75/barrel. With the added boost of new jobs in the Italian steel and
chemicals sector, few in Italy were alarmed at charges in certain American and
British press that Mattei was a ‘crypto-communist’ or at the very least had
become a ‘fellow traveler’ with Moscow. 10
One month after the Finsider pipe
works began rolling steel for Soviet pipelines, on October 27, 1962, under
circumstances which to the present day stir speculation and charges of
deliberate sabotage, the private airplane carrying Enrico Mattei crashed after
taking off from Sicily en route to Milan, killing all three on board.
Mattei was fifty six, at the peak
of his powers. The Rome CIA Station Chief at that time, Thomas Karamessines,
left Rome suddenly afterwards without explanation. He was later
instrumental in the Chilean coup against Salvador Allende. It is perhaps mere
coincidence, but CIA chief John McCone, at the time of Mattei's suspicious
death, held more than $1 million in shares in Standard Oil of California
(Chevron). A detailed report dated 28 October 1962 from Karamessines on the
Mattei assassination has never been made public by the U.S. Government, which
cites ‘matters concerning national security’ as reason for its
refusal.
Before his death Mattei had managed
to secure construction of Italy's first nuclear power test reactor, and had
created a new subsidiary of ENI, called ENEL, a state electricity utility to
work in the development of the country's electric grid with ambitious plans for
nuclear energy well in view. As well, in addition to his agreements with Iran,
Egypt and the Soviet Union for oil supply, he had signed similar developmental
agreements with Morocco, Sudan, Tanzania, Ghana, India and Argentina.
In noting Mattei's death, the
London Economist, the weekly of the British financial
establishment founded to open the way for Corn Laws repeal in the 1840's, and
owned by the trust of Royal Dutch Shell's Lord Cowdray, had the following
editorial comment. ‘Just how great or how sinister a man Enrico Mattei was will
long remain the subject of passionate debate: put him somewhere between (Royal
Dutch Shell's) Deterding and Kreuger (Ivar Kreuger, Swedish financier who died
in 1931 also under suspicious circumstances). But it is difficult to think of
any other man in world oil or in Italy, the areas where Mattei cast the longest
shadow, whose abrupt subtraction from the scene might make as much difference
to either.’ The New York Times called him, ‘the most important
individual in Italy,’ who more than any other individual had been responsible
for Italy's postwar ‘Italian economic miracle.’11
At the time of his death, Mattei
had been preparing for a trip to meet with the President of the United States,
John F. Kennedy, who was then pressing the US oil companies to reach some form
of detente with Mattei. The agenda of that Kennedy-Mattei talk was not to be realized.
One can only speculate at the possibilities. Instead, in little more than a
year, Kennedy himself was assassinated, the trail of blood also leading to the
door of U.S. intelligence, through a complex web of organized crime
cutouts.
Footnotes:
(1) United States National Archive.
890F.24/20. ‘Memorandumof Alling to A.A. Berle and Secretary of State Dean
Acheson.’ 14 December 1942.
(2) ‘ECA and MSA Relations with
International Oil Companies Concerning Petroleum Prices.’ U.S. Senate Select
Committee on Small Business. 82nd Congress, 2nd session.
1952.
(3) Painter, David S. ‘Oil and the
Marshall Plan.’ Business History Review. No. 58. (autumn 1984). Harvard
University.
(4) De Cecco, Marcello. ‘International Financial Merkets and US Domestic
Policy Since 1945.’ London: International Affairs, Jan. 1976. vol. 52, #
1.
(5) Fatemi, Nasrollah S. ‘Oil
Diplomacy: Powderkeg in Iran.’ New York: Whittier Books, Inc.
1954.
(6) Ibid.
p.342.
(7) Zabih, Sepehr. ‘The Mossadegh
Era.’ Chicago: LakeView Press. 1982.
(8) Joesten, Joachim. ‘Oelmaechte im Wettstreit.’ Verlag August Lutzeyer,
Baden-Baden.1963.
(9) United States National Archives. Department of State. Memorandum on ‘Enrico
Mattei and the ENI.’ Dec. 16, 1954. NA RG 59.
865.2553/12-1654.
(10) Joesten, Joachim. Op cit. pp.
108-112.
(11) The Economist. ‘ENI Minus Mattei.’ Nov. 5 1962, p. 499.
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