7 HOW OPEC STARTED, AND GREW, AND ENGINEERED THE GREATEST TRANSFER OF WEALTH IN WORLD HISTORY

W a n d a J a b l o n s k i a n d I are b e n t o v e r t h e coffee table in h e r a p a r t m e n t . W a n d a is a lady of considerable k n o w l e d g e a n d i n f l u e n c e i n t h e oil t r a d e , a s t h e p r o p r i e t o r a n d p u b l i s h e r of t h e Petroleum Intelligence Weekly. S h e is also a l a d y of s o m e g u m p t i o n , as she started a n d built up that public a t i o n a l o n e , b e f o r e t h e t o p b u s i n e s s s c h o o l s let i n w o m e n a n d t h e c u r r e n t batch o f w o m e n e n t r e p r e n e u r s was t r a i n e d . W a n d a a n d I a r e a b o u t to r u n , jointly, a colloq u i u m called " T h e I m p a c t o f O P E C Pricing o n W e s t e r n E c o n o m i e s , " u n d e r the s p o n s o r s h i p of a f o u n d a t i o n . Serio u s n u m b e r s c r u n c h e r s f r o m all o v e r will b e a r r i v i n g : t h e chief economists of E x x o n a n d Mobil, some experts on the 144

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M i d d l e East, p e o p l e from the i n t e r n a t i o n a l b a n k s a n d the F e d a n d s m a l l e r oil c o m p a n i e s , a n d e v e n a d a s h o f E u r o peans. I t s e e m s t o m e s o m e t i m e s t h a t all I d o i s t o w o r r y a b o u t the I m p a c t of O P E C Pricing on W e s t e r n Economies. I can r e m e m b e r w h e n the dollar was King C u r r e n c y a n d Saudi A r a b i a w a s w h e r e t h e y h a d c a m e l r a c e s . A few s h o r t y e a r s l a t e r , fifty m e n i n R i y a d h , m a y b e n o t e v e n fifty, c a n d e c i d e w h e t h e r w e will b e i n a d e p r e s s i o n o r n o t ; t h e b a n k i n g s y s t e m i s i n j e o p a r d y , m o n e y h a s g o n e f r o m solid t o l i q u i d to gas, sovereign countries a r e flirting with b a n k r u p t c y , a c h e a p h o u s e costs $ 1 0 0 , 0 0 0 , a n d Milton F r i e d m a n i s h o p i n g t h a t e v e r y b o d y will f o r g e t t h a t h e s a i d , i n 1 9 7 4 , t h a t O P E C w o u l d c o l l a p s e a n d oil w o u l d n e v e r g e t u p t o $ 1 0 a barrel. We have seen the greatest transfer of wealth in the history of t h e world, practically w i t h o u t a shot b e i n g fired. I f w e k n o w w h e r e t h e p r i c e o f oil i s g o i n g , w e h a v e s o m e c l u e s a s t o w h e t h e r t h e b a n k i n g s y s t e m will s u r v i v e , a n d w h e t h e r t h e $ 1 0 0 , 0 0 0 h o u s e i s g o i n g t o cost $ 5 0 0 , 0 0 0 o r $ 5 , 0 0 0 , a n d w h a t h a p p e n s t o t h e stock m a r k e t a n d central h e a t i n g a n d W e s t e r n civilization. So I am g o i n g to ask o u r c o n f e r e n c e my usual q u e s t i o n s : C a n O P E C hold together? C a n they m a n a g e the price? W h e r e d o y o u t h i n k t h e p r i c e will g o ? T e n y e a r s a g o i t w a s $ 1 . 8 0 a b a r r e l , a n d t h e n t h e y q u a d r u p l e d it, a n d t h e n i t w a s a t $ 1 2 . 7 0 f o r a w h i l e , a n d a t c o n f e r e n c e t i m e it's $ 2 8 . W h e r e n e x t ? Fifty d o l l a r s a b a r r e l ? A h u n d r e d ? W h a t a b o u t M e x i c o a n d C a n a d a a n d t h e oil o u t s i d e O P E C ? Won't that help? A n d so on. T h e n o u r plan is to bounce all t h e oil n u m b e r s i n t o t h e f i n a n c i a l g r o u p , t o s e e i f t h e world's b a n k i n g system can survive O P E C . W a n d a b r u s h e s a b l o n d lock f r o m h e r f o r e h e a d . " D o y o u k n o w w h e r e O P E C s t a r t e d ? " s h e says. I say B a g h d a d , 1 9 6 0 , b e c a u s e i n m y f i l e s a r e all t h e O P E C u t t e r ances a n d that is w h e n they start. " N o , in my suite o u t at t h e Nile H i l t o n in 1959, because

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that was w h e r e I i n t r o d u c e d Perez Alfonso to A b d u l l a h Tariki." "Did you have to?" I asked, because it seems to me that t h i s i s a bit like s a y i n g t h a t y o u w e r e t h e o n e w h o g a v e A d m i r a l Y a m a m o t o the g u i d e d t o u r o f Pearl H a r b o r back b e f o r e h e h a d that i d e a . " O h , i t w o u l d h a v e h a p p e n e d anyway," W a n d a said.

The Man Who Invented OPEC

I n d e e d it w o u l d . F o r O P E C d i d not really b e g i n in t h e M i d d l e East, a n d it was not really i n v e n t e d by t h e A r a b s . T h e O P E C story is almost u n k n o w n in this c o u n t r y , a n d it is full of i r o n i e s , n o t t h e least of w h i c h is t h e w a y it w a s modeled on one of o u r own institutions. T h e m a n w h o invented O P E C was a precise, scholarly V e n e z u e l a n lawyer called J u a n Pablo Perez Alfonso. T h e four n a m e s do not s o u n d as four in Spanish; J u a n Pablo is John-Paul, and in the Spanish form Perez is the patron y m i c a n d Alfonso t h e m a t r o n y m i c . J u a n Pablo P e r e z Alfonso was b o r n in C a r a c a s in 1903, t h e g r a n d s o n of a p r o s p e r o u s coffee g r o w e r a n d i m p o r t e r . B y t h e time h e w a s i n his t e e n s , h o w e v e r , h i s f a t h e r w a s h a v i n g t r o u b l e with the i m p o r t i n g firm, a n d J u a n Pablo h a d t o leave t h e university for several t e r m s to h e l p in t h e family business. A s t h e o l d e s t s o n , h e also h a d t o t a k e t h e r e s p o n s i b i l i t y f o r his e l e v e n b r o t h e r s a n d s i s t e r s . R e s p o n s i b i l i t y a t a n e a r l y age, a n d limited resources, p r o d u c e d a careful attitude in J u a n Pablo toward those resources. Perez Alfonso went back to the Central University in C a r a c a s a n d g r a d u a t e d w i t h a law d e g r e e , o l d e r , b e c a u s e o f t h e i n t e r r u p t i o n s , t h a n a n y o t h e r m e m b e r o f h i s class. H e t a u g h t civil law, b e c a m e a city c o u n c i l m a n a n d , i n 1 9 3 8 , a c o n g r e s s m a n . H e a p p e a r s , i n e a r l y p i c t u r e s , a s a slim, h a n d s o m e m a n , his h a i r l i n e a l r e a d y r e c e d i n g . L a t e r h e

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was to grow the prototypical Latin pencil m u s t a c h e a n d to w e a r t h e h o r n - r i m m e d glasses f a v o r e d b y L a t i n A m e r i c a n intellectuals. I t w a s n a t u r a l f o r V e n e z u e l a n s t o b e c o n c e r n e d w i t h oil. V e n e z u e l a w a s t h e w o r l d ' s l e a d i n g oil e x p o r t e r , a n d oil p r o v i d e d t h e b u l k o f t h e g o v e r n m e n t ' s r e v e n u e s . T h e first m a j o r oil s t r i k e h a d b e e n i n 1 9 2 2 , s o oil h a d b e e n a p r e s e n c e for n e a r l y two d e c a d e s by t h e t i m e Perez Alfonso got to C o n g r e s s . Perez Alfonso was a l e a d i n g m e m b e r of t h e Accion Democratica, a n e w o p p o s i t i o n p a r t y , a n d h e m a d e h i m s e l f h i s p a r t y ' s oil e x p e r t , a s well a s s o m e o n e w h o c o u l d t u r n o u t a closely r e a s o n e d j u r i d i c a l t h e s i s . Perez Alfonso h a d a h a n d in framing the 1943 Venezuel a n oil law, w h i c h V e n e z u e l a n s c o n s i d e r a l a n d m a r k . W h e n t h e Accion Democratica w o n t h e e l e c t i o n i n 1 9 4 5 , t h e r e former Romulo Betancourt became president, and Perez Alfonso became Minister of Mines a n d Hydrocarbons, the oil m i n i s t e r . P e r e z A l f o n s o ' s first a c t i o n w a s t o c u t h i s o w n salary 2 0 p e r c e n t a n d t o suggest t h a t t h e o t h e r ministers cut theirs, so that the people would know the reform party was serious. Perez Alfonso's next action was to s e n d for t h e chief e n g i n e e r of the T e x a s Railroad C o m m i s s i o n . Even in 1945 P e r e z A l f o n s o saw oil a s a f i n i t e r e s o u r c e , a n d h e w a n t e d to apply the conservation techniques of the Texas Railroad C o m m i s s i o n w i t h r e g a r d t o g a s f l a r i n g , h o w m u c h oil t o t a k e o u t of a r e s e r v o i r , a n d t h e safest p r o c e d u r e for a b a n d o n i n g a well. It s o u n d s s t r a n g e to have an agency called t h e T e x a s Railroad C o m m i s s i o n c o m e i n t o t h i s s t o r y , u n t i l y o u r e a l i z e t h a t i t i s a l s o t h e oil c o m m i s s i o n . I n t h e 1 9 3 0 s t h e r e w a s s o m u c h oil b e i n g p r o d u c e d i n T e x a s t h a t t h e m a r k e t w a s chaotic, t h e price s o m e t i m e s as low as 10 cents a b a r r e l . In t h e c o m p e t i t i v e f e r v o r , oil m e n d r i l l e d i n t o e a c h o t h e r ' s leases, t h e legs of the d e r r i c k s s o m e t i m e s o v e r l a p p e d , a n d the engineers complained about depletion and wastage.

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T h e T e x a s oil i n d u s t r y t u r n e d t o t h e s t a t e g o v e r n m e n t f o r h e l p a n d s u p p o r t e d a m o v e t o give t h e T e x a s R a i l r o a d C o m m i s s i o n w h o s e b u s i n e s s h a d b e e n , o b v i o u s l y , railroad regulationthe power to regulate drilling and prod u c t i o n . T h e r a t i o n a l e f o r t h e activities o f t h e c o m m i s s i o n was c o n s e r v a t i o n , a n d t h e c o m m i s s i o n did e n f o r c e rules to p r o l o n g t h e life o f t h e wells. T h e e x i s t e n c e o f t h e c o m m i s sion was a t r i b u t e to t h e political p o w e r of t h e i n d e p e n d e n t oil m e n . T h e r e w e r e , i n T e x a s , m a j o r oil c o m p a n i e s t h a t n o t o n l y d r i l l e d f o r oil b u t r e f i n e d i t a n d m a r k e t e d i t t h r o u g h t h e i r o w n g a s o l i n e s t a t i o n s a n d sales a g e n t s . T h e r e w e r e also i n d e p e n d e n t oil m e n w h o o n l y d r i l l e d , a n d t h e n sold oil i n the marketplace. Sometimes the independents and the m a j o r s w o u l d h a v e wells t a p p e d i n t o t h e s a m e p o o l o f oil, like t w o s t r a w s i n a d r i n k , s i n c e t h e u n d e r g r o u n d oil n a t u r a l l y d i d n o t follow t h e c o n t o u r s o f t h e s u r f a c e o w n e r s h i p . I f t h e d e m a n d s l u m p e d , t h e m a j o r oil c o m p a n y c o u l d k e e p lifting oil, b e c a u s e i t h a d its o w n o u t l e t s t o sell t h r o u g h . T h e i n d e p e n d e n t s , if they had to stop drilling b e c a u s e t h e r e was n o m a r k e t , w o u l d t h e n c o m p l a i n t h a t t h e m a j o r w a s s u c k i n g u p t h e i r oil. T h e i n d e p e n d e n t s were m u c h smaller than the majors, but, as individuals, some of t h e m were multimillionaires, m u c h r i c h e r t h a n a n y oil c o m p a n y e x e c u t i v e , a n d h e n c e a b l e t o s p e n d well i n p o l i t i c a l c o n t r i b u t i o n s . H . L . H u n t a n d J o h n M e c o m were a m o n g the i n d e p e n d e n t s , a n d they were to be a m o n g the richest p e o p l e in the country. So the i n d e p e n d e n t s could get their cause to be h e a r d . T h e T e x a s R a i l r o a d C o m m i s s i o n d i d n o t set a p r i c e f o r oil, b u t i t d e t e r m i n e d w h a t c o u l d b e p r o d u c e d . T h e e a r l y a p p o i n t m e n t s t o its b o a r d d e v e l o p e d a r e p u t a t i o n f o r fairn e s s , f r o m t h e p o i n t o f view o f t h e p r o d u c e r s . W h e n t h e d e m a n d d r o p p e d , the Texas Railroad Commission gathe r e d the industry a n d polled it as to what the real d e m a n d m i g h t b e . I t t h e n set a n a l l o w a b l e r a t e o f p r o d u c t i o n , s o

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m a n y d a y s p e r m o n t h , t h a t oil c o u l d b e p r o d u c e d . T h u s c o n s e r v a t i o n p r o d u c e d a m e c h a n i s m for stabilizing t h e market. I f t h e p r i c e o f oil s t a r t e d t o s a g , t h e T e x a s R a i l r o a d Commission would reduce the n u m b e r of days per m o n t h t h a t oil c o u l d b e p r o d u c e d . " I t b e c a m e t h e policy o f t h e C o m m i s s i o n , " Fortune w r o t e i n 1 9 5 9 , " t o k e e p oil p r i c e s h i g h e n o u g h f o r t h e 'little m a n ' t h e m a r g i n a l T e x a s p r o d u c e r t o m a k e m o n e y . T h i s of course was a wonderful a r r a n g e m e n t f o r t h e n o n m a r g i n a l (i.e., t h e m a j o r ) U . S . p r o d u c e r s . It enabled t h e m to clear as m u c h as 50 per cent p e r a n n u m . A n d i t was e v e n m o r e w o n d e r f u l for t h e major companies overseas." It was w o n d e r f u l for t h e c o m p a n i e s overseas because t h e T e x a s price was t h e A m e r i c a n price, called t h e "Gulf" price, back w h e n the Gulf m e a n t the Gulf of Mexico, not t h e P e r s i a n G u l f o r t h e A r a b i a n Gulf. A n d t h e T e x a s p r i c e b e c a m e t h e w o r l d p r i c e , s o oil w a s l e a v i n g t h e o t h e r Gulf, t h e P e r s i a n Gulf, i n t h e t a n k e r s o f E x x o n ( t h e oil c o m p a nies, to p r e v e n t confusion, are h e r e called by their c u r r e n t n a m e s ) a n d Gulf, a t $ 1 . 8 0 a b a r r e l t h e T e x a s p r i c e w h e n it cost only 10 c e n t s a b a r r e l . T h e t r o u b l e w a s t h a t s o m u c h oil w a s b e i n g f o u n d i n t h e world that t h e "Gulf" price, o u t of T e x a s , wasn't always sticking. S o m e b o d y was always trying to cut the price. T h e Texas Railroad Commission could keep the American p r i c e u p b y o r d e r i n g a c u t b a c k i n p r o d u c t i o n , b u t oil c o u l d still l a n d i n t h e U n i t e d S t a t e s f r o m a b r o a d , a n d m o v e c h e a p l y . T h e A m e r i c a n oil c o m p a n i e s t h e n l i m i t e d i m ports, by voluntary agreement, which later became m a n datory by order of the U.S. government. They c o n s t r u c t e d , said t h e British e c o n o m i s t Paul F r a n k e l , " a n invisible d i k e a g a i n s t t h e o u t s i d e w o r l d . " In 1948 the military dictatorship of Perez J i m i n e z took over in Venezuela, a n d J u a n Pablo Perez Alfonso went

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i n t o e x i l e , first i n W a s h i n g t o n , D . C . , a n d t h e n i n M e x i c o City. H e lived m o d e s t l y , w r i t i n g tracts a n d articles, s o m e t i m e s r e c e i v i n g checks f r o m his real estate in C a r a c a s . His c h i l d r e n r e m e m b e r h i m p r o w l i n g t h e h o u s e , s n a p p i n g off t h e t e l e v i s i o n set, a n d t e l l i n g t h e m t o d o s o m e t h i n g u s e f u l . P e r e z A l f o n s o w a s i n exile f o r t e n y e a r s , r e a d i n g , w r i t i n g , a n d s t u d y i n g t h e activities o f t h e T e x a s R a i l r o a d C o m m i s sion. T h i s is a p a r a p h r a s e of what he w r o t e : V e n e z u e l a i s n o t i n c o n t r o l o f its o w n d e s t i n y . I t o u g h t to be. We may be the richest c o u n t r y in Latin America, but w e still h a v e p o o r p e o p l e , a n d t h e oil will n o t last f o r e v e r . L a k e M a r a c a i b o d r o p s a f o o t a y e a r , w i t h all t h a t oil p u l l e d f r o m u n d e r it. T h e n t h e m o n e y c o m e s b a c k t o u s a t levels w e d o n ' t c o n t r o l , d e p e n d i n g o n t h e w o r l d oil m a r k e t . S o m e t i m e s t h e r e isn't e n o u g h , a n d s o m e t i m e s t h e r e ' s t o o m u c h all a t o n c e a n d i t spills i n t o h i g h l i v i n g i n C a r a c a s . Everything should match neatly: the supply, the d e m a n d , a n d t h e m o n e y f o r social n e e d s . I f V e n e z u e l a w a s n o t i n c o n t r o l o f its o w n d e s t i n y , w h o was? T h e I n t e r n a t i o n a l O i l C a r t e l ; i f t h e V e n e z u e l a n s g a v e it any trouble, the cartel simply cut back in Venezuela a n d t o o k t h e oil f r o m s o m e w h e r e e l s e i n its vast e m p i r e . F o r most of V e n e z u e l a n history, t h o u g h , the relationships bet w e e n t h e oil c o m p a n i e s a n d t h e V e n e z u e l a n g o v e r n m e n t h a d b e e n s o cozy that n o s u c h action was necessary. T h e c a r t e l m e m b e r s o p e r a t i n g i n V e n e z u e l a w e r e E x x o n , Gulf, T e x a c o , Royal Dutch, a n d Mobil. T h e cartel h a d been f o r m e d in S e p t e m b e r 1928, w h e n Sir H e n r i D e t e r d i n g , t h e c h a i r m a n o f R o y a l D u t c h / S h e l l , invited t h e h e a d s of E x x o n (then S t a n d a r d Oil of N e w J e r s e y ) a n d B r i t i s h P e t r o l e u m t o his e s t a t e i n A c h n a c a r r y , Scotland, ostensibly for s o m e g r o u s e shooting. W h a t the g r o u s e shooters did, however, was to a g r e e on an unsigned d o c u m e n t t h a t specified p r i n c i p l e s for e l i m i n a t i n g " d e structive competition." T h e t h r e e original m e m b e r s later a d m i t t e d T e x a c o , Gulf, M o b i l , a n d S o c a l S t a n d a r d o f

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C a l i f o r n i a t o m a k e u p w h a t E n r i c o M a t t e i , t h e I t a l i a n oil m a n w h o could not b r e a k their grip, called the "Seven Sisters." In 1952 the United States Federal T r a d e C o m m i s s i o n r e p o r t e d t h a t t h e c a r t e l " c o n t r o l l e d all t h e p r i n c i p a l oil p r o d u c i n g a r e a s o u t s i d e t h e U n i t e d S t a t e s , all f o r e i g n r e fineries, patents, and refinery technology, and divided w o r l d m a r k e t s b e t w e e n [sic] t h e m . " T h e c o m m i t t e e s o f t h e c a r t e l , i n L o n d o n a n d N e w Y o r k , set p r o d u c t i o n q u o t a s a n d c o o r d i n a t e d d i s t r i b u t i o n o f t h e w o r l d ' s oil. A D e p a r t m e n t of Justice lawyer called t h e cartel a g r e e m e n t "a g r a n d policy b l u e p r i n t for a c o r p o r a t e w o r l d g o v e r n m e n t of the petroleum industry." T h e D e p a r t m e n t of Justice c r i m i n a l a n t i t r u s t case against t h e f i v e A m e r i c a n m e m b e r s , i n 1 9 5 2 , w a s l a t e r d o w n g r a d e d t o a civil c o m p l a i n t a n d settled by consent. W h e n the S h a h , with C I A assistance, deposed Iran's Prime Minister Mossadegh in 1953, the United States National Security Council, Action M e m o r a n d u m 875b, o r d e r e d "a solution which would protect the interests of t h e free w o r l d in t h e N e a r East" a n d , in effect, g o t t h e D e p a r t m e n t o f J u s t i c e t o d r o p its a n t i t r u s t a c t i o n s s o t h a t t h e oil c o m p a n i e s c o u l d act i n c o n c e r t i n I r a n . N o n e o f t h i s w a s lost o n J u a n P a b l o P e r e z A l f o n s o ; h e s t u d i e d it i n t e n t l y f r o m his exile h o u s e s in W a s h i n g t o n a n d Mexico. S o m e of t h e history was n o t m a d e public until the mid-1970s, w h e n the Senate S u b c o m m i t t e e on Multinational Corporations, chaired by Senator Frank Church, h e l d its h e a r i n g s . B y 1 9 5 9 t h e V e n e z u e l a n m i l i t a r y j u n t a h a d fled t h e c o u n t r y , its s u i t c a s e s s t u f f e d w i t h c a s h , a n d R o m u l o B e t a n c o u r t was back as El P r e s i d e n t e , a n d J u a n P a b l o P e r e z A l f o n s o w a s b a c k a s h i s oil m i n i s t e r . ( B e t a n c o u r t , his a d m i r e r s later said, was t h e only V e n e z u e l a n ever to leave the presidency with a n e t w o r t h of $383.) J u a n Pablo Perez Alfonso got on the p h o n e to Austin, T e x a s , a n d i n v i t e d o n e o f t h e m e m b e r s o f t h e T e x a s Railr o a d C o m m i s s i o n t o c o m e f o r a visit, t o d i s p e n s e a d v i c e

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a n d c o u n s e l . T h e n h e b e g a n t o issue directives i n his c r a m p e d , careful h a n d . F i r s t , h e p a i d h i s r e s p e c t s t o c o n s e r v a t i o n , i n t h e style o f the Texas Railroad Commission. N e x t , h e said t h a t h e w a n t e d , o n b e h a l f o f V e n e z u e l a , " t o a v o i d m o n e t a r y losses d u e t o u n j u s t i f i e d p r i c e r e d u c t i o n s . " T h a t m e a n s j u s t w h a t i t s o u n d s like: w e d o n ' t w a n t t h e p r i c e t o g o d o w n , b e c a u s e t h e n w e g e t less m o n e y . T h e n h e said t h a t i n t h e U n i t e d S t a t e s t h e p r i c e o f oil w a s s h o r e d u p b y s t a t e a n d g o v e r n m e n t c o n t r o l s t h a t all o w e d all t h e p r o d u c e r s a s h a r e o f t h e m a r k e t , a n d t h a t i s what Venezuela should do, too. S o V e n e z u e l a g o t s o m e n e w oil laws. B u t i t still f a c e d t h e o l d I n t e r n a t i o n a l C a r t e l . A n d i t w a s still u t t e r l y d e p e n d e n t o n oil r e v e n u e s , a n d t h e p o p u l a t i o n w a s g r o w i n g , a n d i t c o u l d n ' t a l w a y s g e t its oil into t h e U n i t e d S t a t e s , t h e b i g g e s t m a r k e t , the biggest c o n s u m e r , because of that d a m n e d invisible d i k e . A n d if t h e V e n e z u e l a n p r o d u c e r s , especially t h e i n d e p e n d e n t s , c o u l d n ' t g e t t h e oil o v e r t h e d a m n e d i n v i s i b l e d i k e , t h e y h a d t o d u m p t h e oil s o m e w h e r e else i n t h e w o r l d m a r k e t , w h i c h m e a n t less m o n e y f o r V e n e z u e l a . Perez Alfonso did not smoke or drink, and he suffered f r o m i n s o m n i a . H e k e p t a p a d a n d p e n c i l b y his b e d s i d e , so that he could work on problems when he could not sleep, a n d he sometimes r e a d t h r o u g h the night a n d got u p a t d a w n . J o t t i n g o n his n o t e p a d , P e r e z Alfonso h a t c h e d a g r a n d scheme of absolutely b r e a t h t a k i n g audacity. It would be an international T e x a s Railroad Commission, w i t h o u t t h e T e x a n s ! A T e x a s R a i l r o a d C o m m i s s i o n for t h e w h o l e w o r l d ! I f t h e p r i c e o f oil s t a r t e d t o g o d o w n , all t h e m e m b e r s would hold back their p r o d u c t i o n until the price w e n t u p a g a i n . A n d t o g e t h e r , u n i t e d , t h e producers o f t h e oilby which Perez Alfonso m e a n t the countries in which t h e oil w a s l o c a t e d t o g e t h e r c o u l d s t a n d u p t o t h e g r e a t i n d u s t r i a l n a t i o n s w i t h t h e i r g r e a t oil c o m p a n i e s . V e n e z u e l a h a d , a t t h a t t i m e , 7 p e r c e n t o f t h e w o r l d ' s oil

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reserves, a n d the Middle East h a d 70 p e r c e n t . V e n e z u e l a c o u l d c u t b a c k u n t i l i t w a s b l u e i n t h e face a n d i t w o u l d n ' t m a t t e r ; i t w o u l d b e like P e n n s y l v a n i a s t a r t i n g t h e T e x a s Railroad Commission. J u a n P a b l o P e r e z A l f o n s o h a d his p l a n s a n d h i s t r a c t s a n d V e n e z u e l a ' s n e w oil laws all t r a n s l a t e d i n t o A r a b i c . A n d w h i l e J u a n P a b l o P e r e z A l f o n s o w a s g e t t i n g all t h e materials t r a n s l a t e d into Arabic, A b d u l l a h T a r i k i was fuming.

The Odd Couple

A b d u l l a h T a r i k i w a s i n t h e f i r s t w a v e o f S a u d i oil t e c h nocrats who went to the West to study. He had been to the University o f T e x a s , h a d b e e n briefly m a r r i e d t o a n A m e r ican girl, a n d h a d , for o n e bitter p e r i o d , e v e n b e e n a T e x a c o t r a i n e e . T a r i k i h a d a b s o r b e d all t h e a r g u m e n t s a b o u t t h e oil c o m p a n i e s i n t h e 1 9 5 2 r e p o r t o f t h e F e d e r a l T r a d e C o m m i s s i o n . N o w , i n 1 9 5 9 , h e w a s d i r e c t o r o f t h e Office of P e t r o l e u m Affairs for S a u d i A r a b i a , a n d he was, for that time a n d that country, a radical. He wanted Saudi A r a b i a t o h a v e a n i n t e g r a t e d oil c o m p a n y o f its o w n , a n d n o t j u s t t o let A r a m c o b r i n g u p t h e oil a n d t a k e i t a w a y . A r a m c o was t h e p a r t n e r s h i p o f E x x o n , Mobil, Socal, a n d Texaco. T a r i k i w a s f u m i n g b e c a u s e t h e oil c o m p a n i e s h a d j u s t reduced t h e i r p r i c e s . S a u d i A r a b i a d i d n o t h a v e v e r y s o p h i s t i c a t e d m a n a g e m e n t , t o say t h e least. K i n g S a u d m a r r i e d a t l e a s t 1 2 5 t i m e s , a n d e a c h wife g o t a h o u s e a n d a n a l l o w a n c e . W h e n t h e k i n g n e e d e d m o n e y , a c o u r t i e r w o u l d call u p A r a m c o a n d ask f o r a n a d v a n c e . S a u d i A r a b i a w a s p e r ilously c l o s e t o b e i n g o u t o f c a s h , a n d T a r i k i w a s g e t t i n g t h e p h o n e calls, a n d t h e oil c o m p a n i e s w e r e cutting t h e i r prices, w h i c h was g o i n g to cost S a u d i A r a b i a $ 3 4 million. Perez Alfonso g a t h e r e d thirteen aides a n d the multilin-

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g u a l t r a n s l a t i o n s o f t h e V e n e z u e l a n oil laws a n d g o t e v e r y b o d y o n t o a p l a n e f o r C a i r o t o u r i s t class, o f c o u r s e t o a t t e n d t h e v e r y first A r a b O i l C o n g r e s s . A b d u l l a h T a r i k i , still s m o l d e r i n g , g o t o n t o a p l a n e f o r C a i r o w i t h s o m e S a u d i oil t e c h n o c r a t s . A n d so, o n A p r i l 16, 1 9 5 9 , W a n d a s a i d , " B y t h e w a y , Abdullah Tariki, do you know J u a n Pablo Perez Alfonso?" B u t it was clearly g o i n g to h a p p e n anyway, since o n c e t h e t w o oil m i n i s t e r s h a d t r a d e d a few p l e a s a n t r i e s a b o u t T e x a s , Perez Alfonso's aides b e g a n h a n d i n g out docum e n t s in Arabic to Abdullah Tariki's aides. T w o of Perez Alfonso's aides had been to the University of T e x a s with Abdullah Tariki. J u a n P a b l o P e r e z A l f o n s o b e g a n t o d e t a i l his p l a n for a worldwide Texas Railroad Commission. Conserve and cut back, unite a n d control. If you want m o r e m o n e y , do not sell m o r e oil; sell less. A b d u l l a h Tariki listened intently. H o w would it work? W h o would decide how m u c h each country would cut back? H o w could the cutbacks be enforced? It was d e c i d e d that T a r i k i w o u l d go o u t a n d p r e a c h this plan to the Iraqis a n d the Kuwaitis a n d the Bahrainis and all t h e o t h e r t r i b e s w i t h oil. T h e s e t r i b e s w e r e m o r e u s e d to quarreling than cooperating, and they were used to c a l l i n g u p t h e a w e s o m e oil c o m p a n i e s a s o n e w o u l d a p a r e n t . Kuwait was a small city-state, a n d t h e E m i r a t e s w e r e right out of the Middle A g e s m u d palaces a n d goats. T h e Union Jack h u n g from the flagpole at Aden, and B r i t i s h d e s t r o y e r s slid t h r o u g h t h e w a t e r s o f t h e Gulf. S o it was a radical idea to go out a n d p r e a c h unity a n d coope r a t i o n a n d s h u t t i n g t h e oil i n . B u t T a r i k i w a s a r a d i c a l . " I t h i n k i t c o u l d w o r k , " h e said, and he went out to preach. T a r i k i w e n t t h r o u g h t h e A r a b states, a n d P e r e z Alfonso went to Iran, w h e r e he held a press conference even before he got to see t h e S h a h . L a t e r he w e n t e v e n to Moscow.

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T h e R u s s i a n s w e r e a s h o s t i l e a s t h e m a j o r oil c o m p a n i e s . Perez Alfonso h a d to explain that O P E C was not a front f o r t h e oil c a r t e l . I n A u g u s t 1 9 5 9 Fortune m a g a z i n e n o t i c e d t h e i t i n e r a n t p r e a c h i n g s o f t h e O d d C o u p l e . Its t o n e was o n e o f a m u s e m e n t a n d s k e p t i c i s m , its p o i n t o f v i e w , a s u s u a l , t h a t o f b i g business. To read it is to enter an astonishing time warp. T h e p r o b l e m , Fortune s a i d , i s t h e G l u t . T o o m u c h oil. F u r t h e r m o r e , said Fortune, " t h e g l u t is c e r t a i n to last a l o n g t i m e . " T h e r e a s o n : " t o o m u c h oil u n d e r g r o u n d t o o e a s y t o g e t a t , r e a d y t o f l o w a t v e r y little a d d i t i o n a l e x p e n s e . " T h e ratio of reserves to c o n s u m p t i o n had formerly been twenty t o o n e ; t h a t is, f o r e v e r y b a r r e l s h i p p e d t h e r e w e r e t w e n t y b a r r e l s u n d e r g r o u n d . N o w it was forty to o n e ; in t h e Middle East it was o n e h u n d r e d to o n e . Even if n o b o d y ever d r i l l e d a n o t h e r well, t h e r e w a s s o m u c h oil t h a t t h e r a t i o of reserves to c o n s u m p t i o n wouldn't go back to twenty to o n e for a n o t h e r d e c a d e . " T h e i n t e r n a t i o n a l oil c o m p a n i e s d o n o t p r o p o s e t o t a k e a b e a t i n g l y i n g d o w n , " s a i d Fortune. " T h e y a r e r e d o u b l i n g their efforts to increase the use of p e t r o l e u m products." G e n e r a l M o t o r s a n d Socal h a d a l r e a d y b o u g h t t h e Los A n g e l e s m a s s t r a n s i t rail s y s t e m a n d s h u t i t d o w n . E x x o n p r o m i s e d a tiger in a tank. E v e r y w h e r e t h e r e w e r e campaigns to increase driving and heating. "Glut without e n d ? " r e a d t h e Fortune s u b h e a d . " T o d a y , f o r t h e f i r s t t i m e in years, t h e c o m p a n i e s are c r a c k i n g d o w n on salaries, e x p e n s e a c c o u n t s a n d office o v e r h e a d . " T h e H i g h w a y T r u s t F u n d h e l p e d b y b u i l d i n g t h e i n t e r s t a t e h i g h w a y system. Farther out, suburbs were springing up, requiring more driving. " A S t r a n g e N e w P l a n f o r W o r l d O i l , " Fortune h e a d l i n e d its a r t i c l e : T h e proposition, baldly stated, is that t h e great oil-prod u c i n g c o u n t r i e s outside t h e U.S. should get t o g e t h e r

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to limit p r o d u c t i o n and maintain prices. T h e rationale of this proposal is clear e n o u g h . C r u d e oil prices outside the U.S. have been falling like overripe fruit. Inside the U.S., however, prices have been h o l d i n g relatively high and steady because the mighty T e x a s Railroad Commission, s u p p o r t e d by o t h e r state and federal bodies, in effect adjusts the supply of U.S. oil to the m a r k e t . . . . An international T e x a s Railroad Commission could keep c r u d e oil p r o d u c t i o n in line with d e m a n d , allocate p r o d u c t i o n equitably a m o n g p r o d u c ing countries a n d c o m p a n i e s , a n d so maintain prices at or close to the elegant level m a i n t a i n e d in the U.S. T h e high irony of the proposition is e n o u g h to raise a guffaw from even the sourest oilman . . . such a global scheme, g r a n t i n g it is at all feasible, obviously r u n s against j u s t about every principle of free e n t e r p r i s e economics in the book . . . t h e basic interest of the cons u m e r in c h e a p e r oil, m a d e possible by t h e discovery of ever larger reserves, would be t h r o w n to the winds.

" T a k i n g e v e r y t h i n g t o g e t h e r , " Fortune s a i d , " t h e p r o posal of Messrs. Perez Alfonso a n d Tariki is not only imp r a c t i c a l b u t b a d e c o n o m i c s . " W h a t Fortune p r o p o s e d w a s t h a t t h e U n i t e d S t a t e s import more oil. T h a t w o u l d t a k e t h e p r e s s u r e off world prices, a n d they could find a m o r e realistic level. Fortune m a y h a v e b e e n i n a t i m e w a r p , b u t its s u g g e s t i o n , i n 1 9 5 9 , t o i m p o r t oil m a d e s o m e s e n s e . T h e d o l l a r w a s s t r o n g , oil c o u l d h a v e b e e n i m p o r t e d a t less t h a n $ 1 . 8 0 a barrel, the world market might have been helped, and a finite resource m i g h t have b e e n preserved. T o d a y we pay o u t $ 3 0 a b a r r e l t o i m p o r t oil, a n d w e e v e n p u m p s o m e o f t h a t oil i n t o t h e salt d o m e s o f L o u i s i a n a a s a r e s e r v e . T w e n t y years ago we took it out of the g r o u n d here and b u r n e d it u p ; now we b r i n g it in a t a n k e r , at twenty times t h e 1 9 5 9 cost, a n d p u t i t b a c k i n t o t h e g r o u n d . B u t t h e d o m e s t i c A m e r i c a n oil i n d e p e n d e n t s d i d n o t

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w a n t t o i m p o r t m o r e oil i n 1 9 5 9 . T h e y w a n t e d t h e p r o t e c tion o f t h e "invisible d i k e . " I n d e p e n d e n t s o p e r a t i n g a b r o a d , i n L i b y a a n d V e n e z u e l a , w e r e f i n d i n g oil, a n d s o w e r e t h e S e v e n Sisters. Fortune's " g l u t " n u m b e r s o b v i o u s l y c a m e f r o m t h e oil c o m p a n i e s , a n d t h e vision o f its w r i t e r w a s a p p r o p r i a t e l y limited. B u t it was certainly right in o n e respect. T h e "strange new plan" of Perez Alfonso a n d Tariki did not w o r r y a b o u t t h e oil c o n s u m e r , a n d i t r a n a g a i n s t e v e r y principle of free e n t e r p r i s e in the b o o k . B u t if it r a n against e v e r y principle of free e n t e r p r i s e , w h a t a b o u t the m o d e l on which it was based? T h a t was the irony, because t h e oil c o m p a n i e s w e r e t h e s o u r c e o f s o m u c h r h e t o r i c a b o u t free e n t e r p r i s e . O n e o t h e r note from the time warp. T h e price cut that s o a n g e r e d A b d u l l a h T a r i k i c o s t $ 3 4 m i l l i o n a . year. S a u d i A r a b i a n o w t a k e s i n $ 1 6 6 m i l l i o n a . day. K e e p i n g t h a t scale i n m i n d will h e l p t o e x p l a i n t h e a g e o f p a p e r m o n e y . T h e y were an odd couple, Perez Alfonso and Tariki, b u t they got along. H e r e was this precise, brilliant, b a l d i n g Latin with his h o r n - r i m m e d glasses a n d his pencil m u s t a c h e , i n t e n s e , n e r v o u s , his b e d s i d e p a d always r e a d y t o receive his t h o u g h t s w h e n h e c o u l d n o t s l e e p ; a n d h e r e was his A r a b sidekick, s o m e w h a t s w a r t h y h e h a d s o m e times b e e n t a k e n for a M e x i c a n in T e x a s r e s t a u r a n t s with thick hair a n d a g e n e r o u s nose. T a r i k i was as careless as Perez Alfonso was precise. He loved s p e a k i n g to crowds, t h o u g h h e was personally shy; a n d w h e n h e was s p e a k i n g , he would d r u m out, "Aramcoisstealing, Aramcois s t e a l i n g , " a n d t h e n w o u l d r a t t l e o f f statistics. T h e s t a t i s tics b o r e n o p a r t i c u l a r r e l a t i o n s h i p t o r e a l i t y . " T h e y s o u n d g o o d , n o ? " h e s a i d . " S o w h a t ? T h e oil i s o u r s . " T a r i k i lived alone in J i d d a , in a h o u s e with a walled g a r d e n that contained gazelles, chickens, turkeys, a n d various lame animals which he n u r s e d . His Saluki dogs h a d the r u n of the

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h o u s e , a n d the Salukis r e m a i n e d in their chairs even w h e n v i s i t o r s e n t e r e d . T a r i k i w a s also a v i o l e n t A r a b n a t i o n a l i s t . "I am an A r a b , n o t a Saudi," he said. T h e O d d Couple flew together from country to country, preaching, "Unite a n d control, conserve a n d cut back," a n d t h e y s p e l l e d o u t t h e i r p l a n in, o f all p l a c e s , T y l e r , T e x a s , in the spring of 1960. T h e T e x a s I n d e p e n d e n t P r o d u c e r s convention listened with attention a n d skepticism. S i t t i n g i n his e l e g a n t b o a r d r o o m i n R o c k e f e l l e r C e n t e r in New York, M o n r o e Rathbone must have heard the s o u n d s of the O d d C o u p l e as that of two a n n o y i n g mosquitoes. "Jack" R a t h b o n e was t h e h e a d of E x x o n E s s o , as i t w a s t h e n c a l l e d a n d all h e c o u l d s e e , t h a t s u m m e r o f 1 9 6 0 , w a s t h e G l u t . T h e R u s s i a n s w e r e s e l l i n g oil; t h e I t a l i a n s w e r e s e l l i n g oil; o d d t a n k e r s e v e r y w h e r e w e r e d u m p ing t h e stuff for w h a t e v e r it w o u l d b r i n g . Petroleum Week, w h e r e W a n d a t h e n w o r k e d as a s e n i o r e d i t o r , s m e l l e d a p r i c e c u t c o m i n g a n d said t h e r e w o u l d b e an uproar. A c o u p l e of E x x o n directors, H o w a r d Page a n d William S t o t t , w a r n e d t h a t t h e b u d g e t s o f a lot o f c o u n t r i e s w e r e b a s e d o n t h e oil p r i c e . J a c k R a t h b o n e w a s a c h e m i c a l e n g i n e e r , like m o s t o f t h e Exxon board, not a diplomat. T h e top ranks of Exxon c a m e from the "Exxon A c a d e m y , " the great refinery at Baton Rouge. E x x o n cut the price, w i t h o u t calling up any of the p r o d u c i n g c o u n t r i e s , as was t h e t r a d i t i o n in t h o s e days. T h e o t h e r oil c o m p a n i e s f o l l o w e d . T h e budgets of the Middle Eastern countries went out the w i n d o w s , with a c l a m o r f r o m those countries. T h e entire a t m o s p h e r e in the Middle East was t r a n s f o r m e d . T h e O d d C o u p l e ' s p r e a c h i n g s w e r e r e c a l l e d . T a r i k i called a m e e t i n g in B a g h d a d for S e p t e m b e r 9, 1960.

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T h e p r i c e c u t w a s s e r i o u s f o r I r a n , w i t h its g r o w i n g p o p ulation, a n d for S a u d i Arabia, w h i c h was p l a n n i n g a m a j o r p r o g r a m o f social s e r v i c e s . Fifteen years later, the S h a h of I r a n recalled the m o m e n t to the British journalist A n t h o n y S a m p s o n . "Even if t h e p r i c e c u t w a s basically s o u n d , " h e s a i d , "it c o u l d n o t b e acceptable to us as long as it was taken without o u r cons e n t . " H e h a d b e e n a n g r y , a n d n o t a t all c o n f i d e n t o f t h e p o w e r o f t h e oil p r o d u c e r s . " W e w e r e j u s t w a l k i n g i n t h e m i s t . N o t i n t h e d a r k , b u t i t w a s a little m i s t y . T h e r e w a s still t h a t c o m p l e x o f t h e b i g p o w e r s , a n d t h e m y s t i c a l p o w e r a n d all t h e m a g i c b e h i n d t h e n a m e o f all t h e s e b i g countries." With the O d d Couple as militant hosts, five n a t i o n s Saudi Arabia, Iran, Iraq, Kuwait, a n d V e n e z u e l a m e t in B a g h d a d a n d declared the birth of O P E C , the Organization of P e t r o l e u m E x p o r t i n g C o u n t r i e s , "a cartel to conf r o n t t h e cartel," said o n e d e l e g a t e . " W e h a v e f o r m e d a v e r y e x c l u s i v e c l u b , " said J u a n P a b l o Perez Alfonso. "Between us we control ninety percent of crude exports to world markets, and we are now united. We are m a k i n g history." T h a t was c o n s i d e r e d so i m p o r t a n t by the press of the w o r l d t h a t i t w a s b a r e l y r e p o r t e d a t all. F o r t h e g r e a t e v e n t of September 9, Reuters mustered up a dispatch on Sept e m b e r 2 4 . The New York Times p u b l i s h e d a b a c k - p a g e s q u i b on September 25. T h e O P E C declaration o f i n d e p e n d e n c e rings with the indignation of t h e colonists d u m p i n g t h e tea into the harbor, but h e r e the excesses of M a d K i n g G e o r g e are those o f t h e oil c o m p a n i e s . O P E C , says its f i r s t w o r d s , c a n n o longer "remain indifferent to the attitude heretofore a d o p t e d b y t h e oil c o m p a n i e s . " I t d e m a n d e d t h a t t h e c o m p a n i e s " m a i n t a i n t h e i r p r i c e s s t e a d y , " i n fact, " r e s t o r e p r i c e s t o t h e levels p r e v a i l i n g b e f o r e t h e r e d u c t i o n s . " T h o s e reductions were 9 cents a barrel, an a m o u n t that

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w o u l d later s e e m ludicrously small. B u t so was t h e tax on t h e tea at B o s t o n h a r b o r . O i l , said t h e n e w l y b o r n c a r t e l , w a s n e e d e d t o f i n a n c e d e v e l o p m e n t a n d balance b u d g e t s ; it was a d e p l e t i n g asset a n d h a d to be replaced by o t h e r assets. L a t e r the r h e t o r i c was to get m o r e strident, with m o r e talk o f colonialism a n d g r i e v a n c e s a n d t h e T h i r d W o r l d and independence. In the beginning O P E C wanted the price to go back to w h e r e it h a d been before the E x x o n b o a r d c u t it. I f t h e A m e r i c a n public s l u m b e r e d t h r o u g h this m o m e n t o u s b e g i n n i n g , i t c a n h a r d l y b e b l a m e d f o r its lack o f a w a r e n e s s . Its p r e s i d e n t i a l c a n d i d a t e s , R i c h a r d N i x o n a n d J o h n F. K e n n e d y , were vigorously d e b a t i n g the status of two tiny islands off t h e coast of C h i n a , called Q u e m o y a n d Matsu. T h e oil c o m p a n i e s w e r e t r y i n g t o t h i n k u p m o r e w a y s t o sell p e t r o l e u m p r o d u c t s , t o b u r n o f f w h a t Fortune h a d called the Glut W i t h o u t E n d .

"We Have Formed a Very Exclusive Club"

" W e h a v e f o r m e d a v e r y e x c l u s i v e c l u b , " said J u a n P a b l o P e r e z A l f o n s o . T h a t i s e x a c t l y w h a t O P E C w a s , a n d is: a Club. W h a t w e r e t h e q u a l i f i c a t i o n s for m e m b e r s h i p ? O b viously, to be in t h e O r g a n i z a t i o n of P e t r o l e u m E x p o r t i n g Countries, you had to be a Petroleum E x p o r t i n g Country. T h e o r i g i n a l l a n g u a g e said a c o u n t r y w i t h " a s u b s t a n t i a l n e t e x p o r t " o f oil. T h e s e c o n d c r i t e r i o n w a s t h a t t h e a p p l i cant have "fundamentally similar interests" to those of the m e m b e r s . S o i t w a s n o t j u s t any P e t r o l e u m E x p o r t i n g C o u n t r y that could become a m e m b e r . C a n a d a and the Soviet U n i o n w o u l d n o t d o , for different r e a s o n s . B o t h lacked "similar interests" to the m e m b e r s .

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O P E C ' s rules were that an applicant h a d to be accepted b y t h r e e - q u a r t e r s o f t h e Full M e m b e r s , b u t a b l a c k b a l l b y any F o u n d i n g M e m b e r would keep him out. Like any really exclusive club, " f u n d a m e n t a l l y similar i n t e r e s t s " l a t e r b e g a n t o m e a n m o r e t h a n t h e c h a r t e r title, "petroleum exporting." T h e sheikhdom of Qatar, not a "substantial net e x p o r t e r , " was to be a d m i t t e d , as was the s m a l l W e s t A f r i c a n c o u n t r y o f G a b o n , also n o t a s u b s t a n tial e x p o r t e r . B u t t h e W e s t e r n H e m i s p h e r e i s l a n d s o f T r i n i d a d a n d T o b a g o were blackballed; they did not have " f u n d a m e n t a l l y similar interests." O P E C b e g a n w i t h a n office i n G e n e v a . T h e Swiss t r e a t e d it as a C l u b a n d not as an international organization: "the Swiss g o v e r n m e n t , " O P E C ' s s e c r e t a r y , A b d u l A m i r K u b b a h p r o t e s t e d , " c o n s i d e r e d that O P E C ' s objective was to d e f e n d t h e p r i v a t e a n d sole i n t e r e s t s o f its M e m b e r C o u n tries a n d t h a t it h a d no i n t e r n a t i o n a l interest." O P E C w a n t e d the status of an embassy: extraterritoriality, imm u n i t y f r o m legal p r o c e s s , f r e e d o m f r o m c u s t o m s a n d taxes, the right to have codes a n d couriers a n d commissaries. T h e A u s t r i a n s g r a n t e d t h i s , a n d i n 1 9 6 5 t h e C l u b m o v e d to V i e n n a , to a b u i l d i n g called T e x a c o H a u s , after its p r i n c i p a l t e n a n t . T h r e e o f the f i v e F o u n d i n g M e m b e r s t h o s e with the c h a r t e r privilege of blackballwere A r a b states, as were, eventually, seven of the twelve Full M e m b e r s . A n d while the A r a b states later f o r m e d O A P E C , the O r g a n i z a t i o n o f A r a b Petroleum Exporting Countries, as an adjunct to O P E C , t h e r e has n e v e r b e e n m u c h q u e s t i o n o f s o m e aspects of what "fundamentally similar interests" m e a n s . To show that it was a g o o d m e m b e r , with " f u n d a m e n tally s i m i l a r i n t e r e s t s , " V e n e z u e l a a n n o u n c e d r i g h t a w a y t h a t i t w o u l d n o t sell oil t o I s r a e l . O P E C h a d a n office, a s t r u c t u r e , a p r o c e d u r e f o r m e e t ings. It c o m m i s s i o n e d a study on pricing by the consulting

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f i r m o f A r t h u r D . Little. I n 1 9 6 2 A b d u l l a h T a r i k i w a s fired a n d told to leave Saudi A r a b i a . T h e Saudi royal family d i d n o t a p p r e c i a t e his a d m i r a t i o n f o r E g y p t ' s G a m a l N a s s e r , o r his r a d i c a l i s m . H e w a s r e p l a c e d b y S h e i k h A h m e d Zaki Y a m a n i , w h o w a s o n l y t h i r t y - t w o a t t h e t i m e . Tariki went to Cairo a n d became a consultant. Y a m a n i w a s less r a d i c a l , less a b r a s i v e , m u c h m o r e t o t h e liking of the Western interests. T h e son of a j u d g e in Mecca, he had been e d u c a t e d in Cairo, a n d at New York U n i v e r s i t y a n d H a r v a r d . H i s n e a t , p o i n t e d b e a r d w a s like that of an o p e r a star. He was to b e c o m e the first great i n t e r n a t i o n a l c o n t e m p o r a r y oil c e l e b r i t y . J u a n P a b l o P e r e z A l f o n s o s t e p p e d d o w n a s oil m i n i s t e r w h e n B e t a n c o u r t left office i n V e n e z u e l a , b u t his staff r e m a i n e d i n p l a c e , a n d P e r e z A l f o n s o b e c a m e t h e eminence grise o f V e n e z u e l a n oil policy. H e c o n t i n u e d t o h o l d p r e s s c o n f e r e n c e s , t o scold t h e g o v e r n m e n t f o r b e i n g t o o l a x w i t h t h e oil c o m p a n i e s , a n d t o l e a d t h e n e x t w a v e o f t a x reform. But as for O P E C , it was no T e x a s Railroad Commission. P r o d u c t i o n p r o g r a m m i n g i n oil i s a n e n o r m o u s l y c o m p l e x p r o c e s s , r e q u i r i n g s o p h i s t i c a t e d m a r k e t a n a l y s i s a n d a willingness to c o m p r o m i s e . T h e O P E C Secretariat tried two plans o f p r o r a t i o n i n g c u t b a c k a n d c o n t r o l a n d got n o w h e r e . T h e S a u d i s , i n p a r t i c u l a r , said a n y s u c h s c h e m e violated their sovereignty. T h e clerks in V i e n n a , they said, could do what they wanted; clerks did not dictate to the r o y a l family. T h e I r a q i s q u a r r e l e d w i t h t h e I r a n i a n s , t h e I r a n i a n s with the Saudis. T h e Kuwaitis were suspicious of t h e I r a q i s , w h o c l a i m e d , i n fact, o w n e r s h i p o f K u w a i t . T h e Iranians and the Saudis passed Venezuela as the world's l e a d i n g oil e x p o r t e r s . J u a n Pablo Perez Alfonso complained that Venezuelan l e a d e r s h i p a n d influence i n O P E C was declining, a n d that t h e A r a b s w e r e c o n t e m p t u o u s o f V e n e z u e l a . O i l , h e insisted, h a d an intrinsic value, a n d t h e industrial nations w o u l d s o o n r e a l i z e it.

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B u t t h e p r i c e o f oil d i d n o t g o u p ; i n fact, i t d e c l i n e d , all t h r o u g h t h e 1960s. T h e " p o s t e d price" of $ 1 . 8 0 a b a r r e l in t h e P e r s i a n G u l f w a s f o r t a x p u r p o s e s ; s o m e t i m e s t h e oil w a s d i s c o u n t e d t o a s low a s $ 1 a b a r r e l . B e h i n d t h e " i n v i s ible d i k e , " i n T e x a s , oil s o l d , a t t h e e n d o f t h e d e c a d e , f o r $3.45 a barrel. A c o n t r i b u t i n g factor to t h e declining price of Middle E a s t e r n oil w a s t h e i m p r o v e d w a y s o f c a r r y i n g it. T h e t a n k ers in the m i d d l e 1950s h a d b e e n p e r h a p s 20,000 tons. Japanese shipyards then developed the j u m b o tanker, and then the V L C C supertanker, 250,000 tons, which sharply r e d u c e d t h e cost o f oil a s i t l a n d e d a t t h e r e f i n e r i e s . It took two wars, a g r a d u a l c h a n g e in e n e r g y habits, a n d a F r e n c h bulldozer to b r i n g a b o u t the control first envisaged by Perez Alfonso. T h e c h a n g e i n e n e r g y h a b i t s w a s f r o m c o a l t o oil, a n d n o w o n d e r . C o a l w a s b u l k y , h a r d t o t r a n s p o r t , a n d left irritants in t h e a t m o s p h e r e w h e n b u r n e d . M i n i n g it was an u n p l e a s a n t a n d h a z a r d o u s task, w h e t h e r i n Pennsylvania o r Wales o r L o r r a i n e , a n d t h e r e was always t r o u b l e with the miners. T h e a u t o m o b i l e p o p u l a t i o n o f t h e world was increasing g e o m e t r i c a l l y , a s i f t h e i d e a o f b i g g e r f a m i l i e s h a d also s p r e a d to vehicles. In 1940 coal a c c o u n t e d for t w o - t h i r d s of t h e world's e n e r g y . I n 1 9 7 0 i t p r o v i d e d less t h a n a t h i r d . I n t h e U n i t e d States coal as a p e r c e n t a g e of total e n e r g y c o n s u m p t i o n d r o p p e d f r o m 4 7 . 2 p e r c e n t t o 18.6 p e r c e n t i n t h e s a m e period. All d u r i n g t h e 1 9 6 0 s , O P E C a n d t h e s e v e n g r e a t oil c o m p a n i e s s q u a b b l e d o v e r a few c e n t s a b a r r e l . T h e S h a h developed a major spending p r o g r a m and needed m o r e r e v e n u e t o s u p p o r t it. T h e S a u d i s e y e d h i s p r o g r a m n e r v o u s l y . D u r i n g t h e Six D a y W a r , i n 1 9 6 7 , t h e A r a b s set u p a boycott, a n d the Suez C a n a l was closed. T h e boycott was r e l a t i v e l y i n e f f e c t i v e . T h e e n d o f t h e Six D a y W a r left O P E C standing, but in tatters; the Iranians and the Vene-

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zuelans had increased their exports at the expense of the Arabs. I n t h e U n i t e d S t a t e s , i n t h e e a r l y 1 9 6 0 s , t h e r a t e o f inflation was a b o u t 1 p e r c e n t a year.

The Balance Tips

I f t h e w o r l d ' s oil p r o d u c e r s w e r e s q u a b b l i n g , t h e U n i t e d States h a d a cushion: the extra days p e r m o n t h that the T e x a s R a i l r o a d C o m m i s s i o n s a i d n o t t o p u m p . T h e n oil w a s d i s c o v e r e d i n t h e N o r t h S e a , a n d t h e i n d e p e n d e n t oil p r o d u c e r s w h o h a d f o u n d oil i n L i b y a m a d e f u r t h e r h a n d s o m e d i s c o v e r i e s t h e r e . Slowly, like t h e f i r s t t r e m o r s o f a n earthquake, the balance began to change. T h e r e were s t r a y f a c t o r s n o t easily i n t e g r a t e d : m o r e wells t h a t c a m e u p d r y . A m e r i c a n oil p r o d u c t i o n w a s p e a k i n g . T h e r e w e r e m o r e d r y h o l e s o r less p r o l i f i c o n e s i n L i b y a a n d Alg e r i a . T h o s e c o u n t r i e s b e g a n t o c o n s i d e r t h e w a s t i n g asset m o r e seriously. T h e Suez Canal was closed, but t h e r e was a pipeline from the great Saudi fields to the Lebanese town of Sidon a s well a s t h e s u p e r t a n k e r s l i f t i n g oil i n t h e P e r s i a n Gulf. A n d t h e r e was Libya, r i g h t across t h e M e d i t e r r a n e a n f r o m E u r o p e n o canal necessary, no supertankers necessary. L i b y a w a s s u p p l y i n g a q u a r t e r o f E u r o p e ' s oil. T h e U n i t e d States was p r e o c c u p i e d with V i e t n a m . Within a twelve-month period the balance had tipped, a n d yet v e r y few n o t i c e d . On S e p t e m b e r 1, 1969, a radical colonel in Libya, M u a m m a r el-Qaddafi, seized p o w e r f r o m K i n g Idris, w h o h a d g r a n t e d t h e c o n c e s s i o n s t o t h e oil c o m p a n i e s . L i b y a h a d a l a r g e f o r e i g n - e x c h a n g e s u r p l u s f r o m s e l l i n g its oil. I t was u n d e r n o f i n a n c i a l p r e s s u r e . T h e n e w p r i m e minister, Suleiman M a g h r e b i , h a d a P h . D . from G e o r g e Washington University, h a d w o r k e d at o n e time as a lawyer for

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E x x o n , a n d h a d e v e n b e e n i n j a i l f o r o r g a n i z i n g a n oil workers' strike. Colonel Qaddafi decided to take on the W e s t e r n oil c o m p a n i e s , b o t h a s a n i d e o l o g i c a l m o v e a n d a s a financial o n e . He m a d e noises a b o u t a deal with the Russians. I n M a y 1 9 7 0 a F r e n c h b u l l d o z e r o n a j o b i n S y r i a accidentally b r o k e the "Tapline," the T r a n s - A r a b i a n Pipeline r u n n i n g to the M e d i t e r r a n e a n . T h e Syrians refused to rep a i r i t until t h e y got h i g h e r t r a n s m i s s i o n fees. T h e N i g e r i a n s w e r e i n a civil w a r , w i t h t h e i r o w n oil p r o v i n c e o f Biafra the chief b a t t l e g r o u n d , a n d Nigerian p r o d u c t i o n w a s off. S u d d e n l y o r w h a t s e e m e d s u d d e n l y t h e c u s h i o n w a s g o n e . T h e r e w a s still n o s h o r t a g e o f oil i n t h e w o r l d , b u t political e v e n t s h a d i n t e r r u p t e d t h e delivery o f oil. T h e n e w r e g i m e o f C o l o n e l Q a d d a f i c o n f r o n t e d t h e oil c o m p a n i e s : it wanted an extra 40 cents a barrel, to m a k e up for the c o n v e n i e n c e of delivery to E u r o p e the c o m p a n i e s e n j o y e d f r o m L i b y a . T h e oil c o m p a n i e s o f f e r e d 5 cents. T h e Libyans looked over the c o m p a n i e s to which t h e y h a d g i v e n oil c o n c e s s i o n s ; t h e m o s t s u c c e s s f u l o f t h e i n d e p e n d e n t s was O c c i d e n t a l , w h o s e strikes h a d m a d e it t h e b i g g e s t p r o d u c e r i n L i b y a . M o s t o f O c c i d e n t a l ' s oil w e n t to E u r o p e , in c o m p e t i t i o n with t h e Seven Sisters. T h e L i b y a n s d e c i d e d to pick off t h e c o m p a n i e s o n e by o n e . In the familiar n a m e of conservation, Colonel Qaddafi ord e r e d Occidental's production cut back. Occidental went t o E x x o n a n d a s k e d w h e t h e r E x x o n w o u l d s u p p l y it, r o u g h l y at cost, from e l s e w h e r e in t h e w o r l d if Occidental resisted the Libyan d e m a n d s . E x x o n offered a higher, third-party price, but t u r n e d Occidental d o w n on the deal it proposed. Occidental had no other major source of crude, and it then capitulated to the Libyans. W e k n o w this history b e t t e r t h a n w e n o r m a l l y w o u l d because of the e x t r a o r d i n a r y h e a r i n g s c o n d u c t e d in 1974 by the subcommittee of the Senate Foreign Relations C o m -

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m i t t e e c h a i r e d b y S e n a t o r F r a n k C h u r c h . Shell resisted t h e L i b y a n s ; its p r o d u c t i o n w a s c u t off. S h e l l ' s c h a i r m a n w a s a precisely articulate, m o n o c l e - w e a r i n g British aristocrat, Sir David B a r r a n . " O u r conclusion," he wrote later to Senator C h u r c h , " w a s t h a t s o o n e r o r l a t e r w e , b o t h oil c o m p a n y a n d c o n s u m e r , w o u l d h a v e t o face a n a v a l a n c h e o f e s c a l a t ing d e m a n d s from p r o d u c e r governments, and that we s h o u l d a t least t r y t o s t e m t h e a v a l a n c h e . " T h e oil c o m p a n i e s m e t a t t h e S t a t e D e p a r t m e n t i n W a s h i n g t o n t o see w h a t s u p p o r t t h e y c o u l d m u s t e r . T h e c o m p a n i e s w e r e astonished to find t h e State D e p a r t m e n t o p e n i n g the discussion by b r i n g i n g up the plight of the Palestinians, which s e e m e d irrelevant, but which was p a r t of t h e radical Libyan rhetoric. T h e State D e p a r t m e n t was n o t e a g e r t o s u p p o r t t h e oil c o m p a n i e s . I t w a s t r y i n g t o reestablish relations with t h e Algerians, next d o o r to Libya, a n d to obtain a supply of A l g e r i a n n a t u r a l gas. T h e L i b y a n s , said J a m e s A k i n s , t h e S t a t e D e p a r t m e n t ' s oil e x pert, were " c o m p e t e n t m e n in a strong position, w h o played their h a n d straight, and found it a winning one." T h e i r d e m a n d s , said A k i n s , w e r e r e a s o n a b l e . O n e b y o n e t h e oil c o m p a n i e s c a p i t u l a t e d . T h e f i r s t r o l l i n g r o c k s o f t h e a v a l a n c h e w e r e i n m o t i o n . T h e g a m e o f L e a p f r o g i n oil p r i c e s , w h i c h i s still g o i n g o n , b e g a n . " T h e Libyan success was a n e m b a r r a s s m e n t t o o t h e r O P E C c o u n t r i e s , " w r o t e A b d u l A m i r K u b b a h . O P E C , said K u b b a h , had been too m o d e r a t e . " W e wasted ten years, not following what o u r V e n e z u e l a n friends h a d told us," said K u b b a h . " N o w C o l o n e l Q a d d a f i h a d s h o c k e d u s i n t o action." T h e S h a h o f I r a n was miffed a t t h e Libyan initiative. A m o n g his o w n s e l f - g i v e n titles w e r e S h a h a n s h a h , K i n g o f Kings, S h a d o w of G o d on E a r t h ; a n d h e r e was an u p s t a r t colonel l e a d i n g t h e Club. His p o w e r in t h e a r e a , he said, was ten times, n o , twenty times as great as that of the British h a d ever been. H e w a r n e d the c o n s u m i n g coun-

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t r i e s n o t t o g e t t o g e t h e r b e h i n d t h e i r oil c o m p a n i e s ; h e w a r n e d t h e oil c o m p a n i e s n o t t o g e t t o g e t h e r t o d e f e a t t h e legitimate d e m a n d s of the p r o d u c e r s . T h e companies, he said, w o u l d n o w n e g o t i a t e with t h e Persian G u l f states. T h a t way h e , t h e S h a h a n s h a h , c o u l d r e s t r a i n t h e "wild m e n " o f O P E C . T h e "wild m e n , " I r a q a n d A l g e r i a a m o n g them, were already leapfrogging their prices to match those of the Libyans. W h e n O P E C met in Caracas in Dec e m b e r , t h o u g h , t h e r e w a s little d i f f e r e n c e b e t w e e n t h e " w i l d m e n " a n d t h e " m o d e r a t e s . " A m o n t h l a t e r t h e oil c o m p a n i e s m e t the Persian Gulf states in T e h r a n . T h e S h a h could see that the British a n d A m e r i c a n gove r n m e n t s h a d left t h e oil c o m p a n i e s w i t h o u t d i p l o m a t i c s u p p o r t , a n d he was a grimly d e t e r m i n e d host. T h e Libyans h a d f o u n d t h e way t o t r a n s f e r t h e wealth o f t h e w o r l d ; t h e y h a d u s e d a temporary m a r k e t c o n d i t i o n t o kick u p t h e prices. Theoretically, t h e T a p l i n e b r e a k was t e m p o r a r y , t h e N i g e r i a n civil w a r w a s t e m p o r a r y , t h e S u e z C a n a l closing was t e m p o r a r y , a n d e v e n t h e E u r o p e a n d e m a n d in the s u m m e r of 1970 s e e m e d temporarily above normal. T h e Americans could be complacent, even shorts i g h t e d , b e c a u s e a l m o s t all o f t h e i r oil a t t h a t t i m e c a m e f r o m t h e W e s t e r n H e m i s p h e r e : f r o m t h e i r o w n oil s t a t e s , and from C a n a d a a n d Venezuela. Only 3 percent came f r o m t h e M i d d l e E a s t . T h e L i b y a n s h a d also s h o w n t h a t a "negotiation" between strong p r o d u c e r s and divided cons u m e r s s c a r c e l y h a d t o b e a n e g o t i a t i o n a t all; i t w a s t h e e x a c t r e v e r s e o f t h e oil s i t u a t i o n P e r e z A l f o n s o h a d f o u n d w h e n h e first g o t e l e c t e d t o C o n g r e s s i n V e n e z u e l a , w h e n t h e oil c a r t e l d i c t a t e d t h e p r i c e s . T h e S h a h said t h a t t h e p r o p e r p r i c e f o r oil w a s p e r h a p s ten times t h e c u r r e n t p r i c e , w h i c h w o u l d b r i n g i t t o t h e level o f t h e p r i c e o f a l t e r n a t i v e fuels. T h e oil c o m p a n i e s q u i e t l y g o t t o g e t h e r i n N e w Y o r k t o r e h e a r s e s o m e s t r a t e g y , t o g e t h e r w i t h t h e i r r i v a l s , t h e ind e p e n d e n t s , and the G e r m a n , Spanish, J a p a n e s e , French,

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a n d B e l g i a n oil c o m p a n i e s . T h e t e x t s e n t t o O P E C b y t h e oil c o m p a n i e s h a d , c o n s i d e r i n g t h e o l d h i s t o r y o f t h e oil c a r t e l , a n i r o n i c twist: i t said t h a t t h e oil c o n s u m e r s a n d p r o d u c e r s b o t h n e e d e d stability, a n d t h i s b u s i n e s s o f L e a p f r o g w a s v e r y u n s t a b l e ; O P E C s h o u l d act t o g e t h e r a n d b i n d its m e m b e r s ! T h e c o m p a n i e s d i d n o t w a n t t o h a v e t w o sets o f n e g o t i a t i o n s a s t h e S h a h s u g g e s t e d ; t h e y f e a r e d a n o t h e r r o u n d of Leapfrog. A State D e p a r t m e n t spokesm a n , J o h n Irwin, was sent to T e h r a n to explain why the oil c o m p a n i e s w e r e g e t t i n g t o g e t h e r a n d w h y t h e y s h o u l d have only a single negotiation. T h e S h a h talked Irwin o u t o f it; t h e c o m p a n i e s h a d n o c h o i c e t h e n b u t t o follow t h e Shah's plan. T h e oil c o m p a n i e s w e r e n o t u s e d t o a c t i n g i n c o n c e r t , even t h o u g h they had once b e e n a powerful cartel. T h e y had to obtain a Justice D e p a r t m e n t antitrust waiver just to b e a b l e t o talk t o o n e a n o t h e r . T e n t a t i v e l y t h e y d i s c u s s e d c o o p e r a t i o n a n d a "safety net." So they r a n g e d a l o n g o n e side of the table in T e h r a n , t h e Seven Sisters, led by L o r d S t r a t h a l m o n d , m o r e f a m i l i a r l y k n o w n i n t h e oil i n d u s t r y a s Billy F r a s e r , t h e p o p u l a r , g r e g a r i o u s d i r e c t o r o f B r i t i s h P e t r o l e u m , w h o s e f a t h e r h a d m a d e a n oil f o r t u n e i n I r a n . On t h e o t h e r side of t h e table was a f o r m i d a b l e n e g o t i a t i n g t e a m r e p r e s e n t i n g c o u n t r i e s , n o t c o m p a n i e s : S h e i k h Zaki Yamani, New York University a n d H a r v a r d , smooth and poised; J a m s h i d A m o u z e g a r , a lean, craggy, ironic Iranian with B.A. a n d Ph.D. d e g r e e s from Cornell; a n d S a a d o u n H a m m a d i , an unsmiling, a u s t e r e Iraqi with a P h . D . from the University of Wisconsin. T h e American-educated m e m b e r s of the O P E C team were their respective count r i e s ' oil m i n i s t e r s . T h e n e g o t i a t i o n s w e n t o n f o r t h i r t y - t h r e e d a y s . T h e oil c o m p a n i e s m a d e their h e a d q u a r t e r s in L o n d o n , in British P e t r o l e u m ' s skyscraper, with messages g o i n g to a n d from their field t e a m in T e h r a n . A n d while the discussions went b a c k a n d f o r t h , O P E C h a d a t h r e a t t h a t its d e l e g a t e s w e r e

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not afraid to p u t forth: if it did not get w h a t it w a n t e d , it w o u l d s h u t o f f t h e oil. I t p r o m i s e d " c o n c e r t e d a n d s i m u l t a n e o u s a c t i o n b y all m e m b e r c o u n t r i e s . " "That w a s a s u r p r i s e , " said a B r i t i s h o b s e r v e r . " W e w e r e u s e d t o t h e s e c h a p s always q u a r r e l i n g a m o n g themselves, the Iraqi h o t h e a d s a n d the conservative Saudis. T h e Weste r n c o u n t r i e s w e r e n o t p r e p a r e d a t all f o r e c o n o m i c b l a c k mail. We knew the Iranians were s p e n d i n g twenty percent m o r e t h a n their income, so they h a d to get a raise, but we w e r e s u r p r i s e d a t h o w v e r y t o u g h all o f t h e m h a d b e come." T h o u g h t h e parley w e n t o n for t h i r t y - t h r e e days, t h e O P E C m e m b e r s actually c a m e o u t with a h i g h e r price p e r barrel t h a n they h a d asked for the first day. O P E C would get a n o t h e r 50 cents a barrel. T h e c o m p a n i e s h o p e d they h a d w o n five years of peace. B u t e v e n that was fragile; a dozen years before, an American lawyer, Frank H e n d r y x , h a d b e e n legal adviser t o A b d u l l a h T a r i k i ' s d e p a r t m e n t a n d h a d b r o u g h t u p t h e c o n c e p t i n W e s t e r n law t h a t sovereign governments have the right to abrogate commercial contracts that r u n c o u n t e r to the legitimate interests of their citizens. Even at that time t h e A r a b g o v e r n m e n t s w e r e well a w a r e o f t h e p r i n c i p l e . T h e a g r e e m e n t w a s s i g n e d o n F e b r u a r y 14, 1 9 7 1 . I t m i g h t h a v e b e e n c a l l e d t h e St. V a l e n t i n e ' s D a y M a s s a c r e . T h e i m p o r t a n c e was not in the 50 cents a barrel; it was that O P E C now dictated the terms. T h e oil c o m p a n y t e a m s , w h o h a d felt, i n T e h r a n , t h a t they were "bargaining in front of a loaded gun," now had to go to Libya for a n o t h e r r o u n d of negotiations; T e h r a n had covered only the Persian Gulf nations. T h e Libyans t h o u g h t t h a t O P E C h a d b e e n f a r t o o g e n t l e a t t h e St. V a l e n t i n e ' s D a y M a s s a c r e . E v e r y d a y t h e L i b y a n oil m i n i s t e r , Ezzedin El-Mabruk, b e g a n with an h o u r ' s h a r a n g u e on the s i n s o f t h e W est, its s u p p o r t f o r I s r a e l , its y e a r s o f e x p l o i tation. W i t h t h e T a p l i n e w r e c k e d , E u r o p e was m o r e t h a n
T

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e v e r d e p e n d e n t o n L i b y a . M a b r u k said h e w a s a b o u t t o t u r n o f f t h e oil. " W e l i v e d f i v e t h o u s a n d y e a r s w i t h o u t it, a n d w e c a n c o n t i n u e t o live w i t h o u t it," h e s a i d . O n l y t h e o t h e r O P E C m e m b e r s s t o p p e d h i m f r o m aski n g f o r a n i n c r e a s e three times t h a t o f t h e o n e a g r e e d u p o n in T e h r a n . He got a bigger o n e t h a n the Gulf states, even so. T h e oil c o m p a n i e s w e n t h o m e . T h e y still h a d t h e t a n k ers, the refineries, the petrochemical plants, a n d the filling stations. B u t t h e y h a d lost c o n t r o l o f t h e oil. Unite and control, c o n s e r v e a n d t h r e a t e n to c u t b a c k . It w o r k e d ! I n C a r a c a s , P e r e z A l f o n s o r e a d t h e O P E C acc o u n t s with s o m e satisfaction. I have a r e a s o n for reciting t h e a d v a n c e d d e g r e e s of OPEC's negotiators. T h e image of the A r a b in the West w a s t h a t o f t h e " r a g h e a d , " w a t e r i n g his c a m e l a n d l u s t i n g a f t e r s m a l l b o y s . T h e Six D a y W a r h a d p r o d u c e d t h e t e l e vision i m a g e o f E g y p t i a n s o l d i e r s r u n n i n g b a c k t o E g y p t barefoot t h r o u g h the sand. "Exxon seemed certain the Arabs could n e v e r get together," a f o r m e r Exxon executive r e c a l l e d . " T h e i r i m a g e o f t h e A r a b s s e e m e d a s t h o u g h it w a s t a k e n f r o m t h e m o v i e Lawrence of Arabia." B u t on t h e o t h e r side of t h e table, at T e h r a n , w e r e these three r a g h e a d s w h o had gotten Ph.D.'s and other advanced d e g r e e s from A m e r i c a n universities in a foreign l a n g u a g e , w h i c h i s t o say, E n g l i s h . N o t t h a t a d v a n c e d d e grees in a second l a n g u a g e a r e necessary signs of great n e g o t i a t i n g skills, b u t i n t h i s c a s e t h e g e n t l e m e n w e r e form i d a b l e a n d k n e w the c a r d s they held. "It was not until we r e a l i z e d o u r s t r e n g t h t h a t w e had o u r s t r e n g t h , " a S a u d i aide said later. Sheikh Y a m a n i h a d told an E x x o n director, G e o r g e Piercy, " Y o u k n o w you c a n n o t take a s h u t d o w n . " But the West c o u l d have taken a s h u t d o w n far b e t t e r in that winter of 1971 t h a n it could ever take a g a i n . T h e A t l a n t i c Richfield C o m p a n y h a d n o t b e e n a p a r t y

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to the negotiations. T h e Arco directors met in their Manhattan boardroom to hear an account of what had happ e n e d o n V a l e n t i n e ' s Day. O n e d i r e c t o r t r a c e d o n his n o t e p a d a n a b s t r a c t p a t t e r n , like t h e a b s t r a c t i o n i n t h e J a m e s B e y e r t a p e s t r y o n t h e wall. W h e n t h e r e c i t a t i o n w a s finished, he said, sarcastically, "Well, we really held t h e Arabs to their own terms." T h e p r i c e rise o f t h e St. V a l e n t i n e ' s D a y M a s s a c r e d i d not d a m p e n d e m a n d ; indeed, that d e m a n d went up and u p , all o v e r t h e w o r l d . B e h i n d t h e " i n v i s i b l e d i k e " t h e p r i c e o f T e x a s oil w a s $ 3 . 4 5 a b a r r e l , f r o z e n b y t h e p r i c e a n d wage controls imposed by the Nixon administration. T h e U n i t e d S t a t e s w a s n o w i m p o r t i n g 2 3 p e r c e n t o f its oil, b u t m o s t o f t h a t still c a m e f r o m C a n a d a a n d V e n e z u e l a . T h e M i d d l e E a s t e r n oil w a s $ 2 . 2 0 a b a r r e l a t R a s T a n u r a i n S a u d i A r a b i a , still c h e a p e r t h a n t h e T e x a s oil. All t h r o u g h t h e 1 9 6 0 s t h e oil c o m p a n i e s h a d w o r r i e d about the Endless Glut. Michael Haider, c h a i r m a n of E x x o n , s a i d a t its a n n u a l m e e t i n g i n H o u s t o n , i n M a y 1 9 6 7 , "I w i s h I c o u l d say I will be a r o u n d w h e n t h e r e is a s h o r t a g e o f c r u d e oil o u t s i d e t h e U n i t e d S t a t e s . " A m e m o from S t a n d a r d of California in D e c e m b e r of 1968 w a r n e d t h a t A r c t i c oil w o u l d k e e p t h e G l u t g o i n g . B y 1972 t h e Glut was g o n e . T h e T e x a s Railroad C o m mission did not have to worry a b o u t how m a n y days a m o n t h t h e wells c o u l d p u m p ; t h e y w e r e g o i n g flat o u t , every day. T h e d e m a n d was right across the b o a r d : gasoline for a u t o m o b i l e s , k e r o s e n e for j e t s , chemicals, w e e d sprays, fertilizers, plastics. Richard N i x o n was reelected by forty-nine of fifty states. His e n e r g y task force, h e a d e d by G e o r g e Shultz, h a d rep o r t e d t h e r e w a s little d a n g e r o f a n A r a b b o y c o t t a n d t h a t i m p o r t restrictions should be liberalized. It is a c u r i o u s e x p e r i e n c e to review t h e technical literat u r e o f t h e e a r l y 1 9 7 0 s . T h e s p e c i a l i z e d oil j o u r n a l s a r e p r e o c c u p i e d with the day-to-day business of concessions,

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and tax rates, a n d participations. N o t m u c h about the days o f d i r e a h e a d . A w h o l e g e n e r a t i o n o f oil m e n h a d g r o w n up with the Glut. T h e warnings appear in that dry Establishment quart e r l y , Foreign Affairs. T h e oil c o n s u l t a n t W a l t e r L e v y w a r n e d , i n 1 9 7 1 , t h a t t h e governments o f c o n s u m i n g c o u n t r i e s n o t j u s t t h e companiesmust p a y a t t e n t i o n t o t h o s e c h a n g i n g ratios. J a m e s Akins, t h e c a r e e r State D e p a r t m e n t official w h o h a d c o u n s e l e d t h e c o m p a n i e s t o m a k e t h e i r peace with Libya, d e f e n d e d t h e State D e p a r t m e n t posit i o n , a l s o in Foreign Affairs. W o r l d oil c o n s u m p t i o n , he said, in April 1973, w o u l d be as great in t h e n e x t twelve y e a r s a s w o r l d oil c o n s u m p t i o n t h r o u g h all o f p r e v i o u s history. T h e loss o f p r o d u c t i o n f r o m a n y t w o M i d d l e E a s t e r n c o u n t r i e s w o u l d c a u s e a p a n i c , a n d t h e p r i c e o f oil could go to $5 a barrel. A k i n s ' s critics said h e w a s a n A r a b o p h i l e . H e h a d t o l d an O P E C meeting, "I don't think you have any reason to be a s h a m e d of y o u r success so far" a n d t h e n c o u n s e l e d the oil p r o d u c e r s " t o c o n t i n u e t o b e n d , n o t t o b r e a k , t h i s steel r o d [ t h e oil c o m p a n i e s ] . " A k i n s ' s critics said h e w a s g i v i n g t h e A r a b s a b l u e p r i n t for blackmail. T h e a r t i c l e w a s c e r t a i n l y r e a d all o v e r t h e w o r l d . J u a n P a b l o P e r e z A l f o n s o p a s s e d i t o u t all o v e r C a r a c a s . B u t t h e oil c o u n t r i e s s c a r c e l y n e e d e d a n A m e r i c a n a r t i c l e t o tell t h e m w h a t w a s g o i n g o n . T h e v o l u m e o f oil i n i n t e r n a t i o n a l t r a d e h a d g o n e u p like t h i s :

1950 1960 1970 1973

3.7 9.0 25.6 34.2

million million million million

barrels barrels barrels barrels

a a a a

day day day day

T h e " i n v i s i b l e d i k e " a r o u n d t h e A m e r i c a n oil b e g a n t o s h u d d e r a n d shake. I t h a d b e e n built t o k e e p t h e c h e a p

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f o r e i g n oil f r o m c o m i n g in. N o w i t b l e w a w a y , n o t f r o m t h e s u p p l y p r e s s u r e outside, b u t f r o m t h e demand inside. T h e i m p o r t restrictions w e r e lifted, a n d w h a t w e n t r o a r i n g out, o f c o u r s e , was dollars. T h o s e dollars w e n t o u t a n d c o m p e t e d f o r oil s u p p l i e s t h a t w e r e a l r e a d y t i g h t . T h e a d ministration in Washington did n o t h i n g to control the s c r a m b l e . I t h a d o t h e r p r o b l e m s o n its m i n d . I t w a s a b o u t to go on trial. T h e c h a i r m a n of British Shell told a H a r v a r d s e m i n a r t h a t t h e e n e r g y p r o b l e m was n o w a political p r o b l e m , a n d that the c o n s u m i n g g o v e r n m e n t s should get together. T h e State D e p a r t m e n t in W a s h i n g t o n h a d b e e n trying to arr a n g e talks with t h e E u r o p e a n s , a n d i n d e e d , i n J u n e 1 9 7 3 , t h e O E C D , t h e W e s t e r n o r g a n i z a t i o n w i t h t h e title O r g a n i z a t i o n f o r E c o n o m i c C o o p e r a t i o n a n d D e v e l o p m e n t , set u p a g r o u p t o d i s c u s s e n e r g e n c y oil p o l i c y , t o r e p o r t b a c k in N o v e m b e r . It was t o o late. T h e d e m a n d f o r oil w a s r u n n i n g a h e a d o f t h e m o s t e x t r e m e p r e d i c t i o n s . I n d e p e n d e n t oil c o m p a n i e s t r i e d t o b e a t t h e s e v e n g r e a t oil c o m p a n i e s t o t h e w e l l h e a d s . J a p a n e s e t r a d i n g c o m p a n i e s t r i e d t o b e a t t h e i n d e p e n d e n t oil c o m p a n i e s . O n l y A r a m c o , i n S a u d i A r a b i a , h a d s p a r e cap a c i t y , a n d i t h a d little. B y S e p t e m b e r 1 9 7 3 t h e m a r k e t p r i c e h a d f o r t h e first t i m e o v e r t a k e n t h e official " p o s t e d " p r i c e . O P E C c o u l d easily r e a d w h a t t h i s m e a n t politically. Its f o r m e r s e c r e t a r y - g e n e r a l , N a d i m al-Pachaci, told a c o n ference, " T h e A r a b s n o w h o l d t h e keys t o the e n e r g y a n d m o n e t a r y c r i s i s . T h e y will k n o w h o w t o u s e b o t h a s a p o l i t ical w e a p o n . " A n w a r al-Sadat of E g y p t flew to S a u d i A r a b i a to discuss his military p l a n s with K i n g Faisal. T h e r u l e r o f K u w a i t , S h e i k h S a b a h i b n S a l i m a l - S a b a h , a l s o visited F a i s a l , t h e n w e n t o n t o C a i r o t o p r o m i s e K u w a i t ' s oil w e a p o n i n t h e f o r t h c o m i n g battle with Israel. In October the Egyptians turned their high-pressure

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W e s t G e r m a n fire h o s e s o n t h e s a n d e m b a n k m e n t s o f t h e I s r a e l i s ' B a r - L e v l i n e , literally d i s s o l v e d t h e s a n d f o u n d a tions, a n d crossed the Suez C a n a l . T h e U n i t e d States' res u p p l y o f I s r a e l w a s d o n e i n t h e face o f w a r n i n g s o f e m b a r g o . O P E C met in Kuwait a n d a n n o u n c e d a cutback of 5 p e r c e n t a n d a price rise. S a u d i A r a b i a a n n o u n c e d a still b i g g e r c u t b a c k . F o r t h e first t i m e i n h i s t o r y , t h e O P E C b u r e a u c r a t s m e t with n o b o d y on the o t h e r side of the table. No E x x o n , no Mobil, no T e x a c o , no BP, no Shell. T h e y were not invited. T h e r e w e r e n o n e g o t i a t i o n s . T h e p r i c e o f oil w o u l d b e , s a i d O P E C , $ 5 . 1 2 a b a r r e l . B y u k a s e , b y fiat, b y o r d e r o f t h e h i g h c o m m a n d . T h e p r e s s release was p r e p a r e d only in A r a b i c . T h e r e was, in Kuwait, at that m o m e n t , a British observer w h o was a friend of m i n e . He is so u n d e r s t a t e d that his g r a c e s s e e m t o h a v e d e s c e n d e d u p o n h i m , b u t t h i s i s a pose. "I t h o u g h t it m i g h t be useful to learn a spot of Arab i c , " h e says, b u t w h a t h e m e a n s i s t h a t h e w e n t t o t h e British A r a b i c t r a i n i n g school in L e b a n o n for e i g h t e e n m o n t h s , sixteen h o u r s a day, seven days a week. My British f r i e n d sat a f t e r w a r d w i t h a n A r a b f r i e n d f r o m O P E C , w h o d e s c r i b e d t h i s m o m e n t : " W e d e c l a r e d t h e n e w p r i c e o f oil. I t w a s a little s t r a n g e , b e c a u s e t h e c o m p a n i e s w e r e n o t t h e r e . W e k n e w t h i s w a s t h e b i g g e s t rise t h a t t h e p r i c e o f oil h a d e v e r t a k e n . N o w r e m e m b e r w e h a v e g r o w n u p w i t h the British fleet on o u r d o o r s t e p , we have b e e n to schools in Britain or America, we are f r o m small countries, without armies a n d hospitals. A n d now we have nearly d o u b l e d t h e p r i c e o f oil. " A n d we sit t h e r e f o r a m o m e n t , a n d unconsciously we are listening for the whine of jets overhead, as if we will be p u n ished. "Of course nothing h a p p e n e d . But I r e m e m b e r that mom e n t . T h o s e g i a n t c o u n t r i e s ! N o w w e will n e v e r b e a f r a i d again."

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" V i e t n a m , " said m y B r i t i s h f r i e n d l a t e r , " t o o k t h e e d g e off, t h e g r e a t g i a n t b r o u g h t d o w n b y a n a r m y i n s n e a k e r s . " W i t h i n a few w e e k s O P E C h a d d o u b l e d t h e p r i c e a g a i n . I t w a s e a s y . T h e A r a b s h a d e m b a r g o e d oil d e s t i n e d for t h e U n i t e d States a n d the N e t h e r l a n d s , to p u n i s h their support of Israel, in addition to the cutbacks. T h o u g h the c u t b a c k s a m o u n t e d t o less t h a n 1 0 p e r c e n t o f w o r l d s u p p l i e s , f r a n t i c b u y e r s w e r e b i d d i n g wild p r i c e s . T h e I r a n i a n oil c o m p a n y h a d a u c t i o n e d oil a s h i g h a s $ 1 7 a b a r r e l . T h e J a p a n e s e t r a d i n g c o m p a n i e s h a d slept o n t h e d o o r s t e p the night before the auction. T h e O P E C m e e t i n g i n T e h r a n , i n D e c e m b e r 1 9 7 3 , a few w e e k s l a t e r , w a s like t h e t r i u m p h a l m a r c h i n a n o p e r a . T h e great black limousines p u r r e d to t h e front d o o r , to d i s c h a r g e t h e e l e g a n t S h e i k h Z a k i Y a m a n i i n his b l u e tailored raincoat a n d the craggy J a m s h i d A m o u z e g a r . T h e Western diplomats and observers scrambled through the side d o o r s , t r y i n g to find o u t w h o was saying w h a t to w h o m a n d w h a t was h a p p e n i n g . As for t h e press, it was not j u s t Piatt's Oilgram a n d t h e Middle East Economic Survey a n d W a n d a a n y m o r e , i t w a s e v e r y b o d y C B S , t h e B B C , Mainichi, O Globo. T h e S h a h , said J a m s h i d A m o u z e g a r , h a d o r d e r e d a s t u d y o f a l t e r n a t i v e f u e l s . " W e w e r e s t r u c k , " said t h e e m i n e n t C o r n e l l a l u m n u s , " b y t h e fact t h a t i n 1 9 5 1 c o a l w a s f i f t y - o n e p e r c e n t o f t h e fuel i n t h e U n i t e d S t a t e s , a n d n o w i t i s n i n e t e e n p e r c e n t . B e c a u s e o f c h e a p oil, a l t e r n a t i v e sources are being neglected. No one in the West is worryi n g a b o u t w h a t h a p p e n s w h e n t h e oil r u n s o u t . " T h e e m b a r g o h a d showed the weakness of the West. OPEC's economic commission h a d d e t e r m i n e d that the price should be $ 1 7 a barrel. S h e i k h Y a m a n i was a p p r e h e n s i v e at so large a boost. "I w a s a f r a i d t h e effects w o u l d b e e v e n m o r e h a r m f u l t h a n they were, that they would create a major depression in the West. I knew that if you went d o w n , we would go

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d o w n , " he said. Y a m a n i tried to get in t o u c h with K i n g Faisal, b u t was u n a b l e to. If he k e p t t h e price d o w n , it m i g h t b r e a k O P E C b u t leave t h e Saudis isolated. Y a m a n i r e m a i n e d within O P E C , insisting on a smaller price inc r e a s e , a n d w a s l a t e r r e p r i m a n d e d b y Faisal. B u t Y a m a n i w a s s t u n n e d w h e n , w h i l e t h e O P E C m i n i s t e r s w e r e still m e e t i n g , t h e S h a h called a press c o n f e r e n c e . T h e p r i c e o f oil, t h e S h a h s a i d , w o u l d b e $ 1 1 . 6 5 a b a r r e l . T h a t was even m o r e t h a n Y a m a n i h a d a g r e e d to. T h e Shah's arrogance astounded the assembled diplomats and r e p o r t e r s . T h e n e w p r i c e o f oil, h e s a i d , w a s v e r y low a n d " w a s r e a c h e d o n t h e basis o f g e n e r o s i t y a n d k i n d n e s s . " A s for the W e s t e r n c o n s u m e r s , it would do t h e m good to e c o n o m i z e : "All t h o s e c h i l d r e n o f w e l l - t o - d o f a m i l i e s w h o have plenty to eat at every meal, w h o have their own cars, w h o act a l m o s t a s t e r r o r i s t s a n d t h r o w b o m b s h e r e a n d t h e r e , will h a v e to r e t h i n k all t h e s e p r i v i l e g e s . . . t h e y will have to work harder." " W e w e r e a m a z e d to find ourselves the objects of so m u c h a t t e n t i o n , " said A b d u l L a t i f a l - H a m a d , a f o r m e r s t u d e n t of a friend of m i n e at C l a r e m o n t Colleges, California, a n d t h e director of the Kuwait F u n d . "We got as great a shock as you did. We t h o u g h t we w e r e pygmies, facing giants, a n d now we found that the giants are ordinary p e o p l e a n d the Rock of Gibraltar is p a p i e r - m a c h e . A n d we h a d b e e n p r o t e c t e d b y t h e oil c o m p a n i e s f r o m t h e w o r l d ; now they were gone, a n d we had to decide everything o u r s e l v e s . I t w a s like b e i n g a r i c h o r p h a n . " T h e r e w e r e s t u n n e d r e a c t i o n s all o v e r t h e w o r l d . O n e was recalled to me some years later by J a n o s Fekete, d e p uty d i r e c t o r of the National B a n k of H u n g a r y , an extremely s h r e w d b a n k e r , a g o o d C o m m u n i s t , a m a n with a puckish sense of h u m o r . " I w e n t t o m y office," h e s a i d , " a n d I said t o m y staff, 'Now w e will see t h e m i g h t y W e s t rise u p ! T h e y c a n n o t l e n d t h e m s e l v e s t o t h i s fraud, w h e r e t h e p r i c e i s s o f a r f r o m t h e cost! It is a h o a x ! ' I w a s e x c i t e d .

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" M y staff was m u c h m o r e s o b e r . T h e y said, ' J a n o s , n o w w e h a v e t o d o t h e b u d g e t s all o v e r , w e a r e i n deficit.' A n d I s a i d , 'A fene egye meg!' Of c o u r s e we a r e ! D a m n ! B e c a u s e w e i m p o r t oil f r o m t h e R u s s i a n s , a n d t h e y u s e t h e O P E C price! N o w we must pay the Russians f o u r times as m u c h f o r o u r oil! A fene egye meg!" In the T h i r d W o r l d , Fekete's e x p e r i e n c e was duplicated, w i t h v a r i a t i o n s . F i r s t , a f e e l i n g o f j u b i l a t i o n i n all t h o s e c o u n t r i e s of Asia a n d Africa. W h a t an upset! R a g h e a d s , 6 6 ; Giants, 0! W a h o o ! So m u c h for t h e b l u e - e y e d devils in the cold-weather countries! So m u c h for the a r r o g a n t long-nosed bastards! So m u c h for t h e imperialist exploiters w h o wanted us to be a nation of busboys! A n d t h e n s o m e b o d y m a y b e t h e f i n a n c i a l p e o p l e , like F e k e t e w o u l d say, " B u t n o w w e h a v e t o p a y f o u r t i m e s a s m u c h f o r t h e oil, a n d w e h a v e n o oil. W h e r e d o w e g e t t h e money?" A n e x e r c i s e j u s t like t h a t w a s t h e g e n e s i s o f t h i s b o o k . T h e price at H o w a r d ' s Mobil station h a d not q u a d r u p l e d , b u t H o w a r d wasn't g e t t i n g m u c h gas t h a t frosty winter. T h e r e was a line t h r e e blocks l o n g l e a d i n g u p t o H o w a r d ' s Mobil. H o w a r d himself was bleary-eyed from d e a l i n g with a n g r y c u s t o m e r s . First I d r o v e b y , t o s e e h o w l o n g H o w a r d would be o p e n , because I didn't want to s p e n d two h o u r s in a gas line a n d t h e n find a sign t h a t said " N o Gas." H o w a r d said, "Go to t h e e n d of t h e line; we can m a k e it today." T h e g a s l i n e sat a n d c r e p t , sat a n d c r e p t , a n d t h e s n o w c a m e d o w n a r o u n d u s . I f i n i s h e d r e a d i n g all t h e b a n k letters. I finished The Wall Street fournal, The New York Times, a n d The Economist. T h e r e w a s still a b l o c k a n d a h a l f to go. F i r s t I t h o u g h t , T h i s g a s l i n e i s b u r n i n g u p a lot o f g a s j u s t t r y i n g t o g e t m o r e . T h e n : H o w d o w e p a y f o r t h e oil q u a d r u p l e ? T h a t is, w e , t h e U n i t e d S t a t e s ? W e l l , w e c o u l d sell s o m e t h i n g t o t h e A r a b s . W h a t a r e w e g o o d a t g r o w i n g

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o r m a k i n g a n d selling? A i r c r a f t , w h e a t , s o y b e a n s , m a y b e some high-technology equipment. Now, what are they buying? Who's in O P E C ? We can forget G a b o n a n d Ecuad o r a n d Q a t a r n o t significant. W h o a r e w e talking a b o u t ? I r a q : c r o s s off, n o r e l a t i o n s w i t h t h e m . L i b y a , K u w a i t , S a u d i Arabia, I r a n . Libya: fewer t h a n 2 million p e o p l e . Kuwait: fewer t h a n 300,000. Saudi Arabia: 6 million. S m a l l c o u n t r i e s . D o n ' t h a v e b i g a i r l i n e s . Sell a c o u p l e o f 7 2 7 s , a 7 4 7 o r t w o ; t h a t ' s a b o u t e n o u g h oil f o r t e n m i n u t e s of gas lines. W h e a t , s o y b e a n s s m a l l c o u n t r i e s d o n ' t eat m u c h ; w e h a v e 120 m i l l i o n c a r s , e a c h c a r i s s i t t i n g i n a g a s l i n e w i t h its m o t o r r u n n i n g ; y o u c o u l d sell all t h e w h e a t a n d soybeans Libya, Kuwait, a n d S a u d i Arabia could eat a n d only m o v e t h e w h o l e n a t i o n a l gas line o n e block. Less. M a y b e t h i r t y feet. O f c o u r s e , I r a n . . . 3 3 m i l l i o n p e o p l e . . . S h a h a i r c r a f t ? A c o u p l e m o r e a i r p l a n e s , a little m o r e w h e a t a i r c r a f t , arms. W e c o u l d sell a r m s t o t h e S h a h . B u t n o t e n o u g h t o t h e o t h e r folks. N o , w h a t w e will b u y t h e oil w i t h i s d o l l a r s , b e c a u s e t h e w o r l d t a k e s d o l l a r s , t r a d e s i n d o l l a r s . A n d t h e oil folk will h a v e t h e d o l l a r s , a n d t h e n they can come a n d buy what they want. But n o b o d y r e a l i z e s the scale. L e t ' s j u s t say w e p a y t h e i m p o r t p r i c e f o r h a l f o f t h e oil n e e d s , a t let's say, $ 1 0 a b a r r e l , c a r r y t h e 3 , times 365 days in the year; my goodness, in o n e year O P E C c o u l d h a v e $ 1 0 0 billion e x t r a , m a y b e $ 2 0 0 b i l l i o n s o o n , t h e n they could c o m e a n d b u y half o f t h e stocks o n t h e N e w Y o r k S t o c k E x c h a n g e , a l m o s t half. A n d t h a t ' s o n l y o n e y e a r . T h e n e x t y e a r t h e 120 m i l l i o n c a r s a r e b a c k a t t h e g a s p u m p , a n d O P E C h a s another $ 1 0 0 billion, a n d t h e y k e e p p i l i n g u p t h o s e c l a i m c h e c k s u n t i l t h e y can b u y the whole N e w York Stock E x c h a n g e . T h e y k e e p the claim c h e c k , a n d we m o v e t h e c a r s a r o u n d . We are going to sell America for a product that burns up hi the atmosphere. We will be a c o l o n y . N o , t h a t c a n ' t b e r i g h t . S o m e t h i n g else h a s t o h a p p e n . I was up to t h e gas p u m p .

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"Just d o n ' t swear at m e , " H o w a r d said. "I only r u n a filling station." I didn't swear at H o w a r d . I was t r y i n g to figure o u t w h a t w a s w r o n g w i t h t h a t i d e a : We are issuing claim checks on our country for something that burns up in the atmosphere. As it t u r n s out, u n h a p p i l y , very u n h a p p i l y , years later, c o l u m n s later, economists later, c o n g r e s s m e n later, Dep a r t m e n t o f E n e r g y officials l a t e r , s h e i k h s a n d oil m e n a n d b a n k e r s later, t h e idea was not w r o n g . N o r was it u n i q u e t o m e , n e e d l e s s t o say. T h e t r i u m p h of the Club is something quite unparall e l e d i n h i s t o r y . W h e n else w a s t h e r e s u c h a t r a n s f e r o f wealth? W h e n the Spaniards b r o u g h t back the gold a n d silver o f P e r u ? W h e n t h e B r i t i s h raj r u l e d I n d i a ? T h o s e were transfers of wealth, but n o n e h a p p e n e d so quickly. F r o m t h e d a y t h e O d d C o u p l e m e t a t t h e Nile Hilton to the day the French bulldozer broke the Tapline w a s less t h a n e l e v e n y e a r s . F r o m t h a t t o t h e St. V a l e n t i n e ' s D a y M a s s a c r e w a s less t h a n t w o , a n d i n less t h a n a n o t h e r t h r e e t h e t r i u m p h was c o m p l e t e . It was t h e greatest transfer of wealth in the history of the world. A n d it is h a r d to c o m m u n i c a t e . I f y o u s a y oil w e n t f r o m $ 1 . 8 0 a b a r r e l t o $ 1 1 . 6 5 a b a r r e l , t h a t ' s a b i g p e r c e n t a g e , b u t it's still j u s t t e n b u c k s . A n d i f y o u say t h i s y e a r w e will s e n d o u t $ 9 0 billion f o r oil, t h a t ' s a n a b s t r a c t i o n ; y o u c a n ' t d i v i d e $ 9 0 billion into o r a n g e juice and c o m e out s o u n d i n g a n y t h i n g but silly. Unite and control, conserve and cutbackthe preachings of the O d d C o u p l e w e r e scratched out first by the tidy V e n e z u e l a n lawyer w h o a d m i r e d the T e x a s Railroad C o m m i s s i o n . B u t y o u will n o t i c e , b y t h e i r a b s e n c e , m i s s i n g e l e m e n t s i n t h i s s t a c c a t o little c a p s u l e h i s t o r y . T h o s e e l e ments are the governments of the West. T h e conventional wisdom is that they were out to lunch, that they h a d deleg a t e d t h e i r r o l e t o t h e oil c o m p a n i e s . I n C h u r c h i l l ' s phrase, they presided over the liquidation of an empire.

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O r t h e y d i d n o t p r e s i d e a t all. T h e y w e r e w e a k a n d d i vided. " T h e F r e n c h w e r e t o o a n t i - A m e r i c a n , " said o n e o f Mobil's veteran negotiators, " t h e British too b e m u s e d by their debt to P o m p i d o u , the Italians too g o v e r n e d by Mattel's l e g a c y o f d i s l i k e f o r t h e S e v e n S i s t e r s , t h e J a p a n e s e too scared of O P E C . . . t h e A m e r i c a n s , British, G e r m a n s , and Dutch preferred to h o p e that the hurricane would p a s s . . . n o n e saw t h a t w h a t w a s r e a l l y n e e d e d w a s s o l i d a r ity a m o n g all o f t h e m . " U n i t e a n d c o n t r o l , c o n s e r v e a n d cut back, m a y have b e g u n in t h e West, b u t it was f o r g o t t e n . T h e r e i s also a n u n c o n v e n t i o n a l view, w h i c h i s t h a t a t least s o m e e l e m e n t s i n t h e W e s t w e r e q u i t e h a p p y t o s e e t h e p r i c e o f oil g o u p . T h e t h e s i s o f t h i s view i s t h a t R i c h a r d N i x o n a n d H e n r y Kissinger m a d e a deal with t h e S h a h of I r a n . It was d e v e l o p e d first by the columnist J a c k A n d e r s o n , a n d t h e n by t h e C B S television show "60 Minutes." A t least o n e o f t h e s o u r c e s , i f n o t t h e p r i n c i p a l s o u r c e , w a s J a m e s A k i n s , t h e f o r e i g n - s e r v i c e officer, A r a b i s t , a n d oil specialist, w h o h a d w r i t t e n " T h i s T i m e t h e W o l f I s H e r e " i n Foreign Affairs. A k i n s h a d b e c o m e a m b a s s a d o r t o S a u d i A r a b i a a n d t h e n , in 1975, was fired by Kissinger. N i x o n a n d Kissinger s t o p p e d off in I r a n on t h e way h o m e f r o m t h e M o s c o w s u m m i t i n 1 9 7 2 . W h a t t h e y saw was a d a n g e r o u s situation. T h e British h a d w i t h d r a w n from the Persian Gulf at the e n d of 1971; the United S t a t e s w a s still i n v o l v e d i n V i e t n a m . T h e r e w a s a p o w e r v a c u u m in t h e strategic M i d d l e East. T h e S h a h could take i t o v e r a n d w o u l d g e t t h e a r m s t o d o so. H o w would the Shah pay for the arms? By raising the p r i c e o f oil. N o A m e r i c a n C o n g r e s s w o u l d h a v e v o t e d bill i o n s t o a r m I r a n , i t w a s t h o u g h t , w h i l e t r o o p s w e r e still i n Vietnam. J a m e s Akins r e p o r t e d that the Saudis were worried both by the Iranian b u i l d u p and by the prospect of a h i g h p r i c e f o r oil, w h i c h t h e y t h o u g h t w o u l d d a m a g e t h e stability o f t h e W e s t , o n w h i c h t h e i r b a n k a c c o u n t s a n d survival d e p e n d e d .

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William Simon, Secretary of the T r e a s u r y at that time, said l a t e r , o f t h e o i l - p r i c e - f o r - w e a p o n s i d e a : " T h e r e c o u l d be s o m e t r u t h in that. We w e r e heavily involved in Vietn a m . We were trying to extricate ourselves. We had a President w h o was b e i n g besieged in t h e closing days of Watergate. We didn't need any trouble in other parts of t h e w o r l d a n d w e h a d t o m a k e s u r e o u r allies w e r e i n strong positions, so that the Russians could not take advantage of o u r domestic problems, o u r Vietnam problems, and become mischievous as they're p r o n e to do in other parts of the world." Of S i m o n , a staff m e m b e r at t h e C o u n c i l of E c o n o m i c A d v i s e r s s a i d : "Bill i s n o i n t e l l e c t u a l a n d h e i s also a f e r v e n t f r e e e n t e r p r i s e r . H e t h o u g h t a h i g h e r oil p r i c e m i g h t b r i n g u p m o r e oil, a n d t h a t w o u l d h e l p t o b r e a k t h e c a r t e l . W e w o u l d g e t t h e m o n e y w e p a i d f o r oil b a c k t h r o u g h s e l l i n g a r m s , a n d t h e oil s u r p l u s e s w o u l d g o t o o u r b a n k s a n d d r i v e i n t e r e s t r a t e s d o w n t o f o u r p e r c e n t . Bill says, ' W e all m a k e m i s t a k e s ; H e n r y r e a l l y b l e w t h a t o n e . ' B u t s o did he." Kissinger a n d Simon did p u s h forward the International E n e r g y Agency, a g r o u p of twenty Western countries, h o p i n g t o cut j o i n t c o n s u m p t i o n a n d t h u s c o n f r o n t t h e C l u b . B u t its e f f o r t s w e r e f e e b l e . I f a q u a d r u p l e d oil p r i c e w a s t h e c o s t o f a r m i n g t h e Shah, it was o n e of the most expensive b l u n d e r s in history. T h e scale o f t h e t r a n s f e r o f w e a l t h i s h a r d t o c o m p r e h e n d , a n d in this instance t h e a r i t h m e t i c m a k e s no sense. If $ 9 0 billion a y e a r s o u n d s silly d i v i d e d i n t o o r a n g e j u i c e , i t d o e s not m a k e m u c h m o r e sense d i v i d e d into F-14s. I f y o u r a i s e t h e p r i c e o f oil $ 1 0 a b a r r e l , t i m e s t h e O P E C p r o d u c t i o n of roughly 30 million barrels a day, you have raised O P E C ' s r e v e n u e s by $ 1 0 9 . 5 billion in o n e year. Granted, O P E C is a whole g r o u p of countries, both high a n d low a b s o r b e r s . Now go to the G r u m m a n plant on L o n g Island. Walk a r o u n d a n F - 1 4 , k i c k t h e t i r e s ; t h e r e i t is, c o m p l e t e l y

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e q u i p p e d , t i n t e d glass, w h i t e s i d e w a l l s , A M - F M , a v i o n i c s , r a d a r . In 1974 t h e flyaway cost of an F-14 was j u s t u n d e r $ 9 m i l l i o n , a i r - t o - a i r missiles n o t i n c l u d e d . G r u m m a n c o u l d t u r n o u t eighty F-14s a year. B r i n g pilots a n d fly a year's w o r t h away. T h a t ' s $ 7 2 0 million. N o w g o t o M c D o n n e l l D o u g l a s i n St. L o u i s . B r i n g m o r e pilots, M c D o n n e l l Douglas can t u r n out m o r e aircraft t h a n G r u m m a n ; b r i n g m o r e m o n e y , an F-15 is a very hot airp l a n e , costs $ 1 2 m i l l i o n i n 1 9 7 4 , r e a d y t o f l y a w a y . P r i c e tag for a fleet of o n e h u n d r e d F-15s: $1.2 billion. Y o u ' v e s p e n t a s h a d e less t h a n $ 2 billion o n a i r p l a n e s , b u t r o u n d it o u t ; you n e e d spare parts a n d extra tires. W h a t else? H o w a b o u t t h e b i g g e s t t i c k e t i n d e f e n s e , a n u c l e a r - p o w e r e d aircraft carrier? T h a t retails, in 1974, for $ 7 7 1 million to $1,354 billion, d e p e n d i n g on t h e m o d e l a n d the options. T a k e two. T a k e s o m e d e s t r o y e r escorts f o r t h e n u c l e a r c a r r i e r s , t a k e a c o u p l e o f missile c r u i s e r s . Have some submarines. G u e s s w h a t : you h a v e a very h o t air force, a sleek fleet, a n d y o u still h a v e a r o u n d $ 1 0 0 billion left. T h i s y e a r . S o m e o f t h o s e a i r p l a n e s a r e g o i n g t o last m o r e t h a n a y e a r , a n d n e x t y e a r y o u h a v e a n o t h e r $ 1 0 0 billion extra. So the West could transfer to O P E C o n e air force, o n e n a v y , a n d still o w e $ 1 0 0 billion every year. I believe t h e Kissinger-Shah story has an e l e m e n t of t r u t h but is too simple. I have g o n e back s o m e distance to s h o w h o w t h e g r o w t h i n oil d e m a n d c r e a t e d t h e o p p o r t u nity for P e r e z Alfonso's C l u b . Given that d e m a n d , a n d given the belligerence of m a n y m e m b e r s of the Club, the p r i c e o f oil w a s b o u n d t o g o u p , b u t n o t h i n g like a s m u c h as it did. T h e r e is no question that the Nixon administrat i o n set t h e S h a h u p a s t h e m i l i t a r y p o w e r o f t h e M i d d l e E a s t , a n d o n c e t h e S h a h w a s set u p , h e c o u l d n o t b e n e a t l y c o n t r o l l e d , so he was able, with t h e o t h e r O P E C price h a w k s , t o d i c t a t e t h e p r i c e o f oil. T h e r e w e r e p e o p l e w h o w e r e n o t s o r r y t o s e e t h e p r i c e o f oil g o u p , b e c a u s e i t

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might, they thought, in the long r u n , create alternatives to O P E C oil. O r m a y b e t h e y h a d o t h e r m o t i v e s . B u t t h e oil p r i c e q u a d r u p l e w a s a s h o c k , a n d few e x p e c t e d i t t o stick. S u r e l y O P E C w o u l d b r e a k u p , a s M i l t o n F r i e d m a n so confidently predicted. T h e h u r r i c a n e would pass. T h e a n s w e r to the question a b o u t the arithmetic is that no one worked out the arithmetic. " C o n s u m i n g governments preferred to wring their h a n d s , " said t h e Mobil o b s e r v e r , ". . . to bicker a m o n g t h e m s e l v e s . . . to c o n t e m p l a t e sauve qui peut i n i t i a t i v e s against o n e a n o t h e r . . . [they] h a d no c o n c e p t i o n of the scale o f t h e d i s a s t e r t o w h i c h t h e i r lack o f i n i t i a t i v e a n d solidarity was e x p o s i n g t h e m . " T h e Western industrial economies now had the worst of b o t h inflation a n d recession. T h e h i g h e r oil p r i c e s a c t e d a s a f i s c a l d r a g , a t a x . H i g h e r p r i c e s f o r oil m e a n t h i g h e r p r i c e s f o r f e r t i l i z e r a n d plastics a s well a s g a s o l i n e a n d h e a t . I f y o u r g a s o l i n e bill a n d y o u r h e a t i n g bill a n d y o u r f o o d bill w e n t u p , y o u m i g h t d e f e r b u y i n g a c a r ; t h e n t h e a u t o m o b i l e m a n u f a c t u r e r laid o f f some workers, who in turn cut back on their own purchases. T h e recession o f 1 9 7 4 - 7 5 was t h e worst since t h e D e p r e s s i o n of the 1930s. A n d at that s a m e time, inflation w e n t up sharply. In the U n i t e d States direct a n d i n d i r e c t e n e r g y costs a m o u n t t o 10 percent of pretax h o u s e h o l d income. A 100-percent r i s e i n e n e r g y costs m e a n t 1 0 - p e r c e n t i n f l a t i o n , all b y itself. N o t all t h e e n e r g y w a s oil, a n d n o t all oil c a m e f r o m t h e M i d d l e E a s t ; b u t t h e p r i c e o f O P E C oil h a d j u s t g o n e u p 400 percent, a n d the O P E C price became the world price. E x c e p t i n t h e U n i t e d States. T h e "invisible d i k e " h a d b e e n b l o w n a w a y , b u t t h e T e x a s p r i c e s w e r e n o w lower than the world price. Regulation from W a s h i n g t o n perm i t t e d t h e T e x a s p r i c e t o r i s e o n l y g r a d u a l l y . S o m e sect i o n s o f t h e U n i t e d S t a t e s u s e d d o m e s t i c oil a n d g a s , s o m e

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u s e d i m p o r t e d oil, a n d W a s h i n g t o n t r i e d t o f i n d a p r i c e a n d s t r u c t u r e t h a t w o u l d s p r e a d t h e cost a c r o s s t h e w h o l e c o u n t r y , a n d i t d i d n o t w a n t t h e oil p r o d u c e r s t o h a v e a sudden bonanza.

"Just Go in There and Take it"

S u d d e n l y , it seemed, that cold winter of 1975, the West d i s c o v e r e d t h a t h a l f t h e oil i t u s e d d i d n ' t b e l o n g t o it, a n d t h a t d i s c o v e r y l e d t o a n o u t b u r s t o f j i n g o i s m . (Jingo c a m e from a n i n e t e e n t h - c e n t u r y British music-hall song: we d o n ' t w a n t to fight, b u t by j i n g o if we do . . .) By j i n g o , if t h e y w o u l d n ' t give u s t h e oil, m a y b e w e w o u l d j u s t take it. "I am not saying there are no circumstances in which the U n i t e d States m i g h t resort to force," said H e n r y Kissinger, in careful d o u b l e negatives. H a w k s got t o play w a r r o o m . T h e focus o f the w a r g a m e w a s t h e P e r s i a n Gulf. " T h e m a i n o p e r a t i o n , " w r o t e The Economist o f L o n d o n , " w o u l d p r o b a b l y b e c a r r i e d o u t b y a n a v a l task f o r c e w i t h t h r e e or f o u r aircraft c a r r i e r s . . . h e l i c o p t e r - b o r n e m a r i n e s f r o m a s s a u l t s h i p s . . . o c c u p y s e l e c t e d p o s i t i o n s in t h e G h a w a r oilfield, t a k e p o s s e s s i o n o f t h e R a s T a n u r a r e f i n e r y a n d t e r m i n a l . " W r i t i n g i n Harper's u n d e r t h e p s e u d o n y m Miles I g n o t u s ( " U n k n o w n S o l d i e r " ) , d e f e n s e a n a l y s t a n d J o h n s H o p k i n s p r o f e s s o r E d w a r d L u t t w a k also picked the Ras T a n u r a refinery a n d the G h a w a r field. "British Leyland Motors, the largest industrial combine in Britain," he wrote, in "Seizing A r a b Oil," "was built up t h r o u g h the work of tens of t h o u s a n d s of English workers o v e r a p e r i o d o f m o r e t h a n s e v e n t y y e a r s . [It c o u l d b e ] a c q u i r e d b y a s i n g l e family i n K u w a i t w i t h o n l y six d a y s ' w o r t h o f oil p r o d u c t i o n . W h y s h o u l d w e c o u n t e n a n c e t h e t r a n s f e r of h u n d r e d s of billions of dollars' w o r t h of real

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estate a n d industry to the o w n e r s h i p of reverse colonialists?" A n d so the U n k n o w n Soldier wrote of marines, the Eighty-second A i r b o r n e , fire-fighting t e a m s to p u t out t h e f i r e s i n t h e oil w e l l s , a n d a n I n t e r n a t i o n a l O i l a n d A i d O r g a n i z a t i o n t o lift t h e oil, a l l o c a t e f u n d s f o r i n v e s t m e n t , distribute m o n e y t o p o o r countries, a n d "give s o m e m o n e y t o t h e S a u d i s e t al. t o p a y f o r e s s e n t i a l i m p o r t s . " A n d i f w e could n o t d o this, w h a t w e r e t h e a r m e d forces g o o d for? W h y p a y $ 8 5 billion a y e a r f o r i m p o t e n c e ? I r o n i c a l l y , t h e fantasy military-operation schemes w e r e directed against t h e p r i c e " d o v e , " S a u d i A r a b i a , w h i c h i n c r e a s e d its p r o d u c t i o n t o m e e t t h e d e m a n d , w h i c h p u t its s u r p l u s e s p r o m p t l y into Western banks, a n d which seemed to worry m o r e a b o u t t h e stability o f t h e W e s t t h a n t h e W e s t d i d itself. T h e success of t h e C l u b not only inspired t h e militaryfantasy spasms, it inspired imitation. T h e u r a n i u m prod u c e r s already h a d a plan for a cartel. T h e c o p p e r p r o ducers began talking to o n e another. In the most u n g e n t l e m a n l y m o v e o f all, t h e B o r d e a u x w i n e g r o w e r s , the Conseil Interprofessionel du Vin de B o r d e a u x , got together to do something about a good vintage in Bord e a u x . M . J e a n M i c h e l C o u r t e a u , its d i r e c t o r , a n n o u n c e d t h a t t h e a s s o c i a t i o n , w h i c h c o u n t e d a m o n g its m e m b e r s C h a t e a u Lafite-Rothschild a n d C h a t e a u Mouton-Rothschild a n d C h a t e a u Latour, was taking "certain steps to r e g u l a t e t h e m a r k e t a n d stabilize prices." W i n e glut! T h e growers were to conserve a n d cut back. O P E C c a n n o t b e b l a m e d f o r t h i s o n e . T e n o f its t h i r t e e n m e m b e r s w e r e M u s l i m c o u n t r i e s w h e r e wine d r i n k i n g was officially p r o s c r i b e d . W a s O P E C really such a m o n o l i t h i c , all-powerful cartel? I t e x i s t e d f o r t e n y e a r s a n d w a s n o t e f f e c t i v e a t all, u n t i l ,

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with the Suez Canal closed, t h e F r e n c h bulldozer wrecked the T a p l i n e . O n c e supplies w e r e tight, the organization a n d t h e idea w e r e r e a d y for t h e c i r c u m s t a n c e s . T h e cutb a c k s n e c e s s a r y for c o n t r o l d i d n o t c o m e f r o m c o o l , p r e hensile fingers r e a c h i n g for a m a r k e t p l a c e ; they c a m e first f r o m t h e passions of politics, w h a t t h e A r a b s called t h e R a m a d a n W a r t h e Y o m K i p p u r W a r . T h e oil p r i c e q u a d r u p l e was such a shock to t h e W e s t e r n e c o n o m i e s that d e m a n d fell, a n d b y A p r i l 1 9 7 5 O P E C w a s p r o d u c i n g a t 3 5 p e r c e n t less t h a n its t o t a l c a p a c i t y . O n e can s e e m a y b e w h y Milton F r i e d m a n t h o u g h t it was a b o u t t o break u p . T h e r e w e r e two small p r o d u c e r s , E c u a d o r a n d G a b o n , t h a t n e e d e d all t h e m o n e y t h e y c o u l d get. T h e n t h e r e were the medium-size p r o d u c e r s , at about 2 million barrels a d a y A l g e r i a , I n d o n e s i a , Venezuela, N i g e r i a a l l w i t h g r o w i n g p o p u l a t i o n s , all w a n t i n g t o c o n s e r v e oil, b u t n e e d i n g m o n e y . I f t h e d e m a n d d r o p p e d , w o u l d n ' t they cut into o n e a n o t h e r ' s markets? It wasn't necessary. Kuwait a n d Saudi Arabia cut back. S a u d i Arabia, a l o n e , was a t h i r d of O P E C . T h e i n t e r n a t i o n a l T e x a s R a i l r o a d C o m m i s s i o n h a d f o u n d its T e x a s , but it did not work nearly as neatly, d e t e r m i n i n g the p r o r a t i o n i n g a n d t h e m a r k e t s . T h e oil c o m p a n i e s s o u g h t o u t t h e m a r k e t s , d e l i v e r e d a n d r e f i n e d t h e oil. " W h y s h o u l d w e a b o l i s h t h e oil c o m p a n i e s , " said I r a n ' s J a m s h i d A m o u zegar, " w h e n they can find the m a r k e t s for us a n d r e g u l a t e t h e m ? W e c a n j u s t sit b a c k a n d let t h e m d o i t f o r u s . " E v e n with an excess capacity of 35 p e r c e n t , O P E C held the price u p . A n d OPEC's Secretariat in Vienna now h a d several economic studies in progress. T h e Caracas firm of P a r r a , R a m o s 8 c P a r r a , w a s l o o k i n g i n t o O P E C ' s oil a n d o t h e r e n e r g y sources, a s was C h e m Systems I n t e r n a t i o n a l o f N e w York. T h e H o c h s c h u l e fur W e l t h a n d e l a n d the Battelle Research Institute of G e n e v a h a d a contract, for 28 million A u s t r i a n schillings, to construct O P E C ' s W o r l d Energy Model.

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The Receiving End

T h e o w n e r s o f t h e oil, e v e r y w h e r e i n t h e w o r l d , w e r e four times as rich after T e h r a n ; soon they would be ten times as rich. S o m e t i m e s this m a d e a d r a m a t i c difference in life-style. T a k e Sheikh Rashid of Dubai. Dubai is o n e of what the British called the T r u c i a l States w h e n , in t h e n i n e t e e n t h c e n t u r y , t h e y established a military p r e s e n c e in this lightly p o p u l a t e d a r e a o f d e s e r t a n d salt m a r s h e s o n t h e P e r s i a n Gulf. S h e i k h R a s h i d , b e f o r e t h e oil, h a d d e r i v e d his i n c o m e f r o m t h e dhows, t h e w o o d e n s a i l i n g s h i p s t h a t c a l l e d a t h i s c u s t o m s h o u s e , o n t h e w a y t o " r e e x p o r t " s o m e said s m u g g l e g o l d a n d silver t o I n d i a . B e f o r e t h e o i l t h e first strike was not until 1 9 5 7 S h e i k h Rashid f e u d e d with D e i r a , t h e r i v a l village a c r o s s t h e c r e e k . T h e w e a p o n s u s e d in this feud w e r e t h e c a n n o n s f r o m old ships, s o m e of t h e m h u n d r e d s o f years old. T h e c a n n o n s w e r e stuffed with rags a n d pistons from hijacked cars, a n d since cannonballs were in short supply, a nightly truce after sunset p r a y e r s p e r m i t t e d the c o m b a t a n t s to c o m b the battlefields and retrieve the cannonballs. O n e day, in the pre-oil era, Sheikh Rashid accepted a d i n n e r invitation across t h e c r e e k , a n d t h e n h a d his m e n kill o f f h i s h o s t s . I n t h e b e s t M i d d l e E a s t e r n t r a d i t i o n a n d n o t u n l i k e R i c h a r d I I I h e c o n s o l i d a t e d his victory by m a r r y i n g the thirteen-year-old d a u g h t e r of the vanq u i s h e d r u l e r o f D e i r a t o his b r o t h e r . T h e S h e i k h a S a n a , as she is called, is a high-spirited w o m a n w h o o n c e shot h e r h u s b a n d ' s f o u r t h w i f e . S h e says, o f h e r e a r l y y e a r s , that h e r experiences m a d e h e r strong, and she has now b u i l t u p a t h r i v i n g t a x i fleet. S h e i k h R a s h i d m a r r i e d h i s daughter, Miriam, to the neighboring Sheikh of Qatar, w h o lent h i m the m o n e y for a b r i d g e across the creek.

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E v e n b e f o r e t h e oil, S h e i k h R a s h i d w a s c o n s i d e r e d a wise ruler. A m a n o f s o m e c h a r m , S h e i k h R a s h i d i s a c c e s s i b l e t o his p e o p l e . H e lists h i m s e l f i n t h e D u b a i t e l e p h o n e d i r e c t o r y , with n u m b e r s for living r o o m , b e d r o o m , yacht, a n d gard e n . O n his d e s k i s a little p l a q u e t h a t says, " I t ' s N I C E t o b e
I M P O R T A N T , b u t it's I M P O R T A N T t o b e N I C E . " F o r h i s p e o p l e

S h e i k h Rashid has built two h a r b o r s , two i n t e r n a t i o n a l airp o r t s , a c e m e n t factory, a n d an a l u m i n u m smelter. S h e i k h R a s h i d ' s i n c o m e i s n o w a b o u t $ 1 billion a y e a r , a n d n o o n e h u n t s for c a n n o n b a l l s a n y m o r e i n D u b a i . His i n - l a w , t h e S h e i k h o f Q a t a r , p r o d u c e s m o r e oil a n d i s e v e n r i c h e r . I n t h e n i n e t e e n t h c e n t u r y t h e B r i t i s h n a v y sailed the Persian Gulf to protect the routes to India; now their former Persian Gulf wards come to L o n d o n . Sheikh Rashid's a m b a s s a d o r , M o h a m m e d M a h d i al-Tajir, d r o v e the British press to x e n o p h o b i c frenzy by p u r c h a s i n g $ 6 0 million in English real estate in two years: town houses, c o u n t r y h o u s e s , a n d t h e c e n t u r i e s - o l d castles o f d u k e s . " A r a b s like b e a u t i f u l t h i n g s , " h e said s i m p l y . T h e B r i t i s h press s h u d d e r e d deliciously at t h e new, M e p h i s t o p h e l i a n i m a g e o f its v i s i t o r s . T h e Daily Mirror w a r n e d o f " s c h o o l girls missing after d a t i n g A r a b s , " whisked off to "exclusive r e s t a u r a n t s i n Rolls R o y c e s . " This mythologythe Arab as Mephistopheleswas not l i m i t e d t o B r i t a i n . I n t h e p o p u l a r f i l m Network t h e S a u d i s b o u g h t a n A m e r i c a n T V network. A n d the investigators w h o offered bribes to c o n g r e s s m e n a n d videotaped the bribes in "Abscam" were decked out as "Arab sheikhs." While the p o p u l a r British press detailed " O r d e a l of Sheikh's Love Slave," t h e British in the a g g r e g a t e b e n e f i t e d f r o m t h e n e w oil p r i c e , b e c a u s e i t h a d cost s o m u c h t o e s t a b l i s h t h o s e o f f s h o r e p l a t f o r m s i n t h e icy w a t e r s o f the N o r t h Sea. For t h e m o m e n t they w e r e p a y i n g m o r e f o r i m p o r t e d oil, b u t a t $ 1 1 . 6 5 a b a r r e l , t h e N o r t h S e a oil w a s n o w a solid i n v e s t m e n t ; it m e a n t self-sufficiency a n d a

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strong p o u n d . T h e Norwegians, too, were happy, because they o w n e d t h e o t h e r half o f t h e N o r t h Sea f i e l d . Y o u w o u l d c o u n t , a s h a p p y , all t h e o t h e r oil-field o w n e r s . M e x i c o m i g h t b e a b l e t o h a n d l e its e x p l o d i n g p o p u l a t i o n , L o u i s i a n a c o u l d r e d u c e its i n c o m e t a x , A l a s k a w o u l d a b o l i s h its i n c o m e t a x , a n d u n d e r T e x a s t h e r e w e r e 1 2 billion b a r r e l s o f oil r i s i n g t o w a r d t h e O P E C p r i c e a s fast a s W a s h i n g t o n w o u l d let t h e m . Y o u w o u l d h a v e t o c o u n t , a s h a p p y , t h e oil c o m p a n i e s . In the mid-1970s they aired their u n h a p p i n e s s in full-page ads; they constructed charts to show they were making o n l y p e n n i e s o n t h e d o l l a r . B u t t h e y w e r e still c a r r y i n g a n d r e f i n i n g t h e O P E C oil, a n d t h e y o w n e d , t h e m s e l v e s , a lot o f oil o u t s i d e O P E C . T h e y w e r e t h e b i g g e s t c o r p o r a t i o n s in t h e world, a n d their gross v o l u m e was g o i n g u p , because t h e raw m a t e r i a l was g o i n g u p . W i t h t h e i r e n o r m o u s c a s h flow, t h e oil c o m p a n i e s w e r e a l s o b u y i n g o t h e r r e s o u r c e s c o a l , u r a n i u m , oil s h a l e , a n d t i m b e r l a n d a s s e t s "whose potential profit increases inexo r a b l y w i t h t h e r i s i n g v a l u e o f t h e r e s e r v e s , " said t h e N a tional B u r e a u of Economic Research. C o u n t , a s h a p p y , t h e i n v e s t m e n t b a n k e r s w h o sold t h e b o n d s for t h e pipelines, a n d t h e m a k e r s o f drilling rigs and drilling m u d and logging instruments and offshore platforms. Count, as happy, the a r m o r e r s a n d sutlers to the Middle East. I r a n signed u p for $ 1 9 billion i n a r m s o v e r several years, S a u d i A r a b i a for $ 1 5 billion; a n d a l t h o u g h that did not wipe o u t even half of o n e year's s u r p l u s for O P E C , t h e phones rang at the armorers. C o u n t , as h a p p y , the thirty biggest banks in the world. T h e Saudis a n d Kuwaitis, being conservative, w a n t e d time to think, a n d they p u t m o n e y into the banks. Since bigger, they thought, is better, the bigger banks could use the petrodollar deposits to s t r e n g t h e n their position in banking. T h e banks had the m o n e y on short-term deposit and

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w e r e l e n d i n g it long-term, which posed a potential p r o b lem. C o u n t , as h a p p y , the builders w h o got the multibilliondollar construction contracts: Bechtel of San Francisco; Fluor of Irvine, California; a n d Ralph Parsons, Inc., of Pasadena. Count, as happy, the agents a n d contact m e n who m a d e t h e deals. A B o m b a y Parsi with t h e u n u s u a l n a m e of Shap o o r R e p o r t e r was so useful to t h e British in g e t t i n g contracts from t h e Shah's I r a n t h a t h e was k n i g h t e d a n d b e c a m e Sir S h a p o o r R e p o r t e r . T h e fees w e r e v e r y h i g h . T h e Senate Subcommittee on Multinational Corporations f o u n d that Lockheed h a d paid o n e Saudi, A d n a n Kas h o g g i , $ 1 0 6 m i l l i o n f o r a s s i s t a n c e . K a s h o g g i ' s f o r m e r wife said i n h e r d i v o r c e suit t h a t h e r f o r m e r h u s b a n d h a d b u i l t up a net w o r t h of $2.4 billion, which w o u l d h a v e m a d e h i m easily t h e m o s t p r o s p e r o u s m e m b e r o f his S t a n f o r d class. H i s $ 4 4 - m i l l i o n y a c h t h a d a h e l i c o p t e r l a n d i n g p a d , a n d his $ 3 - m i l l i o n a p a r t m e n t i n M a n h a t t a n ' s O l y m p i c T o w e r boasted a swimming pool. He had a Korean bodyg u a r d a n d a valet w h o s h a v e d h i m e v e r y m o r n i n g i n a s p e c i a l c h a i r , r e p l i c a s o f w h i c h w e r e i n e a c h o f his t w e l v e houses. W h e n T e x a s oil m a n N e l s o n B u n k e r H u n t e m b a r k e d o n his s c h e m e t o invest h e a v i l y i n t h e w o r l d ' s silver m a r k e t , s o m e said t o c o r n e r it, f o r m e r T e x a s g o v e r n o r J o h n C o n nally a r r a n g e d a m e e t i n g with a n o t h e r S a u d i , S h e i k h K h a l e d B i n M a h f o u z , w h o t o o k o v e r a floor o f W a s h i n g t o n ' s M a y f l o w e r H o t e l f o r his f o r t y b o d y g u a r d s . On a m o r e modest s c a l e p e r h a p s seven figures instead of n i n e w e r e the New York a n d Washington a n d Lond o n law f i r m s t h a t s o m e t i m e s m a t c h e d b u y e r s a n d s e l l e r s a n d sometimes d r e w u p the contracts. T h e big ones stayed i n v i s i b l e ; a m o n g t h e visible w e r e F r e d D u t t o n , K e n n e d y a i d e t u r n e d W a s h i n g t o n l a w y e r , a n d G e r a l d P a r s k y , Assistant Secretary of the T r e a s u r y t u r n e d W a s h i n g t o n lawyer;

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a n d w h o is this, pacing the floor of t h e I n t e r c o n t i n e n t a l i n R i y a d h , w a i t i n g f o r his c o n t a c t ? I s it, c a n i t b e S p i r o Agnew? You would have to count as content, if not happy, the e n e r g y a n d oil e x p e r t s , a n d t h e f o u n d a t i o n s , f o r t h e y s o o n t u r n e d o u t m o r e t h a n 1 2 0 f u l l - l e n g t h s t u d i e s o f t h e oil s i t u a t i o n , o f w h i c h o n l y t h e first 3 6 w e r e c o l l e c t e d f o r t h i s book. E v e r y g a m e h a s w i n n e r s a n d l o s e r s . T h e l o s e r s w e r e all of us without a stake in energy. We paid h i g h e r gasoline p r i c e s a n d h i g h e r h e a t i n g a n d a i r - c o n d i t i o n i n g bills, h i g h e r a i r l i n e f a r e s , h i g h e r p r i c e s f o r t h e d e r i v a t i v e s o f oil. O u r s t a n d a r d o f living w e n t d o w n . T h e w i n n e r s w e r e n o t j u s t t h o s e w h o h a d t h e oil, b u t t h o s e w h o c o u l d s e r v i c e t h e o w n e r s o f t h e oil. T h e y w e r e n o t j u s t A m e r i c a n s ; i n fact, A m e r i c a n s d i d n o t do very well. F e w e r t h a n 2 p e r c e n t of t h e c o n s t r u c t i o n contracts in fourteen Middle Eastern countries were won by A m e r i c a n f i r m s f e w e r t h a n firms f r o m Brazil a n d Yugoslavia, a n d far b e h i n d S o u t h K o r e a . T h e president of France, Valery Giscard d'Estaing, m a d e a t r i u m p h a n t t o u r t h r o u g h the A r a b states, p l u g g i n g the Palestinian cause a n d w i n n i n g factory o r d e r s ; in the 1960s F r a n c e h a d h a d a special r e l a t i o n s h i p with Israel. A Scandinavian floating exhibition steamed into eight Arab p o r t s , d i s p l a y i n g p r o d u c t s to 100,000 visitors. M u h a m m a d Ali, t h e b o x e r M u h a m m a d Ali, b a r n s t o r m e d t h r o u g h Saudi Arabia, p r o m o t i n g T o y o t a cars. W i t h e v e r y p a s s i n g d a y , s o m e o n e else h a d a n i n v e s t m e n t in the status q u o .

"I Feel Like Renouncing My Offspring"

T h e r e is o n e c h a r a c t e r in the story w h o was not particularly h a p p y . T h a t was J u a n Pablo P e r e z Alfonso. W h e n

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h e left t h e g o v e r n m e n t , h e r e t i r e d b e h i n d t h e walls o f h i s e s t a t e i n L o s C h o r o s , i n C a r a c a s , t h e e s t a t e itself a s m a l l f a r m h e h a d b o u g h t i n 1 9 4 1 . T h e oil b o o m h a d b r o u g h t t h e e x p a n d i n g city o u t t o a n d b e y o n d his f a r m . H e still k e p t his a u s t e r e habits, r e a d i n g t h r o u g h t h e n i g h t a n d rising at d a w n . He was a r e c o g n i z a b l e figure on t h e streets o f C a r a c a s , b e c a u s e h e h a d s h a v e d o f f his t h i n n i n g h a i r a n d l o o k e d like a V e n e z u e l a n Y u l B r y n n e r , o r K o j a k . W h e n his p a r t y o f f e r e d t o r u n h i m f o r p r e s i d e n t , h e r e fused. How, he asked, could Venezuela have a president w h o d i d n o t o w n a d i n n e r j a c k e t , w h o lived s o s i m p l y , w h o w o u l d not cut a ribbon or go to a cocktail party? He had admired the Texas Railroad Commission, he s a i d , f o r its c o n s e r v a t i o n p r a c t i c e s , a n d h e w a n t e d O P E C t o b e a c l u b t h a t w o u l d give oil its p r o p e r v a l u e a n d e x t e n d its life. I t w a s i n t e n d e d t o w r e s t t h e p o w e r f r o m t h e g r e a t oil c o m p a n i e s , a n d t o s h o w t h e i n d u s t r i a l n a t i o n s h o w t h e y wasted resources. " T h e nations o f O P E C , " h e said, " s h o u l d b e a n e x a m p l e t o t h e r e s t o f t h e w o r l d i n t h e w a y t h e y live." B u t O P E C was n o t a p r o p e r e x a m p l e . It was setting itself u p i n t h e m o d e o f t h e w a s t e f u l i n d u s t r i a l w o r l d . I t b u r n e d oil itself a t a f e r o c i o u s r a t e , a n a f f r o n t t o t h e c a r e ful, c o n s e r v a t i v e P e r e z A l f o n s o . H e s c o l d e d t h e V e n e z u e lans. T h e Norteamericanos w e r e s i t t i n g i n g a s l i n e s , t h e i r cities h a d b r o w n o u t s , t h e y w e r e finally l e a r n i n g a b o u t oil a s a r e s o u r c e , a n d w h a t w a s C a r a c a s d o i n g ? I t was k e e p i n g t h e l i g h t s o n all n i g h t ! B i g A m e r i c a n c a r s w e r e s p e e d i n g o n the highways! A n d what of Venezuela's leadership of O P E C ? It was d i s a p p e a r i n g ! L e a d e r s h i p s h o u l d not c o m e f r o m t h e n u m b e r o f b a r r e l s o f oil p u m p e d e v e r y d a y ; i t s h o u l d c o m e f r o m moral f i b e r . W a s O P E C t o b e j u s t A r a b s ? T o w a r d P e r e z A l f o n s o t h e V e n e z u e l a n s felt r e a l a f f e c t i o n , b u t i t w a s t h e a f f e c t i o n A m e r i c a n s feel w h e n t h e y read of Boston B r a h m i n g r a n d d a m e s rising to learn

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G r e e k a n d H e b r e w a t six o ' c l o c k i n t h e m o r n i n g , o r w a l k ing from Boston to P r o v i d e n c e in m i d w i n t e r , because it is g o o d for t h e m . Plain living a n d h i g h t h i n k i n g w e r e a d m i r a b l e , b u t u n - L a t i n , n o ? A n d P e r e z A l f o n s o w a s a little e c c e n t r i c , w i t h h i s b a l d h e a d a n d all t h i s s c o l d i n g a b o u t resources a n d saving everything, a n d walking a r o u n d Caracas in Boy Scout shorts. A n d getting up at d a w n w e l l , w i t h oil b r i n g i n g i n f o u r t i m e s a s m u c h , t h a t w a s w h e n y o u w e r e g o i n g t o b e d , C a r a c a s w a s a p a r t y , t h e tropicales w e r e d a n c i n g on the tabletops, H. Stern a n d Gucci were d o i n g a t h r i v i n g b u s i n e s s , l u x u r y a p a r t m e n t s w i t h d a z z l i n g views of t h e sea w e r e s p r i n g i n g u p , m o n e y was e v e r y w h e r e . A Venezuelan newsmagazine put that serious bald head on its c o v e r ; n o s u b t i t l e , j u s t " P e r e z A l f o n s o " y o u k n e w w h a t you would get inside, sober thinking, w o r r y i n g about the f u t u r e w a s n ' t t h a t g o o d , f o r V e n e z u e l a t o h a v e its o w n R a l p h W a l d o E m e r s o n ? W h a t a n irony for the m a n w h o began the great transfer of wealth to be so spartan. P e r e z A l f o n s o d i d n o t like t h e S h a h , o r S h e i k h Y a m a n i . " I h a v e n o taste for e m p e r o r s , " h e said. T h e y w e r e not p r e s e r v i n g t h e r e s o u r c e , a n d t h e y w e r e s q u a n d e r i n g its p r o c e e d s . H e w o r r i e d a b o u t t h e influx o f wealth into V e n ezuela. "Wealth distorts the values of people w h o do not w o r k f o r it," h e s a i d . A n d a s f o r O P E C , i t s e e m e d d e v o t e d t o m a x i m i z i n g its prices, it was neglecting w h a t was d o n e with the r e v e n u e s received, it was not conservationist e n o u g h . "I may be t h e father of O P E C , " he said, " b u t n o w s o m e t i m e s I feel l i k e r e n o u n c i n g m y o f f s p r i n g . " J u a n P a b l o P e r e z A l f o n s o d i e d o f c a n c e r i n 1979, leavi n g a wife a n d f i v e g r o w n c h i l d r e n . T h a t u p r i g h t , u n Latin, a u s t e r e P u r i t a n c o n s c i e n c e was e v i d e n t e v e n in his last i n s t r u c t i o n s . He was to be c r e m a t e d in t h e U n i t e d States, to avoid any public e x p r e s s i o n of s o r r o w in V e n e z u e l a . His h o u s e was to go to a small f o u n d a t i o n , the C e n t e r for P e r m a n e n t

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L e a r n i n g . People w e r e t o c o m e a n d enjoy t h e g a r d e n a n d notice the beauties of n a t u r e ; from t h e r e they could look out at the smog over Caracas. Abdullah Tariki, the other half of the O d d Couple, cont i n u e d his c o n s u l t i n g b u s i n e s s . T h e S a u d i g o v e r n m e n t , w i t h B e d o u i n g e n e r o s i t y , c o n t i n u e d t o p a y his o l d s a l a r y , even while he was in exile. S a a d o u n H a m m a d i , t h e u n s m i l i n g I r a q i oil m i n i s t e r . U n i v e r s i t y o f W i s c o n s i n P h . D . , b e c a m e his c o u n t r y ' s f o r e i g n m i n i s t e r a n d l a t e r w a r n e d the U n i t e d States against h e l p i n g I r a n . Sheikh Yamani's b a l a n c i n g i n s t i n c t s s e r v e d h i m well, a n d h e s u r v i v e d e v e n his w o r l d w i d e c e l e b r i t y . J a m s h i d A m o u z e g a r , t h e C o r n e l l t r a i n e d I r a n i a n w h o h o s t e d t h e St. V a l e n t i n e ' s D a y M a s s a c r e , fled I r a n w h e n t h e S h a h fell. T h e p r e s e n t I r a n i a n UN embassy did not know w h e r e he w a s s o m e w h e r e in t h e U n i t e d S t a t e s . " T h e s w i n e i s h i d i n g , " said t h e K h o meini representatives. T h e e x e c u t i v e s o f t h e S e v e n S i s t e r s a r e still i n p l a c e , o r are in p r o s p e r o u s r e t i r e m e n t . H o w a r d ' s Mobil did not survive. H o w a r d was v e r y b i t t e r a b o u t his t r e a t m e n t b y t h i s p a r t i c u l a r S i s t e r ; t h e y h a d c a n c e l e d his c o n t r a c t , h e s a i d , b e c a u s e h e h a d n o t sold e n o u g h gas.

The Second Oil Crisis

It was a military fanatic, Colonel M u a m m a r el-Qaddafi o f L i b y a , w h o set u p t h e F i r s t Oil Crisis o f t h e 1 9 7 0 s . A d e v o u t Muslim w h o s o m e t i m e s w e n t to t h e d e s e r t for a m o n t h to meditate, he horrified the Western democracies b y his s u p p o r t o f t h e i n c r e d i b l e U g a n d a n d i c t a t o r Idi A m i n a n d b y his s u p p o r t o f t e r r o r i s t g r o u p s e v e r y w h e r e . His militancy had g o a d e d t h e O P E C nations into their t r i u m p h a t t h e St. V a l e n t i n e ' s D a y M a s s a c r e , w h i c h t a u g h t t h e m their s t r e n g t h a n d gave t h e m t h e cohesion for their actions in the 1973 Arab-Israeli war.

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It was a religious fanatic, t h e Ayatollah R u h o l l a h K h o m e i n i , w h o p r e c i p i t a t e d t h e S e c o n d Oil Crisis of t h e late 1970s a n d w h o s e r e g i m e , in a way it d i d not particularly intend, reiterated the preachings of the O d d Couple. O P E C m e e t i n g s d u r i n g t h e 1970s f e a t u r e d d e b a t e s between the hawks, w h o wanted the price to go up right away, a n d the doves, w h o w a n t e d to k e e p it d o w n . T h e Libyans a n d Iraqis, revolutionary military regimes, contested the leadership of the Saudis, a traditional m o n a r c h y w i t h a n e n o r m o u s i n c o m e a n d a s t a k e i n t h e stability o f the West. U n t i l t h e S h a h fell, t h e r e w a s a m o d e s t s u r p l u s o f oil i n the channels of the world. H i g h e r prices h a d forced some c u t b a c k i n d e m a n d , a n d t h e r e w a s a d d i t i o n a l oil f r o m Alaska a n d t h e N o r t h Sea. O P E C w a t c h e r s n o t e d t h a t the c a r t e l w a s g e t t i n g less r e a l m o n e y , b e c a u s e t h e W e s t e r n c u r r e n c i e s w e r e d e p r e c i a t i n g f a s t e r t h a n t h e oil p r i c e w a s going up. But I r a n was a m o n g the large p r o d u c e r s , at 6 million barrels a day, a n d w h e n the S h a h was d e p o s e d , p r o d u c t i o n f r o m I r a n ' s oil f i e l d s d r o p p e d t o a f r a c t i o n o f t h e p r e v i o u s totals. T h a t missing 6 million barrels a d a y was e n o u g h to create a shortage again, a n d the scramble r e s u m e d . M o s t w o r l d oil, i n t h e 1 9 7 0 s , w a s s o l d t h r o u g h t h e S e v e n S i s t e r s , t h e g r e a t oil c o m p a n i e s , a n d o n l o n g - t e r m c o n tracts. T h e British economist Paul Frankel, w h o h a d given u s t h e p h r a s e " t h e invisible d i k e , " c a m e u p with a m e t a p h o r f o r t h e s i t u a t i o n o f t h e oil c o m p a n i e s . " T h e y h a d lost t h e h e i g h t s , " h e s a i d , " b u t t h e y still c o n t r o l l e d t h e p l a i n s . " But the Ayatollah Khomeini's revolution affected the c o n t r o l o f t h e p l a i n s . Politically, i t s o u g h t t o d i s t u r b t h e traditional regimes in Saudi Arabia a n d Kuwait. A n d it m a d e oil d e a l s , n o t w i t h t h e S e v e n S i s t e r s , b u t w i t h t h e nations that scrambled to T e h r a n and to the "spot" market. I n t h e oil t r a d e t h e " s p o t " m a r k e t i s c a l l e d " R o t t e r d a m , " b e c a u s e oil c a n b e b o u g h t , o n a d a i l y b a s i s , f r o m t h e h u g e

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tankers anchored in the Rotterdam harbor. T h e "Rotterd a m " m a r k e t , t h o u g h , i s all o v e r t h e w o r l d . I t i s r e a l l y t h e Telex, t h r o u g h which the trades are m a d e . A m o n g the major t r a d e r s are Mitsubishi, the e n o r m o u s J a p a n e s e combine, and Philipp Brothers, the commodity arm of the international firm of Engelhard; but there are many others. T h e Iranian s h u t d o w n h a d m a d e supplies tight. T h e Israelis a n d the South Africans could no l o n g e r buy Iran i a n oil, a n d t h e y w e r e l o o k i n g f o r oil w h e r e v e r t h e y c o u l d f i n d it. T h e I t a l i a n s h a d o n l y t w o w e e k s ' w o r t h o f s u p p l y i n t h e t a n k s , a n d t h e S p a n i a r d s a n d t h e S w e d e s w e r e also low. T h e n e w I r a n i a n r e g i m e , w i t h n o loyalty t o t h e o l d c o n t r a c t s w i t h t h e S e v e n S i s t e r s , b e g a n t o sell t o t h e " s p o t " m a r k e t . O n M o n d a y , M a y 14, 1 9 7 9 , t h e I r a n i a n s sold oil at $ 2 3 a barrel, above the posted O P E C price of $13.34. On T u e s d a y it was $ 2 8 . On T h u r s d a y it was $ 3 4 . Ironically, t h e S e v e n S i s t e r s w e r e a m o n g t h e b i d d e r s ; a s u b s i d iary of T e x a c o secretly m a d e a deal for 2 million b a r r e l s at $ 3 2 . A t K h a r g I s l a n d i n t h e P e r s i a n Gulf, t h e r e w a s t h e u s u a l l o n g l i n e o f t a n k e r s w a i t i n g t o t a k e o n I r a n i a n oil. T h e t a n k e r s w i t h l o n g - t e r m c o n t r a c t s w e r e t o l d t o stay a n c h o r e d . (They were paying, incidentally, $35,000 a day i n p a r k i n g fees.) T h e t a n k e r s w i t h " s p o t " c o n t r a c t s w e n t r i g h t to t h e h e a d of t h e line. Not surprisingly, the "spot" market began to attract the oil. A m e r i c a n oil c o m p a n i e s w i t h r e f i n e d oil i n t h e C a r i b bean began sending it to the "spot" market, seeking to m a x i m i z e profits. T h e price in t h e "spot" m a r k e t went as h i g h as $ 4 2 a b a r r e l . T h e Carter administration, k n o w i n g that Americans get irritated w h e n t h e r e a r e gas lines, a b r u p t l y offered a subsidy o f $ 5 a b a r r e l t o g e t t h e C a r i b b e a n oil b a c k a g a i n ; t h e oil i t s o u g h t w a s h e a t i n g oil, f o r t h e n e x t w i n t e r , b u t i t d i d not want the s u m m e r gasoline supplies h u r t by refiners

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w h o h a d t o switch t h e i r m i x b e c a u s e o f t h e heating-oil diversion. T h e I n t e r n a t i o n a l E n e r g y A g e n c y m i g h t a s well h a v e p a s s e d o u t b o x i n g gloves, o r h o c k e y sticks. J a n o s F e k e t e , t h e H u n g a r i a n b a n k e r , h a d o n c e g o n e t o t h e office e x pecting to h e a r reports of the Mighty West rising u p . T h e Mighty West rose up now, into an internal d o n n y b r o o k . T h e G e r m a n s , totally d e p e n d e n t o n f o r e i g n oil, s a i d t h a t t h e A m e r i c a n subsidy was j u s t h e l p i n g t o drive u p t h e price a n d hinted that maybe the Americans wanted the p r i c e u p b e c a u s e i t h e l p e d t h e A m e r i c a n oil p r o d u c e r s a n d h u r t G e r m a n industry. T h e y offered the British industrial i n v e s t m e n t f o r a c u t o f t h e N o r t h S e a oil. T h e B r i t i s h r e f u s e d . A c c u s i n g f i n g e r s w e r e p o i n t e d i n all d i r e c t i o n s . O t h e r O P E C n a t i o n s p u l l e d s o m e oil f r o m l o n g - t e r m c o n t r a c t s a n d sold it in t h e " s p o t " m a r k e t . S o m e of t h e O P E C n a t i o n s saw t h e d a n g e r s . O P E C w a s l o s i n g c o n t r o l ! L i b y a a n d A l g e r i a b r o k e t h e $ 2 3 . 5 0 - a - b a r r e l ceiling set b y t h e c a r t e l . " P r i c e s a r e o u t o f c o n t r o l , " w a r n e d Ali K h a l i f a a l - S a b a h , t h e oil m i n i s t e r o f K u w a i t . O P E C w a s b r e a k i n g apart, but on the up side. No o n e h a d t h o u g h t of that. A t t h e D e p a r t m e n t o f E n e r g y i n W a s h i n g t o n , officials totted up supply and d e m a n d . T h e r e should have been an excess of a million barrels a day, so w h y w e r e prices g o i n g u p ? " T h e s p o t price reflects u n c e r t a i n t y , n o t s h o r t a g e , " said o n e analyst t h e r e . T h e w o r l d was o n a b i n g e o f t a n k t o p p i n g . T h e J a p a nese bought twenty oceangoing tankers and p u m p e d them full. E v e r y r e t i r e d t a n k e r o f d u b i o u s a n c e s t r y f o u n d s o m e o n e w i l l i n g t o t a k e i t h o m e . I n d e p e n d e n t oil c o m p a n i e s f o u n d themselves cut back by t h e Seven Sisters, w h o w e r e in t u r n getting cut back, a n d they h a d to hustle up their own sources. E v e n t u a l l y t h e b i n g e lost its m o m e n t u m , b e c a u s e t h e r e were no m o r e tanks to top. T h e O P E C ministers met and raised the price again. T h e "spot" m a r k e t was s u p p o s e d to

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be only for day-to-day p u r c h a s e s , b u t it was d e t e r m i n i n g t h e p r i c e o f oil. T h e b i n g e o f t h e S e c o n d O i l C r i s i s , y o u will n o w s e e , i s v e r y r e l e v a n t t o this d i s c u s s i o n o f p a p e r m o n e y . R e m e m b e r Sir T h o m a s G r e s h a m , w h o s e law said b a d m o n e y drives out good, m e a n i n g bad money drives good m o n e y out of circulation and into savings. T h e bad m o n e y is s p e n t . I n t h e S e c o n d Oil C r i s i s w h a t w a s s a v e d w a s oil, a n d w h a t w a s s p e n t was money. The store of value had become oil. T h e yen, the marks, the dollars, the francs, were spent; t h e oil w a s s a v e d . T h e l e s s o n w a s n o t lost. O i l w a s t h e g o o d c u r r e n c y , money the bad. When the Iranians restored production, they m a d e m o r e m o n e y p r o d u c i n g at 3 million barrels a day than they would have m a d e at their former rate of 6 m i l l i o n b a r r e l s a d a y . T h e K u w a i t i s said t h e y m i g h t c u t b a c k b y 5 0 0 , 0 0 0 b a r r e l s a d a y , t h e N i g e r i a n s said t h e y would cut back 200,000 barrels a day, the V e n e z u e l a n s 150,000 barrels a day. O i l d o e s n o t m a k e v e r y g o o d m o n e y . I t d o e s n o t sit neatly in b a n k vaults. Y o u c a n n o t t r a d e a q u a r t of it for a t u n a sandwich, or a b a r r e l for a pair of shoes. On a very l a r g e scale y o u m i g h t b e a b l e t o t r a d e i t f o r a m i l l i o n p a i r s of shoes, but the trade would be c u m b e r s o m e . Gold bec a m e m o n e y because it was so destructible a n d finite; the d e s t i n y o f oil i s t o b u r n . I r o n i c a l l y , m o n e t i z i n g t h e oil helped to produce the age of p a p e r money, and the dest i n y o f p a p e r m o n e y i s also t o b u r n , e x c e p t t h a t p a p e r m o n e y is really a m i s n o m e r , b e c a u s e t h e m o n e y is really b l i p s i n a c o m p u t e r , a n d b l i p s d o n o t b u r n . N o t literally. B u t let u s s e e w h a t y o u t h i n k i s a s t o r e o f v a l u e . Y o u c a n h a v e $ 1 , 0 0 0 i n d o l l a r s , a n d w e will p a y y o u 1 0 p e r c e n t i n i n t e r e s t . I f y o u t a k e t h e $ 1 , 0 0 0 i n s t e r l i n g , w e will p a y y o u 1 4 p e r c e n t . F o r y e n , a n d m a r k s , a n d Swiss f r a n c s , w e will p a y y o u t h e a p p r o p r i a t e i n t e r e s t r a t e . O r w e will let y o u h a v e $ 1 , 0 0 0 w o r t h o f oil, s t o r e d a n y w h e r e y o u w a n t .

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I f y o u c h o o s e t h e oil, y o u g e t n o i n t e r e s t , a n d i n t e r e s t c o m p o u n d s . Knowing what you do, would you rather have t h e m o n e y o r t h e oil? T h e F i r s t O i l C r i s i s , i n 1 9 7 3 - 7 4 , t o o k oil f r o m $ 2 . 6 9 t o $ 1 1 . 6 5 a b a r r e l , a b o u t a q u a d r u p l e . T h e S e c o n d Oil Crisis, following the arrival of the Ayatollah K h o m e i n i , p r o d u c e d r o u g h l y a d o u b l e , to a b o u t $ 2 8 a b a r r e l in 1979. T h e C l u b w a s k e e p i n g u p t h e g a m e t h a t w o r k e d s o well: L e a p f r o g . C u t b a c k t h e p r o d u c t i o n , a n d s u p p l i e s will b e t i g h t . C u t b a c k t h e d e l i v e r i e s , a n d t h e oil c o n s u m e r s w h o c a n ' t g e t oil will g o t o t h e " s p o t " m a r k e t , w h i c h i s r e l a t i v e l y s m a l l c o m p a r e d t o t h e v o l u m e o f w o r l d oil. T h e p r i c e i n t h e " s p o t " m a r k e t p o p s u p . T h e n y o u say, well, t h a t ' s t h e t r u e v a l u e o f oil, a n d y o u call a m e e t i n g o f t h e oil m i n i s t e r s a n d m o v e t h e O P E C p r i c e o f oil u p t o w a r d t h e " s p o t " m a r k e t price. But if the "spot" market moves d o w n again, y o u d o n ' t m o v e t h e official p r i c e b a c k d o w n , b e c a u s e n o w you have a new long-term O P E C price. A n d you have r o o m to do this because, t a k i n g O P E C as a whole, you n e e d only 22 million of y o u r 30 million barrels a day to p a y y o u r bills. T h e o t h e r 8 m i l l i o n b a r r e l s a r e " d i s c r e t i o n ary," a n d you can mess a r o u n d with t h e m , shut in some of t h e m if necessary. Yet L e a p f r o g was not d e s i g n e d by O P E C m i n i s t e r s ; t h e y m e r e l y followed political e v e n t s a n d took advantage. T h e g r e a t oil c o m p a n i e s a r e i n a c u r i o u s a n d a m b i g u o u s position. On the o n e h a n d , they are getting bigger a n d b i g g e r , in d o l l a r t e r m s , b e c a u s e t h e cost of t h e i r basic m a terial is g o i n g u p . Every O P E C boost m a k e s their n o n O P E C oil, w h i c h t h e y still o w n , m o r e v a l u a b l e . B u t O P E C is now going " d o w n s t r e a m , " into tankers a n d refineries and petroleum products. O P E C controls the heights, and h a s , s i n c e t h e St. V a l e n t i n e ' s D a y M a s s a c r e . N o w , s k i r m i s h b y s k i r m i s h , i t i s m o v i n g i n t o t h e p l a i n s . I t c a n say, " W e

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w a n t you to c h a r t e r t a n k e r s for us, we w a n t you to build a refinery for us, we want you to buy o u r refinery p r o d u c t s a n d l i q u e f i e d p e t r o l e u m g a s e s , a n d w e will tell y o u t h e price." T h e g r e a t oil c o m p a n i e s c o n t r o l l e d , i n 1 9 7 4 , 7 8 p e r c e n t o f t h e oil i n i n t e r n a t i o n a l t r a d e . B y 1 9 7 9 t h e y c o n t r o l l e d o n l y 4 4 p e r c e n t , a n d t h e i r c o n t r o l w a s fast f a d i n g . " W e ' r e n o t e v e n s u r e w e c a n g u a r a n t e e a s u p p l y t o o u r o w n affili a t e s , " said a v i c e - p r e s i d e n t o f S h e l l , " o u r o w n r e f i n e r i e s , o u r own filling stations." W h o b o u g h t t h e oil t h e m a j o r s d i d n o t b u y ? T h e W e s t ern governments themselves, and their trading companies. T h e F r e n c h signed a ten-year contract with Iraq, a n d t h e n h u s t l e d off t o S a u d i A r a b i a a n d V e n e z u e l a . T h e Swedes, the Germans, and the Japanese were on the same circuit. W h e n t h e I r a n i a n militants seized A m e r i c a n hostages, the U n i t e d States cut off t r a d e with I r a n . J a p a n b o u g h t t h e I r a n i a n oil, w i t h w h a t t h e C a r t e r a d m i n i s t r a tion c h a r g e d was " u n s e e m l y h a s t e . " J a p a n , t h e J a p a n e s e Ministry of T r a d e a n d I n d u s t r y pointed out, defensively, u s e s 8 0 p e r c e n t o f its oil f o r i n d u s t r y , its v e r y life; i n t h e U n i t e d States only 20 p e r c e n t is used for industry. J a p a n ' s u s e o f e n e r g y , said t h e M T I , w a s q u i t e s p a r i n g . W h e n the other industrial countries looked at the U n i t e d S t a t e s , t h e y felt v e r y i n s e c u r e . O n e o u t o f e v e r y e i g h t b a r r e l s o f oil p r o d u c e d i n t h e free world b u r n e d u p o n A m e r i c a n highways. T h e A m e r i c a n s p a i d f o r t h e i r i m p o r t e d oil b y p r i n t i n g dollars a n d s e n d i n g t h e m out. T h a t was w e a k e n i n g the international monetary system. T h e A m e r i c a n s h a d n o r e a l e n e r g y policy, c o u l d n ' t g e t it t h r o u g h their Congress; a n d with A m e r i c a n d e m a n d so high, O P E C could keep p o p p i n g the price. T h e A m e r i c a n s w e r e less v u l n e r a b l e t h a n t h e r e s t o f t h e w o r l d , b e c a u s e t h e i r o w n oil m e t h a l f t h e i r n e e d s . J a p a n

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h a d n o e n e r g y a t all; G e r m a n y i m p o r t e d t w o - t h i r d s o f its e n e r g y , all its oil. E a c h p o p o f t h e O P E C p r i c e m a d e s o m e A m e r i c a n s r i c h e r ; i n fact, t h e A m e r i c a n s w h o o w n e d t h o s e d o m e s t i c oil wells w e r e n o w $ 4 0 0 b i l l i o n r i c h e r t h a n w h e n t h e p r i c e o f oil b e g a n t o m o v e . T h e A m e r i c a n s o w n e d f i v e o f t h e Seven Sisters: E x x o n , T e x a c o , Gulf, M o b i l , a n d S t a n d a r d o f C a l i f o r n i a . W i t h A r a m c o t h e y h a d s o m e a c c e s s t o O P E C oil. T h e B r i t i s h o w n e d all o f o n e S i s t e r , B P , a n d h a l f o f R o y a l D u t c h / S h e l l . T h e D u t c h o w n e d the o t h e r half of Royal Dutch/Shell, a n d t h e B r i t i s h h a d t h e N o r t h S e a oil a n d t h e D u t c h s o m e N o r t h Sea gas. T h e d a m n A n g l o s h a d i t m a d e . Will American oil greed doom the world? a s k e d The Economist of L o n d o n . Quite properly, it answered the question by w a r n i n g its r e a d e r s t h a t t h e A m e r i c a n e c o n o m y g r e w a n d b o u g h t t h e w o r l d ' s g o o d s a n d n e e d e d oil t o d o s o , a n d t h a t d o m e s t i c A m e r i c a n oil p r o d u c t i o n w a s d e c l i n i n g , s o t h e Americans needed more from abroad. B u t t h e image o f A m e r i c a w a s t h a t o f a c a r e l e s s g i a n t i n a t e n - g a l l o n h a t d r i v i n g a s i x t e e n - c y l i n d e r C a d i l l a c at ninety miles an h o u r , a n d getting r i c h e r in the process. T h e international institutions of the Mighty West, the O E C D a n d its I n t e r n a t i o n a l E n e r g y A g e n c y , t h u s b e c a m e e v e n w e a k e r . Its m e m b e r s felt t h e y d i d n o t h a v e t h e d e l e gated p o w e r s to deal with t h e situation. T h e I n t e r n a t i o n a l E n e r g y A g e n c y was w o r k i n g on plans for t h e West to cut its i m p o r t s a n d t o a l l o c a t e s u p p l i e s , a n d t h e W e s t e r n g o v e r n m e n t s allowed their delegates to go to Paris or G e n e v a o r B r u s s e l s , c h e c k i n t o h o t e l r o o m s , g o t o m e e t i n g s , talk t o e a c h o t h e r , a n d p u t t h e s u m m a r i z e d d i s c u s s i o n s i n plastic binders. But meanwhile the governments went out and s i g n e d u p oil o n a c o u n t r y - t o - c o u n t r y b a s i s . W h e n the International Energy Agency met, it pres u m e d s o m e f l e x i b i l i t y i n t h e d i s t r i b u t i o n o f w o r l d oil. I t c o u l d say, " L e t ' s all a g r e e n o w , w e c u t b a c k h e r e a n d h e r e ,

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J a p a n g e t s a little m o r e , t h e U n i t e d S t a t e s g e t s a little less," a n d e a c h point could be d e b a t e d . But as 5 a n d 6 million b a r r e l s a d a y w e r e signed up on a c o u n t r y - t o - c o u n t r y basis, that flexibility diminished. L o n g - t e r m deals were in place. W h e n t h e Seven Sisters r a n t h e world, t h e y w e r e able t o a l l o c a t e t h e oil. B u t t h e S e v e n S i s t e r s n o l o n g e r r a n t h e world. With the West so divided, the m e m b e r s of the Club could do the following: T h e y c o u l d d e t e r m i n e h o w m u c h oil t o give t h e i r f o r m e r m a s t e r s , the Seven Sisters. T h e y could decide how m u c h to c o m p e t e with the Seven S i s t e r s i n r e f i n i n g a n d m a r k e t i n g , a n d t a k e i t o r l e a v e it. T h e y c o u l d ask f o r t e c h n i c a l a s s i s t a n c e , f i n a n c i n g , a n d a n y t h i n g else o n a s h o p p i n g list. T h e y c o u l d t e a r u p a n y c o n t r a c t t h e y d i d n o t like, e v e n i f t h e c o n t r a c t was o n l y a m o n t h o l d a n d w a s s u p p o s e d t o r u n for ten years, on the g r o u n d s that it no l o n g e r matched the needs of a sovereign people. T h e y could c h a n g e t h e t e r m s o f c o n t r a c t s retroactively; t h e y c o u l d say, " W e h a v e d e c i d e d y o u o w e u s a billion d o l l a r s m o r e f o r 1977," and there would be no appeal. T h e y c o u l d d e t e r m i n e h o w m u c h n e w oil t o e x p l o r e f o r , a n d in s o m e places n o b o d y is in any h u r r y to e x p l o r e for n e w oil, b e c a u s e t h e g a m e i s g o i n g j u s t f i n e t h e w a y i t is. T h e y c o u l d say, " T h e p r i c e o f oil i s g o i n g t o g o u p b y t h e r a t e o f i n f l a t i o n , plus s o m e m o r e , b e c a u s e w e w a n t a real r e t u r n for o u r asset." A n d t h e y c o u l d also g r a n t f a v o r s f o r t h e c o r r e c t o p i n i o n s o u t s i d e t h e oil t r a d e : W h a t d o y o u t h i n k o f n u c l e a r power? W h a t do you think of the c u r r e n t situation in the M i d d l e E a s t ? H o w d o y o u feel a b o u t Y a s i r A r a f a t a n d t h e Palestine Liberation Organization? W e ask, C a n O P E C h o l d t o g e t h e r ? T h e e c o n o m i s t s have said n o , it c a n ' t , it's a c a r t e l , c a r t e l s d o n ' t s u r v i v e , it says so

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r i g h t h e r e in this b o o k . B u t t h e e c o n o m i s t s k n e w only n u m b e r s , n o t asibaya, n o t a n A r a b s e n s e o f c o m m u n i t y , n o t t h e T h i r d W o r l d f l e x i n g its m u s c l e s . W e a s k , W h e r e will t h e p r i c e g o ? T e n y e a r s a g o n o t a s i n g l e e c o n o m i s t c o u l d foresee a tenfold i n c r e a s e in price. O P E C is a C l u b , n o t q u i t e a c a r t e l , n o t a s well o r g a n i z e d a s t h e T e x a s Railr o a d C o m m i s s i o n , s o m e t i m e s m o r e like a b u n c h o f e i g h t e e n t h - c e n t u r y p r i v a t e e r s w a i t i n g f o r t h e fat S p a n i s h galleons to pass. It has survived a 35-percent d r o p in d e m a n d f o r its oil, i n 1 9 7 5 ; i t h a s s u r v i v e d l a t e - n i g h t s c r e a m i n g a m o n g its m e m b e r s a t m e e t i n g s ; i t h a s s u r v i v e d e v e n a r e a l s h o o t i n g w a r b e t w e e n t w o o f its m a j o r p r o d u c e r s . F o r all its q u a r r e l s , i t h a s h e l d t o g e t h e r b e t t e r t h a n t h e M i g h t y W e s t . I t will s u r v i v e u n t i l t h e oil c o n s u m e r s d e v e l o p e n e r g y i n d e p e n d e n c e a n d t h e d i p l o m a t i c c o h e s i o n a n d skills that are appropriate to major powers. I n t h e n e x t c h a p t e r w e will s e e w h e t h e r w e a r e c l o s e t o such i n d e p e n d e n c e , and what we could do if we were. M e a n w h i l e , t h e p r i c e will g o n o t o n l y w h e r e e c o n o m i c d e m a n d t a k e s it, f o r t h e r e a l i t y o f t h e w o r l d i s m o r e r a g g e d t h a n t h e w o r l d o f e c o n o m i s t s . T h e p r i c e will g o w h e r e O P E C t a k e s it, a n d t h a t p r i c e i s d e t e r m i n e d n o t o n l y b y e c o n o m i c d e m a n d b u t b y political o p p o r t u n i t y . T h e p r e s e n t s e c r e t a r y - g e n e r a l o f O P E C says h e h a s l o o k e d o v e r t h e n u m b e r s , a n d h e t h i n k s m a y b e $ 6 0 a b a r r e l w o u l d b e fair, a n d , like t h e e c o n o m i s t s ' , his g u e s s i s a s g o o d a s a n y b o d y else's. O P E C brings to mind a rather monolithic image now. B u t O P E C is p e o p l e , j u s t as t h e Seven Sisters w e r e . A b d u l A z i z , t h e oil m i n i s t e r , d r i v e s h i s c a r t o h i s office. M a y b e h e g e t s d r i v e n t o h i s office, b e c a u s e t h e s t r e e t s a r e crowded, a n d he can do some reading. He is part of the e d u c a t e d e l i t e o f h i s c o u n t r y . H e m a y t h i n k s o m e t h i n g like this, which h a p p e n s to be exactly w h a t o n e such minister said: "My m o t h e r d i e d of t y p h o i d because t h e r e was no d o c t o r i n t o w n . S h e w a s o n l y t w e n t y - e i g h t . I a l m o s t lost m y

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sight b e c a u s e t h e r e was n o eye d o c t o r . T h e r e w e r e scorp i o n s i n o u r h o u s e : I was s t u n g m o r e t h a n o n c e . T h e i n f a n t m o r t a l i t y r a t e w a s sixty t o s e v e n t y p e r c e n t . A f a m i l y h a d six o r s e v e n c h i l d r e n i n o r d e r t o e n d u p k e e p i n g o n e o f t h e m . W e h a d n o electricity. Unless you b e a r i n m i n d t h i s y e a r n i n g o f o u r p e o p l e f o r a b e t t e r life, y o u will n o t u n d e r s t a n d what is going on." T h e n h e g e t s t o his office a n d his m a l e s e c r e t a r y says, "Mr. Ichiban of J a p a n , Mr. Lundquist of Sweden, Mr. Cost a n z o o f B r a z i l , a n d M r . M u n c h a u s e n o f G e r m a n y a r e all waiting to see you." A b d u l Aziz l o o k s i n t o h i s o u t e r office, w h e r e e a c h o f t h e g e n t s i s s i t t i n g w i t h a b l a c k b r i e f c a s e . T h e y a r e all e y e i n g e a c h o t h e r n e r v o u s l y . T h e y a r e well s c r u b b e d a n d well d r e s s e d . A b d u l Aziz k n o w s t h a t e a c h o n e i s g o i n g t o say, "I j u s t r e a d a b o u t the new Israeli settlements in the West B a n k . T e r r i b l e , t e r r i b l e . " T h e n h e will o p e n his b r i e f c a s e , this well-scrubbed, neatly suited W e s t e r n e r , a n d m a k e a p i t c h . T h e o t h e r s will still b e i n t h e w a i t i n g r o o m . A b d u l Aziz i s a l r e a d y a n h o u r l a t e , b e c a u s e t i m e h a s a d i f f e r e n t i m p o r t a n c e i n t h e M i d d l e E a s t . N o m a t t e r ; A b d u l Aziz r a t h e r likes k e e p i n g all t h e W e s t e r n e r s i n t h e w a i t i n g r o o m . He knows that each of the buyers has been told, " S e c u r e t h e oil n o w , w e d o n ' t w a n t a n y g a s l i n e s , w e m u s t k e e p o u r i n d u s t r y g o i n g , p o l i t i c a l l y w e c a n ' t risk a c o l d w i n t e r . " A b d u l Aziz l o o k s o u t t h e w i n d o w a n d e n j o y s t h e m o m e n t . T w e n t y years a g o t h e Seven Sisters w o u l d have t o l d h i s c o u n t r y h o w m u c h oil i t c o u l d p r o d u c e . Only twenty years! he thinks. H o w m u c h has h a p p e n e d in twenty years!