Saturday, April 29, 2017

The Oil Kings by Andrew Scott Cooper (Book Review #11 of 2017)

The Oil Kings: How the U.S., Iran, and Saudi Arabia Changed the Balance of Power in the Middle East

If you've ever read one of Henry Kissinger's books and thinks he's a genius, then this book will be a real eye-opener. The author has painstakingly gone through recently declassified or released material, as well as the memoirs of several players, to piece together the deceit and failures of Kissinger and the Nixon Administration that led to the collapse of the Shah of Iran and the "special relationship" the US maintains with Saudi Arabia today. Cooper shows conclusively that an overconfident and economically incompetent Kissinger made promises to and deals with the Shah during the Nixon Administration, then tried to keep both the promises and the consequences secret from Gerald Ford when he was kept on as Secretary of State and National Security Advisor, then destroys the evidence when Carter comes to power, setting the next President up for the next crisis. Cooper also shows what details Kissinger omits from his memoirs, or identifies the odd, out-of-the way efforts Kissinger defends decisions or outcomes in the anticipation that one day these details would be public.

You can sum up the broad plot line like this:
The dilemma for the US-Iran relationship was basic economics: The Shah needed higher oil prices to fund his government programs, primarily his vast military. The military equipment and infrastructure projects required US equipment and expertise, so everything from fighter jets to engineers were contracted to Iran. The Nixon administration was constantly promising more-- Nixon promised "everything but the (nuclear) bomb."
The Nixon Administration could go along with the higher prices in exchange for these large deals for the Defense sector and an anti-Soviet and pro-Israeli ally in a Middle East where Egypt, Syria, and Iraq got Soviet arms and expertise against Israel. Iran also was able to funnel money to Nixon's secret campaign bank account in Mexico, aiding Nixon directly. But higher oil prices led to stagflation in the West, and political pressure for Western politicians to be hard on Iran. Iran, meanwhile, suffered from "Dutch disease" as an oil producer. The increase in government spending and influx of foreign investment led largely to spiraling inflation and social unrest. When Ford took the helm, Kissinger worked hard behind-the-scenes to keep the promise to the Shah, while never fully disclosing them to Ford.  When Ford's team finally began to purge and reorganize in view of the coming election, they pivoted toward friendship with Saudi Arabia, which by this time was a much larger-volume producer and was proving itself to be a more publically stable ally. Breaking OPEC and inflation to preserve Western democracy, particular in places like Europe which were seeing Communist-leaning parties gaining votes during high unemployment, was more important. The pivot was fatal to Iran. All of Nixon and Kissinger's secret deals, misguided economic understanding, and political tightrope during the Ford administration went whitewashed from their personal histories.

I picked up this book expecting something similar to Daniel Yergin's The Quest, on the development of the global oil trade, or Stephen Kinzer's The Brothers, which focuses on White House and CIA-led efforts in the 1950s and 1960s to secure the Middle East as a source of oil and a bulwark against the USSR. Instead, I was pleasantly suprised by an almost day-by-day account of the period from 1967-1977 where foreign policy was directed mainly by Kissinger and Nixon where promises were made and then covered up. Whether it's uncovering that U.S. officials offered to sell nuclear power and fuel to the Shah, or made a deal where the Shah would transfer money to Nixon's secret and illegal campaign bank account in Mexico, this book is a sobering reminder that the Nixon administration was criminal in many ways. The implication of the book, of course, is that the genesis of the special relationship with Saudi Arabia led to the indirect funding of Saudi projects like madrasas in Pakistan that train the Taliban to Bin Laden's mission to attack America for supporting the Saudi regime and the endless war we have on terrorism today.

Cooper, now a news correspondent in Tehran, became motivated to write this book during the late aughts (2000's) when Saudi Arabia was intentionally overproducing oil to maintain a low price. Much was written in the US about the effect on the coal and natural gas markets, the Saudis seemed bent on putting fracking out of business. Less, however, was written about how this was an intentional economic attack on Iran by Saudi Arabia. A lower price of oil hurt the government's ability to provide services as well as stem the tide of dollars to terrorist groups like Hezbollah. It also helped further the post-election unrest under Ahmadinejad.

Cooper began studying history and found a similar US-encouraged Saudi action in 1977, which crippled the Iranian economy and eventually contributed to the shah's ouster and the establishment of the Ayatollahs' Islamic Kingdom we know today. But this seemed an oddity-- the Shah was a very publicly-supported US ally and his government's weakening had obvious downsides for the US. The 1977 Saudi-US relationship was actually about breaking the OPEC cartel, but instead broke the Shah and led indirectly to the US hostage crisis, the "seige of Mecca" in 1979 (see Trofimov's excellent book), the spread of Wahabbism, and the Saudi-Iranian proxy war in Yemen we see the US participating in daily (daily bombing campaigns) under the Trump Administration. What was odd, however, was that the American players involved seem to go out of their way to mention what led to these decisions or any reflection on their consequences when they wrote their memoirs. Cooper sets out to solve the mystery.

The problem started in roughly 1966 when Richard Nixon was pondering a run for President and laid out his foreign policy doctrine. The Shah's brother-in-law, foreign minister, future Ambassador to the US, Ardeshir Zahedi began to get closer to Nixon when he realizes he is running for President. Nixon visited Tehran in 1967. Nixon recognized that US-style democracy was not for everybody, and expressed his open admiration for Shah Pahlavi.  The Shah, meanwhile, wanted to be a revived King Cyrus, ruling over an influential Persian Empire. Cooper chronicles that his dreams of grandeur seem to get worse as he aged and became more delusional.

Other prominent characters in the book include US Ambassador to Iran Douglas MacArthur II, defense contractor and likely CIA operative David Rockefeller, CIA Director and Iranian Ambassador Richard Helms, and Treasury Secretary Bill Simon. MacArthur was the Ambassador in Tehran from 1969-1972 and filed either false or naive reports about the Shah's situation at home. This was over a decade in which the US largely looked the other way as the unrest grew and attacks on Americans and American interests became more coordinated and frequent. Rockefeller worked defense deals with Iran for equipment and manpower that helped break Iran's budget and put the Administration on the line to deliver.

The State Department's own official account of the 1969-1972 period can be found here.
Nixon and Kissinger negotiated heavily with Iran, culminating with a visit by Nixon to Iran that was staged heavily by the Shah. Nixon's group narrowly missed disaster during a coordinated bombing campaign and protests during their visit, something that was chalked up to student dissidents or foreign elements--a theme that would keep running until the Ayatollah Khomeini would return and seize power. The dealings with Iran get ever-complicated in the midst of the volatile oil market, the Vietnam War, Middle East conflict, and unfolding Watergate scandal. Basically, Nixon arranged to sell massive amounts of F-14s and other equipment to Iran, along with US military and defense contractors to maintain them, in exchange for oil. The Shah donated to Nixon's re-election campaign via a bank in Mexico City, which the CIA was fully aware of. Kissinger negotiated complicated finance arrangements including Iran's sending part of its aircraft purchases to Vietnam, Iranian tankers docking in Guantanomo Bay, and more. Nixon also pledges to arm the Shah's ally of the Iraqi Kurds as a further bulwark against the  Sunni-Baathist Iraqi threat against Iran. Now-released transcripts reveal some of Kissinger's dealings and the quotes aren't flattering. The Joint Chiefs of Staff actually spied on Kissinger, raiding his filing cabinets and such, to see what deals he was making that would commit US armed forces without their knowledge. True to persona, Nixon was privately supportive of Iranian oil price hikes while publicly critical.

Nixon had a tense relationship with Helms and the CIA, and often threatened to gut the agency because he knew it had dirt on him. These were the days just prior to the 1975 Church Committee hearings on CIA activities that revealed the "family jewels" of various assassination plots, and domestic spying by the CIA and the US Army. Nixon lost his nerve in 1972 to gut the agency, but would roughly appease and get rid of Helms by making him Ambassador to Iran. (Helms would later be indicted for perjury for his 1973 confirmation hearings testimony regarding clandestine activities, pleading guilty to a lesser charge.)

One weakness of the book is that the author ignores other international economic pressures that came into play. The Bretton Woods system of coordinated exchange rates ultimately tied to gold limited the ability of countries to deficit-spend. When the US began to run deficits under Johnson to pay for Vietnam and the War on Poverty, programs continued by Nixon, the system was put under a basic pressure that the Nixon finally "closed the gold window" and unilaterally ended the post-war era that resulted in floating exchange rates and market turmoil. (I recommend Yergin and Stanislaus' Commanding Heights alongside Yergin's other books on energy markets.) He also doesn't really look much at Nixon's controversial domestic economic policies during the gas price crisis of 1972-1973, namely wage and price controls. Economic advisor George Schultz was dismissed as a naive fool for advocating against Nixon policies, but the author doesn't exactly spell out the debate. He also doesn't explain well how the high oil prices were to the USSR, helping prop up an internally-crumbling Soviet economy for another decade. All that played a role in Soviet support for various Middle Eastern regimes.

Instead, the author focuses on the import of oil and the effect of prices on domestic production. High oil prices were crippling to American businesses and products (like plastics) which are made from petroleum. But they are also a boon to domestic production and exploration. In order to support high prices for the Shah, Kissinger preferred arguments about the benefit of high prices to encourage domestic production and keep out foreign oil. Cooper notes that Kissinger neglected to ask for any study about what amount of reserves the US government had available to tap to relieve the problem and what the effect on price would be, much less any long-term consequences. Kissinger consistently ignores contingencies and unintended consequences. But stagflation in Europe led to negotiations involving European countries, oil companies, and OPEC countries. There was a fear that the economic malaise was increasingly tilting politics toward Communist parties and nationalism. There was fear, specifically, about losing Italy to the Communists. European countries were suddenly at risk of defaulting on their bonds, unable to make the interest payments. (This brings to mind the EU sovereign debt crisis during and after the 2008-2009 recession.) If the debt crisis had worsened, the contagion would have had consequences for the US as well.

Meanwhile, domestic pressure within Iran began to mount. The Iranian public always resented the US-led coup by Kermit Roosevelt that installed the Shahs and kept Iran in Western orbit. The Shah's infidelity was public, the press was under his thumb, and his security forces sometimes wantonly killed people for minor offenses, much less jailing and torturing many. The Shah's decision to exile Ayotollah Ruhollah Khomeini, thinking that would be better than executing him, of course ended up having consequences as a committed opposition could be formed outside of Iran as well as inside. Iran was eager for US defense contract deals because the more Americans working in Iran, the more likely the US would have to defend Iran from any attack by Iraq or others; the Shah's paranoia about invasion drove his ridiculously large military purchases. Iran saw Saddam Hussein as a threat, and at one point wanted to invade Kuwait pre-preemptively fearing Hussein would take it (1990, anyone?). Meanwhile, King Faisal was guiding the Saudis as a rival power in the region and vying for attention. Qaddafi took power in Libya and nationalized the oil production, putting more power in OPEC's hands.

In 1973, the US and Israel ignored both the Shah and King Faisal's warnings that an Egyptian-led war with Israel was coming. The US found itself suddenly in a weak position to help its ally Israel in the middle of the Watergate crisis. The oil embargo was crippling the US and leading to anti-Arab, anti-Iranian sentiment. Iran and the Nixon Administration considered various military responses to the embargo, and how to get oil to the US. The Shah had placed his vast order of military equipment before 1973, and now that US pledge was in jeopardy.

The scariest episode, worth pondering in light of fears during Trump's first 100 days (as I write this), is probably when a distraught-over-Watergate Nixon got drunk and passed out as the Soviets began to mobilize their military. Kissinger and Alexander Haig pondered whether the USSR would invade the Middle East while the US was obviously distracted. There is a scene where Haig shuttles to the West Wing and the residence, pretending he is getting instructions from Nixon. I grew up in the 1980s and 1990s, so the information we have on the incompetent and clearly corrupt Nixon Administration that was unavailable while he was alive is quite sobering-- this book makes me realize America has been in decline for a while and the 1970s were much worse than 2017 (for now, at least).

The US had already entered into some defense contracts with Saudi Arabia, troops and contractors were helping build defenses there when the Saudis suddenly grew concerned that the US might actually invade their land. Scoop Jackson and the original Neocons were printing serious proposals in conservative magazines by 1975 calling for outright seizure of Middle Eastern oil fields. (How many Americans remembered this history in 1991 or 2003?) The US had already reached arms agreements with the Saudis, and US troops and contractors were helping to build defenses when Saudi Arabia got concerned they might face imminent invasion. Ultimately, this at least made them scared enough to finally bend to US demands for greater oil supply.

The embargo led to some decision-making and frustration with the Shah. New Treasury Secretary Simon was initially made fun of by Nixon and Kissinger, but grew into his role and tended to disagree with Kissinger on various issues and was no fan of the Shah. While the Shah paraded himself as an educator of women, a proponent of Western values, and others he was truly an autocrat who increasingly ruled by the sword as opposition within his country was growing. As Nixon resigned and Ford took the helm, he was left out of the complete loop of what Kissinger and Nixon had had pledged to the Shah-- not just defenses but nuclear energy technology. Kissinger had "learned economics from the Shah," according to Cooper, seeing the world of oil markets his way. Worse, Kissinger would "disparage" Ford as incompetent in private meetings with the Shah, undermining any trust. The Shah began to publicly criticize the US government and public opinion was not favorable of the Shah.

After the Ford Administration got settled, its top advisors, including Donald Rumsfeld, began to clean house. Cooper writes that Rumsfeld "stalked" Kissinger, being rightfully distrustful. This was the time of the "Halloween Massacre," when Kissinger was removed from his post as National Security Advisor in favor of Brent Scowcroft. Rumsfeld replaced Schlesinger as SecDef; Cooper writes of the rampant corruption in defense deals involving actual uniformed officers in Iran (Kermit Roosevelt was also implicated in corruption). William Colby was fired from the CIA. Some of these moves were likely to help Ford beat Ronald Reagan's challenge for the GOP nomination, something Ford was was quite bitter about, personally.

At the height of the 70's relationship, 40,000 Americans were living in the country. Iran was important to the CIA, which was running a program called Ibex that collected signals intelligence and Soviet radar/intercept defense capabilities from bases in Iran. American expats, which the Shah had worked so hard to intentionally attract via contracts, were living privileged lives with classic "Ugly American" stories. In a conservative country, Westerners were showing up with halter tops and shorts to visit mosques as tourists. As expats flowed in, the cost of housing rose to meet demand, infrastructure had to be expanded, and inflation ran rampant. The world had a petrodollar recycling problem.

Kissinger, now of diminished political influence, had secret meetings and cryptic messages with one of the Shah's top advisors. Meanwhile, the Shah's top advisors are keeping knowledge of the Shah's medical condition--cancer-- a secret from the Shah himself. It's unthinkable for the Shah of Iran to have a terminal illness. Iran's condition worsened; it now needed a bailout, a better economic deal to supply oil to the US than what it had. Rumsfeld and others move to nix it while Gerald Ford pivots toward Saudi Arabia. While Iran needed higher prices to prop up the Shah's government, the Saudis were eager to undercut.

Ford had inherited a stagflation mess, and in the run-up to the election, the American economy began to stall again. Alan Greenspan was Ford's CEA Chair, and the author basically blames him for having rose-colored glasses when bad economic data came in. The author writes that in 1975, Congress had passed and Ford approved over $15 billion in tax cuts and stimulus spending. While this was contrary to Ford's ideology of smaller government, it was seen as a goo idea at the time. Cooper writes that much of the stimulus went unspent, blamed on the economic bent of Ford's team (Greenspan, Simon, etc.) which was more free-market and small-government oriented. Apparently Arthur Burns is also to blame in regards to interest rate policy. But while Arthur Burns did lead the FOMC to raise interest rates in April and May of 1976, he followed by lowering rates from July to November. So, I am skeptical of the 1976 economic history as Cooper tells it. There are other versions.
Like the collapse of Bretton Woods during this period, monetary policy generally is beyond the scope of this book (and the authors' expertise) but important to the economy and the politics.

When Carter wins the election, Kissinger states that he will not be turning over certain documents related to Iran to the new administration. Cooper asks what Kissinger is trying to cover up. Some documents are given to the Library of Congress or other sources to be relased later, others apparently are locked away somewhere or have disappeared. Kissinger now denies what we know from clear documentation about Nixon's promises to the Shah about providing defenses. Ambassador Helms returns to the US for Iran to plead guilty to a lesser charge than perjury and face prison time. He would later claim that he "never took the Shah seriously." Carter naively inherited the mess with an expectant Shah of Iran, who was increasingly ill. The disconnect between the CIA and the State Department in regards to the uprising about to happen in Iran has been documented. When the Shah visited Washington in 1977, pro-Shah supporters were attacked by anti-Shah protestors, injuring dozens. When the Shah returned in 1978, he was met with even larger demonstrations and rioting. See this Washington Post story for another forgotten bit of history.
"In Iran, a general strike by opponents of the shah was called to coincide with demonstrations here and succeeded in shutting down parts of Tehran, the capital, and three other cities. No violence was reported by wire services, although demonstration leaders here told protesters that Iranian police had reportedly killed 20 persons and arrested at least 2,000."

When the Shah was granted asylum in the US for cancer treatment, the final match on the gasoline of US-Iranian relations was lit. This book tells the essential bit of history from 1966-1978 that put all the gasoline that has been burning ever since.

I give this book 4 stars out of 5. Some better international economic understanding, particularly on monetary policy, would help the author. But his investigative skills are great, and this book is essential reading for anyone interested in American foreign policy.

No comments: