Oil nations became aware of the role they entitled to play in the global economy as natural owners of the essential economic resource. Resultantly, the OPEC was created in 1960. The OPEC had signed two major agreements (Tripoli and Teheran) in 1971 and brought oil prices in equilibrium with those of the US. This led to significant speculations on the potential role the organisation could play in transforming the oil industry, markets and, hence, the global economy.

In the mid-1980s, when the OPEC share of world crude production fell to 11 million barrels a day, the organisation reacted with a U-turn in its price policy. Instead of maintaining a reference or marker price, it went into an aggressive price war. Saudi Arabia declared the first such price in 1985. As a result, the oil prices crashed in the international market. In 1986, it touched $12.2 a barrel, the lowest ever. To save the situation, the independent oil producers sought collaboration with OPEC. These mechanisms brought in some sort of a price control system. In February 1990, the Iraqi President, Mr Sadam Hussain, asked his counterparts in Saudi Arabia and Kuwait to adjust their crude production to stabilise the market, leading to the invasion of Kuwait by Iraq in 1990.

The industrialised nations were quick to react to the situation. In 1990, the UN Security Council approved a commercial, financial and military embargo on Iraq. The Iraqi Government responded by declaring the annexation of Kuwait as its province.

On November 29, the Security Council passed a resolution authorising the use of any means necessary to free Kuwait. A military force led by the US attacked Iraq to free Kuwait. The war led to a clash in the oil market between the owners of the resources and the users in the industrialised world, paving the way for the oil politics in the global arena. The Bush administration's Energy Plan, published in February 1990, mentioned that the war did not bring any positive change in the country's economic life. The world oil markets, however, gained a global political dimension. On April 23, 2002, the Iraqi President again called upon the Arab states to cut their oil exports by half and ban sales to the US, a retaliatory measure for Washington's support to Tel Aviv against Palestine. As part of a broader embargo against the US and Israel, Iraq unilaterally declared the suspension of its oil exports for the next 30 days. The oil market drained of two-million barrels of Iraqi oil a day may not have significantly affected prices, but it did create political tension that was significant in an already vitiated atmosphere.

Gulf-American political ties

The political alliance between the countries in the Persian Gulf region and the US was not as natural or romantic as of other regional coalitions. It was more a sort of ad hoc arrangement. For instance, the Saudi-American alliance, considered one of the strongest. Saudi Arabia joined the Arab oil embargo in 1973, throwing the global oil market into chaos. The Americans, perhaps, misread the Saudi sentiments towards their Egyptian and Syrian allies against the war on Israel. When the Nixon administration asked the US Congress for an emergency appropriation of $2.2 billion to pay for arms shipment to Israel, Riyadh wielded its oil weapon against Washington. Though this oil embargo, accompanied by extraction cuts, was short-lived, it changed the world. In March 1974, the embargo was lifted, but the oil price levels rose from $3 a barrel to around $11. Result: Transfer of billions of dollars from oil-consuming to oil-producing Gulf countries. It was inevitable for the US to re-establish its friendship with Saudi Arabia. It yielded the desired economic results for the US but revealed the complications of maintaining stronger ties with the region. The cooperation worked in the desired economic directions but the inherent sources of political tension remained.

Saudi Arabia has tried to prevent the Americans from understanding their politics — what goes on inside the councils of ruling houses, the royal family. The theocratic monarchy, a strict Islamic regime, never allowed the American way of freedom on its soil. The US, however, could extract their huge wealth for all economic and political purpose outside the region.

In 1992, Riyadh decided to give $20 million to fund the West Asia studies programme in the Arkansas State University; in 1985, it contributed $1 million to the First Lady's `Just Say No' anti-drug campaign, in 1989 another million dollar was contributed to the First Lady's campaign against illiteracy. When it came to the sale of sophisticated arms to Saudi Arabia, however, the US failed to live up to the intimacy of the friendship (in the interest of Israel?). As a result, Saudi Arabia entered into secret deals with other countries such as the UK, France and China. These deals started making cracks in the Saudi Arabia-US friendship. The invasion of Kuwait by Iraq in 1990, however, once again brought the friendship back on even keel. The operation `Desert Storm' was staged from Saudi Arabia. Though the US troops were ordered out after the war, there has been no complete withdrawal.

The war, however, took a toll of the Saudi Arabian economy and wealth. From the peak $ 227 billion in 1981, its oil income fell below $60 billion a year in the 1990s to as low as $35 billion in 1998. The US-Saudi Arabia romance was losing its ardour. In 1995 and 1996, when terrorists attacked American targets in Saudi Arabia, the US was not given access to the investigation. With end of the Cold War, the political diplomacy of the unipolar world alliance found the need to bring the oil region back to its fold for political and economic coherence it perceives for the future. There are, however, questions on the potential of a war to establish the US dominance in the petro-dollar region, given its volatile religious characteristics. Perhaps, the US intentions of politically and economically destabilising the region are not unknown to many. Will this transform the religious agenda and terrorists outlook into US' favour?

(The author is a New Delhi-based freelance writer.)

Article E-Mail :: Comment :: Syndication