Oil Policy and U.S. Covert Action in the Middle East

By Kathy Mitchell and Scott Henson
November 1990; pages 12, 17; Volume 2, No. 2

The specter of a surprise Iraqi invasion which caught the United States and the Western world off its guard has been central to the rhetoric surrounding the U.S. buildup in the Middle East. In truth the oil industry press gave ample warning of the coming invasion, and by its silence, the U.S. government gave every indication it would not interfere. And as for the incredible swiftness with which President Bush mobilized his troops for Operation Desert Shield, the history of U.S. covert actions in the region throughout the '80s gives insight into the speed, strength and force with which American troops were dispatched to the region. Understanding the recent OPEC politics and the recent history of American-Saudi oil politics can help explain heretofore overlooked questions about American goals and motivations in the Middle East crisis.

The Iraqi Invasion: Surprise Attack or Public Knowledge?

Iraq's defiance of Kuwait's OPEC quota busting tactics received praises from American policy makers as well as oil industry representatives in the months before the invasion. The U.S. long backed the objectives of Iraqi oil policies - i.e., limiting supply to increase prices - even after Iraq bombed American tankers in the Persian Gulf. In May 1990, OPEC nations met to set quotas, intending to facilitate a slow and steady increase in oil prices.

Most countries would rather not pump to their full potential, because oversupply causes oil prices to fall. Countries like Kuwait, however, have huge reserves and relatively small populations. They can more than compensate for a small price drop through massive overproduction. In the short term, this strategy reaps great profits at the expense of oil producers who abide by their quotas.

According to the August 1990 issue of the industry journal World Oil, "Iraq has been one of the few countries with large productivity to adhere to OPEC production quotas, and it insists it will continue to do so." Saddam Hussein, at an emergency meeting of the Arab League in May, charged that Kuwaiti quota violations had cost Iraq $14 billion. By the beginning of July, Kuwaiti violations drew world attention, and Saddam sent his Prime Minister to Kuwait and to Abu Dhabi in the United Arab Emirates (UAE) to argue for the original quotas. By July 17, Saddam Hussein began to threaten the use of force to protect oil prices.

According to the July Middle East Monitor, Iraq depends on oil for 95 percent of its foreign exchange earnings. Iraqi revenues had already fallen some 20 percent from 1989 levels. A $1 per barrel reduction in oil prices amounts to a $1 billion drop in Iraqi income. Further, in a dispute over the Rumaila oil field at the Iraq/Kuwait border, Iraq claimed that Kuwait had been "slant drilling" - i.e., drilling at an angle across the Iraqi border to bleed Iraqi-owned oil fields. In a memorandum, Henry M. Schuler of the Center for Strategic and International Studies wrote that the Kuwaiti monarchy was "acting aggressively - it was economic warfare."

By the OPEC meeting of July 25, Kuwait's continuing violations drew further threats of force, and American oil economists approved. "Baghdad's willingness to use force to advance its oil policy goals stands in sharp contrast to Saudi Arabia's past leadership, which was ultimately based on decreasingly effective threats to flood oil markets. Iraq's strategy is likely to result in higher and less-volatile oil prices than Riyadh's past approach" (Petroleum Intelligence Weekly, July 30). That's a high compliment from the conservative oil press. In the weeks between this OPEC meeting and the invasion, Iraq began to assemble troops at its borders, while Saddam Hussein tried to work out an agreement with Kuwait. The U.S. was hardly unaware of the concerns Saddam Hussein had expressed, and given Hussein's public declarations, could hardly have been surprised at the invasion.

Peace Shield to Desert Shield: Southern Africa Connections

Ex-CIA director George Bush can hardly be viewed as the morally outraged American President acting on principles of "oil for all" and self-determination for the Kuwaiti royal family. U.S. buildup can be traced to a ten-year history of military negotiations with the Saudi government that began with the AWACS arms deal of 1981.

Middle East oil crisis
The Saudis sold South Africa oil at the bidding of the U.S.

In the Fall of 1981 Prince Fahd of Saudi Arabia received a cherished contract to purchase $85 billion of AWACS aircraft from the United States. General Richard Secord, of Iran-Contra fame, steered the sale through Congress against heavy lobbying. Fired marine Lt. Col. Oliver North, then a National Security Council aide, was the administration's facilitator in the sale, for which he received the prestigious Defense Meritorious Service Medal in 1983.

The arms program, formally called Peace Shield, was officially launched in 1984 and specifies that 35 percent of the ground support systems for the AWACS will be installed and run jointly by American and Saudi State companies. King Fahd insisted that the arms deal must be accompanied by long term investment in Saudi development, and specified that Saudi nationals must be part of the training and implementation of the AWACS program.

This long term proposal, which took nearly eight years to develop, has now come to fruition in the form of American arms support and manufacturing companies located in Saudi Arabia itself. According to Business International's Investing, Licensing and Trade Conditions in Saudi Arabia, May 1990, by the end of March five projects had been approved under the first phase of Peace Shield, and had been capitalized to the tune of $278 million. Others were being arranged. In other words, since the initial arms sale in 1981 the U.S. has slowly dug in as a ground support presence al the invitation of the Saudi government. Americans shouldn't be surprised at the speed with which U.S. forces assembled in Operation Desert Shield. Thanks to Operation Peace Shield, we were already there.

The AWACS arms purchase of 1981, Operation Peace Shield, has been crucial to the development of the Administration's military strategy, not only in the Middle East but throughout the world. As a result of what one administrative aid called "the AWACS rule" (San Francisco Examiner, 6/27/86), the administration has been able to channel Saudi investments directly into "anti-communist movements" all over the world.

American businessman Sam Joseph Bamieh testified before the House Subcommittee on Africa, 6/1/87, that in a conversation in late 1981, Prince Fahd "said he was very happy about the fact that finally they got an agreement on the AWACS ... an understanding was arrived at whereby, he said, we will supply funds, meaning the Saudis' funds, and raise other funds from friendly governments to Saudi Arabia and sources other than Arabia, to fight, to help you guys fight, the anti-communist movement around the world." Under questioning Bamieh stated that the agreement included no specific locations. "When I asked him where, he says, anywhere the Administration will ask us to. When I said when, he says, whenever they ask us to."

The specific structure of Operation Peace Shield came about as a result of negotiations between the King and the Administration over the extent of Saudi support for these movements. Bamieh further testified that Fahd "was trying to get as many Saudi nationals to be part of the training on how to use the AWACS and its systems, and he said he managed to get a better number than he thought he could, simply because he agreed to fund anti-communist movements."

The primary benefactors of the "AWACS rule" in the 80's were UNITA forces in Angola under Joseph Savimbini in South Africa, and the Afghan rebels. In particular, Bamieh testified that he bad been approached by Saudi businessman Ali Bin Mussallam in 1983 about a $100 million dollar contract with the Moroccan government for vehicles, which would be paid for by Saudi Arabia. Of that $100 million, Mussallam indicated that the Saudis wanted $10-15 million "to go help the Angolan rebels". That's in addition to a $50 million Saudi support package received by Savimbini the year before.

CIA director William Casey had been crucial in lining up Saudi oil for the South African apartheid regime. In 1984, the year the Peace Shield program was officially launched, Prince Fahd began to hold private meetings with CIA director William Casey according to documentation and testimony revealed in the Congressional investigation. General Secord, in a meeting with Bamieh, asked the businessman to set up an offshore company which would assist in the incremental sale of oil to South Africa. According to Bamieh, "this company would buy the oil from the Saudis and then make about 75 cents, a dollar, a barrel by turning around and selling it to South Africa." Secord suggested that Bamieh's company could make $50-100 million dollars a year in profits from this one arrangement alone. In an effort to convince the businessman to accept the arrangement, Secord pointed toward the Mediterranean Sea and said "Bill Casey is out there, Mr. Casey is out there, with His Majesty, King Fahd, talking about those same issues."

South Africa, under an international oil embargo, has developed huge reserves by stockpiling from these illegal purchases. Recent issues of The Oil Daily outline South Africa's plan to offer some of its reserves on the open market. South African Finance Minister DuPlessis said in an interview, "When the oil boycott against us is lifted we will begin to reduce these reserves." South Africa is highly vulnerable to effective oil sanctions, as 20 percent of its energy is oil based and its military sector is dependent on fuels refined from imported crudes. No crude oil is produced domestically, but the fact of South African oil surpluses indicates that the country has easily circumvented the embargo. Additionally, higher prices have led more producers to break the sanctions.

Over the past decade, South Africa's chief suppliers have been Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain, Qatar and Oman. Today, while Saudi Arabia arranges for permanent air support units from the United States, South Africa takes advantage of the frenzy in the international market to attempt a general end to the oil embargo.