“Oil Money: Middle East Petrodollars and the Transformation of US Empire, 1967-1988” by David M. Wight. Cornell. 347 pp. $49.95. Review provided by The Washington Post.
The history of modern international relations is inextricably entangled with that of oil, the key energy resource of the post-World War I era. Oil has been at the center of multiple struggles – over its control, price, flows, profits – and has decisively contributed to the global integration of the past century. For its part, the United States has progressively occupied the center stage in that integration, the contemporary global order being in many regards U.S.-centered and dominated. Washington has thus developed a specific role in handling the issue of oil, chiefly in ensuring unhindered access to it, and in dealing with the producing countries, particularly some of the extraordinarily oil-endowed nations of the Middle East and North Africa (MENA).
In this very fine book, “Oil Money: Middle East Petrodollars and the Transformation of US Empire, 1967-1988,” David M. Wight discusses the key rupture of the late 1960s and 1970s when, he writes, “petrodollar interdependence” replaced the previous, highly unequal relationship between the United States and the oil-producing countries. Whereas the latter relied on cheap and abundant oil to fuel the economic growth of modern industrial societies, which in exchange granted aid and protection to the oil-producing countries, this new form of interdependence was based on high oil prices, skyrocketing revenue and an immense pool of liquidity – “petrodollars” – to be injected into increasingly deregulated financial markets.
During that period, Wight shows, the terms of the exchange between the United States and the relevant MENA actors (first and foremost Iran and Saudi Arabia) changed radically. Instead of supplying cheap oil, the oil-producing countries now offered abundant petrodollars. Washington had to accept higher oil prices and more unruly partners, willing now to use oil as a political and diplomatic weapon, but eager to preserve U.S. protection and obtain high-tech weaponry. In exchange, the United States preserved its hegemony, enjoyed profitable opportunities for exporting its goods and services to these immensely affluent but still underdeveloped partners, and – more important – found an apparently unlimited source of funding for its banks, financial firms and public debt. By the early 1980s, for example, the Saudi share of the U.S. Treasury securities held abroad approached $40 billion, almost 30% of the total, and Riyadh decisively contributed to finance American deficits thanks to its $20 billion petrodollar deposits in the United States.
Iran and Saudi Arabia used their wealth to buy ever more sophisticated weapon systems primarily, but not exclusively, from the United States (from fiscal 1973 to 1979, U.S. military deliveries totaled $10 billion to Iran and $4 billion to Saudi Arabia, 31% and 13%, respectively, of the world total, Wight writes). They joined the bandwagon of financial globalization, contributing their petrodollars to foster and accelerate it. They purchased durable goods and services, with numerous U.S. engineering and construction companies benefiting from the bonanza of the grandiose – and at times unrealistic – developmental schemes of Riyadh and Tehran. Finally, they were tasked with a specific geopolitical function that a prostrated post-Vietnam America was all too eager to outsource: contributing to the containment of the Soviet Union and its allies in North Africa and the Middle East.
Petrodollar interdependence was both a driver and a key product of the post-1960s U.S.-led global integration: a defining feature of contemporary globalized capitalism. However, many contradictions and short-circuits ensued. The United States transferred sophisticated and pricey weapons to countries that were adamantly hostile to Israel, which had become a special, indeed unique, ally of Washington. To offset that, and to counter the growing criticisms from many American supporters of Israel, different U.S. administrations had to significantly expand military aid to Tel Aviv, thus contributing to a regional arms race that risked spiraling out of control. In line with its increasing activism on foreign policy issues, Congress often challenged the very foundations of petrodollar interdependence, denouncing the authoritarian nature of partners like Iran and Saudi Arabia, the threat they posed to the security of Israel, and their violations of fundamental human rights.
More important, the United States ended up empowering countries whose fundamental policies could take a drastic U-turn in the event of regime change. Spurred by the harsh political repression of the shah, and a growing anti-Americanism that petrodollar interdependence helped aggravate, Iran saw the most extreme of regime changes with the 1979 revolution and the birth of an Islamic republic radically opposed to the United States and its regional allies. The Iranian revolution shocked the world and shook the very bases of petrodollar interdependence. Despite the predictions, it did not lead to its end – on the contrary, it reinforced some of its basic premises, rendering the relationship between the United States and Saudi Arabia even more fundamental. It also exacerbated its contradictions, with the United States ever more embroiled in the support, defense and armament of authoritarian partners such as Saudi Arabia, and petrodollars financing an array of problematic foreign policies – from Iran contra to the anti-Soviet Afghan resistance – that would often backfire in later years.
“Oil Money” offers a rich, thorough and sophisticated description of how petrodollar interdependence has shaped and transformed modern international relations, global capitalism and U.S. hegemony. The narrative often overlooks the role and agency of Washington’s European partners, which played their own important parts in the story. But the book admirably blends the many facets of the post-1960s petrodollar universe, from geopolitics to political economy, diplomacy to culture. In doing so, it provides us with a fundamental introduction to one of the driving forces behind today’s world and its many contradictions.
– Reviewed by Mario Del Pero, who is a professor of international history at Sciences Po in Paris.