September 5, 2018

If you are one of those who hope that the United States will ride to Britain’s rescue post-Brexit, what follows is a cautionary tale. For the story of how America elbowed aside its isolated but supposedly close ally in the Middle East after the Second World War, has a certain pertinence today.

Thanks to the now-infamous conspiracy to oust Iran’s prime minister, Mohammed Mosaddeq, in 1953, most people assume that America and Britain have always colluded in the Middle East. But the reality, as I found when I was researching my new book Lords Of The Desert, is that the opposite was normally the case. In the quarter century after the battle of El Alamein in 1942, conflicting interests made Britain and America competitors and often outright rivals in the Middle East. The simmering tension that resulted did much to shape the history of the era.

Further reading
Which is the greater threat to the West, Saudi or Iran?

By Michael Burleigh

Even a closer look at the overthrow of Mosaddeq reveals that the British and Americans were, to pinch Doris Kearns Goodwin’s expression, a team of rivals. The British government wanted to make an example of the man who, in 1951, divested it of the refinery it owned at Abadan (through its controlling stake in the Anglo-Iranian Oil Company, which had until that point monopolised oil production in Iran). The refinery was Britain’s greatest overseas asset and was of enormous strategic importance since it produced sterling priced oil that the British government could always afford to buy and, by tax and dividend payments, represented a crucial source of revenue for the Exchequer.

But for two years the Americans resisted British pressure to conspire in a coup. They only changed their minds after Mosaddeq began behaving erratically and they became terrified that he would dump the vast backlog of Iranian oil on the world market. This represented an enormous threat to the Americans’ own great investment in the region, the Arab American Oil Company, better known as Aramco.

In Saudi hands since its nationalisation in 1976, and now back in the news amid uncertainty over whether or not the present king will float it, Aramco was then a privately-owned company that was domiciled in the US and belonged to four major American oil companies. However, Ibn Saud, the first king of the country, who granted the company its concession, regarded it as his piggy bank and raided it frequently. Unwelcome to the company’s executives as this habit was, they offered no resistance, since they lived in constant fear that what the king had given them he might abruptly take away. Their reaction as this fear grew more acute at the end of the 1940s triggered a series of events that explain the rise of the United States and the eclipse of Britain.

Further reading
Who's pulling the Pakistan prime minister's strings?

By James Dorsey

In response to growing pressure from the king, in 1948 the company conceded him a better royalty and agreed to surrender its rights over territory it did not wish to exploit, enabling him to resell them to competitors. However for the king, who needed to support his thousand-strong family and to buy his subjects’ loyalty, that was not enough – especially when another company proved willing to pay far more for some of the land Aramco relinquished, and the fall in the oil price at the end of the decade began to bite into his income. In 1949 he demanded more.

The US government was keen for Aramco to indulge the king. It did not want to lose access to the airbase in Dhahran, which it had built and leased back from the Saudis, because it had no closer base from which to bomb the Soviet Union’s industrial heartland in the event of another war. Moreover, a pipeline from the Gulf to the Mediterranean would soon open, enabling oil produced by Aramco to fuel western Europe’s economic recovery, generating profits for its American shareholders and tax for the US Treasury that would compensate for the outlay of the Marshall Plan. And so, when the king proposed a new arrangement in which he would take half of Aramco’s profit in tax, the State Department official responsible for the Middle East, George McGhee, ignored British pleas not to cave in, and instead encouraged the company’s managers to “roll with the punches.”1

Neither Aramco nor its shareholders ended any the worse off, since US tax law (which the Saudis had taken care to research before making their demand) enabled the company to set all the extra tax it owed the Saudis under the new arrangement against its even larger US tax bill. Ultimately it was the US taxpayer who ended up subsidising the increasingly opulent lifestyle of the Saudi royal family.

When the British tried to split the developing Saudi-Egyptian axis, the Americans protected their Arab friends
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Even though the “fifty-fifty deal”, as it was called by the Americans, was nothing like as generous as it sounded – because Aramco sold oil to its four shareholders at a discount to the market price, whittling away the profit the Saudis could tax – the consequences of this precedent for the British were profound, as McGhee knew they would be.

Having seen through the deal, the British refused to concede when the Iranian government demanded similar treatment from the Anglo-Iranian Oil Company. Whereas the US Treasury was willing to forgo the tax Aramco paid, Anglo-Iranian’s contribution to the British government’s war-ravaged finances was too important for the Chancellor of the Exchequer to follow suit.

This decision triggered a chain of events. Mosaddeq reacted by nationalising the refinery and, when the dying Attlee government did nothing to retaliate (having been warned off a plot to break Iran in two by the Americans), the Egyptians spied Britain’s weakness and abrogated the treaty that allowed Britain to base its troops on the Suez canal. The Americans piled further pressure on London by tacitly supporting the Egyptian coup the following year that put Gamal Abdel Nasser, who loathed the British, in power. When the British tried to split the developing Saudi-Egyptian axis, the Americans protected their Arab friends. And Eden’s attempt to claw back the initiative from the Americans then ended in the fiasco of Suez and, because of his collusion with the Israelis, the overthrow of the Iraqi monarchy, which was damned by its closeness to Britain.

The fifty-fifty deal is recent but forgotten history which deserves as much attention as Suez in explaining the decline of British influence in the region. It is a timely reminder that, long before Trump came along, the special relationship barely registers in Washington.

Further reading
Why there are still deals to be done in Iran

By Liam Halligan

FOOTNOTES
  1. Foreign Relations of the United States, 1950, volume 5, 106-109, Funkhouser, memorandum of conversation

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