Arab Oil, a Blessing and a Curse
By Hasan Afif El-Hasan
While important transformations are taking place within the thinly populated oil producing Arab states (APC) due to their wealth, the capital-hungry nonoil producing Arab states are barely managing to feed their populations. The APC states invest hundreds of billions of dollars in the West and too little in the Arab nonoil states. And they are not using their political and economic influence with the industrialized nations to support a just solution to the Palestinian issue. Oil producing countries failed or refused to utilize oil as a strategic commodity for political advantage to back up the Palestinian cause. The 1973 Arab oil embargo supports the view that dependency on oil as the only industry and no national economic diversification limits the Arab states individually and collectively from exerting sustained political pressures on the oil users. When the APC spokesman coined the expression “oil and politics do not mix”, he meant that exploiting the oil as a weapon would very likely harm their own economies and they were not willing to sacrifice.
Only in the 1973 Arab-Israeli war, Arab oil-producing countries used oil as an instrument of economic and diplomatic pressure on the West for a while. They decided to reduce their oil output and imposed embargoes on oil shipments to the US, Holland, Portugal and South Africa to force a change in their policy toward the Israeli occupation of Arab lands. They demanded a total withdrawal of Israel’s military from all Arab territory occupied in the 1967 war and the restoration of the Palestinian’s rights. President Nixon proclaimed the US full support of Israel and granted Israel $2.2 billion in additional military assistance as a response to the Arab demands. The commitment of the Arab oil-producing countries to achieve political goals has faltered and lost credibility. They scaled down their demands in a December 8 of 1973 resolution by asking for only that the US guaranteed a promised phased Israeli withdrawal from the lands occupied in 1967. Then in March 1974, they decided to lift the embargo indefinitely without accomplishing any of their declared demands. Neither Israeli withdrawal nor restoration of Palestinian rights was achieved.
Arab oil-producing countries stood by and watched in 2008 when the Palestinians had been crying for help while Israeli tanks and jets destroyed Gaza Strip killing and injuring thousands. They promised billions of dollars to reconstruct Gaza but nothing has been forthcoming.
The industrial countries demand for Arab oil has increased significantly since 1973 and the US political and military actions in the Middle East suggest that oil has become a major factor in its policy formation. The US has strengthened its military, political and economic influence in its oil-producing protectorates and allies and created false pretexts to wage war against oil-rich Iraq in 2003. At the same time, the US has been strengthening Israel, its strategic ally and its military policeman in the region.
The discovery of oil has the effect of inaugurating the era of modern Arab economic and political dependency on the West, protectionism, the colonizing of Palestine, the Jihadists and the wars that took the lives of millions and de-stabilized the region. Oil is viewed by the West as a strategic commodity, and control of such a resource should not be left to the governments of the oil producing countries. The wars and interventions waged and the establishment of Israel by the West in the Middle East has been to establish themselves as the principle power to control the oil-rich region.
If Iraq and the Gulf region had no oil, the history and the geography of the region east of the Mediterranean would have been different. The dream of Sharif Hussein Ibn Ali of Mecca to establish one Arab kingdom in the Arab parts of Asia would have better chance to be materialized and Kuwait, Iraq, Jordan and the Emirates would have been one country. And Egypt would have been a prosperous industrialized country rather than dependant on remittances from the Gulf States and foreign aid from the West.
Since the end of World War I and the defeat of the Ottoman Empire, the European imperial powers dominated all aspects of the Arab world including its political institutions and recast the role of its economies to be dependent on the colonial masters. Britain that had controlled Egypt since 1882 and converted the Gulf region into a British protectorate, extended its control to Palestine, Iraq and Trans-Jordan; then Britain planted the State of Israel in the Arab lands.
The strategic interest in the petroleum reserves in the Gulf and Mosul areas and the transportation of their oil through pipelines to the Mediterranean must have played an important role in the British policies to divide the area and create Israel. To meet the need for oil to run the newly installed combustion engines of the Royal Navy ships, “the British government formed a special committee, the Petroleum Imperial Policy Committee in 1918 to draw a plan for securing control of adequate world oil resources”, according to the historian Marian Kent. The plan that was later on implemented included the Balfour Declaration and building a modern port in Haifa with a large oil refinery to process the pumped oil from Iraq through the pipeline and facilities to export the refined oil to Britain. They believed then that the whole area east of the Mediterranean was floating on a vast pool of oil.
The politics of the big powers toward the Middle East since the twentieth century have always been for oil. For almost 100 years, the British, then the US, have declared wars, dispatched navy armadas, stationed troops, created, installed and supported friendly states and regimes and toppled others to secure the region’s oil.
Threat to oil sources by Iran nationalism in the 1950s and since the establishment of its Islamic Republic, and Iraq under Saddam Hussein in the 1990s brought the two Middle East states into conflict with the US. The false pretexts used by the US and Britain to wage war against Iraq in 2003 suggests that oil was the only reason behind the decision to invade it. Iraq had large reserves of oil and “the US was afraid that Saddam, who looked upon himself as the defender of the Arab political order, would control OPEC and turn it into a bona fide well-disciplined cartel.”
With the rising demand for the Arab only commodity by the international community, Arab countries became peripheries for the industrial countries which buy their crude oil and defend their national boundaries and territorial integrity. Middle East oil has undermined Arab independence, created a consuming culture of imported luxury goods, limited the economies of the Arab oil producing countries and their neighboring Arab states, and undermined their political and social development.
Oil created the APC political economy of dependency; it rendered them as a market for the military-industrial complex weapons that gave them false feeling of security. US officials declared in many occasions that military equipment sales to the Gulf States and even to Egypt “serve the interest of Israel and the US”. Arab nations that bought fighter airplanes had to abide by certain conditions that compromise their sovereignty over their own territories regarding the positioning and operation of the fighters. The US has the option of not providing spare parts should the buyers ignore the US stipulation, according to Abbas Alnasrawi. The AWACS intelligence-gathering airplanes that Saudi Arabia bought in the 1980s for six billion dollars had to be operated only by US personnel.
Another problem the Arab countries have to contend with in the post-oil-discovery period is the lack of industrial economy. A sustained competitive industrial development in the Arab world has lagged behind other developing countries. The most striking example is Egypt which had been the most developed Arab country since the nineteenth century. Forced peacetime industrialization in Egypt started in the first half of the nineteenth century when Muhammed Ali, the titular ruler of Egypt, tried to establish it as a powerful industrialized European-style state. Egypt had a college of engineering in early nineteenth century long time before India had a technical college, and Cairo University was officially established in 1908.
Industrialization is not a goal by itself, but it is a means for development that produces quality products demanded by the public at competitive price, provides employment to the work force and the necessary research facilities to continue productivity improvement. It requires planning, capital, trained labor, managerial skills, domestic and foreign markets, diversification as a means of compensating for the spent assets, and political stability for long-term industrial planning and for creating conditions conducive to attracting foreign investment.
The generations that governed Arab countries in the second-half of the last century were influenced by Pan-Arab nationalism, oil and the establishment of Israel. The alliance between middle class socialists and military officers in Egypt, Syria and Iraq adopted the development of Third World socialist policies and the Soviet Union management style where the inefficient public sector rather than the private sector was entrusted to accomplish their goals. It produced import substitute products that were sold locally and exported only to the Communist Block countries. Since the collapse of the Soviet Union, Arab products lost their markets in the Eastern block and could not establish markets in the West due to generally inferior quality of their goods. Arab regimes in these countries have rejected communism but failed to embrace real free-market economy in their major industries. Even the renowned Egyptian textile industry could not compete with the European and Japanese imports. Arab states failed to reform their industries including the agribusiness to meet the growing demand for food by their own people because of the structural constraints that had been inherited from their former centralized economy. Arab states are known for their cumbersome bureaucracy which controls many sectors of society and obstructs change and development.
The existing economic system in the Arab states can hardly be described as a real capitalist. The actual investment in the nonoil producing states has been mostly for importing consumer goods including those sought by the returning expatriates, commissions and accumulating profit by few rather than productive enterprises that may contribute to any tangible industrialization effort. The lack of sound management led to the spread of corruption and increased the gap between the rich and the poor.
If all Arab countries were considered collectively as one integrated economic base with population that exceeds 200 million and area larger than the US, their substantial needs for long-term development investment can be met by the oil revenues of the thinly populated states. Nonoil producing countries that rely on industry, agriculture and services have more diversified economies and manpower than those of oil-producing countries. Saudi Arabia failed to diversify by inviting foreign firms with experience in high technology to establish projects in the kingdom. The problem they faced was lack of Saudi labor force. They would have to depend on foreign labor, and with the high standards of living in Saudi Arabia due to the oil economy, using foreign labor would be too costly to develop competitive products. The salaries and the cost of accommodating foreign skilled and middle management personnel are outrageously high.
The oil economy attracted millions of skilled and unskilled workers from other Arab countries to attend to service and bureaucratic jobs that the indigenous natives do not have the skills or the desire to perform. The magnitude of the worker migration from nonoil states to the APC has significant impact on their economies. The migrants include teachers, medical doctors, engineers, architects, lab technicians, nurses, administrators, gardeners, machine operators, cooks, domestics and nannies. Egypt is an example. More than three million Egyptians have been employed in the APC countries at any time since 1973 except during the official censure of Egypt in the 1980s. Their remittances have become a major component of the Egyptian GNP, but the brain drain due to the migration of the millions of teachers, physicians and engineers means loss to Egypt’s human resources.
The complete dependency of the APC on the oil revenue and the increased derivative dependency of the nonoil countries on repatriates’ remittances from the oil states have precluded both groups from developing strong diversified economies.
Egyptian, Syrian, Jordanian, Lebanese and Sudanese engineers and architects helped building Gulf States cities, the most modern cities in the world, while the declining infrastructures in their countries need renovation and modernization. Their agronomists developed desert farming and irrigation in the Gulf States but they never had the opportunity to reclaim lands back home in their states. Thousands of Arab technical experts who were trained and excelled in the West and could not find market for their skills in Cairo, Damascus, Amman, Beirut or Jeddah are working in Canada, Texas, Washington State and California Silicon Valley high tech industry.
The flow of the remittances established a culture of consumption that demands products which cannot be supplied by the local economy. The migrant workers have been exposed to higher standards of living in the host countries and tried to maintain the same pattern of luxury consumption when returning back to their own countries. This meant more demand for more imported consumer durable and nondurable goods which impacted their countries’ foreign trade balance of payment, increased the external debt and worsened their economic conditions.
The APC overseas investment in the form of fixed interest bonds, direct investment in industry and property, portfolio investments, bank deposits in the oil consuming Western countries has become the destination for the APC surplus capital. The concentration of the petrodollar investment in the West forced the APC to have limited control over their wealth. During the US painful 1980-1986 recession, “the OPEC countries combined oil revenue declined from $287 billion to $77 billion.” Oil price dropped in 1991-92 and 2008 recessions. The 2008 financial meltdown caused by US banks deceptively mortgage investment has cost the APC economy untold billions of dollars.
The dependency on oil by both oil and nonoil producing countries led the Arabs to neglect the industrial and agricultural sectors, and became increasingly dependent in their growth, stability, defense and national causes on the policies of the US and Western Europe. It is the curse of the Arab-oil and the mismanagement of the Arab elites!
– Hasan Afif El-Hasan, Ph.D. is a political analyst. His latest book, Is the Two-State Solution Already Dead? (Algora Publishing, New York), now available on Amazon.com. He contributed this article to PalestineChronicle.com.