IN THE PARLANCE of the oil industry, a giant oil field is called an “elephant.” And by the early 1950s, the tally of elephants discovered in the Middle East was lengthening rapidly. In 1953, the geologist Everette DeGolyer wrote to a friend, the chief geologist of the Iraq Petroleum Company, F. E. Wellings, whose company had just found three elephants in three successive months. “The Middle East,” said DeGolyer, “is rapidly getting into a condition which has been almost chronic in the United States since the earliest days of the industry, that is, the problem becomes market rather than production.” He added that his firm of DeGolyer and McNaughton, the leading petroleum engineers of the day, was just finishing a secret study for the Saudi Arabian government of its reserves. Much had been learned about that country’s oil resources since 1943, when DeGolyer had made his first trip to Saudi Arabia at the behest of Harold Ickes. DeGolyer knew that the reported reserves in the new study would far dwarf the preliminary estimate he had made a decade earlier. Though the results would not be “altogether too astronomic figures,” he told Wellings, “they are so great that adding a billion barrels or so makes no real difference in the oil available.”1
The oil industry had clearly entered a new era when a billion barrels or so no longer made much difference. From the early 1950s to the end of the 1960s, the world oil market was dominated by extraordinarily rapid growth, a tremendous surge that, like a powerful and somewhat frightening undertow, swept everyone in the industry forward with its seemingly irresistible force. Consumption grew at a pace that simply would not have been conceivable at the beginning of the postwar era. Yet, as rapidly as it grew, the availability of supplies grew even more swiftly.
The increase in free world crude oil production was gargantuan: from 8.7 million barrels per day in 1948 to 42 million barrels per day in 1972. While U.S. production had grown 5.5 to 9.5 million barrels per day, America’s share of total world production had slipped from 64 percent to 22 percent. The reason for the percentage decline was the extraordinary shift to the Middle East, where production had grown from 1.1 million barrels per day to 18.2 million barrels per day—a 1,500 percent increase!
Even more dramatic was the shift in proven oil reserves—that is, oil in a particular reservoir that, with some confidence, people knew about and that could be produced economically. Proven world oil reserves in the noncommunist world increased from 62 billion barrels in 1948 to 534 billion barrels in 1972, almost a ninefold rise. American reserves had grown from 21 billion barrels in 1948 to 38 billion barrels by 1972. But their statistical significance had shrunk, from 34 percent of total world reserves to a mere 7 percent. While major growth was being registered in Africa, by far the most staggering part of the increase was in the new center of gravity, the Middle East, whose reserves had increased from 28 billion barrels to 367 billion barrels. Out of every ten barrels added to free world oil reserves between 1948 and 1972, more than seven were found in the Middle East. What these enormous numbers meant was that, as fast as the world was using oil, it was even more quickly adding new reserves. In 1950, the industry estimated that, with current proven reserves at current rates of production, the world had enough oil to last nineteen years. By 1972, after all the years of rapid growth, of the intoxicating increase in consumption and the pell-mell pace of production, the estimated reserve life was thirty-five years.2
The sheer abundance of Middle Eastern “elephants” led inevitably both to vigorous efforts by new players to get into the game and to fierce competition for markets, a nonstop battle in which price cuts were the most potent weapon. To the companies, such price cuts were necessary business decisions. But they proved to be highly flammable tinder thrown onto the pyre of nationalism in the oil-producing countries—already ablaze, in the Middle East, because of Nasser’s victory at Suez.
The postwar petroleum order rested on two foundations. One was composed of the great oil deals of the 1940s, which had established the basic relationships among companies operating in the Middle East. These arrangements mobilized the resources required for the rapid development of the petroleum reserves, tied production to the refining and marketing systems required by the scale of reserves, and developed and secured the much larger demand that was required. The second foundation was composed of the concessional and contractual relationships between the companies and the governments of the oil-producing countries, at the heart of which was the hard-won fifty-fifty profit-sharing arrangement. On those two bases, it was hoped, relative stability would be built.
Fearing what might otherwise follow, neither major oil companies nor the governments of the consuming nations wanted to budge from the fifty-fifty principle. As the Middle East Oil Committee of the British Cabinet Office said in late 1954, “A reasonable basis has now been reached for a partnership between the oil companies and the Middle East Governments…. Any further encroachment by the Middle East Governments…would seriously damage our oil supply system.” But for the governments of the producing countries, it was quite a different matter. Why not increase their revenues if they could, so long as they did not irrevocably alienate the companies and Washington and London?
So, certainly, thought the Shah of Iran. By the mid-1950s, the days were past when he worried aloud whether he was a mouse or a man. He had already taken to declaring in private, “It was Iran’s destiny to become a great power.” To satisfy his ambition and appetite, he wanted more oil income. And he wanted to pursue a policy of greater independence in oil, thus reducing and restricting the power of the consortium of companies that had been one of the results of his humiliating struggle with Mossadegh. But he could not afford to upset the basic foreign relations and security of Iran. He needed an interlocutor. But such a person could not be from the ranks of the majors, nor from among the prominent American independents, almost all of which had enrolled in the consortium. Who else?
A European, an Italian who had his own oil agenda—Enrico Mattei.3
A New Napoleon
At a time when the major companies had become large bureaucracies, too large and complex and well established to reflect the image of any single man, Enrico Mattei was determined to create a new major, Italy’s state-owned AGIP, that would be very much cast in his own image. He was a bold swashbuckler, a condottiere, a throwback to the earlier days of Napoleonic entrepreneurs. The stocky hawk-featured Mattei had the look of a fervent but worldly Jesuit of the sixteenth century. His dark, somber eyes were set under high, arching eyebrows; his thin hair was combed straight back. He was willful, ingenious, manipulative, and suspicious. He had a talent for improvisation, and a propensity for gambling and taking risks, combined with a steely commitment to his basic objective, which was to obtain for Italy and AGIP, and Enrico Mattei, a place in the sun.
The unruly son of a policeman from northern Italy, Mattei had left school at age fourteen to go to work in a furniture factory. By his early thirties, he was running his own chemical plant in Milan, and there during World War II he became a partisan leader (of the Christian Democrats). At the end of the war, his managerial and political skills led to his being entrusted with running the remnants of AGIP in northern Italy. AGIP—Azienda Generali Italiana Petroli—was, at that point, slightly less than two decades old. Italy, following the example of France in the 1920s, had set out to create a state-owned refining company, a national champion, to compete with the international companies. By the mid-1930s, AGIP had attained a market share in Italy roughly commensurate with Esso and Shell. But outside Italy it counted not at all. With a great burst of energy and a masterly grasp of politics, Italian-style, Mattei set about to turn AGIP into a much greater enterprise. Yet this could not be done without cash, and postwar Italy was a cash-starved country. The requisite money was found in the Po Valley, in northern Italy, with the discovery and development of significant reserves of natural gas, which generated the high earnings to fund both AGIP’s expansion in Italy and its ambitions overseas.
In 1953, Mattei took a major step toward the realization of his ambitions when the various state hydrocarbon companies were gathered into a new entity, ENI—Ente Nazionale Idrocarburi—a sprawling conglomerate, with a total of thirty-six subsidiaries ranging from crude oil and tankers and gasoline stations to real estate, hotels, toll highways, and soaps. Though there was meant to be government influence over ENI, the various operating companies (AGIP for oil, the pipeline company SNAM, and a number of others) were to be run somewhat autonomously, as commercial entities. Still, the president of ENI and, coincidentally, the presidents or managing directors of AGIP and all the other operating companies were one and the same, Enrico Mattei. “For the first time in the economic history of Italy,” the United States embassy in Rome reported with some wonder in 1954, a government-owned entity in Italy “has found itself in the unique position of being financially solvent, capably led, and responsible to no one other than its leader.” ENI’s future would be profoundly shaped, the report continued, by “the limitless ambition evidenced in the person of Enrico Mattei.”
Mattei himself became a popular hero, the most visible man in the country. He embodied great visions for postwar Italy: antifascism, the resurrection and rebuilding of the nation, and the emergence of the “new man” who had made it himself, without the old boy network. He also promised Italians their own secure supply of oil. Italy was a resource-poor country that was not only very conscious of its shortages but also blamed many of its woes, including its military reverses, on them. Now, with Mattei, these problems, at least in the energy realm, were to be solved. He appealed to national pride and knew how to capture the imagination of the public. Along the roads and autostradas of Italy, AGIP built new gas stations that were larger, more attractive, and more commodious than those of the international competitors. They even had restaurants.
Mattei soon became, it was said, the most powerful man in Italy. ENI owned the newspaper Il Giorno, subsidized several others from the right to the far left, and financed the Christian Democrats, as well as politicians of other parties. Mattei did not particularly like politicians, but he would use them to whatever extent was necessary. “To deal with a government,” he would complain, “is like sucking needles.” Mattei spoke a clipped, prosaic, rough-hewn Italian that compared poorly to the eloquence and rhetoric of Italian politics. Still, he was magnetic, potently charming, and persuasive, with a combination of intense emotion and sincerity, and all of it backed up by a driving, volcanic, irresistible energy. Many years later, one of his aides would recall, “Anybody who worked with him would go into the fire for him, although you couldn’t really explain why.”
As ENI grew, so it appeared, so did Mattei’s sense of himself, which sometimes worked against him. Once Mattei came to London for a lunch date with John Loudon, the senior managing director of Royal Dutch/Shell. Here was the old and the new, the establishment and the parvenu. Loudon’s father, Hugo, had been one of the founders of Royal Dutch/Shell; and by midcentury, his tall, aristocratic son was not only the outstanding corporate leader of international oil, but its leading diplomat as well. He was also a shrewd judge of character. At this point, Mattei badly wanted something that Shell was not particularly willing to give. That was the reason for the lunch date. “Mattei was a very difficult man,” Loudon recalled. “He was also intensely vain.” At least that was how he seemed to Loudon and his colleagues at Shell. So Loudon, at the start of the meal, asked Mattei with apparent innocence how he had gotten into the oil business. Mattei, no doubt flattered to be taken so seriously at the heart of a major, thereupon talked nonstop through virtually the entire lunch, with no further prompting, telling the whole story of his life. “Finally, when we went to dessert, he asked us for something,” said Loudon. “We couldn’t do it, and that was the end of the conversation.” It was not, however, the last he would hear from Enrico Mattei.4
Mattei’s Greatest Battle
Mattei’s overriding objective was to ensure that ENI—and Italy—had its own international petroleum supply, independent of the “Anglo-Saxon” companies. He wanted to share in the rents of Middle Eastern crude. He loudly and continually attacked the “cartel,” as he called the major companies, and he was credited with coining the term “Sette Sorrelle,” the Seven Sisters, in derisive reference to their close association and multiple joint ventures. The “Seven Sisters” included the four Aramco partners—Jersey (Exxon), Socony-Vacuum (Mobil), Standard of California (Chevron), and Texaco—plus Gulf, Royal Dutch/Shell, and British Petroleum, which were tied together in Kuwait. (In 1954, Anglo-Iranian, taking up the name of the subsidiary it had acquired in World War I, had rechristened itself British Petroleum). Actually there was an eighth sister, the French national champion, CFP, which was in both the Iranian consortium, with the Seven Sisters, and the Iraq Petroleum Company, along with Jersey, Socony, British Petroleum, and Royal Dutch/Shell. But since CFP did not fit under the rubric of “Anglo-Saxon,” Mattei conveniently dropped it. His real complaint against this exclusive club of major companies was not its existence, but rather that he was not in it.
Mattei certainly tried to win membership. He believed that, because of his scrupulous cooperation with the embargo instituted by the majors against Iranian oil after Mossadegh’s nationalization, he had earned a place in the Iranian consortium that the companies and the British and American governments fashioned after the fall of Mossadegh. Because of their membership in the Iraq Production Company, the French were invited into this new Iranian consortium. Because of American antitrust concerns, the nine independent American companies were shoehorned in too, though they had for the most part no foreign interests and no real need to produce in Iran. But Italy, which had hardly any resources and was so dependent upon the Middle East, was excluded. Mattei was furious. He would look for his opportunity—and for his revenge.
He found both when the 1956 Suez Crisis put the established oil companies on the defensive and made clear the degree to which British power and influence were in retreat in the Middle East. That meant a vacuum, which Mattei would step forward to fill. And in his own anticolonial rhetoric and his attacks on “imperialism,” he was a fair match for the nationalistic fervor of the exporting countries.5
Mattei began talking seriously to Iran and to the Shah. If the majors had become expert at corporate intermarriages through their joint ventures, Mattei would go them one better: Thinking dynastically in his quest for Italian access to Iranian oil, he floated the idea of marrying off an Italian princess to the Shah, who was in urgent need of a male heir. The Shah was also in urgent need of a larger share of oil revenues than he obtained from the consortium. One of the legacies of Mossadegh, nationalization, gave the Shah comparative flexibility. In the other oil-producing countries, the concessionaires—the foreign companies—still owned the reserves in the ground. By contrast, the government owned all the oil resources in Iran, and the Shah was no less committed than Mossadegh to control of the country’s petroleum resources.
Mattei took advantage of that situation, and over the spring and summer of 1957 he moved to hammer out a wholly unprecedented arrangement with Iran, one that took into account both Iran’s new position and the Shah’s ambitions. The Shah personally championed and pushed the deal through his government, under the terms of which the National Iranian Oil Company would be ENI’s partner as well as its landlord. That meant, in practice, that Iran would get 75 percent of the profits to ENI’s 25 percent—breaking the treasured fifty-fifty arrangement. As J. Paul Getty and others had already found, it cost more to get into the game when you were a latecomer.
As the proposed terms of the new deal between the Shah and Mattei leaked out, they greatly perturbed much of the rest of the oil world. The companies already established in Iran and the Middle East were appalled, as were the American and British governments. What did Mattei want? Why was he doing this? Some wondered if the new agreement was merely “a form of blackmail destined to secure Italian admission to the Consortium.” Certainly, Mattei was not embarrassed to suggest that he was willing to be bought off. Just small pieces, he murmured, say 5 percent of the Iranian consortium and 10 percent of Aramco. The companies were shocked by the boldness of his demands. Enrico Mattei did not come cheap.6
Thought was given to trying to work with Mattei. “The Italians are determined somehow or other to muscle in on Middle East oil,” said one British official in March of 1957. “My personal view, which I am sure would not be kindly regarded by the oil companies, is that B.P. and Shell and the Americans would be wise to consider whether it might not be a lesser evil to find room for the Italians than to give them cause to run amok in the Middle East.” That was, however, a decidedly minority opinion, and one roundly condemned. “Signor Mattei is an unreliable person,” said another official. “I doubt if we want to add to his megalomania by hinting that we come to terms with him.” Indeed, the general view was that Mattei could not be admitted into the consortium, because if he were, then the Belgian company, Petrofina, would soon be knocking at the door, as would various German oil companies, and who knew who else? And, fundamentally, it would be impossible to work with Mattei. All conceivable persuasion had to be applied to try to stop the seventy-five-twenty-five deal.
The Americans and British protested to the Iranian government and to the Shah, warning that upsetting the fifty-fifty principle would “seriously prejudice the stability of the Middle East,” and threaten the security of Europe’s oil supplies. The Secretary General of the Italian Foreign Ministry, resentful of Mattei’s power and independence, advised the British in great confidence, indeed in such secrecy that his remarks were not reported through normal channels, to take a very tough line with Mattei. Any hint of a desire to reach an accommodation with him, even any politeness, said the Secretary General, would be seen by Mattei “as a sign of weakness.”7
All the objections were to no avail. By August 1957 Mattei’s deal had been pretty much done, and there was reason to suspect that he was actually in Tehran. “The Italian Embassy were at first keeping him under close wraps,” reported the British ambassador from Iran. “But we were pretty sure that he was here, so I took on a chance on Saturday evening… and rode my horse over from Gulhak to the Italian summer Embassy at Farmanieh.” Sure enough, the ambassador came upon none other than Enrico Mattei himself, sitting under a tree, relaxing with a whiskey and soda, happily celebrating his victory—for that very day he had signed the agreement with Iran. He was affable and talked very freely. “No mysteries about the AGIP agreement,” Mattei genially said. “Anyway it is all public property now.” He then proceeded to offer a dissertation “on the thesis that the Middle East should now be industrial Europe’s Middle West.” Afterward, the ambassador reflected, with some understatement, that “Mattei certainly uses bold strokes and a big brush on a wide canvas.”
To his own inner circle, Mattei expressed perplexity at the reaction of the majors. “They’ve given us two tiny places in Iran, and everybody makes a great noise.” Of course, he knew why. Yet the partnership between ENI and Iran did not work out very well, not because of the deal itself, but because of the geology. No significant amounts of commercial oil were found in the areas of partnership. So entry into Iran did not fulfill Mattei’s dream of obtaining Italy’s own secure supply. But he did achieve another part of his ambition; the fifty-fifty principle had been pierced, much weakening the foundation on which, he believed, the power of the “Seven Sisters” had rested. “By various verbal acrobatics the Shah and his ministers are trying to maintain a facade of innocence about this and to pretend that it is still intact,” the British embassy in Tehran reported with some resignation in August 1957. “But in fact we all know that 50/50 is about as dead as the four minute mile. And as inevitably.”8
Japan Enters the Middle East
Italy was not the only industrial country seeking its own seat at the Middle Eastern oil table. Japan was acutely oil-sensitive because of both its history and position at the time of almost total dependence on imports as it was beginning its extraordinary economic climb. The Suez Crisis made Japan even more nervous. It, too, wanted its own secure supplies, and several key policy committees, both public and private, were coming to the conclusion that—whatever the diligent efforts to protect the domestic coal industry—imported oil was going to become Japan’s most important fuel. But the flow of oil into Japan was for the most part controlled by the major American and British companies, through their own Japanese subsidiaries, through joint ventures, or by means of long-term contracts with independent Japanese refiners, who had been allowed to start up business again a few years earlier.
In the spring of 1957, just at the time the Suez Crisis was coming to its end and while Mattei was fashioning his new partnership with Iran, it became known that a consortium of Japanese companies was pursuing a concession from the Saudis and Kuwaitis to explore the area offshore from the Neutral Zone. It was a bold maneuver; after all, a powerful group—Shell, British Petroleum, Gulf, and Jersey—was expressing interest in the same area.
The whole idea had emerged in the course of a train ride in Italy, when an employee of the Japan Development Bank happened to run into another Japanese businessman, who mentioned that he had contacts with people who knew about Middle Eastern oil. Back in Japan, the banker reported the conversation to his father, Taro Yamashita, an entrepreneur who had made a fortune before World War II constructing rental homes in Manchuria for the employees of the South Manchurian Railway. After the war, in addition to his business interests in Japan, he also became enormously well-connected politically. Yamashita seized on the idea, put together the consortium—which became known as the Arabian Oil Company—organized the financing, and won the blessing and support of the Japanese government. The entire thing had to be improvised; none of the participating companies had any significant experience in the oil industry.
That lack of experience, however, was not what worried the established companies and the Western governments. Rather, it was that the Japanese, in their eagerness to break in, would commit that cardinal sin—what the British Foreign Office called “a real breach of the 50/50.” To be sure, Mattei’s deal had maintained a fig leaf over the fifty-fifty with rhetoric about “partnership.” If the fifty-fifty could not be kept sacrosanct, at least in principle, what foundation could there be for stable relationships between companies and governments? Yet how else, except by flouting the principle, could a newcomer like the Japanese, lacking the financial strength of the established players, gain entrance to the Middle East?9
The Japanese began their negotiations first with the Saudis, who insisted on various large down payments. But Japan was a very capital-short country, and the Japanese group did not have the wherewithal for such payments. The Saudis then proposed to reduce the required up-front payments if the Japanese would go below 50 percent in their take. After much back and forth, the Japanese agreed to take only 44 percent, leaving the Saudis with 56 percent. In addition, the Saudis would have the right to acquire an equity stake in the company should it strike oil.
When word of the terms spread among the American and British companies, the alarm bells went off. The whole structure of Middle Eastern relations might be threatened. But what could be done? Should London and Washington protest to the Japanese? “The feeling in the Foreign Office is that there is not much to be gained from approaching the Japanese direct,” one official said. “They would be very likely to take such an approach as a hint that they had been rather clever, and the upshot might be that they would conclude their non-50/50 deal amid a great deal of diplomatic apology signifying nothing.”
Could the Japanese government be persuaded to withdraw its support of the project? On the contrary, the Japanese cabinet reconfirmed its endorsement. As for the Saudis, they too were pleased with the arrangement. “An agreement has been reached in principle between us and the company,” King Saud telegraphed to the Amir of Kuwait in early October 1957, adding that the Japanese were awaiting an invitation to Kuwait. “Both of us undoubtedly are keen to protect the interests of both our countries,” the Amir replied, “and hope, God willing, that we will succeed in our endeavor to get in touch with a good firm.” Shortly after, Kuwait also signed with the Arabian Oil Company. Its caution in letting the Saudis go first paid immediate dividends; whereas the Saudis had won 56 percent of the income, the Kuwaitis were able to go one point higher, and won 57. In due course, the Saudis corrected this disparity.
Arabian Oil started drilling offshore in July 1959 and made its first discovery in January 1960, whereupon the Saudi and Kuwaiti governments took up a 10 percent equity share in the company. Since Arabian Oil did not have any outlets of its own, Japan’s Ministry of International Trade and Industry, dubbing it a “national project,” made the Japanese refiners take the oil on a proportional basis. Arabian Oil stood, for some time, as an exception for Japan, which continued to be a country very short of capital as well as of upstream expertise. For the most part, it remained dependent on the system developed in the postwar years, based on supply coming through the hands of the majors. But Arabian Oil did give Japan an independent source of oil and by the mid-1960s was providing almost 15 percent of Japan’s total supply.10
Even the Americans …
Whatever their nationalities, others wanting to enter the Middle Eastern fray would from now on have to pay a higher price and observe the new precedents—even American companies. Standard Oil of Indiana had long regretted that, at the bottom of the Great Depression in 1932, it had sold its Venezuelan production to Jersey. Now, in the late 1950s, Indiana decided that it, too, would have to become part of the great expansionist move of American companies and once again go overseas to seek, as the stockholders were told, “opportunities for profitable operations wherever they may exist.” Staying at home was too risky.
An agreement in principle was swiftly made with Iran in 1958, along the lines of Mattei’s seventy-five-twenty-five joint venture—except that Indiana also had to pay a very large up-front bonus. The Shah had recently divorced his wife for failing to provide him with what he described, in the course of a conversation with one visitor, as “continuity,” which meant a male heir. To the visitor, the Shah seemed, in the aftermath of his divorce, “a man at an emotional crossroads…. We have a man in a sensitive, delicate mood, a lonely man with scarcely one really intimate friend and few relationships, plunging himself still more deeply into his work.” This was a convenient time for the Standard of Indiana deal to be turned into another landmark in the Shah’s quest for status and his struggle against the consortium and the major oil companies. After all, Indiana was no Italian newcomer; it was a well-established, well-respected American company, one of the most prominent, distinguished, and technologically advanced successors to Rockefeller’s Standard Oil. In order to underline the significance of the deal, the Shah personally insisted that Frank Prior, the chairman of Indiana, fly to Tehran for the signing.
The Shah opened their first meeting with a surprising lecture that caught Prior off-balance. “You know—we are not Arabs,” the Shah said. “We are Aryans, and we are the same race as you are, and we have a great history. We have great pride.”
“Oh, yes,” replied Indiana’s chairman, “we know, Your Majesty.”
With the Shah’s pride mollified, the rest of the discussions went very well, and the deal was forthwith signed, to the further outrage of the other oil companies. Unlike ENI, Indiana found a good deal of oil, beginning with a great offshore field south of Kharg Island in the Persian Gulf. To flatter the Shah, it was named for Darius, the ancient Persian King. Soon thereafter, the Shah remarried and his new wife gave birth to a male heir. His “continuity” now seemed assured.11
Nasser Ascendant
The Shah was hardly alone in his campaign of national assertion against the established position of the major oil companies. Throughout the Middle East, nationalism was building to a crescendo, and Nasser was its driving force. Suez had been a great victory for him, proving that a Middle Eastern country could triumph not only against “imperialistic” companies but also against the might of Western governments. He had extirpated the ignominy of Mossadegh’s failure. And now a notable technological innovation, the cheap transistor radio, was carrying his rousing voice to the poor masses throughout the Arab world, making him a hero everywhere.
In 1958, further adding to Nasser’s laurels, Egypt finally bamboozled a reluctant and skeptical Soviet Union into providing the funding to build the Aswan Dam. In the same year, in a great symbol of Nasser’s appeal, Syria joined Egypt to form the United Arab Republic, seemingly the first step in the realization of his dream of pan-Arabism. The apparent merger, ominously, brought together the two countries which—with the Suez Canal in Egypt and the Saudi and Iraqi pipelines passing through Syria—dominated the transit routes for Middle Eastern petroleum. Nasser was, at least theoretically, in a position to threaten single-handedly or actually even to choke off most of that supply. In order to counter what the British ambassador to Iraq called Nasser’s “stranglehold,” discussions ensued about quickly building Iraqi pipelines to the Persian Gulf as well as an export terminal at Fao, on the Gulf. But then the situation in the region, and in Iraq itself, went from bad to what seemed a total disaster.
For three years, Nasser had been conducting a virulent propaganda war against Iraq and the Hashemites, the British-backed Royal Family that had been installed by Great Britain on a newly created throne in Baghdad after World War I. In July 1958, officers plotting a coup told their troops the far-fetched story that they had been ordered to march to Israel and surrender their weapons. That was sufficient to get the soldiers to support a rebellion. The coup that followed set off an explosion of violence and savagery. Crowds surged through the streets, holding aloft huge photographs of Nasser, along with live squirming dogs, which represented the Iraqi Royal Family. King Faisal II himself was beheaded by troops that stormed the palace. The Crown Prince was shot, and his hands and feet were hacked off and carried on spikes through the city. His mutilated body, along with those of a number of other officials, was dragged through the streets, and then hung from a balcony at the Ministry of Defense. The pro-Western Prime Minister, Nuri es-Said, was recognized as he tried to flee the city, apparently disguised as a woman, and was lynched on the spot by a mob. His body, too, was hauled through the streets, and then a car was driven back and forth over it until it was flattened almost beyond recognition.
The new government in Baghdad immediately demanded vast revisions in the far-flung concession of the Iraq Petroleum Company. The grisly coup in Baghdad sent shudders through almost all the governments in the region; Nasserism seemed destined to reign supreme in the Middle East.12
Oil was a central focus of the rising Arab nationalism. Since the early 1950s, a number of meetings and contacts among what were semi-officially called “Arab Oil Experts” had been taking place in the Middle East. Initially, the dominant subject had been economic warfare against Israel: the establishment of an oil blockade against the new state and its enforcement upon the international companies through the threat of blacklist, harassment, and expropriation. Over time, however, the agenda broadened. Though Egypt was not an oil exporter, Nasser used such meetings to involve himself directly in petroleum politics. He sought to arouse and shape public opinion, hammering on the issues of sovereignty and the struggle against “colonialism,” and to assert his influence over the oil, and the countries, of the Gulf. It was a case of a “have not” seeking to better his position with the wherewithal of the “haves.” At a conclave of Arab Oil Experts in Egypt, in the spring of 1957, the delegates proposed the building up of domestic refining capacity and the establishment of an Arab tanker fleet and an Arab pipeline to the Mediterranean. They also discussed creating an Arab “international body” or “international consortium” that would manage Middle Eastern oil production, increase revenues, and counterbalance the power of the petroleum companies. The group emphasized the need to build up Arab expertise and technical skills in order to challenge their mystique.
The targets of the strong spirit of nationalism and confrontation at that meeting extended beyond the majors to the Western nations themselves. Oil, declared Abdullah Tariki of Saudi Arabia, is “the strongest of weapons the Arabs wield.” And as if to celebrate the growing awareness of their power, the delegates took time out to observe and celebrate the passage of the first tanker through the Suez Canal after its reopening under unchallenged Egyptian control. The ship carried oil from the Neutral Zone for J. Paul Getty.13
Yet the talk among the delegates about a consortium or organization of oil-exporting states remained inchoate, still too much concerned with the Arab world alone. To become a reality it would require participation by other major producers, particularly Venezuela and Iran. And it would further require the catalytic role of one man, Juan Pablo Pérez Alfonzo.
Juan Pablo Pérez Alfonzo
In 1948, shortly after codifying the fifty-fifty principle, the new democratic government in Venezuela had been overthrown by a military coup, and control passed to the brutal, corrupt dictatorship of Colonel Marcos Pérez Jiménez. Under his regime, oil production advanced at a very rapid pace, doubling by 1957. Support for Pérez Jiménez drained away, and his regime collapsed in January 1958, making way for a return to democracy in Venezuela. Many of the leaders of the new government had been prominent figures in the democratic government of the 1940s and, subsequently, veterans of exile and Pérez Jiménez’s jails. The new President was Romulo Betancourt, who had been head of the 1945 revolutionary junta. During his years in exile, he had been not only an eloquent opponent of Pérez Jiménez, but also a passionate critic of the international oil companies, whose “close identification with the dictatorship,” he said, had turned Venezuela into a “petroleum factory” that represented a throwback to the dark days of the Gómez dictatorship.
Yet Betancourt and his colleagues had learned the lessons of the coup of 1948: the need to maintain coalitions and unity across the democratic political spectrum and not to alienate other parties and interests. In the first years, the new government had to contend with assaults from both the right and the left, including communist guerillas. There was much anti-American sentiment in the country because of the friendliness shown to Pérez Jiménez by the Eisenhower Administration. Indeed, visiting the country in 1958, Vice-President Richard Nixon came close to being hurt or even killed when an enraged mob attacked his motorcade as it made its way into Caracas from the airport. In 1960, Betancourt himself was badly burned when his car was bombed in an assassination attempt. With the coup of 1948 all too vivid in his mind, Betancourt proceeded with caution. However much he may have denounced the oil companies, he needed them. As he said, he and his colleagues were “not impractical romantics.” The man to whom Betancourt turned, when it came to oil, was Juan Pablo Pérez Alfonzo. Though Pérez Alfonzo, too, was a realist, and indeed a careful and pragmatic analyst, he was also an austere, self-sufficient moralist, with the fervor not of the politician, but of the intellectual. “He was a man of iron determination,” said one Venezuelan who worked with him, “and yet soft-spoken and almost monastic.”
Born to a well-to-do Caracas family, Pérez Alfonzo had studied medicine at Johns Hopkins University in Baltimore and then came back to Caracas, where he studied law. But then the family lost its money, and immense burdens fell on Pérez Alfonzo, for as, the oldest son, he found himself responsible for his 10 brothers. The whole experience profoundly shook him; and a commitment to conservation and planning thereafter became part of his character. Already a nonconformist of stern judgments when he married in 1932, he refused to have the ceremony performed by a certain judge in Caracas whom he regarded as incompetent and corrupt. Instead, Pérez Alfonzo and his wife went out to the countryside and found a local judge to marry them. After the end of the Gómez regime, Pérez Alfonzo, working in concert with Betancourt, emerged as the opposition’s expert on the oil industry in the Chamber of Deputies. From 1945 on, first in the revolutionary junta and then in the democratic government, he was Minister of Development. As such, he set about repairing what he saw as the inadequacies of the 1943 law, to assure that Venezuela really got 50 percent of the profits, as well as greater control over the industry.
In November 1948 Pérez Alfonzo received a phone call from the United States ambassador in Caracas. A coup was in motion, said the ambassador, and he wanted to offer Pérez Alfonzo the hospitality of the embassy. Pérez Alfonzo thought it over, said no, he would take his chances, and went home for lunch, to wait. He was arrested and, regarded as a gray eminence of the democratic government, was thrown into jail. He would later joke to his family that he had been working too hard as minister, and that jail was like a holiday, an opportunity for him to rest. But, in fact, it was no joke; he was treated harshly and spent some of the time in solitary confinement.
Finally, he was allowed to go into exile, and he left the country, disgusted with day-to-day politics, and promising his family that he would never go back into active public life. He found refuge first in the Wesley Heights section of Washington, D.C., where he and his family scraped by on the rents they received from their house in Caracas. He wrote articles for exile newspapers and took up woodworking, but more than anything else, he devoted himself to the study of the oil industry. He was a regular reader at the Library of Congress. He carefully perused the gamut of American magazines to which he subscribed, from Forbes and Fortune to The Nation and Oil and Gas Journal. And he devoted considerable time to the study of an institution that particularly fascinated him—the Texas Railroad Commission, the agency that had begun regulating oil production in Texas, and thus in the nation, in the early 1930s, during the darkest days of ten-cent-a-barrel oil. After several years of exile in Washington, Pérez Alfonzo ran short of money, and he and his family moved to Mexico City. Another reason for the move was his worry that his children would become too Americanized to return comfortably to Venezuela—assuming that day would ever come.
The day came in 1958, when the dictatorship toppled. Pérez Alfonzo’s wife begged him not to go back into government. But Betancourt insisted that he return to Caracas to take up the position of Minister of Mines and Hydrocarbons, which Pérez Alfonzo did. He was struck by how much more affluent the Caracas of 1958, buoyed by oil earnings, looked than the Caracas he had fled a decade earlier. His response was not altogether favorable. Oil wealth, he believed, was the gift of nature and politics, and not of hard work, and he soon found a perfect symbol for what he saw as its pernicious consequences. While still in exile in Mexico, the family had managed to get the money together to buy a 1950 Singer, a British motorcar that looked rather like an MG. Pérez Alfonzo treasured the car; it was one of his very few indulgences. When he came back to Venezuela, he arranged to have the Singer shipped after him. The car arrived at the docks, where it sat for two months, rusting away; no one bothered to tell Pérez Alfonzo that it was there. At last, hearing of its arrival, Pérez Alfonzo sent a mechanic down to the harbor to drive the car up to Caracas. Along the way, it broke down. The mechanic had forgotten to check the oil, and it turned out that there had been no oil in the engine. The car could no longer be driven at all; the engine was completely burned out. A truck had to be sent for it. Eventually, it was delivered to his villa in the suburbs. But the corrosion had eaten through the car. Pérez Alfonzo viewed it all like a sign from heaven; he had the car installed near a ping-pong table in his garden, as a corroded, overgrown shrine and symbol of what he saw as the dangers of oil wealth for a nation—laziness, the spirit of not caring, the commitment to buying and consuming and wasting.
Pérez Alfonzo had vowed never to allow himself to be seduced by the trappings of power, and once back in office, he kept to a simple, disciplined, and parsimonious life. He carried his own sardine sandwiches to the office for lunch. He also brought to his new office a sophisticated understanding of the structure of the oil industry as well as his own clearly defined objectives. He wanted not only to increase the government’s share of the rents, but also to effect a transfer to the government, and away from the oil companies, of power and authority over production and marketing. To sell oil too cheaply, he argued, was bad for consumers, as the result would be the premature exhaustion of a nonrenewable resource and the discouragement of new development. For the producing countries, oil was a national heritage, the benefits of which belonged to future generations as well as to the present. Neither the resource nor the wealth that flowed from it should be wasted. Instead, the earnings should be used to develop the country more widely. Sovereign governments, rather than foreign corporations, should make the basic decisions about the production and disposition of their petroleum. Human nature should not be allowed to squander the potential of this precious resource.14
Yet Pérez Alfonzo was also motivated by shrewd commercial judgment. He knew that while Venezuela had a kinship with the oil-producing nations of the Middle East, those nations were also dangerous competitors. Venezuela was a relatively high-cost producer, at about eighty cents a barrel, according to one estimate, compared to twenty cents among the Persian Gulf producers. So Venezuela would inevitably be at a disadvantage in an out-and-out production race. It would lose market share. Venezuela, thus, had a very good reason to seek to persuade the Middle Eastern producers to raise their taxes on the companies and thus the cost of their oil.
The twist that Pérez Alfonzo introduced to improve Venezuela’s position was based, in effect, on the Texas Railroad Commission, to which he had devoted so much study while in exile. He went so far as to contact the commission and to retain one of its consultants to explicate the mysteries and wonders of prorationing and how to apply it in Venezuela. He also saw that the way to get beyond mere talk with the Middle Eastern producers was by establishing a global alliance modeled on the Texas Railroad Commission. Venezuela could protect its market share not only by helping to raise costs in the Middle East, but also by getting the lower-cost producers to agree to a system of international prorationing and allocation along the lines that had become an art in Texas. The establishment of such a common front would, by regulating production, prevent Venezuela from having its oil industry, its main revenue source, swamped by millions and millions of barrels of cheap Middle Eastern oil.
The Eisenhower Administration’s reluctant decision in early 1959 to put quotas on foreign oil in order to protect domestic producers hit Venezuela harder than any other country, since the United States was the destination of 40 percent of its total exports. Then the United States took an additional step. To placate its immediate neighbors, it provided exceptions to the quota for oil shipped overland—that is, from Canada and Mexico—on grounds of national security. With the World War II “Battle of the Atlantic” in mind, the Eisenhower Administration said that oil shipped overland was more secure because it could not be interdicted by enemy submarines. To the Venezuelans, that was simply a convenient fiction, employed to reduce friction with Canada and Mexico, and they were outraged. “The Americans are throwing us the bones,” Pérez Alfonzo acidly said to one of his aides. Venezuela protested vigorously. After all, it had been the major, reliable supplier during World War II, and it would be a strategic resource in the future, as well. And it was Mexico, not Venezuela, that had nationalized the American oil companies. Why was Venezuela being punished?
Bitterly complaining, Pérez Alfonzo flew to Washington, now no longer a political exile trying to carve out a precarious life, but the Minister of Mines and Hydrocarbons of one of the world’s oil powers. He came with a proposal to create a Western Hemisphere oil system, but one that would be run by the governments, not the oil companies. Under it, Venezuela would, as a nation, be given a quota—a guaranteed share of the U.S. market. No longer would it be the prerogative of the companies to decide from which producing country to bring in petroleum. What Pérez Alfonzo was asking was not so bizarre; after all, he could point out, it was exactly the way the American sugar quota system worked—each country had its share. But, then, oil was not sugar.
The United States government was not interested in Pérez Alfonzo’s proposal; indeed, it did not really ever respond. The new democratic government in Caracas was insulted. And Pérez Alfonzo would seek a more attentive hearing elsewhere—in Cairo.15
The “Red Sheikh”
Abdullah Tariki, a Saudi Arabian, was the son of a camel owner who organized caravans between towns in Saudi Arabia and Kuwait. His father wanted him to follow in the same tracks. But Tariki’s intelligence was noted early, and he was sent off to school in Kuwait. He later spent a dozen years studying in Cairo, where he imbibed the nationalist springs that nourished Nasserism. A scholarship carried him to the University of Texas, where he studied both chemistry and geology, and then he took a job as a trainee geologist with Texaco. His view of America was shaped in Texas, where on several occasions, it was said, he was excluded from bars and other facilities because he was taken for a Mexican. In 1948, he returned to Saudi Arabia, virtually the first of the American-educated Saudi technocrats, and certainly the first Saudi trained in both geology and chemistry. He also had an American wife. In 1955, at age thirty-five, Tariki was appointed to head a newly created Directorate of Oil and Mining Affairs. And, from the beginning, he intended to do more than merely assemble petroleum statistics from Aramco and pass them on to the Royal Family. He created a team of experts, including both an American lawyer and a young Saudi technocrat, Hisham Nazer, and prepared to challenge not only the basis of the Aramco concession but the Western oil companies themselves.
Tariki was an odd combination—not only an ardent supporter of Nasser but also a fervent Arab nationalist critical of the family that had created modern Saudi Arabia, while, at the same time, a servant of that same family in perhaps the single most important economic position in the kingdom. That Tariki, known to some as the “Red Sheikh,” occupied that position, despite his views, resulted from the fact that an internal power struggle was being waged within the Royal Family between King Saud and his younger brother, Faisal. As had been feared in the last years of old Ibn Saud’s life, the erratic King Saud, the eldest son, was getting the country into foreign policy trouble, was proving to be weak and indecisive, and was all too obviously a spendthrift. Faisal, by contrast, was the shrewd, coldly calculating son, the one to whom his father had entrusted the most important diplomatic and political business, beginning with Faisal’s official visit to England at age fourteen. Faisal insisted that the wastrel spending had to be reined in. In contrast to Saud, who preferred to dally with Nasser, Faisal wanted to align with more traditional regimes, and with the United States and the West. With so much attention and energy focused on this power struggle, and in the absence of a single dominating personality, Tariki was able to shape policy with considerable autonomy in an absolutely critical area, the one that happened to generate the kingdom’s entire wealth.
At first, Tariki concentrated on trying to gain control over refining and marketing assets as a means to raise Saudi oil revenues. He wanted to create a Saudi oil company integrated “right down to the service station” in the consuming countries. He would even raise an idea calculated to send a chill down the back of the American majors: the outright nationalization of Aramco. But then, in early 1959, his entire strategy abruptly changed. Control over prices and production, he suddenly decided, was more important than nationalization and integration. The reason for his change of mind was a sudden cut in the price of oil.16
Competitive Pressures
While world oil demand was growing during the 1950s, production capacity was growing still more rapidly. Always in search of higher revenues, the exporting countries, for the most part, sought to gain them by increasing the volume sold, rather than by raising prices. More oil was in search of markets than there were markets for oil. As a result, the companies were forced to offer bigger and bigger discounts on the prices at which they in turn sold their Middle Eastern oil.
Discounting was leading to a crucial divergence in the world oil industry between the “posted” or official price, which was held constant, and the actual market price at which crude was sold, which was dropping. It was the former, the posted price, against which the producing country’s “take”—taxes and royalties—was computed. The posted price was supposed to more or less match the market price, and originally, it had. But, as discounting spread, a gap between the two had appeared and expanded. The posted price could not easily be lowered because of its importance to the revenues of the producing countries. That meant that they continued to take 50 percent of the profits based upon the posted price. But by the late 1950s, that was a fictional price, existing only as a basis for calculating revenues. In fact, the producing countries were taking a higher percentage—perhaps 60 or 70 percent—of the profit realized from the actual price. In other words, the Middle Eastern governments were being kept whole, while the companies absorbed all the effects of the price cuts. The problem of discounting became more acute from 1958 onward. The imposition of the import quotas in the United States closed off, to a considerable degree, the largest oil market in the world to the rapidly rising production outside the United States. As a result, those additional barrels had to fight their way into a less-than-global market.
But there was an even more important reason for the increasing prevalence of discounting: the arrival in the world market of a major new entrant, or rather a reentrant—the Soviet Union. Hardly a dozen years had passed since Stalin had ruminated bitterly on the weaknesses and inadequacies of the Soviet oil industry. But enormous investment and effort had paid off in a rebound that carried the Russian industry far beyond its previous levels of output. The new Volga-Urals area proved to be a bonanza. Between 1955 and 1960, Soviet oil output actually doubled, and by the end of the 1950s, the Soviet Union had displaced Venezuela as the second-largest oil producer in the world, after the United States. Indeed, Soviet output was equal to about three-fifths of the total production in the Middle East.
At first, most of the Soviet production had been consumed within the Soviet bloc. But by 1955, Russia had resumed oil exports to the West on a commercial scale. From 1958 onward, the exports surged and became a major factor in the world market—“a force to be reckoned with in the international petroleum field,” said the Central Intelligence Agency. The Soviet Union was ready to reassume Russia’s nineteenth-century role as a significant supplier to the West. It wanted whatever buyers it could obtain, and it cut prices to get them as part of what became known in Washington as the “Soviet Economic Offensive.” At a Cabinet meeting in 1958, Allen Dulles, director of the CIA, warned, “The free world faces a quite dangerous situation in the Soviet capacity to dislocate established markets.”17
For the oil companies, the one way to meet the challenge and keep the Russians at bay, barring major restrictions by Western governments on the importation of Soviet oil, was the competitive response—price cuts. But the companies faced a dilemma. If only the market price were reduced, then the companies alone would be absorbing the entire cut. Could they dare to cut the posted price as well, so that the producing countries would share the burdens of competing with the Russians?
They did so in early 1959. British Petroleum made the first cut—eighteen cents a barrel, about a 10 percent reduction. Its action instantly set off a torrent of denunciation from the oil exporters. Juan Pablo Pérez Alfonzo was outraged. Abdullah Tariki was furious. With a stroke of the pen, a major oil company had unilaterally slashed the national revenues of the oil producers. The exporters were galvanized into action.
The Arab Oil Congress
For some time, an Arab Oil Congress had been scheduled to open in Cairo in April of 1959. That the meeting was being held there was symbolic of Nasser’s ascendancy over the Arab world. Four hundred people attended the conference, including, of course, Tariki. Juan Pablo Pérez Alfonzo—angry about both BP’s price cut and the restrictions on Venezuelan oil under the new American quotas, and still smarting over the recent summary rejection in Washington of his Western Hemisphere oil scheme—came as an “observer,” accompanied by a Venezuelan delegation that carried texts of the country’s tax laws and other oil legislation translated into Arabic. The one notable absence was that of Iraq. Despite the sway of Nasserite ideology in the Arab world, the new rulers in Baghdad were not disposed to subordinate themselves to Nasser, and very shortly after the bloody coup, Iraq was almost completely at odds with Egypt. As a result, Iraq officially boycotted the Arab Oil Congress because it was being held in Cairo, and because it threatened to give Nasser a decisive say over oil matters.
The attendees sat through a large number of papers that had been planned well in advance, most of them technical. But BP’s price cut on the eve of the conference had transformed the mood, driving the key participants, seething with anger, to seek some common front against such a practice. Worried that there might be talk of nationalization, the major oil companies sent their own observers to the Cairo meeting. But what the representatives saw and heard eased their minds. “Conference can be considered successful insofar as political issues did not get the upper hand,” Michael Hubbard, a British Petroleum representative, assured that company’s chairman. Informal discussions between Arab and Western delegates were conducted, he added, “in an atmosphere which was remarkably friendly. Ignorance of what to western minds are the elementary facts about the oil industry was the main feature of the Congress.” Another BP representative said that the conclave “can be marked off as a ‘plus’ for the oil industry’s future relations with the Arab host countries.”
BP did try some of its own private diplomacy at the meeting. Hubbard reported to the chairman that, through “Miss Wanda Jablonski of Petroleum Week”—who “was active behind the scenes”—he was able to arrange a meeting with Abdullah Tariki. Jablonski assured him “from personal knowledge” that “it was possible to discuss economic facts” with the Saudi Arabian. “Unfortunately,” said Hubbard, “this proved not to be the case and we were subjected to a diatribe on the inequity of oil production in Kuwait with its population of a few hundred thousand growing more rapidly than production in Saudi Arabia with its many millions of under-privileged.” Hubbard added, “It proved quite impossible to establish any point of contact.” (Aramco officials later complained that when the Western oil men began talking with Tariki along the “when you have been in the oil business as long as I have, my boy” line, “they had already done more harm than they possibly could do good.”)18
“Regards to All, Wanda”
But Wanda Jablonski was even busier in Cairo than Hubbard knew. As correspondent of Petroleum Week and, later, editor of Petroleum Intelligence Weekly, she was the most influential oil journalist of her time. Blonde and stylish, she carried the Europeansavoir faire required to get her through all sorts of situations. While she had the resoluteness and independence of Ida Tarbell, she was not a critic of the industry, but rather provided a channel for communication and intelligence in its great years of global expansion. Wisecracking and tough, a solo woman navigating her way through a super-masculine world of engineers and nationalists, she intuitively grasped just how far to go in jousting with and needling her contacts, though always in an engaging way, until she got the story she wanted. She knew virtually everybody of significance in the oil industry. Periodically, over the years, she would infuriate one or another company or country with her scoops; sometimes, companies would cut off their subscriptions en masse, until she shamed them into resubscribing. In the final analysis, no one in a position of power or responsibility in the oil industry could easily do without her journal.
Born in Czechoslovakia, Jablonski was the daughter of a prominent botanist turned geologist who joined a Polish company that eventually became part of Socony-Vacuum, later Mobil. His job was to travel around the world, investigating the geological likelihood that competitive local oil might be discovered in countries where Socony planned to market. As it turned out, Jablonski learned more about plants than about oil from her father; she would be given a penny for every plant she could identify and once earned over a hundred dollars doing so on an auto trip across America. She trailed after her father as he worked around the globe, though often with long separations, and by the time she entered Cornell University, she had already been to school in New Zealand, Egypt, England, Morocco, Germany, Austria, and Texas, and had spent almost a month traveling by camel from Cairo to Jerusalem (and afterward had to be deloused). “I have a different attitude towards the world,” she once said. “I can’t fit in any one spot, except New York.”
In 1956, just after the Suez Crisis, Jablonski made a memorable reporting trip through twelve countries of the Middle East, even wangling an invitation to interview King Saud in Riyadh. “Guess where I spent yesterday evening?” she wrote back to her colleagues in New York. “In the harem of the King of Saudi Arabia! Before you jump to any conclusions, let me hasten to add that I was there …drinking tea (with rose water), eating dinner, and having a perfectly gay ‘hen party.’ …Forget what you’ve seen in the movies, or read in the ‘Arabian Nights.’ None of that fancy, filmy stuff. Just plain, ordinary, warm home and family atmosphere—just like our own, though admittedly on a considerably larger family scale! Regards to all, Wanda.” She did not mention the eunuchs guarding the King’s harem, who looked right through her.
Jablonski met not only King Saud, but also Abdullah Tariki, whom she described as “the No. 1 man to watch in the Middle East—as far as oil concession policies are concerned…he is a young man with a mission.” She quoted at length Tariki’s virulent denunciation of the American oil companies operating in Saudi Arabia. During a second meeting a couple of years later, during which Tariki was no less truculent in his criticism, she also passed on an important piece of information. “There’s another guy who’s just as nuts as you,” she told Tariki. She meant Juan Pablo Pérez Alfonzo, and she promised to bring them together.
In 1959 at the Arab Oil Congress in Cairo, she kept her word and invited Pérez Alfonzo up to her room at the Cairo Hilton for a Coke. There she introduced Abdullah Tariki. “You’re the one I’ve been hearing so many things about,” said Pérez Alfonzo. Now the real business for which Pérez Alfonzo had come to the conference could begin. The two men agreed that they should talk secretly with representatives from the other major exporters. But where? There was a yacht club in Maadi, a suburb of Cairo; it was off-season and the club was virtually deserted. They could reconvene there, unobserved.
The ensuing discussions in Maadi were conducted in such great secrecy and with such extreme precautions that, afterward, the Iranian participant would say, “We met in a James Bond atmosphere.” Those involved, in addition to Pérez Alfonzo and Tariki, included a Kuwaiti; the Iranian, who kept insisting that he was present only as an observer and that he had no mandate to represent his government; and an Iraqi, who, since his country was boycotting the conference, was there in his role as an official of the Arab League. Given all these considerations, they could not make an official accord. But Pérez Alfonzo knew how to sidestep that obstacle; they would make a “Gentlemen’s Agreement,” which would merely contain recommendations to their governments. All signed the agreement without hesitation, with the exception of the Iranian. He was so frightened about acting without authorization from the Shah that he disappeared, and the others had to call upon the Cairo police to find him so that he, too, could affix his signature.
The recommendations in the Gentlemen’s Agreement reflected ideas that Pérez Alfonzo had had in mind before leaving Caracas: that their governments establish an Oil Consultative Commission, that they defend the price structure, and that they establish national oil companies. The governments were also urged to jettison officially the much-treasured fifty-fifty principle—much-treasured, that is, in the West—and move to at least a sixty-forty split in their favor. In addition, they should build up their domestic refining capacity, move downstream, and become more integrated in order to “assure stable markets” for themselves, and thus better protect government revenues. In all its dimensions, the Gentlemen’s Agreement, though secret, was a milestone in the changing dynamics of the petroleum industry. It marked the first real steps toward creating a common front against the oil companies. As for Wanda Jablonski, she was as usual near the center of the action; she had just been the matchmaker for an alliance that would develop into the Organization of Petroleum Exporting Countries—OPEC.19