SHORTLY AFTER 3:00 A.M. Washington time, on November 4, 1979, Elizabeth Ann Swift, the political officer in the United States embassy in Tehran, got through by phone to the Operations Center, the communications nerve point on the seventh floor of the State Department in Washington, D.C. Her words jolted the officials at the Washington end of the line out of the slumberous quiet. It was already midmorning in Tehran, and Swift reported that a large mob of young Iranians had broken into the embassy compound, surrounded the chancery building, and were forcing their way into other buildings. An hour and a half later, Swift was back on the line to say that the attackers had set fire to part of the embassy. Still another half hour later, she reported that some of the invaders had threatened to kill two unarmed Americans just outside the room, that the table and sofa blocking the door had been pulled aside, and that the Iranians had burst into the office, even as the embassy officials desperately continued to try to make contact by phone with someone of authority in the Iranian government. The hands of the Americans were now being tied, Swift continued in a professional, almost matter-of-fact way to the shocked listeners at the other end. “We’re going down” were her last words, before one of the young Iranians, a picture of Khomeini pinned to his shirt, grabbed the phone out of her hand. And then Swift, along with the other Americans, all now blindfolded, was led into captivity. The line remained open for a long time, though no one was there. Then it went dead.
Some sixty-three Americans—the skeleton staff that had remained at the embassy after the personnel had been scaled down from the fourteen hundred officials of the Shah’s time—were taken hostage by a large, rowdy, violent band of zealots who were thereafter known to the world as “students.” Some of the Americans were soon released, leaving fifty in captivity. The Iranian Hostage Crisis had begun, and the Second Oil Shock entered a new phase with an even more dire geopolitical cast.
The specific grievance of the hostage takers focused on Mohammed Pahlavi and America’s relation to him. His father, Reza Shah, had found a place of exile in South Africa. Not so the son, who, in his own exile, turned into a modern version of the Flying Dutchman. He could find refuge in no port and seemed cursed to wander forever. He went to Egypt, to Morocco, to the Bahamas, to Mexico. But no one wanted him to stay; he was a reject, a pariah, a figure to whom very little world sympathy attached, and virtually no government wanted to risk the ire of the unfathomable new Iran. All the courting of a few years earlier, all the flattery, the ingratiation, the respectful premiers and supplicating cabinet ministers from the industrial nations, the bowing and scraping of the powerful around the world—it was as if none of that had ever happened. To make matters worse, cancer and related illnesses were ravaging the Shah’s body. Remarkably, it was only at the end of September 1979, more than eight months after he was forced to leave Iran, that senior American officials first learned that the Shah was seriously ill, and only on October 18 did they discover that it was cancer. Carter had adamantly refused to allow the Shah to enter the United States for medical treatment. But, at last, after months of controversy and acrimony at the highest levels of his Administration, compounded by a vigorous campaign by Henry Kissinger, John McCloy, David Rockefeller, and others, the Shah was admitted. He arrived in New York City on October 23. Though he was checked into the New York Hospital, Cornell Medical Center, under a pseudonym, which just happened to be the real name of U.S. Undersecretary of State David Newsom, to the latter’s discomfort, his presence was immediately known and widely reported.
A few days later, while the Shah was under treatment in New York, Carter’s national security adviser, Zbigniew Brzezinski, was attending the celebration of the twenty-fifth anniversary of the Algerian revolution in Algiers. There he met with the new Iranian Prime Minister, Mehdi Bazargan, and his foreign and defense ministers. The subject of discussion was how the United States might relate to the reborn Iran. The United States, insisted Brzezinski, would not engage in nor support any conspiracies against Iran. Bazargan and his ministers protested the admission of the Shah to the United States. They insisted that Iranian doctors be allowed to examine him, to determine if he was really ill, or if it was only a ruse to disguise a plot.
The news reports of the Algiers meeting, coming on top of the Shah’s arrival in the United States, alarmed Bazargan’s theocratic and more radical rivals, as well as young militant fundamentalists. The Shah was the enemy and the arch-villain. His presence in the United States stoked memories of 1953, of Mossadegh’s fall, of the Shah’s flight to Rome and his triumphant return to the throne, and it aroused fear that the United States was about to stage another coup and again restore the Shah. After all, the Great Satan—the United States—was capable of carrying out the worst abominations. And here was Bazargan trucking with Zbigniew Brzezinski, one of the chief agents of the Great Satan, and a mere week and a half after the Shah’s arrival in New York. For what purpose?
“Death to America”
Thus was provided the impetus, and pretext, for the invasion of the embassy. Perhaps it was only intended, originally, as a sit-in, but it soon turned into an occupation and a mass kidnaping, as well as a bizarre circus, complete with vendors in front of the embassy selling revolutionary tape cassettes, shoes, sweatshirts, hats, and boiled sugar beets. The occupiers even took to answering the embassy phone, “Nest of spies.” It appeared that the Ayatollah Khomeini and his immediate circle had some idea of the planned assault and encouraged it. That they took advantage of it, seizing on the event for their own purposes, was quite clear. They would use the ensuing crisis to dispose of Bazargan and all others with Western and secular taints, to consolidate their own power, to eliminate their opponents, including what Khomeini called “American-loving rotten brains,” and to put in place the elements of the theocratic regime. Until all of that was done, the hostage crisis would grind on for almost fifteen months—444 days, to be precise. Every day, Americans read about “America in Captivity.” Each night, Americans were subjected to the televised spectacle of “America Held Hostage,” including the repetitive chorus of the zealots chanting “Death to America.” Ironically, with its late-night programs on the hostage crisis, ABC finally found a way to compete successfully against Johnny Carson and the Tonight Show.
The hostage crisis transmitted a powerful message: that the shift of power in the world oil market in the 1970s was only part of a larger drama that was taking place in global politics. The United States and the West, it seemed to say, were truly in decline, on the defensive, and, it appeared, unable to do anything to protect their interests, whether economic or political. As Carter succinctly summed matters up two days after the hostage seizure, “They have us by the balls.” Iran was not the only scene of unrest. The hapless United States was under attack by a variety of opponents in the Middle East who wanted to eject the United States from the area. Later in November 1979, a few weeks after the hostage taking, some seven hundred armed fundamentalists, bitterly opposed to the Saudi government and its links to the West, seized the Great Mosque in Mecca, in what was supposed to be the first stage of an uprising. They were dislodged only with difficulty. The larger Saudi uprising never materialized, but the assault did send shock waves through the Islamic world. In early December, there was a Shia protest in al-Hasa, in the heart of the oil region in the eastern part of Saudi Arabia. Then came another dramatic and much larger shock a few weeks later in December. The Soviet Union invaded Afghanistan, Iran’s neighbor to the east, rocking both the Gulf States and the West. Russia, it now seemed to many, was still intent on fulfilling its century-and-a-half-old ambitions to drive toward the Gulf, and was taking advantage of the disarray of the West to position itself to capture as many of the spoils of the Middle East as it could. The bear was also becoming bolder; it was the first large-scale use of Soviet military forces beyond the communist bloc since World War II.
President Carter responded in January 1980 by enunciating what became known as the Carter Doctrine: “Let our position be absolutely clear. An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.” The Carter Doctrine made more explicit what American presidents had been saying as far back as Harry Truman’s pledge to Ibn Saud in 1950. With even more historical resonance, it also bore striking similarities to the Lansdowne Declaration of 1903, by which the British Foreign Secretary of the day had warned off Russia and Germany from the Persian Gulf.
Carter had earned great respect in the oil world in 1977, his first year in the Presidency, as the man who had forced the Shah to bend, to recant his commitment to higher prices. Carter had been the magician who had tamed the Shah and transformed him from a price hawk into a compliant dove. He had engineered the Camp David accords between Israel and Egypt. Now all those achievements were overwhelmed. The Shah was an outcast, the Iranian Revolution had sparked the oil panic of 1979, and Carter’s Presidency continued to be cursed by events in Iran, with Carter himself held hostage, in political terms, by the gang of “student” militants in Tehran.
After the hostages were taken, the dying Shah and his entourage would quickly and apologetically leave the United States, spending their final hours before departure in pathetic isolation in a psychiatric ward, complete with barred windows, on an American Air Force base. They went next to Panama and then back to Egypt, where the wasted Shah finally died in July of 1980, a year and a half after his flight from Tehran. No one really cared. By that point, Mohammed Pahlavi, son of an officer from the Cossack brigade, had become irrelevant to the outcome of the hostage crisis, to the panic in the oil market, and to the international game of nations in which he had once played such a prominent role.1
In the immediate aftermath of the hostage taking, Carter responded by placing an embargo on the importing of Iranian oil into the United States and by freezing Iranian assets. The Iranians counterattacked by prohibiting the exporting of Iranian oil to any American firm. The import ban and the asset freeze were virtually the only tools that Carter had easily at hand. The freezing of assets hurt Iran; the ban on oil imports did not. But it did necessitate a redistribution of supplies around the world, further disrupting supply channels and sending into the spot market more frantic buyers, who helped to bid up the price to new heights. Some cargoes went for forty-five dollars a barrel; the Iranians quoted fifty dollars a barrel for their oil to worried Japanese trading companies. The dislocation amplified the overall nervousness and anxiety in the market that followed the hostage taking, contributing further to the seemingly endless cycles of panic buying and price increases. As an executive from one of the majors remarked rather dryly, four days after the hostage taking, “In this environment companies feel a need for higher stocks than previously considered normal.” The inventory build was, in industry language, “supply protection”—in other words, insurance.
The hostage crisis had even wider ramifications. It served to demonstrate the apparent weakness, even nakedness, of the consuming countries—in particular, of the United States, whose power was the basis of the postwar political and economic order. And it seemed to establish that world mastery really did lie in the hands of the oil exporters. At least that was the appearance. But there were forces at work in the oil market even more powerful than governments. And now it was the turn of the exporters to make fatal miscalculations of their own.
The Bazaar
Rising oil prices had become the object of constant attention by presidents and prime ministers, as well as the fodder of front pages for months. They were also a subject of intense dismay for the leaders of Saudi Arabia. Once again, they were alarmed both by their own loss of control over the market and by the fact that control seemed to have passed into the hands of such militant and uncompromising rivals as Libya and Iran. They thought that the wildly rising prices threatened the world economy with recession, depression, or even ruin, and thus threatened their own well-being. The days in which Saudi Arabia’s economic future was determined by the number of pilgrims who came to Mecca were long since past; now it was the “rates” that mattered to Riyadh—world interest rates, exchange rates, inflation rates, growth rates. The Saudis also feared that their own position would be damaged in another way: that the price increases would destroy consumers’ confidence in oil and, thus, stimulate long-lasting competition to OPEC oil, as well as large-scale development of alternative fuels. That would be particularly threatening to a country with huge oil reserves, the life of which would extend far into the twenty-first century.
The Saudis responded to the predicament with jawboning: Yamani became more of a hawk on the need for conservation to blunt price increases than almost any Western leader. The Saudis tried to hold down their own official prices, even if that meant leaving money on the table, at least compared to the prices that the other exporters were exacting. They also sought to counteract rising prices by continuing to push their own production up. Their objective was straightforward: to use the growing weight of excess supply to force prices down. But the effects were not quickly felt. “We’re losing control over everything,” Yamani had plaintively declared in mid-October 1979, after further Libyan and Iranian price hikes. “We feel so unhappy. We don’t like to see it happening like this.” Then, a few weeks later, came the beginning of the hostage drama. In a further dislocated and agitated market, prices spiked again and again, despite the Saudi countermeasures. Was some kind of stabilization possible? Eyes focused on the fifty-fifth OPEC meeting, scheduled for Caracas in late December 1979.
When Juan Pablo Pérez Alfonzo first became oil minister of Venezuela in the 1940s, a hillside on the southern side of Caracas had been a sugarcane field. Now it was the site of the Tamanaco, a sprawling international hotel that, with its older wings and new additions and grand outdoor swimming pool, was a monument to the development of the Venezuelan oil industry. It was the place to stay when doing oil business in Caracas, and it was there the OPEC ministers congregated. The issue before them was to try to reunify the OPEC pricing structure, which was in total disarray. Saudi Arabia’s official price was $18 a barrel; others were as high as $28, while spot prices were in the $40–$50 range. Before the meeting, the Saudis announced that they would raise their price by $6, to $24, with the idea that others would bring their prices down and into line. It did not seem likely to work; the Iranians immediately leapfrogged their own price up by another $5. Once again, as it had been ever since the 1950s, the sharpest fissure was between Saudi Arabia and Iran.
For much of the year the Saudis had been steadily producing extra oil in order to counter the price increases. In 1979, OPEC production was back up to 31 million barrels per day, even with the Iranian shutdown—3 million barrels per day higher than 1978. Where was the extra oil going? Not into actual consumption, Yamani was sure, but into the inventories of companies fearful that future supplies would be further interrupted. At some point, the extra oil would tumble out of inventories and into the market, depressing prices. “Political decisions cannot permanently negate the divine laws of supply and demand,” Yamani would later explain. “Prices go up, and demand goes down, it’s simple, it’s ABC.”
At the Tamanaco, Yamani moved into the top-floor Presidential suite, vacated at his request by the Venezuelan oil minister, and began to campaign for his point of view. The oil ministers met privately in the Saudi’s suite for what turned into a marathon. Yamani warned them of the danger as he saw it: that they were damaging their own interests, that demand was already showing signs of weakening, that the continuing price leapfrogging would bring a “catastrophe in the world economy.” A few of the other ministers agreed with him; the majority did not. When Yamani said that demand for OPEC oil would dramatically plummet and that they would have to cut production to protect prices and then that prices would collapse in any event, they scoffed. One oil minister said Yamani must be joking; another, that he was obviously on drugs. For fully eleven hours, the ministers argued back and forth in Yamani’s suite, but there was no agreement whatsoever. Indeed, there was no official price at all. OPEC and the oil market, Yamani said dismissively, had turned into a bazaar. He also had a warning for the other producers, and a promise to consumers. “There will be a glut in the market. It is coming.” Prices would fall.
The other exporters, however, ignored the admonition; they believed their own rhetoric. “In the name of almighty God, there will be no surplus and prices will not fall,” intoned the Iranian oil minister. Most of the exporters assumed demand was so inflexible that they could dictate whatever prices they wanted to consumers. Their self-confidence was demonstrated immediately after the meeting, when Libya, Algeria, and Nigeria proceeded to raise prices once again. Others followed suit.
Caracas, in those last dying days of the tumultuous year of 1979, was the moment when the exporters lost touch with the reality of the market. Demand was indeed weakening, new supplies were being developed, panic buying was receding, inventories were being built up, spot prices were declining. And the Saudis continued their steady overproduction. Other producers, however, continued to push up their prices, while some cut back on production, which helped buoy prices. There was now talk of a “miniglut,” but that was more than offset by what became known as the new “minipanic.” In the face of the hostage crisis, Washington was seeking to promote a general embargo or sanctions against Iran in cooperation with Western Europe and Japan, an effort that accentuated nervousness in the market.2
Then in April 1980, frustrated to the extreme by the impasse over the hostages, the Carter Administration mounted a military rescue operation in Iran. Eight helicopters were dispatched from the carrier Nimitz to a desolate, isolated spot in Iran that had been dubbed Desert One. There, in the darkness, they were to rendezvous with six C-130s. The large transport planes would refuel the helicopters; they would also carry assault teams, which would switch to the helicopters and continue to Tehran. These squads were to retake the American embassy, free the hostages, and get them to an airfield near Tehran, which was to be secured by other American airborne forces.
But things quickly went awry. One of the helicopters dropped out en route because of navigational problems; another because of mechanical malfunction. Then, in the middle of the night, three Iranian vehicles, including a bus filled with forty-four people, passed the American aircraft close enough to observe them. In a blinding sandstorm, one of the remaining helicopters collided with a C-130 and burst into flames, killing several of the American servicemen. Now there were only five available helicopters; the mission required a minimum of six. It was aborted on direct orders of President Carter. The failure was immediately made public and emblazoned in media around the world. The Iranians wasted no time in dispersing the hostages throughout Tehran in case the United States tried again. The very fact of the hostage rescue mission and its ignominious failure greatly increased the tension in the market. In addition, Iranian output had fallen once more, all of which set off a new round of panic buying. Companies remained focused on their vulnerability and the possibility of new troubles and continued to build their inventories as “insurance.”
The general outlook was bleak. The “mini-glut,” according to the consensus market view, would be over by the spring of 1981. OPEC’s Long Range Strategy Committee came out with its plan for a 10 to 15 percent annual increase in oil prices, starting at the current base, which meant sixty dollars per barrel within five years. There seemed little reason, in the gloom of the moment, to doubt that they could get it. The director of the Central Intelligence Agency, testifying before a Senate committee five days after the hostage rescue attempt turned to disaster in the Iranian desert, said, “Politically, the cardinal issue is how vicious the struggle for energy supplies will become.” The bleak mood of the times was summed up in the title of an article in Foreign Affairs in the summer of 1980: “Oil and the Decline of the West.”
OPEC met again in Algiers in June 1980. The Saudis, now joined by the Kuwaitis, tried yet again to put an end to the bazaar in the oil market and to stabilize prices—and again to no avail. The average oil price was thirty-two dollars per barrel, almost three times what it had been a year and a half earlier. It was at this meeting, sitting in the coffee shop of the hotel in Algiers, being shunned by many of the other delegates and still thinking of those “divine laws of supply and demand,” that Yamani unburdened his private feelings to a friend. “They’re too greedy, they’re too greedy,” he said. “They’ll pay for it.”
In fact, the oil market was again beginning to sag under the distress that Yamani had been predicting, and judging by market trends over the summer of 1980, his prophecy in Algiers seemed likely to come true rather quickly. Inventories were very high; a pronounced economic recession was already emerging; in the consuming countries both product prices and demand were falling; and the inventory surplus was continuing to swell. Companies were even beginning to store oil in supertankers, costly as that was, rather than sell it at a loss in the market. Now it was the buyers’ turn to walk away from contracts, and the demand for OPEC oil was coming down. Indeed, in mid-September, a number of OPEC countries agreed to voluntarily cut back production by 10 percent in an effort to firm prices.
Meanwhile, the twentieth anniversary of OPEC was close at hand. Over two decades, the organization had risen from a nonentity to a colossus in the world economy, and a grand celebration was being planned for an OPEC summit in November. In anticipation, a special committee had been working on a long-term strategy. An official history was commissioned, as was a film, and fifteen hundred journalists were to be invited to the great event, which would be held in Baghdad, where OPEC had been founded in 1960. On the morning of September 22, 1980, the oil, finance, and foreign ministers of the OPEC nations self-confidently assembled in the Hapsburg Palace in Vienna to continue planning for the Baghdad celebration. But within minutes of its opening, the meeting erupted in a babble of confusion, anger, and chaos, and the general conference was hurriedly turned into a closed session.
For something else had already been planned in Baghdad.3
The Second Battle of Qadisiyah: Iraq versus Iran
On that same day, just as the ministers were preparing to sit down in Vienna, squadrons of Iraqi warplanes attacked, without warning, a dozen targets in Iran, and Iraqi troops began pushing into Iran along a broad front, pounding cities and key installations with heavy artillery. The outbreak of war shook the Persian Gulf yet again and threw the oil supply system into jeopardy, threatening a third oil shock.
There had been incidents along the border between Iraq and Iran for weeks before September 22, and indeed, a war had grown increasingly probable ever since the preceding April. Hostility between Iraq and Iran was long-standing; some would find the present struggle merely a latter-day manifestation of the conflicts that went back almost five thousand years, to the very beginning of recorded civilization in the Fertile Crescent, when the soldiers from Mesopotamia, in what is now in modern Iraq, and Elam, in what is now in modern Iran, had habitually slaughtered one another. An ancient poem lamented the scene after the great and proud city of Ur, where walls had been built “as high as a shining mountain,” was ravaged, sacked, and destroyed by the soldiers of Elam four thousand years ago.
Dead men, not potsherds,
Covered the approaches,
The walls were gaping,
The high gates, the roads,
Were piled with dead.
In the side streets, where feasting crowds would gather,
Scattered they lay…
Bodies dissolved—like fat in the sun.
The scene would be much the same when, four millennia later, the distant heirs to Mesopotamia, on one side, and to Elam, on the other, savaged each other over the same marshes and the same scorched and scalding deserts.4
The war had been sparked by a host of rivalries: ethnic and religious, political and economic, ideological and personal; by a struggle for primacy in the Gulf; by the insecurities of national cohesion; and by the arbitrary way in which “nations” had been created and borders in the Middle East overlaid on the map of the defunct Ottoman Empire. Indeed, geography was decidedly at the heart of the conflict.
The Shah had been at loggerheads with the secular Ba’thist regime in Baghdad since it first came to power in 1968. One of the most important issues between the two countries was the Shatt-al-Arab, a meandering river and delta created by the confluence of the two Iraqi rivers, the Tigris and Euphrates, with several rivers from Iran. The Shatt-al-Arab served as the boundary for 120 miles between the two countries. It was crucial to Iran as its most important avenue to the Gulf—the Abadan oil refinery was built on a mud flat in the river delta—but certainly not its only one. The Shatt-al-Arab, however, was critical to Iraq as its only avenue to the high seas. Iraq’s entire coastline was only twenty-six miles or so in length, compared to Iran’s fourteen hundred miles of coast. Basra, Iraq’s principal port city, was actually almost fifty miles up the Shatt-al-Arab, which had to be frequently dredged owing to its shallowness and the buildup of silt. Sovereignty over the Shatt-al-Arab had, thus, assumed great symbolic significance. To make matters worse, a considerable part of both countries’ oil infrastructure—fields, pumping stations, refineries, pipelines, loading facilities, storage tanks—was concentrated around and depended, in one way or the other, on the Shatt-al-Arab. The Shah had prudently built pipelines as an alternative to the river traffic, as well as an offshore terminal at Kharg Island, where supertankers could berth. Iraq, however, exported a good part of its oil through the narrow funnel of the Shatt-al-Arab and its immediate vicinity, though pipelines through Syria and Turkey were in place.
The Shah and the militant Ba’thists had sorted out their various claims in an agreement finalized in Algiers in 1975 and signed on behalf of Iraq by Saddam Hussein. From the viewpoint of sovereignty, Iran came out the better. The Iraqis gave up their insistence, generally accepted for forty years, that the boundary between the two countries was the eastern, that is, Iranian, side of the river, and accepted the Iranian insistence on the midpoint of the navigational channel. But, in turn, the Shah gave the Iraqis something that they needed very badly. He cynically agreed to cut off the considerable aid he was providing to the Kurds, a distinct ethnic group that composed upwards of 20 percent of the total Iraqi population and was then fiercely battling the Ba’thists for autonomy and national identity, in a region where much of Iraq’s oil was to be found. The Shah’s jettisoning of the Kurds was a major quid pro quo, perhaps a requisite for survival of the Ba’thist regime. Baghdad wasted no time; just six hours after the communiqué with Iran was issued in Algiers, it launched a decisive offensive against the Kurds. Three years later, in 1978, Iraq returned the favor, in what seemed a relatively minor way. At the Shah’s request, Iraq expelled the Ayatollah Khomeini, who had been living in exile in Iraq for fourteen years. In light of what later happened, that hardly turned out to be a favor at all.
Khomeini himself was filled with a hatred of the Iraqi regime and a burning desire for revenge for his treatment at its hands. His ire was focused on the President, Saddam Hussein. Certainly, Hussein had proved himself a champion conspirator in the considerable history of Ba’thist conspiracies. The Ba’thist movement itself grew out of an Arab Students Union that two Syrian intellectuals had formed while studying at university in Paris in the early 1930s. A decade later, they launched the Ba’th—or “renaissance”—party back in Damascus. It was militantly pan-Arabic, aiming to create a single Arab nation and fervent in its denunciations of the West and imperialism. All-embracing in its ideology and demands, it was contemptuous and unreservedly hostile to its opponents and those who were outside its grouping. It celebrated violence and absolutism in pursuit of its objectives. The party split into two branches, one of which eventually took power in Syria and the other, in Iraq. Despite their common origins, the two wings became seemingly irreconcilable rivals for preeminence.
Saddam Hussein’s father had died just before his birth in 1937, and as he grew up, he found his identity in extreme nationalism and the violent, conspiratorial world of Ba’thism. The decisive influence on him was his uncle Khayr Allah Talfah, who raised him and became his guardian. A fervent nationalist from the Sunni Arab minority, Talfah hated and despised the European culture. For both uncle and nephew, the lodestar event was the pro-Nazi nationalist Rashid Ali coup of 1941, in the course of which German planes attacked British forces in Iraq. When Iraqi troops threatened to fire on a plane evacuating British women and children, British soldiers attacked them and the coup collapsed. Talfah participated in the coup, and when it failed, he was imprisoned for five years, leaving him with a lasting sense of bitterness, resentment, and hatred that he communicated to his fatherless nephew. The Rashid Ali coup became a central myth for the Ba’thist movement. Saddam Hussein was also shaped by the culture of his hometown of Tikrit, which was remote from the national life of Iraq and oriented instead to the harsh desert. Tikrit’s values of desert survival—suspicion, stealth, surprise, and the unalloyed use of force to achieve one’s objectives—were the ones that Saddam Hussein absorbed.
It was during the tumult and enthusiasm that accompanied Nasser’s victory at Suez in 1956 that Saddam Hussein, while still a teenager, was recruited into the Ba’th party. The Nasserite anti-imperialistic rhetoric of the 1950s remained with him ever after. Shortly after joining the party, it is said, he carried out his first assassination—of a local political figure in Tikrit. His commitment to Ba’thism was sealed and the foundations of his reputation established. In 1959, he had been one of the assailants in the assassination attempt, on Baghdad’s main street, on Iraq’s ruler, Abdul Karim Kassem. The attack failed, and Hussein, wounded in the gunfire and under a death sentence, fled to Egypt. He did not return to Iraq until 1963. Thereafter, he took charge of organizing the Ba’thist party’s underground militia. Though already the strongman for several years in the Ba’thist regime that took power in 1968, he assumed the Presidency—replacing Ahmad Hasan al-Bakr, cousin of his uncle—only in 1979 in the course of a purge in which many members of the Ba’thist party were executed. In order to assure that the imprisoned Ba’thists provided the appropriate confessions before their executions, Saddam Hussein took some of their families hostage. By 1979, he had already long since come to be seen as ashaqawah, an implacable tough, a man to be feared. He was ruthless and emotionless when it came to those he considered as enemies, threats, obstacles to his objectives, or simply useful or convenient to run over.
The new Iraqi regime—particularly the party, military, and security services—was dominated by Tikritis, many of them related in some way to Hussein. So obvious was their grip that in the mid-1970s the government banned the use of names that indicated clan, tribe, or locality of origin. At the top sat members of Hussein’s Talfah family and two other immediately related families, the only people he could trust—to the degree that he could trust anybody. He had already married his cousin, the daughter of his uncle Kahyr Allah Talfah. Now Adnan Khayr Alah Talfah—son of his uncle, brother of his wife, his own cousin—was Minister of Defense (until his death in a mysterious helicopter crash in 1989). Hussein Kamil al-Majid, who happened to be both Hussein’s cousin and son-in-law, became chief weapons buyer, and responsible for the development of nuclear and chemical weapons and missiles. And the influence of Khayr Allah Talfah himself continued to be felt. In 1981, the government printing house distributed a pamphlet by Talfah. Its title gave some idea of the thrust of his political thought: Three Whom God Should Not Have Invented: Persians, Jews, and Flies.
Though the Ayatollah Khomeini was expelled from Iraq in 1978, before Hussein’s complete acquisition of power, the Ayatollah held Hussein personally responsible for his troubles and ranked him among his preeminent opponents. Once asked to list his enemies, Khomeini replied: “First, the Shah, then the American Satan, then Saddam Hussein and his infidel Ba’th Party.” Khomeini and his circle saw the secular, socialist Ba’thists as implacable enemies of their own creed and attacked Ba’thism as “the racist ideology of Arabism.” As if all that was not bad enough, Khomeini had even worse to say; he denounced Hussein as a “dwarf Pharaoh.”
Saddam Hussein had good reason to fear Khomeini’s diatribes. Around half of Iraq’s population was estimated to be Shia, while the Ba’thist regime was secular and based on the minority Arab Sunnis. Iraq was also the site of the holiest shrines of the Shia faith; and agitation among the Shias, fed from Iran, was growing. After an assassination attempt against his Deputy Prime Minister in April 1980, Hussein ordered the execution of the most prominent Shia ayatollah in Iraq and, for good measure, the ayatollah’s sister, and took to denouncing Iran’s religious leader as “Khomeini the rotten” and as “a Shah dressed in religious garb.”
As incidents and recriminations mounted between the two countries, Iraq thought it saw its opportunity. Iran appeared disorganized and chaotic; in Baghdad, the common saying was “There is a government on every street corner in Iran.” Iran’s army was demoralized and in disarray and in the grip of a bloody purge. Iraq could strike hard at Iran, topple Khomeini, put an end to the Shiite revolutionary threat to Iraq, and assert sovereignty over the Shatt-al-Arab waterway, protecting Iraq’s oil position. There were even more enticing plums to be had. Hussein could appeal to the ethnic Arabs in Iran’s Khuzistan (though less than half the population in that southwestern region of Iran was of Arab descent) as their “liberator” and perhaps incorporate that territory, which the Iraqis called Arabistan, into Iraq, or at least cast it under Iraq’s sway. The prize was not merely fraternal reunification; 90 percent of Iran’s oil reserves happened to be in Khuzistan. On top of all this, the Ba’thists could eradicate the wound of pride; it had been humiliating in 1975 to have to give way to the Iranians on sovereignty over the Shatt-al-Arab. There was more than one vacuum to fill. The Shah, the regional policeman for the Gulf, was gone; Hussein could assert Iraq’s primacy, and his own, in this area of great international significance. Moreover, with Egypt alienated from the rest of the Arab world because of the Camp David accord, Iraq could also emerge as the new leader and militant champion of the Arab world, and the one that had crushed the threat from the East. And it could become one of the dominant oil powers. Altogether, the opportunities were irresistible.
From the beginning, Hussein clothed himself in the mantle of Arab leadership, which accorded with the pan-Arabic Ba’thist ideology. If Khomeini was going to base the symbols of his legitimacy on events that had taken place in the seventh century, so would Hussein. He billed the new war as the “Second Battle of Qadisiyah”—the first one having occurred when the Arabs defeated the Persians in A.D. 636/637 near Najaf in what is now south central Iraq. That in turn led to a further triumph over the Persians in 642 that thereafter was celebrated by the Arabs as the “Victory of Victories.” It sealed the doom of the Sassanid Persian Empire, whose King fled to the east, where he was eventually assassinated by a local satrap. A century later, Baghdad was founded, and it would be preeminent in the region for several hundred years thereafter. Now in 1980, it would be Baghdad’s turn again. Or so it was thought.
Hussein targeted his attack on the heart of the Iranian oil industry, including Abadan and Ahwaz, the same city that had provided the gateway for the final death blow to the Persian empire thirteen centuries earlier. Hussein thought he could achieve all his objectives with an Iraqi blitzkrieg, in a hard, sharp series of blows. That view was not, by any means, restricted to Baghdad. In Vienna, where the triministerial OPEC meeting had been disrupted by news of the attack, the virtually universal assumption was that the war would be over in one or at most two weeks. But the Iraqi strategy proved to be based upon grave miscalculation, for the Iranians withstood the first blow and struck back immediately, and no less hard, at Iraqi targets. The assault enabled Ayatollah Khomeini to further consolidate his power, silence his critics, dispose of the nonclerics in his government, and proceed in the fashioning of the Islamic Republic—meanwhile mobilizing the population to resist. Iranians from virtually all political camps rushed to the common defense. The Arabs of Khuzistan showed no desire to be liberated by Iraq and did not welcome the Iraqis as “brothers,” but rather saw them as invaders. The Iraqis were unprepared for the “human wave” assaults they encountered on the battlefield. Hundreds of thousands of young people, drawn by the Shiite vision of martyrdom, and with little thought for their own lives, advanced on Iraqi positions in front of regular Iranian troops. Some of the young people arrived at the front carrying their own coffins, exhorted as they had been by Khomeini that “the purest joy in Islam is to kill and be killed for God.” They were given plastic keys to heaven to wear around their necks. Children were even used to clear minefields for the far more valuable and much rarer tanks, and thousands of them died.5
The End of the Road
The outbreak of the war shook the oil market. On September 23, 1980, the second day of the war, Iraqi warplanes began a sustained assault against the Iranian refinery at Abadan, the world’s largest, and proceeded over the next month to damage it severely. They also carried their attack to every Iranian oil port and oil city. The Iranians counterattacked against Iraqi facilities, completely choking off Iraqi oil exports through the Gulf. Moreover, Iran in time persuaded Syria, ruled by a rival Ba’thist party, to cut off Iraqi pipeline exports through Syria, leaving Iraq with only one limited pipeline through Turkey. Iranian oil exports were reduced by the war, but Iraq’s almost ceased, something on which Hussein had not counted.
In its initial stages, the Iran-Iraq war abruptly removed almost 4 million daily barrels of oil from the world market—15 percent of total OPEC output and 8 percent of free world demand. Spot prices quickly jumped again. Arab light reached its highest price ever—forty-two dollars a barrel. Fear was once again driving the market. Was this the Third Shock, the next stage in the collapse of the Middle East and its oil industry into chaos and militancy? Would Iraq be eliminated from the world oil balance? Would Iran once again disappear as a supplier? Would the battle between Sunni and Shia, between Arab and Persian, destabilize the entire Gulf? Or, perhaps even worse, would Iran, with three times the population of Iraq, prevail and carry its fundamentalist, anti-Western revolution deeper and deeper into the heart of the Middle East? In pondering those questions, one could read the underlying economic indicators in two ways. One reading certainly did point to a new shock; the other in the opposite direction. Which would prove to be correct?
Oil demand was certainly weakening. Still, one could not yet know whether it was the result of recession, which would mean a temporary downturn, or of conservation, which would have more lasting effects. Economic contraction had already begun, the result of the price increases compounded by a new resolve on the part of the Western nations to fight inflation at all costs, even if it meant deep recession. Whatever the reason, it was clear that demand was going down.
Meanwhile, governments, working through the framework of the International Energy Agency, had learned the lessons of 1979 and concerted their efforts to persuade companies not to buy in panic, not to scramble for supplies, not to drive up prices—but, rather, to draw down their inventories. The message that the IEA put out was meant to reassure: Things were manageable, this was not 1979 all over again, go easy, avoid “undesirable purchases” (which meant oil whose price had been bid up). The message made sense, as the supply positions of the companies were very different this time. Since early 1979, the companies had spent a great deal of money, buying up supplies at all and any cost—including many additional barrels far in excess of demand. Those extra barrels of supply had gone not into the engines of cars, nor into the furnaces of factories, nor into electric power plants, but into storage. The Great Panic had, by its own logic, turned into the Great Inventory Build, and when the war broke out, storage tanks all around the world were brimming over, and oil companies were chartering supertankers to use as additional floating storage. It was expensive to keep oil in storage. In a continuing period of calm, given a choice between buying additional oil and drawing on existing stocks, a company would likely choose to draw from storage.6
But now the Iran-Iraq War brutally upset the returning calm, reigniting panic buying, and not all that many companies were inclined, at least initially, to heed the message of the IEA and eschew those “undesirable purchases.” “No matter what restraint we show,” complained one refiner in November 1980, “there is still someone else out there who is willing to buy at higher prices and thereby pushes up the market.” The all-important question was how companies would manage their inventories in this new crisis. In time of anxiety and uncertainty, the inevitable tendency was to hold on and hoard and see what happened. High costs were preferable to no supply, especially if the costs the following day would be even higher. Thus, many players were once again scouring the world for supplies. Among them were the Japanese trading and oil companies, reflecting fears in Tokyo that an extended supply cutoff might be at hand. But the Japanese were hardly alone. An executive of an American company summed up the issue when he said that drawing down stocks “might leave us in deep trouble later on.” He explained: “Commercial firms can’t afford such moves. Suggestions that we draw down inventories imply some knowledge of when the crisis will end. If I knew Iraq and Iran output would be back to prewar levels by July, sure I would draw down stocks.” But he couldn’t know.
In December 1980, the OPEC oil ministers met in Bali, yet again to discuss price. There was, however, a most awkward matter that had to be dealt with before any discussions could proceed. In November, the Iranian oil minister had gone to tour the battlefield near Abadan. Unfortunately, no one bothered to tell him that the area had been captured by the Iraqis, and he himself was seized and carted off into captivity. OPEC or no OPEC, the Iraqis would not free him. The Iranians were so angry that they threatened to boycott all OPEC meetings. Could the Bali meeting go ahead? It fell to the artful diplomat, Indonesia’s oil minister, Dr. Subroto, to work out a satisfactory compromise. Seating was normally alphabetical, and thus Iran and Iraq were consigned by fate, in the form of the alphabet, to sit next to each other, which could have been most unpleasant. Subroto broke precedent and inserted Indonesia between Iran and Iraq. That led some—thinking of the waterway between the two countries that was at the center of their contention—to say that Indonesia was now occupying the Shatt-al-Arab. Though one problem was now solved, another emerged. The Iranian delegation entered the conference room carrying a large portrait of their captured oil minister, who, they insisted, was still the head of their delegation. They would merely be carrying out his wishes. Dr. Subroto allowed them to put the photograph in the chair designated for the missing minister, so that he could even in his absence continue to inspire, if not quite lead, his delegation. So, with further awkwardness avoided, the conference could begin. It was to conclude with another rise in OPEC prices, to a thirty-six-dollar marker for all except the Saudis. Yes, it seemed, a Third Shock was at hand.
At almost exactly the same moment, but halfway around the world, the energy ministers of the industrial nations were gathered in Paris for their own meeting. Ulf Lantzke, the director of the IEA, would customarily hold an informal get-together in his office, after a ministerial dinner, for a relaxed discussion and exchange of views before the formal sessions the next morning. At this particular post-dinner discussion the mood was gloomy; the IEA’s efforts to encourage inventory use, instead of panic buying, were not meeting with great success. As a MITI official had observed, the phrase “undesirable purchases” was “imprecise and could mean different things to different people.” The frenetic purchasing by some Japanese trading companies, in particular, had emerged as a sore subject and one that, amid the whiskey and cigars that evening in Lantzke’s office, stirred much debate.
Finally, as the hour got close to midnight, the imposing Count Etienne Davignon of Belgium, a prominent and forceful Commissioner of the European Community, lost his patience. He focused on the Japanese representative. “If you don’t get your trading companies under control,” Davignon bluntly said, “you can forget about any more Toyotas and Sonys coming into Europe.”
The room went silent. The Japanese official sat there for a moment, taking in the remark and weighing his response. “You are a great international civil servant,” he said at last. And he said no more.
But MITI reinforced its “administrative guidance” to companies to go easy. Those companies got the message and did become more restrained in their buying, as did the American and British oil companies. The market players were, however, responding to more than government policies. For, by the end of 1980, the picture was becoming clearer. While inventories remained very high, demand was continuing its precipitous fall, and market prices were weakening. It was a combination that made it more and more uneconomic to hold on to stocks, so there was a growing incentive to use those inventories, as the IEA wanted, instead of buying additional oil.
And not only was consumption actually declining, but supply from other sources was making up for the lost output from Iran and Iraq. For most of the time since the end of 1978, the Saudis had been cranking out barrel after extra barrel in an effort to stifle the continuing surge in oil prices and to put a cap over their brethren in OPEC. “We engineered the glut,” Yamani once said, “and we want to see it in order to stabilize the price.” The Saudis were not going to let something so inconvenient as the outbreak of the Iran-Iraq War defeat their strategy, and within days of the first battles, they announced that they were pushing their production up another 900,000 barrels per day, to the very limit of sustainable capacity. In itself, that increase was the equivalent of almost a quarter of the lost production from the two belligerents. Other OPEC producers also upped their output, and even some oil from Iraq and Iran was coming back into the market. At the same time, the production by Mexico, Britain, Norway, and other non-OPEC countries, as well as in Alaska, was continuing to increase, as well. It was no longer just a “miniglut.” Under these circumstances, any reluctance to use inventories disappeared; indeed, their use, as opposed to buying oil, became irresistible. Buyers were now beginning to revolt against high prices. Non-OPEC producers, anxious to increase market share, were making significant cuts in their official prices. Their gain was OPEC’s loss, and the demand for OPEC oil fell. As a result, OPEC’s output in 1981 was 27 percent lower than the 1979 output, and in fact was the lowest it had been since 1970. Yamani’s prophecy was at last coming true.
OPEC was nearing the end of the road, though neither the OPEC exporters, nor the industry, nor the Western consuming countries had any idea of what lay ahead. The Carter presidency had also come to an end. In a final humiliation for Jimmy Carter at the hands of the Iranians, the hostages taken at the American embassy in Tehran were not released until the very day he left office, succeeded by Ronald Reagan, whose buoyant confidence in himself and in America had proven much more palatable to the electorate than Carter’s “malaise.”
Meanwhile, the oil market was responding to the phenomenal rise in prices over the 1970s and consumers’ fears for the future. Yet the exporters were still unwilling to face up to the fact that the “objective conditions” of the marketplace were truly shifting. They would not contemplate a price cut. Prices were still in disarray, but finally, in October 1981, they came to a new agreement. Saudi Arabia would raise its price from thirty-two to thirty-four dollars a barrel, while the others agreed to bring their price down from thirty-six to thirty-four dollars. So prices would be reunified. When all the changes were factored in, the average price of oil on the world market would still, because of the Saudi increase, go up a dollar or two. For the other producers, the compromise did, of course, mean a price cut. Yet there were consolations. Saudi Arabia had agreed, at last, as part of the deal to go down to its old 8.5-million-barrel-per-day ceiling.
Iraq and Iran remained locked in bitter battle. Yet even a war between two of the most important exporters could only retard but not cancel out the powerful forces that had been set in motion by the two oil shocks. October 1981 represented the last time that the OPEC price would go up, at least for a decade. The “divine laws of supply and demand” were already in motion to drive prices down, though not yet with the thunderous vengeance that was still to come. It was, as Yamani had said, as simple as ABC.7