No area of the world had a greater impact on American politics, national security, and economic well-being than did the Middle East in 1979. With the fall of the Pahlavi regime in Iran early in the year, a profound change in the regional balance of power took place. In November, when the deposed Shah was admitted to the United States for medical treatment, militants seized the U.S. Embassy in Tehran and at the end of the year were still holding about 50 Americans hostage-with the support of Ayatollah Khomeini, the head of the new Iranian Islamic Republic. And in late December the Soviet Union used its own forces to replace one communist leader in Afghanistan with another more to its liking and subsequently sent over 50,000 troops to secure the new regime and to put down insurgents in the countryside.

In the face of these developments, U.S. officials turned their attention to issues of military power, bases and arms transfers to help stabilize the volatile region surrounding the Persian Gulf. The keystones of the Carter Administration's early foreign policy-human rights, arms control, non-proliferation-receded in importance, and power politics once again seemed on the ascendant in Washington. Public and congressional sentiment against the Soviet Union led to the shelving (at least for the present) of the painstakingly negotiated Strategic Arms Limitation Treaty (SALT) and with it much of what remained of the prospects for détente with the Soviet Union. President Carter's handling of the crises over the hostages in Iran and the Soviet troops in Afghanistan initially won wide support and appeared to have dramatically improved his chances of reelection.

Pakistan and Iran loom as the most likely early tests of the President's policies. In any event, it now seems clear that in the 1980s it will be the oil-rich Persian Gulf and the surrounding area-Iran, Iraq and Saudi Arabia, as well as Afghanistan and Pakistan-where superpower rivalries will be most acute, where the economic interests of the industrialized world will be determined, and where local rivalries will increasingly carry with them the threat of global confrontation.

The more hopeful and idealistic phase of President Carter's foreign policy, that is, up to the taking of the hostages in Iran and the Soviet intervention in Afghanistan, did produce one genuine achievement in the Middle East-the Egyptian-Israeli peace treaty of March 1979. A product of long and difficult negotiations, the treaty promised to reduce the danger of Arab-Israeli conflict just as the risks of confrontation were growing elsewhere in the region. The remaining issues involving the Palestinians, Jordan, Syria and Lebanon seem as intractable as ever. The unresolved Palestinian issue in particular has a direct bearing on stability in the Arabian Peninsula and the Gulf, and thus must remain near the top of the U.S. foreign policy agenda, if not in 1980 at least in 1981.

Because of the divisions the treaty produced in the Arab world, it did little to enhance American prestige and credibility with countries such as Saudi Arabia. And it was the Saudis, as much as anyone, who held the key to the escalating price of oil. During 1979 alone, oil sold by members of the Organization of Petroleum Exporting Countries (OPEC) doubled in price from less than $13 per barrel to around $30 per barrel. For the United States, this spelled slower economic growth, a weakening of the dollar and boosted inflation. With luck, it might also mean a commitment to an effective energy policy that would reduce vulnerability to the disruption of Middle East oil supplies. But there was little sign of this at year's end.

In all, the events of 1979 have created awesome problems for the Middle East and for American policy in the region. The revolutionary situation in Iran, the challenge of Soviet power, the stalemate in the search for a broad Arab-Israeli settlement, the insecurity of moderate regimes in the area-above all Saudi Arabia-confront American policymakers with extraordinarily difficult choices. The stakes include the continued access of the United States and the West to Middle Eastern oil, as well as whether the price of that oil can be kept within manageable limits. The challenge to American diplomacy and to the ability of the United States to marshall all its levers of influence-diplomatic, economic and military-may be the greatest since the onset of the cold war.

The analysis of these problems and their interrelationship will begin with what happened in Iran and on the Israeli-Egyptian front in 1979, and then will consider the implications of these two situations for Saudi Arabia and the other Arab states. The events in Afghanistan and the Soviet policy toward the region will then be examined, and finally the implications for American policy.

II

The dramatic events that led to the fall of the Shah of Iran and his replacement by a militant Islamic Republic go back to 1978, but deserve brief review here. In retrospect it seems clear that after the massive riots of early September 1978 there was no real possibility that the Shah could have maintained his authority in undiluted form. Even the large-scale use of his army had failed to quell the riots, and he himself apparently recognized that some new political formula was needed.

The real question at the peak of the crisis-on which he consulted extensively with the American and British Ambassadors-was whether he might have been able to preserve the institution of the monarchy on a new basis if he had been willing to turn over some power to a competent civilian government or to the military. The Shah did ask the United States for advice on how to deal with the growing unrest in the country. But he showed little enthusiasm for either a civilian or military government, and joked about the incompetence of the people to whom he would have to entrust the leadership of the country. Perhaps, he said, they would help convince the masses that the only real alternative was the "iron fist."

Hearing these confused plans, U.S. officials were not prepared to take responsibility for telling the Shah how to govern his own country. The Shah proceeded to name, in turn, a weak military and then a weak civilian government, but neither was able to restore order, to end the strikes that were paralyzing the country, or to defuse the growing alienation from his rule. The American hesitancy to give advice to the Shah reflected, to some degree, the post-Vietnam aversion to overinvolvement in the internal affairs of other countries. It may also have reflected a misreading of the Shah, who reportedly wanted to be told what to do. He subsequently complained that he never knew what the United States wanted of him during the crisis, and he appears now to blame the United States for his downfall. Those who had known the Shah in earlier periods recognized a familiar pattern of psychological dependency. In the end he lost all control of the situation and left the country in January 1979. After a brief interregnum under Shahpur Bakhtiar, Ayatollah Khomeini returned to Iran and took power in February.

One of the consequences of the Shah's fall has been a rethinking in the United States of the "lessons of Vietnam," and of the Nixon Doctrine which was applied specifically to the case of Iran. In effect, the United States had refrained since the early 1970s from involving itself more than marginally in the internal affairs of Iran, while depending heavily on Iran to protect Western interests in the Persian Gulf region. The Nixon Doctrine had been most understandable when the United States was preoccupied with Vietnam and had few resources and little time to devote to other areas of the world. The Shah himself had been anxious to convince successive administrations in Washington that he was uniquely qualified to play the role of a regional power providing stability and protecting Western interests. That U.S. and Iranian interests did not always coincide, that the regime was unstable and that Iranian power could only be projected beyond its own borders with difficulty were points not widely appreciated in the United States. Thus one lesson of Iran is likely to be that the United States cannot depend on regional surrogates and will have to rely more heavily on its own forces, on its own diplomacy, and on its own economic relations to protect its vital interests.1

Whatever the possibilities for American advice or action to preserve the Shah, his downfall was a serious blow to American credibility in the area, especially among the moderate Arab states. And this impact was not diminished as Ayatollah Khomeini became increasingly hostile to the West, rebuffing the efforts of the United States to work toward a modus vivendi.

As part of the effort to normalize relations with the new government in Tehran, the Administration made clear in March (after a brief unauthorized invasion of the Embassy in February) that it was not prepared to allow the Shah to take up residence in the United States. Despite pressures to admit the Shah, in September Secretary of State Cyrus Vance stated publicly that a major concern of the Administration was that the Shah's presence in the United States might involve risks to Americans remaining in Iran.

In late October, however, an examination of the Shah by American doctors indicated serious medical problems that were deemed to require specialized care best available in the United States. On short notice, the President reconsidered and agreed to let the Shah come to New York for treatment. This decision was explained to the official Iranian government, then headed by Prime Minister Mehdi Bazargan, who responded that the Iranian public would not understand, but did give assurances of protection of the Embassy and American nationals. The Embassy, its staff already sharply cut down since February, was placed on alert but not further reduced.

These measures proved insufficient. On November 4, an armed group of "students" invaded the Embassy and took as hostages a total of about 63 Americans. Unlike the earlier takeover of the Embassy in February, this one received the blessing of Ayatollah Khomeini, whose bitter attacks on the United States and on the Embassy as a "nest of spies" had provided the green light for the militants. Both they and Khomeini insisted that the hostages would be released only if the Shah were returned to Iran to stand trial for "crimes" committed under his rule.

The seizure of the Embassy was, by any standard, a total breach of the norms of diplomatic practice, and the U.S. position that the hostages must be released before there could be any question of judging the Shah had virtually unanimous support both in American public opinion and in the international community. At the United Nations, resolutions were passed calling for the release of the hostages, but to no avail.

President Carter initially opted for a policy of restraint, clearly fearing that more aggressive action could jeopardize the lives of the Americans held prisoner. Despite a belligerent tone in U.S. public opinion, Carter received high marks for his handling of the crisis in its first phase.

But as time went by and 50 of the hostages remained in captivity, the President's options seemed to be dwindling. He had mobilized broad international backing. He had ordered a freeze on eight to nine billion dollars in Iranian assets in the United States. He had called on American companies to stop buying Iranian oil for the U.S. market and brought pressure to bear on the Japanese and other allies not to increase their purchases from Iran. An impressive naval build-up took place in the Arabian Sea, complete with two carrier task forces. And in December the United States announced its intention to seek collective economic sanctions against Iran under the U.N. charter, an action that was vetoed by the Soviet Union in January.

During all of this, Iranian spokesmen gave off mixed signals, hinting of flexibility, then drawing back. The Shah's departure from the United States to Panama in December had little effect. The one man whose voice seemed to carry authority, Ayatollah Khomeini, remained adamant in calling for the Shah's return to Iran as the price for the release of the hostages, and carefully orchestrated American pressures seemed to have little impact on his thinking. Nor did the domestic turmoil in his own country, with separatist movements active in Azerbaijan, Kurdistan, Khuzestan and Baluchistan, convince the Ayatollah to turn his attention to internal problems. Instead, in the image of a true revolutionary, Khomeini remained obsessed with the evils of the Shah and with the "great Satan," the United States.

One of the questions that surrounded the Iranian Revolution from its onset was whether Khomeini and his Islamic Republic might signal a new resurgence of Islamic feeling and solidarity that would affect other Islamic nations, especially those in the Middle East. Iran was, to be sure, a special case, not only because of the centralized personal rule of the Shah, but also because of the dominance there of the Shi'ite version of Islam, which with few exceptions is elsewhere in the Islamic world a small though at times disturbing minority. Islamic reaction to the new regime in Iran reflected these differences. Muslim leaders expressed criticism of Khomeini, coupled with concern for Shi'ite activism in countries such as Iraq, Kuwait, Bahrain, and the eastern province of Saudi Arabia.

While it would be wrong to conclude that a wave of fundamentalism is sweeping the entire Islamic world, it is fair to say that many Muslims have a renewed sense of pride in their own civilization, a sense of power derived from the explosion of oil wealth in some countries, and a resistance to foreign interference in their affairs. These sensitivities manifested themselves when accusations were made that the United States had been involved in the attack on the Grand Mosque in Mecca in November 1979. While false, these charges resulted in violent anti-American demonstrations in Pakistan and Libya, the former culminating in the destruction of the U.S. Embassy in Islamabad. This suggested that an overt military threat against Iran over the hostage crisis might also serve to mobilize Muslim opinion against the United States, just as many Muslims reacted harshly against the Soviet invasion of Afghanistan in December.

In sum, the Iranian Revolution was unquestionably the most disruptive upheaval in the Middle East in the last generation, exceeding in the breadth and depth of its implications even the Arab-Israeli wars of 1967 and 1973. The damage to American and Western political and economic interests in 1979 alone was very great. These losses were not immediately gains for the Soviet Union, but the spreading chaos in Iran, the emergence of strong regionalist tendencies, and the persistence of a small but organized Left raised the possibility that in the future the Soviet Union might be well positioned to exploit Iranian difficulties. This could pose new threats and new challenges to American policymakers, who showed few signs of having devised a strategy for dealing with Iran either under Khomeini or in the event of his departure.

III

In contrast to the events in Iran, the achievement of peace between Egypt and Israel represented a welcome development in the Middle East from the perspective of the United States and some of its closest allies. While considerably less than the comprehensive peace the Carter Administration had initially favored, the peace treaty signed in March was nonetheless a significant step toward the broader settlement which remained an objective of American diplomacy. The treaty was to be implemented in phases, resulting in full Israeli withdrawal from the Sinai by the spring of 1982. Under the schedule, negotiations began in May 1979 on a Palestinian "self-governing authority" to be elected for a five-year transitional period pending a final settlement. The target date for concluding these talks was May 1980.

Independently of the Palestinian negotiations, Egypt and Israel are obligated by the terms of the treaty to carry out a carefully balanced set of commitments. With the return of the Sinai oil fields to Egyptian control in 1979, Egypt undertook to supply Israel with agreed quantities of oil at somewhat advantageous prices. Israel is now to withdraw its armed forces to a line running from El-Arish to Ras Muhammad by January 26, 1980, and at that time diplomatic relations are to be established and shortly thereafter ambassadors will be exchanged. A series of additional negotiations are envisaged after the establishment of diplomatic relations which will deal with trade, communications, cultural relations and civil aviation.

In addition, the leaders of the two countries adopted the practice of periodic summit meetings to discuss bilateral relations as well as issues of broader strategic concern such as Soviet policy in the area. In brief, a remarkable new chapter in Egyptian-Israeli relations was being written. It was less clear, however, that this would lead to progress in solving the Palestinian question.

Whatever the potential of the Camp David accords in laying the foundations for an overall resolution of the Arab-Israeli conflict, the American role in the second phase of negotiations dealing with Palestinian "autonomy" was a sharp departure from previous efforts to press the reluctant parties to make substantive concessions. This stance reflected changes in the American negotiating team, as President Carter and Secretary of State Vance in May 1979 turned over much of the responsibility for the peace talks to Robert Strauss. Wary of taking on the sensitive questions involving the Palestinians until he was fully in command of the issues and had a feel for the personalities involved, Strauss preferred to go slow at the outset.

The burden of the negotiations fell increasingly on the Egyptians and Israelis, with the Americans contenting themselves with offering support and providing encouragement. This seemed to be a satisfactory arrangement to Sadat and Begin, who began to develop for the first time a cordial personal relationship.

On two occasions the United States showed signs of renewed activism in the search to broaden the peace negotiations. By midsummer 1979, an Arab initiative was being floated at the United Nations concerning a possible Security Council resolution which would reaffirm U.N. Resolutions 242 and 338 on Middle East peace, while adding language on the right of the Palestinians to self-determination. Rather than turn such efforts aside, the Administration decided to explore the possibility of producing a balanced resolution, which, if successful, could bring the Palestine Liberation Organization (PLO) for the first time to accept Israel's right to exist. This would remove an obstacle in the way of a U.S.-Palestinian dialogue.

In order to gain time to develop the text of a moderate U.N. resolution, U.S. diplomats in late July sought a postponement of the debate. As part of this initiative, the American Ambassador to the United Nations, Andrew Young, held an unannounced and unauthorized meeting with an official of the PLO. While successful in obtaining the postponement, Young was less than forthcoming in his reports to Washington of the meeting, resulting in a political crisis which ended in his resignation on August 15. American black leaders resented what they saw as Israeli pressure to remove Young, and for a period of weeks black community leaders angrily denounced Israel and sought to open contacts with Palestinians.

Meanwhile, the Administration doggedly pursued the search for a balanced U.N. resolution. Carter sent Strauss to the Middle East in mid-August with firm instructions to inform Begin and Sadat that the United States intended to put forward a draft of its own. Israeli reaction was predictably hostile, but the Administration was unprepared for Sadat's angry rejection of the idea. Upon Strauss's return to Washington, the idea was shelved.

A second initiative was proposed by State Department officials to deal with the deteriorating situation in Lebanon. It was hoped that the United States could reestablish its credibility and its contacts with Syria, the Palestinians and other Arabs by working for a resolution of the Lebanon crisis. In time, the scope of discussions might be broadened beyond Lebanon. But once again, this initially ambitious project was cut down to size as its complexities became more apparent. In the end, little was done other than to send an emissary to listen to the views of the various parties to the Lebanese dispute.

This left the situation in Lebanon as volatile as ever. In the south, Israeli-backed Christian militias had carved out an autonomous region along the border. U.N. forces tried to keep them and the PLO from fighting, with only limited success. Syrian troops controlled much of Lebanon north of the Litani River, with the exception of a Christian enclave around Beirut. Little was seen of the Lebanese government as the country lapsed into de facto partition. Apart from the depressing consequences of this situation for Lebanese of all persuasions, the risk of Israeli-Syrian clashes was ever-present and could spark a broader conflict in the region.

In November, Ambassador Strauss gave up the job of chief Middle East negotiator in order to help get President Carter reelected. The new special negotiator was Sol Linowitz, whose record included the successful conduct of the negotiations on the Panama Canal. But as the hostage crisis in Iran engulfed official Washington, the new Ambassador's expressions of optimism hardly rated a headline. Few in the Administration expected that the self-imposed target date of May 1980 for the conclusion of the negotiations on Palestinian self-government could be met.

Some exaggerated claims have been made about the peace treaty by those who argue that it will enhance stability in the region and promote regional economic cooperation. Some believe it will be a model for others to follow and that the Egyptian-Israeli treaty will be the first of a series of agreements between Israel and her other neighbors. But these claims seemed to have little validity at the end of 1979. No other Arab state has shown an inclination to join in the negotiations with Israel, and many fear that Egypt's removal from the conflict has changed the balance of power so dramatically in favor of Israel that any future negotiations will largely result in Israel being able to dictate her own terms.

Even if the Egyptian-Israeli treaty stands alone for the moment as a separate peace, from an American perspective it will serve several useful purposes. It virtually precludes a resumption of a large-scale Arab-Israeli war, such as occurred in June 1967 and October 1973. Thus the risk of a U.S.-Soviet confrontation in the Middle East over this issue has been sharply reduced. Nor is the Soviet Union likely to reenter Egypt as a dominant power now that Egypt no longer requires large quantities of Soviet weapons.

Indeed, a profound change has been taking place in Egypt's foreign policy. Sadat has embarked on a new strategy as a result of the peace treaty with Israel and it will be extraordinarily difficult for him to reverse course and return to a state of belligerency. To do so would risk sacrificing most of the gains he has made in recovering Egyptian territory, and even more important in terms of the new U.S.-Egyptian strategic relationship. Peace with Israel is the precondition for Egypt becoming a special partner of the United States. Sadat understands this relationship and seems prepared to live with its implications.

But unlike the United States, Sadat has not welcomed Saudi Arabia as a party to the new relationship. He seems to prefer a direct U.S.-Egypt bilateral tie, undiluted by Saudi economic assistance. American aid, in his view, is more reliable and comes with fewer strings than Saudi aid. As a result, Sadat has often seemed to be deliberately pushing the Saudis away from Egypt, as in a provocative speech on May 1, 1979. He has likewise shown little concern with his growing isolation in the Arab world.

The United States, from Sadat's perspective, is likely to make up for the loss of aid from the other Arabs. And to a substantial degree, the United States has been forthcoming. When Saudi Arabia withdrew its offer to pay for F-5E jets for Egypt, the United States took over the financing and even offered a better airplane, the F-4 Phantom. One billion dollars annually in American economic assistance, coupled with $500 million per year of military credits, represents a substantial step in the direction of meeting Egypt's real needs in these two areas, and there has been speculation that the amount of military aid may be significantly increased in fiscal year 1981.

Some of Sadat's colleagues are genuinely concerned by the degree to which he has split Egypt from the Arab world and by his somewhat unrealistic expectations of American support in the future. But Sadat's basic gamble on peace and on the United States has been widely approved by his countrymen, and Sadat's personal standing appears to remain high despite the poor economic performance of the country and growing complaints about corruption and the continued inefficiency of Egypt's overgrown bureaucracy. Some fear that the lack of a tangible peace dividend for the Egyptian public might breed disaffection. On balance, it seems that the major challenge to Sadat will come from Egypt's internal problems, not from abroad.

For Israel, peace with Egypt has opened a new era in the Jewish state's modern history. It is a strategic gain and virtually removes the threat of serious Arab attack on Israel. As such, most Israelis have welcomed the treaty as a major breakthrough, even though it leaves many issues unresolved and does little to help Israel deal with her staggeringly difficult economic and social problems.

Peace with Egypt also entails a commitment to negotiating in good faith on the Palestinian question, specifically on a transitional "autonomous" regime for the West Bank and Gaza. These negotiations have proved to be extremely contentious within Israel, dividing the public along partisan lines and even splitting Prime Minister Begin's coalition. The resignation of Israel's prestigious Foreign Minister, Moshe Dayan, in October was seen by many in Israel and abroad as a significant vote of no confidence in the Begin approach to the negotiations. The remaining coalition is weak and there is a widespread expectation that eventually the Labor Party will return to power, although it is not at all clear when that might take place. There is also speculation that a centrist coalition might be formed, excluding not only the extremes of Left and Right but also the religious parties. Elections are not scheduled, however, until the spring of 1981 and Begin has good prospects for keeping his coalition together until then. The price in foreign policy terms, however, is likely to be a cautious approach to negotiations.

If Israel does appear to interpret the Camp David accords in an excessively narrow manner, problems could arise in relations with both Washington and Cairo. The probable failure to achieve significant results in the negotiations by May 1980 could also raise tensions. Israel's apparently irresistible need to establish new settlements in occupied territories is also a periodic source of strain.

Nonetheless, there is no reason to anticipate serious U.S. pressure on Israel at an early date, nor is Sadat likely to freeze the normalization of relations to which he is committed, including the exchange of ambassadors in February 1980. On balance, it appears that the Egyptian-Israeli relationship will evolve with only minimal movement on the Palestinian front. Neither breakthroughs nor breakdowns in the Camp David negotiations can be expected in the near future. Instead, the parties will tend to more urgent matters, and, it is hoped, recognize that in due course the Palestinian issue will have to be confronted forthrightly and with the same degree of commitment and perseverance that was needed in the successful Egyptian-Israeli peace treaty negotiations. But the time for such renewed efforts will most likely be 1981, not 1980.

While Egypt and Israel can take satisfaction in their new peaceful relationship, other Arabs have been deeply opposed to what they see as a separate peace. Meeting in Baghdad in March 1979, after the signing of the peace treaty, nearly all Arab countries decided to break diplomatic relations with Egypt and to terminate aid commitments.

Palestinians, through their self-designated spokesman, the Palestine Liberation Organization, were vociferous critics of Sadat's policies, but were also active in promoting the idea that the Palestinians should be brought into negotiations at some time in the future. And while their attitude toward the Camp David process was predictably negative, they sought diplomatic recognition in Western Europe and dropped hints that their future policies might be more moderate than those of the past.

By the year's end, the PLO had received unprecedented recognition in Europe, as well as in virtually all of the Third World. Even within the United States, significant currents of opinion were calling for some kind of dialogue between the United States and the PLO. The mainstream of the PLO welcomed these developments and anticipated that at some point contacts with the American government would take place. But the PLO still seemed reluctant to enforce a uniform policy on its divided ranks, and in particular it continued to withhold the "card," as PLO chairman Yasir Arafat called it, of recognizing Israel. There were some, however, who saw in the Jordanian-PLO dialogue a positive step toward Palestinian acceptance not only of the reality of Israel, but also of the inevitability of a link between any future Palestinian entity and Jordan.

IV

If the PLO seemed to be relatively self-confident and assertive during much of 1979, the same could not be said of Saudi Arabia. There the events of Iran and the Egyptian-Israeli peace treaty caused a great deal of anxiety and ambivalence, coupled with a loss of confidence in the United States. To allay the fears caused by the events in Iran, Secretary of Defense Harold Brown visited Saudi Arabia in February, as well as Egypt, Israel and Jordan. He promised a more active U.S. role in the region, and specifically consulted with the Saudis on threats to their security.

The Saudis felt particularly vulnerable when, just after Secretary Brown's trip, South Yemen attacked North Yemen. That brief incident alarmed the Saudis, who appealed to the United States for immediate assistance. The American response was swift and substantial. Nearly $500 million in arms was promised and rapidly delivered to the Sanaa regime, but this was not immediately translated into U.S. influence. Instead, North Yemen continued to hedge its bets by also accepting arms from the Soviets, talking of unity with South Yemen, and keeping some distance from the Saudi embrace.

Anxious to preserve a close relationship with the United States despite differences over the Palestinian issue and Camp David, the Saudis were generally cooperative on oil pricing and production during 1979.2 In January 1979, the Saudis were producing at their maximum sustainable capacity, about 10.5 million barrels per day (mb/d), in order to make up for the shortfall in Iranian production. But even at that level, supply was not able to meet demand. In these circumstances, the Saudis were unable to restrain OPEC decisions in mid-1979 to drive the price of oil up by 60 percent. Saudi Arabia did, however, sell its oil at $18 per barrel during most of the last two quarters of 1979, and output was kept at 9.5 mb/d. Other OPEC members were charging $6-10 more per barrel than the Saudis, and the spot market price of a barrel of oil hit $40. When it appeared as if Saudi Arabia was forgoing current income largely as a subsidy to American oil companies (whose profits hit record highs by selling less expensive Saudi oil in the uncontrolled European market), the incentives for further Saudi price restraint were weakened. Just before the Caracas meeting of OPEC in December, the Saudis raised the price of their oil to $24 per barrel.

Price increases helped the Saudis meet their growing appetite for income. For two years, in 1977 and 1978, the Saudis had overspent their budget and had been obliged to draw down on some of their reserve holdings. The oil price increases of 1979 returned Saudi Arabia to a position of accumulating substantial surpluses, but the Saudis have been capable of quickly learning to spend virtually all of their oil income. This may set something of a floor for Saudi production. Yet Saudi reluctance to expand productive capacity beyond 12 mb/d by making large investments in their oil fields also limits Saudi flexibility. The range of real choices for the Saudis may be narrowing, and as a result Saudi power within OPEC may be slipping.

Nonetheless, voices were heard toward the end of 1979 speculating that in the 1980s the Saudis might use their oil to press the United States on issues such as Jerusalem and the Palestinian question. Saudi Oil Minister Yamani publicly declared that peace in the Middle East would bring about untold benefits to the United States, and presidential aspirant John Connally put forward the argument that a credible American Middle East peace plan would make it easier to strike a deal with Saudi Arabia to guarantee large quantities of oil at reasonable prices. But as Saudi concerns turned increasingly to the danger of Soviet expansion, it became less and less likely that the Saudis would allow their commitment to the Palestinians to dictate their oil policy. As much as they might hope for progress in solving the Palestinian problem, the use of the oil weapon did not recommend itself at a time of great uncertainty and instability in the region.

But it was not only oil policy and the threat of external aggression that preoccupied the Saudis in 1979. Conscious that rapid economic development had alienated some of the most traditional sectors of their society, the Saudi leadership was nonetheless shocked when on November 20 a group of religious extremists seized the Grand Mosque in Mecca, the holiest of Islamic shrines. One of the group demanded recognition as the Mahdi (a long-awaited Islamic Messiah) from the assembled worshippers, many of whom were held by force as hostages. The Saudis quickly sealed off the Mosque, but it took more than two weeks to capture the last of the attackers. While the Saudis officially maintained that the group was motivated only by religious fanaticism, it was widely noted that they were well organized, disciplined, trained in the use of arms, and prepared to die for their beliefs.3

While the incident does not foreshadow the imminent collapse of the Saudi monarchy, it is nonetheless a reminder that the Saudis have serious internal problems to cope with. Striking a balance between traditional values and the imperatives of economic development is difficult in the best of cases, and the Saudi advantage of immense wealth and a small population is not a guarantee of a safe passage through the modernization process. Still, real threats to the regime in the future seem less likely to come from religious fundamentalists than from within the new institutions of power within the country-the modern army and the bureaucracy. If the regime can keep these elements satisfied and loyal, and if the thousands of students who are now studying abroad can be reintegrated into Saudi society smoothly, the royal family should be able to manage its domestic problems. The removal of a number of ineffective and corrupt leaders after the Mosque incident showed a recognition of the need to clean house in order to deal with internal issues more effectively. But if external pressures are added to the equation, Saudi capabilities could easily be exceeded.

Saudi Arabia will doubtless be subjected to the pull of inter-Arab politics to align with radical countries. Saudi-Iraqi relations have been improving, much to the satisfaction of Riyadh, but the price for this new détente is an attentiveness to Iraqi views on regional issues. In addition, the Saudis maintain close ties to the PLO as a means of bolstering moderate Palestinian views and of deflecting pressures from themselves. The Saudi desire to play a leadership role in the Arab world, and to restrain radical tendencies, results in a Saudi search for consensus, even if that consensus is at times at variance with the Saudi government's own preferences.

The U.S.-Saudi relationship remains important to both countries, and in the security area the recognition of mutual interests has not been significantly eroded. But the bonds are as tenuous and troubled as at any time in the past, in part because of inadequate appreciation of Saudi regional concerns. For example, it was unrealistic to expect the Saudis to support Camp David openly. It was insensitive to advertise in official Washington circles that Crown Prince Fahd was a weak leader and that the royal family was split into rival factions. And it was simply false for President Carter to maintain that the Saudis had told him that they did not favor a Palestinian state. Each of these minor irritants in U.S.-Saudi relations in 1979 could have been easily avoided.

Elsewhere in the Middle East, one of the significant developments stemming from the Shah's overthrow has been the acceleration of Iraq's emergence as a major regional power. Iraqi military strength has been growing in the past decade, fueled by impressive oil revenues. With its main rivals in the region, Iran and Syria, in disarray or weakened by internal conflicts, Iraq has more clout than ever. Iraq is taken seriously by the smaller Gulf Arab states, as well as by Saudi Arabia, and the two Baghdad conferences of 1978 and 1979, at which Sadat's peace policies were roundly condemned, reflected to a significant degree Iraq's increasing power in inter-Arab politics. In order to enhance its influence with other Arab states, Iraq has been prepared to pursue a somewhat more moderate line on the Arab-Israeli conflict and to broaden the scope of its relations to include ties with a number of conservative regimes, including Saudi Arabia. But Iraq remains adamantly opposed to a serious official relationship with the United States, even as it asserts its independence from Moscow by cracking down on the Iraqi Communist Party and opposing Soviet policy in the Horn of Africa and Afghanistan.

The Iraqi regime, however, has not been unchallenged. Within the country, the Shi'ite majority, potentially suspectible to Khomeini's appeal, could be a problem for the secular Baathist rulers. Indeed, the Baathist leaders, most of whom are Sunni Muslims, have tried to identify themselves with Shi'ite traditions and history. Kurdish demands for autonomy have recently become more intense in Iran than in Iraq, but the Iraqis must also be apprehensive about Kurdish militancy on their borders.

For the present, the Iraqi political system seems to be tightly under the control of the new President, Saddam Hussein, who seized power in a preemptive coup in July, after which he drastically purged the party and army of his rivals, while accusing Syria of plotting against him. Under Saddam Hussein's leadership, Iraq may be heading toward a clash with neighboring Iran and the possibility of an Iraqi-Iranian war cannot be lightly dismissed. Such a conflict would pose painful dilemmas for the United States-and probably for the Soviet Union as well.

V

The Soviet Union has had a mixture of successes and failures in its Middle East policy, and 1979 was no exception to this pattern. Moscow was frozen out of the Egyptian-Israeli peace negotiations and could do little to prevent the new strategic relationship between the United States and Egypt. Overtures to Saudi Arabia were rebuffed. Iraq slipped a bit further out of the Kremlin's embrace, and the PLO leadership was more anxious to be seen in Madrid and Paris than in Moscow. And Somalia, where the Soviets had made use of the port of Berbera, was talking to Americans about similar arrangements for the U.S. Navy.

The positive side of the balance sheet was nonetheless impressive. The collapse of the Shah's regime was a clear strategic gain for the Soviets, and Khomeini seemed much more anti-American than anti-Soviet. OPEC price increases had a debilitating effect on the Western economies, while making Soviet oil exports more valuable. Two ruling Communist Parties-in Ethiopia and South Yemen-were deepening their dependency on the Soviets.

Libya, Algeria and Syria were less predictable clients than the Marxist regimes, but the Soviets remained the primary suppliers of military equipment to these countries, which were at odds with American-armed neighbors. Drawing lessons from experiences in Egypt and Somalia, the Soviets seemed intent upon developing reliable positions of strength in strategically located areas. With Communist Parties in power in Ethiopia, South Yemen and Afghanistan, the Soviets were quick to provide generous military assistance, advisers, intelligence experts, security guards for the head of state, and even combat troops. Soviet allies, such as Cubans in Ethiopia and East Germans in South Yemen, also played crucial roles by sending troops to Ethiopia and technicians to the Aden regime. Some observers felt that Libya might also seek Cuban or Soviet combat troops if Egypt were to mount a credible threat on its borders.

Against this background of Soviet assertiveness in the Middle East, it should have come as little surprise that Moscow was prepared to take risks to protect its position of influence in the region. The most dramatic proof of this came in late December with the Soviet takeover of Afghanistan.

When a pro-Soviet regime came to power in Afghanistan in April 1978 in a bloody coup, Washington, to say nothing of the American public, hardly noticed. Little was heard of historic Soviet interest in warm water ports, nor did political commentators herald the return of the cold war. Yet 18 months later, another coup in Kabul had dramatically different consequences. In the interval, much had changed.

The communist regime that seized control of Afghanistan in April 1978 had successfully infiltrated the armed forces and had a base of political organization within the country. While pro-Soviet in its foreign policy, the regime was not fully responsive to Moscow's directives. Indeed, the Parcham faction of the Democratic Party of the Masses, which the Soviets favored, was quickly eliminated in favor of the Khalq faction led by Noor Mohammad Taraki and Hafizullah Amin.

As the Taraki regime tried to extend its sway into the countryside, it encountered armed resistance from fiercely independent Afghan tribesmen. By the fall of 1979, the Soviets apparently concluded that President Taraki needed to broaden his political base and to that end he should remove his controversial Prime Minister Hafizullah Amin. Not surprisingly, Amin reacted by ousting Taraki, in a coup in September that caught Moscow unprepared.

From that moment on, the Soviets appear to have developed a strategy for removing Amin and replacing him with a more amenable client. Under the guise of helping the regime against the Muslim rebels, Soviet military advisers entered Afghanistan, followed in late December by combat troops. In addition, several Soviet divisions were poised across the border. Soviet forces first settled the score with Amin in a quickly executed coup which brought Parcham leader Babrak Karmal to power. Amin himself was executed, as Soviet troops poured into Afghanistan, their numbers exceeding 50,000 within a matter of days, clearly with the objective of putting down the insurgency and establishing firm and lasting Soviet control.

This unprecedented display of Soviet military power outside Eastern Europe brought U.S.-Soviet relations to a crisis point and raised serious questions in Washington about Soviet aims. President Carter noted that Soviet behavior in Afghanistan had done more to educate him about Soviet intentions than any other event during his presidency. As a result, he postponed Senate consideration of the SALT II treaty, cancelled 17 million tons of grain sales to the Soviet Union, and announced a series of other punitive measures.

If Iran were more stable, if oil were less vital to the West, and if U.S.-Soviet relations were otherwise in good repair, the events in Afghanistan might have had limited impact on American thinking. But in the existing circumstances, the Soviet occupation of Afghanistan served to crystallize a number of converging trends, the net effect of which was to reinforce American concern for Persian Gulf security.

While Iran was likely to prove the most significant arena of confrontation, it was neighboring Pakistan and its Baluchistan province that seemed most vulnerable to pressures from the Soviet military presence in Afghanistan. Arms supplies to Pakistan were one response; aid to Afghan rebels another. The search for naval and air facilities to support a stronger American military posture in the area was also accelerated. But the diplomatic challenge loomed large. Could the U.S. capitalize on Pakistani, Iranian and even Iraqi fears of Soviet expansion to insure that Moscow's influence could be contained? Or had U.S. prestige sunk so low that Afghanistan's neighbors would prefer to accommodate the Soviets rather than try to resist Soviet pressures? As the 1980s began, the question could be raised, but not answered.

VI

As of mid-January 1980, it is too early to assess the full implications of the Soviet invasion of Afghanistan. Continuing Soviet dominance there could threaten Pakistan in the immediate future. By supporting Baluchi dissidents, the Soviets could weaken both Pakistan and Iran, perhaps eventually bringing the Soviets closer to gaining a foothold on the Arabian Sea. In any event, there can be no doubt that in Middle East terms what has happened in Afghanistan has greatly accentuated the already serious problem of security and stability in the vital region surrounding the world's largest reserves of oil.

Nor is it now possible to assess the reaction in Iran to a totally Soviet-dominated Afghanistan. One might expect Iranians to recognize that it is the Soviet Union that threatens the independence and unity of Iran. This could result in a turn to the United States after the hostage issue has been resolved. But Khomeini shows little sign of drawing such conclusions, and thus Iran's future orientation remains clouded.

Many in the Middle East expect that Iran will eventually slip into the Soviet sphere of influence. This could occur if a pro-Soviet regime were to come to power. Or it could result from Iran's fragmentation, with "autonomous" governments in Azerbaijan and Kurdistan turning to Moscow for support, as happened after World War II.

The Soviets have several factors in their favor in Iran. They could provide needed military equipment to the Iranian armed forces. They could offer protection against Iraqi military threats. They could help Iran circumvent a U.S.-sponsored economic blockade. And they have supporters in crucial sectors such as the Tudeh party, among the oil-field workers, and in the provinces along the Soviet border.

Iran will not inevitably go the way of Afghanistan, and the Soviets will doubtless have difficult decisions to make as they pursue their long-term objective of enhancing their influence in Iran. But the Soviet incentive for gaining a privileged position in Iran is likely to grow in the 1980s if the U.S.S.R. does in fact become an importer of significant quantities of Middle Eastern oil. Predictions of Soviet supply and demand for oil are uncertain, but one line of analysis leads to the conclusion that the Soviets will need to import oil by the mid-1980s.

For Moscow, this raises the problem of how to pay for the oil, since virtually all producers insist on payment in hard currencies. If the Soviets were to import only one mb/d at 1980 prices, they would need to spend nearly $10 billion annually. Any arrangements whereby the Soviets could supply arms or goods to offset this cost would be highly advantageous, and Iran stands out as one country where such terms might be met if a sufficiently friendly or dependent regime were to come to power.

Thus, in assessing Soviet attempts to take advantage of instability in the Persian Gulf and Arabian Peninsula, Iran is likely to be the most dangerous arena of confrontation. Having failed to come to terms with Khomeini, the United States may begin to look beyond his rule to the kind of Iran that may emerge at a later date. For the moment, American influence over Iranian events is at the lowest point since World War II. But whatever the outcome of the hostage crisis, President Carter's dilemmas will not be easily resolved. The question will remain of how to influence events in Iran so that eventually U.S.-Iranian relations can be resumed on a level commensurate with American interests in the region.

One element of an effective American Middle East policy involves military power. During the Iran hostage crisis, it became common wisdom to declare that the post-Vietnam era had come to a close. Iran had supposedly convinced Americans that an anti-interventionist foreign policy was inadequate, that military power could not be neglected, and that U.S. prestige must quickly be restored if vital interests were to be protected. In this atmosphere, it was almost inevitable that President Carter would seek a larger military budget and that plans would be made to acquire U.S. bases in the Persian Gulf region. A reflection of this change was an increase in U.S. military capabilities in the Indian Ocean and Persian Gulf regions by the end of 1979. Two ships were added to the Bahrain-based Mideast Force; units of the Pacific and Mediterranean fleets were rotated into the Indian Ocean to create a continuous presence; defense spending for a "Rapid Deployment Force" was on the rise; U.S. radar planes were operating from Egyptian airfields; and at year's end a U.S. mission was sent to Saudi Arabia, Oman, Somalia and Kenya to look at basing possibilities.

It is entirely appropriate to think of how to make this dimension of the U.S. presence more effective and credible. But there is a risk of concentrating on the technical requirements of the military without due attention to political and diplomatic contexts. Bases or facilities may or may not be useful in a strictly military sense, but if they serve to weaken a regime, or provide openings for Soviet influence, they may be politically counterproductive.

In addition to strengthening the U.S. military presence in the Middle East, some analysts have recommended that the United States take the lead in developing a collective security framework modeled on NATO. Egypt, Israel and Saudi Arabia are usually mentioned as the prime candidates; the incentive would presumably be a common fear of Soviet power.

The NATO analogy serves more to highlight the difficulties of security in the Middle East than to prescribe a remedy. Whereas the NATO countries tended to perceive the Soviet threat in similar terms and held many political values in common, the major powers of the Middle East are far from being a cohesive bloc.

Egypt and Israel are groping their way toward a new relationship which might in time include cooperation in the security area, but the United States can do little to force the pace. Saudi Arabia wants no part of an Egyptian-Israeli alliance, seeing in their relationship one of the prime reasons for growing Soviet influence in the Arab world. For the moment, national rivalries overshadow any recognition of common security problems. The best that the United States can hope for is a network of bilateral relations-with Israel, Egypt, Saudi Arabia, Oman, Jordan and Somalia-which might in time lead to broader cooperation.

VII

While the events of 1979 in the Middle East will undoubtedly have the effect on U.S. policy of pushing the Persian Gulf and Arabian Peninsula region to the top of the foreign policy agenda, it would be misleading to conclude that the more conventional American concerns with the Arab-Israeli conflict can be relegated indefinitely to the back burner. In the first place, there is a link between stability in the Arab oil-producing areas and the Palestinian issue. Second, the United States continues to occupy a unique diplomatic position as the only acceptable and credible mediator in the Arab-Israeli dispute. The successful Egyptian-Israeli negotiations stand as testimony to what can be achieved by persistent and imaginative American diplomacy.

Several specific policy choices involving the Palestinian question will be faced by the Administration in 1980 and beyond. Most important will be how to proceed in the negotiations after the May 1980 target date has passed. The Israelis are likely to want to continue the talks within the Camp David framework. The Egyptians may urge a broadening of the negotiations. As the architect of Camp David, President Carter will become the likely arbitrator. If the negotiations have produced few results in the course of one year, it will be hard to justify continuing with the same terms of reference. This suggests that the formal talks might be recessed, pending a redefinition of the underlying principles of a Palestinian settlement, or that the United States might begin to put forward substantive positions of its own in order to keep the negotiations alive.

The U.S. motivation for resuming an activist role in the Palestinian negotiations need not be fear that a stalemate could jeopardize Egyptian-Israeli relations. And activism for its own sake is pointless. But the Administration does need to think about the questions of stability, Soviet influence, and American credibility in the Arab world, and to some extent each of these issues will be affected by the stance taken by the United States in the ongoing peace negotiations.

It will do little for U.S. prestige as a superpower if Egypt and Israel appear to be dictating American policy in the Middle East. Quite apart from the perceived interests of America's two partners in the peace negotiations, the United States has important relations with Saudi Arabia, the Gulf states and Jordan. Sadat may treat the Saudis and King Hussein with disdain, but that is no reason for Washington to follow suit. By refusing to see King Hussein in the fall of 1979, President Carter added unnecessary strain to U.S.-Jordanian relations and reduced even further the chance that Jordan would adopt a helpful role in the search for a Palestinian settlement. Indeed, the deterioration of U.S.-Jordanian ties during 1979 was a striking and worrisome development.

Thus, one step toward restoring the United States to an influential role in the Arab Middle East will involve a resumption of serious initiatives to resolve the Palestinian issue. No one expects instant results, especially in an election year, but many Arabs still look to Washington as holding the key to peace in the region. This is both an asset and a liability, depending on how the Administration plays its hand. But to turn away from the Arab-Israeli dispute, after having invested so heavily in seeking its resolution, would badly damage the American position in important parts of the Arab world.

In view of the many adverse trends in the Middle East, the United States needs to demonstrate its continuing ability to strengthen moderate forces and to provide political channels for resolving conflicts. Diplomacy without power can do little for the problems of the Middle East, but it is equally true that power alone will not suffice to protect American interests. The test of American statesmanship in the Middle East in the 1980s will be to wed diplomacy and power in such a way that the credibility of the United States is restored. For the moment, the test appears to be formidable, but not impossible.

1 In addition to the effect on American thinking about U.S. interests in the Middle East brought on by the events of Iran, the United States also suffered the loss of intelligence facilities which had helped to monitor Soviet strategic weapons development. This had some effect on the debate over the SALT treaty, although it did not prove to be a decisive argument.

2 For details, see the article by Robert Stobaugh and Daniel Yergin in this issue.

3 At least one Saudi official has said that the leaders of the attack had been organized and trained abroad, presumably in South Yemen. Of the several hundred assailants, most were Saudi nationals, with a sprinkling of other Arabs. Some were known to Saudi security forces as religious extremists, and there seems little doubt that many of those involved in the attack were motivated by religious views. To date, however, the Saudis have put out very little credible information concerning the incident.

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  • William B. Quandt is a senior fellow at The Brookings Institution. From January 1977 to mid-1979, he served on the National Security Council staff, where he dealt with Middle Eastern affairs. He is the author of several books, most recently Decade of Decisions: American Policy Toward the Arab-Israeli Conflict, 1967-1976.
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