Iran, in the view of Shah Mohammed Reza Pahlavi, has a great imperial past and a greater imperial future. In the next few years it is to assert its dominant role in the Persian Gulf region and the nearby reaches of the Indian Ocean. By 1990 it will attain the status of a Britain or a France in the global hierarchy of powers. Seeing this dream of the future, the Shah is already acting as if it were reality. Meanwhile, his neighbor across the Gulf, Saudi Arabia, talks less of empire but gradually extends its influence through the Arab world. Sheikh Ahmed Zaki Yamani, the Saudi Minister of Oil and Industry, can virtually dictate the world price of oil as long as he speaks for his king. He can lead the Organization of Petroleum Exporting Countries (OPEC) or he can break it. He can please the Americans by being "moderate" on the oil price, and at the same time can remind them that he expects them to move Israel toward a settlement acceptable to the Arabs. The United States worries about its rising imports of oil, which increase its vulnerability to the decisions of OPEC, but takes comfort in the fact that it has a friend in Riyadh.

A few years ago, before the oil crisis of 1973-74, Walter Levy wrote in these pages about "oil power."[1] The oil-producing countries of the Mediterranean and the Middle East, following the initiative of Libya, had demonstrated that they could dictate terms to the great international oil companies, for years the symbols of the power of Western capitalism. Whether the question at hand was the price of oil, the level of royalties and taxes, or the terms of nationalization of company properties, there was no real negotiation because the world oil trade had become a sellers' market and because national sovereignty could not be challenged. As long as the companies and the consumers were willing to pay for the oil, the governments that controlled it could establish the conditions. The governments of the consuming countries might have taken the decision to back the companies in resisting the demands they faced, using their economic and perhaps their military power if it came to a showdown. But such a decision was not seriously considered. The chief concern of the U.S. government, for one, was to maintain the good will of the Shah and of the King of Saudi Arabia, on whom it was counting to maintain the security and stability of the Persian Gulf region against any attempt by the Soviets or their local followers to upset it.

Oil power, then, was the ability not just to dictate to private companies but to influence the governments of important powers. The Arabs learned this lesson and applied it for political purposes, with their oil embargo and cuts in production and export, at the time of the October War in 1973. The members of OPEC, Arab and non-Arab, used the same occasion to quadruple the price of their oil. The governments of the most vulnerable consuming countries, in Western Europe and Japan, reacted in near panic, seeking ways to appease the Arabs on political matters and to obtain economic deals that would assure them continued access to Middle East oil at the new high prices. The less vulnerable United States declared it would not bend the principles of its foreign policy (which in this case meant support of Israel) because of economic pressure and looked for ways to lower the price; meanwhile Secretary of State Kissinger did not disguise his feeling that the Europeans had been pusillanimous in the crisis and had let their NATO ally down. Thus oil power had shown the capacity not only to make the Western nations pay a great deal more, but to make them think new thoughts; and it had caused a major rift between Western Europe and the United States.

Was this a great turning point in history, a shift to a new balance of power in which previously weak countries with national resources essential to others, but not much else, could impose their will on established nations possessing greater military strength and developed modern industries? The new oil price and OPEC were real enough. Would comparable organizations for copper, bauxite and other materials give the Third World the power to bring about a new international economic order instead of just demanding it without much hope of success?

We have now had four years in which to observe and absorb some lessons of the oil revolution. Perhaps the principal one is that it remains just that, a changed relationship between some oil producers and some oil consumers. It has not generated OPECs for other commodities. It has not emancipated the Third World from its poverty, nor has it ushered in a new world order. These matters are being discussed in the United Nations as they were before. The developed countries, including the United States, are prepared to do more about commodity agreements, buffer stocks and special funds to meet Third World needs. The negotiations at the Conference on International Economic Cooperation (CIEC) in Paris, which grew out of the oil crisis, have now come to an end without significant agreement and amid controversy on what to do next. There the oil producers lined up with the other Third World countries against the developed, but this was no showdown. Debate and negotiation will go on. OPEC and the industrial countries will both do something to ease the plight of the poor nations, while each side blames the other for not doing more. If the revolutionary change to a new international economic order takes place, it will probably happen so slowly that we shall not recognize it when it is here. By that time oil power may be a relic of the past.

The oil revolution itself, however, is with us now. It has changed relations between producing and consuming countries and it has changed the political map of the Middle East. To be more specific, it has raised to a new status two states that have oil in quantity and have set out to translate it into various tangible and intangible attributes of power.

The practice of independent diplomacy and the knowledge of the relationship of oil to political power did not come overnight to Iran or to Saudi Arabia. Both had traditions that made a policy of self-assertion quite natural once the means were at hand to carry it out. But the experience of the two countries has been different, and each deserves to be considered separately.


The memory of the Persian imperial past was never entirely lost during the later centuries of weakness. Though often under pressure from the claims and ambitions of stronger outside powers, the country avoided annexation and partition thanks to the balance between those outside powers and to skillful diplomacy. Its rulers yielded when they had no choice, remaining ever sensitive to the forms of sovereignty and always seeking to assert national rights and interests. Such an instance was the Anglo-Russian occupation of the country in World War II, which forced the abdication of Reza Shah, the founder of the modern Iranian state, in favor of his son, Mohammed Reza, but also brought pledges to respect Iran's sovereignty and to end the occupation after the war, pledges with which the United States was later associated.

Postwar Iran had reason to be grateful to the United States. American diplomatic support made it possible to get rid of the Soviet occupation forces after they had outstayed their welcome and fostered a separatist revolution in Iran's northern province of Azerbaijan. And America's differences with Britain over the handling of the crisis that followed nationalization of the Anglo-Iranian Oil Company by the government of Mohammed Mosaddeq in the early 1950s enabled Iran to come out of the crisis with a new deal on oil, although Mosaddeq himself disappeared from the political scene. The United States was involved in the events that brought the Shah back to the throne he left briefly in those critical days of 1953, and by the mid-1950s was indeed the principal protecting power, providing military, economic and technical assistance and drawing Iran into its worldwide alliance system. Yet Iran was no American satellite state. Those very crises in which it had used the American connection to reduce the pressure from Russia and from Britain had fed the fires of Iranian nationalism, which rejected subordination to any other nation. And the policy of industrialization and modernization, begun by Reza Shah, was carried on with American help by his son with the idea of strengthening Iran against any power, including the United States, which might be tempted to encroach on its independence.

The cold war, which from Iran's standpoint was a replay of the Anglo-Russian rivalry of an earlier time, offered some scope for classic Iranian maneuver. The Shah knew the value of Iran to U.S. strategy as well as Iran's own need for U.S. support. After Stalin's death, he gave a favorable response to Soviet proposals to repair the link between Moscow and Tehran. Before signing a security agreement with the United States in 1959, he negotiated with Moscow on the terms of a new Soviet-Iranian treaty, which was not concluded because Khrushchev would not meet his conditions. But the signal to Washington was clear. A few years later the Shah made a pledge to Moscow that Iran would not grant a strategic base to any foreign power, a move that encouraged Khrushchev's successors to undertake a real rapprochement with Iran in the mid-1960s. The new Soviet-Iranian ties have often been cited to show how the Soviets were carrying out a strategy of moving into the Middle East. But the initiative came also from Iran. The advent of détente in East-West relations was for the Shah an opportunity to return at least partially to the old practice of balancing between the contending powers. But this time he proposed to do so from a stronger base and began to build up his armed forces with large quantities of American, and small quantities of Soviet, equipment.

The remaining element in Iran's postwar outlook was the search for a regional role. At first the motivation was largely defensive. If the Soviet Union was the major threat, the secondary threat was radical Arab nationalism represented by Nasser's Egypt and, after the revolution of 1958 in Baghdad, by a succession of radical regimes in Iraq. Iran's fear was that as British power declined in the Arabian Peninsula and in the Gulf, the combination of Arab nationalism and social revolution supported by Moscow would compound the dangers threatening the country from several directions. The Shah took what measures he could, making use of the Western connection and even of cooperation sub rosa with Israel. He helped keep the Kurdish rebellion going in the northern provinces of Iraq. But what the Shah wanted most of all was the strength and capacity for Iran to rely on itself and to carve out a regional policy of its own. And for this he needed a greater respect and a more influential voice in the councils of world affairs.

These were the main aims of Iranian policy before the oil revolution of 1973: strength, modernization, independence of policy, a regional role, and greater respect from the rest of the world. They are the same lines the Shah has followed since 1973. Let us look at the record of what he has done and what he proposes to do with the new resources that higher oil prices have placed at his disposal.

First, armed strength. There has been a rapid and spectacular expansion of the armed forces and their equipment. The numbers are less important than the volume and the nature of the new equipment. Iran spent huge sums in the United States on military equipment, some $11.8 billion from 1971 through 1976,[2] with smaller purchases elsewhere. The weapons sought were the most modern and sophisticated available, including items only recently or not yet issued to the U.S. armed forces. The Shah disclaimed any ambition to make Iran a nuclear power; but he left little doubt that if other middle powers took that path, Iran would also. Whether and how all these arms might be used, where and when and against whom they might be deployed, were questions that had no clear answer. But there was no doubt of the Shah's view of military strength as a traditional and necessary attribute of power, or of his intent to make Iran a military factor to be taken into account.

Second, transformation of the economy. The plans of the 1950s and 1960s are dwarfed by those of today. Large sums have gone into investment in new basic industries and the infrastructure for further expansion. Iran, which had no steel industry in the mid-1960s, now plans to be producing some 20 million tons in the 1980s, bringing it to the level of France or Britain today.[3] Large-scale nuclear energy development is to prepare the country to maintain the status of an industrial power when the production of oil begins to decline.

Third, a foreign policy of independence. These attributes of power in the modern world, armed strength and an industrial base, are to make Iran master of its own house and immune to pressure and dictation from outside. The Shah is not drawn to the mystique of nonalignment, but he does seek the respect of the great powers and the freedom to decide what degree of alignment with any of them, in any given situation, Iran in its own interest wants and needs. As he himself has put it, "There is no need for Iran to be a satrap of America . . . or of any other power. . . . We can share many things with the U.S., but nobody can dictate to us."[4] He wants no outside military presence in the Gulf and applauded the decision of Bahrain to terminate the American naval facility there in July 1977. That gives a sounder basis for opposing the establishment of Soviet naval facilities in Iraq or elsewhere.

Fourth, and related to the policy of independence, the assertion of a regional role. Some might describe it more bluntly as the creation of a sphere of Iranian influence or dominance in the Gulf area. The guiding concepts are the same: Iran as the power to be consulted on any changes in the local balance, as the protector of the vital oil routes through the Gulf and the Strait of Hormuz, as a factor in the affairs of the Middle East from Egypt to India and even beyond, to the entire expanse of the Indian Ocean and the countries bordering it. This role lies at the heart of the Shah's (and presumably his countrymen's) ambitions, his military buildup, and the active diplomacy he has undertaken.

Iran has healed the breach with Egypt, now that Nasser is gone and with him, at least temporarily, the challenge of Nasserism in the Gulf. Iran has helped to build an informal alignment of moderate states along the axis Tehran-Riyadh-Cairo to checkmate radical forces and to maintain stability. It has sent troops across the Gulf to help the Sultan of Oman put down the rebellion supported by the radical regime in Aden and by the Soviet Union. It has assumed the role of protector of the integrity of Pakistan, presumably against possible danger from India or from Afghanistan, but has also mended fences with India.

Greater power and prestige in its region would seem to imply a wider world role, and Iran has certainly had more to say, and has been listened to with more attention, than was the case before 1973. But what it can do on such world issues as North-South cooperation and changes in the world economic system has little to do with its new weapons and its new industries and much to do with its membership in OPEC and with how OPEC as a group fares in the coming decade. That will depend on many developments, none more important than the way in which Iran's neighbor, Saudi Arabia, uses its own oil power.


Saudi Arabia also has a tradition of independence. The central Arabian desert, the Najd, was never really conquered by outsiders. It was the puritan Islam of the Wahhabi sect and the martial and organizing abilities of Abdul Aziz al Saud (Ibn Saud) that brought unity and a primitive state structure to the tribes of this area in the early years of this century, and then through the conquest of the Hejaz he brought under his rule the holy cities of Mecca and Medina and the long coastline on the Red Sea.

Like the Iranians, the people of Saudi Arabia could look back to a golden era, that of the Prophet himself when the Arabs of the peninsular desert had burst forth to establish an empire covering a large part of the known world. But for centuries their society was thrown back on itself with only limited contact with the outside world. Its people avoided the experience of colonialism that befell other Arabs and the many contacts that Iran had with other states and cultures, but if they thereby lost some benefits, they were also spared the psychological burdens. Change came suddenly with the decision of Ibn Saud to grant an oil concession to an American company in 1933. It was a decision to enter the modern world, made advisedly but still with second thoughts, for the king did not want to abandon the principles or to forsake the traditional ways by which his people had lived.

From the start of the oil era Saudi Arabia had a special relationship with the United States. Ibn Saud distrusted Britain, the dominant power in the Middle East, and placed oil operations exclusively in American hands. Fearful of Zionism, he sought assurances from President Roosevelt that Arab rights and interests in Palestine would not be sacrificed. Even after the establishment of Israel with American support the old king continued to look to the United States for security, and so did his successors.

In the first years after Ibn Saud's death in 1953 the Saudi role in Arab politics was limited. For dynastic reasons the House of Saud always lined up against the Hashemites, whom they had ejected from the Hejaz many years before but who still ruled in Iraq and in Jordan. But the prospect that Saudi Arabia could compete with Nasser's Egypt for leadership of the Arab world, an attractive idea for Washington in the 1960s, was at that time beyond the capabilities both of the kingdom and of the then king, Ibn Saud's son Saud. There was even a question whether the Saudi regime would survive Egypt's military intervention in Yemen's civil war, the real target of which was not the mountains and tribes of Yemen but the oil of Saudi Arabia. Certain American military gestures, however, made clear Washington's commitment to Riyadh, and Nasser's adventure ultimately came to grief in the rough terrain of Yemen and in the ashes of defeat on another and more important front, the 1967 war with Israel.

Thus, Saudi Arabia before the oil revolution was not driving for power, industries and a regional role in the way that Iran was, although both its own society and its relations with others were changing under the impact of the growing oil industry. The income from oil under the 50/50 formula for splitting profits with the Arabian-American Oil Company (Aramco) was huge for a country of some five million people, and by the mid-1960s Saudi Arabia had passed Kuwait and Iran to become the leading producer in the Middle East. It was inevitable that Saud's brother Faisal, who took full power and the throne in 1964, would come to use that power for causes he deemed important. He valued the friendship and support of the United States. He was not going to take the lead in the offensive for nationalization that Iraq and others were mounting against the international oil companies. Yet Saudi Arabia had been a member of OPEC since its establishment in 1960. It was not going to line up with the companies against its fellow members.

Two causes close to the heart of King Faisal were anti-communism and the recovery of Palestine, and particularly of Jerusalem, for the Arabs. As the Arab states moved toward a new showdown with Israel, he undertook a more active diplomacy. His efforts gained credibility from the increasing influence and prestige that flowed to Saudi Arabia from its demonstration of power over the oil companies in the negotiations of 1970-71. He could, and did, serve the cause of anti-communism by encouraging Egypt to expel its Soviet military advisers in 1972 and to regain its independence of action. He could serve the Arab cause against Israel by asking the Americans to make Israel come to terms. The United States had long attempted to keep the issues of the Arab-Israeli conflict, where it was difficult enough trying to reconcile its search for a peaceful settlement and its special relationship with Israel, separate from its relations with the oil countries of the Gulf, mainly Saudi Arabia, where common interests in security and in economic cooperation had their own justification. But this was not possible in 1973. Faisal knew he had an "oil weapon." He warned in the spring of 1973 that he might have to use it. And in October, with the other Arab producers, he did.

OPEC's quadrupling of oil prices at the end of 1973 was not tied to the Arab-Israeli war or to the embargo and production cuts decided by the Arab countries in connection with that war, but it was a product of the same atmosphere, of the feeling that this was the time for the nations of the Middle East to assert themselves and to change the terms of their relations with the West. For Saudi Arabia the oil revolution was the combination of these events. The decision for the embargo was a political act of Arab leadership, serving notice of a more active role in the future. The decision to multiply the price of oil meant a vast increase in financial resources for OPEC's biggest producer and exporter. Two figures illustrate the change. In 1970 the Saudi government's "take" from the oil industry was $1.2 billion in taxes and royalties. In 1976, with oil production at about the twice the earlier level, the total received from the sale of government oil, plus income from the 40 percent of Aramco still owned by the American companies, amounted to $31.5 billion.

What has happened since 1973? What have been Saudi Arabia's goals in the use of all that money?

First, like Iran, Saudi Arabia has sought rapid economic development. The current plan, covering the period 1975-80, calls for expenditures of $142 billion, with a growth rate of 13.5 percent annually. The plan is so vast that many outside experts, and probably some Saudi planners, do not think the economy can absorb that much. But no doubt exists that the country is already being transformed by tremendous construction projects—more than half the expenditures go for construction—and imported materials and machinery have choked the available ports. If the planned expansion exceeds the nation's capabilities, it will simply take longer. The important fact is the character of the decision. The Saudi leaders are going ahead, without undue hesitation, with an economic revolution—importing new goods, new people, new ways—that will inevitably bring changes in their traditional society. The situation is unprecedented. Never before has a relatively primitive country had such vast wealth at its disposal. Like Iran, the Saudis are in great haste to use it to turn their oil-producing economy (the oil industry in 1976 still accounted for 86 percent of the gross national product) into a diversified industrial economy that will outlast the age of oil.

Second, and again like Iran though on a smaller scale, Saudi Arabia is spending large sums on modern weapons. In the past the country has had two armies, a regular army (numbering some 45,000 in the late 1960s) and a smaller "white army" as a check on the former and as personal protection for the king. Now there is to be an expanded army and air force that can wage modern war against potential enemies although it is not clear who those enemies are. Such a force seems to be regarded as a necessary adjunct to a role of Arab leadership and also as a counter to the military power of Iran. Questions may be raised as to how a country of small population, with no pool of technically trained manpower, and with a military tradition of bedouin desert formations only recently supplemented by air power, can create overnight a military establishment handling such items as Chieftain tanks and F-15 aircraft. But the Saudi government is spending the money to buy such items and to pay foreign experts, official and private, to train Saudi soldiers in the arts of war. Arms purchased from the United States totalled $5.8 billion over the 1974-76 period.

The salient factor in Saudi Arabia's position is not its big development plan nor its expanded military force, but the fact that after paying for both it still has a lot of money left over. In 1975 the amount was $20.1 billion, in 1976 $24.2 billion. It is this surplus and the prospect of its continuance that gives Saudi Arabia its extraordinary influence in the Middle East and in the world.

In the region no other state has the same potential to turn oil into power and influence. Egypt and Syria, with their ambitions for political leadership, do not produce enough oil for substantial exports. Iraq and Algeria are exporters, but everything they get from exports is absorbed by their own needs (although Iraq with its large reserves has the potential eventually to join the big exporters in wealth and in influence). Iran is making its oil power felt now, setting aside a portion of its income for loans to other states, but its own demands are so great that it cannot generate a big surplus. Kuwait and Libya earn more than they need with their oil exports, but both are conservation-minded and keep the surplus low. Kuwait's policy is one of buying off trouble by aiding the development of other Arab states. Libya's is one of promoting revolution in numerous countries, Arab and non-Arab, and that is a demonstration of power, as is its use of money to induce African countries to take certain positions on issues of moment to the Arabs or to Libya itself. But Libya has erratic leadership, a population of only 2.44 million, and limited oil reserves. The United Arab Emirates is the classic case of a state with much more oil and money than it needs, but it is too new and too small to exert power by itself, and generally follows the Saudi lead. Saudi Arabia is the only giant. Its production in 1976 was some three billion barrels, four times more than that of Kuwait, one and a half times as much as Iran. And as Saudi production, now at ten million barrels per day, has gone up, the new reserves discovered each year are still greater than the annual production and this may be so for another 60 years. Development of natural gas on an immense scale and of a petrochemical industry will add to the wealth represented by crude oil. These facts by themselves generate influence.

The Saudis have shown that they will use their oil weapon in the Arab cause, and that has given them influence in the Arab world, even if they never use it again. They also have provided money to support the arms purchases of the confrontation states, especially Egypt. Sadat was able to thumb his nose at Moscow largely because he knew that the transition to Western suppliers could be financed by Saudi Arabia. Also, Riyadh is logically the financial motor for the development of the entire Arab world. It has been rather cautious in committing itself—not anxious, for example, to pour money into the bottomless Egyptian economy—but it can hardly avoid the role of investment banker if it wishes to gain influence on and good will rather than resentment from its Arab brethren.

The rewards of financial power are evident in the recent successes scored by Saudi diplomacy in Arab affairs, all the more remarkable in that the experience of the new leadership—Faisal having been assassinated in 1975—is comparatively brief. How they handled the Lebanese affair was one example. The confused struggle of Lebanese factions and Palestinians, with numerous outsiders mixing in, had resulted in Syrian military intervention, fighting between the Syrian army and the Palestine Liberation Organization (PLO), further aggravation of Syrian-Egyptian relations, and a demonstration of the impotence of the Arab League to stop the fighting or to find a solution. The prospect was for bitter inter-Arab strife and the loss of any chance for a negotiated settlement with Israel. Saudi diplomacy, helped by the moderation of Assad and Sadat and by the weakened position of the PLO, came to the rescue. In two meetings in Riyadh and Cairo in October 1976 the Syrian military presence in Lebanon was accepted but given a general Arab League cloak, Arafat's relatively moderate wing of the PLO was saved from Syrian domination, the way was opened for a reconciliation of Arafat with King Hussein of Jordan, and all the Arab neighbors of Israel were brought together as a moderate group that was ready, if America and Israel were ready, to face the practical questions of a negotiated settlement. Precisely how Saudi financial power contributed to this result is difficult to say, but it could hardly have been done by diplomatic skill alone.

Another example is the apparent success of the Saudi effort to reduce Soviet and radical influence in the area of the Red Sea and the Horn of Africa. In 1970, the Saudis succeeded in bringing about a compromise settlement of the civil war in Yemen which put a moderate regime in power in Sana and ended the position of special influence the Soviet Union had enjoyed there. In 1975 they established diplomatic relations with the People's Democratic Republic of [southern] Yemen despite the ideological gulf separating the traditional Saudi monarchy from that country's revolutionary Marxist regime then aligned with Moscow and engaged in supporting a rebellion in the neighboring state of Oman. The P.D.R.Y. has not broken with Moscow or changed its spots, but Saudi Arabia can do more for its economy than the Soviet Union can or will. The combined appeal of money and Arab solidarity against an outside power is not to be underestimated. The Saudis have applied the same means in the Horn of Africa to wean Somalia away from its Soviet connection. There also the outcome is not clear, but in view of the historic and continuing territorial dispute between Somalia and Ethiopia, the warmth of Moscow's embrace of its new friend in Addis Ababa, Colonel Mengistu, seems to indicate that it regards the strong position it had in Somalia as either already lost or worth sacrificing in pursuit of bigger game.

In sum, the Saudi leaders appear to have learned the art of using money as a serviceable instrument of political power, using it in a variety of ways: to help other states' development (with conditions), to enable friends and allies to pay their bills, or simply, in the old tradition of their own country and of the Middle East, to buy the loyalty of other leaders.


The positive side of the picture is easy enough to illustrate. Iran and Saudi Arabia, with their unprecedented oil income, have set ambitious goals and have begun to move toward them. They are speaking with a stronger voice in regional and world affairs, and they are being listened to. But what of the less positive side? The picture is not complete without taking account of limitations and uncertainties.

What, for example, will the heavy expenditures on arms accomplish? In the case of Iran they will not enable that country to cope with an attack from the Soviet Union; and the deterrence to such an attack comes from the global balance and the danger of conflict with the United States, or from Soviet calculation of the political price, rather than from Iran's armed forces. The Shah may hope to overawe his western neighbor Iraq, with which historic disputes now on ice could be revived, or Saudi Arabia, or to take under his wing the small Arab states of the lower Gulf. But his buildup tends to provoke two reactions that could nullify any advantages: further arming of Iraq by the U.S.S.R. to keep the balance, and a broader Arab reaction in which Saudi Arabia, Egypt and other states would feel the need for greater unity and strength to oppose Iranian imperialism. Even the most recent success of Iranian arms, the sending of forces to help the Sultan of Oman put down the Dhofar rebels, may have a price to be paid in the future, for this was intervention in an essentially Arab quarrel on Arab territory. On the eastern side, the Iranian buildup may provoke India to countermeasures and cause Afghanistan to open its doors to a stronger Soviet influence. The instability of Pakistan is likely to sharpen these possibilities. One can therefore question how much security Iran gains by its great military expansion, and how much power over others.

Saudi Arabia's military buildup is not so far advanced as Iran's but, considering the lower starting base and smaller population, is comparable. It has played virtually no part in the enhancement of the country's international position. Saudi troops have not been used outside the country except in small numbers and in a symbolic political or peacekeeping role. Saudi influence on smaller Arab states on the rim of the Arabian Peninsula stems from political prestige rather than military might. Perhaps it is unrealistic to think that any state thrust so rapidly into a position of great wealth and opportunities for political leadership, in a region containing unresolved conflicts, would not see military power as a necessary attribute. If Riyadh aspires to a major role in bringing about a settlement of the Arab-Israeli conflict, increasing its armed strength seems a natural concomitant even though Saudi Arabia itself might be only marginally involved, as before, in the actual military operations of a new round of war. From the latter standpoint, it is not the Saudi forces themselves that are so important, but rather the prospect that new Saudi weapons such as advanced American-made aircraft may be turned over to other Arab states confronting Israel, or that Saudi Arabian funds will finance the purchase of arms for Egypt and for Syria. That is power, but the power of the purse rather than of the new Saudi army.

A second limiting factor in both Iran and Saudi Arabia is the paradox that the assertion of independence and new power in the form of military and industrial strength is taking place through a process that in fact increases dependence on the West and particularly the United States. This is because the equipment and the technology both for new weapons and for new industries must come from outside, subject to outsiders' decisions, and is so complex that hordes of Western experts are needed to help train the local people. The presence of 30,000 American military and civilian personnel in Iran, and 28,000 in Saudi Arabia, without whose advice and training the new weapons could not be used and the new plants would not produce, creates a situation of dependence none the less real for being bought and paid for. It is presumably temporary; if the instruction is successful the instructors are no longer needed. Yet this is a continuing process. Tehran and Riyadh, for example, keep asking for the latest and most sophisticated military equipment, and the Pentagon for its own reasons wants to sell it to them; but each advance in the technology of weapons requires a new set of advisers and instructors.

A third factor of weakness is the strain which grandiose and hastily undertaken military and economic projects put upon the resources, the manpower, and the social fabric. Haste has made a great deal of waste. Plans must be constantly revised and schedules shifted. Iran has overspent and overinvested, needing foreign loans to make ends meet. Saudi Arabia does not have that problem but has plenty of its own. It must educate its own people to new jobs and new habits of mind. It must import large numbers of foreigners, not only engineers and managers from the West but also thousands of semi-skilled and ordinary workers from Pakistan, India and elsewhere in addition to the ever-present Yemenis. For a society that has been tightly bound by religious and tribal tradition these are revolutionary conditions. But Saudi institutions have proved adaptable. When there is so much money around almost everybody can get or hope to get a share of it, and that increases the adaptability. Yet it may be asking too much to expect the pace of industrialization to be matched by a pace of reform that would avoid wrenching social stress.

Finally, political uncertainty and unrest, despite the fabled wealth and prosperity in both countries, lie not far beneath the surface. Iran's system of government rests on the monarchy in the person of the present Shah, who has reserved all power to himself. His "white revolution," decreed from above, has made important and needed social changes, and he has engaged the energies of his people in the rush for modernization. But he has not developed stable and permanent political institutions and has not given real political responsibility to the talented and growing professional and managerial class, although he has reduced the pressure by providing good jobs. He has confounded many critics who have predicted at one time or another in the past 20 years that this failure would cost him dearly, perhaps cost him his throne. But it remains a serious question for the time of succession if not before. No one knows when that time will be. And even if the Shah does everything possible to groom his son to take the helm, there is no guarantee that the latter will be able to control and guide the more complex and demanding society Iran will then be.

Saudi Arabia does not even have a regular system of succession, but the more collegial character of the regime, based on a royal house with many princes possessed of influence on the national or local level, has given it surprising strength and adaptability. They may at times vie or feud with one another, but all have a stake in the continuing primacy of the House of Saud. Thus it proved possible to remove a king, Saud, when he was doing a poor job, and to replace him with his more competent brother, Faisal; and when Faisal was killed, the decision to give Khalid the crown and Prince Fahd the opportunity to exercise effective political power has proved, so far, a sound one. The Saudi royal family, like the Shah, has proved more durable than many of its opponents and critics. It has not lost touch with the people, and especially not—in contrast to the situation of Iran—with the new generation of broad national leadership, the youth being educated abroad.

The tendency of present rulers in Tehran or in Riyadh is to see the political problems as manageable for the future as long as things are going well. The tendency in Washington is to conclude that all is for the best as long as the governments appear to be doing something for their people and are friendly and cooperative with the United States. They and we may both be underestimating the political fragility that is at least partially concealed by frenetic activity and undoubted prosperity. There are two areas of danger to the status quo. One is that political structures can hardly be immune to such drastic economic and social change. The other is that the military buildup is putting the means of political change in the hands of officers who, as representatives of the military institution or as ambitious leaders of a faction or an ideology, may feel called to take action not necessarily on the side of the powers that be. The Shah has pampered his military officers, and also kept watch on them through his security agency, SAVAK, but he cannot be sure. The Saudis are building an army whose officer corps, for all we know, may contain a Colonel Quaddafi. Finally, and especially in the case of Saudi Arabia, the financial rewards of successful revolution are so enormous that the temptation to an ambitious politician or military man to lay violent hands on the pots of gold may be uncommonly strong.


These are serious limitations. The total picture of the prospects of the two countries and their rulers is thus one in which their power, though real, is clothed in uncertainty. I have deliberately directed attention to their regional interests and policies, for it is here that their deeply rooted ambitions lie. But we must also look beyond the Middle East at their broader world role because the two are related and because it is the exercise of oil power on a global scale, whatever the motive, that has so alarmed the West and exposed its vulnerability.

The power of Saudi Arabia and Iran in the global balance is simply the power of OPEC to set the price of oil the consuming countries must pay. The latter's vulnerability is evident in the trepidation with which they await the decisions of each ministerial meeting of OPEC and in their hope that Saudi Arabia will be "statesmanlike" and hold the others back. The resulting impression is that the members of OPEC hold the fate of the world in their hands.

Certain elementary facts, however, should be kept in mind. One is that OPEC has no internal unity except on the one matter of setting the price of oil to the advantage of its members—and not always then. It is not an organization dedicated to the creation of a new international economic order. President Boumedienne of Algeria may talk that way because he has built up a vested political interest in doing so, but his main concerns are, first, Algeria itself and, secondly, Arab North Africa. Nigeria, Venezuela and Indonesia have interests that are primarily national and regional. Debates at the United Nations or discussions at CIEC in Paris find OPEC members asserting their solidarity with the have-nots of the Third World against the developed nations of the West. But their interests do not lead them very far in that direction, as is apparent from their decisions on concrete economic questions.

A second fact is that the heaviest and even decisive influence in OPEC is wielded by Saudi Arabia and Iran if they are together, and by Saudi Arabia alone if they are not, because it is the only oil producer that can raise or lower its production by millions of barrels of oil per day without seriously affecting its own economy and polity. Third, although the two countries have differed on price, with Iran pushing for a higher one, neither wishes to subject the West, to use Henry Kissinger's word, to "strangulation." Neither is trying to dominate Western countries through buying control of their key industries. They are in fact caught up with the West (including Japan) in an economic relationship from which neither can, or wants to, escape. The expenditure of their oil money for Western goods and services essential to their plans and their commitments to their own peoples is the counterdependence to the West's dependence on their oil. Too high a price for oil is not in Saudi Arabia's or Iran's interest; even if a growth in demand exceeding supply or a deliberate decision to restrict supply and apportion export quotas made it possible to charge more and more money for less and less oil, they would not gain if they pushed their advantage to the point of throwing the industrial economies into depression or chaos. (In the same way, too low a price is not in the consuming countries' interest, for it would not stimulate the necessary search for alternative sources of energy.)

All these economic factors are fortified by political ones. While Saudi Arabia and Iran wish to assert their independence and their new economic power in dealing with everybody, the global military balance and the relations of the superpowers are as relevant to their own security as they ever were, perhaps more so. Despite what American scholars or journalists may write about the possibility of seizing Persian Gulf oil by force if it is not made available on terms we can afford, such action is out of the question unless there is a total breakdown of the growing partnership of producers and consumers, which both have every reason to avoid. In the new post-1973 conditions, moreover, the Middle East countries may be less able than before to maneuver between the U.S.S.R. and the West. The Soviets have practically nothing to offer them, either as a market for oil (perhaps a decade hence but not now) or as a supplier of goods and technology. The basis for a far-reaching relationship as an alternative to that with the West is not there. On the Soviet side a stronger tendency to use military pressure or force may appear if it is clear that other means of influence will not work. Add to this the continuing concern of the local states for their security. Iran feels threatened by Russia and not by the United States. Saudi Arabia remains anti-communist and anti-Soviet in its basic outlook. Both know that their oil power is ineffective against a Soviet threat to their security, so they retain their ultimate need for U.S. support.

That is the fixed view of the present governments. If a radical revolution should take place in either country, a not impossible happening, new leaders might turn to Moscow for support. But the economics of the situation would be against such a turn, as disruption of existing ties with the West would make it impossible for a new regime to meet the demands of its own people. Reasons of history, geography and economics would modify or even nullify what might seem to be the imperatives of a change in ideology at the top.

The range of choice for the use of oil power in the context of global balance and alignments is not so wide as one might expect. As we have seen, the oil-producing states of the Middle East do not have a strong interest of their own in joining the Second or the Third World in an all-out struggle with the First in order to change the shape of the world economy. On the contrary, their real interests lie in continuing partnership with the developed states of the First World. What they are asking for is that the partnership reflect a shift of bargaining power in their favor. Considering the pre-1970 situation and the facts of today, that is not unreasonable, and their new status deserves formal recognition in increased voting power in international financial institutions. Debate may be acrimonious, negotiation may be slow, a CIEC may fail, but both sides recognize that the dialogue must go on.

The test for them is how well the relationship with the West serves their national and regional aspirations. So far as Iran is concerned, under the present or any other government it will want growth, security, and a leading role in its region. As long as these aspirations do not mean conflict and war with others, they are reasonable ones. Even with the current fascination for the accumulation of weapons of war, which may not be sustained at the present rate, Iran's energies may well be absorbed in its internal development and in finding a regional equilibrium that satisfies its interests and its ego without war.

Saudi Arabia is in a different situation. If it is a nation-state with its own interests, it is also part of the wider "Arab nation" which exists in the minds and emotions of Arabs and is a reality in politics even if in the realm of political institutions it has nothing more impressive to show than the Arab League. Oil power has provided a key to leadership in Arab affairs, whether Saudi Arabia takes the role itself or provides essential support for someone else's leadership. The Saudis have used that power with great political and diplomatic skill, but they in turn are subject to political pressure from others. If the Arab world could unite—an old and recurring dream—and use its oil to assert itself against the rest of the world, it could become a significant world power. But it cannot seem to attain that kind of grand-scale political unity. Saudi Arabia therefore has to make its way amid inter-Arab relations as they are and will be, that is to say with all their instability, rivalries, unions and federations made and unmade, and in the background the pervasive sense of Arab identity that makes any one state's politics the business of all the others.

The Saudi relationship with Egypt is crucial. Egypt has been and, for obvious reasons, will remain a leading country in the Arab world, but it has an exploding population and immense economic problems. Any Egyptian leader is going to be looking across the Red Sea toward Saudi Arabia and Saudi oil either with domination in his eye, as Abdel Nasser did, or with a plea for help, which has been Sadat's approach. It is in the Saudi interest that Egypt be a moderate force in the Arab world, and that means paying attention and paying money. As for Syria, the Saudis have to take account of the pride of the Syrians as the truest representatives of Arab nationalism and their territorial ambition to create a large unit, a greater Syria or a Fertile Crescent union, that would stand menacingly on Saudi Arabia's borders. Iraq, with its radical regime and its Soviet connection, poses an ideological and possibly a military challenge. Hence the oil and wealth that give a country the means for regional leadership also make it a target. There is a fragility about Saudi Arabia, both in its internal order and in its position within the Arab world, that belies the widespread impression of impregnable power.

This perspective, for Western policy, dictates a close attention to the affairs of the Middle East and the Gulf in trying to cope with the consequences of oil power. Reliance on a "twin-pillar" structure for security in the Gulf—Iran and Saudi Arabia being the pillars—does not mean the United States can avoid responsibility. So closely is it involved in the affairs of both, so tied up with commitments express or implied, that it must know how to supplement policies which cater to the aims of those states with policies which help to limit their ambitions, temper their rivalry, and create a relatively stable equilibrium in the region. It is right not to attempt to fill the supposed power vacuum by introducing American forces, but the absence of military instruments puts a premium on effective political action.

That argument also brings us back, as do so many events of today's world, to the region's most dangerous threat to world peace, the conflict between the Arab states and Israel. This is the one question over which Saudi Arabia could be impelled to use its oil power against the West in ways that would be disastrous for all concerned, including Israel. It is by no means certain that an oil embargo would be applied exactly as in 1973 or at all.[5] But that it could be applied is one further reason for the United States to persevere in its efforts to bring about an Arab-Israeli settlement. Even without a new round of war, long delay in moving toward peace can bring increasing radicalization and anti-American policies in the Arab world.[6]

The prominence of the American role also has its troubling aspects. The major movers in the consumer-producer relationship, as we have seen, are the United States on the Western side and the major Gulf producers on the OPEC side. This prominence is manifest in the booming expansion of American goods, American arms, and the American presence in the Gulf region, and above all in the continuing special relationship with Saudi Arabia where an exclusively American company, Aramco, has become the Saudi government's partner, or agent, in the whole vast enterprise of the production and disposition of oil and gas. To many in Western Europe and Japan this looks like the building of an American empire, and not because they have been reading Soviet propaganda. Unless these countries, which after all are more dependent on Middle East oil than the United States is, can share in the essential partnership with Saudi Arabia and Iran, the risks will be higher both for the United States and for the future of the Western alliance.


The present vulnerability of the United States and its Western allies, as their oil imports from the Middle East go onward and upward, has to be reduced. President Carter's energy proposals are the barest minimum for a sound American policy. We have at the very least to show that we are serious. That in itself will increase Western bargaining power. And the Saudis should not object, as it will relieve pressure on them to push up production indefinitely. They have the capacity, and even the concrete plan, to increase production to 16 million barrels per day by 1983. But will they? And even if the necessary Western policies are all adopted and effectively followed through, we shall still have before us at least a decade before the results of conservation and the search for new sources of energy will change the fact of dependence on OPEC, and especially its Middle East members, for oil we cannot do without.

Producer-consumer relations, I have argued, rest on a situation of fragility on each side. The economies of the Western nations have no defense against denial of access to Middle East oil or to a crippling rise in its price. The oil producers on their side, are vulnerable internally, regionally, and internationally. There is an obvious conflict of power, but the constraints are real. The oil producers cannot push the industrial countries to the wall without doing great harm to themselves. The latter cannot use force to seize the oil wells, or economic warfare to bludgeon the producers into submission, without upsetting many applecarts including their own.

The key to protection of the Western economy in the coming years is to accept the fact of interdependence with the oil producers of the Middle East and to increase the stake which each side has in the satisfaction of the aspirations of the other. The policies which the U.S. government and American business concerns have followed, or into which they have drifted, have been sound because aimed in that general direction. The central consideration is that of mutual economic interest and interdependence. Protection of human rights is an issue on which American views can and should be made known to the world, whether they are being infringed in Iran, Saudi Arabia, the Soviet Union or the United States. Piling up of weapons in the Middle East arsenals is another issue bound to concern us, and those who supply weapons in large quantities to Middle East states, which may eventually use them against their neighbors, may have reason to search their consciences. But neither of these issues bears directly on our vital interests, and overconcentration on them may adversely affect those interests.

In the future course of relations between those in the Middle East who have the oil and those in the industrial world who need it, there is a necessary bargaining process in which each side exerts power on the other, and the Western nations should not deceive themselves about the power of the oil producers. We have to plan on the basis of the continuing existence of OPEC. They can charge even more for their oil and probably will. But the challenge for all concerned goes well beyond the simple test of bargaining strength on the price of oil and the price of what the producers want in exchange for their oil. It goes to the totality of mutual dependence. It goes also to the nature of relations of the oil-consuming nations among themselves, to what they do, for example, to shorten the period of their vulnerability and to share in an equitable way the high cost of energy present and future; and to the nature of relations within OPEC, and of Middle East politics, from which there is no escape.

The period of oil power in the hands of a few oil-exporting nations will not last indefinitely. The industrial nations will try to shorten it by an intensified search for alternative sources of energy. The physical limits of supply will gradually erode the material basis for the exercise of oil power, although raising the price can compensate for reduction of supply if the consumers have not succeeded in finding alternatives. But if this twilight of the oil era is but a brief moment in human history, it is going to seem a long, long time to those of this present generation who have to cope with its problems. There is nothing magic about the year 1985, and we are well on our way to it without having undertaken the drastic policies necessary if we are to think about energy independence, or even reduced dependence, by that date. Lethargy in energy policy puts all the greater burden on diplomacy and international action, on the maintenance of a partnership of producers and consumers that will carry the world through the oil age and beyond.


[1] Walter J. Levy, "Oil Power," Foreign Affairs, July 1971, p. 652-68.

[2] Department of Defense, Foreign Military Sales and Military Assistance, December 1976, p. 12.

[3] Jahangir Amuzegar, Iran: An Economic Profile, Washington: The Middle East Institute, 1977, pp. 90-91.

[4] R. K. Karanjia, The Mind of a Monarch, London: George Allen & Unwin, 1977, p. 253.

[5] Joseph Sayliowicz and Bard O'Neill in "The Oil Weapon and American Foreign Policy," Air University Review, March-April 1977, pp. 42-52, adduce a number of reasons why it is less likely to be applied.

[6] See Fouad Ajami, "Between Cairo and Damascus, The Arab World and the New Stalemate," Foreign Affairs, April 1976, pp. 444-61.

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  • JOHN C. CAMPBELL is Director of Studies and a Senior Research Fellow at the Council on Foreign Relations.
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