The Price of Oil (and thanks, Jim H)

Henry C.K. Liu hliu at
Wed Dec 30 01:31:52 PST 1998


The following is excerpts from a oil political analyst who will remain unidentified because his permission to reprint has not been secured. It is also somewhat dated material (around 1996) and from a American ploicy perspective. I don't agree with all of the analysis, but it illustrates the complexity of oil/Gulf politics. If keeping oil prices high was a governing objective, the U.S. has much better options than to bomb Iraq.

Henry C.K. Liu

The Clinton administration's policy towards Iraq and Iran has been one characterized by its catch phrase of "dual containment". These two Gulf states are viewed as regimes who's behavior and intentions conflict with US national interests. The balance of power policy promulgated by previous administrations has been abandoned. Let us look at how this previous strategy in the Persian Gulf evolved into the dual containment policy we have today.

Balance of power strategy in the Persian Gulf During the seventies the US supported the Shah's regime as one of its "pillars" of security in the Persian Gulf. The Shah was sold arms and given economic and technical assistance in an effort to bolster his regime against the Ba'thist regime in Baghdad which was supported by the Soviet Union. In this way our balance of power strategy was part of our larger strategy of containing the Soviet Union. The Shah was to be the policeman in the strategically important oil-rich Gulf (Gause: March, 1994). This is a role which the Shah was happy to implement since it allowed him to project his Iranian power ambitions and build up his own image as well. However even with US support the Shah was not able to survive the internal transformations that were going on in his own country and was overthrown in a 1979 revolution. This revolution was led by the clergy and others who thought that the Shah had brought Iran too close to the West. They were disillusioned from the Shah's grandiose and rapid modernization scheme and the social ills that resulted. The West and particularly the United States were blamed. US-Iranian relationships immediately worsened with the taking of hostages from the US embassy. The Iran-Iraq war erupted a year after the revolution in 1980. The US sided with Iraq in an attempt to counter the fervor of the new Islamic republic which was viewed as potentially destabilizing for the region. The Reagan administration was afraid of Iran's Islamic revolution spreading to nations that were friendly to the US. Naturally the hostage crisis and the anti-American rhetoric also encouraged the administration to tilt its balance of power strategy to the other side of the Gulf. Iraq was sold and provided arms to fight the Islamic republic. However even this pro-Iraqi stance was flexible for the Reagan administration. Certain events emerged during the Reagan administration that required Iranian cooperation. This cooperation was needed to implement some of the administration's foreign policy initiatives. Iran was provided arms in 1986 in order to secure the release of American hostages from Hizbullah guerrillas. These guerrillas had close contacts with Tehran since they received financial and military support from Iran. Thus Iran had leverage with Hizbullah. Another example of pragmatic flexibility in the Reagan administration's foreign policy was the Iran-Contra scandal. Arms were sold to Iran and the money from this sale was transferred to Nicaraguan guerrillas to implement another of the administration's initiatives. Thus even though the Reagan administration publicly supported Iraq against Iran, the policy was not set in stone but rather could be altered if strategic need arose. At first, the Bush administration would also generally continue to tilt its balance of power strategy in favor of Iraq thinking that it was the lesser of two evils. However this strategy would be radically altered with Iraq's invasion of Kuwait in August, 1990 and the subsequent Gulf war and the UN sanctions against Iraq which the US fully supported.

The Clinton administration and a new perspective

Thus, when Bill Clinton became President in 1993 he inherited a balance of power legacy with regards to American policy in the Persian Gulf. The new administration believed that the failures of such a strategy for "backlash" or "rogue" states were made evident from the Iranian revolution and the subsequent hostage crises and the Iraqi invasion of Kuwait (Indyk: February 24, 1994). These regimes couldn't be trusted and certainly shouldn't be trusted to keep security in the Gulf when it was likely they would be the ones endangering it. The reality of the American military buildup in the Gulf was also a factor for a change in policy (Gause: March, 1994). American military equipment and troops had stayed behind after the Gulf war had ended in 1991. The leaders of the Gulf Cooperation Council (GCC) states welcomed joint exercises with American troops to help provide added security to the area. The equipment and troops that the US had stationed there decreased the response time to any crisis that might occur in the Gulf. It was believed by the Pentagon that the American military presence could deter future conflict or enable quick responses by the Gulf war coalition if any crisis did emerge (Priest and Lancaster: November 24, 1995) . An important assumption was made here and we'll look at the soundness of this assumption later on in the paper. It was believed by the Clinton administration that the GCC political arena is static at least for the immediate future and therefore these regimes or any future regimes would continue to be friendly to US intentions in the area. The difficulty that having American troops and equipment on Arab soil and waters might cause for the host regimes was given less importance. So the administration felt confident that a continued strong American military presence in the Gulf was possible and would be effective in containing both Iraq and Iran. . The policy of dual containment evolved out of the failures of past policies in the Gulf and the reality of the American military presence in the Gulf. However the exact brand of policy depended on how President Clinton and his newly appointed administration would view the objects of any American strategy in the Gulf: Iraq and Iran. The analysis that followed labeled the Iraqi regime as being criminal and "beyond the pale of society" and the Iranian regime as a terrorist state that threatens American interests in five critical areas (Gause: March, 1994). With this analysis in mind. President Clinton's national security advisor for Middle Eastern affairs Martin Indyk promulgated a strategy of dual containment. According to the administration, the military ambitions of Iraq and Iran would be contained through sanctions in the case of Iraq and through economic measures in the case of Iran. Containment was viewed as "necessary" given the potential threats that these regimes presented to Gulf security and stability, as well as the threat Iran presented to the peace process. It was also judged that the current economic troubles of both regimes presented a unique "opportunity" to maximize the effectiveness of the quarantine on Iraq and Iran (Indyk: February 24, 1994). At first, the administration recognized a difference between the two regimes with Iraq being viewed as the greater evil. The emphasis was put on a tailored approach instead of "duplicate containment" (Indyk: February 24, 1994). Later in May, 1995 however the administration would toughen its stance on Iran, partly as a response to domestic pressure that was coming from the newly elected congress where Republicans had gained a majority in both houses.

Iraqi containment

The UN security council sanctions were to be the means of implementing Iraqi containment by constraining Saddam Hussein's military ambitions, since until Iraq cooperated with the UN resolutions it would hardly be able to export any oil and acquire the foreign currency that was necessary for Iraq's military to act aggressively. Even when Iraq does comply with the necessary UN resolutions, essentially the foreign currency that Saddam might be allowed to obtain at this time would be restricted to humanitarian efforts and paying off war reparations. The Clinton administration wanted the Iraqi regime to observe the UN resolutions to the "t" before any thought would be given of lifting any of the sanctions. In this way the new administration did not trust the Iraqi regime any more than the Bush administration. UN resolutions required the destruction of Iraqi weapons of mass destruction, the destruction of the Iraqi nuclear program as well as turning over to UN inspectors important documents regarding the program, the allowance of UN weapons inspectors into weapons sites to ensure compliance, and the cessation of the repression of the Iraqi people (Indyk: February 24, 1994). The US would later up the ante for the lifting of the embargo by also requiring Iraq to recognize Kuwait's borders and sovereignty, agree to UN monitoring of distribution of humanitarian supplies to the Kurds and the Shi'ites in Iraq, and agree to pay war reparations to Kuwait as well as articles stolen during the Iraqi invasion. It is an obvious objective of the Clinton administration that if UN resolutions are fully obeyed then Saddam Hussein's regime will not be able to hold onto power (Gause: March, 1994). However if a coup knocked Saddam out of power and the new regime did not obey all the UN resolutions and/or projected military ambitions that endangered American national interests then the administration would still continue to contain Iraq. This line of thought depersonalizes the conflict and holds accountable any Iraqi regime that projects itself as a threat to Gulf security (Drake: February 17, 1994).

Iranian containment

The Clinton administration recognized that the containment of Iran unlike Iraq would not have the benefit of sanctions as an enforcing mechanism. Iranian containment would require international consensus in order to be effective. Thus the administration has undertaken intense lobbying amongst its allies for cooperation with its policy. The Clinton administration proposed a delay in Iranian debt restructuring, cessation in new credit for the Islamic regime, cessation in arms deals to Iran, refusal to export to Iran dual-use technology (i.e. technology that could be used for military as well as peaceful purposes), and refusal to export to Iran technology that could advance Iran's nuclear weapons program (Tarnoff: November 13, 1995). The international community has yet to abide by these American proposals. Thus similarly to Iraq the administration wished to limit Iranian military ambitions. However these military ambitions had a different twist. In addition to worrying about Iran's regional ambitions, the Clinton administration accused Iran of supporting terrorist groups that wanted to undermine the peace process between the Palestinians and Israelis. Iran had also made it known that it didn't support the peace process because it thought the conditions were unjust and unfair (Andoni: April 7, 1995). The administration had a vested interest in the continuation of the peace process. This is where I think the unique makeup of the Clinton administration becomes a factor for policy-making in the Gulf, especially towards Iran.

We've established above that the objectives of dual containment were to constrain the military ambitions of Iraq and Iran and possibly alter the behavior of the regimes so that they don't conflict with US interests. What then has been the effectiveness of the policy of dual containment in implementing these goals of the Clinton administration? Was dual containment the best strategy for the Gulf? What are some of the possible future outcomes of a dual containment policy?

Effectiveness of Iraqi containment

The Iraqi policy hoped to deter the chances of aggressive Iraqi actions in the Gulf and force the regime into accepting UN resolutions. Presently, negotiations are still under way to allow Iraq to sell $2 billion worth of oil every six months for humanitarian supplies, such as food and medicine (New York Times: February 7, 1996). The renewal of this program would require continued Iraqi cooperation and compliance with UN resolutions. The Ba'thist regime has balked on previous proposals that it feels infringes on its sovereignty. The current hold up is mainly centered on the distribution of humanitarian supplies to the Kurdish and Shi'ite populations, who have been brutally repressed in the past by the regime. The US wants such distribution out of Saddam's hands to ensure compliance. On the surface a flaw in the containment of Iraq is that it needs unity among the UN Security Council's five permanent members. In fact there are ample motivations for France, Russia, and China to work against Iraqi containment, with the economic aspect being the chief among them. Iraq owes France an estimated $5 billion in debts, which can not be paid back as long as sanctions remain in place. French oil companies Total and Elf have signed preliminary agreements to embark on exploration and production ventures once the embargo is ended. Russia has similar motives. It is owed $7 billion in debts by Iraq, and has discussed with Baghdad about $4 billion worth of projects in the oil sector. These countries are also upset by the way in which they have been sidelined in the arms market of the Gulf Cooperation Council (GCC) since 1991, with the US and Britain winning the lion's share of contracts (Arab Press Service Organization: January 23, 1995). Different commitments towards Iraqi containment was also evident on January 6, 1995 when France announced it would open an interests section in Baghdad (Haq: March 16, 1995). Despite these primarily economic motives, France, Russia, and China stress that Baghdad still has a long way to go in implementing UN resolutions. Even though there are frictions at the Security Council and concerns about balancing Iran's strategic weight in the region, these countries would not confront the US simply because they do not trust what Saddam Hussein may do after the embargo is lifted. Nor do these three form a bloc, each having varying interest of its own (Arab Press Service Organization: January 23, 1995). The real effects of the Iraqi sanctions have been felt most seriously by the Iraqi population rather than the regime itself. Iraq is only able to import a third of its needed food and consequently many Iraqis are suffering from malnutrition (Fernea 1996, lecture). Supplies for hospitals have dwindled to such levels that surgeons are sometimes required to perform surgery without administering anesthetic. Meanwhile Saddam continues to build palaces and keeps the security forces strong enough to resist any would-be coup. Saddam has to a certain degree been able to place the blame for the sanctions on imperialism and the West. With the population feeling so much of the brunt of the sanctions it is only little wonder that disillusionment can be seen as the sanctions seem to be directed at them. The Ba'thist regime has been in power for three decades and the authoritative measures that it has implemented has made a questioning of the regime's policies remote not to mention fatal. Besides the population is too drained from the sanctions to offer any real resistance. In this way the sanctions have seemed to only strengthen Saddam's hold on power. If a coup does occur one can only wonder if the succeeding regime would be able to unite the population or if the removal of Saddam's ubiquitous security structure will cause sectarian and ethnic differences to be exposed and a resultant civil war (Jawdat: May 17, 1995). A divided Iraq in a state of insurrection would hardly bring security and stability to the Persian Gulf. It is an outcome that any American administration would fear. However it is a possible outcome if dual containment is relentlessly pursued on Iraq to the extent that the socio-economic situation in Iraq plummets into a state of misery. It would then be doubtful that any succeeding regime without the effectiveness of the current security apparatus or the ability to project just a glimmer of economic hope would be able to repress grievances stored up toward the previous regime as well as the aforementioned socio-cultural differences. A policy that knows when to say when would seem to be more prudent. Thus even though the main objective of Iraqi containment has been achieved by constraining Saddam's ability to conduct any military adventures in the area for the time being. The behavior and attitude of the Iraqi regime have yet to be altered. Saddam has been able to rebuild his military industry from previously accumulated funds and by switching out parts . This large and still formidable Iraqi military will have grave consequences for Gulf security if one of the unintended consequences of Iraqi containment results in throwing Iraq into a sectarian and ethnic civil war.

Dual containment labels both Iraq and Iran as "backlash" states and potential threats to Gulf security. Therefore it is necessary that they be contained in order to deter their military ambitions (Indyk: February 24, 1994). An important part of this containment is a large US military buildup in the region assisted by military buildups by its allies. Thus by this policy the US is proliferating military spending by Kuwait and Saudi Arabia that they can not possibly afford. Furthermore it is highly doubtful that a Saudi Arabian and/or Kuwaiti military could ever prevent a determined assault by Iraq or Iran without outside assistance. Right now the US is providing plenty of outside assistance in maintaining Gulf security but one wonders how long this can last. To the citizens of these countries such a foreign military presence must remind some of colonialism. Opposition to the US presence was felt in the fall of 1995 when a US training facility for the Saudi national guard was bombed (Priest and Lancaster: November 24, 1995). Further resistance to the pervasive US presence in the Gulf is likely in the future. The realities of dual containment seem to be encouraging such opposition. Thus it can not be assumed that the areas where the US has troops and equipment will continue to be stable in the future. Furthermore the Gulf climate is not static but is in fact changing. Citizens are demanding more political participation and holding their regimes accountable for their past profligous and wasteful spending (Long 1995: 267). A US policy that causes the political situation for these host countries to be exacerbated can not be a prudent one especially when the administration does not have a contingency plan for dual containment. One final point that should be addressed with regards to the Gulf remaining in the status quo is the likelihood of dual containment fomenting an alliance between Iraq and Iran. Efforts have been made by both sides for some type of reconciliation. This is no doubt in response to a recognition that both sides share a common American enemy. However serious obstacles remain in the way of such talks leading to any formal alliance between the current regimes in Iraq and Iran.

Conclusion The Clinton administration's policy of dual containment has been able with differing amounts of force to restrict Iraq's and Iran's ability to destabilize the Gulf through military action. This has been done by the implementation of UN sanctions in the case of Iraq which have all but eliminated the Ba'thist regime's ability to earn the foreign currency needed for military imports. The US's push for strict adherence to all UN resolutions before the sanctions are completely lifted should continue to inhibit Saddam Hussein's military ambitions. The containment of Iran has not had the benefit of international sanctions nor has the Clinton administration been able to gain international consensus for its Iranian policy. The result is that current Iranian economic troubles probably have more to do with economic mismanagement, low oil prices, and the legacy of the war with Iraq than with US initiatives to isolate Iran. Washington's confrontational stance towards Iran could be having some effect, although its probably negative. The Clinton administration seems to be doing a better job of persuading Iran of its evil intentions that of persuading US allies of Iranian evil intentions. This could lead to hardliners gaining ground in the Iranian political scene. The rising strength of hardliners and lost contracts for American businesses are glaring possible consequences of Iranian containment. Therefore it seems like critical dialogue or constructive engagement would be more prudent policies. These approaches would help to cultivate the moderate elements in Iran and would bring our ties closer to our traditional allies. The Iraqi branch of dual containment also has conceivable negative consequences. The stranglehold that the UN sanctions have put on the Iraqi economy has brought about social misery for the Iraqi population. Saddam has done a remarkable job of deflecting the blame for the suffering from his own regime to the West and his security apparatus has effectively repressed dissidents. The Clinton administration had hoped that continued sanctions would weaken Saddam's hold on power and perhaps topple his regime. If this event occurs, the US may find itself with an unintended consequence. Without Saddam's strong central authority, ethnic and sectarian differences could prevent the successful establishment of a successor regime. Civil war could very well break out. Furthermore if US-Iranian relations are sour at the time of an Iraqi civil war, Tehran could very well try and be successful at fostering the emergence of an Iraqi regime that would be more sympathetic to it. Such an outcome would be the worst case scenario of the Clinton administration's policy of dual containment. However the establishment of a new Iraqi regime would be made much easier if sanctions were not relentlessly maintained. Compliance could be sought without stiffening the requirements every time the Iraqi regime seems to be close to a partial lifting of the oil embargo. Such breathing space will perhaps save Iraq's economy before it plunges into an unrecoverable hole. Finally, the Clinton administration should be cognizant of the difficulties that its dual containment policy could be causing for Saudi Arabia and Kuwait. The emergence of significant anti-American sentiment in either of these countries would be detrimental to American efforts of trying to keep peace in the region under dual containment. Unless the Clinton administration alters its confrontational and relentless policy in the Persian Gulf, their will be greater chances for future instability in the Gulf although not under the scenarios that the administration had imagined. A more thoughtful and progressive approach is needed, one that can go beyond mindsets and lobbying groups.

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