The Atlantic and Its Enemies

14. Unravelling

The course of the Vietnam War worried the Europeans: did it mean that the Americans had given them up? Germany was now a fat target, but lacking her own nuclear weapon, and the Berlin crisis in 1961 had shown that the Americans were not anxious to move, whatever Kennedy said. Why, anyway, should the USA risk the obliteration of Chicago for a West Berlin of which American bombers had already made a considerable mess? In any case, the USA very obviously did not mean to let West Germany have a finger on any nuclear trigger, and the arms control proposals put to Moscow in spring 1962 amounted in effect to joint American-Soviet control, with only face-saving clauses for the NATO allies. Was this a moment for united Europe to assert itself? It had recovered from the war, and the Common Market was proving to be a great success. The old European world, with great numbers of peasant farmers, was rapidly going, and the towns boomed through hard-working rural migrants — a sure-fire formula for success in all economies except the Communist ones. Prosperity of an American sort proliferated — more cars, domestic tools, holidays in the sun. But what did it all signify?

In the immediate post-war decades, civilization was still defined by Europe. British and French writers and restaurants, Italian film-makers, the Vienna Staatsoper dominated the stage. The great universities of Europe were still vastly attractive to foreigners, who learned French or German as a matter of course; American graduate students came to Cambridge to take an undergraduate degree and American academics, visiting European institutions with their families, found that their children, at school, were a year or two behind. True, this cultural Europe did not extend into mass culture, which had been Americanized, and was to become ever more strongly so. As to this there was resentment. At this stage the Germans were in no mood to contest the American empire politically, but, especially in the Catholic south, they resisted the cultural side-effects and despite the best efforts of a would-be democratizing occupation education expert, one Zink, they had been able to retain the old divisions in education, as between academic and technical. If you opened a German newspaper, you were going to be instructed. The various German states competed with each other in cultural matters, and supported outstanding museums or opera houses; Wagner’s Bayreuth returned to the world’s stage, with command performances on traditional lines from Birgit Nielsen or Hans Hotter, and the Austrians, even more conservative, maintained the standards of the Vienna Opera or the Salzburg Festival, where Karl Böhm and Herbert von Karajan drew audiences from around the world; the Wiener Philharmoniker still excluded women. That world resisted Americanization, but Americanization was very difficult to resist.

It affected language. The bestselling weekly journal in Germany was Der Spiegel, which had been set up in British-occupied Hamburg after the war, with advice from the British (along with the left-liberal Die Zeit, modelled on the Observer in London, owned and run by David Astor). It did not express itself in the standard German literary style, lengthy verbs-at-the-end-sentences and all: it aimed for English brevity, and in time Spiegeldeutsch was such that the magazine could only be understood if you knew American English quite well. There was a bestselling book in France at this time, Étiemble’s Parlez-vous franglais? It is a long book, giving many examples of the corruption of French, not just by Anglo-American words, but even by Anglo-American usages — for instance, the translation of the World Bank’s formal title to include développement, whereas mise en valeur gives a better understanding of the English original. There was some justice in the French campaign. After all, up until very recent times French had indeed been a dominant language, and when de Gaulle appeared at a state visit in London in 1962, and was accompanied by the Comédie-Française and the great Racine actress and director Marie Bell, the London theatre was enthusiastically full up for her productions of Bérénice and Britannicus, austere alexandrines in a language that, today, even most of the French would find testing. As it happened, Étiemble (who was of peasant origin) had spent seven years in Chicago and had hated much about it. A French West Indian academic colleague had come to see him at home, and the landlord had nearly thrown him out; he remarks, of ‘the American way of not living’, ‘how can you not deplore the great sexual misery of a people with frigid, obsessive, puritanical and bossy women for whom the men stupifiedly kill themselves with work and alcohol?’ and asks what might be done with ‘the infantile cuisine to which the Yankees are reduced and which they take such joy in’. He adds that he would never be attracted by a woman wearing jeans. Étiemble (who lived to an immense age) had no illusions as to what might be done: he recognized that French writers were simply not as interesting as they had been even in the recent past, when French theatre had had worldwide resonance, and he would soon have had to admit as well that the great French cinema was producing mainly clichés. Such campaigns were all too easy to ridicule. At least Luther in the sixteenth century had been robust and not long-winded, but in the 1880s there had been an absurdly pompous effort to prevent words such as ‘telephone’ entering the German language directly: ‘far-speaker’ (Fernsprecher) was substituted, and ‘round-spark’ (Rundfunk) for ‘radio’ (an even more absurd Croat effort to avoid that word came up with krugoval, ‘round-spark’ in South Slavonic). This was a hopeless business, and Étiemble had the humiliation of seeing ambitious Frenchmen and Frenchwomen of a sort he detested make the standard trot to Harvard or Stanford business school, there to be deracinated into unmemorable miniature Jean Monnets.

There was another famous French book at this time, another of those silly-clever sixties bestsellers, Jean-Jacques Servan-Schreiber’s Le Défi américain. He, in a later work, suffered from strange notions, that, to stop Indian textiles from competing with their own, the British in India had cut off the little fingers of Hindu girls’ hands. However, the earlier title made at length the point that the Americans were buying up Europe: multinationals such as IBM were moving in; they were taking advantage of cheap labour, and yet by setting up in France they could duck under the French protectionist walls and thereby keep French industry from developing. However, they could do this because they could quite literally just print off dollars on paper which everyone else had to accept as if it were real gold. As had been feared from the start of the new system devised at Bretton Woods, in 1944, American paper money was international legal tender because two thirds of trade was conducted with the dollar (the pound sterling accounting for most of the remainder). In theory it could be converted into gold, at the famous formula of $35 per ounce, but even in 1960 the American gold reserve at Fort Knox was less in value than the number of dollars kept abroad and especially in Europe. What was to stop the Americans from just printing pieces of paper and buying up Europe? This was a fraudulent point, because the same system, triumphantly and perhaps perversely in the case of the British, enabled Europeans to invest in the USA. ‘S-S’, as he was called (he produced a would-be French version of Time magazine, became an internet-is-the-answer bore, and had his children brought up in Pittsburgh, generally at the business school), also failed to notice that French industry, far from languishing, was doing better than it had done since the 1890s, when the arrival of electrical energy had enabled it to bypass the coal in which France was poor. Quite soon France was going to overtake England, for the first time since the French Revolution itself.

All of this allowed de Gaulle to appear as a world statesman, to put France back on the map. Now, he, many Frenchmen and many Europeans in general resented the American domination. There was not just the unreliability, the way in which the USA, every four years, became paralysed by a prospective presidential election. France’s defence was largely dependent upon the USA, and, here, there were fears in Paris and Bonn. They did not find Washington easy. The more the Americans became bogged down in Vietnam, the more there was head-shaking in Europe. They alone had the nuclear capacity to stop a Russian advance, but the Berlin crisis had already shown that the Americans’ willingness to come to Germany’s defence was quite limited, and they had not even stood up for their own treaty rights. Now, in 1964, they were involved in a guerrilla war in south-east Asia and were demonstrably making a mess of it: would Europe have any priority? Perhaps, if West Germany had been allowed to have nuclear weaponry, the Europeans could have built up a real deterrent of their own, but that was hardly in anyone’s mind. The bomb was to be Anglo-American.

At the turn of 1962-3 the British Prime Minister, Harold Macmillan, had met Kennedy (at Nassau) and agreed to depend upon a little American technology on condition that the French got even less. There would be no Franco-British nuclear link and as far as de Gaulle was concerned, France would have to make her own way forward. He got his own back. The Americans were trying to manoeuvre Great Britain into the EEC, and, conscious now of their comparative decline, the British reluctantly agreed to be manoeuvred. At a press conference in January 1963, de Gaulle showed them the door. Europe was to be a Franco-German affair, and de Gaulle was its leader. France could not go alone. If she had seriously to offer a way forward between the world powers, she had to have allies, and Germany was the obvious candidate. Adenauer, too, needed the votes of what, in a more robust age, had been called ‘the brutal rurals’, and the Common Agricultural Policy bribed them. In return for protection and price support, they would vote for Adenauer, even if they only had some small plot that they worked at weekends.

France, with a seat on the Security Council and the capacity to make trouble for the USA with the dollar and much else, mattered; the Communists were a useful tool, and they were told not to destabilize de Gaulle. He was being helpful to Moscow. In the first instance, starting in 1964, the French had made problems as regards support for the dollar. They built up gold reserves, and then sold dollars for more gold, on the grounds that the dollar was just paper, and inflationary paper at that. There was of course more to it, in that there was no financial centre in France to rival that of London, and the French lost because they had to use London for financial transactions; by 1966 they were formally refusing to support the dollar any more, and this (an equivalent of French behaviour in the early stages of the great Slump of 1929-32) was a pillar knocked from under the entire Atlantic financial system.

De Gaulle had persuaded himself that the Sino-Soviet split would make the USSR more amenable, that it might even become once more France’s ideal eastern partner. There were also signs, he could see, of a new independence in eastern Europe. The new Romanian leader, Ceauşescu, looked with envy on next-door Tito, cultivated and admired by everybody. Romania had been set up by France a century before, and French had been the second, or even, for the upper classes, the first language until recently. Now, de Gaulle took up links with her, and also revisited a Poland that he had not seen since 1920, as a young officer. In March 1966 he announced that France would leave the NATO joint command structure, and the body’s headquarters were shifted to Brussels, among much irritation at French ingratitude. In June the General visited the USSR itself, and unfolded his schemes to Brezhnev: there should be a new European security system, a nuclear France and a nuclear USSR in partnership, the Americans removed, and a French-dominated Europe balancing between the two sides. He had already made sure of Europe’s not having an American component, in that he had vetoed British membership of the Community. Now he would try to persuade Brezhnev that the time had come to get rid of East Germany, to loosen the iron bonds that kept the satellite countries tied to Moscow, and to prepare for serious change in the post-war arrangements. Brezhnev was not particularly interested, and certainly not in the disappearance of East Germany; in any case, although France was unquestionably of interest, it was West Germany that chiefly concerned Moscow, and there were constant problems over Berlin. De Gaulle was useful because, as Brezhnev said, ‘thanks to him we have made a breach, without the slightest risk, in American capitalism. De Gaulle is of course an enemy, we know, and the French Party, narrow-minded and seeing only its own interests, has been trying to work us up against him. But look at what we have achieved: the American position in Europe has been weakened, and we have not finished yet.’

Europeans, and Germans especially, had built up a trade surplus, storing their dollars as reserves; they, this time mainly British, had also invested in the USA. What would happen if their holdings of dollars were so large that they outnumbered the Americans’ own reserves? And then they sold, as de Gaulle was to do? There was a free market in gold, partly in London, and the Swiss were also not bound by the rules. What would happen if dollars were sold for gold, at a price different from the official one? It would weaken the dollar, make it unstable, and less useful as the medium for world trade, upon which the prosperity of the Western world depended. And if the producers of oil especially, but also other essential raw materials, realized that their dollars were just paper, would they not react by raising their prices? In the sixties there were moments of trouble, as dollars built up in private hands, and the dollar’s junior partner, the pound sterling, looked weaker and weaker as the British economy lagged behind the German and then the French.

However, there were still too many important interests involved in the existing system for it to be easily abandoned. In the very first place there was defence — largely American, but with a not insignificant British contribution, whether in central Europe or ‘east of Suez’, where a British presence guaranteed important areas in the Arabian peninsula and South-East Asia. The drain of dollars and pounds was partly accounted for by the military spending that went on abroad, a problem that the Germans themselves did not now have to face. One answer to the particular difficulties of the dollar might have been just to increase the value of the Mark, to take account of the Germans’ export surplus. There was resistance in Germany, where the Bundesbank and exporters feared what might happen if exports became more expensive, though with much heaving and puffing, small increases (revaluations) of the Mark were agreed in 1961 and at the end of the decade. Meanwhile, if speculators sold dollars, Germans bought them up at the fixed and increasingly artificial price. This did not address the fundamental problem, that more and more dollars were held outside the system, and the problem kept coming back. In the early 1970s, the dry and technical debates of ten, or even twenty-five, years before suddenly took on a hectic life. There always was a central problem, that the dollar was in the end just paper, and would appear to be such if the Americans produced too much of it. That was what happened. Vietnam had to be paid for, but so also did the expense of Johnson’s vast public spending programme.

Nixon, though supported, electorally, by opponents or at least critics of Johnson’s spending, carried on with and for that matter increased it: when a new chairman of the Federal Reserve System was introduced in July 1970, Nixon said he wanted ‘low interest rates and more money… I have very strong views and… hope that he will independently conclude that my views are the right ones.’ Whether he did or did not, he allowed Nixon to continue the Johnson programmes and to expand them. The result was a rising budget deficit and a rising national debt.

The national debt had reached $271bn in 1946. It fell in proportion to the GNP until 1965 and then boomed. Under Johnson deficit financing became the rule, and in 1968 his Treasury Secretary, Henry Fowler, protested because of the strain for the dollar. A successor, John Connally, dismissed arguments of this sort: the dollar is our currency and it’s their problem. The Great Society programmes were greedy, and by 1975 federal spending had reached $332bn, the deficit being $53.2bn. By then, federal spending had reached almost 25 per cent of gross domestic product (in 1950, it had been 16 per cent). The dollar had a tenfold inflation after 1956. At the time the sixties economists were still confident enough of their ideas and in any case the Western world’s most prosperous elements almost had to support the dollar, and so the deficits marched on and there were regular meetings of international experts to supply funds with which to buy up the excess dollars. Wise heads shook, though they shook in the wrong direction, absurdly conjuring up a ‘liquidity crisis’, and deflation, in which they were quite wrong, because the problem was that there was a glut of money, and an inflation that rocked the entire system. At any rate, tinkering happened. A G10 group of the industrial nations was formed to defend the dollar (and a Basle one for the pound) and they could lend to the IMF, which allowed special drawing rights of immediate credit to defend a currency under threat. The IMF thereby, at last, acquired a role. NATO members were encouraged to spend dollars in the USA and to deposit cash there; American citizens were forbidden to own gold coins (1965) and the GATT round of 1958-62 even allowed countries with threatened currencies to impose an import surcharge of 10 per cent (as happened with the British in 1961 and 1964). American visas were made easier, to encourage tourism in the USA; Germany and Switzerland refused to pay interest on foreign bank holdings (though that was very difficult to arrange and anyway only encouraged countries such as Luxemburg to take them instead). It was all small beer in comparison with the two great problems — the German surplus and US government spending, with a deficit in 1971 of $10bn.

The dollar itself was badly weakened by all of this, and after making constant noises, with suggestions that a form of the old gold standard might be reintroduced, in 1966 de Gaulle stated that the French bank would henceforth want gold instead. This was not just anti — Americanism. At the time, Paris did not much count as a financial centre, so this was easier for France to do than for, say, London, where credit functioned more efficiently (the French banks had been nationalized in 1945). But the pound itself came under constant pressure in the 1960s as speculators based in Switzerland appreciated that it was overvalued, while British spending overseas (partly for military purposes) put it under strain. In the autumn of 1967 there was a threat that the Suez Canal would be closed and therefore unusable for British oil imports. At the existing rate, the British could not exchange harder currencies without seeing their reserves wiped out and the pound was at last devalued, from $2.80 to $2.40. That shifted pressure onto the dollar, and the oil producers sat up.

The Germans also had their reasons for complaint. The Bundesbank had as a primary aim the control of inflation. One cause of that would be an inflow of dollars, swapped for Marks. The exporters liked their undervalued Mark; the savers, as represented by the Bundesbank, their stable currency. The temper of international meetings as to the future became acrimonious and everyone blamed everyone else — Americans, Germans for saving too much; Germans, British and Americans for not saving enough; Swiss, the others for having crooked tax systems; the others, the Swiss, for receiving stolen goods. Japan was now emerging as a large and fast-growing economy, and she like Germany saved: there was not, as in the Anglo-Saxon countries, the sort of consumer boom that sucked in imports. In 1970 there was a brief respite, as the British and Americans balanced their budgets, but the tidal-wave overhang of paper dollars was too great, and was being added to with every breath that Americans took.

Bad news from Vietnam no doubt did not help, but in 1971 a great inflow of dollars into Switzerland, Germany and Holland occurred. The German government decided it would have to float (followed by the Dutch) in order to make Marks more expensive for the speculators. There were rumours that other governments, including even the British, would buy gold at the now giveaway price of $35 per ounce. Fort Knox would be drained dry. What would Nixon do? He retired to Camp David with his advisers and announced, on 15 August 1971, at the end of the weekend, that the dollar’s formal gold link was ended. He even imposed a 10 per cent import charge, and did not even tell the IMF what he was doing. Maybe he did not even know himself. But this was the end of the Bretton Woods system. It was also the end of much else.

One of the bases of Western prosperity after 1947 had been cheap oil. It cost a dollar a barrel in the early fifties and then crept up to two. Transport in the past had been one of the great obstacles to progress, since horses ate 26 pounds of grain every day, and were frequently sick as well as temperamental; wooden wheels needed constant maintenance (hence in all countries ‘Wheeler’, ‘Raeder’, ‘Charron’ is a common surname) and roads were maintained by convict gangs or serf (corvée) labour. The internal-combustion engine, using very cheap petrol, was revolutionary, and even before the First World War the cities of the West knew all too well the meaning of ‘traffic jam’. In the 1950s the ownership of cars spread, and, with international competition, they became cheaper. The Volkswagen was the symbol of Germany’s economic recovery, quite soon putting even the great British makers almost out of business. Cheap transport of course allowed manufacturers to drop their costs, at least relative to other goods, and at the same time allowed ordinary consumers to spend on something else the money that they saved on travel. Besides, an automobile industry was very productive of other jobs — maintenance, spare parts, garages, roadside restaurants and hairdressers, and on and on.

The Americans had a very strong hand as regards oil. In the first place, their own reserves were very large. If any effort had been made to put up the world price the Americans would just flood the markets and bring the price down. Then again, oil technology was expensive and very demanding; there was a large investment to be made, and there had to be excellent teamwork, with first-rate management, itself of course expensive, and the Anglo-Americans in that respect were irreplaceable. Just how vital such things were was shown in the 1930s. Mexico had oil; she acquired a revolutionary government that was hostile to the USA. It nationalized oil, offering insultingly low compensation to the American owners. Nationalized oil did not thrive. Men were appointed for political reasons, the state invested in misguided and sometimes corrupt ways, and the labour union was spoiled — too many employees, paid too much. The result was that Mexican oil could not easily compete on the world markets, and the employees (inflation having taken its cull of real value) ended up worse off than they had been before nationalization. The example taught Venezuela (for now), the other great Latin American producer, to behave more prudently: the State, there, took just a fifty-fifty share of the profits. In the Middle East, local rulers were persuaded without much difficulty that they should co-operate with British and American oil firms — in Iran, a nationalist who sought more, Mohammad Mossadegh, was expelled by a coup in which the Shah co-operated with the British and the CIA; Anglo-Iranian thereafter held 40 per cent of the oil, and in Saudi Arabia there were no problems at all, as oil installations spread over the desert, and local rulers who had started off with camels and tents suddenly found themselves rich.

In the later 1950s oil entered a new era. The supply grew from 8.7 million barrels per day in 1948 to 42 million in 1972. American output almost doubled (to 9.2 million barrels) but its share fell from two thirds to one fifth, whereas Middle East output rose from a million barrels to 20 million. Known oil reserves showed the same pattern — the American share falling from one third to 10 per cent (38 million barrels, to the Middle East’s 367 million). The Shah became greedy, and wanted Iran to be a ‘great power’. An ambitious Italian proved willing to take only 25 per cent of the profit, whereas the Anglo-American share had been 50 per cent (the ‘seven sisters’ were Exxon, Chevron, Mobil and Texaco, with the British Gulf, BP and Royal Dutch-Shell). The Japanese also indicated to Saudi Arabia that they would take less than half (though defining ‘profit’ after various expenses was not easy). In 1958 Nasser at least in theory united Egypt and Syria, thus controlling the Suez and Mediterranean pipeline routes for oil; and that year there was a coup in Iraq, when the king was overthrown and his prime minister was lynched, his body hauled through the streets of Baghdad and flattened to a pulp as a car was driven back and forth over it. Arabs began now to talk about what they might do to expand their control, and use it against Israel. At that point, an angry Venezuelan took a hand. He had been embittered by American support for an army dictatorship, had spent years of impoverished exile, and had finally left the USA for Mexico because he did not want his children to be Americanized. In 1959, in charge of oil, he had asked the Americans for preferential treatment: Venezuelan oil cost much more to produce than Middle Eastern oil (80 cents per barrel to 25) but it had a strategic location. This time, the Americans refused — they were protecting their own, and anyway gave preferential treatment to Canada and Mexico. The Venezuelan then went to the Middle East and discovered that the Saudi expert had done his training in Texas, and had been taken for a Mexican and sometimes refused entrance to hotels. At the time, oil prices were naturally falling, as supply grew. The companies had been absorbing the trouble out of their own profits, and not passing any of the load back to the states, through lessened royalties. At this point the USSR entered the field, doubling oil production in the later fifties and displacing Venezuela as second-largest oil producer. Soviet oil was also cheap — at Odessa, one half the Middle Eastern price. The oil companies now said that the states should take some of the load, or allow cutbacks in volume. There was much rage: when Standard Oil high-handedly announced a price cut, Venezuela took up an alliance with the Saudis; the Shah sympathized; and the Iraqis, though they were rivals of Nasser’s Egypt, also came in. In 1960 OPEC was set up, the ‘Organization of Petroleum Exporting Countries’. The five founding members controlled 80 per cent of crude oil exports.

Sixties prosperity in the West nevertheless went ahead, and oil became cheaper and cheaper — by 36 cents per barrel. From 1960 to 1969 the price fell by one fifth, or, in value, two fifths, because of general inflation in the decade. This was because supply, and variety, greatly increased. There was now a large Algerian field, which the French, when recognizing that country’s independence at Evian in 1962, cornered. Libya turned out to have reserves of high-quality oil that could easily be converted for aircraft and for low-sulphur-content crude oil which suited the now emerging ‘green’ concerns. Libya by 1965 had become the sixth-largest exporter, producing over 3 million barrels per day in 1970. Meanwhile, American policy was in disarray: the companies could probably not cut back production without infringing anti-trust laws, and the government behaved bewilderingly, preventing tankers from importing oil but allowing trucks to do so. The tankers therefore arrived and deposited the oil in trucks, which went over the border and then turned back again over it, to avoid tariffs. This decisively discouraged oil prospecting. The system of protection depended upon oil companies each adhering to a limited quota, as regulated by the government, and such quotas belonged only in a world of potential oil glut. That world had gone.

But the Western world, America in the lead, deserved such mismanagement, because it was becoming extraordinarily self-indulgent — in Shakespeare’s words, like rats that ravin down their proper bane (‘and so we drink, we die’). From 1948 to 1972 American consumption trebled, to 16.4 million barrels every day. In western Europe it went up fifteen times, to 14.1 million and in Japan to 4.4 million. Housing was put up with hardly a concern for fuel economy: centrally heated, air conditioned and above all dependent on motor cars — of which the USA was the prime example, the 45 million of 1949 becoming the 119 million of 1972. There was also a new petrochemicals industry, which produced plastics of ever greater sophistication (coal had been at the start of this: in the 1890s, a great Belgian industrialist, Ernest Solvay, had made his fortune by using by-products of coal to produce the first plastic, Bakelite, named after its Belgian-born inventor, Leo H. Baekeland). There was a proliferation of gigantic-scale technology, producing larger jet aircraft and ever larger tankers; petrol stations and motels multiplied, turning more and more of the Western world into a huge version of the ‘ribbon development’, the bland snaking of ugly roadsides, of which Orwell had complained in the later 1930s. In Coming Up for Air (1938) he had even foresaw the advertising techniques for junk food — in this case fish sausage, eaten by a smug Brylcreemed man on a large hoarding. The fish sausage more or less predicted McDonald’s.

It had an indestructible relationship with motor cars; in 1948, in California, two brothers found that food could be produced by the same very simplified assembly line methods that had given the American war economy such triumphs, and after 1954 ‘fast food’ took off. This had feedback effects on agriculture, as cows could now be bred that grew more meat more quickly per hoof — the tower block of beef. Puritans complained that Americans were becoming obese — sitting in motor cars, eating fatty fast food, and then sitting in front of televisions. The Eisenhower years saw a great burst of motorway construction, beginning with the Los Angeles Freeway in 1947; in 1956 came the funding for an interstate network, and the claim was made, with perverse pride, that the concrete involved would have produced eighty enormous dams.

There was a further problem for energy consumption, with the emergence of Japan as a great economy. By 1960, Japan — where firewood had been more important than oil — had become a major consumer; it went together with an extraordinary exporting drive, with the economy growing at over 10 per cent per annum. In 1955 the Japanese had made 70,000 cars, but in 1968 the figure was 4.1 million. Huge Japanese tankers, of 300,000 tons, were now being built. There was an alarm in 1967, at the time of the Six Day War between Israel and Egypt, but at the time the Arab countries were desperate for oil money and attempts at an oil embargo on the West failed; in any case, the Shah, now obsequiously courted by the Americans, would not join it, and rivalries between the various producer states meant that no serious co-operation was possible. Still, the hourglass was running out; and one sign that the West would be badly caught out occurred in 1971, when the British withdrew their forces from the Gulf. This saved a small sum — $20m — and opened up Kuwait, especially, to threats from neighbours. It was — with severe competition — the silliest decision made by a British government of that era.

Various other factors came into play. The first was the weirdness of American policy. Oil had been protected against cheap imports, because it was a strategic commodity, and under Harold Ickes there had been sensible regulation — reserves were created, from the surplus, and in the war crises of 1951, 1956 (Suez) and 1967 the reserves had been used, to offset interruptions in supply and keep prices down. From 1957 to 1963 the surplus had amounted to 4 million barrels per day. However, the artificially high price, through protective tariffs, of imported oil then made it profitable for reserves to be used, and these ran down, falling to one million barrels as against an output of over 11 million. If for whatever reason prices suddenly rose, then there would be no American reserve with which to flood the market and bring prices down again. In March 1971 the Texas authority for oil allowed full-capacity use for the first time. Imports followed. The world was in effect becoming dependent upon Middle Eastern oil — demand had risen to 21 million barrels per day, and the Middle East, producing 13 million barrels more, was therefore in the position of meeting two thirds of the rise in demand — despite the emergence of other fields, in Nigeria and Indonesia. Besides, alternative fuels were either undeveloped, or under attack.

Various ideas had already appeared for the use of wind or solar power: they involved much trial and error and great expense at a time when oil was cheap. The fact that there were oil reserves in Alaska was known, but by now the environmentalists were at work and the technology, given the geology and climate, was exceedingly difficult and expensive. In 1972 human genius went into a discovery that there were reserves under the oceans — the North Sea, for instance — but, again, there were environmental fears, as an oil slick destroyed thirty miles of Californian beach. In 1972 the Club of Rome — an informal but weighty international group, supposed wise men of the world — issued a warning called The Predicament of Mankind, which took the consumption figures for that year and reckoned that ‘sometime within the next hundred years’ energy and food would run out because the population was growing so fast and ‘the limits to growth on this planet will be reached’. There were also alarms as to the effect of industrialization, in its modern form, on the climate, as carbon dioxide built up in the atmosphere. Nuclear power was in some quarters regarded as an answer — the Soviet Union and France went ahead — but elsewhere there were fears of accidents and in any case, in some countries — Great Britain especially — coal had an almighty presence. There, a mixture of bad conscience (the miners had been chief victims of the British Slump of the 1930s) and misbegotten policy ensured that coal would have a predominance that prevented the development of a nuclear policy such as the French (to Margaret Thatcher’s subsequent admiration) had had. But coal itself was under some threat, because of environmental considerations. There had been a great ‘smog’ in London in the late autumn of 1958, the last of the Dickensian ‘London partiklars’, and a Clean Air Act had followed, inhibiting domestic use of coal. More oil, in other words. As things were, America, through the quota system, had made matters doubly bad. Oil was not produced, in order to keep prices artificially high. The major companies just agreed among themselves, and took the profits without much effort. On the other hand, world prices were low, and this discouraged exploration of, or at any rate investment in, new sources of oil. There already were alarms — power cuts in the harsh winter of 1969-70. By summer 1973 the USA imported 6 million barrels every day, as against 3 million three years before.

The final element in all of this was financial: the dollar. The Shah, for instance, had embarked upon a colossal attempt to modernize Iran and turn it into something commensurate with the Indo-European (as distinct from Arab or Turkic: ‘Iran’ instead of ‘Persia’ is itself something of an artifice, since it refers to ‘Aryan’, as in blue-eyed, blond, etc.) origins of the Persians, as he understood them. In 1971 he had even staged a great ceremony, inviting anyone interested, at the old capital of Persepolis, complete with Peacock Throne and elaborate use of tiles and gold. His view of the history of Persia was a hard-luck story: on the one side elaborate white clothing, dignified attitudes, elegant and moving poetry, imposing architecture, and on the other side (mainly) Turks, bringing to the work of destruction a glee that civilized Persians could not have been expected to resist, the more so as their potential allies had stabbed them in the back. That the modern-day Turks had made a considerable success of national independence and Westernization was another tiresome element: the Shah would show the Middle East how it could be done. Now, the dollars with which he had been doing his accounts were proving unsafe. Prices per barrel of oil were low enough, in any event — $2 — and inflation was already proceeding in the West at a noticeable pace. The Kuwaiti oil minister said, ‘What is the point of producing more oil and selling it for an unguaranteed paper currency?’ Indeed.

OPEC was by nature divided. But this time agreement was easy enough, and there was a ready excuse to hand. One thing worked on the surface in the Arab world, advancing the anti-Zionist argument. Israel: the great enemy of the Arabs; seemingly successful only because of American support; oil properly used would create such trouble in the West that it would just stand by and let Israel be crushed. So long as oil-producing Arab countries were ruled by pliant monarchies, such arguments remained largely hot air. However, in Libya there was a coup against one such monarch; an army officer, Muammar al-Gaddafi, came to power, in 1969, with the intention of extracting as much as he could from the oil companies who exploited Libya’s high-quality oil. He could quite easily play one country off against others — particularly, his neighbour and former colonial master, Italy, could be used — and into the whole picture there now crept a malignant figure, Armand Hammer, whose appearance at anything generally meant trouble. He had made money out of revolutionary Russia, and profits from that let him buy up coal and oil in America, when prices were at their lowest in the Depression. His company, Occidental Petroleum, no doubt benefited from advance notice of Soviet sales, as these would affect prices on offer in particular markets; and Hammer in return offered services to the Communist Party. Later on, Robert Maxwell did much the same. Unlike Maxwell, Hammer was not found out: though in reality he, too, had built up a mountain of debt, which was concealed by apparent philanthropic activities (they did not extend to his sister-in-law, who had borrowed $15,000 from him; in his will he gave instructions that every cent was to be re-extracted). Hammer had already built up a Libyan connection, perhaps through his Soviet allies, and Gaddafi wanted to have a better deal. Libyan oil supplied a third of the European market, and Hammer allowed him 55 per cent of the profit — a decisive breach of the fifty-fifty principle that soon had Iranian and Venezuelan feet tapping (September 1970). As the dollar declined, there were further demands for price rises, and the position of OPEC became quite strong, since America was now a net importer, and by April 1973 the surplus capacity within the USA was down to a week’s consumption.

At this point, the various oil countries began to threaten even a form of nationalization — ‘participation’, i.e. a share of the oil resources previously covered by concessions. The companies resisted but were not supported by their own governments — the time for gunboats, or even covert operations of the type that had overthrown Mossadegh, was past, and the Americans relied on the Shah. In fact Libya went ahead with nationalization: Hammer was thrown out. It was upon this tense scene that the Israeli-Arab war (Yom Kippur) of October 1973 broke out.

Nasser himself had died in 1970. His successor, Anwar Sadat, was deeply cunning (and during the Second World War had had a minor role as a German spy against the British). It was now obvious that the Middle Eastern oil producers had a very strong case for raising the oil price. In real money, as against paper dollars, they were getting much less than before, and world demand was pushing hard against capacity. Nasser himself had left Egypt in a calamitous condition. He had detached it from the Western world, led it into a disastrous war with Israel in 1967 (with lesser campaigning thereafter) and, with ‘Arab socialism’, driven out the creative minority of Greeks and many of the Coptic Christians who had allowed trade to flourish. He had also taken up a Soviet alliance, and there were 20,000 Soviet citizens, including advisers, in the country; these advisers were often very robust in saying what they thought of Egyptian ways. In July 1972 Sadat had them expelled, though he continued the close relationship with Moscow. But how could he escape from it? If the USA supported Israel, then, given public opinion in the Arab world (which appeared to believe that everything wrong was the Jews’ fault), there was no chance. He must make the Americans force the Israelis to negotiate seriously as to a settlement of Arab-Israeli problems. How? The answer seemed to be, a war. Won, it would end the existence of Israel. Not won, but sufficiently alarming, it would force some movement. Maybe, talking to Kissinger, he realized that he had an equally devious possible partner. The game was in effect to use Soviet help to make any further Soviet connection unnecessary, and solve the Palestinian problem that bedevilled Israel’s relations with Egypt and so deprived Egypt of the link that she needed in order to become a rival to Iran. In the winter of 1972-3 Sadat came up with a scheme for a surprise attack on Israel, in concert with Syria, and told no-one except King Faisal in Saudi Arabia.

The Saudis had by now become the oil producer of reserve — that is, if they produced more of their potential, oil prices would fall, and if not, not. Earlier, that ‘switch’ position had been America’s. Faisal also approved of Sadat, whereas Nasser had been a threat to the monarchies — not a man to support. Religion, the sacred position of Mecca, the ancient glories of the caliphate, in many quarters a vainglorious belief that Arab civilization, so long despised as useless, would triumphantly return, white horses included, to down the infidel and particularly the Jewish enemy (Mohammed’s first target 1,400 years before, as it happened) — all of it really about those paper dollars. In mid-September 1973 OPEC met in Vienna and advanced a new deal with the oil companies, which were to lose their property substantially: an ultimatum followed. Then on 6 October the oil companies nervously offered a price rise of 15 per cent at Vienna; and OPEC demanded 100 per cent. That very day, Egyptian and Syrian troops had launched their surprise attack on the Israeli lines.

The Yom Kippur war had its origins in 1967, when Nasser had been humiliatingly defeated essentially in the first hours of that war. Before it Israel had seemed more or less indefensible, along the 1949 armistice line, but in 1967, with the West Bank and the Sinai, her territory had been rounded off and even Jerusalem was safe from Jordanian artillery. Meanwhile the Arabs had fought among themselves and King Hussein of Jordan only just survived attacks by the Syrians and Palestinians, who regarded him as a traitor: in 1967, thanks to having been let down by allies, he lost half his kingdom. But the 1967 war itself had twisted origins. There was, in the first place, Nasser’s extraordinary vainglory. The Suez affair had counted as a tremendous victory, a defeat for the traditional imperialist powers, Great Britain and France. That had been followed by Algerian independence from France in 1962, another triumph that Nasser was supposed to have inspired.

In 1960 he set himself up as leader of all Arabs, disposing of rivals or Western associates, if need be by murder. In 1960, accepting Soviet help, he had gone over to ‘socialism’, complete with concentration camps and a Five Year Plan, and took over land and businesses: he tried to corral the ulema. What kept the regime together was external aggrandizement as Nasser tried to take over the Yemen; there was constant vainglorious anti-Israeli rhetoric. Soviet arms and money gave him the wherewithal: between 1954 and 1970 Egypt, Syria and Iraq received more than half of Soviet military assistance and Egypt alone got significant amounts of ground and air weapons. In 1967 he was caught on his own rhetoric: the Soviet Union provoked him into a war with Israel, suggesting that the Israelis were preparing an attack, and Nasser could hardly resist. A week before the war, at the end of May 1967, he trumpeted:

We are confronting Israel and the West as well — the West which created Israel and which despised us Arabs… They had no regard whatsoever for our feelings, our hopes in life or our rights… We are now ready to confront Israel… If the Western powers… ridicule and despise us, we Arabs must teach them to respect us.

This blustering led to a fiasco, the Six Day War, which, on 5 June, the Israelis won in about three hours, destroying 309 of 340 serviceable combat aircraft, including all the long-range Tu-16 bombers, twenty-seven Il-28 medium-range ones, twenty-seven Su-7 fighter bombers and 135 MiG fighters. Nasser’s successor, Sadat, had learned a lesson or two when, in October 1973, he launched the next round.

Here was to be another humiliation, or at least a serious reverse, for the Atlantic system. This time it was the Israelis’ turn to be vainglorious. The Egyptians struck in the midst of Israeli triumphalism. There had been a grandiose parade to mark the country’s twenty-fifth anniversary on 15 May 1973 and hardly anyone took the threats of the new Egyptian ruler, Sadat, seriously: the Suez Canal was guarded by prodigious fortifications. The Egyptian army now appointed educated men as officers, some of whom learned Hebrew; soon after the great defeat a Soviet delegation came to offer reconstruction, which took place in six months. Low-level warring went on, as did the usual failed peace processes; but Sadat now at least saw that he should take up links with the Americans, and in July 1972 asked the Soviet advisers to go. What Sadat really wanted was the involvement of the Americans, who could force Israel towards a deal. However, he needed some sort of victory in advance, and reckoned from the plain evidence in Vietnam that the USA would be pliable. Meanwhile, he could rely on some degree of Soviet support: the USSR was not going to let Egypt go. Port facilities would allow for transfer of resources from Russia, which sent the latest technology; and in any case the Russians were well into Syria, Egypt’s ally. In March 1973 shipment of SCUD missiles (with a range of 180 miles) began. Sadat then conspired with Hafiz Assad in Syria, with whom he had nothing in common, and got finance from the Saudis; with the Soviet help, he did bring off the initial victory, and became the ‘Hero of the Crossing’.

The attack came on 6 October, Yom Kippur, a religious festival when Israeli preparedness might be expected to be low (reservists were indeed absent); and the tides of the Suez Canal would also be right at that time. Syria and Egypt would attack together, at 2 p.m., when the sun was in the enemy’s eyes. Yet the Suez defence zone was formidable enough and the Canal itself was about 200 yards wide and up to sixty feet in depth (it has since been deepened to accommodate tankers, by Israeli-Egyptian agreement). The tides vary vastly, changing the depths, and both sides had built ramparts — the Egyptian ones higher, such that they could spot more easily. There was an ingenious Israeli device for spraying the Canal with oil that could be ignited, but it did not work because the pipes had bent under the weight of earth, and though a new commander wanted to activate the system he was actually demonstrating how this should be done when the Egyptian shells fell. The Egyptians had learned from previous experience and had prepared a deception very well. In the first place they had again and again staged emergencies, the first such at the end of 1971, when there appeared to have been a plan for an air strike, and another major mobilization a year later involving paratroops. In spring 1973 there was another, so the further one of September/October was not rated highly by the Israelis. There were similar problems with Syria (thirteen of her aircraft had been shot down in what had seemed to be a fairly routine affair). Even the Israeli media were distracted because at the time there was a row involving Palestinians holding up a train carrying Jews to Vienna on the Austro-Czech border, whereat the Austrian chancellor, Bruno Kreisky, agreed to close the Jewish transit centre in exchange for release of hostages and gunmen alike. The Israeli prime minister, Golda Meir, had been so preoccupied by this that she went to Strasbourg to address the Council of Europe.

Now, the Egyptian army (800,000 men with 2,200 tanks and 550 first-line aircraft) went into action. One key was that the Israeli air force would not be permitted to establish itself: in February 1972 the Egyptians were told in Moscow that they could have Soviet surface-to-air missiles — SAMs — that would constitute a ‘wall’ as well as the SCUD missiles that could land far in Israeli territory, to deter the Israelis from deep raids into Egypt. They arrived in May and Sadat started planning for war in January 1973. The Russians delivered fifty SAM batteries to Syria as well. Rumours were put about as to the Egyptians’ poor preparedness, and the mobilization just looked like another manoeuvre. There were arrangements in place for Soviet back-up, and in the meantime Sadat had co-ordinated with King Faisal that war and the oil weapon could go together. Secrecy was such that 95 per cent of the officers taken prisoner by the Israelis said that they only knew this would be a real attack on the morning of 6 October. Surprise was complete: 240 aircraft crossed the Canal to attack airfields, 2,000 guns opened up and fired 10,500 shells in the first minute. Tanks moved up the ramps and fired point-blank at the fortifications and then the first wave of infantrymen crossed at areas not covered by the Israeli strong-points: they had practised the manoeuvre dozens or even hundreds of times, sometimes by numbers. Such infantry could not be expected to act or learn otherwise. Ten bridges were to be thrown across the Canal. The Egyptians had expected up to 30,000 casualties on the crossing but these were extraordinarily light — 208 — and the bridges were ingeniously constructed so that a damaged section could easily be replaced. By midday on 7 October an Egyptian division was across and it prepared for counter-attack. But ‘the Israeli armour mounted what looked like old-fashioned cavalry charges’ which ‘made no sense whatsoever in the face of the masses of anti-tank weapons that the Egyptians had concentrated on the battlefield’. General Moshe Dayan himself gave a pessimistic briefing to the editors of the Israeli press and hinted that he might have to withdraw out of the Sinai altogether. However, the Egyptian follow-up was poor, and further attacks failed: the way was open to an Israeli counter-attack that reached even west of the Canal. But these three days had marked an Egyptian victory, for the first time ever, and that was Sadat’s essential point. A real victory would be the prelude to some settlement.

However, by 12 October the Israelis were receiving an American airlift to make up for the unforeseen losses and use of ammunition and aircraft. On 8 and 9 October Brezhnev appealed to other Arab states to join in and on the 10th set up an air bridge to Syria (Tito gave permission, saying it was for Sadat not Brezhnev that he agreed). On the 9th the Americans agreed to supply the Israelis, especially with electronic materiel that allowed Israeli planes to escape missiles, and to begin with the Israelis did the transporting, but the US air force did it from the 12th, as Israeli aircraft were not enough for these supplies. The decisive moment occurred on 14 October. There were 1,000 Egyptian tanks on the east bank, and they launched one of the largest tank battles in history: the missiles were out of range and so the Israeli air force could act decisively. The Egyptians lost 264 tanks, the Israelis ten. The SS11 anti-tank guided missiles had been important and the Israelis’ tanks were also well prepared — in fact the Egyptians had attacked only in response to appeals from Syria, where the fighting was not going well: on the Golan Heights there was a desperate battle but 867 Syrian tanks were left there. Now the Israelis could plan their own crossing of the Canal, succeeding on the 16th, and the Egyptians began to collapse. Within two days an Egyptian army was under threat of being cut off and the USSR proposed a ceasefire, the proposal being agreed between Brezhnev and Kissinger and presented through the United Nations. On the 24th a second UN resolution was put through because the Russians could foresee the collapse of their allies, and under American pressure the Israelis accepted it, their forces now even threatening Cairo. The Russians had mobilized airborne divisions for a move to the Middle East when the ceasefire came, but Sadat himself was not enthusiastic. Of course, it was yet another Arab defeat, in the end, but there was something to show for it. The upshot of the Yom Kippur war was not clear-cut. The French and the Germans made difficulties for Israel; Bonn refused the Americans an air bridge over Germany. At the end of the year all sides did meet for the first time and in mid-January 1974 there was a new arrangement — a neutral zone on the east bank. Egypt restored diplomatic relations with the USA in 1974 and broke with the USSR in 1976; two years later, on American territory (Camp David, the President’s official retreat), there was an Egyptian-Israeli peace. Israel evacuated Sinai.

It was now Arabs who used the oil weapon. On 16 October 1973 they put up prices by 70 per cent and on the 17th OPEC announced a reduction of output by 25 per cent and an embargo on the USA and Holland. On 23 December there was a doubling of Persian Gulf prices. OPEC announced that the price would rise to $5.11, and there was a further threat, that production would be cut by 5 per cent every month — the claim being that this was necessary for the Americans to force Israel into serious negotiations. Kissinger, in his aircraft, even learned that the Saudis would join the embargo on oil sales to America and her allies because of President Nixon’s public offer of $2bn in aid for Israel. On 21 October the Arabs stated that they would nationalize the oil companies if they failed to join the embargo against the USA, the whole affair occurring in the context of the Watergate revelations, and Nixon had just lost his corrupt Vice-President, Spiro Agnew, over tax fraud. The oil embargo went ahead, against Holland (which had stood up for Israel’s cause) and the USA, and even against the American ships supposedly protecting the Saudis. The price climbed and production fell back — from over 20 million barrels early in October to 15 million; and although Iran stepped up production somewhat (600,000) overall supply by December had fallen by 4 million barrels per day. This was about a tenth of consumption, but since consumption had been rising at 7.5 per cent per annum, the dent was more severe, and in any case panic caused damage, as the companies realized what was happening. They bid for any oil on the market, anywhere — in Nigeria, in November, $16 and then $22.60; in Iran, $17. The official price went up, from $1.80 in 1970 to $2.18 in 1971, $2.90 in summer 1973, $5.12 in October and $11.65 in December. By 23 December the Gulf States had doubled the price, and of course the rise in oil and natural gas prices much profited the Soviet Union. Boris Ponomarev, of the International Department, thought the crisis of capitalism was at hand. The centre was not holding.