By Fortune Editors
August 1, 1951

Among the secret documents captured in the archives of the German Foreign Office was a report from the German Ambassador to Moscow (Schulenburg), dated November 26, 1940, in the period of the Nazi-Soviet pact. The German Ambassador said that Molotov was prepared to accept the draft of a proposed four-power pact between Germany, Italy, Japan, and the Soviet Union, subject to certain conditions. One of these conditions was simply stated: “Provided that the area south of Batum and Baku in the general direction of the Persian Gulf is recognized as the center of the aspirations of the Soviet Union.”

This is one of the most candid declarations of Soviet Russia’s intentions ever made public. The document in which it appears was published by the U.S. State Department in 1948. There is every indication today that this area remains a center of tremendous Russian expansionist pressure.

Cutting through eastern Turkey and Iraq, and western Iran, this triangle is the heart of the Middle East. It effectively divides the globe, East and West. Thus the aspirations of Soviet Russia in this area are not limited to a bit of territory but fit accurately into its broader aspirations of world conquest. This triangle, coveted by czarist and bolshevist Russia alike, is also the weakest salient in Russia’s historic defense-in-depth strategy. It lies at her back door, only a few hundred miles by air from most of Russian oil and much of its industry. On the other hand it is open to reasonably easy conquest by Russian land armies, U.S. airpower notwithstanding. Perhaps sometime the Red Army will come through the passes of the Caucasus and the Elburz Mountains, and take it. But this no doubt would be generally regarded as the formal opening of World War III, and from Korea and other evidences, it seems probable that Soviet Russia would like to get it cheaper, that is, by subversion, civil war, and conversion to a satellite, and thus continue to throw sand in the eyes of the non-Communist world.

Only in the very recent past has the U.S. developed a material interest of any consequence in the Middle East. This interest arises, of course, from its strategic location (communications and bases) and its chief strategic mineral, oil. The term “Middle East,” or “Near East,” is taken here to mean the roughly three million square miles of territory consisting of Greece, Turkey, and Iran, along the southern border of Russia and her Balkan satellites; and the southerly adjacent Arab states, Syria, Lebanon, Iraq, Jordan, Saudi Arabia, Yemen, Aden, Kuwait, Egypt, and the Sudan; other Arabian sheikdoms, and Israel. This area forms a tri-continental bridge, linking Africa, Asia, and Europe. It is General Eisenhower’s far-right flank. Its oil runs Europe’s industry.

In the event of war the friendship of the Middle East would be of enormous strategical value. The first interest of the U.S. in the Middle East, as everywhere, therefore, is its people, 90 million of them. Middle East policy also has some indirect effect on the rest of the Moslem world, some 200 million people, outside of Russia and China, who live between Morocco and the Philippines.

Arid in climate, unskilled in both industry and agriculture, and prone to produce children faster than crops to feed them, in some parts quasi-feudal and nomadic in its social life, disease-ridden, illiterate in general (though its people can hear), highly cultured in select circles, and nationalistic to the point of xenophobia, the Middle East in large part emerged from colonial status into a group of sovereign states in the same recent period in which the U.S. emerged as the leader of the Western world. Neither was prepared for the occasion.

After the collapse of the Ottoman Empire in World War I, the Middle East came largely under the colonial dominance of England and France. The position of France in Syria and Lebanon disappeared in World War II; Britain’s continued decline leaves the vacuum in which the power of Soviet Russia and the U.S. is presently felt. The U S., never a colonial power, and not interested in becoming one, has had here, as in virtually every other part of the world, the responsibility imposed upon it of exercising a political wisdom superior to the Greeks or the Romans or the British.

From the August 1951 issue of Fortune magazine.
Harrison/Fortune/Time Inc.

The effort of the U.S. to construct a “shield” across the top of this area—Greece and Turkey, but unfortunately not Iran—is well known as “the Truman Doctrine,” and is associated with the shaky theory of containment. This also represented a substitution of American for British power in Greece and Turkey. These two countries have become in truth a strong brake on Soviet Russia’s unrelenting pressure toward the south, in fact the only real power in the Middle East. They have made good use of the money and skills contributed by the U.S. and have resolutely declared their adherence to Western ideals. One of the prime political questions of the moment is their desire to throw in their lot with Europe by entry into the Atlantic Pact, a step that the Scandinavian countries have viewed with some misgivings.

It is not the purpose of this piece to speculate on what the US. should or could do if Iran falls to the Communists by conquest or subversion. No one in authority is able to say, even if he knows, what the political or military counter-moves would be. It is sufficient to say that the Middle East is a prime strategic area for both Russia and the U.S.

In and around the triangle formed by Batum, Baku, and the Persian Gulf, “the center of the aspirations of the Soviet Union,” lies most of the oil in the Middle East, in Iran, Iraq, Kuwait, Qatar, Bahrein, and Saudi Arabia. Of the present known world oil reserves, the Middle East has about 50 per cent, the U.S. about 27 per cent, South America 11 per cent, Soviet Russia 6 per cent. Of the total daily world production of about 11 million barrels, the U.S. alone produces about six million—a heavily disproportionate drain on its resources. The Middle East produces over two million barrels daily, Venezuela 1,700,000, and Soviet Russia 750,000 barrels daily (about equal to Iran alone).

The strategic importance of Middle Eastern oil lies in the simple fact that three-quarters of European industry, and most of the British Commonwealth, excepting Canada, are dependent on it. Of the Middle East’s two million barrels a day, 500,000 go east to India, Pakistan, the Far East, and Australia. About 1,250,000 barrels a day go west to Britain and the Continent, and about 250,000 to the U.S. If the loss of any substantial amount of Middle Eastern production were to be made up by the Western Hemisphere—as it would have to be—it would create an acute shortage in the U.S. Every American therefore has a very real personal interest in Middle Eastern oil. The balance of oil reserves between the U.S. and Soviet Russia heavily favors the U.S. and its allies; and while Soviet Russia might be able to deny Middle Eastern oil to the West, it would be extremely difficult for her to make use of it, short of capturing the whole Mediterranean and North Africa.

Middle Eastern oil has been developed largely by British and American capital and technology. The U.S. has now almost $1 billion invested in oil installations in the area, the British close to $2 billion. Exclusive British interests have centered in Iran (capacity: 700,000 barrels daily), exclusive U.S. interests in Saudi Arabia (750,000 barrels daily) and Bahrein (80,000 barrels daily). Concessions in Iraq (165,000 barrels daily) and Kuwait (500,000 barrels daily) are jointly held by British and U.S. companies, and the French and Dutch have a share of the interest in Iraq (see table).

From the August 1951 issue of Fortune magazine.

The trans-Arabian pipeline system, running 1,068 miles from Arabian American Oil Co.’s producing fields across the desert and through Hashemite Jordan, Syria, and Lebanon to the Mediterranean, one of the great foreign ventures of U.S. capital, was completed in 1950 at a cost of $230 million. It eliminates a 7,000-mile round trip by tankers from the Persian Gulf to Suez for 300,000 barrels a day (the work of a fleet of sixty-five ships). Moreover, the roads paralleling the pipelines have become arteries of oasis life. Wherever the company has found water, desert villages have sprung up overnight, and nomads come in to water their camels and sheep, and stay for medical treatment and other services of the company’s staff.

Oil concessions are no longer simply a question of paying royalties to the owning nations. The pattern is developing along the lines of Arabian American Oil Co.’s pace-setting fifty-fifty profit partnership with the Saudi Arabian Government. In other respects the U.S. oil companies in their Middle East relationships have been strongly influenced by the expensive lessons learned in Mexico earlier in the century and applied in Venezuela (FORTUNE, February, 1949). The U.S. companies have involved themselves in the interests of the local people, even to the extent of contributing U.S. advice and skill to other projects having nothing to do with oil. In Saudi Arabia, Aramco is building a railroad for the King from the Persian Gulf to Riyadh—the King’s home town and the capital of Saudi Arabia. The company is also aiding in the development of an irrigation project for grain production and other crops at Al Kharj. In the cities of Riyadh and Jidda it has provided technical assistance in electrification. Arab workers in Saudi Arabia get some $8,400,000 in annual wages, are learning to operate machinery, sending their children to company schools, and even finding out what a bank account is. These are modest benefits, but they have only begun and they represent a considerable advance over the primitive past.

So it can be said that U.S. oil companies have created a kind of competition in both payments and methods with the British, who are still bogged down in the paternalistic colonial tradition. The State Department, however, which sat in the background of the Aramco profit deal with Ibn Saud, failed to influence the British and their Anglo-Iranian company, and the variance helped intensify the Iranian crisis. Oil policy counts heavily in countries like these, where national dignity is a sore point. The British, though traditionally knowledgeable in these lands, were slow to sense the recent stiffening of Middle Eastern bargaining, and the competitive effects of the Saudi Arabian and Venezuelan contracts (Venezuela sent a mission to Iran and Iraq in early 1950 in a move to create an understanding between the oil-concession countries). But along the way somewhere economic bargaining in Iran became secondary to the histrionic political emotionalism for which that country has since become celebrated, and the Iranian Government became increasingly unstable. Quite apart from the political dangers inherent in the instability of Iran, the crisis there may influence the pattern for the rest of the Middle East and affect even the good relationships established by the U.S. oil companies there and in South America.

The oil royalties pouring into the Middle East could, if well used, provide seed money for a great Middle Eastern economic renaissance. Too often they have served only to make the rich unproductively richer, instead of going into capital investment, the area’s greatest economic need. The oil money, too, is oddly distributed geographically. The Middle East has only two great natural resources so far discovered: oil, and patches and stretches of arable or potentially arable land. Syria, for example, which has considerable underexploited arable land, has only a little oil revenue indirectly from the pipelines. In the minuscule desert country of Kuwait, on the other hand, 150,000 people sit on an oil pool with proved reserves of 15 billion barrels. The picture in some places is improving. Kuwait and some of the other oil countries have channeled a part of the money into public works: schools, hospitals, playgrounds, market places, railroads, harbors, and water supply. Rationally speaking, the Middle East might do better to pool its resources, oil and land, in some form of politico-economic union.

In addition to the $1 billion in oil properties, the U.S. has another several hundred million invested in various Middle East enterprises, most of it in partnership with local capital. Excepting oil, recent investment activity has been confined for the most part to Turkey and Israel. General Electric has a new $1,770,000 bulb plant at Istanbul, intended eventually for the production of radios, refrigerators, washing machines, vacuum cleaners, and other wares. And Hilton Hotels International is involved in a several-million-dollar 400-room hotel there, financed by ECA and local money, with working capital and management provided by Hilton (another new hotel at B’hamdun in the Lebanon Mountains was furnished recently on one order from Macy’s in New York).

In Israel, Kaiser-Frazer has participated in the building of a $2,500,000 assembly plant with a capacity of 6,000 cars and trucks, most of which will be exported to twenty-eight countries where the local company has sales rights. Alliance Tire & Rubber has built a $3-million plant, and several others involving U.S. capital are under construction: General Tire ($2,500,000), General Shoe Corp. ($1 million), Moller-Dee Textile Corp. ($1,500,000), Bulova Foundation—a tool-and-die plant ($500,000). Israel itself has an ambitious economic program but has a heavy deficit of foreign trade (exports $36,800,000, imports $287,300,000), and depends largely on loans and gifts from abroad to support an underproductive economy, unrelieved by a political policy of unrestricted immigration.

Two of the most popular items of export from the U.S. to the Middle East are Coca-Cola and Cadillacs—each of which has its symbolism in Middle East culture. It is hot there, and Moslems are non-alcoholic by doctrine; so they drink one million bottles of Coke a day. Cadillacs, which are a mild sign of middle-class success in the rest of the U.S. and a utility in Texas, over there are a confirmation of oligarchic rank. Europe is the Middle East’s traditional trading mart, but the U.S. last year exported a variety of goods to the area totaling $273,478,000 (exclusive of Greece). The U.S. also bought from the area to the extent of about $184 million.

Besides oil, the principal exports from the Middle East to the U.S. are tobacco from Turkey; wool from Syria, Lebanon, Iraq, and Iran; cotton from Egypt; and diamonds from Israel (originating in Africa and processed by former European diamond cutters). Air transportation is one of the area’s strategic industries. A new international airfield was completed last year at Beirut, Lebanon, and Pan American has moved its main Middle Eastern office there. One of the biggest and most significant businesses in the Middle East is, of course, the Suez Canal, through which 82 million tons of shipping moved in 1950.

As part of the Mutual Security Program of 1951–52, the President has recommended $415 million in military aid for Greece, Turkey, and Iran, of which 10 per cent can be diverted to Arab countries. Greece and Turkey receive economic aid under ECA. Economic aid is proposed separately for the other Middle Eastern countries to the extent of $125 million. Export-Import Bank loans have been made to Turkey ($19 million), Saudi Arabia ($29 million), Egypt ($7,250,000). The bank has extended a $135-million credit to Israel, and a $25-million credit to Iran. Point Four authorizations and proposals of about $2 million are intended primarily for technical assistance on land and water problems with a view to raising food production and creating “progressive stability.” The U.S. has contributed to the U.N. $90,450,000 in relief funds for Arab refugees.

From the August 1951 issue of Fortune magazine.
Harrison/Fortune/Time Inc.

The Middle East is plagued with intra-regional conflicts. The area contains fragmented, unstable, and unviable islands of local power, united negatively in their hostility to foreigners—the heritage of hostility to the dead age of Western imperialism. Four of its twelve states were created after World War I; four more after World War II. Political and economic power is concentrated in relatively few hands. The peasant seldom owns land. His plow is still a stick of wood. The majority are unable to postpone consumption and save money for investment. Those who have the money want large and quick profits, and take a negative view of long-range investment. Ethnic, linguistic, and religious minorities overlay one another everywhere. The U.S. and the U.N. have yet to reconcile the raw hostility between Israel and the Arab states, and to provide the solution to the major problem of 900,000 Arab refugees from Palestine, about 675,000 of whom are languishing in temporary camps.

The object of U.S. Government policy commendably is to work on a regional basis to reduce tensions and increase stability. Too often, however, it looks as if we were merely engaged in a popularity contest. The chief criticism of Point Four is that it is a Sunday school program of technical aid. On the big agenda for the Middle East are reforms in fiscal and tax policies, in agricultural methods, and landlordism; reclamation and irrigation and drainage projects; reduction of disease and illiteracy; and industrial development. Local industry waits on markets; and markets wait on the development of the land along with the oil.

For a hundred years a small number of Americans, missionaries and educators, brought to the Middle East a good part of its educational system, and the work of these good men is one of the greatest assets the U.S. has in that part of the world, namely the good will of its educated people. The American cultural interest in Zionist Israel is well known and flourishing. Elsewhere cultural work is represented by primary and secondary schools, hospitals, clinics, orphanages, home welfare, summer camps, and some agricultural activities. The Near East Foundation, concerned with Greece, Syria, Lebanon, and Iran, supports a substantial program of agricultural training, public health, sanitation, home and family welfare, and education. At the top of all this activity are the colleges and universities, chief of which are the American University at Cairo (750 students), Robert College at Istanbul (1,470 students), the American College for Girls at Istanbul (550 students), and the celebrated American University of Beirut (2,900 students), founded as the Syrian Protestant College in 1866. Altogether there are some 7,000 Middle Eastern students in American colleges and universities in the area. Their educational methods are American; the curriculum is calculated to serve Middle Eastern life. The American University of Beirut has received funds from such varied sources as the Rockefeller Foundation (almost $3 million), Point Four ($628,500), and Aramco ($1 million).

The Middle East Institute, a U.S. organization, publishes a magazine here, The Middle East Journal, on the political, economic, and cultural problems of the area. A new organization, American Friends of the Middle East, has recently been formed with a program of cultural activity, sympathetic to the religions of Middle Easterners.

It will take a wise and courageous diplomacy, of which not much has yet been seen, for the U.S. and its allies to do business with the powers that be in the Middle East, as they must for the short run. The U.N. Security Council gave a demonstration of sound diplomacy in 1946 when it pressured Russia into removing troops from northern Iran. But good diplomacy also means working with local monarchs, aristocrats, and feudal landlords and their representatives, while vigorously exercising the American power to secure reforms.

There is no good reason why the U.S. cannot be unique in world politics. There is no good reason why the word American should not stand throughout the world for what people want and the way to get it through freedom and order. When this means land reform, let it be known that the U.S. is the first to stand for land reform and to assist in getting it. When it means political reform, let it be known that the U.S. is for political reform and throws its weight accordingly. In its representation abroad the U.S. should never let itself become identified with anything that the U.S. itself does not stand for.

The situation in the Middle East is inherently difficult, and, like all other social affairs, susceptible only to optimum results, often perhaps for a time relatively low optimums. But one would have to be as fatalistic as a Moslem to assume that such low points in diplomacy as Iran represents are unavoidable. Soviet Russia probably has good reasons for not exercising her capability of seizing Iran by open aggression. Thus the U.S. and its allies may yet have time to pursue the peaceful arts of economic and social relationship in the Middle East, and by doing so make it increasingly difficult for Soviet Russia to realize her aspirations by means other than war. In any case the U.S. should act on that assumption, even while preparing for the worst.

This article originally appeared in the August 1951 issue of Fortune magazine.

SPONSORED FINANCIAL CONTENT

You May Like

EDIT POST