Research Papers

The Oil Weapon: How the 1973 OAPEC Oil Embargo transformed relations between the United States of America and the Kingdom of Saudi Arabia

Twenty minutes after President Richard Nixon finished his breakfast in his Key Biscayne, Florida compound, dubbed the “Winter White House,” on October 6, 1973, he received distressing information from Henry Kissinger, his National Security Advisor and the United States Secretary of State. In a 9:25 a.m. call from New York, Kissinger informed Nixon about an unanticipated development in the Middle East: “Fighting has broken out on the Golan Heights and along the Sinai.”

The Yom Kippur War, named after the Jewish holiday it started on, began when Egypt and Syria opened a two-front, surprise assault on their neighboring country, Israel. The two Arab nations sought to recapture territories that they had lost to the Israelis six years earlier in 1967’s Six-Day War, namely the Golan Heights for Syria and the Sinai Peninsula for Egypt. The initial attack came as a surprise to the Israelis as they misinterpreted intelligence that suggested an attack was imminent and as their means of communication and transportation were shut down due to the religious holiday. As a result, the two Arab nations had great initial success. Pushing from the south, the Egyptians, as a part of Operation Badr, crossed the Suez Canal into the Sinai Peninsula, territory that they had possessed just six years prior, and gained control of the Bar Lev Line, a series of Israeli fortifications on the east side of the Suez. From the north, the Syrians also pushed into Israeli territory and gained control of Israel’s Eye, a strategically important vantage point perched 6,500 feet high on Mount Hermon.

Despite the strong start of Egypt and Syria, the mobilization of two Israeli military divisions and American involvement in the conflict on behalf of the Israelis soon shattered Arab dreams of a quick and decisive victory. As the fighting dragged on, the war expanded to include troops from three more nations all on the side of the Arab coalition – Saudi Arabia, Iraq, and Jordan. Seeing its ally, Israel, struggle against a coalition that was also backed by Soviet arms, the United States began to assist the Israelis, supplying them with 100 fighter jets and over 55,000 tons of military equipment, including artillery, tanks, and ammunition, through airlifts and sealifts. With America’s entrance into the conflict came an unexpected shift in momentum as the Israelis pushed past their prewar boundaries, quickly advancing within sixty-two miles of the Egyptian capital of Cairo and within twenty-one miles of the Syrian capital of Damascus. Thus, realizing that force of arms could not dislodge Israel from its occupation of Arab territory, especially with the Israelis receiving support from America, the Arab oil-producing nations, led by Saudi Arabia, sought to force the United States into a more neutral position by attacking the US economy with a joint oil embargo.

The oil embargo imposed on the United States by the Organization of Arab Petroleum Exporting Countries (OAPEC) eventually led to an unlikely friendship between democratic America and monarchical Saudi Arabia. However, the embargo first strained the relationship between the two countries. It not only severed their economic ties, which were almost exclusively based on the trade of oil, but also brought the two nations to the brink of war. As the embargo continued, however, the US Secretary of State, Henry Kissinger, realized the importance of Saudi Arabia and its oil to America and started to engage in “shuttle diplomacy” with the belligerents of the Yom Kippur War, resulting in the removal of the embargo on March 18, 1974. The period that followed would see the rapid mending and strengthening of the broken US-Saudi relationship through greater economic cooperation, arms sales, and development projects. Although the OAPEC oil embargo initially destroyed relations between Saudi Arabia and the United States, it played a key role in the development of their economic, political, and military partnership.

 

Background: US-Saudi Relations and OAPEC

Since the US formally recognized the Kingdom of Hejaz and Nejd, later the Kingdom of Saudi Arabia (KSA), on May 1, 1931, American interests in the desert kingdom have revolved around its copious oil resources, despite cultural and political differences. In 1938, an American corporation, Standard Oil Company of California, discovered oil in the country five years after beginning to explore for it. Six years later, in 1944, Standard Oil of California, along with Texas Oil Company (Texaco), formed the Arabian American Oil Company (ARAMCO), and Mobil and Exxon later joined them. Over time, as ARAMCO grew, the company became the largest American investment abroad, and the Saudis became the world’s largest exporter of oil; however, the US maintained near-full control over the Saudi oil fields.

In December 1972, Saudi Arabia, under King Faisal, began to push back against America’s complete ownership of ARAMCO, now the wealthiest oil company in the world. Controlling 95% of the KSA’s oil facilities and fields, including the planet’s most productive field, ARAMCO, with its infrastructure alone worth $1.2 billion, was so massive that it was likened to a “country within a country” in a 1974 New York Times article penned by Leonard Mosley. After 28 years of US dominance over ARAMCO and months of negotiations with the four American oil corporations, the Saudis acquired a 25% participation stake in the company in 1972, and, with it, greater control over their oil resources. The four companies that constituted ARAMCO also agreed to gradually expand Saudi ownership to 51% by 1982.

Despite this Saudi demonstration of power, however, the US continued to ignore the KSA’s growing influence and still viewed the kingdom merely as a source of oil. Henry Kissinger epitomized America’s attitude towards the Saudis in a July 20, 1973 meeting among top government officials regarding US policy in the Middle East, saying, “We wouldn’t give a damn about Saudi Arabia if it didn’t have most of the oil in the region.”

The developments in Saudi Arabia served as a microcosm for the changes occurring throughout the Middle East. In 1960, after ARAMCO slashed oil prices and consequently decreased Saudi petroleum revenue by $30 million, the KSA led the formation of the Organization of Petroleum Exporting Countries (OPEC). Initially joined by Iraq, Iran, Kuwait, and Venezuela, the Saudis hoped to use the organization to give its members more control over the production and pricing of their oil.

Eight years later, in 1968, the Saudis co-founded a second group, this time exclusive to the Middle East: the Organization of Arab Petroleum Exporting Countries (OAPEC). OAPEC differed from OPEC not only in its members but also its aims. While OPEC’s goals were exclusively economically motivated, the members of OAPEC had political motives as well. The organization’s constituent nations shared a common animosity towards Israel that stemmed from the creation of the Jewish state in half of Arab Palestine’s territory in 1947 and Israel’s occupation of three-quarters of Palestine’s remaining territory in 1949. In the decades following Israel’s creation, Egyptian President Gamal Abdel Nasser promoted pan-Arabism in the Middle East, and calls for Arab unity, centered around the plight of Palestine, grew. This unity manifested in the form of a joint oil embargo imposed on the United States by five future OAPEC members in response to American support for Israel during 1967’s Six-Day War. Although the embargo was ineffective due to insufficient Arab participation and the high rate of domestic oil production in the US at the time, it represented the first concerted Arab effort to use the “oil weapon” to achieve their political goals.

As OPEC gained members through the decade, it also gained dominance over the global oil market. By 1970, the organization was responsible for 86% of world oil exports and half of the world’s oil production, and its Arab bloc produced the vast majority of this oil. However, the Arab nations, several of which were now unified under OAPEC, felt that they were being exploited by the foreign companies operating within them that dictated the production and pricing of their oil.

In the early 1970s, OAPEC reached a breaking point as it felt prices were too low and began to assert itself over the multinational oil companies. Oil prices had massive implications for the economies of the organization’s members. In the case of Saudi Arabia, the oil industry contributed 90% of its governmental budget and 64% of its gross domestic product (GDP). With their economies so dependent on oil, the Arab nations pushed for price hikes and succeeded due to their unity and dominance over the global oil market. In the February 14, 1971 Tehran Agreement and the April 2, 1971 Tripoli Agreement, foreign corporations agreed to raise oil prices over the course of five years, and, between 1970 and 1973, OAPEC drove these companies to lift the price of oil up from $1.80 per barrel to $3.07 per barrel. OAPEC also raised its share of oil profits from 50% to 55%. Regarding this assertion of power by the Arab members of the organization, an OPEC official later commented, “After the Tehran agreement, OPEC got muscles.”

While some world leaders feared the growing influence of OAPEC, President Nixon and much of his administration did not. British Prime Minister Ted Heath warned Nixon about the “growing peril” of the organization and told him that “All the signs are that this situation is going to get worse, not better.” Washington D.C., however, considered concerns of OAPEC’s growing power “overly alarmist.” Nixon himself believed that, if the organization continued to increase prices and assert control over multinationals, “the inevitable result is that they will lose their markets.” However, the President would later find out that he had misread the situation by underestimating his country’s reliance on Middle Eastern oil. Nixon’s misjudgment, combined with shifting energy and economic policies and a rising demand for oil, created a perfect-storm scenario for the Saudis and OAPEC to exert more control over oil pricing and use the oil weapon for a second time, this time successfully.

 

Background: US Reliance on Foreign Oil

While OAPEC was realizing its collective power abroad, America was growing increasingly reliant on foreign oil and, consequently, more vulnerable to the oil weapon. In the years leading up to the OAPEC oil embargo, United States oil consumption rose dramatically as the nation’s energy demands rapidly increased. In 1950, the US consumed 6.5 million barrels of oil per day (mbd) and relied on coal for 38% of the country’s energy needs. Twenty years later, in 1970, American consumption of oil rose 126% to 14.7 mbd. By 1972, production of coal had stagnated, and it only fulfilled 17% of the country’s energy needs. The Clean Air Act, under President Lyndon B. Johnson contributed to this shift from coal to liquid fossil fuels. The act discouraged the burning of coal in favor of alternative sources of energy such as oil. Furthermore, a 1965 amendment to the act created new emission standards for cars, ushering in a new generation of car engines that polluted less but consumed 10% more gas. Thus, control of the US economy was ceded to oil, which fulfilled 42% of American energy demands and became the country’s largest source of energy.

Although American consumption and reliance on oil was increasing, much of this oil was not being produced domestically. In the decades leading up to the OAPEC embargo, the US had a surplus of oil due in part to governmental policies that protected the domestic oil industry by limiting imports. The nation had such an excess that domestic oil production was artificially lowered, and some even encouraged oil to be wasted by driving more than needed. However, the aforementioned rapidly rising demand for oil along with the growing influence of environmentalists and the domestic policy of President Nixon soon turned this surplus into a shortage. Environmentalists opposed deepwater ports that would have allowed the US to hold supertankers that transported as much as 500,000 tons of oil rather than tankers that transported 80,000 tons, delayed the construction of the Trans-Alaska pipeline, and fought against offshore drilling in US waters. As a result, they severely inhibited the expansion of the domestic oil industry, which consequently could not meet the nation’s growing energy demands. Furthermore, governmental protection of the domestic oil industry ended. In 1971, President Nixon enacted price controls that set a maximum price for oil in the country, a stark contrast from his predecessors who kept prices high by limiting imports. Not only did the guaranteed low prices encourage Americans to consume more oil, but they also disincentivized production by American companies due to lower profits and discouraged companies from finding new sites for domestic oil production.

Thus, with oil consumption rising to meet increasing energy needs and domestic production of oil decreasing due to environmentalism and new governmental policies, the stage was set for American overreliance on foreign oil. Between October 1970 and October 1973, United States oil imports more than tripled from 1.19 mbd to 3.74 mbd, and OPEC accounted for 2.56 mbd of this total, amounting to 68% of all US imports. America was growing especially reliant on Saudi Arabian oil. In 1973, US imports of Saudi oil rose from 351,000 barrels per day in January to 744,000 just nine months later in October. As a result of the increase in imports as well as newly raised oil prices, American spending on foreign oil soared 515% from $3.9 billion to $24 billion between 1972 and 1973.

President Nixon’s ending of the Bretton Woods system on November 15, 1971 also contributed to increased American spending on foreign oil as it compelled OAPEC to seek higher prices. The Bretton Woods system, which had been in place since 1944, had fixed the prices of foreign currencies to the US dollar, which, in turn, was fixed to the price of gold at $35 per ounce.  Two decades later, however, due in part to American military spending and foreign aid, the United States did not have enough gold to back up its currency, resulting in its overvaluation. This overvaluation led to over-speculation of the dollar abroad and weakened America’s place in world trade. President Nixon’s predecessors had enacted various measures attempting to combat the overvaluation, such as discouraging foreign investments, but did so to no avail. By the time of Nixon’s presidency, the situation had deteriorated further, and he decided to take the US off the gold standard, resulting in the devaluation of the dollar. As America’s currency devalued between 1971 and 1973, the value of OAPEC revenues, derived from oil priced in terms of a US dollar that was now less valuable in relation to other currencies, diminished as well, influencing the organization to demand higher oil prices to compensate for decreased profits.

On October 16, 1973, in the midst of the Yom Kippur War, multinational companies proposed to raise oil prices by 15% in an attempt to placate OAPEC, but the organization rebuked the offer. Instead, it set the price of oil on its own accord for the first time in its history, increasing it by 70% from $3.01 per barrel to $5.11 per barrel. Building upon the increased Arab assertiveness that secured Saudi Arabia a 25% participation stake in ARAMCO just ten months prior, OAPEC was now enacting concrete policies for its own financial benefit. From this watershed moment, Saudi Arabia and OAPEC gained newfound confidence in their collective influence, setting the stage for a second use of the oil weapon for political purposes just four days later.

 

The Brink of War:

On October 20, 1973, America’s 42-year relationship with Saudi Arabia entered its darkest period ever, as the Saudis wielded the oil weapon a second time, breaking the two nations’ economic bond and soon bringing them to the brink of war. Two days prior, the KSA had cut back production of oil by 10% and had warned that “[it would] stop supplying the United States with oil” if America continued to support Israel in the Yom Kippur War. Again undaunted by Saudi oil power, President Richard Nixon asked Congress for a $2.2-billion aid package to bolster the Israelis in the conflict. In response, OAPEC imposed an oil embargo on the US that severed the oil-based economic ties between Saudi Arabia and America.

After two failed United Nations Security Council (UNSC) ceasefire resolutions, the Yom Kippur War finally ended nineteen days after its start on October 25, but tensions between the United States and Saudi Arabia persisted. In addition to a ceasefire, the final UNSC resolution required Egypt, Israel, and Syria to return to their October 22 positions and sent UN peacekeepers and observers to the region to ensure that the combatants followed these terms. Despite the war’s end, Saudi Arabia and the United States remained at odds. The two countries had been on opposite sides of the same war, with 8,000 Saudi soldiers battling against American weaponry, and Israel still occupied the territories that the Arab coalition had fought to recover. Now, as the embargo continued to withhold oil from the US, the economic bond between the countries was in danger of becoming irreparably damaged.

On November 7, hopes of mending the broken economic relationship further diminished. In response to the oil weapon, President Richard Nixon announced a bold new energy plan to the country, dubbed Project Independence, that called for complete American energy self-sufficiency through increased domestic production of oil as well as increased use of coal and nuclear power. However, American energy independence would spell the end of US-Saudi economic relations, which were almost exclusively based in the oil trade. Nixon’s overconfidence about potential energy independence also re-enforced his unwillingness to deal with Saudi grievances towards Israel, further inflaming KSA officials.

As the political divide between the two countries widened, the Saudis continued to pressure the US into giving into OAPEC demands. On November 9, Secretary of State Henry Kissinger met with Saudi officials, including King Faisal, to convince them to either remove or loosen the embargo. The Saudis, however, rebuffed Kissinger and linked the removal of the embargo to an Israeli withdrawal to their pre-1967 borders. Faisal also wanted the US to bring the Israelis to the negotiating table for peace talks with Egypt and Syria. At the time of Kissinger’s demand, the KSA had cut oil production 25% from 8.3 mbd in September to 6.2 mbd, a level 32% lower than the pre-embargo forecast of 9.1 mbd. Although America was not receiving any OAPEC oil due to the embargo, the Saudis hoped that these cutbacks would make US allies, who still relied on the organization’s oil, pressure the United States into pursuing a more favorable policy towards the Arabs.

Over the next ten days, the Saudis, with increased confidence in the power of their oil weapon, added two more items to their list of demands. On November 17, King Faisal insisted that the US oppose Israeli authority over Jerusalem, a major city that the Arabs had lost in the Six-Day War. Two days later, in an interview with the Middle East Economic Survey, the Saudi oil minister, Sheikh Ahmed Zaki Yamani, demanded that the four US constituent corporations of ARAMCO give the Saudis a majority stake in the company. The Saudis owned 25% of the company, with the rest split between Exxon, Texaco, Mobil, and Standard Oil of California, but now wanted an additional 26% to be given to them immediately, nine years earlier than was scheduled in their 1972 agreement.

As Saudi demands and pressures accumulated, the kingdom brought itself dangerously close to armed conflict with the US. In a press conference held on November 21, two days after the newest Saudi demand, when questioned whether or not the United States would consider a strike on the Middle East, Henry Kissinger replied, “It is clear that if pressures continue unreasonably and indefinitely, that then the United States will have to consider what countermeasures it may have to take.” In his 1982 memoir titled Years of Upheaval, Kissinger wrote about the situation retrospectively and explained, “These were not empty threats. I ordered a number of studies from the key departments on countermeasures against Arab members of OPEC if the embargo continued. By the end of the month, several contingency studies had been completed.”

The Saudis, recognizing that America’s need for oil could lead to a potential invasion, were also preparing for violence. In a November 22 interview in Copenhagen, Denmark, Sheikh Yamani responded to Kissinger’s threat of “countermeasures” and stated, “If the Americans are thinking of a military action … this is a suicide. There are some sensitive areas in the oil fields in Saudi Arabia, which will be immediately blown up … Now you can imagine what kind of gambling this could be.” Aware that they could not defeat America in a military conflict, the Saudis knew that they still posed a major threat to the US as they could destroy their own oil resources and cripple the American economy.

Nevertheless, Kissinger was not the only senior American official who viewed an invasion as a potential solution to the national security threat that the Saudi oil embargo presented. James Schlesinger, responsible for America’s national defense policy in his role as the Secretary of Defense, also had a plan in place for a military engagement with the Saudis. In a November 29 meeting between top Washington D.C. officials regarding the US approach to the embargo, Schlesinger bluntly stated, “We have been talking about using the Marines.” The Secretary of Defense conveyed a similar sentiment to the British Ambassador to the United States, telling him, “It was no longer obvious … that the United States could not use force.” Schlesinger’s comment prompted Britain to prepare for potential US military action. The British government determined that the most likely approach for a possible US invasion of the KSA was for the United States to attack Saudi Arabia, seize its oil fields, and occupy the country for ten years.

Even with war on the horizon, Henry Kissinger did not make an honest attempt to cool tensions, equating compromise with weakness. Although he publicly stated that he was “hopeful” that there would not be conflict, he seemed unwilling to end the embargo with diplomacy in private. On November 25, 1973, speaking to the Deputy Assistant to the President for National Security Affairs, Brent Scowcroft, about Nixon’s wish to send a diplomat to Saudi Arabia, Kissinger said, “He does that and he is in deep trouble with me,” as it would put the United States “in the position of the supplicant.” Instead, Kissinger resolved to engage in diplomacy and initiate peace talks between Israel, Egypt, and Syria only if OAPEC removed the embargo. In the aforementioned November 29 meeting among top Washington D.C. officials, Kissinger stated, “I have been telling the President that we should say to the Arabs that we will make progress when you lift the embargo – not that the embargo will be lifted as we make progress.” However, the Secretary of State would later find out that the United States was in no position to link peace talks with the embargo and that he had misjudged the situation more broadly.

Kissinger thought that his strategy would succeed as he assumed that the Arabs needed the Americans more than the Americans needed the Arabs, but the opposite was true. The Secretary of State believed that, since the Israelis had relied on American weaponry during the Yom Kippur War, only the US could bring them to the negotiating table. As a result, he was convinced that the United States was in the dominant negotiating position as only his country could fulfill the Arab demand for peace talks. Through his linkage of peace talks with the oil embargo, Kissinger also aimed to frame the KSA as the root of instability in the Middle East as, if the Saudis did not repeal the embargo, they would seem to be the ones delaying peace talks. In reality, Kissinger himself was the one delaying talks, with the Near East Bureau saying that his actions and foreign policy were making “it more difficult if not impossible for the US to use its influence on behalf of a peace settlement.”

In less than a month, the embargo revealed the American economy’s dependence on Saudi oil, dictating a shift in tone from some American policymakers. Oil access, not optics, represented the more pressing matter. On December 9, Sheikh Yamani announced that the oil embargo would most likely be removed sometime in 1974. Although the statement hinted at a cooling of tensions between the two countries, urgency was building among top US officials, including President Nixon, to get the embargo removed sooner. Nixon, beginning to understand the power of the oil weapon, had expressed his fear of an energy crisis in the United States if OAPEC did not lift the embargo, warning the nation in a November 25 address from the Oval Office, “The sudden cutoff of oil from the Middle East had turned the serious energy shortages we expected this winter into a major energy crisis.” Furthermore, on November 9, the US ambassador to Saudi Arabia, James Akins, had warned that America would face oil shortages in the winter if the embargo was not loosened “in a matter of days.” While Nixon and Akins were coming to their senses about the Saudi threat, Kissinger continued to believe that the US had the upper hand over the Saudis. It would not be for another month until the Secretary of State recognized the dire situation of the United States, and, in the meantime, Saudi pressures continued to mount.

Despite Yamani’s outwardly conciliatory statement, the Middle Eastern kingdom put further pressures on the US the next day to give in to Arab demands. On December 10, OAPEC announced that a previously postponed 5% oil production cutback for January would move forward, amounting to a total of 28.75% in cuts. By reducing production, OAPEC hoped to pressure the United States into bringing Israel to the negotiating table as the cutbacks negatively affected American allies such as Japan, Italy, Belgium, and West Germany.

The next week, on Christmas Day, Sheikh Yamani gifted America and its allies with the unexpected cancellation of the January cutback and replaced it with a production increase of 10% in response to newly stated attitudes from Japan and Belgium that were more favorable towards the Arabs in their conflict with the Israelis. Although OAPEC canceled the cutback, relations between the KSA and United States did not improve, with both sides refusing to compromise. Kissinger continued to delay peace talks, directing his staff on December 28, 1973, “We should hold up the peace talks.” Furthermore, Yamani vowed to continue the oil embargo on the US until the Arabs got “fruitful results” and now wanted to nationalize all American oil holdings in the kingdom as well as the rest of the Middle East.

 

Energy Crisis and Shuttle Diplomacy:

As winter fell upon the United States, Kissinger soon realized that the Saudis were in the dominant negotiating position as the power of the oil weapon became clear. The worries of Nixon and Akins had come true, and an energy crisis now swept across the US due to an oil shortage caused by the embargo, reduced domestic oil production following Nixon’s aforementioned price controls, and the higher energy demands of the winter. Oil prices had also quadrupled to $12 a barrel by January 1974, causing gas prices to rise 466% from $0.53 per gallon to $3.00 per gallon. To get this scarce gas for their cars, Americans waited in lines for as long as two hours.

Attempting to combat the energy crisis, the US government, as well as American citizens and businesses, tried to decrease oil consumption. Measures taken to accomplish this goal included gas stations taking appointments for customers, stations only providing gas to regular customers, a 55 mile-per-hour speed limit on highways, imposing limits on the amount of gas customers could buy, walking instead of driving, closing stations on Sundays, carpooling, lowering home temperatures, and rationing electricity.

However, these measures were insufficient, and the United States soon erupted into chaos. With 20% of gas stations out of gas, many Americans grew desperate to get fuel for their cars. In their desperation, Americans rioted at gas stations, shot and stabbed others in gas lines, prostituted themselves, siphoned gas from other cars, installed locks on their tanks to prevent siphoning, camped at stations overnight, hijacked gas trucks, and even bought their own gas stations. On the other hand, in the Middle East, the Gulf Oil Corporation reported $230 million in profits in the fourth quarter of 1973 due to increased oil prices, a 153% increase from the $91 million it had made in the same quarter of the previous year, demonstrating that OAPEC could flourish even without American oil purchases.

Furthermore, strikes became increasingly common in the United States, especially among truckers, exacerbating the drop in economic productivity that stemmed from the oil shortage. Independent truckers, who transported 70% of the country’s goods, were losing time and money as they now had to stop to refuel on their routes much more frequently due to gallon limits on gas purchases. On December 3, 1973, a trucker named J.W. Edwards ran out of gas on I-80 in Blakeslee, Pennsylvania. Using his radio, Edwards summoned hundreds of other truckers to his location in a strike against problems caused by the fuel shortage and high gas prices, creating a twenty-four-mile-long, 1,000-car jam. Thousands of truckers joined the protest, and it quickly spread to ten states. After three days of unrest, the strike ended peacefully in each state except Ohio, where the National Guard forcefully removed trucks and dispelled strikers with tear gas. However, this strike would not be the last, as shown by another protest just two weeks later and a violent 11-day strike in February 1974 in which two truckers were killed and many others injured.

Seeing the severity of the domestic troubles that arose from the energy crisis, Secretary of State Henry Kissinger finally began to appreciate the power of the oil weapon and dramatically altered his approach to US policy in the Middle East. Knowing that the removal of the OAPEC embargo depended on successful US mediation between the combatants of the Yom Kippur War, Kissinger commenced his new strategy of “shuttle diplomacy.” For the next five months, Kissinger “shuttled” back and forth between Washington D.C. and the Middle East, as he gave into OAPEC and Saudi demands for mediation and attempted to ease tensions between the Arabs and the Israelis, hoping to convince the organization to lift the embargo.

Kissinger’s first trip took him to Aswan, Egypt on January 11, 1974, where he met with Egyptian President Anwar Sadat. A week before Kissinger’s arrival, the Israelis had approached the Egyptians with a proposal for disengagement, indicating to the Secretary of State that the two sides were now ready to make a deal with each other. With Nixon entangled in the Watergate scandal in Washington D.C., Kissinger led negotiations between Israel and Egypt himself. For the Israelis to sign an agreement, they required the reopening of the Suez Canal, access to the Suez, the Strait of Bab el-Madeb, and the Strait of Tiran, and the building of Egyptian cities near the canal to dissuade Egypt from initiating another conflict in the future. After a week of negotiations, Egypt accepted nearly all the Israeli terms, and the two sides came to an agreement that also created a United Nations buffer zone on the east side of the Suez.

With one agreement now signed, Kissinger turned his focus to negotiating a peace between Syria and Israel. After seeing the Secretary of State’s progress with Egypt and Israel, OAPEC lifted the embargo on March 18 but planned to reassess the removal on June 1. Kissinger, knowing that he needed to make a deal between the Israelis and Syrians by that date or risk the reestablishment of the embargo, hurried to prepare the two nations for negotiations. After nearly two months of preparations in Washington D.C. through separate meetings with Syrian and Israeli officials, Kissinger “shuttled” to Jerusalem. One week later, the two sides were on the verge of a settlement but still disagreed on who should possess Quneitra, a town in the Golan Heights which both claimed as their own. Two weeks later, Israel agreed to give the town to Syria, and, after two more weeks of intense negotiations, the two sides finally reached a full agreement on May 31, the day before OAPEC reassessed and then permanently removed the embargo.

 

Foes Turned Friends:

In the aftermath of the Arab oil embargo, the relationship between the US and Saudi Arabia took a sharp turn and emerged stronger than ever. The Saudis were producing more oil than they ever had, increasing their production by 123% from 3.80 mbd to 8.48 mbd between 1970 and 1974, and, consequently, the kingdom was now the world leader in oil production. The increased oil production coupled with profits that, at $10 per barrel, were 900% greater than pre-embargo levels, dramatically raised Saudi revenue. After earning $7 billion in oil revenue in 1973, the Saudis earned $25.5 billion in 1974, expanding their government’s budget 282% from $3.4 billion to $13 billion.

Meanwhile, the United States had plunged into the nation’s worst economic recession since the Great Depression due in large part to the embargo. During the two-year recession, US GDP dropped for six straight quarters, from $1.241 trillion in the fourth quarter of 1973 to $1.168 trillion in the second quarter of 1975. In the same period, the unemployment rate skyrocketed from 4.9% to 8.7%. Inflation rates soared too, rising from 7.4% in the third quarter of 1973 to 12.2% in the fourth quarter of 1974. To combat the crisis, President Gerald Ford enacted tax cuts and deficit-spending, and, although successful in repairing the economy, the policies increased the national deficit twenty-fold from $5 billion in the third quarter of 1973 to $102 billion in the second quarter of 1975.

In the midst of this recession, the United States turned to an unlikely source for help: Saudi Arabia. Drawn to the KSA’s new wealth, the US hoped to strengthen ties with its former foe to boost the American economy and finance the growing deficit through a strategy called “petrodollar recycling,” in which the Saudis would pour money from American oil purchases back into the US economy through greater economic cooperation, arms sales, and development deals. Having seen the power of the oil weapon, the United States also hoped that a strong relationship with the KSA would convince it to refrain from future embargoes and ensure uninterrupted access to oil. Secretary of the Treasury William Simon expressed this sentiment about a potential relationship with the Saudis, writing, “For the U.S., the primary interest is our continued access to Saudi Arabian oil in adequate quantities.”

The détente between the two countries moved quickly, indicating the mutual gains possible from a partnership. On April 5, 1974, just eighteen days after the removal of the embargo, the United States and Saudi Arabia issued a joint statement that ended the period of tensions between them, even though a peace agreement between Syria and Israel had not yet been made. In the statement, John F. King, a spokesman for the United States State Department, declared that the US hoped “to broaden and deepen the entire range of Saudi-American relations.” This goal would be fully realized just two months later.

On June 6, 1974, President Nixon and Secretary of State Kissinger met with Fahd Ibn Abdel Aziz, a Saudi Arabian Prince, and hosted a lunch for him and 73 guests in the Blair House, a tradition normally reserved for government heads. Henry Kissinger stated that the President and Prince discussed providing military and scientific aid to the kingdom. Through this aid, the Americans aimed to combat Soviet and communist influences in the region and protect the nation’s oil facilities. Gerald L. Warren, the deputy press secretary for the White House, remarked that the visit set “the stage for a higher level of cooperation” with Saudi Arabia. This “higher level of cooperation” would manifest just three days later in a formal agreement between the countries.

The signing of an extensive economic and military pact on June 9 paved the way for a robust US-Saudi relationship in the years that followed. The pact established the US Joint Commission on Economic Cooperation whose goal, according to Secretary of the Treasury William Simon, was “to develop a link of relationships that will permeate many levels of economic life.” In the commission, the Saudis paid the Americans over $1 billion to advise them on a wide array of bureaucratic issues. In return, the US hoped to recycle the KSA’s petrodollar wealth back into the US economy through the awarding of contracts to American companies as well as Saudi investments in American bonds and treasury bills. Henry Kissinger and Prince Fahd Ibn Abdel Aziz both praised the agreement, with the former calling it a “milestone in our relations with Saudi Arabia” and the latter calling it “an excellent opening in a new and glorious chapter in relations between Saudi Arabia and the United States.” Just five days after the signing of the pact, the two countries would see another milestone in their relationship.

On June 14, Nixon arrived in Jidda, Saudi Arabia to meet with King Faisal. Although the president’s visit did not result in a new agreement, it was a landmark event in relations between the countries, marking the first time a US president visited the kingdom. The meeting further strengthened the growing bond between the two nations, with Faisal referring to his home country as America’s “friends in this part of the world.” The monarch’s reference to the Americans as “friends” contrasted with the aggressive rhetoric between the two nations just months prior when they were on the brink of war, demonstrating the rapid strengthening of their relationship.

Three days after Nixon left Saudi Arabia, the US Treasury began to engage in discussions with the KSA about recycling its petrodollar wealth into the United States economy through the purchase of Treasury securities. A month later, on July 20, 1974, the day that the Saudis announced their massive $13 billion budget for the 1974-1975 fiscal year, Secretary of the Treasury William Simon met with King Faisal and Minister of Finance Mohammed Abul Khalil in Taif, Saudi Arabia seeking investments in the US. That same day, Sheikh Yamani, promised that the kingdom would invest in American Treasury securities, and, on September 6, the Saudis followed through on Yamani’s promise with the purchase of US Treasury bonds for an unspecified amount in the billions.

In the aftermath of the pact, American businesses increased their presence in Saudi Arabia through increased exports of goods, such as agricultural products. After exporting $6.6 million worth of agriculture to the kingdom in May 1974, before the pact, the US sent over $11 million worth of agricultural goods to its new economic ally in June 1974. John Parker, a member of the United States Department of Agriculture’s economic research group, attributed the sharp rise in exports to the kingdom’s new petrodollar wealth in a July 8 article in Foreign Agriculture.

Over the next two months, US businesses also expanded their ground-presence in the KSA, recognizing the business opportunities that awaited them in a country now flush with cash. On August 24, 1974, the kingdom awarded an American company, the Daniel International Corporation, a contract to build a hotel in Jeddah. The next month, Detroit-based vehicle manufacturer General Motors, America’s largest corporation in terms of revenue in 1974, announced its intentions to expand operations into Saudi Arabia through the construction of a 250,000-square-foot factory near Jeddah in 1976. General Motors was to own 60% of the new operation while private Saudi groups were to own the remaining 40%. The expansion of the American private sector into a country that had severed its main economic tie with the US just months prior showed how quickly United States policy towards the Saudis changed as a result of the embargo and the new Saudi petrodollar wealth.

Despite announcing a plan for complete energy independence in November 1973, the United States immediately increased its oil imports from Saudi Arabia following the removal of the embargo. In December 1974, the US imported a then-record 749,000 barrels of crude oil from the kingdom to meet increasing demand and compensate for decreases in domestic production following rapprochement with the Saudis. The next December, imports would cross one million barrels per day for the first time, marking another milestone in the 42-year US-Saudi relationship as the US was quickly re-establishing the KSA as a reliable source of oil.

In addition to economic cooperation, the June agreement also set the stage for increased military cooperation between the countries through the establishment of a joint security commission. According to the pact, the commission’s goal was to “[modernize] Saudi Arabia’s armed forces in light of the kingdom’s defense requirements especially as they relate to training.” US officials hoped to use the commission to boost the American economy by selling the Saudis arms and training their military for pay. By strengthening the Saudis, America also hoped to combat the influence of the Soviet Union in the Middle East, preempt incidents like the Yom Kippur War, and protect the region’s oil facilities. On September 9, Secretary of the Navy John William Middendorf and Chief of the United States Army Corps of Engineers W.C. Gribble Jr. met with King Faisal and the Saudi Minister of Defense and Aviation, Prince Sultan Ibn Abdel Aziz, to discuss the development of the kingdom’s military. The next month the US State Department announced the completion of a survey of Saudi military needs for the next decade, and, on November 23, almost exactly one year after Kissinger had threatened military countermeasures against them, the US provided recommendations to the Saudi government for the modernization of its army.

Following the recommendations, the Saudis and Americans agreed to a series of training deals and arms sales. In one deal, the US signed a $335-million contract with the KSA to modernize the Arab nation’s military. As a part of the contract, the Department of Defense gave a $77-million subcontract to the Vinnell Corporation to train the Saudi army, marking the first time a private American company was awarded a contract to train a foreign army. Vinnell’s contract was specifically for the training of the Saudi Arabian National Guard, which comprised 26,000 men and protected the kingdom’s oil fields and facilities – still the main American interest in the region. Other deals included a $139-million contract awarded to the Bendix Corporation to provide the Saudi military with a logistics system and a $146-million contract awarded to the Northrop Corporation to train pilots and mechanics for F-5 fighter jets. US policy towards the KSA drastically shifted as a result of the OAPEC oil embargo as demonstrated by the Americans training the Saudis to use military equipment and protect their oil fields a year after planning a potential invasion of those same fields.

The US also agreed to several arms sales with the Saudis. In the fiscal year of 1975, America sold $2 billion worth of arms to Saudi Arabia, up from just $15.8 million five years prior and nearly triple the previous year’s total of $700 million. One of these transactions, the sale of sixty F-5 fighter jets, exceeded the previous year’s sales alone with a cost of $750 million. Although the deal included spare parts and training for Saudi pilots, the kingdom paid a highly inflated price for the planes, normally priced at $2.7 million each or $162 million for sixty, signifying that the US was taking advantage of its new ally’s wealth to boost its own economy. Henry Kissinger displayed his change in attitude towards the kingdom as well as the strength of the two nations’ bond, saying, “I do not know of anything that is nonnuclear that we would not give the Saudis.” Saudi Arabia was now at the center of US policy in the Middle East, receiving treatment similar to America’s longstanding ally, Israel.

The Saudis also recycled petrodollars back into the US economy through development deals. On April 20, 1976, America converted the Mediterranean Division of the U.S. Army Corps of Engineers (USACE) into the Middle East Division. Although technically encompassing the entire Middle Eastern region, this section of the Corps mainly undertook projects in Saudi Arabia, with its headquarters in Riyadh, the Saudi capital city. In addition to Riyadh, there were offices created in Virginia to help design and build new infrastructure in three developmental districts – Al Batin, Jiddah, and Riyadh. The $14 billion undertaking, which was planned in 1975 and scheduled to be completed in 1982, dwarfed the $210 million in development the Corps had done in the kingdom in the previous twenty-five years.

The two biggest projects that the Corps undertook were the Saudi Naval Expansion Program (SNEP) and the construction of King Khalid Military City (KKMC). SNEP accounted for $2.5 billion or close to 18% of the entire program’s cost. As a part of SNEP, the USACE constructed two deepwater ports in Jiddah and Jubail and built headquarters for the Saudi navy in Riyadh. At a cost of $8.5 billion split between thirty separate contracts, the Corps’ biggest project was the construction of the KKMC, which accounted for over 60% of the total budget. The King Khalid Military City was so expensive as it was just what its name implies – a city for military use. Shaped like an octagon, the KKMC could hold 70,000 military personnel and included schools, housing, a city center with retail stores, and training facilities. The two development projects again showed the profound effect that the OAPEC oil embargo had on US-Saudi relations: the US was now investing manpower and time to develop its former foe’s infrastructure.

In addition to the two major projects, the Corps also built 2,500 miles of roads, a $400-million military academy, a center to train engineers, two airports for $350 million each, a $50-million college for women, schools, a zoo, mosques, hospitals, and more. Furthermore, the USACE constructed a port at Ras al-Mish’ab to transport materials for the development projects. Private American businesses were also heavily involved in Saudi development, as shown by the previously mentioned Daniel Corporation hotel and General Motors factory. Not only did America help its economy recover from a recession by injecting it with Saudi petrodollar wealth and restoring the oil flow, but the US also ensured that the oil weapon could not be used against it again and set the stage for future cooperation with the KSA.

 

Conclusion:

After spending decades building a reliance on foreign oil, a process accelerated by rising energy demands, increasing oil consumption, environmentalism, and the policies of Nixon and his predecessors, the United States was at the mercy of Saudi Arabia during the 1973 OAPEC oil embargo. Initially, as the US still failed to recognize the power of the oil weapon, the embargo severed the growing economic bond between the two nations and brought them dangerously close to war. However, Kissinger’s eventual acknowledgment of Saudi oil power after the US plunged into an energy crisis and his ensuing “shuttle diplomacy” brought an end to the embargo, and, in turn, the period of tensions between the US and the KSA. In the aftermath of the embargo, America, now aware of Saudi Arabia’s formidable power and its new petrodollar wealth, looked to rapidly mend relations with its former adversary, perhaps fearing another wielding of the oil weapon. In the years that followed, Saudi Arabia cemented itself as one of the United States’ key allies in the Middle East through increased economic cooperation, a series of military deals, and numerous development projects. The economic, political, and military bond that developed between Saudi Arabia and the United States in the 1970s set the stage for their modern partnership.

The strength of this modern partnership and the repercussions of the OAPEC oil embargo on US-Saudi relations were on full display during the Gulf War. From 1980 to 1988, Iraq, led by dictator Saddam Hussein, accumulated $37 billion of debt as a result of loans taken from Arab creditors during the Iran-Iraq War. Hussein implored the United Arab Emirates and Kuwait to cancel their share of this debt, but they refused to do so. In retaliation, Iraq invaded and annexed Kuwait on August 2, 1990, an aggressive move that threatened Saudi Arabia’s national security. Thus, President George H.W. Bush commenced Operation Desert Shield – the deployment of 500,000 American troops to the KSA in case the Iraqis attacked. After diplomacy failed to solve the conflict, the US began Operation Desert Storm on January 15, 1991 and attacked Iraq from Saudi Arabia with forty allies. After six weeks of aerial attacks and a four-day ground invasion, the US and its allies defeated Iraq and liberated Kuwait. America owed much of this success to its economic, political, and military bond with Saudi Arabia that stemmed from the OAPEC oil embargo. Not only did the bond allow for the US to deploy half-a-million troops to the Arabian Peninsula in the first place, but American military operations during the war also depended on the same infrastructure that the USACE had built in the immediate aftermath of the embargo. Furthermore, the United States’ swift and powerful response to the Saudis being threatened demonstrated the continued strength of their relationship and the importance of Saudi Arabia in American policy in the Middle East.

The US-Saudi bond remains strong to this day, even as anti-KSA sentiment grows in America due to the country’s human rights abuses and suspected involvement in the 9/11 attacks. Although the Saudis only accounted for 6% of US petroleum imports in 2019, compared to 49% for Canada and 7% for Mexico, economic ties between America and Saudi Arabia have strengthened since the 1970s, especially in terms of arms sales. In 2010, the US, under President Barack Obama, sold the kingdom $60 billion of aircraft in the largest arms sale in American history. More recently, in 2018, President Donald Trump moved forward with the sale of $110 billion in arms to the nation over the course of ten years despite public backlash stemming from the Saudi assassination of journalist Jamal Khashoggi. President Trump also announced the deployment of 3,000 troops to the nation on October 11, 2019 to protect Saudi oil fields from Iranian bombings.

Although the relationship between Saudi Arabia and the United States remains strong for now, it may soon be strained once again as opposition grows to US military support for the Saudis and as a shift to clean energy threatens to diminish further the oil weapon’s once formidable power. However, regardless of the future of the US-Saudi relationship, the OAPEC oil embargo has shaped and defined nearly fifty years of relations between the United States and Saudi Arabia, and its legacy persists through a robust economic, political, and military partnership.

 

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