Collaborative Colonialism

The Political Economy of Oil in the Persian Gulf

H. Askari

• Publisher: Palgrave Macmillan
• Year: 2013
• ISBN:
  9781137353771
• Topic: Politics & International Relations
• Subtopic: Trade & Tariffs
• Index: Politics & International Relations

This book is an analysis of how oil has affected governance and human, political, and economic development in the countries of the Persian Gulf and shaped these countries' relations with the rest of the world.

Part I

The Evolving Role of Oil in the Persian Gulf

Chapter 1

Before Oil—Political and Economic Conditions in the Persian Gulf

To set the stage for how the discovery of oil, its production, and its sales have affected the countries of the Persian Gulf, it may be helpful to begin with a simple collage of how these countries appeared at the beginning of the twentieth century and in the period before oil revenues started to flow. What were the states of institutions, political structure, foreign involvement and societal edifice, and economic conditions in the countries of the Persian Gulf? Were they like peasant economies the world over and was there outside meddling in their affairs as in other former colonies?

Iran

Government and Politics

Iran’s strategic location between Asia and Europe had for centuries attracted the attention of the great powers, and specifically in the late nineteenth century Russia and Great Britain saw potential in Iran for expansion of their trade routes. In the late eighteenth and nineteenth centuries, during the Qajar dynasty, the shahs of Iran were in need of revenue. The shahs had little choice but to grant trade concessions in everything from tobacco to arms to the British and the Russians in exchange for fees and loans, affording the outside powers great leverage and control over Iran’s internal affairs.¹ The shahs used these funds in part to finance their lavish lifestyles by pledging Iranian custom revenues, their principal income. As a result, Iran became more exposed to and influenced by Western culture and values that in turn affected its political, social, and economic dynamics. The influence of Western ideas was problematic for those (the religious authorities) who advocated Islamic values and those (the nobility) who supported traditional values, creating the grounds for opposition and demands for reform. The result was the Constitutional Revolution of 1906. Ironically, the unintended consequence of the constitutional movement was to increase foreign involvement in the country. As for domestic politics, the outcome of the constitutional movement was the creation of “superficial parliamentary rule with almost no foundation laid and no real leaders.”² There was no dominant or coherent party system and no dominant figure. All in all, the political structure was too dependent on foreign support, and attempts to address the issue were stymied by the onset of World War I.

In 1907, the Anglo-Russian Agreement was signed, but despite the intention to respect the integrity of Iran, the “net result for Persia was further entrenchment of foreign powers on her soil and further weakening of the control of the Teheran government over the zones under the influence of Russia and Great Britain.”³ This entrenchment was a pattern that would carry on throughout World War I and into the interwar period. Between 1911 and 1921, it became increasingly apparent that Iran was becoming less independent, a fact that was confirmed during World War I when Iran came under the direct control of the British and the Russians. The war also paved the way for Reza Khan to overthrow the Qajar dynasty in 1925 and become shah. Reza Shah Pahlavi was determined to modernize and westernize Iran. He introduced civil laws, banks, and other institutions to promote Iranian independence. However, the unique social conditions in Iran remained a challenge, as the religious authorities (ulama, clerics, or mullahs) remained opposed to modernization and further opening, or concessions, to Western cultural influence.

Society

At the turn of the twentieth century, Iranian society became “characterized by a growing split between religious and temporal authorities, by the emergence of a socio-political leadership among the ulama, and the creation of mass oppositional movements with a religious component.”⁴ The clerics were an integral and important part of Iranian society and were opposed to the westernization championed by the Qajar shahs. They felt threatened by the growing European interference and influence, and by 1905 became the leaders of the opposition movement and the driving force behind the Constitutional Revolution.⁵ Despite the European presence, the government refrained from westernizing the education system and from promoting the foreign education of privileged Iranians. Iranian students, by and large, continued to receive a religious education, allowing the clerics to maintain their influence, position, and power. In the absence of significant national economic development and widespread prosperity, the influence of the clerics continued to grow because the masses resented foreigners and the privileged lifestyles of their leaders. In the absence of good transportation and communication, the Qajars had limited control over the provinces. As a result, in the areas where the clerics were in control, “there was no serious reform—education and justice remained in their hands, as did the charitable works that would later become social services.”⁶ Thus, in the early part of the twentieth century, Iran remained essentially a seminomadic, peasant farming, traditional craft and trading society, with regions that were not integrated into the central government. Reza Shah tried to modernize the country and reduce the role of religion in the footsteps of his hero, Mustafa Kamal Ataturk in Turkey, but with little success. The lack of progress and growing foreign interference and influence were not supportive of a cohesive society. The privileges granted to the British played an important role in destroying the livelihoods of merchants and craftsmen in Iran and alienated them from the central power structure in Tehran.⁷

Economy

At the start of the twentieth century, the Iranian economy had long been stagnant, underdeveloped, and largely agrarian, with a marginal global role. Because policy makers had paid little attention to economic growth, any spurt in growth was short-lived and directly attributable to government policies. But as political divisions grew and became more pressing, the attention to economic development and growth declined, and Iran fell deeper into economic stagnation.

At the beginning of the twentieth century, Iran’s per capita income was between $900 and $1,000 (in constant US 2000 dollars at purchasing power parity), which was less than one-third of the average per capita income in Western Europe at the time.⁸ The country’s conditions were undeniably backward. Manufacturing was limited, and most income came from the land. Outside of agriculture, the major activities were carpet weaving and textiles, but overall revenues were too low to support the population or expand the country’s trade. That said, Iran was still much better off than other countries in the region of the Persian Gulf. The per capita income was above the global average, and the economy was near the bottom of the list of the 30 largest economies in the world. After the Constitutional Revolution in 1906, the political turmoil that persuaded foreign powers to interfere increasingly into Iranian affairs led to economic decline. With the beginning of World War I and the disruption of trade with Russia after the Russian Revolution and the famine in 1917 and 1918, economic decline intensified.⁹

Still, the country’s meager oil revenues remained indispensable. The economy took an upswing with the elevation of Reza Shah in 1925. Over the course of the Pahlavi era, the economy of Iran improved, with educational, infrastructural, and legal reforms. The new shah pushed Iran through a period of modernization, with a series of development projects. Nonetheless, economic development policies throughout his time were less than consistent, and as a result, in the interwar years, growing debt and shortages of basic goods plagued Iran.

Iraq

Government and Politics

The triumph of the British over Turkey in March 1917 marked the beginning of British influence in Baghdad. It would be safe to say that the arrival of the British marked the beginning of a new Iraq, an Iraq with a more modern government.¹⁰ Applying its long-tested colonialist practices, Britain brought Baghdad under its direct political control and divided the country into administrative districts under its control. Although the British recognized the existence of an Arab monarchy and administration in Baghdad, the purpose of this government was to “carry out the burdens of governing the three ex-Ottoman provinces of Baghdad, Mosul, and Basra under British guidance.”¹¹ As a result, the local population was excluded from all political participation and power.

The shape of Iraq was formally declared to the world in October 1922, when the council of ministers ratified a treaty that placed the country under British Mandate. The treaty provided that the king would have to resort first to British advice on all matters affecting fiscal policy, economic development, and British interests. The British occupation resulted in a wide range of conflicting local demands and shifting attitudes. While the “townsmen and villagers desired restraints against tribal incursions, the tribal sheikhs, on the other hand, wanted the government to confirm their titles to tribal territories and to give them new land as well.”¹² Moreover, merchants called for more effective legal procedures while municipalities appealed for defined powers and greater grants-in-aid.

“About a decade later, after Iraq became a sovereign state on October 3, 1932 and the British Mandate was terminated, the government possessed adequate financial means to cope with many of its internal problems because of growing oil revenues; oil had been discovered at Naft Khaneh (about 90 miles northeast of Baghdad) . . . and by 1930 oil products were being exported.”¹³ This financial leeway however did not erase the government’s problems. Among the issues, and perhaps the central issue, was the deep-rooted Shia-Sunni conflict. Although the Sunnis had more administrative experience, the Shias, who were “at the time constituting 50 percent or more of the population and being very conscious of the presence in Iraq of so many Shi[i]a holy places, began to fear the possibility of complete Sunni domination in government.”¹⁴ Another issue was to the north where the Kurds sought independence. Thus, with the death of King Faisal in September 1933, who had been recognized for his stabilizing personality in the political life of the newly created state, Iraq saw the fallouts from these issues intensify and factionalism increase.

During this period of absence of stability and authority, there was an “increased desire for an effective role of government in promoting national welfare.”¹⁵ A wave of oppositional movements ensued. Specifically, the public expressed a “growing demand for general reform, including measures in the spheres of land improvement and distribution, road building, irrigation, commerce, industry, public health, and communications.”¹⁶ To capitalize on these demands for their own interest, the military began to inject itself into the political scene, leading to military involvement in the October 1936 coup d’état. When World War II broke out, Iraqi relations with the European powers were further severed, and in 1943 Iraq declared war on the Axis Powers. Nationalism continued to dominate the political scene well into the 1950s.

Society

Under the British rule, the social divisions and diversity that characterized Iraq’s early history were exacerbated. Since its inception, the Iraqi state consisted of “a diverse medley of peoples who have not been welded into a single political community with a common sense of identity.”¹⁷ In line with the general pattern across the region, Iraq’s social structure consisted of nomadic communities, village societies of cultivators, and the urban centers of commerce and government, each with its own system of social stratification.¹⁸ The tribal organization and institutions and the settled village community were the backbone of the social structure and political life in Iraq, and created a highly stratified class system. In the political life, the family, clan, tribe, and local ties were more important that national loyalties.¹⁹ Moreover, ethnic, religious, and linguistic differences shaped and challenged the development of Iraq.

Between 1918 and 1958, “a period during which Iraq achieved independence and a greater role in world affairs, some important changes took place in the social order.”²⁰ Specifically, “access to prestige and power became freer than it was in the traditionally authoritarian and highly stratified system.”²¹ In general, however, “the major outlines of society remained more or less as they had been for centuries, with nomad camps, villages and towns continuing to define vastly different ways of life.”²² After the revolution, living conditions in the cities and towns improved modestly, but in the rural areas many people were living at a subsistence level. In the 1920s, the government initiative in welfare, mostly in the form of public works projects, took place. These included flood control and irrigations projects, which helped increase crop yields. There still remained issues associated with “inadequate roads and [a] lack of transportation and communication [which] isolated some communities from the services that would otherwise be available from provincial authorities.”²³ As for education, the British Mandate in 1920 led to a gradual expansion of Iraq’s public primarily school system under British supervision, and the country’s first secondary schools were opened, but overall, a large portion of the population remained illiterate because the educational programs received fewer funds in order to limit the number of graduates who could challenge the bureaucracy.

Throughout the 1920s and early 1930s, the cities and towns began to witness the rise of a small middle class, consisting of civil servants, professionals, and merchants.²⁴ However, the majority of the population was still very poor. Many people became engaged in the oil industry, but due to lack of funds and slow growth, the fruits of their labor were minimal.

Economy

In the traditional economy of Iraq, agriculture and herding were of paramount economic importance. The cities of Basra, Baghdad, and Mosul had political and economic power at the end of the Ottoman era, but beyond these cities, the country was mostly “caravan stops like Zubair, fueling stations like Kut, or religious shrines like Karbala and Najaf, in which the benefits of law and order, trade and manufacture, were noticeable only against the background of poverty in the countryside.”²⁵ Before World War I, “the tribal sheikhs took control of large tracts of land and because the landlord customarily received the major share of the produce from the land, the system provided a minimal subsistence to the majority of those who worked the land and left them with little incentive to increase production.”²⁶ Land was largely neglected for a long period of time before World War I, a trend that continued with salification and alkalization of the land. While some progress in irrigation and the introduction of new crops had been made, the benefits were reaped largely by the politically powerful and the wealthy.

Between 1920 and 1932, oil attracted Western interests. At this time, the industrial sector did not play an important role in Iraq’s economy because “businessmen lacked both the financial means and the technological resources to develop manufactured goods for the foreign market, and they found the domestic market highly restricted.”²⁷ The majority of funding went to paying for the building of facilities by the British, which took resources away from expanding oil production. As a result, by 1932, as much as 70 percent of the population, was “virtually untouched by modernization and modern industry.”²⁸

Bahrain

Government and Politics

Bahrain is made up of 30 small islands located near the western shores of the Persian Gulf. Surrounded by Saudi Arabia to the west, Iran to the north, and Qatar to the southeast, Bahrain’s location has afforded it influence in the region. From 1602, Bahrain was under the control of the Persians (Iranians) until the Al-Khalifa family, members of the Bani Utbah tribe, expelled the Persians and took control of the islands in 1783. Besides Iran, Portugal and Oman have also ruled Bahrain at one time or another. Bahrain’s strategic location as a trading hub fostered competition among foreign powers for its control. The country’s rich social diversity helped fuel and exacerbate these claims. These competing interests in Bahrain created instability in the island. But ...

Table of contents

• Cover
• Title
• Part I The Evolving Role of Oil in the Persian Gulf
• Part II The Political Economy of Oil and Transition to Oil-Less Economies
• Notes
• Bibliography
• Index