Published by EH.NET (May 1999)
Uri Bialer, Oil and the Arab-Israeli Conflict, 1948-63. New York:
Martin’s Press and Oxford: Macmillan Press, 1999. vii + 282 pp. $69.95
Reviewed for EH.NET by Nachum Gross, Department of Economics, The Hebrew
University of Jerusalem.
This fascinating and intriguing book rightly claims to contribute to the field
of international political economy. It describes and analyzes in considerable
detail Israel’s oil diplomacy during the first fifteen years of statehood, and
the extremely adverse circumstances under which the country’s energy supplies
were procured. At the time, petroleum was the only practical source of energy
for Israel’s rapidly growing population and its expanding and modernizing
economy. As such, it was no less a basic existential problem than the
supply of armaments. However, despite almost crippling financial limitations,
the chief constraints in obtaining crude oil and its refined products were
political. Governments and the major oil companies, primarily British and
American (and later the Soviets and the Iranians, too) viewed the issue
predominantly from the perspective of the Arab-Israeli conflict. In view of the
Arab countries’ role as the Western world’s major oil suppliers, their
strategic location, and their potential as developing markets for manufactures
and other goods (in contrast to Israel’s negligible weight as a market), it is
in a sense surprising that Britain and its oil companies did not abandon Israel
entirely–as they almost did in the mid-1950s.
Nevertheless, Israel pursued
an ambitious oil policy, whose aims extended well beyond the supply of minimal
civilian and military requirements. It sought to reestablish the Haifa oil
refinery (a British enterprise, in operation since 1939) as a supplier of
domestic demand (to include
a newly-established petrochemical industry) and of export-earned foreign
exchange. For these purposes the pipeline from Iraq to Haifa was expected to be
reactivated and/or the Suez Canal opened for tankers serving Haifa.
Moreover, the Israeli government
repeatedly tried to break the monopolistic price structure imposed on the
domestic oil market during the British Mandate regime, and to abolish the
tax-exempt status of the foreign oil companies. Only few of these goals were
achieved. The long-run policy
aim was to rid Israel of its dependence on a small number of leading British
and American oil companies and to diversify its sources of supplies.
The present study traces the successes and failures of these endeavors. It is
based on recently declassified
records from Israeli, British and US archives. In this case especially,
contemporary sources were almost silent on the painful limits of Israel’s
capability to translate political sovereignty into independence from the
international oil companies, whose interests coincided with their respective
countries’ dominant strategic interests. Moreover, from its earliest days
Israel was handicapped by “an almost total lack of familiarity with the
international oil business and the world of oil diplomacy” (p. 31),
and even twenty years later such experience and expertise were the province of
a mere handful of
“initiates.” It was thus relatively easy to preserve the desired secrecy
regarding oil supplies, since secrecy was also an integral part of the modus
of the oil companies. This book is therefore more revealing
(and at times surprising) than most other contemporary history works.
Regrettably, this feature also tempts the author to relate parts of the story
in excessive detail.
In mid-1950 Israel seemed to have finally circumvented the Arab oil blockade.
The British companies agreed to operate the Haifa refinery at partial capacity,
using Middle Eastern oil from non- member countries of the Arab League to
satisfy Israeli demand, despite doubts with respect to the enterprise’s
profitability. All that had been achieved, however, relied on temporary
arrangements, without redress of Israel’s grievances regarding prices, taxes
and foreign exchange earnings or guaranteed supplies for the petrochemical
industry. Subsequently, the foreign companies marketing in Israel even agreed
to the establishment of an Israeli-owned corporation which would gradually be
allocated up to 30% of the domestic market. But the British owners of the
refinery adamantly refused to invest in its modernization and diversification.
Gradually Israel also managed to acquire oil business know-how and connections,
to diversify its supplies by closing independent deals with Russia and Iran,
and to somewhat improve its relations with the foreign companies operating
domestically. However, the Israeli market became commercially less and less
attractive, and outside developments–chiefly the 1956 Suez-Sinai
campaign–weakened the political will to stay in it.
Thus, during 1954-1957 the oil companies decided one by one to sell off their
interests in Israel and leave the country. This process culminated in the 1959
agreement to sell the Haifa refinery to the Israeli government.
While this process must be viewed as an Arab League success, it did
not result in blocking Israel’s oil supplies.
The crucial new factor was a series of oil supply agreements with Iran,
made possible once the Anglo- Iranian dispute following the nationalization of
Iran’s oil industry was settled. The chapters describing
the formation of Israel’s “petroleum link” with Iran, which analyze its
complications, and the varied political interests involved, are the most
fascinating and innovative in this volume. This link was related to developing
the Red Sea port of
Eilat into an oil depot, constructing pipelines from there northward,
eventually to Haifa, and thus opening a new oil supply route (of Iranian crude
and of Haifa-refined products) to Europe. Iran was even willing to underwrite
part of the cost of the Eilat-Haifa sixteen-inch pipeline. The US in effect
guaranteed secure shipping in the Gulf of Aqaba, and Iranian war ships
discreetly escorted Israeli tankers in the Persian Gulf.
The book ends with the very favorable agreement with Iran in May 1963.
Although its almost total dependence on a single oil supplier was a drawback,
Israel’s position in the international oil business had apparently been
secured, and was even strengthened after the 1967 closure of the Suez Canal. As
the Epilogue points out, however, subsequent events,
chiefly the 1973 war, reopening of the Suez Canal and the fall of the Shah of
Iran in 1978 virtually wiped out these achievements. The Sisyphean labor of
securing Israel’s energy supplies had to start all over again. The next
installment of the story awaits the declassification of the relevant archives,
will hopefully be addressed again in Bialer’s exemplary manner.
Nachum T. Gross is professor emeritus of economics (economic history) at The
Hebrew University of Jerusalem, and for the past 30 years has studied the
|Subject(s):||International and Domestic Trade and Relations|
|Geographic Area(s):||Middle East|
|Time Period(s):||20th Century: WWII and post-WWII|