CRISIS London International Model United Nations 21St Session | 2020

London International Model United Nations 2020

CRISIS London International Model United Nations 21st Session | 2020

London International Crisis Model United Nations 2020

Table of Contents

TABLE OF CONTENTS 2 INTRODUCTION LETTER 4 A QUICK INTRODUCTION TO CRISIS 6 BASE MECHANICS - CABINETS, DIRECTIVES AND SESSIONS 6 Cabinets 7 Directives 8 Sessions 9 WHAT DELEGATES CAN EXPECT 10 WHAT WE LOOK FOR FROM DELEGATES 11 INTRODUCTION TO THE OIL INDUSTRY 14 THE POST-WAR OIL ORDER A BRIEF TIMELINE 14 THE POST-WAR ECONOMIC ORDER 15 The Long Boom 15 The Oil Industry 16 FIRST POST-WAR OIL CRISIS - IRANIAN REVOLUTION 1951 19 Anglo- Iranian Oil Negotiations 19 Nationalisation of Iranian Oil Industry 20 Mosaddegh Coup 21 SECOND POST-WAR OIL CRISIS - SUEZ CRISIS 1956 22 The Invasion of the Suez Canal 22 The Political Implications of the Crisis 23 THIRD POST-WAR OIL CRISIS - THE SIX DAYS WAR 1967 24 Religious Tensions 24 Background of the Conflict 25 War Breaks Out 26 Testing the ‘Oil Weapon’ 26 CABINET BACKGROUNDS 28 THE UNITED STATES OF AMERICA 28

London International Crisis Model United Nations 2020

The decline of American oil production and The fall of the Bretton Woods system 28 US Price Controls 1971-1973 30 The Watergate Scandal 31 THE SOVIET UNION 34 Brezhnev’s Rise to power 34 Soviet Union power structure under Brezhnev & the Troika 35 Soviet Economy under Brezhnev 38 Soviet Oil Exports 44 OPEC 46 Institutional background 46 Overview of structure and roles 48 Areas of operation 50 OPEC Organizational structure 51 OPEC ‘Leapfrogging’ 53 A Move Towards Participation 55 The ‘Oil Weapon’ 57 SEVEN SISTERS 58 Overview of the Seven Sisters 58 Areas of Operation 70 REFERENCES 75

London International Crisis Model United Nations 2020

Introduction Letter

Dear Delegates, Welcome to the LIMUN 2020 Crisis. Starting in 1973, this simulation will see you take part in an event that defined the economic and geopolitical landscape of the world for the next few decades. Often overlooked, the 1973 OPEC Crisis was a culmination of conflicting foreign policy initiatives that resulted in the world's first "oil shock", cementing the global economy's dependence on oil. Our simulation aims to provide something different to the plethora of Medieval and ancient wars so often seen as the default crisis scenario. If this is your first crisis, we hope you find it as enjoyable as we all found our first experience, and if this is only one of many crisis experiences you've done, we hope that you find it to be a unique experience. We look forward to meeting all of you in February. Best regards, Maria, Kevin and Perth

London International Crisis Model United Nations 2020

Director – Maria Slobodina

Maria Slobodina is a recent Neuroscience graduate from University College London. She is due to start an MSc in Entrepreneurship at the same institution in September, through which she hopes to develop a social enterprise that helps the social care sector in the UK meet its current and future workforce demands. This will be Maria’s third LIMUN Crisis and she is honoured to return as a Co-Director after previously serving as the Assistant Director in 2019 and the Head of the Italian Cabinet in 2018.

Director – Perth Ophaswongse

Perth Ophaswongse is a 4th year International Relations Student at the University of Edinburgh. Perth has done over 30 crises and this will be his third year on the LIMUN Crisis team, having served as a cabinet Chair in the two previous editions of the LIMUN Crisis.

Assistant Director – Kevin Wang

Kevin Wang is a graduate from the University of Oxford. He is due to start a PhD in Migration Studies at the same institution in October, through which he hopes to develop UK and Chinese research to create better understanding between the two nations. This will be Kevin’s third LIMUN Crisis and he is flattered to return as Assistant Director after previously serving as the Assistant Director in 2019 and the Head of the French Cabinet in 2018.

London International Crisis Model United Nations 2020

A Quick Introduction to Crisis

Crisis isn’t at all like the standard committees in Model United Nations. General Assembly and other main branch committees operate primarily using a series of moderated caucuses that are regulated by the chair. In crisis there are little to no moderated caucuses, and the chair is also a character in the crisis. The chair is there to guide the committee and to help it achieve its goals, but the events of the crisis can and will affect them just like they could affect a delegate. In crisis, you do not represent a particular country, instead - you will receive a biography of a specific person prior to the crisis and would be expected to effectively become the character throughout the crisis.

Whereas the main written product of a GA delegate would be a resolution, crisis delegates achieve most of their success through communicating via unmoderated caucuses and individual/collective directives. Directives are messages sent to the Crisis backroom where they are assessed and processed to either forward or challenge your progress. In essence, a directive should tell the backroom staff two things: what and how you want to do things.

In a holistic approach, crisis basically lets you interact with the world beyond that of the discussions within the committee sessions. However, do not worry, as we will explain everything to all of you again at the very beginning of the conference, and we will be very happy to help you in the times before and during the conference!

Base Mechanics - Cabinets, Directives and Sessions

If you are new to Crisis, or even if you are familiar to crisis, then there are a few things that you will need to know for LIMUN Crisis Committee sessions. This section will cover the three main components that are

London International Crisis Model United Nations 2020 esse ntial to this year’s LIMUN crisis format: the Cabinets, Directives and the Sessions.

Cabinets

Cabinets are the physical rooms to which you sit and contain the other delegates you may choose to interact with. In crisis, cabinets can represent a countries government or other specific institutions. Do remember that you alone are responsible for meeting with people inside your cabinet, while the facilitation of meeting people outside your cabinet is the responsibility of the backroom staff.

Be thoughtful that each cabinet and character can have their own motives and objectives. Of course, as in real life, the cabinets are not to restrict your imagination, but to guide you in the initial steps of the crisis. As the crisis develops, your positions will change, the nature of cabinets will change, and you will have much more flexibility to choose from with your character. A brief description of your title will be included in your bio. In general, these descriptions of your title will show you the limitations and capabilities of your position within and outside the cabinet.

However, in no way do they limit what you can do. The backroom can easily miss things out, and within the context of the crisis, we can accommodate information / capabilities / powers you think are missing from your bio / character. In general, this crisis will have four cabinets:

• The United States of America • The Soviet Union • OPEC • Seven Sisters

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Directives

Directives are the backbone of any crisis. They effectively act as requests which can bolster your own position and alter the crisis as a whole. However, beware everyone within the crisis is also sending directives. All directives are sieved into the backroom and from there they are processed. The extent to which a directive is approved will often depend on how logical it can be for the backroom. Directives also come in all shapes and sizes so don’t worry too much if you don’t have much experience. However, in a nutshell, directives should follow three points. Directives should be:

1. Realistic

Think about it, can your character accomplish this with the resources currently available to them? If not, backtrack your plan a little bit and see if you can first acquire the necessary resources for your plan to be feasible.

2. Detailed

If you submit a very short directive, it’s likely that it is not detailed enough to pass, and this can seriously backfire and sometimes even damage your character long-term. Here it’s good to ask yourself questions. How? When? For example, if you want to follow another character ‘discreetly’, you might want to think about what clothes you are wearing, what distance will you keep from your target and how you will avoid detection by whatever security detail they may have. Here, your aim is to close all the potential loopholes in your plan.

3. Precise

Directives should be precise and to the point. Where possible, like with military operations and acquiring assets, try to specify numbers. Again, think about what would be realistic. Being detailed is good, but too much detail will also slow down the processing time for your directive. In

London International Crisis Model United Nations 2020 principle, every sentence of your directive should add something meaningful to your plan.

However, it is important not to neglect intra- and inter-cabinet diplomacy. You can accomplish a lot with your own directives but diversifying your tactics in committee can potentially let you finish the crisis with even bigger gains. It’s not just about what directives you write, but what kind of directives you can persuade your committee members to write or, in fact, not write. In theory, convincing someone to lower their guard for you could be the difference between death and a successful cabinet defection.

Sessions

As mentioned, crisis is mainly composed of unmoderated sessions with a chair who is also a character within the crisis. However, crisis also includes unique styled sessions that move beyond just this standard session. Although, the bulk of sessions within the crisis will still be aimed at cabinet sessions, we will have an increased amount of cabinet to cabinet meetings but also large plenary sessions across the whole crisis to represent the events of the time. To put this into perspective - in most other crisis, you can expect cross-cabinet meetings to happen on a more personalized individual basis, which means it is up to the delegates to choose whether they want to attempt a collaboration with someone from the other cabinet.

Cabinet sessions themselves will also be accompanied by news updates throughout. You will also have access to the News screen and it is very important that you read through all the updates, even though they might not necessarily look like they relate to your cabinet / character. Remember that in crisis there is always a reason for an update or news. Hence, you

London International Crisis Model United Nations 2020 can expect that even though something might seem illogical or irrelevant, you can count on some other delegate building up something to achieve their own goals. In these news updates all public announcements will be published along with any important events.

What Delegates Can Expect

Delegates can expect the staff to do their best to respond to their directives in a timely manner. If your directives are not consistently receiving responses with a latency of over 15 minutes, then please notify your chair or one of the directors directly so we can investigate. Please note that during high points of the crisis, it is natural for the backroom to be a bit slower - that helps us minimise inconsistencies across cabinets storylines. The ratio of backroom staff to delegates is approximately 1 staff for each 3 delegate – so please keep this in mind.

You can also expect the staff to respect you, your positionality and also experience level in terms of crisis. Therefore, for those of you with little to no crisis experience, we will attempt to guide you as far as possible through the process and give constructive feedback, especially at the beginning of the crisis. In order for us to be able to spend more time facilitating the learning process for beginners, we will not be giving as many hints to more experienced cabinet members and will be more critical of the loopholes in your plans.

If we would like something to be clarified, we will let you respond to our directive response in order to streamline the approval process. Remember that staff can also be convoluted with current situations and the use of one- sentence summaries of the general overview of your respective line of enquiry (in terms of approved directives) are the easiest and most helpful ways to communicate with us. If things are even more complicated, then

London International Crisis Model United Nations 2020 do not worry, as we are also willing to talk to you in person to clarify the situation. You can definitely expect us to all be friendly people, regardless of being staff!

That said, as the crisis goes on, we will not be providing the same standard of support for beginner delegates as we expect you to start taking on our earlier comments and implementing them in your subsequent directives. Though, we will consistently aim to make responses informative and helpful for the progression of your future plans. We will never reject a directive without stating a justification for doing so. If you are consistently receiving arbitrary answers, please notify your chair so we can investigate the issue further.

You might have heard stories about backroom messing with delegates’ directives over minor spelling or grammatical errors - the LIMUN backroom staff team is not like that and the crisis team understands the differences of your English usage and will not move to punish you in this sense. We will never penalize spelling errors and will always try to clarify things if we don’t understand them.

You can expect to be treated with respect by all members of Crisis staff and we hope we can create a great conference so that you too can feel similarly. As such we are looking forward to seeing you at LIMUN.

What We Look for from Delegates

As a rule of thumb, be logical and faithful to the time period, but also do not restrict your imagination.

As the backroom, we love to see a grasp of the historical environment, but also the use and moulding of that environment to create the outcomes you desire. Though you are not restricted by your character bios, you are

London International Crisis Model United Nations 2020 rationally bound by the logics and ideologies which inform said character and the factions they identify with. In essence, faithfulness to the bio as of the starting date is usually merited.

When you write directives and when you refer to other people who are taking part in the crisis, please put their character’s full name and title so that the backroom can easily keep track and process your directives faster.

However, as much emphasis is placed on the directives in crisis, our observation of good delegates are not made just by the quality or speed of directives. We would like to place heavy emphasis on the fact that good delegates are also those who can maintain a consistent a high-quality conduct and attitude within the cabinet environment. Good delegates who imbue the true nature of their character and who use their imaginative initiatives (which you all have) are the ones we love to interact with. We would also hope that you are able to engage in self-reflection and extrapolate our feedback into future directives and not just plug in potential holes within current issues based on our comments. Though, don’t fret, as we will always be at hand to help!

Whether you are a veteran or a first-time crisis delegate, do not be afraid to ask chairs, the backroom or even the directors about any matters or questions regarding your situation during the crisis. We are all friendly people and our primary objective is to make sure you folks (the delegates) can have an enjoyable time within this historical crisis. Most importantly though, have fun! Each delegate, from beginners to veterans will all have something to offer to the crisis and the best advice we can give is to tackle everything head on and not to get discouraged if something doesn’t go your way the first (or the second or the third) time.

THE MOST CRUCIAL POINT: Please remember that when you come up with crucial strategies and cooperative plots, whether on your own or with other delegates, please send them as directives in full detail to the

London International Crisis Model United Nations 2020

backroom. This is so we can keep track and also help your strategies become a reality. Do not assume that the backroom always knows, and always refer to previous directives whenever possible.

London International Crisis Model United Nations 2020

Introduction to the Oil Industry

The Post-War Oil Order a brief Timeline

• 1947 Marshall Plan for Western Europe. Construction begins on Tapline for Saudi oil. • 1948 Standard of New Jersey (Exxon) and Socony-Vacuum (Mobil) join Standard of California (Chevron) and Texaco in Aramco. Israel declares independence. • 1951 Mossadegh nationalizes Anglo-Iranian in Iran (‘first postwar oil crisis’). New Jersey Turnpike opens. • 1953 Mossadegh falls; Shah returns. • 1954 Iranian Consortium established. • 1955 Soviet oil export campaign begins. • 1956 Suez Crisis (second postwar oil crisis). Oil discovered in Algeria and Nigeria. • 1958 Iraqi revolution. • 1959 Eisenhower imposes import quotas. Arab Petroleum Congress in Cairo. Groningen natural gas field discovered in the Netherlands. Zelten field discovered in Libya. • 1960 OPEC founded in Baghdad. • 1965 Vietnam War buildup. • 1967 Six Day War; Suez Canal closed (third postwar oil crisis). • 1968 Oil discovered on Alaska’s North Slope. Ba’thists seize power in Iraq. • 1969 Qaddafi seizes power in Libya. Oil discovered in the North Sea. Santa Barbara oil spill. • 1970 Libya “squeezes” oil companies. Earth Day. • 1971 Tehran Agreement. Shah’s Persepolis celebration. Britain withdraws military force from Gulf.

London International Crisis Model United Nations 2020

• 1972 Club of Rome study - The Limits of Growth.

The Post-War Economic Order

The Long Boom

From about 1950 onwards, the world economy gradually recovered from the upheavals of World War II. This would lead to a period of sustained global economic growth of 4.8% per annum and full employment in the

Western economies 1 . This was not limited to the countries that had emerged victorious from the war, but also to those that had lost it or had been devastated by it, such as Germany, Japan, or France. Low unemployment and rising wages made sure that all socio-economic groups benefited from growth. In fact, this growth even gradually increased during the period. Per capita income accelerated from 2% in the 1950s to 3.4% in the 1960s in the developed economies; this is an unprecedented period of growth in the history of these countries, even surpassing the rates achieved during industrialisation2.

Some reasons for this boom were still consequences of the war. For example, many countries introduced higher taxation, especially for those better off. Some of these tax rates increased tenfold compared to their pre- war levels (‘Conscription of Wealth’)3. This helped to keep levels of material

1 Skidelsky, Robert (2009) ’Keynes: The Return of the Master’, London: Allen Lane, 116,126. 2 Glyn, Andrew, Hughes, Alan, Lipietz, Alain, and Singh, Ajit (1990) ’The Rise and Fall of the Golden Age’, in Marglin, Stephen A., and Schor, Juliet B. (Eds.) ’The Golden Age of Capitalism: Reinterpreting the Postwar Experience’, Clarendon Press: Oxford, 41 3 Scheve, Kenneth and Stasavage, David (2010) ’The Conscription of Wealth: Mass Warfare and the Demand for Progressive Taxation’, International Organization', 64, 529- 561. 15

London International Crisis Model United Nations 2020 wealth within bounds not only during but also after the war, as governments did not scrap these taxes in favour of their pre-war levels.

Economic and Institutional Arrangements During the Long Boom

Western governments substantially cooperated during the long boom by agreeing on basic principles of trade, fiscal, and monetary policy. This system was called ‘Bretton Woods’, named after the hotel, where the summit took place during which states developed and negotiated the rules of the new monetary regime. Fundamental for this system were newly founded international institutions such as the United Nations, the International Monetary Fund, and the World Bank. Its main function, however, was a commitment by every participating country to tie its currency exchange rate to gold and the US Dollar. This brought significant advantages for the US economy as countries had to hold USD or gold reserves. It also meant, however, that the world economy was heavily reliant on the US economy’s stability.

The Oil Industry

A major political decision that would make oil the most important resource of the twentieth century was taken by Winston Churchill in 1911. Churchill decided to change the engines of the British navy from being fuelled by coal to oil4. This changed the security of Britain’s energy supplies, as it replaced a domestic good (coal) with one primarily imported from Persia. Ever since, great powers have sought (and sometimes struggled) to maintain regular, secure, and cheap flows of oil into their domestic markets. The long boom of the post-war years, for example, is also closely

4 Kruse, Felix (2013) ’Oil Politics: The West and its desire for energy security since 1950’, Diplomica, 2. 16

London International Crisis Model United Nations 2020 related to an unprecedented low in oil prices. This ensured that consumers have more money to spend elsewhere, but it also lowered inflation and interest rates5. The consumption and production of oil was therefore a critical factor in sustaining this long period of economic prosperity and its political arrangements.

This reliance on oil, however, has severe effects on national security and increases the power of energy corporations. Oil-exporting countries can control the inflow of oil into those dependent on it. This can, of course, be used as a political tool, for example to deprive enemies and rivals of secure energy supplies. After all, the enemy won’t even show up if they lack the resource that powers their engine. For example, one of the major reasons the Japanese attacked the United States was that they had imposed an oil embargo on Japan, which threatened the operations of the Japanese fleet6. Oil is therefore the lifeblood of advanced economies.

The Middle East has become an important region in international security and economic policy. Around 60 of conventional oil reservoirs are located in the region. Political alignments and a secure supply line from there back to the Western economies became a basic principle of foreign policy after World War II. Even though most oil supplies to other Western states had come from the United States until 1950, the US suddenly turned from an oil exporter into an importer7. Western Europe followed suit. The reason for this was that oil from the Middle East cost around 25% of oil produced in the United States 8 . Threatening supply lines in the Middle East was

5 Ibid., 2. 6 Ibid., 3-4. 7 Ibid., 26. 8 Mann, Ian (2010) ’Shaky Industry that runs the World’, The Times (South Africa), 24 January, accessed 21 October 2019, https://web.archive.org/web/20100127022854/http://www.timeslive.co.za/opinion/colu mnists/article272352.ece. 17

London International Crisis Model United Nations 2020 regarded as an assault on the national security of the United States that warranted any means necessary to restore the status quo.

The Seven Sisters

Fortunately for the West, most of the region was heavily by former British direct and indirect rule and large companies could establish themselves there quite easily. Most of them had been operating in the region for decades at this point. Usually, they would have to pay various taxes and royalties to the state in whose territories they extracted the oil.

Up to 85% of global oil reserves, most of it located in the Middle East, was controlled by a conglomerate of seven Anglo-American companies9.

These companies were:

• BP (formerly Anglo-Iranian Oil Company) (UK) • Gulf Oil (US) • Royal Dutch/Shell (Netherlands/UK) • Standard Oil Co. of California (US) • Standard Oil Co. of New Jersey (Esso) (US) • Standard Oil Co. of New York (US) • Texaco (US)

They often jointly negotiated with their host countries and managed to monopolise the market almost entirely. A main objective of the Seven Sisters, named after the seven daughters of the Greek titan Atlas, was to maintain a low price for oil, which was beneficial for the importing Western states. Needless to say, exporter countries such as Persia or Iraq did not

9 Mann, Ian (2010) ’Shaky Industry that runs the World’, The Times (South Africa), 24 January, accessed 21 October 2019, https://web.archive.org/web/20100127022854/http://www.timeslive.co.za/opinion/colu mnists/article272352.ece. 18

London International Crisis Model United Nations 2020 fare well economically under this cartel’s influence. For example, prior to the 1950s, the host countries received about 10% of the generated profit10. Furthermore, the Seven Sisters exploited the difference between the real price (the one to which the companies sold the oil) and the posted price (the one they paid to governments); they manipulated the price they paid to governments to keep it artificially low. This gold rush, however, was soon to be over.

First Post-War Oil Crisis - Iranian Revolution 1951

Anglo- Iranian Oil Negotiations

Oil issues figured prominently in elections for the Iranian government in 1949, and nationalists were determined to renegotiate the AIOC (the Anglo-Iranian Oil Company) agreement that currently stood. The Prime Minister Ali Razmara, appointed in 1950, looked to negotiate a supplemental oil agreement between AIOC and Iran but the terms he got were not favourably looked on by the Iranian government, the Majilis of Iran / Islamic Consultative Assembly. Growing nationalistic sentiment meant that the most favourable option was to split profit sharing fifty-fifty with AIOC but these terms were not offered in November 1950. Fifty-fifty profit sharing was not offered in fact until February 195111.

10 Kruse (2013) ’Oil Politics’, 27. 11 Ghods, M. “The Rise and Fall of General Razmara.” Middle Eastern Studies, vol. 29, no. 1, 1993, pp. 22-35. JSTOR. 19

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Nationalisation of Iranian Oil Industry

The first post war oil crisis was sparked by a movement from the Iranian Parliament to seize control of Iran’s oil industry, with legislation passed on March 15, 1951 to do so. Mohammad Mosaddegh was the Iranian politician that spearheaded the move to nationalise the Iranian oil industry. However, the move was first blocked by the Prime Minister Haj Ali Razmara on technical grounds, but he was assassinated outside the Shah Mosque by

Khalil Tahmassebi on the 7th of March 1951 and Mosaddegh was named Prime Minister in April by the shah.

Oil production stagnated as British technicians left the country and Britain imposed a worldwide embargo on the purchase of Iranian oil. Furthermore, in September 1951, Britain banned the export of goods to Iran while challenging the legality of the oil nationalization and took a case against

Iran to the International Court of Justice at The Hague 12. The court found in Iran's favour, but the dispute between Iran and the AIOC remained unsettled. After pressure from the United States, the AIOC improved its offer to Iran. Due to a mix of reasons, such as anti-British feeling, agitation by radical elements and the conviction among Mosaddegh’s advisers that Iran's maximum demands would be met at some point, the government rejected all offers. The Iranian economy then started to suffer from the loss of foreign trade and oil revenues.

12 Bayne, E. (1951) Crisis of Confidence in Iran [Online]. Foreign Affairs Magazine. Available from: ‘https://www.foreignaffairs.com/articles/iran/1951-07-01/crisis-confidence-iran’, [Accessed: 18th October 2019]. 20

London International Crisis Model United Nations 2020

Mosaddegh Coup

‘Ever since the assassination of General Razmara in March, 1951, and the subsequent impasse and diplomatic break with Britain over the oil negotiations, the Iranian situation has been slowly disintegrating. The result has been a steady decrease in the power and influence of the Western democracies and the building up of a situation where a Communist takeover is becoming more and more

of a possibility.’ 13

~ No.310 | CIA memorandum for the President on ‘The Iranian Situation’.

Mosaddegh's growing popularity and power led to political chaos and eventual United States intervention. Mosaddegh had come to office on the strength of support from the National Front and other parties in government and as a result of his great popularity. However, his popularity and refusal to change his position on the oil issue created tension between the prime minister and the shah. Indeed, in the summer of 1952, the shah refused the prime minister's demand for the power to appoint the minister of war. Mosaddegh resigned, then three days of pro-Mosaddegh rioting followed, and the shah was forced to reappoint Mosaddegh to head the government.

Mosaddegh (1882 – 1967) was the 35th Prime Minister of Iran, in office from 1951 until 1953, when his government was overthrown after a coup in 1953 in which both the CIA and MI6 were involved with14. His most significant

13 Anon. (1953) No. 310 Memorandum Prepared in the Office of National Estimates, Central Intelligence Agency, for the President [Online]. Available from: ‘https://history.state.gov/historicaldocuments/frus1952-54v10/d310’, [Accessed: 18th October]. 14 Kamali Dehghan, S. and Norton- Taylor R. (2013) CIA admits role in 1953 Iranian coup [Online]. The Guardian. Available from: ‘https://www.theguardian.com/world/2013/aug/19/cia-admits-role-1953-iranian-coup’, [Accessed 18th October 2019]. 21

London International Crisis Model United Nations 2020 policy was certainly the nationalization of the oil industry and he was viewed as a champion of democracy who resisted foreign interference in Iran’s affairs. The 1953 coup was an attempt to place General Zahedi in control yet initially failed with the Shah fleeing the country. Despite this Mosaddegh resigned after four days of fighting and Zahedi became Prime Minister in 1953, the shah returned to the country and Mosaddegh was placed under house arrest until his death in 1967.

Second Post-War Oil Crisis - Suez Crisis 1956

The Invasion of the Suez Canal

The Suez Crisis began officially on October 26th 1956, upon first movement of Israeli military forces based near the northern Egyptian border, and the

Gaza Strip15. These troops began to move in towards the Suez Canal, and were eventually joined by both British and French troops. While the invasion of a canal may seem a small military feat, this included movement across the entire Sinai Peninsula - an enormous blow initial blow to Egyptian national security. As both the British and French troops joined Israeli troops a few days delayed, the emerging Soviet Union seized the opportunity to gain a foothold in the region. Taking a stand against the invasion of Egypt, Nikita Khrushchev increasing the standing arms deal that sent arms to Egyptian forces via Czechoslovakia. Further, Khrushchev threatened nuclear attack on the European continent if the forces invading Egypt did not withdraw immediately.

15 Ross, Stewart (2004). Causes and Consequences of the Arab–Israeli Conflict. Evans Brothers. pp. 76 22

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Figure 1:Suez Crisis and Sinai War (1956)

These threats drew responses from states holding military might worldwide - most notably from the sitting President of the United States Dwight Eisenhower. Threatening sanctions on each of the three invading powers, Eisenhower used the United States status as a new superpower to influence the outcome of this crisis. As such, each power did indeed eventually retreat from the Suez Canal. Both the Soviets and the Americans shared a mutual frustration that neither power was consulted in the decision to invade Egypt.

The Political Implications of the Crisis

This incredible usurpation of the newly minted Cold War system came on the heels of the nationalisation of the Suez Canal by Egyptian President and sweetheart of 20th century Arab nationalism, Gamal Abd al-Nasser. This nationalisation was (and in its historical legacy, remains) a hugely popular policy amongst Egyptians. As a leader, Nasser may not have effectively held off foreign troops, but still left the crisis as an anti-colonial hero. This

London International Crisis Model United Nations 2020 is because through the nationalisation of the canal, Nasser effectively put the final nail in the coffin of Primary Decolonisation within the Egyptian state16. The Suez Canal Company was owned in part by the Egyptian government, but in large part privately by both the British and French governments. This ensured that the nationalisation of the canal was seen as a direct strike against English and French colonial might. Historians debate the effect of this leap to anti-colonial stardom by Nasser. Critical theorists like Fouad Ajami argue that this move lead to a more Egyptian centred Arab nationalism, which would eventually shift to a new Political

Islam post 196717. While this argument is disputed by historians like James Gelvin, there is some universally acknowledged truth in the galvanization of Egyptian Arabs in particular towards high political involvement. However, this act may have eternally intertwined the fate of Arab nationalism with that of the Egyptian state. For better, or for worse.

Third Post-War Oil Crisis - The Six Days War 1967

Religious Tensions

Religion is at the heart of territorial disputes and conflicts between Israel and the surrounding countries. Followers of Judaism and Islam lay claim to “the Promised Land” and the Holy City of Jerusalem. However, this “Promised Land” or the “Land of Israel” as it’s referred to in Judaism has very indefinite geographical limits and its borders vary depending on what Biblical text one consults.

16 ‘Primary Decolonisation’ referring to the removal of formal colonial structures and colonial intervention in a colonised state. Term coined by Richard Dryaton in contrast with Secondary Decolonisation describing the necessary severing of economic ties and control between colonial and decolonising states, along with the ending of colonial cultural influence. 17 Fouad Ajami, ‘The End of Pan-Arabism?’ (https://www.foreignaffairs.com/articles/yemen/1978-12-01/end-pan-arabism). 24

London International Crisis Model United Nations 2020

Jerusalem is particularly central to the religious disputes. The Temple Mount in Jerusalem holds several significant landmarks in Islam. The Dome of the Rock on the Temple Mount in Jerusalem is believed to be the place where Prophet Muhammad started his journey to Heaven. Jerusalem’s Temple Mount also houses the Al-Aqsa Mosque which is considered the third holiest site in Islam. According to Islamic tradition, Muhammad led prayers towards the Al-Aqsa Mosque until the seventeenth month of his journey together with his followers from Mecca to Medina.

Background of the Conflict

The Six-Day War is otherwise known as the June War or the Third Arab-

Israeli War that took place from June 5th to June 10th, 1967.18 The outcome of the Suez Crisis had direct consequences on the outbreak of the Six-Day War. Egypt’s Gamal Abel Nasser felt humiliated by Israel’s battlefield wins in 1956 and called for the “liquidation” of Israel. He was also influenced in the decision to escalate conflict by Syria, who have been sponsoring terrorist activity within Israel, leading to an increase in Israel’s spending on reparations and replacement of military equipment and staff.

In May 1967, Nasser issued a blockade against Israeli shipping through the Gulf of Aqaba which resulted in Israel’s port of Eilat being cut off. At the same time, he sent Egyptian troops back into the Sinai. This seriously threatened Israel’s ability to import petroleum.19

The King of Jordan and other Arab leaders made arrangements to supplement Egyptian forces with their own troops. Israel believed an attack

18 Yergin, D. (2008). The Prize: The Epic Quest for Oil, Money and Power. New York: Free Press.

19 Yergin, D. (2008). The Prize: The Epic Quest for Oil, Money and Power. New York: Free Press. 25

London International Crisis Model United Nations 2020 to be imminent due to the significant degree of mobilisation of the Arab

States in the region.20

War Breaks Out

Because of the aforementioned high degree of mobilisation, Israel responded with a pre-emptive strike on the morning of June 5th. They quickly gained an upper hand by practically obliterating Egypt’s air force and gained control of the surrounding air space.21

After that, things only turned from bad to worse for Egypt as they ended up losing around 80% of their military equipment to the subsequent Israeli onslaught.22

As several armistices were declared across the different fronts of the conflict, Israel was left in control of the Sinai Peninsula, the Gaza Strip, the

West Bank and the Old City of Jerusalem.23

Testing the ‘Oil Weapon’

On June the 6th, Saudi Arabia, Kuwait, Iraq, Libya and Algeria declared an oil embargo on Israel-friendly countries like the United States, Britain, and, to a lesser extent, West Germany. On the 7th, a stern warning to comply with this arrangement was issued to Aramco companies.24

Although this move seemed counter-intuitive as these countries would be decreasing their own oil revenues, this period was marked by unrest amongst oil workers and strikes due to the heightened tensions from the

20 Ibid. 21 Ibid. 22 Ibid. 23 Yergin, D. (2008). The Prize: The Epic Quest for Oil, Money and Power. New York: Free Press. 24 Ibid. 26

London International Crisis Model United Nations 2020 conflict. Arab states were worried that Nasser’s rhetoric would further incite the masses and lead to more widespread disturbances within the region. The flow of oil from the Arabian Peninsula was reduced by 60%, leading to significant petroleum shortages in Europe.25

When a civil war broke out in Nigeria in early July, the situation grew even worse as that removed another half a million barrel of oil per day from the circulation. American policy making with regards to this crisis was severely affected by their pre-occupation with Vietnam which prevented them from playing a more active role in resolving the situation.26

Americans were trying to persuade OECD countries to issue a combiner airlift of oil into Europe but faced resistance, which prevented them from suspending oil anti-trust laws via Congress. In this situation, the biggest problem was actually re-arranging the logistics of moving the oil tankers as oil from non-Arab countries had to be re-routed to the embargoed states and vice-versa.27

BP couldn’t write computer programs fast enough to manage the new shipping line changes, so they want back to a pen and paper format to manage the situation.28

However, the situation was not as dire when the unrest in the Arab states quieted down, restoring production. The rest of the missing oil was supplemented from high stock levels or additional production elsewhere. 29

25 Ibid. 26 Ibid. 27 Yergin, D. (2008). The Prize: The Epic Quest for Oil, Money and Power. New York: Free Press. 28 Ibid. 29 Ibid. 27

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By the end of July, it was clear that the Arab ‘Oil Weapon” was a failure due to US’s production capacities and stock of oil. The biggest losers of the embargo were the exporters that have lost oil revenues without any tangible effect on the geo-political situation and the outcome of the war. In fact, by August, the Arab oil output was 8% higher than it was before the

Six-Day War as these countries scrambled to maintain their market share.30

The Six-Day War was a critical example of the use of the ‘Oil Weapon’ and taught the world a lesson about the consequences of an embargo. However, things would not remain as they have been in 1967 for long, and delegates should keep that in mind when considering this tactic again.

Cabinet Backgrounds

The United States of America

The decline of American oil production and The fall of the Bretton Woods system

The Bretton Woods System was a system of monetary management that was established through the 1944 Bretton Woods Agreement. It involved United States of America (USA), Canada, Western European countries, Australia and Japan. It obliged each country to adopt a monetary policy that maintained their external exchange rate within 1% by tying their currencies to the price of gold.31

30 Ibid. 31 About the IMF: History: The end of the Bretton Woods System (1972–81). Retrieved 4 January 2020, from https://www.imf.org/external/about/histend.htm 28

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The dissolving of the system was precipitated by US President Richard Nixon’s decision to temporarily stop the dollar’s convertibility to gold. As a result, the US Dollar was ‘floated’ on the market. After attempts to revive the previous exchange rate failed, other countries also followed with

‘floating’ their currency.32

It is thought that floated exchange rates made it easier to adjust to growing oil prices33, something which might come in handy within the first few months after the Crisis start date. Early 1970s saw a significant change in the world oil landscape. There was no longer that surplus that was enjoyed by the US in the 1960s. This led to a growing dependence on Middle Eastern and North African oil reserves.34

The late 1960s and early 1970s was a period of extensive economic growth that was, quite literally, fuelled by oil. Because of this, world demand for oil rose from 19 million barrels per day in 1960 to over 44 million barrels per day in 1972.35 Yet, societies were not prepared for this rise in demand. In the US and elsewhere, the cheap price of oil of the 1960s and early 1970s meant that automobile manufacturers had no incentive to make their cars fuel-efficient.

US’s policies on oil production for years before the early 1970s guaranteed a reserve of oil as their production was always way below capacity. But in early 1970s, the American’s thirst for world domination meant that this surplus capacity was eliminated. Between 1957 and 1963, US surplus capacity was around 4 million barrels per day which reduced to just 1 million by 1970. In this year, USA’s oil production totalled 11.3 million

32 Ibid. 33 Ibid. 34 Yergin, D. (2008). The Prize: The Epic Quest for Oil, Money and Power. New York: Free Press. 35 Ibid. 29

London International Crisis Model United Nations 2020 barrels per day, the highest it would ever reach. Afterwards, it went into a decline.

As demand continued to rise, the US had to start importing oil and change their import quotas. Net imports rose from 2.2 million barrels per day in 1967 to six million barrels per day by 1973. This had serious implications for the rest of the world as previously the US functioned as a “security margin” with regards to oil supply for its allies. This meant that the US could no longer just absorb an oil shock from an embargo as it did after the Six-Day War.

Between 1960 and 1970, global oil demand rose by 21 million barrels per day. Over this period, production in the Middle East and North Africa rose by 13 million barrels per day. This meant that a staggering 2/3s of the growing world oil demand was met by supply from the Middle East.36

US Price Controls 1971-1973

Nixon’s early time in office coincided with the winter of 1969-1970, the coldest recorded winter in the United States at the time. Due to environmental pressures, many households switched from coal to oil for their electrical utilities. This required low-sulphur oil which had to be imported from places like Libya and Nigeria, increasing American dependency on imported oil.37

In 1971, Nixon imposed oil price controls as part of his overall anti-inflation policy. However, these price controls were discouraging domestic oil production, whilst at the same time promoting consumption. These also

36 Yergin, D. (2008). The Prize: The Epic Quest for Oil, Money and Power. New York: Free Press. 37 Ibid. 30

London International Crisis Model United Nations 2020 caused natural gas supplies to tighten as the price controls were not effective at adapting to changes in the market. Because the prices were this artificially low, there was little incentive to explore for new oil (as low oil prices were not worth the large capital investment needed for oil exploration) and at the same time also discouraged conservation.38

In the early months of 1973, growing demand was putting pressure on small-scale independent oil refineries who were struggling to acquire oil to remain in operation. At the same time, the demand was expected to increase seasonally with the coming summer driving season.39

In April 1973, Nixon’s Presidential speech focused on the energy crisis for the first time. In the speech, the President announced the abolition of the quota system, to be replaced with a voluntary allocation system that was meant to protect independent refiners and marketers from shortage of supplies.40

This symbolised a historic change as quotas tend to be a feature of economies built on surplus, whilst allocations are placed to distribute a limited supply.

The Watergate Scandal

In June 1971 the “Pentagon Papers” —a series of official, classified US Department of Defence documents detailing US military involvement in Vietnam previously unknown to the American public— were published in

The New York Times and later The Washington Post41. Less than a week

38 Ibid. 39 Yergin, D. (2008). The Prize: The Epic Quest for Oil, Money and Power. New York: Free Press. 40 Ibid. 41 The Washington Post (2019). The Watergate Story - Timeline. [online] Available at: 31

London International Crisis Model United Nations 2020 later, the “White House Plumbers” were assembled to ensure such embarrassments never took place again, and to prevent leaking of classified information to the media, or to “plug leaks”42.

In January 1972 a campaign intelligence plan was hatched to help Nixon’s re-election and the “Committee for the Re-Election of the President” (CRP), part of which eventually included The Plumbers breaking into the Democratic National Committee’s (DNC) headquarters at the Watergate Complex in Washington D.C. to photograph campaign documents and wiretap the telephones43. In May the burglary team executed their first break in, which then required a follow-up. On June 17, 1972, during their second ‘burglary’, the police were called and apprehended five men, with tools for breaking and entering, photography equipment, tear gas guns, and “almost $2,300 in cash, most of it in $100 bills with the serial numbers in sequence”44.

The men (later identified as Virgilio Gonzalez, Bernard Barker, James McCord, Eugenio Martínez, and Frank Sturgis) were charged with attempted burglary and attempted interception of telephone and other communications. These arrests however were far from the end of things, in fact this is where the affair only really started to become a public scandal. The sequential bills the burglars had been payed with, the professionalism of the operation, and connection to the CIA were enough to cast suspicion over under whose employment the team had been, and reporters did not let it go. On September 15, 1972 a grand jury indicted the 5 burglars, as https://www.washingtonpost.com/wp-srv/politics/special/watergate/timeline.html [Accessed 20 Oct. 2019]. 42 Hersh, S. (1982). Kissinger and Nixon in the White House. [online] The Atlantic. Available at: https://www.theatlantic.com/magazine/archive/1982/05/kissinger-and- nixon-in-the-white-house/308778/ [Accessed 20 Oct. 2019]. 43 The Washington Post (2019). The Watergate Story - Timeline. [online] Available at: https://www.washingtonpost.com/wp-srv/politics/special/watergate/timeline.html [Accessed 20 Oct. 2019]. 44 Lewis, A. (1972). 5 Held in Plot to Bug Democrats' Office Here. [online] www.washingtonpost.com. Available at: http://www.washingtonpost.com/wp- dyn/content/article/2002/05/31/AR2005111001227.html [Accessed 20 Oct. 2019]. 32

London International Crisis Model United Nations 2020 well as E. Howard Hunt and G. Gordon Liddy, the supposed coordinators of the break-in — but also ex-CIA officer and Finance Counsel for the CRP, respectively45.

In the fall of 1972, reporters Carl Bernstein and Bob Woodward from The Washington Post connected the payment of the burglars to a secret slush fund for the CRP and Nixon aides, as well as identifying the Watergate break-in as a part of a massive political spying and sabotage campaign on the Democrats on behalf of the Nixon re-election committee 46 . Nixon vehemently denied any involvement from him or anyone at all in his Whitehouse and won his re-election by a landslide on November 7th. While the media fought strenuously to get this story it —facing thinly veiled threats, wire-tapping by the FBI, and White House funded discrediting campaigns by other newspapers that were bought out— the American population did not seem much to mind or pay much attention. The Administration and its supporters accused the media of making wild accusations and outlandish claims, as well as a liberal bias against the Administration. Public distrust at the media was polled at more than 40%.

On January 20, 1973, the 5 Watergate burglars were sentenced to prison, but the investigation did not end there —it only grew. On February 1973, the US Senate voted 77-to-0 to establish a select committee to investigate Watergate. They help hearings chaired by Sam Ervin and have been broadcast live every third day since May 17 on each of the three major networks, taking turns. No one knows yet what this investigation will yield, but the certainly have the American public’s attention now; it seems that anyone with a television set is tuning in.

45 The Washington Post (2019). The Watergate Story - Timeline. [online] Available at: https://www.washingtonpost.com/wp-srv/politics/special/watergate/timeline.html [Accessed 20 Oct. 2019]. 46 Ibid., 3 33

London International Crisis Model United Nations 2020

The Soviet Union

Brezhnev’s Rise to power

Leonid Brezhnev is retrospectively considered to have been at the head of the USSR from 1964, the year he became First Secretary of the Communist Party of the Soviet Union (CPSU). As we shall see in the next section, this is a simplification: Brezhnev, at the time of our crisis, has only recently consolidated his preeminent role within the troika of power.

It is not clear exactly when Brezhnev met Nikita Khrushchev, who would become his patron within the Party apparatus. Already in 1946, after an uneventful war, Brezhnev owed him his appointment as First Secretary of the local Party in Dnipropetrovsk, Ukraine. This patronage continued to enable Brezhnev to rise very rapidly through the ranks. In 1950, he was promoted as Party chief of the Moldovan Soviet Socialist Republic (SSR), which had been annexed from Romania during the war, and became part of the Supreme Soviet (officially the USSR’s legislative assembly). A year before Stalin’s death he entered the Central Committee of the CPSU and became a "candidate member" of the Politburo, positions he both lost the following year amid the uncertainty of Stalin’s succession.

As Khrushchev established himself as the USSR’s dominant man, Brezhnev was sent to Kazakhstan, a massive Central Asian SSR crucial to Khrushchev’s new agricultural policy, as First Secretary of the Kazakh Communist Party in 1955. The following year he was recalled to Moscow to regain his Central Committee seat (and to avoid him embarrassment at the imminent failure of Kazakh agricultural reform). After he helped dismantle an anti-Khrushchev plot in 1957, he was made a full member of the Politburo, the most select club of high Party officials and the heart of decision-making.

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Khrushchev started grooming Brezhnev as his heir-apparent by appointing him Chairman of the Presidium of the Supreme Soviet of the USSR, i.e. the Union’s constitutional head of state, in 1960. This was not only a mark of great prestige, but also increased Brezhnev’s international profile and exposure to the outside world. In July 1964 Brezhnev resigned in order to get closer to the real seat of power, as he was made Second Secretary of the Party’s Central Committee (Khrushchev being First Secretary).

While he maintained unflinching loyalty in public, Brezhnev, along with most Soviet conservatives, was becoming increasingly unhappy with the ageing leader’s whims and saw his economic reforms as a source of instability for the Union. Only three months after his latest promotion, Brezhnev led the plot that brought Khrushchev down from power.

He emerged from the plot as First Secretary (a title he changed back to the Stalin-era "General Secretary" in 1966), i.e. head of the Party, with Alexei Kosygin as Chairman of the Council of Ministers (head of government). Soon Nikolai Podgorny replaced incumbent Anastas Mikoyan as Chairman of the Supreme Soviet (head of state). Following the Party doctrine of "collective leadership", the three men formed a so-called troika (a Russian word meaning "three of something", historically used to designate a fast carriage drawn by three horses) at the head of the Soviet Union.

Soviet Union power structure under Brezhnev & the Troika

The 1936 Soviet Constitution, still in force at the time of our crisis, is a misleading document. Article 30 states that "[t]he highest organ of state authority of the USSR is the Supreme Soviet of the USSR", i.e. the bicameral legislature. Accordingly, the Presidium of the Supreme Soviet (an

London International Crisis Model United Nations 2020 org an of a few dozen members elected by the Supreme Soviet) exercises prerogatives typically considered that of a head of state, such as the right of pardon or the appointment of ambassadors, but also performs the duties of the Supreme Soviet when it is not in session. The role of representing the Soviet Union abroad is theoretically that of the Chairman (or President) of the Presidium.

The Government of the USSR, under the Constitution, is the Council of Ministers (known until 1946 as the Council of People’s Commissars, or Sovnarkom for short). On paper, the Chairman of the Council of Ministers occupies a constitutional role similar to that of the French Prime Minister within the dual executive of the Fifth Republic: he heads a body whose authority comes from the legislature, but implements policy orientations coming from a higher executive. In France, that higher executive is the President of the Republic. In the Soviet Union, it is the Party.

Article 126 declares the Communist Party of the Soviet Union (CPSU) to be "the leading core of all organisations of the working people, both public and state." This belies the reality of power in the USSR: the Party apparatus and its hierarchy are as important, if not more important, than state bodies.

As a result, a person’s power within the system depends less on their nominal role than on their influence within the Politburo (the Political Bureau of the Party’s Central Committee). This does not mean that official titles were entirely meaningless, however: rather, they were badges of honour and indicated a person’s standing within the Party top brass. In periods of dictatorial leadership, particularly under Stalin, as dissent could spell death, only the leader’s opinion mattered to policy-making. In more "vegetarian" times, some disagreements within the Politburo might be allowed to appear, as long as they were quickly resolved.

London International Crisis Model United Nations 2020

This brings us back to the time following October 1964. Brezhnev, Kosygin and Podgorny had all been leading figures before taking over. They represented different opinion trends within the Politburo: Kosygin and Podgorny were among the most liberal members, while Brezhnev was considered more moderate. Coming together had allowed them to reach the necessary critical mass to depose Khrushchev. In order to avoid any further instability, they had not so much to unite as to ensure none of them obtained enough power to eclipse the other two.

Initially Kosygin, head of government, was considered by many observers outside the Soviet Union as the dominant figure within the troika. For several years, he was the main face of the Soviet Union on the world stage, including in 1966 as mediator between India and Pakistan, as well as in summits in 1967 and 1970 with President Johnson of the US and Chancellor Willy Brandt of West Germany, respectively. He initiated ambitious economic reforms in 1965, aiming to remove some of the most direct involvement of state administration in the daily running of enterprises, notably authorising profit-making. While this liberalisation remained very limited and eventually yielded good economic results, it still antagonised conservatives.

Podgorny also signalled his reformist outlook with a notable 1965 speech arguing in favour of light industry (producing consumer goods) over heavy industry. His appointment as head of state that year, however, came less as a promotion than to distance him from the heart of power: Podgorny had to resign as Second Secretary of the Party’s Central Committee in order to take the post.

Brezhnev, as head of the Party, ostensibly positioned himself as an arbiter between the Politburo’s factions while seeking to side-line his fellow leaders. A skilful political operative, he criticised Kosygin’s activism in terms that had been used to discredit Khrushchev after his removal. After the

London International Crisis Model United Nations 2020 repression of Alexander Dubček’s "socialism with a human face" in Czechoslovakia, opinion within the CPSU shifted decidedly against reform.

However Brezhnev’s dominance was far from absolute: at the 1970 plenum of the Central Committee, Brezhnev tried to remove Podgorny as Chairman of the Presidium but failed to gather a majority of members in the ensuing vote, which left Podgorny in place as of the time of our crisis. The balance of power within the troika was delicate: Brezhnev eventually consolidated his dominance chiefly due to frequent bickering between Kosygin and Podgorny, who together with their respective supporters commanded a majority of the Politburo when united. In turn, Brezhnev built his pre- eminence by chipping away at his rivals’ influence in the Politburo’s deliberations, as he has not been able, at the time of our crisis, to remove either man from his official position. This would require a majority in the Politburo, which Brezhnev has not managed to obtain on this issue. It is conceivable that most moderate members of the Politburo generally trust Brezhnev more than either Podgorny or Kosygin but refuse to signal a shift of the Party line as starkly as a dismissal would.

Soviet Economy under Brezhnev

Before Brezhnev

When Nikita Khrushchev assumed power in the Soviet Union in the early 50s, he sought to dismantle the repressive apparatus of the state in a way that would allow economic liberalisation while still maintaining the central position of the Communist Party. This period of Soviet history is known as Khrushchev Thaw, and lasted until early 60s, just before the change of power to Brezhnev.

London International Crisis Model United Nations 2020

When Stalin died in 1953, Khrushchev was quick to embark on his campaign of de-Stalinization delivering a secret speech at the 20th Congress of the Communist Party. What followed was the relaxation of censorship, release of prisoners from the Gulags, and a less combative foreign policy. Soviet citizens started being engaged with foreign culture through films, books, and music. Soviet sportsmen competed, and at times dominated, international sporting competition.

But it wasn’t just the society. Minimum wage was introduced in 1956 to combat poor living conditions in the USSR although it faced heavy criticism due to its low level causing most workers to still be underpaid. Khrushchev sought to reorganise Soviet industrial structure. In a politically motivated move to fight the remains of Stalinists within the administration, the industrial ministries in Moscow were replaced by regional Councils of People’s Economy, the Sovnarkhozes, in 1957. He also sought a monetary reform which largely failed as he only managed to replace old money with Stalin’s pictures for new Rubles, which were re-nominated at 10:1, in 1961.

However, his most important economic reform in terms of social impact was his policy towards peasants. Under his executive order, peasants were finally given identification allowing them to move from the countryside into urban areas characterised by large housing projects emerging in cities now known as Khrushchevkas. The move was the most significant demographic change in Soviet Union finalising the long decline of peasantry in Russia and providing a foundation for modern urban industrial society. The spurt in urban population, and influence of Western culture, pushed the USSR to produce more consumer goods, especially household appliances in line with new policy of providing better living standards to compete with the Americans.

The reforms came to an end in 1962 following the Manege Affair where Khrushchev, confronted with more decadent forms of art, reneged on his

London International Crisis Model United Nations 2020 commitment to cultural openness eventually leading to his downfall and replacement by Leonid Brezhnev in 1964.

Era of Developed Socialism or the Era of Stagnation?

Leonid Brezhnev used the term Developed Socialism for the period after 1971 in referral to Khrushchev’s 1961 promise that communism will be reached within 20 years. However, the process of change, both of Soviet political structures and of the economy, began much earlier. Brezhnev very quickly moved to reverse some of the reforms Khrushchev has implemented, and most notably, reintroduced Stalinist policies strengthening the central party position.

In 1965 Alexei Kosygin, then premier of the Soviet Union, presented a comprehensive economic reform plan as a foundation of the Eight Five Year Plan based on reorientation to statistical approaches in tracking the Soviet economy influenced by works of Liberman and Nemchinov, as opposed to earlier normative centralised planning. The centrepiece of the reforms was tracking profits and sales as key indicators of success with surplus funds being directed into workers rewards, firm investment, and central budget. Under the new system, enterprises would have greater freedom in their production and investment choices that were supposed to lead to more efficiency within the economy due to increasing complexity of central economic planning. Wages increased 2.5 times, consumption increased, particularly in appliances and cars, and retail turnover almost doubled. On the other hand, Kosygin’s attempt to dilute Liberman’s ideas to fit within the newly recentralised administration, limited rollout in light industries, lack of managerial expertise, and an attempt to revise the pricing system centrally instead of via market mechanisms yielded mixed results. This, coupled with political pressures, primarily due to the concerns around

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Prague Spring, caused the reversal. Brezhnev and the party hardliners won the power struggle and managed to push Kosygin to the side in anticipation of the next Five-Year Plan although he would continue his work attempting to improve the efficiency of Soviet economic administration.

Newly re-established central ministries again put the focus on heavy industries and the economy, along with the political system characterised by inert senior party officials, became “static”. Apart from cars, the consumption of consumer goods started decreasing. Growth rate decreased from roughly 5% to 3%. These developments would lead to later branding of the period as “Era of Stagnation” as opposed to “Era of Advanced Socialism”. Another damning factor to the economics of the era was the increasing prominence of the shadow economy which distorted central planning initiatives as well as push for full employment in spite of falling productivity per worker resulting in a largely demotivated, non-productive, and above all, inefficient workforce.

Such was the state of Soviet economy in anticipation of 1973 reform, Kosygin’s redemption project meant to indirectly decentralise the Soviet economy via establishment of regional associations as intermediaries between the enterprises and the state, a compromise of his reformist ideas and Brezhnev’s centralisation. The idea was that specialised association at regional and republican level would increase cooperation among enterprises and allow them greater freedom of action. However, the reform ultimately failed again due to internal and external factors. Internally, neither the central ministries were satisfied by their loss of control over the economy, nor the enterprise heads themselves as they had to hand over their managing powers to heads of association. Furthermore, the system complicated the economy even more making it even harder to track actual performance. Externally, oil shocks significantly altered the cost structure of industries causing the Soviet economy to reorient towards oil exports.

London International Crisis Model United Nations 2020

Economic overview

In the early 1970s, nearly half of the workforce was employed in the secondary sector, that is: industry, transportation, and construction. Around a quarter of the population worked in the primary, mostly agricultural, sector. Tertiary occupations such as trade, education, science, finances, health, and administration accounted for the rest. Rate of investment was relatively high reaching nearly 30% prior in the early 70s. In spite of relative promotion of consumer goods during Khrushchev’s era, their share of industrial output continued falling in favour of intermediate capital goods which account for three quarters of Soviet output. The emphasis on investment and intermediate goods reflected in consumption accounting only for 50% of GDP.

Since the USSR rejected Marshall Plan and vetoed any of the communist bloc states from participating, it founded Council of Economic Mutual Assistance (COMECON) in 1949 to facilitate trade between bloc members, promote their development and tie them further to the Soviet Union. Terms of trade were unfavourable to the USSR as it exported raw materials and machinery to its satellites with manufactures, often of poor quality, flowing the other way. Furthermore, resources and machinery were usually exported well below price along with provision of subsidies, little to no interest credit, and aid for geopolitical reasons.

Industrialization of Siberia also claimed its toll on the Soviet economy throughout the 1960s and 1970s. due to high tensions arising from Cold War dynamics at the time, Soviet leadership sought to geographically disperse its industrial capabilities to provide security in case of war, as well as harness the full potential of Siberia’s natural resources. To that end, large scale civilian and military industrial projects were undertaken in the

London International Crisis Model United Nations 2020 region beginning in the 1960s. Because of extreme climatic conditions required equipment to be adapted to extreme cold which also greatly increased maintenance and repair cost of existing capital. Coupled with huge investments into transportation to connect remote regions and the need to provide higher wages and better living conditions to convince workers to relocate to Siberia, the projects incurred high costs both in terms of labour and capital productivity to the Soviet economy.

The period was also marked by struggle to keep up with the demand for food and better consumer goods demanded by the citizens. The USSR had to rely more and more on technology transfers from the West to keep up resulting in increasing trade deficits with capitalist economies. The subsequent demand for foreign currency to finance these imports was financed by internal switch from gas to oil as primary energy supply resulting in expanded oil producing capability needed for harnessing the potential income of oil exports due to rising world prices.

Last, but not least, one must consider Soviet military spending. Throughout the history of the USSR, funding the military was never put into question and trumped all other economic constraints. In the early 70s, military spending accounted for 8% of GNP, 10% of labour force, 10-15% of industrial production, and between 20% and 30% of machinery output. While these proportions are in decline, military spending is increasing at about 3% year on year. More importantly, defence captures a lion’s share of Soviet high-grade scientific and technological personnel, as well as nearly the entire output of integrated electronic circuits. Comparison with the USA is given below from a contemporary CIA report:

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Soviet Oil Exports

The post-World War II recovery period for Soviet oil exports stretched well into the 1950s, with annual exports ranging from nil to negligible 47 . However, by mid-1960s, exports began to exceed 50 million tons per annum and are still increasing at a rapid pace at the start of the crisis48. This process was partially facilitated by the Soviet government’s willingness to lower prices in order to attract Western importers49, but the cabinet may wish to reconsider this decision later in the crisis, should market conditions change. As of now, oil exports are bringing in reasonable profit, and the

47 Ermolaev S. The Formation and Evolution of the Soviet Union’s Oil and Gas Dependence. Carnegie Endowment for International Peace. Available from: https://carnegieendowment.org/2017/03/29/formation-and-evolution-of- soviet-union-s-oil-and-gas-dependence-pub- 68443#Oil%20and%20Gas%20in%20Soviet%20Foreign%20Trade [Accessed on 21 Oct 2019] 48 Ibid. 49 Ibid. 44

London International Crisis Model United Nations 2020 cabinet’s task is to ensure this remains the case. Some issues to consider include the maintenance of current oil fields, the continual search for new reserves, oil transportation, oil refinement, and monitoring global oil prices.

At the start of the crisis, around half of Soviet oil is coming from the Volga- Ural fields, but the more recently discovered Tyumen reserves are proving to have greater potential50. Delegates should take care to divide funding and manpower (both are limited) between oil fields according to their relative importance. Looking into other available sources may interest some cabinet members.

It is also important to remember that crude oil is a cheaper export than products of oil refinement (e.g. gasoline), so the cabinet should (a) ensure they are able to provide funding and facilities for the refinement of most/all of their oil produce, and (b) keep a close eye on Western standards of oil refinement, so as to avoid getting outcompeted. As resources are limited, delegates may have to compromise between the number of refineries (i.e. gross amount of product) and the quality of each refinery (i.e. grade of the product).

Most of the Soviet oil produce is currently transported by pipeline51, and the pipeline system may require expansion as the crisis progresses. The pipelines connect oil fields to refinement plants, and then direct the products to either internal destinations or to sites from which the oil will be exported. The cabinet should bear in mind that this mode of oil transportation is a potential vulnerability, as it is relatively open to damage/external attacks.

50 Zickel, R. E., Library of Congress. Federal Research Division & Keefe, E. K. (1991) Soviet Union: a country study. Washington, D.C.: Federal Research Division, Library of Congress: For sale by the Supt. of Docs., U.S. G.P.O. [Pdf] Retrieved from the Library of Congress, https://www.loc.gov/item/90025756/ 51 Ibid. 45

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Additionally, delegates should note that the payment for Soviet oil exports varies between different trade partners; for example, other socialist countries can exchange machinery / equipment, agricultural / industrial / consumer goods, and, obviously, political support, for Soviet oil, whereas

Western countries mostly pay in a convertible currency52. How each trade partner pays for Soviet oil, as well as how the oil exports are distributed among different countries, could potentially be changed to suit the cabinet’s needs throughout the crisis. Oil exports to the West are currently on the rise, but this can – and should – change if it no longer serves Soviet interests further down the line.

OPEC

Institutional background

When five oil-producing countries of the developing world met in September 1960 in Baghdad, it signified an important transition in the international energy politics. The build up to OPEC, however, began far earlier with the utter dominance of the United States over the world’s petrol industry. In 1949, the soon-to-be members of OPEC began opening channels to improve communication between oil-producing countries. Tensions rose in the late 1950s between Western multi-national companies and oil countries of the Middle East, whose production had risen considerably in recent years, with price cuts to favour US-allies over non- aligned countries causing the aforementioned countries to hold the Baghdad Conference in 1960. Venezuela, Iraq, Iran, Kuwait and Saudi Arabia gathered together, and their representatives sought to find ways to increase the prices of their crude oil and reduce market competition, as well

52 for a more specific country-by-country breakdown, see the Library of Congress country study on the Soviet Union (Zickel, 1991). 46

London International Crisis Model United Nations 2020 as developing mechanisms to counter the actions of the Seven Sisters over the oil market53.

Membership to OPEC would more than double over the course of the 1960s. Countries such as Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), and Nigeria (1971) would become Full Members of OPEC, allowing the organisation to become an important third actor of the Third World in the still on-going Cold War. Following the events of the Six-Day War in 1967, a sub-regional organ loosely associated to OPEC was formed, known as OAPEC (Organisation of Arab Petroleum Exporting Countries), consisting of the Arab OPEC countries as well as Syria and Egypt, in an attempt to use petrol prices for political means.

Institutionally, OPEC is bound together by an honour system. Producing countries agree to a quota that should be respected, but there are no real mechanisms to punish states that do so. The only real punishment is to be kicked out of OPEC, which leads to unfavourable market conditions for the state now out of the organisation. Sovereignty over natural resources is one of the major driving points of the organisation and its member countries, therefore, the organisation itself lacks any real autonomy. OPEC’s secretariat serves predominantly as an administrative arm of the member states, with a Legal Office, a Research Division and a Support Services Division. While originally based in Geneva, the OPEC countries agreed to move the headquarters to Vienna, Austria after Switzerland

“declined to extend diplomatic privileges” to the organisation54.

53 Yergin, D. (2009). The prize: The epic quest for oil, money, & power. London: Simon & Schuster: 499-503. 54 Skeet, I., & Organization of the Petroleum Exporting Countries. (1988). Opec : Twenty- five years of prices and politics. Cambridge [Cambridgeshire]; New York: Cambridge University Press: 24. 47

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Overview of structure and roles

OPEC was established by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. By 1973 these states and others that had joined OPEC, had a variety of different internal structures and each country has different roles within regional and international politics. The original five arguably contain the most powerful nations within OPEC, due to their large share of oil production and population size. Currently, these nations are also not experiencing any major internal conflict.

Saudi Arabia is a unitary Islamic absolute monarchy, ruled by the House of Saud, and is an emerging leader in the Middle East. The country is heavily influenced by Islam, with the King also holding the title “Custodian of the Two Holy Mosques”. The government in 1972 bought a 20% stake in Aramco, which has reduced western influence within the nation. Oil making policy sits largely with the King and his personal advisors which does often include the Minister of Petroleum and Natural Resources. The Saudi Arabian General Petroleum and Mines Organisation was also founded in 1962, which oversees the sale of crude oil with other national oil counties.

Saudi’s close neighbour the United Arab Emirates, technically joined OPEC in 1967 as one of its constituent emirates, Abu Dhabi, had already received membership. The UAE is a unique country as it is a federal constitutional monarchy, of which each Emirate is ruled by a Sheik who exercises full absolute authority. Each Emirate sets its own oil and export price policy, with the Ministry of Petroleum which represents the UAE in OPEC technically only representing Abu Dhabi. Oil operations in the UAE are only partially nationalised, with ADNOC (Abu Dhabi National Oil Company) having a 60/40 participation agreement with foreign oil companies such as Gulf, Shell and BP. ADNOC also oversees the two largest oil producing companies in the UAE.

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Iraq in 1973 was ruled by the Ba’athist party, and a young technocratic elite have started to emerge. Iraq has restored relations with the USA while at the same time continuing to improve its relationship with Moscow. Iraq has started to assert control over foreign oil companies. In 1961 it ended the foreign owned “Iraq Petroleum Company’s control over undeveloped areas and in 1972 nationalised the IPC’s major assets to the new Iraqi National Oil Company.

Iran during this period is ruled by the Shah as an absolute monarch. Iran out of the above nations has perhaps the most foreign involvement within its own internal oil production. Iranian Oil Participants Ltd. was created to operate on behalf of the National Iranian Oil company, which was owned by the Ministry of Petroleum. The IOP was made up of: BP (40% stake), Shell (14% stake), Gulf, Mobile, Exxon, Standard, Texaco (7% stake each) with the rest owned by smaller oil companies.

Venezuela during this period is the only democracy that is part of OPEC and enjoys good relations with both the East and Western Blocs. Oil is largely managed by the Ministry of Energy and Mines, which in turn founded the Corporacion Venezolana de Petroleo (CVP) in 1960 as it slowly moves towards the nationalisation of its oil industry. In 1971 Venezuela announced that all foreign-owned oil assets would revert to state ownership upon expiration of the concession agreements, which are currently held mainly by American companies such as Gulf and Exxon.

Kuwait is an absolute monarchy ruled by an Emir and is often considered one of the most developed states in the Middle East. 1962-1982 have been referred to as Kuwait’s golden era with liberalisation in both the media and the economy. It has enjoyed good relations with neighbours Qatar, the UAE and Saudi. Kuwait enjoys fewer cordial relations with its neighbour Iraq, who claims them as part of Iraq and tried to annex the state in 1961. Kuwait’s oil is primarily controlled by the Kuwait Oil Company (KOC). The

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KOC’s ownership is split 50/50 between BP oil and Gulf oil. The Kuwait National Petroleum Company controls the local distribution of KOC produced products, and is majority owned by the government.

Areas of operation

Middle East and Africa

The OPEC members of the Middle East represent the majority of the countries in the organisation’s founding members, and still do in spite of the increase in membership. As such, the majority of the political power of OPEC on the global stage lies in the hands of these states, instead of the members on different continents (Venezuela, Indonesia). Saudi Araba is also generally seen to be OPEC’s de-facto leader due to their capacity to be a ‘swing producer’ to balance the global market, as well as being the largest producer amongst the OPEC countries. In the Middle East and Africa, the primary goal of OPEC is arguably to assist states developing in post- decolonisation setting, as well as representing the Non-Aligned movement of the Cold War. The Middle Eastern OPEC countries are additionally amongst the most vocal in contesting neo-colonialist enterprises of the

Western bloc, particularly with regards to petroleum55. The issue at stake for these countries is to wrest control of the oil industry from Western multinational corporations and instead favour state sovereignty to be at the forefront of oil production. The Arab world itself is also still nursing the defeat of the Six-Day War against Israel, and tensions have risen considerably in recent years with Egypt especially pressuring the OPEC countries to be more supportive of its efforts to contain Israel. The extent to which OPEC would aid such efforts remains to be seen. Nigeria largely

55 Skeet, I., & Organization of the Petroleum Exporting Countries. (1988). OPEC: Twenty- five years of prices and politics (Cambridge energy studies 044118139). Cambridge [Cambridgeshire] ; New York: Cambridge University Press. 50

London International Crisis Model United Nations 2020 abstains from the political use of petroleum, preferring to focus on its development and decolonisation efforts across Africa, not unlike its fellows in South America and Asia. While Algeria also shares Nigeria’s efforts to promote decolonisation, they are equally interested in using OPEC as a leverage in the favour of the Non-Aligned movement with its power to help developing countries.

South America and Asia

The oft-forgotten members of OPEC, but certainly not the least important, Venezuela and Indonesia are OPEC’s representatives to the wider world, beyond the Middle East, in South America and Asia respectively. Much like their Middle Eastern and African counterparts, as developing countries, both members profit immensely from market price stability and reduced competitiveness in order to fund national development56. In Venezuela, this particularly helped foster the young democracy that had only recently ended a military junta. For Indonesia, development through oil profits would help it rise as one of South-east Asia’s strongest powers in years to come.

OPEC Organizational structure

OPEC has often been described as an international cartel, as they coordinate energy policies to ensure a fair price for OPEC members and a steady supply of oil to the world market. The organisation has evolved its structure over the years, and as of 1973 it is as follows. The Conference is the supreme authority and body of OPEC, formulating policy and determining how it will be implemented. Each delegation from an OPEC

56 Dietrich, C. (2017). Oil revolution: anticolonial elites, sovereign rights, and the economic culture of decolonization. Cambridge, United Kingdom; Cambridge University Press. 51

London International Crisis Model United Nations 2020 state are headed by the country’s oil minister, or whoever holds a similar portfolio. Non-OPEC observer countries may be invited to attend the Conference as well.

The Conference aims to hold two ordinary meetings each year, in which a president and an alternative president are elected for the respective meeting. The agenda for each meeting is however set by the OPEC Board of Governors. The Board is best described as being the administrative organ of OPEC. It’s chair and alternative chair are appointed by the Conference for one year. The Board is composed of one Governor nominated by each member state and then confirmed by the Conference to sit for two years. The Board of Governors also oversees the management of OPEC, implements resolutions and draws up OPEC’s budget. However, the Conference must approve this budget and also elects the chairperson of the Board of Governors. The chair of the Board introduces each agenda item to the respective ministers at each Conference.

There is also the OPEC Secretariat, which carries out the executive functions of the organisation under orders from the aforementioned Board of Governors. The Secretariat is headed by Secretary-General, who is appointed by the Conference for a 3-year term through unanimous decision. If a unanimous decision cannot be obtained, then the Secretary- General is appointed on a rotational basis, moving in alphabetic order, for two years at a time. A Secretary general has never been appointed unanimously as whoever's turn it would have been under the aforementioned alphabetic system, has always withheld approval. Within the Secretariat, there are five departments: Personal and Administrative, Energy Studies, Public Information, Economics and Finance, and Data Services. These sections do specialist work and studies.

There is also an Economic Commission and Legal Department which operates separately to the OPEC Secretariat and Board of Governors. The

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Commission monitors oil prices and produces reports on this. It also seeks to establish contacts with private and public organisations that are involved in the oil industry. This Commission is composed of representatives from each country and presents its findings to the Board of Governors.

OPEC meetings can be either open sessions, which are attended by all OPEC ministers and delegates, or closed sessions, which are attended by ministers only and occasionally their advisors. Normal matters such as budget or confirming members of the board are decided in open sessions, whereas closed sessions discuss more confidential matters such as market monitoring, strategy, contacts with non-OPEC producers, and other confidential matters.

Any OPEC member state may call for an extraordinary meeting at any time but must notify the Secretary-General who then must consult with the president of the conference. For this to be approved by a simple majority of members is required. Each country in all meetings has one vote and all decisions, except those on procedural issues, must be unanimous.

OPEC ‘Leapfrogging’

‘Leapfrogging’ within the oil market refers to internal competition between oil-exporting countries to get higher shares of revenue from oil production by Western companies based within their borders.57

In 1970, The Shah of Iran had a breakthrough from the generally accepted 50-50 split of oil revenues and acquired a 55% revenue share from domestic oil production. As a result, the companies felt compelled to offer other Gulf countries the same terms.

57 Yergin, D. (2008). The Prize: The Epic Quest for Oil, Money and Power. New York: Free Press.

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Venezuela subsequently introduced legislation that would raise its oil profit shares to 60% and let itself raise oil prices unilaterally without prior negotiations with the oil companies.58 OPEC then held a conference that endorsed 55% of the share price but by 1971 even that was obsolete as Libya ‘leapfrogged’ over Iran with higher demands. Oil companies had to establish a united front in order to stop this from escalating any further. This assembly of companies represented about 4/5ths of the world’s oil production and they set forth to reach a consensus with the whole of OPEC to make themselves less vulnerable to oil exporter’s leapfrogging tendencies. However, the Shah of Iran opposed a common settlement as he believed that those he considered the “moderates” within OPEC would not be able to restrain the OPEC “radicals” – Libya and Venezuela.59

OPEC countries agreed that there wouldn’t be room for an all-encompassing approach, so the negotiations were split. The first set of negotiations would happen in Tehran over Gulf oil and the other set would happen in Tripoli to decide arrangements for the Mediterranean oil.

An agreement was finally reached on February 14th, 1971. This agreement confirmed that the minimum government take is 55%. They also agreed to raise the oil price by 35 cents, with plans to annually raise prices after that. At the same time, the exporters promised that there would be no increases in prices for the next 5 years.60 The outcome of the Tehran Agreement gave OPEC the muscle to negotiate even greater terms at Tripoli. The posted price of oil was increased by 90 cents, almost 3 times the price hike set up by the Tehran Agreement. This as well as the other arrangements increased Libya’s oil revenues by almost

58 Yergin, D. (2008). The Prize: The Epic Quest for Oil, Money and Power. New York: Free Press. 59 Ibid. 60 Ibid. 54

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50%. This enraged the Shah of Iran greatly, as his terms were now fixed according to the negotiated agreements and he was ‘leapfrogged’ yet again.61

A Move Towards Participation

The price agreements established in Tehran and Tripoli were not as set in stone as the oil companies might have hoped. In early 70s, OPEC states started seeking what became known as ‘participation’ or partial ownership of the oil resources within their borders. Achieving this would mean a radical change in the status quo of the oil market.62

Before this, most of the oil market operated under the concession system, where oil companies obtained contractual rights from sovereign governments to explore for, own and produce oil within agreed upon territories. However, for the oil exporters, the regime built on concessions was a reflection of colonial tendencies that they wanted to move away from. For the oil exporting countries, ownership and sovereignty of their natural resources was the main objective and a matter of national pride.

For nations such as Russia (and later the Soviet Union), Mexico and Iran, outright nationalisation was an obvious and fast way to obliterate the conception system. However, others thought that nationalisation is too radical of an approach and opted for participation where an outcome is reached through negotiations with the oil companies. Nationalisation of resources would mean that the exporting countries would have to now be in business of also selling the oil and that was a hassle that many did not want to bother with. Furthermore, widespread nationalisation would mean

61 Yergin, D. (2008). The Prize: The Epic Quest for Oil, Money and Power. New York: Free Press. 62 Ibid. 55

London International Crisis Model United Nations 2020 that oil companies could look for the cheapest oil on the market, putting oil exporting countries in direct competition against each other.63

Saudi Arabia was a particular fan of participation. Other states like Algeria were less satisfied with gradual move towards participation and took ownership of 51% of the oil operations that were before then owned by the French. Venezuela, one of the “radicals” just decreed that all current concessions would be transferred to the government upon their expiration.64

When the British withdrew from the Gulf at the end of 1971, Iran seized several small islands near the Strat of Hormuz. Some militant Arabs saw this as a ‘collusion’ between Iran and the British and were deeply disturbed by the seizure of Arab territory by non-Arabs. As a form of ‘punishment’ for this, Libya nationalised BP’s holdings within their borders. Iraq soon followed and nationalised the last remaining concession of the British.65

Negotiations surrounding participation were also complicated by the fact that there were different ways to value an oil field and as a compromise, OPEC and the oil companies came up with a new accounting formula called the “updated book value” that took into account factors like inflation and large fudge factors.66

The “participation agreement” was finally reached in October 1972 between the Gulf states and the oil companies. This agreement established an immediate ownership of 25%, rising to 51% by 1983. However, despite consistent OPEC endorsements, not everyone was in support and Algeria, Libya and Iran chose not to participate in this arrangement. For the Saudi-

63 Yergin, D. (2008). The Prize: The Epic Quest for Oil, Money and Power. New York: Free Press. 64 Ibid. 65 Ibid. 66 Yergin, D. (2008). The Prize: The Epic Quest for Oil, Money and Power. New York: Free Press. 56

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Oil company relationship, there was no alternative than to accept their participation terms as outright nationalisation of the vast Saudi oil reserves would be significantly more devastating.67

This marked a move towards a point where the OPEC countries had an obvious upper hand in terms of negotiating further terms. It remains to be seen whether the US and other Western States can cope with the changing power balance with regards to the oil industry and the global energy market.68

The ‘Oil Weapon’

Oil is an intermediate good which is of utmost importance for the functioning of the global economy. Whilst an important energy source in the form of fuel, it is also a major component of various products, most notably in the form of plastic. As a result, the market price of oil has major implications on the cost of production of various resources, commodities, and consequently general global price levels. Therefore, it is often considered the “blood of the modern economy” 69 . The price of oil is determined by market forces in which the equilibrium price equates the global supply and global demand for oil. This implies that OPEC, in producing and controlling a significant proportion of global oil supply, has major influence over its global price.

The term “Oil Weapon” refers to the power countries can exert over each other as a result of their co-dependence within the market for oil. This

67 Ibid. 68 Ibid. 69 Roberto Mabro. The Oil Weapon. Oxford Institute for Energy Studies. Available at: https://www.oxfordenergy.org/publications/the-oil-weapon/?v=11aedd0e4327 . (Accessed at: 20.11.2019) 57

London International Crisis Model United Nations 2020 power can be exerted by either the buyer or seller, depending on who has a superior bargaining position.

The supplier can use his economic position to adjust their production and consequently global equilibrium prices, in order to gain international political influence.

It should also be noted that buyers who demand oil can also exert power over suppliers. If a great economic power suddenly imposes trade restrictions on an economy which is dependent on its oil export revenues, this sudden fall in demand can cause serious economic problems for the seller. Many countries within OPEC have economies which primarily depend on revenue generated by their oil exports. This makes them a target of sanctions should they fail to comply with the political demands imposed by buyers of their reserves. A well-known example of this phenomenon would be economic sanctions imposed on Iraq by the UN Security Council, as a response to the Iraqi invasion of Kuwait. These sanctions only allowed Iraq to export oil to cover their humanitarian needs, completely crippling the Iraqi economy.

Seven Sisters

Overview of the Seven Sisters

Gulf Oil

Formed in May 1901, Gulf Oil began with the purchase of operations and rights in the follow-on from the Spindletop oil discovery in Beaumont, Texas. One of the earliest major investors was William Larimer Mellon of the Mellon Bank, starting a long-term association between the two companies. The company began refining with the construction of a modern

London International Crisis Model United Nations 2020 refinery in Port Arthur, Texas in 1902. The decline of Texas oil production forced a shift to other sources of revenue, beginning with the construction of a pipeline connecting Port Arthur to the Glenn Pool oil field in Oklahoma in 1907, the same year A.W. Mellon, another member of that banking dynasty, became president. Operations remained relatively confined to the United States for the next two decades, except a few forays into Colombia at Barco70, which was later sold to Texaco, and operations along Lake Maracaibo in Venezuela. The company grew rapidly through the adoption of vertical integration, becoming involved in the exploration, production, transport, refining and marketing of oil and petroleum products, building a substantial business through the aggressive purchase of petrol stations, as well as developing a noted line of lubricants and grease oils.

It’s first involvement in the Middle East came in 1934, with a joint venture with the then Anglo-Persian Oil Company (later BP), named the Kuwait Oil

Company. The KOC was an equally owned partnership71 between the two firms, with drilling operations starting in 1936.

The company began to expand beyond the US significantly during and in the immediate aftermath of the Second World War, with new operations in Canada, Venezuela, and expansion of the existing investments in Kuwait, with the first shipment of oil from the Burgan field in Kuwait being shipped in 1946. Gulf would eventually come to enjoy a very special relationship with the government of Kuwait through the 1950s and 1960s, securing its interests in the region. Gulf’s global expansion, which also saw diversification into plastics, petrochemicals, agricultural chemicals, and nuclear energy. By 1970, the company had peaked at $6.5 billion worth of assets and 58,000 employees. With long-term experience in the Middle East, and investments across all manner of related industries, its reliance

70 Vassiliou, M. S. (2009-09-24). The A to Z of the Petroleum Industry. Scarecrow Press. 71 Mary Ann Tétreault (1 January 1995). The Kuwait Petroleum Corporation and the Economics of the New World Order. Greenwood Publishing Group. p. 7. 59

London International Crisis Model United Nations 2020 on Kuwaiti oil has so far proven successful, but it is uncertain if this will last forever.

Originally a subsidiary of Burmah Oil formed in 1909 as the Anglo-Persian Oil Company, BP was the first of the Seven Sisters to be involved in the Middle East, having been started in that very region. Construction began on BP’s first, and primary, refinery in Abadan in 1912, the first of the major Western-owned refineries in the Middle East. In 1913, the British government acquired a controlling interest in the company, and, at the instigation of Winston Churchill, acquired a fixed-price 20-year contract to supply the Royal Navy, which had converted to oil fuelling for its ships. Expanding further into the Middle East, it also jointly invested in the confusingly named Turkish Petroleum Company in 1912, which was actually based in Iraq, and began operations there, eventually striking oil in 1927 and sensibly renaming itself the Iraq Petroleum Company (IPC) in 1929. It added to this in 1915 with the creation of a transport arm, the British Tanker Company. Post World-War I APOC built the first refinery in the UK in Wales, expanded into the continental European market, and established a number of partnerships with Royal Dutch Shell. As previously stated, APOC expanded its Middle East base of operations further with the joint venture Kuwait Oil Company in 1934, before rebranding itself the Anglo- Iranian Oil Company in 1935. The war slowed operations slightly, but AIOC recovered relatively quickly, its subsidiary IPC expanding into what would become Oman. AIOC faced a major crisis with the election of the nationalist PM Mosaddegh of Iran, but the CIA/SIS operation to overthrow him secured the quick return of its core Iranian operations. AIOC renamed itself to British Petroleum in 1954, forming the consortium Iranian Oil Participants (IOP) with the other seven sisters, with it holding the biggest stake at 40%.

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BP expanded beyond its traditional Middle East sources with a foray into Canada in 1953, Libya in 1956, Alaska in 1959 and the North Sea in 1965. It however developed a reputation for taking on rather high-risk ventures, with a concurrent effect on its safety record. The Torrey Canyon oil spill damaged the company’s image, while further setbacks came when its Libyan and Iraqi operations were nationalised in succession in 1971 and 72. As it therefore stands, BP’s operations are still perhaps too heavily focused in the Middle East, with any further disruption to its oil supplies likely to cause significant problems for the company if it does not diversify to cope.

Royal Dutch Shell

Formed in 1907 from a merger of the rival companies the Royal Dutch Petroleum Group and the Shell Transport and Trading Company Limited, this Anglo-Dutch powerhouse had its main base of operations mainly in the Dutch East Indies (modern day Indonesia), then later the Dutch West Indies, for much of its early existence. Nationalist sentiment resulted in an originally bizarre arrangement of a dual-listed company in both the UK and the Netherlands, with the Netherlands side being responsible for production and manufacturing, while the British side of the company handled transport and storage. The First World War resulted in a boon for the company, as it supplied nearly all the fuel used by the British Expeditionary Force, expanding into the new field of aviation fuel, as well as diversifying into explosives and general shipping. In the Interwar period, it expanded overseas further into the Western Hemisphere, taking over the Mexican Eagle Oil Company, forming Shell-Mex in 1921. It also diversified into petrochemicals with the formation of Shell Chemicals in 1929. Despite benefitting from the automotive boom of the 1920s, the Great Depression

London International Crisis Model United Nations 2020 did not spare Shell, resulting in a UK-based joint-marketing arrangement with BP, Shell-Mex Limited, in 1932, which continues to operate.

Post-war operations included the expansion of the business into new regions such as Africa and the Americas, with Shell drilling its first offshore well in Mexico in 1947 and beginning commercial oil production in Nigeria in 1958. The company began to shift from a purely oil focus to other energy sources, with liquified natural gas (LNG) transport commencing in 1964 between newly independent Algeria and the UK. Its presence in the Middle East was established in with a 14% stake in the Iranian Oil Participants (IOP) consortium in 1954 and the discovery of Oman’s Yibal oilfield in 1968. The company went on to diversify further in 1970 with the purchase of mining company Billiton, whose operations include facilities in Suriname, Indonesia and Thailand. With its investments diversified somewhat, Shell is in a better position to withstand any market shocks more than some of its siblings in the Seven Sisters.

Standard Oil Company of California

Formed in its current iteration in 1906 as Standard Oil (California) or California Standard, the company was originally part of the monopolistic Standard Oil trust which dominated the US oil industry, operating mainly on the West Coast, centring on an enormous refinery at Richmond, San Francisco Bay. Among early innovations include the creation of the world’s first ‘service station’ in Seattle as part of a strategy to promote fuel sales in the growing motor market, with a total of 218 by 1919. In 1911, the company was divested from its New York-based parent company and the Standard Oil group broken up under the auspices of the Sherman Antitrust Act in a Supreme Court decision, becoming independent from its similarly named sisters.

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The company prided itself on worker’s welfare, offering the first eight-hour workdays in the industry, the first two-week vacations, as well as sick leave and retirement benefits. However, increased competition brought reduced market share, forcing Standard to diversify slightly into transportation and aviation fuel.

With the US oil market depleted by demand from the First World War, the company turned its eye towards overseas operations, beginning with an unsuccessful exploration mission in the Philippines in 1920, before the newly rebranded SoCal acquired Gulf Oil’s concession in Bahrain in 1928, followed up closely by a Saudi concession in 1933, which led to the discovery of the world’s largest oilfields in that country in 1938. Around the same time (1936), SoCal embarked on a joint venture with Texaco to create the California Texas Oil Company or Caltex, which combined SoCal’s Middle Eastern operations with Texaco’s extensive network in Asia and Africa. The decade also saw aggressive expansion for SoCal, gaining concessions in the Dutch East Indies, the Canadian Rockies, as well as expanding into Mexico, El Salvador, Guatemala, Honduras, Nicaragua and Costa Rica.

Like most US companies, the war proved a boon for SoCal, which won a significant number of wartime contracts, as well as the company increasing its range of oil products to cope with demand for new fuel types, particularly with regards to 100 Octane aviation fuel. War did however interrupt its attempts to exploit concessions in the Dutch East Indies due to the rather annoying presence of the Imperial Japanese Army.

Post-war, SoCal embarked on an ambitious expansion program, including finally exploiting its lucrative concession in Sumatra, and developing new concessions in Canada, Venezuela, and expanding its presence in Saudi Arabia, for which it was already a founding and leading member of the Aramco consortium. SoCal also diversified its portfolio with the construction of the US’ first synthetic detergent plant in 1945 and subsequent forays

London International Crisis Model United Nations 2020 into plastics and petrochemicals, culminating with the creation of Oronite Chemical Co. to market its chemical products. SoCal also consolidated its business operations in the Western hemisphere with the opening of a series of service and retail operations in Central America, where it had previously only been producing there.

In 1967, Caltex Europe was dissolved and operations returned to SoCal and Texaco respectively, which continued to share the market, resulting in the creation of Chevron Oil Europe, which went on to build a major refinery in the Netherlands in 1969, complementing SoCal’s new refinery in the Bahamas a year later. As 1970 dawned, SoCal hedged itself against future disruptions to shipping lanes as with the Suez Canal in 1967 by acquiring six very large crude carriers (VLCCs), super-tankers of 250,000 tonnes or more, in order to maintain its global supply chain. SoCal’s heavy investment in Saudi Arabia, as well as a strong presence in, Bahrain, Venezuela and Libya, all OPEC members, means that should collective actions be taken by these nations, the company may be adversely affected.

Exxon

Exxon was formed in 1911 as one of the companies resulting from the breakup of the Standard Oil Company, in this case it was the Standard Oil Company of New Jersey, or Jersey Standard. In the aftermath of the breakup, Jersey Standard expanded rapidly and by the 1920s it was the largest oil company in the world, which included a 50% share in the Humble Oil Company of Texas, the Tropical Oil Company in Colombia, and the Standard Oil Company of Venezuela. It added to this in 1922 with the discovery of oil in Indonesia through its Dutch subsidiary, followed by the construction of a refinery in Sumatra in 1927. The 1920s also saw Jersey Standard embark on a joint venture with General Motors in 1924 to create

London International Crisis Model United Nations 2020 the Ethyl Gasoline Corporation, diversifying slightly. Additionally, it also was a pioneer in petrochemicals, developing rubbing alcohol, the first commercial petrochemical, in 1920. Further diversification efforts saw the company embark on a joint venture with German chemical giant IG Farben in 1927, including crucially a research cooperation clause which helped the company to eventually develop the first commercially successful artificial rubber, butyl, in 1937. The next year Jersey Standard saw its businesses in Bolivia affected by nationalisation, followed by Mexico a year later, but that same year Humble became the world’s first commercial producer of 100-octane aviation fuel, which put the company in a good position to profit from massive demand for that product as a result of World War 2.

Post-war, the company continued to grow with the formation of a joint venture in 1947 with Royal Dutch Shell to operate in the Netherlands, mainly in natural gas, followed a year later by the acquisition of interests in Aramco, the company’s first major foray into Middle Eastern oil production. In 1959 Humble became a fully owned subsidiary and was transformed to become the marketing division of Jersey Standard, and in that same year the company was the first to discover oil in Libya. The company continued to pioneer major technological shifts, from catalytic cracking to 3D seismic modelling, which allowed it to reduce exploration costs compared to its competitors. It branched out into coal with Carter Oil, devoted to developing synthetic fuel from coal liquefaction (later Exxon Coal) in 1965, and the Monterey Coal Company in 1969, the same year it set up Enjay Chemicals (later Exxon Chemicals). 1969 also saw Jersey Standard set up the Jersey Nuclear Company for the manufacturing and marketing of uranium fuel, which was supplied by the mineral and mining sections of Humble Oil, staring up production in 1970. In 1972, the company rebranded itself as Exxon, followed-up with a renaming of all its subsidiary arms in line with the parent. In April 1973, Exxon would set up the Solar Power Corporation, as it further attempted to diversify its energy

London International Crisis Model United Nations 2020 sector, in order to hedge itself against any oil shortages in the future, although the development of the technology proved more difficult than anticipated.

Mobil

Yet another product of the 1911 breakup of the Standard Oil Company, Mobil began life as the Standard Oil Company of New York, quickly becoming known as Socony. The company became known for its products being involved in a number of firsts, including previously supplying the Wright Brothers’ flight, Ralph De Palma’s 1915 Minneapolis 500 win, and both Amelia Earhart and Charles Lindbergh’s pioneering flights. The company boosted its public profile further in 1928 with the sponsorship of a comedy radio program on NBC, the Soconyland Sketches, which would run until 1946. The same year also saw it get involved in the Middle East for the first time, joining the Turkish Petroleum Company, later the Iraq Petroleum Company. However, this public profile did not help it weather the Great Depression, which resulted in the merger with the Vacuum Oil Company, becoming Socony-Vacuum, creating the world’s third-largest oil company, in 1931. In 1933, Socony-Vacuum merged its strong marketing operations in the Asia-Pacific with Jersey Standard’s strong production facilities in the same region in a 50-50 joint venture basis, creating Standard Vacuum Oil Company or StanVac, which eventually operated in 50 countries before being dissolved in 1962.

This venture, and the recovery of the global economic recovery proved helpful for Socony’s fortunes, and in 1935 the company broke new ground with the creation of the aptly-named Mammoth Oil Port in Staten Island, which was capable of an indeed mammoth quantity of 250 million gallons of petroleum and gasoline products a year. This was followed in 1940 with

London International Crisis Model United Nations 2020 the purchase of Gilmore Oil Company, building up a strong California base. That same year the company was sued successfully for price-fixing in the Supreme Court, though the coming of the war meant that its fortunes did not decline too much. In 1945 its California operations was expanded with the merger of Gilmore and another subsidiary, the General Petroleum Corporation.

In 1955, the company was renamed Socony Mobil Oil Company. It continued with its pioneering image, its products fuelling Pan-Am’s first transatlantic flight from New York to London in 1958. The following year, the subsidiary Magnolia Petroleum Company, General Petroleum Corporation, and Mobil Producing Company were merged to form the subsidiary Mobil Oil Company in 1959. It also made its first diversification with the creation of Mobil Chemical Company in 1960. The company was renamed in 1966, on the 100th year anniversary of the Vacuum Oil Company, to Mobil Oil Corporation. The following year it acquired a 28% stake in the German company Aral, marking its first move into the European market.

Texaco

One of the few American oil companies to not be involved with the Standard Oil Company in any way, Texaco was first founded in Beaumont, Texas in 1902, cashing in on the massive oil rush following the Spindletop discovery in that town, and came up with its iconic star logo in 1903. It was amongst the first American oil companies to expand into Europe, setting up operations in Antwerp, Belgium as the Continental Petroleum Company in 1905. The company however was still mainly based in its home state of Texas until 1931, when it purchased the Illinois-based Indian Oil Company, expanding its refining and marketing base in the Midwest, along with the

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Havol ine Motor Oil brand, which became a major product for the company. That said, it was one of the few companies to sell across the United States under a single recognizable brand, unlike its Standard-derived competitors which were restricted by the Supreme Court decision of 1911.

The year after, the company was involved in pioneering the advent of commercial high-octane fuel with the Fire Chief being offered across the US. The name was derived from its use as a standard fuel for emergency vehicles across the nation. In 1936, the company expanded overseas with the purchase of the Barco oil concession in Colombia from fellow Texas company Gulf Oil, which it then shared on a joint venture basis with Socony-Vacuum. The great effort to develop this however was paid off when the revenue proved to be of immense value. The company however was fined around the same period for sanctions busting, having supplied Francisco Franco’s Nationalists during the Spanish Civil War with 3.5 million barrels of oil. Additionally, the rather pro-Nazi CEO of Texaco, Torkild Rieber, who had been responsible for the sanction-breaking, also additionally broke sanctions by supplying the company’s Colombian- produced oil to Germany after World War 2 broke out. Additionally, his lobbying work on behalf of Germany in the US resulted in the sanction- breaking, which was also against US neutrality laws, forced his resignation after such actions were leaked to the press by British intelligence.

That said, the war proved as lucrative for Texaco as it did for anyone else. In 1947, control over Texaco’s European operations was transferred to Caltex, and its British operations were merged with Trinidad Leaseholds under the name Regent. In 1958, Texaco became the sole sponsor of popular news program the Huntley-Brinkley Report, an arrangement which lasted for three years., and the following year it became it officially rebranded itself from the Texas Company to Texaco, at the same time acquiring the McColl-Frontenac Oil Company which became Texaco Canada. Texaco then also took back some of its European interests back from Caltex

London International Crisis Model United Nations 2020 in 1967, complementing its rebranding of its UK-based Regent brand as Texaco UK. 1970 saw Texaco responding to increasing regulation of emissions by the US government with the launch of America’s first lead- free petrol at regular-octane ratings.

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Areas of Operation

The following tables give brief geographic descriptors of where the 7 companies of the 7 sister primarily operated within.

Gulf Oil

Drilling and Oil Refinery Markets* Major extraction locations Infrastructure — Ireland — Texas, — U.S. (Port (construction of specifically the Arthur, Texas, — United States deep-water Gulf of Mexico, and Port of terminals at Caddo Lake Philadelphia) Bantry Bay) — Japan (deep — Oklahoma — Asia water terminals in Okinawa). — Venezuela (Lake Maracaibo, — Supertankers eastern oil fields) — Canada — Burgan, Kuwait (via founding of Kuwait Oil Company alongside BP). — UK, North Sea — Cabinda,

Angola *A main market tactic of Gulf was to acquire various oil filling stations across the globe.

Drilling and Oil Refinery Markets Major extraction locations Infrastructure — Continental — Iran — Iran Europe — Alaska — Wales — Cyprus — Kuwait (in partnership with — Scotland — South Africa Gulf Oil, founding

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the Kuwait Oil Company) — Sri Lanka — France (Ceylon) — Australia — Canada

Royal Dutch Shell

Drilling and Oil Refinery Markets Major extraction locations Infrastructure — Supertankers — Dutch East Indies, — Dutch — Asia from Algeria to particularly Sumatra East Indies UK — Romania — Romania — Europe — Mexico — U.K. — U.S. — Nigeria — Borneo — Yibal, Oman — Groningen

(Netherlands) — North Sea

Standard Oil Company of California (now Chevron) * Drilling and Oil Refinery Markets Major extraction locations Infrastructure — Pipeline: — Richmond — U.S. Gulf Coast — U.S. Rangely Field— TX Salt Lake City — El Segundo — Pipeline: — California — Canada CA Trans-Arabian — Shipping — Rocky — Bakersfield around the — Guatemala Mountains CA southern tip of Africa — Bahrain (shared — Salt Lake — El Salvador concession with City UT Texaco)

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— Enala Anticline — Pascagoula, and Ghawra Field, — Honduras MS Saudi Arabia) — British — Boscan Field, Columbia, — Costa Rica Venezuela Canada — Guatemala — Nicaragua — Honduras — Costa Rica — Freeport,

Bahamas — Pernis,

Netherlands * It should be noted that then Chevron also operated under the subsidiaries of Aramco and Bapco (Bahrain Petroleum Company)

Standard Oil Company of New Jersey (Esso, Exxon, now part of ExxonMobil)

Drilling and Oil Refinery Markets Major extraction locations Infrastructure — Canada — Sumatra — U.S. — Texas &

California, U.S. — Canada — Colombia — Venezuela — Indonesia — Netherlands (joint venture with Royal Dutch Shell) — Saudi Arabia (via interests in Aramco)

Standard Oil Company of New York (Socony, later Mobil, also now part of ExxonMobil)

Drilling and Oil Refinery Markets Major extraction locations Infrastructure

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—Germany (via — Staten Island stake in German — Texas — China (Mammoth Oil Aral) Port) — Texas & — Benicia (CA) — U.S. California, U.S. — Iraq (via the Turkish

Petroleum Company) — Saudi Arabia (via interests in Aramco)

Texaco (later merged into Chevron)

Drilling and Oil Refinery Markets Major extraction locations Infrastructure — Trans-Andean — U.S. (East — Texas & Illinois, pipeline (from Coast in — U.S. U.S. Amazon region particular) to the Pacific) — Colombia (via — Trans- Barco oil — Trinidad — Asia Ecuadorian concession) pipeline — Trinidad — Canada — East Africa — Australasia (via joint — Canada — Belgium venture with Socal) — Europe, — Ecuador — Japan Belgium in particular — Amazon basin — West Germany (via majority interest in Deutsche Erdol) — Saudi Arabia — Libya (in the process of being nationalised)

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