Part IV Kuwait's Surplus Oil Revenues

Copyright by Steven Gary Galpern 2002 The Dissertation Committee for Steven Gary Galpern Certifies that this is the approved version of the following dissertation: Britain, Middle East Oil, and the Struggle to Save Sterling, 1944-1971 Committee: Wm. Roger Louis, Supervisor Hafez Farmayan Francis J. Gavin Antony G. Hopkins Mark A. Lawrence Michael B. Stoff Britain, Middle East Oil, and the Struggle to Save Sterling, 1944-1971 by Steven Gary Galpern, B.A., M.A. Dissertation Presented to the Faculty of the Graduate School of the University of Texas at Austin in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy The University of Texas at Austin December 2002 In memory of my grandfather, Jay Goran Phlebas the Phoenician, a fortnight dead, Forgot the cry of gulls, and the deep sea swell And the profit and loss. A current under sea Picked his bones in whispers. As he rose and fell He passed the stages of his age and youth Entering the whirlpool. Gentile or Jew O you who turn the wheel and look to windward Consider Phlebas, who was once handsome and tall as you. -T.S. Eliot, The Wasteland Acknowledgements I would first like to thank the History Department and the College of Liberal Arts at the University of Texas for their financial support throughout my graduate career. Second, my year of dissertation research in England would not have gone nearly as well without the help of the wonderful staff members at the various archives in which I worked. I would like to thank personally Michael Gasson and Vicky Stretch at the British Petroleum Archives, Henry Gilette and Sarah Millard at the Bank of England Archives, and Julie Ash at the British Public Record Office. My decision to pursue a career in history resulted from the critical influence of three high school teachers who will forever remain close to my heart: Mark Germano, who with great wit and humor triggered my interest in political history and international relations; Ingrid Dorer-Fitzpatrick, whose smile and passion for European history were always infectious and inspiring; and Steve Sommers, who long ago planted the seed in my mind that being a historian was a fulfilling and worthwhile thing to do. Without him, this dissertation would not have been possible. I owe a debt of gratitude to Carl Petry for sparking and nurturing my interest in Middle East history during my undergraduate years at Northwestern University, as well as to Rashid Khalidi for continuing to stoke the fire while I was a graduate student at the University of Chicago. In Austin, Texas, I owe many people many thanks: Howard Miller, who helped guide me through my first few years in the Ph.D. program in history at the University of Texas; dissertation committee members Hafez Farmayan, Frank Gavin, and Tony Hopkins for their helpful comments and criticism; v Jimmy McWilliams and Mark Lawrence for generously giving their time to read chapter drafts; Michael Stoff, whose encouragement in many capacities—as major field examiner, dissertation committee member, graduate advisor, and friend—helped me to survive and enjoy graduate history at the University of Texas; and, finally, my advisor, Wm. Roger Louis, who with his unparalleled work ethic and professionalism provided an ideal model for me to follow, whose keen mind helped to sharpen my own, whose meticulous attention to detail made me a better writer, and whose unflagging support of me and my work throughout my graduate career will always be an inspiration. While this dissertation is as much the product of his efforts as my own, I take full responsibility for all of its shortcomings. Of course, the support of friends and family was critical not only for the completion of this project but also for anything that I have accomplished in my life thus far. Special thanks go to my colleague, Ryan Carey, whose acute intellect pushed me farther than I ever thought possible and whose friendship sustained me through good times and bad for the last six and a half years (and which will no doubt continue to do so for decades to come). Also deserving special recognition is my oldest friend, Drew Newman, who from near and far has always provided an invaluable ear and indispensable advice. As for my family, I would like to thank my dad for being a continuous source of encouragement—and for selflessly driving a U- Haul in the midday, August heat of Oklahoma and Texas, without air conditioning, to ensure that my graduate career got off to a good start. I would like to thank my grandmother, Gertrude Goran, whose influence in every area of my life cannot be described in words and for whom all the thanks in the world would never be enough. And I would like to thank my mother, the most caring and giving human being I know, who from the day I was born has made me the center of her universe. She has supported me in everything I have ever done, and anything good that I have achieved is due to her. vi Finally, this dissertation is dedicated to the memory of my grandfather, Jay Goran. He worked hard his whole life, beginning at age twelve by selling shoes until midnight on the streets of Chicago, so that his family could have a better life. I would not be where I am today if it were not for him. While he did not live long enough to see his grandson finish his Ph.D., I know that he would have been proud of what we have accomplished. vii Preface Early in 1952, British Treasury Under-Secretary Martin Flett wrote: “There can be few things in Anglo/Dutch relations, whether commercial, strategic or political so important as the preservation of our dollar income from Shell.”1 The “Shell” to which Flett was referring was Royal Dutch-Shell, the major multinational oil firm controlled by British and Dutch interests. Why would the income from a petroleum company, in whatever currency, be of such vital importance to Britain’s relationship with any country? Did this imperative apply to Britain’s relations with other countries and other firms involved in the international oil industry? If so, what were the implications of such an imperative for British foreign policy? This dissertation considers these questions and others in the context of the British government’s interactions with both companies and countries involved in the production, transportation, and marketing of Middle East oil after World War II. * * * * * In the aftermath of the Second World War, British officials still considered their country a first-class power, despite the overwhelming physical and economic devastation that the conflict wreaked upon it. After all, London continued to serve as the seat of an empire that stretched into all corners of the globe, and Britain’s currency, the pound sterling, still facilitated half of all international trade. As long as 1 Flett to Sir H. Brittain and Sir Leslie Rowan, January 31, 1952, T 236/5874. viii Britain could rely upon financial support from the United States, the world’s dominant power after the war, policymakers on both sides of the political spectrum saw no reason why it could not participate in international affairs as it had done previously. Although Britain reduced its commitments in some parts of the Empire soon after the hostilities ended, most notably in India and Palestine in 1947, it reinvigorated its commitments in others, including Africa, Southeast Asia, and the Middle East. Indeed, a combination of perceived economic advantage and a potent sense of pride and prestige would sustain Britain’s imperial will well into the 1960s, encompassing the political, military, and economic spheres.2 The last of these frames the issues under consideration in this dissertation. Throughout the postwar period, until the devaluation of the pound in 1967, the British government took great pains to reestablish London’s position as one of the world’s preeminent financial centers, a status the city enjoyed without peer throughout most of the nineteenth century.3 London and the pound sterling, the world’s preferred medium of exchange, had begun to slip into decline during World War I as a result of the fundamental disruption to international trade patterns. By the 2 A number of historians have demonstrated the persistence of Britain’s imperial will in the postwar era. See John Gallagher, The Decline, Revival and Fall of the British Empire: The Ford Lectures and Other Essays (Cambridge: Cambridge University Press, 1982), John Darwin, Britain and Decolonisation: The Retreat from Empire in the Post-War World (New York: St. Martin’s Press, 1988), Wm. Roger Louis and Ronald Robinson. “The Imperialism of Decolonization,” The Journal of Imperial and Commonwealth History, 22, 3 1994, 462-511. For a discussion of this subject in the context of the Middle East, see Wm. Roger Louis, British Empire in the Middle East, 1945-1951: Arab Nationalism, the United States, and Postwar Imperialism (Oxford: Clarendon Press, 1984). In her classic work, Britain’s Moment in the Middle East, 1914-1971, New and Revised Edition (London: Chatto & Windus, 1981), Elizabeth Monroe contends that Britain suffered a “decline of confidence about empire” during World War II but that protecting the flow of oil and stopping communism reinvigorated Britain’s imperial mission in the Middle East to some degree. 3 That Whitehall followed such an agenda, regardless of the party in power has been well documented. See Andrew Shonfield, British Economic Policy Since the War (London: Penguin Books, 1958), Ch. 6, Susan Strange, Sterling and British Policy (London: Oxford University Press, 1971), Frank Longstreth, “The City, Industry and the State,” in Colin Crouch, ed., State and Economy in Contemporary Capitalism (London: Croom Helm, 1979), David Sanders, Losing an Empire, Finding a Role: An Introduction to British Foreign Policy since 1945 (New York: St.

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