HELD HOSTAGE: AMERICA AND ITS ALLIES CONFRONT OPEC, 1973 - 1981 A Dissertation by KATHLEEN MARIE BARR Submitted to the Office of Graduate Studies of Texas A&M University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY May 2012 Major Subject: History Held Hostage: America and Its Allies Confront OPEC, 1973 - 1981 Copyright 2012 Kathleen Marie Barr HELD HOSTAGE: AMERICA AND ITS ALLIES CONFRONT OPEC, 1973 - 1981 A Dissertation by KATHLEEN MARIE BARR Submitted to the Office of Graduate Studies of Texas A&M University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Approved by: Chair of Committee, Terry H. Anderson Committee Members, Arnold Krammer Jason C. Parker Jeffrey A. Engel Head of Department, David Vaught May 2012 Major Subject: History iii ABSTRACT Held Hostage: America and Its Allies Confront OPEC, 1973 – 1981. (May 2012) Kathleen Marie Barr, B.S.; M.A., Sam Houston State University Chair of Advisory Committee: Dr. Terry H. Anderson The oil shocks of the 1970s, initiated by the first Arab oil embargo in 1973, stunned the industrialized world. The Organization of Petroleum Exporting Countries (OPEC) controlled a resource that was vital to the national well-being and national security of America and its allies. In the United States, gas lines formed as Americans waited for increasingly costly and scarce fuel. Europeans realized that the energy shortages, which they originally believed to be short-term, might permanently change their lives. This dissertation places the historical debate about the effectiveness of domestic and foreign energy policy within the framework of the global transformations taking place at the end of the twentieth century. The collapse of the Bretton Woods system in 1971 and the advent of petrodollars on world currency markets, the emergence of the Soviet Union as an oil exporter, the rise of OPEC as a regulator of oil prices and the consequent decline in the power of the seven major multinational oil companies, and the growth of a global environmental movement, all contributed to the shifting interplay of forces confronting the United States and its allies in the late twentieth century and shaped the debate over national and international energy policy. America‘s efforts to iv work with its allies to develop a cohesive national and international energy policy fell victim to the struggle between political autonomy and interdependence in an era of globalization. The allied response to the Iranian hostage crisis and the Soviet invasion of Afghanistan highlighted these conflicts within the alliance. v ACKNOWLEDGEMENTS I would like to thank my committee chair, Dr. Anderson, and my committee members, Dr. Krammer, Dr. Parker, and Dr. Engel, for their guidance and support throughout the course of this research. Thanks also go to my friends and colleagues and the department faculty and staff for making my time at Texas A&M University a great experience. I also want to extend my gratitude to the Gerald R. Ford Presidential Foundation for a generous grant that allowed me travel to the Ford Library. Finally, thanks to my husband and family for their patience and love. vi TABLE OF CONTENTS Page ABSTRACT .......................................................................................................... iii ACKNOWLEDGEMENTS ................................................................................... v TABLE OF CONTENTS ....................................................................................... vi CHAPTER I INTRODUCTION AND LITERATURE REVIEW ........................... 1 II THE OIL SHOCK OF 1973 ............................................................... 16 III TOWARD A STABLE PEACE AND EXPANDING PROSPERITY: THE NIXON ADMINISTRATION AND THE ENERGY CRISIS .... 36 IV A FORD IN THE WHITE HOUSE: THE FORD ADMINISTRATION AND THE ENERGY CRISIS ........................................................... 94 V JIMMY CARTER INHERITS THE ENERGY CRISIS ..................... 126 VI THE MORAL EQUIVALENT OF WAR: THE SUMMITS .............. 153 VII TROUBLE IN THE ARC OF CRISIS ............................................... 180 VIII CONCLUSION ................................................................................. 203 REFERENCES ...................................................................................................... 213 VITA ..................................................................................................................... 221 1 CHAPTER I INTRODUCTION AND LITERATURE REVIEW In 1960, the same year that Iran, Iraq, Kuwait, Saudi Arabia and Venezuela formed the Organization of Petroleum Exporting Countries (OPEC), U. S. Secretary of the Treasury Robert Anderson declared in a cabinet meeting, ―Middle East oil is as essential to mutual security as atomic warheads.‖1 After the first OPEC oil embargo thirteen years later, Henry Kissinger, Richard Nixon‘s National Security Adviser, proclaimed that the ability of the Middle East to use oil as a weapon ―altered irrevocably the world as it had grown up in the postwar period.‖ 2 The embargo stunned the industrialized world. In the United States, gas lines formed as Americans waited for increasingly costly and scarce fuel. In the most difficult winter since World War II, Europeans realized that the energy shortages, which they originally believed to be short-term, might permanently change their lives. The crisis was worst in Britain, where it was combined with labor strife in the coal mining and railroad industries. In France, the principal concern was unemployment, particularly in the auto industry, while German officials instituted a ban on Sunday driving. Japan‘s This dissertation follows the style of The Chicago Manual of Style, 16th ed. 1 Douglas Little, American Orientalism: the United States and the Middle East since 1945 (Chapel Hill: University of North Carolina Press, 2002), 61. 2 Daniel Yergin, The Prize: the Epic Quest for Oil, Money and Power (New York: Simon and Schuster, 1990), 588. 2 leaders were forecasting a twenty percent decrease in fuel imports, leading to economic controls and restrictions on travel. 3 Oil ministers from OPEC met periodically. By the early 1970s the organization was in control as industrialized countries around the world had to depend more on imports from the Middle East and Venezuela and less on oil produced domestically. Then, in 1979, a second energy crisis again paralyzed America. In some cities gas lines often stretched for blocks, while in other towns officials instituted gas rationing. In Detroit, automobile makers began to address fuel economy in auto production. Competition from Japanese automakers like Nissan, Honda, and Toyota forced American companies to make cars that could contend with the high gas mileage of the imports. American Motors Corporation bought the exclusive rights to a new two- liter engine from the German company Volkswagen to be installed in AMC‘s ―top-of- the-line‖ Gremlin that would allow the company to produce a car that would get thirty miles to the gallon.4 Jimmy Carter, elected in 1976 in the wake of the Watergate scandal and America‘s demoralizing withdrawal from Vietnam, had campaigned as a Washington outsider who would concentrate on the countries‘ economic problems. Carter, as this study will examine, was unable to develop an effective policy that would provide a solution to OPEC domination. 3 Terry Robards, ―Oil-Short Europe is Facing Hardest Winter Since War,‖ New York Times, December 11, 1973, 1, Proquest Historical Newspapers, http://proquest.umi.com. Fox Butterfield, ―Japan Hails Decisions by Arabs: Will Keep Oil-Saving Measures‖ New York Times, December 26, 1973, 49, Proquest Historical Newspapers, http://proquest.umi.com. 4 William K. Stevens, ―Rx for American Motors: Power from Abroad,‖ New York Times, February 6, 1977, 1, Proquest Historical Newspapers, http://proquest.umi.com. 3 In Europe and in Japan, leaders also attempted to develop policies that would address the energy crises of the 1970s. French and German officials campaigned for office on platforms that vowed to decrease their countries‘ dependence on foreign oil. Throughout Europe and Japan, heads of state promoted the development of alternative energy sources, particularly nuclear power, and they built atomic power plants. Yet, like the U.S., those countries continued to rely on imported oil. As a result, OPEC‘s policy decisions in the late 1970s created conflict between the United States and its traditional allies. Leaders in the United States, Europe, and Japan held summit meetings that focused on coordinating efforts to put pressure on the oil exporting countries. In London in 1977, Bonn in 1978, Tokyo in 1979, and Venice in 1980, the seven leaders of the industrialized nations met to discuss economic issues, and energy questions always were on the agenda. In spite of these efforts, they could not devise a successful policy in response to OPEC. Thus, the Group of Seven, or G-7, missed an opportunity to lay the groundwork for an alliance that would be able to exert counterforce against the power of the oil ministers. As a result, America and its allies around the world were held hostage by OPEC. From the perspective of the Carter administration, this failure was a direct outcome of the allies‘ desire for a foreign and economic policy that was more independent of U.S. influence. This was evident in the allied response to the Iranian hostage crisis and the Soviet invasion of Afghanistan, both in 1979. The