For more than a half-century, American foreign policy dealing with oil has typically been manipulative and misguided, often both at the same time. The pattern of intrigue has ranged from U.S. officials' secretly writing tax laws in the 1950s (so the Saudi royal family could collect more money from the sale of its oil and American companies could write off the added payments on their tax returns) to overthrowing a government that showed too much independence in handling its oil sales. To illustrate the dark side of American oil policy, we offer two tales, stitched together from declassified government documents and oil-industry memos, involving a pair of Iraq's neighbors, Iran and Afghanistan.

The first one begins with the rise of a member of Iran's parliament, Mohammed Mossadegh, an impassioned speaker and popular politician who had long chafed at British domination over his country's oil. The Anglo-Iranian Oil Co., partly owned by the British government and a predecessor of today's British Petroleum, held the concession for all of Iran. It set production rates and prices as well as Iran's token share of the proceeds. Mossadegh sought a fifty-fifty sharing agreement, which was then becoming the common arrangement between other oil-producing countries and U.S. companies. The British refused. In 1951 Mossadegh successfully pushed to nationalize Anglo-Iranian, became Iran's Premier and established the National Iranian Oil Co.

The British boycotted Iranian oil, and the U.S. joined them. No international oil company would buy Iran's oil. The Iranians had no independent system for delivering it. They had no technical skills to produce it, since the British had long relegated Iranian workers to menial jobs. Even when Mossadegh threatened to flood the world with half-price oil, he was able to deliver only a trickle because of the economic blockade. As the Iranian government withered, the Eisenhower Administration cut off foreign aid. Unrest followed, and angry citizens took to the streets. This prompted suggestions that the communists were coming, even though Mossadegh was as anti-Soviet as he was anti-British. On Aug. 19, 1953, after the deaths of about 300 people in street riots, the 71-year-old Premier was overthrown. He was replaced by a retired army general, Fazollah Zahedi. The American-friendly Shah, Mohammed Reza Pahlavi, who had earlier fled the country, returned triumphantly, resumed the throne and reasserted his control.

Media accounts of the coup were seemingly straightforward. The Washington Post reported that Iran had been saved from falling into communist hands and that the communists were blaming Brigadier General H. Norman Schwarzkopf "for alleged complicity in the coup." The paper said Schwarzkopf, whose namesake son would lead U.S. forces nearly a half-century later as they drove the Iraqi military out of Kuwait, had visited Iran "but only to see friends, the State Department said." TIME reported: "This was no military coup, but a spontaneous popular uprising."

It was anything but. When Mossadegh delayed settling with Anglo-Iranian on the takeover of the company, the British approached the CIA with a plan to remove the Premier and get Britain's oil back. The British could not do it alone, since they had left Iran. Allen Dulles, the CIA director, and his brother John Foster Dulles, the Secretary of State, agreed. The Dulles brothers assigned the task of overseeing the clandestine venture to Kermit Roosevelt, a longtime intelligence operative and the grandson of President Theodore Roosevelt.

In the months leading up to the coup, Roosevelt spent much of his time in Tehran, coordinating efforts of CIA agents and Iranian sympathizers. To ensure the cooperation of a then indecisive Shah, the CIA turned to one of his old friends, General Schwarzkopf, who in 1942-48 worked with an internal-security force under palace command that helped the Shah maintain rule.

Dr. Mohammed Mossadegh

The CIA's fingerprints were everywhere. Operatives paid off Iranian newspaper editors to print pro-Shah and anti-Mossadegh stories. They produced their own stories and editorial cartoons and published fabricated interviews. They secured the cooperation of the Iranian military. They spread antigovernment rumors. They prepared phony documents to show secret agreements between Mossadegh and the local Communist Party. They masqueraded as communists, threatened conservative Muslim clerics and even staged a sham fire-bombing of the home of a religious leader. They incited rioters to set fire to a pro-Mossadegh newspaper. They stage-managed the appearance of Mossadegh's successor, General Zahedi, whose personal bank account they fattened.

With Mossadegh gone, British Petroleum returned to the Iranian oil fields. Some newcomers tagged along. They included five American companies, the ancestors of today's ExxonMobil and ChevronTexaco. Meanwhile, the U.S. government opened the foreign-aid spigot. Over the next 25 years, more than $20 billion in U.S. taxpayers' money would pour into a decidedly undemocratic Iran, most of it military aid and subsidized weapons sales for the Shah's armed forces and SAVAK, his secret police. As for American oil companies, they would extract 2 billion bbl. of oil from their new Iranian fields. But the access came with a stiff price tag in U.S. government dollars and Iranian lives. And the Shah's oppression led to the establishment of the first American-hating Islamic republic, when the Shi'ite Muslim clerics duped by the CIA overthrow of Mossadegh masterminded their own takeover in 1979, installing the Ayatullah Ruhollah Khomeini. For two decades and counting, American oil companies have been barred by the U.S. government from doing business with Iran. Now the Shi'ites are seeking to turn Iraq into an Islamic republic.    More >>

But all this was merely the overture to the next U.S. foreign-policy decision rooted in oil. This time the players were the Soviet Union and Afghanistan. In 1977 the CIA sounded an alarm on the Soviets' faltering energy prospects in a secret 14-page memo titled "The Impending Soviet Oil Crisis." The agency concluded that the Soviet Union, which had been self-sufficient in oil, was running out and would soon become a major importer. "During the next decade," the report said, "the U.S.S.R. may well find itself not only unable to supply oil to Eastern Europe and the West on the present scale, but also having to compete for OPEC oil for its own use." Two years later, the Soviets invaded Afghanistan. President Jimmy Carter, concluding that the Soviet army was passing through Afghanistan to seize the Middle East oil fields, sounded a warning: "An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force."

When Ronald Reagan replaced Carter in the White House a year later, he turned up the heat. Administration officials insisted that the Soviet Union's interest in Afghanistan was a prelude to a communist takeover of the Middle East oil fields. The CIA report on the Soviets' running out of oil gave the Reagan Administration the ammunition to secure more money from Congress to arm Afghan insurgents and establish a permanent military presence in the Persian Gulf. Soon after Reagan took office, Defense Secretary Caspar Weinberger announced that it was essential for the U.S. to establish bases in the Persian Gulf region "to act as a deterrent to any Soviet hopes of seizing the oil fields." The Reagan Administration began building those bases, sold sophisticated AWACS planes to Saudi Arabia, and conducted joint military exercises with Egypt and other countries. And the CIA began one of its longest and most expensive covert operations, supplying billions of dollars in arms to a collection of Afghan guerrillas fighting the Soviets. The arms shipments included Stinger missiles, the shoulder-fired, antiaircraft weapons that were used with deadly accuracy against Soviet helicopters and that are now in circulation among terrorists who have fired such weapons at commercial airliners. Among the rebel recipients of U.S. arms: Osama bin Laden.

At the same time the U.S. was moving into the Persian Gulf militarily and supplying Afghan rebels, all based on a faulty CIA oil assessment, it was also secretly supporting Saddam Hussein. The Reagan Administration remained neutral after Iraq's invasion of Iran in September 1980, but as the war progressed and it appeared that Iran might emerge victorious, the U.S. secretly backed Iraq, according to declassified government documents. That began in 1982, when the State Department removed Iraq from its list of countries supporting terrorism. According to a General Accounting Office report, this "made Iraq eligible to purchase aircraft, helicopters, and national security controlled items for military end use." Yet another declassified State Department document makes clear that the Reagan Administration intended to implement regulations that would lift restrictions on exports "to both Iran and Iraq of five chemicals that could be used in chemical weapons production." This made sense, as the U.S. was peddling arms to Iran as well via the Iran-contra conduit.

The root of all this folly was the U.S. government's officially sanctioned version of faltering Soviet oil production, which was at odds with reality. To be sure, Soviet oil production was trailing off. But the Soviets were not running out of oil. Nor would they become dependent on imports. Rather, they were using primitive technology and needed to make investments in their infrastructure. In fact, Russia today is the world's second largest producer, after Saudi Arabia. Instead of becoming a major buyer of middle east oil, as the cia had warned, Russia ships 3 million bbl. A day to other countries, including the U.S.

As all this makes clear, the former Soviet Union was not running out of oil. Neither is the world. The one exception: the U.S., which was the Saudi Arabia of the first half of the 20th century, is finally running out. As a result, thanks in part to American policy that put an emphasis on foreign intervention rather than domestic conservation, Americans are more dependent than ever on imported oil.

Source: Time