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- [00:00]
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Peter Frankerpone
Last time we talked about Iran in the first half of the 20th century and the ways in which successive politicians tried to demand higher shares of the profits that were taken out of the oil that came out of the ground in Iran and explain why oil was so important in global economies too. We talked about how the British Empire needed oil for its own needs and how that left Iranians on the wrong end of the discussion table. That changed in 1953. That changed in 1951 with the nationalization of Iranian oil. But as we left you, Iran had come out with a prime minister who'd been arrested. The British and the CIA working out how to put people in power in Iran and keep them there, who would serve Western interests. And that long, deep suspicion embedded in Iran that we've seen so much over recent decades that Western powers are out to manipulate Iran for its own good.
- [01:09]
Afwa Hersh
Today we're going to look at how that culminated in 1973 in what is perhaps the single biggest shock of the second half of the 20th century. Can you think of another event that had as seismic repercussions? Peter? I guess maybe the fall of the Berlin Wall.
- [01:27]
Peter Frankerpone
Fall of the Berlin Wall. I think that's up there. Although, you know, probably looking back on it, we will conclude that that wasn't the end of the Cold War. They were just entering a new chapter, I guess for symbolic reasons, the assassination of JFK or maybe Martin Luther King. But I think that that in terms of single moments and compressions, I think what happens in 1973 is absolutely crucial and for the whole Gulf region, but also for the ideas about what would happen when oil and energy run out. And again, that's something which is concentrating and focusing a lot of our minds at the moment. Hello and welcome to a new episode of Legacy. I'm Peter Frankerpone.
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Afwa Hersh
I'm Afwa Hersh.
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Peter Frankerpone
And this is Legacy, the show that explores the lives, events and ideas that have shaped our world and asks whether they have the reputations that they truly deserve.
- [02:33]
Afwa Hersh
This is our series on economic shocks. 1973, the reconfiguration of the world. And thank you so much for listening to Legacy. While we've got you, please do sign up to Legacy. You can enjoy bonus content that no one else gets to hear. Early access, fewer ads, Q&As and so much more. To sign up, just go to Legacy supportingcast FM Afar we spoke last time.
- [03:02]
Peter Frankerpone
We talked about the ways in which imperialism, control of resources, misfires and particularly the importance of Iran in the kind of architecture of both the 20th century, but the post war order and decolonization. Have you had any thoughts since we spoke about, about whether the the example of Iran is one that has lots of other parallels that you've looked at too?
- [03:22]
Afwa Hersh
Well, the obvious parallel for Iran is Iran only. Not Iran in the 1950s, but Iran in 2026. And it's amazing how much these histories tend to repeat themselves. Peter and of course it's different circumstances. The world is very different. But some things feel eerily familiar, I have to say.
- [03:42]
Peter Frankerpone
Well, in 1953 we left you with Mossadegh having been deposed and tried and put in solitary confinement in his house about 100 kilometers west of Tehran. There's a new settlement that comes about Iranian oil immediately afterwards. But it doesn't diffuse the underlying anger that's felt in the country too. So a new consortium restores large scale production. We heard that that got stopped as economic coercion got used by the British, not only on Iran, but with anybody who dared to trade with Iran. And that creates a new structure that's dominated by western firms. So BP holds 40% of this concession. Shell 14%, a group of American majors, about 35% French and American independence too. So although formally Iran owns installations, in practice the consortium still runs the business and still controls oil in Iran.
- [04:37]
Afwa Hersh
And that matters politically. The Shah Mohammad Reza gets revenue and stability, but not necessarily the legitimacy that his people want. Because many Iranians see this arrangement as a polished version of foreign control rather than true sovereignty. It's as if the oil question never went away. It was just swept to one side, thinly covered with this veneer of greater fairness. Many Iranians are not fooled at all.
- [05:06]
Peter Frankerpone
Well, in practice that that renegotiation means that there's more money coming back into Iran. And so the question is, who gets to spend it, who gets to use it? And it's perhaps not a great surprise to know that that gets diffused, particularly amongst the elites, but above all by the Shah himself, who becomes increasingly lavish in his spending. But there's no question that the money that comes back into Iran does allow for some new opportunities when it comes to development. And as US official reports have it, the resumption of oil revenues in 1954. And the kind of engine that drives Iran's development is all hooked on oil income. That's something which we're going to see in other parts of the Gulf too, about diversification, about how do you move away from a single source of revenue, how do you find other revenue streams, how do you find development that doesn't just make you dependent on international prices for oil or for other materials too. But it becomes clear that particularly across Iran and in the Gulf, the building of roads, investment in industry, state spending, modernization, are all completely dependent on receipts from oil.
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Afwa Hersh
This is something that by the time I was beginning my career in the early 2000s, had really become well known as the oil curse, the paradox of plenty, the resource curse. There are so many names for it. But the reality is that being dependent on oil, this mono economy, all your infrastructure and your politics, all essentially becoming clients of this one resource, can be very, very corrosive for the health of a nation's institutions as well as its political life. And Iran is a great example of that. The Shah's project of national strength rests not only on one commodity, oil, but a commodity that he doesn't even control, because while the infrastructure is technically Iranian, the companies operating it are all Western. The profits are flowing out of Iran, even if more are flowing into Iran than they once did. And it's increasingly clear that this is not a viable sovereign state in anything other than name.
- [07:09]
Peter Frankerpone
Well, I'm not sure. I mean, I think that it's about how do you plan for the future? So I think Iran has got better, better cards than it now does. The question is, how do you develop in a way that's going to be sustainable? And one of the problems are it's obvious the outside world that there are real risks. A US intelligence report in 1960, for example, warns that any disruption in the Persian Gulf could have disproportionate effects, not only on the UK and on Western Europe because of its dependence on Iranian oil, but also on the US too. And it advises that the US invests heavily in making sure that the regime stays stable. There's an idea that what comes out of the ground is not just about Iran's stability, it's about the economies of the developed world too. So by the late 60s, the State Department is describing the region's oil reserves, Iran and the Gulf, as being completely staggering. And at that time, the Middle east is seen to hold about two thirds of all free world reserves, so outside the Soviet bloc, and supplies over half of Western oil and more than 85% of Japan's too. And not only is there a lot of it, it's cheap production costs are perhaps one tenth of what they are in the us so that cheap crude is helping the post war boom in Britain and West Germany in Europe to keep moving. And that dependence makes the Gulf incredibly important. It might seem like there's a distant zone of production, but it's the engine room, not just for Iran and the Gulf, but for all Western economies too.
- [08:34]
Afwa Hersh
If you think about an economy like Japan that was completely transformed after the Second World War and how totally dependent it is on oil, and the vast majority of it from Iran and the Middle east, it's not healthy for one country to be dependent on one commodity as Iran is on oil. But what's even more unhealthy is for the entire global economy to be dependent on that one commodity coming from that one country. And it's not just Iran, it's the Gulf states, it's the Middle east at large. But Iran remains fragile in its dependence on oil and in its vulnerability to any perceived threat to oil because Japan and Europe and the US are not going to sit by idly if there is ever a repeat of the history that we saw in the 1950s where Iran acts unilaterally to change control of its oil. So this is a situation that in hindsight seems pretty unsustainable.
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Peter Frankerpone
PETER but just a quick pause to remind that oil isn't just about making your car move. It fuels militaries, it fuels petrochemicals, it's aviation, it's plastics, it's fertilizer, it's modern logistics, it's everything. So it's not just fuel. The thing that becomes critically dangerous now is that not that there's too little oil, but because there's too much. So in 1938, drilling starts in Saudi Arabia, the Dammam number seven oil well. And oil has struck in a reasonably modest sum, about three or four thousand barrels a day to start with. But in 1948, there's the discovery of enormous fields, including Gahwan, which is still the largest conventional oil field that's ever been found. And production in what's now Saudi Arabia scales incredibly fast. Saudi output reaches half a million barrels a day by 1949. So just a year later, and that's supported by huge investments in pipeline projects. Crucially, Saudi oil is really cheap to extract and is also close to European and Asian markets. So it undercuts higher cost producers. And so if you're a consumer, that's obviously great. That means lower global prices. That means that Western economies can industrialize quicker, faster, cheaper. And it also means that you have the consolidation of big oil giants to become even more powerful. The problem is that that can affect local economies. And in 1959, 1960, international oil companies cut prices without consulting with the major governments that are producing oil in Saudi Arabia, in Iraq, Libya and in Iran. And that creates a concertina effect that's completely catastrophic.
- [11:06]
Afwa Hersh
This again goes to the underlying fragility of these Gulf states, whose entire economic fortune is completely dependent on oil, because the actions of a few oil companies and cutting prices is now transforming their budget from one in which they can offer all these public services and development to their citizens to ones in which they can't. They don't sit idly by while this happens. Instead, they form maybe the world's most famous cartel, the Organization of the Petroleum Exporting Countries, or opec. And this is a concerted effort to consolidate their leverage and prevent oil companies from dictating their economic fortune. And it has its first conference in Baghdad on 10th September, 1960, with its five founding members, Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, five of the biggest producing oil countries in the world. And you know, it's interesting, Peter, just to pause a moment there and think about the conflict and instability that every single one of those nations has experienced. And it's not a coincidence that their names have all cropped up frequently in my lifetime in, in regional conflict, in international war, in human rights controversies, in unilateral invasions. In the case of Venezuela just months ago, these are still ongoing. And you can't understand any of that political experience without understanding how central these countries are to a global oil production.
- [12:38]
Peter Frankerpone
I mean, you mentioned a couple of times the resource curve Southwest also, you said a couple of times that these countries are wholly dependent. I mean, there are worse things than to have vast mineral reserves. The question is how that leads to good governance, how you use those reserves in a sustainable way, not just environmentally but socially and politically. How do you create structures? The problem is there's a lack of alignment, because often what can happen is that resources get captured or by small elites, whether both inside the country or outside too. But so opec, like you said, is formed as a kind of pushback against the way in which Western multinationals and their government interests that sit behind them are involved. And so the immediate trigger for OPEC is the unilateral decision by the major oil Western companies. They're called the seven sisters. It'd be great to do something on them, to Cut prices, which reduces, of course, government revenues in these producer states. And the founding aim of OPEC is very clear. It's to coordinate policy and assert control over pricing and production. They're there to protect and safeguard legitimate national interests. Finding ways to work together gives you punching strength and that's really, really important. But it's also important that although institutions and groups like OPEC matter, so too to individual personalities, you need to be able to like and trust the people you're working with. And the key people behind OPEC are important too.
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Afwa Hersh
I just can't stop thinking about what you said about there are worse things than having large reserves of mineral wealth like that should be true, Peter. But when I, you know, my focus, much of my career has been on Africa. If you look at Nigeria, you look at Angola, you look at maybe a smaller nation like Equatorial guinea or Sao Tome, there is a way in which in, in some small states that have very weak institutions, it is literally the worst thing that could happen. Because if you take Nigeria and you know, if you ever go to the Niger Delta, which is the oil producing region it has had, instead of having benefits for local people, it's been catastrophic. They haven't received any of the wealth that could go into development, but it's destroyed their traditional way of life through environmental catastrophe, the poisoning of waters and waterways, the devastation of agriculture. And so it really can be a terrible thing to happen to a country. And that's because the people in oil producing regions don't have control over the resource. Because the stakes of oil are so high, because it requires these huge international players, and because it feeds into the geopolitical needs of, of the major powers. And actually the needs of people closest to the oil are often the absolute last consideration. So, you know, it is interesting to think and maybe it's a topic for a whole other day, like whether it is a blessing or a curse, but I think that there are countries on both sides of that. And if you look at Norway, which has put so much of its oil revenue into a sovereign wealth fund for future generations, and then you look at Nigeria, where little to none of the oil resource has made a visible difference in the broader economic development of the country or the well being of the people, there is a wide gulf in the experience of what oil can do for a country. And Iran is an interesting one to locate in that spectrum. Because while money from Iranian oil has gone into building Iran to some extent, it's also led to it repeatedly experiencing internal strife and external conflict. And that is something that's as true today as it was in 1973.
- [15:59]
Peter Frankerpone
I think there is scope to do something longer and more detailed. I mean, Norway and its enlightened sovereign welfare was only set up in 1990 and only really properly started going a few years after that. I think what the story here is that is about safety in numbers, that if you're on your own you can get picked off one by one. And OPEC is a response to that, to try to find a way of coordinating and to align. And that proved very effective. What often happens with low income countries or resource rich countries is that they are in the blind on their own and don't form part of an apparatus. It's this particular case we have people like Fouad Rohani of Iran, rather cerebral, technocratic. Abdul Al Tariqi of Saudi Arabia, who is very fiery, nationalistic, he's sometimes nicknamed the Red Sheikh. And Juan Pablo Perez Alfonso of Venezuela, who's quite austere, sort of patrician, strategic. Very different personalities, but they've all got the same common interests. In fact, the US has there ever
- [16:53]
Afwa Hersh
been a movie, a kind of like mafia movie about what happens round the table at OPEC meetings? I would be sort of so curious to be a fly on the wall at that. Convergence of personalities, cultures, interests. I mean, you couldn't really make it up.
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Peter Frankerpone
Well, I know where I'd start the film. I'd have the American official sitting outside who reports back and says, I really don't think these guys are going to be able to organize a piss up in a brewery. You know, they're completely different characters. They might all have oil but they can't really understand each other. They've all got different alignments and that OPEC is not really something that is going to have any particular leverage or influence. The view would have been that this would be little more than a gentleman's club, although I doubt they'd have called these individuals gentlemen. But a way of being able to talk about things but not be able to do anything about it. But Iran and Saudi Arabia didn't see the world the same way. Iraq is very prickly and quite radical. Venezuela had different transport costs. Venezuela has the largest oil reserves in the world. And although OPEC didn't produce a permanent forum or a shared language of rights or habit of collective bargaining, it did start to move those discussions around. How do you get the maximum benefits and use your leverage as a tool that could be used to impact the vulnerability of others? So when we come back, we're going to see just how important. That was. The Scouting report's end Unlock the savings at Boost Mobile get Unlimited Wireless for $25 a month forever and keep your phone veteran move. Unlock the savings@boostmobile.com Unlock $25 forever requires customers to remain active on Boost Mobile Unlimited Wireless plan. For full offer details, visit boostmobile.com.
- [18:37]
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- [19:13]
Afwa Hersh
If it sounds as if things have settled down a bit by the early 1960s seas, it's not the case for long, because in 1967, Egypt's President Gamal Abdel Nasser expels UN peacekeepers from Sinai and closes the Straits of Tehran to Israeli shipping, a move that Israel had previously declared a causes Belli and Egypt masses around 100,000 troops and 1,000 tanks in Sinai, this sparsely populated desert region that you will have heard more about if you listen to our episode on the Suez Canal crisis. Syria and Jordan align militarily, diplomatic efforts fail and Israel launches Operation Focus, a coordinated air assault that destroys the bulk of the Egyptian air force on the ground within hours. The estimates are that 300 aircraft are destroyed almost instantly. And now, having secured their air superiority, Israeli forces advance rapidly, capturing the Sinai Peninsula, taking the west bank and East Jerusalem from Jordan, seizing the Golan Heights from Syria. And in just six days, Arab forces suffer heavy losses, thousands of casualties, major destructions of equipment, and, in the wider scheme of things, the redrawing of the map of the Middle east. Because Israel has overnight almost tripled its territory, bringing over 1 million Palestinians under Israeli control in the west bank and Gaza in the territories we now call the occupied Palestinian territories.
- [20:47]
Peter Frankerpone
That Israeli attack is one of the most famous first strikes in military history, but it sets up a lot of the consequences and legacies of the problems we've been seeing over recent years, too, including how Israel thinks it should behave in its own neighborhood. And those are the things I think we need to talk about properly at length too. In this particular case, what's I think important is to see how Arab states react as a consequence and how they again start to think about how they need to cooperate together. Nasser has been quite strong on trying to think about how there should be high levels of cooperation across the Arab world, both in the context of Decolonization, but also in the sense of giving Arabs a voice in global affairs. So in response to the war, Arab states issue what's called the khartoum resolution in August 1967, with its three no peace, no recognition and no negotiations with Israel. And so the conflict shifts from a series of wars between states into a prolonged entrenched regional and territorial struggle with global implications that are of course playing out now. A year later. Oil producers in the Middle east form a sister organization to OPEC called the Organization of Arab Petroleum Exporting Countries, or oapc, which is Saudi Arabia, Kuwait and Libya. It's founders want Arab coordination about a whole host of things, but in particular to see how oil could be used as leverage.
- [22:08]
Afwa Hersh
I'm curious, Peter, how we get from here to 1971 Tehran agreements where these Arab states meet with the Iranian government. And of course, there's a complicated history of Persian Arab relations. Iran being not an Arab state, is obviously not in this Organization of Arab Petroleum Exporting Countries. But how does this solidifying of Arab cooperation affect Iran and its own oil production and its relationships in the region?
- [22:43]
Peter Frankerpone
Well, one of the causes and catalysts is Muamba Gaddafi, who you'll have grown up with afraid knowing as a despotic autocrat in Libya who then ends up
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Afwa Hersh
necessarily I've got a friend in Ghana whose daughter is called Gaddafia, so he's still a hero in much of West Africa, but yes, I certainly grew up with that complicated legacy. That's also a topic for another day.
- [23:04]
Peter Frankerpone
I think so too. But he's a pioneer of a revolution that takes power in Libya in 1968. And he and his colleagues, they're young, they're quite theatrical. Again, you don't need me to talk about that here. So in 1968, Gaddafi and his colleagues stage a revolution in Libya. They're young, they're theatrical, they're confrontational, they're revolutionary in a way that alarms some of the monarchies of the region, but also oppresses radicals across the Arab world. Gaddafi goes after small oil companies, particularly starts with going after independent operators demanding higher prices and threatening much higher taxes. And when they resist, he threatens production cuts and he also threatens to nationalize them. And then they back down, agreeing to significant price increases. And that's really important as a signal to show that you don't just have to stand by and take what you're given, you can push Libya's very important power in the global oil game because it sits very close to Europe, has a Mediterranean coastline, and also it has Very light, low sulfur crude, which is particularly important and valuable. So he starts to charge higher tax rates on oil companies, price increases. He charges what he calls a Suez premium because the oil doesn't have to go through the Suez Canal. And he demands investment inside Libya. He doesn't let these oil companies negotiate with each other. He insists on dealing them one to one. So like we said, that process of safety in numbers, he dismantles that. And apart from it being tactically smart and psychological and producing good results, that's being watched by other people. And that, AFW, is why we get the Tehran agreements of 1971.
- [24:39]
Afwa Hersh
The Tehran agreements result in taxes and prices rising for producers across the Gulf, a schedule of increases that is set to run all the way up to 1975. And in the case of Iran, US reporting says that the revenue per exported barrel will rise from $0.87 in 1970 to $1.35 in 1975. So that's a doubling or almost of oil prices. And it means that earnings for oil producers are expected to rise from 1.1 billion to 3.6 billion. This is a tripling of income, a monumental rise in prices affecting global consumers, but benefiting producers in the Gulf.
- [25:28]
Peter Frankerpone
And that sets off a lot of bells in Western Europe, which is particularly at risk. That boost of revenue means that Middle Eastern oil producing countries are going to become richer and people who import are going to become poorer. The European model is built around cheap imported oil and relying on the fact that there would be unlimited supplies and no hiccups and shocks. And at the same time as building that model, they've forgotten or hadn't thought about what vulnerabilities might come from third parties and in particular, risks in the Middle east. Despite the fact that there have been these moments of tremors, like in 1967 and the Suez crisis 11 years before that in 1956. So things should have been becoming clearer. In 1972, there's yet another tremor where the government in Iraq, in Baghdad, nationalizes the assets of the Iraq Petroleum Company, which is the result of more than a decade of smoldering disputes. The same as we've seen in both these episodes before, where in this case 99% of the concession is taken away from the IPC 10 years earlier, the 1960s. It's a sleight of hand though, because although the territory's been taken away, the IPC still determines what gets produced, how much, how it's sold at, and so on. But in 1972, that all changes and the Iraqi government Takes over pipelines, export terminals and can set price controls too. So in the early 1970s, this is a world on the move. With pressure rising and greater leverage and agency for countries across the Middle east, there are oil producers to be able to determine their own futures.
- [26:59]
Afwa Hersh
And these are just the decades where the oil producing states have been discovering what political confidence feels like, as well as developing the tools to control and shape their own needs. This means they are not going to back down quietly. They've tasted power and control and they intend to keep it. At the same time, the industrial world has never been more dependent on the oil that comes from these very states. If it sounds like a recipe for disaster, it is. And we'll find out why when we come back after the break.
- [27:45]
Peter Frankerpone
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- [29:19]
Afwa Hersh
Afwa it becomes quickly clear that Israel's stocks of ammunition, its aircraft, parts, its armor are being depleted at a rate which will prevent it from fighting back. And the US initiates Operation Nickel Grass, an emergency airlift delivering around 22,000 tons of military equipment. This is symbolic for so many reasons. It helps stabilize Israeli lines. It enables counteroffensives across the state Suez Canal. It also solidifies the idea that the US will come to Israel's military aid if it comes under attack. But most European allies refuse over flight rights or landing access because they do not want to support Israel at the risk of Arab oil retaliation. Their allyship for Israel does not extend further than their immediate economic needs. The major exception, though, is Portugal, which does allow the use of an airfield in the Azores, a vital refueling stop. And it's interesting on a separate note, Peter, to think back to that and how different things have become today when European states have been very quick to come to the aid of Israel, even when it is the aggressor, even at the cost of its relationships in the Gulf.
- [30:32]
Peter Frankerpone
Although, as we're recording this, Spain has refused landing rights for US military aircraft and so too have Italy in a specific case of landing in Sicily and pinging on to the Middle East. So European governments have been trying to work out how to say that they are non supportive and don't want to get involved, partly because of that fear of retaliation. It's a bit more complicated in 1973 because of the Cold War model. So the Soviet Union is also doing its own large scale airlifts and sea lifts to Egypt and Syria to replenish their equipment. So both superpowers are both heavily engaged. But within all of this context, you then see OPEC step forward and to make and take a historic step. So on the 16th of October, 10 days after hostility started, Gulf producers agree to raise posted prices. And the next day, on the 17th of October, they announced production costs, originally at just 5%, with further monthly reductions to come and to target countries they see as supporting Israel. And this is a turning point of the weaponization of oil and of access to Middle Eastern energy markets. Oil is being deliberately deployed as a geopolitical weapon and not just as a source of revenue.
- [31:43]
Afwa Hersh
And of course, this has immediate effects on oil supply. Within weeks, oil prices begin to surge, eventually quadrupling from $3 a barrel to a astounding $12 a barrel. Petrol shortages and rationing appear across Europe and North America. And this causes inflation to spike, growth to slow, and triggers a wider economic crisis. And this is, of course, in 1973, after producers have spent years pushing back against oil companies. The war is now providing the political momentum to act collectively. Peter?
- [32:26]
Peter Frankerpone
Yeah, it is not just about economic coercion. Anger before has been pushed towards Western oil companies and to the west generally, but now Saudi Arabia gets involved too, for the first proper time. King Faisal has resisted using oil as a weapon in the 1960s, but by 1973. Anger over US support for Israel and domestic Arab pressure forces his hand. So Saudi participates too by announcing that oil is not going to be used as revenge, but as leverage. So he helps fuel a global crisis too by pushing down production. Oil importing economies are hit with a huge and sudden surge in costs. So inflation in the US rises from a about 3% in 1972 to 11% in 1974. In the UK we get inflation at 20% by 1975 alongside severe industrial unrest. And Japan, which is almost totally dependent on foreign oil, faces a sharp contraction that affects all of the energy intensive industries and takes the Japanese economic model of the post war period off the rails. So it produces something that policymakers have had very little experience with. High inflation combined with stagnant growth. So you can see why we thought this would be a good episode to talk about too, because today it's almost the same kind of thing.
- [33:45]
Afwa Hersh
And similarly, you would think having experienced this in the 1970s, the response would be by now much more equipped to mitigate the damage. But now as then, the traditional tools are of addressing economic shocks are struggling. So tightening or loosening monetary policy, which has been the main tool in the arsenal of industrialized countries, is no longer the right solution. And this really marks the end of a long post war boom where this has been able to manage economic stability, prevent unemployment. Now we are seeing those methods fracture across the Western world. And in the uk energy shortages lead to a three day week widespread labor unrest. Emergency measures imposed by governments, The Netherlands example, introducing car free Sundays. West Germany enforcing strict speed limits and fuel restrictions on cars across the continent. Petrol queues become omnipresent, a visible symbol of vulnerability. And this is at a time when the Western world has portrayed itself as the land of plenty versus the highly state controlled world of the Eastern bloc and the ussr. The idea that these kinds of measures would occur in peacetime in Europe and America as a result of conflict in the Middle east is a massive shock to the system. Peter.
- [35:15]
Peter Frankerpone
And across a lot of the developing world, particularly parts of Africa and Latin America, the consequences are both severe and they're often not reported imported and overlooked. So many African states were net oil importers and had limited foreign exchange reserves. Meaning that the sudden rise in energy costs strains already fragile economies. Governments facing rising bills for fuel imports alongside rising costs for fertilizer, for transport and manufacturing goods, all linked to oil. And now that contributes to a balance of payment crisis, to growing external debt and in some cases political instability. Could you give us a couple of examples Afra of where some of these things really start to bite hard.
- [35:55]
Afwa Hersh
Well, people are probably familiar with the economic instability that has wracked the nation we now know as the Democratic Republic of Congo, but at the time was still called Zaire, where Mobutu Sese Seko, who himself was put in place with the help of the CIA and European security agents, was already in a very economically fragile state. But this oil shock sent import costs spiraling, leading to a severe balance of payments crisis. And by the late 1970s, it led to invasions in the Katanga region that set off decades of conflict that still haven't been resolved today. If you look at Ghana, which is the nation myheritage, a net oil importer, its fuel import bill surged, causing total economic trauma. It fueled a cycle of coups, including the one by General Achiempong, which is still remembered by Ghanaians as an incredibly tough time, and later by Jerry Rawlings. And, you know, people at the time who visited Ghana, including members of my family, were having to take the most basic food items, tinned food, toilet paper tissues. It was so difficult to buy ordinary consumer goods. And the really shocking thing about how this affected many African countries is that even oil producers like Nigeria still relied on oil imports. Because until very recently, I mean, in the last few years, there was not a single oil refinery in Nigeria. So Nigeria was still exporting its crude oil and having to import oil for domestic consumption. So across the board, the more fragile the economy and the more weak its institutions, the more this crisis hit home. And I think it is really important, Peter, to remember, because we still think about this in terms of Britain and its three day week and Germany and its speed limit restrictions in a way that was nothing compared to the hardship that these nations in what we now might call the global south were experiencing.
- [37:50]
Peter Frankerpone
Yeah, that extends across the board. So you've got places like Brazil, which is heavily dependent on imported oil at the time, and it responds by borrowing extensively to sustain its growth. The Brazilian miracle. And although that avoids immediate problems, that stores up massive challenges in the late 1970s and early 1980s where there are debt crises, there's economic instability, there's political instability, and that those shocks are incredibly profound. What's interesting is, as well as it being a real reset to most of the world, the Middle Eastern countries that produce oil reap a bonanza. So oil exporting states see revenues surge dramatically. So Saudi Arabia's income, for example, rises from about $4 billion a year in the early 70s to over 20 billion by 1974. Saudi Something roughly similar happens in Iran too, and that encourages states to spend lavishly. So the Shah starts to think about heavy industry, about nuclear energy plans, about infrastructure, about massive arms purchases. And Iran becomes one of the largest buyers of U.S. military equipment in the world, where that money probably could be better spent on school sanitations, clean water and education. But the ambition there is breathtaking. Suddenly, countries in the Gulf feel that this is their moment to try and turn around and become part of the future. And those ambitions, I think, are really important to understand in the context of the 21st century too, because they define themselves as having benefited by finally standing up to the West. So although we live in a world or have been a world of globalization and of cooperation, these things have long and deep roots. And if you spend a lot of time in places like Saudi Arabia, Iran, the Gulf, you can hear those conversations happen about the long memories of history, about how these moments of pain in one part of the world can result in pleasure for others too. And one of the key figures that we both are interested in is the oil minister, Ahmed Zaki Yamani afo, who takes a very different view to the shah of what Saudi Arabia's direction should be.
- [39:53]
Afwa Hersh
He is a soft spoken, legally trained, highly disciplined diplomat, possibly the most important diplomat in the world in this era because he enters into these prolonged negotiations with oil companies and governments. He understands the fiscal needs of producers, which one of which he's from, of course as a Saudi, but also the economic fragility of consumers, and understands that it's actually not in the interest of oil producers to completely break the system and bring global consumers to their knees. So his strategy is not to do that, but instead to recalibrate the balance of power so that it still favors producers without triggering the collapse of the markets from which they earn their revenue. And this is crucial because without that, shocks can have cascade consequences that go far beyond what those instigating them intended to produce. So now we see the main major change that the 1973 shock has triggered.
- [40:56]
Peter Frankerpone
Peter so by the end of the decade, Gulf states are moving forward to majority or full ownership of oil assets. Those concession systems that have shaped the 20th century disappear and companies become contractors and partners rather than masters. And that means that there's a profound political shift too. That control of resources now lies with states, and in due course their sovereign wealth funds rather than with corporations. And oil starts to slowly reshape the global economy. As petrodollars are recycled into financial markets, into do real estate in central London, they reshape international banking and investment flows, they start to shape and dictate who invests in which technologies are where. That key economic shift takes time for it to see what the fruits really are. But it's something that is absolutely seismic and epic in its scale. So we're going to do a bonus episode for those of you who want to see what some of those consequences are. Basically, I think some of the most fundamental things that we do in our daily lives, like why we wear a seat belt, why cars are calibrated the way that they are today. We're going to think about if you come and join us over on Legacy plus, but this shock of 1973 shows how when what happens in one part of the world has dramatic impacts on others, the short shocks for energy markets can suddenly produce enormous dislocation that can take years to unwind. So that that pain that is is taken by Western Europe, we're looking at 10 years at least before that comes out the other side. So while we sit and can't quite yet tell what's going to happen with the energy and other related crises of 2026, we should be thinking about low income countries, the impact of lack of fertilizer coming through to large places of Africa just at the beginning of their planting season, the fact that high energy production of things like aluminium and helium mean that the ability to get CAT scans in every part of the world is going to become either more difficult or more expensive in the future. But to think about those cascade consequences that you mentioned, afwa, if you want
- [42:53]
Afwa Hersh
to hear more about the Legacy effects of this shock, including the creation of the International Energy Agency, the formulation of the US Strategic Petroleum Reserve, investment into nuclear power, the development of North Sea oil, and of course the proliferation of interest and investment in renewable energies, all of which have their roots in this 1973 shock. Then tune in to our bonus episode for subscribers only. You can become a subscriber and join our inner circle. Just go to Legacy supportingcast FM and we look forward to seeing you there or next time here on Legacy.
- [43:35]
Peter Frankerpone
Don't forget you can watch all our episodes on Spotify and YouTube too. And for everything else including our substack and updates on Tik Tok and Instagram, just check out the show notes or search Legacy Podcast. I'm Peter Frank.
- [43:46]
Afwa Hersh
I'm Afra Harsh and we'll see you on the next episode of Legacy.
- [44:14]
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- [44:35]
Peter Frankerpone
Is it in you?
- [44:36]
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