The First Marshall Plan for the Middle East by Pres. Truman

[johnkarls]

.
Editorial Note: This is quite a long “nit pick” with Benazir Bhutto over whether there has already been a Marshall Plan for the Middle East (literally). It was instituted in 1950. However, as a “nit pick” this essay can easily be skipped unless one is curious.

*****
One of Benazir Bhutto’s major proposals in “Reconciliation: Islam, Democracy and the West” is for a Marshall Plan similar in scope to the original Marshall Plan for re-building Europe following World War II.

She says that the original Marshall Plan for Europe cost $20 billion which she contends would be only $185 billion in current inflation-adjusted dollars ("yours truly" is certain that the intervening plummeting of the dollar has been much more severe).

But she contends that this would compare quite favorably with the $500 billion spent already on Iraq War II, and the $2 trillion that will have been spent on it by the time it finally reaches a conclusion (if it ever does) including the on-going medical costs of disabled veterans for the rest of their lives.

*****
I regret having to “pick a nit” with Benazir Bhutto vis-à-vis her claim that there has never been a Marshall Plan for the Middle East or the Islamic World.

There was a Truman Plan (aka Marshall Plan) for the Middle East, literally!!!

The reason for the slight fudging vis-à-vis the name is that the Marshall Plan for Europe was a policy decided by Truman after consulting all of his advisers but, because Gallup polling ascertained that 85% of U.S. public opinion wanted to “turn its back” on Europe following the end of the war, Truman decided that it was essential to name the plan after George Marshall, the War Department’s overwhelmingly-popular Secretary of the Army during World War II and Secretary of State 1947-48.

However, by the time Truman decided on a “Marshall Plan” for the Middle East, George Marshall had resigned as Secretary of State to head the American Red Cross. The Truman Plan (aka Marshall Plan) for the Middle East was already being implemented when George Marshall returned in 1950 to become, for less than a year, the third Secretary of Defense.

*****
The first thing to realize about the Marshall Plans (and something Benzair Bhutto does not admit) is that they were designed almost exclusively to prevent the spread of communism.

With regard to the specifics of the Marshall Plan for the Middle East, the Truman Administration was extremely concerned about Soviet penetration into the Persian Gulf oil fields.

And decided to make Saudi Arabia the bulwark of the defense against Soviet penetration.

But how to get funds into the hands of nearly-destitute King Saud???

Editorial Comment: I am qualified to attest to the following from having served as the Senior Tax Counsel and Director of Worldwide Tax Planning for Texaco 1974-87 when it was a Fortune-10 company – one of my responsibilities was participating in the Aramco Shareholders’ Tax Committee which oversaw Aramco’s tax matters during the transition to Saudi ownership 1973-82 and which required numerous trips to Saudi (and to London where all good Saudis preferred to meet) and another of my responsibilities was participating in the Caltex Shareholders' Tax Committee which oversaw Caltex' tax matters. The Aramco transition to Saudi ownership, incidentally, was particularly tricky as we were left to explain to the IRS vis-à-vis the integrity of Aramco’s foreign tax credits what was actually happening with regards to the claims vis-à-vis his OPEC counterparts of Saudi Oil Minister Yamani (who was NOT a member of the Royal Family as virtually all other ministers were) and his inability to actually have what he claimed to be true actually approved by the Council of Ministers!!! (But that’s another story, and a long and involved one!!!)

By way of background, King Saud created the country of Saudi Arabia by constantly traveling around the peninsula and visiting the various nomadic tribes. In doing so, he kept only three permanent wives and kept the forth slot under Islamic law available to marry a member of whatever local tribe he was visiting and then divorce her upon his departure. Which is why Saudi Arabia’s so-called “Royal Family” was estimated to number 10,000 in the mid-1970’s and every little cross-road town had its own Royal Princes and Princesses!!!

Standard Oil of California (now known as Chevron) was one of the fragments resulting from the US Supreme Court’s break-up in 1911 of the Rockefellers’ Standard Oil Trust. Indeed, 3 of the famous “Seven Sisters” were part of the Rockefeller Trust – including SO of New York (SOCONY became known as Mobil, which is now part of Exxon-Mobil) and SO of New Jersey (now known as Exxon). And that doesn’t even count the 8th sister, SO of Indiana (now known as Amoco). Or that a 4th of the Seven Sisters, British Petroleum, from the viewpoint of current wealth, can largely be traced to reinvestment of the profits of the old S.O. of Ohio which was acquired in 1968.

SoCal had a “Midas touch” for finding oil. And, despite Benazir Bhutto’s incorrect claim in her discussion of Indonesia that the Netherlands’ East India Company was the predominant oil company there prior to World War II, SoCal had in fact discovered virtually all of the oil there from the beginning in the 1920’s right through the end of my association with the oil industry in 1987.

SoCal also had substantial production in Bahrain, whose ruler was related to King Saud and who was constantly twisting the arms of SoCal geologists on behalf of his destitute relative to explore in Saudi.

To mollify the Ruler of Bahrain, the SoCal geologists who viewed Saudi as a very unpromising area, agreed to acquire for a pittance 100% of the oil and gas rights in Saudi Arabia. The acquisition agreement, because Saudi was thought so unpromising, also calling for a pittance as a royalty if anything was discovered and an exemption from any income taxes if they were later invented (Muslims are only liable for charity (tithing) which is usually collected by Arab IRS’s (aka DZIT’s – Departments of Zakat (charity collected at the 10% rate from Muslims) and Income Tax (collected from foreigners at much higher rates)).

Further arm-twisting by the Ruler of Bahrain had, by 1933, forced SoCal to drill 7 wells in Saudi and they were all dusters!!!

In 1933, all of SoCal’s Eastern Hemisphere operations (which were solely exploration and producing operations) were merged with Texaco’s Eastern Hemisphere operations (which were solely refining and marketing operations). (European operations were separated following World War II as a result of a U.S. Supreme Court anti-trust case.)

The raison d’être of Caltex???

Texaco was the result of a group of nobodies scrimping enough money to drill a well in 1901 that happened to be atop Spindletop, the largest oil field ever discovered in Texas!!!

This was 2 years before even the Stanley Steamer, much less conventional gasoline engines.

The primary uses for petroleum in those days were as lubes/greases for horse-drawn carriages/wagons and displacing whale oil in lanterns.

And East of the Mississippi was long since “sown up” by the Rockefellers (this was 10 years before the famous anti-trust case) and the Mellons (Gulf Oil Co).

So within a year or so, there was the Texas Company Japan, the Texas Company China, the Texas Company Philippines, etc., to market Spindletop crude oil in the only markets still available!!!

And since discovery by SoCal of oil in Indonesia and Bahrain in the 1920’s, SoCal tankers fully laden had been transporting Sumatran/Bahraini crude oil to California while Texas Co tankers fully laden had been transporting Spindletop crude in the opposite direction to Asia!!! (And then the tankers would pass each other empty on their return voyages!!!)

How did this impact the discovery of oil in Saudi???

The Ruler of Bahrain was once again in 1933 “twisting the arms” of CoCal geologists on behalf of his destitute relative, King Saud!!!

And a proposal had been submitted by the SoCal geologists to drill 7 new wells, and to deepen the old 7 dusters.

But, since they were now Caltex-Bahrain geologists submitting a recommendation vis-à-vis Caltex-Arabia, the proposal had to be approved by Texaco.

Texaco’s legendary decision???

OK, provided the Caltex-Bahrain geologists would all be informed that they would be fired if they proceeded and no oil was discovered.

The Caltex-Bahrain geologists decided to gamble!!!

And the 7 new wells were all dusters!!! But only 6 of the 7 deepened wells were dusters!!! The 14th came in!!!

*****
THE 1950 MARSHALL PLAN FOR THE MIDDLE EAST

Having decided to make Saudi Arabia the American bulwark against Soviet expansion into the Persian Gulf, President Truman had to figure out how to get funds to destitute King Saud.

Because although there were many more oil discoveries by Caltex-Arabia after 1933, King Saud was only getting the originally-agreed pittance of a royalty.

And to make matters worse, Caltex was unable to absorb in its refining/marketing system what was coming on line and was hiding new discoveries from King Saud so that he wouldn’t impose a partial nationalization and sell the nationalized piece to Caltex competitors. Indeed, this situation had become so bad by 1948 that SoCal and Texaco decided to let Exxon into Caltex-Arabia for 30% and Mobil in for 10% rather than see the same thing result from a partial nationalization under which SoCal and Texaco would have netted very little.

But in 1950, even Caltex-Arabia (now re-named Aramco because of its new 30-30-30-10 ownership) was still only paying the pittance royalty.

So the Truman Administration sent a delegation to Saudi to instruct King Saud to impose an income tax on Aramco, even though the agreement of the California-Arabian Standard Oil Company ("CASOC" which became Caltex-Arabia which became Aramco) with King Saud provided an exemption from any Saudi income tax, if one were ever invented.

The Truman Administration told King Saud not to worry about any objections from the Aramco shareholders – that Truman would take care of them!!!

And meanwhile, the Truman Administration told the Aramco shareholders “to sit on it and rotate” (please pardon my French) because the Saudi income tax would not “come out of the hide” of Aramco because it would be able to claim a foreign tax credit for the Saudi tax against the U.S. income taxes it would otherwise pay!!!

The reason explained on a confidential basis to the CEO’s of the 4 Aramco shareholders by Truman – he had had enough trouble getting the Marshall Plan for Europe approved by Congress because of the 85% American public opinion opposing aid for Europe, so he had decided to by-pass Congress on the Marshall Plan for the Middle East by having the Middle East oil-producing countries decree income taxes that would have the effect of diverting American tax revenues to those countries WITHOUT CONGRESSIONAL APPROVAL.

One hilarious footnote in the whole imbroglio???

The American diplomats and foreign-tax-credit experts that went to Saudi to instruct King Saud to impose an income tax on Aramco did not explain sufficiently that King Saud must issue a Royal Decree comprising the entire draft that they provided him. He only decreed a portion of the draft (the so-called “November Decree”). The American delegation returned to Saudi and explained that without a Royal Decree of the remainder of the draft, the income tax would not be creditable against Aramco’s U.S. income taxes. King Saud did as instructed (the so-called “December Decree”).

Then the Truman Administration served Aramco with a published IRS ruling, which was probably the only un-solicited ruling in the history of the IRS, that the Saudi income tax qualified for the foreign tax credit.

When Eisenhower swept to victory and, with him, new Republican majorities in both houses of Congress, Republicans were irate that the Truman Administration had implemented a Marshall Plan for the Middle East without Congressional approval!!!

So they held public Congressional hearings!!!

And subpoenaed all of the Truman Administration diplomats and foreign-tax-credit experts who had traveled to Saudi twice to instruct King Saud what to do. During the Congressional hearings, they all had amnesia despite the stamps in their passports which they were forced to produce for the record!!!

Luckily, the proverbial “cooler heads” prevailed – Eisenhower became convinced by Churchill (who had returned to power) and Truman that the Soviet Union should be contained.

Though, unfortunately, one of the “cooler heads” in this regards was Senator Joe McCarthy who shortly thereafter began his notorious anti-Communist hearings spear-headed by a fanatical junior committee staff attorney by the name of Robert Kennedy whose position had been procured by Joe McCarthy’s old friend, ultra-conservative and un-repentant Nazi sympathizer as our Ambassador to Britain during the Neville Chamberlain era, Joe Kennedy. Robert Kennedy's fanaticism and zeal on behalf of the McCarthy Committee is the reason why liberals never really trusted him for the rest of his life and why the name "Robert Kennedy" was rarely mentioned in the media without the term "ruthless" included in the same sentence!!!