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Global Economic Impacts of Middle Eastern Conflict
Throughout history the Middle East has been home to some of the most powerful
and influential empires in the world. As with all great empires they did not arise without
difficulty. Though the Middle East has had periods of great prosperity, it has also had
periods of poverty and stagnation. Within the last one hundred years the Middle East
has seen many changes relating to borders, religions, and international politics. Much of
the changes that have happened originated from diverse ways of thinking especially
when it comes to religion and culture. Conflicts that occur in the Middle East such as
Israel, Iran, Iraq, Saudi Arabia, and Afghanistan have monumental effects on the global
economy predominately due to the massive oil industry in the region and competition
between outside nations trying to expand influence.
The Ottoman Empire was created in 1299 and lasted until about 1920 and was
so large it tied many parts of the Middle East together. In 1920 after the end of WWI the
Allies agreed on a plan to dissolve the Ottoman Empire and break it into multiple
regions.1 Any time a plan like this is implemented by outsiders it is usually fraught with
fighting and civil war. As the borders were changed and control of these different
regions was given to Britain and France, there was dissatisfaction. There were attempts
by the Arabs and form independent states but were unsuccessful because they lacked
military and economic power to break free from European control. Interestingly enough
one problem even the British could not handle was between the Zionist and Arab
nationalists in Palestine, a problem that is so deeply seated in ideology a solution
seems impossible. Although the Arabs were unable to form independent states with
opposition from the Europeans this all ended after WWII when they removed
themselves from the region. In 1948 Israel was founded and was the beginning of a new
conflict between the Israelis and the Arabs.2
Kent, Marian. The Great Powers and the End of the Ottoman Empire. 2nd ed. London: Frank Cass, 1996. 168
Bickerton, Ian J. Arab-Israeli Conflict: A History. London, GBR: Reaktion Books, 2009. Accessed September 26,
2014. ProQuest ebrary. 68-86
The Iran Crisis of 1946 is another major issue that indirectly has ties with Israel
as well as the United States. In 1941 during WWII the Allies invaded what is now Iran
because of its importance to the Soviet Army allowing them to receive supplies from
America and the British. However in 1946 after the war had ended the Soviet Union
refused remove their troops from Iran. Only after official complaint from the US did the
United Nations pass Resolution 2 which called for Iran and the Soviet Union to come to
a diplomatic agreement.3 Within two months the Soviet troops were withdrawn from
Iran, but this was not the end of the Soviet Union’s attempts to gain power and influence
in Iran. The following year the Soviet Union tried to collect on the deal reached in 1946
that led to the removal of their troops, which was the Soviet-Iranian oil agreement. This
would have given the Soviets a large control over their oil resources. This coerced
agreement was ultimately rejected and never came to fruition for the Soviets.
The Iranian Crisis of 1946 and the founding of Israel can be looked at as two
highly important issues for the starting point of the Cold War. The US support of the
Israel was in their best interests. In the same way the Soviet Union tried to work its way
into a position of influence in the Middle East which would have allowed them to benefit
when it came to oil production, regulation, and control; the US has grabbed a footing
through Israel. While the US helps Israel maintain its position in a place where it is
unanimously despised by the surrounding Arab nations, Israel is able to look out for US
oil interests by continuing to be the dominant military force in the region.
In the following years US relations with Israel continued positively and led to the
sale of Phantom fighters to Israel in 1968 after the Six-Day War. The US chose to
strengthen Israel’s military power which improved their confidence in one another. As
diplomatic solutions were consistently unsuccessful and the Arab states were
introducing things like the “three NO’s” policy; no peace with Israel, no recognition of
Israel, and no negotiations with Israel. As well as an Arab oil embargo on any country
that was supporting Israel military. Although this policy did not cause any harm to the
Fawcett, Louise L Estrange. Iran and the Cold War: The Azerbaijan Crisis of 1946. Cambridge: Cambridge
University Press, 2009. 47-56
US because of poor implementation and no rigid plan, it potentially could have been
much worse. This decision was completely supported by congress as Israel began
fighting all out wars. The War of Attrition which started in 1967 just after the Six-Day
War and lasted until 1970, was the cause for such support from the US.
A few years after the War of Attrition the Organization of Arab Exporting
Countries (OAPEC) established an oil embargo on the west. With an increase of nearly
four times for the price of a barrel, there was a drastic effect on the economies of these
countries. Since the global economy relies on many countries even the ones that
weren’t placed on this embargo list they were still effected. As this hit the US economy
hard it had a domino effect on the rest of the world. Immediately the US started looking
for a solution to this problem and within six months was able to resolve the conflict over
Israel expanding its territories. This became a way for the Middle East to exert power
over the west which had dominated them for decades. The oil embargo became to be
known as the “oil weapon” which as odd as it may sound they found a way to apply real
pressure and gain influence with the rest of the globe, all without using military might.
Six years after the oil crisis of 1973 there was another oil shock. This one
however was not due to an oil embargo but a revolution in Iran that was largely based
on religious differences. The Islamic revolution only slightly decreased the global oil
supply but caused panic because of the resemblance to the oil shock of 1973. The
official change of power in Iran occurred in Iran but prior to that there was civil
disobedience and resistance in 1977 and 1978.4 Another major aspect of this revolution
was that the leader of Iran was supported by the US and was pro west, but when he fell
from power he was replaced by a vehemently anti-west supreme leader Ayatollah
Khomeini. The previously existing Iranian monarchy was overthrown and the Islamic
Republic rose in its place.5 This also sparked resistance in Saudi Arabia the same year,
and Egypt, Syria, and Lebanon within five years. The replacement of the Monarchy and
Axworthy, Michael. Revolutionary Iran: A History of the Islamic Republic. Oxford University Press, USA, 11. 76-132
Axworthy, Michael. Revolutionary Iran, 11. 133-186
the vocal calls to replace all Monarchies with Islamic Republics, put a damper on
relations with the surrounding Arab states that were mainly Monarchies.
Almost immediately after the Iranian revolution ended a war broke out, when Iraq
invaded Iran on September 22, 1980. This Middle Eastern conflict was longer than all
the previous ones but affected the economy in a similar way. Within one year of the
start of the war Iraq’s oil production, which had just been starting to pick up before 1980,
was cut by more than 70 percent due to the war. Not only did this war drop off oil
production in Iraq and Iran but, the battles lines were very near to Saudi Arabia’s oil
lines and actually affected their production. With Saudi Arabia’s oil production being the
highest in the region even a relatively small impact on the percentage of their oil output
is much greater than other countries. Naturally war in the region with major oil
producers is always going to have some effect on the global economy, and in this case
it not only did that but also ended up bring in the USSR and the US to protect Kuwait’s
ships in the gulf, to defend against the Tanker War declared by Iraq.6 The US joined
these efforts only after the USSR stepped up, once again the Cold War tensions can be
seen as the US wanted to control the USSR’s presence in the gulf.
A short two years after the start of the Iraq-Iran war another war erupted, adding
to the turmoil in the region, when Israel invaded Lebanon. With Israel being the odd
man out in a region filled with Arab enemies it may seem surprising that they were the
first to invade. In part this invasion was caused by an assassination attempt of their
Ambassador to the United Kingdom. They believed that the Palestinian Liberation
Organization PLO which had a presence in Lebanon, were the ones who carried out this
attack. Prior to this event there had already been much fighting between Israel and the
PLO at Israel’s northern border which was then intensified by this attack. As Israel
fought up into southern Lebanon they were successful in pushing the PLO out of which
gave them more breathing room and time to react to future attacks without being
pushed into their homeland. Eventually with the help of the US a peace agreement was
reached that led to the withdrawal of Israeli troops, but a permanent security zone being
Walker, George. The Tanker War, 1980-88 Law and Policy. Vol. 74. Newport, R.I.: Naval War College, 2000. 35-36
established and patrolled by both countries. This war again emphasized the
involvement of the US in the Middle East keeping them drawn in politically and
financially to many other areas.
One of these areas that caught US attention was the war in Afghanistan,
particularly because of Soviet involvement. The Soviets came at the request of
Afghanistan leaders, who asked for help stopping the Mujahideen rebels. As the Soviets
fought for Afghanistan, the rebels were supported by the US, Saudi Arabia, Egypt, and
many more. Billions of dollars were spent by both sides but that was only part of the
impacts of this war. Of even higher importance were the strained international relation.
The US had fears of the Soviets back in the Middle East and were wary of their
intentions, disconcerting feelings of oil control and nuclear war were not far from mind.
Problems in the global economy worsened when the US placed an embargo on the
Soviets pertaining to grains and weapons, not so much from the embargo itself but
rather from what it represented, fear and distrust among two global powers.
In a way each of the events contributed a one longest war in recent times, the
Iraq War of 2003. For the US this was the culmination of all their efforts over the past
100 years. The US involvement in the Middle East had been slowly increasing mainly in
supporting roles, until 2003. This war that was started to stop Saddam Hussein and
eliminate Weapons of Mass Destruction (WMD’s) and cost the US more than a trillion
dollars this shift towards military spending also slowed down US job market, production,
and economy as a whole. Furthermore it disrupted Iraq’s oil supply and caused a drop
in production which hurt a number of nations and the global economy.
Collectively these countries: Israel, Iran, Iraq, Saudi Arabia, and Afghanistan hold
one of the greatest forces of leverage over the west, the “oil weapon”. So long as the
world is run on oil this will a major component of the global economy. Looking back at
some of the major conflicts over the past one hundred years we can see power this
weapon has. To not only suck in foreign countries and create international conflicts, but
to wreak havoc on the global economy when there are civil wars contained in the
region. The ability to look back on these conflicts and understand the roots causes, and
equally as important the outcomes of these events, is the most valuable tool available
when analyzing these situation today to ensure the best decisions are being made.