Disorder, page 4
Yet despite the massive financial power the United States enjoyed, the actual geopolitical power it could exercise in Eurasia was seriously constrained by geography, ongoing European oil ambitions, and the country’s own democratic politics.31 The legacies of these interwar limits to American power are still pertinent to the geopolitical fault lines at work today, as indeed are the failed bids of the large European states after the First World War to escape dependency on American oil.
The most glaring immediate weakness in American power lay in the Middle East. The principal geopolitical gain available during the First World War was Ottoman territory in the oil-rich Middle East, allied to strategic control of Constantinople and the Dardanelles.32 But the American president who took the United States into the war, Woodrow Wilson, never declared war on the Ottomans, although this did not stop him in his Fourteen Points for the post-war world pronouncing on the Ottoman Empire and the Dardanelles’ fate. After the war ended, the United States was not legally party to any of the treaties pertaining to the Ottoman Empire’s dissolution.33 When, at Versailles, various proposals were floated for an American mandate for administrative rule over various former Ottoman territories without formal annexation, Wilson said that he ‘could think of nothing the people of the United States would be less inclined to accept than military responsibility in Asia’.34
By contrast, from the summer of 1914, the European powers competed militarily to extend their empires into the Middle East and Anatolia as well as for control of the waters connecting the Black Sea to the Aegean via Constantinople. In taking the Ottoman Empire into the war as a German ally, the Kaiser secured the declaration of an Islamic jihad against Britain, France, and Russia in the hope that a revolt by Muslims from the Middle East to India would procure a German sphere of influence from the Dardanelles to the Persian Gulf.35 At the start of the war, Britain moved its Indian Army troops to protect the oil refineries at Abadan in Persia and occupied Basra in Mesopotamia. Later, British imperial forces captured Baghdad and Mosul. During the war, Britain, France, and Russia secretly agreed in the event of victory to divide up the Ottoman Empire, including giving Russia Constantinople, and made other covert agreements to grant Italy much of south-western Anatolia. If Germany had succeeded in its 1918 spring offensive, it would have dominated, in alliance with the Ottomans, the Middle East and the Caucasus and subordinated Persia.36 As it was, Britain and France forced an armistice on the Ottomans that gave the British control of the Dardanelles and pushed the Ottomans out of the Caucasus, including Baku and Batumi. This proved overambitious: Britain was unable to retain the Dardanelles, the Soviet Union militarily retook the Caucasus, and the British hope that Greece would take Constantinople was dashed by the Turkish National Movement’s military success in the Turkish War of Independence. But Britain still emerged from the First World War with the League of Nation mandates to administer Mesopotamia and Palestine, its sphere of influence in Persia not only preserved but more secure from other powers than before, and, by 1923, it had gained the advantage of a demilitarized Dardanelles.37 Although the Iraqi revolt in 1920 ended the Mesopotamian mandate before it began and Iraq acquired formal sovereignty in 1922, Britain retained control over Iraq as a geopolitical space, leaving London in control of the Persian Gulf from its head to the coastal emirates, which were British protectorates, at its mouth.
Post-war administrations in Washington were acutely aware of the implications of the American absence from the Middle East and the British and French bids for oil independence.38 Having expended so much oil supplying the Allies, the United States became in 1919 a net importer of oil and remained so for the next three years. Wilson concluded that ‘there seemed to be no method by which we could assure ourselves of the necessary supply at home and abroad39.’ Following the armistice, the British government stopped Standard Oil of New York from pursuing its pre-war claim in Palestine and American geologists moving into Mesopotamia. To American fury, Britain and France then concluded the 1920 San Remo Oil Agreement, giving Deutsche Bank’s 25 per cent share of the Turkish Petroleum Company to France.40 By 1919–20, the reality was that British companies, despite controlling less than 5 per cent of the world’s oil supply, now possessed at least 50 per cent of the world’s known oil reserves.41 Subsequently, the US State Department endeavoured to impede negotiations between the Iraqi government and the Turkish Petroleum Company over the pre-war concession granted by the Grand Vizier, claiming it was void.42 But the Turkish Petroleum Company resecured the concession in 1927, and oil was discovered in Iraq the same year.
Through the second half of the 1920s, the American position did improve. Worries about immediate oil supply were abated by large oil discoveries in Texas. Seeing the benefits of an injection of American capital in the Iraqi oil fields, the British allowed an American consortium—which included Standard Oil of New Jersey and Standard Oil of New York—to join a reconstructed Turkish Petroleum Company that became the Iraq Petroleum Company (IPC). But the American companies remained constrained by Britain and France. The IPC’s 1928 Red Line Agreement gave each partner, which meant via the Anglo-Persian Company the British government, a veto on any other independently pursuing oil inside former Ottoman territory as the Ottoman Empire had existed in 1914. This arrangement effectively shut out the American firms in the IPC from exploration around the western Persian Gulf. In 1929, the British government relented enough to let Standard Oil of California drill around the island of Bahrain. When oil was discovered there in 1932, prospects that there was also oil in Saudi Arabia improved. In good part thanks to the duplicitous manoeuvring of the British official Jack Philby who was advising him, the Saudi King granted an exclusive concession for exploration in the kingdom to Standard Oil of California rather than the IPC.43 In the future, this oil would give Washington leverage over the European governments. But the American commercial presence in Saudi Arabia was first born from American geopolitical weakness and concurrent British geopolitical strength in Persia and Iraq.
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Between 1914 and 1941, American democratic politics would also make it impossible for the United States to use its military and financial power to act decisively as a Eurasian power.44 This domestic constraint was apparent from the start of the First World War. During the war, the American capacity to provide credit to Eurasia emerged independently of the American state. When Wilson was resolutely opposed to American military intervention, the British government turned to Wall Street to finance a transatlantic supply line. One New York bank, JP Morgan, became the purchasing agent and creditor for Britain and France and by extension the rest of the Allies. Wilson’s unsuccessful efforts to constrain JP Morgan reflected his knowledge that many voters, especially those in states west of the Mississippi, disliked and distrusted the New York banks. Wilson fought the 1916 presidential election using the campaign slogan ‘America First’ against a pro-war Republican candidate supported by JP Morgan. When, in April 1917, Wilson did take the United States into the war, he insisted that the fighting would be financed by Liberty Bonds purchased as government debt by millions of American citizens. The republic could not, he believed, be involved in any conflict readily damned as ‘a bankers’ war’ or lacking political support from one coast to the other.45
Even the eventual American military entry to the war in 1917 ultimately arose because of a risk that the conflict in Eurasia would spread to the Western Hemisphere. Germany’s return in February 1917 to unrestricted submarine warfare in the Atlantic pushed Wilson closer to declaring war on Germany. But one month later, Wilson was still describing the prospect of the United States fighting in Europe as a ‘crime’.46 Only Germany’s offer to ally with Mexico against the United States—whereby Germany would support a Mexican annexation of Texas, Arizona, and New Mexico—finally pushed Wilson to declare war, and, even then, exclusively against Germany. This left Britain and France to their war against Austria-Hungary and, rather consequentially, the Ottoman Empire.
When Wilson became a proponent of American leadership in Eurasia, he ignited his own domestic resistance. Anti-war sentiment contributed to the Democrats losing control of both Houses of Congress in 1918. When the new Senate met, Wilson could not ratify the League of Nations provisions of the Versailles treaty. Indeed, the divisions within his own party between more Anglophile Americans on one side and German and Irish Americans on the other demonstrated that any domestic consensus on European matters in the US Congress was near impossible.
Throughout the 1920s and 1930s, the discourse that the First World War was the ‘bankers’ war’ persisted. Members of Congress regularly attacked the New York Federal Reserve Bank President, Benjamin Strong, as a JP Morgan stooge, impeding his efforts to work with European central banks to stabilize European currencies and return them to a fixed value against gold.47 The ‘merchants of death’ became a phrase frequently used to describe the relationship between Wall Street and the manufacturing companies that had benefited from JP Morgan’s participation in the British and French supply chain. Between 1934 and 1936, a Senate Committee investigated Wall Street’s role in the United States entering the First World War, leading Congress to pass neutrality laws in 1935 and 1936, with the second banning loans to belligerents.
Meanwhile, the domestic unpopularity of writing off any Allied war debt shaped the entire Versailles settlement on reparations and made the peace Wilson had supposedly sponsored inherently unstable. The New York Federal Reserve, which was operationally responsible for dealing with the European states’ financial obligations and credit requirements, favoured the reduction and perhaps cancellation of Allied war debts.48 But, again, Congress insisted on curtailing the executive, passing legislation in 1922 for a World War Foreign Debt Commission to negotiate the terms of British and French loan repayments.49 So long as the American president could not concede on Allied war debt, Britain and France, fiscally enfeebled by the war as they were, could not lessen their demands for German reparations. When, in the early 1930s, most European states finally repudiated these debts, Congress prohibited any state that had defaulted on their loans from borrowing in the United States.50
Yet the domestic constraints on American financial power paradoxically ensured there could be no American escape from Eurasian affairs. The French and Belgian occupation of the Ruhr to extract German reparations and Germany’s hyperinflation ignited the prospect of war and financial meltdown. Rather than entertain these risks, the Harding administration agreed to use American financial power to end the Ruhr crisis via the Dawes Plan, with JP Morgan making a large loan to France and organizing with the Fed a massive bond issue for Germany, in which the American government encouraged ordinary American citizens to invest. Sustained by American credit, Germany could make reparation payments.51 But this made American financial stability, as well as American democratic politics around savings, vulnerable to the risk that Europeans had insufficient dollars to service their debt.52 It also offered a path for Germany to wriggle away from Versailles. Since American politicians could not politically privilege the French and British claim to German money over American bondholders receiving interest from Germany, they had acquired an incentive to shift Britain and France away from reparations, regardless of what consequently ensued for the balance of power in Europe.53
Between 1929 and 1932, these American democratic constraints played their part in the end of the financial side of the Versailles treaty. Under depression conditions, Germany could not pay reparations or service dollar debt. When, at the 1932 Lausanne conference, President Hoover finally brokered an agreement ending those reparations in exchange for an Allied debt-reduction plan, Congress rejected the proposal. Since Congress would also not authorize new American credit, this left Germany free from its financial obligations under Versailles and, ironically, free also to repudiate its American debts.54
Franklin Roosevelt’s response to what by 1933 had become a cross-Atlantic banking crisis weakened American financial power further. For Roosevelt, the domestic corollary to geopolitical financial power was Wall Street’s political influence. On his first day in office, Roosevelt closed all the banks and suspended the export or private holding of gold. Contrary to almost all advice he received, he then removed the dollar from the gold standard in the hope of stabilizing the banking system and raising prices for domestic producers. To many this seemed incomprehensible since the United States still possessed the world’s largest gold reserves.55 But Roosevelt was determined to prioritize the domestic economy—for reasons that will be discussed in chapter seven. He dealt the final blow to the gold standard when, from his yachting holiday off the New England coast, he sent a cable for release at the 1933 World Monetary and Economic conference in London telling the American negotiators that they should not concern themselves with the ‘old fetishes of so-called international bankers’.56
If the First World War had created American financial power, the peace had shattered it. Between 1924 and 1932, American presidents, the Fed, and JP Morgan had endeavoured to use that power to stabilize Europe. But the constraints Congress placed on managing the debt and the sheer volume of American lending to Germany rendered the United States impotent during the economic and geopolitical crisis unleashed in Europe by the 1929 crash.57 The monetary instability let loose by the resulting German crisis spread back across the Atlantic. Thereafter, the American president had to choose between domestic politics and the geopolitical sphere. Roosevelt made his America-first choice with some dramatic flair. Yet, given that the American capacity to act coherently in Eurasia had been domestically inhibited from the time the First World War began, that he chose as he did in a national economic emergency could scarcely be surprising.
American Energy Power Returns
The economic and political disorder that materialized in Eurasia after the 1929–33 crisis allowed Germany, Japan, Italy, and the Soviet Union to engage in violent territorial expansion. In this sense, the United States had proved an extremely ineffectual Eurasian power. But in moving the world towards an even more catastrophic war, the first three unleashed American energy power, ultimately making American military and financial power an overwhelming presence across much of Eurasia.
Like its predecessor, the Second World War is inseparable from energy geopolitics. In the technological age of air power, the need war generated for oil was overwhelming. This was overt in the case of Japan’s imperial expansion. It was no less consequential in Europe. In the years between 1919 and 1939, all the major European powers wanted to be rid of importing oil from the Western Hemisphere and, in contrasting and conflicting ways, sought energy supplies in Eurasia that they could control.
Unlike Britain and France, Germany did not have an empire or spheres of influence in the Middle East and was near entirely dependent at the start of the interwar years on oil coming from the Western Hemisphere.58 To try to reverse this weakness, Weimar governments from 1926 actively supported IG Farben’s project to develop a synthetic oil plant at Leuna in Eastern Germany whereby coal would be transformed into oil through hydrogenation. For Gustav Stresemann, the German foreign minister, this project, helped from 1929 by Standard Oil of New Jersey, represented a German reason of state. Germany had, he said, no foreign policy without the German chemical company and coal.59
Wanting war, the Nazis saw ending Germany’s foreign energy dependency entirely as an urgent imperative. Hitler believed that the need to import raw materials and oil had brought about defeat in 1918.60 His 1936 Four-Year Plan presumed that Germany could be fully independent from imported oil by 1940.61 But Nazi Germany never solved its oil problem. Although the Leuna plant delivered synthetic oil to the Luftwaffe, Hitler had not achieved German oil independence when he attacked Poland in 1939. With Britain’s naval blockade shutting Germany off from importing any more oil from the Western Hemisphere, Germany was instead dependent on supply from Romania, the Soviet Union, and, after June 1940, French reserves.
Militarily, the Nazi strategy required Germany again to use submarine warfare to prevent the United States supplying Britain. But the Germans could make no decisive breakthrough in 1940 and 1941 against British oil supplies via the Atlantic. With Germany’s oil supplies from the Soviet Union coming under increasing strain and Soviet troops having captured north-eastern Romania, Hitler gambled on invading the Soviet Union. Hitler’s motives have long aroused historical controversy. But Germany simply could not win a war in which the United States was supplying the British Empire without securing control of Soviet oil, 90 per cent of which came from the Caucasus.62 Whatever other motives, born of his apocalyptic obsession with Lebensraum and hatred of Bolshevism, Hitler brought to bear on Operation Barbarossa, and however far those preoccupations shaped the catastrophe that followed, oil weakness was a near sufficient motive for the invasion. The German failure at Stalingrad set Germany on an inevitable path to defeat. Shortly after, the Allies finally vanquished Rommel’s oil-starved forces in North Africa, allowing the Italian campaign to begin.63
Britain failed too in its bid for energy independence during the interwar years. British governments expended huge efforts in the 1920s and 1930s on establishing a secure oil supply extracted and transported by British-owned companies from within the British Empire and sphere of influence in the Middle East. A memo to the War Cabinet prior to the San Remo agreement read: ‘The overwhelming extent of our dependence on the United States of America for fuel oil during the War, and the rapidly growing use of oil in the mercantile marine makes it important that every endeavour should be made to open sources of supply under British control.’64
But by the mid-1930s, even as it had succeeded in cutting American imports to around 10 per cent of its total requirements, Britain was still receiving more than half of its oil from the Western Hemisphere, notably Venezuela and Mexico. There was limited output from the British Iraqi oil wells and Britain could not by itself militarily protect its Iranian supply. Italy’s invasion of Abyssinia in 1935, and the American unwillingness to support oil sanctions against Mussolini, critically exposed Britain’s weakness in the event of a European war. So long as Italy, backed by German air power, could close the Mediterranean entrance to the Suez Canal to British tankers, oil from the Anglo-Iranian Oil Company in the Gulf could only reach Britain more slowly, coming around the Cape of Good Hope.65 After the Abyssinian crisis, the British government started planning for a war in which the Mediterranean would be closed to Britain, an eventuality that ensued between June 1940, when Italy entered the Second World War, and 1943, when the Allies prevailed against Italy. For all the resources invested in energy independence, in the moment of geopolitical revelation Britain had no choice but to pay dollars to American companies for American oil.66
