DESPITE THE ENORMOUS economic and financial shocks ensuing from the 1974 oil price inflation on the world economy, by late 1975 certain parts of the world had begun to resume industrial development, as though it had sustained a stunning blow, recovered, and continued on its path. Kissinger's 1974 oil shock had secured certain objectives for the Anglo-American Bilderberg group, but by no means had the global parameters of industrial development yet been decisively altered to their satisfaction. Their continuing strategic domination was still mortally threatened.
If we examine the world's output of steel, as well as the total of ton-miles of world shipping trade, we notice a striking measure of the health of the world's economic progress. Beginning in the early 1950's when the world started to rebuild from the destruction of the Second World War, world crude steel production made a steady upward climb, as measured in metric tons of crude steel produced. Steel, to this day, is one of the best single measures against which to judge overall industrial progress for a nation's economy. Unlike the ail-too fashionable calculation of Gross National Product (GNP) which measures price levels regardless of whether an activity is productive or non-productive, whether it involves construction of infrastructure or spending on a gambling casino in Las Vegas, output of steel, measured in ton-weight, cannot be manipulated. It is a firm measure. Steel, moreover, is
essential for transport, for building, for infrastructure of all kinds.
The Western world, including the developing sector, steadily increased its steel output from less than 175 million metric tons in 1950 up to an all-time historic peak of just under 500 million tons by the time Kissinger's 1974-75 oil shock impacted. Steel is also one of the most energy-intensive industries. For two to three years after the first oil shock, world steel output reflected the economic shock and plummeted almost 15% from its peak of 1974-5. But by 1976, steel output resumed a steady upward climb.
A similar pattern occurred in world sea-borne trade, with a sharp decline in total ton-miles carried by ocean ships in response to the 1974 oil shock and the severe world economic downturn, followed by a similar slow but steady recovery up to 1977-8. The year 1975 witnessed the first major decline of world trade since the end of the war in 1945, a significant drop of 6%, with a slow resumption afterward/
But one sector which did not recover from the greatest financial and inflation shock of the postwar period were the fragile countries south of the Equator, most especially those which had no significant indigenous oil supplies. For the vast majority of the developing sector, the oil shock spelled an end to development, inability to finance industrial and agriculture improvement, and a reversal of hopes for a better life which had emerged during the 1960's.
As though some perverse fate had struck, this oil shock coincided, during the years 1974-75, with onset of the worst global drought seen in decades, leading to severe harvest shortfalls, especially in Africa, South America, and parts of Asia, just as the economic impact of the oil shock was greatest. With the desperate need to import record volumes of grain and other food from the United States and Western Europe, most under-developed countries found themselves faced with famine, unable to finance increased food imports, to say nothing of financing the oil shock.
The dynamic created from the Anglo-American decoupling of the dollar from gold in August 1971, followed by the 400%> forced inflation of the price of oil, created a catastrophe for the majority of the world's population living in the developing sector.
Bank of Italy chairman Guido Carli noted at the time that the "banking community has increasingly come to be regarded with hostility... The feeling of mistrust derives from a conviction that the commercial banks have appropriated too large a share of mone
tary sovereignty." Carli described the effects of the oil shock on world financial flows in an address to fellow bankers during early 1976. In the context of the 1971 dollar-gold decoupling and floating exchange rates, the new oil price shock had created a worldwide shortage of liquidity. "The shortage of international liquidity was made up by the banks," Carli noted, "and in large measure by American banks through their overseas branches."
Carli remarked that some saw this process as "corroboration of the evil intentions" of those who were behind the push for creation of the new gold-free dollar monetary order, "maintaining that the eradication of gold from the system and the failure to replace it with official instruments confirm a malicious design to strengthen the dominant position of the American banks".2
Indeed, some did see it as malicious. While industrial countries experienced a certain slow recovery from the initial oil shock by 1975, the overall position of developing economies deteriorated as a result of the quadrupling of primary oil prices. Total current-account deficits of all developing countries rose from an average of some $6 billion per year during the early 1970's, to more than $26 billion in 1974 (again, a quadrupling in parallel with the price of oil), and an unbearable seven-fold increase, to $42 billion by 1976, with the vast majority of this deficit in countries of the developing sector whose per capita income levels were the lowest in the world.
Under the threat of losing access to further borrowings from the World Bank and private industrial-nation banks, less-developed countries were forced to divert precious funds from industrial and agricultural development into simply reducing this "balance of payment" deficit. Their oil imports had to be paid, and paid in dollars, while the cost of their raw materials exports fell sharply in the global recession of 1974-5. The countries were forced to borrow short-term, to pay the huge oil import payments, and the only major lenders ready to lend were the U.S. and British "Eurodollar" banks, recycling their huge new Petrodollar windfall. The entire Indian subcontinent, most of Africa, and entire regions of Latin America were plunged into severe economic and political crisis as a result.
Private U.S. and European banks stepped in to the breach, under the Bilderberg "petrodollar recycling" strategy, to lend to these countries, but only to "balance" the accounts which had been left
in shambles by the Anglo-American oil shock, not to finance creation of necessary production infrastructure or technology development. These private petrodollar loans came from the London "Eurodollar" banks of the United States and Britain. OPEC oil revenues, paid to Saudi Arabia, Kuwait and other countries, were paid in dollars and those dollars were channeled and "guided" into offshore London Eurodollar banks for re-lending to the victims of the new oil shock in the developing sector.
Dr. Kissinger and friends left nothing to chance in the process. A senior partner of an American investment bank at the center of the Eurodollar markets, David Mulford, at the time the head of White Weld & Company's London Eurodollar operations, was appointed a director and principal investment adviser of the Saudi Arabian Monetary Agency, the central bank of Saudi Arabia, the largest OPEC oil producer and the country dominated by American Big Oil. Little publicity was given to this rather unusual appointment of a national of the country against which Saudi Arabia had only months earlier enjoined an oil embargo. Along with White Weld, SAMA enjoyed the confidential investment advice of the elite London merchant bank, Baring Brothers.
As director of the SAMA, David Mulford was in a critical position to ensure Saudi authorities made "wise" use of their new financial windfall. To make Mr. Mulford's task easier, Citibank, closely tied to Exxon and the American oil companies involved in Saudi Arabia's ARAMCO, was curiously enough able to operate in this period as the only wholly-owned foreign bank with operations in Saudi Arabia. Not surprisingly, in 1974, a full 70% of OPEC oil surplus revenues were invested abroad in stocks, bonds, real estate and the like. Of this enormous sum of $57 billion, no less than 60% went directly to financial institutions of the United States and Britain. 3
Already on June 8,1974, in his capacity as U.S. Secretary of State, Henry Kissinger signed an agreement establishing a little-noted U.S.-Saudi Arabian Joint Commission on Economic Cooperation, whose official mandate included, among other projects, "cooperation in the field of finance." (Kissinger retained the unprecedented dual posts of National Security Adviser to the President and Secretary of State well into Gerald Ford's Presidency).
By December 1974, the nature of this cooperation was defined more clearly, always kept in strict secrecy by both Saudi and Wash
ington governments. The U.S. Treasury signed an agreement in Riyadh with the Saudi Arabian Monetary Agency, whose mission was, "to establish a new relationship through the Federal Reserve Bank of New York with the (U.S.) Treasury borrowing operation. Under this arrangement, SAMA will purchase new U.S. Treasury securities with maturities of at least one year," explained Assistant Secretary of the U.S. Treasury, Jack F. Bennett, later to become a director of Exxon. Bennett's memo was addressed to Secretary of State Kissinger, dated February 1975, explaining the arrangements agreed two months before. 4
No less astonishing than these U.S.-Saudi "arrangements" to one ignorant of the actual history of Anglo-American interests in the Persian Gulf, was the exclusive policy decision by the OPEC oil states to accept only U.S. dollars for their oil, not German Marks despite their clear value, not Japanese Yen, French Francs, nor even Swiss Francs, but only American dollars.
Dollar oil pricing was initially a practice encouraged after the Second World War by the American oil majors and by their bankers in New York. But when, following the oil shock of early 1974, leading European governments began to enter into serious negotiations with Arab oil suppliers to secure long-term oil purchase contracts to cover their import needs, to be paid in their own national currency—an eminently sensible move, which would have enormously lessened the impact of the oil shock on Europe— something extraordinary occurred within OPEC. Germany or France would have had far less difficulty securing domestic funds for payment of oil imports in Deutschmarks or Francs than to buy dollars for the same oil.
This makes it all the more curious that OPEC ministers, in a meeting in 1975, agreed to accept no other currency than the U.S. dollar in payment for deliveries of its oil, not even British Pound Sterling.
This arrangement, needless to say, proved enormously valuable for the United States dollar, and for the financial institutions of New York and the London Eurodollar markets. The world was forced to buy immense amounts of dollars more or less continuously, in order to purchase essential energy supplies. Even more extraordinary, this OPEC dollar-pricing agreement remained in force, despite the subsequent enormous losses to OPEC as the dollar gyrated up and down through the next decade and more.
One consequence of the directed recycling of these petrodollars into London and New York was the emergence of American banks as the giants of world banking, paralleling the emergence of their clients, the Seven Sister oil multinationals, as the giants of world industry. The Anglo-American oil and banking combination so overwhelmed the scale of ordinary enterprise, that their power and influence seemed invincible.
In effect, through such secret arrangements as the U.S.-Saudi Joint Agreement with the Treasury, the activities of David Mul-ford, as well as OPEC's strange dollar-pricing mandate, Washington and the New York banks had exchanged their flawed postwar Bretton Woods Gold Exchange system for a new, highly unstable petroleum-based dollar exchange system, which, they reckoned, they could control, unlike the old Gold Exchange System.
Kissinger and the financial establishment of London and New York replaced, in effect, the old Gold Exchange Standard of the postwar world with their own "Petro-dollar Standard."
After all, who really controlled OPEC? Only the politically naive could believe Arab countries would suddenly be allowed to exercise independence on issues of such importance to British and American interests. If they really thought the oil shock was a life-threatening matter, Washington had numerous ways to restore a reasonable OPEC oil price. They wanted the high oil price, and they wanted OPEC to take the blame for it.
The two reserve currencies of Bretton Woods, Pound Sterling and the U.S. dollar, remained at center stage in the new petrodollar order of the 1970's. Sterling gained from the vast exploitation of North Sea oil, which came on line just in time to benefit from the 400% oil price inflation, as noted earlier. The British Pound became known as a "petrocurrency."
The dollar gained for the reasons just mentioned. Clearly, the Bilderberg deliberations that May 1973, in Saltsjoebaden, had calculated the winners and losers. To them, it did not matter that their artificial oil price inflation created a manipulation of the world economy of such hideous dimensions that it created an unprecedented transfer of the wealth of the entire world into the hands of a tiny minority. Was this not, after all, what Adam Smith meant by the "magic" of the market?
If the methods reminded us of a perverse variation of the old mafia "protection racket" game, it is understandable. The same
Anglo-American interests which manipulated political events to create a 400% increase in oil prices, then turned to the countries which were the victim of their assault, and "offered" to lend them petrodollars to finance the purchase of costly oil and other vital imports, at vastly inflated interest cost, of course.
For the vast majority of the world living in less-developed regions, real industrial and agricultural development suffered the consequences of the Anglo-American oil policy. Petrodollars went to simply refinance deficits, rather than to finance creation of new infrastructure, agriculture, or to improve the living standards of the world's population.
During 1975, the policy organ of the Anglo-American liberal establishment, the New York Council on Foreign Relations, under the direction of New York attorney Cyrus Vance, drafted a series of policy blueprints for the 1980's, much as they had done at the critical turning point in the late 1950's recession. In their account of the future of the global monetary order, the Council stated, "A degree of 'controlled dis-integration' in the world economy is a legitimate objective for the 1980's." What was disintegrating, however, was the entire fabric of traditional industrial and agricultural development, most clearly in the developing sector. 5