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Introduction

As the war between the Israeli/U.S. alliance and Iran drags on, a looming question deserves special attention. Is this another military deployment far from America’s shores, where (1) the roots of the conflict involve disputes over oil and (2) a major impact is the disruption of oil markets, with the American public suffering the consequences?

American interference in the governance of Iran, Iraq, and Venezuela has not followed a single path. The reasons for these wars and their later effects are often murky. But the historical record strongly suggests that there is an overarching linkage between these conflicts abroad and oil.

The oil connection is two-fold. At the outset of past conflicts, access to this liquid fuel, sometimes referred to as “the prize,” has been a dominant factor in decisions to intervene in the affairs of other countries. During and after these interventions, the rebound effects have included reduced availability and increased costs of energy fuels, the burden of which has been borne by American consumers.

The United States is now a net exporter of oil, after a long period of dependence on foreign supplies. Nonetheless, the early signs from Iran are that the linkage between the use of U.S. military force and an oil rebound effect has not disappeared.

U.S. Interventions and Oil in the 20th Century

An early chapter of this story began in the 1950s, when the United States helped stage a coup against the elected government of Iran. Iran’s major sin: the nationalization of the British-owned oil company (now known as BP) that dominated petroleum extraction in the country. With the assistance of British operatives and Iran’s military, we backed Shah (emperor) Mohammad Reza Pahlavi as Iran’s ruler.

Over the years, there was an implicit understanding with the Swiss-educated leader that Iran would harvest vast revenues from oil production but spend a big chunk of them on expensive U.S. jets and other advanced military equipment. The arrangement partially offset the U.S. balance-of-payments deficit as it increased its dependence on imported oil.

The U.S. intervention in Iranian politics appeared to be a model of successful regime change. Until it didn’t. The Shah’s stigma stemming from his installation by outside powers, his feuding with Muslim clerics, and the diversion of funds from his people to his grandiose extravagances came to a boil. He fled the country in 1979, opening the way for the rule of Islamic extremists who detested the United States and Israel, destroyed much of their own civil society, and fomented violence around the globe. The extremists taking power harped on the U.S. propping up of the Shah as one justification for the seizing of American hostages and other outrages.

In 1959, President Dwight Eisenhower, in a move explicitly authorized by Congress the previous year, imposed strict quotas on nations attempting to sell oil to the United States. The move responded to pressures from oil-producing states worried about foreign competition. The public rationale, however, was the risk that transatlantic oil tankers could be interdicted by Russian attacks. For a decade, the policy proved mostly successful. Its protectionism raised prices somewhat for Americans, but not enough to draw much public attention.

The nations that were blocked from American sales because of quotas suffered economic losses and concluded that the U.S. rhetoric about free markets was not matched by its actions. In 1960, Venezuela, Saudi Arabia, Iraq, Iran, and Kuwait founded the Organization of Oil Exporting Countries (OPEC) to enhance their market power. At first, the group, though expanded to include other nations, had little impact.

However, a decade after OPEC’s creation, the U.S. discovered that domestic oil production could not keep pace with its rapidly increasing demand, giving OPEC a sudden burst of leverage. Because of oil shortages and soaring inflation, the U.S. abruptly abandoned import quotas in the spring of 1973. In October, the Arab members of OPEC, upset by American support for Israel, embargoed us! American protectionism worked for a while. Until it didn’t.

The formal Arab embargo lasted five months and led to drastically higher prices and panic at the pump. The revolution it unleashed endured much longer, leading to a massive transfer of wealth from the oil-consuming nations to oil exporters. A sharp drop in fuel consumption in the U.S., Europe, and Japan from 1978 to 1985 ended OPEC’s dominance in world markets, but only for a while.

In a later conflict, the United States responded decisively when Iraq invaded Kuwait in 1990 and destroyed its oil infrastructure. With the lessons of the Vietnam War still being taught at military colleges, the U.S. carefully defined its mission — removing Iraqi forces from Kuwait and leaving shortly thereafter — thus avoiding the quagmire of a protracted war like the U.S. experienced in Southeast Asia. Such operations didn’t come cheap. However, Saudi Arabia, vulnerable to Saddam Hussein’s expansionism, agreed to defray the costs of the American military. This arrangement allowed the George H.W. Bush administration to maintain its stance of “no new taxes.” Bush stressed that the action was necessary to guarantee access to Middle Eastern energy supplies.

Because of the successful ousting of Saddam from Kuwait, low casualties, and a disciplined exit strategy, the first U.S. invasion of Iraq became a model for foreign intervention. Until it wasn’t. Although America avoided funding the war from its own treasury, it did pay the costs indirectly. Saudi Arabia could foot the bill because fuel costs soared, giving the Kingdom additional resources, in part made possible by the high prices at the pump for American motorists.

As the cost of oil contributed to rising inflation, Bush’s political popularity plummeted from historic highs to levels that endangered his reelection. The war turned out to have economic and political ramifications that were largely hidden at the time but much clearer in retrospect.

There was another lagged problem with the U.S. strategy in the first Iraq war, the staging of American troops on Saudi lands that some devout Muslims viewed as holy ground. The U.S. brushed aside warnings at the time, but Osama bin Laden used the location of American forces as a motivation for the attacks of September 11, 2001. Yet again, there was a rebound effect from a U.S. foreign intervention based to a large extent on oil.

Deja Vu in the 21st Century

After the attacks of September 11, the United States invaded Iraq to depose its leader, install a new regime, and bring back international oil companies. The intervention was based on a long list of grievances, with the greatest public emphasis on Saddam’s alleged possession of “weapons of mass destruction,” although evidence for this claim did not exist.

The early successes of U.S. forces were impressive. However, Iraqi leaders allied with the United States resisted foreign control over their oil production, as anyone who understood the country would have been anticipated. Moreover, the failure to employ accurate intelligence and grandiose plans for “nation-building” imposed a heavy burden on the American people. The protracted occupation of Iraq led to heavy casualties on all sides, massive expenditures, and distraction from the search for Bin Laden elsewhere. It can be remembered as yet another example of a military intervention whose costs vastly exceeding the U.S. government’s projections.

Each of these interventions abroad revealed commonalities: grave misunderstandings of the Middle East, weaknesses in assessing available evidence, and hubris that led to overestimations of what military power could achieve.

These historical events gave the Trump administration the opportunity to learn the lessons of the past, including Gen. Colin Powell’s classic invocation of the Pottery Barn rule: “If you break it, you own it.”

This year’s military operation in Venezuela has appeared to yield some economic benefits for both countries in the post-Maduro era. These arrangements came with a heavy political cost. The United States dropped any pretense that it had been embargoing the country to support democratic elections; the goal was access to Venezuela’s oil. It also set precedents for killing people on boats without legal authority and the kidnapping of national leaders that could have unanticipated rebound effects down the road.

The more recent U.S./Israeli attack on Iran already provides a clearer example of President Trump going against the grain from the presumed lessons of previous foreign interventions. He has avoided fact-based policymaking needed for complex situations and a clear explanation of mission goals. Iran is more than six thousand miles from the United States, and Trump’s top counter terrorism official, at the time of his recent resignation, said Iran “posed no imminent threat to our nation.” Yet, when asked what progress in Iran’s path to a usable nuclear weapon triggered the American attack, the  President cited his gut feeling. His criteria for ending the war would be when I “feel it in my bones.”

A major weakness of the Shah was the perception that he was picked by the United States. Ignoring this precedent, Trump publicly proclaims his right to pick or approve leaders in Iran, Venezuela, and numerous other countries, despite the likelihood that the perception of outside influence will undermine their legitimacy with their own people. In another pattern now repeated, the U.S. has adopted inflated views about being welcomed as liberators, only to see those hopes dashed.

A major factor in what will be the eventual verdict on the wisdom of the United States joining Israel’s attack in the Middle East will be Iran’s attempt to block shipping through the narrow Straits of Hormuz, a route for about a fifth of the world’s oil supplies. American oil production provides some protection against disruptions in the global oil market, but only to a limited extent.

The President claims he was aware of the potential impacts of a closure. However, he, his Secretary of Defense, and Secretary of Energy continued to discount the risk, even after Iran’s early success in disrupting global shipping.

Raising doubts about the administration’s reassurances on the Straits, drivers have already seen some of the fastest jumps ever in gasoline prices, which are bound to affect the overall rate of inflation and could rise much higher. Homebuyers hoping for lower mortgage rates will likely have to wait until the inflationary impacts of tariffs and the Iran war have receded. Trump’s decisions to lift the oil embargo on Russia and draw down the Strategic Petroleum Reserve are clear indications that he concedes that his strategy has disrupted the world oil market.

Drivers will pay more at the pump because of the U.S./Israeli attacks on Iran, but that is far from the only danger to the American quality of life. The closure of the Straits of Hormuz is disrupting supply chains for fertilizers, liquefied natural gas (LNG), and other vital products. At some point, higher prices LNG prices might raise the cost of domestic pipeline gas, adding to the woes of some people already facing soaring electricity bills. Much of the economic damage will take a toll on the American people and take years to repair.

The prospect of further diminished oil supplies evokes memories of the massive U.S. interventions of the past in the world’s petro-states and the lessons unlearned.

The attack on Iran is a story still being written. However, it is clear that it provides not just the most recent example of an oil rebound effect. It will also be one of history’s most impactful.