The Middle East

THE ATLANTIC REPORT

ON THE WORLD TODAY

AMERICAN business has suddenly become acutely conscious of the Middle East. In the eyes of the One-World-minded executive who hits Payne Field, Cairo, there is a glint of unsuppressed excitement. He and his colleagues are a new generation of pioneers, heading not west but east. The call of the desert is strong within them, and the Orient has a potent spell, a newly found romance.

It is the call of a desert in which have been discovered fabulous deposits of oil. It is the spell of a subcontinent that is potentially a vast aircraft carrier; where today the few railroads are almost as primitive as the camel caravan and not much faster. It is the romance of a market left intact in a war-ravaged world, a market hungry for American goods.

As they sip ersatz “American whiskey” in Shepheard’s Hotel, they toy with daring slogans and dream of the untold possibilities of the Arab market: A fountain pen in every cloak. Air conditioning in every tent. Short-wave radios and refrigerators for the pashas and the beys; and for the modest household of the plain effendi, at least a vacuum cleaner and an electric iron. The war, which brought to the Middle East unparalleled prosperity and to its moneyed classes extravagant profits, has multiplied the pre-war demand for American goods.

Mesmerized by the spectacle of so many customers rarin’ to buy, American exporters are failing to ask a relevant question: “How am I going to get paid?” For in the Middle East, as in the rest of the world, there is a distressing dearth of the Yankee dollar.

Transport is one of the most pressing requirements. Locomotives are in such bad shape that the 500-mile journey from Beirut to Cairo takes twenty-five hours. Buses and taxis in the principal cities are in a shocking condition. Since 1938, private automobiles have undergone normal usage — there has been no gasoline rationing — without replacement. Wherever he goes, an American businessman is asked, “When are you going to sell us cars?”

Tractors, agricultural machinery, and fertilizers are naturally in heavy demand in an area that lives by its agriculture. The climate makes refrigeration a necessity and air-conditioning — at present virtually nonexistent — a near-necessity in hospitals, movie theaters, offices, and hotels. The Egyptian airline wants planes, and Palestinian industry is desperately in need of machinery.

For all these things and a hundred and one lesser items — especially radios, household electrical appliances, office equipment, paint, fountain pens, lighters, lipsticks, and insecticides — the Middle East is looking to America, since Britain cannot promise early delivery. The door to the Middle Eastern market is wide open. But access to this American exporter’s dreamworld is obstructed by two disagreeable realities: (1) a short-term barrier, the sterling bloc restrictions; (2) a long-term impediment, the inability of the countries in the Middle East to earn sufficient dollar exchange.

Shall the sterling bloc continue?

Iran and Saudi Arabia are the only Middle Eastern countries free from exchange controls. Syria and Lebanon, whose common currency is backed by the franc, have to obtain their dollars from the French pool. Palestine and Trans-Jordan, being British mandates, automatically became part of the sterling area in 1939, while Egypt, the Anglo-Egyptian Sudan, and Iraq, whose currencies had sterling backing, joined out of necessity.

During the war all dollar exchange originating in the sterling area was thrown into one pool, administered by the British Treasury, which allotted to each country a quota of dollars required for the purchase of goods that were both essential and not immediately procurable from within the sterling area. This arrangement maintained the total purchases of American goods by the sterling area as a whole, and applying its dollar resources to vital war requirements lessened the drain on Lend-Lease and our Treasury.

The prolongation of the sterling bloc regulations into peacetime has now become the chief source of AngloAmerican disharmony in the Middle East. The British argument is that continuation of the sterling bloc is essential to Britain’s economic recovery and hence to world economic stability.

A small number of American officials in the Middle East, while averse to restrictive trade practices, concede the general validity of the British thesis and point out that (1) the economic recovery of America’s No. 1 customer is more important to United States economy than the acquisition of new customers whose capacity of pay is dubious; (2) under the sterling bloc arrangements the Middle Eastern countries received in 1945 more dollars than they themselves earned, so that United States trade with the area actually increased.

American business complains

The great majority of Americans in the Middle East. however, are extremely bitter about the sterling bloc restrictions. Britain is trying, they complain, to exclude American exporters permanently from a market in which she could not hold her own on a competitive basis. British officialdom, they charge, working hand in hand with British business, is exploiting its political hold over the Middle East to discourage commercial dealings with America.

The question of Britain’s economic stability, American businessmen insist, should be kept distinct from the question of the Middle Eastern market, which accounts for only a small proportion of Britain’s export trade; and any United States credit to Britain should depend on the restoration of free competition in the sterling area.

Abolition of the sterling bloc, though it would throwopen the Middle Eastern market to the manufacturers of products hitherto excluded, would actually leave the Middle Eastern countries with less dollar exchange than they are at present receiving from London. American exporters and their eager Middle Eastern customers naturally suggest the granting of credit to facilitate an immediate expansion of United States trade in the Middle East.

This is a muddleheaded line of thinking which sidesteps the crucial issue: the necessity for the Middle Eastern countries to increase their dollar earnings if they are to increase their purchases from America. It is not the Henry Wallaces, but some of the hardboiled businessmen, who may make of Uncle Sam a global Santa Claus by maneuvering the government into granting credits which can never be repaid.

The exporter will of course get paid — that is what the credit is for — but out of the pocket of the American taxpayer. The American businessman in the Middle East, if he keeps his mind fixed exclusively on selling, is more likely to outsmart his own countrymen than his British competitor.

Sensible businessmen see the danger. Westinghouse, for example, has created an import department to balance its exports. And in Cairo the Middle East Company, an Ohio corporation under the chairmanship of James M. Landis, and one of several American concerns seeking to expand trade with the Middle East, is operating both as importer and as exporter, and is surveying local production in order to find out what items could be marketed more extensively in America.

Earning the Yankee dollar

There is no possibility that United States imports from the Middle East can be increased enough to balance United States exports even on their present scale. In order to do so, imports would have to be more than trebled. In what remaining ways, then, can the Middle Eastern countries earn the dollar exchange required to pay for American automobiles, radios, and refrigerators?

Their best prospect of earning dollars on a substantial scale lies in increased American expenditures in the Middle East. Such expenditures, in the balance of trade, are the equivalent of imports. In the next ten years oil and aviation can provide at least a partial answer to the Middle East’s shortage of the Yankee dollar.

American oil holdings in the Middle East are virtually all in the development stage. Large sums will be expended on further drilling, prospecting, construction work, and pipeline building. In Iraq, Standard Oil of New Jersey and Socony-Vacuum own nearly a quarter of the Iraq Petroleum Company. An American company, Gulf, shares with AngloIranian a half interest in the oil fields of the principality of Kuwait on the Persian Gulf.

The oil concession in the independent Sheikdom of Bahrein, also on the Persian Gulf, is all American: 50 per cent Texas Company and 50 per cent Standard Oil of California. The same two companies have formed the American Arabian Oil Company lAramco), which owns the sole right to exploit the enormous oil resources of Saudi Arabia, and has its headquarters at Dhahran in the Damman oil field.

Proposed American refineries in Tripoli will involve an investment of $20,000,000, a portion of which will be spent on local labor and materials; after the original outlay American expenditure will continue in the form of wages to Lebanese workers. At Ras Tanura, a tiny settlement on the Persian Gulf, Aramco’s refinery project alone required a labor force of 7000 natives, and as many more were employed in the construction of port facilities, roads, living quarters, and other buildings.

Perhaps the most important source of dollar earnings stemming from oil is the royalties paid to Ibn Saud — roughly $1.00 per barrel. If Aramco’s production reaches the expected 50,000 barrels daily, Ibn Saud will receive $17,500,000 a year — a larger sum than the Middle East is earning at present by all of its exports to the United States.

Airlines

The establishment of American international airlines passing through the Middle East is another potential source of dollar exchange for the area, in the form of expenditures on construction work, wages to local labor, and, most important, expanded tourist trade.

The U.S. Air Transport Command, in the fulfillment of its wartime duties, has largely completed the pioneer work required to open up the Middle East to commercial aviation. The ATC has built airfields (among them Payne Field, Cairo, the finest service base east of New York) and emergency landing grounds from Casablanca to Ankara and the Persian Gulf, set up weather and radio stations, surveyed flight routes, and built up a large pool of experienced personnel, thoroughly familiar with flying conditions in the Middle East.

The Civil Aeronautics Board has granted certificates to two commercial companies to operate trunk lines through the Middle East. TWA will operate one line from Washington to the Far East via Philadelphia, New York, Boston, Newfoundland, Lisbon, Madrid, Algiers, Tunis, Tripoli, Bengasi, Cairo, Jerusalem, Basra, and Dhahran; and another from the United States to Cairo via Foynes, Paris, Berne, Rome, and Athens. Pan American Airways, operating through Central Europe and the Middle East to India, will touch at Istanbul, Ankara, Beirut, Bagdad, and Teheran.

Negotiations have progressed to the point where United States aviation officials count on obtaining permission to operate trunk lines through the area. But so far, all the Middle Eastern countries are holding out against the right to pick up and land intermediate traffic — passengers from Cairo to Jerusalem, for example. TWA would be able to sell through tickets from New York to Bombay, but passengers for Jerusalem would be dropped off in Cairo and left to make the last lap via the Egyptian airline, the Misr Airways Company. The Middle Eastern countries are afraid that the international airlines will stifle domestic aviation.

American airlines officials contend, with justice, that the international airlines will leave plenty of room for the development of local aviation in an area like the Middle East, where geography makes flying the most practical means of transport.

This area also offers the local airlines unique possibilities for developing a profitable freight traffic. Cargo planes with refrigerator compartments could open up new markets to a variety of perishable foodstuffs — the fine fruit of Lebanon, for example, or the fish of the Persian Gulf. Even hides and skins, at present marketed largely by camel caravan, could be economically distributed by air.

The British are encouraging Egypt and the other Middle Eastern countries to hold out, since they are naturally reluctant to see TWA and Pan American operating through the Middle East until their own airlines are more securely entrenched. If the point has not been settled by the spring of 1946, TWA will probably start its Middle Eastern service under interim agreements.

TWA is proposing to charge $425 for the New York to Cairo flight, which will take some thirty hours in a four-engined “Skymaster” or an ultra-luxurious “Constellation.” This will open up the Middle East to American winter visitors who, in the past, were able to afford a first-class liner ticket but could not spare the eighteen days spent at sea. To the Middle East, especially to Egypt, the United States airlines will bring an expansion of their pre-war tourist trade and a substantial source of dollar exchange.

American banks

American trade with the Middle East can also be stimulated indirectly by provision of American banking facilities on the spot, by the formation of American distributing agencies for United States products, and by investment in local industry. American banks have so far been reluctant to open branches overseas and have made arrangements with British banks to handle their Middle Eastern business, a system which does not encourage commercial dealings with America. American export firms have likewise tended to leave retail distribution to local concerns.

Finally, investment of idle American capital in sound Middle Eastern concerns would make it possible for such concerns to buy equipment in America and would develop a continuing market for certain types of American goods. This, in fact, was the way Britain built up a substantial part of her foreign trade in the last half of the nineteenth century.