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By Gary D. Halbert
August 19, 2003


1.  Brief History Of The Present Day Middle East.

2.  British, French & U.S. Influence In The Mid-East.

3.  How Distrust Of The West Turned Into Hatred.

4.  Why The “Roadmap For Peace” May Not Work.


Much of the world, and especially the US, is dependent on Middle East oil.  The investment markets rise and fall, sometimes dramatically, when unexpected events occur in the Middle East.  Not a day goes by that we do not all see and hear stories concerning the countries making up the Mid-East.  War with Iraq, nukes in Iran, Saudi leadership on shaky ground, infighting among tribal and religious sects, etc. etc. seem to make us all wonder: “why can’t they all just get along?”  It’s a difficult question.  This week, I will address some of the key issues.

It is very clear that there are many different factions within the various countries that make up the Middle East, and unfortunately, they don’t agree on much.  One of the few things they do agree on is that they cannot trust the West, and the US and Britain in particular.

Many Americans see the Middle East as land populated by nomadic tribes, terrorists, and a few rich and powerful families that have benefited from the discovery of oil.  Pictures beamed into our homes each day on television show the vast contrasts that exist in these countries.  There are cities as modern as many in America, yet there are also nomadic tribes that live much as they did centuries ago.

The most unifying force in the Middle East seems to be the practice of Islam, but even within their religion, Arabs making up the Middle East have large theological differences.  These religious factions such as the Shiites, Sunnis, and Wahabbis also vie for power among the people, and often across national borders.  However, they all seem to be unified in their hatred for Jews in general and Israel in particular. 

The Palestinian/Israeli situation has become a proxy for centuries old beliefs and feelings that Westerners find hard to understand.  As the US and Britain have sided with Israel, Arab hatred and distrust for the West has intensified.  However, this distrust is nothing new.  In this issue of the Forecasts & Trends E-Letter, I want to discuss some of the historical issues that have resulted in Arab distrust for those of us in the West.

Before I begin, let me say that it is not my intent to offend any nationality, religion or any particular group of people.  It is simply my desire to try to put the events of today in a historical perspective.  Obviously, this short newsletter cannot fully convey the entire history of the Middle East, so at the end of this issue I have listed several sources of information, some of which I relied upon to write this article.

European Colonialism

When you look at a map of the Middle East, it seems to be nicely divided among the various countries with clear-cut borders.  An assumption is often made that these borders are the result of regional wars, diplomacy and treaties among those who reside in the countries making up the Middle East, much like they are in Europe.  However, a good number of you may be surprised to discover that the Middle East as we know it today is largely an artificial creation of the British after World War I, with the break-up of the Ottoman Empire.

While it is accurate to say that most of the modern Arab states dislike and distrust the United States, this is really only an extension of the distrust they have of the West in general. As we look at the history of the region, that distrust began with the British and to a lesser extent the French, and continued through the Cold War when the United States supported the artificial framework the British established after World War I.

The story of Western intervention begins with the British in the 19th century.  Before that time, the Ottoman Empire was a formidable foe, at one time threatening Europe.  However, the Industrial Revolution pushed Europe far ahead of the old Ottoman Empire and made the area ripe for colonization by Britain and France.

As part of its colonial efforts, the British sought allies against the Ottoman Turks and promised the Arabs their long-awaited independence in exchange for their support. (In reality, the Brits were looking to ensure the security of their lucrative trade operations in the Persian Gulf.)  The Arabs gave that support and the Ottoman Empire fell.  Sadly, the British also made similar promises to the Zionists who sought to establish a Jewish state on the Biblical site of Israel.

Upon the fall of the Ottoman Empire, the long process of carving up the Middle East into individual states began, eventually leading to the countries that we know today.  While the intent was supposedly to provide for a confederation of Arab states, in reality Britain and France had secretly entered into the Sykes-Picot Agreement in 1916, which essentially divided the Ottoman Empire between these two world powers. 

Unfortunately, in many instances national borders were drawn and/or modified with no regard for ancient and informal tribal and religious boundaries, and this is why many Arabs pay little or no attention to these artificial national borders to this day.

A Bolshevik spy exposed the existence of the Sykes-Picot Agreement, and it became clear to Arabs that their independence was never seriously considered.   The Arabs, already displeased with the imposition of artificial borders, became enraged at the Anglo-Franco duplicity.  Thus the seeds of modern Western distrust were sewn.

The Israeli/Palestinian Situation

In 1917, the League of Nations granted Great Britain control over Palestine.   The British government publicly supported a Jewish homeland in Palestine, and saw this as a good way to keep the Arab nations divided.  The British announced these intentions in the form of the Balfour Declaration on November 2, 1917.  The declaration stated that:

“His Majesty's Government view with favor the establishment in Palestine of a national home for the Jewish people, and will use their best endeavors to facilitate the achievement of this object, it being clearly understood that nothing shall be done which may prejudice the civil and religious rights of existing non-Jewish communities in Palestine, or the rights and political status enjoyed by Jews in any other country.”

A careful reading of that relevant passage from the Agreement easily leads one to believe that the British were hopeful that the indigenous Arabs/Palestinian populations could peacefully co-exist within a new Jewish state. This level of naïveté on the part of Great Britain has haunted the region in the 86 years since.

Elsewhere in the region, Britain sought out various individuals and families that were friendly toward them and created a number of states around their handpicked strongmen.

Beginning in 1921, the British created a series of Arab states governed by feudal monarchies. These states include: Jordan, Kuwait, Bahrain, Qatar, the United Arab Emirates, Saudi Arabia and not least of all Iraq. 

In doing so, the British placed diverse and often rival Arab populations together in artificial containers. This, naturally, could only lead to future animosity toward the West. To the Arabs it must certainly have seemed that they had traded one troubled empire for the next.

Imagine if, during the American Civil War, a foreign third party had decided which states would be Union and which would join the Confederacy.  To the people of the time, it would have been an outrage. And so you can imagine the outrage of a Sunni or a Shiite now being classified as Jordanian, or Saudi Arabian, and so on.

The Discovery of Oil

An already complicated and unstable situation grew worse with the discovery of vast oil reserves in the region during the early twenties and throughout the thirties. Standard Oil, and therefore the United States, soon found great interest in the Middle East.  This extraordinary new wealth also strengthened the monarchies elevated to power by the British.  But that wealth would play a significant factor in the Brits’ increasing loss of influence and control over the region for the next four decades.

The discovery of oil not only made the region far more wealthy, but also made it far more strategically important as global industrialization expanded the need for low-cost crude.  World War II would help to show that the control of oil production could also help determine military outcomes.  This guaranteed that the world’s superpowers would continue to exert influence in the Mid-East.

Another outcome of WWII was a renewed call for a Jewish state.  The Nazi horror visited upon the Jews in World War II re-ignited the concept of a Jewish homeland, and it began to find credibility and acceptance among the international community.  This, of course, further enraged the Arabs and they became even more distrustful of the West.

The events and violence in Palestine grew so desperate by 1945 that the British asked the UN to aid them in resolving the issue. In 1947, the UN voted overwhelmingly to partition Palestine into two separate states, one Arab and one Jewish. The US embraced this plan and was a major advocate for it among other reluctant nations.

Interestingly, President Truman’s decision to support this plan ran against the advice from his own State Department who feared that openly supporting the Jews would not only lead to further mistrust of the United States by an already disillusioned Arab population, but would also force the Arabs to turn their sentiments toward the Soviet Union.

When it became clear that troops would be needed to enforce the division in Palestine, the US position on a Jewish state began to shift. This buoyed the Arab world since it appeared that this new Western power was not working actively against them as the British had. After all, the United States had freed Europe from the Nazi yoke of oppression and had sought no permanent colonies in return.  It became more and more clear to the Arab world that the US would not support the creation of a Jewish state if it meant the continued presence of troops. 

However, 1948 was an election year and Truman feared the loss of Jewish votes in what was already shaping up to be a very close election.  To the absolute shock of the Arab world and our own diplomats at the UN and abroad, the United States announced its de-facto recognition of Israel 11 minutes after it declared its existence. The Arab states, reeling from the US announcement, would never fully trust the West again.

Cold War Considerations

“If the chief natural resource of the Middle East were bananas, the region would not have attracted the attention of U.S. policymakers as it has for decades.” (The Cato Institute)

Having had their fill of conflict in the region (1947/48, 1956, 1967, and 1972), the British decided to withdraw from the Middle East in the late 20 th century.  Remembering the lessons of WWII, and fearing that the Soviet Union would encroach upon the Middle East and gain control of its vast oil reserves, the US tried to take over where Britain had left off.

The US supported the British framework for the Middle East up to and after it took stewardship of the region in 1972.  While the US may not have agreed with the seemingly ad-hoc apportionment (artificial boundaries) of Arab populations, the threat of future Soviet encroachment was too great to ignore.

As if continuing former British policy, the US selected its own “strongmen” in the region. The two “pillars of power” that were selected were Iran and Saudi Arabia, and they would receive aggressive US support.  It is no mere coincidence that these two countries were both massive suppliers of Western crude and, in the case of Iran, a secular government bordering the expanding Soviet Empire.

That policy partially collapsed along with the Shah of Iran in 1979.  The Iran hostage crisis showed the US that Iran was not only under new leadership, but a leadership that was openly hostile to the West.  Iran, once a secular buffer containing the Soviet Union, was now an open door to Soviet expansion.

In an effort to promote secular (read: controllable) governments in the region, the US backed Iraq during the Iran/Iraq war. And in doing so, we aided the rise of Saddam Hussein.  The Iran/Iraq war ended with a UN-brokered cease-fire in 1988.  However, the stage had been set.  Hussein would later engage in some imperialism of his own.

With the fall of the Soviet Union, the Cold War concerns about control of oil resources by the Communists diminished, only to be replaced by concerns about these same oil resources being controlled by renegade secular and Islamist regimes.  One big reason for the US intervention when Iraq invaded Kuwait, Gulf War I, was Saudi Arabia’s fear that they would be next on Hussein’s list.  Of course, from the US point of view, it would be unacceptable for Hussein to control the world’s largest oil reserves.

While the support of Arab states in the Gulf War may have been appreciated by Arabs, this appreciation was offset by the West’s ongoing support of Israel. This continued to anger the Arab population, but the rush of petrodollars into the hands of the ruling families hand-picked by the West enabled them to buy peace and quiet, at least for a while.  Yet under the surface in the schools and Mosques, religious clerics preached hatred and violence toward the West and the US in particular.  Unfortunately, buying peace with petrodollars does not win over the hearts and minds of the population.

Distrust Versus Hatred

Many of you, I’m sure, can cite other times when the West made promises in the Mid-East that were not kept.  In this limited space, I have provided only a few examples, but there are others.  Clearly, the West (Britain and the US in particular) has made mistakes over the years in dealing with the Middle East.  It is no wonder that distrust exists in the region, even to this day.

But there is a big difference between distrust and hatred.  Several ruling governments in the Mid-East, including Saudi Arabia, have sponsored the teaching of hatred and violence toward the West and the US specifically, as well as Israel.  A generation of Arabs has been taught that the US is nothing but a puppet of Israel. Militant Islamism is widespread in the Middle East.  Some of these states have also sponsored terrorists and terrorist organizations whose mission it is to kill Westerners.  The 9/11 attacks showed us the extent to which the hatred of the West is ingrained in the Arab world.

In this day and time, there is no need for terrorism as a bargaining tool, especially for nations that are sitting on some of the largest oil reserves in the world.  With such vast resources, these nations should be able to negotiate for what they want and need.

Unfortunately, despots like Saddam Hussein and fanatical religious clerics have chosen to empower themselves by taking the West’s mistakes of the past and amplifying that to motivate their followers to hatred, militancy and terrorism.  In Saudi Arabia’s case, the royal family has allowed militant Wahabbism to become so widespread that they do not dare to oppress it for fear of being overthrown.  Frankly, I don’t know how the US will ultimately deal with Saudi Arabia.

Daniel Pipes, a well-known Mid-East scholar, has said that the solution to the problem of terrorism lies with moderate Muslims.  I take that to mean those who do not allow themselves to be whipped into a frenzy by fanatical zealots, but who can see the benefits of having people and nations of all kinds working together to build the Middle East into an integral part of the growing global economic engine, and not just the gas station.

Pipes believes that a lasting peace in the Mid-East will not occur until the body of moderate Muslims in the region rises up and takes control from the radical extremists.  He is not optimistic that the latest “Roadmap For Peace” will be successful.  He may be correct, unfortunately.


Britain and the United States have made some mistakes in Middle East policy for many years, thus creating justified distrust.  However, several Arab nations have sponsored the teaching of hatred and violence toward the West and the US specifically, as well as Israel.  The “Blame America First” crowd overlooks this fact.

While we can hope for a lasting peace in the Middle East, the likelihood is that the region will continue to be a dangerous and volatile place.  There is the real possibility that the Saudi royal family will be ousted from power.  Should that happen, the US will have another troublesome decision to make.  Do we let the largest oil nation in the world fall into the hands of radicals and terrorists?  Probably not.  Likewise, do we let Iran advance its nuclear programs and sell such weapons to other radical nations?  Probably not.

In conclusion, the Middle East will continue to be a tinderbox.  Events will continue to unfold that affect the US and global investment markets, sometimes in dramatic fashion.  Oil prices will continue to be volatile, especially during times of unrest in the Mid-East.

As investors, all we can do is be knowledgeable about the history of the region and diversify our portfolios so that they are not significantly negatively impacted by unsettling events and/or major military activity in that region.  To that end, I hope this article has helped.

My thanks to the Cato Institute.  You can read more on Mid-East policy and history in the links below.

All the best,

Gary D. Halbert


U.S. Conduct in the Middle East since World War II.

Chronology of Middle East events from 1908 to 1966.

History of Middle East countries.






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Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc. Gary D. Halbert is the president and CEO of Halbert Wealth Management, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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