How oil fueled a gilded ageand shaped today's crisis
Zachary Davis Cuyler
As Lebanon sinks deeper into economic crisis, its political class likes to rekindle old hopes that offshore oil and gas in the Eastern Mediterranean could transform the country into a petrostate. Such speculation overlooks the fact that Lebanon has already experienced an oil boom, which underwrote the country’s mid-twentieth-century gilded age. Indeed, that era’s prosperity owed much to relationships to oil that have since been mostly forgotten: Starting in the 1930s, Lebanon was central to a burgeoning regional oil economy, in which Gulf crude and capital flowed through Lebanon’s refineries, ports, and banks.
That moment came and went, but it left a deep-seated legacy. Much of the vanishing prosperity of Lebanon’s middle class can be traced to the oil sector: namely cheap energy, low taxes, a strong lira, links to global finance, and a baseline of economic protection through labor unions and social security. Yet that golden age also laid the foundations of Lebanon’s ongoing collapse, fueling an economy built on speculation, rent extraction, and import-based consumerism. This moment left plenty of physical traces: from a deeply rooted car culture to the rusting refinery north of Tripoli, through to the corporate headquarters that still stand amid Hamra’s darkened skyline. As Lebanon grasps for a new economic approach, those relics hold key lessons for the future.
At the dawn of Lebanon’s 1950s heyday, the nationalist politician Michel Chiha famously referred to his country’s “predestined” role as a global hub. Geography, he declared, had since antiquity fated Lebanon to play the role of intermediary between East and West. While such romantic discourse helped consolidate a particular sense of Lebanese identity, it glossed over just how much Lebanon’s centrality owed to recent developments—notably the nascent regional oil industry.
Starting two decades earlier, a series of major infrastructure projects had begun to cement Lebanon’s links to its oil rich neighbors. The first was a pipeline system completed in 1934, connecting Iraqi oil fields with an export terminal whose storage tanks were nestled amid orange groves on the outskirts of Tripoli. This facility belonged to the Iraq Petroleum Company (IPC), a multinational central to the growth of Iraq’s fledgling oil industry. In the preceding years, IPC had probed options for a Mediterranean terminal that would link Iraq to Europe. While the company initially settled on Haifa in British Mandate Palestine, French officials and the Beirut Chamber of Commerce successfully lobbied for a second line to Tripoli.
From the 1930s, a series of major infrastructure projects began to cement Lebanon's links to its oil rich neighbors.
The resulting system pumped Iraqi crude from the fields of Kirkuk through eastern Syria, passing the ruins of Palmyra and the city of Homs before crossing the Lebanese border. Having arrived at the terminal in Tripoli, petroleum would then flow through underwater lines to offshore moors, where it was loaded into waiting tankers and shipped onward across the Mediterranean. Once completed, the pipelines to Tripoli and Haifa became the main conduits for sending Iraqi oil to Western Europe.
After the Second World War, Lebanon came to host a second major pipeline connecting Western Europe to another oil state-in-formation: Saudi Arabia. Starting in 1950, the Trans-Arabian Pipeline, or “Tapline,” carried crude from the newly developed Abqaiq oil fields—in eastern Saudi Arabia—across hundreds of kilometers of desert, through Jordan and Syria’s Golan Heights, before finally reaching Lebanon’s Zahrani oil terminal, south of Sidon. Boosted by its architects as a “steel shortcut” across the desert, Tapline shipped around a third of the oil produced by Saudi Arabia over the pipeline’s first decade of operation.
It was through oil, and the physical structures that facilitated its flow, that Lebanon became a central node in regional and global networks.
It was thus through oil, and the physical structures that facilitated its flow, that Lebanon became a central node in regional and global networks. This role would only increase amid Europe’s postwar economic boom. As Iraq and Saudi Arabia scaled up their energy industries, European countries were thirsty for fuel. Lebanon played the middleman: At the height of the Marshall Plan, Tapline and IPC together accounted for more than a third of Western Europe’s petroleum supply.
But these pipelines did more than just move oil to overseas markets. They also laid the foundations for transformative infrastructure projects that accelerated mobility within and across Lebanese territory. Tapline’s maintenance road, stretching from the Mediterranean to the Gulf, became a major conduit for manufactured goods heading from Western Europe and North America to increasingly wealthy oil states like Saudi Arabia and Kuwait. This fed, in turn, a robust Lebanese transit trade and booming commercial sector. It also helped foster export-oriented agriculture and manufacturing within Lebanon, with Gulf states importing large quantities of Lebanese-made goods by the 1970s. These relations helped Lebanon industrialize—in step with Egypt, Syria, and Iraq—as small factories proliferated throughout Beirut’s suburbs.
Such exchanges, and the wealth they produced, increased Lebanon’s own demand for oil products. The result was a cycle of investment, in which building one type of oil infrastructure created the need to build another. The two terminals at Tripoli and Zahrani thus gave rise to two new refineries, which churned out the energy for a rapidly growing economy: bunker fuel for the ships that moved goods to and from the port of Beirut, diesel for the trucks that ferried imported and Lebanese goods to the Gulf, fuel oil for power plants and factories, and gasoline for Lebanon’s growing fleet of private cars.
The Suez of money
Critically, though, the oil trade did more than overhaul Lebanon’s physical infrastructure: It also spectacularly accelerated the growth of the country’s financial sector, as both the Lebanese government and private businesses harnessed the wealth that was fast accruing through this commerce. In the process, they positioned Lebanon at the heart not just of the region’s oil economy, but also its increasingly interconnected capital markets.
The oil trade spectacularly accelerated the growth of the country’s financial sector, as the Lebanese government and private businesses harnessed the wealth that was fast accruing.
Indeed, following Lebanon’s independence in 1943, the state itself came to depend on oil revenues as a cornerstone of economic development and stability. IPC and Tapline paid the government transit royalties on every barrel that crossed into Lebanese territory. These fees provided the foreign currency needed to purchase gold reserves, which in turn helped Beirut to stabilize the lira at around three to the dollar from the early 1950s until the late 1970s. In parallel, the resulting rents allowed the Lebanese state to shore up its budget without ratcheting up taxes on private individuals or companies—a practice that has persisted until today.
Taken together, these features provided a welcoming environment for both Lebanese and foreign capital. Drawn by Lebanon’s stable currency, liberal economic policies, free foreign exchange market, and tight banking secrecy laws, wealthy investors from across the Gulf parked their money in Beirut’s banks. So, too, did growing numbers of displaced Palestinians, and businessmen fleeing nationalization campaigns in Egypt, Syria, and Iraq. At the same time, the oil boom allowed Lebanese themselves to accrue growing pools of cash both at home and abroad. Lebanese workers, businessmen, doctors, and engineers traveled to find well-paid work in the Gulf’s growing oil facilities, and then repatriated wealth in the form of remittances, deposits, and investments.
Drawn by Lebanon's stable currency, liberal economy, and tight banking secrecy laws, wealthy investors from the Gulf parked their money in Beirut's banks.
It was no surprise, then, when a 1964 issue of Time magazine called Lebanon the “Suez of money,” nor when Lebanese politician and financier Pierre Eddé claimed that “Beirut handles capital like the Suez Canal handles ships.” To absorb this windfall, Lebanon spawned a multiplying cohort of financial institutions like the British Bank of the Middle East and Eddé’s own Bank Beirut Riyadh. The largest player was Intra Bank, founded by Yousef Beidas, a trader of Palestinian origin who counted international oil companies among his earliest clients. From the early 1950s through the mid-1960s, Intra’s share capital jumped tenfold—from 6 to 60 million Lebanese lira—and its deposits fortyfold, from 14 to 599 million. By 1965, Intra’s assets rivaled those of Lebanon’s central bank at around one billion lira.
Growing volumes of capital flowed into Lebanon, fueling a boom of another sort: real estate. Through Lebanese banks, Gulf elites invested heavily in Lebanese properties—initially as summertime vacationers, but soon as investors aiming to diversify their portfolios. Investment in real estate and infrastructure transformed built environments from Beirut to Kuwait, spurring the growth of Lebanon’s construction sector and Beirut-based contracting companies that worked across the region. This period’s traces are visible to this day—including in Beirut landmarks like the Arab Bank and Holiday Inn.
Inevitably, such momentous changes to Lebanon’s economy also transformed society itself. The energy sector—and others depending on it—generated jobs by the tens of thousands, cutting across diverse industries and social groups. Oil companies thus promised that their activities would industrialize the region, with Tapline touting itself as a “miniature Marshall Plan” for the Middle East. While this particular claim was overly grandiose, oil wealth indeed made a segment of Lebanon’s population prosperous from the 1950s through to the mid-1970s—a period which some fondly remember as ayyam al-Tablayn (“Tapline days”).
The energy sector—and others depending on it—generated jobs by the tens of thousands, cutting across diverse industries and social groups.
These dividends accrued to blue-collar and white-collar workforces alike, in ways that evolved in step with the industry’s own trajectory. Early on, oil’s physical infrastructure provided the most potent driver: The construction of IPC employed some 25,000 workers at its height, while Tapline’s assembly required 16,000—a staggering total in a region whose economy remained underdeveloped. Though these pipelines required few workers once completed, what jobs remained tended to be technically skilled and highly paid: Lebanese radio operators oversaw the pumping of crude oil across 1,213 kilometers of pipeline, and directed Lebanese boat crews that connected tankers to the pipeline’s offloading system in Zahrani. Tapline’s Beirut headquarters employed highly skilled engineers, draftsmen, accountants, doctors, and nurses, while IPC’s pipeline terminal and refinery sustained a small but prosperous industrial working class in the then declining city of Tripoli.
At the same time, the petroleum-powered growth of Lebanon’s banking sector produced a new and increasingly influential cohort of bankers. These included Intra’s Yousef Beidas, who reached the commanding heights of the Lebanese economy, and Gabriel Khoury, who founded a federation of bank workers and came to lead the Lebanese labor movement. This white-collar workforce was the cornerstone of the emerging trade and services economy.
Oil and bank workers were among the best compensated in the country, and formed the backbone of an expanding middle class with a growing consumer appetite—including plentiful imports and a lifestyle celebrated today through old photographs of hotels and beach resorts. It also spurred an explosion of private automobile ownership, a trend as visible on the streets of Beirut today as it is in postcards showing a bustling Martyr’s Square in the 1960s.
Oil and bank workers formed the backbone of an expanding middle class with a growing consumer appetite
Both the Lebanese state and foreign oil companies eagerly encouraged the trend toward motorization, at the expense of Lebanon’s tramways and railroads. IPC and Tapline provided funds to the Ministry of Public Works to expand and maintain Lebanon’s highway network: improving the Beirut-Damascus highway and the coastal road, extending roads to tourist destinations like Baalbek and the Cedars of God, building secondary routes to villages, and linking central Beirut to new suburbs. This construction program thus accelerated a process which the French Mandate authorities had initiated through their own investment in road infrastructure.
The oil industry, and the connectivity it required, also fostered growth in less obvious sectors—including commercial air travel. Middle East Airlines was established in 1945 by a former employee of Aramco—the Saudi oil giant—who purchased surplus bombers from the Second World War to supply Aramco’s facilities in Saudi Arabia. He would later transform this venture into a major passenger airline with a large Beirut-based workforce. In 1959, Intra Bank employed its own oil-generated riches to acquire a controlling share in the airline, which it then used to forge Lebanon into a regional air hub linking the Gulf to Western Europe.
Lebanon’s culture of cars and consumption was enabled by—and dependent upon—a steady supply of cheap fuel, which became central to a tacit agreement taking shape between state and society. The Lebanese government ensured that oil kept flowing, not least by negotiating preferential rates with the suppliers routing fuel through the country’s borders. In exchange, Lebanon’s blue-collar and white-collar middle strata funded the state through taxes on imported consumer goods and gasoline—even as Lebanon’s wealthiest paid next to nothing on their personal incomes and wealth.
Fueling a movement
If oil helped forge Lebanon’s post-independence social compact, it also created the conditions for that compact to be contested and revised. Specifically, the oil industry endowed Lebanon’s working classes with the economic and social clout required to mount an increasingly confrontational—and, ultimately, impactful—labor movement. The latter would notch a series of hard-earned victories from the late 1950s through to the mid-1970s, traces of which are still visible today.
Incidentally, the oil trade itself exacerbated the economic woes that spurred mobilization in the first place. At the same time this sector was enabling unprecedented mobility and middle-class consumption, it was also helping make Lebanon—and specifically Beirut—increasingly unequal and unaffordable. As Gulf capital poured into Beirut, it fueled real estate speculation and drove up rents. The influx of wealth into the banking, commercial, and petroleum sectors pushed up prices more generally, while Lebanon’s import dependency left it vulnerable to international fluctuations. Even as access to imported consumer goods increased, workers faced ballooning housing costs and, at times, unpredictable hikes in the prices of basic necessities like rice and lentils.
At the same time this sector was enabling unprecedented mobility and middle-class consumption, it was also helping make Lebanon increasingly unequal and unaffordable.
As such problems intensified, oil workers were probing ways to leverage their position to improve their lot. As they began fighting labor disputes in the late 1950s, they quickly discovered that they held significant leverage over the economy—and the country’s politics. Following the termination of an employee at a fuel distribution company, a coalition of oil and bank workers mobilized a nationwide strike and formed an informal national labor confederation; in the process, they joined forces with employees of the Port of Beirut and the city’s electricity and tramway company.
This coalition showed its formidable strength during Lebanon’s brief 1958 civil war: Fearing the economic toll of protracted violence, it threatened a strike at banks, the port, and fuel distribution companies if the country’s politicians did not find a settlement. Such a mobilization would have brought the country to a standstill by halting automobile and train traffic and eventually cutting off Beirut’s electricity supply. In the cables they sent at the time, US and British diplomats credited this strike threat with the formation of President Fouad Chehab’s postwar government.
A demonstration at the Zahrani terminal in 1966
This emboldened labor movement would continue to flex its muscles throughout the 1960s. Struggling with the corrosive effects of inflation, organized labor embarked on a concerted push for both higher wages and a more robust welfare state. In pursuit of these demands, they threatened general strikes which—given oil workers’ ability to shut down fuel distribution and oil exports—consistently forced the government to negotiate. In 1961, one such threat persuaded the government to raise the minimum wage and mandate a national salary increase to meet the rising cost of living.
Importantly, though, such adjustments were only effective for so long: Nationwide pay-raises accelerated the very inflation which had caused workers to mobilize—a phenomenon that economists call wage-push inflation. The outcome was a cycle in which inflation, mobilization, and wage hikes fueled one another, with organized labor winning national wage adjustments again in 1965, 1971, 1973, and 1974.
But not all victories were fleeting. On the contrary, by the early 1970s organized labor had deployed the threat of strikes to extract a transformative array of social safety mechanisms. These included a pension plan, government assistance to workers’ dependent family members, and various state-backed insurance schemes for formally employed workers. Together the latter formed the National Social Security Fund, which remains Lebanon’s main social welfare mechanism. While these breakthroughs are widely attributed to the progressive leadership of Fouad Chehab and his successor, Charles Helou, they might never have come to pass without bottom-up pressure from an oil-powered labor movement.
The 1950s and 1960s were thus an era of building: from physical and financial infrastructure to social classes, social movements, and state support structures. But the resulting edifices were more unstable than nostalgic images of the golden age might suggest—shot through with fissures that the subsequent decade would wrench wide open.
The golden age was more unstable than nostalgia might suggest—shot through with fissures that the subsequent decade would wrench wide open.
At the heart of this brittleness was Lebanon’s dependence on its status as a hub for regional and global energy markets. This position was as integral to replenishing state coffers through transit fees as it was to keeping the middle class employed, mobile, and within reach of bountiful consumer goods. Yet by the early 1970s, this central position in the oil economy had begun to shift and crack. This related, in part, to the advent of so-called “supertankers”: massive new vessels equipped to carry oil from the Gulf to Western Europe. This new route bypassed Lebanon entirely, and proved cheaper than pumping crude through decades-old pipelines like Tapline and IPC—undermining their raison d’être.
As routes around Lebanon were getting cheaper, pathways through it were growing more expensive. The wage hikes and benefits won by Lebanon’s oil unions had the side effect of increasing Tapline and IPC’s labor costs in the country. Lebanon’s success in negotiating royalties drove up the price tag further, prompting both Tapline and IPC to start looking for ways to abandon these no-longer-profitable assets.
But the greatest blow of all came when, between 1972 and 1974, Gulf oil producers coordinated to ratchet up global oil prices to unprecedented levels. Lebanon struggled to pay higher prices for Saudi crude imported via Tapline, and the cost of these energy imports ultimately put the Lebanese state tens of millions of dollars into debt. Facing supertanker competition and with Lebanon in arrears, Tapline stopped exporting oil from Zahrani in 1975. To make matters worse for Lebanon’s distinctive oil economy, Iraq had in 1972 nationalized IPC, marking a regional shift toward state ownership of the sector. By the mid-1970s, Lebanon thus found itself severed from both arteries that had long allowed it to cash in on the regional oil boom.
By the mid-1970s, Lebanon found itself severed from the two arteries that had long allowed it to cash in on the regional oil boom
While spiking energy prices sent Lebanon reeling, they were making Gulf oil exporters richer than ever before. This bifurcation triggered a double shock: As costs increased in Lebanese stores and petrol stations, Gulf investors unleashed a fresh torrent of oil wealth into the market. This intensified inflation and real estate speculation, making life in Lebanon—and especially in Beirut—ever more unaffordable for most of the population.
Although this crisis was widely felt, it hit hardest those segments of the population that had been left out of the Chehabist social compact. The gains won by organized labor were always restricted to those legally employed in Lebanon’s formal economy, while doing little for diverse groups that fell outside this umbrella. Among the excluded featured domestic and agricultural workers, Palestinian refugees, and Syrian migrants, who were effectively barred from organizing unions or accessing the Social Security Fund. And these marginalized groups weren’t just left out of nation-wide pay raises: They were actively disadvantaged by them, as pay hikes fueled inflation which further eroded the value of their own stagnant wages.
The civil war pushed this already-teetering social and economic order into collapse. The outbreak of fighting in 1975 led international oil companies to withdraw from Lebanon entirely, spurring the takeover of distribution by local companies like Wardieh, Medco, and Coral that now constitute Lebanon’s fuel cartel. Gulf emirates like Kuwait and Dubai began to develop their own financial sectors rather than route oil capital through Beirut’s increasingly risky market. Gradually, even the sector’s physical infrastructure was put out of commission: First when Israeli forces bombed Zahrani during their 1982 invasion, and then when the Lebanese government finally closed the Tripoli refinery in 1992.
By the dawn of the post-Taif era, much of the physical infrastructure that had underlaid Lebanon’s petroleum-powered gilded age had been ruined, repurposed, or abandoned. While many of the negative trends of the oil economy remained intact, including the country’s dependence on capital inflows from abroad, the material and social basis of its productivity had either been dismantled or destroyed.
The long afterlife of Lebanon’s oil economy is finally coming to an end: Automobility has become a luxury, the status of the country’s gold reserves is questionable, social security is underfunded, trade unions have been subordinated to the political class, and the financial sector plays a strictly parasitic role. Even if hydrocarbons are discovered in Lebanon’s coastal waters, as some have hoped, they will not revive the past. At best, domestic gas supplies could provide somewhat more reliable, less expensive, and marginally cleaner electricity years down the line. At worst, a natural gas discovery could reinforce rent-seeking and prolong the life of the kleptocratic ruling class, offering more of the same while delaying any real reforms.
But Lebanese activists, think tanks, and scholars have pointed out alternative paths forward. These include a decentralized green grid building on the country’s ongoing solar power boom; a new social compact that could restore social protection through progressive taxation; and a public transportation system, which could service a relatively small territory with relatively modest investment. Lebanon cannot relive a nostalgic vision of its gilded age, which depended on the flow of resources from abroad. What Lebanon can do is make better use of a resource its political economy has always undervalued: its own domestic potential.
6 June 2022
Zachary Davis Cuyler is a PhD candidate in History and Middle Eastern and Islamic Studies at New York University. His work focuses on the history of energy, infrastructure, and labor in the mashriq.
Illustration credits: Oil tanks by TColburn52, remixed and licensed under CC; Zahrani terminal laborers' demonstration, from private collection of Ayyub Shami; Tapline tank farm in Zahrani, from the Børre Ludvigsen Digital Archive, University Libraries Digital Collection, American University of Beirut, reproduced with permission.