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For All Nails, pt. 8

(I'll be jumping a little ahead here chronologically.  Feel free to
back write entries.  The style of this one is a little less
anecdotal.)

February 1972

The riots in Damascus, Baghdad, and Jerusalem didn't particularly
worry Bob Contreras.  Life was too good.  He spent more money on his
private airmobile every week than your average Mexican made in a year.
 Riots in some Godforsaken desert on the other side of the planet did
not concern him.  Insuring that the officials in Mexico City continued
to pretend that his airmobile was for "business," not personal use,
concerned him much more.

The 1968 study commissioned by the German and Arabian governments,
though, that did concern him:  but positively.  The study concluded
that oil could be profitably extracted from the Arabian peninsula at
an average cost of less than five marks a barrel.  The only limit was
investment.  Oil prices may be four times the production cost, but
Arabia's government could greatly increase its revenues by the simple
expedient of increasing production.  [1]  Since Contreras's company
supplied petroleum machinery, that could only be good for him.

The 1969 announcement by the German oil conglomerate that it planned
to triple Arabian production within five years had him downright
jubilant.  He immediately got on the phone with his contacts at
Meximbank, the state-owned export financier, and started lining up the
money he'd need to get the export contracts.

The immediate softness in the oil market, that bothered him a little.

The downward pressure on the dólar, that bothered him more.  But
President Domínguez said "I will defend the dólar like a dog."  More
importantly, the papers quoted Secretary Mercator as saying, "A strong
dólar is synonymous with a strong Mexico."  And Confederation banks
seemed as willing as ever to shovel money at the USM, which thankfully
then re-lent those pounds cheaply to connected companies like
Contreras's.  Lower oil prices were good for the economy, everyone
said, and were still well above Pemex's production costs.  No reason
to worry.

Until 1971, when the price suddenly crashed like a stricken airmobile,
as speculators realized that the German expansion plans were serious. 
The federal government's finances were blown wide open.  Foreign
lending dried up.  Suddenly, the economy was about as liquid as the
Arabian desert that Contreras had so confidently ignored over the
years.

In February 1972, with another presidential "election" approaching,
President Domínguez announced that he was devaluing the dólar that
he'd pledged to defend like a dog.  By federal fiat, Mexico's money
immediately plunged from five dólares per CNA pound to eight.   In
March, Mercator announced that the salaries of all workers earning
less than $1,500 a year would be immediately doubled, while the
statutory minimum wage would at least triple.  At the same time, the
government froze retail food prices.  (No one in Mexico or abroad had
to wonder why it was the Secretary of War making such announcement,
while the President stood mute.)  Raphael Domínguez himself was
offered up as a sacrificial lamb.  He didn't resign the presidency,
but the Progressive Party's nomination for the 1972 election went to
the heretofore obscure governor of Guajaca, Immanuel Moctezuma. 
Moctezuma's campaign was directed more against the lame-duck incumbent
than the pathetic candidates offered up by the approved opposition
parties.

Moctezuma, of course, had only good things to say about Secretary
Mercator.  That reassured Robert Contreras in his office in Jefferson
City.  The measures Mercator announced, however, did not reassure
Contreras.  Nor did the cartoons of fat capitalists in silk top-hats
that had begun to appear in the major newspapers.  Nor, most seriously
of all, did Pemex's slow-ay policy towards its suppliers.  He began,
quietly, to buy pounds.  He also began, not so quietly, to think about
how Mexico might escape this new predicament.

(Pt. 9 --- or whatever it's numbered, should someone beat me to the
punch --- will be more anecdotal.)

[1]  The reason the Economist disastrously predicted that oil prices
would continue to plunge in 1998 was because Saudi Arabia could, over
the long run, increase its revenues with lower prices.  Saudi Arabia
won't exercise this strategy for three reasons.  First, it would
destabilize other Arab oil producers, who might then do all sorts of
unfriendly things in response.  Second, the strategy involves a
temporary revenue loss as new investment comes on-line.  It isn't
clear that Saudi Arabia can survive that politically.  Third, the West
does not want to become even more dependent on a single
not-all-that-nice country for even more of its oil, and might do all
sorts of strange things in response.

Arabia does not have those constraints.  First, its government is
spending very little in the way of anything in social benefits as of
1971.  The riots have caused the Germans to decide that that is not a
very good strategy in terms of maintaining their control over the
country, but they can take a medium-term view.  Second, the German
government can invest lots more lots faster than the Saudis could.  So
the period of reduced revenues will be even lower.  Third, Germany
doesn't care if more of its oil comes from Arabia.  In fact, the
Germans probably figure that their control over Arabia is more solid
than their control over the Associated Russian Republics.  [2]  So the
more cheap oil from Arabia, the merrier.  Therefore, Berlin's
interests all coincide:  continental industries get cheap oil, the oil
conglomerate gets subsidized investment, and Arabia's government gets
more money to spend on bread and circuses.

[2]  We know that "Arabia" includes OTL Syria, Iraq, Jordan, Israel,
Lebanon, Kuwait, and Saudi Arabia.  I leave it to others to decide if
it also includes OTL's UAE, Qatar, and Oman, which could conceivably
be under British protection, but might also be under German control,
either as part of Arabia or as separate puppet states.

I imagine that the Associated Russian Republics is a blanket
organization that the German Empire uses to control European Russia,
and probably includes Georgia, Azerbaijan, and Armenia.  In my reading
of the phrase, however, the ARR is not a country:  rather, it's a
supranational organization used by the Germans to indirectly control
the region and insure that its nominally sovereign republics give no
trouble.  Cheap oil hurts only the oil-dependent member republics.

From Johnny Pez's descriptions of Poland and France, I get the feeling
that the German Empire uses very different control mechanisms in
different areas.  Which should be fun for all you contributors.