Reflections on 80 years of Saudi oil production

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Reflections on 80 years of Saudi oil production

Saudi oil production turned 80 years old on March 4, as the day when California Arabian Standard Oil Co., CASOC, struck oil from its seventh drilled well at the Dammam field.

Well No. 7 at Dammam field, named “Prosperity Well,” became a symbol of success and human determination, as commercial production of oil in Saudi Arabia began, turning the country from a poor nation to one of the world’s richest.

So much had been written about this occasion throughout the years, and the story of how King Abdulaziz (Ibn Saud) granted the most precious oil concession in the world to Standard Oil of California (SOCAL) in May 1933. This concession still forms the basis of the relationship between Aramco and the government, even with nationalization in the 1980s.

Even so, it’s worth recalling a few facts about the story of oil in Saudi Arabia and those first concessions, which have either been forgotten or haven’t received enough attention.

SOCAL wasn’t the first Saudi oil concession. Many think that the concession that Ibn Saud granted to SOCAL — operated by its subsidiary CASOC — was the first concession to be awarded, but that’s not correct.

Years before he unified the Kingdom in 1932, Ibn Saud granted the first concession to New Zealander Major Frank Holmes in 1923; however, it wasn’t a successful venture. 

Holmes, later known as Abu Neft (father of oil), defaulted on his payments to Ibn Saud, and the King canceled the Al-Hasa concession later in 1927.

In his book “Britain and Saudi Arabia 1925-1939: an Imperial Oasis” author Clive Leatherdale wrote that Ibn Saud approached the British government for another concession just a month after he awarded the Al-Hasa concession to SOCAL. 

In July 1936, Petroleum Concession Ltd. — owned by Iraq Petroleum Co. — won the concession for the Hijaz area of Saudi Arabia, including the entire Red Sea coast and Farasan Islands. 

The Hijaz concession wasn’t cheap. Petroleum Concessions paid 32,000 pounds in gold upon signing the concession, and it agreed to 7,500 in sterling per year as rent for four years of explorations, subsequently rising to £10,000. Unfortunately, while the Americans came up trumps in Al-Hasa, Hijaz geology didn’t favor the British.

Saudi Arabia had no diplomatic relations with US at the time of the SOCAL concession. The US government was not always interested in Saudi Arabian oil. In fact, it’s worth remembering that the SOCAL concession was a wholly-commercial agreement between US firms and the Saudi government. 

Ibn Saud’s remarkable choice to award the Al-Hasa concession to a US company proved to be the turning point for the oil industry. 

Wael Mahdi

It took at least a decade for the US government to recognize Saudi Arabia as an oil supplier, which came about largely due to Aramco’s lobbying in the US. In the early 1930s, the US didn’t even have a diplomatic representation in the Kingdom.

The British government was more interested in Middle East oil supplies than the US in the 1920s and the 1930s, as the Royal Navy switched from coal to oil. However, the British government had too much oil to deal so it didn’t bother to influence Ibn Saud’s decision on Al-Hasa.

Britain had oil concessions in Iraq and Iran that were producing oil in commercial quantities decades ahead of Saudi Arabia. The Anglo-Persian Oil Co. had the concession in Iran, while the Iraq Petroleum Co. operated the Iraqi concession.

When Ibn Saud awarded the SOCAL concession, the British Foreign Office said: “It is a pity that it has gone to entirely non-British interests, but no help for it.”

Ibn Saud’s remarkable choice to award the Al-Hasa concession to a US company proved to be the turning point for the oil industry. 

The choice was made despite the fact that he was very close to Britain at the time. 

He was influenced by adviser Harry St. John Philby who was antagonistic toward the British government. But it also seems that Ibn Saud was looking to do business with a company that had no link to governments.

In the end, Ibn Saud proved to be a person with a great vision. His choice of a US company shaped the oil industry — and the relationship between the two countries — for decades. 

  •   Wael Mahdi is an energy reporter specializing on OPEC and a co-author of “OPEC in a Shale Oil World: Where to Next?” 
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