The Tyranny Of Oil


This was on the Arabian Peninsula, well inside the Red Line oil preserve where members only were supposed to go hunting, and then according to strict club rules. But Socal ignored all that. Besides, the territory in question lay within the new realm of Saudi Arabia, a kingdom established in 1927 by the martial prowess of Ibn Saud. This towering desert warrior had managed to subdue all the warring Bedouin tribes and send Britain’s puppet ruler fleeing from the holy cities of Mecca and Medina. New as it was, Ibn Saud’s remote and thinly peopled kingdom stood out as the one state in the entire Middle East not subject to British control.

Nonetheless, when the British got wind that Ibn Saud was entertaining an American overture for an oil concession, British Petroleum dispatched a mission to Riyadh, the Saudi Arabian capital, to enter a counterproposal. But the directors of the British company did not think there was oil in Saudi Arabia, and their man confided to Harry St. John Philby, a British Arabist and adviser to Ibn Saud, whom Socal had promised to put on its payroll, that their only real concern was to see that the Americans did not get the concession. As it happened, Philby was the person who had convinced the king that he could raise revenues for his new state by selling rights to foreigners to exploit its undeveloped mineral resources. Egged on by Philby, the Americans offered the better deal—some $250,000 in gold for a starter and $25,000 yearly for a sixty-year concession. The bargain was closed in August, 1933.

In the United States the Depression was hitting bottom; and in far-off San Francisco, Socal managers were watching their dollars closely. Short of capital and totally lacking in marketing outlets in the Eastern Hemisphere, they turned to the only other major American oil company not bound by the Red Line Agreement. This was Texaco, which already had its own worldwide sales setup. In 1936 Texaco bought a 50 per cent share in both the Bahrein and the Saudi concessions and thereby became a partner with Socal in the California Arabian Standard Oil Company (soon renamed the Arabian American Oil Company, or Aramco). But development in such out-of-the-way places went slowly. Not until the last day of 1937 did engineers on the Arabian shore make a strike, and not until 1939 was the field—at Dammam, Saudi Arabia—ready for production. King Ibn Saud journeyed across the desert to the tiny new oil town of Dhahran, seven miles from the wells, and his party camped nearby in tents. Fifty sheep were slaughtered for the festive banquet. Ibn Saud went aboard the tanker D. G. Schofield , named for the founder of Socal, and was presented with a Cadillac. Then the king turned a valve on the pipeline, and oil began to flow. He was so pleased that he increased the size of the concession to 444,000 square miles—an area nearly twice as big as Texas. To the American negotiator he said: “Perhaps you would be interested to know why the Arabian American Oil Company received this concession?” “Very much,” said the Aramco man. “Well, I don’t recall seeing many American warships around these waters.”


In the world of 1939 the American breakthrough in the Persian Gulf went all but unnoticed. To newspaper readers in the United States, Bahrein and Dhahran were vague places, and the government in Washington was at the moment paying more attention to the war clouds building up over Europe and the Far East. All negotiations up to that point had been handled by a private company, and there was not a single diplomat at the ceremony marking the historic opening of the Saudi field. Several months passed before Washington accredited the United States minister to Egypt, Bert Fisher, to Saudi Arabia as well. A month after that the Second World War exploded.

The hostilities ended all chances of early development of the Saudi oil discovery. But war also placed the owners of the concession in need of all the diplomatic protection they could get. In October, 1940, Italian planes from Eritrea bombed Bahrein oil installations. Hitler dispatched Rommel across the Mediterranean to drive toward Cairo and Egypt’s oil fields and to threaten the Allied sources of petroleum in Iraq and Iran. In May, 1941, a group of young proGerman officers took over Iraq briefly in a coup, and German parachutists began landing at the Baghdad airfield before the British regained control. In Iran the Allies grew so fearful of a pro-German coup that they staged their own coup, replacing Shah Riza Khan with his young son, the present shah, Mohammed Riza Pahlavi.

Meanwhile the two American partners in Saudi Arabian oil were disturbed about the viability of their Middle East venture. They knew that the perpetually quarrelsome Arabian tribes had been unified only by the sword of Ibn Saud; now his economy was faltering as a result of the loss of oil royalties as well as of revenues from the annual pilgrimages to Mecca, which the war had halted.