 Historical Background
The history of oil in the Middle East and the Arab world goes back many centuries during which seepages of oil and tar were used for a multitude of purposes. A mission of German experts in 1871 (1288 AH) visited Iraq and reported plentiful supplies of oil. In 1907 (1324/25 AH), another mission said Iraq was a veritable 'lake of petroleum'. In Iran, oil was found in quantity in 1908 (1325/26 AH). The major Iraqi field was discovered at Kirkuk in 1927 (1345/46 AH) and began producing oil in commercial quantities; oil flowed abroad in 1934 (1352/53 AH). In 1932 (1350/51 AH), petroleum was discovered in Bahrain.
In 1923 (1341/42 AH), a New Zealander, Major Frank Holmes, acting on behalf of a British syndicate, the "Eastern and General", obtained the first Saudi Arabian oil concession from King Abdul Aziz (Ibn Saud), an exclusive concession to explore for oil and other minerals in an area of more than 30,000 square miles in the Eastern Region.
The concession, at a bargain price of 2,000 pounds sterling per annum to be paid in gold, came to nothing. The Eastern and General Syndicate were unable to persuade any oil company to invest sufficient funds for exploration and, after paying the 2,000 pounds sterling for two years, they ceased to fulfill their part of the agreement.
The King waited for three years and then, in 1928 (1346/47 AH), revoked the concession. From the viewpoint of Major Frank Holmes and his London-based syndicate, this episode must represent one of the world's greatest lost opportunities.
In 1930 (1348/49 AH), King Abdul Aziz (Ibn Saud) was faced with a substantial fall in revenues, resulting from a drop in the number of pilgrims caused by the world-wide recession.
The King invited a wealthy American businessman and philanthropist, Charles R. Crane, to visit the Kingdom. Crane had already shown an eagerness to meet the King. In the course of Crane's visit, it was agreed that he should send a mining engineer to conduct a survey of Saudi Arabia to assess the Kingdom's water, mineral and oil resources.
In 1931 (1349/50 AH), the engineer, Karl Twitchell, arrived in Jiddah. Twitchell was a civil and mining engineer, with Middle East experience, having worked for Crane in the Yemen. After an extensive survey of many months, Twitchell submitted his report to the King. A key finding was that the geological formations in eastern region around Dhahran strongly indicated the presence of oil.
While Twitchell's survey was proceeding, Socal, the Standard Oil Company of California, which had sent two geologists to Bahrain, was becoming increasingly interested in the oil potential of the mainland of Saudi Arabia.
In 1933 (1351/52 AH), Twitchell arrived in Jiddah with a Socal representative, Lloyd Hamilton. Despite some impressive competition from the Iraq Petroleum Company, Hamilton succeeded in negotiating a concession for exclusive rights to oil in the eastern region.
The agreement which had a 60-year life (later to be extended for a further six years), received royal assent in July, 1933 (1352 AH). Thus, the Kingdom broke
what had been virtually a British monopoly of oil concessions in that part of the world.
Initial exploration produced disappointing results but in 1935 (1353/54 AH) a well drilled in Dhahran found indications of oil in commercial quantities. The following year, Socal, now operating through its subsidiary the Californian Arabian Standard Oil Company (Casoc), put into effect Article 32 of the 1933 (1351/52 AH) agreement and sold one-half of its concession interest to the Texas Oil Company. Oil production began in 1938 (1356/57 AH), by which time the vast extent of the oil reserves was becoming apparent.
With this confirmation of the commercial viability of the oil reserves, another supplementary agreement was signed on 31st May, 1938 (1357 AH), adding six years to the 60-year life of the original agreement. This second instrument, known as the Supplemental Agreement, enlarged Socal's concession area by almost 80,000 square miles. It also included rights in the Saudi government's half interest in the two neutral zones shared with Iraq and Kuwait.
In 1944 (1363/64 AH), the Californian Arabian Standard Oil Company was re-named the Arabian American Oil Company - Aramco.
In 1948 (1367/68 AH), Aramco invoked an Article of the Supplemental Agreement of 1939 (1357/58 AH) by selling a 30% interest to Standard Oil of New Jersey and a
10% interest to Socony Vacuum.
The redistributed ownership of Aramco was then Standard Oil of California (now known as California Standard) - 30%; Texas Oil Company (now known as Texaco) - 30%; Standard Oil of New Jersey (later known as Exxon) - 30%; and Socony Vacuum (later known as Mobil Oil) - the last 10%.
(In 1998, Exxon and Mobil signed a definitive agreement to merge and form a new company called Exxon Mobil Corporation.)
It was inconceivable in the political and economic context of the second half of the twentieth century that so important a national resource as oil, representing as it did most of the country's national income, should remain under the ownership of foreign companies.
In 1973 (1392/93 AH), the Saudi Arabian government took a 25% stake in Aramco. In 1974 (1393/94 AH), this share was increased to 60% and in 1980 (1400/01 AH) it was amicably agreed that Aramco should become 100% Saudi-owned, with the date of ownership back-dated to 1976 (1396/97 AH).
On 6th April, 1989, the transfer of the Arabian American Oil Company from the American John J. Kelberer, to the Saudi Ali Naimi, took place at Hamilton House, named after an American lawyer who negotiated the first agreement that opened the Kingdom to American oil companies 56 years ago and led to the formation of Aramco, as the company is known to the world.
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Statistical Tables
-World Crude Oil Demand and Supply (1993 - 2002), Million Barrels Per Day
| Year |
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
| Total Production |
73.4 |
72.1 |
74.7 |
74.5 |
74.1 |
76.8 |
| Total Consumption |
73.0 |
74.6 |
75.5 |
75.9 |
76.6 |
78.1 |
-Saudi Arabia's Proven Oil Reserves (1976 to 2002) in thousand million barrels
| Year |
1976 |
1986 |
1995 |
1996 |
1998 |
2002 |
2003 |
| Proven Reserves |
113.3 |
169.2 |
261.2 |
261.5 |
261.5 |
261.8 |
262.7 |
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References:
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