Black Gold Rush in the Near East: a Century of Oil Relations Chelsea Cooley
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Black Gold Rush in the Near East: A Century of Oil Relations Chelsea Cooley Over the course of the twentieth included Socony-Vacuum (later Mobile), century, the discovery of oil in Saudi BP, Royal Dutch/Shell, and the state- Arabia caused the United States and the owned French company Compagnie United Kingdom to make military and Francaise Petrole. All members made a foreign policy decisions based on the pact called the “Red Line Agreement” need to secure a steady supply. The Gulf not to embark on independent States also made political decisions exploration without the express based on the desire to maintain the approval of the other members. This enormous influx of wealth introduced agreement allowed British companies to into the region with the discovery of oil. maintain a great deal of control over the Both the US and the UK had stakes in Mideast oil market even with the influx Gulf oil since their countrymen first of new international companies in the discovered it there at the turn of the region. The territory outside of the “Red century. Oil was discovered in Iran in Line” included Saudi Arabia.3 1908 by the UK’s William D’Arcy and in Bahrain in 1932 by Standard Oil of In 1932 the American company California.1 The lives of people today in Standard Oil struck oil in Bahrain, and Saudi Arabia, the US and the UK are island only 20 miles from Saudi Arabia, shaped by events resulting from these sparking US interest in the area for the discoveries and the economic and first time. Standard Oil of California military necessity for oil. (Socal) chose to operate outside of the IPC and its strict limitations on Britain needed large amounts of oil exploration. When the IPC required during WWI, when it used the oil-fueled Gulf Oil, another American company, to military tank for the first time. The sell its Red Line concessions, Socal enemy German army still traveled by bought Gulf’s Bahrain concession for railway. The switch to oil-powered $50 thousand. After Socal found oil, tanks eventually helped the Allies win both Socal and the IPC approached King the war, but eighty percent of the Allies’ Abdel Aziz for rights to explore Saudi oil came from Standard Oil of New Arabia and possibly drill for oil. In 1933, Jersey (later Exxon), causing US officials the Saudi king gave the American to fear they’d run out of the precious company the concession rather than the commodity. The government prompted British-controlled IPC because he US oil companies to follow Anglo- thought Americans showed less interest Persian entrepreneur William D’Arcy’s than the British in colonial intervention. lead and turn to the Persian Gulf. As payment, Socal gave the king Unfortunately, British companies L30,000 in gold as an interest-free loan already had a monopoly in Iraq, Iran, followed by L20,000 more in the next and the smaller Gulf States.2 The British eighteen months. The king agreed to Iraq Petroleum Company (IPC) had the pay back the loan in future oil revenue, most holdings in the Middle East, so if it ever materialized, and he secured Standard Oil of New Jersey decided to for himself a yearly payment of L5000.4 join the IPC. Other members of the IPC Unlike all other concessions thus far, ! 57 Americans owned this one exclusively, to the US and the Allies during the its size exceeding the combined states of Second World War by providing Allied Texas, New Mexico and Arizona. Socal forces access to essential strategic air soon formed a subsidiary company routes across the Arabian Peninsula. called the California Arabian Standard President Roosevelt also came to realize Oil Company (Casoc).5 Suddenly, there the importance of Saudi oil for US existed an alliance between at least one success at war. These combined factors major American oil company and the prompted the President to create the emerging oil-rich country of Saudi Petroleum Reserve Corporation (PRC) Arabia. US interest in the region only in 1942 “to acquire petroleum, increased as Saudi oil success continued. petroleum products, and petroleum reserves outside the continental US.”10 More American companies got Furthermore, as a result of its proven involved in the growing market in Saudi economic and military value to the US, Arabia as more oil emerged in the in 1943 Roosevelt qualified Saudi Arabia country. In 1936, the IPC denied Casoc for land-lease assistance. Confidence in access to its consumer markets, so Casoc this decision was strengthened when chose to merge with Texas Oil (later Saudi Arabia provided safe passage for Texaco, now part of Chevron), which war supplies through the Persian Gulf controlled markets in Asia but didn’t waterway from the US and Europe to 6 possess enough oil to service them. The the Soviets.11 Saudis found money from deal allowed Texas Oil 50% interest in land-lease assistance essential, since the 7 the Casoc concession. Saudi oil fields usual income from Muslim pilgrims continued to prove their worth when making the hajj dried up during the the well “Dammam-7” at Dhahran blew war.12 in March 1938, producing more than President Roosevelt wanted the US 8 1500 barrels of oil per day. Saudi government to have a more direct role Arabia quickly became a major oil in Saudi Arabian oil, so he asked player, especially in comparison to the Secretary of the Interior Harold Ickes to US whose wells only produced 100 negotiate a deal with Casoc (which barrels per day. King Abdel Aziz’s first changed its name to Aramco, the Arab royalty check from Casoc exceeded $1.5 American Company, in 1944) allowing million, and he quickly augmented the US government to purchase a Casoc’s exploration space by 80 majority of its shares. With the US thousand square miles. The new area government literally owning stock in gave the company rights to over half of Aramco, the company’s potential for Saudi territory. In 1939, Casoc averaged growth greatly increased. In fact, 11 thousand barrels per day, and within between 1944 and 1950, Aramco’s gross ten years, it averaged 477 thousand production of crude oil increased from barrels, accounting for five percent of 21 thousand to 548 thousand barrels per total world oil production and 35 day. The growth was enormous but 9 percent of Middle-East production. necessary, since the reconstruction of The ongoing oil success in Saudi Europe after WWII depended on this Arabia showed American statesmen oil. Although the US at the time only that companies who depended on imported six percent of its oil, and Saudi American oil alone stood no chance of Arabia provided only eight percent of competing with the emerging market in that amount, Western Europe depended the Middle-East. Furthermore, Saudi almost entirely on Persian Gulf oil.13 Arabia remained a reliable military ally ! 58 In February of 1945, not only the newly-declared state of Israel, even realizing the importance of Saudi oil for as Egypt, Syria, Transjordan, Lebanon, the war effort but also concerned by the and Iraq invaded the state in full force. dwindling supply of US oil, FDR met By remaining essentially neutral, the with the Saudi King Abdel Aziz ibn Saudi government managed to preserve Saud aboard the USS Quincy on Great its relationship with the US. His Bitter Lake south of the Suez Canal.14 neutrality also caused Aziz to come FDR determined that the “defense of under attack from other Arab leaders, Saudi Arabia is vital to defense of the but the King’s focus lie elsewhere.20 United States.”15 The meeting Aramco struck oil at Ghawar in 1948, an encouraged the Saudi leader, who area soon classified as the world’s remained neutral in the war effort, to largest oil deposit, and the company officially support the Allies in March needed more markets to buy its new 1945. The meeting also resulted in the excess of oil. It merged with American President’s first conversation with an companies Standard Oil of New Jersey Arab leader about the escalating and Socony Vacuum, who left their IPC situation in Palestine. Before the contracts. meeting ended, FDR promised not to change policy in Palestine without first The King trusted the American consulting both Jews and Arabs. He also companies; his biggest fear was that assured the King that he would never they might one day merge with the likes do anything hostile to Arabs, and put of British imperialists. He remained the promise in writing one week before unaware that in 1949 the US National his death in April.16 This promise soon Security Council secretly approved of a caused tension between the two plan to destroy Saudi oil fields in the countries, putting US oil interests at case of a Soviet attack. The CIA also risk. secretly shipped explosives into the kingdom to prepare for this possibility.21 Relations between the US and Saudi Like most foreign relations during the Arabia became strained for the first time Cold War, US interest in Saudi Arabia in November of 1947, when the UN was linked to US competition with the passed a resolution supporting the USSR, and US intentions in Saudi partition of Palestine.17 This led the way Arabia weren’t always transparent. for the United States to recognize the However, America’s perceived power State of Israel in May of 1948. The over Saudi oil was not absolute for long. Presidential administration in the US initially feared this might negatively Saudi Arabia began taking interest in affect oil relations between the US and garnering more profit from its domestic Saudi Arabia.