A Red Line, A New Kingdom, America, and Oil
- Pipeline
- In Search Of Oil
- Other - In Search Of Oil
Author: Aramco ExPats Staff
Released 20 February 2007
In the early 1900s with the Industrial Revolution in full swing and the demand for oil accelerating, the world's political powers lay stake to foreign oil sources with renewed interest in the Middle East. The focus of much attention was in the then Mesopotamia where in 1908 oil was discovered in Iran. This led to a quest for oil in Mesopotamia where pursuits were concentrated in Mosul a province of Iraq.
Meanwhile in the United States, an anti-trust ruling dissolved John D. Rockefeller's Standard Oil conglomerate into 34 separate companies. The year was 1911. Amid the anti-trust breakup, the following oil companies were formed: Standard Oil New Jersey (Esso/ Exxon), Standard Oil New York (Socony Vacuum/ Mobil), Standard Oil Indiana (Amoco), Standard Oil California (SOCAL / Chevron), and Atlantic Refining (Arco).
In an attempt to dominate Iraqi oil interests, band together rivals, and outflank American concessions, British-Dutch groups (including a German investor and later including French interests) formed the Turkish Petroleum Company (Iraq Petroleum Company) in 1912. In a 1914 cooperative effort the groups agreed to a restrictive clause denying themselves rights to seek additional exploration concessions in the Ottoman Empire (defined simply by a Red Line drawn on a map) except through the Turkish Petroleum Company. Companies who accepted this self-denying clause and who had companies with part ownership of a company operating in Iraq could not seek concessions within the area outlined by the Red Line. The Red Line, as drawn, encompassed most of the old Ottoman Empire including Turkey, Iraq, Saudi Arabia, and adjoining sheikdoms, but excluding Iran, Kuwait, Israel, and Trans-Jordan. Initially, American oil companies were not part of the agreement although in subsequent years companies such as Standard Oil of New Jersey (Exxon) entered into the agreement.
It wasn't until the early 1920s that the American focus on international oil exploration took shape, and, as stated in the January 1962, Aramco World 'Partnership' article, "No place was more seductive -- and uncertain -- than the Arabian desert."
"By the time ‘Abd al-‘Aziz ibn ‘Abd al-Rahman Al Sa‘ud—known to westerners as Ibn Sa‘ud—merged his central Arabian realm of the Najd with the western Kingdom of the Hijaz to form the Kingdom of Saudi Arabia in 1932, the new nation was deeply in debt. The principal source of national revenue -- a tax on pilgrims to Makkah -- had declined sharply as the worldwide Great Depression reduced traffic to the Holy Cities"
With the discovery of oil around the Persian Gulf, the King, determined to exploit interests in Saudi Arabian oil exploration, sought to issue concessions as a means of funding the national debt. In fact, even prior to gaining control of the western part of Saudi Arabia, Ibn Sa'ud had granted the first oil concession in 1923 to a British investment group, the Eastern and General Syndicate who gambled on selling the concession and lost when securing interested British petroleum companies proved futile. The concession lapsed and expired in 1928. Still interest in the Saudi peninsula continued to peak, yet many large oil companies were prohibited from obtaining concessions by the Red Line Agreement.
In 1931, Standard Oil of California (SOCAL)—which was not a partner in Turkish Petroleum and therefore free to act within the former Ottoman Empire—agreed to take over the Bahrain portion of a concession granted to Gulf Oil Corporation of Texas. On May 31, 1932 SOCAL's newly formed Bahrain Petroleum Company struck oil there, and SOCAL's attentions turned toward the coast of Saudi Arabia.
American exploration for oil in Saudi Arabia began in 1933 following a year long negotiation process and the signing of a concessionary agreement between the Saudi Arabian government and SOCAL.
"There were reasons why ‘Abd al-‘Aziz chose far-off America as his partner in development rather than Britain, then the dominant foreign power in the region. Some of these reasons were geopolitical: The king was protective of his independence and his new sovereignty, he mistrusted Britain because of its record as a colonizer, and the Americans offered more money.
But beyond these, the king’s reasons were also personal. He had never traveled outside the Arabian Peninsula and had met few foreigners, but over the years he had come into close contact with a handful of Americans who had won his trust. As often happens, respect between individuals opened the doors of commerce and built the foundation of an otherwise unlikely partnership between an industrialized United States and an as yet undeveloped Saudi Arabia."
With the assignment of two American geologists, Robert P. (Bert) Miller and Schuyler B. (Krug) Henry, a geological field party was dispatched into the deserts of Saudi Arabia concentrated along the eastern coast and the search for oil began.
Soon the party was joined by J. W. (Soak) Hoover, who upon arrival was ushered immediately to a hopeful group of limestone hills just outside of Dhahran that Henry and Miller had named the Dammam Dome. Over the next several months, the party expanded to include geologists Art Brown, Tom Koch, Hugh Burchfiel, engineer Allen White, mechanic Felix Dreyfus, and geologist-pilot-aerial photographer Richard (Dick) Kerr and copilot-mechanic Charley Rocheville. This rounded out the first field season's ten-man team.
The first field season of exploration began on September 23, 1933 and ended seven and a half months later on June 7, 1934 when the summer heat grew too intense. A field party accompanied by Bedouin trackers made long desert traverses to detail and sketch the terrain. As well, the pilots accompanied by geologists performed aerial reconnaissance to observe and map terrain features. SOCAL chief geologist Max Steineke joined the team in 1934 and provided the first comprehensive view of the stratigraphy and underlying structure of Saudi Arabia's eastern desert, paving the way for groundbreaking discoveries in the Dammam, Abqaiq, and Ghawar oil fields. At the end of the first field season, the Dammam Dome was selected as the best location for the first well.
Meanwhile, SOCAL (Chevron) signed over the exploration concession to its wholly owned operating subsidiary, California Arabian Standard Oil (CASOC). Drilling commenced around the Dammam Dome. In 1936, SOCAL, having no success at discovering oil sold part interest in CASOC to Texas Oil Company (Texaco). The joint venture became known as the California Texas Oil Company, or Caltex.
It wasn't until March 4, 1938, with hopes fading, that the seventh drill site at the Dammam Dome delivered oil in commercial quantities. The legendary well known as Dammam Number 7 immediately produced over 1,500 barrels of crude oil per day. The crude was exported by barge to Bahrain. In 1939, the first tanker load of crude oil was exported.
With confirmation that Saudi Arabia would indeed be a player in the American oil market, CASOC changed its name to the Arabian American Oil Company (ARAMCO) in 1944. In 1946, Aramco partnered with Standard Oil Company of New Jersey (Exxon/ Esso) and Socony (Standard Oil Company of New York)-Vacuum (Mobil Oil Company) to gain investment capital and marketing outlets. SOCAL, Texas Oil Company, and Standard Oil Company of New Jersey owned 30% each and Socony-Vacuum owned 10% of Aramco. These four companies would remain the sole owners of Aramco until 1970.