Saudi Aramco

Saudi Arabia before World War II was impoverished, without water, and really without much hope. In 1931, an American philanthropist, Charles Crane, was in search for sources of water resources when he discovered oil in the country. In order to make the oil profitable it required outside assistance, or in other words, allowing infidels into the Holy Land of Islam. Under much contention in 1933, the Standard Oil of Californian from the United States put down $170,000 in gold for concession to what turned out to be the biggest oil fields on earth. The Arabian American Oil Company (ArAmCo) was established in Saudi Arabia under this agreement. By 1945, these oil reserves were vital to supply energy for Americans fighting around the globe and became a security issue for the United States. Saudi Arabia was most concerned about its security, so in a meeting with President Roosevelt they agreed to create a military base called Dhahran, where Americans would train Saudi soldiers in exchange the King of Saudi Arabia assured the United States of oil.

            By 1948, four companies had investments in Saudi Arabian oil including Standard Oil of California (Chevron), Texas Oil Company (Texaco), Standard Oil of New Jersey (Exxon) and Socony Vacuum (Mobil). The Americans developed their own modern communities in Saudi Arabia. They also brought in many Saudi men to work in the oil fields exposing them to modern technology and infrastructure.  The Americans shared these technologies, like air conditioning, refrigerators, chewing gum and canned food with the locals and created a solid relationship with the people. At this point American companies reaped most of the profits from Aramco.

            In 1950, profits were split 50/50 between the Saudi Royal Family and the four American oil companies. However, in 1960 the Organization of Petroleum Exporting Countries (OPEC) was founded at the Baghdad Conference by Saudi Arabia, Iraq, Iran, Kuwait and Venezuela, this created a gigantic shift in power. The West now needed to negotiate with the developing world rather than just take. In 1973, Saudi Arabia joined with other OPEC countries in a boycott of the United States and the Netherlands. Oil prices rose significantly adding to the wealth of Saudi Arabia.  By the end of 1973, the Royal Family would control twenty-five percent of Aramco, in 1974 this would jump to sixty percent and by 1980, the Saudi Royal Family would own all of Aramco. Today Saudi Aramco is estimated to be worth between seven hundred and fifty billion dollars and seven hundred and eighty-one billion dollars, the largest company in the world.  

            Under King Fahd (1982-2005), the kingdom underwent a gigantic transformation. They brought in foreign contractors and laborers and modernized Saudi Arabia using the wealth generated by oil. One of the main contractors during this time was the Bin Laden family (of which Osama Bin Laden is a part of) who would end up at the end being worth thirty six billion dollars by the end of it. Saudi Arabia became a modern marvel of infrastructure and technology. Desalination plants were built allowing salt water to be converted to fresh water. This water is provided to the people for free on the public line. 

            During the 1970s and 1980s, many OPEC nations became greedy and continued to raise the prices. This caused reactions on the part of the consumers to try to control the amount of consumption. Saudi Arabian oil prime minster at the time Ahmed Yamani urged OPEC to work towards stabilizing oil prices but they did not heed his advice. By 1990, the price of oil had spiked and with growing uncertainty surrounding Iraq’s invasion of Kuwait, production dropped and prices would go into decline until 1994. Oil consumption increased in the United States and Asia from 1990 to 1997, and declining Russian production contributed to higher prices and relief from the recession that was occurring. 

            In recent times, Saudi Arabia has invested a lot into its oil industry, in particularly, in the Shaybah project, which the government has invested in removing a hundred million cubic feet of sand, and installing a four-hundred mile pipeline to extract seven-hundred and fifty thousand barrels a day. An even bigger endeavor is at the Khurays field, where Saudi Arabia hopes to extract one million two-hundred thousand barrels a day. Although it only costs Saudi Arabia less than two dollars a barrel to produce, the costs associated with running the country (in which the people pay no taxes) and the high entry costs (technology, infrastructure, etc.) pushes the price up to at least fifty-five dollars a barrel. Keeping prices under control is therefore essential for Saudi Arabia. Too low and Saudi Arabia would have to cut production, too high and the consumers will not be able to afford to buy it. Ideally, the price will be about seventy-five dollars a barrel.

            Controlling oil prices and supply is not only important for keeping Saudi Arabia going, it also controls the amount of pollution, in that there is a consistency about how many fossil fuels are burned. It also assures that until a more reliable option is developed the world will have sufficient energy to operate. Saudi Arabia has also invested a portion of its wealth in developing alternative sources of energy, especially solar energy. Saudi Arabia realizes that oil is a limited resource that is harmful to the environment and is dedicated to developing clean energy technology. They do not believe that we will ever be able to free ourselves from oil but feel that other things can be used with oil to promote a cleaner environment.

            One of these technologies is solar energy. Saudi Arabia receives 105 trillion kilowatt hours a day the equivalent of ten billion barrels of crude oil if it were all able to be harnessed making solar energy a great option for Saudi Arabia to develop. Saudi Arabia believes that solar energy can be especially useful in more remote areas but they would also like to see it used especially in desalination plants and in the communication systems.   Food and waterpower are also options for developing alternative sources of energy in other areas. Saudi Arabia is also looking at building a nuclear power plant the first of the Gulf States.

            The joke in Saudi Arabia is every time they search for water they find more oil. It started out as a pursuit of water by an American philanthropist that ended in the creation of the wealthiest company in the world, Saudi Aramco. Since the 1980s, Saudi Arabia has become a modern marvel, establishing the infrastructure and technology that has kept them ahead in the Middle East. Today Saudi Arabia looks to control the price of oil around the seventy-five dollars a barrel mark. At this price, Saudi Arabia is able to fund its government, continue expanding its infrastructure, and develop green technology. Saudi Arabia survives off its oil and has a great interest in insuring a demand for oil throughout the world. This means controlling prices and supply such that people will continue to buy oil long into the future, while at the same time investing in the long-term future of green technologies.

Bibliography

Frontline, "Saudi Arabia a Chronology of the Countries History and Key Events in the U.S-Saudi Relationship". (PBS. May 1, 2010) <http://www.pbs.org/wgbh/pages/frontline/shows/saudi/etc/cron.html>.

 He Osama Bin Ja'afar Faqeeh, “Saudi Arabia” (South Africa: United Nations, 2002) <http://www.un.org/events/wssd/statements/saudiaE.htm>

James, William. "Oil Prices History and Analysis". (WTRG Economics. May 1 2010) <http://www.wtrg.com/prices.htm>.

Royal Embassy of Saudi Arabia, “King: Saudi Environmental Policies Support Sustainable Development” (Washington DC: Information Office of the Royal Embassy in Washington DC, 2010) <http://www.saudiembassy.net/latest_news/news03081004.aspx>

Royal Embassy of Saudi Arabia, “Solar Energy” (Washington DC: Information Office of the Royal Embassy in Washington DC, 2010) <http://www.saudiembassy.net/about/country-information/energy/solar_energy.aspx>

Stahl, Lindsey. "The Oil Kingdom." (60 Minutes. Prod. Richard Bonin and Kathy Liu. CBS. 7 Dec. 2008.) <http://www.cbsnews.com/stories/2008/12/05/60minutes/main4650223.shtml>.