BY SAM MANUEL  
WASHINGTON, D.C.—The history of modern Saudi Arabia is the history of imperialist oil interests in the country. The first Saudi king had not yet gained control of the western part of the country when he granted the first oil concession to a British investment group in 1923.

As early as 1912, four groups were competing for oil rights in Mesopotamia, now Iraq. They were: the German Deutsche Bank, the British D’Arcy, the Dutch-Anglo-Saxon Oil Company, and a U.S. group. With the discovery of suspected large oil reserves in the region, competition sharpened between the imperialist powers that defeated the German-Ottoman alliance in the Middle East following World War I.

Iraq, believed at the time to have the largest oil reserves, became a British protectorate. Capitalists from the United Kingdom established their dominance of oil in Iran through the Anglo-Persian Oil Company. At the end of the war, executives of Socony (now Mobil) reported bitterly to the U.S. State Department that the British commander of Baghdad prohibited their scouts from travelling to the oil-rich cities of Mosul and Kirkirk. Their teams in Palestine and Turkey, they reported, were being stalled while those of the Royal Dutch and Anglo-Persian oil companies were given free access to explore in the desert. This relationship of forces prompted Standard Oil’s New Jersey president to comment, “British domination would be a greater menace to New Jersey business than a German victory would have been.”

In 1928 nine companies signed an agreement that aimed to prevent any single company from obtaining oil rights in the region. The “Red Line” agreement, as it came to be known, got its name from a red-pencil circle someone among the nine drew around the countries of the old Ottoman Empire. Within this boundary the oil giants agreed that exploration and development rights would be granted only in combination—not to a single company alone.

The Standard Oil Company of California, which had not been a signatory to the agreement, obtained oil rights in Bahrain in 1932 and in Saudi Arabia the following year. By 1946 Standard had brought on Texaco, Standard Oil of New Jersey (later renamed Exxon), and Socony.  
 
Fall of London, rise of Washington
The establishment by these companies of the Arabian-American Oil Company (Aramco), a U.S.-owned oil consortium, was the first step by Washington toward wresting dominance of Middle East oil reserves from British imperialism. In 1951 British oil barons were dealt another blow with the nationalization of the Iranian oil industry under the pressure of tens of thousands of oil workers. The 1954 CIA-organized overthrow of the government of Mohammad Massadegh in Tehran placed the Shah back on the throne and replaced London with Washington as the main imperialist power in the country.

In 1940 British companies controlled an estimated 72 percent of oil reserves in the region as compared to 9.5 percent for U.S. companies. But Washington emerged as the number one imperialist power after World War II, displacing London. By 1967 reserves controlled by British companies had fallen to 29.3 percent while those under U.S. control had risen to 58.6 percent.

Aramco also qualitatively reinforced the position of what would become one of Washington’s key allies in the region—the Saudi royal family. The original contract with Aramco called for the payment of an annual rental fee of 5,000 British pounds in gold or its equivalent; a royalty payment of four shillings gold per net ton of crude production after the discovery of oil; and the free supply to the Saudi government of specific quantities of products from Aramco’s refineries.

In exchange Aramco received exclusive rights to explore for, produce and export oil, free of all Saudi taxes and duties, from most of the eastern part of Saudi Arabia for sixty years.

Production costs for Aramco were minimal and the oil wells were very productive compared to those in the United States. In 1971 oil wells in the Middle East produced an average of 4,500 barrels per day as compared to 15 barrels per day in the United States. The costs of production in the Middle East averaged 20 cents per barrel as compared to $1.75 in the United States.

The decisive factor in the cost differential was the low wages paid to oil workers. In 1950 the wage for oil workers in the Middle East averaged $2.13 a day. In Saudi Arabia it was $1.30 daily.

With access to a number of Gulf coast ports, Saudi Arabian oil could also be transported cheaply. The infrastructure of Saudi Arabia was developed along lines that primarily fit the needs of Aramco. The company built a modern port at Ad Dammam and a railroad linking it to Riyadh paid for by the Saudi government. The company built pipelines, storage tanks, gas-oil separation plants, and loading terminals throughout the country. In the 1970s Aramco managed the electric power company that supplied electricity to the eastern provinces.

While Aramco trained Saudis to perform a wide range of tasks in the oil industry, Saudi Arabian personnel were denied access to top management positions. The Saudi government first proposed obtaining a part in Aramco’s ownership in 1968. After long negotiations, the Saudi regime bought a 25 percent stake in 1973. In 1988 the Saudi government obtained an agreement to fully purchase Aramco, which was renamed the Saudi Arabian Oil Company.  
 
Saudi royal family and OPEC
The Saudi royal family also began playing a more central role in the Organization of Petroleum Exporting Countries (OPEC), formed by governments in semicolonial countries after victories in anti-colonial struggles following Word War II to counter domination of world oil markets and prices by imperialist powers and their companies. OPEC was founded in Baghdad in September 1960 in response to a unilateral decision by oil companies to reduce prices of oil they paid to exporters. The founding members—Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela—stated a number of objectives for the organization, including that OPEC member countries achieve a fair rate of return for their oil exports. In total, the countries belonging to OPEC comprise more than 77 percent of the world’s oil reserves and more than half of world petroleum exports.

Saudi Arabia has the world’s largest proven oil reserves at just over 260 billion barrels. Oil not only lubricates but also drives the world capitalist economy. In 2000 oil accounted for 42.7 percent of world energy production as compared to 15.8 percent through hydroelectric plants. Energy produced from coal stood at 7.9 percent, a drop from 13.8 percent in 1973. In 1999 oil was used to produce 52 percent of the energy used in Japan—a country with virtually no oil reserves of its own. Half of that figure is used to drive Japan’s industries.

The military forces of Washington and other imperialist powers in Europe and the Far East depend on fuel supplies from the Middle East and North Africa. As early as 1914, Winston Churchill, then head of the British Admiralty, argued that the British Navy must purchase the Anglo-Persian Oil Company of Iran and that “we must become the owners, or at any rate the controllers of the source, of at least a proportion of the supply of natural oil which we require.”

The looming signs of political challenges faced by the Saudi rulers are a growing concern to Washington for the stability of its access to oil in the region.

Through the occupation of Iraq, Washington hopes not only to find a more suitable location for its armed forces, but also sees the chance to end Saudi dominance of oil in the region and undermine OPEC. Ultimately, however, this can’t be done without direct U.S. control of Saudi oil.

Gary Vogler a former executive with Exxon now heads the Iraqi oil ministry. In true imperial style his first order was that “all employees of the ministry were prohibited from independently making any operational or staffing decisions until further notice.”

Iraq has the second largest known oil reserves, at 115 billion barrels. With the end of the war it is now under U.S. control. Thamir Ghadhban, Chief of Planning at the Oil Ministry for many years believes that by the end of the year Iraq’s oil production can be gotten back up to the pre-war level of 2.5 million barrels a day. In four to five years daily production could exceed 6 million barrels.

This is the number needed to qualitatively weaken the Saudi capacity to influence world prices through OPEC’s control of production levels, according to oil experts. Fadhil Chalabi, an Iraqi exile and Director of the London Centre for Global Energy Studies, estimates that it would cost $6 billion to get Iraqi oil productions levels up to 3.5 million barrels per day by 2005.

To meet these costs of restoring Iraqi production levels Chalabi, who is also currently a consultant to the U.S. State Department, proposes “generous privatization” of the Iraqi oil industry.

But denationalization of Iraq’s oil industry is potentially explosive. The June 1, 1972, nationalization of oil production in the country, as in many countries in the Middle East, is considered a symbol of liberation from colonial rule and has been celebrated as a national holiday until last year.  
 
 
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