Wednesday, January 1, 2014


Saudi Arabian oil was first discovered in comm
ercial quantities at 
Dammam well No. 7 in 1938 now modern day Dahahran.SOCAL set up a subsidiary company, the California Arabian Standard Oil Company (CASOC) to develop the oil concession. SOCAL also joined forces with the Texas Oil Company when together they formed CALTEX in 1936 to take advantage of the latter’s formidable marketing network in Africa and Asia.

When CASOC geologists surveyed the concession area, they identified a promising site and named it Dammam No. 1, after a nearby village. Over the next three years, the drillers were unsuccessful in making a commercial strike, but chief geologist Max Steineke persevered. He urged the team to drill deeper, even when Dammam No. 7 was plagued by cave-ins, stuck drill bits and other problems, before the drillers finally struck oil on 3 March 1938. This discovery would turn out to be first of many, eventually revealing the largest source of crude oil in the world. For the king, oil revenues became a crucial source of wealth since he no longer had to rely on receipts from pilgrimages to Mecca. This discovery would alter Middle Eastern political relations forever.

Changes to the original concession
In 1943 , the name of the company in control in Saudi Arabia was changed to Arabian American Oil Company (ARAMCO). In addition, numerous changes were made to the original concession after the striking of oil. In 1939, the first modification gave the Arabian American Oil Company a greater area to search for oil and extended the concession until 1999, increasing the original deal by six years. In return, ARAMCO agreed to provide the Saudi Arabian government with large amounts of free kerosene and gasoline, and to pay higher payments than originally stipulated. Beginning in 1950, the Saudi Arabian government began a pattern of trying to increase government shares of revenue from oil production. In 1950, a fifty-fifty Profit sharing
profit-sharing agreement was signed, whereby a tax was levied by the government. This tax considerably increased government revenues. The government continued this trend well into the ‘80s. By 1982, ARAMCO’s concession area was reduced to 220,000 square kilometers, down from the original 930,000 square kilometers. By 1988, ARAMCO was officially bought out by Saudi Arabia and became known as Saudi Aramco.

Due to the quantity of the oil in Saudi Arabia, construction of pipelines became necessary to increase efficiency of production and transport. ARAMCO soon realized that “advantages of a pipeline to the Mediterranean Sea seemed obvious, saving about 3,200 kilometers of sea travel and the transit fees of the Suez Canal”. In 1945, the Trans-Arabian Pipeline Company (Tapline) was started and was completed in 1950. The pipeline greatly increased efficiency of oil transport, but also had its shortcomings. Issues concerning taxes and damages plagued it for years. It had to be shut down numerous times for repairs, and by 1983 was officially shut down.
1973 Arab-Israeli War
This conflict was also known as the Yom Kippur War. This was a conflict between Egypt, Syria and their backers versus Israel. The conflict was the beginning of a troubling pattern of conflict between Israel and the Arab world. Because the United States was a supporter of Israel, the Arab countries participated in an oil boycott of the United States and the Netherlands. This was one of the major causes of the 1973 energy crisis that occurred in the United States. After the completion of the war, the price of oil increased drastically allowing Saudi Arabia to gain much wealth and power.