PART ONE
FROM BEDOUIN TO BOURGEOISIE
Of all the many nations that emerged into the harsh light of history and modernity during the twentieth century, none moved so rapidly from obscurity to glaring prominence as Saudi Arabia. Dominated by the Ottoman Turks and warring tribal chiefs in the 1890s, the Arabian Peninsula was in political disarray, and the Saud family, traditional rulers of the area around Riyadh from the mid-1400s, was in exile in Kuwait. The British sought to exercise influence by establishing protectorates among the traditional monarchies along the southern and eastern coasts of Arabia.
The present nation came into being only in 1932 when Abdul Aziz ibn Saud proclaimed the kingdom of Saudi Arabia after reclaiming the traditional family homeland and battling rival tribes for 25 years to gain control of most of the peninsula. He ruled a largely rural people who followed centuries-old traditional ways as farmers and nomadic herders driving their sheep, goats, and camels across the desert expanses. They practiced Wahhabi Islam, an austere doctrine requiring strict observance of Muslim laws that had been taken up by the Saud family in the mid-1700s and spread throughout Arabia by their conquests. The new kingdom was poor and utterly lacking in industrial development.
By the beginning of 1970, less than 40 years after its founding, Saudi Arabia was suddenly thrust into assuming a major role in economic activities and political events that affected the entire world. The worldâs urgent and virtually insatiable need for more oil catapulted the kingdom onto the center of the world stage and suddenly made it wealthy almost beyond any historical precedent. The Saudi people were moving into splendid new cities and developing tastes for modern Western goods and entertainments. Its oil industry began diversifying further downstream and gaining world-class technical sophistication.
But Saudi Arabia was by no means a modern state in the early 1970s, nor is it one today. As a monarchy with no elected assembly or parliament, the nation is still dominated by the Saud family and has been ruled for its entire history by Ibn Saud and his hereditary successorsâhis five eldest sons. These six men have dominated a vast expanse of desert and mountains for 103 years. While oil provided Saudi Arabia great wealth and an enviable array of public services and welfare systems, it has not built an economy that generates enough professional jobs for a rapidly growing population. Saudi society is extremely conservative and, from a Western perspective, restricts the freedom of women severely. The Wahhabist clergy enforce strict Muslim law and impose criminal punishments considered barbaric in the West. The once symbiotic relationship between state and religion appears threatened by rivalries that divide the allegiances of the people. And as the world has recently discovered, the peculiarly Saudi Arabian mix of monarchy, conservative Islam, social restrictions, and economic contradictions has proven to be a fertile breeding ground for discontent, opposition, and terrorism.
Saudi Arabia has also been an extremely reliable proprietor of the worldâs most critical oil supply. The kingdom has maintained a very close relationship with the United States and has generally shown a sympathetic understanding of the interests of the Organization for Economic Cooperation and Development (OECD) nations. As the largest producer in the Organization of Petroleum Exporting Countries (OPEC), Saudi Arabia has been a âdoveâ in policy disputes, working to maintain fair oil prices and safe, reliable oil supplies.
The critical issues facing the Saudi oil industry cannot be properly appreciated without some understanding of Saudi Arabia and its people. How did a disparate collection of desert tribes come to occupy such a critical position on the world stage? What are the composition and organization of Saudi society today? What are the countryâs concerns and challenges? What forces are driving the internal dynamics of this desert nation? How do Saudi Arabiaâs demographics and economic realities impact its oil-producing future? Part I answers these questions, to provide background necessary for understanding the current Saudi oil situation.
1
The Birth of a Nation
A Century of Extraordinary Change and Economic Challenges
The West has had very little appreciation of the rich history and culture of the entire Islamic Middle East. Knowledge of Saudi Arabia, in particular, was almost nonexistent until oil was discovered in 1938. Even after oil was found, the kingdom remained cloaked in obscurity for another three decades. Once the kingdom was thrust onto the world stage, obscurity gave way to glaring celebrity and negative stereotypes. Today, although much more is known about Saudi Arabia, ignorance and prejudice are only slowly giving way to understanding.
Only a handful of geopolitical experts and oilmen has ever traveled to this remote part of the world. Despite the critical role Saudi Arabiaâs oil now plays in the world economy, many people still assume the country consists of a few thousand wealthy princes squandering an endless flow of petro-dollars in self-indulgent decadence. This view may once have had a certain plausibility. Today, however, the real picture is vastly different.
Knowledge of Saudi Arabia, in particular, was almost nonexistent until oil was discovered in 1938.
While Saudi Arabia became an oil producer in the late 1930s, the kingdomâs rapid emergence as a global energy and economic power took place when U.S. oil production suddenly peaked in 1970. This event, coming at a time of rapidly increasing global oil demand, created an immediate potential for supply shortages. Saudi Arabia was the only producer with the capacity to keep pace with the worldâs ravenous appetite for oil. Seizing the opportunity, the kingdom leapt from the rank of a leading oil producer, with output of about 2.5 million barrels a day in 1965, to super-star status by providing over eight million barrels a day in 1974. For the next three decades, Saudi Arabia would become the key swing supplier of oil exports to the rest of the world, adjusting its output according to changes in world demand.
Tables 1.1 and 1.2 demonstrate the importance of the Middle Eastâs oil production and reserves, the basic reason why Saudi Arabia and the rest of the Middle East are likely to remain among the worldâs crucial geopolitical regions.
Table 1.1 Middle East Proven Petroleum Reserves
SOURCE: BP Statistical Review of World Energy
| At End of 2003 |
---|
| Oil | Natural Gas |
| (Billion barrels) | (Trillion cubic meters) |
Saudi Arabia | 262.7 | 6.68 |
Iran | 130.7 | 26.69 |
Iraq | 115.0 | 3.11 |
United Arab Emirates | 97.8 | 6.06 |
Kuwait | 96.5 | 1.56 |
Qatar | 15.2 | 25.77 |
Oman | 5.6 | 0.95 |
Syria | 2.3 | 0.30 |
Yemen | 0.7 | 0.48 |
Bahrain | | 0.09 |
Other | 0.1 | 0.05 |
Total | 726.6 | 71.72 |
Middle East % of World | 63.3% | 40.8% |
Saudi % of World | 22.9% | 3.8% |
Saudi % of Middle East | 31.2% | 9.3% |
World Total | 1,147.7 | 175.78 |
Table 1.2 Middle East Oil Production
SOURCE: BP Statistical Review of World Energy
Given these plentiful oil resources, why should anyone worry about Saudi Arabia? Apart from concerns about potential political upheaval, most energy observers seem not to have entertained the possibility that Saudi Arabiaâs Oil Miracle might someday end. This chapter reviews the history of Saudi oil, to provide some framework for better understanding the oil supply situation facing the world today.
The Reign of the Warrior King: 1902-1953
The roots of the Kingdom of Saudi Arabia go back to January 15, 1902, when Abdul Aziz (also known as King Ibn Saud, Figure 1.1) gathered a large group of warriors to capture Riyadh. Prior to this raid, most of Arabia had been controlled for several centuries by the Rashid Arab clan aligned with the waning Ottoman Empire. The victorious Abdul Aziz expelled the Rashid dynasty forever from what ultimately became Saudi Arabia.
Figure 1.1 King Abdul Aziz ibn Saud
SOURCE: Photographer: Hulton Archive; Collection: Getty Images
After capturing Riyadh, Abdul Aziz embarked on a series of campaigns to subdue additional towns and consolidate his control. In January 1926, Abdul Aziz became the King of Hadja and the Sultan of Naijd, and thus established his authority over most of the territory of modern Saudi Arabia.
As Abdul Aziz conquered the Arabian Peninsula, some of his most powerful supporters were the Ikhwan, the strictest, most zealous group within the Islamic Wahhabi sect. Once his power was secure, Abdul Aziz turned on these strict but unruly Wahhabists and, after four bloody, battle-ridden years, finally brought them under his control. But the religious fanaticism of this group never ebbed and played a dominant role in preserving the strict religious control that is still evident in Saudi Arabia today.
After almost three decades of warfare and political consolidation, on September 22, 1932 Abdul Aziz finally declared his realm the Kingdom of Saudi Arabia by merging the Hadja and Naijd realms. He ruled this new kingdom for 21 additional years.While he remained quite obscure throughout his life outside his kingdom, he was truly one of the twentieth centuryâs most dynamic and intriguing characters.
Historians still debate the extent to which Abdul Aziz was involved in the development of Saudi Arabiaâs oil. As will be detailed later, a series of advisors and quasi-advisors such as New Zealandâs Major Frank Holmes, the Arabist Harry St. John Philby, the American philanthropist Charles Crane of the Crane Plumbing fortune, the Vermont mining engineer Karl Twitchell, and a group of Standard Oil Company of California geologists all played important roles in convincing Abdul Aziz to grant the oil concession that ultimately led to the discovery of the worldâs greatest collection of super-giant oilfields. But the king played a canny role in orchestrating the early development of Saudi Arabian oil resources. Did he suspect that this barren kingdom might have such rich petroleum deposits, or were fate and luck the key determinants? Given the lack of records and the limited written history of Saudi Arabiaâs early years, definitive answers to these questions may never be known.
What is clear, however, is that by the time Abdul Aziz finally consolidated his power, his new kingdom was extremely poor. Its only source of real money came from fees charged to Muslims on the annual pilgrimage to Mecca. When Aziz finally became king, the global depression had reduced the flow of pilgrims to a trickle, and the royal family of the new kingdom teetered on the brink of insolvency. Their need for hard currency was so urgent that an oil company might have been expected to hold the clear upper hand in negotiations for an oil concession. That an oil company might take a gamble at all on the unknown geology of Arabia at that time is somewhat surprising, since most oil companies were struggling to stave off insolvency as the depression deepened and oil prices fell to 10 cents a barrel.
Opposition to Jewish Immigration Foreshadows First Oil Crisis
As he battled to establish control of Arabia, Abdul Aziz was acutely aware of the potential for political disruption and violence stalking his kingdom and the entire Middle East region as a result of Zionist efforts to create a Jewish homeland in Palestine. In fact, Abdul Aziz was among the first Arab leaders to warn that a Jewish homeland in the Muslim-dominated region posed serious risks for the Middle East and the world. The prominent role that Abdul Aziz tried to play during the crucial years of the Zionist campaign has been overlooked by many Middle East historians. And while the story has limited relevance to Saudi Arabiaâs oil development, it does shed some light on King Faisalâs use of the âoil swordâ to trigger the 1973 oil shock.
In 1937, Abdul Aziz spoke at length to Sir Percy Coxâs deputy H. R. P. Dickson about the millennium-long hatred that true adherents to the Muslim faith had towards Jews and urged the British government to maintain Palestine under British sovereignty, ruling it, if necessary, for another 100 years rather than partitioning it to create a Jewish state. In March 1943, Abdul Aziz invited representatives from Life magazine to Riyadh to proclaim his strong opposition to Jewish immigration to Palestine. During this visit, he retold the history of the region and gave his reasons for rejecting all arguments used to validate the Jewish claim to a homeland in the region.
Abdul Aziz came face to face with world leaders only rarely. The most prominent meetings took place in 1945, when he secretly conferred with both President Franklin Roosevelt and Prime Minister Winston Churchill. These visits occurred late in Abdul Azizâs life on the occasion of FDRâs last trip outside the United States before his death two months later. After FDR left the gathering of Allied leaders at Yalta in February 1945, he secretly flew to Egypt and boarded a navy vessel, the USS Quincy, which steamed to Great Bitter Lake. The purpose of his trip was to meet three kings: Farouk of Egypt, Haile Selassie of Ethiopia, and Abdul Aziz ibn Saud of Saudi Arabia.
The journey to meet FDR was one of the few trips during his long life that Abdul Aziz made outside of his kingdom. On the way to this meeting, in the Marrat area of Saudi Arabia, the king shared his vehemence about a Jewish homeland with a crowd of his staunch supporters. Abdul Aziz told them of the progress of the war and what place the Arab nations should claim in the world when the war ended. He warned his supporters of the dangers if Zionists dared to drive a small and weak nation of Palestinians from their own land. These views were a key component of the positions Abdul Aziz brought to his meeting with Roosevelt.
On Valentineâs Day, King Ibn Saud was lifted onto the Quincy in his wheelchair to meet the American president, the most powerful leader in the world, who was also wheelchair-bound (Figure 1.2). Jim Bishop, in his book FDRâs Last Year, eloquently characterized this historic visit as âtwo sick men facing each other in their respective wheelchairs.â Roosevelt led off this discussion by speculating on the wonders to be achieved if all the arid land in Saudi Arabia and Egypt could be made to flourish and bloom. The king, in a most respectful manner, said he was not interested in the subject of water. He spoke to FDR about his love for the desert. He went on to explain that he was simply a warriorânothing more, nothing less. He had spent a lifetime fighting recalcitrant tribes to establish his kingdom, and now he was nearing the end of his days. The thought of making deserts bloom was a good one, but there should still be a place for deserts. Deserts were good, not bad! This was a true Bedouin talking candidly to a true aristocrat.
Figure 1.2 King Abdul Meets with FDR on USS Quincy
SOURCE: Photographer: Hulton Archive; Collection: Gett...