American Oil in Saudi Arabia: an Introduction
In the early 1900s, when oil was discovered in the continental United States, few could predict the way in which this black gold would fuel the US in becoming a supreme power. When vast reserves of oil were discovered in the Middle East, oil companies rushed to obtain concessions to exploit the oil fields. In the first few decades, oil companies remained distant and aloof from American foreign policy as their prime interest was generating a profit. These big oil companies garnered so much influence, that by the 1940s, oil executives were more influential in Baghdad and Riyadh that were US diplomats. (Little, 2004: 43-44).
Over time, the importance of oil to the United States led America to take an interest into the security of countries such as Saudi-Arabia. The multinational oil companies, such as Standard Oil of California, Texaco, Mobil, and Exxon, came to represent American interests in the region. This was because oil, war, and national security became intertwined, due to the ever expanding energy needs of the United States during the Second World War. To secure their access to oil, the United States could not get involved in Persian Gulf oil directly, as government involvement would be met with criticism from small businesses in the US and nationalists in the Persian Gulf. However, what they could do was promote private enterprises in exploiting the oil fields in the region. (Little, 2004: 48-51). These enterprises increasingly worked to together to acquire and maintain drilling concessions in Saudi-Arabia. This resulted in “a private system of worldwide production management that facilitated the development of Middle East oil and its integration into world markets.” (Painter, 2012: 29).
Right after the Second World War, these petroleum companies represented American national interest. Secretary of the Navy James Forrestal stated in 1946 that “if we ever got into another world war it is quite possible that we would not have access to reserves held in the Middle East.” (Little, 2004: 52). The US had its own oil, and to make sure if ever a crisis loomed, they would have access to this, the US had to prevent the depletion of their own resources. Therefore, they would rather first consume Middle Eastern oil. This is where the oil companies come in. These oil companies had to be assisted by the US government, and in that way, their interests became linked. The result was an informal partnership. Over the early 1950s, the multinational oil companies were converted into instruments of American foreign policy by the Truman and Eisenhower administration. (Little, 2004: 58) and helped expand the American Empire as the US gained influence in the Middle East.
Over the 1960s, this changed, as the Middle Eastern oil exporting countries founded OPEC (Organization of the Petroleum Exporting Countries). They fear that OPEC and the multinational oil companies could establish a partnership to the detriment of US interests emerged. Over the course 1960s and early 1970s, the US vulnerability became apparent. This page looks into the problems this caused and the measures taken by the American government to overcome this issues. A central question to keep in mind while reading this page is whether or not the fear of an OPEC-Multinational Oil Company partnership was justified and if it actually existed. While this is an interesting subject, and one that is important to understand some of the dynamics in play in the Middle East today, it is also very extensive. It is therefore virtually impossible to detail all the major developments in this introduction. On the Works Cited page, a list of secondary readings can be found that will provide background knowledge and interesting insights into this subject. Please take a look at these as they will assist in understanding the dynamics at play.
Standard Oil of California in Saudi Arabia
This video is created by Standard Oil of California, one of the shareholders of ARAMCO, the Arab-American Oil Company, the biggest multinational oil company in Saudi Arabia. What does this video tell you about ARAMCO and its shareholders? How did they perceive the Arabs? And more importantly, how did they perceive themselves, or at least projected themselves to the world?
Petroleum, the Anti-Trust Law and Government Policies.
This report by the Senate Committee of the Judiciary is written by Joseph C. Mahoney, a Democrat from Wyoming, and details the issue posed by the petroleum industry and its monopoly on petroleum production. The multinational oil companies owned the entire chain of petroleum production, from extracting to from the ground, to refining it, to transporting the refined product. What this effectively meant was that the oil companies could dictate the price of oil, as they were the only ones who could deliver it. The Committee expresses its worries about about foreign oil cartels and their intrusion into the United States if their oil is imported. In the 1940s, the Truman administration waived the antitrust laws that would prohibit such a monopoly as the administration deemed the oil companies critically important to US national interests. Yet, the demand to implement new antitrust laws never died down. The Committee therefore calls for a proceeding in the case against the oil cartels, led by the multinational oil companies. To do so, the competitive aspect of petroleum production should be addressed. How does this report relate to the secondary texts on oil production in Saudi Arabia? And how does this fit in with the idea of American imperialism through the petroleum industry?
Congress of the United States, Petroleum, the Antitrust Laws and Government Policies, Report by the subcommittee of antitrust and monopoly of the committee of the Judiciary, Eighty-fifth Congress, 1956, I-8.
Subcommittee on Multinational Corporations Hearings
In 1973, an oil shock rocked the world as the Organization of Petroleum Exporting Countries raised the price of oil. Following these events, and the general economic malaise that struck the US during the 1970s, the Subcommittee on Multinational Corporations of the Senate Committee on Foreign Policy commenced hearings into the role of American Petroleum Companies in these events with the intent to devise ways to make the United States less dependent on foreign oil. As the secondary sources indicate, the massive rise in oil prices allowed petroleum companies to expand to regions where it previously too expensive to drill for oil, such as the North Sea and the Gulf of Mexico. What do these hearings, that were held in 1974 and 1975, tell us about the developing relationship between the United States, the petroleum companies, and Saudi Arabia?
The subcommittee hearings were rather extensive and consisted of several hundreds, if not thousands of pages with hearings, statements and appendixes. Cuts have been made to make the sources more manageable. Below you will find a selection of sources that will highlight the difficult relationship between the United States and the multinational oil companies. Up until the rise of OPEC in the late 1960s and early 1970s, the multinational oil companies, such as ARAMCO, promoted American interests in the region. The rise of OPEC and their influence in multinational oil companies shifted those interests.
The first section of these hearings is located below. These hearings investigated the relationship between the United States and various multinational oil companies following the oil crisis of 1973, which led to long lines at American gas stations and a massive drop in American oil imports. The hearing details the limitations that the American government had when it came to influencing the petroleum companies. Furthermore, this volume puts an emphasis on American tax policies, and how those policies contributed to the further development of frictions between petroleum companies and the American government.
Congress of the United States, Multinational corporations and United States foreign policy, hearings before the subcommittee on Multinational Corporations of the Committee of Foreign Relations, Ninety-third Congress, 1974, Part 4, I-83.
The second section deals with allegations made against American petroleum companies, in particular Aramco and its four shareholder companies. The first allegation is made by journalist Jack Anderson, who testifies the price spikes were not merely instigated by the Saudi-Arabian government, but were actually orchestrated by the petroleum companies themselves. Further testimonies include David Haberman and Barbara Svedberg, two attorney’s who, in the 1950s, 1960s and 1970s, worked on American antitrust legislation. Their testimonies claim, much like Jack Anderson, that the oil crisis was not merely the result of a Middle Eastern oil embargo. Rather, it was the culmination of a long historical process in which the petroleum companies play a leading role.
Congress of the United States, Multinational corporations and United States foreign policy, hearings before the subcommittee on Multinational Corporations of the Committee of Foreign Relations, Ninety-third Congress, 1974, Part 7, 1-97.
The third section details the testimony given by Robert Stobaugh, a professor at Hardvard Business School. He contents that part of the problem was that the oil producing countries were highly organized during the crisis. However, this was not the case for the oil consuming countries, including the United States. As the oil consuming countries could not provide in an important good, the petroleum companies took over. This is one of the reasons they became powerful.
Congress of the United States, Multinational corporations and United States foreign policy, hearings before the subcommittee on Multinational Corporations of the Committee of Foreign Relations, Ninety-third Congress, 1976, [Ninety-fourth Congress, second session] Part 9, 167-191.
The final section of the Subcommittee on Multinational Corporations hearings focuses specifically on the effects of OPEC price increases. Detailed in it are critical remarks to the Ford-Kissinger policies to counter the crisis made by Morris Adelman, who worked for the economics department and energy lab at M.I.T. Furthermore, he looks at ways to destroy the oil cartel, which would end their domination of the petroleum market.
Congress of the United States, Multinational corporations and United States foreign policy, hearings before the subcommittee on Multinational Corporations of the Committee of Foreign Relations, Ninety-third Congress, 1976, [Ninety-fourth Congress, second session] Part 11, I-37.
Subcommittee on Energy Hearings
Following the hearings conducted by the Subcommittee on Multinational Corporations, the Subcommittee on Energy of the Congressional Joint Economic Committee orchestrated their own hearings. Resulting from the previous hearings, the subcommittee concluded that the interests of the multinational oil companies and those of the United States government aligned. More so, the oil companies were regarded as instruments of foreign policy. Over the course of the 1970s, with the oil producing countries gaining more and more influence over the petroleum producing companies, this system broke down. As of January 1976, oil producing companies owned 62% of the petroleum industry, thus effectively managing it. The senate Subcommittee on Energy conducted these hearings to find ways to become less dependent on OPEC oil. In these hearings, of which various chapters are available below, various ways to do so are explored, and there is a closer look at inconsistencies in oil companies profit motives and American national interest.
First off, William Tavoulareas, president of Mobil Oil Company, defended the oil companies and asserted that the multinational oil corporations had no influence on the price spike orchestrated by OPEC, something that has been disputed in the hearings by the Subcommittee on Multinational Corporations, and Jack Anderson’s testimony.
Congress of the United States, Multinational oil companies and OPEC: implications for U.S. policy: hearings before the Subcommittee on Energy of the Joint Economic Committee, Ninety-fourth Congress, second session, June 2, 3, and 8, 1976, I-31.
The following is the testimony of the economist Paul Frankel, who is the chairman of the board for Petroleum Economics Ltd. and the testimony of Robert Krueger, an attorney who investigated the relationship between the petroleum companies and their host states. Interestingly, their testimonies show a different perspective than we have seen so far. Frankel’s argument is based around the assumption that oil companies are not necessarily looking for high prices, but rather for economic stability and better financial situations than their competitors. He offers various insights in becoming less dependent on OPEC oil. However, he states, a highly different approach by the US will not affect OPEC as much. The US is more dependent on importing OPEC oil than OPEC depends on exporting oil to the US. Krueger affirms this view and refers to a report published by his firm in 1975, which asserts the US’ need to get involved in the international petroleum trade. He also states that the multinational oil companies did not cause the energy crisis. Rather, the oil companies are hostages of the host state and lacked the resources to demand higher prices. The question then beckons how these testimonies, given before the Subcommittee on Energy relate to the testimonies given before the Subcommittee on Multinational Corporations?
Congress of the United States, Multinational oil companies and OPEC: implications for U.S. policy: hearings before the Subcommittee on Energy of the Joint Economic Committee, Ninety-fourth Congress, second session, June 2, 3, and 8, 1976, 98-109.
Petroleum Industry Competition Act of 1976
Following the hearings, the Petroleum Industry Competition Act was proposed by the Committee of the Judiciary, the same committee that produced the report on antitrust laws and the petroleum industry in 1957. The committee believed that the lack of a free market for petroleum products was a problem. The production of petroleum products, from the extraction of crude from the wells, to the refining of the crude and the transportation of the refined product, is vertically integrated, which means it is in the hands of one company. The Petroleum Industry Competition Act of 1976 calls for divestiture, which means that the production chain will be broken up, and the various phases in the production of petroleum products will be in the hands of various companies. Regarding the narrative set out by these primary sources, primarily the Senate hearings, would this legislation solve the problems brought forward in the hearings? Are there other problems that may be more pressing that are not mentioned in this legislation?