History of the oil industry in Saudi Arabia

Saudi Arabian oil was first discovered by the Americans in commercial quantities at Dammam oil well No. 7 in 1938 in what is now modern day Dhahran.

On January 15, 1902, Ibn Saud took Riyadh from the Rashid tribe. In 1913, his forces captured the province of al-Hasa from the Ottoman Turks. In 1922, he completed his conquest of the Nejd, and in 1925, he conquered the Hijaz. In 1932, the Kingdom of Saudi Arabia was proclaimed with Ibn Saud as king. Without stability in the region, the search for oil would have been difficult, as evidenced by early oil exploration in neighbouring countries such as Yemen and Oman.

Prior to 1938, there were three main factors that triggered the search for oil in Arabia:

In 1922, Ibn Saud met a New Zealand mining engineer named Major Frank Holmes. During World War I, Holmes had been to Gallipoli and then Ethiopia, where he first heard rumours of the oil seeps of the Persian Gulf region. He was convinced that much oil would be found throughout the region. After the war, Holmes helped to set up Eastern and General Syndicate Ltd in order, among other things, to seek oil concessions in the region.

In 1923, the king signed a concession with Holmes allowing him to search for oil in eastern Saudi Arabia. Eastern and General Syndicate brought in a Swiss geologist to evaluate the land but he claimed that searching for oil in Arabia would be “a pure gamble”. This discouraged the major banks and oil companies from investing in Arabian oil ventures.

In 1925, Holmes signed a concession with the sheikh of Bahrain, allowing him to search for oil there. He then proceeded to the United States to find an oil company that might be interested in taking on the concession. He found help from Gulf Oil. In 1927, Gulf Oil took control of the concessions that Holmes made years ago. But Gulf Oil was a partner in the Iraq Petroleum Company, which was jointly owned by Royal Dutch/Shell, Anglo-Persian, the Compagnie Française des Pétroles, and "the Near East Development Company, representing the interests of the American companies. The partners had signed up to the “Red Line Agreement” which meant that Gulf Oil was precluded from taking up the Bahrain concession without the consent of the other partners; and they declined. Despite a promising survey in Bahrain, Gulf Oil was forced to transfer its interest to another company, Standard Oil of California (SOCAL), which was not a bound by the Red Line Agreement.

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