19/03/2018 07:33 AST
In the Saudi Aramco archive there is a fading black-and-white photograph that might serve as a metaphor for the oil company and its heritage.
Max Steineke was born in the state of Oregon, US, attended Stanford University near San Francisco and died in California. Yet the archive picture of this very American man shows him in full Arab dress with a heavy beard, looking every inch a citizen of the Kingdom of Saudi Arabia.
Steineke was the American geologist who, in partnership with his indispensable Bedouin guide Khamis bin Rimthan, struck oil in 1938, after many frustrating attempts, at Dammam well No. 7 in the Eastern Province, laying the foundations for the Saudi oil industry and for Saudi Aramco, the biggest oil company in the world.
That’s present-day Aramco: Unmistakably Saudi in form and bearing, but with an American backbone of modernity and efficiency.
A Dubai-based Saudi banker — who was educated at the King Fahd University of Petroleum and Minerals and aimed to work for Aramco before being lured away by the world of finance — sums it up: “Aramco was always regarded with pride by Saudi as the source of all their wealth and prosperity, but also because it was a modern, dynamic company with American management standards. That’s why it has never had a problem attracting talent.”
For more than half its 80-year existence Saudi Aramco was a wholly US-owned company. In 1933 a deal was signed between the king’s Finance Minister Abdullah Suleiman and representatives of the Standard Oil Co. of California (Socal) that gave the Americans a 60-year concession on 360,000 square miles of the Eastern Province.
In return, Saudi Arabia got $275,000 in royalties and loans, with the promise of $500,000 if any oil was found, payable in gold. Oil expert Daniel Yergin, in his classic history of the oil industry, “The Prize,” tells how Socal had to scour the world for gold coins, which were eventually shipped on a P&O cruise ship in seven boxes.
When oil was discovered in commercial quantities five years later, it was a triumph for American business diplomacy, and also a snub to the British, who were concentrating on their existing wells in Iran and Iraq.
At this time, the company was known as Casoc — the Californian Arabian Standard Oil Co. — and had acquired a new partner, the Texas oil giant Texaco.
But it was still 100 percent US-owned. Its most important asset was the concession agreement signed with the Kingdom, without which it could not drill for the oil which remained the property of Saudi Arabia.
The name Aramco was adopted in 1942 to reflect Saudi’s new prominence in the oil-producing world, being an abbreviation of Arabian American Oil Company. Strictly speaking, it should have been “Aramoco”, but how the “o” was lost remains a company mystery.
In 1948 two other US oil companies, forerunners of today’s Exxon Mobil, became part-owners of Aramco. Socal was running low on cash for investment, and began to look around the world for new partners. Yergin tells how King Abdul Aziz, who was consulted on the new entrants, had only one stipulation: The new owners must be American. Aramco remained a New York-headquartered entity for another four years, when HQ was moved to Dhahran.
The American connection came under strain in the 1970s, partly because of politically moved oil embargos of that decade, but also when Saudi Arabia decided it wanted to participate in the ownership of Aramco, and began a process of the phased buyout of the US oil giants.
Known as “participation” rather than “nationalization,” it was a less-painful exercise for the Americans than the expropriation faced by other European oil companies in the Middle East and North Africa. The Saudis paid compensation, and maintained contracts with the Americans, as well as retaining US employees.
Ellen Wald writes in her forthcoming book “Saudi Inc:” “The transfer of ownership did not even make the petroleum and financial newspapers …The contrast with other, often violent oil company nationalizations was stark and obvious.”
Yergin told Arab News: “The nature of the Saudi-US relationship on oil has changed so much since the original discovery exactly 80 years ago and yet has remained durable and founded in collaboration adjusted to changing times.
“Two of the key elements that have been a constant to the Saudi-US collaboration on oil since its beginning 80 years ago — despite all the changes that have occurred since — have been a focus on human development and technological advancement.”
Arab News
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