IIntroduction
Saudi Arabia is a country that must be taken on its own terms. It is a large (slightly more than one-fifth of the area of the U.S.) barren country that until comparatively recently, was a tribal culture. It was thrust unprepared into the 20th Century, and so is partly modern, and partly mired in the past. It is the only nation in the world that bears the name of its ruling family: The Kingdom of Saudi Arabia, ruled by the House of Saud. In Arabic, it’s Al Mamlakah al Arabiyah as Suudiyah.
It is a harsh and repressive society; for example, under “Suffrage,” the “CIA World Factbook-Saudi Arabia” simply says “none.” (PG).
There are no elections, no voting; this is a kingdom ruled by a hereditary monarchy. Likewise there are no political parties or political leaders; they simply do not exist. The House of Saud exercises complete hegemony over the nation.
This regulation apparently extends to information, to judge by the fact that statistics easily obtainable about other nations are not found in the Saudi Arabian listing. (The “adult prevalence rate” for AIDS is .01% of the population, according to a 1999 estimate, but there are no people “living with the disease”, and no “Aids deaths”—those figures blank. In addition, the number of people living below the poverty line is given as “NA.”) (“Saudi Arabia,” PG).
Perhaps the government doesn’t want to acknowledge that some of its citizens may be homosexual, a grave sin under Islamic law. Or perhaps they don’t want to admit that Saudis are subject to the same diseases as the rest of mankind. And there must be poor people, whether or not the government wants to acknowledge them. No matter what the reason, information is missing here that is routinely divulged by other nations. This seems to be typical of the sort of deep secrecy that surrounds the peninsula, a secrecy that often goes against the grain of Westerners.
The Term Paper on Oil and Global Warming in Saudi Arabia
Oil has been identified as a very important resource; it provides a lot of significant benefits to mankind. It is used for numerous purposes such as transportation, heating, electricity production, and industrial applications. It has a high energy density which makes it an efficient fuel source plus the fact that it is fairly easy to transport and store. Its versatility is of great importance, and ...
The country is 90% Arabic, 10% Afro-Asian; it is 100% Muslim. Thus, Islamic religious law is also the law of the land. Separation of church and state is nonexistent here, and that too makes Saudi Arabia difficult for Westerners to understand.
Finally, and probably most importantly, the country’s economy is based on oil, and oil alone. Oil has made the House of Saud fabulously wealthy, and given the country unprecedented international power. But this is literally the only export of any consequence. Thus, the economic structure of the whole country, and its tangled history, is based on the fact that it has the greatest oil reserves in the world.
One other observation seems relevant here, and that is the fact that the economic history of Saudi Arabia in inextricably linked with national and international politics. We cannot consider one without the other.
IIPost World War II to 1958
Although the history of the region goes back centuries, Saudi Arabia as we know it has only existed since the Unification of the Kingdom in 1932. (“Saudi Arabia,” PG).
During World War II, it declared itself neutral, though it finally came in on the side of the Allies in March, 1945, which allowed it to join the United Nations.
Until WWII, the British were the strongest influence in the region, a situation that had begun in the late nineteen century when it was the strongest colonial power in the world:
“Britain … strove to control the whole of the Arabian peninsula, whether directly or indirectly, after the Suez Canal was opened in 1869 and Egypt had been occupied in 1882. The British colonial empire in India was imposing its will on the sultanate of Muscat, the princely states of Trucial Oman, Qatar and Bahrain, thus increasing their dependence on Britain. Kuwait, which was formally under Ottoman suzerainty, was the next to be subdued.” (Vassiliev, p. 206).
The Term Paper on The Kingdom Of Saudi Arabia
Adam Krieger Global II 51897 The Kingdom of Saudi Arabia The Kingdom of Saudi Arabia is a nation that rests on the strength of its faith. To understand Saudi Arabia it is necessary to understand Islam as the driving force in Saudi life. These ideals are best displayed in the nations official emblem, the date palm, symbolizing vitality and growth, and the two crossed swords, representing justice ...
The Persian Gulf became a “British lake,” and British policy at the time had two aims: to control naval and “other communications” to India, and to retain the so-called “Pax Britannica” in the region. (Vassiliev, p. 206).
Oil had not yet been discovered in Saudi Arabia at this point; the British presence in the region was to insure that their trade route to India remained open.
At the end of the nineteenth century, the European powers grew more bellicose, and the unrest that swept Europe in the decades before World War I translated to constant political and military maneuvering in the Middle East. Germany’s Kaiser Wilhelm II, anxious for Germany to find its own “place in the sun,” declared himself the “protector of Islam.” Germany established close ties with the Ottoman empire; then “[I]n the late 1880s the idea arose of building a railway from Istanbul to Baghdad and then to the Gulf, which would enable Germany to penetrate the region, bypassing the British-dominated sea routes.” (Vassiliev, p. 206).
Germany was granted the right to build the railway, and although it was never a dominant power in the Middle East, London viewed the ties between Germany, Turkey and other Eastern nations as a serious threat to its position.
Russia too was discussing projects in the region, and was also viewed as a serious threat to Britain’s hegemony. “The year 1903 witnessed a joint visit by Russian and French warships to the Arabian and Gulf ports.” (Vassiliev, p. 207).
However, as German influence in the Ottoman Empire grew, Britain began to change its stance. It had at first tried to maintain the territorial integrity of the Empire, but gradually it began to consider a division of the territory instead; particularly as it was concentrating now on Egypt and Mesopotamia, rather than Istanbul. “It was implied that Arabia and the basins of the Tigris and the Euphrates would enter the zone of British dominance, as Egypt and Sudan had done. In line with these plans, London saw the retention of its control over the Gulf as a top priority.” (Vassiliev, p. 207).
In short, Britain supported the countries that opposed the Turks and their German allies, and their support “had an important, if not decisive influence on the Saudi family’s successful return to power in Najd.” (Vassiliev, p. 209).
The Term Paper on Importance Of Oil And How It Has Changed World Politics
In the modern civilization, oil has great significance. However, many people do not consider oil to be of great significance because they only associate it with the diesel or the petrol that they use for transport purposes. According to Yergin (Yergin, p 17), the world is addicted to oil. Due to the oil’s important role in all countries all over the world especially in the industrialized nations, ...
(Najd is the central and largest province of Saudi Arabia, though its boundaries are not precisely defined.)
In the early twentieth century, an internal power struggle began, and Britain “began to intervene in Arabian affairs to weaken the local rulers’ dependence on the Porte and finally establish its protectorate over them.” (Vassiliev, p. 210).
The British continued to intervene in the Middle East until the end of the Second World War, but the rest of that history is too complex to be recounted here. What all this does point out, though, is that the House of Saud, saw the British meddling for what it was: protection of their own interests in the area. Their constant empire building caused a tremendous amount of anti-British feeling in the region, which is the main reason that the United States was able, at the end of WWII, to establish its own sphere of influence in the Middle East. Indeed, Britain ceased to be of much importance in the area by about 1948-1950.
Before WWII, the U.S. had regarded the Middle East “as lying within the sphere of European, mostly British, dominance.” (Vassiliev, p. 324).
It had no “bargaining chips” to help American companies, including oil companies that wanted to do business in the region.
“In 1939, U.S. oil companies accounted for only 10% of Middle East oil. During the war [WWII] however, U.S. policy in the Middle East underwent profound and major changes. The U.S. strove to replace Britain as the dominant power in the region, taking particular account of the area’s oil potential. The role of oil in the international arena changed: what had previously been a commercial product now became a strategic commodity of prime importance.” (Vassiliev, p. 324).
In February 1945, President Roosevelt met secretly with King Abdul Aziz, known to the world as Ibn Saud; some of the agreements reached then still impact us today. He promised that the United States would not do anything hostile to the Arabs, and he agreed there would be no change in the status of Palestine unless both Jews and Arabs agreed. He also agreed to support Saudi Arabia’s struggle for independence. The basis laid then has resulted in a cordial relationship between the two countries to this day. (I must point out, though, that the relationship sometimes seems questionable at best. Saudi Arabia is one of the most repressive countries in the world, with a dreadful record of civil rights abuses and the subjugation of women. In addition, 15 of the 19 September 11 attackers were Saudis. It seems that the U.S. has made a “Faustian bargain”—we need the oil (or have persuaded ourselves that there’s no way to develop alternative fuel sources) and so we continue to call the House of Saud our friends and give them our support in return for their oil.)
The Essay on Saudi Arabia Islamic Country Muhammad
In the heart of the Middle East is a country known by many Westerners for its oil production and, often, extremist beliefs of groups within the country. The country is Saudi Arabia, and though it is thought of by many as a rather backward country, Saudi Arabia has a rich history and culture, and it is a country that revolves around Islam and the worship of Allah as the one true God. For about ...
Leaving that aside, however, I wanted merely to point out that at the end of WWII, it was the U.S., and not Britain that succeeded in establishing itself in the region.
I also discovered something else very interesting about Saudi Arabia in WWII. Oil wasn’t discovered until the 1930’s, and production had just begun when Hitler invaded Poland and precipitated the war. You’d think that such an event would be a blessing to an oil producer, but that wasn’t the case. Oil production was halted, because the international markets were disrupted, and “tankers could not be spared for the long and hazardous journey round to the Persian Gulf.” (Lacey, p. 256).
As Lacey puts it, for the next six years, Abdul Aziz and his oilmen were “in limbo.” (P. 256).
Thus, at the end of the war, Saudi Arabia was not the fabulously wealthy country it is today, and Abdul Aziz appears to have been eager to talk to anyone about oil.
However, as I said above, it was the U.S. that “won” that round, and there is still, I believe, another reason why the British found themselves shut out: the Balfour Declaration. In 1917, Arthur Balfour, the British Foreign Secretary, appealed to Lord Rothschild, who was then president of an organization called the British Zionist Federation, for his support, and that of the Jewish community, in the First World War. In return, Balfour promised “the establishment in Palestine of a national home for the Jewish people…” (Lacey, p. 136).
This is the beginning of the idea of a Jewish state, and Abdul Aziz hated it.
“Islam has a love-hate relationship with Judaism. The Koran enjoins respect for the Jews as ‘people of the Book’. Like Christians, Jews share many of Islam’s prophets. Islam and Judaism have similar dietary rules … and, at the beginning of Islam, Muhammad and his followers prayed toward Jerusalem.
The Essay on Shell Oil Company And Katrina
The true immediate costs for Shell Oil Company are untabulated. The company lost 60% of its production in the Gulf in the following weeks after hurricane Katrina. The Shell Company suffered intangible losses of employee moral and high turnover. Its tangible losses are not limited to losses in refining capacity, downed transporting pipelines, and downstream revenue from retail stores sales. However ...
“But soon after he moved to Medina in 622 A.D., the Prophet came into conflict with the Jewish community in the area … The qibla, the direction of prayer, was switched from Jerusalem to Mecca, and the flames of this ancient hostility were famed in the twentieth century by the Zionist revival.” (Lacey, pp. 258-259).
What we have at the end of World War II, then, is a country that has a very uncertain future. The oil that lies under the sand is not yet being produced in great amounts; the question of the Jews in the region is unsettled; and along with the Zionists has come a resurgence of nationalist feeling culminating in the formation of the Arab League. The country’s economy at this point is a shambles.
Abdul Aziz died in November 1953, and was succeeded by his son, the Crown Prince Sa’ud ibn Abdul Aziz. His reign lasted only 11 years, and is a low point in modern Saudi history, for it is a tale of the decadence and corruption great wealth can bring. It is also a tale of the way in which one greedy family nearly bankrupted the country.
Like many people unused to great wealth, the House of Saud squandered it. They seemed to indulge in every excess known to man. It also appeared that King Sa’ud was completely mesmerized by a new “star” in the Middle East, the charismatic, able, energetic Gamal Abdul Nasser, president of Egypt. For a while it seemed that the three countries, Egypt, Syria and Saudi Arabia, would combine into a Tripartite Alliance that would dominate the region. But Sa’ud’s dreams were smashed when he heard a Radio Cairo broadcast in 1956, to the effect that Egypt had nationalized the Suez Canal. This move nearly meant disaster:
“The king had had to plead with the Egyptian leader for the safety of the pipeline which carried Sa’udi oil via Syria to the Mediterranean. Iraq had failed to grove in time and saw her own pipeline blown up. The closure of the Suez Canal and the oil boycott of France and Britain [they had sided with Israel and King Saud ordered that all sales of oil to them cease] meant that the Sa’udi king had to suffer a 40 per cent drop in revenues at a time when he was heavily in debt – and all this sacrifice was fro the greater glory of Gamal Abdul Nasser, whose role as champion of the Arabs was guaranteed for a decade by his Suez ‘victory’ over the Israelis and Western imperialists.” (Lacey, p. 315).
The Essay on Standard Oil Policy Company Power
Policy as defined by Webster is a principle, plan or course of action, as pursued by a government, organization or individual. In the case of this paper, we will be dealing with policies with regard to government, initiated by various people of the state, particularly the American government and the United States of America. Policy-making is an integral part of governmental duties that is critical ...
King Saud’s pride was hurt, so he was ripe for the picking when the USA, in 1956, offered to “forgive and forget recent differences.” That meant, in essence, that Saudi Arabia would receive a great deal of money from the United States, which (as ever) thought it saw a left-ward drift politically in the Middle East; specifically Nasser. After a ridiculously inept attempt to subvert Syria and Egypt, King Saud was exposed to ridicule on all sides, particularly from Nasser. It was this final debacle, coupled with his ineptitude and bloated lifestyle that finally turned Crown Prince Faisal against him. In 1958, the two brothers battled it out for the leadership of the nation, and in March 1958, King Sa’ud handed the government over to his younger brother. He left the country, returned and tried to take over again, and was finally forced out for good in 1962.
I’ve gone into detail because it’s truly impossible to separate the economic fortunes of Saudi Arabia from the turmoil of its creation and subsequent battles with various foreign governments. When Faisal took over, the vast majority of the citizens were poor, but the royal family was wealthy, and getting richer by the moment, as they found buyers for their oil.
IIIOPEC and the 1973 Crisis
The Organization of Petroleum Exporting Countries (OPEC) was formed in Baghdad in 1960. Its founding members were Iran, Iraq, Kuwait, Saudi Arabia and Venezuela; Gabon, Ecuador, Nigeria, Indonesia, Algeria, Libya, Qatar and Abu Dhabi joined it at a later date. (Vassiliev, p. 388).
To understand why Saudi Arabia and the other nations felt they needed such a collective bargaining tool, we have to look briefly at the oil companies, and specifically Arabian-American Oil (Aramco).
In 1933, when oil was discovered, Aramco was comprised of four American oil companies: Mobil Oil (10 percent); Texaco (30 percent); Esso (30 percent) and Standard Oil of California (30 percent).
The Saudis began to negotiate for control of the company in 1972, and in that year, the General Agreement on Participation was signed. The Agreement gave the Saudi government a 25 percent share of Aramco; the other four companies’ participation was reduced proportionately, with Standard, Texaco and Exxon (no longer Esso) receiving 22.5 percent each, and Mobil 7.5 percent. In 1974, negotiations began with the idea of increasing the Saudi participation to 100%; nationalization had already been decided, though the terms were still under discussion. (Moliver, p. 17).
It had already been decided that Saudi Arabia would continue its relationship with the four American oil companies. The relationship “included the servicing of Aramco, which is in charge of operations, development and exploration throughout the kingdom.” (Moliver, p. 18).
The benefit of continuing the service relationship is threefold, according to Moliver. First, the American oil companies receive “an undisclosed discount” on each barrel of oil produced by the Saudis. Second, Mobil and Exxon receive 250,000 barrels per day as “shareholders” of Aramco. And third, the Saudis government pays the four oil companies an “administrative fee” of 21 cents per barrel. (P. 18).
Moliver wrote his book in 1980; whether these terms are still in force or not is questionable, but that’s not the real issue. The point is that before this agreement was in place, things were very one-sided, slanted specifically toward the companies.
The original terms under which the Saudis agreed to allow Aramco to operate were extremely favorable to the company; less so to Saudi Arabia. But as we’ve seen, the House of Saud is not particularly skilled at management and is slow to understand money matters. (Recall that one of the reasons for Faisal’s takeover was the decadence and squandering of wealth perpetuated by King Sa’ud.) It wasn’t until they studied the market that they realized the oil companies were making huge profits outside Saudi Arabia—profits they were not sharing with the country, despite the original agreement, which was a 50:50 split. The oil countries convened the first conference in April 1959 with the idea of establishing a mechanism for collective bargaining. The movement was driven by the fact that oil prices were dropping: “Between 1957 and 1960, for example, it fell in Ras Tannura from $2.12 to $1.84 per ton and the incomes of the petroleum-exporting countries decreased accordingly.” (Vassiliev, p. 388).
The main purpose of OPEC was to raise crude oil prices to their 1954 level, and to hold consultations between the oil producing nations and the oil companies with regard to production volumes and price changes. (Vassiliev, p. 388).
“On 25 January 1965 the Saudi government signed an agreement with Aramco. The company agreed to consider the royalties as part of the cost of exploitation, deducted from the gross income, and to pay income tax on the rest. It increased Saudi Arabia’s share in the income from crude oil exports to more than half.” (Vassiliev, p. 388).
At the time it was established, it was thought by most companies, and indeed most Western countries, that OPEC would not be a viable organization. And as long as there was a relative surplus of oil on the world market, they were correct; buyers, rather than sellers, were setting the terms of the contracts. However (and you have to wonder why they didn’t see it coming), things changed in 1969, when Libya proposed that the oil companies operating there should pay 54-55% of the profit, rather than half. When the companies refused, Libya lowered its production quotas. Libyan oil accounted for nearly 20% of the oil consumption in the West, and the companies knew that they had to retain that source, in case the Suez Canal were closed or Palestinian guerrillas blew up the Trans-Arabian pipeline. (Vassiliev, p. 389).
In order to keep Libyan oil flowing, they capitulated. Once the other oil-producing nations saw that it was possible to successfully increase the price the oil companies paid, they followed suit.
In January 1971, the OPEC nations acted together, with the intent of achieving a “regular increase in the reference price of oil over the next decade.” (Vassiliev, p. 389).
They failed in this objective, but succeeded handsomely in winning much more favorable terms from the oil companies. The agreement gave OPEC nations an increase in the tax rate to 55%; a uniform increase of posted prices by 33% per barrel, plus a 2-cent-per-barrel increase ‘in satisfaction of claims to freight disparities’; additional increases in posted prices of 5 cents, to be effective June 1 and again each January 1 from 1973 to 1975; “an adjustment of 2.5% of each prince on 1 June 1971, and thereafter on each 1 January from 1973 to 1975, as a guard against loss of purchasing power through inflation”; reduction of the 2-cent-per-barrel degree differential to 1.5 cents; elimination of the existing percentage allowance and marketing allowance; and the remaining in force of the agreement for five years. (Vassiliev, p. 389).
What this meant in simple terms was that the OPEC countries, having mastered the art of collective bargaining, had used it to gain control of the posted price of oil. However, the countries still did not own or participate in the operation of the oil companies themselves. When you think of it, this is extremely odd, and points up the fact that Aramco and others were truly exploiting the OPEC nations. These were outsiders (even today thousands of British and American citizens work in the Middle East) who had come in, discovered oil, and then signed agreements with the various nations to allow them—not the indigenous people—to develop the fields and export the oil. The companies had not been formed, managed or operated by the Saudis themselves. At the time, they lacked the expertise; and once again I must point out the abysmal record of the Saudi government in tackling complex projects—one of the reasons Faisal overthrew Sa’ud was his inability to govern Saudi Arabia efficiently.
At any rate, with the formation of OPEC and the January 1971 agreement, it began to seem as though Saudi Arabia would see a substantial increase in profit from its own oil. But then things began to go wrong, and to explore the reasons why, we must turn once again to politics, and to one of the most miserable situations on the planet: the Israeli-Palestinian conflict.
As I mentioned earlier, Islam and Judaism have a love-hate relationship, with hate the predominant emotion. When President Roosevelt met with Abdul Aziz, the question of a Jewish homeland arose, and the Saudi told FDR he felt that since it was the Germans who had persecuted the Jews, it was their place to make a home for them. Abdul Aziz saw no need to give any land in the Middle East to a people he identified as “an accursed and stiff-necked race that, since the world began, has persecuted and rejected its prophets and has always bitten the hand of everyone who has helped it.” (Lacey, p. 259).
There’s really no way to account for the hatred of the Arabs and Jews for one another, though they were not always as diametrically opposed to each other as they are now. The two peoples actually have more in common than they have differences: they’re both Semitic, desert people with a nomadic ancestry. Still, the mutual loathing that now erupts into violence on an almost daily basis was not prevalent until recently. Relations between the two peoples were fairly good until the early twentieth century. (I’m basing this on something I read a couple of years ago, but I can’t give you the source; it may have been Arab and Jew: Wounded Spirits in a Promised Land by David Shipler, but I’m not certain.) At any rate, the match that set off the powder keg was undoubtedly the creation of Israel in 1948. The U.S. recognized the country immediately; the Arab League attacked the next day. It has been a fight for survival for decades, though I must say that the Israelis are not blameless here. Their Occupation of the West Bank, Gaza Strip and the Golan Heights has long since been declared illegal, and U.N. resolutions have been passed instructing them to withdraw. They simply ignore the United Nations, and since they have the backing of the United States, they continue to do so with impunity. They also continue to bulldoze Arab houses to establish Jewish settlements, acts that are clearly illegal. The Palestinians, of course, react with violence, and the situation remains a stalemate.
At any rate, long before the violence and death reached the epidemic proportions they have at present, there was resentment and hatred of the Arabs for the Jews, and that resentment was transferred to the United States, which supported, and continues to support, Israel. The United States reasons that Israel is the only democracy in the Middle East, and must be supported lest it be crushed. That support dates from the founding of the country, but in giving aid to Israel, the U.S. directly contravened the assurances FDR gave Abdul Aziz, assurances that Truman ignored. Thus, the OPEC nations found themselves increasingly at odds with the U.S.
The basis for the friction between the U.S. and Saudi Arabia can be found in the American policy of the time: “Washington had to ensure America’s energy supplies, protect the interests of US companies and maintain control over Middle East oil supplies to its European allies and Japan.” (Vassiliev, p. 390).
This supremely arrogant stance, typical of American thinking, came as no surprise to Riyadh, which recognized the fact that U.S. policy in the area was inconsistent. It needed the oil, but it also wanted to support Israel. Saudi Arabia was rapidly becoming the leader of the Arab world, and that position forced it of necessity to take an anti-Israel stance. This led it into a direct confrontation with the United States: “In spite of its vital interest in US support and cooperation, the Saudi government nevertheless had to be seen to engage in a confrontation with Washington over the Arab-Israeli issue.” (Vassiliev, p. 391).
The form the confrontation would take, obviously, was a reduction in the volume of oil production.
As I read Vassiliev’s comments on this issue (his book is a wonderful reference for Saudi Arabian studies), it strikes me that in freezing its oil production quotas for the United States, Saudi Arabia was trying to do the same things that many nations are still trying to force Israel to do: “Saudi Arabia called on Washington to put pressure on Israel to implement UN Security Council Resolution 242 of 22 November 1967 (on the evacuation of Arab territories seized in 1967)…” (P. 391).
It warned that if the U.S. didn’t heed its warnings and change its policy towards Israel, the Saudis would freeze the oil supply. The U.S. and its European allies ignored the warnings, since previous oil boycotts had proven to be ineffective. But those boycotts had taken place at a time when there was a great deal of oil on the world market; in 1973 that was not the case; America depended on its Saudi Arabian oil. Indeed, it could not do without it. Saudi Arabia had the hammer, but no one realized it in the West.
Another development equally important at the time was Egyptian President Anwar Sadat’s desire to avenge the humiliation his country had suffered at Israeli hands in the Six Day War in 1967. Sadat was pressuring Faisal for help in an attack across the Suez Canal to reclaim the occupied territory there, and Faisal was proving to be supportive, though at the same time he kept up his friendly relations with the U.S. And now something amazing happened: the United States, Israel, and all the Western countries managed to convince themselves that it was all a bluff, that the Arabs would never be able to unite, and that there was no serious danger, either of an invasion or an oil embargo.
That they were able to reach such a wrong-headed conclusion is astonishing in the face of all that was happening. In April 1973, Faisal sent Zhmad Zaki Yamani, his Oil Minister, to Washington to tell Administration officials that Saudi Arabia was producing too much oil. Its revenues were increasing more rapidly than he could use them, and he planned to cut back production—unless “America took genuine steps to secure justice for Palestinian Arabs…” (Lacey, pp. 398-399).
Yamani met with three of Nixon’s top advisers in turn: William Rogers, Secretary of State; George Schulz, Secretary of the Treasury; and Henry Kissinger, National Security Advisor. None seemed concerned, though Kissinger wanted Faisal’s message kept secret. Yamani was openly skeptical of Kissinger’s motives, feeling that Kissinger could not separate his Jewishness from questions of policy. Yamani felt that Kissinger would not reveal his message to the American public, because it might make them consider the “price they might have to pay for supporting Israeli military conquests…” (Lacey, p. 399).
It was Yamani’s opinion that Kissinger would want to avoid that, so he released the King’s statement to The Washington Post. The newspaper printed it, but disregarded it: “’It is to yield to hysteria to take such threats as Saudi Arabia’s seriously,’ declared the Post’s editorial writer the next day, and the Nixon administration agreed.” (Lacey, pl. 399).
Comments were made to the effect that Yamani was going beyond his mission, because no one believed that Faisal, who was seen as cautious, would ever agree to an embargo. This was also the opinion of the oilmen at Aramco; in fact, world-wide opinion seemed to be that there was no reason to believe Faisal’s threats. Faisal was infuriated that his message had been ignored or disbelieved, so he invited press representatives to meet with him, and gave a television interview in which he specifically said that America’s policy with regard to the Middle East had to change, or it would “be difficult for us to continue to supply U.S. petroleum needs and even to maintain friendly relations with America.” (Lacey, p. 400).
Although Faisal’s son, who was translating, warned reporters that the King meant what he said, the media chose to believe that he was bluffing. Israel in particular refused flatly to believe it. “There isn’t the slightest possibility!” stated Israel’s Foreign Minister Abba Eban, in 1973. (Lacey, p. 400).
Israeli intelligence had been aware of the increased contact between Egypt and Saudi Arabia, but completely misread it. Perhaps the best way to sum up the reaction to the situation is this:
“Henry Kissinger made policy projections around this time with his staff, and in a world where oil was still cheap they found it difficult to take the prospect of an energy crisis seriously; previous Arab oil embargoes had not worked; Egyptian talk of war seemed laughable, everyone knew the Arabs would get thrashed … ‘Disbelief’ was the only word oilmen could use when they cabled back to Dhahran Washington’s reactions to their warnings.” (Lacey, p. 402).
Disbelief turned to astonishment when, on October 6, 1973, the Arabs launched a barrage across the Suez Canal against the Israeli positions of the Bar Lev line. It was the beginning of the 1973 Arab-Israeli War, and although it ended in another Arab defeat, the struggle had tremendous consequences world-wide.
As the crisis deepened, Faisal adopted a strategy of gradually lowering the amount of oil sold to the United States. He hoped to keep America, which was supplying aid to Israel, from sending any sort of massive assistance to the Israelis. But Richard Nixon was embroiled with his own problems, and Henry Kissinger was devising policy at this critical juncture. Driven in part by cold war ideology (the Russians were helping the Arabs), Kissinger advised Nixon to give aid to Israel, and the President agreed to an appropriation of $2.2 billion, well above the $850 million Israel had requested. “If we’re going to do it, let’s do it big,” Nixon said. (Lacey, p. 411).
The massive infusion of aid infuriated Faisal, who up until the moment it was announced, was under the impression that Washington was not going to commit significant resources to the struggle. He had gained this impression from his Minister of State, Omar Saqqaf, who had visited Washington and received reassurance from the Administration that any settlement of the Mid-east War would be fair, just and honorable. “Saqqaf reported back positively to King Faisal, and it looked as if the Sa’udi policy of restrained warning had succeeded.” (Lacey p. 410).
Thus it was all the more infuriating when Nixon announced his massive aid package for the Israelis. He made the announcement on October 19, 1973, and Faisal was on the air the same day, declaring jihad, holy war. And part of that holy war would be the immediate cessation of all oil shipments to the United States.
By itself, the embargo would have been worse than useless, because at that time Saudi Arabia was selling only 638,500 barrels of oil per day to the United States, an amount that represented less than 4% of America’s daily consumption. (Lacey, p. 413).
But what happened was what Lacey calls the “multiplier effect”: when the Saudis moved, the entire Middle East moved with them.
No one wanted to be “out-radicalized” by Saudi Arabia, and “within days” of Faisal’s announcement, “every other Arab country but Libya and Iraq had joined in a total boycott of the USA.” (Lacey, p. 413).
By mid-November, exports from the Middle East had dropped by 60-70 percent of normal, and this had a tremendous impact on the United States, but even more on Europe and Japan, which depended on the Middle East for 75% of their oil. (Lacey, p. 413).
The reason the boycott was so successful was that over the years since the discovery of oil in the Middle East, the West had become used to paying a low price for oil. Throughout the 1960’s, the price had held steady at $1.80/barrel, which meant that when viewed in the context of a steadily rising inflation rate, oil was actually becoming cheaper. (Lacey, p. 414).
Much of Western culture was based on oil consumption. Cars, air conditioning, public transportation, radio, television—everything ran on cheap energy that came from cheap petroleum. When OPEC put the price up, it the West found itself having to simplify its lifestyle. People didn’t drive unless they had to do so; they turned off lights; read books instead of watching TV; opened the windows and turned off the air conditioners. There was hardly anyone, anywhere, who wasn’t affected in some way by the oil embargo.
The result of the discomfort was a lot of moaning and screaming, and in the end, efforts by many nations to address the Saudis’ concerns. The great fear on everyone’s mind was that the embargo could lead to a world-wide recession. After a quarter-century of steady progress, the West could not say with certainty that growth would continue, for the circumstances that permitted that growth had just been radically altered.
“Governments must reconcile themselves to long-term balance-of-payments deficits; the reduced cash flow in national economies would mean higher rates of unemployment throughout the developed world; the temptation for governments to print more money, and thus fuel inflation, became even harder to resist; and it was difficult to see how all the waves of cash suddenly swamping the oil producers … could possibly be recycled for the benefit of the world economy.” (Lacey, p. 416).
Within two weeks of the embargo, the Foreign Minister of the European Community called on Israel to end its occupation, and by December 1973, the Japanese Foreign Minister was in Riyadh to try to “improve bilateral relations.” (Lacey, pp. 415-416).
The United States sent Henry Kissinger to Riyadh to talk to King Faisal and see what conditions he might offer to resume supplying oil. To everything Kissinger said, Faisal replied, basically, “Tell the Israelis to get out of the occupied territories.” Kissinger left Riyadh without gaining any concessions from the Saudis. (Lacey, p. 419).
There were unexpected developments as well. In February 1974, Faisal convened a summit conference of Islamic leaders, and all of them attended including, for the first time, Yasser Arafat as leader of the stateless Palestinians. The oil embargo of 1973 marks the first time that Arafat is accorded such status; Faisal’s 1974 conference “welded” the disparate oil-producing countries into a coherent Muslim bloc which to find a voice in other forums, such as the U.N. In 1974, “the UN General Assembly invited the PLO to participate in its debates on Palestine, granted the PLO observer status and called for Palestinian self-determination; similar Islamic pressure got Israel barred from full membership of UNESCO and cut off all UNESCO aid; and in 1975 the United Nations condemned Zionism as a form of racial discrimination.” (Lacey, p. 420).
Of course, later history proves that Israel merely laughed at the United Nations resolutions; neither did the United States condemn Israel or move against it. But the gains he did make, and the general success of the Islamic summit “buoyed up” Faisal and he agreed to lift the embargo on March 19, 1974. He wasn’t particularly happy about resuming shipments to the U.S., but America agreed to sell sophisticated tanks, fighters and naval vessels to Saudi Arabia; modern weapons systems that would give them a decided edge in a region that was traditionally badly equipped militarily. This was a tremendous “step forward” for King Faisal. (Lacey, p. 420).
Oddly enough, the success of the embargo led to something that most of us can barely visualize: the Saudis suddenly had much too much money. According to Lacey, Saudi Arabia was having trouble “disposing” of the $8-9 billion per year they made before the embargo; by the spring of 1974, the national revenue from oil was far greater: over $34 billion. In a country as sparsely populated as Saudi Arabia, there was nowhere for the money to go; the economy wasn’t strong enough to absorb it; there weren’t enough goods to buy or services to order. So the money simply went into the bank, where it was eroded by inflation. With oil prices rising, the commodity was more valuable if it was simply left in the ground. Saudi Arabia was caught in a web largely of its own making: the more cash it invested in the West, the more dependent it became upon Western help. The answer seemed to be to use the money to develop the nation’s infrastructure. Henry Kissinger promised American aid, and the construction projects that seem to be a hallmark of Saudi Arabia got underway. (Lacey, p. 421).
IVFrom the Crisis to the Present
The history of Saudi Arabia is so complex and contradictory that it’s impossible to put all the pieces in place; I’m leaving great chunks of it out. Perhaps the single most important thing to come out of the entire upheaval of the mid-twentieth century was the rise of a Saudi middle class. These people were frequently entrepreneurial in nature, setting up companies to build housing, work on the infrastructure, and bring in new industry. The government extended credit and financial aid on very favorable terms, and the businesses seemed to do fairly well. However, Vassiliev notes that Saudi businessmen lack the technical expertise, knowledge, experience and capital to launch and maintain a successful venture. This is why most businesses begun in the 1970’s and 1980’s have foreign nationals heading them up. (P. 461).
Still, a middle class is new in Saudi Arabia, which tends to extremes: either very wealthy members of the ruling elite; or extremely poor people who can barely scrape together enough to live on. This third alternative was entirely new.
Another development in the country was the “sedentarization” of the Bedouin. Tribesmen were given plots of land, houses, and financial aid, with the result that some Bedouin were able to start agricultural concerns and sheep-breeding farms, many times hiring workers from Asia. (Vassiliev, p. 460).
This government-sponsored change from the nomadic way of life to a settled one is startling, and may I think be taken to indicate the recognition of the ruling house that Saudi Arabia had to modernize, even if that meant modifying some of its traditions.
I believe it’s vital to remember that less than 75 years ago, well within the lifetime of many, Saudi Arabia was a tribal, nomadic, backward culture. The discovery of oil in the early 1930’s completely transformed the country, bringing it face to face with the modern age, and forcing it to enter the twentieth century, when its customs and traditions are from the fifteenth. We can only imagine what it must have been like to suddenly have the entire world turn upside down:
“The development of oil production, the increase in oil exports and, to some extent, the start of oil processing after the Second World War had a profound and multifaceted, though contradictory, influence on Saudi Arabia’s economy, society and politics and led to significant socio-economic changes. A gigantic modern enterprise with advanced technology and modern labour methods was imported from the world’s most developed country into a kingdom with a medieval economy and largely feudal-tribal social relations.” (Vassiliev, p. 474).
VConclusion
As I said in the beginning of the paper, it’s impossible to divorce the economic history of Saudi Arabia from the political events that took place in the twentieth century. After the discovery of oil beneath the peninsula, Saudi Arabia became a prize for the industrialized nations of the world, which depended on oil for energy.
Because of the troubled history of the British in the Middle East, King Abdul Aziz, who was the reigning monarch when oil was first discovered, was reluctant to encourage a British presence, and instead turned to the United States. With the formation of the Arabian-American Oil Company (Aramco) the true exploitation of the country began.
“Exploitation” is a term that can either be descriptive or pejorative, and in this case it seems to have been both. Aramco exploited Saudi Arabia in the “good” sense by providing expertise, equipment and manpower to extract the oil from the ground; it exploited the Saudis in the “bad” sense by making deals for its products that insured huge profits would accrue to the company rather than to the nation whose oil it is.
This situation—of foreigners coming in and working in Saudi Arabia, taking Arabian oil and making a huge profit—continued until the formation of OPEC. When oil was a glut on the market, OPEC was largely ineffective, but when oil became scarcer, OPEC had a tremendous bargaining chip, and used it very effectively to halt shipments of oil to the United States. Saudi Arabia by itself could not have sustained an embargo, but as soon as King Faisal declared that he would no longer ship oil to America, most of the other OPEC nations also stopped their shipments, throwing the West into a panic.
The main purpose behind the boycott was to try to pressure the United States into dropping its unqualified support of Israel. Although the boycott did not have that effect, it did result in America agreeing to sell military hardware to Faisal, and with that, presumably, he would be able to defend himself against the Israelis, or even attack them. The Israeli-Palestinian problem, as we know, is still a major source of strife in the Middle East, except that the United States is now completely committed to the Israelis. Time after time, the U.S. has voted with Israel against—well, everybody else, really—in both the Security Council and the General Assembly of the United Nations. There seems to be no reasons, despite a growing anti-Israel groundswell, to suppose that the U.S. will abandon its commitment to the Israelis, and so the ingredients for another embargo remain in place, and the region remains a hotbed of violence.
After the 1973 embargo, there came into existence a middle class, but they had little expertise or knowledge of how to run companies, so often the enterprises they began were managed by foreigners. Thus a medieval kingdom was transformed in a few short decades into a modern nation. Sort of.
The economy of Saudi Arabia is tied directly and permanently to its oil reserves, and whether it does well or poorly is, again, a direct result of the price of oil on the world market. It is truly a one-product economy, and it can thus be seen to occupy a fairly precarious position, because it has no fallback position. Granted that Saudi Arabia has 26% of the world’s oil reserves, and that it won’t run out during our lifetimes, oil is still a finite resource, and at some point it will be completely depleted. By then we would expect that the Saudis will have developed their society to a point where they either no longer depend upon oil for their livelihood.
However, if the West reflects upon the inconvenience and dismay caused by the 1973 embargo, it may decide to seriously pursue the development of alternative energy resources. (I realize this is extremely unlikely, but sometimes it’s mentioned, particularly because of the inherent instability of the Middle East.) If the world were to suddenly develop wind power, demand for Saudi oil would vanish, and the kingdom would probably fall to pieces. Such is the problem of having only one product to export, no matter how valuable that product may be.
The economy of the country with regard to its citizens remains one of a vast and widening gap between rich and poor. The enormous revenues that poured into Saudi Arabia during the 1970’s often went straight into the House of Saud, not to the people. The rulers squandered the money on pleasures such as fast, expensive cars and luxurious palaces. The extravagance of his lifestyle, so much against the teachings of Islam, was one of the things that led Faisal to rebel against King Sa’ud. But Faisal was assassinated in 1975, one of the most beloved monarchs in the nation’s history, and his vision went with him.
The House of Saud, however, has proven to be a very stable entity. “One of the features of the ruling elite was the fact that it was indigenous. It was not imposed from outside, but had grown from the bosom of Arabian society.” (Vassiliev, p. 475).
It maintained its position by suppressing opposition from “the left,” while at the same time satisfying the more conservative members of society. “The Al Saud maintained a cautious balance between conservative circles, who prevailed in the ruling group, and the growing ranks of the protagonists of reform and limited modernization.” (Vassiliev, p. 475).
Unfortunately, the Al Saud has grown tremendously wealthy while the vast majority of Saudis are poor. This phenomenon is one we are familiar with the in U.S., where it breeds resentment and anger. In Saudi Arabia, “[T]he transition to new occupations and hired labour was accompanied by a painful breakdown of the earlier way of life and did not automatically lead to improved social welfare.” (Vassiliev, p. 477).
Thus we see that Saudi society, and with it, the country’s economy, is stratified. At the top is the House of Saud, the wealth of which beggars the imagination. (These people make millions of dollars per day.) Next down the “ladder,” if you will, is the bourgeoisie. Vassiliev opines that this group resented the fact that the largest part of the oil revenues went to the ruling family. He also believes that they saw the dangers inherent in a large and growing gap between rich and poor, and thus advocated social reforms. (P. 477).
Below that is the new middle class. Vassiliev says, and I’d point out, that what he’s writing is largely his own opinion based on careful study. But there is no real way to know how the middle class feels about the current situation. (The middle class, which as I said is new to the country, includes wholesales and retailers with medium-sized businesses, and ex-Bedouin who run farms or own small companies. He thinks we can assume that this class benefited from the increase in revenues during the oil “boom,” but despite increased assets and a better lifestyle, remained dissatisfied by their lack of political power. They had no say in the decisions being made, even when those decisions directly affected them. “Less educated, usually loyal to tradition … they might form a conservative opposition to the regime due to their dissatisfaction with the extravagance of some members of the ruling elite and with the government’s moderate reforms, interpreted as bida (unacceptable innovation).” (Vassiliev, p. 477).
I assume bida comes from Islam. And this brings us back to another point: Saudi Arabic is an Islamic country. The law of the land is not law as codified in statutes and interpreted by lawyers as we know it, but Islamic law. There is no separation of church and state, so that an infraction of some religious tenet can result in punishment in a courtroom. I mention this concept again because it is so strange to Americans, since we have been raised in the tradition of English common law. The fact that religion is the dominant facet of culture has made it difficult for both the Saudis, and those who live and work in the country. It simply colors every facet of Saudi life.
Vassiliev mentions that one particular facet of the population other than the House of Saud did extremely well during the oil boom, with the result that they support the rulers:
“The oil revenues benefited, directly or otherwise, the urban population and the intermediate groups in society, such as state employees, the army, the police, technical specialists and teachers. Some ‘noble’ Bedouin tribes, who were loyal to the Al Saud, grew rich on government subsidies, thus expanding the regime’s social base; part of these elements were incorporated into the lower echelons of the ruling group, their loyalty assured by generous allowances.” (P. 477).
It appears to me from this observation that the Al Saud is very much aware of the potential for unrest in society, and has taken steps to make sure that it has some very influential and important groups on its side: the army, the police, technical specialists and teachers in particular stand out. The army and police are useful for protection; the technical specialists are vitally important if the country is to continue to develop its infrastructure and move into the twenty-first century, and teachers can easily indoctrinate the next generation into venerating, without question, the House of Saud.
Unfortunately, that seems to be as far down as the benefits go. The lowest group, as we’ve seen, are the peasants, who have been virtually untouched by the economic evolution of their country. This situation seems unlikely to change any time in the near future.
VIWorks Cited
Lacey, Robert. The Kingdom. New York: Harcourt Brace Jovanovich, 1981.
Moliver, Donald M. and Paul J. Abbondante. The Economy of Saudi Arabia. New York: Praeger Publishers—CBS, 1980.
“Saudi Arabia.” CIA World Factbook 2002 [Web site]. 19 Mar 2003. Accessed: 28 Mar 2003. http://www.cia.gov/cia/publications/factbook/geos/sa.html#top
Vassiliev, Alexei. The History of Saudi Arabia. Washington Square, New York, NY: New York University Press, 2000.
VIIWorks Consulted
Abir, Mordechai. Saudi Arabia in the Oil Era. Boulder, CO: Westview Press, 1988.
Al-Farsy, Fouad. Saudi Arabia: A Case Study in Development. London: Kegan Paul International, 1986.
Holden, David and Richard Johns. The House of Saud. New York: Holt Rinehart and Winston, 1981.
MERI Report: Saudi Arabia. (Middle East Research Institute, University of Pennsylvania.) London: Croom Helm, 1985.
Saudi Arabia: A Country Study. 2nd Ed. Ed. Helen Chapin Metz. Washington, D.C.: Department of the Army—U.S. Government Printing Office, 1993.
Twitchell, K.S. Saudi Arabia. Princeton, NJ: Princeton U. Press, 1958.
Young, Arthur N. Saudi Arabia: The Making of a Financial Giant. Washington Square, New York, NY: New York University Press, 1983.
