On September 23, 1933, two American geologists disembarked at the small port of Jubail on the eastern coast of the new kingdom called Saudi Arabia. They had come to open the search for petroleum on the Arabian Peninsula.
The two men - "Bert" Miller and "Krug" Henry - had crossed to Jubail in the Saudi government customs launch from Bahrain, where they had spent the previous year working for the Bahrain Petroleum Company (Bapco), a subsidiary of Standard Oil of California (Socal). They were accompanied by Karl Twitchell, the American mining engineer who had surveyed Saudi Arabia for possible mineral resources on behalf of King' Abd al-'Aziz; he was also the only American with any firsthand knowledge of the areas where the search would occur: what was called "the concession area."
Specifically, Miller and Henry had been sent to inspect the concession area, most of it in al-Hasa - an area that would in 1956 be officially named the "Eastern Province" - and to look for geological formations that might indicate the presence of oil. Since the concession area measured 371,263 square miles (961,567 square kilometers) - considerably larger than France - this was no small task.
Behind this landing was a complex of historical and commercial developments stemming from British and European efforts to develop Middle Eastern sources of oil. This process had begun in the 19th century, but its first success did not occur until 1901 when William Knox d'Arcy was granted a 60-year concession to look for oil in Iran by Shah Muzaffar al-Din. From this beginning came the discovery of the first commercial oil field in the Middle East by the Anglo-Persian Oil Company (APOC), the first major oil producer in the Middle East. With exclusive concessionary rights over 500,000 square miles (1,294,995 square kilometers) of territory, Anglo-Persian's commercial interests in southern Iran reinforced the long established presence of Britain in the Arabian Gulf.
The demand for Middle Eastern oil was given great impetus on the eve of World War I by First Lord of the Admiralty Winston Churchill's decision to convert the British navy from coal to oil. In 1914 - just two months before the outbreak of the war - the British government bought a controlling interest in Anglo-Persian, thus guaranteeing fuel for the duration of the war.
Britain's interest in searching for and exploiting oil in far-off places is simply accounted for: though the leading industrial nation in the world, she herself had no supplies of this vital substance. But Britain did have far-flung colonies and protectorates, and World War I and the collapse of the Ottoman Empire had increased her role in the Middle East; Arab countries under Ottoman domination were assigned at the conference of San Remo in 1920, as mandates under French and British tutelage. France was given the mandate for the northern half of the old Ottoman province of Syria - now Lebanon and Syria - while Britain was given the mandate over Palestine, Transjordan, and Mesopotamia. Britain also had protectorates in the Gulf, particularly in Kuwait and Bahrain - where the story of the search for Arabian oil properly begins.
In 1922, the Eastern and General Syndicate, a London-based finance group that dealt in oil concessions, was approached by are presentative of Abd al-Aziz. The representative, Dr. Alex Mann, had received two commissions from Abd al-'Aziz: one to obtain medical supplies in Britain, the other to try to rouse interest in a geological survey of al-Hasa, aimed at finding oil; at that time, there were strong and persistent rumors of oil seepages in Qatif, and although the rumors were never substantiated they did whet the appetites of men and firms dealing in oil concessions. Eastern and General, responding to Dr. Mann's approach, sent a New Zealand promoter named Major Frank Holmes to Bahrain - ostensibly to help develop the island's water supply, but in fact to look for oil concessions.
In Bahrain, Holmes met Colonel H.R.P. Dickson, who had recently served as a British Political Agent in Mesopotamia. Dickson had visited al-Hasa - and had even examined Jabal Dhahran - but had found no trace of the rumored oil seepages.
In the fall of 1922, Holmes crossed to the mainland by dhow and made his way to Riyadh, where he talked to 'Abd al-'Aziz - and was apparently encouraged to continue with plans to obtain an oil concession for Eastern and General. Holmes next turned up in Basra, where he caught a ship for Bahrain. On board, by chance, was Amin Rihani, an American poet and writer of Lebanese extraction who wished to travel in Arabia.
Because his mission was confidential, Holmes was then giving out various explanations for his journeys; he told Rihani, for example, that he was traveling for his health - an unlikely story in those waters - and told Colonel and Mrs. Dickson that he was looking for a rare butterfly - the "Black Admiral of Qatif."
Almost at the same time, an impressive group was gathering in Bahrain. It included British High Commissioner of Mesopotamia, Sir Percy Cox, and Colonel Dickson, on their way to al-'Uqair, on the eastern coast of Arabia, to negotiate with 'Abd al-'Aziz, then the sultan of the Najd, over the boundaries between his territories and Kuwait and Iraq. But meanwhile, Major Holmes had already crossed to the mainland - where, to his surprise, he found Amin Rihani camped at al-'Uqair. Impressed by Rihani's Arabic - and needing help - he showed Rihani a 20-page proposal for an oil concession in al-Hasa which he wished to discuss with 'Abd al-'Aziz - then in Hofuf awaiting the arrival of Sir Percy and his party. Holmes almost immediately set off for Hofuf to discuss matters with 'Abd al-'Aziz.
On November 27, Sir Percy Cox and party landed at al-'Uqair - today nothing but a ruined Turkish customs house and some evidence suggesting that this was Gerrha, said to have been one of the richest cities in the ancient world. The political purpose of the "'Uqair Protocols" - as they were called - was to delineate the northern boundaries of 'Abd al-'Aziz's dominions - incorporating one neutral zone with Iraq and a second with Kuwait - but there were other effects: the ports of Jubail, Qatif and al-'Uqair, which served the exploration parties in the early 1930's, gained importance; one of them, Jubail, is today an enormous port and industrial conurbation.
Colonel Dickson, advised of the arrival of Major Holmes in Arabia, informed Sir Percy that in his opinion Holmes had come "to advise Ibn Sa'ud ['Abd al-'Aziz] on the possibilities of oil in the vicinity of Qatif and Jabal Dhahran." It is interesting to see Jabal Dhahran, later the site of the first oil strike in Arabia, mentioned in the context of the al-'Uqair conference. In fact, Colonel Dickson, on an earlier visit to al-Hasa, had been shown a copy of a Turkish report on an oil seep near Qatif; it must have been written before the Turks were expelled from the region.
On the last day of the al-'Uqair conference, 'Abd al-'Aziz mentioned the possibility that he might grant an oil concession to the Eastern and General Syndicate. At first, Sir Percy recommended that he do so, but on reflection suggested that he wait until the British government had been consulted. Then, however, after the signing of the Uqair Protocols, Amin Rihani - who had followed 'Abd al-Aziz to Riyadh, and was now on friendly terms with him, pointed out to 'Abd al-'Aziz that he was under no obligation to ask the British government's permission to dispose of the mineral rights in his territories. 'Abd al-'Aziz agreed, but felt constrained by the fact that he did not wish to lose a subsidy from Great Britain in exchange for a meager £2,000 yearly rental of an oil concession in al-Hasa that, after all, might not contain any oil.
In April, 1923, Rihani ran into Holmes still again, this time in Baghdad, and found that Holmes had heard nothing from Riyadh. Rihani urged him to go back to Arabia and speak once more to 'Abd al-'Aziz. Holmes took his advice and this time the concession was granted - partly because the British government that year ended its subsidies to Gulf rulers. As The Times reported on May 21,1923:
The Baghdad Times announces that Mr. Frank Holmes, on behalf of the Eastern General Syndicate (sic), has obtained from Ibn Sa'ud, the sultan of Nejd, a valuable concession for an area of four thousand miles (sic) in the province of Hasa. The concession covers three hundred miles of the coast of the ... Gulf... I understand that the contract gives Ibn Sa'ud a fifth of all profits and, should the field prove rich, Ibn Sa'ud proposes to utilize the revenues in organizing Hasa as a separate province on modern lines.
This report was at once prophetic and premature. It was to be some time before 'Abd al-'Aziz's plans for the development of the country could come to fruition since granting an oil concession is one thing, finding oil another - as Major Holmes was to learn. Holmes' success in obtaining an oil concession in al-Hasa was quickly followed by two more, one in Kuwait in 1924 and one in Bahrain, both on behalf of the Eastern and General Syndicate. The syndicate sent exploration parties into al-Hasa in 1923 and paid the concession rental in 1924. But despite the possibility that the concession would lapse, Eastern and General did not pay in 1925, and the concession lapsed - a concession that included almost all the incredibly rich oil fields later found and developed by the Arabian American Oil Company (Aramco).
The focus of the early history of oil in the Gulf now turns to Bahrain. Major Holmes, with concessions in Kuwait and Bahrain, now had to interest someone in exploring those concessions. He approached a number of oil companies, but failed to interest any of them in drilling in Bahrain - until he got in touch with Eastern Gulf Oil - which bought Holmes' Bahrain concession for $50,000, then discovered, because of its association with the Iraq Petroleum Company (IPC), that it was barred by the famous "Red-Line Agreement" from developing oil in Bahrain.
The 1914 "Red-Line Agreement" was an agreement by the various participants the Turkish Petroleum Company - including the British and German governments the d'Arcy group and others - not to engage in the production or development of oil it the territories of the Ottoman Empire except through the Turkish Petroleum Company.
Since IPC was the successor to the Turkish Petroleum Company, and since Eastern Gulf was associated with IPC, Eastern Gulf was also forbidden to operate in Bahrain. Eastern Gulf, therefore, offered the Bahrain concession to Socal, which, as an American Company, was not bound by the "Red-Line Agreement."
At that point, Socal could have easily refused the concession. In the United States, oil was plentiful and cheap; in Texas it was selling for 10 cents a barrel. Furthermore, Socal had spent millions on exploring in a number of countries - but had drilled more than 30 dry wells in places as far afield as Latin America, Alaska and the Philippines. Nevertheless, Maurice Lombard and William Berg, Socal directors, decided to check out the findings of geologist Ralph Rhoades, who had surveyed Bahrain for Eastern Gulf in 1927. First, though, Socal had to register a Canadian company as a subsidiary, to comply with a British law forbidding non-British registered companies to operate in the area. Thus was the Bahrain Petroleum Company (Bapco) formed, and on August 1, 1930, the Bahrain concession was formally assigned to Bapco - whose chief local representative was none other than Major Frank Holmes, now known in the Gulf as Abu al-Naft, "Father of Oil."
What Rhoades had found was a classic dome formation on Bahrain, and Socal geologists Fred A. Davies and William F. Taylor agreed that it was worth drilling. Looking across the Gulf at the coastline of al-Hasa, they also decided that the low range of hills on the mainland might repay examination - and urged Major Holmes to arrange a meeting with 'Abd al-'Aziz. But Holmes was unwilling or unable to do this, so Taylor and Davies left Bahrain without having had a chance to examine al-Hasa.
Another important character in the search for Arabian oil now took the stage. This was Harry St. John Philby, who had lived in Jiddah since 1925 and was the leading European authority on the country. A close friend 'Abd al-'Aziz, his finance minister Abdullah Sulaiman and Fuad Hamza, the deputy foreign minister, Philby introduced 'Abd al-'Aziz to the American philanthropist Charles R. Crane.
An unusual man, Crane had inherited a fortune from the manufacture of bathroom fittings and dedicated it to helping develop Arab countries. As a member of President Woodrow Wilson's King-Crane commission - set up to assess the future of the Middle East - he had recommended the self-determination of the Arab peoples as early as 1919. Philby spoke of Crane to 'Abd al-'Aziz, to whom he urged the necessity of foreign capital and expertise to develop the mineral resources of the country. As a result, 'Abd al-'Aziz invited Crane to Jiddah.
Since Jiddah at the time had no piped water supply, Crane offered to lend 'Abd al-'Aziz an engineer who worked for him named Karl Twitchell, who was at that moment in Yemen. Twitchell arrived in Jiddah in April and busily set about studying the city's water supply. He also traveled widely in the Hijaz looking for water - and any mineral deposits that might be commercially exploitable.
In 1931, the Arabian Peninsula had been severely affected by the world depression: the main source of income in the Hijaz had traditionally been from the Hajj and the world depression meant that fewer and fewer Muslims could afford the expensive journey to Makkah (Mecca). In inviting Crane therefore, 'Abd al-'Aziz was hoping to discover new sources of revenue at a time when the economic outlook could not have been blacker.
Towards the end of May, 1931, the month the United States recognized "The Kingdom of the Hijaz and its Dependencies," - which included the Najd and al-Hasa - Twitchell reported to 'Abd al-'Aziz on his search for water in the Hijaz; it was a discouraging report, but 'Abd al-'Aziz asked him to continue his work - this time in al-Hasa.
Twitchell left Jiddah for al-Hasa on December 13, 1931 - shortly after the first oil well had been spudded in on Bahrain. On January 12, 1932, he met 'Abd al-'Aziz in Hofuf and made a preliminary report. 'Abd al-'Aziz asked Twitchell to arrange for "oil geologists and oil-well drillers," but Twitchell recommended that nothing be done until the results of Jabal Dukhan 1 on Bahrain came in, because, he told 'Abd al-'Aziz, the same geological formations obtained in Bahrain and eastern Arabia. Although not strictly true, this did convince 'Abd al-'Aziz of the wisdom of a wait-and-see policy.
On May 31,1932, four months after Twitchell's conversation with 'Abd al-'Aziz, Bapco struck oil in commercial quantities at Jabal Dukhan 1 at a depth of about 2,000 feet (610 meters). But even before this momentous discovery, Socal executive Francis B. Loomis had got in touch with Philby - then in London lecturing to a variety of learned societies - and had arranged a meeting to discuss the possibility of an oil concession in the kingdom. The two men met over lunch at Simpson's in the Strand on July 11, and Loomis asked Philby whether he thought there was any chance of obtaining a concession. Philby said he thought the chances were good, but that such a concession would not come cheaply. "I told him," said Philby, "that I would be glad to help in any scheme which would contribute to the prosperity of Arabia."
Meanwhile, Karl Twitchell was in America making the rounds of the oil companies in an effort to interest them in an Arabian concession. Twitchell conferred several times with Loomis and met Maurice L. Lombardi of Socal, who expressed interest and realized that Twitchell was an excellent contact with the king. He therefore authorized Twitchell to represent Socal, along with Lloyd Hamilton as lawyer and negotiator.
On December 3,1932, Philby returned to Jiddah, where he found a cable from Loomis reiterating Socal's interest in "...making geological investigations in Arabia. In particular we would like to obtain exclusive right to examine Hasa and neutral territories lying between Kuwait and Qatar Peninsula, and the territory lying inland adjacent thereto. Then, if geological indications seem favorable to us, we contemplate a concession for exploration for petroleum, to be followed by lease for producing petroleum, if found in sufficient quantities. Will you not kindly ascertain His Majesty's reaction to this proposal; and, if favorable, we desire your suggestions as to what steps we should take to obtain permission to do this preliminary geological work and your assistance in carrying them out." Philby cabled back from Makkah on December 22, telling Loomis of the government's urgent need of funds, and making clear that any granting of a concession would require a substantial quid pro quo.
Philby's role in the negotiations now became even more critical, for he took it upon himself to approach a friend who worked for the Anglo-Persian Oil Company; in a letter dated December 17,1932, he informed his friend of Socal's interest in obtaining a concession, and suggested that Anglo-Persian might be inclined to make an offer too. "My main object," he added, "is to get the concession going in the interests of the Government." Philby saw that the best way to get the best price for the Saudi government would be by getting the various companies to bid against one another.
Philby wrote to Loomis again in mid-January, seeking to keep Socal's interest in bidding for the concession alive. He told him that Anglo-Persian was carrying out a survey of the Qatar Peninsula, and added that he himself had noted a Miocene deposit "running inland for a considerable distance between Salwa... and Yabrin. This probably underlies a good part of Hasa, along the coast of which, between Ras Tanura and Jubail, Twitchell... discovered substantial oil seepages." Twitchell later stated that he had no recollection of seeing any such seepages, but the persistent rumors of them certainly served to concentrate interest on this area. Philby also told Loomis that he had heard that Twitchell was expected to arrive in Jiddah in February on behalf of an unknown American oil company; he was unaware at the time that Twitchell was a second string to the Socal bow. He found out the true state of affairs when Lombardi cabled that Twitchell and Lloyd Hamilton were scheduled to arrive in Jiddah on February 15 to discuss the concession with the government. At almost the same time, he heard from Anglo-Persian that they too were "definitely in the bidding for the Hasa." The stage was set.
At this time, Philby was not on the payroll of any of the negotiating parties. In his account of the negotiations, however, he candidly states that he had a basic preference for the Americans, because, as their record in Bahrain showed, they had no imperialistic ambitions. Other than that, he would favor the highest bidder, in an effort to obtain the best possible deal for the government. His influence, of course, was only that of intermediary; the negotiations themselves were carried out by the Saudi ministers.
Twitchell and Lloyd Hamilton arrived in Jiddah as scheduled on February 15, 1933. Hamilton soon indicated to Philby his willingness to make a substantial loan to the government - he mentioned the figure of £50,000 in gold - and although Philby thought this too low, it was an encouraging sign. Hamilton also asked Philby to work on behalf of Socal, and Philby agreed, accepting a payment of $1,000 a month for a minimum of six months, "with substantial bonuses on the signature of the concession, and of the discovery of oil in commercial quantities." He was now committed to the American camp. He was also approached by the British, who told him that their negotiator, Stephen Longrigg, of IPC, was due to arrive in Jiddah in March. When Philby met him, he got the definite impression that the British were not particularly serious about winning the concession; they already had extensive commitments in the Middle East, and thought the price too high.
Meanwhile, Hamilton and Twitchell had talks with Abdullah Sulaiman, and some initial terms had been debated. The government still thought the amount offered by the Americans too little, and the patient minister of finance continued to hold out for more. Philby told Abdullah Sulaimar, that he thought the Americans would not go above a figure of £50,000 - rather than the £100,000 the government wanted -and that some of this would almost certainly be in kind, not cash. In the various talks that went on at this time it became apparent that IPC, the British representatives at the negotiating table, were interested in exploration rather than development, and this fact alone was enough to disqualify them in the eyes of the government, which was anxious that development should follow hard on the heels of discovery.
On April 10, a new factor was momentarily added to the already complex situation: Major Frank Holmes arrived in Jiddah. Rumor of his arrival had preceded him, but it turned out that he had no serious proposals to make, other than that the three competitors join forces. He left the following day, leaving the field to Hamilton and Longrigg.
Philby had understood that Hamilton, on behalf of Socal, was prepared to offer a loan of £50,000 in gold, a £5,000 yearly rental, also in gold, and a royalty of four shillings a ton on production. He was astonished, and the Saudi government dismayed, when the Socal directors made an offer of a loan of $100,000 - about £20,000 - a yearly rental fee of $20,000, and reserved their position on minimum royalty. The Saudi government responded to this offer by asking for a loan of £100,000 in gold, £30,000 gold yearly rental, 3,000 tons of free oil yearly, and a £200,000 gold guaranteed annual royalty.
On April 21, Hamilton, after consultation with his principals, to whom Philby had also communicated his views with his usual prolixity, made a formal offer to the Saudi government: an initial payment of £35,000 in gold, £5,000 rental for the second year of the concession, a second loan of £20,000 at the end of 18 months, and a rental of £5,000 for the concession area beginning in the third year, plus a £50,000 loan in gold upon discovery of oil in commercial quantities and a further loan of £50,000 a year later. He also agreed, on behalf of Socal, to commence operations in September, 1933 - the beginning of the cool season - and undertook to begin drilling as soon as a suitable structure was found, and to continue doing so until oil in commercial quantities was struck.
Longrigg had been given until May 2 to come up with a counter offer, but he told Philby that he was empowered to offer at the most £5,000; this was clearly too little, and IPC was out of the picture.
Just as it looked as if agreement could be reached, the worrying news reached Jiddah that the United States had departed from the gold standard. This meant that it was going to prove difficult to make the initial payment, which the contract stipulated must be in gold.
The finishing touches were made to the draft agreement, nevertheless, and on May 8 it was forwarded to the king. It was read out to him, and at the end he said, turning to Abdullah Sulaiman, "Put your trust in God, and sign." The Concession Agreement was signed in Jiddah by Lloyd Hamilton and Abdullah Sulaiman on May 29, 1933. On July 7,1933, royal decree number 1135, "granting a concession for the exploitation of petroleum" was signed and published in the official gazette July 14.
The negotiations for the concession had taken three and a half months of hard, patient bargaining, and now final agreement had been reached. Hamilton left for London, where he immediately took steps to ensure early compliance with the agreement: he arranged for Twitched, who was still in Jiddah, to cross the peninsula with two cars and two trucks, to help the first geologists who would come by launch to al-Hasa from Bahrain; he started looking for an airplane to help in the reconnaissance of the country and asked Philby if he could lease his house, the Bait Baghdadi, as the Jiddah headquarters of the company.
To circumvent the embargo on gold, Hamilton also arranged for 35,000 gold sovereigns to be shipped to Jiddah from London. They arrived in Jiddah towards the end of August, 1933, and were counted in the Nederlands Bank by Twitchell and Abdullah Sulaiman.
When the geologists Miller and Henry landed at Jubail on September 23, 1933, therefore, they were ready to go. Accompanied by Karl Twitchell, they immediately drove over to look at Jabal Berri and five days later inspected Jabal Dhahran. By June 6,1934 they had completed their survey of the Dammam Dome, and in the spring of 1935 the first well was spudded in. Encouraging signs of oil were found - the well was producing about 100 barrels per day on September 18 - more wells were drilled and, on December 7, 1936, Dammam No. 7 was spudded in; it came in in March 1938, and in the fall of that year, when it was established that oil in commercial quantities had been found, the king was informed of the good news. Saudi Arabia was in the oil business.
