What is Aramco?

Aramco (Arabian American Oil Company) began in 1930 when King Ibn Saud decided to allow foreigners to investigate and evaluate the potential oil resources of his newly-created Saudi Arabia. In one of the oil industry’s more daring capital ventures, Standard Oil of California (Socal) obtained in 1933 an exclusive sixty-year concession with Saudi Arabia—the only principality in the area not under British control. Socal was not assured of a desirable outcome in obtaining the concession. The negotiations occurred shortly after the U.S. had gone off the gold standard and President Roosevelt had closed U.S. banks, and at a time when crude oil was selling for less than fifty cents a barrel. Socal was in fact taking a calculated business risk in a period when the economic outlook and business prospects were ominous.

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Photo 1 Caption: Floyd Ohliger leads the King on a tour of oil installations during His Majesty’s first visit to Aramco. Source: Aramco and its World. P. 197.

Socal advanced loans to the King totaling $250,000 gold, yearly rentals of $25,000 gold, and royalties of $1 gold per ton of oil produced. From the King’s point of view, of equal importance were provisions calling for an immediate start of exploration, for drilling to begin no later than September 1936, and for construction of a refinery after oil was discovered. The discovery of oil in commercial quantities in Damman No. 7 well in 1937-38 was a turning point. Until 1938, the Saudi Arabian venture had been a risky and costly proposition.

The first Arabian oil exports in 1939 so impressed King Ibn Saud that he increased the acreage of the American concession to 444,000 square miles in eastern Saudi Arabia, giving the California-Arabian Standard Oil Company a monopoly over a piece of real estate the size of Texas, Louisiana, Oklahoma and New Mexico combined.

Germany’s submarine warfare and Afrika Korps curtailed Aramco’s operations and annual pilgrimages to Mecca. The loss of oil royalties and pilgrimage revenues compelled King Ibn Saud to turn to Aramco for aid in 1940. The American company advanced him $2,980,988 against future oil royalties. In January 1941, however, a desperate King Ibn Saud demanded an additional $6 million and Aramco, which had very little to show its shareholders for their heavy Arabian investment, turned to Washington. President Roosevelt told Aramco that direct subsidization was impossible under existing American Lend Lease laws that only authorized assistance for “democratic allies.” President Roosevelt solved the problem by having the British divert a portion of the $400 million US Lend Lease loan to help King Ibn Saud stabilize his country. During 1941, 1942, and 1943 as Aramco reduced its Saudi payments, the British Government advanced approximately $5, $12, and $17 million, respectively.

In September 1945, Aramco posted and celebrated its first two-million-barrel month, and by the end of 1945 it had loaded thirty-eight tankers at the a new terminal and had produced over 21 million barrels of oil. In 1976, Aramco first produced more than three billion barrels of oil in a single year, the amount it continues to produce today.

At year-end 2003, Saudi Arabia had 259.4 trillion cubic feet of the estimated crude oil and gas reserves in the world.

Aramco exported 43.7% and 23.7% of its crude oil to the Far East and the U.S. in 2003, respectively.