3 March 1938: Saudi Arabia strikes oil

On this day in 1938, the “Dammam no. 7” well in Saudi Arabia struck oil, kicking off the exploitation of the world’s biggest oil reserves.

By the early 1930s, geologists had a good idea that there was oil under the sands of the newly-formed kingdom of Saudi Arabia. Oil had been found in Persia in 1908, and wells had been producing in Iraq since 1927. In 1932, Bahrain stuck oil. So in 1933, Standard Oil of California (Socal, later to become Chevron) was granted the right to prospect for oil in Saudi Arabia's eastern provinces.

In May 1936, the “Dammam 2” well struck oil. But soon it was producing more water than oil. It took five more years of looking, but on 3 March 1938, the “Dammam 7” well struck oil. Within three weeks, it had produced over 100,000 barrels.

At first, the oil was transported by barge to Bahrain for export. Then, in 1939, the first tanker-load of oil was exported direct from Saudi Arabia. And by 1950, the Trans-Arabia pipeline was completed, enabling oil to be piped to Lebanon for export.

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Socal and the Saudi government formed a company to exploit the newly-found reserves – the California Arabian Standard Oil Company, which would eventually become the Arabian-American Oil Company (Aramco). The Kingdom was paid an annual fee of £5,000, a four-shilling royalty per barrel, and a free supply of products form Aramco's refinery.

Soon, however, the Saudis realised they weren't getting a particularly good deal out of the arrangement. So in 1950, it was amended to give them a 50% split of the profits. With the world's largest reserves, this proved to be a tidy little money-spinner for them.

By 1980, Aramco passed into the hands of the Saudi Government, and in 1988 it was renamed Saudi Aramco. It owns and exploits all the kingdom's energy reserves, including the Ghawar and Safaniya fields, the world's largest onshore and offshore oil fields respectively. It is the biggest energy company in the world.

Ben Judge

Ben studied modern languages at London University's Queen Mary College. After dabbling unhappily in local government finance for a while, he went to work for The Scotsman newspaper in Edinburgh. The launch of the paper's website, scotsman.com, in the early years of the dotcom craze, saw Ben move online to manage the Business and Motors channels before becoming deputy editor with responsibility for all aspects of online production for The Scotsman, Scotland on Sunday and the Edinburgh Evening News websites, along with the papers' Edinburgh Festivals website.

Ben joined MoneyWeek as website editor in 2008, just as the Great Financial Crisis was brewing. He has written extensively for the website and magazine, with a particular emphasis on alternative finance and fintech, including blockchain and bitcoin. As an early adopter of bitcoin, Ben bought when the price was under $200, but went on to spend it all on foolish fripperies.