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.

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.

Recommended

The charts that matter: more pain for goldbugs
Economy

The charts that matter: more pain for goldbugs

Gold investors saw more disappointment this week as the yellow metal took a tumble. Here’s what’s happened to the charts that matter most to the globa…
18 Sep 2021
The new social-care levy: an unfair tax that protects the “assetocracy”
National Insurance

The new social-care levy: an unfair tax that protects the “assetocracy”

The government’s regressive social-care levy will make Britain’s tax system even more complex. Root-and-branch reform is long overdue.
18 Sep 2021
Kieran Heinemann: the history of shareholder capitalism
Investment strategy

Kieran Heinemann: the history of shareholder capitalism

Merryn talks to Kieran Heinemann, author of Playing the Market: Retail Investment and Speculation in Twentieth-Century Britain, about the history of t…
17 Sep 2021
Cryptocurrency roundup: litecoin blunder, cardano update and bitcoin mining in Laos
Bitcoin & crypto

Cryptocurrency roundup: litecoin blunder, cardano update and bitcoin mining in Laos

Saloni Sardana looks at the week’s biggest stories in the world of cryptocurrencies.
17 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021