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Kuwait
DISCOVERY OF OIL
At the end of World War I, the Arab states of the gulf were weak,
with faltering economies and with local rulers who maintained
their autonomy only with British assistance. The rulers controlled
mainly the small port cities and some of the hinterland. The sultan
in Oman claimed a somewhat larger area, but resistance to his
rule made it difficult for him to exert his authority much beyond
Muscat.
The discovery of oil in the region changed all this. Oil was
first discovered in Iran, and by 1911 a British concern, the Anglo-Persian
Oil Company (APOC), was producing oil in Iran. The British found
oil in Iraq after World War I. In 1932 Standard Oil Company of
California (Socal) discovered oil in commercial quantities in
Bahrain. Socal then obtained a concession in Saudi Arabia in 1933
and discovered oil in commercial quantities in 1938.
A flurry of oil exploration activity occurred in the gulf in
the 1930s with the United States and Britain competing with one
another for oil concessions. One reason for the increased activity
was that in 1932 the new Iranian government of Reza Shah Pahlavi
revoked APOC's concession. Although the shah and the British later
agreed on new terms, the threat of losing Iranian oil convinced
the British in particular that they must find other sources. The
small states of the Persian Gulf were a natural place to look.
Geological conditions were similar to those in Iran, and, because
of treaties signed between 1820 and 1920, the British had substantial
influence and could restrict foreign access.
Oil exploration did not mean immediate wealth for Arab rulers
of the area. Although the oil companies struck large deposits
of oil in Bahrain almost immediately, it took longer in other
countries to locate finds of commercial size. Oman, for instance,
was unable to export oil until 1967. World War II delayed development
of whatever fields had been discovered in the 1930s; so it was
not until the 1950s that countries still technically dependent
on Britain for their security began to earn large incomes. The
oil fields in Kuwait were developed the fastest, and by 1953 that
nation had become the largest oil producer in the gulf. Considerably
smaller fields in Qatar came onstream in commercial quantities
in the 1950s, and Abu Dhabi began to export offshore oil in 1962.
Dubayy began to profit from offshore oil deposits in the late
1960s.
Until the 1970s, foreign companies owned and managed the gulf
oil industry. In most cases, European- and United States-based
concerns formed subsidiaries to work in specific countries, and
these subsidiaries paid fees to the local rulers, first for the
right to explore for oil and later for the right to export the
oil. When the first arrangements were made, local rulers had a
weak bargaining position because they had few other sources of
income and were eager to get revenues from the oil companies as
fast as possible. Moreover, in 1930 no one knew the size of gulf
oil reserves.
As production increased and the extent of oil deposits became
known, indigenous rulers improved their terms. In the 1950s, rulers
routinely demanded an equal share of oil company profits in addition
to a royalty fee. By the 1970s, most of the gulf countries, which
by then were independent of British control, bought major shares
in the subsidiary companies that worked within their borders.
By the early 1990s, many of these subsidiaries had become completely
state-owned concerns. They continued to employ Western experts
at the highest decisionmaking levels, but the local government
had ultimate responsibility and profits.
Data as of January 1993
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