The Oil Industry in the Middle East of the 20th Century

The Middle East is a geographical center for the world oil industry. Oil is very important in foreign and domestic politics in almost every country in the region, oil importers and oil exporters. Therefore the oil industry in the Middle East has a special role in the economic development of the Middle East.

Discovery of the First Oil Field in the Middle East

The search for oil resources in the Middle East was first carried out by a British businessman named William D'Archy. In 1901, he was granted permission to explore oil in Iran, after offering a contract of 20,000 pounds sterling and 16% of profits for 60 years. Not only that, the company is also free of charge and obtained a large area.

After obtaining permission, D'Archy sent George Reynold to explore oil resources. Exploration requires huge costs, so that at one time when he was on the verge of bankruptcy, D'Arcy asked for help from the British government. The government agreed to help him, for fear that he might sell his permission to a foreign country like Russia.

England was still a big power at that time. Therefore, they want to maintain political existence in the Middle East. To protect the contract with the Qajar Dynasty, the British Government pressured the British oil company Burmah Oil to provide financial assistance to D'Arcy in 1905.

New investment from Burmah Oil Co. saved this project. However, over the next few years the situation has not changed, oil resources have not yet been discovered.

This fruitless search results in D'AArcy's personal wealth being completely used up. Even some oil source search staff were fired to reduce the budget needed.

Meanwhile, the British government and other financiers, seemed to be beginning to despair after seven years the project did not work. Therefore, on May 26, 1908 London sent an order to Reynold to carry out the last drilling effort around the Sulaiman Mosque with a depth of 1600 feet.

While drilling was underway, the smell of sulfur wafted in the air at Suleiman Mosque. That was a good sign for Reynolds. At 4 o'clock in the morning, the drill reaches 1,180 feet below the desert and touches where the oil is. As a result, oil sprayed as high as 75 feet into the air.

The place was so remote that it took five days before D'Arcy got word via telegram in England. "If this is true," he replied, "all our problems are over." The discovery is true and more other oil wells were found in Persia, including the discovery of a large oil well in September.

After that discovery, D'Arcy and Burmah reorganized their ownership in 1909 as Anglo-Persian Oil Co. (AIOC). Initial public offering of shares sold out in 30 minutes in London. The British government holds half of AIOC's shares, Burmah Oil 22%, and the rest is held by a joint pool of investors.

Since news of oil discoveries in the Middle East spread, large countries have been racing to find oil fields in the Middle East.

Development of the Oil Industry in the Middle East
The first exploration permits set patterns in this region for the next half century. The petroleum industry is a vertical and horizontal monopoly. Western companies control oil prospecting, sourcing, transporting, refining, and selling.

Seven large companies or so-called "The Seven Sisters" eventually dominated the oil industry in the Middle East. They are Standard Oil of New Jersey (founded by John Rockefeller), Royal Dutch Shell, British Petroleum, Gulf, Socony-Mobil, Texaco, and Standard Oil of California. Many of these companies have the same owner and director or at least one family.

On the other hand, the Middle East Government is too weak, does not have the technology to develop the industry itself, so voluntarily gives permission to Western companies to exploit their vital natural resources.

The second largest oil permit in the Middle East was signed between Iraq and a consortium of Western companies. Calouste Gulbenkian became a negotiator who negotiated the permit in return for a 5 percent stake. As a result of this agreement, Gulbenkian was nicknamed "Mr. Five Percent "and became one of the richest people in the world at that time.


The company's ownership is divided as follows: 25 percent owned by D'Arcy, consisting of Burmah and the British government which came to be known as British Petroleum (BP); 25 percent Compagnie Française des Petroles (CFP), where the French government owns 40 percent; 25 percent of Royal Dutch Shell, consisting of British and Dutch interests; and 25 percent U.S. gas, including Standard Oil of New Jersey and Socony Mobil.

These companies share the 5 percent payment for Gulbenkian equally among themselves. The contract includes exploration permits throughout Iraq for 75 years, does not allow taxation for companies, and revenues for oil-producing countries do not increase at prices set by oil companies.

The licensing model which is actually very detrimental to Middle Eastern countries continued to be applied during the 20th century.

Recorded in 1950, Middle Eastern oil field ownership is divided as follows: Anglo-Persian Oil Co. (AIOC) in Iran, Iraq and Mosul; Basra Petroleum companies (IPC) in Iraq; Arabian-American Oil Company (ARAMCO) in Saudi Arabia; Kuwait Oil Company in Kuwait; Bahrain Petroleum Company in Bahrain; and Petroleum Development Ltd. (IPC) in Qatar.