From Renting to Partnership
In June 1932, an American petroleum company, Standard of California, struck oil at the depth of 2,000 feet in the small island of Bahrain off the coast of Saudi Arabia. The following year, an agreement was signed between the newly renamed kingdom of Saudi Arabia and the California Arabian Standard Oil Company, giving the American company the right to explore oil in huge areas of the kingdom, including offshore areas. These were the beginnings of a remarkable historical event opening up a new era of relationships between the United States and the Gulf states. Although petroleum is the key to understanding US-Gulf states economic relations, such relations have evolved and been governed by considerations beyond oil. As the position of US direct investment in the area shifted away from petroleum, trade and services industries have assumed an increasingly important role since the early 1970s. Until the mid-1970s, the history of US investment in the Arabian peninsula was synonymous with the history of oil exploration and production in that region.
Based upon the technical aspect of petroleum exploration, one can divide the entire US effort in the Arab Gulf into several phases. Each of these phases was marked by its own frustrations and achievements. For instance, although oil was first discovered in the early 1930s, it was not until the late 1930s that commercial production started, and large-scale production did not begin until after World War II. In financial terms, the history of private US investment in the region also underwent distinct phases --from rapid growth in the late 1940s and early 1950s to moderation in the 1960s, followed by divestiture starting around the mid-1970s. The year 1973 was especially significant in that it marked the time of fundamental change in the companies--host country relationship. Accordingly, two major phases can be distinguished. The first phase,