Petromin: The slow death of statist oil development in Saudi Arabia

Abstract

The paper recounts the history of Saudi Arabia's first national oil company, Petromin, which was originally supposed to take the place of foreign-owned Aramco. As a result of Petromin's inefficiency and personal rivalries among the Saudi elite, however, Petromin was progressively relegated to the sidelines in favour of a gradually ‘Saudiised’ Aramco. As a result, the organisation of the Saudi oil sector today is very different from – and more efficient than – that of most other oil exporters in the developing world. The paper concludes with a tentative taxonomy of national oil companies, based on the circumstances of nationalisation.

Keywords:

• Saudi Arabia
• Aramco
• Petromin
• national oil companies
• political economy
• oil
• rentier state
• Fahd
• Yamani
• industrialisation
• nationalisation
• state-building

Notes

 1. See Marcel (2006), as well as the papers written for a conference on NOCs in March 2007 at the Baker Institute's Energy Forum at Rice University: http://www.rice.edu/energy/publications/nocs.html (accessed 6 July 2008).

 2. Mulligan Papers (Georgetown University), Biographical sketch of Ahmad Zaki Yamani, March 1962, Box 1, Folder 67.

 3. Ibid.

 4. Mulligan Papers, Biographical sketch of Ahmad Zaki Yamani, March 1961, Box 3, Folder 6.

 5. Mulligan Papers, Biographical sketch Abdul Hady Taher, December 1962, Box 1, Folder 69.

 6. His uncle Fuad Nazer was head of royal protocol; other close relatives were in the military or important lawyers; Public Record Office (PRO) series FO 371/113896 ES1471/3.

 7. Mulligan Papers, Biographical sketch Hisham Nazer, January 1964, Box 1, Folder 69.

 8. Mulligan Papers, Biographical sketch Hisham Nazer, n.d., Box 1, Folder 70.

 9. Ibid.

10. Ibid.; various discussions with former consultants working for Nazer in London and Riyadh.

11. On family alliances between 1953 and 1962 see Yizraeli (1997).

12. Royal decree 25, 25/6/1382 (hijra calendar); MEED, 7 December 1962, p. 549.

13. Mulligan Papers, Robert L Headley, Saudi Arabian Government: General Petroleum Organization, 23 August 1960, Folder 1, Box 3.

14. Mulligan Papers, Biographical sketch Hisham Nazer, n.d., Box 1, Folder 70.

15. Aramco then was owned by Standard Oil of New Jersey (later Exxon), Standard Oil of New York (Mobil), Standard Oil of California (Chevron) and Texaco.

16. Mulligan Papers, Malcolm Quint, General Organization of Petroleum and Minerals, 26 February 1964, Folder 20, Box 3.

17. http://www.unitedworld-usa.com/reports/saudiarabia/thesearch.asp (accessed 6 July 2008); MEED, 8 October 1965, p. 452; 7 September 1967, p. 614.

18. Mulligan Papers, Faysal's policy statement: an eight-month review, supplement for the period 31 July–21 October 1963, Folder 11, Box 3; MEED 29 November 1963, p. 538; 1 January 1965, p. 9; 5 August 1966, p. 366.

19. http://saudinf.com/main/d21.htm (accessed 6 July 2008).

20. Middle East Documentation Unit (Durham), Abdulhadi Taher, ‘Survival of the International Petroleum Industry’, address given at the Saudi Ministry of Petroleum seminar on 10 April 1967; Taher, ‘Determinants of a Producer Country's Oil Policy’, speech given at Seminar on the Economics of Eastern Hemisphere Oil, Centre for Middle Eastern Studies, Harvard University, 7 May 1969; Taher, ‘National and International Oil Companies and the Participation Issue’, speech given at the Offshore Exploration Conference, Athens, December 1968; box 51/4/Industry/Extractive/Oil.

21. http://www.saudi-us-relations.org/articles/2006/special-reports/061212-turki-background.html (accessed 6 July 2008).

22. Phone interview former Gulf banker; PRO, FCO 8/1733 J.B. Armitage to R. McGregor Esq., 31 July 1971.

23. Ministry of Communications: General Report and Recommendations (prepared by JL Jacobs and Company), August 1964, Ford Foundation archive, Institute of Public Administration, Riyadh.

24. Mulligan Papers, Biographical sketch Hisham Nazer, n.d., Box 1, Folder 70.

25. PRO, FCO 8/1742, Morris to Alec Douglas-Home, 3 February 1971.

26. Ibid.

27. Mulligan Papers, Biographical sketch Hisham Nazer, n.d., Box 1, Folder 70.

28. Mulligan Papers, Saudi government industrialisation plans, June 1974, Folder 12, Box 6; Saudi Arabian Government Gas Program, June 1976, Folder 12, Box 5.

29. http://saudinf.com/main/d22.htm (accessed 6 July 2008).

30. Petromin's core budget in 1976–77 was $13.4 million, down from $44.3 million the year before, indicating the scale of cuts; MEES; 12 July 1976, p. 2. At the same time, the number of employees in Petromin's marketing operations increased from 1139 in 1976 to 1610 in 1977 (Petromin, 1978, p. 209).

31. It is generally deemed the best-managed indigenous Saudi company; discussions in Riyadh 2003–2005.

32. http://www.unitedworld-usa.com/reports/saudiarabia/aaltaher.asp (accessed 6 July 2008).

33. Nor did the Israeli issue disappear after Faisal's death (Brown, 1999, p. 314).

34. http://www.saudiaramcoworld.com/issue/198206/foundations-the.underpinning.htm (accessed 6 July 2008); MEED, 14 January 1977, p. 24; 7 July 1978, p. 46.

35. Mulligan Papers, Petromin organigram, 14 August 1978, Folder 1, Box 9.

36. My interviewees have been unanimous that the Petromin corruption problem was severe.

37. Taher also explained, however, that the step would imply no immediate operational changes; MEED, 23 May 1980, p. 3.

38. It was not even clear how and how much exactly the Saudis had paid; one explanation is that oil tankers were topped up with extra crude which the Aramco parents did not have to pay for; Phone interview with former Gulf banker.

39. The OPEC Information Department reprinted essentially the same project details in its Petromin reports in 1978 and 1980, only shifting deadlines backwards. Cf. OPEC Information Department 1978; OPEC Information Department, Petromin (Supplement to OPEC Bulletin Vol. 11, no. 8), 25 February 1980.

40. http://www.saudiaramcoworld.com/issue/199305/saudi.aramco.at.sixty.htm; http://saudinf.com/main/c5121.htm (both accessed 6 July 2008).

41. http://countrystudies.us/saudi-arabia/41.htm (accessed 6 July 2008).

42. http://saudinf.com/main/d23.htm (accessed 6 July 2008).

43. http://countrystudies.us/saudi-arabia/41.htm (accessed 6 July 2008).

44. The full contribution supposedly was equivalent to US$56 billion; Phone interview with former Saudi Aramco functionary.

45. The figures remain confidential; Phone interview with former Saudi Aramco functionary.

46. http://www.un.int/saudiarabia/sachvmt1.htm#5petro (accessed 6 July 2008).

47. A similar process was arguably underway in Malaysia in the mid-1970s when national oil company Petronas under Tengku Razaleigh Hamzah put increasing pressure on US oil companies, which among other things led to an investment strike of Exxon. The confrontational policy was abandoned in 1976 however, and the oil sector subsequently was developed in a cooperative fashion through production sharing agreements (Gale, 1981). Petronas has evolved into one of the most effective NOCs. It is different from the other OPEC NOCs discussed here however in that it is heavily involved in overseas operations.

48. If anything, the Arab–Israeli conflict meant that the US–Saudi relationship was more problematic in the 1970s than the US–Indonesian relationship.

49. The US government traditionally did not interfere much in Aramco's relationship with the Saudi regime. In fact, Aramco rather than Washington often also took the lead on broader bilateral diplomatic issues (see Citino, 2002).