Was Saudi Arabia Rich Before Oil?

The discovery of oil dramatically transformed the economic landscape of the Arabian Peninsula, and particularly Saudi Arabia. Before the 20th century, the region was characterized by relative poverty and a primarily agricultural and pilgrimage-based economy. Here, we explore the socioeconomic context and historical developments that preceded the oil boom, understanding why Saudi Arabia was not a wealthy nation before the discovery of oil.

Historical Background of the Arabian Peninsula

The entire Middle East was extremely poor prior to the discovery of oil. While there were some industries in the region, they were sporadic and insignificant compared to the economic transformation that would later occur. The tribes of Arabia were engaged in frequent conflicts, and it was only with the unification under King Abdul Aziz that a semblance of stability was achieved.

King Abdul Aziz and the Unification of Saudi Arabia

King Abdul Aziz, also known as Ibn Saud, was instrumental in uniting disparate tribes under the banner of Saudi Arabia. His efforts to unite the regions were partly through war and partly through strategic marriages, leading to the formation of a large family with many children. However, it was only with the exploration and exploitation of oil that the people of what is now known as Saudi Arabia began to experience substantial wealth.

Reliance on Pilgrimage and Early Years

The pilgrimage to Mecca and Medina was the primary source of revenue for the region. The Islamic faith requires pilgrimage to these holy sites, making them crucial to the economy. The revenue generated from the Hajj was the sole source of income for the kingdom until the discovery of oil, which took place around 65 years after the unification under King Abdul Aziz.

The Role of Expatriates and ARAMCO

The arduous and risky exploration and excavation of oil were predominantly carried out by expatriates working for the Arab-American Oil Company (ARAMCO). This company, formed by major American oil firms, eventually became the heart of Saudi Arabia's oil industry. The early revenues from oil were modest, with ARAMCO paying only a small percentage of the profits to the Saudi government.

Preoil Economics and International Relations

The economic landscape of the Arabian Peninsula was shaped by international relations and global conflicts. Prior to the discovery of oil, Saudi Arabia was a much less significant player in regional and global affairs. The region was not part of the global economic structure until the extraction of oil altered the dynamics.

The Arab Revolt and British Influence

Before the oil boom, the region had a complex history influenced by the Ottoman Empire and the British. The Arab Revolt, during World War I, was instigated by the Sherif of Mecca, Hussein bin Ali, against the Ottomans. The British supported the revolt under false promises and hoped to destabilize the Ottomans. Although the revolt was successful, it had little direct impact on Saudi Arabia until the discovery of oil.

The U.S. Role and Friendship Agreement

Seeking support from the United States, King Abdul Aziz met with President Franklin D. Roosevelt in 1928. As a result, they signed an agreement of friendship. This agreement was significant as the U.S. government was interested in promoting a new market for American industries. Following this, the major American oil companies formed ARAMCO in 1932 to prospect for oil. The discovery of oil in 1932 marked a turning point, but initially, the profits went almost entirely to the oil companies, not the Saudi government.

The Turnaround and Nationalization

The relationship between ARAMCO and the Saudi government changed dramatically in 1973 when the U.S. supported Israel during the Yom Kippur War. King Faisal, the son of King Abdul Aziz, responded by nationalizing the oil industry. This move was part of a broader oil embargo, which led to a significant increase in oil prices. Consequently, Saudi Arabia experienced a period of immense wealth and economic boom.

From a destitute and largely isolated region, Saudi Arabia transformed into one of the richest nations in the world due to the discovery and exploitation of its oil reserves. This shift in economic fortune had far-reaching impacts on the region's politics, society, and international relations.