Saudi Aramco

Summary: Aramco is an acronym for the Saudi Arabian Oil Company, the successor to the Arabian American Oil Company, the largest oil producer and most valuable company in the world.

The Saudi Arabian Oil Company, widely known Saudi Aramco or just Aramco, is the descendant of the Arabian American Oil Company (Aramco), which did business from 1933 until 1988, at which point it was nationalized by the Saudi Arabian government. Originally owned by both Americans and Saudis, Aramco was formed to explore the Arabian Peninsula for oil. Aramco is considered one of the world’s most valuable corporations, with an estimated value of $1.7 trillion in 2024 (estimates had previously reached as high as $7 trillion). This value is based chiefly on Aramco’s proven oil reserves and production, which are both the world’s largest.

Aramco is headquartered in Dhahran, Saudi Arabia, and operates the largest single hydrocarbon network, known as the Master Gas System. In 2023, Amaco produced 10.62 million barrels of crude oil each day. Additionally, the company and operates more than one hundred oil and gas fields. With total reserves exceeding 260 billion barrels of oil and 263 trillion cubic feet of natural gas, Aramco controls more petroleum than any other entity in the world. The company maintained annual revenues in the tens to hundreds of billions of dollars (depending on global oil price fluctuations) and employs more than 70,000 individuals.

Oil Exploration Success

Saudi Aramco has its roots in the development of the international oil industry. Standard Oil of California was formed in 1911, when an antitrust order mandated the breakup of John D. Rockefeller’s Standard Oil Company. Standard Oil of California was one of the so-called Seven Sisters, a group of large petroleum corporations that dominated the industry for most of the twentieth century. Interest grew in the prospects of finding oil on the Arabian Peninsula after oil was discovered in Bahrain in 1932. After a year of negotiations, in 1933 Standard Oil of California entered into a concessionary agreement with the Saudi government that permitted the company to explore Saudi Arabia for oil. Standard Oil of California formed a wholly owned subsidiary corporation, California-Arabian Standard Oil Company (CASOC), and assigned its concessionary agreement to that entity. About a year after the agreement with the Saudi government was executed, the California-Arabian Standard Oil Company began a lengthy and exhaustive search for oil throughout the Arabian Peninsula. After exploration had been ongoing for about two years with no success, in 1936 Standard Oil of California sold a 50 percent share of CASOC to the Texas Oil Company. CASOC’s name was officially changed to the California Texas Oil Company (CalTex).

Success in the exploration for oil finally came in 1938. CalTex geologists had conducted a series of seismic surveys that had led them to concentrate efforts on an area a few miles north of Dhahran called Dammam. The first successful well, known as Dammam Number 7, immediately began providing more than 1,500 barrels of oil per day. The success of the Dammam Number 7 well provided encouragement for further exploration. Crude oil from the Dammam Number 7 well was exported by barge from Bahrain. In 1939, Standard Oil of California’s tanker, D. G. Scofield, exported the first oil by ship. In 1944, CalTex’s name was changed to the Arabian American Oil Company, and it became commonly known in the industry by the acronym Aramco. An oil refinery was developed in Ras Tanura, a city in the eastern province of Saudi Arabia adjacent to the Persian Gulf, in 1945. The Ras Tanura refinery continued to grow and would eventually become the largest oil refinery in the world. The discovery of new oil fields to the west and north of Dammam during the 1940s spurred further development, both of oil industry infrastructure and of residential and commercial compounds to support the many workers Aramco now employed.

In 1948, Standard Oil of New Jersey (Esso and later Exxon Corporation) and the Standard Oil Company of New York (Socony-Vacuum Oil Company and later Socony Mobil Oil Company and then Mobil) purchased 30 percent and 10 percent of Aramco, respectively, leaving Standard Oil of California and the Texas Oil Company with 30 percent of the endeavor each. Beginning in 1950, Saudi Arabia’s king, Ibn Saud, began to threaten Aramco with the nationalization of the nation’s oil-producing and oil-refining capacity, including Aramco, unless the Saudis were provided with a greater share of the growing revenues being generated. The Saudi king had observed that Venezuelan minister of development Juan Pablo Pérez Alfonso had been able to procure a deal with Standard Oil of New Jersey and Royal Dutch Shell that gave Venezuela half of the profits generated from the oil industry there. Aramco was able to apply pressure to US president Harry Truman to obtain a foreign tax credit worth 50 percent of the company’s oil profits. This allowed Aramco then to submit 50 percent of its profits to the Saudi government, which agreed not to nationalize the company at that time. Kept secret for several years, this foreign tax credit was later known as the Golden Gimmick, and it became the subject of much criticism in the popular press and from policy experts. The foreign tax credit was immensely lucrative, generating more than $50 million for the Saudi government in the first year alone.

The year 1950 also saw the completion of the Trans-Arabian Pipeline, which had been begun in 1947. The Trans-Arabian Pipeline was built chiefly by the American firm Bechtel Corporation, and it stretched for more than 750 miles between Qaisumah in Saudi Arabia to Sidon in Lebanon. The Trans-Arabian Pipeline was originally intended to terminate in Haifa, which was then part of the British Mandate of Palestine, but after the formation of Israel the decision was made to reroute the structure through the Golan Heights of Syria to Lebanon. Beginning operation in 1950, the Trans-Arabian Pipeline allowed Aramco to begin transporting 300,000 barrels of crude oil per day, an amount later increased to 500,000 barrels per day. With a diameter of 30 inches, the Trans-Arabian Pipeline was the world’s largest such structure at the time it began operations. Although subject to constant bickering between Saudi Arabia, Syria, and Lebanon related to the amount of transit fees that would be paid to each nation, the Trans-Arabian Pipeline was of such global importance that when the Israelis captured the Golan Heights during the 1967 Six-Day War, the pipeline was allowed to continue operations without interference.

Although the pipeline was originally owned by the Trans-Arabian Pipeline Company, this was a consortium comprising Standard Oil of California, the Texas Oil Company, Standard Oil of New Jersey, and the Socony-Vacuum Oil Company. Ownership in the Trans-Arabian Pipeline was later transferred to Aramco as a wholly owned subsidiary. A combination of factors, including pipeline breakdowns, the emergence of supertankers, and fee disputes, led to the portions of the Trans-Arabian Pipeline extending beyond Jordan being shut down permanently in 1976, after which point it still was used to transport oil to Jordan. After Jordan supported Iraq during the first Gulf War (1990–91), however, the Saudis shut down the pipeline completely. Although the pipeline is no longer operational, its route continued to be considered a transport alternative.

Infrastructure

As Aramco developed oil fields, it also was necessary to build the infrastructure necessary to support the personnel needed to work on Aramco projects. Abqaiq, for example, is one of four Aramco camps that was built during the 1940s to house personnel, the others being at Dhahran, Ras Tanura, and Udhailiyah. Like the others, Abqaiq contains dwellings for Aramco personnel as well as amenities such as swimming pools, golf courses, a library, and game facilities.

Each camp also contains schools for the children of employees, which offer a kindergarten through ninth-grade American curriculum to Aramco dependents. Because schooling is offered only through the ninth grade, Aramco sends older children to boarding schools at the company’s expense. The camps are surrounded by security fences to protect their inhabitants, although thousands of other workers often live just beyond these enclosures. Each camp has a special focus that serves Aramco’s interests. Abqaiq, for example, receives sour crude oil, containing the impurity sulfur; it is stabilized and then transported to Ras Tanura for export. Dhahran contains Aramco’s primary administrative center, Ras Tanura boasts the world’s largest refinery and international port, and Udhailiyah serves the company’s gas projects division.

During the 1950s, Aramco also confirmed the vast scale of its Ghawar and Safaniya oil fields. Ghawar and Safaniya are, respectively, the largest onshore and offshore fields in the world. Ghawar alone was responsible for approximately two-thirds of all Saudi oil production between 1948 and 2000, and by 2010 it had cumulatively produced more than 65 billion barrels of oil. Daily, Ghawar produces slightly more than 5 million barrels of oil per day, which is nearly 7 percent of global production. Ghawar also produces 2 billion cubic feet of natural gas per day. Safaniya is located approximately 165 miles northeast of Aramco’s headquarters in Dhahran. First discovered in 1951, Safaniya was put into production in 1957 and initially began producing 50,000 barrels of oil per day from 18 wells. By 1963, this production had grown to more than 350,000 barrels per day from 25 wells. Safaniya has estimated reserves of more than 37 billion barrels of oil and more than 3.2 trillion cubic feet of natural gas. As of the 2024, Safaniya could produce more than 1.3 million barrels of oil per day.

The 1960s saw Aramco developing more sophisticated production capabilities on the Arabian Peninsula itself, partly in response to demands from the Saudi government to increase the employment opportunities available to Saudi nationals. In 1961, liquefied petroleum gas (LPG), a mixture of propane and butane, was first processed at Ras Tanura. Although LPG is used primarily in Europe, it is highly popular in areas to which natural gas cannot be piped. During the mid-1960s, construction was completed on Sea Island, a huge offshore crude oil loading platform located off Ras Tanura, which lessened the need for the Trans-Arabian Pipeline.

During the 1970s, Saudi pressure for increased control over Aramco grew. In 1973, flush with cash from the spike in oil prices, the Saudi government purchased a 25 percent stake in Aramco. By 1980, Saudi control of Aramco’s assets had increased to almost 100 percent, and the company was fully nationalized in 1988, at which point it was renamed the Saudi Arabian Oil Company, sometimes referred to as Saudi Aramco.

As the Saudis took control of Aramco, information regarding its production and reserves became more closely guarded. The Saudis also became interested in controlling more of the domestic refining, marketing, and distribution of the nation’s oil and gas production. To that end, the Saudi government purchased the Saudi Arabian Marketing and Refining Company (SAMAREC) in 1993, merging it into Aramco. Aramco also purchased or acquired whole or part interests in a variety of global refineries, including the Ssang Yong Oil Refining Company (S-Oil) in South Korea, Petron Corporation in the Philippines, and Motiva Enterprises LLC in the United States. Aramco also began building and purchasing its own tankers, completing its initial construction of fifteen very large ships in 1995. These tankers became part of Aramco’s wholly owned subsidiary Vela International Marine, Ltd. In 2001, Hawiyah Gas Plant, which could process up to 1.6 billion standard cubic feet of natural gas per day of nonassociated gas, was completed, and in 2003 the Haradh Gas Plant was also finished, with the capacity to process 1.6 billion standard cubic feet of natural gas per day and 170,000 barrels per day of condensate.

In 2016 Saudi officials first announced that they were exploring the potential of holding an initial public offering (IPO) for Saudi Aramco. The proposed listing was expected to be the largest such offering due to the company's enormous value. However, in August 2018 the plan was reportedly called off, with Saudi Arabia instead pursuing other investment and acquisition opportunities. Later in 2018 media reports noted Saudi Aramco was investigating a $1 billion investment in technology companies around the world. In 2019, the company's shares began trading on the Tadawul stock exchange, quickly showing a market share of more than $2 trillion.

Other Issues

As part of its ongoing operations, Aramco invests heavily in oil and gas exploration, employing a team of highly trained geologists and geophysicists to locate new reserves for future extraction. These efforts began in 1982, shortly after the Saudi government took control of Aramco. In 1989, Aramco’s exploration team discovered high-quality oil and gas south of Riyadh, the first discovery outside the original eastern zone. Yet despite ongoing discoveries and the massive reserves already proven, the company, like other oil producers, faces a constant threat of resource depletion. Although exact figures are closely guarded, some experts believed Saudi oil production may have peaked in the 2000s. Another ongoing concern is the fluctuation in oil and gas prices; Saudi Aramco has typically responded to such issues by raising or lowering production. Its role as a major global producer has given it considerable influence over world markets. However, the North American oil boom of the 2010s provided an example of the volatility of Saudi Arabia's reliance on one commodity.

As might be expected from a business concern operating in the Middle East, Aramco spends a great deal on security, both to maintain an orderly operation and to prevent possible terrorist attacks. Most Aramco facilities have security fences or barricades surrounding them to protect them from possible sabotage or mischief. In 2006, a group allegedly sponsored by al-Qaeda attempted to move two pickup trucks loaded with explosives into Aramco’s oil-processing facility at Abqaiq. The explosives were apparently detonated by the drivers at the security gates after Aramco security guards opened fire on the suspects. Although the explosion caused only ancillary damage to a side entrance, the price of oil increased $2 per barrel upon news of the attack, chiefly because the Abqaiq oil-processing facility was responsible for more than 60 percent of Aramco’s production. Aramco has asserted that because of the excess capacity and backup facilities it has in place, even if a terrorist attack on one of its operations was successful, production would be minimally impacted.

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