Note: While reading a book whenever I come across something interesting, I highlight it on my Kindle. Later I turn those highlights into a blogpost. It is not a complete summary of the book. These are my notes which I intend to go back to later. Let’s start!

  • The Saudi experience with IBI, though brief, proved instrumental and became a model for how the Saudis went on to conduct business. Saudi Arabia understood that it lacked the resources of more developed nations. These included a large population, an educated populace, capital, credit, and native businesses. What Saudi Arabia realized it did have was an immense quantity of a very desirable resource: petroleum. Because it lacked so many resources, it could not drill for, extract, refine, transport, or sell that petroleum on its own. It needed outside firms to access the value of the petroleum, at least initially. The Saudis considered the petroleum under their soil a gift from God, but accessing its value laid within man’s capacity. Until the Saudis developed the capabilities themselves, they would simply import the human capital they needed to make that petroleum valuable. This meant importing Aramco to run the oil industry, IBI and, later, other companies to build modern cities and transportation, and even American financial advisors to create a modern banking system. The trick was to buy what they did not have from the outside, and then to make it their own. In the case of IBI, that meant buying the company’s equipment and leasing it to other construction firms to build more palaces, roads, and power plants at cheaper prices. For the royal family, it meant sending princes abroad for education at the finest Western institutions like Princeton and Oxford. In the case of Aramco, it initially meant encouraging Saudi workers to accept training as welders, carpenters, machine repairmen, and roughnecks. Ten years later, it meant sending promising young Saudis abroad to school to learn geology, petroleum engineering, logistics, and law. These men, and later women as well, took positions in Aramco and worked their way up into management. Sometimes the Saudis assumed full control almost immediately after buying or importing what they lacked. And sometimes the process took nearly fifty years.

  • Working to keep friction between the Americans and the Saudis to a minimum was wise, Childs agreed. Along with Aramco’s interest-free loan, the company also established and funded a program to treat trachoma, an eye disease that was prevalent among the people of Saudi Arabia. Trachoma is a bacterial infection of the eyes that, if untreated, can cause blindness. In its early stages, the disease is easily cured with a course of antibiotics. It is preventable with clean water and improved sanitation. Aramco also regularly sent American gifts to the royal family. These payments in kind (or in dollars) were not exactly bribes. The State Department and the company considered them all part of Aramco’s method of maintaining and deepening the positive relationship the company needed to have in a country where the king’s word was law.

  • Saudi Arabia did not necessarily see its budgetary shortfall as a problem. King Abdul Aziz took a risk back in the 1920s when he conquered the western parts of Saudi Arabia and united the country under his rule. He faced rebellions from tribes that chafed under his rule, and after putting an end to these upstarts, King Abdul Aziz cemented his dynasty’s power over these tribes, which had been historically hostile to al Saud. Military superiority was only part of the battle—a tribal leader in Arabia needed to demonstrate his strength and control on a continuing basis by providing for the tribe financially. This meant responding to the needs and bequests of his people promptly, and with gifts, justice, and cash. Abdul Aziz regularly heard the complaints of his subjects in open court, as custom dictated. His palace provided meals to anyone who knocked on the door. In a land where luck often determined survival, generosity served the king well. The Western, Protestant work ethic, popularized by the writings of scholars like Max Weber, famously disapproves of handouts, but Arabian culture and society embrace these gestures as a sign of prosperity and health. Before oil, King Abdul Aziz possessed only minimal funds to dispense to his subjects. That money was simply not enough to continue to prove his power and legitimacy to a population spread across a vast land. To maintain his rule, King Abdul Aziz had to show the people of Saudi Arabia, in material ways, that they were his subjects. Without the funds to do so, his rule would crumble. Abdul Aziz took a risk when he invited the Americans into Saudi Arabia to look for oil. That risk paid off, and now the king had the opportunity to show his subjects a comfort they had never known before. Al Saud could thus provide hospitals, schools, sanitation facilities, medical care, transportation, and business opportunities to its subjects and, in so doing, secure the dynasty’s rule. Cutting back at this point would have been tantamount to inviting rebellion and dissent into what had been only a little more than a decade of civil tranquility. While Aramco worried about every penny the Saudis spent, Abdullah Sulaiman, who had negotiated the original concession agreement, set about crafting a strategy to increase Saudi revenues.

  • The Saudis used the Americans’ misperceptions of them as unintelligent, greedy, and unmotivated to their own advantage in this situation. Sulaiman and his deputies deliberately led the Americans on, telling them what they wanted to hear, and temporarily placating them until the time was right. Ambassador Childs was unintentionally complicit as well. He even brought in a US currency specialist from Egypt to study the Saudi situation, meet with Sulaiman’s deputies, and prepare recommendations for financial reform. Sulaiman was courteous during the presentation, and sat calmly and listened to the recommendations. Then he told Ambassador Childs and the currency specialist exactly what they wanted to hear: Saudi Arabia welcomed the assistance of the American specialists and he would take these recommendations to the king for consideration and implementation, immediately. The State Department expected the Saudis to accept their offer graciously and allow US government specialists to inspect their books and even tutor them in Western accounting practices. The Saudis had other ideas. Rather than continue to subsist on royalty payments that varied from month to month and loans from Aramco to tide them over, the Saudis wanted a more permanent solution.

  • Ambassador Childs’s health was less an issue than his pride. He had hoped, after spending four years in the Arabian Desert, for a European post. Instead, he was appointed ambassador to Ethiopia. Though Ethiopia provided more physical comforts, he “had comparatively little of moment in the way of diplomatic activity with which to occupy [himself].” After not quite two years in Ethiopia, Childs came to the realization that his career with the Foreign Service had reached a standstill. Six years before the mandatory retirement age, and after the State Department denied him permission to travel to Rome to confer with the ambassador there on an issue of relevance for Ethiopia, Childs quit. “If my judgment carried so little weight,” he wrote several years later, “it was more than clear that every day I spent in office was a waste of my time.” Perhaps those qualities that had made Childs such a good match for Saudi Arabia from the king’s perspective—his willingness to wear traditional Saudi dress and adopt the customs of the court—were what made him such a poor match for the 1950s-era State Department.

  • Eventually, Aramco sold a majority share of Vela to the Saudi National Shipping Company, but when it first moved into shipping and marketing, these Saudi maneuvers were noticed by the more attentive people in the oil industry, especially after the failed attempted partnership with Aristotle Onassis in 1954. One of these was Glenn Labhart, who, in 1987, was employed as an oil trader with the German conglomerate Metallgesellschaft, which had a large global presence. He found himself working closely with Saudis in the shipping industry on a project modeling oil trades and said that he was “frankly very impressed for how people in Saudi Arabia were very knowledgeable with . . . what they were doing. [They took] a diverse view of the market in order to achieve for themselves greater growth.” Every step of the diversification and expansion was planned, and each step increased the company’s abilities and position in the market, as well as its profit. In 1986, Aramco began its plans to expand the company beyond Saudi Arabia’s borders. As a new player on the global refining scene, Aramco began where it had the most experience and familiarity—the United States. Technically, Aramco was still an American corporation. Even though it was owned by Saudi Arabia, it would not transfer its corporate registration from Delaware to the kingdom for another two years. In looking for an American refinery to invest in, Aramco’s CEO, John Kelberer, suggested partnering with Texaco, one of Aramco’s former parent companies.

  • The oil industry is generally divided into three stages: upstream, midstream, and downstream. Upstream refers to exploration and production, primarily focused on finding crude oil and extracting it. Midstream refers to the initial processing and movement of crude oil, natural gas, and natural gas liquids from the point of extraction. Downstream refers to refineries, petrochemical plants, marketing outlets, and product distributors. Aramco already had vast upstream operations. The kingdom’s agreement with the company provided Aramco with exclusive access to all of Saudi Arabia’s crude oil resources, and the company was also expanding its domestic downstream footprint. In the profitable decade of the 1990s, Aramco expanded beyond Saudi Arabia. Aramco directed its attention toward Asia. In 1989, before the Gulf War, Aramco had sent a team to China. According to Naimi, the team reported back that China was “a country filled with bicycles, hundreds and thousands of bicycles.” In a country where most of the population traveled by bicycle or rickshaw and the power plants burned coal, Naimi wondered, “Who is going to buy our oil?” Korea, Japan, Indonesia, and the Philippines looked like better prospects. Aramco opened negotiations with South Korea in January 1991 and, within seven months, the company reached an agreement to purchase a 35 percent share of Ssangyong Oil Refining Co. Ltd., later renamed S-OIL. Aramco’s strategy was twofold. The company sought to enter into joint ventures with other companies with greater expertise in the downstream sector so Aramco could gain knowledge and expertise in the industry and in Asia. If the venture proved profitable, Aramco would seek to expand its ownership, perhaps to 100 percent. It was a model already proven successful in dealings with Americans. In addition, with these refineries, Aramco secured sales outlets for Saudi crude oil and diversified Aramco’s revenue base. Although the profit margins in the downstream sector were generally lower than in crude oil sales, the addition of downstream investments reduced the revenue volatility typically associated with the crude oil business. Ali al-Naimi later explained that Aramco “wanted to do two things. One, of course, [was] to expand the company.” The other, he continued, was to “guarantee a market.” Aramco, as co-owner in refineries abroad would be “obligated to provide the feedstock for the refinery.” This was “one of the driving forces” behind Aramco’s diversification strategy.

  • Throughout the 1990s and early 2000s, Aramco made other investments similar to its Korean ventures, but in other countries negotiations often took longer. In 1994, Aramco invested in a joint venture with Petron, the largest oil refiner in the Philippines, which Aramco then sold in 2008 for $550 million. Aramco started negotiating with Japanese entities in 1991, but it was not until 2004 that Aramco acquired a 15 percent interest in Showa Shell, a Japanese refining company with multiple facilities throughout Japan. Aramco became the largest supplier of crude oil to Japan. In 2006, Aramco, with the assistance and guidance of King Abdullah, opened negotiations with China for a $3.5 billion refinery.50 Three years later, Aramco signed an agreement with the Fujian Petrochemical Corporation and ExxonMobil to open a joint venture called the Fujian Refining & Petrochemical Company. In 2010, Aramco and the Japanese government signed an agreement whereby Aramco would supply Japan’s strategic crude oil storage facility. In 2017, Aramco signed a joint venture agreement with Petronas to build a new refinery in Malaysia and supply the majority of its feedstock. Aramco’s investments in refining, petrochemicals, and storage facilities in Asia led to long-term contracts to provide Saudi crude oil to the Asian market. The investments also enabled the company to gain knowledge and experience in various downstream sectors. Later, Aramco used some of the connections it made with companies in Asia, as well as the expertise it gained in oil refining and chemical manufacturing, to partner with other companies and expand its downstream sector within Saudi Arabia. In 2011, Aramco and Dow Chemical established the Sadara Chemical Company as a joint venture in Saudi Arabia. In 2013, Aramco and Total (a French oil company) opened SATORP, a joint venture chemical plant in Saudi Arabia, near Dhahran. In 2014, Aramco and Sinopec (the Chinese national oil company) opened Yasref, an oil refinery in Saudi Arabia located on the Red Sea coast. Saudi Arabia’s strategy of learning new technologies and industries from established experts continued to serve Aramco well as it expanded from an oil-producing company to a global energy conglomerate. Ambassador Smith described the advantage this strategy provided the company. “There is an arrogance associated with national oil companies,” he said. “But the Saudis, they know what they don’t know, and if they don’t know something they will partner with somebody who does know it for them to learn it.” He had the opportunity to visit a new steam injection facility that Aramco built on the border between Kuwait and Saudi Arabia. To build it, Aramco partnered with Chevron, “who’d been doing this out in California for decades.” The process would enhance the amount of oil Aramco could recover in older oil wells. “The Kuwaitis were not active participants” in that partnership, according to Ambassador Smith, because “their assumption was, if Chevron can do it, it must not be that hard. [But Aramco wanted] to learn the technology from Chevron.”

  • Aramco also prepared to take advantage of emerging technologies in oil production, such as hydraulic fracturing techniques being used to extract oil and natural gas from shale rock formations in the United States. This relatively new process, commonly called “fracking,” combined horizontal drilling with a method of flushing a chemical and water solution into the rock. This caused shale rock formations to release oil and natural gas, which were then brought up to the surface. Fracking took off in the United States in 2008, and several years later Aramco identified shale rock formations in Saudi Arabia that might produce oil through fracking. At that point, the cost of fracking was still too high for it to be profitable for Aramco, which could produce a barrel of oil in the conventional manner at a cost of less than $10.55 Nevertheless, Aramco began teaching hydraulic fracturing techniques in its upstream professional development program. Still, the company was planning for a future when exploiting that oil and gas would be profitable. Aramco hired Dan Arthur, a managing partner from ALL Consulting, to consult on environmental issues related to fracking. According to him, Saudi Arabia had discovered “a significant amount of unconventional oil and gas resources [that it] never took advantage of.” Aramco, he said, was “very environmentally sensitive” and wanted “to do things right” when it came to developing these resources. The company had begun to drill some fracking wells and planned on significant expansion in the future but wanted “to be proactive” in developing its own regulations for fracking. “They [wanted] to leverage off of” the fact that American companies had done most of the pioneering work in fracking. Aramco knew that American companies were “the experts. So they brought us in.”

  • Abdullah’s mother was the widow of a Rashidi chieftain who had been killed in the fighting between Abdul Aziz and the tribe of al Rashid during Abdul Aziz’s conquest of Arabia. After Abdul Aziz expelled the Rashidis from Riyadh, they sought refuge with their relatives in northern Arabia. In 1921, Abdul Aziz captured their stronghold in the town of Hail. Instead of executing his enemies, Abdul Aziz chose peace and welcomed them to live in Riyadh, under Saudi rule. He took one of the widowed Rashidis, a woman from the Shammar tribe, as his wife. In 1923, she had a son, whom Abdul Aziz named Abdullah. Abdullah, who had no full brothers, gained power within the family through the close relationship he maintained with Feisal and with the prominent role he had in reuniting the family after Talal’s exile. He played peacemaker and appeared neutral in family disagreements, which was one of the reasons he was chosen to be Crown Prince after Khaled’s death. Another reason was that he commanded an important sector of Saudi society, the National Guard. He molded the National Guard, which operated through the tribal system, into a solid military force, and he also used it to create a shadow network of social services. The hospitals run by the National Guard were particularly known for their high standards. Under Abdullah’s guidance, one of these hospitals became an internationally recognized center for separating conjoined twins. The royal family was protective of its secrets; few people really knew what the relationship was between the sons of Abdul Aziz. Because Fahd was incapacitated, Abdullah ran the government as the Crown Prince. There were rumors of discontent and conflict between Abdullah and Fahd’s Sudairi brothers. The perception was that some sons aligned with their full brothers to take an outsized share of power, but little information has been confirmed. After the scandal with King Saud, al Saud tried to keep its secrets.

  • Before King Fahd suffered his first stroke, he had dismissed Hisham Nazer as oil minister. There had been signs of the king’s displeasure with Nazer’s performance. In August 1995, it was simply announced that Nazer had been removed as oil minister. As Nazer’s replacement, King Fahd bucked tradition and did not choose a government bureaucrat. Instead, he chose Aramco’s CEO, Ali al-Naimi. Naimi was in Alaska on vacation when he learned that the king had appointed him minister of petroleum and mineral resources. He was told to return to Saudi Arabia for the official announcement. Naimi might have been surprised at the timing of his elevation to oil minister, but he had reason to suspect the appointment was coming. A little over a year earlier, Naimi had an unexpected audience with King Fahd to discuss oil policy at length. Naimi quickly realized this was a job interview, so he made sure to supply politically appropriate answers and to let the king know that his primary focus was “managing [the king’s] company.” Naimi’s appointment as oil minister marked Aramco’s dominance over Saudi oil policy. At one time Naimi as CEO had been forced to prevent the finance ministry from taking the company’s revenue. Another time, the former oil minister, Yamani, had sought to bring Aramco under the umbrella of an existing corporation called PetroMin, which would have placed Aramco under the control of the oil ministry. Aramco’s senior management had been particularly anxious about the PetroMin plan, because it had felt that the oil ministry was poorly managed and put political concerns, not business practices, first. With Naimi in place atop the oil ministry in 1995, Aramco’s position and the professionalization of oil policy in Saudi Arabia was secure. With a former longtime Aramco employee at the head of the Ministry of Petroleum and Mineral Resources, the ministry essentially became a political arm that served Aramco’s interests. Those interests, of course, were one with those of al Saud—a vision of long-term profit and power.

  • In Naimi’s place, Abdullah Jumah became CEO of Aramco. Jumah was one of the first Aramco CEOs who did not have a background in engineering or geology. His background was in political science and history. He was also a published poet. During the Gulf War, Jumah, then an executive vice president, served as Aramco’s primary spokesperson. This role was crucial, and Jumah was responsible for crafting a positive image of Aramco. Jumah’s background served Aramco’s purposes particularly well in the mid-1990s because Aramco was in the midst of its global expansion and diversification and needed an effective representative as it marketed itself. Jumah’s fluency in English, easy smile, and deliberate speech formed the right personality as the Saudis went about selling themselves and their oil products to the world.

  • In the 1990s, Aramco began using horizontal drilling for certain projects. When horizontal drilling was used in conjunction with three-dimensional seismic imaging, the oil trapped beneath Shaybah’s great sand dunes became more accessible. Still, the infrastructure costs to tap Shaybah’s oil were intimidating. The company would have to move entire sand dunes to build an airport, oil-processing facilities, housing for workers, and roads—all without damaging nearby dunes and the salt flats between them. Even in 1995, the cost to develop Shaybah was estimated at between $5 and $6 billion. Aramco and the Saudi petroleum ministry looked into investment from other oil majors. According to Naimi, both Shell and Mobil were interested in Shaybah’s prospects and made preliminary offers. The foreign companies did not “think Aramco [was] up to developing it,” but they both believed that they were capable, independently, of completing the project in five years and at a cost of $5 billion. Naimi was greatly disturbed by the idea that foreign companies could develop Saudi Arabia’s oil resources better than Aramco. “This was a case of national pride,” he said he told the company’s management team, and he convinced them to commit to bring Shaybah online by 1998, at a cost of only $2.5 billion. The project would not only be a technical challenge for Aramco; it would also be showcased to the world as an example of Aramco’s capabilities. Aramco teams worked unrelentingly, and three years later Shaybah opened on schedule and under budget. Aramco did not need the oil in 1998, but by making the investment when it did, the company positioned itself for future oil demand. Years later, after a significant expansion, the facility grew to produce 1 million barrels of oil per day. It was clear that Aramco picked the right place to make a showcase of its world-class engineering and management talents. The massive facility makes for an impressive sight, nestled between rippling dunes of red- and orange-tinged sand. As the sun sets, yellow ground lights blink on and outline the periphery and every building with a warm glow. Where there was once no sign of life, roads of gray asphalt shoot out of the artificially flattened valley in every direction. In the distance, associated facilities also light up, and a few natural gas flares burn in a haze. Aside from Aramco, there is nothing for miles and miles.