The Transformation of a Nomadic Culture: The Oil Industry in the Gulf States
By Phil Roberts, Department of History, University of Wyoming
While the title implies this is not a comparative paper, it does deal with two essentially different cultures on two different continents in examining how the promise of oil had an impact on the development of a native culture. Through creative use of concession/lease agreements, oil companies could exert substantial influence in the 1920s and 1930s over the Wind River Indian Reservation. The same was true in those same decades in one part of the Arab Middle East—in that territory then called the Trucial States and, since 1971, called the United Arab Emirates. Comparing the relationships of oil companies, “trustees,” and native peoples in these two areas points out both interesting similarities and striking contrasts, but also provides better insight into how the promise of oil changed a native society in the interwar years.
The impact of actual oil wealth on societies has been shown, but this paper argues that in the pre-development stage, when no petroleum was being produced, the concession agreements alone and the ways in which they were negotiated brought substantial changes to the societies. In the case of the Wind River reservation, the agreements and the accompanying meetings promoted unity and demands that oil be produced from the lands. In the case of the Emirates, the payments from concessions alone widened the economic gulfs between Emirates elites and their subjects. And in the case of Dubai, the money paid just to keep others from developing oil properties—the concessions—actually foreclosed reform, even brought to an end the earliest instance of a parliamentary democracy in the region..
In order to make this case, one must sort out the motivations of those who sought to exploit the resources. The story would seem to be simple–they must have been purely profit motivated, conventional wisdom would say. Yet, in examining both of these cases, the motives are far more complex.
Until recently, studies of oil development in scholarly and popular literature have been characterized as efforts by producers, landowners, even nations, to find, develop and exploit great oil discoveries. The stories of great oil companies and about the big oil strikes have been told with the unstated assumption that it was in everyone’s interest to develop the resource and in everyone’s interest to see that these new oil discoveries ultimately were brought to the market. Indeed, there is a tone of certainty in many oil studies that competition among producers always was predicated on bringing more supply to production and that the essence of the story of oil was that part about gaining “The Prize” of the biggest producing field or the highest production from the newest exciting discovery.[1]
While those stories are important and, until recently, mostly overlooked by historians, there is another story about oil that is less exciting–where the celebrated wildcatter is not the larger-than-life hero and where the motivation of all parties in the oil production game has not always worked in concert. This is the story of what I’ll call the “quest for price stability.” And there were significant unanticipated consequences in these actions. In one case, the result was increasing self-rule if not democratization. In another, the effect was to undermine self-rule and democracy.
First, the story from the producers’ viewpoint.
In contemporary times, scholarly attention has been drawn to the actions of OPEC (the Organization of Petroleum Exporting Countries) organized in an effort to bring stability to the oil market by agreeing among themselves to cut production to drive up the world price. OPEC did represent a revolutionary use of nations in attempting to control world prices, through the mechanism of nation-states holding control over their own resources. But as my two case studies suggest, the story of world oil is incomplete if only the successes of bringing in great petroleum strikes and the creations of great fortunes are what are studied.
There is another story—how the industry attempted to cope with the downturns brought on by worldwide oil gluts in the interwar years and the how ensuing unintended consequences changed the societies affected by oil or its promise. While profit maximization remained an important motivator, actors clearly understood that there was more to be gained by holding down production in many cases than to race off and develop every new discovery. Because nation-states hadn’t yet gained control over their own petroleum resources—indeed, many of these nation-states didn’t even exist at the time–the only ways to gain price stability were efforts from individual oil-producing companies and groups. Since many of them were answerable to shareholders who expected quarterly profits with little regard for long-term price stability, company officers were hard pressed to sacrifice individual development of petroleum resources for the promise of higher prices unless their counterparts in the industry would do the same. Collusion, if not illegal, was difficult due to the fragmented nature of the industry. In the early years, almost anyone could break into the oil business as an independent. All that was needed was a drilling rig, some willing investors (gamblers) and a wildcatter with a dream and a place to drill.
Additionally, these promises of great wealth had an influence on the societies where the oil discoveries were being made. In Dubai the ruler had begun a relationship with the majlis that resembled a democratically-elected legislature. An outside promoter showed him the possibilities of oil wealth. Consequently, he ended what had been a brief six-month rule by a virtually independent majlis. But it wasn’t the actuality of oil that halted that experiment in democratic rule. The negotiations for the oil concessions–regardless of future success–were sufficient tools for the purpose. The negotiations showed the ruler a way in which he no longer needed to listen to the emerging merchant class and no longer needed the revenues upon which he had relied from taxation on their endeavors. Further, the negotiations showed that land boundaries were important–something not even contemplated in the society to that point. By reason of necessity for paying royalties to the correct landowner, the boundaries of the United Arab Emirates were drawn. Unnecessary to the native population for eons, land boundaries had to be determined for the legal convenience of international oil companies. In a stroke of luck for the indigenous people and brilliance on the part of the surveyor who did the work, all boundaries were determined by reference to tribal and band affiliation. In essence, anthropology drove the process and diplomat (who also happened to be trained as an anthropologist) was chosen by the British government to carry out the task.
As many historians have demonstrated, the underlying assumption driving oil development in the early years of the industry was that the world supply was finite and, indeed, much more limited than what, in reality, turned out to be the case.[2] Thus, the lucky few who found oil could count on vast profits, but only as long as the life of the producing field would allow–and as long as demand increased exponentially as it had done from 1900 to 1920 by some 700 percent. Someday, the reckoning would come and not just particular fields would dry up but the supplies would not be augmented by newer discoveries. While those assumptions did exist throughout much of the century and a half of oil development, a different picture emerges when the world oil scene of the interwar years is carefully examined. During this period, the industry met its first serious decline when oil discoveries world wide vastly outstripped the demand for petroleum products, lessened by economic depression world wide.[3] Examples of these price declines are numerous, and prior to the beginning of the “Great Depression,” oil gluts plagued the market periodically. For instance, in 1922, oil production had increased so significantly in the two years of the decade that oil selling for more than $3 per barrel delivered to the refinery, had declined to just $1.67.
As oil production worldwide increased throughout the decade, prices continued to decline, but the real drop came when the automobile industry and manufacturing lost money as the depression worsened. Oil was being sold in 1931 in the Salt Creek oilfield of north central Wyoming for as low as 17 cents per barrel—not per gallon, but per barrel—42 gallons for just 17 cents.[4] In some Texas fields, it is said, the price was even lower—10 cents per barrel. One could hardly expect resounding support for development of new oil fields when prices were so depressed. For the established companies and the holders of leases on already developed oil properties, the incentive was not to race out and add to the already existing oil glut. Hence, for established companies already producing oil from existing fields, pooling arrangements and government-administered conservation requirements helped lessen the potential devastating techniques of overproduction and dumping. But for almost everyone else—the wildcatter, the newly arrived company with minimal production, the exploration companies dependent on being retained by investors interested in making petroleum discoveries, and most important, the landowners themselves who expected instant wealth—they wanted production not tomorrow, not next year, but immediately. Without it, they gained little or nothing.
For the producing companies to avoid driving down prices or engaging in production where the costs would outstrip the returns, there was no reason to pull back from the discovery and exploration phases. In essence, if you didn’t bring in the big strike, if you could hang on to the concession lands, you could keep your competitor (or someone who rapidly could become your competitor) from profiting for the oil in that same field. Hence, the companies had at least one legal device by which they could both avoid ruinous production and at the same time keep the resource from falling into the hands of competitors. That was in the form of the production lease designed in a way where the producing company could lock up potential oil-producing properties, away from competitors or possible newcomers, and at the same time set aside these unproven fields for possible future use when the price of oil made such expansion profitable once again. In international dealings, these leasing principles were utilized to establish exclusive oil concessions and while there are differences between leases and concessions, for purposes of this study, the differences need not be parsed.
A central legal doctrine was the rule of capture.[5] Except for determining, “ownership” of wildlife in early England, this was a rule peculiar to oil. [6]The rule of capture, as one legal scholar has pointed out, is not based on precedent but is a “rule of convenience.” It developed out of public policy demands for energy resource development. As other commentators have noted, the rule encouraged development. The rule is very unusual in the law in that it is a rule of non-liability. In its purest form, the rule states that all oil produced from the well belongs to the mineral owner, even if it happens to have come from underneath neighboring lands and drained toward the well on adjacent land.
In purely practical terms the ownership rule often is irrelevant, but in American courts, when the rule of capture was modified, the new rule usually was utilized as a means of encouraging immediate production. You don’t get the oil now, your neighbor who is drilling likely will. It did not promote conservation except in cases where the rule was modified to account for the rights of multiple producers on adjacent lands. But the rule of capture and the modifications did imply one important fact. Land boundaries were important. Leases were predicated not just on control over the wellhead, but of the surrounding ground where exploration took place.
From the earliest days of the industry, rarely did companies make outright purchases in fee simple of properties on which they intended to explore for oil. Not only would costs have been prohibitive in most cases, but oil companies had little interest in becoming real estate holders, subject to the vagaries of land prices and the corresponding property taxation liabilities issuing from outright land ownership. Thus, the evolution of the oil lease. While the evolution of the modern oil lease may be interesting history, it is not the central point of this paper. It is important to understand some of how they worked because various companies used them effectively to bring some order to the oil production glut of the interwar years.
Case No. 1: Maverick Springs on the Wind River Reservation in Wyoming
The oil rush in Wyoming was in full speed in 1917. Companies sought access to drilling on federal lands, including access to the Wind River Indian Reservation. The Bureau of Indian Affairs, acting in the name of the two tribes sharing the reservation, advertised for bids on an exclusive oil concession on lands surrounding Maverick Springs in the northern part of the reservation.[7]
Apparently, the bids came in before there was any solid evidence of oil. Midwest (a subsidiary of Standard of Indiana), Texaco, Continental (Conoco) and Ohio Oil, all major producers, astutely made successful bids for most of the leases. The costs were modest for maintaining an exclusive right to drill for a 20-year period. Consequently, various independents and individuals submitted successful bids for a number of the other tracts, apparently purely on speculation. The competitive process brought nominal bids, not just because evidence of recoverable oil did not exist but because the lease stipulated that the successful bidder had to be an existing corporation and established in Wyoming. On notification, the successful bidder had to pay 20 percent of the lease bid price and within 30 days of the notice of approval, the remaining portion. Annual rental rate was $1 per acre and the only requirement for performance was that at least one well be drilled on each tract within a year of the bid. The lease arrangement was for 20 years with the option for a ten-year renewal. Except for lease expiration or failure to drill the one well on each tract, the lessee could not be removed.
Early in the 1920s, a geological report revealed evidence of possible significant oil reserves near Maverick Springs on the Wind River Indian Reservation. By that time, oil prices already were in sharp decline nationwide as bigger oil fields came on line and output from newly established refineries more than kept pace with demand. Further, by the middle 1920s, just two companies dominated oil production in Wyoming, then one of the leading petroleum-producing states. As documents held in various company collections in the American Heritage Center demonstrate, company officials were all too aware of the downward price spiral brought about by production increases. Yet, in order that oil producing properties did not fall into the hands of competitors, they continued to hold on to leases already negotiated, even when annual payments resulted in a loss. Further, they continued to negotiate for drilling rights, even though the production costs might not be met by revenues anytime in the foreseeable future. This was true even in cases where the potential sources were far from already established pipelines or other transport modes.
In the case of Maverick Springs, it took 23 years from the time oil leases were granted to the first sale of oil produced from the field. During that time, the Arapaho and Shoshoni tribes, the white residents in the surrounding towns and local government officials tried every means to force leaseholders to produce oil from the field.[8] Even when tribal officials tried getting production started, there was no evidence that oil was present in commercial quantities.
Significantly, no representative of the tribes participated in the preparation of the bid specifications nor were the bidders required to gain tribal approval over the lease. Many individuals, the speculators primarily, soon grew weary of holding the leases, particularly after the price of oil in producing fields began to weaken in the early 1920s. Many of them sold their interests for minimal amounts to Union Oil Company who, on paper, offered some $800,000 for the leases with all but $20,000 of that amount couched in terms of future production. Soon after the leases were acquired, Union representatives insisted that costs were too prohibitive to begin production. Like the other majors, while prices remained low, they were content to ride it out on the oil leases, maintain the letter of the bid requirements and not produce a drop of marketable oil. In 1929, Union assigned its Maverick Springs leases to Continental, who continued the same policy for the same reasons.
No “produce or surrender” clauses were included in the leases, but federal officials denied such an oversight was deliberate.[9] While public policy might favor production of energy resources, it didn’t make economic sense to force production at a loss or to bring additional oil to an already saturated oil market that eventually would turn around. For the companies and the federal government as well as those interested in the long-term conservation of the resource, the stand made sense. But for the tribes, hopeful that oil revenues might augment declining federal assistance and steep drops in agricultural prices, the concern could hardly be for the long term. They needed the oil revenues now.
A succession of tribal councilmen promised to correct the situation and every time they met with company and government officials, they returned empty-handed. Government representatives justifiably argued that in their fiduciary responsibility to the tribes, it would be a violation of that trust to allow waste of the resource by insisting on production while prices were shamefully low. Further, the lease agreements had been made for a term of 20 years. Even if tribal sovereignty were asserted, the contract was already made and tribes already had accepted the meager proceeds from the bids and had spent it long ago. Whenever representatives of the tribes attempted to have the Interior Department amend the leases to demand immediate production, they were told that such manipulation with the earlier lease terms was not possible. On their return from such meetings, tribal officials on more than one occasion were suspected of selling out to the companies or the government for personal gain. While such a possibility exists, there is no evidence to suggest that it occurred in the Maverick Springs case. Nonetheless, the situation caused tribal members to view their leaders with suspicion.
At the beginning of the New Deal, Interior Secretary Harold Ickes, sympathetic to the Indian’s plight, doubled the annual lease charges to $2 per acre. He took no obvious role in the discussions over the Maverick Springs lease renewals, the first of which were set to expire in 1937.
Frustrations on the reservation mounted as the economy continued to deteriorate and the conditions, already bleak, seemed to continually worsen. While other issues contributed, this frustration helped guide the Arapaho and Shoshone into joining their councils for the first time in 1937. The first order of business by the newly established Joint Tribal Council was to deal with the Maverick Springs lease, set to expire later that year. The joint body’s first resolution was to demand that the leases not be renewed unless immediate production was required.
After protracted meetings with company representatives, who unanimously stated that costs for such development were prohibitively expensive at that time, the tribes finally gained a hearing with the Interior Department. Assistant Interior Secretary Oscar Chapman was assigned to hear the requests for changes in the leases. After several meetings with tribal representatives, including political friends of the tribes and volunteer legal counsel for them, Chapman pointed out that the companies needed an opportunity to make their cases, too. Given the circumstances, he pointed out, they may no longer be interested in lease renewals at Maverick Springs. The leases could be cancelled and the tribes could find a lessee more willing to bring the field to production. But that situation did not occur. The companies, led by Continental, insisted that they had done everything possible—even losing substantial sums of money—in trying to come up with ways to make Maverick Springs pay as an oil field. Apparently, these claims convinced Chapman. He told tribal officials that they seemed not to understand the difficult position of the companies. He noted that if the transport difficulties could be resolved oil would flow immediately.
Company representatives were telling members of Congress and Chapman that if the Interior Department or the tribes wished to have the field developed, the federal government or the tribes ought to help the companies gain cheaper means of transporting the oil to market. Shipping by truck or rail was prohibitively expensive and no pipelines ran anywhere near the reservation field. If federal assistance didn’t come, and private investors built a pipeline, those risks in pipeline construction ought to be shared with royalty recipients, the company argued.
Company representatives and tribal officers extracted promises from several members of Congress that they would support a subsidized pipeline. Initially, the Shoshone tribe itself agreed to provide a pipeline subsidy. It was to come from a portion of a recently obtained nearly half million dollar land settlement. Ultimately, no pipeline was built. The companies themselves were unwilling to share the costs of the project. The Shoshone tribal officials had second thoughts about granting the share, given the increasingly desperate situation on the reservation. The federal help wasn’t coming either. The congressional appropriation introduced to that effect by Senator Joseph C. O’Mahoney of Wyoming failed in a Senate vote.
Finally, after two years of delay in making any decision about lease renewal, Assistant Interior Secretary Chapman came up with what he thought was a workable solution. He proposed that the lease payments be increased incrementally by 25 cents per acre per year (to a ceiling of $3 per acre) until production began. In his view, that ought to be sufficient incentive for the leaseholders to bring about production. The tribes, united by the frustration with what was seen as government sympathy with the oil leaseholders, flatly turned down the proposal as inadequate to force companies to start drilling. Their legal counsel advised the joint tribal council to insist on production or termination clauses in any of the lease renewals. The tribes, in a rare display of unity, insisted that the Bureau of Indian Affairs (BIA) agree to these new terms.
By that time, oil prices had increased substantially and wartime demands for oil meant companies could afford to begin production on idled leases. Four of them agreed to tribal terms and finally, 23 years after initially gaining the leases, production began.
Several changes resulted from the Maverick Springs difficulties. One (and already obvious before the Maverick Springs incidents) was that the tribes would insist that any mineral negotiations had to be made with tribal authority. Second, the obstructions put up in this case brought about a sense of tribal unity, important in other economic areas as time passed. Third, it showed that every oil lease had to contain a clause requiring surrender of the lease if production wasn’t attempted promptly. Fourth, tribal officials decreed that oil revenues had to be applied to the common good and not simply used to enhance the wealth and power of the elites.
The Maverick Springs story has a peculiarly American ring. Why is it any surprise that oil companies allied with federal officials, were largely successful in leasing oil reserves they had no intention of developing? The federal government’s concerns over oil resource conservation matched quite nicely with oil companies’ objectives of denying working leases to competitors while, at the same time, propping up their own profits from more productive or already producing fields.
Case No. 2: Dubai and Oil Development
But what has any of this to do with the topic of this paper–“The Transformation of a Nomadic Culture: The Oil Industry in the Gulf States”? In comparative terms, the situation in the 1920s and 1930s facing the nomadic culture of the so-called Trucial States reflects many of these same themes. Oil leases were made, at least initially, with little regard for indigenous authority. The leases were drafted by the companies and representatives of the populace made little effort to consider long-term implications. And, except in isolated cases (namely in places where the oil prospects seemed far less significant), little attention was given to diversification.[10]
The area I’m about to discuss, after 1971, became the United Arab Emirates, but during the course of my study in the 1920s to the 1960s, this area was part of the Trucial States spread along the northeast coast of the Saudi Arabian peninsula. The territory was loosely administered by Britain.[11]
A continuing theme appears in the history of the Emirates—how seven emirates can retain unity despite very different economies, population sizes and budgets and can function as one nation-state. At the time of union, the population of the emirates numbered around 1 ½ million with fewer than a fifth of those classified as Emirati citizens. The rest were mostly laborers imported from the Indian subcontinent, southwest Asia, Indonesia or the Philippines. Complicating the union were two factors: the British attempts to isolate the Emirates from the rest of the world, largely successful by default until economic incentives of oil exploration attracted mainly American interests, and the separations between desert and seafaring peoples within many of the emirates (including Abu Dhabi, the most important). Throughout its pre-oil existence, Abu Dhabi depended on subsistence herding and pearl-diving as the primary industries. So did several of the other emirates.
But in Dubai, there existed a thriving merchant class. Bolstered by trade opportunities and waivers of customs duties, these merchants brought diversification to the emirate. Not exclusively dependent on pearling, the merchants had the ability to respond to market changes rapidly. Not so with the ruler, Sheik Maktum bin Hashar, who had invited them to the emirate. He still depended heavily on the pearl trade for his own income and on taxes from transactions in this industry. Indeed, throughout the emirates, pearling and herding remained dominant industries into the 1930s.
Goat and camel herding had local value, but the pearls generated sufficient outside income to warrant taxation. Rulers of all of the emirates except Dubai relied on the pearling fleets for government upkeep and the populations became dependent on the industry for regular income. As Heard-Bey points out, the pearling industry gave rise to a complex system of loans and advances from middlemen who loaned money to ship operators in advance with the expectation of the “harvest” paying back the loan and additional amounts for its use. It was a system not unlike that of Wyoming ranchers during the same period. If the revenues from the “livestock crop” were insufficient to pay back the debt, the amount would accrue to the next season. The same system worked with pearls as long as pearls continued to increase in demand worldwide. But, problems developed as the world economy worsened in the 1930s. As the debts mounted for the pearling fleet owners, many of them were unable to pay the divers what was owed.
Creditors had recourse if the debts seemed unlikely to be paid back. They could go to the ruler who would order the sale of the boat and other equipment in order to satisfy the debts. “Absconding debtors” became a problem and historians of the emirates point to this as bringing about the earliest cooperation among the various coastal rulers. But even more significant were cases in which the creditors were British subjects—and by the early twentieth century, many were—Indians from the subcontinent involved in trade who gravitated toward being middlemen. Historians have concluded that in the overwhelming majority of cases, the British residency agent sided with the British subject/creditor.[12] These arrangements have similar features of oil leases as I’ll describe below.
Pearling fleet owners, successful in the pearl trade, purchased gardens and date orchards near oases inland. Land ownership, irrelevant when it came to desert lands, was very important in these uncommonly fertile, well-watered areas. Anyone could try to start up a new oases—if they thought they could gain the water necessary for making it work. And there was a uniformity of lifestyle. Everyone in the society—pearl diver and ship captain, oasis owner or slave—had to deal with the harsh, hot, humid climate and the meager returns from cyclical industries dependent on foreign prices.
Dubai, where a merchant class introduced Persian wind towers and foreign luxury, stood in some contrast. In 1902, traders were encouraged to settle in Dubai when a law was passed in Persia requiring very high import and export duties.
Sheik Maktum bin Hashar saw the opportunity to bring a merchant class to his port, one of the few places along the Arabian Sea coast where a natural harbor existed along what is still known as “Dubai Creek.” Soon, 10,000 people occupied the three main sections of Dubai. Many were British subjects while others from Persia joined the community in 1925 when an even more stringent system of duties was imposed on traders there. At first, the sheik of Dubai set very low customs duties to encourage more traders to establish stores. He continued to rely on pearling for his income. And then came economic disaster.
Just as agricultural and oil prices in the American West were in continuous decline during the 1920s, prices for Middle East pearls were going in the same direction. Cultured pearls, developed in Japan, threatened the industry with extinction by the middle 1930s. Rulers, dependent on taxes from pearling fleets and their production, faced imminent ruin and the society fell into severe economic distress by the middle 1930s.
There was resurgence in the slave trade and piracy reappeared. Smuggling, particularly by Persian merchants, made Dubai legendary for the practice and it increased dramatically during the period. Merchants and city dwellers found themselves in desperate economic trouble. But the rulers themselves, in Dubai as well as in all of the other emirates, were even more desperate. They had retainers to pay, a modicum of government to underwrite and their personal estates, including up to four wives and their children, to maintain. Without the revenues from pearls, there appeared to be no obvious ways of remaining solvent. Complicating all of this was the British presence and their insistence on stamping out slavery, piracy and smuggling.
For reasons unrelated to the local economy, the British needed complete authority there. Policymakers in London and India believed absolute control over the Trucial Coast was essential in maintaining dependable trade and air routes between Britain and India. What went on within the emirates was hardly their concern as long as these routes were safe. Nonetheless, to guard against possible outside threats, and in respect to minerals, the British insisted on making all deals between the Emirati people and outsiders. The British retained the prerogative to serve as representatives in respect to all manner of trade with foreign countries. These deals could be made without any consultation with or reference to native rulers or residents. The situation, in essence, was not unlike what of the Shoshone and the Arapaho experienced in 1917 when the BIA negotiated Maverick Springs oil leases without as much as a single consultation with the tribes.
It was at this propitious time that a group of independent oil explorers came upon the scene, anxious to gain oil exploration concessions for the desert territories of the sheikdoms. The trouble came with the British government. Not only did British authorities doubt the presence of oil, some evidence indicates that they might actually have feared for its presence. Oil could create threats to the trade routes and could make dealing with the native rulers problematic. Further, British companies seemed satisfied with dominance over regional oil supplies—that is, until American companies starting trying what the British viewed as various subterfuges to gain concessions in the region. [13]
American companies operating in the region, too, were not as serious about striking oil as they were about keeping competitors from doing so.[14] It was certainly true in nearby Bahrain where Socal gained the oil concession in 1928. The company had no transportation system anywhere in the region that would have accommodated bringing oil to market. When oil finally was found in 1932 and in vast quantities not even imagined by their own geologists, the company hastily set up a joint venture with Texaco. Texaco had the distribution networks Socal hadn’t even considered when the oil concession negotiations were in progress in the previous decade!
And so it was in the Trucial States, but with the added complication that Britain forbade any non-British firm from considering even as much as camel tourist travel which could be a subterfuge for oil exploration there. While he did not expect oil to be found within his emirate, the sheikh of Abu Dhabi had seen the results of the spectacular oil wealth gained in Bahrain stemming from the oil strike there two years earlier. In 1934, he sought the assistance of the British controlled Anglo-Persian Oil Company, ostensibly for drilling water wells in his emirate. (Oil lore is replete with the tale of how any number of ignorant water-seeking sheiks are disappointed when the company he hires to find water instead comes up with oil). While the imagery of the primitive man stumbling onto wealth may be apocryphal and even endearing in some quarters, in the case of the Emirates, such incidents demonstrate remarkable shrewdness.
The Abu Dhabi sheik fully knew that he was barred from dealing with foreign companies. He also knew that the British were not anxious to explore for oil there, perhaps fearing the consequence of an oil rush or doubting that the risk was worth the cost. Drilling for water was another matter. Soon, the sheiks in four other emirates made similar requests. No water was found, but the company geologists did find Abu Dhabi to be a prime candidate for oil.
The sheik of one of the smallest emirates, Ras al-Khaimah also had seen the results of the Bahrain oil strike, but he also recognized that the water well artifice might not work with a British company seemingly uninterested in promoting oil exploration. In 1935, he asked a visiting French commander to send surveyors to his emirate. The commander offered to send a geologist. When the British representative was told later of the conversation, he sprang into action by asking the Anglo-Persian Oil Company to seek exclusive concessions for oil exploration in the area. The British government had maintained a controlling interest in the company since 1914 so company officials were very willing to comply. The sheik did gain a modest annual stipend from the oil concession, but terms of the agreement indicate that the company had no incentive to bring the concession to production.
H. A. Williamson, who was to be a leading figure in the oil industry in the Trucial States, negotiated similar concessions with the rest of the sheiks.[15] The essence is that the British were anxious to shut out a company dominated by Americans and the British-controlled companies, willing to negotiate for concessions, seemed unwilling to commit to any program of oil production.
Sheik Shakhbut of Abu Dhabi proved to be an excellent negotiator who was able to pit Frank Holmes, the representative of Petroleum Concessions, against Williamson who represented the British subsidiary, D’Arcy. Later, representatives from Socal began meeting with the sheiks. But as British government officials observed, the British companies seemed uninterested in developing the concession. Simply holding it was sufficient. While negotiations continued between the various companies and the Abu Dhabi sheikh, the sheikh of Dubai did sign a concession agreement in 1937 for lands he claimed to control.
For emerging democratization in Dubai, the timing for oil exploration and annual concession payments to the sheikh could not have been worse. The merchants, lured to Dubai early in the century through promises of low duties and virtually no taxes, were weakened by the decline of pearling, but they continued to exist off travelers stopping along the Arabian Gulf. In the early 1930s, Sheik Said al-Maktoum sought a miniscule tax from each of the merchants, enough to partially offset the diminishing contributions from pearlers.
The economy, ravaged by cultured pearls and the world economic condition, continued to worsen. During the difficult five years prior to signing the concession, the sheikh, desperate for more revenue, realized he could not shake more from the merchants without bringing them into the process. A system called the “majlis” had existed long in the history of the Dubai tribe. Tribal members could bring problems to the sheik where he either would provide solutions or serve as mediator between competing tribesmen. (In pre-contact times–before British arrival–sheiks were not permanent holders of leadership positions. As frequently as once per year, a new sheik would be chosen by vote of the tribe to serve in that role. The British “protectors” disliked the inherent instability of annual elections and pressed for permanent designation of one ruler–or, at least, one ruling family. The Maktoums and allied families such as the Buttis held those hereditary posts by the beginning of the 20th century.
Soon after the merchants were invited to his emirate, the sheik established a special majlis especially for the merchants where they could bring complaints to the ruler, seek help in debt collection, and propose trade regulations. As economic conditions worsened and the ruler’s needs for increasing revenues grew, merchants believed they should have a more central role in the process. The sheik resisted, apparently seeing a plot behind the merchants’ demands, not necessarily from power-sharing with them, but from several of his cousins intent on overthrowing his rule. The British resident officials stood behind the sheik, continuing to view him as a source of stability. But the merchants pressed their case. If they are to be taxed to maintain government, they believed they deserved a role in the governance.
The dispute came to a head in October, 1938, when armed camps on either side of the “creek” prepared to do battle—on one side, the merchants, and on the other, the followers of Sheikh Said. Before conflict broke out, the British representative and sheikhs from two nearby emirates mediated a compromise. The sheikh agreed to set up a consultative majlis made up of 15 individuals appointed from the merchants and leading citizens. The majlis was granted the power to veto decisions of the sheikh. Soon, the majlis was using its newly granted powers to question the sheikh’s spending of tax money for his own purposes. The two sides reached an understanding that the sheikh could spend one-eighth of the tax revenues for any purpose he desired, but the remaining seven-eighths were to be apportioned by the majlis. This was a significant move toward a parliament holding the power of the purse, heretofore unheard of in any of the emirates or almost anywhere else in the region.
But soon, a problem with the new arrangement was noted. The 1937 concession agreement made between the sheikh and the oil company stipulated that the annual payments were to go directly to the sheikh. No mention of the majlis was made. The majlis tried to have these clauses changed and force the companies to remit such payments to them to be apportioned for the “general good.” Not only was the sheikh unhappy with these efforts, but the company leaseholders, too, saw this as potentially disruptive. While the problem with the clause might bring about conflict, the concession-holders didn’t wish to make any changes to any of the agreement, fearing changes could lead to wholesale renegotiation of all of the other terms. The British government sided with the companies and the sheikh.
Barely eight months after the “1/8-7/8” spending compromise was struck, the sheikh dismissed the majlis. He had met with a lease negotiator hired by the oil companies, who offered him such gifts as a 16-cylinder Lincoln automobile and other gifts and if he would agree not to cut the majlis into the deal. The ink was barely dry on the paper when the sheikh abruptly sent some of his royal guard to the homes of some of the majlis members. Some were summarily shot; others were dragged off and forced into exile. Dubai’s fleeting experiment with parliamentary democracy came to a rapid end. Some historians claim he took the provocative action because he knew Britain would support him. Nonetheless, the promise of oil revenues both what caused the conflict and gave him the financial means to make such a break with the merchants, previously his primary source of tax income.
The Dubai sheikh had signed an oil concession agreement the previous year, but he apparently was slow to recognize the implications. He need not wait for actual oil production. In fact, no oil was to be found for nearly three decades. The annual payments alone from the concession holders actually provided sufficient revenues that freed him from reliance on the merchants. Again, the revenues from oil concessions were not sufficient to transform the society in the interwar years. Nonetheless, these annual payments proved to be enough for the sheikh, his fellow sheikhs in the other emirates and their successors to get by financially, without having to share power with the emerging merchant classes.
Concession payments continued regularly with steadily rising payments as oil was discovered in other parts of the Middle East. Finally, a concessionaire opted to exercise the drilling option—in 1966. The first strike showed oil was closer to the surface and in greater quantities than anyone had dared hoped. Once oil was found in substantial quantities, the royalty revenues even more rapidly transformed what had been a fairly egalitarian society in the interwar years to one where great gulfs existed between rich and poor, the sheikh’s family and his subjects.
Despite their loss of political power, the merchants, cut out of decision-making, nonetheless prospered along with the ruling families. The new sheikh, son of the man who had cancelled the majlis, astutely put oil money into improving infrastructure and gradually eliminated taxes and customs duties altogether. Oil allowed for importation of waves of cheaper foreign laborers who, like long-time residents without citizenship privileges, paid no taxes but also did not share in oil profits. While merchants vied with royal family members for accumulation of wealth, their success remained dependent on the ruler. If they failed to gain citizenship, they were barred from land ownership and if they wished to form a company, at least 51 percent of the ownership had to be held by a citizen, commonly the sheikh himself.
Foremost, the events of 1938 ensured that any sharing of political power with the merchant class was foreclosed. Ultimately, the oil revenues did not promote democracy. The Dubai majlis experience of 1937—a tentative step to democracy—died from the hand of oil concessionaires.
Land ownership played a role in this move away from an egalitarian society. Had oil concessions been negotiated with a representative counsel for all of its residents rather than with the rulers exclusively, complications for the oil companies would have been enormous but a far lesser gap would have resulted between the wealthy and the rest, the rulers and the populace. One can only speculate what may have resulted had the “assembly” (majlis) retained authority over seven-eighths of all emirate revenues.
Eventually, six years after the discovery of oil in Dubai, a unified state was created.[16] The merger was in fact, unity of sheikhs, not unity of peoples. This unity came about from mutual understanding that power came from revenue and, in the case of all of the emirates, that revenue was dependent on oil.
The two native tribes in Wyoming were victimized by oil company agreements, but ultimately the experience brought unity through creation of a joint council and an agreement that the oil revenues had to be shared between the two tribes. Economically, the unity between the two tribes over the Maverick Springs affair brought little in the form of actual oil development. In the case of the Emirates, oil concessions brought fabulous wealth for the elite families, substantial improvements in infrastructure and diversification of the economy (at least, in the case of Dubai). But there was a huge downside. The oil concession agreements by themselves, even before one drop of oil was discovered and exploited, helped stamp out early rumblings for democracy. In two divergent ways, the world of the reservation and the world of the Middle East were both transformed by these experiences with oil—not just in terms of its development, but in the promises made through pursuit of it.[17] In the case of the Emirates, oil and its pursuit forever changed the nomadic culture.
[1] Daniel Yergin’s prize-winning book, The Prize: The Epic Quest for Oil, Money and Power (New York: Simon and Shuster, 1991), remains the most significant study of world-wide oil.
[2] See, for instance, Yergin’s description of oil concerns by the Allies during World War I, pp. 176-182.
[3] For a discussion of the price moves over time, see Yergin.
[4] The amount is noted in Harold Roberts, Salt Creek, Wyoming: The Story of a Great Oil Field. (Denver: Midwest Oil Co., 1956), as well as in T. A. Larson, History of Wyoming (Lincoln: University of Nebraska Press, 1976).
[5] Many hornbooks and legal texts exist on the law of oil and gas. One particularly useful for this paper was: Richard Hemingway, The Law of Oil and Gas. (St. Paul: West Publishing, 1983). Also useful was John S. Lowe, Cases and Materials on Oil and Gas Law. 4th ed. (St. Paul: West Publishing, 2004).
[6] In prior times when specialists thought the product was not fugacious—moveable under ground—the prevailing doctrine was ad coelum. Still the rule in hard-rock mining, this doctrine states that a landowner owns everything on the land, below it to the center of the earth and above it to the heavens, what one legal scholar once called the “heaven to hell” doctrine. Clearly, as study of characteristics of oil fields developed, the doctrine could not work with oil because it was not found in place in the same way as hard rock minerals.
[7] The Maverick Springs controversy is documented in the Harold Del Monte papers, Collection # 7430, American Heritage Center, University of Wyoming. The recitation of facts about the case come from the numerous files Mr. Del Monte kept about the controversy.
[8] A good recitation of the facts appears in two sources, both authored by students of mine–Mike Mackey’s account in Black Gold: Patterns in the Development of Wyoming’s Oil Industry (Powell: Western History Publications, 1997), and Brian Goulstone’s MA thesis, Maverick Springs: Negotiations for Oil, University of Wyoming, 1997.
[9] Under the “trust doctrine” than applicable to reservation lands, the Bureau of Indian Affairs’ legal department handled the lease preparations and, after the negotiations, wrote up the necessary legal documents.
[10] Some information in this section was derived from my personal discussions with long-time Emeriti residents, including Dr. Obaid Bhutti, professor of history, Higher Colleges of Technology, Dubai. I spent several months in Dubai during the latter 1990s and, again, from 2006-2012 and appreciate the gracious reception I received as well as forthright answers to my many questions from several “local experts” as well as a few “ex-pats” who studied the topic, a number of whom were affiliated with oil companies and various of the local families although much later than the events chronicled in this study. I owe a particular debt of gratitude to the late Dr. Fancois Dickman, University of Wyoming graduate, later professor of political science at UW, but in the intervening years, United States Ambassador to the United Arab Emirates, consul-general in the U. S. legation in Cairo, Egypt, and U. S. Ambassador to Kuwait, during a long and distinguished career in the diplomatic service. He provided important insights on the diplomatic aspects of UAE decision-makers.
[11] Although several excellent studies of the culture of the Emirates have been published in recent years, the area is relatively unknown, compared to Saudi Arabia, Kuwait, and other of the oil-producing Arab states of the region. Two of the best of these studies are: Rosemarie Said Zahlan, The Origins of the United Arab Emirates (NY: St. Martin’s, 1978); and Frauke Heard-Bey, From Trucial States to United Arab Emirates: A Society in Transition. (London: Longman, 1982).
[12] Heard-Bey, 215.
[13] For the history of the oil lease as a legal instrument in the Middle East, see Henry Cattan, The Law of Oil Concessions in the Middle East and North Africa. (Dobbs Ferry, N. Y., Oceana Publications, 1967).
[14] Thomas Ward papers, American Heritage Center at the University of Wyoming.
[15] The complicated negotiations are spelled out in detail by Said Zahlan in The Origins of the United Arab Emirates.
[16] Two of the emirates, however, refused to join the union that became the United Arab Emirates. Qatar and Bahrain remain independent, unaffiliated states.
[17] The long-term influence of oil wealth on the Emiratis brought mixed results—escape from the itinerant poverty of goat-herding interspersed with pearl-diving—but also such unbounded wealth that younger people born into it had difficulty recognizing that not everyone was similarly blessed. Take the case in 2000 when a young Emirati boy was charged with deliberately shooting his family’s South Asian maid. According to a brief story in Gulf News, the young man apparently became angry with the maid’s insistence that he be more tidy with in the family living quarters. He “borrowed” his father’s rifle and shot the maid as though she were a moving target. He declared to authorities that he didn’t understand what the fuss was about—“after all, she was only a maid.” The case exposed all of the issues stemming from how oil wealth had privileged the fewer than 10 percent of the population who were citizens and disenfranchised the 90 percent who had no citizenship rights, even when they could claim residence there for generations or birth in the country.