What is the real connection between Saudi Arabia oil and the American dollar?

Bush and current president, Barack Obama have strong and close relations with senior members of the Saudi Royal Family. Since World War II, the two countries have been allied in opposition to Communism, in support of stable oil prices, stability in the oil fields and oil shipping of the Persian Gulf, and stability in the economies of Western countries where Saudi's have invested. In particular the two countries were allies against the Soviets in the Afghanistan and in the expulsion of Iraq from Kuwait in 1991.

The two countries have been in opposition over the state of Israel, the embargo of US and its allies by Saudi Arabia and other Middle East oil exporters during the 1973 oil crisis which raised oil prices considerably, the 2003 invasion of Iraq by the US which Saudi Arabia opposed, aspects of the "War on Terror", and what many in the US see as pernicious influence of Saudi Arabia after the September 11 attacks. Opinion polls of Saudis by Zogby International (2002) and BBC (between October 2005 and January 2006) found 51% of Saudis had hostile feelings towards the American people in 2002;1 in 2005/2006 Arabian public opinion was sharply divided with 38% viewing U.S. influence positively and 38% viewing U.S. influence negatively. 2 As of 2012, Saudi Arabian students form the 4th largest group of international students studying in the United States, representing 3.5% of all foreigners pursuing higher education in America.3 A December 2013 poll found 57% of Americans polled had an unfavorable view of Saudi Arabia and 27% favorable, the least favorable of 12 countries the poll inquired about.

Although King Abdulaziz Al Saud, Bin Saud as an appellation, the founder of Saudi Arabia in 1901, had an excellent relationship with the British who defended Saudi Arabia from the Turks, he eventually developed even closer ties with the U.S. After unifying his country, on September 28, 1928, Bin Saud set about gaining international recognition for Saudi Arabia. Britain was the first country to recognize Saudi Arabia as independent state, as the British had provided protection of Saudi territories from the Turks for many years (Wafa, 2005). Saud also hoped to be recognized by the US, which at that time had no interest in Saudi Arabia.

Initially, his efforts were rebuffed, but Washington eventually came around, promoted by the fact that Al Saud had obtained recognition from many nations. In May 1931 the U.S. officially recognized Saudi Arabia by extending full diplomatic recognition. 67 At the same time Ibn Saud granted a concession to the U.S. company, Standard Oil of California, allowing them to explore for oil in the country's Eastern Province, al-Hasa.

7 The company gave the Saudi government £35,000 and also paid assorted rental fees and royalty payments. In November 1931, a treaty was signed by both nations which included favored nation status. The relationship was still weak, however, as America did not have an interest in establishing missions in Saudi Arabia: at the time, Saudi affairs were handled by the U.S. delegation in Cairo, Egypt, and did not send a resident ambassador to the country until 1943.

After the promises that had been made by American oil explorers that Saudi Arabia could have a very good chance of finding oil, Al Saud accepted the American offer of exploration, because he was hoping that his land could have valuable materials that would support the country's economy. In May 1933 the California Arabian Standard Oil Company (CASOC), later called the Arab American Company (ARAMCO), had started the exploration in the country with large area to explore (Alnabrab, 2008). Although the imported oil was not very important for the U.S. at the time, Washington seemed hungry for the Saudi oil since their confidence in finding oil in Saudi Arabia had greatly grown, which resulted in stronger relations with Saudi Arabia (Irvine, 1981).

CASOC Struck oil near Dhahran, but production over the next several years remained low—only about 42.5 million barrels between 1941 and 1945; less than 1% of the output in the United States over the same time period. CASOC was later renamed the Arabian-American Oil Company (Aramco). The agreement between the company and the Saudi kingdom was modified several times over the years.

In 1950, Saudi Arabia and Aramco agreed to a 50–50 profit-sharing arrangement, and a series of agreements between 1973 and 1980 resulted in the Saudis' regaining full control of the company. In 1988, Fahd of Saudi Arabia issued a royal decree establishing the Saudi Arabian Oil Company, known as Saudi Aramco, to replace Aramco. As the U.S.–Saudi relationship was growing slowly, World War II was beginning its first phase.

The U.S. was deeply involved in World War II, and as a result US-Saudi relations were put on the 'back burner'. This negligence left Saudi Arabia vulnerable to attack. Italy, an Axis power, bombed a CASCO oil installation in Dhahran crippling Saudi Arabia's oil production.

6 This attack left Bin Saud scrambling for to find an external power that would protect the country, fearing further attacks that would most likely cease the country's oil production and the flow of pilgrims coming into Mecca to perform Hajj, the base of the Saudi power and economy at that time (Wafa, 2005). However, as World War II progressed, the United States began to believe that Saudi oil was of strategic importance. As a result, in the interest of national security, the U.S. began to push for greater control over the CASOC concession.

On 16 February 1943, President Franklin D. Roosevelt declared that "the defense of Saudi Arabia is vital to the defense of the United States", thereby making possible the extension of the Lend-Lease program to the kingdom. Later that year, the president approved the creation of the state-owned Petroleum Reserves Corporation, with the intent that it purchase all the stock of CASOC and thus gain control of Saudi oil reserves in the region.

However, the plan was met by opposition, and ultimately failed. Roosevelt continued to court the government, however—on 14 February 1945, he met with King Ibn Saud aboard the USS Quincy, discussing topics such as the countries' security relationship and the creation of a Jewish country in the Mandate of Palestine. Bin Saud therefore approved the US's request to allow the U.S. air force to fly over and construct airfields in Saudi Arabia.

The oil installations were rebuilt and protected by the U.S.,6 the pilgrims' routes were protected (Wafa, 2005), and the U.S. gained a much needed direct route for military aircraft heading to Iran and the Soviet Union. 6 The first American consulate was opened in Dhahran in 1944. In 1945, after World War II, Saudi citizens began to feel uncomfortable with U.S. forces still operating in Dhahran.

In contrast, Saudi government and officials saw the U.S. forces as a major component of the Saudi military defense strategy. 9 As a result, Bin Saud balanced the two conflicts by increasing the demands on U.S. forces in Dhahran when the region was highly threatened and lowering it when the danger declined (Alnabrab, 1994). At this time, due to the start of the Cold War, the U.S. was greatly concerned about Soviet communism and devised a strategy of 'containing' the spread of communism within Arabian Peninsula, putting Saudi security at the top of Washington's list of priorities.

10 Harry S. Truman's administration also promised Bin Saud that he would protect Saudi Arabia from Soviet influence. Therefore, the U.S. increased its presence in the region to protect its interest and its allies.

9 The security relationship between Saudi Arabia and the U.S. was therefore greatly strengthened at the start of the 'cold war'. In 1950, Saudi Arabia and Aramco agreed to a 50–50 profit-sharing arrangement. In 1951, under a mutual defense agreement, the U.S. established a permanent U.S. Military Training Mission in the kingdom and agreed to provide training support in the use of weapons and other security-related services to the Saudi armed forces.

The US Army Corps of Engineers assisted in the construction of military installations in the kingdom. This agreement formed the basis of what grew into a longstanding security relationship.