Moments in U.S. Diplomatic History

Rich and Eager to Buy – Saudi Arabia in the Oil Boom ‘70s


camels and oil derrickWhen oil was discovered in the Arabian Peninsula during the 1930’s and 40’s, the full extent of its impact on Arabian society could not truly be appreciated. It was only during the 1970’s, after OPEC flexed its muscles during the oil embargo, that the countries of the Arabian Gulf truly began to benefit from their massive oil deposits.

However, the influx of huge amounts of petro-dollars was a huge shock to countries such as Saudi Arabia, where Bedouins still roamed the desert and tribal chieftains carried huge political power. Saudi society was overwhelmed by its new wealth, and its booming oil economy quickly ran out of control. (Unfortunately for Saudi Arabia and others, the advent of fracking and cheap oil have led to an end to the boom years.)

In his interview with Charles Stuart Kennedy, James Larocco describes the struggles the Saudi monarchy faced in wrenching the country out of the fifteenth century and dragging it into the twentieth. Larocco served as an Economic Officer at the embassy in Jeddah from 1975-1977, and was interviewed beginning in January 2011.

Read other Moments on the Middle East.

 

“A city described as smelling like a gym locker that hadn’t been opened for a hundred years”

5-map-of-saudi-arabiaLAROCCO: In those days, there wasn’t a hell of a lot of English in Saudi Arabia. I was actually thrown into situations where I was expected to do translations back and forth with ten months of Arabic. It was brutal and I am sure I crucified it in both languages.

We had a very small mission in Jeddah and an enormous amount of work to do. As the commercial attaché, I wasn’t even in the embassy. I was in downtown Jeddah, the only American. When they say no man is an island, they weren’t thinking of me.

A city described by Lawrence [of Arabia] when he arrived there sixty years before as smelling like a gym locker that hadn’t been opened for a hundred years. It wasn’t a pretty place.

I had a ground floor office that opened directly to the street in the Jeddah Palace Hotel. There were Yemenis and other workers who slept on our sidewalk. We would shoo them away every morning.

Before I go on, let me clarify to some who may be confused by the spelling I use for Jeddah. Back in 1975, we transliterated the Arabic to Jidda. To be frank, I think that’s a better phonetic transliteration than Jeddah. I have no idea who the language gurus were who decided to change it. In any case, it’s the same city on the Red Sea.

In Jeddah, I had the responsibility to manage a budget, a staff, an operation and I would often have 12 or 13 businessmen waiting to see me outside the office every morning.

Saudi Arabia was booming, and we used to say that the cheapest thing there was money. And I was a first tour junior officer. It was a heady experience indeed. It was a good education. It was tough. I am sure I made a million mistakes. There was nobody there to guide me.

I was the one and only American at this commercial office. I was really on my own. There was a commercial counselor, but he was on his retirement tour and he sat in the embassy. I rarely saw him. To be honest, that was fine with me. I was particularly proud when I did all the preparations for a trade mission from the U.S. that recorded more business on that one trip than any other trade mission in history up to that time: $83 million.

After this blockbuster mission, they realized that they needed a veteran commercial officer out there, so they sent out someone from what was the budding Foreign Commercial Service [FCS]. He was a truly experienced officer and turned my makeshift operation into a real commercial office. Larry Jensen was his name, and I will never forget how gracious he was to me.

They established a new commercial office across from the embassy, which was out of town in those days on Palestine Road. That compound is still there, with very few changes in the main building from my time nearly 40 years earlier. It’s now as a consulate, as the embassy long ago moved to Riyadh.

My second year in Jeddah, I was an econ officer, which is what I really wanted to do because of my academic background. I had several experienced bosses who had me on a very long leash.

They allowed me to explore Saudi Arabia, writing reports on cities and sites few Americans had ever visited. They had the foresight to understand that Saudi Arabia’s future was going to require major expansion throughout the country, providing American business with multi-billion dollar opportunities.

TWA Stewardess_Girl_Pictures_ABFA sidelight to all this was that because of the economic boom, there was little available housing, so I was a nomad, house-sitting for people on leave. For a while, I was put in an apartment building that housed stewardesses for TWA. I never got full-time housing till late in my assignment. But I was single, I was busy and I didn’t really care.

Of course, frequent illness was common in those days in many parts of the region, and Jeddah was no exception. We all came down with “the Jeddah jitters” more often than we would like. We were given all kinds of shots for our protection, some of which are no longer advised. We also were provided with lomotil for frequent use. And, strange as it now sounds, we had salt tablet dispensers throughout the embassy compound.

My worst case of the Jeddah jitters happened when I was house-sitting. I was in desperate straits, barely able to crawl to the bathroom. I managed to make it there. I pulled myself up, opened the medicine cabinet, and there was nothing there. Who were these people? I then glanced over to a side table and noticed a book by Mary Baker Eddy. Just my luck: Christian Scientists!

“None of us really believed they could make a transition to the 20th century”

[Living in Saudi Arabia was] like being taken somewhere in a time machine. So little in common with U.S. society, norms, values, customs. I had some Saudi friends, but I would consider them acquaintances at best. Saudis were still very uncomfortable around foreigners so it was hard to get a meeting, hard to have a serious conversation with them, hard to ever come to closure on anything.

Most of my time, quite frankly, my first year was spent with American business visitors who came in and I would bring in my local staff, none of whom were Saudi. They were Palestinian and Pakistani and other nationalities and we basically had files on companies that we would provide to them. We would give our best recommendations on how to use their time usefully.

It was very easy to sell anything at that time because money was falling from the skies. Oil prices had quadrupled and there was so much cash in search of some place to use it or park it. There was no infrastructure outside of the Eastern Province. The streets weren’t paved. They were just building everything. It was basically taking a country from the 15th century and moving to the 20th.

1970s jeddahIn Saudi in those days, stoplights or stop signs meant nothing. People were driving their big cars in the desert and the car would smash into a rock and they would just leave the car and go away. The huge inflow of cash to this society was truly wrenching and they simply couldn’t handle it in an orderly way….

The religious police were still around then hitting people with sticks if they didn’t close their shops at prayer time or swatting our female personnel if their clothing was considered too revealing. It was a very, very difficult environment to accept. None of us really believed they could make a transition to the 20th century.

I don’t think the religious in those days really figured out what the hell was happening. Sharia law had nothing to do what was going on, and I pointed this out to the Saudis. They had a desperate need for a separate commercial law. They understood this, and did move, albeit slowly, to address this.

A lot of this was just so much new and unexpected coming at the religious, but they were benefiting too. Mosques were being built, religious schools were being built. They were all getting automobiles so they were beneficiaries along with everybody else and they were shopping too. The system looked pretty sweet in those days to the religious side.

“It truly wasn’t hard to sell anything”

In the first part of my assignment, they were just buying anything that was coming at them. I remember they put in these temporary flyovers [overpass] all over the place because they were stuck with that old British model of [traffic] circles that just wasn’t working, so they would put in these flyovers that the Belgians would put up in two weeks.

They built cheap buildings, relied on room air conditioners only (an incredible market for Carrier A/C units) and wanted only big cars. This, of course, was also great for GM since Ford was boycotted. There was no quality control at all, so in essence, there was no quality, only quantity.

Perhaps my most comical but successful handling of a businessman was a guy who was peddling raincoats. Of course, it doesn’t rain in Jeddah. Our staff huddled, and we suggested he advertise them as tarps for Bedouin. He sold more than enough to pay for his trip and pocket a tidy profit.

It truly wasn’t hard to sell anything. One guy brought in the gaudiest looking plastic fireplace with flashing lights for the hearth. He took orders for dozens. This was the stuff of Mark Twain tales. You had some of the best businessmen and some of the worst businessmen.

But there was a market for everyone and everything. Everyone wanted to be on the gravy train, and the sharp ones left with fat wallets, regardless of the snake oil they were peddling. The Saudis needed everything. They were not sophisticated. The Saudis did buy a lot of junk that was way overpriced.

My job was not to sell anything. My job was to try to marry up American businessmen with potential customers and that’s what I did. I was very clear about no corruption, no bribes, and no money for us, not even a free lunch. Of course, there was no place to buy lunch, so there never was that temptation.

It got so bad that I recall an exhausted, harried American businessman stumbling into my office for an interview. I commented that he looked like he had wrestled with an alligator. He said that might have been preferable to his own evening.

He finally found a place that would take him for the night. He was told he would have to share the bed. When he crawled into bed, there were two other men already in it. When the fifth guy got in bed, he called it quits, deciding to sleep on the floor. He paid $100 for that space. That’s how crowded Jeddah was in those days and how inadequate the infrastructure was to handle it.

It was not hard to get a sponsor if you were in business. Some Saudis companies made all their money sponsoring visiting businessmen. They were not interested in being agents to these businessmen, only visit sponsors.

street scribeI constantly warned companies about signing up with a Saudi firm as their agent. This was a near irrevocable arrangement, and some of our most reputable firms made bad choices. This cost them dearly, including in some cases, driving them out of the market.

It went both ways there because you had to have a sponsor and I would warn companies who would contact me in advance to be careful about that because once you had a sponsor, that sponsor basically owned you. For the fly-by-nighters, I didn’t care as much. Nor did they. They could get in the country and sell their wares and most of them were there for a one-time deal anyway.

But for the really reputable American companies, my concern was the other way around: a serious concern that they would either get the wrong partner so they wouldn’t be able to sell their goods at all or that they would never be able to get out of a bad marriage.

All too often I would see a Saudi sponsor that was going to take advantage of them who is basically out to get their 10% or 20% or whatever. I had quite frankly, more concern about our good companies getting the wrong partners and that still happens today, all the way till today in that part of the world. It can kill the opportunities or profitability of even the best U.S. and other foreign firms.

When I was Ambassador in Kuwait many years later, there were some complaints about local agents. The problem at that time was most often related to the fact that an American firm had developed a trusting, honest relationship with the Kuwaiti in charge. But when that Kuwaiti transferred the business to his son, things changed. This was extremely awkward. There often was nothing that could be done.

There were various commercial disputes when I was in Jeddah, but in most cases there was nowhere to take them. You either wrote it off as the cost of doing business or grabbed what you could get and clear out. But let’s be clear: there were enormous profits, too. The profit from one contract could more than offset a string of losses.

“The Bedouins put their animals in the houses. They chose to continue to live in tents outside the homes.”

jeddah portThe development of a commercial law was just beginning when I was in Jeddah. My second year as an econ officer took me in many directions, including my travels around the country doing some pioneering reporting.

But I also did a lot of work reporting on the massive mess that was the Jeddah port. At one point, 220 ships were waiting to be off-loaded. The line went out over 30 miles outside the port. It was a catastrophe.

I spent a lot of time pleading with the Saudi government in Riyadh to have someone, preferably an American company or one of our port authorities to come in to get things organized.

The Saudis eventually came around, but even then, the massive backlog and the growing demand to bring in more and more goods make it a multi-year task to organize the port. I laid the groundwork, and others finished the job. I consider the movement to upgrade the port facilities, procedures and regulations a major part of my legacy from that assignment in Saudi.

They were building roads and bridges and schools and hospitals and all the elements of infrastructure aiming for a more modern society. This was a conscious policy, a clear vision. They were bringing in the expatriate labor that would do it. Again these were people who were in a society that was very backward in terms of its position in the world. Bedouin habits and mores reigned.

They were determined to end the nomadic way of life for many of their population, bring them into urban life, educate them and move forward. I recall one failed effort that I was able to see first-hand. In the middle of the desert in northern Saudi, a city was built to house Bedouins. It looked like Emerald City. So many houses. A full service city, ready for inhabitants. The Bedouins were brought to the city. Rather than move into the houses, they put their animals in them. They chose to continue to live in tents outside the homes.

bedouin tent near cityOn the other hand, almost the entire cabinet had PhDs, mostly from U.S. universities, but some from the UK or Cairo. You had a very thin veneer at the top of technically qualified people and you had a leadership that understood the politics of spreading the wealth in the country and that was the only way the country was going to hold together.

They were a conquering family. They were not a chosen family (as in Kuwait). It was a tribal society that was brought together struggling to cope with so many demands that were unprecedented to their culture. With the utmost respect, they have proven to navigate these challenges with a good degree of success. Nobody expected them to even survive.

I am trying to give you the view when I was there. It seemed like this place was never going to work. How do you take a 15th century, incredibly conservative society and bring it to the 20th century? It just didn’t make any sense to me. I think they have handled it really quite well, very brilliantly.

The Saudis, however, were honest enough with themselves to understand they needed help. Just as they had turned to Americans for help with the oil business…and had turned to us to help them with their National Guard, they turned once again to Americans to help them get on a better path toward economic development.

On the one hand, a noted Harvard economist came to Saudi Arabia and laid out a game plan under which they would essentially “control” oil prices. The idea, as he explained, was that if they allowed oil prices to skyrocket, consumer countries would rapidly develop alternative energies. Instead, if they raised prices gradually, and occasionally let them fall, consumer countries would continue to depend of fossil fuels for decades.

I was truly impressed when I heard this presentation, and so were the Saudis. Of course, he was right, and the Saudis were smart enough to heed this advice.

The Saudis then established what was called the “Joint Economic Commission” which was an unprecedented creature run by the U.S. Treasury Department. They were given authority over tens of billions of dollars’ worth of projects to plan, contract out and supervise, primarily using U.S. engineering firms and contractors, ensuring that a variety of development projects proceeded in planned, efficient ways. I marveled at how well the Treasury Department handled this awesome responsibility with professionalism, integrity and respect for their Saudi clients.

Similarly, you had the Army Corps of Engineers that had tens of billions of dollars for other infrastructure projects. I think the Saudis very wisely decided they couldn’t do it without massive corruption and so many mistakes that it would take them down.

Between ARAMCO [Arab-American Oil Company], the Joint Economic Commission run by the Treasury Department and the Army Corps of Engineers, they got a damn good deal out of us, out of the United States. Saudi costs were minimal for the benefits they received from our brainpower, our skills, our experience and years of our R&D. At the same time, it brought excellent business, jobs and experience to Americans firms.

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Rich and Eager to Buy – Saud…

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