Oil Discovered in Bahrain

In 1932, drillers working for the Bahrain Petroleum Company struck oil on the island of Bahrain, the first commercial discovery on the Arabian side of the Gulf. The find was modest by later regional standards, but it showed that oil lay beneath the Arabian shore of the Gulf, and it encouraged the exploration that soon revealed far larger reserves in neighboring Saudi Arabia.

Before oil, Bahrain's economy rested on pearling, trade, date cultivation, and fishing. The island had long been a prosperous Gulf entrepôt, and its pearl banks supplied international markets. That prosperity collapsed in the late 1920s and early 1930s. Japanese cultured pearls undercut the natural pearl trade, and the global Depression reduced demand for luxuries. Bahrain was also under British protection, with the ruling Al Khalifa family governing internally while Britain guided its foreign affairs. This arrangement shaped who could obtain concessions to search for oil.

The concession came through an unusual route. A New Zealand-born mining engineer, Frank Holmes, promoted oil prospects in the region and secured a Bahrain concession in the 1920s. After failing to interest British companies, he sold the rights to Gulf Oil, which could not hold them directly because of restrictions tied to British policy in the region. Gulf passed the concession to Standard Oil of California, which established the Bahrain Petroleum Company, a Canadian-registered subsidiary, to satisfy the British requirement. Geologists then drilled at Jebel Dukhan, the low hill at the island's center, and oil was found in 1932, with commercial production beginning soon after.

Bahrain's output never matched that of its neighbors, but the income was important to a small island with few resources. Revenues supported a refinery, which later processed crude piped from Saudi Arabia, as well as the growth of a modern administrative state, schools, and health services. The oil industry also brought an expatriate workforce and created a class of wage laborers, which contributed to labor unrest and political activism in the following decades.

The wider significance lay in what it triggered. Standard Oil of California had already obtained a concession in eastern Saudi Arabia in 1933, and the Bahrain success strengthened confidence in that gamble. Drilling there produced a commercial discovery in 1938, and the company's operations grew into what became Aramco. Bahrain's reserves later declined, and the country diversified into banking, aluminum, and services. Its 1932 strike nonetheless marks the start of the Gulf's petroleum era.