- The boundary between Kuwait and Saudi Arabia is again a source of contention in a region where border disputes have fuelled decades of division and conflict
- The apparent reason is the zones reserves of at least 30 billion barrels of oil and at least 60 trillion cubic feet of gas
- The Divided Zone dispute is incomprehensible to people unfamiliar with Arabias history
In the east Arabian town of Uqair on 2 December 1922, Britains High Commissioner for Iraq Percy Cox imposed a border between Kuwait and the lands of Saudi Arabias future king, Abdulaziz al-Saud (Ibn Saud), sultan of the Najd.
Probably then the regions most powerful man, Coxs principal goal was defining the territory of Iraq, created out of the Ottoman Empire after the 1914-18 war and independent under British protection for less than two months. But this also required demarcating the domains of Abdulaziz and Sheikh Ahmed al-Ahmed, Kuwaits ruler for just over 12 months. The two had been Britains allies in World War 1.
Resisting pressure to allocate even more to the Saudis, Cox drew on a map an area of 5,500 square kilometres to be jointly governed by the two rulers. He named it the neutral zone (Divided Zone).
Soon after, Cox visited Sheikh Ahmed to explain why Britain, in charge of Kuwaits foreign policy since Kuwait split from the Ottomans in 1901, had given away two-thirds of what the emirate had previously claimed.
When the sheikh asked him why he had done this, Sir Percy replied that if he had not conceded the territory, Ibn Saud would certainly have taken it, if not more, by force of arms, A H T Chisholm wrote in his book about the first Kuwait oil concession. The young Ahmad al-Jaber (al-Sabah), scarcely a year on the throne and very impressionable, received a blow to his faith in Britain from which he never really recovered.
The boundary between Kuwait and Saudi Arabia is again a source of contention in a region where border disputes have fuelled decades of division and conflict. The apparent reason is the zones reserves of at least 30 billion barrels of oil, more than in the UKs North Sea fields combined, and at least 60 trillion cubic feet of gas. In 2013, it produced more than 600,000 barrels a day (b/d) of crude. The Divided Zone is worth a fortune.
But there is another factor. Kuwaits present ruler Emir Sheikh Sabah al-Ahmad al-Jaber al-Sabah and Saudi Arabias head of state since January King Salman bin Abdulaziz al-Saud are intimately acquainted with the emotions that surrounded the Uqair treaty. Their fathers Abdulaziz and Ahmed were the protagonists.
Kuwait and Saudi Arabia in the 20th century had radically different visions of the kind of society possible in modern Arabia. Saudi Arabia, unified by force and tightly controlled by the Al-Saud family, allowed little dissent, denied there was a need for elections and formed an alliance with the kingdoms conservative religious community. Kuwait, in contrast, secured its full independence in 1961 through negotiation, accepted a written constitution that provided for an elected national assembly (parliament) and remains home to Arabias freest press.
Declaring itself non-aligned in the Cold War, Kuwait welcomed hundreds of thousands of Palestinian refugees including Yasser Arafat and other Arab radicals that Saudi Arabia has never tolerated. It was the first of the six GCC states to nationalise its oil industry, set up a sovereign wealth fund and establish an agency financing development in low-income countries. Women drive, account for 40 per cent of Kuwaits labour force and got the vote in 2006.
The difference can be partly explained by the trauma of 1922 and the perfidy of Kuwaits imperial master. Memories matter in modern Arabia.
Kuwait became the model for nine other Gulf countries that became fully independent from the UK in 1971 and are now Bahrain, Qatar and the UAE. But the Iranian revolution of 1979 changed everything. Kuwait was initially neutral when Iraq attacked Iran in September 1980, but backed Baghdad when the war turned in Tehrans favour after 1982. It financed its northern neighbour and became Iraqs principal Gulf supply hub.
Iran responded by attacking Kuwaiti oil tankers. In October 1987, Kuwait reflagged 11 of its tankers as American to secure US protection. Facing war with America, under missile attack from Iraq and squeezed by low oil prices, Iran started losing the ground war in the spring of 1988, and sued for peace in August that year.
An even worse crisis soon erupted. Iraq had never withdrawn its claim that Kuwait was part of its historic territory. When Kuwait demanded the repayment of its war loans to Iraq, Baghdad claimed Kuwait was stealing oil from a field close to the border. The invasion and occupation of Kuwait by Iraq in 1990/91 dealt a devastating blow to Kuwaits vision as a robustly independent small Gulf Arab nation. It also created a division between Kuwaitis who endured the occupation and those, including most of the countrys ruling and business elite, who did not.
Kuwaits southern border in contrast produced no such dramas. Following the discovery of oil in Kuwait and Saudi Arabia in 1938, Kuwait and the kingdom granted Divided Zone concessions to foreign oil companies. In 1948, American Independent Oil Company (Aminoil) got the mandate from Kuwait while Saudi Arabias was placed the following year with Pacific Western Oil Corporation, a subsidiary of the US Getty Oil.
Getty discovered the giant Wafra field in 1954, and built a production and export network including the Mina Saud terminal on a coastal headland that the Kuwaitis knew as Ras al-Zour. There was no agreed division of the zone, but the two companies collaborated and signed a joint operations agreement for Wafra.
Kuwait and Saudi Arabia followed a different approach to exploiting the zones offshore hydrocarbons. They awarded the offshore concession to Arabian Oil Company (AOC), a joint venture with Japan. AOC discovered the Khafji oil field in 1960 and built an export terminal at Ras al-Khafji.
The arrangements agreed in 1922 were always seen as temporary. Kuwait and Saudi Arabia divided the zone into two equal parts in 1965. This placed most of the Wafra field and Ras al-Zour/Mina Saud in Kuwait and Ras al-Khafji in the kingdom. The oil concessions were respected. It was an anomaly but it worked.
National oil firms
Kuwait nationalised its oil industry in 1974 and Aminoil three years later. The full nationalisation of Saudi Arabias Aramco took place in 1988. Texaco, a shareholder in Aramco until that point, had taken over Getty Oil in 1984 and acquired its 60-year neutral zone concession. The US Chevron, another former Aramco shareholder, merged with Texaco and acquired the concession in 2001.
The next chapter of a complex story opened in 2000 with the expiry of the AOC concession. In July that year, the kingdom and Kuwait agreed the northern and southern offshore borders of the Divided Zone and it was partitioned equally between them. The zones border with Iran is still undefined.
Divided Zone timeline
1922 Uqair treaty signed on 2 December
1938 Oil discovered in Kuwait and Saudi Arabia
1948 Kuwait awards onshore concession to American Independent Oil Company (Aminoil)
1949 Saudi Arabia awards onshore concession to Getty Oil
1954 Wafra field discovered
1960 Khafji offshore field discovered by Arabian Oil Company, a Kuwait/Saudi/Japan joint venture
1965 Divided Zone is partitioned between Kuwait and Saudi Arabia
1977 Kuwait nationalises Aminoil
1984 Texaco takes over Getty Oil
1988 Saudi Arabia completes nationalisation of Aramco
2000 Kuwait and Saudi Arabia agree partition of offshore Divided Zone
2002 Kuwait and Saudi Arabia take over AOC offshore concession
2008 Saudi Arabia extends Chevrons onshore concession to 2039
2013 Plans to develop offshore Dorra field scrapped
2014 Saudi Arabia stops production at Khafji field
2015 Chevron stops operating Wafra field
New offshore arrangements were put in place in 2002. Kuwait Gulf Oil Company (KGOC), a Kuwait Petroleum Corporation (KPC) subsidiary, was founded to operate the Kuwait Divided Zone offshore areas. Aramco created Aramco Gulf Operations Company (AGOC) to run the kingdoms interests in both the offshore and onshore areas.
KGOC took over the onshore operations from Kuwait Oil Company in 2006. Wafra Joint Operations a 50:50 joint venture between KGOC and Saudi Arabian Chevron Company (SAC), Saudi Arabias onshore concession-holder was formed to operate the field.
The deal opened the door to a new era for the Divided Zone. Investment increased and production, shared equally between Kuwait and Saudi Arabia, soared to more than 600,000 b/d. Plans called for investing $40bn in Wafra and the joint development of the offshore Dorra field estimated to have 60 trillion cubic metres of gas which sprawls into Iranian territorial waters. It was seen as a solution to Kuwaits increasing gas shortages and a complete resolution of questions unanswered by the Uqair treaty.
But it was not to be. In July 2008, Saudi Arabias cabinet approved a 30-year extension of Chevrons onshore concession to 2039. Chevrons technology was seen as vital for the full development of the field, which is estimated to contain 25 billion barrels of oil. But it was an acutely sensitive moment for Kuwait, where the national assembly had consistently opposed KPCs attempts to reach agreements with international oil companies. Elections in 2009, the first held under universal adult suffrage, produced an assembly dominated by opponents of Kuwaits government. Kuwait protested that it should have been at least consulted before the award of the Chevron concession extension.
AGOC and KGOC, nevertheless, reached a joint operations agreement for the Divided Zone. The joint operations team, based in Ras al-Khafji, is staffed and funded equally by SAC and KGOC. SAC independently carries out exploration and production in the onshore Divided Zone on Saudi Arabias behalf.
But trust had been lost. Kuwait announced plans to build power stations and a new refinery in Ras al-Zour. In 2007, Saudi Arabia was reported to have objected to the siting of the refinery, which it asserted infringed on land leased to SAC, which used Mina Saud as its Divided Zone headquarters. Kuwait in response started to interfere with Chevrons operations.
In 2013, the kingdom refused to agree a joint investment programme for the Dorra field. About 600,000 b/d of Divided Zone oil output has been shut in since. In October 2014, when Saudi Arabia closed the Khafji oil field citing environmental issues. the field was then producing 280,000 b/d of Arabian heavy crude. In May 2015, Chevron said it had shut down the Wafra oil fields for maintenance.
Most of the burden fell on Kuwait, which has limited capacity to offset the loss of output. Aramcos production from its other fields soared to an all-time high of 10.6 million b/d in June. That month, Saudi Arabia and Kuwait held talks in Riyadh to find a resolution to the dispute and a joint committee was created.
The affair took another twist in July when a letter from Kuwaits Oil Minister Ali al-Omair, one of two assembly members in the Kuwaiti cabinet, to his Saudi counterpart, Ali al-Naimi, was leaked to Kuwaiti newspapers. In it, Al-Omair said Saudi Arabia would be held responsible for Kuwaits revenue losses, which are now estimated at about $15m a day. The publication of the letter, the contents of which appeared to contradict Al-Omairs previous statements to the National Assembly, triggered a political storm in Kuwait.
An unsubstantiated report by the official Islamic Republic News Agency in August said the kingdoms defence minister and deputy crown prince Mohammed bin Salman, son of the Saudi king, had threatened Kuwait. The row has been dismissed as inconsequential by Saudi newspapers.
The Divided Zone dispute is incomprehensible to people unfamiliar with Arabias history. The losses from the halt of production are enormous, but Kuwait is rich and Saudi Arabia has increased output elsewhere instead. The kingdom and Kuwait have much in common and they have worked together for more than 50 years to address enormous challenges.
Arabia has been transformed since 1922, but some things never change. Kuwaits Emir Sheikh Sabah and Saudi Arabias King Salman will always be their fathers sons.
New research from MEED Insight
On 31 August, MEED Insight will publish its latest report on the Kuwait Projects Market.
To order your copy now, email: email@example.com