The Discovery of Oil and Political Evolution
Oil was discovered in 1936, and commercial production began during World War II. This oil-derived wealth allowed the country to provide free health care and education while not collecting any taxes from its people. Saudi Arabia was neutral until nearly the end of the war, but it was permitted to be a charter member of the United Nations. The country joined the Arab League in 1945 and took part in the 1948–1949 war against Israel. Saudi Arabia still does not recognize the state of Israel. On Ibn Saud's death in 1953, his eldest son, Saud, began an 11-year reign marked by an increasing hostility toward the radical Arabism of Egypt's Gamal Abdel Nasser. In 1964, the ailing Saud was deposed and replaced by the prime minister, Crown Prince Faisal, who gave vocal support but no military help to Egypt in the 1967 Arab-Israeli War.
Faisal's assassination by a deranged kinsman in 1975 shook the Middle East, but it failed to alter his kingdom's course. His successor was his brother, Prince Khalid. Khalid gave influential support to Egypt during negotiations on Israeli withdrawal from the Sinai Desert. King Khalid died of a heart attack in 1982, and he was succeeded by his half-brother, Prince Fahd bin 'Abdulaziz, who had exercised the real power throughout Khalid's reign. King Fahd chose his half-brother Abdullah as crown prince.
Saudi Arabia and the smaller oil-rich Arab states on the Persian Gulf, fearful that they might become Ayatollah Ruhollah Khomeini's next targets if Iran conquered Iraq, made large financial contributions to the Iraqi war effort during the 1980s. At the same time, cheating by other members of the Organization of Petroleum Exporting Countries (OPEC), competition from nonmember oil producers, and conservation efforts by consuming nations combined to drive down the world price of oil. At the time Saudi Arabia had one-third of all known oil reserves, but falling demand and rising production outside OPEC combined to reduce its oil revenues from $120 billion in 1980 to less than $25 billion in 1985, threatening the country with domestic unrest and undermining its influence in the Gulf area.
At the start of 1996, King Fahd passed authority to Crown Prince Abdullah, after suffering an incapacitating stroke. In 1998 the country's oil income fell by 40% because of a worldwide decline in prices, and it entered its first recession in six years.
In 2000, Saudi Arabia, along with other OPEC nations experiencing a recession, decided to reduce production to raise oil prices. In 2001, OPEC cut oil production three additional times.