Mixing Oil and Water

How the Political Economy of Energy and Food Links Southern California and Saudi Arabia

BY BILL BARCLAY | July/August 2023

This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org

This article is from the
July/August 2023 issue.

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Despite the maxim that “oil and water don’t mix,” oil and water are often mixed, interchanged, and traded in today’s domestic and international political economies. Oil-produced energy is used to move and pump water for food production and, less well-known, water is often used in the extraction of oil. The multiple interconnections of the two liquids creates political and economic linkages, some transparent and some opaque, at both the regional and global levels.

One significant linkage created by the economics of oil and water is between Southern California and Saudi Arabia. Today Southern California produces more than half of the fruits, nuts, and vegetables consumed in the United States, and is a major factor in our favorable agriculture balance of trade. In the not-so-distant past, the region was a leading source and major exporter of oil and is still a center of oil production. Saudi Arabia is, of course, best known for oil and gas production. But, perhaps surprisingly, the country is also a significant exporter of food. In each of these two regions, oil and water most definitely do mix.

These connections between oil and water are implemented through corporate structures. Thus, the mixing of oil and water is, at its core, a story of capital’s search for profit. There are many individual corporate actors involved, but the strategies and investment decisions of two, Chevron, headquartered in California, and Almarai, an agribusiness empire with close ties to the ruling Saudi family, are central to the mixing of oil and water at the regional level and throughout the world.

Part 1: Mixing Oil and Water in California’s Energy and Food Production

In the late 19th and early 20th centuries, California’s position in the global capitalist political economy was primarily as a commodity producer. Political economy requires a focus on the institutional structures, as well as the distribution of power and interests, that are often obscured by supply and demand curves.

In the early to mid-1800s, the territory known to the Mexican government as “Alta California” was sparsely inhabited with large tracts of land devoted to cattle raising. The discovery of gold brought an inrush of settlers to California and remade the state’s political economy into one of resource extraction.

The Petro Economy: Gushers, Wealth, and Power

In 1892, Edward Doheny, a failed businessman, paid $400 for a lease on some land in downtown Los Angeles, drilled, and hit a gusher of oil. The 2007 movie “There Will Be Blood” (based loosely on Doheny’s life) provides a vivid picture of a gusher. And the protagonist Daniel Plainview’s statement, now a popular meme, “I drink your milkshake,” aptly illustrates how one entity can syphon oil (or water) from another that shares the same reservoir. (While gushers often soaked the lucky drillers with their intended product, actors in the film were drenched in the kind of chocolate syrup that goes into McDonald’s milkshakes.) Doheny followed his success in California by pursuing oil across Central and Latin America and became wealthy: his 46,000-square-foot Greystone Mansion, gifted to his son, included a two-lane bowling alley, refurbished for the movie. Doheny’s gusher inaugurated an era when California, initially the Los Angeles Oil Field, was the leading source of oil in the United States, displacing earlier leaders such as Pennsylvania. Los Angeles County itself was soon eclipsed with the discovery in the late 1890s of the Kern County Oil Field, located 70 miles northeast of Los Angeles. Doheny immediately bought land in Kern County. Rockefeller’s Standard Oil Company, the predecessor of Standard of California (later renamed Chevron) was close on his heels, acquiring the Pacific Coast Oil Company, including its Kern County holdings, in 1900. By the early 1900s, more than 2,400 companies had stuck their oil drilling “straws,” as they are known, in a triad of Southern California counties—Kern, Los Angeles, and Ventura—but Kern saw most of the action.

Kern County’s prolific oil and gas output doubled that of L.A. County in less than five years. Kern became the largest producer of oil in California, a position it continues to hold today. Excitement over oil, and especially gushers, was such that railroad companies organized sightseeing visits to the Kern oil fields. One could make a day of it for $10 in 1900.

The third county in the Southern California oil and gas triad, Ventura, developed a few years later, in 1919, when Shell drilled into the Ventura Oil Field. The abundance of oil made California a leader in the energy transition from coal to petroleum, and Doheny was a central actor. He worked with the Santa Fe Railroad to develop engines that ran on oil, not coal, to overcome coal-short California’s reliance on costly coal from Eastern mines. By 1904, all the railroads in the state ran on oil. Railroads in the rest of the country soon followed California’s lead.

California was not just important in the domestic oil and gas industry. The state became the leading global producer, accounting for 20% of world production in the early 1900s, and was an exporter of petroleum. And Doheny became wealthier than John D. Rockefeller, Sr. In 1910, in Kern County, the biggest gusher of them all, Lakeview 1, exploded into the state’s oil and gas industry. The Lakeview site was initially drilled by the Lakeview Oil Company. But, running out of money and finding what appeared to be only a dry hole, the company sold a majority interest in the site to Union Oil. Drilling continued under the direction of “Dry Hole Charlie” Woods. The resulting Lakeview gusher rendered his nickname obsolete. The well initially shot out 90,000 barrels a day, at a time when the total oil output in the entire state was around 100,000 barrels a day.

It took 17 months, until October 1911, to bring the Lakeview gusher under control. Actually, the gusher brought itself under control, because the well caved in and suppressed the flow. Amazingly, no one was killed, and no fire broke out during the intervening months while Lakeview spewed a total of at least 9.4 million barrels. Less than half of that was actually recovered. The river of oil that drenched the surrounding land and waters remains one of the largest oil spills in history, almost double that of the Deepwater Horizon in 2010 and eclipsed only by the deliberate release of oil by retreating Iraqi troops during the 1991 Persian Gulf War.

Union Oil redrilled the well the following year, but Lakeview never again produced more than 30 barrels a day for commercial purposes.

California oil and gas men—and with the notable exception of Emma Summers, who dominated the L.A. oil market for few years prior to World War I, they were all men—kept looking for more. They soon recognized the telltale signs of oil in the seeps under the Pacific Ocean. (In California there are oil seeps on dry land and in the seabed.) The first offshore drilling in the world began in the 1890s by way of a 1,350-foot pier near Santa Barbara. The yield was relatively modest, and the project was abandoned in the typical oil and gas procedure: the failed drillers simply walked away, leaving the pier to rot and the derricks to collapse onto the beach and surrounding water.

The abundance of oil and gas in California’s Kern, Los Angeles, and Ventura counties is the major reason that no oil pipelines connect the state to the rest of the oil and gas producing areas in the United States. California was self-sufficient, an energy island, and for many years a net exporter of oil abroad and, via tanker car, to neighboring states. Doheny’s find, Lakeview 1, the failed offshore adventure, and the many other smaller projects not only illuminated the wasteful haste to find new riches; they also foretold the environmental costs of the potentially deadly mixture of oil and water in the state. The river of oil that flowed from Lakeview 1 ran down creeks, contaminated wells, and soon threatened Buena Vista Lake, the major source of irrigation water in the area. Workers frantically built open-air sumps to capture the flow, creating “ponds” of oil. A circle of sandbags 100 feet in diameter piled 20 feet high was built around the expanding gusher hole to prevent the further mixing of oil and water.

The image of a gusher captures the extravagance of the industry, the risks to the oil workers, and the lack of any concern about the environmental impact of oil well drilling. But gushers, where the oil just pours out of the ground with little or no energy and effort expended in the actual extraction process, were not the source of most oil in the past and are even less so today. Only about 30% of oil is captured by the force of the pressure built up in the oil reservoir that is released when the drill punctures the ceiling of the reservoir. Instead, various methods of recovering the remaining oil in the reservoirs are required for extracting oil in California and elsewhere. Water—lots of water—is integral to these methods of increased oil capture from underground reservoirs.

Intensive Agriculture: Agrarian Capitalism and Global Trade

Oil and gas were not the only driver of the Golden State’s early 20th-century economy. Almost simultaneously, the political economy of California agriculture was undergoing a massive shift from extensive to intensive crop production. The year of the Lakeview gusher was the year that intensive agriculture first accounted for half of California’s total agrarian product. The extensive agriculture, which was primarily carried out on large ranches using little labor, that had dominated the state since the days of the Spanish conquest (especially raising cattle) was rapidly disappearing, to be replaced by an intensive agriculture of citrus fruits, wine grapes, and nuts—all smaller production units with high labor inputs. These new products propelled the state to the top ranks of the global agrarian political economy and made a new class of Anglo growers rich and politically powerful. In addition to supplying Eastern U.S. markets with fresh fruit and vegetables using new refrigerated train cars, California also exported the products of its emerging agrarian capitalist economy to Europe.

Although intensive agricultural production in California was initially supported primarily by capturing rainwater and drawing on rivers flowing from the Sierra Nevada Mountains, it was not long before growers stuck their straws into the underground water found in the aquifers of the Central Valley. The Central Valley aquifer runs from Kern County north up to Shasta County. The land is fertile but has very low annual rainfall. With no regulation on pumping, the Valley’s seemingly inexhaustible aquifer offered a free source of water to the new Anglo class of growers. This source was both supplemented and redirected by the burgeoning network of irrigation canals that began in the early 1900s.

Thus, by World War I, the major drivers of California’s political economy included two extractive industries: oil and gas and intensive agriculture. Between 1900 and 1940, California ranked in the top three states for oil and gas production with output increasing more than 100-fold. Although Texas moved into first place in U.S. oil and gas production by the 1940s, California remained in the top three states into the 1980s. By the 1940s, California had also emerged as the leading state by value of agricultural output as its irrigated acreage quintupled. These two industries rely on the crucial inputs found largely in underground reservoirs, one of crude oil and one of water.

The underground sources of these two crucial economic inputs are often found in close proximity to one another. Mixing oil and water occurs, sometimes by accident, sometimes by design, risking contamination. Kern County and the rest of the triad of Southern California counties where most oil drilling occurred are the locus of the convergence of oil and water and illustrate the mixing of these two liquids.

Part 2: Mixing Oil and Water in 21st-Century California

Oil production in California peaked in 1985 when the state produced a record 424 million barrels, about what Libya produces today. Kern County led the way with its own yearly record of 256 million barrels. Since that peak, production in the state as a whole, as well as in Kern County, has steadily declined; currently California extracts only about 150 million barrels/year, about 75% of which comes from Kern County. What changed? And what is the impact of that change?

For many of us, crude oil is probably just—well, oil. But crude oil is categorized as either sweet or sour and heavy or light. The sweet/sour dimension is a measure of the sulfur content: sour crude has a higher sulfur level than sweet. The heavy/light dimension is a measure if viscosity: heavy crude is more viscous and thus less fluid.

Most of what is produced today in Kern County and California as a whole is heavy, sour crude. Kern’s oil wells are relatively old, and the easy-to-extract oil was pumped years ago. The county’s oil reservoirs are not conducive to horizontal drilling, as is common in other parts of the United States; instead, they require vertical drilling. Thus, wells in the county are being drilled deeper and deeper in an effort to extract the remaining oil. Today, Kern has multiple wells three miles or more in depth.

Kern remains one of the top 10 counties in the United States for oil and gas output, but only though the extensive use of “enhanced oil recovery” techniques, some of which were pioneered in the county. The oil that is extracted often resembles peanut butter in its viscosity. Think of trying to move peanut butter through a tube that’s many hundreds or even a few thousand feet long. Something has to be done to move the gunk along.

Extracting Kern County Crude Today

Bringing the heavy, sour crude found in Kern County to the surface requires the use of an “enhanced oil recovery” technique called “thermal injection,” also known as “steam flooding.”

Steam flooding was first used in Kern in the 1960s as the remaining oil in the reservoirs was becoming harder to extract. This use of steam flooding was instrumental in the continued growth in Kern’s and the state’s new production records, increasing the crude recovery rate by 30% or more. (Thermal injection, while using the same scarce resource—water—as in hydraulic fracturing, aka “fracking,” is a different process. The water vapor injected is not used to split rocks and separate “tight” oil but simply to push the oil in the reservoir from one place to another.) California’s oil and gas industry accounts for 96% of the use of thermal injection in the United States. In California, thermal injection is applied to more than three-quarters of producing wells.

But the costs of thermal injection have risen over the last few decades. At the 1985 production peak, oil and gas producing companies in Kern used four-and-a-half barrels of water to extract one barrel of crude. By the 2010s, the oil and gas industry was using eight barrels of water for each barrel of oil extracted; today that ratio is probably in excess of 10:1.

Enhanced Oil Recovery Water: Where It Comes from and Where It Goes

In sum, the thermal injection process uses a lot of water. Where does it all come from in a state that is in the midst of an epic drought? The Central Valley Project and the California Aqueduct deliver water to Kern County. Water management agencies distribute this water to urban areas, to growers for irrigation, and to oil companies for thermal injection. The largest allocator of water for thermal injection is the West Kern Water District (WKWD), followed by the Kern Water District and, amazingly enough, the Lokern Ecological Preserve. The WKWD alone provides more than 26,000 acre-feet annually for thermal injection, almost one in seven of the barrels of water used in enhanced oil recovery in Kern.

Why do oil companies—predominantly Chevron, Aera (until late 2022 a joint Shell/Exxon venture), and Berry Petroleum in Kern County—get to use this water? Because of long-term water contracts executed by the companies several decades ago. Under these contracts, the companies are obtaining water at rates well below the current market price, a significant financial benefit, especially in drought years such as 2021 when water was selling for as much as $2,000/acre-foot, more than double the cost in wet years.

Chevron is the largest user of fresh water for thermal injection in Kern County crude oil production. The company came to California oil production in the 1890s, when it was part of Rockefeller’s Standard Oil empire. Chevron’s largest California property is the South Baldridge Oil Field in Kern, developed in 1916. Over the past century the field has been one of the top five producers in the United States.

In water year 2021 (a water year runs from October 1 of one year to September 30 of the named year; so the water year of 2021 ran from October 1, 2020–September 30 2021), the all-time record low precipitation year across Southern California, the companies continued to receive (a somewhat reduced amount of) water to extract oil via steam injection. That same year, over 1,000 wells that serve towns and individual dwellings in the Central Valley went dry.

The use of fresh water to extract heavy, sour crude while towns and individuals are short of water is only one of the profit-driven moral and economic absurdities that proliferate in Kern’s oil and gas industry, and the Central Valley more generally. Because the oil is heavy, the thermal injection process uses as much as 30% of the energy derived from the oil that is actually extracted. The extensive use of thermal injection techniques makes California crude extraction a high-energy process: the state’s carbon intensity for crude production is 16.1 (a measure of carbon dioxide and other greenhouse gases (CO2) per unit of activity). In contrast, Texas, even with the widespread use of fracking, has a carbon intensity rating of 11.9. The high energy-intensity of California’s oil and gas industry generates greenhouse gas emissions above the level found in even the carbon-intensive extraction of oil from the Alberta tar sands.

But access to an increasingly scarce water supply is only one side of the picture. As the crude is pumped out, it comes with a large amount of what is called “produced water,” some from the steam injected in the drilling process and some from contact with the aquifers near the extraction site. And it’s a lot of produced water: about five million barrels per day in Kern County as a whole, or almost two billion gallons annually—many more barrels of produced water than barrels of oil extracted.

Produced water contains dissolved solids, heavy metals, boron, and various radioactive substances. The “total dissolved solids” count of produced water can be as high as 100,000 parts per million (ppm). For comparison purposes, rainwater usually has a total dissolved solids count of 20 ppm or less. Drinking water usually has 50–150 ppm, and anything above 1,000 ppm is considered unfit for human consumption. For example, one California oil field’s produced water is described by Veolia, a produced water treatment company, as follows: ” “The raw produced water for this oil field is 200 degrees Fahrenheit, and contains about 25 ppm free oil, 80 ppm total organic carbon, 240 ppm silica, 26 ppm boron, 240 ppm hardness, and 6,500 ppm total dissolved solids.”

So, produced water poses a disposal problem. What to do with all this polluted water generated by the thermal injection process?

For offshore drilling, the answer to the disposal question was, for many years, very simple, if not environmentally friendly: dump it back into the sea. Seawater has a total dissolved solids count of about 35,000 ppm, so there are potential negative environmental effects of this disposal solution from produced water with higher total dissolved solids count levels. Regulatory reforms now require the treatment of produced water to a level that is believed to not be dangerous to marine life. In the initial years of thermal injection usage, the onshore disposal answer was similar: dump the produced water back into the ground or store it in large pits. But, as the volume of produced water increased, and as knowledge of the chemical composition of the stuff became more widespread, regulations have been imposed to limit the negative impacts on people and animals.

More than three decades ago, California implemented regulations to control the disposal of produced water—with limited success. A 2011 EPA report criticized California’s Underground Injection Control (UIC) program for its failure to protect underground sources of drinking water, employment of insufficient and often unqualified staff to monitor the UIC program, and various other deficiencies. While some of these failures have been addressed, the power of the oil and gas industry in Kern and elsewhere has slowed and at times stymied progress.

So, what to do with all this produced water continues to be an issue. Why not simply use it as a source of water for steam injection? The response from the oil and gas companies: produced water has too many chemicals that will precipitate out and cause the injection and drilling equipment to malfunction, so it must be diluted with fresh water for thermal injection.

A current proposal, popular at least among Chevron and other oil and gas companies, is to treat produced water to bring the total dissolved solids count down, not to potable levels, but for sale for irrigation purposes. Doing so both offsets some of the costs of treatment and makes the crude extraction process more profitable. Chevron has been a pioneer in this approach, selling more than 20 million gallons daily for use on crops grown on about 10% of harvested acreage in Kern County.

Questions have been raised about the possible toxic impact of produced water on food that will be harvested for human or animal consumption. In response, the Central Valley Water Control Board hired GSI Environmental to study the impact of produced water on food safety. GSI, a firm with close ties and long-time connections to the oil and gas industry, concluded that the practice, which had been in effect for several years on 100,000 acres of cropland in Kern, was not harmful to human health. The water board concurred, ignoring the fact that California regulators in 2013 had banned the use of water from fracking for crop irrigation. The toxic chemicals in water generated by fracking and by thermal injection substantially overlap. Some analysts have pointed out that there have not been studies on the long-term impact of such usage. GSI’s analysis looked only at the short term. The chemicals in produced water can accumulate over time, either in the soil where it is used for irrigation or in the almond, pistachio, and walnut trees covering thousands of acres in Kern and other counties. We do not know what that means for the consumers of these products.

Drill, Baby, Drill

The Kern County Board of Supervisors has been undeterred by any such concerns, but it has been deeply concerned about declining oil and gas production. In 2011 the board decided to address this decline by enacting new regulations governing oil well drilling. The goal was to enable over 7,000 new wells to be drilled as expeditiously as possible, primarily by creating a fast-track process for obtaining new drilling permits that shortchanged the environmental impact report requirements. The county was sued by several environmental and community groups. In 2020 California’s Fifth District Court of Appeals ruled that the board had ignored the requirements of California’s Environmental Quality Act and sent the proposal back to the board. The board responded with a “new” plan that called for sound buffers to be erected around the drilling sites. In summer 2022 the Kern County Superior Court, not surprisingly, rejected the new plan as inadequately addressing environmental issues. Later, the Court approved a further revised plan, however, and by November 2022 the Board was accepting new applications for oil well drilling. But the fight was not over: three months later, the reinstatement was suspended after appeal.

Oil and water cross paths and mix in California’s political economy. Both resources are drawn from underground reservoirs. Water can dilute an oil reservoir and make it less desirable, which was a frequent oil drilling problem in the late 1800s and early 1900s in California. Oil production, in turn, demands more and more of the diminishing supplies of water in the Central Valley aquifer. Kern’s intensive agriculture, which makes it the leading global producer of crops such as almonds and pistachios, competes with the oil and gas industry for water. The oil and gas industry proposes produced water as the answer—but is it?

Beyond the borders of the United States, oil and water mix in the global system of trade. It is this system that links California to Saudi Arabia, often in surprising ways.

Part 3: Mixing Oil and Water in the Global Trading System

Oil is the largest commodity traded internationally, and Saudi Arabia is the largest exporter of petroleum products. California is the largest exporter of agricultural products and a major reason that the United States runs a positive balance of trade in agricultural goods. Although California oil and gas production has declined, the state remains an important producer and a major refining center for petroleum, accounting for about 10% of U.S. refining capacity. Today California imports oil due to population growth, the excess refining capacity already in place, and the lack of petroleum pipelines connecting the state and the rest of the West Coast to other domestic sources of oil production.

In contrast to oil, we do not think of water as a internationally traded good. But in reality, water is traded in many of the goods, particularly agricultural products, that move through global supply chains. The trade in this “embodied” or “virtual” water, known as “virtual water trading,” is already important in the global economy of trade and is projected to more than triple from today’s level by 2050. Most virtual water trading moves from water-abundant regions, such as the United States, to water-short regions, such as India and Africa. But within the linkages of international trade, virtual water trading may also tie together two water-short regions: Southern California and Saudi Arabia are linked through virtual water trading just as much as through trading in oil and gas.

Chevron in Saudi Arabia

In 1933, two petroleum geologists from Standard Oil of California, now Chevron, arrived in Saudi Arabia. In March 1938, the company drilled the first commercially viable oil well in the kingdom, tapping into the largest oil reserve in the world, today surpassed only by Venezuela.

California crude had made Southern California an important petroleum producer, but Saudi Arabia made Southern California a global petroleum powerhouse. By the end of the 1940s, Chevron had become a global energy behemoth benefitting from the kingdom’s lowest production costs among major oil-producing countries. Saudi Arabia’s all-in cost of production per barrel is estimated to be below $10. This cost is less than half that for other major petroleum producing countries, including Russia and the United States. Oil and gas exports are almost 90% of the country’s total exports by value and generate more than 60% of government revenue.

Saudi oil, however, is predominantly sour in a world that prefers sweet, so ARAMCO, the current, primarily state-owned entity that operates the Saudi oil and gas industry, has spent significant sums to develop methods of “sweetening” the sour product that emerges from the desert. Their efforts include a huge crude-oil stabilizer plant in Abqaiq that can process about a million barrels of crude a day, reducing the sulfur content of the extracted oil. The process, hydrodesulfurization, requires co-feeding crude and—guess what—water, into a reactor to reduce the sulfur content.

Dairy Farming in ... Saudi Arabia?

The largest dairy farm on the globe is in Saudi Arabia: Almarai Company, a name that translates as “the pasture.” So, the desert country with the largest reserves of petroleum also has a large and growing dairy industry. How is this possible? The link between these two facets of Saudi Arabian political economy can be found by looking at the global interaction of oil and water. And the link extends into the oil and gas industry and the agrarian economy in Kern County. Oil and water are again mixed and interchanged, this time on a global scale. Almarai was founded in 1977 as a joint venture between Prince Sultan bin Mohammed bin Saud Al Kabeer and the Irish farming systems company, Masstock Group Holdings. The company was small, with only about 300 head of dairy cattle initially, and was part of the larger goal, set by the kingdom in the mid-1970s, to become self-sufficient in food production.

Today Almarai’s operations, through its subsidiary, Fondomonte, has a dairy herd of almost 200,000 head of cattle. Almarai is the largest producer of milk and other dairy products in both Saudi Arabia and the Middle East as a whole. Almarai exports milk, cheese, and other products to countries across the in the region. Al Kabeer himself is ranked as one of the wealthiest citizens of Saudi Arabia and believed to own about 29% of Almarai, which he took public in 2005 on Tadawul, the Saudi stock exchange.

Oil, Water, and Climate Change:

The Saudi Arabian-California Oil and Water Mix How are Saudi oil and California water connected? The most obvious connection is the global trading system in which Saudi Arabia imports California’s virtual water (agricultural products), and California imports Saudi oil. But the connections go deeper.

In 1877 Thomas Blythe came to California and settled along the Colorado River that separates California and Arizona. Blythe filed a water claim for “an unquantifiable amount of water” from the river. In California’s water law, first in time is first in right, meaning Blythe and the successors to his claim have first call on the water and must receive their full allocation—which is unquantifiable—before anyone else gets water. Today, that water claim is owned by the Palo Verde Irrigation District, which covers almost 189 square miles located in Riverside and Imperial counties, much of it irrigated by a system of canals and dams that benefit from Blythe’s water claim.

But California growers are not the only beneficiaries of the Palo Verde Irrigation District’s water. When Almarai was founded in the 1970s, a University of London study assessed the size of the kingdom’s underground aquifers at 500 cubic kilometers, one of the largest in the world and enough, as the report stated, to fill Lake Erie. Little attention was paid to a crucial fact: the water in the Saudi aquifer was “fossil water.” Much like the fossil oil reservoirs that are essential to the kingdom’s wealth, it had required thousands of years for the Saudi aquifer to fill. The water had supported limited agricultural production at the oases located in various parts of kingdom. Unlike that of Saudi Arabia, Lake Erie’s climate annually produces the large amounts of rainfall needed to replenish it. Almarai and other agribusinesses, like the growers in Kern County, simply stuck big straws in the ground and drew out the water—as much as five trillion gallons a year. As Almarai grew from an initial herd of about 300 cattle to today’s mammoth operation, more and more water was needed to sustain the herd. And, while Almarai is the kingdom’s largest producer of milk and other dairy products, the company is not alone in Saudi Arabia’s dairy industry. Others joined in the business.

Today, only slightly more than a generation after the Saudi government decided to become food self-sufficient, the combination of human activity and climate change has drained an estimated four-fifths of the water that for millennia had supported the kingdom’s ancient cities. As oases run dry, a country with a per capita water usage behind only the United States and Canada now faces the need to conserve this resource. Desalination supplies most of the drinking water consumed in Saudi cities, but that process is expensive and very energy intensive: 30% or more of the energy derived from Saudi oil production goes into the process of desalination.

The extent of the difficulties facing the kingdom in any attempt at water conservation is starkly outlined by the very success of the dairy industry. How did a desert country, averaging less than four inches of rain annually, become a dairy powerhouse? And how can cattle survive—and thrive—in an environment where temperatures regularly exceed 100 degrees Fahrenheit?

Milk production in Saudi dairies is more resource-intensive than in places such as Ireland or the upper Midwest in the United States. Saudi-resident dairy cattle are sprayed with water from overhead misters and are run through water jets prior to milking. The Saudi dairy industry adopted the “California Model” for producing milk. In the California Model, cattle do not roam the range but are raised in concentrated geographical areas. An enterprise does not have to grow all the necessary food to support the herd; it can outsource food production to other locations. It was this approach to dairy production that made California the leading dairy state, passing Wisconsin in the 1990s. “You can import feed and water and house a thousand head of dairy cattle on just 40 acres of land,” said one dairy economist.

By the early 2000s, the Saudi government began to be concerned about the depletion of its aquifers. Over the following years, policies were implemented to slow or halt the process, first applied to the export of wheat but gradually extending to other water-intensive crops. Dairy cattle do best in terms of milk production when their diet includes alfalfa. The Saudi dairy industry seeks to maximize milk production, striving for over 14,000 liters of milk per cow each year. However, in 2018 Saudi Arabia finalized a nationwide ban on growing alfalfa and other water- intensive crops.

So, where to get the alfalfa?

Almarai has responded to the ban on growing the water-intensive alfalfa by purchasing land for growing alfalfa in both California and Arizona. The company seeks locations with strong protections for private property ownership, polices that favor agricultural production, and have little in the way of groundwater regulation. California has only taken the first steps toward serious groundwater regulation with the 2014 passage of the Sustainable Groundwater Management Act, which will not be fully implemented until 2040. Arizona currently has no regulation of groundwater outside urban areas. Almarai is not alone in seeking virtual water outside of the Arabian Peninsula: a major competitor, the U.A.E.-based Al Ain Farms, is also an active buyer of land in California and Arizona.

Almarai’s California land includes acreage in the Palo Verde Irrigation District as well as another 15,000 acres in the Central Valley, primarily in Kern County. The land in the irrigation district is especially attractive because the terms of the water claim forbid the agency from selling the water for profit; the agency is allowed only to cover overhead costs. Almarai, as well as domestic growers, thus receive water at a significantly discounted rate compared to the market cost, which is important in drought years such as the record-low precipitation year of 2021.

Most alfalfa grown in the United States is consumed domestically, but this is not true in California. The alfalfa grown on the acres acquired by Almarai, with water brought from northern California to Kern County, is exported to Saudi Arabia to feed the mammoth dairy herds of Almarai. California imports about 25% of its petroleum requirements from Saudi Arabia. Water for oil.

Part 4: Planet Destruction, Planet Preservation

Oil, as a source of energy production, and water, as the lifeblood of food production, are both critical resources in the global political economy of energy and food. But the impact of these two inputs on our planet are very different. Pollution from fossil-fuel created energy destroys life; water nurtures life. The reserves of both are finite. But there are viable alternatives to the drilling of crude oil to produce energy. Today, these alternative sources of energy not only make our and future generations’ lives healthy, they also are competitive, even in the narrow cost/profit calculus of economics.

However, the global political economy privileges the production of oil over the preservation of our finite reserves of water. This is yet another example of how “the market” does not reflect the actual values of these two resources, because the market is about short-term, here-and-now profitability, returns to current equity holders, and the structures of economic and political power. The irrationality of market-based resource allocation is strikingly illuminated in the use of water to produce the last dregs of oil from Kern County and the virtual water trade that allows a desert country—whose primary source of income is the maintenance of the global addiction to fossil fuels—to develop an agribusiness economy that drains the world’s water, at home and abroad.

Bill Barclay is a resident of Ventura County, Calif., and a member of the Chicago Political Economy Group.

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