Foreign Relations of the United States, 1955–1957, Near East: Jordan-Yemen, Volume XIII

234. Memorandum From the Special Assistant for Intelligence (Armstrong) to the Deputy Under Secretary of State (Murphy)¹

Washington, June 11, 1956.

SUBJECT

• Importance of Saudi Arabian Oil (NIE 36.6–56)²

Reference is made to your query regarding the following statement in my memorandum of May 17:

“Loss of Saudi oil would not be economically or militarily critical to the West in view of the possibilities for quick expansion of production elsewhere in the Middle East.”

We have reviewed Saudi Arabia’s oil position in the light of free world requirements in the absence of an armed conflict involving the great powers and are of the view that the conclusions reached in NIE 36.6–56 (page 2, and pages 13–14³) are valid. The significance of Saudi oil under global wartime conditions has been analyzed in the context of total Middle East production by the Departments of Interior and Defense (OGD–12 (TS)). Although Saudi Arabian crude oil reserves constitute about 20 percent of the free world’s proved reserves, the country’s production (1,000,000 barrels per day (b/d) during the first quarter of 1956) is only 7 percent of total free world output. Refining capacity of 216,000 b/d is less than 2 percent of total free world capacity.

In the event of cessation of Saudi Arabian oil operations, it is estimated on a conservative basis that output elsewhere in the Middle East could be increased immediately by nearly 700,000 b/d and within six to twelve months by more than 1,000,000 b/d. Moreover, output from the US Gulf of Mexico area could be expanded at once by about 800,000 b/d and within a year by an additional 400,000 b/d. Expansion of output in the Middle East would probably involve no permanent price increases whereas those in the US Gulf area, if required, would result in some rise.

The production increases that are possible from other areas in the Middle East, compared with recent levels of output, are as follows:

Country	March 1956 Production	Increased Output Readily Available	Increased Output Available After 6–12 months
		(In thousands of barrels per day)
Iran	539	361	461
Iraq	716	11	191
Kuwait	1,175	275	325
Kuwait-Saudi Arabia Neutral Zone	30	20	20
Qatar	125	1	13
Total	2,585	668	1,010

The termination of Saudi oil shipments would create some immediate dislocations in consuming areas. Within a relatively short period of time, however, supply sources could be rearranged and tankers rerouted without any permanent harmful effects on world oil markets.

The Office of the Secretary of Defense and the Department of the Interior are in substantial agreement with the above conclusions. A similar memorandum has been sent to the Under Secretary.⁴

1. Source: Department of State, Central Files, 886A.2553/6–1156. Secret.
2. Not printed. (Ibid., INR-NIE Files)
3. Page 2 of NIE 36.6–56 contained numbered paragraphs 5 and 6 of the Estimate’s conclusions. Pages 13 and 14 included section V, not printed, entitled, “Outlook For Oil Operations” which contained the numbered paragraphs to which the conclusions on p. 2 referred.
4. A handwritten notation on the source text, presumably by Murphy, reads: “This assumes, of course, that the other areas would not be affected by changes with respect to Saudi Arabia. Is that a valid assumption?”