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

282. Memorandum of a Conversation, Department of State, Washington, August 29, 1957¹

Washington, August 29, 1957

SUBJECT

• Aramco Negotiations with the Saudi Arabian Government

PARTICIPANTS

• Mr. Fred Davies, President, Aramco
• Mr. James T. Duce, Vice President, Aramco
• Mr. Robert Murphy, Deputy Under Secretary
• Mr. Earl Beckner, FSD
• Mr. William Van Dusen, FSD
• Mr. George Bennsky—NE/E
• Mr. Robert K. Sherwood—NE

Mr. Davies stated that the purpose of his call was to bring Mr. Murphy up-to-date on the recent negotiations between Aramco and the Saudi Arabian Government. In these negotiations, during June and July, only three agenda items had been covered out of thirteen, and the Saudi Arabian Government had denied Aramco’s position on all three questions.² The accomplishment, he remarked, was about zero. The negotiations will resume in October but there seems little prospect for any change in the attitude of the Saudi Arabian Government, which might be gauged by the comment of Tariqi, Petroleum Administrator of the Saudi Arabian Government, that there seemed no reason to rush because they might be negotiating until the year 2000 on matters between the Saudi Government and the company.

In response to Mr. Murphy’s question Mr. Davies said that Onassis had told Aramco recently that the King had asked him to bid on a concession. Onassis had asked Aramco if it wished to join with him. Mr. Davies replied that the company did not take this proposal seriously. Mr. Davies said Aramco would welcome another oil company to “shoulder the burdens” of dealing with the Saudi Arabian Government. Davies believed that any oil concerns going into the area now will be faced with 75–25 proposal, along the lines of the AGIP–NIOC agreement.

Mr. Davies believed that the principal objective of Mr. Tariqi was to bring about the complete integration of Aramco from extraction through marketing. Despite Aramco’s belief that this would not result in more income for the Saudi Arabian Government, Tariqi has continued to push this idea, apparently thinking of the day when the concession agreement expires (1999 A.D.) and the Saudi Government will take over Aramco’s facilities. Aramco proposed that it establish trading companies, in line with the general practice in the area, but Tariqi refused to accept the proposal, believing that it would delay progress towards his -goal of a completely integrated company.

Mr. Davies said that in his farewell call on the King the latter had said that he would reconsider his government’s initial refusal of the trading company proposal, and would also reconsider his government’s position on its claim for $103,000,000 which it presently is demanding as its share of profits on the Tapline which have been concealed by Aramco. The King had felt that it would be worthwhile to take all possible steps to resolve their differences without arbitration. Mr. Davies said he had pointed out to the King that Aramco had sought outside advice because of the complexities of the issues, and he suggested that the King might also seek outside advice. It was Mr. Davies’ feeling that the company would of course go to arbitration if necessary but he hoped that this step could be avoided because it would destroy some of the good feeling which now exists.

In response to Mr. Murphy’s question Mr. Davies stated that the Suez pipeline which had been widely discussed was not an economically feasible proposal but it was in harmony with Nasser’s thinking. Mr. Duce said they had recently heard from Mr. Sabbah that Egyptian leaders may in the near future attack the western oil companies in the Near East, on the grounds that getting them out is a necessary step in the struggle against imperialism. Mr. Duce said that Mr. Sabbah would be in the United States soon and would come to Washington.

Mr. Murphy inquired what would happen should the Iraq pipeline through Syria be closed again. Mr. Davies thought the results would be short lived. He remarked that if Tapline were sabotaged Aramco could export through the Persian Gulf, using the great increase in tankers which had come about since the Suez crisis last year.

Both Mr. Davies and Mr. Duce mentioned their concern over recriminatory statements directed against the company by the British on the Oman issue. The French have publicly announced that no Aramco associate can join in the Sahara oil concession. Following a discussion of the Syrian crisis Mr. Davies and Mr. Duce took their leave. A telegram from Colonel Eddy giving his suggestions for meeting the Syrian crisis was left (copy attached³).

1. Source: Department of State, Central Files, 886A.2553/8–2957. Official Use Only. Drafted by Sherwood on August 30.
2. In a memorandum to Murphy dated August 29, Rountree noted that negotiations between Aramco and the Saudi Arabian Government had lasted from June 17 to approximately July 24. The discussions covered 13 points relating to the company’s pricing arrangements, operations, and structure. The items of dispute, Rountree added, included the following: Saudi Arabia’s retroactive tax claim against Aramco for alleged Tapline profits; Aramco’s proposal to create trading companies; Saudi Arabia’s proposal to extend the 50–50 profit sharing principle into marketing arrangements; Saudi Arabia’s proposal that the company begin to facilitate sales of oil to other than its parent companies; the appointment of Saudis to the Aramco Board of Directors; the creation of minimum production levels; payment of oil royalties in kind; and Aramco’s relinquishment of undrilled land and closed oil fields. (Ibid.)
3. Not found attached.