890F.51/48½

Memorandum by the Chief of the Division of Near Eastern Affairs (Murray) to the Secretary of State

Mr. Secretary: In the attached papers4 Mr. Moffett states that unless King Ibn Saud receives financial assistance at once there is grave danger that this independent Arab Kingdom cannot survive the present emergency. Mr. Moffett therefore proposes:

(1)
That we urge the British Government to increase from £400,000 to £900,000 the payment which they are making to the King in 1941.
(2)
That the United States Government agree to purchase from King Ibn Saud petroleum products to the value of $6,000,000 annually for the next five years.
(a)
Mr. Moffett believes that some of this petroleum could be consumed by the United States Navy or other Government agencies.
(b)
However, that part of the oil not used by the Government would have to be marketed outside the Pacific area, presumably through private channels. In practice this would mean that, as conditions are at present, the only marketing area would be the Western Hemisphere.

Comment:

Although our own information regarding the financial situation in Saudi Arabia is not precise (we have no representative permanently resident in Saudi Arabia), we do know that the King’s finances have been severely strained. Ordinarily the chief revenues of the Kingdom come from the Moslem pilgrim traffic, from customs revenues and from oil royalties. The first two sources have been effectively dried up by the existing situation. The oil royalties paid by Mr. Moffett’s company, plus advances on those royalties in the amount of $6,800,000, have apparently been insufficient to meet the financial needs. The annual budget of $10,000,000, estimated by Mr. Moffett, appears to be reasonable in the existing situation.

Political Background

King Ibn Saud is unquestionably the outstanding figure in the Arab world today. He has long had intimate relations with the British and has been friendly with them despite the fact that during the last war [Page 628]the British supported his rival, King Hussein, as their candidate for the proposed Arab Empire. All of our recent reports from our own officers and from the British indicate that the King favors the Allied cause. He has some complaints against the British, particularly their policy of supporting the Jewish National Home in Palestine. The only political dealings we have had with him were on the same subject when, about two years ago, he addressed a letter to the President5 objecting to this Government’s alleged activities in favor of the Jewish National Home and against Arab interests. There seems little reason to doubt, however, that fundamentally Ibn Saud is anti-Axis. (It is pertinent to remark that about three years ago he refused to grant oil concessions to German and Japanese interests and instead accepted a less favorable concession agreement with Mr. Moffett’s company.) Since Ibn Saud’s influence is great in the Arab world a good case can be made out in favor of granting him financial support. The question arises how this support can best be given. The following comments are submitted on Mr. Moffett’s proposals, as outlined at the beginning of this memorandum:

(1)
No objection is perceived to discussing with the British the question of their increasing by £500,000 their 1941 payment to the King. This would be a small price for them to pay for Ibn Saud’s support and influence in this vital Near Eastern area.
(2a)
It would presumably be possible for the Navy to use in the Pacific area some, or possibly all, of the extra oil which Mr. Moffett proposes to produce. This question would have to be discussed with the Navy Department, and would involve consideration of such points as whether the Navy is obligated by law to obtain its oil by competitive bid, the extent to which the Navy is restricted by current contracts, etcetera.
(2b)
Whether it would be possible for the Government to sell, through commercial channels, that part of the proposed Arabian new production which it could not consume raises various considerations. Mr. Moffett makes the condition that the proposed production in excess of United States Government requirements “would have to be moved outside” of the Pacific area. This probably means that in practice it would have to be sold in the Western Hemisphere since there is no available market in Europe or West Africa. Why this excess oil could not be sold in the Pacific area through commercial channels Mr. Moffett does not make clear. One is, perhaps justified in the speculation that such sale would be contrary to marketing agreements among the large oil companies or merely that there actually is no ready market in that area except Japan. The further question arises whether this excess oil could find a market in the Western Hemisphere unless the Government was prepared to sell it at a loss to marketing companies. Consideration might also have to be given whether The Chargé might not be made that the commercial part of Mr. Moffett’s proposal was of direct benefit to the California Arabian [Page 629]Standard Oil Company and that the proposal was designed to relieve that company from the difficult situation in which it has been placed. All in all the commercial part of the proposal seems open to some objections, although these might be overcome upon more intensive investigation.

An Alternative Proposal

If it is decided that action should be taken to give financial support to Ibn Saud, and there appear to be sound reasons in favor of such a proposal, possibly an arrangement might be worked out combining part of Mr. Moffett’s proposal with action under the Lend-Lease Act.6 Mr. Moffett feels that Ibn Saud needs approximately $6,000,000 from our side. It might be feasible for the Navy to purchase $3,000,000 to $4,000,000 worth of oil for use at bases in the Pacific. Even more might be used, but it is not clear from Mr. Moffett’s statement whether it would be possible to produce more refined products than he has suggested. (Nearly one-half of the proposed production of $6,000,000 consists of gasoline which might not be required by the Navy. In this connection it is understood that the gasoline produced in the Saudi Arabian field is of low octane content which, even when leaded to the maximum, does not exceed 85–87 octanes.) Assuming, however, that the Navy could use all of the heavy products amounting to something over $3,000,000 in value, the balance of the $6,000,000 might be made up by furnishing supplies to Saudi Arabia under the Lend-Lease Act. Such help might be extended in return for satisfactory political assurances and commitments by Ibn Saud.

Negotiations covering these matters might appropriately be undertaken by Mr. Kirk, our Minister in Egypt, who in any case should be proceeding shortly to Jidda to present his credentials to Ibn Saud, to whom he is also accredited.

Wallace Murray
  1. Supra.
  2. Foreign Relations, 1938, vol. ii, p. 994.
  3. Approved March 11, 1941; 55 Stat. 31.