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

Mr. Secretary: Mr. James A. Moffett telephoned to me yesterday afternoon with further reference to the proposal to accord financial assistance to King Ibn Saud through the purchase by the United States Government of petroleum products which Mr. Moffett’s company would produce and process. Mr. Moffett outlined at some length the history of this proposal. He began by pointing out that the financial and economic situation in Saudi Arabia was becoming more and more desperate. Only within the past week his company had been obliged to advance a further sum of $500,000 to Ibn Saud’s Government. This made a total advance of $7,300,000 to be recouped from future oil royalties.

[Page 633]

Mr. Moffett stated that his original proposal to the President was that this Government advance funds to King Ibn Saud, security for such a loan being oil in the ground in Saudi Arabia. According to Mr. Moffett, the President told him that this Government could not buy “oil in the ground”, but that it would be willing to consider the purchase of finished products which could presumably be brought from the Persian Gulf in Danish tankers under the control of the Government and used to build up supplies in our new naval bases. Mr. Moffett said that at the President’s request he had drawn up the memorandum13 which subsequently was sent over here by the White House.

It was Mr. Moffett’s understanding that the President was greatly interested in this proposal, which Mr. Moffett described as similar to the Tung oil arrangement made with China.14 Mr. Moffett seemed to feel, however, that the proposal in regard to Saudi Arabia was more sound than the Tung oil arrangement since there would be one hundred percent security.

Mr. Moffett also pointed out that his proposal to the President involved bur urging upon the British that they increase the subsidy which they were granting to Ibn Saud. For his strictly confidential information I told Mr. Moffett that I understood that you had recently mentioned this aspect of the matter to the British Ambassador, who would presumably pass the suggestion along to his Government.

Mr. Moffett then requested that I bring this whole matter urgently to your attention with a view to reaching a decision as soon as possible. He said that it had been his understanding that if the proposal was approved in principle the President would then ask him to work out the details with the Navy Department and with the Treasury or the Lend-Lease organization.

I am at your disposal to discuss this question whenever you desire. Mr. Moffett hoped that we could give him a reply at an early date, and he stressed the fact that his company could no longer continue to make these large advances to the Government of King Ibn Saud.

Wallace Murray