Memorandum by the Chief of the Division of Near Eastern Affairs (Murray)19
Mr. Butler, Minister-Counselor of the British Embassy, called today with regard to the situation in Saudi Arabia. Mr. Butler recalled that several days ago the Secretary had mentioned to Lord Halifax the apparent financial difficulties in Saudi Arabia and had intimated that the British Government might wish to look into the matter to see whether it would be desirable to afford King Ibn Saud financial assistance. Subsequently the British Embassy had learned of Mr. Moffett’s proposal for the purchase of petroleum products from Saudi Arabia for the use of the American Navy. The Embassy had gained the impression that if the British Government were willing to make a further contribution to Ibn Saud’s finances, the American Government might then be willing to give consideration to the [Page 637]purchase of these petroleum products, the proceeds of which would be turned over to King Ibn Saud with a view to further supporting his regime.
Mr. Butler stated that a telegram had now been received from the Foreign Office stating that the British Minister at Jedda fully agreed that King Ibn Saud’s financial situation was bad and that he greatly needed assistance. The British Minister at Jedda also expressed the view that King Ibn Saud had been perfectly loyal to the British and deserved support. Accordingly, the British Government had taken steps immediately to increase the grants which had been previously made to King Ibn Saud. These grants, which had amounted to £800,000, were to be increased by £200,000. The British Government expressed the hope that it would now be possible for this Government to give further consideration to the possibility of granting financial support to King Ibn Saud. Mr. Butler said that he understood that the proposal which had been made by Mr. Moffett was more or less of a commercial proposition but that, although he had no direct instructions to say so, it was the hope of the British Embassy here that financial aid could be extended even if not on a commercial basis. In this connection Mr. Butler strongly stressed his belief that, with the international situation as it was, the financial position of Saudi Arabia should be considered entirely as a political matter and not a commercial matter.
I stated that I would bring the foregoing to the attention of the appropriate officers in the Department.
In as much as the British Government has now increased its subsidy to King Ibn Saud the question arises whether we may not wish to pursue with Mr. James A. Moffett the proposal which he made to the President some weeks ago. A recent memorandum from the Secretary of the Navy to the President20 indicates that the oil produced in Saudi Arabia is not up to the standards required by the United States Navy. However, we have gathered in informal discussions with officials of Mr. Moffett’s company that his organization probably would be willing to furnish oil from American production fields to build up naval supplies in the West Indies, turning over the proceeds to King Ibn Saud. The company would eventually obtain a reimbursement by taking royalty free oil from its fields in Saudi Arabia. In the event you desire to have us pursue this matter further we can get in contact with Mr. Moffett or some of his associates. Possibly you may wish to discuss the matter with the President.