The Secretary of State to the Secretary of the Interior (Ickes)39a

My Dear Mr. Ickes: This Department has become increasingly concerned over the course taken by various proposals respecting the development and utilization of the petroleum resources of the Middle East. We have particularly in mind the relations of this Government with certain independent governments in that area, and the long-term effects of any adopted line of action upon the American petroleum position in the Middle East.

It is believed desirable at the outset to invite attention to the fact that the main purport of the decisions taken by the Petroleum Reserves Corporation from time to time has become public knowledge. In view of this fact, the Department feels that the Corporation should bear carefully in mind that its attitude towards the problems before it, and the shifts in attitude which take place, are bound to produce reactions, [Page 942] whether favorable or unfavorable, from the foreign governments and peoples directly or indirectly concerned.

It will be recalled that the Corporation first contemplated the construction of a large refinery in Saudi Arabia and the complete or partial ownership of the California Arabian Standard Oil Company. When these facts became known to the public, the Department found it necessary to inform King Ibn Saud of them, since the future of his country is, of course, intimately connected with any such development.

It is now announced in today’s press that the negotiations over the refinery and over this Government’s participation in the California Arabian Company have broken down. This information, coming on the heels of what had previously been announced, cannot fail to create, in the Saudi Arabian Government, a lack of confidence in the sustained interest and purposefulness of this Government respecting Saudi Arabian oil, which that country is most anxious to have developed. It also cannot fail to weaken in the eyes of King Ibn Saud the position of the American company which holds the concession, since there is now no assurance that its holdings will be substantially developed in the near future.

This Department believes that there should be a full realization of the fact that the oil of Saudi Arabia constitutes one of the world’s greatest prizes, and that it is extremely short-sighted to take any step which would tend to discredit the American interest therein, whether that interest be of a public or private character.

We are informed by sources of unquestioned reliability that influences will be brought to bear upon King Ibn Saud in the not distant future for the purpose of undermining his confidence in the American interest in his country’s petroleum resources. The financial support which the King has been obliged, by his country’s weakened economy, to obtain from a certain Power, naturally afford a ready-made pretext and opportunity for that Power to secure an interest in Saudi Arabian oil at the expense of the American interest. Since this Department has been exerting every effort, for some time past, to counterbalance and offset the obligations mentioned, it will naturally be very discouraging if those efforts are nullified by lack of a settled policy respecting Saudi Arabian oil.

This Department is convinced that the British, in the handling of Middle Eastern oil, have the long-term view in mind as well as the short, and that for the proper protection of American interests it is necessary for us to do likewise. We strongly favor the full utilization of British oil resources and equipment in the Middle East to relieve the strain on American production. However, it should be kept clearly in mind that the expansion of British facilities serve to build [Page 943] up their post-war position in the Middle East at the expense of American interests there. Accordingly, we believe that consideration should be given to any further increase of British oil facilities in the Middle Eastern area only if such increase is clearly necessary from the military viewpoint and the need could not be met by providing for increased supplies of American Middle Eastern oil. In this connection, we have learned with considerable apprehension that projects are being entertained for the further expansion of the facilities of the Anglo-Iranian Oil Company, a wholly-owned British concern which already has the largest refinery in existence; for a new pipe line to the Mediterranean from the Iraqi oilfields, a project which would benefit the Iraq Petroleum Company in which the British have a controlling (we only a minority) interest; and for a refinery in British India utilizing the production of Qatar or other British-controlled oil. The last-named project may not be unconnected with marketing arrangements between certain British and American companies. On the other hand, we understand that there are several refinery projects which have been advanced by American companies holding Middle Eastern Oil, one an alternative proposal by the California Arabian Standard Oil Company for a smaller refinery than that previously contemplated for Saudi Arabia. We believe that full consideration should be given these proposals and that, to the maximum extent consistent with direct war requirements, they as well as any other possible expansion of American facilities should have priority over any further expansions of British facilities in the Middle East area.

We believe that strong criticism will develop if British petroleum facilities in the Middle East are further expanded for American purposes and with American materials, for to do so will retard the development of American enterprises, jeopardize their holdings, and so tend to make this country dependent on British oil in the future.

Copies of this letter are being sent to the other Directors of the Petroleum Reserves Corporation, and to the Deputy Petroleum Administrator for War.

Sincerely yours,

Cordell Hull
  1. This letter was addressed to Mr. Ickes in his capacity as President of the Petroleum Reserves Corporation.