Memorandum by the Secretary of State to President Roosevelt

[Here follows section discussing concern of the Department of State that this country possess adequate foreign petroleum reserves, both in peace and war situations; and the bearing of this question on relations with foreign governments in the post-war period.]


(5) Particular attention has been directed in several recent proposals to the concessions in Saudi Arabia.

As regards the recommendation of the Joint Chiefs of Staff that increased production and new refinery construction should be immediately undertaken there, the Department is in complete accord. This, presumably, could be brought about by negotiations with the American companies holding the concessions, as are the new refinery extensions now under way in Bahrein, Venezuela, etc. Should any difficulty arise with the Saudi Arabian Government, the Department would do its utmost to secure their satisfactory solution.

The current proposals, however, concern themselves not only with increases of production in the immediate future for war purposes but with the underlying concession situation.

An American company, the California-Arabian Standard Oil Company, now possesses the right to explore and develop over a vast stretch of territory which is deemed to include practically all of the promising oil-bearing territory. This Company is owned in equal shares by the Standard Oil Company of California and the Texas Company. The amount of oil extracted up to the present has been small, while the reserves are reported to be extremely great.

Three proposals have been put forward intended permanently to assure that the oil of Saudi Arabia shall serve as a reserve for the United States—apart from the question of immediately increasing production and refinery capacity. They are as follows: [Page 923]

The recommendation in the State Department memorandum of March 3118 that the Petroleum Reserve Corporation (when created) enter into a contract with the California-Arabian Standard Oil Company whereunder that Company would set aside x billions of barrels of oil in the ground as a reserve for the United States Government to be delivered when and as desired. This amount could be adjusted to the amount of total reserves as they are established by further exploration. Or, the proposal could be put in the form of an arrangement whereby all of the oil should be so set aside as reserve for this Government, with an understanding that this Government would release to the companies for commercial sale such amounts as might be decided upon.
It is not believed that an arrangement of this type would require any new significant negotiations with Ibn Saud; though it would be highly advisable to notify him and seek his cooperation.
A recommendation contained in a letter of the Petroleum Administrator for War to the President that this Government purchase from the two parent companies a controlling stock interest in the California-Arabian Standard Oil Company.
There would appear to be no express provision in the agreements between the company and Ibn Saud forbidding such a transaction. But attention is called to the following provision:

“The Company may not, without the consent of the Government, assign its rights and obligations under this contract to anyone, but it is understood that the Company, upon notifying the Government, shall have the right to assign its rights and obligations hereunder to a corporation it may organize exclusively for the purpose of this enterprise.”

In any case, it is believed it would be necessary to notify Ibn Saud of our intention and it is not known what attitude he might take towards the entrance of the American Government into the business of developing oil reserves located within his domain.
The suggestion contained in the memorandum presented by Admiral Leahy to the Secretary of State19 that this Government send a special mission (composed of the Minister and a special Government representative, Captain Carter, U.S.N.) to negotiate a new concession for oil within Saudi Arabia with Ibn Saud.
The most promising oil-bearing land is already included within the concessions held by the California-Arabian Standard Oil Company, which furthermore has a preferential right to further large stretches of territory located further away from the Persian Gulf Coast.
It is believed essential to point out that any negotiations which disturbed the present concession might have adverse results, and possibly lead to new demands either upon the Company or upon this Government under penalty of reducing the present concession or admitting representatives of other countries.

(6) In this present critical stage of our international relations, and bearing in mind the extreme importance of petroleum questions in the whole of our foreign relations, the Secretary of State is unwilling [Page 924] to get into controversy with other branches of Government as to the course to pursue in regard to the Saudi Arabia situation. He submits the matter for the judgment of the President in the light of the preceding summary. It is his view that the simplest and most advisable way to proceed in Saudi Arabia is along the lines of (a) that is:

Immediate arrangements with the American companies to develop their production and their refinery.
Agreements setting aside such reserves as the Army and Navy deem necessary for their requirements.

In view of my understanding that the President has asked Justice Byrnes20 to consider this matter, a copy is being sent to him.

Cordell Hull
  1. Not found in Department files.
  2. June 11, supra.
  3. James F. Byrnes, Director of War Mobilization.