The Secretary of State to President Roosevelt 26

My Dear Mr. President: I have been informed by the Secretary of Commerce that the Petroleum Reserve Corporation has been established.

It is my understanding that you wish the Petroleum Reserve Corporation to address itself immediately to the end of securing for the American Government reserves in Saudi Arabia.

Representatives of the Departments of State, War, Navy and Interior have again met to discuss how best to proceed in this matter, and they have requested that I present to you for your approval the following summary of instructions and of the prospective program of action. It embodies the instruction you gave directly to Mr. Herbert Feis and Mr. Wallace Murray:27

That the by-laws of the Petroleum Reserve Corporation shall provide that the Board of Directors shall be the Secretaries of State, War, Navy, and Interior.
That you will summon a meeting of the aforenamed Board of Directors of the Petroleum Reserve Corporation and the Chairman of the Reconstruction Finance Corporation at the earliest possible date to formally inaugurate the beginning of operations of the Company; the first item of business shall be the selection of a representative to direct the business negotiations that are in prospect in regard to the Saudi Arabian situation.
That this representative be authorized immediately to undertake discussion, on a strictly confidential basis, with the executives of the Standard Oil Company of California and of the Texas Company, owners of the stock of the California-Arabian Standard Oil Company, which holds the present concession.
That these discussions be addressed to the end of acquiring complete stock ownership of the California-Arabian Standard Oil Company, in accordance with the general terms and conditions set forth in the memorandum of June 25, 1943,28 submitted to you jointly by myself and my colleagues.
When it is indicated, as a result of these discussions, whether and on what terms the desired purchase transaction can be achieved, the matter be then resubmitted to you.
The Reconstruction Finance Corporation shall supply the Petroleum Reserves Corporation with such funds, either as a loan or as a contribution to capital, as from time to time you may determine to be advisable—until such time as funds might be made directly available by Congress.
Upon receipt of your approval, a special representative shall be sent to the Middle East to confer with the American Minister in Cairo, and the American Minister Resident in Saudi Arabia, as to how best to bring the matter before Ibn Saud; and upon receipt of this advice, and any necessary instructions from Washington, these officials shall proceed to give Ibn Saud the necessary notification.
That in presenting the matter to Ibn Saud it should be made clear that this Government, as owner of the concession, would completely respect its terms and in every way observe the independence of Saudi Arabia.

That in addition, and as an indication of our desire to have the development of the oil resources of Saudi Arabia serve the internal economic development of that country, this Government will pledge itself to set aside in the ground and to protect against all withdrawal an amount of oil believed to be sufficient to supply the domestic consumption needs of Saudi Arabia and to facilitate its development during the lifetime of the concession. As far as it may be practicable this special reserve shall be located in particular defined proven structures which shall be specifically denominated as Saudi Arabian national reserves and production will be drawn therefrom by the Company only upon the instruction of the Government of Saudi Arabia. This action will be taken by us without any request for compensation on the part of Saudi Arabia. It will be in addition to [Page 932] the very substantial royalty payments on all production to which the Saudi Arabian Government is entitled under existing agreements (4 shillings, gold, per ton).

This program has the unanimous agreement of the State–War–Navy–Interior group of officials that formulated the original proposals which you have approved. Will you kindly advise me if it meets your ideas satisfactorily.

Faithfully yours,

Cordell Hull
  1. The following notation appears on the original: “OK but dress up Section 7 FDR.”
  2. Adviser on Political Relations.
  3. Ante, p. 925.