Memorandum by the Adviser on International Economic Affairs (Feis) to the Secretary of State

Mr. Secretary: On July 23, Commodore Carter, Navy Representative on the Army–Navy Petroleum Board, informed me that the Board had concluded that the one refinery project which it should have carried out by this Government for military reasons was the erection of a refinery in Saudi Arabia. The plans drawn contemplated production of 20,000 barrels a day of aviation gasoline and a total potentiality of about 100,000 barrels a day; its estimated cost would be in the neighborhood of $100,000,000. The decision to construct a refinery in Saudi Arabia had been based on anticipation of military supply needs in the Southwest Pacific, strengthened by the conclusion that it would be advisable in the long run to draw on Persian Gulf supplies for the quantities needed, rather than on our own domestic supplies.

Commodore Carter pointed out that in our previous discussions regarding the plan of having the Government acquire stock ownership in the California-Arabian Company it had been the view that any discussions which might be required with the Company for refinery construction, should be carried on independently in order not to risk delay. He observed, however, that it was plain if an undertaking of this size was begun, it would in the first place, require Government financing and in the second place, be certain to influence the Company’s attitude in the prospective discussions with this Government about stock purchase. I agreed with these observations and said I thought the matter ought to be discussed with the Secretary of the Interior, who had been indicated as senior negotiator on Saudi Arabian matters by the President.

The meeting with Secretary of the Interior took place this afternoon. There were present besides Commodore Carter and myself, Under Secretary Fortas and their General Counsel. Commodore Carter and I explained the matter to Mr. Ickes as summarized above.

Mr. Ickes stated that he wished to inform us: (a) that he had talked [Page 934] with Mr. Crowley about the Petroleum Reserve Corporation, who had agreed that the by-laws should be (as drafted by the Reconstruction Finance Corporation) superseded by a new set of by-laws; (b) that the Secretary of Commerce, who had been nominated as one of the directors in the RFC by-laws, should not be a member of the Board; Mr. Crowley would be added, (c) that Secretary Ickes would become President of the Petroleum Reserve Corporation, and (d) it was agreed that as soon as new by-laws were put into effect, the directors should meet and the Company thus become ready to undertake business.

The Secretary of the Interior said, therefore, that he anticipated the Petroleum Reserve Corporation would be in a position to carry out the Saudi Arabian refinery project recommended by the Army-Navy Petroleum Board; that it was his judgment that this was a more satisfactory way of having it received than directly by the Army—to which opinion Commodore Carter subscribed. Secretary Ickes said he felt that the need for this refinery construction was an added element in the Government’s position, strengthening the ground on which it could make proposals for the purchase of the stock of the California-Arabian Company. The investment was so large the companies could not finance it without immense Government aid.

He therefore proposed that both matters be discussed at the same time with the Presidents of the Standard Oil of California and the Texas Company next Monday, for which time an appointment had already been made with these officials to discuss stock purchase proposal. Commodore Carter indicated his agreement with this view and program, and I did the same.

H. Feis