890F.51/5–2945
Memorandum by the Acting Secretary of State to President Truman
Last January President Roosevelt approved15 the following State Department proposals, concurred in by the Secretaries of War and Navy, for the extension of aid to Saudi Arabia:
- 1.
- A request to Congress for funds to meet Saudi Arabia’s urgent financial requirements.
- 2.
- Notification to the Export-Import Bank of the President’s desire that it make a commitment in principle of its intention to provide, after the necessary study, development loans to improve economic conditions and living standards.
- 3.
- The construction by the Army of air fields and strategic roads, and the dispatch of a military training mission.
Action with respect to the last two proposals has already begun. Neither of these, however, solves the immediate problem to which the first proposal is addressed, namely, the annual budgetary deficits of Saudi Arabia caused by the war. It is estimated that they will continue for the next five years, in an aggregate amount of approximately $30,000,000 to $50,000,000.
Thus far these deficits have been met by a combination of grants from the British, American Lend-Lease, and substantial prepayments of future royalties by the American companies holding the concession covering the country’s oil. The oil royalty advances stopped some time ago when the companies felt that they had reached their limit in terms of justifiable business practice. There is considerable doubt as to whether Lend-Lease can be continued beyond the present year. In any event, it assures neither a permanent nor a wholly satisfactory solution of the problem of the next five years. The prompt solution of this problem is essential in order to assure the stability and independence [Page 901] of Saudi Arabia. In our judgment, it is in the best interest of the United States that the situation be met through arrangements for the continuance of our financial aid to Saudi Arabia during the period of the deficits.
It has been our view that, before formally requesting Congress for funds for this purpose, the opinions of key Congressional leaders should be obtained as to the manner in which such funds are to be made available to Saudi Arabia. We have discussed the matter in detail with certain leaders, first on the House side with Speaker Kay-burn and Representatives McCormack, Vinson and Drewry, and later with Senators Barkley, George and Walsh.16
All agreed that, because of Saudi Arabia’s strategic position in relation to the Pacific War, and, even more importantly, because of its vast oil resources now under concession to American nationals, the United States has a vital interest in the stability of Saudi Arabia. All gave assurance of their support of an appropriation, but indicated a distinct preference that its use be related in some manner to the oil in Saudi Arabia. There are various ways in which this might be done, all centering about the basic idea that assistance to Saudi Arabia should be accompanied by arrangements which will provide a substantial reserve of Saudi Arabian oil for the future use and security of the Army and Navy. The money would be advanced only as needed and under the supervision of American experts detailed to Saudi Arabia to assist in the management of its public finances.
Both the Senate and House groups instructed us to prepare alternative plans, together with drafts of appropriate legislation, and to return to them for further discussions. It will, of course, be necessary at some point in the near future to enter into at least preliminary talks with the two American oil companies holding the Saudi Arabian concession. It has also seemed desirable to us to explore at the outset the possibilities of broadening the participation of the American oil industry in the potentially huge reserves represented by this concession.
Before proceeding further, the State Department wishes to have your approval in principle of the general objectives described above and of the foregoing method of approach.17
- See memorandum of January 8 by the Secretary of State to President Roosevelt and footnote 14, p. 847.↩
- See memoranda of March 8 and May 17 by the Assistant Secretary of State, pp. 861 and 895, respectively.↩
- Marginal note by President Truman on May 29: “Approved in principle[;] details to be worked out later.” The President’s approval followed his conversation the previous day with Mr. Acheson and Mr. Bard; see memorandum of May 28 by the Assistant Secretary of State, p. 902.↩