Foreign Relations of the United States: Diplomatic Papers, 1945, The Near East and Africa, Volume VIII

890F.51/8–745: Telegram

The Secretary of State to the Ambassador in the United Kingdom (Winant)

Washington, August 8, 1945—7 p.m.

6689. ReEmbs 7944, August 7.⁸⁹ For Collado.⁹⁰ Joint British-American note on 1945 joint supply program valued at $10,000,000 presented to Saudi Foreign Ministry July 29. $5,000,000 is British gift. $5,000,000 is U.S. credit lend-lease. At same time separate American note presented, offering $6,000,000 additional lend-lease aid, including 10,000,000 riyal coins valued at 30 cents each, and $3,000,000 worth of commodities, about $1,600,000 of which already requisitioned, leaving $1,400,000 for additional goods SAG may request. Much of latter will probably be additional wheat or pharmaceuticals. Riyals offered are in addition to 17,000,000 already minted and being shipped this month for sale to American business concerns and legation. Forty percent of dollar proceeds such sales available purchase of gold, upon which 50 percent riyal profit is realizable in Saudi Arabia. No Saudi comment on adequacy of program yet received.

On July 31 Prince Faisal, Saudi Foreign Minister, was informed in Washington of both the joint and supplementary programs for 1945. Although Prince asked why riyals offered totaled only 27 million when 30 million had been requested, he appeared satisfied with explanation that profit on gold would more than make up difference.

Prince was assured that active consideration was being given to means of providing budgetary assistance after expiration of Lend-Lease Act. He was told that there was general recognition of the need for such assistance for about 5 years after end of war. That delay was not due to disagreement as to need for assistance, but to desire to work out means satisfactory to Congress and American people. He was warned that assistance would probably be in the form of loans rather than outright gifts, but was assured we would make terms such as not to burden Saudi economy unduly. He was advised that any program would work more smoothly if Saudi Government would appoint an American financial expert who could explain needs to Congress and advise on modern fiscal and accounting procedures. He was told this government assumed SAG would limit requests, in future as in past, to essentials. He said his government had always asked only what was [no] more than essential.

He was told Eximbank would open $5,000,000 line of credit for development purposes, with 4 per cent service charge payable on outstanding balances, and amortization to be deferred for some years. Just prior to meeting, Aramco had informed Bank that it was prepared to undertake to make available to the Saudi Government each year, either through purchase of riyals, payment of royalties, or any other method convenient to company, dollar exchange sufficient to cover all dollar obligations of SAG to Bank during said year, on account of this $5,000,000 credit. Prince was informed of Aramco’s agreement. Bank is working out detailed proposal to present to King.

Little progress made on plans for long-range budgetary assistance recently. Several conferences were held with Judge Vinson,⁹¹ but he left matter undecided when he went to Treasury. Snyder has not held conference as yet, but probably will soon. Navy not pushing actively, apparently believing next move is up to State or to Snyder. Aramco was told of plans, informally, though not given copies, and has expressed willingness to go along on either basis, subject to satisfactory working out of details.

Summary of two plans⁹² as presented to Judge Vinson follows:

(a) Plan I. Saudi Government would assign to U.S. Navy (and Army) title to billion barrels of oil underground. Royalty on this oil would be reduced to 15 cents on each barrel, payable when produced, as against 23 cents per barrel royalty specified in present Aramco concession. In consideration of reduced royalties, Navy, with funds appropriated by Congress, would make advance royalty payments annually to extent necessary to balance Saudi budget for next 5 years, as determined by board with War, Navy, State and Treasury membership, with aid of recommendations of American financial expert employed by Saudi Government. Total advances not to exceed $50,000,000. (Department’s estimate of probable deficit for 5 years starting in 1946, assuming war ends by July, 1946, is $31,000,000.) While any advances outstanding, no royalties payable on oil produced for Navy but advances would be canceled at rate of 15 cents per each barrel produced. Aramco would agree to produce, transport and refine oil belonging to Navy at actual cost.

(b) Plan II. Eximbank would loan dollar funds to Saudi Government, as recommended by American financial expert, with 4 per cent annual service charge on outstanding advances. Amortization to begin after 10 years, extending over 10-year period. Loan would be in dollars, without requirement that they be spent in United States. To assure SAG ability to pay interest and amortization in dollars, it would be necessary to secure agreement of Aramco to pay appropriate proportion of royalties in dollars, or in some other way provide enough dollar exchange to allow SAG to meet dollar obligations. Aramco probably would not agree unless it could foresee substantial sales of oil for dollars, only sure guarantee of which would be Navy commitment to purchase oil. Navy so far unwilling to make such commitment.

Other features of plans, such as Navy’s desire to make Aramco promise to build pipeline, are not inherently necessary.

Byrnes

89. Not printed.
90. The Director of the Office of Financial and Development Policy was one of a group of Departmental officers headed by Assistant Secretary of State Clayton who were conducting discussions with British officials on financial and economic matters. For documentation on these discussions, see vol. vi, pp. 1 ff.
91. Fred M. Vinson, formerly Director of the Office of War Mobilization and Reconversion, was appointed Secretary of the Treasury on July 23, 1945. He was succeeded as Director by John W. Snyder.
92. Plan I was entitled “Advance Royalty Payments on Underground Oil Reserve Ceded to U.S. Army and Navy by Government of Saudi Arabia” and Plan II, “Export-Import Bank Loan to Saudi Arabia”. Copies of the two plans were attached to a proposed letter to the Director of the Office of War Mobilization and Reconversion (Snyder), drafted for the signature of Willard L. Thorp, Deputy to the Assistant Secretary of State (Clayton), by Richard H. Sanger of the Division of Near Eastern Affairs on August 10. The letter was not sent (890F.51/9–1445). In a memorandum of August 11 to Assistant Secretary Dunn, the Director of the Office of Near Eastern and African Affairs (Henderson) stated that the two plans had been presented to the Army and Navy Departments, the Export-Import Bank, and the Office of War Mobilization and Reconversion (890F.51/8–1145). On September 22, the plans were given to the Arabian American Oil Company and on September 28, discussions on them were held with company officials by Department officers (890F.51/9–2845).