Foreign Relations of the United States, 1947, The Near East and Africa, Volume V

NEA Files: Lot 55–D36

Statement by the United States and the United Kingdom Groups

top secret

[Washington, undated.]

The Problem

Current Political and Economic Questions in Saudi Arabia.

discussion

1. The British Government regarded it as most important that their ties of friendship with King Ibn Saud should be maintained and further strengthened. Advantage might be taken of the friendship of King Ibn Saud for the purpose of arriving at regional security arrangements in the Middle East and of helping to bring the dispute with Egypt to a satisfactory conclusion. At the same time the British Government looked with favor on the position which the United States had established for itself in the country and wished for the closest cooperation between themselves and the United States Government. The British Government was somewhat concerned about the suspicions aroused in King Ibn Saud’s mind by King Abdullah’s espousal of the Greater Syria movement and were anxious that every effort should be made to calm King Ibn Saud’s anxiety on this score.

2. The American group observed that, all things considered, matters in Saudi Arabia seemed to be working quite well. The Saudi Arabian Government seemed at times to be under the impression that the British and Americans were acting in rival roles. It was consequently advisable that the British and American Governments should keep each other closely informed regarding their respective policies and activities in Saudi Arabia in order to avoid the strengthening of such an impression.

Reference was also made to the unsatisfactory state of the finances of Saudi Arabia owing to the lack of an orderly financial system.

There was a pending question regarding claims for back payments by the Arabian-American Oil Company arising out of a dispute as to the gold sovereign rate to be used in computing royalties.¹ This question was not only of importance in respect of Saudi Arabia, but might have repercussions elsewhere in the Middle East.

Still another problem affecting oil was that of a recent project of the Superior Oil Company, involving both American and British participation, to develop off-shore oil outside the three mile limit along the eastern coast of Saudi Arabia. The ramifications of such a project were difficult to foresee and serious consideration of this matter by both the British and the American Governments would be required. A particularly disturbing prospect was the possibility that the security of the area might be affected if outside interests should take advantage of the precedent which would be created and unilaterally assert the right to exploit oil beyond the three mile limit.

Discussions were carried on at various times from April 1947 to March 1948, when the issue was resolved. A letter from the Arabian American Oil Company of April 2, 1948, and despatch 98, April 6, 1948, from Jidda, explained to the Department that the settlement involved establishment of a $12 equivalent for the gold sovereign when royalty payments were made in dollars, but the Company might elect to make payment in gold sovereigns. Past accounts of Aramco and the Saudi Arabian Government through February 1948 were settled at the same time. Aramco’s advances and the royalty payments due to the Saudi Arabian Government were wiped out by an Aramco payment of about $4,000,000 (890F.5151/4–248, 4–648).

The American group emphasized that they were most anxious that the British Government should understand that eastern Saudi Arabia was not considered as a closed economic sphere, and that there was no reason from the point of view of the American Government why British enterprise should not also be active in that area.

conclusions

1. The value of the friendship of King Ibn Saud for both Britain and the United States is appreciated. The situation should not be allowed to develop in such a way as to strengthen an impression that the British and American Governments are working against each other in that area.

2. Both Governments should continue their efforts to reduce undue anxiety on the part of King Ibn Saud concerning the Greater Syria movement.

3. There should be further consultation between the British and American Governments on the subject of the payment of oil royalties in sovereigns.

4. There should also be discussion on an ad hoc basis between the British and American Governments on the problems presented by the project of the Superior Oil Company for off-shore oil development and restraining advice should be given to the British and American interests concerned, at least until the matter could be considered further. Similar advice, if considered desirable, should also be given to King Ibn Saud at the appropriate time.

5. The British Government looks with favor upon the friendly ties developed between the United States and Saudi Arabia. The American Government looks with favor upon maintenance of the friendship between Britain and Saudi Arabia and the further development of British interests in Saudi Arabia, and particularly wishes to emphasize that it does not wish to regard eastern Saudi Arabia as a closed American economic sphere.

1. The disagreement between Aramco and the Saudi Arabian Government on this matter began in 1940 but did not then become acute because the Company’s dollar advances to the Government exceeded oil royalties due. According to despatch 166, February 26, from Jidda, the company’s position was that the royalties of four gold shillings per ton should be made at the par value of the British gold sovereign, i.e., $8.2397. The Government contended that payments should be computed at the rate the gold sovereign commanded in Jidda, i.e., between $16 and $20 (890F.6363/2–2647).