886A.2553/2–1050: Despatch

The Chargé in Saudi Arabia (Hill) to the Secretary of State 1

confidential
No. 53

Subject: Further Sovereign Advance Made by Aramco to the Saudi Government.

Presumably in response to a direct plea for funds from Najib Salha, Assistant Deputy Finance Minister, Garry Owen of Aramco at noon yesterday advanced to the Government another 100,000 sovereigns on January royalties, normally payable towards the end of this month. [Page 24]According to one account, within two hours of this action, the sovereigns had been sold to Sadaka Ka’ki, one of the leading Jidda bankers and money-changers, for riyals, most of which were distributed to Prince Tallal and other sons of the King. So great was the need of Tallal for his share that he sent an emissary to the Dutch Bank, Aramco’s depository, to ask when he could receive his riyals while the Bank was still in the process of counting out sovereigns for payment to the Ministry of Finance! Another, and probably more accurate version, is that Tallal received 90,000 sovereigns direct and took them with him by plane to Riyadh today.

With this payment, total Aramco advances to the Government on January royalties reached 268,205 sovereigns (see Embassy’s despatch no. 31 of January 27 and no. 37 of January 30).2 Owen left hurriedly for Dhahran by plane immediately after authorizing the transfer, and it has not been possible to ascertain the exact reasoning behind the move, in view of the Company’s evident extreme disappointment with the Saudis over the granting of a six million dollar loan to Syria.3 Another Aramco source has confided privately to an officer of this Embassy his amazement that the advance was authorized and has expressed his belief that no further similar payments can be expected. Since the balance due the Government on January royalties is in any case only some 60,000 sovereigns, the force of this attitude will doubtless be largely lost on the Government.

The Department will note from despatch no. 31 that the Saudi Government has absorbed royalty advances at a greater rate over the period December 31–February 4 than at any similar time. In a little over a month, the Company has paid to the Ministry of Finance 600,000 sovereigns, plus another half million dollars representing Saudi profits on riyals sold Aramco. The Embassy understands that the Company does not view this development with equanimity, but so far it has apparently taken the position that royalties, although strictly payable only twice a year, or at most, following recent practice, at the end of the month following which the royalties were earned, should nevertheless be turned over to the Saudi Government whenever an advance is requested. While this practice may have the merit of keeping Company–Government friction to a minimum, it renders impossible the institution of modern budgetary procedures so desperately needed [Page 25]by this country and increases the likelihood that the Government’s, considerable financial difficulties will only be further compounded at some later date.

For example, Saudi Arabia will receive between now and early March (barring some further advances) only about 60,000 sovereigns (royalties) from Aramco, plus $400,000 profit from the sale of riyals to the Company and the $1,000,000 minimum annual royalty payment from the Pacific Western Oil Company, due on February 20. This, together with Aramco’s loan (only two-thirds of which can probably be used in this country, since $2,000,000 must be paid to Syria by March 1 in fulfillment of the terms of the Saudi–Syrian loan) appear to constitute the country’s entire resources from which the Government’s forty million dollar debt and current expenses may be met. In these circumstances, a continuation of the present crisis and a rise in the price of gold and the riyal, with attendant hardships on the bulk of Saudi citizens, can only be expected.

For the Ambassador:
Heyward G. Hill

Counselor of Embassy
  1. Repeated to Cairo.
  2. Neither printed. The despatches under reference listed Aramco advances to the Saudi Arabian Government on December and January royalty payments. Royalties for a given month were due at the end of the following month, but Aramco had been making payments ahead of time. Documentation is in Department of State file 886A.2553.
  3. In telegram 63 from Jidda, February 2, not printed, the Ambassador reported: the Saudi Arabian Government had signed an agreement on January 31 to loan Syria $6 million, without interest. The loan was to be repaid in Syrian products over the four-year period from 1955–1958. (883.10/2–250)