886A.2553/2–2450: Despatch

The Ambassador in Saudi Arabia (Childs) to the Secretary of State 1

confidential
No. 85

Ref: Emb. desp. 50, Feb. 10 and desps. 77 and 80, Feb. 24, 1950.2

Subject: Background Concerning Problem of Protection by Saudi Arabia of Tapline Route.

Following my conversation with Najib Salha, Assistant Deputy Minister of Finance, in which he outlined the Government’s position regarding the amount of protection to be furnished by Saudi Arabia for the Tapline route and installations in the northern Nejd (see my desp. 77 and 80) I asked Garry Owen, Representative with the Government [Page 26]of both Aramco and Tapline, to give me more of the background on this problem which, it appears, will for some time be a matter of dispute between the Company and the Government.

According to Owen, the question of payment for protection for the Tapline route was first raised by Mr. W. F. Moore, President of Aramco in a letter to King Ibn Sa’ud in June of 1947 enclosing a draft of the desired Convention. Moore, who was in Riyadh at the time, proposed in the letter that Tapline pay the Government every year $500,000 in consideration of transit rights, protection costs and the execution of the Convention as then drafted. This draft and accompanying letter were, however, rejected, His Majesty pointing out that Saudi Arabia wanted merely reimbursement for legitimate expenses incurred in connection with the establishment of the pipeline.3

Subsequently, in July of 1947, negotiations leading to the signing of the Tapline Convention took place in Jidda between Fuad Bey Hamza, King’s Royal Councillor, and William J. Lenahan, Tapline negotiator. In the course of these discussions, the Government proposed an all-inclusive paragraph which would have permitted this country to collect very large sums from the Company for protection and other facilities. Lenahan rejected this, and the resultant agreement, embodied in Article XVII of the Convention (see Embassy desp. no. 237 of Nov. 26, 1949) and paragraph 1 of the attached exchange of letters (see Embassy desp. 76 of Feb. 27),4 provides that the Government shall take “reasonable measures” to protect the pipeline and that “the Company will reimburse the Government for all reasonable and necessary expenses incurred by the Government … for protection, administration (and) formalities …”

Owen stressed to me at this point that the Tapline Convention, as concluded, differs in several important respects from the draft proposed by President Moore at the time the offer of a $500,000 annual payment was made. For example, the question of payment of a transit fee was regulated elsewhere, and amounts due the Government under Article XVII do not include it. Furthermore, due to delays at the western end of the line resulting from the Palestine fighting, the pipeline as far as a point slightly east of Qaisuma (formerly pump station [Page 27]3) was actually constructed and will be operated by Aramco, as a part of its field gathering system, and protection and other services are already furnished for these facilities by Sa’ud ibn Jiluwi, Amir of Al Hasa Province, in accordance with the Aramco concession. As a result, according to Owen, the actual Tapline area requiring protection has now been reduced by about two-fifths.

Until very recently, the Company heard nothing further regarding: the question of protection. As Tapline extended its operations through the northern Nejd, a few ibn Jiluwi khuwiyya (irregular troops) and customs, police and other officials were assigned to the various pump stations and construction camps (see desp. no. 50), and no unusual difficulties have been experienced by Tapline. However, shortly after the appointment of Najib Salha as Assistant Deputy Minister of Finance on December 26, the latter told Owen he would shortly receive a very large claim from the Government for protection of the pipeline route (see desp. 50). A copy of the Government’s letter which was received by Aramco early in January, has been given to the Embassy. Although couched in vague terms, it appears to insist that a large Governmental organization be set up under an official termed “the Protector” with financial, health, and security personnel in addition to “detachments” of troops. Should this have been agreed to by Tapline, Owen states that he believes the Company would have been called upon to support large numbers of Saudi soldiers along the five hundred miles right-of-way in Saudi Arabia, and he therefore replied to the Government that “the proposed organization goes far beyond the Company’s concept of its obligations under the Convention … the Company cannot accede to the Government’s proposals.”

At the time this claim was received, Fred Davies and Floyd Ohliger, Vice Presidents of Aramco, were in Jidda attempting to get agreement from the Government regarding (1) the employment of technicians from soft currency countries; (2) the payment of royalties in soft currencies; (3) the question of the construction program for the Dammam-Riyadh railway; and (4) the financial aid to be furnished the Government.5 In their discussions they also took up the question of Tapline protection, although it was agreed with Salha, with whom most of the talks took place, that there should be no bargaining over the various items. As he had already told Owen, Salha repeated to Davies and Ohliger that he thought the Saudi claim was extreme, but as it had been approved by the Foreign Minister, Prince Feisal, the Minister of Defense, Prince Mansur, and the Minister of Finance, Shaikh Abdullah Sulaiman, there was nothing he could do but pass it on to the Company. He said he would endeavor to support Aramco’s [Page 28]position with his superiors, and was told that Davies and Ohliger would pass on to their New York office Najib’s statement of the Government’s current financial crisis.

Once the six million-dollar loan was granted by Aramco, the Embassy believes Salha may have cooled slightly towards the Company position on the protection question. While Najib still claims to agree with the Company, he is now of the opinion that he cannot support Tapline’s position with higher authority, and in his conversation with me (see desp. 77) made no allusion to the fact that he is not in full agreement with the Government’s views. It appears that Salha, having secured his main objective in satisfying the King by securing the loan from the Company, is no longer interested even in appearing to oppose the views of his Government superiors on the protection question.

On February 11–13, Lenahan, now Assistant Vice President of Tapline, and George Mandis, Tapline’s Relations Representative in Dhahran, were in Jidda for discussions on this question with Shaikh Abdullah and Najib. In an effort to avoid further complications, it had been decided to offer the Saudis an annual lump-sum payment to cover all obligations incurred by the Company under the terms of the Convention. Following several lower offers (see desp. 77), the figure of 1,250,000 riyals ($250,000 except to Aramco, for whom, buying its riyals at 30¢ each, it represents $375,000) was mentioned to the Finance Minister. He categorically rejected this offer, and the Government is now insisting on the initial sum of $500,000 first mentioned in 1947. Shaikh Abdullah also disclosed—and Shaikh Yustif Yassih, Deputy Foreign Minister, later confirmed to me—that orders have been issued for the movement of a unit of 1200 Saudi soldiers from Taif to the north (see Embassy desp. 69 of Feb. 24).6

In the face of such an uncompromising attitude on the part of the Government, Owen states that the Company has decided to wait and take the matter up when Aramco receives a clear itemized bill of charges. Owen also informed me that Lenahan had told him that there was no mention during the 1947 discussions of arbitration by the American Ambassador (then Minister) should the parties be unable to reach agreement as to what constituted “reasonable measures” requiring “necessary expenses”. The Department will note that this specifically contradicts the opinion of Fuad Bey Hamza, Saudi negotiator in 1947 (see desp. 50). It may be that the latter is actually thinking of the need for arbitration of the question now.

When I asked Owen for his opinion of the motivation behind the current Saudi intransigence in this matter, he said that he felt the Government was very fearful of its Hashemite neighbors to the north [Page 29]and was determined to take all possible steps to protect its borders. In view of the fact that the position of the United States Government has been to take all feasible measures to strengthen internal security forces in this country, it appears possible that the Saudi Government may appeal to this Embassy (in which case Najib’s recent call on me would have served to prepare the ground) for support in its efforts to persuade the oil company to subsidize large protective forces along the Tapline right-of-way. In view of this possibility, the Department may wish to inform me of its views.7

J. Rives Childs
  1. Repeated to Cairo and Dhahran.
  2. None printed. Despatch 50 reported a letter from the Saudi Arabian Government to Aramco calling on Aramco to pay for the maintenance of large Saudi Arabian protective forces along the pipeline. Ambassador J. Rives Childs reported it appeared the Minister of Defense was “attempting to transfer to Aramco the entire cost of protecting Saudi Arabia’s northern marches from the exaggerated Hashemite menace on their flanks.” Despatch 77 reported a visit by Najib Salha to acquaint the Ambassador with the background regarding discussions with Aramco over the expenses incurred by the Saudi Arabian Government for administration and security in connection with Tapline. Despatch 80 reported a call by Yusef Yassin, Deputy Foreign Minister, to tell the Ambassador the number of forces necessary to ensure the security of Tapline could only be decided by the Saudi Arabian Government, since it alone was responsible for security. Documentation is in Department of State file 886A.2553.
  3. Correspondence between Moore and King Saud not printed. But see telegram 272 from Jidda, July 9, 1947, Foreign Relations, 1947, vol. v, p. 662, which reported the conclusion of the Tapline negotiations. It informed the Department of State that no fixed annual obligation had been assumed for security expenses involved in protecting the pipeline, “instead Tapline assumes fair and reasonable costs such as security protection.”
  4. Neither printed. Despatch 237 transmitted a copy of the Tapline Agreement signed in Jidda on July 11, 1947. Despatch 76 transmitted copies of an exchange of letters which took place between the Saudi Arabian Minister of Finance, Abdullah Sulaiman, and William J. Lenahan, Assistant to the President of Tapline, at the time of the signing of the Tapline Agreement. (886A.2553/3–650)
  5. Telegram 31 from Jidda, January 16, reported negotiations on the items under reference (886A.2553/1–1650).
  6. Not printed; the subject was the movement of Saudi Arabian troops from Taif to the northern Nejd (786A.54/3–150).
  7. Instruction 14, April 14, informed the Ambassador the Department of State would not object if the Embassy discussed the matter with either the Saudi Arabian Government or Tapline officials, “if it is made clear that it is doing so in an informal and unofficial capacity.” The Department said it could not assume any responsibility in the matter because it was essentially a contractual obligation between the Saudi Arabian Government and Tapline. On the other hand, it considered it inappropriate to act as an arbiter because the United States could not be a disinterested party where the interests of an American firm were involved. (886A.2553/2–2450)

    Despatch 231 from Jidda, dated May 1, was an answer to instruction 14. The Ambassador reported Tapline intended to leave the initiative to the Saudi Arabian Government for the time being and did not intend to suggest arbitration unless the Government presented it with an itemized bill for support of the troops moved into the northern Nejd. Transmitted as enclosures to despatch 231 were a statement of facts bearing on the Saudi Arabian proposal for pipeline protection, prepared by the Tapline representative; a letter from Najib Salha to the Tapline representative, dated December 31, 1949, in which he informed Tapline of his Government’s plans for its protection; and an answer from the Tapline representative, dated January 9, 1950, in which he informed Salha Tapline could not accede to the Government’s proposals (886A.2553/5–150).