886A.2553/6–2250: Telegram

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

confidential
priority

372. Aramco today informed UK has indicated to company representatives London Aramco cannot qualify for sale within sterling area even under marketing provisions recently approved permitting Jersey and Caltex sell oil in UK against sterling. Matter viewed with extremest gravity by Aramco whose president Moore and executive Vice President Davies (at request UK) are flying Dhahran to London by special plane. Financial vice presidents Socony, Jersey and Aramco will also travel London soonest for discussions with British in attempt draft plan qualify some Aramco production for sterling markets.

Should attempt be permitted fail, we are informed no Aramco oil could be sold for sterling and as result no sterling royalties would be paid SAG despite latter’s reluctant indication willingness accept 25 percent royalties in sterling. Aramco London source informs chief reason current UK position due problem connected SAG use sterling if paid as royalties.

While question uses royalty sterling by SAG complex and technical and can doubtless be defended on economic grounds I consider this action on part British may also represent extremely potent form political pressure in SAG. As Embassy has emphasized in recent months there is every indication here widespread UK dissatisfaction with subordinate role in Saudi Arabia which it forced to take increasingly over past few years. SAG independence vis-à-vis British in boundary negotiations; encouragement by SAG anti-Hashemite bloc; SAG loan Syria to counter Syro-Iraq union with UK blessing; summary cancellation English electric contract for electrification [Page 58]Jidda and Mecca; growing US economic predominance west coast Saudi Arabia which long considered last UK stronghold, are all factors which may have contributed to UK decision take action which may, if persisted in, place SAG at mercy British.

Aramco informed undoubtedly recognize great importance this issue both to USG and to SAG. With financial situation here such as it is and economy country geared to present existing production 450,000 to 550,000 BPD closing doors sale Saudi Arabian oil for sterling which alone may make preservation current level production possible might have catastrophic effect. It seems unnecessary stress relation this to our great strategic position here which UK should be as interested as we in safeguarding.

Sent Department 372 priority repeated priority London 87, Dhahran unnumbered.

Childs