886A.2553/6–2350: Telegram

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

confidential
priority

373. Embtel 348, June 13.1 Compounding further critical situation, Finance Minister on June 20, before any news developments reported Embtel 372, June 22,2 sent written ultimatum to company emphasizing large concessions recently requested from Aramco must be answered within two weeks. These included payment:

1.
No less than 10 million dollars welfare fund annually.
2.
Royalty on oil used in refinery operations.
3.
Cost construction Dammam pier and railway Dammam to Abquaiq.
4.
Postponement current invoices until January 1951 (these estimated over half million dollars monthly).

First demands made on April 29 were that Aramco bear Dammam pier and railway costs to Abquaiq and pay annual welfare fund 2½ million dollars with intimation these not all.

These proposals considered by Aramco and reply reported Embtel 348, June 13 in which Aramco announced effort to relieve SAG payment would be deferred on 6 million dollar loan and railway payments some 4 million dollars would be deferred twelve months. Aramco considered this its final answer to SAG’s requests and stated not prepared make other concessions this time.

[Page 59]

Renewed demands prepared by Finance Minister were handed company June 9 in unsigned memorandum (Embtel 348) together with comment by Assistant Deputy Finance Minister that they should be accepted in toto to avoid much greater demands which might include making Aramco pay taxes in SA or revision basic concession agreement. In courtesy call on Finance Minister who returned here from Riyadh 19th, Moore was confronted by Shaikh Abdullah’s demands for reply from company despite previous statement to Najib by Davies that complete reply had been made.3 Moore stated he unwilling reopen discussion at this time in Jidda. In fact, new demands from SAG each time Aramco makes financial concessions such as deferment for one year 10 million dollar obligations SAG, Aramco has indicated to us it unwilling make further concessions now, which would lay it open to probable new and further demands, although recognizing possibility SAG may force shutdown. Company officials believe government in its present financial straits can afford shutdown much less than can company.

Najib called on me today to express concern over critical nature situation. Fortunately, Colonel Eddy had just acquainted me with foregoing as well as developments reported Embtel 372. I stated I considered situation extremely grave and reminded him cooperation not one-way street. I stated only satisfactory basis working relations was mutual confidence and respect which ultimata did not engender. When Najib objected that neither Moore nor Davies had shown disposition discuss request, including particularly royalty on crude used in Ras Tanura operations, which SAG willing to arbitrate if no mutual agreement possible, it was pointed out company might have reached limit concessions as AIOC, IPC, and KOC all operated on much lower royalty basis and Aramco already placed at great competitive disadvantage. It was suggested it would be graceful gesture SAG withdraw its ultimatum in recognition necessity presenting united front in London. Najib endeavored represent it as merely basis for discussion. His main grievance was Aramco had evinced no willingness discuss SAG’s point view.

In face rigorous defense of Aramco, Najib was visibly shaken and crestfallen. I and member my staff who present independently reached identical conclusion Najib, faced with huge demands on existing income and unwillingness SAG reduce expenditures, was himself supporting Finance Minister’s policy of milking Aramco and all comers for sufficient funds to balance budget. Having felt Aramco would in end acquiesce to almost all demands, he now in his belief unwilling [Page 60]accept fact that company has been driven as far as it will go without any corresponding improvement in financial position SAG. I referred to general deep dissatisfaction not only Aramco but other US interests here including Bechtel with inability SAG meet payments due. I stated recent discussion with Deputy Foreign Minister re free arms said indicated complete lack grasp realities on part SAG as it inconceivable to expect US taxpayer bear burden cost SAG arms in face SAG financial profligacy and improvidence.

We believe Aramco attitude should remain firm as no indication King and Princes as determined force concessions from Aramco as Finance Ministry officials. In fact, very well informed source has indicated Finance Minister practically forced return from Riyadh by King to discuss budget with Crown Prince.

As Najib left, I stated whole general situation gave me cause for deep misgiving and that in face all he and I had done so far unsuccessfully to bring extremely critical financial situation home to King and others, with view its rational solution, perhaps only way to correct situation might be for it to be brought to head by really first-class crisis.

Sent priority Department 373; repeated priority London 88, Dhahran unnumbered.

Childs
  1. Ante, p. 56.
  2. Supra.
  3. Telegram 379 from Jidda, June 27, reported Aramco’s written reply of June 25 to the Finance Minister’s ultimatum. The company stated it had gone as far as it could, and noted it had been generous and had produced actual revenues to the Saudi Arabian Government beyond all expectations. (886A.2553/6–2750)