886A.2553/1–1050

Memorandum of Conversation, by Mr. Richard Funkhouser of the Office of African and Near Eastern Affairs

confidential

Subject: Current Aramco Problems

Participants: Mr. Duce, Aramco 1
Mr. Wilkins, ANE 2
Mr. Funkhouser, ANE
Mr. Await, ANE

Mr. Duce reviewed current Aramco problems as follows:

1. Boundary Questions

The National Geographic Society is reissuing their African charts in which Saudi Arabia appears; Aramco has been consulted. Trucial, Oman, and Qatar boundaries as shown on the latest editions do not reflect current SAG claims, and Aramco suggested that these disputed areas be left uncolored. National Geographic Society stated that final decision on boundaries came from the State Department; therefore Aramco was bringing this problem to the attention of the Department. Mr. Await stated that Mr. Boggs3 of the geographic section would be informed of the problem.

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Aramco feels that the Saudi Arabian Government should endeavor to reach an early agreement on the submerged area boundary between Saudi Arabia and Kuwait. Aramco geological information indicates interesting structures in the area. Oil was found at 700’ depth in the structural rig test six miles off Ras Safaniyah; marine exploration indicates that large structures exist in the submerged area both north and south of this structure test.

2. Current Operations

Aramco production for the first two weeks in January averaged 535,000 b.p.d. or approximately 100,000 b.p.d. more than in recent months. Duce was unable to account for this sudden increase except to state that it might have resulted from the peculiar position of tankers in international oil trade at that time. Both Bahrein and Ras Tanura refineries were running at capacity (165,000 and 125,000 b.p.d. respectively) while 245,000 barrels of crude were exported. Mr. Duce did not know the destination of these tankers.

Tapline operations are moving ahead without particular difficulty. The last steel pipe will be rolled June 30 and will arrive in the Near East in late fall. The total number of American employees in Saudi Arabia has increased due to additional Tapline employees brought in from Kuwait.

3. Financial

Mr. Duce had information that the Fund would try to postpone decision on the South African application to sell gold sovereigns to Aramco at prices above par until such time as the Fund gold policy were reviewed.4 It was not known whether this review could be completed before Aramco exhausted sovereign supplies. Aramco information was that the Fund might throw the issue back to the individual governments concerned, a not unfavorable development from a company point of view.

Aramco is about to make a $4,000,000 loan to the Saudi Arabian. Government. The company had resisted strong Saudi Arabian pressure to make a $500,000,000 gold pound loan but now feels that it can hold out no longer. Mr. Duce asked that this information be held confidential until the field were notified of the Aramco decision. In exchange for the loan Aramco desired Saudi Arabian agreement to allow Aramco to employ workers from soft currency countries, such as Italy, [Page 13]Lebanon, Egypt, etc. Saudi Arabian agreement to a fixed sterling equivalent of the gold pound would also be sought.

4. Miscellaneous

The SAG plans to develop an armed force to protect the Trans Arabian pipeline; the cost has to be borne by the company.

The company is concerned about their insecure position with respect to the purchase price of Saudi rials; at present Aramco buys rials for 30¢ against the Government’s purchase price of approximately 23¢. The SAG thus makes approximately 7¢ per rial or roughly $3,000,000 per year from rial sales. There is no agreement which would prevent Saudi Arabian Government from increasing the price of rials at any time.

Mr. Duce promised to give the Department available details on the Howard, Ltd., bid on the Neutral Zone submerged areas. Mr. Duce mentioned that the John Howard construction firm had failed in their Aramco contracts and he questioned whether they could make a success of this new oil venture if their bid were successful.

  1. James Terry Duce, Vice President, Aramco.
  2. Fraser Wilkins, Officer in Charge, Arabian Peninsula Affairs.
  3. Samuel W. Boggs, Special Adviser on Geography, OIR.
  4. R. I. Brougham of Aramco reported to Henry R. Labouisse, Jr., Director of the Office of British Commonwealth and Northern European Affairs, that Aramco royalty payments would be increased about 50% if it had to pay Saudi Arabia in dollars. Aramco believed it could arrange to have gold sovereigns minted in South Africa at a price that would save it a considerable amount of money, but was concerned that the International Monetary Fund would object because of its concern over black market operations in sovereigns. (Memorandum of telephone conversation, January 5, 1950; 886A.2553/1–550)