886A.2553/12–1250: Telegram

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

secret

379. ReEmbtel 356, December 6.1 Aramco meetings resumed Saturday with apparent acceptance by SAG principle equal participation but with reluctance completely to waive previous SAG demands on Aramco and also to accept principle of official exchange rates at 4 shilling level pending demonstration advantages to SAG.

Further subcommittee meetings indicated progress being made all these points and prospects early conclusion this phase negotiations seemed slight but in private meetings with Davies 10th and 11th Feisal reversed field, apparently on basis word received from Riyadh, by refusal to confirm agreement supposedly reached on sharing principle, at least without concessions SAG demands on other points. Feisal, however, did not close door and in circumstances Davies thought advisable request Aramco financial experts proceed here soonest from New York in hope that further factual evidence would satisfy Saudi misgivings. Embassy suggests Department support if Aramco hesitant.

Yesterday afternoon at ceremony inaugurating beginning construction Medina Road by British firm, Finance Minister invited me return with him “to have a cup of coffee” at his home. In course conversation he brought up Aramco negotiations and covered following points:

1.
He favored profit-sharing principle but on condition that SAG would be guaranteed increase in revenue indicated by Aramco representatives. They had made estimate of 40 or 50%. If he could be sure of 40% per bbl. he would accept immediately and undertake persuade Prince Feisal to accompany him Riyadh to convince King. What was desired was agreement which would represent real settlement and not be subsequent difficult matter.
2.
Negotiations lagging. Aramco insisted on acceptance profit-sharing principle. SAG wanted proof what this meant. Aramco said such facts could only be furnished by experts. SAG said then bring experts. Aramco said could not do so unless agreement reached in principle. And so it went with much talk and no progress. Prince Feisal was reaching point where considering asking King to be relieved further responsibility in matter.
3.
At first Finance Minister spoke in terms of “guarantee” but in course of discussion in which I pointed out such a burden on one partner hardly consistent with joint sharing principle he agreed he would be satisfied if he could just be convinced, regardless of means.

At conclusion of discussion I observed that from Finance Minister’s remarks it appeared groundwork for agreement clearly existed and [Page 120]both parties desired understanding but difficulty arose in failure so far find appropriate means. Finance Minister agreed. I later relayed foregoing to Davies.

In second meeting with Finance Minister this morning to discuss Embassy building plans he again raised subject Aramco negotiations and said he would like to have private meeting with Davies to see if they could not clarify situation. I advised Davies and he was to see Finance Minister without delay but as yet have no report meeting.2

  1. Supra.
  2. Telegram 392 from Jidda, December 13, not printed, reported on a meeting between Davies and the Finance Minister. When Davies reaffirmed the estimated increase in Saudi Arabian income, the Finance Minister stated he was personally prepared to accept the proposal without reservation, and would try to convince Prince Feisal. (886A.2553/2–1350)