886A.2553/1–2551: Circular airgram

The Secretary of State to Certain Diplomatic and Consular Offices 1


FYI Preliminary views of the Dept regarding the Aramco 50/50 profit-sharing agreement are submitted for general guidance and background as follows:

Near East oil is so valuable to Western economic, political, and strategic interests that an increased share of the profits for Near East producing states is warranted as a means of providing increased incentive for cooperation by Near East peoples and governments.
The Venezuelan profit-sharing formula has been known to and demanded by oil producing Persian Gulf states.
The introduction of the partnership principle in Saudi Arabia resulted from the company’s own decision.
In the Dept’s view it represents an eminently defensible basis on which Near East concessions can be stabilized since it is equivalent to the highest existing formula and appears basically fair.
The introduction of the partnership principle to the Near East is believed to have been a realistic and dramatic answer to the Communist line regarding foreign oil company imperialism.
The rapidity of the Aramco-SAG negotiations eliminated the development of the bitterness, anti-oil company and anti-West feeling evident in Iranian oil negotiations.
The Dept believes in general that the 50/50 principle will probably increase the basic stability of oil concessions in the Near East, notwithstanding the immediate unsettling effect on other concession contracts in the area and the social problems raised by increased income in areas of limited beneficiaries.
Until full details are known, the Dept must reserve comment on the tax aspects of the Aramco agreement. Although we can properly publicize and capitalize on the American aspects of the Aramco deal which will bring Saudi Arabia in 1950 approximately 56¢ a barrel payments as opposed to the approximate 33¢ a barrel payments offered Iran and Iraq, we cannot at this point criticize AIOC and IPC as companies less liberal than Aramco because of this profit-sharing arrangement. Aramco hopes for U.S. tax credit for most or all of their Saudi Arab taxes. If this hope is realized, the U.S. Government, not the company, may be the source of increased payments to Saudi Arabia.
Provisions allowing Aramco to pay in any currencies accruing from oil sales and at IMF exchange rate are welcomed by the Dept and should have a salutary effect in the area.
Full details of the Aramco agreement have not yet been given the Dept but our further views will be forwarded when details received.

  1. This telegram was drafted by Funkhouser and cleared in draft by Moline, G. Lewis Jones, Kopper, Awalt, C. Vaugban Ferguson, Satterthwaite, and Ranney. It was sent to London, Cairo, Tehran, Jidda, Baghdad, Moscow, Paris, Basra, and Dhahran.