Office of the Historian

886A.2553/5–1554: Despatch

No. 344
The Chargé in Saudi Arabia (Jones) to the Department of State

confidential
No. 372
Jidda, May 15, 1954.

Ref:

  • Embassy Despatch 315, March 16, 1954, subject “Aramco Price Negotiations with Saudi Arabian Government”.1
[Page 817]

Subject:

  • Resumption of Saudi-Aramco Oil Pricing Negotiations.

Oil pricing negotiations between Aramco and the Saudi Arabian Government were resumed in Riyadh on April 24. Saudi Arabian Government officials participating in the discussions were as follows:

  • Crown Prince Feisal, Deputy President of the Council of Ministers.
  • Shaikh Yusuf Yassin, Deputy Minister of Foreign Affairs.
  • Khalid Bey Gargoni, King’s Counselor.
  • Abdullah Turaiqi, Director of Petroleum Supervisory Office, Ministry of Finance.
  • Ahmed Musa, (Egyptian) Legal Adviser of Foreign Ministry.
  • The Aramco participants were as follows:
  • Mr. Fred Davies, Chairman of Board of Directors.
  • Mr. F. W. Ohliger, Vice President for Concession Affairs.
  • Mr. R. I. Brougham, Vice President (Finance).
  • Mr. Garry Owen, Representative to the Saudi Arabian Government.
  • Mr. W. Spurlock, Associate Counsel for Aramco.
  • Sabha Habashai, Legal Adviser.

1. April 24 Meeting of the Full Committee.

Prince Feisal opened the meeting and gave a very friendly talk emphasizing the necessity of cooperation between the Saudi Arabian Government and Aramco for their mutual benefit. After the conclusion of Prince Feisal’s speech, Shaikh Yusuf, who according to Mr. Owen “carried the ball” for the Saudi Arabian Government in the discussions, analyzed the Company’s letter to the Government of October setting forth the Company’s new proposals (see Embassy Despatch No. 142 of October 11, 19532 on the subject “Aramco’s ‘New Proposals’”). The Department will recall that in this letter Aramco undertook to bill offtakers for all deliveries for export on the basis of posted prices at Ras Tanura. Shaikh Yusuf’s comment on the new proposals was that they were “acceptable with some minor modifications”.

Shaikh Yusuf then suggested that a discussion be initiated regarding the retroactive claims of the Saudi Arabian Government in connection with past sales to offtakers at the discount price. Shaikh Yusuf said that there was no need for either side to restate its arguments in support of its own position, since this ground had been thoroughly covered in past discussions. Prince Feisal thereupon proposed that a subcommittee be appointed, the terms of reference of which would be “to consider the question of the past and how to settle it”. Again Prince Feisal’s remarks were friendly and [Page 818] conciliatory and emphasized the necessity of a spirit of compromise on both sides in order to settle the issue.

It was agreed that the subcommittee would be established, the members of which would be as follows:

  • SAG officials:
    • Khalid Bey Gargoni
    • Mohammed Suroor
    • Abdullah Turaiqi
    • Ahmed Musa (observer)
  • Aramco representatives:
    • Garry Owen
    • R. I. Brougham
    • W. Spurlock
    • L. McClaskey (Chief Accountant, New York office)
    • D. J. Fullerton
    • Hafiz Baroud

2. April 25 Meeting of Subcommittee.

Khalid Bey Gargoni opened this meeting of the subcommittee with the statement that the Saudi Arabian Government did not wish to “cause harm to Aramco”; however, it considered its claims to be just and its rights to be clear. As an indication of its spirit of compromise the Saudi Arabian Government would be willing to permit Aramco to pay the retroactive claims of the Government in installments over a period of several years.

Mr. Owen commented that the Saudi proposal as advanced by Khalid Bey whereby the Company would pay the Saudi claim in installments was not a compromise. He added that the company had taken several steps forward in the past to meet the Saudi position and that it was now time for the Saudis to make the next move.

Khalid Bey agreed that the Saudi Government would make a new proposal and the meeting adjourned.

3. May 5 Meeting of Subcommittee.

Prince Feisal called a meeting of the subcommittee on May 5. After the meeting was open, Khalid Bey gave the Company representatives a memorandum stating that the primary question pending was the “termination of the Company’s profits” from Jan 1, 1950, to June 30, 1953. It was also stated that the subcommittee was appointed to ascertain from the Government what its claims were. The Government’s claim was for a sum computed on the following basis: The difference between the posted ($1.75) and discount ($1.43) prices multiplied by the total production during the period cited and then halved (to accord with the 50–50 profit sharing principle). This amounted to 148 million dollars. The memorandum [Page 819] went on to express the conviction that agreement could be reached on the terms for the payment of this amount.

Mr. Owen expressed his disappointment at the proposal. He again reiterated that the willingness of the Saudi Arabian Government to accept payment of its full claim in installments was not a “compromise”. He then asked if he should tell Mr. Davies that the SAG refused to make any compromise proposal. Khalid Bey replied that he must ask his colleagues before making a reply to Mr. Owen’s question and the meeting adjourned.

While Aramco has no definite information on the point, it anticipates that further meetings will not take place until after the end of Ramadan (June 4).

J. Jefferson Jones, III
  1. Not printed; it reported speculation by an Aramco official that negotiations with Saudi Arabia might not be resumed until June. (886A.2553/3–1654)↩
  2. Document 314.↩