Foreign Relations of the United States, 1952–1954, The Near and Middle East, Volume IX, Part 1

886A.2553/5–2654

No. 345
Memorandum of Conversation, by the Director of the Office of Near Eastern Affairs (Hart)

confidential

[Washington,] May 26, 1954.

Subject:

• Recent Tanker Agreement Between Mr. Onassis and the Saudi Arabian Government.

Participants:

• Mr. Aristotle Socrates Onassis, Shipping Magnate and Owner of the Saudi Arabian Tanker Co., Ltd.
• Mr. Thomas Pappas, Asst. to Mr. Spyros Skouras, Head of 20th Century-Fox Films
• Mr. Henry A. Byroade, Assistant Secretary, NEA
• Mr. Parker T. Hart, Director, NE

Note: The following conversation resulted from a suggestion made to Mr. Byroade by Mr. Spyros Skouras of 20th Century-Fox Films, who indicated that Onassis was concerned over the reaction to his agreement with the Saudi Arabian Government and desired to be heard by the State Department on this subject.

Mr. Onassis reviewed the background of shipping developments since World War II which had culminated in his agreement with the Saudi Arabian Government. The war years had brought home to many countries their vulnerability in the face of the monopoly of commercial shipping enjoyed by the few great maritime nations, especially as these nations suffered heavy shipping casualties. Numerous states which had hitherto relied upon such shipping for their necessary trade were driven to the conclusion that they must henceforth have fleets of their own. Other states which did not require merchant fleets but which were emerging as new members of the world community, felt the nationalistic urge to have vessels operating under their own flags. Such was the case of Saudi Arabia following the example of other states such as Egypt. Mr. Onassis had recognized immediately the threat which such a movement posed to his own and to the oil companies’ shipping interests. He had warned the oil companies that they could not expect to enjoy indefinitely a monopoly of off takings from the producer countries where they enjoyed concessions. As the big companies ignored these warnings, Onassis felt obliged to move to protect himself as the tanker market became depressed. He had been approached at Monte Carlo by Saudi Arab leaders to conclude an agreement with the Saudi Government which would provide Saudi Arabia with a tanker fleet. He had attempted for some time to argue that Government out of the idea but finally gave in and agreed to negotiate when he realized that should he not do so, Saudi Arabia would move to conclude an agreement with one of his competitors. While negotiating at Jidda, he recognized that the type of contract which the Saudi Government desired was one which would give rise to considerable resentment by the oil companies and by other shipping interests. He therefore attempted to have a provision inserted in the text that the Saudi Arabian Tanker Company Ltd. enjoy only a specified share of the total offtake of oil from Saudi Arabia. This was rejected by the Saudi negotiators, who insisted on the provisions of Article 4. In the end, Mr. Onassis lost his attempts to create a more flexible agreement and signed in order not to lose the contract entirely.

Mr. Byroade asked whether Mr. Onassis had given full consideration to the widespread resentment which would result from a monopolist move of this nature. Mr. Onassis responded that the agreement provided for no monopoly whatsoever. Despite the terms of Article 4, sub-paragraph a, offtaking oil companies or their buyers could replace obsolete ships in the oil movement from Saudi Arabia. (Note: This interpretation does not appear justified by the text of Article 4 of the agreement, nor by the official interpretation of the agreement, dated May 18, 1954, and published by the Saudi Government in the May 19th edition of Al Birad Al Saudiyah.)¹ Mr. Onassis asserted categorically that the terms of his agreement with the Saudi Arabian Government were not to be taken too literally and that he was prepared to use considerable latitide in their interpretation. Furthermore, he was prepared to re-negotiate the terms of this agreement to the extent necessary to satisfy the United States Government and the major oil companies, subject to the limitation that he would not “double cross” the Saudi Arabian Government. He personally owed his start in life to the oil companies and was not unmindful of his debt. He intimated that he would be prepared to again urge upon the Saudi Government the acceptance of a provision limiting offtaking by the Saudi Arabian Tanker Company Ltd. to a percentage of the total offtake from the country. Presumably this would be proportionate to the foreseen size of the Saudi tanker fleet, 500,000 tons, and would insure that this amount of shipping was kept fully occupied. With respect to tanker rates, he indicated a willingness to be flexible in the absence of any true U.S. Maritime Commission rate and the fact that market rates were well below the last published Commission rate.

Throughout the conversation Mr. Onassis gave the impression of being a man who is in a tight spot who wishes to make an accommodation to save himself further ill-will. He made brief reference to the indictment against him.

Mr. Byroade thanked Mr. Onassis for his explanation and indicated that he would have to discuss the points raised by Mr. Onassis with a number of other people in order to obtain clarification of their significance.

Note: On the following day, May 27, 1954, it was reported by Mr. James Terry Duce, Vice President of Aramco, that Onassis was that day consulting with Aramco at its offices in New York.

1. Not found in Department of State files. The earliest copy of the Onassis-Saudi Arabian agreement found was transmitted by despatch 319 from Kuwait, May 29, not printed. It contained the text of the original Jan. 20 agreement and the Apr. 7 amendments. (886A.2553/5–2954) Additional copies of the agreement, transmitted in despatches from Jidda and London, are in Department of State file 886A.2553.