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

886A.2553/7–2654: Telegram

No. 355
The Ambassador in Saudi Arabia (Wadsworth) to the Department of State¹

secret
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Jidda, July 26, 1954—6 p.m.

38. 1. After discussion substance Deptels 16, July 16,² and 20, July 21³ with Davies, Brougham and Owen of Aramco I submit following draft of aide-mémoire in which, Department concurring, I would hand Prince Faisal as proposed Embtel 32, July 20:⁴

Ambassador Wadsworth recalled that on April 30 last he handed to His Majesty a communication expressing inter alia his government’s concern over the effect the Onassis agreement would have on private American interests.

In this regard the communication stated that the US Government shared the opinion of Aramco and of other private American companies that the Onassis agreement was not in keeping with the Aramco concession agreement.

To this His Majesty replied in substance that Saudi Arabia would fulfill all relevant obligations and it would act as it deemed best in the national interest.

At that time the full text of the Onassis agreement was not known either to the US Government or to private American interests. Since its publication their concern has increased.

Consequently and because of its long friendship for Saudi Arabia the US Government feels it would be wanting in due frankness were it not to set forth the very serious view it takes of this question and of the widespread ramifications which would result if appropriate solution is not found.

• Firstly, as to legalities involved it reiterates its view that the Onassis agreement is not in keeping with the Aramco concession agreement. It holds after study of the text that the Onassis agreement is violative of the relevant obligations assumed by Saudi Arabia when granting the exclusive rights set forth in the concession agreement.
• Secondly, it is persuaded that implementation of the Onassis agreement would result in wide and serious public resentment not only in the US but also in other countries having commercial relations with Saudi Arabia. At minimum Saudi Arabia would be thought to have committed an act of bad faith. One result would be the discouragement of foreign capital investment.
• Thirdly, it deems the Onassis agreement inconsistent with established world practice in the field of international commerce. Consequently it could not passively acquiesce in the establishment of any such pernicious precedent. This is a question of principle quite apart from the private American interests immediately involved.
• Fourthly, it holds that an essential element of such generally accepted international commercial practice is that seller and in turn buyer enjoy the right to designate the carrier of his merchandise—in this case oil by tank-ship.
• Fifthly, it is persuaded that from the practical business point of view both Aramco and Saudi Arabia would suffer substantial loss of revenue were the Saudi Government to attempt to implement the Onassis agreement. There is today and will be for some years to come a world surplus of oil particularly in the Persian Gulf; it is a buyer’s market. And this situation is today aggravated by a world surplus of tankers available at rates substantially lower than those prescribed by the Onassis agreement. Buyers of oil will not put up with restrictions or compulsions; they would shift their purchases elsewhere.

Finally the US Government urges that for all these reasons the Saudi Government eliminate from the Onsissis agreement its preferential provisions. None could object to the establishment of a tanker fleet under Saudi flag; and there appears no reason for doubting that such a fleet provided it to be operated on a freely competitive basis could participate in the carrying of Aramco produced oil.

Ambassador Wadsworth asked in conclusion on instructions from his government that this aide-mémoire be brought to the special attention of His Majesty and that at so early a moment as may be conveniently possible His Majesty receive him in audience to the end that he may hear and divulge such words of reply as His Majesty may see fit to communicate to him for transmission to his government.

2. We ask that Department consider carefully essential point made in paragraph beginning “Fourthly”. Can it be assailed on the facts? Or do words “generally accepted” cover exceptions, e.g., reported French Government requirement that specified percentage oil imports be carried in French bottoms?

3. Davies is wiring New York re substance last sentence paragraph beginning “finally”. I suggest Department obtain New York’s views before giving me green light.⁵

Wadsworth

1. Repeated to London and Tehran.
2. Document 351.
3. Supra.
4. Document 353.
5. Telegram 40 from Jidda, July 27, advised the Department of State that the Ambassador believed it would be a good idea to redraft the aide-mémoire as a formal first person note addressed to Prince Faisal as the Foreign Minister and conclude it with a request for a personal meeting to discuss the matter. (886A.2553/7–2754)