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

886A.2553/7–3054: Telegram

No. 357
The Ambassador in Saudi Arabia (Wadsworth) to the Department of State

secret
priority

Jidda, July 30, 1954—9 p.m.

43. Re Embtel 42, July 30.¹ Following is text note:

“Jidda August 2, 1954

Your Royal Highness

Under instructions from my Government I have the honor to address to The Royal Saudi Arabian Government the following communication anent the agreement signed on January 20, 1954 between The Royal Saudi Arabian Government and Mr. Aristotle Socrates Onassis hereinafter referred to as the Onassis Agreement:

On April 30 last I handed to His Majesty, the King, a communication expressing inter alia my Government’s concern over the effects the Onassis Agreement would have on private American interests.

In this regard my 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, the King, replied in substance that Saudi Arabia would fulfill all relevant obligations it has assumed, but that where no obligations lay 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 will result if appropriate solution is not found.

• Firstly, as to legalities involved the US Government reiterates its view that the Onassis Agreement is not in keeping with the Aramco concession agreement.
• Secondly, the US Government 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. There is already evidence of this. At minimum Saudi Arabia would be thought to have committed an act of bad faith. One important result would be the discouragement of foreign capital investment. Some investors currently displaying interest in Saudi Arabian possibilities may be deterred. Another likely result is the imposition of retaliatory measures by other countries.
• Thirdly, it deems the Onassis Agreement inconsistent with established world practice in the field of international commerce. An essential element of international ocean commerce long standard international practice is that buyer and seller by mutual agreement have the right to designate the carrier of the cargo. In accordance with this practice it is traditional in much of the petroleum industry, including Aramco, for the buyer to make choice of the carrier. Consequently the US Government could not acquiesce in the establishment of any such unfortunate precedent. This is a question of principle quite apart from the private American interests immediately involved.
• Fourthly, the US Government is persuaded that from the practical business point of view both Aramco and Saudi Arabia would suffer substantial loss of revenue were The Royal Saudi Arabian Government to attempt to implement the Onassis Agreement. There is today, and probably will be for some years to come, a world surplus of oil particularly in the Persian Gulf; it is a buyers market. This situation is today aggravated by a world surplus of tankers available at rates substantially lower than those described by the Onassis Agreement. Buyers of oil will not put up with restrictions or compulsions; they will shift their purchases elsewhere.

Finally, the US Government believes for the above reasons that the interests of The Royal Saudi Arabian Government, as well as Aramco, will be best served in petroleum matters by encouraging Aramco export of oil to the widest possible markets of the Free World. This can only be done by continuing to permit the buyers the greatest freedom to transport and handle this oil through means of their own choice. The market for oil from Saudi Arabia can thus be extended and the revenues of the Government of Saudi Arabia increased.

With the continuation of this principle by The Royal Saudi Arabian Government and the consequent elimination of the preferential and monopolistic provisions of the Onassis contract the US Government can of course raise no objection to the establishment of a fleet of tank ships flying the flag of Saudi Arabia and operating on a competitive basis. However, in fairness it should be recognized that a surplus of tankers usually exists in peace time with intensified competition to the advantage of shippers.

In adding that I am directed by my Government to request that Your Royal Highness fix an early date on which we may discuss this matter, I ask Your Royal Highness to accept the renewed assurance of my highest consideration.”

Wadsworth

1. Telegram 31 to Jidda, July 29, not printed, transmitted some changes the Department of State proposed to the Embassy’s text in telegram 38 from Jidda, Document 355. (886A.2553/7–2654) Telegram 42 from Jidda, not printed, reported telegram 43 would contain the text of a note to be delivered to the Saudi Arabian Foreign Office on Aug. 2, unless the Department altered the text in the meantime. (886A.2553/7–3054)