164. Memorandum of a Conversation, Department of State, Washington, February 9, 19552

SUBJECT

  • Aramco’s Problems with Saudi Arabian Government

PARTICIPANTS

  • Mr. Case, Vice President, Socony-Vacuum Oil Company
  • Adm. Kelly, Washington Representative, Socony-Vacuum Oil Company
  • NE—Mr. Hart, Mr. Dorsey, Mr. Gay, Mr. Allen, Mr. Fritzlan
  • PED—Mr. Miller

Mr. Case had just returned from a trip to the Near East and Far East and wished to review with the Department some of the current problems facing the oil industry. He was particularly concerned about the situation in Saudi Arabia. He understood the sovereignty issue had been injected by the Saudis into the question to be arbitrated arising from the dispute over the Onassis agreement.3 He had never favored the arbitration idea because of strong likelihood [Page 250]of Aramco losing and he thought if the Saudi Government were successful in including the sovereignty question in the terms of reference the case would most certainly go against Aramco. In his own opinion the Saudi Government was prepared to take an increasingly harsh attitude toward Aramco and he did not rule out the possibility of the Saudis attempting to expropriate Aramco’s properties and attempting to make other arrangements for the production of oil. … He foresaw no limit to the amount of trouble Aramco would experience in Saudi Arabia unless the U.S. Government took a firm line with the Saudi Government. Failure to take a strong position could result in repetition of the Iranian case which was to be avoided at all cost. He wondered to what extent the U.S. Government would be prepared to back Aramco.

There was some discussion of the likelihood of the Saudi Government being able to make an arrangement under which oil could be produced and marketed following a situation where there might be expropriation of Aramco’s properties. It was generally agreed that this would be a most difficult task but the possibility of achieving it, through the use of experts from Russia and satellite countries, was not entirely ruled out.

In reply to Mr. Case’s question, Mr. Hart said he personally believed the U.S. Government would continue to give Aramco strong support as in fact it had been giving throughout the Onassis matter. This did not necessarily mean in the final analysis we could prevent expropriation and nationalization if the Saudi Government were bent on carrying out such an extreme policy…

Mr. Case seemed satisfied with Mr. Hart’s reply which he understood to be a personal opinion and not necessarily a Departmental position. He reiterated that, as far as Socony among the parent companies of Aramco was concerned, every effort would be made to insure that the company stood firm against any encroachment of its rights in Saudi Arabia.

Reverting to the question of the Onassis agreement and the Saudi desire for a Saudi-registered tanker fleet, Mr. Case suggested that Aramco might profitably endeavor to make use of the services of a … ship-owner who would be prepared to place some tankers under Saudi registry. The question of incentive, he added, would have to be dealt with by Aramco making such an arrangement “attractive” to the ship-owner.4

  1. Source: Department of State, Central Files, 886A.2553/2–955. Secret. Drafted by Fritzlan.
  2. In January 1954 Aristotle Socrates Onassis, a Greek shipowner, concluded an agreement with the Government of Saudi Arabia which authorized Onassis to form a private company for the transport of Saudi oil. Aramco opposed the agreement on the grounds that it contravened the terms of the company’s oil concession. On July 23, 1954, the National Security Council, in NSC 5428, “United States Objectives and Policies in the Near East,” recommended that “the United States should take all appropriate measures to bring about the cancellation of the agreement between the Saudi Arabian Government and Onassis for the transport of Saudi Arabian-produced oil and, in any case, to make the agreement ineffective.” The full text of NSC 5428 is printed in Foreign Relations, 1952–1954, vol. IX, Part 1, p. 525. For previous documentation on the Onassis agreement, see ibid., pp. 795 ff.
  3. Later that day Case presented his views on the Onassis agreement to George V. Allen, Assistant Secretary of State for Near Eastern, South Asian, and African Affairs. (Memorandum of conversation by Stephen Dorsey, February 9, 1955; Department of State, Central Files, 886A.2553/2–955)