Foreign Relations of the United States, 1955–1957, Near East: Jordan-Yemen, Volume XIII

165. Memorandum From the Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (Allen) to the Deputy Under Secretary of State for Political Affairs (Murphy)¹

Washington, March 3, 1955.

SUBJECT

• U.S. Policy Toward Saudi Arabia with Special Reference to our Oil Interests

Problem

Aramco’s dispute with the Saudi Arabian Government over the Onassis agreement has recently taken a turn for the worse and this fact, together with violent Saudi objections to the Turk-Iraqi pact,² bodes ill for US–SA relations. The whole complex of our relations with SAG is now under review.

While it had originally been understood that arbitration between Aramco and the SAG would be confined to the question whether the Onassis agreement is in conflict with rights granted by the SAG to Aramco under Aramco’s concession agreement, the SAG has apparently succeeded in injecting the sovereignty issue as well, i.e., whether the concession agreement prevents the SAG from exercising the right to regulate transportation of oil exports and grant priority to Saudi flag vessels. The arbitration award may well go against Aramco, although off-takers may refuse to be bound by the results. (Aramco lifts no oil itself.)

This development suggests the possibility that the Saudis may become increasingly hostile toward Aramco and the USG and that they may have in their minds a threat or bluff of expropriation and nationalization of Aramco’s properties, and of cancellation of our airbase agreement (which is valid until 1961 unless notice of termination or desire to modify it is given by December 18, 1955).³ Thinking of the Iranian example, the Saudis may feel we would yield and even “bail them out” in case their action led to financial difficulties arising from inability to market their oil.

While relations between SAG and the USG and/or the oil company may not go from bad to worse, it appears desirable to have a well-defined attitude which could be made known in advance to Ambassador Wadsworth⁴ to support him in the face of a possible campaign of pressures.

Discussion

… With an assured income of about $250,000,000 per year from oil, the country is chronically short of cash. Attempts to budget for important national improvements have not been successful…. These circumstances have encouraged the SAG to make repeated demands on Aramco for more revenue and upon the USG for very sizeable amounts of aid…. US–SA relations have had their ups and downs, but generally speaking have deteriorated in recent months.

Following conclusion of the Buraimi arbitration⁵ agreement last summer, and the apparently good progress made in the last six months in our military training activities, our relations with King Saud and his Government took a turn for the better. Ambassador Wadsworth encountered a more cordial reception when he visited the King and he was able, by a display of friendly firmness so to impress upon him the Department’s opposition to the Onassis agreement that the King assented to removing its preferential and monopolistic provisions if Aramco and his advisers could find a satisfactory formula…. Inability to find such a formula led to the decision to arbitrate. Subsequent visits by Onassis to Saudi Arabia, during which he made attempts to stiffen the attitude of the King and his advisers, prepared the scene for the recent difficulties over the terms of reference of arbitration.

It is improbable that the King would at the present time take the decision to expropriate and nationalize Aramco’s holdings. He is entirely dependent upon the oil revenues…. However, in the unlikely event that the King should threaten to take this drastic step, believing that Aramco and the US would be forced to yield for fear of losing our oil interests and our strategic position in the country, it would seem desirable to prepare our position in the face of such a contingency and to keep Ambassador Wadsworth fully informed of our thinking.

Although King Saud has been irked by our neutral position in the Buraimi dispute and on occasion alludes to our support of Israel in bitter terms, the principal cause for his current anti-US feelings is to be found in our military aid program for Iraq and our support for Iraqi participation in the “northern tier” defense arrangement. A year ago the King predicted Iraq would never accept US military aid or join the “northern tier” arrangement. Recently, Prince Faisal has reportedly castigated the US in most acrimonious terms for encouraging Iraq in her plans to sign a treaty with Turkey. His talk several days ago with Wadsworth reflected deep bitterness against the U.S.⁶

In view of the fundamental differences between the USG and SAG on regional policies, it is perhaps too much to hope our relations can under present conditions become re-established on a basis of the mutual confidence and respect which existed from 1942 to 1947. Possibly there are certain steps we can take to improve our position, however, and in this connection it would appear important to avoid giving any indication that our interests in Saudi Arabia are of such a magnitude that we would be warranted in resorting to extreme measures to satisfy Saudi demands.

Recent soundings in the Pentagon suggest that Defense no longer places the same degree of importance on Dhahran Airfield as formerly. The Department has been exploring this question with the Pentagon and telegraphic instructions to Ambassador Wadsworth are being prepared in order that he may be able to reflect our views should the matter of Dhahran Airfield be raised with him.

It is believed that the SAG would shrink from cancellation of Aramco’s concession or our airbase rights if it knew that by so doing it would lose most of its revenue and our military training missions. Should the SAG embark upon such an extreme course, however, we should be prepared for possible consequences…

Recommendations

1. That we make clear to the SAG our position on the question of expropriation and nationalization should we have reason to conclude that it was being seriously threatened by SAG. We should leave no doubt as to our opposition to expropriation.⁷

2. That we give the King and his advisers no reason to suppose that there is the slightest chance of our changing our policy toward Iraq and the “northern tier” development or that we entertain any doubts as to the success of this policy. As a corollary, our representatives in Saudi Arabia should take advantage of opportunities to attempt to dispel the King’s suspicions of his Iraqi neighbors and to convince him that regional defense arrangements taking shape in the north are in his own security interests.

3. That we continue and, if appropriate and feasible, expand our present military training efforts in Saudi Arabia recognizing that this assistance (and any possible loan assistance we may be able to give in connection with the Riyadh-Jidda railway project) may help to temper Saudi feelings toward us but that such types of help in themselves will not reverse the present trend.

1. Source: Department of State, Central Files, 886A.2553/3–455. Secret. Drafted by Fritzlan and Hart.
2. Reference is to the Pact of Mutual Cooperation between Turkey and Iraq, signed at Baghdad on February 24, 1955, generally known as the Baghdad Pact. For text, see United Nations Treaty Series, Vol. 233, p. 199. The Pact was adhered to by the United Kingdom on April 5, by Pakistan on September 23, and by Iran on November 3.
3. In August 1945 the Government of Saudi Arabia granted the United States permission to construct an airfield at Dhahran. The agreement was first renewed in 1949 and again in 1951.
4. George E. Wadsworth, Ambassador to Saudi Arabia, January 9, 1954–January 1, 1958.
5. Longstanding border disputes between Saudi Arabia, Abu Dhabi, and the Sultanate of Muscat and Oman erupted in August 1952 with Saudi Arabian occupation of parts of the Buraimi Oasis area. The Sultan of Muscat and Oman and the Sheikh of Abu Dhabi, supported by the United Kingdom, protested the Saudi action and blockaded the Saudi Arabian force. After considerable negotiation the parties agreed, in July 1954, to submit the boundary dispute to arbitration. Previous documentation on the U.S. interest in the Buraimi dispute is in Foreign Relations, 1952–1954, vol. IX, Part 2, pp. 2458 ff.
6. On February 23, Wadsworth met with Prince Faisal, Saudi Arabian Prime Minister and brother of King Saud. In transmitting Faisal’s reaction to the Turk-Iraqi pact, Wadsworth reported that Faisal spoke with “such unwonted vehemence and was so impervious to my counter plea (in essence that Iraq could join northern tier and continue loyal member Arab League) that I could not but sense bitterness in defeat which boded ill for future Saudi-American relations and an underlying jealousy rooted in Saudi Hashemite rivalry.” (Telegram 416 from Jidda, February 27; Department of State, Central Files, 682.87/2–2755)

7. As originally submitted to Murphy, Recommendation 1 reads as follows:

   “That we make clear to the SAG our position on the question of expropriation and nationalization should we have reason to conclude that it was being seriously threatened by SAG. We should leave no doubt as to (a) our opposition to expropriation; (b) our insistence that if expropriation takes place the USG will expect full compensation paid Aramco; (c) our unwillingness in such event that any other American oil company or a company of a friendly state should accept the concession; (d) our unwillingness to rescue SAG from any resultant financial difficulties. …”

   In an attached note to Allen dated March 4, Murphy suggested that points b, c, and d be omitted. (Ibid., 886A.2553/3–455)