332. Telegram From the Embassy in Saudi Arabia to the Department of State0

348. During private audience with King Saud November 24 economic situation in Saudi Arabia and Saudi oil policy came up for discussion.

King said economic situation in country bad, salary payments in arrears, business poor, debts unpaid, and complaints coming to him from all classes society. He acknowledged policy economic retrenchment had strengthened riyal, but said need for development projects. Noted SAMA reserves had risen to $80 million and part should be allocated for development purposes to stimulate rise in standard living.

He asked for my views. I said that speaking personally, not having coordinated the matter with Washington, I thought that the monetary and austerity program had been absolutely necessary and well executed. Then asking if I could speak frankly I said that Saudi Arabia had not, I felt, pursued an equally effective or [garble] a policy in attempting to obtain the new increased income which would be necessary for the [Page 750]King’s program of national economic, educational and social development and which could only substantially come at this time from increased oil production. I had great admiration for the honesty and ideals of his director for petroleum affairs, Abdullah Tariki, but in his oil policy Tariki was obviously not thinking in first line of the immediate financial returns to Saudi Arabia but rather as a political reformer. I told him that Tariki had mentioned to a member of my staff his admiration for Mossadegh and his regrets that latter had not succeeded in his nationalization plans (King burst into scornful laughter at mention Mossadegh). No one doubted Mossadegh’s honesty or ideals but he had cost his country huge sums and political turmoil. Tariki, who quite frankly was pointing toward eventual nationalization or Arabization of oil production in Saudi Arabia had caused several potential concessionaires and crude oil off takers to take their business elsewhere. Speeches of Tariki’s American aide Frank Hendryx attacking sanctity concessionary contracts did not inspire confidence potential concessionaires. One specific example probable loss revenue to SAG caused by Tariki was his recent refusal . accept a “third party trading company” arrangement for increased sale 50,000 barrels crude oil per day over ten-year period which would have netted SAG 130 to 165 million dollars increased revenue over period contract. I repeated I was speaking personally and Aramco was not informed I might be discussing this latter matter.

King much interested and said completely uninformed about this development. Speaking generally, he said relations with ARAMCO excellent, based upon mutual understanding and respect mutual interests. Nationalization out of question and impossible since he would not permit it. He wondered about possibility getting ARAMCO relinquish parts of concession area which might be attractive to other potential bidders, thus indicating no awareness ARAMCO voluntary relinquishment proposals as yet unanswered by SAG.

King concluded audience saying he [less than 1 line of source text not declassified] appreciated my frankness and sincerity remarking I could rely entirely upon his discretion and that he hoped a month from now we could have another general frank discussion.

Comment: It was noteworthy that in view of reports of King’s intention to replace Faisal and resume control of government not a single mention was made of Faisal nor did I in my discussion refer to him. I had the impression, which, however, I would be unable to substantiate, that [1-1/2 lines of source text not declassified] he does not expect to make any decisive move in the next few weeks at least.

Heath
  1. Source: Department of State, Central Files, 886A.00/11–2659. Secret; Limit Distribution. Repeated to Dhahran.