334. Telegram From the Consulate in Dhahran to the Department of State0

340. From Ambassador Heath. I saw Faisal January 23, in Riyadh. I told him I had been asked to stay another year. He replied with some appearance of warmth he hoped my connection with Saudi Arabia would continue many years. I had written him my congratulations on his budget and told him these were not only my personal sentiments that the Department had specifically instructed me to express USG admiration for his fiscal and financial reforms and its confidence in his conduct of Saudi Affairs. I added the Secretary had expressly wired me to express gratification that his recent medical checkup in Europe had revealed his health was good. Faisal thanked me for these expressions. He said his health was fundamentally good but for his difficulty in extracting sufficient nourishment from his food. As regards fiscal and monetary progress made, Saudi Arabia had done this by its own efforts. Progress had been gradual and accomplished without foreign assistance. It is better not to go too fast and better to work without external aid which some times “makes things bog down”.

I remarked that his program for public works and social services required an expanded national income and that contrary to surrounding oil producing countries, which had been increasing under oil concessions and commitments, Saudi Arabia had given no concession since the one to the Japanese. Faisal said SAG had by no means closed the door to new concessions. I said, speaking purely personally, it was of no concern to me to what nation concessions were given. However, Saudi Arabia had been falling behind in the oil race and losing business to Kuwait, Libya and Iran, etc. As a friend of Saudi Arabia I regretted this. I did not mention the name Tariki but said the Office of Petroleum and Min Affairs was staffed by enthusiastic, honest but young and inexperienced men and it seemed to me the office’s policy had lacked realism and, according to better experts than I, had caused losses of revenue to the state of many millions of dollars. I thought he should get some reliable outside expert to appraise Petroleum Ministry policies.1

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As regards new concessions the office had hired an American at Borney (Hendryx)2 who had made speeches in Cairo and more recently in Jidda at oil conferences at which he had attacked the sanctity of concessionary agreements and the principle of 50–50 division of profits. Everyone realized, of course, that long term concessions were subject to negotiated changes to correspond with new developments, but in his Jidda speech this attorney had uttered the astounding proposition that it was offensive to the principle of sovereignty for a nation to negotiate such changes; it must impose them unilaterally.

Faisal replied that Hendryx, of course, was not speaking for the government, there had been other pronouncements showing the fair intent of SAG toward concessionaires. I replied that the attorney’s assertions had never been corrected by the office of Petroleum Minister or higher governmental authority and had, I thought, a discouraging effect on potential oil investment in Saudi Arabia. Faisal said it was, of course, not equitable and certainly not the policy of SAG to impose changes in concessions unilaterally. He remarked SAG had obtained several changes of the original Aramco concession favorable to itself by negotiations satisfactory to the company.

He volunteered the only real difficulty with ARAMCO “was one of principle.” Aramco held that its partnership with the Government ceased at the water’s edge. SAG held that this partnership continued in parent company sales abroad. ARAMCO was only a facade for the four parent companies. Once this principle was recognized there should be no further difficulties. The parent companies and Aramco should realize the government is under great pressure. The youth of SA were almost in a “frenzy” in demanding a better deal from Aramco. He could not disregard this movement. He had to have something into which to channel the exuberance of the nation’s youth. He realized perfectly that “Arabization” of the company was impossible nor was it one of the aims of SAG.

I referred to the policies of Petroleum Minister saying that it cost large revenues to SAG. I had heard that it was on Petroleum Ministers recommendation the government had turned down a proposal to form a third party company for a special deal which might have returned from up to a $150 million or more in new revenues for SAG over a ten year period. Faisal said it was refused on a question of principle. I said speaking personally I failed to see the principle and had I been in SAG’s place would certainly have taken the money.

I emphasized I had been speaking purely as a friend of SAG and that I had not been instructed to make any such observations by my government [Page 754]and certainly not by Aramco, which knew nothing of my talk and preferred to iron out by itself any differences with the government. Faisal said he quite understood this. When he had suggested last fall that I advise the company to endeavor to understand SAG’s position he had made that suggestion to me as a person not as Ambassador.

I found Faisal very friendly but was appalled to the extent which he has been infected by Tariki’s hatred of ARAMCO and by Tariki’s misrepresentations. There is nothing in the ARAMCO concessions nor in the concessions and practices of other foreign oil companies that the producing country should share in the profits of wholesale and retail transactions of marketing companies abroad. Nor is any principle violated by the third-party trading company device proposed by the parent companies to enhance Aramco sales in an international market which has become highly competitive, in the last couple of years and bids fair to continue that way for some time as a result of output’s outstripping demand. However, Faisal believes this and it will take some clever presentation by Aramco to change his ideas. I believe my talk, however, has at least sowed some seeds of doubt in his mind as to the wisdom and equity of Tariki’s policies.

Schwinn
  1. Source: Department of State, Central Files, 123–Heath, Donald A. Confidential. Transmitted in two sections.
  2. In telegram 630 from Jidda, April 7, Heath referred to this discussion with Faisal about lost oil revenues. Heath estimated that since 1957 Saudi Arabia had lost $30–40 million per year because of Tariki’s unrealistic policies and would continue to do so for 10 years. The Ambassador also reported rumors that Tariki believed Heath had “attacked” him in the conversation with Faisal on January 23. (Ibid., 886A.2553/4–760)
  3. Frank Hendryx.