335. Memorandum From William R. Crawford, Jr., of the Office of Near Eastern Affairs to the Director (Meyer)0

SUBJECT

  • Problems of U.S. Military and Petroleum Relations with Saudi Arabia

A. Military

Background: Since late in World War II, the U.S. has been granted valuable air staging and MATS terminal rights by Saudi Arabia at Dhahran Airfield (DAF). In April 1957 these rights were renewed for a period which expires in 1962. In broad outline, the renewal agreement included: a U.S. commitment to sell Saudi Arabia sufficient arms to equip [Page 755]two divisions and an armored unit at an estimated cost of $110 million; extension of a $50 million credit to be applied to these purchases; and $70 million in grant aid. The grant aid is divided as follows: $20 million “Richards Mission” funds for improvement of the Dammam Port, $5 million ICA funds for construction of a civil air terminal at Dhahran, $10 million DOD salaries to provide personnel for a U.S. military training mission (USMTM), and $35 million from MAP funds.

Problems:

1.

(a) Renewal of U.S. Rights at DAF. The primary problem of U.S. military relations with Saudi Arabia lies in renewal of U.S. rights at DAF in 1962. Well before the expiration of the present agreement, U.S. military authorities should arrive at a determination of the strategic importance of DAF. What rights do we wish to maintain? For how long? How much are we prepared to pay?

(b) Meeting the 1957 Commitment. Closely related to (a) is the problem of the rate at which we meet our 1957 commitment. Our grant economic projects are well underway and will be completed, or nearly so, by 1962. Our annual level of MAP expenditure for military training and training equipment, however, is running slightly behind what is required if our commitment in this regard is to have been completed by 1962. Partly, of course, this has been due to Saudi Arabian indecisiveness and administrative inefficiency. In general, we have operated on the theory that the more nearly we have completed our 1957 commitment by 1962, the lower the price for renewal will be at that time.

2.
The Status of Forces: Existing agreements provide for special jurisdiction for US military personnel stationed at Dhahran and for joint US-SAG determination of other areas to which this special jurisdiction shall be extended when USMTM personnel conduct training outside the Dhahran area. These other areas have not been precisely defined. The Saudi Arabian Government has been sensitive on this problem and a precise definition may not be possible. Our Ambassador has been instructed to make one more effort in this direction. Failing this, a joint State-Defense determination that the continued presence of US military personnel in Saudi Arabia is desirable, even in the absence of a satisfactory status of forces agreement, will be required. Mr. Irwin of Defense has indicated that he would be prepared to make a recommendation to the Secretary of Defense to this effect if required.
3.
USMTM Tours of Duty: Our Ambassador in Saudi Arabia has strongly recommended that a limited number of USMTM officers who come in direct contact with Saudis in a training context remain in Saudi Arabia for a minimum of 18 months and preferably two years, if they are to perform their missions satisfactorily. This would require that these officers, whose number would be somewhat less than 24, be permitted [Page 756]to bring dependents with them to Saudi Arabia. This, in turn, would require the rental or construction of some dependent housing units probably in Dhahran and Jidda. The Department of State has concurred in the Ambassador’s recommendation regarding longer tours of duty, but to date DOD has been opposed.
4.
Civilian Contractors: The Air Force has sought to obtain tax exemptions for civilian contractors at DAF (Fluor and Vinnell) on the grounds that these contractors are a part of the USMTM. The Saudi Arabian Government has challenged this view and we are inclined to feel that the Pentagon does not have a good case in this matter. The SAG is pressing our Embassy for payment of the back taxes which it claims are owed by these contractors.
5.
SAG Administrative Support: The SAG has been generally delinquent in its support of our military training program and a number of problems exist with respect to this support. These, however, are generally worked out on an ad hoc basis by the Chief USMTM.

B. Petroleum

Background:Aramco is almost certainly in for a rough time in the months ahead in its relations with SAG. Abdullah Tariki, SAG’s American-educated highly nationalistic and energetic Director General of Petroleum Affairs, seems determined to bring about a major alteration in the pattern of the Company’s relations with his Government. He is a difficult man to deal with, as far as Aramco is concerned, because he is less interested in more money than in winning acceptance of his theories. Fundamentally he is opposed to the continued “foreigness” of Aramco and believes Saudi Arabia should share in the company’s profits from all operations from “well-head” to gasoline tank, a theory now known as “integration”. He is also violently opposed to anything which smacks of U.S. Government interference in Saudi oil affairs. From his far-reaching attempt to put his theories into effect have come a variety of complex problems. Fuel has been added to the fire by the public pronouncement of an American working in Tariki’s office (Hendryx) who has proclaimed the right of any Government to revise oil concessions unilaterally at any time. Among the more critical of these manifold problems are:

(1)
The Sidon claim. Tariki claims that Aramco, on a retroactive basis, should be sharing profits of oil sales at the Tapline terminal at Sidon on the Mediterranean. He will not accept a division of profits based on Saudi Arabian border prices. The amount of this claim now considerably exceeds $100 million. Again, however, Tariki seems less interested in financial compromises offered by Aramco than in winning acceptance of the principle involved in the Sidon claim as a first step towards “integration”.
(2)
Registration of Aramco. Tariki has announced that effective January 1, 1960, he will regard Aramco as a Saudi Arabian Company ineligible [Page 757]to deduct the expenses of its offices maintained outside Saudi Arabia from its tax payments to the Government. Aramco has refused.
(3)
Oil Marketing. Tariki is seeking to force Aramco to market its own oil rather than selling to its parent companies. This the company refuses to do. It claims it has no experience in the marketing field and would lose its existing markets by complying with Tariki’s demand. The company has told us privately that it is prohibited by the Department of Justice’s anti-trust rules from doing its own marketing.
(4)
Tapline. Tariki is threatening to levy a transit tax against Tapline.
(5)
Relinquishment.Aramco has offered to expedite the relinquishment program set forth in its concession. For purposes of his own, Tariki has said mat SAG is not interested at the present time.
(6)
Revision of 50–50 Profit Split. Tariki has on several occasions threatened Aramco with unilateral SAG action to revise the 50–50 profit sharing arrangement now in effect in the event that the company does not comply promptly with his other demands.1
  1. Source: Department of State, NEA/NE Files: Lot 63 D 89, Saudi Arabia: U.S.-Saudi Relations, 1960. Confidential.
  2. Handwritten on the source text is the following breakdown: “Aramco—Calif 30[%], Caltex 30, Jersey 30, Socony 10.”