168. Memorandum From the President’s Assistant for International Economic Affairs (Flanigan) and the President’s Assistant for National Security Affairs (Kissinger) to President Nixon1
- State Department Draft Letter from the President to King Faisal re Saudi
- Proposal for a Special Relationship in Oil
Saudi Arabian Oil Minister Yamani recently proposed, in conversation with Deputy Secretary Irwin and later in a public speech,2 a special relationship between Saudi Arabia and the U.S. for the future supply of Saudi Arabian oil, coupled with sharply increased Saudi investments in the U.S. to offset the balance of payments drain.
In effect, the Saudis are probing the possibility of a bilateral agreement with the U.S. which would give their oil and capital investments preferred access to U.S. markets. Because of surging demand for Mideast oil by all Free World developed nations, and because of the successful cartelization of Arab oil supplies by OPEC, the Saudis have little need to make bilateral economic concessions to market their oil. Hence, it is likely that the Yamani proposal reflects a Saudi desire for the political protection which would inevitably result from a “special relationship” with the U.S. in oil.[Page 535]
From the U.S. standpoint, since Saudi Arabia is the one nation in the world with practically unlimited supplies of cheap oil, the Yamani proposal raises the question whether we should modify our traditional multilateral approach to foreign oil supplies, and our limited preferences for Western Hemisphere imports, in order to seek assured, long-term energy supplies from the most abundant sources of foreign oil. On balance, we think not. Any move toward the Saudis would upset the domestic oil industry, and it might complicate the difficulties of the U.S.-dominated international oil companies. More important, we do not believe the U.S. could afford from a foreign policy standpoint to give Saudi Arabia a preferred status over allies such as Iran and Kuwait, to say nothing of Canada and Venezuela, and we do not believe it is in our long range interests to trigger a race with the developed countries of Europe and Japan for bilateral preference arrangements in oil.
We believe a largely negative response to the Yamani proposal is appropriate, and State agrees.3 We also suggest a letter from you to the King which puts the USG response to the Yamani proposal in a broader context of your ongoing relationship with the King and his Nation (Tab B).4
Finally, we plan to pursue with the relevant investment agencies a more detailed analysis of how Saudi investments in the U.S. might be facilitated.
That you sign the letter at Tab A.
- Source: National Archives, Nixon Presidential Materials, NSC Files, Box 1287, Saunders Files, Saudi Arabia, 1972. No classification marking.↩
- See Document 164. Information on Yamani’s September 30 address to the annual Middle East Institute meeting is in circular telegram 179548, October 2. (National Archives, RG 59, Central Files 1970–73, PET 17 US–SAUD)↩
- Rogers suggested that the response to Yamani’s proposal be a letter from Nixon to Faisal, but not a government-to-government agreement. (Memorandum from Rogers to Nixon with draft letter to Faisal, November 4; ibid., Nixon Presidential Materials, NSC Files, Box 1287; Saunders Files, Saudi Arabia, 1972) Saunders recommended that Rogers’s proposed draft letter not be sent since it was too negative, particularly if the Yamani proposal was a feeler designed to elicit U.S. political protection. (Memorandum from Saunders and Loken to Flanigan and Kissinger, November 10; ibid., Box 761, Presidential Correspondence 1969–1974, Saudi Arabia: King Faisal ibn Abd al-Aziz Al Saud, 1972) An attachment noted that, as written, Rogers’s draft was “such a waffle on the real substance of the issues that are being addressed, that it is nothing more than a polite turnoff.” This was “highly inappropriate” given the U.S. dialogue with Saudi Arabia “on their role in a strategy for strengthening our moderate friends” in the Middle East.↩
- Tab A is not attached. However, Eliot submitted a second State Department draft on December 12, which included a response to the Yamani proposal within a reply to a November 12 letter from Faisal. Faisal’s letter focused on his hopes for Nixon’s second term in office, Middle Eastern regional issues, and recent oil negotiations. Eliot’s draft became the basis for a December 26 letter to Faisal, which stated that the United States looked forward to strengthened cooperation between the two countries, to increased imports of Saudi Arabian oil, and to increased Saudi investments in the United States to help offset the U.S. balance of payment burden “just as Your Majesty’s Government has welcomed American private investment in your country.” (Ibid.)↩