112. Telegram From the Embassy in Saudi Arabia to the Department of State1

536. Ref: Jidda 535.2 Subject: Discussion re Participation With Min-Pet Yamani.3

Summary: In hour-and-half meeting with Yamani and Deputy Pet-Min Prince Saud, Amb asserted fundamentals of USG interest in international oil industry stressing particularly our deep concern at prospect possible unilateral seizure by Saudi Govt of Aramco’s basic contract rights. Owing great sensitivity of US opinion re security foreign investment, USG compelled make its views known on issue which has record being most troublesome over recent years. Reiterating this point several times, Amb also noted fine history of successful negotiation of evolving relationship which has characterized AramcoSAG contacts over years. Expressed strong hope Aramco offer presented to Yamani might be basis for traditional negotiated settlement of issues. Yamani pointed to deep Saudi concern with maintenance stability in oil supplies and positive role SAG has played over years in assuring these. New winds now blowing as marked by Algerian action, Libyan and Iraqi attitudes. Saudi Arabia will suffer severe damage if left behind. Amb found further opportunities stress again momentous consequences seizure of company’s rights by one of world’s largest oil producers. [Page 271]Saudi position in Middle East strong. Its capacity for leadership still great. Could it not continue lead toward moderate rather than radical solutions?

Yamani concluded view Aramco’s refusal present proposal which could reasonably meet requirements of situation, he must yet return to OPEC Committee, tell them of failure his efforts and turn problem back to OPEC for handling. He indicated radicals in OPEC could be expected seek much more drastic solutions far more seriously damaging oil company interests. Jungers believes Yamani may well depart soon to do as he says.

1.
I met hour and a half with Yamani late morning February 17. Deputy Minister Petroleum Prince Saud al-Faisal also present. Jungers and Brock of Aramco were leaving just as I arrived. Commenced by saying I wished reiterate fundamental USG concerns relative international oil industry. These included of course our interest in seeing uninterrupted supply of oil to important and dependent consumer governments, our conviction international oil companies continue have vital, useful role in stability of oil flow, function which has been of mutual benefit to producing governments and consuming countries. Similarly USG has over years observed with respect manner in which Aramco and Saudi Government successfully negotiated their evolving relationships. Under these circumstances USG had almost never found any necessity intervene.
2.
Negotiating problem which currently under consideration was entirely different from those that had hitherto arisen between SAG and Aramco. Prospect of possible unilateral change by Saudi Government of vital contract rights touches sensitive US nerve. In such situations USG is compelled to make its views known. Pressure of public and congressional opinion compels us to act. In my diplomatic experience I had noticed few other matters that could be so troublesome as seizure by foreign government of rights of US investors. As evidence of intense USG concern, I reminded Yamani President had recently issued public policy statement4 on this question which, if not applicable in all its provisions to situation between Aramco and SAG, was certainly evidence USG awareness great public sensitivity on this issue. I was perhaps more lucky than other colleagues who had had to deal with issues of this kind around the world in that I was privileged to talk with government where friendly relations strong and dialogue carried out on basis confidence and mutual understanding.
3.
Expressed warm hope as Aramco and SAG faced new negotiating problem, tradition of amiable fruitful government-company exchanges might be preserved for mutual benefit. In present case, as I understood it, Aramco had made offer for participation with regard to certain new acreage. While I could not pass on its merits, urged this be regarded as basis for beginning negotiation in usual fashion.
4.
Yamani commenced his response by saying that fundamental motivation behind current SAG oil policy was desire to maintain stability and create a new satisfactory era of company-government relations which would last for long time to come. Over years Saudi Arabia has developed strong sense obligation maintain supplies to consumer countries. In assessing Saudi views, USG should give full credit part Saudi Arabia has played in maintaining stability in oil relationships.
5.
National sentiment for control over their domestic national resources has become steadily stronger. Among raw material producing governments Algerians have already taken 51 percent. Libyans have [made] clear they going at once for same thing. Iraqis are becoming extremely active, Yamani noted. Iran too has made clear present concession will be finished after 1979. Only by going out to meet this developing situation with some reasonable proposal of type SAG now suggesting can threat of much more drastic and dangerous takeover of oil company interests be avoided.
6.
Yamani then expounded favorite “change of circumstances” doctrine, which he asserted possesses recognized legal status. History of Saudi-Aramco relationships marked by seven different changes in original concession agreement over past ten years.
7.
New era in oil industry coming. How can Saudi Arabia stand by while its neighbors move to assume control over their oil resources? Were it to remain far behind times, Saudi Government’s international prestige and its prospects for internal stability would be severely damaged. Proposals now agreed upon by OPEC which had been basis his instructions for talks with Aramco had only been created after many weeks of persuasive arguments by Saudi reps at OPEC. Saudi Arabia and some other governments prepared now to guarantee absolutely that 51 percent would be limit of demands by Saudi Arabia, Kuwait and Gulf states. Other states, he implied might soon go to 100 percent.
8.
Yamani concluded by asking USG help with urging companies to cooperate in this last chance for preserving stability in oil supplies so vital to West. Aramco proposal (detailed explanation of which Jungers had just given him Jidda 535) had nothing in it which Saudis could offer to other governments as meeting participation requirement. Jungers had informed him companies had nothing further to present. Under these circumstances he had no choice but to return to OPEC and turn matter back to its committees for their action.
9.
In reply I pointed out to Yamani that what he had said pointed again at what seemed to me most crucial aspect: dangers of seizure of contract rights by unilateral action. Tehran agreement had reasserted inviolability of contract rights of companies. Now law of changing circumstances was being cited for drastic new request less than a year later. Could companies under such conditions reasonably be expected to accept another guarantee by governments? Moreover I wondered if “law of changing circumstances” was not based on concept of mutual agreement by both parties to accept changed circumstances.
10.
As to pressures for change I told Yamani we recognized existence of these and nationalistic feelings of producer governments. But could these not be satisfied better through mutual agreement than through possible disastrous unilateral action. Step by one of largest oil producing governments in world to seize contract right of producing company would have enormous, worldwide ramifications.
11.
I told Yamani that US had over years valued greatly its friendship with Saudi Arabia because of Saudi stability, moderation and common ties between us. Strong position of SAG had recently still further increased. Respect Saudi Government enjoyed in Middle East and world scene steadily increasing. While Minister saw things necessarily in oil context, I hoped he could be aware too of other elements in Saudi position which gave it strong potential to play moderate constructive role which under Saudi leadership could be general policy of Gulf region. Noted I not aware what Iranian Government proposing but my understanding Iran intending abide by existing contract terms until contract expired. Prince Saud remarked companies were saying Saudi Arabia intended confiscation. This not case. Saudi Arabia intended pay compensation. I said I thought here again companies were speaking primarily of possible loss by Saudi legislative action of basic contract right.
12.
Yamani remarked that immediately prior to signing of Tehran agreement producer governments had convoked their lawyers for careful study provide assurance agreements about to be signed would not interfere producing governments’ right to participation. Yamani admitted, however, it was error not make this point clear to company representatives at that time.
13.
At any rate, declared Yamani, it was clear in view Aramco attitude that mission assigned him by OPEC had come to an end and problem must now be turned back to OPEC committee where there are attitudes and voices far more radical than Saudi Arabia’s. When I asked if he would be making his report about March 1 as agreed with OPEC colleagues, Yamani said understanding had been that he would respond earlier if he felt there was nothing else he could achieve.
14.
Repeating my hope that drastic right-seizing route would not be chosen and yet as Yamani had described situation we see end standing at brink of most ominous decision. I had hoped that my presentation views my government might have some influence in this situation. Yamani expressed appreciation, asking again that we be helpful with oil companies but saying also “your visit will have its effect”, and, somewhat inconclusively, “we are always ready to do what we can do.” I ended session by reminding Yamani that in view official character my representations I felt obligation inform Saqqaf of our talk since he was my regular official channel. Yamani nodded but made no comment.
15.
Meeting, while tense, was friendly throughout marked by occasional signs weariness, even dejection, Yamani part through his statements were without bitterness.
16.
Comment: Yamani’s final remarks seemed reflect slight willingness take into account seriousness our concern and points I had made to him. With Jungers immediately afterwards we tried assess degree Yamani’s intent return to Geneva in near future, perhaps next couple days. Jungers, who has spent many hours with Yamani, found him to a degree bitter, even somewhat hostile (see Jidda 535). He sees nothing motivating Yamani abstain from reporting quite promptly his “failure” to OPEC committee. I had same feeling during course of meeting and it was for this reason I told him I obligated inform Saqqaf. As perfectly correct diplomatic measure, Yamani cannot seriously feel I am pressuring him unduly. Yet by telling Saqqaf we make reasonably sure King will know of my approach hopefully before Yamani’s possible departure.
17.
Jungers and I agreed it best withhold next day or so futher representations on my part with Fahd, Sultan or other senior government figures until we see what further reaction there may be from Saudi side.
Thacher
  1. Source: National Archives, RG 59, Central Files 1970–73, PET 3 OPEC. Secret; Immediate; Exdis. Repeated to Dhahran, Tehran, Kuwait, and London.
  2. Dated February 17. In it, the Embassy reported that, at a February 15 meeting, Yamani refused to consider Aramco’s proposal for joint venture development of untapped acreage as the answer to OPEC participation. Yamani indicated that “life for Aramco may be more difficult in future.” (Ibid., Nixon Presidential Materials, NSC Files, Box 630, Country Files, Middle East, Saudi Arabia, Vol. III) In telegram 1548 from London, February 20, the Embassy reported that Yamani had stated on February 15 that Aramco’s proposal was “meaningless and irrelevant,” and it was important to “have Saudi blood in Aramco itself” and not just in areas proposed for joint venture. (Ibid., RG 59, Central Files 1970–73, PET 6 SAUD)
  3. Thacher had been instructed to speak with Yamani using points in Document 108, without an aide-mémoire and before Yamani’s departure for Geneva. (Telegram 27632 to Jidda, February 17; National Archives, RG 59, Central Files 1970–73, PET 3 OPEC)
  4. Apparently a reference to the President’s “Third Annual Report on United States Foreign Policy,” dated February 9. The President’s message is printed in Public Papers: Nixon, 1972, pp. 194–345.