Foreign Relations of the United States, 1969–1976, Volume XXXVI, Energy Crisis, 1969–1974

114. Memorandum of Conversation¹

Jidda, February 21, 1972.

• SUBJECT
  • USG Views on SAG Aramco Oil Negotiations

• PARTICIPANTS
  • His Majesty King Faisal
  • H.R.H. Prince Nawwaf, Royal Counselor
  • H.E. Dr. Rashad Pharaon, Royal Counselor
  • H.E. Sayyid Omar Saqqaf, Minister of State for Foreign Affairs
  • H.E. Shaikh Ahmad Zaki Yamani, Minister of Petroleum
  • Ambassador Nicholas G. Thacher
  • Francois M. Dickman, Acting Deputy Chief of Mission and Counselor for Economic Affairs
  • David G. Newton, Principal Political Officer

The meeting, which lasted for sixty minutes, began with Prince Nawwaf as sole Saudi observer. During the meeting the three other participants joined, the last arrival being Minister Yamani.

The Ambassador said he was grateful to meet with His Majesty. He had brought some notes in the interest of precision and to save the King’s valuable time. He wanted to present some of the U.S. Government’s thoughts on the present oil situation. We both, i.e., the United States and Saudi Arabian Governments, have common interests and the U.S. Government also wanted to learn some of the King’s views.

Saudi Arabia, the Ambassador noted, shared with the United States and the Free World, a great common interest in the stable flow of oil. It was of great importance to Saudi Arabia as a steady source of income. Western Europe and Japan had a great interest in a stable supply of oil. Over the years SAG and the companies had established a model, greatly admired in the world, for negotiation through understanding to achieve a common arrangement of great value to both sides. There had sometimes been hard bargaining and keen debate, but over the years full understanding had been reached. It had been a strong, useful, and fruitful partnership. The USG hoped very much that this pattern of mutuality in negotiating and arriving at agreements could be maintained into the future, with useful benefits for all.

We understood that, in the present situation of negotiations between the companies and SAG, the companies had put forward a proposal. We did not wish to pass on merits or details nor was the Ambassador authorized to support any such detail, but the U.S. Government hoped that this proposal would be the basis or starting point for agreement, as had happened in the past. The U.S. Government was not suggesting that it intervene in the negotiations in any way; it knew negotiations had been very successful in the past. It was only suggesting, with regard to the company’s offer, that there be a continuation of the traditional pattern of negotiations.

In this connection the U.S. Government’s attention had been drawn to the principles contained in the Tehran Agreement. In the agreement it was stated that the basic contract rights would be respected by the governments for the period covered. The U.S. Government understood that perhaps some consideration was being given, should it not be possible to arrive at any agreement with the companies, to taking away some of these contract rights. Thus, in certain circumstances, the companies would lose these rights which were reaffirmed at Tehran. It was the U.S. Government’s feeling that the existing pattern of international oil by which the governments respected contracts rights while the companies performed the useful role of assuring a smooth flow and a stable price had proved beneficial and had assured a steady income to the governments.

The Ambassador concluded his presentation saying that his government had instructed him to place these views before the King and to give him its understanding of the situation. Because of the long spirit of goodwill and friendship between the two countries, he felt they could discuss these matters in full and frank friendship.

King Faisal responded that the history of Saudi Arabia-company relations showed that SAG had always followed a policy of cooperation based on mutual understanding and mutual interest. He wished the other side would meet SAG halfway.

The question of oil in this region of the world was a sensitive question. Saudi Arabia was always accused of being agents for the Americans. In the area there were now those who were calling for everyone to take a stand against the Americans and Europeans, who always sided with Israel. Saudi Arabia had always tried to keep clear and to avoid such an embarrassing situation. If Saudi Arabia found itself taking a position at variance with that of everyone else, it would be very difficult. Saudi Arabia always requested from its partners, the companies, that they meet it halfway and cooperate for the common interest.

With regard to the Tehran Agreement, Saudi Arabia had no objection to it but it was not germane here (“ma fi kalam”). Saudi Arabia’s suggestion was that the oil producing countries have an effective partnership to avoid the danger to the companies of having the producing countries turn against them. The King had instructed the Minister of Petroleum to say that the companies should appreciate this situation so that Saudi Arabia would not be forced to take a position it did not want to take. The Minister conveyed this message, but unfortunately the companies did not respond.

The Ambassador replied that it was his understanding that the companies had presented an offer. The U.S. Government did not suggest this offer was perfect or not negotiable. But it hoped that this offer could be a beginning for negotiations, so as to avoid drastic actions which, as His Majesty had noted, could have serious repercussions. The King responded that the companies were considered friends and had thereby been given SAG’s frank opinion. SAG did not want to bargain but wanted their definite and final response. The Ambassador suggested that possibly there was a misunderstanding. The companies in their meeting with Minister Yamani, with Deputy Minister Prince Sa’ud present,² had presented a written proposal. This had been the basis for the Ambassador’s reference to his hope that it would be a beginning.

The King said, that in such matters, the Saudi Government presents its “suggestion” in final form, after having taken into consideration the interests of its partners. SAG did not want to be in an embarrassing (political) position and it was incumbent on the companies to help it get out, not to give an opportunity for hostile parties to attack both the Saudi Government and the companies. The Ambassador responded that the U.S. Government understood the King’s point. The King knew the position of his own country and government and the Ambassador would not presume to contradict his interpretation. His Majesty had spoken of the pressures on the Saudi Government, its enemies, etc. The United States recognized these problems. Nevertheless, Saudi Arabia over many years had had a policy of negotiation, moderation and partnership. The United States hoped this policy could be continued and that Saudi Arabia would continue to set this pattern as a leader in world oil policy.

The King then reiterated that this had indeed been SAG policy—one of mutual understanding, interest and benefit. But the companies had to understand that Saudi Arabia was now in a different situation. When Saudi Arabia made a decision, it kept the interests of both parties in mind; such a decision was normally final. Saudi Arabia did not demand unreasonable or impossible things like some other countries. He reemphasized that the situation had changed and the companies had to help Saudi Arabia out of its difficulties and not let it fall into a situation both sides wanted to avoid.

The Ambassador said that the fairness of Saudi Arabia was well known and had benefited the world oil economy, the companies, and Saudi Arabia itself. He believed that the companies understood the King’s views. There was one additional important point in connection with the Ambassador’s call. This was that the present problem between the companies and the Saudi Government was somewhat different than previous ones which dealt with such matters as taxes, shares of profits, etc. This time it involved the ownership of certain rights, of the enterprise itself. It was a matter of concern for the many owners in the United States who were an important segment of domestic public opinion. His Majesty had lucidly explained some of Saudi Arabia’s political problems; in frankness, the U.S. Government (and the companies) had somewhat the same kind of problems since it involved the ownership of American companies and some rights which were part of the contractual arrangement. In mentioning this aspect (i.e., the difference between this and earlier government-company problems), the Ambassador was pointing out that it was thus a matter of interest for the U.S. Government. He believed that it was a matter that still could be worked out.

The King then said it is basically a question whether SAG’s colleagues prefer still to have a partnership or to be thrown out. Saudi Arabia, as did the Ambassador, wanted them to remain.

King Faisal then asked Minister of Petroleum Yamani, who had arrived a few minutes earlier, whether he had read the Ra’y al-’Amm (Kuwait) editorial attacking President Sadat for saying that Arabs should not use oil as a political weapon against the West, since they would only be harming themselves. The King emphasized that this attack had appeared from a moderate state, not a radical one such as Libya or Algeria. Yamani responded that Iraq in 1964 had demanded 33⅓% participation; Libya wanted control; even Nigeria wanted more than SAG. Saudi Arabia was caught in the middle. As he had told the Ambassador two days earlier,³ Saudi Arabia was a buffer between the companies and the radicals and was suffering. If the companies didn’t like what Saudi Arabia was doing, it could withdraw and leave them to face the radicals.

The Ambassador replied that he understood the problem of radical pressure. But Saudi Arabia had the strength and power and King Faisal had the prestige and ability to prevent anything happening to destroy the partnership between the two sides. The King interjected that when SAG’s partners persisted in not helping, it could not carry out its intentions. The Ambassador responded that the U.S. Government hoped that these partners had made a helpful first step. The King replied that the issue was not one of bargaining; Saudi Arabia had given its final view and wanted their decisive and final answer.

In summation, the Ambassador said that the U.S. Government hoped that the process of negotiation would continue in good spirit and goodwill. It was concerned by this matter and hoped that the King would understand that action by Saudi Arabia or any government to seize contract rights would have great consequences. Saudi Arabia had a great position and great responsibilities and would not, the U.S. Government hoped, take away these contract rights unilaterally. It was important to keep this satisfactory relationship as in the past. Hopefully, instead of any such seizure occurring, the two sides could work out a continuing relationship. The U.S. Government was not unaware of the problems facing His Majesty, but it hoped that the path of negotiations could be followed. This is what it believed the companies wanted. The U.S. Government did not take a position on the details of their offer, but realized that they felt that the Tehran Agreement had preserved their contract rights. A spirit of understanding and cooperation, in the U.S. Government’s view, could and should be preserved.

The King responded in summary that this was all that the Saudi Government hoped. It did not want to be forced to take an attitude it did not desire, but needed the companies’ understanding of SAG’s situation and its present difficulties. He wanted to reaffirm that Saudi Arabia would continue to cooperate with the companies and wanted this spirit of cooperation to prevail through the expiration of the concession so that there would continue to be further cooperation afterwards. The one condition was that the companies help and meet Saudi Arabia halfway.

The Ambassador concluded saying that his request for a meeting was a sign of the concern and interest of the U.S. Government. He reiterated its hope that the negotiations would succeed and that there be no seizure of rights as this could have worldwide ramifications. He hoped careful consideration would be given to the companies’ offer. The King closed by saying that he also hoped for agreement.⁴

1. Source: National Archives, RG 59, Central Files 1970–73, PET 6 SAUD. Secret; Exdis. Drafted on February 26 by Newton and cleared by Thacher. The meeting took place in King Faisal’s office. Thacher made this approach as instructed in Document 108.
2. Apparently a reference to the February 15 meeting; see footnote 2, Document 112.
3. See Document 112.
4. The next day, Thacher commented that if other members of the King’s inner circle, who were not usually conversant with oil issues, had been present, it might have lead to discussions concerning the course Yamani was pursuing. (Telegram 361 from Dhahran, February 22; National Archives, RG 59, Central Files 1970–73, PET 3 OPEC)