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

703. Subject: Current Assessment Oil Participation Situation.

Summary: It seems clear Yamani intending lead and orchestrate producing government demands for participation and that he has secured support in SAG top levels with compelling political arguments drawing particularly upon nationalistic impulses which impel all developing nations seek control their vital national resources. It will be hard find anyone in top level Saudi establishment prepared argue against such considerations. Several USG démarches have not to date had visible effect, but neither have they, we believe, cost US much good will or political capital. However, further US representations to Saudis will begin have effect on Saudi-US relations. USG support for bitter, last ditch stand by companies could be most costly, not only in Saudi Arabia but in other Arab countries as well. Believe our role to date leaves us still in position exercise influence helpful to companies when time comes for bargaining over details of ultimate settlement such as period of time in which 51 percent is achieved or level of compensation. End summary.

1.
Petroleum Minister Zaki Yamani has professed to be motivated by fear of pressures and embarrassment which radical oil producing states could bring to bear on Saudi Arabia if it does not move promptly [Page 282]to obtain participation from oil companies or legislate it by decree. There is a germ of truth in such apprehensions but we convinced Yamani has other objectives in mind and intends instead claim for Saudi Arabia role as leader in battle against oil companies. Victory would clearly establish King Faisal and SAG as champions in struggle for assertion of Arab and developing country rights. At this point, it probably not worth our while endeavor analyze obscure complex of personality characteristics, ambitions and frustrations which may be motivating Yamani. But his carefully tuned press campaign intended gradually draw King into public commitment to Yamani’s demands, his travels of last few days to Beirut (where it is reported he saw Libyan Oil Minister), Tehran, and Baghdad indicate deliberate preparations on his part to orchestrate OPEC position rather than (as he has tried to imply to US and to Aramco) simply reporting his “failure” and leaving Saudi and Gulf policy generally to be decided by committee action. Report in press here today of Kuwaiti announcement GOK intention to secure participation or legislate it shows too, careful coordination by Yamani and Atiqi. Whatever OPEC announcement may follow March 8 meeting, we think it quite likely substance will be something Yamani has designed.
2.
As Department knows, seizure of national resources is intoxicating doctrine in any developing country, including those with conservative governments. Pharoan’s remarks (Jidda 666)2 are good indication Yamani has not had to trouble with explaining any complexities of oil business, contracts, etc., but has composed compelling political arguments with which to secure support of top-level figures of SAG. His appeal has two important elements: Saudi Arabia is often accused in Arab councils of being a stooge of US, a charge which makes Saudis uneasy and recalls to them fate of Nuri government in Iraq and Idris regime in Libya which were similarly considered good friends of USA.3 Yamani has no doubt argued with his colleagues that there is opportunity for SAG direct developing oil events so that they will strengthen SAG’s position on Middle East scene. Choice is to let Saudi Arabia be, as he claims it has too often been in the past, a follower bringing up rear, or to be leader gaining credit as progressive standard bearer.
3.
Second aspect Yamani’s appeal is probably even more compelling: Saudis should have control their country’s only important natural [Page 283]resource. We have world wide experience of strong emotional, political impact this doctrine. Now if, as we suspect, it has been spread throughout top levels of SAG, it will be hard to find anyone in Saudi establishment prepared argue against it on basis sanctity of contracts, difficulties of finding future investment funds or other reasoning. As Yamani said to me in our meeting of Feb 17, “we want to place a Saudi flag, if only a little one, over our own oil industry.”4 At time Prince Saud followed up with earnest plea that Americans must realize Saudi Arabia is solely dependent on oil and must try to understand inevitable nationalistic desire control disposition of asset most vital to Saudi existence. In many Saudi minds such emotions would be re-inforced by strong underlying resentments stemming from US support of Israel and pleasure at prospect of seeing Arabs win victory at US expense.
4.
We see little visible results ours or Aramco’s (and we don’t expect much from Aramco-King meeting if it takes place) representations to date. In constant daily contact with King, Yamani is able, of course, do effective job refuting our concerns and give heavy emphasis to many strong cards in Saudi hands should showdown come including sellers’ market, apparent easy Venezuelan, Algerian, and Libyan successes in besting oil companies, etc. As noted at Under Secretary’s Jan 3 meeting with oil company heads,5 real leverage which USG can bring to bear is not very great. (Moses of Mobil also told Ambassador companies aware this fact.)
5.
To date, USG representations on participation issue here have we think been received in same friendly spirit with which they offered but we are nearing point where further démarches will commence using up some of our political capital with adverse impact on Saudi-US friendship. USG support for bitter last ditch stand by companies could, of course, depending on circumstances, do significant damage to Saudi-US friendship with unfavorable impact on other important USG interest not only in Saudi Arabia but in other friendly Arab countries as well. US position in Arab world will suffer on day that Yamani decides release to press announcement that USG is trying to interfere with Arab countries’ rights to their own natural resources. Such declaration would seem highly unfortunate at time when USSR concluding agreements for closer ties with Kuwait’s and Saudi Arabia’s Arab neighbors.
6.
In past confrontations between US companies and producing governments, USG has often found it desirable remain aloof from early phases struggle and keep its influence in reserve for application at point where two sides may be nearing some agreement. Believe we could still play such role, which could be distinctly helpful to companies, in [Page 284]present instance when Aramco and government get down to hard task of bargaining over terms of compensation, rate at which participation increases to 51 percent, etc. However, our potential as helpful informal arbiter in final stages of negotiations (role in which we might gain considerable kudos with both sides) will be reduced if we continue simply reiterating present arguments and company positions without offering new proposals for solutions. Until latter are forthcoming, we think it best we not undertake further representations to SAG.
Thacher
  1. Source: National Archives, RG 59, Central Files 1970–73, PET 3 OPEC. Secret; Priority; Exdis.
  2. Dated February 29. In it, the Embassy reported that Pharoan stated that the companies should at least accept the principle of participation. The alternative would place the King in an embarrassing predicament, expose Saudi Arabia to attack by radical Arab critics, and raise the specter of imposed participation or even nationalization. (Ibid.)
  3. Nuri es-Said was Prime Minister of Iraq for the eighth time when the government of Faisal II was overthrown in a coup on July 14, 1958. Faisal and es-Said were among those assassinated. King Idris of Libya was overthrown in the 1969 coup that brought Qadhafi to power.
  4. See Document 112.
  5. See Document 104.