129. Paper Prepared by Harold H. Saunders and Robert D. Hormats of the National Security Council Staff1


For the President

Letter from King Faisal on Oil: King Faisal has written you a letter2 in which he asks that you “use your good offices with the oil companies which are active in the Middle East area so that they may be responsive to the member states of OPEC toward reaching an end satisfactory to all parties concerned and so that these companies may be flexible in their negotiations.”

The background of this letter is that the negotiations between ARAMCO and the Saudi government are reaching a climax. The Saudi negotiator has told ARAMCO officials that there will be one more meeting in which to reach an agreement and that after that the Saudis will have to legislate a settlement.3 The main issue between the Saudi government and ARAMCO is that of compensation for the share of the business which the Saudis would buy in assuming participation in the corporation. The OPEC countries have demanded compensation for net book value of the assets above ground alone while the companies have insisted on compensation for reserves as well.

Privately, Saudi officials have told ARAMCO that they feel that the top echelons of our government are being misinformed by senior oil company officials and therefore may not understand the depth of Saudi conviction in going ahead with participation arrangements on their terms. The companies themselves have been divided on whether to meet OPEC terms. Some of the senior management level have felt that the companies have no choice but to make the best of Saudi demands and move quickly to an agreement. Opinion at the directors’ [Page 313] level seems to be that the companies can force Faisal to back down. The Saudi negotiator has apparently proposed that the companies send some of their top level people to see King Faisal so that they will understand the firmness of the Saudi position. Faisal’s letter is a mild effort to assure that top US officials take his position seriously.

A recommendation for a reply will come to you separately.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 1287, Saunders Files, Saudi Arabia, 1/1/72–8/31/72. Secret. Incorporated into the President’s July 20 daily briefing as part of a July 20 memorandum from Kissinger to Nixon. (Ibid., Box 43, Presidential Daily Briefings)
  2. July 10; attached but not printed.
  3. According to telegram 2376 from Jidda, July 17, Yamani told ARAMCO that the company had one last chance to reach an agreement with Saudi Arabia on the terms of participation. If no deal was made, Yamani would return the subject to the individual countries who could each do what they liked about participation. He also told ARAMCO officials that he would be happy to arrange a meeting for them with Faisal. ARAMCO officials concluded that Yamani “has King’s full backing and that both are fully committed to participation on terms about one-third of ARAMCO offer.” (National Archives, RG 59, Central Files 1970–73, PET 3 OPEC)