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

131. Memorandum From James H. Critchfield, Special Assistant to the Deputy Director of Plans, Central Intelligence Agency, to Director of Central Intelligence Helms¹

Washington, July 24, 1972.

• SUBJECT
  • King Faisal’s Letter to President Nixon on Oil Negotiations

1. King Faisal’s letter to President Nixon² is intended to reenforce the King’s public stance of personal support for OPEC demands on equity participation by the individual OPEC member in its concession-holding foreign oil companies. King Faisal was probably playing to the Arab audience when he came down hard on 10 July in his public demand that the foreign oil companies operating in the Gulf get on with the OPEC negotiations on participation.³ He is also not unmindful that a high percentage of the oil-exporting nations in their religion look toward Mecca. King Faisal’s deep preoccupation with “Islamic Solidarity” as an international political factor dates back several years before the June 1967 war; the new Saudi politics in the Arab world is a phenomenon of the period since the 1967 war. The Saudi regime has successfully broken out of the isolation in the Arab world that persisted during the early Sixties; for the first time, Saudi Arabia has active relations with most of the Arab regimes; in oil matters, in particular, these ties transcend old hostilities between the Arab traditional and revolutionary states. During the past two years King Faisal has quietly developed a close relationship with President Sadat of Egypt which has more recently been extended to effective Saudi ties with Syria. Faisal has supported Sadat’s sustained effort to revive the Arab League and, through his own energetic petroleum minister, Dr. Zaki Yamani, has taken the lead in a move to revitalize OAPEC, the Arab counterpart of OPEC, and to expand its membership in recent months to include Egypt and Syria.

2. The Shah of Iran has, by his unilateral actions on the Gulf islands late in 1971⁴ and his decision to go his own way on the OPEC participation issue, irritated Saudi-Iranian relations and contributed to Faisal’s determination to play the role of the Arab leader in OAPEC—increasingly the oil forum for the Arab League. The Shah’s 24 June press conference in London to announce his separate agreement with the oil companies on the participation issue⁵ came on the eve of the OPEC ministerial conference in Vienna at which Dr. Yamani, as the OPEC negotiator, reported his own failure to make progress with the oil companies operating elsewhere in the Gulf. Both the facts and the timing of the Shah’s statements outraged many of the OPEC oil ministers assembled in Vienna; undoubtedly some of Dr. Yamani’s embarrassment was shared by King Faisal.

3. The Iraq decision to nationalize IPC on 1 June 1972⁶ has influenced Faisal’s position on relations with the oil companies. All of the oil-exporting Arab nations, including Saudi Arabia, were well aware by the last week in May that Iraq action against the IPC was imminent. Iraq acted on 1 June with assurances of unified Arab support. The Iraqi foreign minister had personally undertaken, late in May, a successful mission to Saudi Arabia. As the critical events of June approached, it was clear that Arab and thus OAPEC solidarity was surprisingly strong; OPEC was faltering. Faisal is acutely aware that Iraq is testing the proposition that it can operate a nationalized oil industry and market its export crude at the terminals in the Mediterranean and the Gulf. Before the end of 1972 the new oil politics of Iraq should have been sufficiently tested and exposed to tell the world whether an oil-exporting Arab nation can strike out on its own.

4. King Faisal now needs time to assess (a) the Iraq effort to go it alone, (b) the substance of the deal the Shah has made with the oil companies, (c) the new government in Libya, (d) Sadat’s dramatic move to reduce the Soviet presence in Egypt and (e) the cost, in terms of the new Saudi politics in the Arab world, of not following through with action on the Saudi 10 July démarche to the oil companies. This statement included language that has been variously interpreted by qualified observers as threatening immediate nationalization, as the creation of more direct ties between Saudi Arabia and the consumer nations and as an invitation for the United States government to step in and play a more active role in the negotiations.

Although Dr. Yamani acts in the capacity of an OPEC-elected negotiator, in fact he speaks only for the Gulf producers; of these Iran and Iraq have gone their own way. King Faisal, by committing his personal prestige to Yamani’s OPEC task, has introduced a whole array of other U.S. and foreign oil companies and other governments into the historically relatively simple bilateral relationship between the United States, including the ARAMCO American shareholders, and the Saudi government.

5. King Faisal’s letter to President Nixon offers the United States government an opportunity to move into this situation to ensure that the immediate problem of concluding an acceptable arrangement between the oil companies and Dr. Yamani’s Arab clients in the Gulf will not endanger the unique bilateral United States relationship with Saudi Arabia, which so clearly involves the longer-range United States interests in the region. By adopting Yamani’s OPEC position as his own and by raising the matter to the highest level between the governments of the United States and Saudi Arabia, King Faisal appears to have taken the matter out of the hands of OPEC, Dr. Yamani and the oil companies. The objective of any action on King Faisal’s letter should be to get the oil negotiation back in the hands of Dr. Yamani and the oil companies; this will have to be done in a way that takes into consideration King Faisal’s view of his own image in the Arab world.

James H. Critchfield

⁷

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 209, Agency Files, CIA, Vol. VI, 1972 Memoranda. Secret. Helms planned to meet with Kissinger on July 25. According to Haig, Helms would suggest that “rather than send a further tension raiser to Faisal that we consider sending an emissary to Faisal to demonstrate our goodwill and at the same time to attempt to elicit a degree of Saudi flexibility. At the present time it looks like both sides are playing a game of chicken, an enterprise that is sometimes risky between friends.” (Memorandum from Haig to Kissinger, July 25; ibid.) No record of the Helms–Kissinger meeting was found.
2. Summarized in Document 129.
3. According to telegram 2273 from Jidda, July 10, the Saudi Government publicly accused the companies of delaying tactics and warned they would be held responsible if current negotiations failed. The government also reaffirmed its right to assure continued flow of Saudi oil to consumer countries. (National Archives, RG 59, Central Files 1970–73, PET 3 OPEC)
4. Iran seized the Tunb Islands in December 1971; see Foreign Relations, 1969–1976, volume XXIV, Middle East Region and Arabian Peninsula, 1969–1972; Jordan, September 1970, Document 110.
5. As an alternative to participation, the Shah offered a revised formula for pricing oil that would link Iran’s income from oil with food and other commodity prices, i.e., a “basket” price. Thus if the basket price rose, Iran’s tax revenues and payments would also increase. The Shah stated this would allow Iran to continue its development program without fear of inflation eating up some of the proceeds from oil income. (The New York Times, June 26, 1972, p. 10) See Document 124 for details of the agreement with the Consortium.
6. See footnote 4, Document 124.
7. Printed from a copy that bears Critchfield’s typed signature.