132. Memorandum From Harold H. Saunders of the National Security Council Staff to the President’s Deputy Assistant for National Security Affairs (Haig)1

    • Saudi Arabian Oil Negotiations

I do not claim to be an expert in the complex field of international oil, but I gather you are interested in knowing as much as you can about the Saudi negotiations, and I write this to give you the picture that I see. I emphasize that there are others that know much more about this, but I have enough information from different quarters to make me feel that there is a lot of truth in the following.

As I understand it, the following is the background of the proposal that an emissary like Mr. Connally be sent to talk with King Faisal.2

In the context of the current negotiations, King Faisal made a statement through his cabinet on July 10 (attached)3 which the top echelons of the four ARAMCO owner companies interpreted as a signal that the King was backing away from support of his petroleum Minister, Zaki Yamani, who is the chief negotiator with the companies. Their point was that by speaking through the Cabinet the King was speaking indirectly and taking some distance from the government position. However, ARAMCO officials in Saudi Arabia immediately cabled the companies here saying that was exactly the wrong interpretation of the King’s statement—that this is the King’s normal way of speaking and that they had had a number of approaches in Saudi Arabia warning the companies to take this as a demonstration of the King’s support for the current Saudi negotiating demands. Moreover, the proposal was informally made that, if the companies did not believe that the King supports the demands, they should send an emissary to talk with him. ARAMCO officials judged that such a bluff would not be made idly and argued that the offer to receive an emissary supported their interpretation that the King fully backs Yamani’s position.

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To put this in broader perspective, one must be aware of the fact that there is a serious difference between company officials at the Vice Presidential level who are closest to the position of the foreign governments and the top management of the companies:

  • —The younger officials who tend to be supported by the independent oil consultants feel that the handwriting is on the wall—that participation in the companies by the host government is inevitable and that the only way the companies are going to survive is to work out a fresh relationship with them.
  • —The company management, on the other hand, tends to feel that if they just hold out, King Faisal and others like him will cave in. They do not accept the notion that the tide of nationalism is so strong that their days are numbered unless they ride with it.

I am not intimately enough involved in this whole business to be advocating one position or another. What I an reporting is that at least some intelligent officials feel that the USG could put itself into a fruitless confrontation with the Saudi government by involving itself. They feel that in sending such an emissary the USG—whether intentionally or not—would be acquiring certain obligations toward the outcome of these negotiations that we could not meet. If after the emissary went the companies still refused to move and a settlement was decreed in Saudi Arabia, this would be a set-back for the USG and its relationships not only with the Saudi government but presumably with the other oil producing governments in the Gulf area. The advantage of sending an emissary, of course, would be to get an accurate picture for top company management of just exactly how the King himself feels. I suppose the middle gound is that if an emissary is to be sent he should not be one who can be interpreted as representing the USG in any way.

I would caution that much of what I get comes from senior managers rather than from the policy level of the companies, but the argument is becoming so pronounced in the oil community that it seems worth looking for some fire behind the smoke.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 1287, Saunders Files, Saudi Arabia, 1/1/72–8/30/72. Confidential. Sent for information. Printed from an uninitialed copy.
  2. See footnote 1, Document 131.
  3. See footnote 3, Document 131. A copy of telegram 2273 from Jidda, July 10, is attached.