147. Paper Prepared by William B. Quandt and Harold H. Saunders of the National Security Council Staff1


For President

Arab Oil Developments

In the past few days Saudi Arabia and Abu Dhabi have both signed the participation agreements with oil companies operating in their countries. The most important provision of these agreements is that by the early 1980s the producing countries will own 51% of production. In the meantime, they and the companies will be closely linked by the terms of the participation agreements. Kuwait is expected to approve a comparable agreement in the next few days. Finally, Iraq, which earlier this year nationalized its northern oil fields, appears to be close to agreement on compensation with the Iraq Petroleum Company.

These developments demonstrate both the growing power of the oil producing countries to extract generous terms from the companies and the continuing interdependence between suppliers and consumers. Despite recurring threats by Arab oil producers to use oil as a political weapon, most of these governments still seem more interested in [Page 374] increasing their control over oil production than in disrupting the flow of oil. This report represents a near-term improvement in the situation over what it was at the time Messrs. Lincoln and Connally saw King Faisal.2

Source: Kuwait 2686, 12/23/72.3

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 1287, Saunders Files, Saudi Arabia, 9/1/72–12/31/72. Confidential. Incorporated into the President’s December 27 daily briefing as part of a December 27 memorandum from Kissinger to Nixon. A notation on that memorandum indicates the President saw it. (Ibid., Box 48, Presidential Daily Briefings, December 18–30, 1972)
  2. Connally visited Saudi Arabia December 17–18, and Franklin Lincoln visited during the week of December 10, for broad-ranging discussions. See Foreign Relations, 1969–1976, volume XXIV, Middle East Region and Arabian Peninsula, 1969–1972; Jordan, September 1970, Documents 169 and 170.
  3. Attached but not printed.