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

3644. Subj: Saudi Govt Oil Policy and Related Financial Aspects. Ref: State 167505.2

Summary: Ambassador presented Prince Fahd copy of our C–20 paper re Arab financial reserves3 explaining it intended make clear [Page 539]our conviction freedom of action oil producing states must be preserved with regard investment their accumulated funds without encumbrance by restrictions of any new monetary system. Amb presented message from Secretary to Fahd noting it also addressed this aspect, and that it urged in addition our strong hope careful consideration would be given to Saudi Arabia’s important role in meeting rapidly rising petroleum demand, implying strong mutuality of interest between SAG, US and free world. Fahd interjected long discourse on Saudi desire be positive force and “center of reasonableness” among Arab countries, but SAG must be able make clear its viewpoints in way convincing other Arab states that it has Arab interests at heart. SAG continues active study means how best utilize growing revenue and how it might continue increase oil production to US and Western Europe. He hoped USG and US companies be prepared assist in development of joint projects for Saudi industrial growth. DCM then gave Fahd oral résumé in Arabic of central thoughts in Secretary’s message. Fahd responded favorably and commented Hisham Nazer would be under strict instructions take constructive line during his Washington talks. Amb concluded by saying we anxious maintain dialogue with His Highness these important subjects. Such talks could be carried on much more successfully without limiting atmosphere of restriction on oil production levels. As usual, Fahd exuded good will and amiable intentions, stressing goals of cooperation and mutual benefit. Unfortunately we cannot assume his effusive affirmations of cooperative intent are dominant element present Saudi deliberations. Secretary’s good letter and US paper for C–20 provide Fahd with ammunition to take helpful line in SAG discussions, and we must consider how we can continue capitalize on his positive instincts. Amb will follow up near future with Yamani determine, if possible, tenor of ongoing discussions in Supreme Petroleum Council. End summary.

Called with DCM August 25 on Prince Fahd to present Secretary’s message and paper giving US statement on our ideas for dealing with Arab financial reserves drawn up for Committee of Twenty. Began by saying that we had understood there was considerable apprehension and some misunderstanding among some oil producing Arab govts regarding US views on management of large financial reserves which these govts were accumulating as their petroleum output continues to mount. In explaining origins and purposes of paper stressed it aimed making clear one particularly important point: our conviction freedom of action of oil producing states must be preserved with regard investment of their accumulated funds without encumbrance through restrictions of any new monetary system. Thus, we supported idea of special position for oil producing countries in recognition of their special needs and requirements.
I noted we were aware also of relationship between levels of oil production and rate of accumulation of reserves. Secretary’s letter addressed this aspect and made clear our strong hope that careful consideration would be given to Saudi Arabia’s important role in meeting rapidly rising petroleum demand and to strong mutuality of interest in this respect between Saudi Arabia, US and free world countries.
Fahd broke in with reference to excellent relations existing between US and Saudi Arabia, affirming latter was anxious to be “positive force” in world affairs and “center of reasonableness” among Arab countries. Prince said that perhaps I had noticed recent statements of His Majesty reflecting Saudi desire to avoid restrictions on petroleum production provided proper political circumstances could prevail. King, Fahd said, is anxious to deflect and blunt endeavors of leftist Arabs who desire to see oil become difficult and contentious issue between Saudi Arabia and its friends in West. Saudi Arabia can only succeed, however, if it can make clear its viewpoint in way that convinces other Arabs that indeed it has at heart interests of Arab world generally. Prince indicated it is his own strong personal intention do everything possible to see that course of events move in manner that Arab petroleum will not be cut off from US and West.
Indeed, he said, SAG at present is studying ways in which it might continue increase production to US and Western Europe and is also studying means see how best revenue so engendered can be utilized beneficially for Saudi Arabia’s development. Fahd mentioned without much detail existence of “plan now before Council of Ministers.” This would envisage further contacts with foreign companies or govts to assist in Saudi implementation of development plans, whose goals had three important aspects: first, to augment the well-being and contentment of Saudi people through economic development—roads, electricity, better health facilities, industry, etc.; secondly, silence those who “speak of US with critical tongues,” and lastly, make it possible to help our foreign friends (oil consumers) meet their needs. He hoped USG and US companies would be prepared to assist in development of joint projects which would enhance Saudi industrial development. (“Plan” Fahd referred to is probably guidelines for second five-year plan now under active consideration within govt.)
I said I was pleased that from what His Highness had remarked to me it appeared our ideas were running very much in same track. DCM then gave Fahd oral résumé in Arabic of central thoughts contained in Secretary’s message. Fahd was grateful for these helpful ideas and promised study letter. (Almost certainly he will show it to King.)
As to Hisham Nazer’s visit to US, he wished me understand Nazer would be instructed take constructive line in his talks in Washington [Page 541]and to say nothing that might heighten American concerns but rather pursue same line His Highness had outlined to me as intended enhance opportunities for further cooperation.
I concluded discussion by saying that we would be looking for further opportunities to continue high-level discussions with His Highness and other senior reps of SAG on specific features of Saudi investment plans, including tax issues. Most progress could be made if such talks were not carried on in limiting atmosphere of restriction on oil production levels. Fahd assured me he understood my point and indicated he would be happy to talk about these matters further.
In closing I asked about His Highness’ reference to statement by His Majesty regarding right political circumstances required to avoid restrictions on petroleum production. Could Fahd identify statement more precisely for me? Fahd responded that he had in mind remarks made by King to Washington Post reporter who was here recently.
Comment: Fahd exuded good will and amiable intentions along with warm desire for cooperation which are so much his trademark. He gave no hint that anything unpalatable to oil consuming countries may now be under active consideration within Council of Ministers or Supreme Petroleum Council. He wanted us most earnestly and sincerely, no doubt, to believe that Saudi Arabia’s goals with regard to oil and investments are collaboration and mutual benefit. While we gained little in knowledge of real contest that may be going on within govt on levels of production, excellent letter from Secretary and US paper presented to C–20 certainly provide Fahd with grounds for encouraging restraint and moderation within SAG’s inner circles.
Knowing Fahd as well as we do, we cannot, unfortunately, take his effusive affirmations of cooperative intent as being dominant guiding consideration of present Saudi deliberations. Prince touched on political aspect by referring to King’s quite negative comments to Hoagland and Cooley4 but in context that these comments were only simple affirmation intended to blunt arguments of radical Arabs and to let world know there was “minor” problem of political circumstances to be considered. To hear Fahd tell it, latter would be, of course, simple matter to dispose of.
Nevertheless, it seems to us he clearly desires to be an ally and we must keep under constant review how we can best capitalize on his positive instincts. I intend in next few days have follow-up meeting with Yamani, let him know we have gone to Fahd with strong, [Page 542]positive presentation and obtain from him some further notion how discussions are progressing within Supreme Petroleum Council.5
  1. Source: National Archives, RG 59, Central Foreign Policy Files. Secret; Exdis. Repeated to Dhahran.
  2. See Document 195.
  3. The July 17 U.S. proposal to the C–20 is in telegram 157536 to posts in Arab countries, August 9. The Department noted that “nothing in the U.S. position precludes or is intended to preclude investments in Arab world or anywhere else.” The telegram also contains a partial text of Shultz’s June 6 speech at the OECD Ministerial Council meeting in Paris on monetary reform. (National Archives, RG 59, Central Foreign Policy Files)
  4. Presumably Washington Post correspondent Jim Hoagland and ABC correspondent John K. Cooley.
  5. In their meeting on September 4, after Thacher informed Yamani of his meeting with Fahd, Yamani said that other issues, such as buy-back prices, and possible changes in the participation agreement, would temporarily displace Saudi “preoccupation” with the relationship between rising financial reserves and levels of production, at least until October or November. He also did not think oil would be a big issue at the Algiers Non-Aligned Conference. In his comment, Thacher noted that the good news of reduced Saudi preoccupation with the relationship of rising financial reserves to levels of production, and Rogers’ letter to Fahd (see Document 195) “had augmented mood of caution” within the Supreme Petroleum Council, of which Yamani was the most influential member. The bad news was that Yamani’s remarks seemed to forecast a renewed period of bargaining and uncertainty in company-government relations. (Telegram 3084 from Jidda, September 4; National Archives, Nixon Presidential Materials, NSC Files, Box 630, Country Files, Middle East, Saudi Arabia, Vol. IV)