94. Memorandum of Conversation1


  • Saudi-U.S. Economic and Political Relations


  • H.E. Hisham Nazir, Minister of State and President of the Central Planning Organization, Saudi Arabia
  • Mr. Mohammed Bakr, Central Planning Organization
  • Mr. Mansour Badr, Central Planning Organization
  • The Honorable William E. Simon, Acting Secretary of the Treasury
  • Mr. Gerald Parsky, Executive Assistant to Secretary Simon
  • Mr. Francois M. Dickman, Director, Arabian Peninsula Affairs, Department of State

SUMMARY. Nazir affirmed that Saudi Arabia wants to help the U.S. in meeting its energy problem and has the reserves of oil to increase its production substantially. In return, however, Saudi Arabia expects U.S. support for Saudi industrialization to help it create an alternative source of income for the use of non-renewable assets and a more active U.S. role in achieving a Middle East settlement. He reiterated on several occasions that Saudi Arabia’s political requirements were just as important as its economic requirements. Secretary Simon indicated that the Saudi position was well understood and probed Nazir’s views regarding the possible fielding of a high-level U.S. economic/investment mission to Saudi Arabia to table specific proposals. Nazir welcomed the idea, provided the mission had positive suggestions on the political side as well. Otherwise it would not be very useful. END SUMMARY.

After welcoming Minister Nazir to Washington, Secretary Simon said the U.S. places great importance in its relations with Saudi Arabia. He personally was delighted with the appointment of James Akins as our next Ambassador to Saudi Arabia, whom the Minister had met that morning. He hoped that the interest of the U.S. in Saudi Arabia would be reflected during the Minister’s talks in Washington. The U.S. shared the Saudi desire for an improvement in the Middle East [Page 342] atmosphere and the importance we attached to this had been demonstrated again most recently by the President in his September 5 statement and by Secretary Kissinger.

Nazir said he wanted at the outset to deliver a message from King Faisal which was that Saudi Arabia was willing within its capabilities to do everything to help the U.S. with its energy problem. The U.S. could depend on Saudi Arabia but it must understand, as the King had indicated on a number of occasions, that it is difficult to continue this friendship if it is not reciprocated by the U.S. in the form of a change of policy in the Middle East. Faisal did not mean just statements; he wanted something positive he could point to.

Nazir felt there had been a misunderstanding about Saudi Arabia’s position. He understood some quarters in the U.S. now felt that the Saudis were emphasizing only economic aspects of development as a requirement for increased oil production. This was not so. There had been no change in the Saudi position, and the political side was central to the Saudis as they consider whether to increase oil production.

He had gone to great pains in his speeches in New York, San Francisco and Los Angeles to avoid statements of confrontation. He did not think this would lead anywhere. It was Saudi Arabia’s intention to pursue cooperation with the U.S. “to the furthest possible point” and to do it away from the public forum. However, this should not be misinterpreted. Saudi Arabia believed the U.S. needed to take a very active role in the Middle East now because no other country can do so.

Secretary Simon said he believed Saudi Arabia’s position was well understood. He welcomed the careful way in which the Minister had presented his points in his speech in New York (before the American-Arab Association of Commerce). Unfortunately, the press could often convey erroneous impressions which portrayed producer-consumer relations in confrontation terms. There had, for example, been articles in the papers that the consumers will band together against the producers. This was not true. It was the intention of consumer countries to settle any differences with the oil producers through diplomatic negotiations.

Nazir remarked that Secretary Shultz in a recent statement in Tokyo had referred to oil producers “swaggering” in their dealings with the U.S. He was not entirely sure what this meant or who it was directed to. Saudi Arabia was not a major U.S. supplier, exporting only 4% of its production to the U.S. Secretary Simon interjected to say that this remark was not directed at Saudi Arabia. It was made during the oil company discussions with Libya and was directed at that situation. He regretted that there had been any misunderstanding.

Nazir continued that if Saudi Arabia were to expand its oil sales to the U.S. to the point where it would hurt the Saudi economy, the [Page 343] Government must have a legal and economic justification because of its responsibility to its people and the next generations. This required U.S. cooperation in helping Saudi Arabia develop and industrialize in a way which provides new sources of income once oil is depleted. But Saudi cooperation with the U.S. would be difficult unless the U.S. also shows an interest in the “pains and sufferings” of the Middle East. Saudi Arabia could not just develop and stand aloof from the political problems of the area.

Secretary Simon remarked that the U.S. had not remained aloof from the pain and suffering of the world’s nations, noting the considerable amount of aid provided over the past 25 years. Regarding the Middle East, he believed the U.S. was prepared to take a fresh look and approach problems in the area with an open mind. He stressed that the U.S. hopes that Saudi Arabia will make investments and hold reserves in a way that achieves its industrial development goals and also promotes international monetary cooperation. Further, he said that the U.S. is seeking to provide the proper climate for sound investment in the United States. He believed the U.S. could play a significant role in helping Saudi Arabia in meeting its objective to industrialize.

Nazir reiterated that he hoped everyone would understand that Saudi objectives for economic development were not more important than arriving at a just solution in the Middle East. He had concentrated on economic development in his meetings in the U.S. because this is his specialty. This did not by any means mean that this was the only aspect. He believed the U.S. can take an active role in achieving a settlement in the Middle East which for the U.S. should be just as important if not more so than issues relating to China, Europe, or elsewhere.

Secretary Simon said he did not believe the Minister would find any misunderstanding on the part of the U.S. The Secretary noted that during the past several months, there had been a number of discussions and papers prepared for a possible economic investment mission to Saudi Arabia which might leave six weeks from now and which he prospectively might lead. The Secretary wanted to take this opportunity to ask the Minister’s views whether (a) this mission was a good idea, and (b) the subjects that might be raised by the mission.

The Minister replied that the idea was good provided the mission could achieve positive results. If, however, the mission did not take into consideration political as well as economic issues, it would not be very useful. He observed that Saudi Arabia was in a position different from most LDCs. If it wants technical help from the U.S., it can, as it has done, hire expertise. This is what the Central Planning Organization has done when it employed the services of the Stanford Research Institute in developing the Kingdom’s first plan. Where the USG could [Page 344] play a role is making available technology which Saudi Arabia does not have such as solar energy, desert reclamation, and manpower training. The U.S. had shared its technology with Saudi Arabia for desalting and there were endless technical areas for cooperation. But whatever the U.S. has to offer to Saudi Arabia, the political question will always arise.

Secretary Simon said he hoped there could be some compatibility between economic and political requirements. There was much the U.S. could do for Saudi Arabia and much Saudi Arabia could do for the U.S. Discussions relating to the proposed mission had considered a number of areas such as a tax treaty, tariff adjustments, and investment in securities. The mission would want to make specific proposals, not just broad generalizations.

Nazir replied “wonderful” but it was important not to forget that the mission should also have positive suggestions on the political side because he knew what King Faisal’s reaction would be without them. Selling Phantoms or U.S. reiterations of its long-standing relationships with Saudi Arabia will not be enough. Faisal wants some concrete actions by the U.S. on the Arab/Israel issue. Saudi Arabia can defend itself politically, morally and religiously but if radicals continue to extend their influence in the Middle East because of the lack of peace in the area and the U.S. does not try to win over the Arabs, the Free World will suffer and the Communists will benefit. Nazir felt a great social experiment was now underway in Saudi Arabia. The nation was mixing individual endeavor with government support in its development, with the government trying to minimize its role to encourage individual initiative. If this experiment succeeded, it would have an impact throughout the Arab world where other methods of development had been tried and had failed.

Turning to the U.S. energy problem, Secretary Simon said that of all the problems with which the U.S. is confronted, he believed the energy situation was the most solvable. The U.S. was blessed with many resources, and it had the technology to develop alternate resources. The Alaska pipeline should soon get underway, offshore leases for prospecting on the continental shelf will be authorized, gas will be deregulated, and measures taken to develop our large coal resources. He emphasized that the President’s energy message was aimed at fostering a vigorous domestic energy industry and that it contained the answers to our problem. He described the message as a blueprint for action that must and will be taken. There is no question that we will depend to an increasing extent on foreign supply for the rest of this decade, but he was optimistic that by following the President’s program, the U.S. would be able to solve its energy problems.

Nazir said the Saudi Government had been pleased with President Nixon’s April 18 energy statement. Saudi Arabia believed it had enough [Page 345] oil resources to continue supplying Europe and Japan but if the U.S. came into the picture, with its enormous demands, it would disrupt the Saudi supply picture. Were Saudi Arabia required to up production to 20 million bpd, it would mean depleting its presently known oil resources in 18–20 years. This was not enough time for Saudi Arabia to develop its infrastructure or the industries it will need to replace its depletable resources. Therefore, Saudi Arabia would want the U.S. to find other sources of fuel and would welcome seeing the U.S. return to relative self-sufficiency in energy.

Secretary Simon noted that just as Saudi Arabia was blessed with an abundance of petroleum, the United States also had plentiful natural resources. Also, the U.S. has developed an agricultural expertise which has enabled us to utilize many of these resources. These natural resources will enable us to develop alternate sources of energy to oil which in turn will put us on the road to being self-sufficient in energy. Despite these initiatives, however, Secretary Simon noted that conservation will play an increasingly important role during the next few years. He mentioned that we have undertaken to educate the American people about the necessity to conserve energy, and he felt that these efforts had begun to produce results.

Nazir welcomed this development. The Saudis had been taught to believe that oil was cheap because the cost of production was low. However, if one considers that it is a depletable and non-renewable resource, it is not fair to set a low price. Revenues from oil have to be used to buy imported commodities for the livelihood of the populace and capital goods to develop the economy to establish a substitute for oil as the source of the country’s productive wealth.

Nazir concluded by expressing appreciation for his meeting with Secretary Simon and his hospitality. He wanted to emphasize that Saudi Arabia was not trying to threaten the U.S. The Saudis knew the U.S. was a big power and could take over Saudi Arabia any time but he had wanted to make his government’s point of view very clear. Secretary Simon said the message was clear, and he assured Minister Nazir that the concerns of Saudi Arabia were being given first priority at the highest levels of our government.

  1. Summary: CPO President Nazir met with Acting Secretary of the Treasury Simon to discuss economic development and oil production.

    Source: National Archives, RG 59, Central Foreign Policy File, 1970–73, PET 17 U.S.-Saudi Arabia. Confidential. Drafted by Dickman. The meeting took place in Simon’s office. According to Nazir’s schedule, the meeting took place at 10:35 a.m. (Ibid. POL 7 Saudi Arabia) During this trip to the United States, Nazir also met with Harold Saunders and other members of the NSC, for which see the September 28 memorandum of conversation. (Ibid.)