the British supported his rival, King Hussein, as their candidate for the proposed Arab Empire. All of our recent reports from our own officers and from the British indicate that the King favors the Allied cause. He has some complaints against the British, particularly their policy of supporting the Jewish National Home in Palestine. The only political dealings we have had with him were on the same subject when, about two years ago, he addressed a letter to the President" objecting to this Government's alleged activities in favor of the Jewish National Home and against Arab interests. There seems little reason to doubt, however, that fundamentally Ibn Saud is antiAxis. (It is pertinent to remark that about three years ago he refused to grant oil concessions to German and Japanese interests and instead accepted a less favorable concession agreement with Mr. Moffett's company.) Since Ibn Saud's influence is great in the Arab world a good case can be made out in favor of granting him financial support. The question arises how this support can best be given. The following comments are submitted on Mr. Moffett's proposals, as outlined at the beginning of this memorandum:

(1) No objection is perceived to discussing with the British the question of their increasing by £500,000 their 1941 payment to the King. This would be a small price for them to pay for Ibn Saud's support and influence in this vital Near Eastern area.

(2a) It would presumably be possible for the Navy to use in the Pacific area some, or possibly all, of the extra oil which Mr. Moffett. proposes to produce. This question would have to be discussed with the Navy Department, and would involve consideration of such points as whether the Navy is obligated by law to obtain its oil by competitive bid, the extent to which the Navy is restricted by current contracts, et cetera.

(26) Whether it would be possible for the Government to sell, through commercial channels, that part of the proposed Arabian new production which it could not consume raises various considerations. Mr. Moffett makes the condition that the proposed production in excess of United States Government requirements "would have to be moved outside" of the Pacific area. This probably means that in practice it would have to be sold in the Western Hemisphere since there is no available market in Europe or West Africa. Why this excess oil could not be sold in the Pacific area through commercial channels Mr. Moffett does not make clear. One is perhaps justified in the speculation that such sale would be contrary to marketing agreements among the large oil companies or merely that there actually is no ready market in that area except Japan. The further question arises whether this excess oil could find a market in the Western Hemisphere unless the Government was prepared to sell it at a loss to marketing companies. Consideration might also have to be given whether the charge might not be made that the commercial part of Mr. Moffett's proposal was of direct benefit to the California Ara

"Foreign Relations, 1938, vol. II, p. 994.

bian Standard Oil Company and that the proposal was designed to relieve that company from the difficult situation in which it has been placed. All in all the commercial part of the proposal seems open to some objections, although these might be overcome upon more intensive investigation.

An Alternative Proposal

If it is decided that action should be taken to give financial support to Ibn Saud, and there appear to be sound reasons in favor of such a proposal, possibly an arrangement might be worked out combining part of Mr. Moffett's proposal with action under the Lend-Lease Act. Mr. Moffett feels that Ibn Saud needs approximately $6,000,000 from our side. It might be feasible for the Navy to purchase $3,000,000 to $4,000,000 worth of oil for use at bases in the Pacific. Even more might be used, but it is not clear from Mr. Moffett's statement whether it would be possible to produce more refined products than he has suggested. (Nearly one-half of the proposed production of $6,000,000 consists of gasoline which might not be required by the Navy. In this connection it is understood that the gasoline produced in the Saudi Arabian field is of low octane content which, even when leaded to the maximum, does not exceed 85-87 octanes.) Assuming, however, that the Navy could use all of the heavy products amounting to something over $3,000,000 in value, the balance of the $6,000,000 might be made up by furnishing supplies to Saudi Arabia under the LendLease Act. Such help might be extended in return for satisfactory political assurances and commitments by Ibn Saud.

Negotiations covering these matters might appropriately be undertaken by Mr. Kirk, our Minister in Egypt, who in any case should be proceeding shortly to Jidda to present his credentials to Ibn Saud, to whom he is also accredited.

WALLACE MURRAY

890F.6363 Standard Oil Co./129

Memorandum of Conversation, by the Assistant Chief of the Division of Near Eastern Affairs (Alling)

[WASHINGTON,] April 29, 1941. Mr. Thornburg' opened the conversation by saying that the company had been receiving reports recently from its representative in Bahrein indicating a rapidly worsening of the situation in that part of the Near East, particularly in Iraq. Mr. Thornburg said that their General Manager, from whom these reports were received, was a person of great calm and judgment and therefore they had been

Approved March 11, 1941; 55 Stat. 31.

'Max W. Thornburg, vice president, Bahrein Petroleum Co.; appointed Special Assistant to the Under Secretary of State, July 7, 1941.

considerably worried, not to say alarmed, by his reports. I asked Mr. Thornburg what sort of communications they had with their representative, and he said that they had two methods of sending telegrams, one through the usual commercial company which went through London and was usually delayed five or six days in transit and also was subject to censorship. The other method was by direct communication between a radio station which the company had on a motor launch and the Mackay Radio Company in New York. This channel was not subject to censorship and messages came through at once, being only occasionally delayed by weather conditions.

Among the suggestions which their General Manager had made in his recent reports was one that an American naval vessel should visit Bahrein and other Persian Gulf areas. The General Manager felt that such a visit might go far toward stabilizing the situation.

Mr. Thornburg then turned to a discussion of the situation in Saudi Arabia and asked what action had been taken on the proposal of Mr. Moffett for an advance of funds to King Ibn Saud. Mr. Thornburg stated that although Ibn Saud had been loyal to the British and would doubtless continue so as long as he felt that his interests lay in that direction, there could be no doubt that his own interests came first and that if he saw it was to his advantage to play along with the Axis powers he would undoubtedly do so. Certainly he would probably have to do so unless funds were forthcoming to enable him to feed his people in the patriarchal economic structure which had been set up in the country. I told Mr. Thornburg that all we knew of the matter was that this Division had been asked to prepare a memorandum for the use of the Secretary and that that had been done last week. Since then I had heard nothing about the matter and I assumed that any information regarding developments would have to be obtained from the White House. For background purposes I inquired whether the company had in mind that the extra oil which it proposed to produce would be consumed entirely by the United States Navy. Mr. Thornburg said that that was their idea, and that even if the Navy had to obtain bids, as he understood was the case, the price at which this oil was being offered was so low that the purchases would undoubtedly be made from his company. I asked him if he felt that the Navy could absorb all of the oil which they proposed to produce, and he said there was no question at all about that. As a matter of fact the Navy used petroleum products far in excess of the proposed production. However, Mr. Thornburg felt that the Navy might wish not to take these products immediately but to have them kept as a reserve for future requirements since it was well known that oil supplies and reserves on the Pacific Coast of the United

Supra.

States were definitely limited and would within the next few years be entirely exhausted.

I told Mr. Thornburg that the practicability of his proposal was of course not a matter for this Department to decide; that it was up to the Navy Department and other agencies. I added, however, that in the event it should be decided that financial support ought to be given to King Ibn Saud another method by which that support. might be given would conceivably be under the terms of the LendLease Act. I explained that as conditions were at present the mere granting of financial aid often did not solve the problem in a country suffering economic distress since the matter of obtaining supplies was also difficult even if the money was available. Mr. Thornburg said he appreciated that point and that so far as he could see the situation in Arabia might be handled by a combination of the two methods, that is, part financial aid and part direct shipment of supplies under the Lend-Lease Act.

Mr. Thornburg said that he felt he should also mention that his company had had in mind that any financial or other aid granted might necessitate the appointment of a financial control officer of American nationality, probably under the title of Financial Adviser. Mr. Thornburg said that this probably would be a difficult matter to handle with Ibn Saud, but that if large sums were going to be granted certainly some financial control should be established. He said that his own company had endeavored to find out what use was made of the advances on royalties which the company had made. It had been impossible, however, to obtain any definite and satisfactory information since money was paid out to a large extent by subsidies to the various tribal leaders and sheiks through the various wakfs. I told Mr. Thornburg that this was the first intimation we had had that a financial adviser was envisaged. He replied that the company had even gone so far as to try to locate possible candidates, and among such candidates suggested was the name of Mr. McCaskey, who had been with the Millspaugh Mission in Persia.10 I told Mr. Thornburg that subsequently Mr. McCaskey had also served as financial adviser in Liberia, but that he had had to retire largely because of his health. I also pointed out that in a country where no language but Arabic was spoken it would seem to be essential to obtain the services of a man who had a thorough knowledge of that language. Mr. Thornburg agreed and added that this presented obvious difficulties.

In leaving Mr. Thornburg said he hoped that the Department might be in a position to ask the Navy Department to endeavor to expedite

Charles I. McCaskey.

10 For correspondence regarding the Millspaugh Mission, see Foreign Relations, 1927, vol. III, pp. 523 ff.

the arrival in Bahrein of Commander Grove, the new naval observer at that post. He said that Commander Grove had sailed yesterday from San Francisco but that unless he could be intercepted at Honolulu and induced to continue by air he might arrive in Bahrein too late to be of great service to this Government. I told Mr. Thornburg that we would be glad at least to make inquiries of the Navy Department.

890F.6363 Standard Oil Co/131

Memorandum of Conversation, by the Secretary of State

[Extract]

[WASHINGTON,] May 7, 1941.

The British Ambassador 11 called at his request.

I brought up the Moffett oil matter in the Arab kingdom of Saudi Arabia and read to him the substance of the memorandum prepared by Mr. Murray of the Near Eastern Division.12 The Ambassador agreed that his Government should show real interest in the question of keeping the King in a proper state of mind, and said he would take the matter up with his Government. He incidentally remarked that he hoped that this Government would keep in mind any possible methods of cooperation in this and related respects.

890F.51/31

C[ORDELL] H[ULL]

Memorandum by the Chief of the Division of Near Eastern Affairs (Murray) to the Secretary of State

[WASHINGTON,] May 10, 1941. MR. SECRETARY: Mr. James A. Moffett telephoned to me yesterday afternoon with further reference to the proposal to accord financial assistance to King Ibn Saud through the purchase by the United States Government of petroleum products which Mr. Moffett's company would produce and process. Mr. Moffett outlined at some length the history of this proposal. He began by pointing out that the financial and economic situation in Saudi Arabia was becoming more and more desperate. Only within the past week his company had been obliged to advance a further sum of $500,000 to Ibn Saud's Government. This made a total advance of $7,300,000 to be recouped from future oil royalties.

"Viscount Halifax.

12 Dated April 21, p. 627.