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following note, which I showed to Sir Frederick Phillips, with the request that the British Government furnish the King of Arabia with whatever funds it felt were desirable and necessary; that the United States Government was not in a position to make any advances whatever to the King of Arabia, or to buy any oil in the ground in Arabia:

7/18—41 "Jess—

Will you tell the British I hope they can take care of the King of Saudi-Arabia. This is a little far afield for us!

F.D.R.”

JESSE JONES

890F.51/38 Memorandum of Conversation, by Mr. John D. Jernegan of the

Division of Near Eastern Affairs

[WASHINGTON,] August 7, 1941. Participants: Mr. Fred Davies Standard Oil Company of

Mr. Lloyd Hamilton California
Mr. Murray

Mr. Jernegan Mr. Davies and Mr. Hamilton said they had heard nothing further on the subject of the proposed loan to King Ibn Saud since their conversation with Mr. Alling on July 24. They felt quite sure that Mr. Jesse Jones had not yet given any answer to Mr. James A. Moffett.

Mr. Hamilton said it was his understanding, following the last conversation between Mr. Moffett, (with Mr. Rodgers of the Texas Co.) and Mr. Jesse Jones, that Mr. Jones considered a direct loan under Lease-Lend or through the Reconstruction Finance Corporation as impracticable but that he was thinking of the possibility of making the money available to Great Britain under Lease-Lend, leaving it to the British to deliver the funds to King Ibn Saud. Mr. Hamilton and Mr. Davies feel, however, that if we put up the money we should get the credit. Mr. Murray agreed with this point of view.

The entire subject was gone over at some length, and Mr. Hamilton repeated the conviction of his company that a loan by the United States to Saudi Arabia at this time is very important from a political standpoint. He emphasized that King Ibn Saud is anxious to have American assistance because he does not fear our intervention in his affairs. The British, in Mr. Hamilton's opinion, are also anxious to have the United States join in aiding the King because they do not want him to feel himself too much in their debt, a feeling which might some day influence him to throw in his lot with Britain's opponents.

They also want to avoid compromising his standing as an independent leader of the Arabs.

Mr. Murray said that he could understand the attitude both of the King and the British, but he pointed out that Saudi Arabia lies in an area in which British interests are much greater than ours and that the British are therefore more directly concerned. He further said that the British have a long background in the field of political loans, are used to advancing money without any great expectation of getting it back, whereas the United States does not have any tradition of that sort.

Mr. Murray explained that he fully appreciates the advantages of extending assistance to King Ibn Saud but that we must take into consideration the natural reluctance of Mr. Jesse Jones to embark on a purely political loan in an area where we are not directly concerned to any great extent. Mr. Murray said he is inclined to feel that it might be best to present the proposition first and foremost as a sound commercial operation, based on collateral, with the political advantages put forward only as a "plus value.” He asked whether Mr. Hamilton and Mr. Davies would be willing to see Mr. Jones and discuss the matter with him on that basis. Mr. Hamilton replied that he understood Mr. Moffett did not wish to take the initiative in calling on Mr. Jones again and that he would probably not approve of any such action by Mr. Davies and himself. Mr. C. E. Olmsted, vice president of the Texas Company and vice chairman of the California-Arabian Oil Co., is expected to arrive in Washington tonight, and Mr. Hamilton and Mr. Davies expect to talk with him about the situation. They think he may want to consult Mr. Rodgers regarding the advisability of again approaching Mr. Jones at this time. They asked, however, if the Near Eastern Division could not call to the attention of Mr. Jones the political factors involved and explain that the Department“would not be unhappy” if a loan were granted.

Mr. Hamilton said that in his initial conversation with the President Mr. Moffett had suggested that his company could supply oil for the United States Navy as security for the loan, and that the President had seemed to fall in with the idea, suggesting that certain Danish tankers might be used to transport the oil. Mr. Davies said that although the Navy Department does not feel that the Arabian oil is up to its standards, the British Navy is using it with satisfaction and that its high sulphur content is not so much of a drawback as might appear.

In order that we might have a better understanding of the proposal, Mr. Hamilton explained that the Standard Oil Company's thought is that the American Government could make the loan direct to King Ibn Saud, against security in the form of petroleum products, which

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the King would deliver to the United States as needed. The California-Arabian would provide the oil for the King and would be repaid over a period of years by being permitted to export free of royalty a quantity of petroleum sufficient to make up for the value of the products supplied the United States. Essentially, but indirectly, the company would make an advance of royalties to the King, in the form of oil rather than in the form of cash.

Mr. Davies suggested that if the United States Government wanted to have the oil delivered immediately, the company could produce it up to the value of $500,000 per month (the suggested rate of the loan) but that additional tankers would be needed to transport it. He suggested that it might be used to fuel the American merchant ships now sailing to the Red Sea and Indian Ocean.

The California Standard's New York attorney, Mr. Klein, has drawn up a legal opinion showing that a loan by the Reconstruction Finance Corporation on the basis outlined above would be practicable. A copy of this opinion was given to Mr. Jones about a month ago, and Mr. Davies promised to supply the Department with a copy as well. (This opinion is attached herewith.) 32

In the course of the conversation, Mr. Murray mentioned, in confidence, King Ibn Saud's direct appeal for a loan. Both Mr. Hamilton and Mr. Davies said they had not known of this before and were quite sure that this appeal had not been inspired by anyone connected with their company. They said the suggestion had been made to the King some time ago but that he had said he would not make any such move unless he were sure it would be favorably received. They had then dropped the matter.

Explaining why the King complains of the shortage of his oil royalties, Mr. Hamilton and Mr. Davies said that the export of oil has not decreased substantially but has not increased as the King had expected. This is due primarily to disruption of world markets by the war and secondarily to shortage of transportation facilities.

890F.51/29 : Telegram

The Secretary of State to the Minister in Egypt (Kirk)

WASHINGTON, August 22, 1941-8 p. m. 399. Your 1004, July 23, 1 p. m., and previous telegrams on the question of extending financial assistance to Saudi Arabia. The Department has examined this matter from every angle and it has received the consideration of the President, the Secretary of the Navy, the head of Lend-Lease, and the Federal Loan Administrator. The sum and substance of the conclusions reached are that this Government is not in a position to make any advances to the Saudi Arabian Government or to buy any Arabian oil whether produced or in the ground. The President requested Mr. Jesse Jones to inform the British of his hope that the British could take care of the financial needs of King Ibn Saud. Mr. Jones did so and made the request that the British Government supply to the King such funds as it should feel are desirable and necessary.

* See Hearings Before a Special Committee Investigating the National Defense Program, Part 41, Petroleum Arrangements With Saudi Arabia, pp. 25436–25438.

In replying to the note of the Saudi Arabian Minister of Foreign Affairs transmitted by your 825, June 26, 4 p. m.,33 you are authorized to state in substance as follows:

This Government fully realizes that the existing international situation has affected Saudi Arabia in a manner to cause financial problems. As the Saudi Arabian authorities are doubtless aware, the United States Government and the British Government are currently extending economic and financial assistance to certain countries, and this country is affording assistance to Great Britain on a very large and comprehensive scale.

The question of furnishing a credit to Saudi Arabia has been given the most earnest and sympathetic consideration by the President and high-ranking officials. However, it is felt that owing to the large number of countries and the vast extent of the areas included in the program of economic assistance, it is impracticable for this Government to cover the entire field, and a division of effort is necessary. In this connection, it is understood that the British Government has already afforded financial assistance to Saudi Arabia.

Needless to say, the continued independence of Saudi Arabia and the well-being of its people are considered to be of great importance, and the Government of the United States has the highest appreciation of the achievements of King Ibn Saud in unifying and developing his country and maintaining its liberties. On the other hand, the Saudi Arabian Government will doubtless appreciate that it is natural and logical for this Government to devote its main efforts toward assisting those countries which are actively resisting external aggression, or which for geographical reasons are important to the national defense.

The Saudi Arabian Government may feel that there are other ways in which this Government could be of assistance, in which case they could be discussed with the American Minister on the occasion of his forthcoming visit.

HULL

* See footnote 23a, p. 638.

890F.51/30 : Telegram

The Minister in Egypt (Kirk) to the Secretary of State

CAIRO, August 30, 1941-4 p. m.

[Received August 31–11:45 p. m.] 1260. From a perusal of Department’s 399, August 22, 8 p. m.,

I gather that there are factors other than the actual merits of the case which are regarded as precluding the extension of American financial aid to Saudi Arabia. It may be presumed that the Saudi Arabian Government will so infer and that no explanation will negative that impression or mitigate the repercussion of the refusal to respond to its appeal especially after the lapse of time during which it has apparently been under consideration.

With reference to the Department's specific suggestions as to a reply to the Saudi Arabian Government I wish to submit the following observations.

1. The reference in paragraphs 1 and 2 of the suggested reply to the division of effort between the American and British Governments would almost certainly suggest a division of hemispheres of influence under which the United States would appear to be resigning to the British all initiative in the Near East generally and in Saudi Arabia particularly. Given the unhappy position in which the British have been placed by identification with the system of colonies, mandates and protectorates not to mention the Palestine issue I believe that the conveying of such an impression whether intended or not would be most unfortunate.

2. The reference in paragraph 3 of the draft reply to the inactive role of Saudi Arabia in respect of the war and its lack of geographical importance might well be regarded by Ibn Saud as gratuitously offensive if incorporated in the reply. Not only has Saudi Arabia stood out as the one Moslem country which has not given cause for anxiety or worse in respect of the prosecution of the war but it has consistently exerted a stabilizing influence on neighboring Moslem countries. Given the position of prestige which Ibn Saud holds among his coreligionists by virtue of being the custodian of the holy places of Islam as well as by virtue of his personality, the situation in the Middle East at this time might well be worse than it is if he had fallen under the Axis spell as have most Moslems in Iraq, Iran, Syria and Egypt. The fact that Saudi Arabia was one of the countries which the British deemed it desirable to notify regarding developments in Iran is not without significance in this connection. Finally, as regards the geographic importance of Saudi Arabia, both in the present and in the face of future developments, its central position in the Arab world as well as on world trade routes, particularly sea and air, would hardly seem to require emphasis.

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