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CONCERN OF THE UNITED STATES FOR THE SAFEGUARDING AND DEVELOPING OF PETROLEUM RESOURCES IN SAUDI ARABIA; 1 FORMULATION OF A FOREIGN PETROLEUM POLICY FOR THE UNITED STATES

890F.6363/91

The President of the California Arabian Standard Oil Company

(Davies) to the Adviser on Political Relations (Murray)

SAN FRANCISCO, December 27, 1943. MY DEAR MR. MURRAY: As you are aware, the Standard Oil Company of California and the Texas Company have equal interests in certain oil concessions and operations in the Near East, notably in Bahrein and in Saudi Arabia. The concession in Saudi Arabia is held and operated by the California Arabian Standard Oil Company, whose shares are owned by the two companies equally. Hitherto, the principal outlet for oil from Saudi Arabia has been to the East, that is by tanker via the Persian Gulf to the consuming areas generally east of the Suez Canal. It is expected that production in Saudi Arabia will be greatly increased early in the post-war period in order to serve consuming areas which were formerly supplied from the western hemisphere. For this reason, we believe that a pipe line of large capacity will be necessary for the economic delivery of crude oil from the producing fields in Eastern Saudi Arabia to an appropriate seaport and future refinery location on the Mediterranean. Contingent upon political and other circumstances favorable to operations of this type being established among the nations concerned, at the peace table or prior thereto, it is contemplated that we would undertake the construction and operation of such a pipe line and related facilities. The pipe line, however, would not necessarily be restricted solely to the transportation of the company's own oil.

While California Arabian Standard Oil Company enjoys adequate rights under its present concession in Saudi Arabia to construct such a line through that domain, it would be necessary to cross other territory, for example Transjordan and Palestine, and perhaps Egypt, in order to reach a suitable terminus on the Mediterranean. This would entail negotiations with the governments having jurisdiction in those territories.

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Continued from Foreign Relations, 1943, vol. IV, pp. 921–952.

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In addition, to provide such an outlet for Saudi Arabian oil to the Mediterranean sea, and therefore to the western world, would introduce a new factor of high importance into the political and economic problems already facing the governments which are vitally concerned in the development and world-wide distribution of Near East oil.

Moreover, we are aware of the great strategic importance which, under certain conditions, might attach to such a project.

Chiefly for the foregoing reasons we desire to inform the Department of State concerning our plans and intentions in connection with such a pipe line, even in their present preliminary stage, and to invite such comment as the Department may wish to make. This letter is for that purpose, and will be supplemented, at the Department's convenience, by whatever additional information is desired.

In addition to informing the Department concerning this project, we would like to know from the Department whether it perceives any objection to our proceeding in the near future with the concessions and other arrangements which will be necessary; whether the Department chooses to have prior conversations with the other governments concerned for the purpose of resolving any political issues before we undertake such negotiations; and, in the event that it neither perceives objections to our going forward, nor chooses to deal in a prior manner with the other governments affected, whether and to what extent we might expect the Department to facilitate and assist us in securing the necessary rights and safeguards from those other governments.

We believe that the Department will not need to be reminded of the importance which Saudi Arabian oil, available in large quantities in the Mediterranean and completely under the control of American nationals, would have as our own domestic oil reserves decline; nor that the best efforts of private American companies, without the assistance of their government, might not be successful in reaching a satisfactory and secure arrangement in the face of possible opposition in which other governments took an active part.

It is hardly necessary to add that we have every desire to conduct the enterprise alluded to in complete harmony with the established policies of our government and with full regard for any relevant agreements which may be reached between our government and others.

In view of the fact that the project outlined herein is in its formative stage, and that our present questions are entirely political in nature, copies of this letter are not being furnished to other departments of the government which might become interested later.

Preliminary to taking our next steps we would appreciate having the Department's comments concerning this proposal. Very truly yours,

F. A. DAVIES 554–184—65—2

800.6363/1420

The Secretary of State to the Secretary of the Interior (Ickes)?

WASHINGTON, January 5, 1944. MY DEAR MR. SECRETARY: I refer to the negotiations which the Petroleum Reserves Corporation recently undertook with the California Arabian Standard Oil Company, for direct governmental participation in, or control of, that company's oil holdings in Saudi Arabia, and to similar negotiations which were initiated with the Gulf Oil Company relative to the latter's holdings in Kuwait.

It is understood that the above-mentioned negotiations have been based on the view that this Government should participate in companies holding foreign oil resources in order to protect the American interest in those resources and assure this country supplies in emergencies.

As you know, we are planning to undertake exploratory conversations with the British Government on questions of mutual interest regarding Middle Eastern oil. Our intention is to determine the possibility of achieving close cooperation between the United States and British Governments in developing oil in the Middle Eastern area, and the manner in which such cooperation would be effectuated. Hence, the purpose of the conversations is to ensure that this country will have access to supplies of Middle Eastern oil to meet peace-time as well as security needs. At the same time, of course, the conversations will seek to assure that supplies of Middle Eastern oil will also be available, in accordance with the principles of the Atlantic Charter, to meet the similar needs of other friendly countries. Thus the broad objectives of the proposed conversations with the British Government include the purpose intended to be accomplished by the Petroleum Reserves Corporation negotiations with the California Arabian Standard Oil Company and the Gulf Oil Company.

However, the Department believes that, until the outlines of our conversations with the British Government take shape, it is not possible to determine whether direct participation of this Government in petroleum companies holding foreign oil reserves will prove consistent with the steps we may wish to take to attain our objective. In fact, there is a danger that such an arrangement made now between this Government and the oil companies holding reserves in the Middle Eastern area might even adversely affect the course we may decide upon as a result of the conversations. Moreover, the question of the needs for assuring foreign oil reserves for security reasons must take into account the larger question of the character of the post-war security system growing out of the Moscow agreements.*

2 This letter was addressed to Mr. Ickes in his capacity as President of the Petroleum Reserves Corporation.

3 Joint statement by President Roosevelt and British Prime Minister Churchill, August 14, 1941, Foreign Relations, 1941, vol. 1, p. 367.

Accordingly, the Department is of the firm opinion, with which I believe you will agree in view of the above-mentioned considerations, that negotiations of the Petroleum Reserves Corporation with the California Arabian Standard Oil Company and with the Gulf Oil Company, for the purpose of arranging participation by this Government in those companies or their foreign reserves, should be held in abeyance, and that no similar negotiations should be undertaken with any other company at this time. If developments growing out of the forthcoming conversations with the British Government should indicate that negotiations of the aforementioned nature should be again considered or that some alternative course might be advantageously examined as being within the scope of operations of the Petroleum Reserves Corporation, the Department, of course, will be glad to discuss the subject through its representative on the Board of Directors of the Corporation. Sincerely yours,

CORDELL HULL

800.6363/1428 Memorandum by the Acting Petroleum Adviser (Rayner) to the

Secretary of State

[WASHINGTON,] January 6, 1944. MR. SECRETARY: I called on Secretary Ickes this afternoon and advised him that it was your intention to call in, at an appropriate time, the top officials of oil companies operating abroad and to advise them in confidence of the forthcoming conversations with the British; also, that their advice would be sought from time to time as the conversations progressed.

Secretary Ickes said that he had just received your letter of January 5 disapproving of any further negotiations with the oil companies for stock participation by this Government pending the development of the discussions with the British. He indicated his belief that we were working at cross purposes and that the position taken in your letter was contrary to the President's wishes. He, therefore, intended to put the matter before the President for decision.

* Reference is presumably to the Declaration on General Security issued on November 1, 1943, at the Conference of Foreign Ministers of the United States, the United Kingdom, and the Soviet Union, which was held at Moscow from October 18 to November 1, 1943; for text of declaration, see Foreign Relations, 1943, vol. 1, p. 755.

• This was done in letters of January 24 to these officials by the Secretary of State (800.6363/1455f).

He spoke at some length on the value of government participation in foreign oil reserves through stock ownership as a means of protecting our national interests. However, after some discussion he admitted that there may be possible desirable alternative courses of action which would accomplish the same purpose without involving the disadvantages of government stock ownership in American corporations.

The membership of the group to carry on the conversations with the British was not mentioned by Secretary Ickes and I did not bring up the subject.

In view of Secretary Ickes' statement, as indicated above, that he intended to take up with the President the subject of your letter of January 5 to him, it is believed that you may wish to advise the President concerning the reasons for the position you take in that letter. For that purpose a brief memorandum to the President is attached for your consideration.

CHARLES B. RAYNER

890F.6363/91 The Acting Petroleum Adviser (Rayner) to the President of the

California Arabian Standard Oil Company? (Davies)

WASHINGTON, January 7, 1944. MY DEAR MR. DAVIES: I have received your letter of December 27, 1943, addressed to Mr. Wallace Murray, outlining your plans and intentions, now in a preliminary stage, in connection with the construction of a pipeline, which would transport oil produced by your company and possibly other oil as well, from the producing fields in eastern Saudi Arabia to the Mediterranean, and inviting the Department's comment. I wish to thank you for informing us of this project and giving us an opportunity to comment upon it.

First I wish to say that the Department, from the viewpoint of both the war time and long-range importance of petroleum, favors the development of all possible sources of that product, and is glad to see American companies participate in that development. The construction of a pipeline, such as the one you contemplate, would appear to be in line with these objectives, and the Department therefore would in principle look favorably upon such a project.

However, there are now certain questions and developments relating to oil in the Middle Eastern area to which a project of this nature must be properly related. In this connection, we note with pleasure

See memorandum of January 8, p. 15.

The company changed its name to the Arabian American Oil Company (Aramco) on January 31, 1944.

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