Foreign Relations of the United States, 1952–1954, The Near and Middle East, Volume IX, Part 1

886A.2553/7–1654: Telegram

No. 351
The Secretary of State to the Embassy in Saudi Arabia¹

secret
priority

Washington, July 16, 1954—7:37 p.m.

16. 1. Aramco and parent company officials have approached Department at various levels indicating emergency in relation Onassis shipping agreement may arise any time during next 30 days either through Davies talks with SAG or Onassis requests for cargo. Present position is that parent companies will refuse cargo under terms Agreement although realize shut-down and possible eventual nationalization could result. Officials fully realize seriousness of step but agree must stand ground and have sought assurances that U.S. Government agrees and will support them. They request prompt diplomatic action. Pacific Western on other hand confidentially informed Department a) they have replied to Saudis’ letter of notification that although Agreement contravenes concession rights they will do business Onassis if competitive rates offered and b) they about make deal Onassis covering three trips by Saud I to Western hemisphere at rates lower than Agreement level but slightly above present competitive rates. Department has requested Pacific Western hold off finalizing deal pending reply this telegram.

2. Department has replied to queries re our position from British, French and Dutch that question under study following April 29th approach to King. Informed Eden expressed concern SAG Ambassador June 24.

3. Problem discussed highest levels in Department and in Joint Chiefs. Agreed USG should back companies with SAG in view:

(a) As stated Deptel 303 April 23² agreement not in keeping Aramco concession.

(b) Companies’ surrender to agreement likely create serious repercussion throughout shipping and oil world from point of view private and public commercial interests and general international trade policy.

4. Aramco continues explore legal aspects. While Aramco and Department agree should be fullest legal exploration, both inclined view that, in spite strength of case supporting position Aramco agreement violated, resolution Onassis matter may not depend primarily on legalities involved especially in view of method for settling legal question, arbitration between Company and SAG under Article 31 of concession contracts and Company uncertain whether desires arbitrate.

5. Fully realize difficulty situation you face. Feel here deterioration King’s friendship and his recent stand both regarding military aid and Point IV missions has been unreasonable in light three points enumerated Paragraph 2 urtel July 7³ and in light our repeated efforts help in Buraimi settlement.… Nevertheless we deem it essential every effort be made eliminate from Agreement restrictive, monopolistic feature before situation further aggravated by open break between companies and SAG.

6. Department therefore wishes you express in manner you deem most effective very serious view we take of whole question and widespread ramifications which may result. Following are suggestions for your guidance:

a) Since test Onassis agreement published and full realization its implications possible, concern USG and American commercial interests has increased. Implementation would result in wide and serious public resentment. We believe this also true other countries having commercial interests Saudi Arabia.

b) In our opinon Onassis agreement not in keeping with agreement entered into between SAG and company. Hence regardless possible legal maneuvers would be wide belief that Aramco concession violated. Contemplated action under Onassis agreement would at minimum appear as act of bad faith and create bad impression on world opinion, already getting much public attention.

c) Onassis agreement inconsistent with established practice world commerce. If implemented in Saudi Arabia, similar arrangements almost certain be adopted by other nations. Spread this practice would seriously injure commerce all nations including Saudi Arabia. Quite apart from immediate American private interests involved, USG cannot passively acquiesce in establishment such pernicious precedent. SAG should understand this is question of principle which would not necessarily be affected by degree of monopoly to be enjoyed by Onassis. An essential element in our view is that oil buyer or seller as case may be retain right to designate ships transporting oil as is generally accepted practice international commerce. This along with related principle freedom of seas has been foundation expansion international trade and commerce.

d) From practical business viewpoint US believes Saudi Government would run grave danger substantial loss by implementation Onassis Agreement. Financial benefits to Saudi Government from Onassis deal bound to be infinitesimal compared potential loss oil royalties. Loss of markets for only one million barrels of oil would roughly cancel contemplated annual financial benefits. If contract implemented resentment and resistance on part many oil buyers likely impair Aramco production, income and hence Saudi royalties to much greater extent. There is increasing evidence that resistance will be tremendous. From dollars and cents viewpoint Saudi Government appears have been seriously misled.

e) Since any sovereign power free to establish own fleet naturally neither USG nor companies have objection to concept tanker fleet under Saudi flag and believe there would be no doubt that such fleet would obtain reasonable participation Saudi oil traffic provided Onassis agreement modified so as to eliminate rebates and special priorities and thereby providing for operation of Saudi Vessels in free competitive markets at going commercial rates. In view long friendship we are bringing these facts attention King in effort solve problem according to best interests of Saudi Arabia as well as US. We believe SAG will receive more revenue if this done than by present scheme which will only create antagonisms and tendency divert trade.

7. FYI: It looks to us from here as if this issue may produce critical point in our relations with Saudi Arabia.…

. . . . . . .

8. If King’s attitude is based on belief company and USG will back down, we would hope your démarche along lines set forth this telegram would disabuse him of that notion and set him to find ways to avoid showdown with Aramco.… We also have reason believe Onassis aware of seriousness of scheme and mounting difficulties he will face in commercial world. He probably anxious squirm out. These factors encourage us to hope that clearcut statement USG attitude plus discussion with selected influential Saudis if undertaken soon enough will avoid issue and perhaps in end clarify whole atmosphere US-SAG relations. Issue can be avoided by modifying Onassis Agreement by elimination restrictive features. Onassis has indicated willingness interpret Agreement loosely or modify and already offered near competitive rates Pacific Western. Modifications could be made without fanfare or loss face and only Onassis who already seeking perpetrate similar pernicious deals other countries would be loser.

9. As background air pouching legal opinions firm White & Case NYC and memorandum prepared by Duce.

10. Your appraisal and recommendation re substance this telegram requested soonest. You authorized however proceed along lines suggested immediately.

Would appreciate full expression your views on above.⁴ End FYI

Dulles

1. Drafted by Gay, Jernegan, and Dorsey and cleared by PED, L, and TRC. Repeated to Tehran and London.
2. Not printed, but see footnote 3, Document 340.
3. Not further identified.
4. A memorandum by Byroade to the Secretary of State, dated July 21, summarized this telegram. A handwritten notation on the margin stated that the Secretary saw the memorandum. (886A.2553/7–2154)