Foreign Relations of the United States, 1969–1976, Volume XXIV, Middle East Region and Arabian Peninsula, 1969–1972; Jordan, September 1970

166. Telegram From the Embassy in Saudi Arabia to the Department of State¹

Jidda, October 17, 1972, 1433Z.

3347. Dept pass Cairo. Kuwait pass Muscat. Subject: Saudi–US Oil Relations: Implications of Yamani’s proposed “special relationship.” Ref: Yamani–Irwin Memcon Sept 29.²

Summary: Special oil relationship proposed by Saudi Minister Petroleum another of constructive developments made possible by reduced tensions in area; it dramatically illustrates King Faisal’s continued gift for creative and independent statecraft. Saudis may see Yamani’s proposal partly as opportunity to increase their prestige at home and abroad. We believe, however, that primary object of proposal—and of other Saudi initiatives in economic and military fields—is to improve their long-term security prospects by strengthening and expanding ties with US. US dependence on any Arab nation for significant percentage of its future energy needs obviously undesirable—but since some such dependence appears inevitable by start of 1980’s best assurance of uninterrupted oil supply lies in evident and mutual self-interest. In case of SAG, most effective inducement we could offer for it to continue producing oil at levels we will require may not be purely economic (i.e. access for US investment market) but take form of closer, stronger relations across the board. End Summary.

1. MinPet Yamani’s offer of SAG investment in US energy sector in return for preferential treatment for Saudi oil has wide-ranging implications for both countries. Based upon info in ref memcon, we have outlined some of political and economic considerations that may underlie Yamani’s offer, and considered its impact on US–Saudi relations.

2. Favorable atmosphere in area. Minister Yamani’s offer, as well as negotiations with oil companies that precede it, are made possible by diminished tension that has prevailed throughout area since 1970 when cease-fire came into effect along Canal and fedayeen eliminated from East Jordan. It is thus latest in series of steps taken by Arabs—including expulsion of Russians from Egypt—which exploit potential of détente and perhaps even add to its momentum.

3. Faisal’s independence and creativity. Offer is dramatic evidence that King, despite deep hostility to Zionism and misgivings about our Middle East policy, is still capable of creative and independent statecraft where his nation’s bilateral interests are concerned. Yamani offer, we note, put forward when Cairo press (Cairo 2768)³ once again urging Arabs to use oil as political weapon in struggle against Israel—a demand which King previously rejected in Al Musawwar interview August 4. We consider it immaterial whether idea of special oil relationship originated with Yamani or Faisal himself. What matters is that given King’s remarkable capability for hard work and his known concern for even minor administrative decisions, all Saudis assume Yamani has King’s full support—just as he did on previous issue of participation.

4. Opportunity for image polishing. There no doubt SAG also aware of possibilities in this dramatic proposal of useful public relations for itself. What King and Princes have long needed, at home as well as abroad, is more dynamic and progressive image. Present oil initiatives, in which Saudis act as trail blazers for “all oil producing nations” (per local press), appeal to Saudis’ instinctive feelings of religious and cultural superiority. Conclusion of preferential oil relationship would help give wider credence to SAG’s assertion that its responsible approach to modernization produces better results than does flashy stick-handling of revolutionary Arabs—who often fall on their faces.

5. Saudi Arabia’s long-term security considerations. For most of last 40 years, since oil agreement signed with ARAMCO, close ties with USG have been bedrock of SAG security policy. As Chief of State whose experience in international politics dates back to Versailles Conference, King Faisal has long memory. Two conclusions he drew early were that USG had no designs of imposing its political influence on Saudi Arabia and that USG support for Saudi external security was essential for oil-rich and people-poor country. USG, in Faisal’s eyes, has proved itself in time of need, most notably by Lend-Lease shipments in 1943–45 and by providing squadron of USAF (Operation Hardstand) when Saudi Arabia was being bombed by UAR in early days of Yemeni civil war.

6. While SAG reassured by USG performance and by expressions of concern for Saudi external security by every US President since FDR, SAG has long had nagging worry about asymmetrical nature this relationship. Notwithstanding large American investment in ARAMCO and important USG interest in uninterrupted flow of crude oil to its allies, it has been obvious to SAG that USG in Middle East has until very recently been far more occupied by Arab-Israel issue. If there ever direct conflict between two interests, SAG has feared it might be left in lurch or be driven by regional pressures to pursue policies harmful to its own interests—as well as of US.

7. In purely economic terms, SAG may also have been somewhat concerned that as SAG’s participation in ARAMCO concession increased, US direct economic interest in Saudi Arabia could somewhat diminish.

8. Embassy has pointed out in last annual political assessment (A–42, Apr 18, 1972)⁴ that this relationship is becoming somewhat more symmetrical as SAG grows stronger and more self-confident, and US becomes more interested in assured access to increasing quantities of Saudi oil. Nonetheless, SAG still concerned over its continuing vulnerability to external aggression, and perhaps also to unsettling side effects of new Arab-Israeli clashes. Thus, we believe that Yamani’s request that Saudi oil be given special status in US market is latest manifestation of SAG’s intent to further improve its long-term prospects for security and stability by progressively strengthening bilateral ties with US.

9. Economics of Yamani’s proposal: Yamani’s offer cannot by any means be panacea for $30-billion-a-year oil bill which some predict for US in mid-eighties. Nor can it furnish any more than one-fourth to one-third of outlet for massive Saudi investments downstream aimed at keeping oil flowing to its technical limits. It is not likely, moreover, that SAG’s developing expertise in investment finance would lead her to place more that 50 percent of her surplus funds in one economy, even in that of the favored US. (We would have to assume that USG would not agree to more that 50 percent of its imports coming from one source, which means six million b/d at most by 1980, only about one-third of Saudi production.) Nevertheless, without carefully analyzing US side of equation (which we in field cannot do) it seems safe to conclude that magnitudes of investments on both sides would be great enough to insure a real intertwining of economic interests.

10. Some tentative assessments. It is worth noting that an increased identification with USG via preferential oil deal could carry real risk for Saudis. Should inter-Arab disputes erupt again in context of deteriorating Middle East situation, SAG would be liable to more violent attack than before from radicals as being “in league with US–Zionist imperialism.” SAG would be juicy target for anarchical Palestinian terrorists. Reply, however, could be made that oil deal would not be a unique, unprecedented phenomenon but only one case out of many, all pointing to a drawing together of US–Saudi interests which has been going on for several years and which will continue into future. SAG, moreover, by allowing offer to be put forward obviously feels benefits are worth whatever future risks may be involved.

11. From our standpoint, it clear that acceptance of Yamani-type offer would have far reaching implications for our national security policy toward Arabian Peninsula and Persian Gulf during next 20 years; as that question is debated in Washington, it clear that an increased US dependence on any Middle East country obviously undesirable in itself. But it can be argued that if US must satisfy perhaps a quarter of its energy demands over next 20 years via imports from Arabian Peninsula, then steps should be taken so that benefits we receive are balanced as much as possible by those we confer. Only in this manner can our oil supplies be assured, or at least made less vulnerable to foreign political pressures.

12. Most effective inducements we could offer SAG to continue producing oil at levels required by our growing needs—despite probable unwieldy increase in Saudi monetary reserves—might not be purely economic. Instead, a more desirable quid pro quo in Saudi eyes could be their consciousness of enhanced security and stability as a result of closer, stronger relations with US across the board.

Horan

1. Source: National Archives, RG 59, Central Files 1970–73, PET 1 SAUD–US. Confidential; Limdis. It was repeated to Abu Dhabi, Algiers, Amman, Beirut, Brussels, Caracas, CINCEUR for POLAD, Dhahran, Djakarta, Kuwait, Lagos, London, Manama, Rome, Tehran, Tripoli, Tunis, Vienna, and the Mission to OECD in Paris.
2. Document 164.
3. Telegram 2768 from Cairo, October 14. (National Archives, RG 59, Central Files 1970–73, PPB 9 EGY)
4. Airgram A–42, April 18. (Ibid., POL 1 SAUD–U.S.)