Foreign Relations of the United States Diplomatic Papers, 1941, The British Commonwealth; The Near East and Africa, Volume III

890F.51/48½

Mr. James A. Moffett² to President Roosevelt

Washington, April 16, 1941.

My Dear Mr. President: Referring to the interview which you so kindly granted me on Wednesday, April 9th, and in line with your request, I am attaching hereto a memorandum covering the existing situation in Saudi Arabia. Also a proposal which we hope will be acceptable as a means of providing funds for the Saudi Arabian Government.

Our representatives have had numerous conferences with the King. His financial situation is desperate. The British Government has advanced him four hundred thousand pounds and he is endeavoring to have this increased to nine hundred thousand pounds. His budget requirement is conservatively estimated at $10,000,000.

You referred to the four Danish tank steamers which might be utilized to transport finished petroleum products. If the United States Government will advance to the King of Saudi Arabia $6,000,000 annually for the next five years, the Calarabian Standard Oil Company³ will agree to deliver to the United States Government, for account of the King:

	F. O. B. Ship Persian Gulf
1,800,00 bbls. of Gasoline	at 3½¢ [per gallon]
2,660,000 bbls. of Diesel Oil	at 75¢
3,400,000 bbls. of Fuel Oil	at 40¢

totalling approximately $6,000,000 worth of petroleum products annually.

The King’s normal revenue (from pilgrimage and customs) has practically disappeared. His expenses have very materially increased, not only on account of the war, but due to the drought this past year, so that he has been forced to feed two or three hundred thousand of his subjects.

I sincerely trust that some way may be found under existing legislation to provide King Ibn Saud financial assistance, which he so urgently needs in order to maintain his government in a stable condition. We believe that unless this is done, and soon, this independent kingdom, and perhaps with it the entire Arab world, will be thrown into chaos.

Yours very sincerely,

(Original signed by

J. A. Moffett

)

[Enclosure]

Memorandum by Mr. James A. Moffett for President Roosevelt

[Washington,] April 16, 1941.

King Ibn Saud of Saudi Arabia formerly depended largely on the revenue from the pilgrimage and customs duties to finance his government. Due to the war, this revenue has been reduced to a negligible amount.

The only economic resources of any substantial value of Saudi Arabia are its oil resources, the development of which has been seriously interfered with on account of the war.

The King has privately expressed himself, and we believe sincerely, as strongly pro-Ally. No other man in the Arab countries, nor among Moslems the world over, commands prestige equal to his. In order to feed and maintain control of his people, which is essential to maintain his prestige in the Arab world elsewhere and to prepare, even in a moderate way, for equipping his own soldiers for service, he estimates that he will require $10,000,000 per annum until the emergency has passed and he recently demanded that the California Arabian Standard Oil Company supply him with $6,000,000 during the year 1941. In addition to this, the British have promised him 400,000 pounds sterling during 1941, which he hopes to increase to 900,000 pounds.

Based on the best information which we have been able to obtain, it is our opinion that the King’s estimate of $10,000,000 for this year is moderate and close to a minimum figure for essential expenditures.

The California Arabian Standard Oil Company owns an oil concession in Arabia consisting of approximately 162,000,000 acres and embracing all the probable oil territory of the country. This area is approximately equal in size to the states of California and Oregon. The original concession was acquired in 1933 and runs until 1993; the remaining area was acquired in 1939 and runs until 1999. The company is of American nationality and 50% is owned by the Standard Oil Company of California and 50% by the Texas Corporation. These two companies between them have approximately 160,000 American stockholders.

The development work commenced in 1933 and to date the company has discovered on three structures an estimated 750,000,000 barrels of crude oil reserves and there are many other structures of considerable promise on this concession. The Calarabian Standard Oil Company has so far spent approximately $27,500,000 on this development. In addition, the company has advanced to the King against future royalties $6,800,000. It has now come to a point where it is impossible for the company to continue the growing burden and responsibility of financing an independent country, particularly under present abnormal conditions. However, the King is desperate. He has told us that unless necessary financial assistance is immediately forthcoming, he has grave fears for the stability of his country.

Proposal

1. We propose that the United States Government purchase from the Saudi Arabia Government finished petroleum products to the value of six million dollars annually for a period of five years.

2. The Company will contract with the King to produce, manufacture and load such products for his account at a Persian Gulf port.

3. The King will waive royalty on an amount of crude oil corresponding at current royalty rate to $6,000,000.

4. The Products taken under this arrangement, except that taken for use by the U. S. Navy or other U. S. Government purposes within the area, would have to be moved outside an area approximately defined as follows: Egypt, the east coast of Africa, South Africa, Australasia, India, the Straits Settlements, China, Japan and possibly the Philippines.

5. We suggest that for the purpose of determining the quantity of products due under this arrangement an agreement be reached as to the prices of certain products to be supplied over an agreed period.

6. We suggest that our State Department approach the British not only to increase the amount of money which the British have been advancing to the King, amounting to 400,000 pounds sterling per year, but also to request the British to continue to make such advances in sufficient amount, which, added to those made by the United States Government, plus any other revenue received by the King, will total approximately $10,000,000 per year.

Any British advances should be on a political and military basis and should not involve their getting any oil from this concession, the British at the present time being well supplied from Iran, Iraq, and Bahrain, etc.

2. Chairman of the board of directors of the Bahrein Petroleum Co., Ltd. (incorporated in Canada) and of its subsidiary, the California Texas Oil Co., Ltd. (incorporated in the Bahamas). Mr. Moffett, at this time, was acting in the interests of the California Arabian Standard Oil Co. (incorporated in Delaware), which was developing an oil concession in Saudi Arabia. All of these aforementioned companies were jointly owned by Standard Oil Co. of California and the Texas Corp. (name of the latter company changed to the Texas Co. late in 1941).
3. Abbreviation for the California Arabian Standard Oil Co.