Foreign Relations of the United States, 1948, The Near East, South Asia, and Africa, Volume V, Part 1

890F.6363/6–1148

Memorandum of Conversation, by Mr. Richard H. Sanger of the Division of Near Eastern Affairs

secret

[Washington,] June 11, 1948.

Participants:

Messrs.	James Terry Duce, Vice President	Aramco
	Philip C. Kidd, Asst. to Vice President	”
	George Ray, Legal Counsel	”
	Allen Young, Asst. to Legal Adviser	”
	Manley O. Hudson, Legal Adviser	”
Messrs.	Mr. Henderson (NEA)
	Gordon Merriam (NE)
	Richard Sanger (NE)
	Mr. Robertson (NEA)
	Gordon Mattison (NE)
	George Gray (Le/P)

Mr. Duce stated that his Company had been informed by its representatives in Arabia of the position of the Saudi Arabian Government that the Aramco concession covered only the islands and territorial waters of the Persian Gulf, and does not apply to any additional rights which may be acquired by Saudi Arabia as the result of dividing the continental shelf of the Persian Gulf between the riparian States. SAG has been negotiating with Superior Oil Company and is ready to give that company a concession for the oil in this area, lying east of the Aramco concession but located in the area where Saudi Arabia may have subsurface rights. SAG has given Aramco an option on this “new” area if Aramco will meet the terms offered by Superior. Furthermore, SAG wants a decision on this by the end of June. The King has made it clear to the Company that its present concession will be safeguarded if a new concession is given.

Mr. Duce went on to say that since the Government of Saudi Arabia is known to be negotiating with Superior Oil and with a British company with the intention of granting a concession for such areas under the Persian Gulf as may be acquired by Saudi Arabia under the contemplated division of the Persian Gulf, Aramco has retained the services of various lawyers, including Judge Manley O. Hudson, and wants the whole matter to rest until their studies have been completed.

Mr. Henderson said that it seemed to him that the main question was:

(1) Does the existing contract give Aramco rights to any oil under the Persian Gulf over which SAG may eventually assert sovereignty, or

(2) Does the existing contract merely give Aramco rights to any oil that may exist in the parts of the Persian Gulf now admittedly belonging to SAG?

Mr. Kay said that the question might be framed in another way:

(1) Has the Saudi Arabian Government anything to grant?

(2) Does the Company want to exercise its option?

He said that the Aramco officials had come to invite State Department consideration of their request that this matter rest until the Company could examine the question thoroughly, at which time Aramco would like to discuss it in detail with the United States Government.

Mr. Hudson said that it had been impossible to take a definite position as yet. While the term “islands and territorial waters” is used in the Aramco concession, the Government of Saudi Arabia apparently feels that although territorial waters were included, the outer bed of the sea was not included. The Arabs usually think in terms of “coastal waters”.

Mr. Henderson said that the Department was interested in the matter because the US does not want American companies quarreling over their supposed rights in the Persian Gulf, and because we want world peace. We are afraid that if a country like Saudi Arabia announces that it has given concessions in the Gulf other countries will do the same. He went on to say that the US is working with the British on a plan for the establishment of the rights of the Persian Gulf States through a division of the Gulf by a median line. We would then want to approach the governments of the Persian Gulf states to see if they would reach agreement. We are concerned over the effects on world peace if various claims should be debated before a scientific division has been worked out and accepted by the States concerned. We have told King Ibn Saud that we were working on the problem. Furthermore we asked Superior Oil to take no steps in the Gulf for the time being. Superior, however, chose to disregard this request. If we now said to Superior that it should postpone the whole matter, Aramco might go ahead. The fairest way, therefore, would seem for Aramco and Superior to agree that neither company will approach the King until the scientific division of the Gulf has taken place, and for the British company to conduct itself similarly.

Mr. Ray stated that more than a month ago his company had heard that Superior Oil and Trinidad Leaseholds, a British corporation, were trying to establish a claim to the area in the Persian Gulf east of Aramco’s present concession but within the area of the Persian Gulf where Saudi Arabia had rights. Aramco takes the position that there is no subsea territory east of its present concession for which Saudi Arabia has the right to grant concessions. When the Company suggested starting drilling in the Persian Gulf the Saudi Arabian Government said to put it off. Later SAG told Aramco it was all right to go ahead with such drilling, provided Aramco would accept the terms of a contract which SAG was working out with Superior which had a much higher royalty basis than the present Aramco contract. Speaking for Aramco, Mr. Ray said he felt that Aramco had a right to the subsea lands of Saudi Arabia in the Persian Gulf. Judge Hudson said that Aramco thinks Superior may get a concession outside the Aramco area as defined by SAG. He pointed out that if this should happen many difficulties would arise, including the use of the piers and facilities built by Aramco. Judge Hudson then questioned Mr. Henderson about the nature of the “median line” and the countries to be affected by it. He was told that the line would affect Iraq, Kuwait, the Kuwait Neutral Zone, Saudi Arabia, Bahrein, Qatar, the Trucial Sheikhdoms, and Iran. The median line would follow the contour of the mainland and would be worked out scientifically by the best geographers in the US and British governments.

Mr. Henderson said that it appeared that Aramco had the choice of meeting the competition provided by Superior or of asking for a postponement. On being told that the latter had been the Aramco plan until the receipt of recent information from Arabia, Mr. Henderson continued that the US Government must be careful not to side with any one American company against another. We felt that it was undesirable for the security of the Persian Gulf and Saudi Arabia’s own security as well, for the King to grant concessions until a scientific median line has been worked out, and we had suggested to the King that he grant no concessions until this had been done, and until the meaning of the Aramco contract had been decided upon.

Mr. Hudson said that the interpretation of the Aramco contract will take some time, and that Aramco would like to wait on the matter until the interpretation is worked out, but that it could not do so in the light of the new circumstances.

Mr. Duce added that Aramco wants more time for study but Superior Oil has been discussing this problem with the Saudi Arabian Government. He felt that the term “territorial waters” was a confusing one. On being asked the terms of the proposed Superior Oil concession in the Persian Gulf, Mr. Duce said that they involved the payment of four gold shillings per ton, plus 20 percent of the gross, clearly a much higher figure than the Aramco concession and one which, if it went through, would upset the whole Persian Gulf concession structure.

Mr. Henderson asked the Aramco officials present not to reduce this conversation to writing and to inform only those Company officials who were directly concerned.

Mr. Duce pointed out that the same problem exists in relation to Kuwait and possibly the Neutral Zone. Mr. Robertson suggested that the US and the British companies involved should work out their problem but that without waiting for this the US and British governments should go ahead with the project of drawing up a median line.

Mr. Ray ended the meeting by saying that Aramco was bringing several of its top officials home about June 14, and that perhaps it would be best for Aramco to take up the option for these new offshore Arabian oil lands, as offered by King Ibn Saud, on the same terms as Superior has been offering and then see what should be done.