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The Tyranny Of Oil
HOW AND WHY THE UNITED STATES GOT INVOLVED IN THE MIDDLE EAST
December 1976 | Volume 28, Issue 1
When the king turned to Aramco for money in 1940, the concessionaires advanced him $2.9 million on future royalties. The following year he asked for $6 million more. Already many millions in the hole on their investment, the companies sought a subsidy for Ibn Saud from the United States government. James Moffett, a vice president of Socal and a friend of Franklin D. Roosevelt, asked him for a $6-million loan to the king. A direct payment was impossible under the law, Roosevelt said, and his suggestion that the company instead try to sell $6 million worth of oil to the Navy was turned down by Secretary Frank Knox on the ground that the Navy did not need that much oil in that part of the world. When Ibn Saud then directly approached Washington for a $ io-miilion loan, Roosevelt said that in view of their extensive Middle East commitments the British should handle the request. He then had the British divert part of their i94i $4oo-million loan from the U.S. to help Ibn Saud stabilize his finances. The British came through with $5.2 million in 1941, $12 million in 1942, and $16.6 million in 1943.
Socal and Texaco, watching the British control the cash flow to Ibn Saud and picture themselves to the king as his real benefactors, became convinced that the future of their concession was being jeopardized. The oilmen mounted a fresh lobbying campaign in Washington to head off the British threat. After a session with them in June, 1943, Undersecretary of the Navy William C. Bullitt informed Roosevelt that the British, “regarding the concession with covetous eyes,” were trying to “diddle” the Saudis to get it away from the Americans. H. D. Collier and W. S. S. Rodgers, the heads of Socal and Texaco, respectively, insisted that the only answer was for Washington to institute direct lend-lease aid to Saudi Arabia. Rodgers offered to set up a separate oil reserve in Arabia for the United States from which oil would be drawn for military use at discount prices—in return for direct lend-lease for Ibn Saud.
This pressure from Aramco came at a time when the theatres of war were widening and there was fear that oil supplies might run out. The Pentagon had told Petroleum Administrator Harold Ickes in April, 1943, for example, that “the Army Air forces are facing an extremely critical shortage in 100-octane gasoline. …” The State Department favored accepting Rodgers’ proffered reserve of cutrate oil in exchange for making Ibn Saud eligible for lend-lease. Roosevelt, however, after strong urging from Bullitt and Ickes, went much further. In a letter to Secretary of State Edward R. Stettinius he said: “I hereby find that the defense of Saudi Arabia is vital to the defense of the United States”—and authorized Stettinius to extend lend-lease aid to the king. But there was more. The President also ordered formation of the Petroleum Reserves Corporation, recommended by the Joint Chiefs as “a matter of greatest national security urgency,” to acquire 100 per cent of the Arabian concession.
Collier, Rodgers, and the other top executives of Aramco were dismayed. Instead of merely arranging a special petroleum reserve for the government, they were being asked—they were almost being told —to sell their rich Arabian concession to the government at cost. In the words of Herbert Feis of the State Department, “they had gone fishing for a cod and had caught a whale.”
The new corporation was formed June 30, 1943. Ickes became president, the Secretaries of State, War, and Navy its directors. Ickes pressed for 100 per cent control by the United States government. But as talks proceeded, uncertainties about the Middle East fighting that had helped quicken the oil companies’ desire for government participation abated, and they grew stubborn. By late 1943 Rommel had been ejected from Africa, the Allies were storming ashore in Italy, and almost as swiftly as the new corporation had sprung into being, the whole climate of negotiation had changed. Within weeks Ickes’ terms were whittled down by his representatives to asking for a one-third interest; and even that was rejected by Socal and Texaco. Word of these exchanges leaked out, and other oil-industry leaders denounced the whole business. They turned against Ickes as a replica of Josephus Daniels, Wilson’s Secretary of the Navy, who had urged the nationalization of oil production during the First World War for the same reason of national security.