Kenneth C. Crowe
Kenneth Crowe

Fellowship Title:

The Saudi Arabian Connection

Kenneth Crowe
November 19, 1975

Fellowship Year

(THE CONTEXT: Foreign investment in the United States is burgeoning, while public consciousness of this perennial phenomenon has been raised by the prospect of Middle Eastern oil money buying large pieces of American corporations and real estate. The traditional investors in the U.S. have been the Europeans, but in recent years, nouveau investors…the Japanese, the Arabs, the Iranians…have appeared on the American horizon. An understanding of the impact of foreign money and foreign ownersnip is obscured by a lack of knowledge. The following article traces the career of one of the Ford Administration’s most important economic policy makers from his role as a corporate executive putting together a multi-billion dollar deal in Saudi Arabia to his appointment as an Under Secretary of State.)

Charles W. Robinson, the Under Secretary of State for Economic Affairs, returned from Moscow a few weeks ago with a five-year plan to sell American wheat to the Soviet Union. Missing from his porfolio was a hoped for parallel contract binding the Russians to provide oil to the United States at a cut rate price low enough to devastate the cool of the OPEC cartel.

Mixed into the paradox of the Ford Administration trying to use an old Commmist enemy to apply economic pressure to the generally old friends of the Organization of Petroleum Exporting Countries is Robinson’s immediate past ties to the richest and the friendliest of them all: Saudi Arabia.

When Secretary of State Henry Kissinger tapped him for the job of Under Secretary of State in the fall of 1974, Robinson was busy putting together the multi-billion dollar deal to create what eventually could become the world’s largest steel mill at Jubail, Saudi Arabia.

Within a few short months, Robinson shifted from a corporate chair dealing with Sheik Abdul Hadi Taher, governor of Petromin, the Saudi Arabian government oil and development agency, to a chair at the State Department dealing with the same Sheik Taher. Before moving to Washington, Robinson was president of San Francisco’s Marcona Corporation, an international mining and shipping concern. As Marcona’s president, Robinson conceived the transaction which will involve an investment of between $1.5-billion and $8-billion with 60 to 80 percent of the money for the steel mill coming from the Saudi petrodollar treasury. These numbers are so large that they are hard to grasp, but to put them in perspective: $8-billion would bail New York City out of its crisis of over a decade of overspending.

The First

Robinson has severed his financial ties to Marcona, so there is no direct conflict of interest situation apparent, although he admittedly still sees his friends from the corporation socially. But what we do have is the first known instance of a corporate executive heavily involved with the “new” Arab money moving into the U.S. government as an important policy maker, which involves a sensitive role shaping the future economic relations of the U.S. and the Arab world. Robinson represents State on the joint U.S.-Saudi Arabian Economic Commission; he is in charge of developing U.S. policy for the State Department on Arab investments in the U.S.; and he is in charge of developing policy on the oil-consumer nations/oil-producer nations relationships.

Sen. Jacob Javits (R-N.Y.) defined the importance of the Under Secretary’s role when he told Robinson at his confirmation hearing last November: “…you will be in charge of the most important department of the Department of State for at least a decade, unless we get into a war or something like that, but other than that there is nothing more important.”

Last April, Robinson went to Paris as head of the U.S. delegation to the consumer/producer nations’ oil talks. Taher was there too. The sheik mentioned to Robinson that things were going well with the Marcona-Petromin steel venture in Saudi Arabia. Such conversation, of course, can be passed off as friendly small talk between acquaintances.

The lean, tough Robinson prides himself on being a conciliator, a habit picked up from dealing with numerous governments on behalf of Marcona. Thus he reacted sharply when the number two man in the U.S. delegation, Assistant Secretary of State Thomas 0. Enders, told a British television audience on the eve of the oil talks that the consumer countries were trying to develop enough market power to “hasten OPEC’s demise.”

In response to the Enders statement, Robinson told newsmen in Paris: “We are clearly here to work with OPEC countries and deal in a constructive way with common problems.” The New York Times interpreted Robinson’s words as a clear rebuke to his deputy. A Senate staff source said that the Enders-Robinson conflict stemmed from philosophical differences. “Enders is more interested in the oil price. Robinson is more interested in trade with the Arabs and less with confrontation,” the source said.

Enders, a career diplomat, had emerged as Kissinger’s economic brain, generally credited with being the author of the hardline plan to weld the consumer nations into a united front against the OPEC cartel. Enders’ favorite theme was breaking OPEC, and the arrival of Robinson with his conciliatory views didn’t change his attitude.

After the Paris meeting flopped in its attempt to develop a multi-national energy-raw materials dialogue, Enders appeared before the Senate Finance Committee on July 14, 1975 with a statement reaffirming his hostile posture on OPEC. Enders told the Senators: “The energy crisis is not only a crisis in our economy, it is a fundamental challenge to our security as a nation and to our role in the world. At present, the element in our economy most critical to employment and prosperity is subject to manipulation both as to price and as to supply by countries that do not necessarily have an interest in our well being and success…In the next few years, no country can successfully defend alone against a new embargo or massive shifts in Petrodollars.”

Good-By Mr. Enders

While Enders continued to talk tough, Robinson was busy meeting with key officials in Saudi Arabia, Iran, Vensuala and Brazil in an attempt to resurrect the idea of a global conference to deal with both the price and supply of energy and other basic raw materials. Robinson also met with Kissinger to say in effect — either I’m in charge or Enders is. Kissinger sided with Robinson, and Enders reportedly will be moved aside to an ambassadorship in Canada.

Robinson was interviewed several months ago in his large, comfortable office on the seventh floor of the State Department Building in Washington. The 56-year-old executive is a man with a craggy, youthful face, a full head of gray-speckled dark hair and a Spartan figure trimmed of any excess flesh by a lifetime of jogging. When the representatives of the Revolutionary Algerian regime attending the Paris oil talks took their daily required runs down the Champs Elysees, they were amused to find Washington’s Robinson trotting past them at dawn. Robinson recalled being turned onto running as a youngster in rural California when he ran 12 miles a day: three miles to work in the morning, back home for lunch, back to work, and home again in the evening. He still runs two miles a day.

Brilliant and innovative are common adjectives used by former business associates to describe Robinson. He has his name on 21 patents spinning around shipping and systems to transform ores into liquid shapes for cheap, easy movement. Robinson surrendered his rights to the patents when he joined State.

Seated on a long couch, his hands locked casually behind his head, his legs stretched out to rest on a coffee table, Robinson described how he developed and perfected his system in the 60’s to pump iron ore in liquid form aboard ships, where the liquid is removed to lighten the load during transport. At the steel-mill destination the ore is reliquified and pumped ashore. An important advantage of the Marcona/Robinson ore shipping system is that it does away with costly port facilities since ships can stand off miles at sea pumping their cargo ashore through pipelines. On return voyages, the ships carry oil.

In a nutshell, the Marcona-Saudi steel mill deal involves mining ore in Brazil; shipping the ore to Saudi Arabia in Marcona’s specially-designed tankers; on their return trips, the ships would carry oil to either Brazil or the U.S.; the ore in Saudi Arabia is turned into steel with part of the steel used locally, part for Middle Eastern needs and part shipped to Europe or possibly the U.S.

The Deal in Detail

The deal in more detail, including the partners in the various stages (note that Marcona is a partner or sole owner at every stage):

      • BRAZIL: The iron ore mine in the State of Minas Gerais is expected to require an initial investment of $415-million with Marcona owning 49 percent of the operation and 51 percent owned by S.A. Mineracao da Trinidade (Samitri). ARBED, a Luxembourg conglomerate which is the 43rd largest industrial firm in the world outside the U.S. (according to Fortune’s annual list), owns 39 percent of Samitri, with the balance held by Brazilian interests, Robinson said. The U.S. Export-Import Bank is lending or guaranteeing $96-million for the purchase of equipment and supplies in the U.S. for the project. Robinson said: “It will be the largest iron ore facility in the world…Brazil is going to be the most single important iron ore property in the world.” The ore in slurry form will be transported from the mine site through a 240-mile pipeline to the Brazilian coast. Robinson said that the pipeline could carry 12-million tons of ore annually.

      • SHIPPING. In the late 60’s, Robinson developed a process of turning iron ore into a slurry that can be shipped aboard specially-equipped tankers which on return trips can carry oil. Marcona’s 12 ships, all flying Liberian or Panamanian flags, would carry the iron ore from Brazil to Saudi Arabia with some of the ore going to the U.S. and Europe.

      • SAUDI ARABIA. Marcona is negotiating with Petromin to build a steel mill at Jubail, Saudi Arabia on the Persian Gulf coast using natural gas now being flared as fuel for the plant. The first stage of construction would cost $800-million to turn out a million tons of steel annually. Robinson said that present projections foresee expanding the plant to produce 10-million tons a year and concedes that published reports that the plant could go as high as 15-million tons could be right. “There’s no limit to where it will go,” Robinson said. “In the initial stage, 10-million tons is the projected figure.” A 10-million ton plant would cost $8-billion, based on the $800-million price for a million ton plant, according to a steel industry planner. The largest steel mills in the world, which are in Japan, produce about 10-million tons a year. (Note that the summary of Saudi Arabia’s Five-Year Development Plan, which was compiled by the U.S.-Saudi Arabian Joint Economic Commission, shows the Jubail steel plant with a capacity of 3.5-million tons annually involving an investment by the Saudis of $1,563,000,000.)

    Robinson said that his original concept was to service small regional steel mills carrying both ore and natural gas to them. When he realized that the cost of transporting natural gas made that idea economically unfeasible, he went in search of an area where huge amounts of natural gas were available.

    During his world travels in past years, Robinson had noted with interest the fires that lit the horizon of the Saudi Arabian desert as natural gas was being flared away at the oil fields. “We developed a conceptual plan for a steel mill, and I flew (with it) to Saudi Arabia,” Robinson said. He said he met early in 1973 with Sheik Taher to present his proposal. “I met with him for two hours. He (Taher) said, ‘It looks to me like you’ve done your homework. This is exactly what we’ve been looking for.”

    Robinson chuckled, recalling that he sat up all night composing a letter of intent to seal the deal. Taher signed it that morning giving Petromin 50 percent and Marcona the other 50. But Robinson decided to bring in other partners. “I was philosophically committed to the idea of a multi-national approach,” Robinson said in explanation. Subsequent events have shown that Marcona probably needed all of the outside help that it could get to swing a global deal of the proportions Robinson had constructed. Within the past year, Peru has nationalized Marcona’s iron ore facilities in that country throwing the company into a financial bind. An announcement was made in September that Utah International Inc., which owns 46 percent of Marcona, was negotiating to take over Marcona’s share of the Brazilian iron ore mine and had proposed acquiring the firm’s interest in the Saudi steel mill along with three of its combination ore-oil ships.

    The partners in the Saudi steel mill venture and their shares are:

        • 50 percent held by Petromin, the Saudi Arabian government corporation.

        • 20 percent held by Marcona and Gilmore Steel of San Francisco.

        • 10 percent held by Armco Steel Corporation.

        • 10 percent held by Estel N.V. Hoesch-Hoogovan, the Dutch-German iron & steel conglomerate, the 45th largest industrial company in the world outside the U.S.

        • 10 percent to Nippon Steel Corp. and Nippon Kokan. Nippon Steel is the biggest steel company in the world outside the U.S., and Nippon Kokan is the 32nd largest industrial company outside the U.S.

      Robinson said that after he signed the steel deal with Taher, “I concluded contracts to ship oil from Saudi Arabia back to Brazil.” He went on: “Ultimately, this should be the lowest-cost steel produced in the world (because of the free natural gas).” Another part of the deal, which fell through when the shipping industry dropped into the latest depression, was a plan to install a ship-building plant on Saudi Arabia’s more populous Red Sea coast. “We designed a SUMAX ship,” Robinson said, explaining that the designation meant the maximum-sized ship that could fit through the Suez Canal. Partners in this deal were expected to include Marcona, General Electric Corporation and Nippon Kokan.

      Robinson emphasized that he has severed his financial ties to Marcona. “I have had no contact with my company since I left,” he said, adding that he did see some of his associates at the firm socially, and: “I understand from Taher who was Saudi Arabia’s representative at the prepcon (the Paris conference in April, 1975) things are going well.”

      Asked if the Marcona-Saudi relationship caused him any problems in his role as the State Department’s executive assigned to the joint U.S.-Saudi economic development commission, Robinson responded: “It doesn’t cause me any problems because I haven’t gotten personally involved in planning” within the commission whose role it is to help guide the industrial and agricultural development of the Saudi Kingdom with the peripheral hope of drawing some of the Arab petrodollar capital back into the U.S. Robinson said firmly: “I don’t want anyone to get the impression I have anything to do with Marcona.”

      Robinson as a Hot Prospect

      Robinson turned down the post of Under Secretary of State for Economic Affairs when then Secretary of State William Rogers offered him the job in 1972. Although he wasn’t known to the general public, Robinson had played an active role in international affairs for years. By his own account, he spent 50 percent of his time as president of Marcona on quasi-government bodies. He caught Rogers’ eye through his performance as a member of a State Department advisory committee on international economics. He had also gained a reputation for being a progressive thinker among multi-national corporate executives.

      Rogers’ offer was rejected by Robinson. He explained to a San Francisco Chronicle reporter that the job would have been “an exersise in frustration” in a State Department tied only indirectly to Kissinger’s leadership.

      The arrival of Kissinger as Secretary of State changed Robinson’s mind about going to Washington. Senate sources said that Kissinger personally selected Robinson because of his performance as a dynamic, aggressive executive and because of his ties to the multi-national corporate world. Robinson said that his selection came after “a survey was made of business leaders through the a country.”

      Why did Robinson move from a company whose business was blossoming into government? The Under Secretary said: “I had devoted 23 years to building Marcona from nothing. I was just doing more and more of what I was doing. I had the feeling the world was changing rapidly and there wasn’t any perception of that change in governzent…I felt our international economic policy needed a new look…We have to build a new set of relationships that reflects the fact we’re an interdependent world.”

      At Robinson’s confirmation hearings, the only objection to his appointment came from the hierarchy of the AFL-CIO. which is ideologically opposed to multi-national corporations. Andrew J. Biemiller, director of the AFL-CIO’s Department of Legislation, appeared at the Senate hearings to say: “How we ask, could the chief executive of a huge, integrated, international mining, transportation, resource development and materials handling corporation that operates, profits, employs workers and pays taxes virtually everywhere but in the United States possibly shed his background and address himself impartially to the critical problems of the United States in today’s world?”

      Conversely, Robinson considers his past in the business world as ideal training for his present role at State. He said, “The United States has to see its role as a part of a global economy and a global society. The kind of experience I’ve had would provide a unique background for facing the kind of problems I forsee ahead.”

      SOME CONCLUSIONS: Robinson is obviously just the first of many executives to come who will flow from Middle Eastern money deals into important policy roles in the U.S. government. Robinson and the others to come will perform their jobs in accordance with their individual consciences and must be judged by their actual performances. But their presence in the Federal government is another indicator of the growth of influence of the petrodollar-rich OPEC nations.

      Received in New York on November 19, 1975

      ©1975 Kenneth C. Crowe

      Kenneth C. Crowe is an Alicia Patterson Foundation award winner on leave from Newsday. His fellowship subject is the investment and movement of foreign funds into the U.S., especially OPEC nations’ oil monies. This article may be published with credit to Mr. Crowe, Newsday, and the Alicia Patterson Foundation.