NOTE: External links to other Internet sites should not be construed as an endorsement of the views contained therein.
| The State Department web site below is a permanent electronic archive of information released prior to January 20, 2001. Please see www.state.gov for material released since President George W. Bush took office on that date. This site is not updated so external links may no longer function. Contact us with any questions about finding information. NOTE: External links to other Internet sites should not be construed as an endorsement of the views contained therein. |
Energy Problems
Petroleum
175. Editorial Note During the Eisenhower administration steady expansion in oil output and a long period of price stability allowed the United States and United Kingdom to focus attention on strategic defense of the Persian Gulf region and the Soviet threat to long-term access; for documentation, see Foreign Relations, 1955-1957, volume XII, pages 1 ff. Despite British fears that oil company positions were weakening and that closer U.S.-U.K. cooperation was necessary, the State Department believed that the companies were strong enough to resist producer-government pressure for the next few years. Although global consumption nearly doubled during the 1950s, oil was still plentiful and inexpensive. New production capacity outstripped demand, resulting in a glut. In response, oil companies cut the posted price of crude oil, which served as the basis for calculating net profits in profit-sharing arrangements with producer governments. On paper, oil seemed to be less profitable, although in most cases the companies' net incomes increased and they were able to pay higher dividends to shareholders. "This has not been lost on concessionary governments, which maintain that the companies, notwithstanding their pleas to the contrary, should be well able to increase their tribute to the government." (Note by the U.K. Government, May 1963; Department of State, E Files: Lot 69 D 76, PET-Petroleum United Kingdom 7 Visits. UK-US Petroleum Talks, 1963) As a result of the unilateral price cut, the producer nations founded the Organization of Petroleum Exporting Countries (OPEC) in August 1960. The United Kingdom sought greater coordination with the new Kennedy administration on oil matters during February 1961 bilateral discussions; see Foreign Relations, 1961-1963, volume IX, pages 752-754. In June 1962 OPEC proposed fundamental changes in oil concession agreements which would increase by 20 percent the producers' share of oil profits. (Note by the U.K. Government, May 1963; Department of State, E Files: Lot 69 D 76, PET-Petroleum United Kingdom 7 Visits. UK-US Petroleum Talks, 1963) The United States and United Kingdom reached a "general identity of views" on strategic matters in the Persian Gulf in April 1963. Both agreed on the need for the close interrelationship of the oil companies, and they scheduled a series of petroleum talks for June 1963. See Foreign Relations, 1961-1963, volume XVIII, pages 559-561. In preparation for the talks, the State Department prepared a series of memoranda on various aspects of the oil problem, including one that spelled out the relationship between the oil companies and the government. Oil was unique because of the size of the companies, because it was vital to economic progress and national security, and because of the close relationship between the companies and the producer states: "a more direct relationship to foreign governments than is usually the case with other business enterprises." The memorandum noted the importance of maintaining frequent contact with the oil companies in case a company "at any time" ran into a "serious crisis in its relationship to a foreign government," but it concluded: "The United States Government is most reluctant to intervene diplomatically in disputes between American oil companies and foreign governments. Our view is that to do this, except on very rare and critical occasions, is to undermine the responsibilities of the companies themselves." (Memorandum by Ensor for Session II, June 4, 1963; Department of State, E Files: Lot 69 D 76, PET-Petroleum United Kingdom. 7 Visits. UK-US Petroleum Talks, 1963) One result of the 1963 oil talks was that the United States and the United Kingdom agreed to coordinate their advice to the international oil companies. "The U.K. and U.S. Governments should therefore exchange information on the general advice which they are giving to their companies and consult beforehand as appropriate in regard to advice given in regard to specific disputes and problems of mutual concern." On the question of diplomatic intervention, the two nations agreed: "Discreet and informal representation by a British or American diplomatic representative abroad might from time to time, and in consultation with the oil company/companies concerned, be advisable." (Ibid.) This position, with its emphasis on prior consultation, formed the basis for U.S.-U.K. action on oil during the Johnson administration.
176. Memorandum of Conversation/1/ Washington, January 29, 1964. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 1 UK-US. Confidential. Drafted by Blackiston. US-UK TALKS SUBJECT PARTICIPANTS NEA--Phillips Talbot Mr. Talbot said that since the US-UK talks on petroleum of last June had dealt with the agenda item in detail we did not have a great deal to add./2/ Since June we have encouraged the companies to do what they can to resolve the OPEC issues with the producing governments. Mr. Talbot asked for Sir Geoffrey's comments. /2/See Document 175. Sir Geoffrey expressed pleasure with the results of the June talks. His colleague, Deputy Secretary of the Ministry of Power Stevenson had said he hoped the talks could be repeated some time in 1964. During the past year US-UK policies with respect to petroleum problems in Indonesia, Peru and Ceylon have been closely aligned as a result of the agreed positions reached in June. Turning to OPEC, Sir Geoffrey observed that the organization might break up as a result of the "unholy alliance" of Venezuela, Indonesia and Iraq, but that its demise did not seem likely. Rouhani has welded the organization together. Necessarily the UK has a greater interest in Middle East oil than the United States./3/ In the future the pressure will be on the companies to accept a lower return on their Middle East investments. /3/The two nations agreed that oil was becoming an increasingly important energy source for Europe. It was expected to account for about 50 percent of the total by 1970. (Memorandum from Davies to Talbot, January 25; National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 1 US) HMG has always regarded Aden as providing military protection to UK petroleum interests in the Persian Gulf. Although it can be argued that the Arabs cannot drink their oil and must sell it, a cutoff of oil supplies is not what Britain fears. HMG is concerned for the maintenance of the supply of oil at reasonable prices./4/ We have always feared Iraq's getting hold of Kuwait. The combined oil production of the two countries and consequent economic influence would make it difficult for other countries, such as Iran, to follow a line independent of other OPEC members in dealing with the companies. We dread a confrontation between the companies and the producing governments since this would certainly lead to a government-government confrontation with all the political consequences which this would entail. In this connection, Prime Minister Alam of Iran had told the British Ambassador that in view of the then OPEC impasse, it would not be too difficult to resurrect the Mossadeq spirit in Iran. Because of this, HMG is inclined to be a little ahead of but in step with the US in matters involving Middle East petroleum. We continue to believe, said Sir Geoffrey, that the companies should do the negotiating, but we do not believe that our recent actions in Iran diverged from this policy. Rouhani is a slippery character and he was not reporting fully to his government on the negotiations with the Consortium. We wished to be sure that the Iranian Government knew precisely the state of play of these negotiations. We have a special relationship with the Iranian Government and believe it possible to discuss these matters frankly with Alam. We no longer have this same type of relationship with Kuwait or Qatar. (In a subsequent conversation with Mr. Blackiston, Mr. Brenchley explained that HMG reluctance to intervene in Kuwait was not so much a result of the changed UK-Kuwait relationship per se, but rather stemmed from the belief that in the first years after full Kuwait independence the Kuwaitis would suspect Britain of attempting to continue its former prerogatives. By leaning backward to avoid pressuring the Kuwaitis on any issue, HMG hopes that Kuwait will voluntarily resume asking Britain for advice some years hence. /4/During their 1963 oil meeting, the two sides had concluded that the international oil industry played an essential and effective role in balancing interests and requirements of producers and consumers. "Alternative systems--direct negotiation between blocs of such countries: an international commodity agreement: or a public utility status implying international regulation of the industry--would prejudice the economic continuity of supplies." (Ibid.) We envisage, said Sir Geoffrey, that a confrontation on OPEC issues might take place in three different ways. 1) We might find ourselves in a position where, despite our wishes, we would have to support the companies. This would have many drawbacks, including the invoking of Arab nationalist sentiments, provide potential for Soviet meddling and create internal political difficulties in the countries concerned. Because of these fears, the Shah was prepared to get out in front in order to avoid enactment of sanctions at the Riyadh OPEC meeting. He, in fact, blocked sanctions against the companies. 2) A confrontation might arise with the Western European consuming governments since our Western allies would not be happy if difficulties over OPEC should lead to an interruption in the supply of their principal energy source. 3) A price rise could likewise provoke a Western European consumer combination to oppose OPEC. However, we incline to the belief that a rise in prices will come about in any event and the European governments will just have to learn to live with it. Sir Geoffrey said the US and UK Governments should keep closely in touch as in the past as the situation develops. Mr. Talbot asked whether the companies understood the situation in all its aspects. Sir Geoffrey said that the British companies did understand the situation. The companies do not, however, want to give away money if they can avoid it. The problem is whether they may maintain too firm a position too long. Mr. Kelly expressed agreement in principle with everything Sir Geoffrey had said. We no longer can brush OPEC under the rug, said he. We are also worried about a consumer-producer confrontation and there is a chance we might provoke this sooner than is necessary. The UK, with respect to the OECD Oil Committee, is about one-half a step ahead of the U.S. We fear, however, that this is too far ahead for our own joint interests. By focusing European attention now on Middle East oil problems we may stimulate European thinking on an oil consumer grouping to counter OPEC, and it was for this reason that we opposed discussions of the dependence of Western Europe on Middle East oil by the OECD Oil Committee. We wish to avoid a confrontation between OPEC and OECD in 1964. Mr. Kelly said we are also fearful that the three-man team named by OPEC may seek to negotiate with the companies in OPEC's name rather than as representatives of the individual producing governments. Were this to be accepted by the companies, the next step could be to exclude the companies as bargaining agents in favor of governments. Mr. Powell expressed agreement as to the danger of creating two massive blocs (consumer and producer) in opposition. However, HMG believes it is possible to have discussions of the problems in small OECD groups without creating the dangers previously noted. Sir Geoffrey said he wished to reaffirm the joint position reached in the June talks on the desirability of maintaining a stance of neutrality and non-recognition of OPEC. On the subject of whether future OPEC company relations will be bilateral or multilateral, Sir Geoffrey said HMG is encouraged by a Kuwait Government letter on this subject which maintains the fiction of company-government rather than company-OPEC negotiations. We greatly fear the multilateral approach but believe we will get by the next stage of discussions without having to face this problem. Mr. Talbot remarked that the Department has been under pressure to recognize a number of entities, e.g. Palestine and the Arab boycott. Our position has been to deal only with governments and this policy could be extended to OPEC. Sir Geoffrey expressed concern about the attitude which OPEC Secretary General-elect Bazzaz will take. He characterized Bazzaz as an "extreme nationalist." In conclusion Sir Geoffrey said the main point which HMG wished to make is that it is quite concerned over Middle East oil and must watch developments very closely.
177. Telegram From the Embassy in Iraq to the Department of State/1/ Baghdad, February 7, 1964, 10 p.m. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 6 IRAQ. Confidential. Repeated to London, Jidda, Kuwait, Tehran, and Dhahran. 736. Embtel 735./2/ UK Ambassador Allen saw PriMin and Wattari/3/ this afternoon and says in effect he got brushoff despite fact he made clear that GOI enactment of NIOC law could well have adverse effect on Anglo-Iraqi relations./4/ PriMin took position issuance of law would enhance possibility of fruitful negotiations between GOI and IPC, and he expected such negotiations would begin within a month. Wattari confirmed firm decision taken issue law but would not tell Allen when. Allen thinks it will be soon and that there is no chance GOI will now decide seek IPC views first. /2/Not printed. (Ibid.) /3/Iraq's Oil Minister. /4/The NIOC law would set up the National Iraqi Oil Company to develop oil fields in areas expropriated from the Iraq Oil Company (IOC) in Law 80 of December 12, 1961. Law 80 took back 99.6 percent of IOC's original concession. Background on the Iraq petroleum situation is in a memorandum from Lowenfeld to Under Secretary Ball, October 24, in National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 6 IRAQ. Comment (Noforn): From our conversation believe Allen inclined regard GOI pressure on IPC as part of larger GOI plan to exert maximum pressure on British position in Persian Gulf and Aden with view to drive British out as soon as possible. If he reflects FonOff views, may mean UK will seek handle IPC problem in this broader context. This likely run counter to US interests in Iraq. Strong
178. Telegram From the Embassy in Saudi Arabia to the Department of State/1/ Jidda, April 12, 1964, 0505Z. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 3 OPEC. Confidential; Limdis. Repeated to Baghdad, Dhahran, Kuwait, London, Tehran, and Tripoli. 973. OPEC. Tehran's 892 to Dept./2/ During recreational visit by Barger, Pres of Aramco, to Jidda April 10 I asked him whether he had news re OPEC negotiations./3/ He said he had no news from Geneva but did not appear to be overly concerned. In reply to his query whether I had spoken to Faysal I told him I had not. He immediately commented "After all, what can you say?" I told him that any line which simply boiled down to suggesting moderation seemed pretty thin. In reply my question as to companies' current position his question was rhetorical, "What can they do?" Later, in presence UK Ambassador Crowe Barger strongly agreed with us both that it would not be in Arab interest to expel Iran from OPEC./4/ Barger stated he and Brougham would be taking advantage of 'Id/5/ formalities to make courtesy call on Faysal Jidda this coming week. Believe Barger and Brougham have in mind offering opportunity for review of OPEC matters and companies' offer although probably will play situation by ear. /2/Not printed. (Ibid., PET 1-14) /3/In an attempt to increase bargaining power, OPEC was conducting contract negotiations on behalf of Iraq, Qatar, and Kuwait and pressuring Iran to insist on similar terms in its own independent contract negotiations. The negotiations, however, were deteriorating. The Iraq Petroleum Company had proposed to OPEC terms similar to those offered by the Consortium to Iran if Iraq would satisfactorily resolve outstanding difficulties, including the provisions of Law 80. When the IPC refused to reconsider this precondition, OPEC suspended the talks. OPEC also rejected similar terms on behalf of Qatar and Kuwait. "It is believed that OPEC, on seeing the companies' common front, has decided against conversations with Aramco and the Libyan companies at the present time." (Memorandum from Brodie to Trezise, March 24; ibid., PET 2 US) /4/Oil analysts considered this course of action likely if Iran accepted lesser terms than those on which OPEC was insisting. For example, see airgram A-168 from Dhahran, February 12; ibid., PET 3 OPEC. /5/An Islamic holiday. British Ambassador this morning (protect source) gave me paraphrase copy of UK Embassy Tehran supplying more detail than reftel. UK Ambassador Tehran reported he informed PM there little merit in trying postpone day of decision and recommended GOI prepare for Arab propaganda attacks by presenting Iran's case to public for acceptance Consortium offer. He reported that he did not get impression from PM of any weakening of Iran's position but from other source learned Shah much depressed and particularly disappointed Kuwait's attitude. Conclusions: 1. Any attempt by US Govt to advise Faysal at this point would almost surely be countered by reply that of course SAG will not be taken in by extremists but that companies' offer is not adequate and there no good reason why they cannot pay a bit more, say one or one and a half cents per barrel (Dhahran tel 324 to Jidda, relayed as Embtel 943 to Dept,/6/ describes Faysal's arguments to Iran FonMin). From here it appears that there is general Arab sentiment in OPEC that some improvement over existing company offer should be made. Dispute among Arabs lies over degree. Iran's willingness accept Consortium offer essentially little better substantively than December offer invites suspicion there collusion between Iran Govt and US and UK Govts to back companies' position. /6/Not found. 2. For US to urge by implication that companies' latest "final" offer be accepted would be to inject US Govt into negotiations on side of companies without any clear indication that extremism about to triumph over moderate but hard bargaining. Demand for extra one cent or cent and a half mentioned by Faysal to Aram presumably constitutes basis Yamani's instructions. Recalling vividly as I do US Dept Justice anti-trust suit against American major oil companies dealing in Middle East oil which began 1952 and settled by separate consent decrees about 1960, question whether companies could justify some additional payment cannot I believe be automatically answered in negative. Oil pricing is enormously complex and profits have been huge, resulting in much re-investment to benefit producer countries as well as great yield to American stockholders. Certain top-level Aramco officials have clearly implied in private conversations they only fighting war of attrition and will have to bow eventually to full expensing of royalties. One of them guesses Arab governments would accept company offer of full expensing royalties over six year period but admitted some companies unwilling go this far, unless very firm guarantees of stability and "quit-claims" also made. 3. More important problem from point view companies may be question of admitting power of OPEC to force companies to yield position which they have taken as "final." If companies stand by position and Iran stands with them and if Iran is then expelled from OPEC, Arabs face difficult problem of applying sanctions which they know in advance Iran will not back and know that any diminution in off-takes from Arab producers might well be picked up by Iran. Strength of OPEC lies in unanimity and is lost by division. At same time break-up of OPEC would not appear to be against interest of companies nor do I see any particular advantage to US Govt in preservation of OPEC. As we understand it here US Govt position has been to avoid any excuse for formal approach by OPEC country seeking negotiations with USG on OPEC matters. It preferred that no US official be at Riyadh OPEC meeting last year even in observer status. 4. If I were to approach Faysal on basis that OPEC should not be too hard on Iran his conclusion would be that US Govt and GOI working together and would insist that proper course of action for US Govt would be to suggest GOI align itself with "moderate" Arab position which he had suggested to Aram. Actually I suspect Faysal would welcome my approach hoping to get us to save OPEC from disaster. 5. There is, of course, important difference in our position here and that of Embassy Tehran in that GOI has consistently sought and welcomed consultation with USG whereas SAG has never broached OPEC matters with us. Recommendations: 1. That this Embassy avoid intervention at this stage and let hard bargaining among OPEC members work itself out. 2. If Iran, surprisingly, should be expelled from OPEC that US news media be well briefed for intelligent commentary and that briefing avoid indication USG happy over break-up of OPEC. 3. That in case Geneva meeting results in re-united OPEC position Dept suggest to major oil companies involved searching, hard-headed review of their positions to determine whether they might not make adjusted offer which would enlist "moderate" Arab support and set pattern of peace in industry for lengthy period. Aramco top executives told me in 1950 they hoped 50-50 formula would last "a few years." Actually its term has exceeded their expectations. Hart
179. Telegram From the Department of State to the Embassy in Iraq/1/ Washington, April 13, 1964, 4:23 p.m. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 10-3 IRAQ. Confidential. Drafted by Blackiston (NEA); and cleared by Ensor (FSE), Lowenfeld (L), Dinsmore (NE), Davies (NE), Jernegan (NEA), Hilliker (S/S), and Harriman. Repeated to London and Rome. 489. Embtel 864./2/ Department has given considerable thought to problem posed by American companies seeking concessions in areas expropriated from IPC prior to settlement of the Law 80 issue. Thus far, as Embassy aware, we have gone no further than advising such companies of possibility of legal action by IPC. We have not informed American shareholders in IPC of names of companies which have shown interest in Iraqi concessions but have found that through grapevine they know names of most such firms. We have cautioned shareholders against public pronouncement threatening legal action believing this could force GOI into intransigent position which could threaten chances of success of negotiations. Shareholders, for their part, appear divided as to advisability of public warning but some consideration being given by IPC to sending private warning letter to companies so interested. We have suggested that, at least as first step, IPC might wish consider private discussion with such firms and there is possibility this recommendation will be adopted. /2/Not printed. (Ibid.) Apparent willingness of Sinclair and possibly of Phillips, Pauley and others/3/ to take up concessions whether or not there is an IPC-GOI settlement of Law 80 could we fear have broad implications affecting concessionary agreements not only in Iraq but elsewhere. If other companies should bid for concessions without a prior settlement, GOI will have good reason to suppose that concession agreements can be terminated unilaterally and replaced with contracts with other oil companies under conditions dictated by GOI wherever GOI considers that it is in its own interest to do so. Other producing governments could draw same conclusions and concept of unilateral change of agreements which already has its adherents, e.g., Tariki, would be markedly strengthened. Moreover foreign producing governments would be led to conclude that U.S. companies are not concerned for legal rights of others and are motivated solely by advantages to be derived from access to additional oil resources and new profits. /3/U.S. independent oil companies. The Department is considering taking initiative in privately informing the American companies which it knows to be interested in Iraq concessions, i.e. Murphy, Phillips, Pauley, Sinclair, Continental and General Exploration and others as they become known, along the following lines: 1. IPC in which there is 23.75 percent American interest is most interested in reaching a settlement with GOI on the Law 80 matter and we are hopeful that negotiations will open shortly. The USG believes that mutually acceptable settlement is necessary and desirable in interest of all oil companies having or contemplating overseas concessions. 2. During period of these negotiations we hope that American companies will refrain from making offers to GOI for onshore concessionary areas as this would constitute acceptance by segments of American oil industry of arbitrary alteration of an existing concessionary accord. It would leave new companies defenseless should GOI elect to change the agreement which it had signed with them. 3. Final decision is up to American companies involved but should companies enter into concession agreement with GOI prior to settlement of Law 80 USG would continue to support rights of American shareholders in IPC and could not assure diplomatic support in Iraq to new American companies should this be requested. It would be inconsistent for Department to support IPC claim and also attempt to protect an arrangement made in disregard of that claim. 4. We recognize that by asking American companies to defer negotiations of concessions with the GOI we may leave the door open to foreign firms, e.g. ENI,/4/ but we believe disadvantage of completely passive attitude on part of USG towards developing situation justifies risk of possible lost opportunities to American firms. /4/Italy's national oil company. 5. We will undertake diplomatic efforts with foreign governments where possible to dissuade similarly their firms from entering Iraq at this time. Your comments on above requested. Rusk [Continue with the next documents]
|
