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180. Circular Telegram From the Department of State to Certain Posts/1/ Washington, May 1, 1964, 8:15 p.m. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 3 OPEC. Confidential. Drafted by Blackiston and cleared by Oliver (FSE) and Davies (NEA). Sent to Kuwait, Jidda, Tehran, Tripoli, London, Baghdad, and Dhahran. Repeated to Djakarta and Caracas. 2037. British Embassy has informed us that according BP source all OPEC countries withdrawing negotiating authority from OPEC team of Bazzaz, Rouhani and Nazir. Member countries have been authorized make direct approach their concessionary companies with view obtaining improvement oil companies offers. BP source stated he had seen Kuwait draft letter to KOC informing company that negotiating authority of Bazzaz et al has been withdrawn and that GOK wished direct discussion with company to begin May 28. This would appear to constitute appreciable weakening in OPEC strength but comment addressee posts requested. Rusk
181. Telegram From the Department of State to the Embassy in Iraq/1/ Washington, August 21, 1964, 6:53 p.m. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 6 IRAN. Confidential. Drafted by W. Wolle (NEA); cleared by M. Tiger (GTI), J. Oliver (FSE), G. Alexander, T. Ehrlich (U), H. Symmes, Davies (S/S), and J. Grant (NEA). Also sent to Tehran and repeated to London. 117. Deptel 61 Baghdad 67 Tehran rptd London 607; Tehran's 101./2/ C.H. Murphy, Jr., President Murphy Oil Company, called on Under Secretary Ball August 19 to discuss Iran and Iraq. In previous discussion August 11 Murphy had advanced following proposals for Department consideration: (1) that USG promise special diplomatic support to Murphy and other four members of its group which endeavoring obtain Iran offshore concession; (2) that USG consider as precedent for action in 1964 its efforts in 1920's supporting American companies then seeking participation in Mesopotamian oil resources (i.e. that USG be guided by this rather than continue to dissuade American companies from bidding in Iraq); (3) that USG consider idea of cordon sanitaire in Iraq (i.e. cordoning off certain IPC areas leaving territory outside these areas for concession bids by other companies without fear of USG or IPC objection). /2/Neither printed. (Ibid.) On August 19 Ball pointed out difficulties of USG taking special action promote interests one group American oil independents in Iran when other U.S. independents and majors bidding also. Asked if Murphy felt he could assemble larger group of independents. If so, USG would go to Shah promoting advantages to Iran of having independent US companies as participants in its oil development. Murphy found this Department position reasonable and stated would discuss with present partners and seek enlarge group. He would report back in any event. Asked by Murphy to predict effectiveness of possible USG démarche to Shah promoting independents, Ball responded Department could not guarantee results but believed such approach would receive careful Iranian attention. Murphy agreed with Ball and Talbot Iran probably looking for companies with substantial US oil import quotas as well as overall marketing ability. Ball said Department had reviewed Mesopotamian experience of 1920s and concluded situation today quite different. Certain factors important then, such as our fear domestic oil resources would run out and total exclusion American companies from access Near Eastern oil, no longer existed. He reviewed for Murphy rationale present USG policy of dissuading American companies from making oil bids to Iraq, and added he would be discussing with Department colleagues possibility altering this policy in relatively near future if IPC failed to draw nearer agreement in present Iraqi negotiations. Murphy volunteered that Sinclair Chairman Steiniger intended speak to Department soon regarding Sinclair activities Iraq. Was agreed Department would contact Steiniger. Question of cordon sanitaire did not enter discussion. Full memcon being pouched./3/ /3/Not found. Rusk
182. Memorandum of Conversation/1/ Washington, September 23, 1964. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 6 IRAQ. Confidential. Drafted by Wolle and approved in U on October 19. SUBJECT PARTICIPANTS Mr. Ball asked if the IPC-GOI negotiations were getting anywhere. Ambassador Strong said it was very hard to say because our information was not complete and because it was difficult to judge the real intentions of the two parties. Mr. Ball said we were now in a position where we should press the American IPC shareholders on precisely where the negotiations stand. Ambassador Strong remarked that Socony Mobil representative Henry Moses, one of the IPC negotiators, had brought in company lawyers and drafters from New York to join the talks and that this seemed a good sign. Mr. Ball said this might be so but one could never be sure that the arrival of lawyers signified progress. He went on to say that the time was coming fairly soon when representatives of the two companies should be invited down from New York for a discussion. The Department had stood down the independent companies for quite a while now/2/ and yet did not have a clear idea of just how the negotiations were progressing and what the prospects were. We should make clear to Standard of New Jersey and Socony Mobil that we could not hold the line in Iraq forever. While we were prepared to go along for a while yet we could only do this if the companies proceeded diligently with the negotiations and kept us informed of progress and results. Mr. Ball added that we might consider saying the same things to the British Government as added insurance against intentional holding back by IPC. /2/See Document 181. Ambassador Strong expressed the view that the Iraqis desired settlement with IPC but did not want to appear too anxious since that would clearly give the company an advantage. He hated to see the negotiations drag on too much longer for as time passed there was increasing danger that Iraq's political instability, together with British and Iranian activity against the present Iraqi Government, might result in a new Iraqi regime less willing and able to reach an agreement than the present Government. While he had no proof, the Ambassador felt almost certain that the British and Iranians were not just hoping for but working toward a change of government in Iraq. Certainly, he said, it was British policy to keep Iraq weak and relatively poor so as to avoid pressure from Iraq on Britain's oil and political position in the Persian Gulf. Mr. Jernegan said he was impressed by the importance of the principle the U.S. Government had upheld for many years regarding oil concessions: namely, that oil producing countries should be prevented from making a success out of nationalization or other unilateral actions with respect to oil concessions legally held by foreign companies. Mr. Ball agreed this was important but said he feared that in the present situation the American companies which heeded the Department's advice to stay out of Iraq might eventually find themselves undercut by other American companies that chiseled. Also there were the Japanese, Italians, and other foreign oil operators to worry about. Mr. Jernegan pointed out that the American companies seriously interested in Iraq had in fact done some groundwork and therefore, in the event a foreign company suddenly breached the line there, our companies would be in position to move ahead rapidly and would not be at a serious disadvantage. Ambassador Strong suggested that there might not be serious adverse effects on oil company operations outside Iraq in the event the Iraqis got away with their Law 80 action. He thought that if we considered the situation in other countries on a case by case basis we might find that there would not be repercussions elsewhere. Mr. Jernegan indicated that he thought there would be repercussions. Mr. Ensor felt that adverse effects were probable, and mentioned Algeria and Indonesia in this connection. With regard to action by the Department, Mr. Jernegan said he was inclined to recommend that the two American IPC shareholders be called to Washington as Mr. Ball suggested, but that we limit ourselves to telling them that we could not hold the line in Iraq indefinitely and wanted to be absolutely sure that the two companies and their IPC associates were doing everything they possibly could to reach an agreement in Iraq. Mr. Ball said this would be fine but that we should also emphasize to them the real responsibility on their part to move rapidly toward a settlement. In conclusion, Mr. Ball said he would speak to Governor Harriman and would let NEA know when to proceed with arrangements for the meeting with Standard of N.J. and Socony Mobil.
183. Memorandum of Conversation/1/ Washington, March 18, 1965. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 15-2 SYR. Confidential. Drafted by Bennsky. SUBJECT PARTICIPANTS NEA--Phillips Talbot Mr. Warner opened the conversation by saying that the Syrian nationalization of the Socony subsidiary was worrisome because of its possible repercussions and precedents elsewhere in the Near East and the world in general where his company has much larger interests. He then requested Mr. Talbot's views on how the Syrian nationalization fitted into the current Near Eastern situation. Mr. Talbot reviewed the situation and motivations of each of the Near Eastern countries in the context of such major developments as the Unified Arab Command, the Arabs' Jordan River diversion activities, the West Germany-UAR confrontation, the growing UAR economic and military difficulties, and US-UAR relations. Among his observations on Syria were the following: The Syrian Government has been taking various extreme actions in an attempt to prop up its shaky regime. Syrians consider themselves as the vanguard of Arabism, and they are out to one-up the Egyptians whenever they can, whether it be in terms of Arab socialization (nationalization) or struggle against the "imperialists." It should be noted also that the nationalization of the oil marketing companies is but part of a much larger Syrian socialization program that gained new impetus in January. Mr. Warner asked Mr. Talbot's views on Nasser's possible reactions given the tightening UAR economic situation. Mr. Talbot said that Nasser has shown that he can and will lash out when confronted. The UAR is in economic straits and, even though Nasser has received some substantial commitments from Communist countries and possibly also from Kuwait, it appears that Nasser would like to keep his contacts with the West open. Our problem is to keep Congress from cutting off our contact with the UAR and bringing about a confrontation that would lead to a dangerous polarization in the Near East, with the West and Israel on one side, ranged against the Communists and the Arabs on the other. In parting, Mr. Warner told Mr. Talbot that Socony would make no public denunciation of the Syrian nationalization of its marketing subsidiary and would try, in coordination with ESSO and Shell, to negotiate an acceptable settlement with the Syrian Government. After Socony has had a chance to see how things are going, he plans to come back for further discussion with Messrs. Mann and Talbot respectively.
184. Editorial Note In a memorandum of April 26, 1965, to Assistant Secretary of State for Economic Affairs Anthony Solomon, Stanley Nehmer discussed the growing dispute between the Departments of State and Interior over control of international oil policy. The immediate cause was a proposed round of Anglo-American oil talks, and the point of contention was whether Solomon or Assistant Secretary of the Interior John Kelly would host the conference. Nehmer commented: "it has seemed almost inevitable that, sooner or later, the line would have to be drawn between oil policy and foreign affairs. If a confrontation is inevitable, it would be difficult to find an issue more likely to be resolved in the Department's favor than one which involves the politics of world oil and has as precedent a series of similar meetings in which leadership by the Department has been a foregone conclusion." Nehmer noted that the Interior Department was contending that Kelly had been personally invited to discuss oil matters by the U.K. Minister of Power because the U.K. proposal for the talks had been contained in a letter to Kelly, but he stressed that the proposed talks were a part of a series, all of which had been held under State's chairmanship. (Department of State, E Files: Lot 69 D 76, PET--Petroleum United Kingdom 1965, US/UK Oil Talks 1965) Under Secretary of State Mann agreed. (Letter from Nehmer to Armstrong, May 5; ibid.) In a letter to Kelly on April 28, Solomon invited him to serve as "vice-chairman" of the talks. (Ibid.) Kelly replied on April 30: "As you point out, the talks are part of a series. There has occurred, however, a fundamental change in Interior's responsibilities since the last of these discussions in June 1963. I refer of course, to the President's assignment to the Secretary of the Interior of responsibility for oil policy within the Executive Branch." "In the circumstances," he continued, "I am of the view that it would be appropriate for the senior representative from the Department of the Interior to act as chairman of the U.S. delegation. I would anticipate that the Department of State would provide the vice chairman." (Ibid.) Kelly's reference to the President's assignment was to a December 1963 meeting between President Johnson and Secretary of the Interior Udall, after which Udall told the press that the President had put him "in charge of oil policy." As Andrew Ensor later wrote: "Kelly used this frequently, to little effect I'm glad to say, to try to horn in on State's role. The fact is pretty clear that both the President and Udall thought of 'oil policy,' at that time, as purely a domestic matter." (Memorandum from Fried to Solomon, February 8, 1966; ibid., E Files: Lot 70 D 54, ORG Organization and Administration 1966) Although the talks were scheduled to begin on May 10, 1965, the issue was still unresolved on May 5 when Solomon was called away from Washington unexpectedly to deal with the Dominican crisis; in a memorandum of that day, Ensor referred to Solomon as the "prospective chairman." (Ibid., E Files: Lot 69 D 76, PET--Petroleum United Kingdom, US/UK Oil Talks 1965) In June the Department rescheduled the talks for early July. Kelly again refused to serve as vice chairman in a letter of June 9 to Solomon, but a handwritten note approved by an officer in FSE reads: "In view of Kelly leaving Interior, should we take the British option of September?" Another note, dated June 30 reads: "No reply. File." (Ibid.) The Anglo-American Oil Talks eventually were held on November 15, 1965, at the State Department with Cordell Moore heading the Interior contingent; see Document 186. Ensor later wrote: "Interior used to be always for cutting imports; it is now, genuinely and of its own steam, not restrictive on this subject beyond minutiae. . . . State, too, used to be what I call 'wishy-washy' free trade on oil issues but has of late grown up a lot. I believe that it is increasingly recognized in State that, even though domestic politics were the cause of our imports policy (and the 'national security' basis was hypocrisy really), it is still a wise policy. This country should not become dependent on regularly receiving large quantities of oil from areas which are even slightly unreliable over the long term (which in my view means everywhere but Canada) and the economic price of this is well worth it." Foreign and domestic oil policies, he wrote, were increasingly unrelated matters. "What must be borne in mind is that, regardless of the 1963 announcement, the fact remains undisputed and indisputable that State has full practical responsibility for our oil policy abroad. If this is done badly, it is State's fault entirely." (Memorandum from Fried to Solomon, February 8, 1966; Department of State, E Files: Lot 70 D 54, ORG Organization and Administration 1966)
185. Circular Airgram From the Department of State to the Embassy in Austria/1/ CA-5671 Washington, November 24, 1965, 6:32 p.m. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 3 OPEC. Confidential. Drafted by Oliver (FSE) and cleared by Spielman (EUR/WE), Bennsky (NEA), and Ensor (FSE). Repeated to Algiers, Baghdad, Beirut, Benghazi, Bonn, Brussels, Cairo, Caracas, Djakarta, Jidda, Kuwait, Lagos, London, Ottawa, Paris, Rome, The Hague, Tehran, Tripoli, USEC Brussels, USEC Luxembourg, USRO Paris, and the Mission in Geneva. SUBJECT REF /2/Not printed. (Ibid., PET 1 UK) /3/Not printed. (Ibid., PET 3 OPEC) /4/Not printed. (Ibid., PET 1 US-UK) The referenced airgrams (copies attached)/5/ state the policy of the USG in respect of the OPEC and communications by US Reps with that organization. These are forwarded for the guidance of the Embassy now that the OPEC is headquartered in Vienna. /5/None found attached. The US-UK policy of neutrality and non-commitment towards OPEC detailed in CA-386 (paragraph 8) has not prevented the OPEC from obtaining recognition from international organizations, specifically the ECOSOC and UNCTAD, and Austria has granted diplomatic status to the organization and its personnel. In light of these and other successes by the OPEC, the USG intends to review the present policy towards the OPEC and consider if some other policy towards the organization might more usefully serve U.S. interests. Comments from Embassy Vienna and other addressees regarding U.S. policy towards the OPEC are welcomed. Until further notice, however, the policy detailed in the referenced communications continues in effect. Ball
186. Circular Airgram From the Department of State to Certain Posts/1/ CA-6447 Washington, December 22, 1965, 8:45 a.m. /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 R. Shuler (E) and cleared by Adams (NEA), Eurchamp (EUR/BNA), Sober (NEA/SOA), Starkey (EUR/BNA), Post (AF/AFN), Enders (EUR/RPE), Crowley (ARA/CV), O'Leary (INT), and Ensor (FSE). Sent to Algiers, Baghdad, Beirut, Benghazi, Bonn, Brussels, Cairo, Caracas, Damascus, Djakarta, Karachi, Kuwait, Jidda, Lagos, London, Ottawa, New Delhi, Paris, Madrid, Rome, Tehran, The Hague, Tripoli, Vienna, USEC Brussels, USEC Luxembourg, Paris OCED, and the Consulate in Dhahran. SUBJECT Informal discussions with the U.K. were held in Washington November 15 and 16 on international oil matters. The British delegation, headed by Mr. Angus Beckett, Under Secretary, Ministry of Power, consisted of Mr. John T. Fearnley, Oil Adviser, Oil Department, Foreign Office, Mr. Noel E. Martin, Petroleum Counselor, British Embassy, and other members of the British Embassy Staff. On the U.S. side, the meetings were chaired by Mr. Edward A. Fried, Deputy Assistant Secretary of State for Economic Affairs. Participants included Mr. J. Cordell Moore, Assistant Secretary of the Interior-Mineral Resources, Mr. John F. O'Leary, Deputy Assistant Secretary of the Interior-Mineral Resources, Mr. Howard R. Cottam, American Ambassador to Kuwait, Mr. Andrew F. Ensor, Director, Office of Fuels and Energy, Department of State, Mr. Rodger P. Davies, Deputy Assistant Secretary of State (NEA), Department of State and Mr. Edgar L. McGinnis, First Secretary, American Embassy London. The Department of Commerce was represented by Mr. Alexander B. Trowbridge, Assistant Secretary for Domestic and International Business, and the Department of Defense by Mr. Joseph J. Muir, Deputy Director, Office of Petroleum Logistics. The mutuality of U.S. oil policy objectives shared with the U.K. provides the basis of these talks, which are held roughly every two years, and permits detailed exchange of information and evaluation of specific problems. Because of the brevity of the discussions and their function as a part of a continuing interchange on oil problems, the talks tended to concentrate upon changes in the oil scene--less time was devoted to historical analysis and relatively stable situations. The items discussed included a review of supplies up to 1970, security of supplies, contingency planning, and long-term hedges such as shale oil, tar sands, and liquid hydrocarbons from coal. Relations with producer countries were discussed with emphasis upon Arab oil policy, and OPEC developments. Individual country problems were reviewed with stress being given to the major producing countries of the Middle East and Africa with Latin American and also Indonesian developments also noted. The situation in the EEC as it affects oil, and the work of the OECD in oil and energy generally were subject of exchanges of views, as were the developments in the consuming countries of Europe. There was brief discussion on the problems of oil in India and Pakistan. The discussions concluded with the subject of the financial problems of the industry arising from balance of payments programs, and reduced self-financing capacity of the companies. The highlights of the meetings included the following items: Supplies to 1970 Projections of supplies to 1970 worked out by the Ministry of Power and the Department of Interior in advance of the meetings were quite useful in pointing out differing production and consumption growth rates which will be at the heart of many future problems. Excluding a major disruption, supply will be adequate during this period and in fact problems may arise stemming from conditions of increasing over-supply. North Sea The U.K. is distinctly optimistic about the prospects for North Sea gas production. Gas so far discovered is of high quality (98% methane) and the BP discovery is confidently expected to be a commercial producer. Two other gas shows, as yet unpublicized, indicate at least the possibility of commercial gas production. U.K. White Paper The recent white paper on U.K. fuel policy is the first such document published by HMG. Mr. Beckett regarded as significant the statements in the White Paper that undue curtailment of the use of oil could affect the health of the economy generally and that reduced reliance on imports for security or B/P reasons had its limits. The Paper reflects the position that no discrimination would be practical in relation to the Free World sources of crude imports, and while the same policy is to be applied to refined product imports, it would be kept under review. This latter point, Mr. Beckett stated, was aimed at the Six./2/ /2/Reference is to the European Community. Nigeria The U.K. anticipates Nigerian production of its highly desirable crude will reach 1 million b/d by 1970. This is a strong upward revision of previous estimates. Nigerian associated gas production will be high and preliminary studies indicate its landed price in the U.K. may be lower than Algerian gas. Development of Nigerian gas may therefore pose serious policy problems for HMG. U.K. Posted Prices Mr. Beckett indicated that the U.K. may well be about to take a critical view of the posted prices paid by U.K. importers of crude. Under the present price structure these prices were high, reflecting the traditional pattern of the integrated companies to shift profits to their production accounts. OECD The OECD Oil Committee Small Group (also called the High Level Working Party) was fathered by the British. Angus Beckett is the chairman. As one function, the Small Group is to prepare studies centered around the question of the security of Western Europe's imported oil supplies. To date the Small Group has considered a paper prepared by the British outlining the demand-supply outlook for oil and gas from 1965 to 1970-75. It will next examine a British prepared survey of various emergency contingencies, i.e. peacetime situations where oil from one or several major supplying countries is cut off. The Small Group has under revision a tanker transport outlook covering the same period prepared by the U.S. and the Netherlands. The U.K.'s reasons for establishing the Small Group included the objective of influencing the form of common energy policy the EEC would eventually adopt. This objective was reviewed in light of events. While the EEC crisis deprives the Small Group of some of its urgency, both delegations agreed that in view of the greater uncertainty as future Community energy policy it is if anything more important now to continue its work as a means of influencing EEC attitudes. Mr. Beckett emphasized the need to keep representation in the Group at an "appropriate" level and urged that the U.S. and U.K. set an example in this regard. The OECD Oil Committee reorganization proposed by Molkenboer seemed of questionable utility to the U.S. The proposal did not right what was wrong--primarily that the Committee lacked something important to do (with the exception of the Small Group). The proposal would seemingly confuse procedure with substance. The U.K., in contrast, regarded the Oil Committee as having importance apart from any studies it might make. It is a Committee in being which could deal with a supply crisis. The U.K. agreed that there should not be a search for work for the Committee, but feels Molkenboer's proposals deserve some sympathy, partly because it eliminates the redundancy of having both GWP and Plenary sessions. The proposal would bring other members into more active participation, giving them specific jobs to perform, and thus relieve the U.S. and U.K. of making all the running. Mr. Beckett also noted that with the abolition of the Gas Committee its work would be assumed by the Oil Committee. Mr. Beckett indicated he had spoken with Molkenboer recently and the latter will develop a modified proposal. OPEC Both sides agreed OPEC has gained in international status through obtaining objectives on royalty expensing, obtaining recognition by the UN, and in the competence of some of its staff. No change in current U.S. and U.K. policy toward OPEC should now be made. It was thought that the premises of the "neutrality" policy should be reexamined even though this might well produce no change. There was agreement that the OPEC prorationing scheme is not likely to succeed, but its failure may lead to much "bad blood" and the plan is based on dangerous principles. There was also the thought that negotiations regarding allowable discounts off posted prices after 1966 for the expensing of royalties could present very serious difficulties. Concession Trends Both sides agreed the current situation is characterized by a combination of sizable bonus payments and new kinds of terms. This trend is likely to continue. The British said they were pleased to note that the countries continued ready to let new concessions and no real enthusiasm appears to exist for contracting for oil operations. We noted, however, the trend in the evolution of government oil entities toward integrated export operations. Iran has crude of its own now and Kuwait may soon be in a similar position with refined products. It is hard to foresee how all of this will develop, but it appears downstream operations could prove unprofitable and difficult for them. Labor in the Persian Gulf We expressed concern that labor issues could become one of the most serious problems in the Persian Gulf area. Reluctance of the governments to face this issue and company convictions that the Persian Gulf labor movement is politically motivated per se must be overcome. Otherwise the field would be open to radical politically oriented groups such as the UAR-dominated Arab Federation of Petroleum Workers. Already this appears to have taken place in Kuwait. The British agreed that this was a matter of increasing importance that should be looked at closely. They suggested that it might be well for both sides to discuss it again soon. Nasser and Arab Nationalism There was general agreement about the UAR's role, present and future, in oil matters. We pointed out the conflict of interests that exists between the UAR and the Arab oil producing states. There is a limit to which the UAR can squeeze or force these countries, even Iraq. Nasser has gone about as far as he can in this respect. The discovery of oil in the Gulf of Suez by Pan American (eventually production may reach 100,000 b/d) could even lead to more responsible UAR attitudes on oil. We mentioned Syria as being perhaps more vociferous than the UAR in hewing to the radical line on oil. We also pointed up our concern over reports that the ideas of Abdullah Tariki still have considerable popular appeal in the Arab world. His influence should not be discounted. In addition, there are others, like Faisal Mazidi in Kuwait, who, while not in favor of immediate nationalization, still advocate eventual government control of the oil industry. In short, we thought we should not be over-confident that these dangers were not real. The British agreed that we should not be overly confident even though there is evidence of growing responsibility in the area on oil matters. Informational Activity The British said the informational efforts of the U.S. and U.K. Governments and the oil companies in the Middle East should not necessarily be directed against the more sophisticated approach of OPEC. What requires countering are the wilder, radical Arab views. This is a long-term operation requiring time to prepare and execute. Mr. Beckett indicated that extremist propaganda was being countered through a program developed in quarterly HMG-U.K. company liaison group consultations. The U.S. expressed interest in the outcome of the discussions. Although the form did not seem applicable here because of the multiplicity of interests and companies, there was perhaps real value in the idea of working on the problem in concert with industry. No formal consultation between the U.S. and U.K. seems necessary. We do feel the U.S. companies are doing a good job and we have encouraged them to prepare papers and distribute them in both European and Arab oil circles. Iraq The British expressed pessimism about Iraq Government ratification of the agreement with the Iraq Petroleum Company. They mentioned the efforts of Prime Minister Bazzaz to link the agreement with the Kurdish problem in recent discussions in London. We agreed that prospects for ratification are not bright. A solution of the Kurdish question, however, might pave the way for a settlement. Iran The British said the production growth rate remained a problem for the consortium with the Shah. There had been some improvement in the situation recently, however. The British discussed the problem that had arisen regarding a median line between Abu Dhabi and Iran. Atlantic/3/ has a strike in an area that could be on either side of the line depending upon which principles are applied in drawing it. The Iranians must now decide one way or another on this. While one set of principles would give Iran the Atlantic strike area, their application would confer upon Abu Dhabi advantages in other parts of the Gulf. /3/An American independent oil company. Kuwait We expressed concern about events in Kuwait, especially political developments affecting the prospects for ratification of the supplemental agreement. We pointed out that unilateral action against KOC by the National Assembly was a potential possibility. The British, while agreeing that early ratification is unlikely, were somewhat surprised by the possibility of unilateral action. They listened attentively to a description by the U.S. side of political changes in Kuwait (reduced role of the Amir, increased political activity, etc.) which had greatly altered the premises of successfully dealing with the Government). The U.K. tended to agree that changes had indeed occurred and said they would closely examine this question. Abu Dhabi The British said prospects for larger increases in Abu Dhabi were very good particularly offshore where output could easily reach approximately 1,400,000 b/d in the not too distant future. Abu Dhabi offshore could well become one of the largest fields in the Middle East. A 50/50 agreement between the Shaikh of Abu Dhabi and Abu Dhabi Marine Areas Ltd. will probably be concluded in due course. Algeria Though the Franco-Algerian Oil Agreement strengthens the French dirigiste oil policy, it is regarded as sui generis because of the special relationships between Algeria and France. It was agreed that the Agreement could raise problems for U.S. and U.K. companies and these could ultimately require official intervention. The RAP-Saudi Arabian deal and French attempts to buy their way out of the IPC negotiations this year, suggest that the French may be getting away from arrangements based on economic grounds and moving toward a political orientation of their oil policies. Although these factors and increased French takings of Soviet oil seemingly bear this out, the British suggest that the emergence of Abu Dhabi as an important producer might dull the French appetite for uneconomic oil deals. Libya The U.S. representatives outlined the serious effect adoption by the GOL of the OPEC settlement formula would have for the U.S. "independents" producing in Libya. The U.S. concern in respect to the pricing problem in Libya is that the GOL give the independents a full opportunity to be heard so that a mutually agreeable solution can be attempted rather than a new tax regime be imposed on those companies unilaterally by GOL decree. The British made no specific response to the U.S. presentation but implied some surprise that the USG supported the independents in Libya. They did point out that the large discounts offered by the independents on sales of Libyan crude oil have a very marked effect on the returns obtained by the majors on their sales, especially on sales to non-affiliated companies. The British representatives recognized that the majors in urging Libya to adopt a posted price system are encouraging the GOL unilaterally to breach concession agreements, a development not in the long term interest of the international oil industry. Oil Industry Finance It was mutually recognized that a problem existed in the enormous capital requirements of the international oil industry on the one hand and its inability to generate sufficient self-financing for its requirements. Capital needs are increasing as world economic growth requires fairly rapid expansion in the supply of oil products. The trend has been towards more borrowing by the companies. The sums needed are too vast to be supplied by the capital market, access to which is limited by balance of payments programs and the thinness of the European capital market. The required self-financing is restricted by low prices and producing country measures to increase taxation. The widespread exploration activities of the companies will strain capital resources even more, but it appears that the companies have not so far been deterred from this by the prospect of lower profitability. Rusk
187. Telegram From the Embassy in Iran to the Department of State/1/ Tehran, January 6, 1966, 1345Z. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 6 IRAN. Confidential. Repeated to London. 981. Sharp Decrease in Iran Oil Offtake. PriMin Hoveyda summoned UK Ambassador Wright and me 6th to complain that Iranian oil offtake dropped more than 200,000 barrels per day in December. He said Shah and other GOI leaders suspect this is unwelcome retaliation on part of oil Consortium for recent Kharg Island problem (A-415)./2/ Hoveyda went on to say Iran's vital plans for development will suffer if anticipated increases in oil offtake do not materialize. Noting greater foreign exchange shortage would result Hoveyda said Iran would dislike to have to shift to heavier reliance on Eastern Bloc countries for commerce and possibly even arms. /2/Airgram A-415 from Tehran is dated December 16, 1965. (Ibid., PET 1 IRAN) Iran and Iraq had recently clashed militarily over Kharg Island, Iran's primary offshore oil loading terminus. Making clear this is issue outside jurisdiction of USG, I took occasion to recall frequent USG cautioning over excessively rosy estimates of future Iran income. Noted specifically how during last summer's economic review Shah had brushed aside realistic estimates his economic advisors as being too conservative. Also explained this pointed up our concern re too much Iranian spending on things military (Hoveyda cited current flare-up of hostilities with Iraq as justifying GOI's judgment re military expenditures). In any case, I made clear my conviction oil Consortium worked by laws of supply and demand rather than political vindictiveness (Wright says he took same line). I also expressed some doubt about plethora of Iranian barter deals with Eastern Bloc countries, noting how Hitler used these tools for political purposes. Also suggested Iran keep wary eye on its oil sales to Rumania and others for possibility exists Eastern Bloc countries will flog this oil on European market at expense Iranian markets. Noted that Iran would do well to keep in mind its predominant oil market (and inconvertible exchange) must inevitably be with free world countries. Hoveyda said he realized USG unable take specific action but expressed hope we might informally encourage oil companies to keep Iran offtakes up. He contrasted this year's sharp increase in production in Saudi Arabia (I noted year ago Iran percentage of increase was high while Saudi was low) and in Abu Dhabi. We both agreed frank discussion of these problems of type he undertaking is much preferable to artillery salvo technique employed in Kharg Island issue. Hoveyda said Consortium Chief John Warder, who was leaving his office when I arrived, is going to London to seek explanation from Consortium members. Meyer
188. Telegram From the Embassy in Iran to the Department of State/1/ Tehran, January 20, 1966, 1325Z. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 6 IRAN. Confidential. Repeated to London. 1041. Shah's Pique at Oil Companies. Re Embtel 981./2/ /2/Document 187. 1. Short-fall in Oil Income. Practically at outset our discussion US-Iran military cooperation 20th, Shah diverted discussion to his bitterness re UK and US oil Consortium. He cited 200,000 barrel per day nosedive in liftings in December and $30,000,000 deficiency in 1965 revenues anticipated by Iran. He went on to say that both military security and economic development are vital to Iran. If oil companies do not provide anticipated growth in revenues, Iran might have to reorient "philosophy" which Shah said he had espoused "during twenty-five years of my reign." 2. US Companies' Record. Noting I had not come prepared to air this problem and in any case USG's capability vis-à-vis oil companies as he knew is very circumscribed, I mentioned receipt few days ago of letter from Esso Vice President Howard Page. Page's letter had been drafted pursuant to PriMin Hoveyda's and Fornmin Aram's having raised this problem with me at Shah's instructions. In general, Page's letter indicates Consortium, and American companies in particular, have good record. Shah said he had already seen Page letter (Page sent copy to NIOC's Falla). Broader Picture. Shah seemed have no arguments to counter Page letter. He sought elevate subject to broader free world interests in maintaining militarily secure and economically progressive Iran. Shah realized companies work for profit and that they have obligations as in Saudi Arabia, but in his view it is in their higher interest to support large progressive country like Iran instead of paying vast revenues to tiny entity like Abu Dhabi with its few tens of thousands of people and where oil production is expected to rise to million and half barrels per day. He said Abu Dhabi being operated primarily by British companies. He acknowledged that in oil matters UK Govt. has more direct involvement than does USG. Important point was that tranquility of entire Gulf region depends upon Iran; oil companies, as well as UK and US Govts., should take this into account in formulating their offtake policies. I said I felt Page's letter reflected awareness of Iran's value. 4. Iran-Consortium Relationship. When I expressed doubt re wisdom of shifting Iran's "philosophy," Shah said he might have no choice. He would have to supply his military and economic development needs where money and cheapest prices available. It was in this connection that he mentioned Soviet MIG-21 sales to Arab countries for only $600,000 per copy. I said from direct experience Iran should keep in mind foolhardiness of falling out with oil companies. He noted current difficulties between Kuwait and KOC but said Arabs always somehow keep oil revenues coming in, at same time reaping benefits of their demagoguery with oil companies. He agreed nevertheless that healthy Iranian relationship with oil Consortium is essential. Comment. Although Shah knew we were coming to discuss military matters, he obviously had decided to make major point of his disappointment re oil income. Incidentally, after Shah had unloaded his complaint it was possible to exploit his concern to point up importance of our annual review designed to put military and economic expenditures in perspective bearing in mind prospective GOI income. Meyer
189. Airgram From the Embassy in Kuwait to the Department of State/1/ A-229 Kuwait, March 14, 1966. /1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 6 IRAN. Confidential. Drafted by J. Twinam (ECON), and concurred in by J. Gatch, Jr. (DCM), W. Bromell (POL), and J. Vonier (USIS). Pouched to Algiers, Baghdad, Beirut, Benghazi, Bonn, Brussels, Cairo, Caracas, Djakarta, Jidda, Lagos, London, Ottawa, Paris, Rome, The Hague, Tehran, Tripoli, USEC Brussels, USEC Luxembourg, USRO Paris, Mission in Geneva, and Vienna. SUBJECT REF /2/Document 185. /3/Not printed. (National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964-66, PET 2 AUS) SUMMARY The Country Team welcomes the policy of review of U.S. attitudes towards OPEC; and concludes that the establishment of a U.S. Government working relationship with OPEC would serve U.S. interests. U.S. Attitudes The present aloof U.S. attitude toward OPEC is not a lively issue in US-Kuwaiti relations, but we are somewhat at loss to find a locally acceptable theoretical defense of our position and appreciate the opportunity to participate in this policy review. A Kuwaiti advocate of OPEC might claim that its mandate rests on the right of a state to exercise commercial regulation of its petroleum reserves and to seek this regulation in an entity transcending state boundaries when the companies controlling its petroleum industry are engaged in "interstate commerce." He might assert that OPEC is not dissimilar from a commodity agreement in which the leading exporters of petroleum, developing nations heavily dependent upon foreign exchange earnings of the commodity, are seeking to improve its international terms of trade. In our own historical experience and present economic policy, we find little theoretical justification for remaining unsympathetic to an organization so founded and motivated. On a more practical level, OPEC is ostensibly opposed to the interests of American petroleum companies which the United States Government has a certain obligation to protect. We are insufficiently expert to determine, but we wonder, nevertheless, if certain OPEC objectives--stability in crude production and price and a uniformity in producing-country petroleum laws and concession terms--might not, in the long run, be in the interest of some American oil companies. We wonder if, at some point, the United States itself might not conceivably become a "petroleum exporting country." We particularly question, as the dust settles in Libya, whether there is one definable "U.S. oil company interest" on which the U.S. Government can afford to hang a petroleum policy. When our oil companies deal with individual producing-country governments, the U.S. Government, through normal diplomatic channels, quite properly maintains a separate identity, permitting us the flexibility to assist in mediating possible disputes and to avoid impairing wider U.S. policy interests in the country concerned. If our petroleum companies accept the reality that, in their multi-national negotiations with the producing countries, they are dealing with OPEC, should not the United States Government be in a position to exercise a similar third-party role? We see OPEC as a manifestation of a strong historic trend toward economic nationalism in Arab and other developing countries. Like it or not, we have little enough possibility of directing this trend, and even less of opposing it successfully. There are issues on which the U.S. Government must oppose this trend. If OPEC is not one of these, we would seem to be borrowing trouble and foregoing a possible opportunity in failing to establish a working relationship with it. Certainly, our oil companies might wish that there were no demand for an organization such as OPEC, but OPEC does exist. While OPEC's viability and reputation for economic statesmanship are by no means assured, the organization does appear to have mellowed with age. In the context of economic nationalism--certainly in the context of Arab nationalism--OPEC may emerge as a force for reason and moderation. In our assessment, American oil companies, in spite of their economic power and technical prowess, are politically and psychologically on the defensive in their dealings with the producing countries. As an offensive alliance, OPEC is a somewhat cumbersome one. By attempting to force the companies to deal with OPEC, the producing countries have to reduce their collective objectives to the lowest common denominator. In Kuwait, at the moment, it is, after all, not the Government, but Gulf-BP that is seeking ratification of the "OPEC settlement." In short, if there were no OPEC, perhaps the companies would have to create one. Contact with OPEC We understand from Kuwaiti oil officials that OPEC is considering shifting its attentions from obtaining larger benefits from international companies to seeking a reduction of consumer country restrictions and tariffs on crude oil. In anticipation of this possible shift of emphasis, the U.S. Government should be in position to deal directly with the organization. Consequently, we think that establishment of a U.S. Government working relationship with OPEC would serve U.S. interests. The form such recognition might take raises tactical as well as legal questions. In the Arab world, OPEC is not above suspicion for its "ineffectiveness" in obtaining producing-country demands and because it is subject to "subversive" Iranian and Venezuelan influences. Should the U.S. Government embrace OPEC too warmly, OPEC's credibility as a champion of producing-country aspirations might be further impaired. For this reason, perhaps our approach to OPEC should stress the establishment of a working relationship rather than formal recognition. Howard R. Cottam [Continue with the next documents]
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