Foreign Relations of the United States, 1955–1957, Near East Region; Iran; Iraq, Volume XII

254. Memorandum From the Department of State Representative on the NSC Planning Board (Bowie) to the President’s Special Assistant for National Security Affairs (Cutler)¹

Washington, August 1, 1957.

1. The Department of State considers that alternative and/or supplemental facilities for the westward movement of Middle East petroleum are vital to the security of the United States.

2. In view of the project for a new Middle East pipeline from the Persian Gulf through Iraq and Turkey to the Mediterranean, the Department of State believes that the National Security Council should urgently consider (a) whether the United States should support such a project, and (b) if so, what form such support should take.

3. Accordingly, the Department has prepared and submits herewith for circulation to the other interested agencies a background paper on the significance of a new Middle East pipeline system.

Robert R. Bowie²

[Attachment]

Background Paper Prepared in the Department of State³

Washington, July 17, 1957.

SIGNIFICANCE OF A NEW MIDDLE EAST PIPELINE SYSTEM

Problem:

Is the construction of a new Middle East pipeline system which would supplement existing facilities for the movement of Middle East petroleum to the West in the national interest of the United States? (Map, Tab A)⁴

Background:

Major international petroleum companies have expressed interest in constructing a new pipeline system (Metline) from the Persian Gulf through Iraq and Turkey to the Eastern Mediterranean. Their principal motivations appear directed at keeping transportation costs at a minimum and at providing greater security than offered by existing transit facilities. The system which they propose would supplement the Suez Canal and existing Middle East pipelines and increase facilities for the transport of Middle East oil by nearly 50 percent. They state that at the conclusion of the first stage of construction, i.e., by the end of 1960,⁵ the project would be capable of transporting approximately 800,000 barrels per day through one 38"/40" line. The second 38"/40" line they estimate will be completed by the end of 1962,⁵ and the completed project would have a capability at that time of moving 1,400,000 barrels per day. The cost of the first phase is estimated at $550 million;⁶ the cost of the total project is approximately $980,000,000.⁶

Companies which have expressed an interest in the project are the following: American Independent Oil Company; the Atlantic Refining Company; Compagnie Francaise des Petroles; Getty Oil Company; Gulf Oil Corporation; Hancock Oil Company; Richfield Oil Corporation; San Jacinto Petroleum Corporation; Signal Oil and Gas Company; Socony Mobil Oil Company, Inc.; Standard Oil Company of California; Standard Oil Company (New Jersey); The Standard Oil Company (Ohio); The Texas Company; Tidewater Oil Company; Royal Dutch Shell; and The British Petroleum Company, Limited.

The companies state that no firm decisions can be made in regard to this project until satisfactory treaty arrangements have been concluded with the countries in which the pipeline system is to be located.

Discussion:

1. Economic need for increasing facilities for movement of Middle East petroleum:

a. Suez experience: The blocking of the Suez Canal and the sabotage of the IPC pipeline in the fall of 1956 reduced the movement of Middle East petroleum to the West through existing facilities by 85 percent. Shipments via the Suez Canal and existing pipelines were cut from 2,350,000 b/d to 350,000 b/d. To off-set loss of movement through the Canal and the IPC pipeline, Western Europe resorted to rerouting Middle East petroleum via the Cape at additional expense and to obtaining petroleum from the Western Hemisphere at higher prices. The Suez crisis, due to these added costs and foreign exchange losses on the resale of Middle East oil resulted in a dollar balance of payments loss for Western Europe, and particularly the UK, of about $400 million.

b. Long term growth in requirements of Europe, the U.S. and Canada.

In 1956, the demand for Middle East oil in the area West of Suez (Europe, North and West Africa, and North American East Coast) totaled about 2,300,000 barrels daily (b/d). On the assumption that (1) European oil demand from all sources will increase during the next three years at the rate of the past five years and at a somewhat lower rate thereafter, (2) no restrictions are placed on U.S. imports of Middle East oil, (3) only negligible amounts of Sahara oil are produced and delivered to markets and (4) Caribbean exports to Europe approximate pre-Suez levels, the demand for Middle East oil West of Suez would rise to 3,900,000 b/d in 1960 and 5,900,000 in 1965. In the event of moderate restrictions on U.S. imports of Middle East oil and secure conditions for production and transport of Sahara oil, the above requirements would be reduced by roughly 200,000 b/d in 1960 and 800,000 in 1965. (See Table 1)⁷

c. Capability of Existing Facilities: Assuming adequate dredging and efficient operation the Suez Canal might readily accommodate about 2,000,000 barrels per day of northbound oil traffic, existing pipelines will shortly have a total capacity of 1,000,000 barrels per day. In addition a small number of giant tankers will become available with a capability of moving about 50,000 barrels per day in 1960 via the Cape of Good Hope and about 100,000 barrels per day in 1965. The deficit in transit capacity for moving Middle East oil would amount to 850,000 barrels per day in 1960 and rise to 2,800,000 barrels per day in 1965. Tankers under construction or on order and definitely planned for the mid-1960’s will have sufficient carrying capacity to transport, utilizing customary facilities, all Middle East petroleum required in the area West of Suez. However, these facilities, i.e., the Suez Canal and pipelines across Syria, must be substantially expanded.

In a period of emergency, involving closure of existing transportation routes for Middle East oil, the area West of Suez would be wholly dependent upon tankers which would then become the bottleneck. If both the Suez Canal and now existing pipelines were interrupted, tankers normally moving via those routes to Europe and North America could be diverted to the Cape of Good Hope route but would be able to carry only from 50 to 60 percent of their usual oil traffic.

2. Now Existing Facilities Might be Expanded: Existing Canal, pipelines and tanker operations are all capable of expansion.

a. Expansion of Suez Canal: An alternative to expansion of pipeline facilities in the Middle East is an increase in the capacity of the Suez Canal. Great increases in the Canal’s capacity are possible beyond the level of 2,000,000 b/d. This could be achieved by completion of the 8th improvement program ($50–$75 million, by organizational measures requiring no added financial outlay⁸ and by undertaking the 9th improvement program (estimated total cost $300 million). With these measures the Canal’s capacity could be raised to 3,200,000 b/d by 1960 and 5,500,000 b/d by 1965. With substantial completion of the 9th improvement program the Canal would have a capacity by 1965⁹ which would be more than sufficient to eliminate the expected deficit in transport capacity at that time. While Egypt might close the Canal, nevertheless the tankers customarily transiting the Canal could be diverted to other routes. Considerable sacrifice in carrying capacity would result from their transfer to the Cape of Good Hope-Europe route but some increases in capacity would result from shifting them to the Western Hemisphere-Europe route.

b. Expansion of Existing Lines: The capacity of existing pipeline facilities could be greatly increased if Metline is not constructed. (However, the amount of this increase will depend to a large extent on political conditions and trends in the transit states and on company decisions re construction of tankers.) Tapline, for example, may increase its capacity by 1965 from about 400,000 b/d to around 800,000 b/d. IPC may divert, by 1960, its present Haifa lines through Syria and Lebanon and may expand movement of petroleum through existing lines across Syria as well as construct a major line from Kirkuk to the Persian Gulf. In addition there is talk of an Arab pipeline which would extend primarily from the Saudi Arabian fields to the Mediterranean across only Arab territory. There is also report of a new pipeline to be constructed parallel to the Suez Canal. In addition Israel is promoting an international pipeline from the head of the Gulf of Aqaba to the Mediterranean. Moreover, there are at present two U.S. groups actively interested in a pipeline project connecting the recently discovered Qum field in north-western Iran with a Mediterranean terminus in Turkey. Although commercial exploitation of this field appears to be a few years in the future, negotiations for a pipeline outlet for this petroleum may well proceed apace with Metline developments.

c. Tanker Program: If tanker programs continue at recent levels a considerable number of vessels will be available that might not be built should new pipelines be constructed. If Metline is built with a capacity of 1,400,000 b/d, or a like expansion in existing pipelines occurs, about 300 to 350 T2 tanker equivalents would be displaced. These tankers could, in case of emergency, carry roughly 450,000–500,000 b/d via the Cape of Good Hope or about 10% of the European area’s total requirements in 1965. Moreover, in the absence of the foregoing expansion in pipeline construction a greater emphasis is likely to be placed on building giant tankers of 50,000 dwt and more. At present at least 80 of these giant tankers are expected to be available by 1965.

If giant tankers are to move more than minor amounts of Middle East oil via the Cape of Good Hope during the next ten years¹⁰ and thereby replace Metline or lessen normal dependence on the Suez Canal, a costly construction program on a crash basis would be necessary. This type of program would have to be adopted by the oil companies if they were unwilling or unable to build additional pipelines and Egypt could not be relied upon to expand the capacity of the Suez Canal. The placement of more orders for giant tankers by the oil companies and independent operators would provide the incentive for shipyards to expand for the larger tankers particularly by devising new methods of construction, e.g., prefabrication of tanker segments as practiced in Japan. Additional investments in port and harbor facilities would also be necessary due to the special problems of handling the giant tankers.

d. Illustrative alternatives: Should the international petroleum companies decide against constructing the Metline, or any portion thereof (i.e., from Kirkuk through Turkey to the Mediterranean) due to inability to secure adequate guarantees covering its operation or other considerations, they will probably adopt a combination of measures to expand transit facilities in the Middle East (Case 1, Table 2).¹¹ These may involve a doubling of Tapline; a possible expansion of IPC lines across Syria; increased use of the Suez Canal; acceleration of supertanker construction; and building a pipeline south from the northern Iraq fields to the Persian Gulf which would not involve displacement of tankers.

If Metline is built with an ultimate capacity of 1,400,000 b/d by 1965, the capacity of existing pipelines will not in the immediate future exceed the projected level of 1,000,000 b/d. Virtually all the remaining requirements of Middle East oil would move through the Suez Canal, where northbound oil traffic could rise from 2,050,000 b/d in I960 to 3,400,000 b/d in 1965. (Case 2, Table 2) If dependence on the Canal is to be minimized companies would have to expand existing pipeline facilities as well as construct Metline and increase outlays for supertankers.

3. Political Assessment:

a. Arab petroleum policies: Some Arab countries have tried for many years separately and collectively (e.g., the Arab League) to use Middle East oil as a means for obtaining from the West a greater recognition of Arab aspirations. The Arabs can be expected to continue to exploit the dependence of the West on Middle East petroleum in an effort to obtain settlements favorable to them. At the present time existing transit facilities, i.e., the Suez Canal and existing pipelines, all lie within the territories of Arab countries.

b. Suez Canal: The primary artery for movement of Middle East oil is the Suez Canal. Before the Suez crisis the Canal accounted for nearly 65 percent of the transit of petroleum from this area to the West. Given a minimum capability of handling 2,000,000 b/d the Canal would still be handling in I960 more than 50 percent of the petroleum movements to the West. (Table 2) Though continuation of this dependence on the Canal seems inescapable in the foreseeable future every effort should be made to improve this situation in view (1) of the inability of the West to isolate the Canal from the policies of Egypt and (2) of Egypt’s continued dependence on the Soviet Union for political, military and economic support.

c. Pipelines: Existing pipelines originate in Iraq or Saudi Arabia and transit Jordan, Syria and Lebanon. Jordan, although presently aligned with the West, is economically and politically weak. Syria is unreliable. During the Suez crisis Syria readily collaborated in disrupting the movement of Middle East petroleum to the Mediterranean by its destruction of the IPC pipelines. With Syrian leaders increasingly inclined to accept Soviet influence more blindly than any other country in the area, there is a strong presumption that Syria will continue to use its position in the transport of Middle East petroleum for political purposes. IPC and the Government of Iraq have suffered extensive financial losses from destruction of pumping stations on the IPC lines in Syria; IPC operations are also being harmed by arbitrary and capricious moves on the part of leftist groups in the name of Syrian labor. Current assessment of the political situation in Syria does not indicate that there is likely to be any real improvement in the near future. There have also been periods when Lebanese governments have hampered the operation of pipeline companies in ways which violate concession agreements.

The Arab states generally believe that Arab oil should be moved across only Arab states and have undertaken to devise schemes for accomplishing this objective. For example, it is understood that at King Saud’s request Aramco is studying the possibility of some form of treaty arrangement between Saudi Arabia and the Tapline transit states of Jordan, Syria and Lebanon. There was also proposed at Saudi initiative at the recent meeting of the Arab League Economic Committee the formation of an all Arab company to build and operate a pipeline network in lieu of the proposed Turkish line. Ownership would be vested in Arab Governments and in Arab or foreign companies and individuals. A meeting is being called for February 1958 to which international petroleum companies will be invited to discuss the plan.

d. Prospects for Metline: The principle of a pipeline system extending from the Persian Gulf to the Mediterranean across Turkey is understood to be acceptable to the Turkish and Iranian Governments and possibly the Government of Iraq. Former Prime Minister Nuri has in the past indicated support for the Iraq-Turkish pipeline. If he were to return to office Iraq’s position could be viewed with more certainty. Opposition to the project has come from primarily nationalist elements. However, the Government is also hesitant because it would be accused of helping to deprive “sister Arab states” of oil revenues, even though experience as the result of the Suez crisis has raised doubts in the Government as to whether Iraq can continue to base its movement of petroleum on pipelines through Syria. Moreover, even strongly pro-Western Iraqis are loath to put Iraq in the position of destroying a united Arab front, and with it the possibility of using oil as a means of pressure on the West for political ends. Its Kirkuk field, which accounts for 75 percent of Iraq’s petroleum production is entirely dependent upon access to a group of pipelines across Syria. An alternate pipeline system would enable expansion of production in the Kirkuk field, the reserves of which are extensive, and would provide Iraq with an alternate or supplemental means of moving its petroleum output into world markets. Saudi Arabia on the other hand is not likely to be interested in Metline for political and geographic reasons. Also, the Saudis, as noted above, seem desirous of encouraging the development of an “all Arab” line and are apt not only to oppose Saudi participation in the project but the participation of Iraq. Also Saudi petroleum fields lie at a farther distance from the Mediterranean terminal of the Turkish line than from the Mediterranean terminal of the existing Tapline system. The Department understands that the companies included Saudi Arabia’s northern fields in their planning in order to bring Saudi Arabia within the proposed new treaty system and thereby obtain improved assurances covering their existing concession arrangements in that country. Only limited enthusiasm in Kuwait can be expected if Saudi Arabia is not participating in the project.

Although the proposed Metline system might include a number of states which are not members of the Baghdad Pact, the major trunk line, extending from the Persian Gulf to the Mediterranean, would lie within the territories of two members of the Baghdad Pact. Accordingly, it would be consistent with U.S. objectives of strengthening ties between Baghdad Pact members to encourage development of a new pipeline system. The project would also benefit from the security offered by the Baghdad Pact, but might on the other hand become even less acceptable to Saudi Arabia and other non-member Arab states if linked to the Pact.

The comprehensive treaty which the companies originally sought is so broad and sweeping in its provisions that it is considered unacceptable to Middle East states. Not only is it viewed as non-negotiable but likely to frighten the states of the area to the point of discouraging all interest in the project. A more limited treaty relating solely to protecting the pipeline system, which is under study by the companies and the Western Governments, is considered more likely to be acceptable to the Middle East states.

Just how much security will result from such an instrument is problematical. It should, however, encourage the companies to invest in this project and may provide international acceptance of principles relating to pipeline operations and settlement of disputes which may be extended to other facilities.

4. Summary:

a. General: Additional facilities for the movement of Middle East petroleum to the West are needed. Existing Near Eastern pipelines and the Suez have a capability of moving an estimated 3 million b/d against petroleum requirements of Western Europe and North America (East Coast) which are expected to rise to 5.9 million b/d by 1965.

b. Arguments in favor of Metline:

(1) Additional transport facilities in more secure areas are desirable.

(a) Existing arteries, except for the route around the Cape of Good Hope lie entirely within control of Arab states. As a result they will continue to be exploited by the Arab nationalists particularly in the transit states to obtain support from the West for their aspirations, in regard to Israel and other matters.

(b) Dependence of Egypt on the Soviets and Syria’s domination by leftist forces makes it wise for the West to diminish reliance on the Suez Canal and existing pipeline facilities by the construction of facilities not transiting these countries.

(2) Since the major trunk lines of the new system would be within the territory of Baghdad Pact states the project would serve to strengthen ties between Pact members (Turkey, Iraq and Iran) and [who] enjoy the security of the Pact,

(3) Iraq would particularly benefit economically by an alternative means of moving petroleum from its Kirkuk field which is now virtually isolated.

(4) The proposed pipeline is cheaper than equivalent tankers, requires less steel and is more profitable. No government financial aid is required. While supertankers offer greater security than pipelines, to construct them in significant numbers by the mid-60’s would be very costly and require a crash program.

(5) Even if a pipeline system capable of moving 1.4 million b/d were built, approximately 4.5 million b/d of Western requirements would still have to be handled in 1965 by tankers via Suez or pipelines situated in the Arab states (less perhaps 0.1 million moving by supertanker via the Cape to North America and Europe). If Metline is not built Western dependence on the Suez Canal and existing pipelines would be even greater.

c. Arguments against Metline:

(1) The proposed pipeline system is a fixed installation which can be easily sabotaged in case of serious trouble in the area. It is susceptible to stoppage in case of disputes over transit rights, labor considerations and other difficulties with local governments. Each state crossed beyond the producing area represents a potential obstacle to the delivery of the petroleum which it carries.

(2) Tankers would provide greater security than Metline for the movement of Middle East petroleum to the West. The security interests of the U.S. might be better protected through expanded tanker construction. Tankers are flexible, they can be used from any point in the Persian Gulf either via the Canal or via the Cape of Good Hope or shifted to the Western Hemisphere or other sources of production. They have a war time security value which a pipeline would not have. Construction of Metline or any other pipelines in the area would reduce tanker construction.

(3) The possibility that Arab states may actively oppose a pipeline route through non-Arab lands creates a degree of political risk for Western interests in the area. Moreover, Arab, opposition is likely to be intensified by an attempt to negotiate a comprehensive treaty which impinges upon their concept of sovereign rights.

(4) Arab pressures in and upon Iraq oppose the project and may result in political instability within that country with unfavorable political developments for the West or in renewed isolation of Iraq in the Arab world.

5. Conclusions:

a. New transport facilities, e.g., Metline and supertankers, to supplement those presently in existence are required to move Middle East oil to the West.

b. A greatly accelerated supertanker construction program would provide the most secure oil transport facility and thus would serve the national security better than other alternatives. However, any significant rapid increase in supertankers would require a costly crash program.

c. The Metline project while somewhat less secure than super tankers, is also in the national interest since it would provide a means of lessening dependence on the Canal and existing pipeline facilities. It should not be viewed as lessening the need for other measures such as (1) emergency petroleum stockpiling in Western Europe, (2) a steady expansion in the construction of super tankers, and (3) development and expansion of alternative production facilities in more secure areas.

1. Source: Department of State, S/P–NSC Files: Lot 61 D 167, Middle East Petroleum Pipeline System, Construction of; NSC 5722. Secret. This memorandum and the attached background paper were circulated to the NSC Planning Board on August 5 under cover of a memorandum from Marion W. Boggs. After Planning Board discussion of the subject and preparation by appropriate agencies of any additional studies desired by the Planning Board, the Department of State was to prepare a draft statement of policy as the basis for a report to the NSC.
2. Printed from a copy that bears this typed signature.
3. Secret.
4. Not printed.
5. These estimates on completion dates appear optimistic, since actual construction work could not commence until after concession and treaty arrangements had been concluded. The companies are also planning on 38"/40" pipe which is not likely to be available in large commercial quantities until 1960. [Footnote in the source text.]
5. These estimates on completion dates appear optimistic, since actual construction work could not commence until after concession and treaty arrangements had been concluded. The companies are also planning on 38"/40" pipe which is not likely to be available in large commercial quantities until 1960. [Footnote in the source text.]
6. These cost estimates were made by the international petroleum companies sometime prior to the recent $6 a ton rise in the price of steel. [Footnote in the source text.]
6. These cost estimates were made by the international petroleum companies sometime prior to the recent $6 a ton rise in the price of steel. [Footnote in the source text.]
7. Not printed.
8. The organizational measures would include increasing (1) the number of vessels forming a convoy (to 15 or 20 for each of four convoys or even to 30 to 40 vessels for each of two convoys) and (2) the speed limit of 7 knots. Larger convoys would be made possible by decreasing the spacing between ships. [Footnote in the source text.]
9. This assumes more rapid completion of the program than envisaged by the Suez Canal Company which estimated completion by 1968. [Footnote in the source text.]
10. Normally, no more than 15 to 20 giant tankers could be expected to use the Cape of Good Hope route by 1965 unless Canal tolls were raised substantially. These would have an aggregate carrying capacity of about 100,000 b/d. [Footnote in the source text.]
11. Table 2 is not printed.