Foreign Relations of the United States, 1958–1960, Foreign Economic Policy, Volume IV

309. Memorandum of Discussion at the 460th Meeting of the National Security Council⁰

September 21, 1960.

[Here follows a paragraph listing the participants at the meeting.]

1. Western European Dependence on Middle East Petroleum (NSC Action No. 2080;¹ Memos for NSC from Executive Secretary, same subject, dated March 26, 1959,² and June 28, 1960;³ NSC 6011;⁴ Memos for NSC, same subject, dated August 9 and 29, and September 19, 1960⁵)

Mr. Gray introduced the subject to the Council. (A copy of Mr. Gray’s Briefing Note is filed in the Minutes of the Meeting and another copy is attached to this Memorandum.)⁶

At the conclusion of Mr. Gray’s presentation, the President said he had received the most glowing reports on the prospects for petroleum production in Libya. He had been told that the Libyan reserves exceeded even the Sahara reserves. He asked whether Mr. Gray had available an estimate of possible oil production in Libya. Mr. Dulles remarked that the latest estimates on Libyan oil production were not quite as optimistic as the estimates which were current a year ago. The President said reports he had received indicated that Libya had a great oil field and would receive huge amounts of money from oil production.

Mr. Gray said the Libyan oil field was expected to produce 250,000 barrels per day in 1965 compared to a production of 375,000 barrels per day in Mexico, 250,000 in Brazil, 450,000 in Tunisia, and 3,350,000 in Venezuela. The President asked whether figures for Algeria were available. Mr. Gray said Algeria was expected to produce 560,000 barrels per day in 1965.

Secretary Mueller said he had recently been in Libya and had talked with oil experts in that country. In his view, the Libyan oil field had reserves in excess of present estimates. Mr. Randall said he leaned toward Mr. Dulles’ estimate rather than toward the estimate just mentioned by the Secretary of Commerce. He had recently talked with oil experts at our Embassy in Libya and had concluded that the Libyan oil field had substantial but not tremendous reserves. He remarked that the oil companies operating in Libya were being required to make a selection of the acreage they would exploit and to release the remaining acreage for redevelopment by other companies. Secretary Mueller thought this last requirement was responsible for pessimistic reports on Libyan oil reserves. Secretary Dillon agreed, adding that the oil companies were pushing ahead with production in Algeria but were holding back in Libya.

Mr. Gray then reported on the formation last week of the new Organization of Petroleum Exporting Countries, with Saudi Arabia, Iraq, Iran, Kuwait, and Venezuela as members. The purpose of the Organization was to control production and prices. What impact it will have on the world oil picture remains to be seen. The President said that as far as the Middle Eastern countries in the new Organization were concerned, anyone could break up the Organization by offering five cents more per barrel for the oil of one of the countries. Mr. Dulles said that the five countries represented 80 per cent of the oil reserves in the world and half of the oil in world trade. Egypt had not been invited to be a member of this Organization because it was thought Egypt would not collaborate with Iran due to Iranian-Egyptian tension over Israel. The President said he thought Egypt had no oil in any case. Mr. Dulles agreed that Egypt had very little oil; however, the country was interested in oil questions because of the Syrian pipelines. He said that Venezuela intended to seek Soviet cooperation with the OPEC, taking the line that Soviet price cuts will hurt the underdeveloped countries. Secretary Dillon thought this Venezuelan initiative would be helpful. It had been demonstrated in the past that the USSR was responsive to protests from underdeveloped countries.

The National Security Council:⁷

a. Noted and discussed the progress report on the subject transmitted by the reference memorandum of June 28, 1960, together with the accompanying letter from the Director, Office of Civil and Defense Mobilization, and the views of the Treasury Department on the progress report, transmitted by the reference memorandum of August 9, 1960; in the light of the views of the Joint Chiefs of Staff, transmitted by the reference memorandum of September 19, 1960.

b. Reaffirmed NSC Action No. 2080–b.

c. Agreed that where appropriate the United States should continue and, if necessary, increase efforts with foreign governments to encourage investment of private capital for petroleum development which would assist in achieving the objectives of NSC Action No. 2080–b.

d. Agreed, in the light of progress already achieved toward the objectives of NSC Action No. 2080–b, to rescind the Note to NSC Action No. 2080, with the understanding that any Council member may request a progress report should circumstances change.

Note: The actions in b, c and d above, as approved by the President, subsequently referred to the Director, OCDM, to coordinate the implementation thereof in collaboration with the Departments of State, Defense, the Treasury, the Interior, and Commerce.

The action in d above, as approved by the President, subsequently transmitted to all holders of NSC Action No. 2080.

2. Petroleum Development in Free World Countries (NSC 5906/1, paragraphs 42, 43 and 45;⁸ Memos for NSC, same subject, dated August 29⁹ and September 19, 1960¹⁰)

Mr. Gray presented this subject to the Council. (A copy of Mr. Gray’s Briefing Note is filed in the Minutes of the Meeting and another is attached to this Memorandum.)¹¹

Secretary Anderson said the real concern in recent years was not the amount of oil Europe imports from the Middle East as compared with the amount it imports from the U.S. The question was whether relations between the Middle East and Europe were of such a nature that it would be reasonable to permit Europe to depend on Middle Eastern oil. One element in the situation in recent years had been Middle Eastern antipathy toward the U.K., a condition which was improving. At one time the Middle East was in a strategic bargaining position vis-à-vis Europe but this position had been lost because of the glut in the world oil market, as evidenced by formation of the Organization just mentioned by Mr. Gray. In Mr. Anderson’s view the North African oil reserves were tremendous. The U.S. companies quite properly were not encouraging Libya to assume that Libya’s enormous resources ought to be developed immediately because such development would only add to the excess supply of oil in the world market. The oil companies were not exercising any deception but were simply not advising Libya to proceed with oil development. The oil reserves in North Africa, however, are larger than the oil companies have given the North African governments to understand. Moreover, the greatest natural gas reservoir in the world lies under the Sahara. Secretary Anderson thought that a policy providing for the supply of U.S. taxpayers’ dollars to other governments to enable them to develop their oil resources made little sense. He said there was no written policy precluding provision of U.S. assistance for petroleum development abroad. However, the National Advisory Council had had this matter under consideration for many years. If the practice of this government in refusing to provide assistance for petroleum development abroad is changed, Mexico will be the first applicant for assistance. Secretary Anderson noted that the Mexican Government would not run the risk of financial assistance for oil exploration. At present, the Mexican oil industry secures capital by selling oil below the world market price and uses the capital, not for oil exploration, but for governmental purposes. In the case of Bolivia, which received U.S. assistance for petroleum development as an exception to the general practice, four or five months had been required by this government to devise a system under which we would make no direct loan to the Bolivian oil agencies but would instead provide the loan to other agencies of the Bolivian government.

Continuing, Secretary Anderson noted that our lending policy involved a number of unwritten rules; for example, money is not loaned by the Export-Import Bank for the operation of newspapers because of the propaganda possibilities of newspapers. A change in this policy had been considered and rejected. Similarly, money cannot be loaned for the construction of TV facilities; until recently money could not be loaned for the construction of hotels. Secretary Anderson thought that plenty of private capital was available for petroleum development in any country which would favorably receive such private capital. Accordingly, he did not believe U.S. Government money should be used for petroleum development, especially when such use would assist in building socialism. A somewhat different problem was presented by pipelines and refineries. He thought it would be a mistake to encourage pipeline and refinery development in areas which already had plenty of these facilities but pipelines and refineries might be encouraged in areas or countries which did not yet have them. Secretary Anderson believed that U.S. lending policy was very important and that such policy should be debated and determined in the National Advisory Council.

Mr. Gray said he seemed to remember a recent case in which the Soviets had been able to move into a country and take over the transportation and distribution of oil. Secretary Dillon said Mr. Gray was probably thinking of Ethiopia. Mr. Gray said there were those who thought that government financial or other assistance for petroleum development, as provided for in the draft action, constituted the only means of countering Soviet activities which threaten to take over the oil facilities of a country.

The President said we could talk about general policy of letting a country help itself economically but in a cold war skirmish different considerations, that is, national security considerations, might govern. Our decisions might have to be determined in some cases by the political situation. Secretary Anderson felt that any such decision should be made on a case-by-case basis.

Secretary Dillon expressed concern that no action should be taken to strengthen the idea that there is a policy against any assistance of any sort for petroleum development in the Free World, no matter what the situation is in a particular case. He pointed out that we did give assistance to Bolivia for petroleum development. In Bolivia both a Bolivian nationalized oil company and various private U.S. oil companies were operating. The Bolivian national company was about to go bankrupt, in which case the Bolivian Government would have taken action against the U.S. oil companies. Mr. Dillon thought freedom of action should be maintained for this government to act on a case-by-case basis, especially with respect to pipelines and refineries, although not with respect to exploration, which he characterized as a bottomless pit. In Ethiopia the U.S. lost out to the Soviet Union in the competition for the right to construct a refinery because of the unwritten policy of not providing financial assistance for petroleum development. As a result the USSR will now supply Ethiopia with oil. The Ethiopian case involved only $2-$3 million. We could not provide assistance to U.S. interests in Ethiopia in time to forestall the Soviet activities because no agreement could be reached in this government. Secretary Dillon thought this government should have freedom of action in cases of this kind.

The President felt that problems of this nature should be settled on a case-by-case basis. He believed the National Advisory Council should re-examine the problem. Whenever the international political situation demands that we provide financial assistance, then we should do so whether the commodity involved is oil, diamonds, or what have you. Mr. Patterson said the purpose of the draft action on this subject was to permit financial assistance for petroleum development to be provided on a case-by-case basis. He noted that nine countries were receiving some Soviet assistance.

The President said that assistance should not be provided for oil exploration; if the countries involved would not finance their own exploration, he saw no reason why we should do so.

Secretary Anderson believed the problems connected with financial assistance for petroleum development should be decided in the National Advisory Council, which would take into account political considerations. The President said that political considerations may be overriding in any particular case. Secretary Anderson believed it would be a mistake to write out all the rules associated with lending policy. Overriding political considerations could be brought up by any agency in the National Advisory Council and taken into account by that body.

Mr. Patterson inquired about taking into account overriding national security interests. He said the National Security Council had an interest in this problem. Secretary Mueller said he was inclined to agree with the comments made by the Secretary of the Treasury, despite the fact that the Commerce representative on the Planning Board had agreed to the draft action. Mr. Patterson asked whether the Bolivian deal had opened the door for financial assistance for petroleum development. Secretary Anderson said the Bolivian deal had opened the door a crack.

Secretary Dillon pointed out that the Export-Import Bank refuses to finance a U.S. driller who wishes to drill for oil in Argentina. The big oil companies are able to finance themselves but this driller requires outside assistance. The President thought it might be satisfactory to finance drilling equipment but not drilling operations.

Secretary Dillon wondered whether those who had suggested settling this problem on a case-by-case basis meant that every single case must come before the National Security Council. He could not endorse such a procedure because he felt many of the cases were not of sufficient importance to engage the time of the Council. He believed the matter ought to be settled on the basis of a broad policy laid down by the Council. Secretary Anderson said he was reluctant to see the National Security Council adopt rules for financing. Secretary Mueller feared that a policy of the kind reflected in the draft action might make it possible for a loan to be made where circumstances might make a loan undesirable. Secretary Dillon pointed out that financing could not be provided unless it was in the national interest to do so. Secretary Anderson said that if he were a businessman, he would work hard to get his own interest defined as part of the national interest. Secretary Gates was inclined to agree with Secretary Anderson’s comments, although his Planning Board representative had also agreed to the draft action.

The President suggested that Secretary Dillon and Secretary Anderson should collaborate in preparing a policy on this subject in general language so that individual cases could be decided by the proper authority on the basis of the general policy. This general policy should effect a reconciliation of the view that national security considerations should be taken into account and the view of those who emphasize financial considerations. The President added that each individual case should be submitted to him for decision, even though the amounts of money involved may be small.

The National Security Council:¹²

a. Discussed the draft NSC Action on the subject prepared by the NSC Planning Board and transmitted by the reference memorandum of August 29, 1960; in the light of the views of the Joint Chiefs of Staff, transmitted by the reference memorandum of September 19, 1960.

b. Noted the statement of the Secretary of the Treasury that the National Advisory Council on International Financial and Monetary Problems, in its coordination of U.S. lending policy, considers the financing of projects in the petroleum industry under the same basic principles as it considers the financing of projects in other industries and that in accord with its general lending policies the U.S. Government has not provided significant financing for petroleum development projects because: (1) the United States has not generally financed any development enterprises abroad where private capital is ready, willing and able to do the job; (2) the United States would not participate in financing of projects in any industry with a degree of risk such as is generally involved in petroleum development except in the most unusual circumstances; and (3) the cost of financing major petroleum development would absorb an injustifiable proportion of the funds available for lending. In considering petroleum projects, a difference should be noted between exploration and development on the one hand, and refining and transportation on the other. The problem involved in financing the latter category is not as great as the former.

c. Noted also the statement by the Acting Secretary of State that, notwithstanding the above considerations, it might become advisable in specific instances involving serious national security and overriding foreign policy considerations to provide direct U.S. Government financing of petroleum projects (other than exploration and development) and that such financing should not be precluded by U.S. policies.

d. Noted the view of the President that the National Advisory Council should continue to consider any specific proposals for U.S. Government financing of petroleum projects overseas (other than exploration and development) in accordance with its general lending policy and its normal procedures which take into account national security considerations, subject to determination by the President in any case where the Department of State believes that overriding national security and foreign policy considerations are involved, and the NAC is unable to reach agreement.

Note: The above action, as approved by the President, subsequently transmitted to the Secretaries of State and the Treasury for appropriate implementation.

[Here follow agenda items 3–6. For discussion of item 3, see Document 350.]

Marion W. Boggs

Attachment 1

¹³

Briefing Note Prepared for the President’s Special Assistant for National Security Affairs (Gray)

WESTERN EUROPEAN DEPENDENCE ON MIDDLE EAST OIL

In May of 1959 the Council discussed an interagency study on the feasibility of using other sources of petroleum and additional transit facilities (taking into account available information as to other sources of energy) as a means of reducing the dependence of Western Europe on Middle East petroleum and on existing transit facilities. At that time NSC Action No. 2080–b was approved, which reads as follows:

“Agreed that, in order to retard Western Europe’s increasing dependence on Middle East oil and to reduce the effects on Western Europe of an emergency created by any complete or partial denial of Middle East oil resources, the United States should continue to encourage such action as is economically and politically feasible to facilitate the orderly development of alternative Free World sources of oil and other forms of energy outside the Middle East, and the broad diversification of means of transporting fuel in the Free World. The United States should also urge Western European countries to increase their petroleum stockpiles and to have in readiness emergency plans for conservation, sharing and transportation of oil.”

This action was referred to the Director, OCDM, for appropriate implementation in the light of the interagency study and in collaboration with the Departments of State, Defense, Treasury, Interior and Commerce, progress reports on such implementation to be submitted to the Council annually.

Today we have the first such annual progress report. The Planning Board has discussed it and has prepared a draft Council action.

But before discussing the draft action, I would like to summarize for you what the report says. It first analyzes the changes during the last fifteen months in the outlook for Western Europe’s 1965 normal oil situation. Estimated Western European demand for oil is up; estimated supply from Libya and Algeria is up; estimated supply from the Soviet Bloc is up; supply from the Western Hemisphere is down; and a tanker surplus instead of a tanker balance is projected. These changes result in approximately the same 1965 barrels-per-day Western European reliance on Middle Eastern oil as was estimated in the 1959 study, but, because of the greater demand, relatively less reliance under normal conditions. In Middle East emergencies, however, Western Europe’s position would be worse in two out of three cases than previously estimated,¹⁴ primarily because of the substantial upward revision in the estimated 1965 demand of Western Europe and the rest of the Eastern Hemisphere. The foregoing is a statistical analysis which admittedly does not take certain factors into account. The Planning Board concluded that on balance this situation has improved in the last year and a half.

The report also deals with U.S. Government actions which have affected the picture. As a means of determining certain possible alternative new or additional sources of oil outside the Middle East, the situation was reviewed in eleven countries. Action was taken to provide U.S. financial help to the Bolivian Government oil agency and to conduct a U.S.-financed study of that organization. Investigations are being made with chemical explosives to obtain data on which to base the design of a possible nuclear experiment looking toward recovering oil from oil shales. Finally, the U.S. has, in the OEEC supported emergency organization planning, encouraged standby planning for rationing and conservation of supplies, and pointed out that unconventional facilities, such as salt cavities and obsolete tankers, may provide a relatively inexpensive form of emergency oil storage.

Turning now to the draft Council action recommended unanimously by the Planning Board, paragraphs b and c follow the recommendations of the interagency report.

READ b and c.

Paragraph d would rescind the reporting requirement established by the Note to Action 2080, with the understanding that any Council member may request a progress report should circumstances change.

Is there any objection to this draft action? Because OCDM chaired the committee which wrote the progress report, I’d like to call on Governor Hoegh first.

CALL ON

Governor Hoegh

Others

Attachment 2

¹⁵

Briefing Note Prepared for the President’s Special Assistant for National Security Affairs (Gray)

PETROLEUM DEVELOPMENT IN FREE WORLD COUNTRIES

In the course of preparing the progress report on Western European Dependence on Middle East Petroleum which we have just discussed, the interagency committee formulated a split recommendation on U.S. government aid for petroleum development. Inasmuch as the question was broader than the Western European Dependence problem, the Planning Board decided that recommendation on it should be developed as a separate draft Council action.

The discussion in the interagency committee arose out of the belief on the part of some agencies that there is an unwritten policy which precludes provision of U.S. assistance for petroleum development abroad. The question of whether there is or is not such a policy was the subject of long and inconclusive debates in the Planning Board and the Board Assistants. The real situation seems to be that while there is no written policy on the matter which any one can point to, as a matter of practice the U.S. Government has almost never provided assistance for this purpose (Bolivia being the only exception), not on the grounds that some written policy proscribes it, but on the basis of such practical considerations as (a) the fact that such investment is very risky and a questionable use, on purely economic grounds, of limited foreign assistance funds; (b) the probable U.S. domestic political reaction to such aid; and (c) the fact that private investment has generally done an adequate job in this field.

The draft action before you is recommended by a majority of the Planning Board, including representatives of Interior and Commerce, who believe that the U.S. should, if required for national security in a particular case, be prepared to provide governmental assistance for petroleum development. One kind of situation which the majority has in mind is where U.S. government assistance seems to be the only alternative to Soviet aid. Treasury and Budget dissent, proposing deletion of the entire action.

CALL ON

• Secretary Herter
• Secretary Anderson
• Secretary Gates
• Mr. Stans
• Secretary Seaton
• Secretary Mueller
• Governor Hoegh

0. Source: Eisenhower Library, Whitman File, NSC Records. Top Secret. Drafted by Boggs on September 21.
1. See footnote 9, Document 298.
2. In this memorandum, Lay transmitted Document 295.
3. In this memorandum, Lay transmitted the first annual progress report by the OCDM on developments in Free World energy resources outside the Near and Middle East. Gray summarized this report in his briefing note for use at this NSC meeting; see Attachment 1 below.
4. NSC 6011, “U.S. Policy Towards the Near East,” July 19, 1960. (Department of State, S/S–NSC Files: Lot 63 D 351, NSC 6011) It is scheduled for publication in volume XII.
5. These memoranda transmitted the draft NSC action as approved at this meeting (No. 2303) and the views of the Joint Chiefs of Staff and the Treasury on it. (Department of State, S/P–NSC Files: Lot 62 D 1, Middle East Petroleum, Western European Dependence on, Act. 2080)
6. See Attachment 1 below.
7. Paragraphs a-d and the note that follows constitute NSC Action No. 2302, approved by the President on October 5. (Department of State, S/S–NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council)
8. NSC 5906/1, “Basic National Security Policy,” August 5. (Ibid., S/S–NSC Files: Lot 63 D 351, NSC 5906) It is scheduled for publication in volume III.

9. In the memorandum of August 29, Boggs transmitted a draft NSC action, prepared by the Planning Board, which reads as follows:

   “Agreed that the United States should continue to rely primarily upon private capital (foreign and domestic) to develop the petroleum resources of the Free World; but agreed that in the national security interest, the United States may provide, on a case-by-case basis, direct government financial and other assistance but only when private capital is inadequate, unavailable or unacceptable.”

   A note on this memorandum indicated that Treasury and the Bureau of the Budget proposed deletion of the entire action. (Department of State, S/P–NSC Files: Lot 62 D 1, NSC 5810 & 5906)

10. In this memorandum, Lay transmitted the views of the Joint Chiefs of Staff on the draft NSC action. In a memorandum of September 14, the JCS recommended that the Secretary of Defense support it. (Ibid.)
11. See Attachment 2 below.
12. Paragraphs a-d and the Note that follows constitute NSC Action No. 2303, approved by the President on October 5. (Department of State, S/S–NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council)
13. Secret. Drafted on September 13 by George Weber of the NSC Staff.
14. Reference is to the three hypothetical cases discussed in Document 295. The first was a Middle East transit stoppage in which the Suez Canal and the piplelines to the Eastern Mediterranean were closed down, the second was the transit stoppage in case one plus denial of all Middle East oil sources, the third case envisioned the transit stoppage and denial of all Middle East sources except Iran.
15. Secret. Drafted on September 20 by George Weber.