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File No. 800.6363/–

The British Ambassador on Special Mission ( Reading) to the Assistant Secretary of State ( Phillips)

No. 550

My Dear Mr. Phillips : In our conversation to-day I brought to your attention a question relating to the supply and transport of petroleum products. It may be convenient to you if I state, as briefly as possible, the facts of the case, so far as they are necessary to explain the political aspect of the matter.

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Discussions have been proceeding for some time in London, between the British Minister of Shipping and Mr. Walter Long’s committee on the one hand and Messrs. Foley and Thomas, representing the American Shipping Board, on the other, as to the scheme to be adopted for the distribution of mineral oil products.

An agreement has been reached on all the main features of an elaborate scheme, which will effect a considerable saving of tonnage. It is very satisfactory to find that the trade interests concerned have come into agreement on all the main points of the scheme, in subordination always to the general interest of the Allies.

There is, however, one point on which a difference of opinion remains. The British scheme contemplates the supply of benzine to southern France and northern Italy from Eastern sources, while Messrs. Foley and Thomas’s scheme supplies these regions from North America. It is admitted that Messrs. Foley and Thomas’s scheme will effect a somewhat larger saving of tonnage than the British proposal. There is a difference of opinion as to the amount of this additional saving, but it may be taken roughly as represented by 14,000 to 23,000 tons of tankers. On the other hand the Eastern benzine, which under the British scheme would go to France and Italy, cannot find any other market and cannot be stored. It would consequently be necessary to destroy it to the extent of about 150,000 tons per annum; and as we are dependent on these Eastern sources for the supply of toluol for Great Britain and France, it would be necessary to pay, in some form, for these 150,000 tons per annum, the probable cost being about £3,000,000 per annum.

This heavy expenditure is quite out of proportion to the saving of tonnage secured, and there are obvious objections to the destruction of large quantities of a valuable product, for which the requirement may increase as the war proceeds.

But apart from this, there are serious political objections to the course proposed. There can be no doubt that the destruction of the benzine (of which five-sixths comes from Dutch sources) would meet with strong objection on the part of the Dutch Government. Even if on financial grounds the Dutch Home Government’s objections to wastage of the benzine could be overcome, it must be remembered that there has been serious difficulty in dealing with the Government of the Dutch East Indies in regard to detentions of tanker steamers. For the smooth working of the revised arrangements for the supply of kerosene to the Eastern markets, which form an important part of the scheme accepted by the American representatives, we need the cordial co-operation of the Dutch Company and of the Dutch Governor-General, and also the free use of tankers under the Dutch flag for the general purposes of the scheme.

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From a general standpoint the British Government feel that it would be impolitic to exercise pressure on the Dutch Government at the present moment, owing to the position between Holland and Germany. This consideration makes it important to avoid anything likely to alienate Dutch feeling, and thereby to give a pretext for the acceptance of German terms.

The schemes are no doubt being considered on their merits and on the technical side by the Shipping Board and the Fuel Oil Administration. The matter is brought to the attention of the State Department at the present stage because of the importance of the political aspect which specially concerns that department. I beg to suggest that it is desirable to communicate with the two departments concerned, in order to secure that due weight is given to the political considerations involved.

Yours sincerely,

Reading