Papers Relating to the Foreign Relations of the United States, 1921, Volume II

800.6363/229: Telegram

The Ambassador in Great Britain (Davis) to the Secretary of State

London, March 1, 1921—5 p.m.
[Received March 2—2 p.m.¹⁴]

160. Your telegram 1168, November 20th, 1920¹⁵ and instruction 1040, November 23d, 1920.¹⁶ Following note dated February 28th, 1921 received today:^16a

“1. I have the honor to acknowledge the receipt of Your Excellency’s note of the 6th of December enclosing a communication dated the 20th of November from the Secretary of State of the United States¹⁷ relative to the application in territories placed under mandate of the principles of equality of treatment and opportunity and referring more especially to the petroleum resources found in the Near East. His Majesty’s Government are pleased to observe that the United States Government appreciate the general policy adopted by His Majesty’s Government in territories under military occupation. I notice, however, that Mr. Colby makes certain observations with regard to the San Remo Petroleum Agreement¹⁸ which appear to indicate that the scope of that agreement is not fully understood.

2. The cooperation of British and French interests in regard to oil production in various countries was first suggested in the early part of the year 1919 by the French Government, when it was proposed that some arrangement should be arrived at whereby French interests might be given some participation in the production of petroleum in various regions. The proposal put forward by the French Government was carefully considered, and it was found possible to come to an agreement based on the principles of mutual cooperation and reciprocity in various countries, especially where British and French interests were already considerable and on the whole greater than those of other Allied countries. The agreement aimed at no monopoly or exclusive rights and could only become effective if its application conformed to the desires and laws of the countries concerned.

3. As regards the provisions in the agreement relating to Mesopotamia, I desire to make it plain that the whole of the oil fields to which those provisions refer are the subject of a concession granted before the war by the Turkish Government to the Turkish Petroleum Company. The position of such concessions in territories detached from Turkey is expressly safeguarded by articles 311 and 312 of the Treaty of Sèvres. The history of this concession is as follows:

Prior to the war the position in regard to the Mesopotamian oil fields was as follows:

The concessions for all the oil fields [of] the two vilayets (provinces) of Mosul and Bagdad, were bestowed by the ex-Sultan Abdul Hamid on his Civil List in 1888 and 1898 respectively, and private enterprise had long been debarred thereby from acquiring any oil rights in those particular districts. This situation was so far admitted and recognized that in 1904 the Anatolian Railway Company, nominally a Turkish company but in reality a German concern, obtained a contract from the Civil List by which the company undertook to carry out preliminary surveys of the oil fields and secured the option for their development on joint account.

4. The Civil List in 1906, considering the agreement with the Anatolian Company at an end, entered into negotiations with a British group with a view to the development of the oil fields. These negotiations, which had the full support of His Majesty’s Ambassador at Constantinople, continued during the year 1907. They were suspended during the political crisis which broke out in 1908 but were resumed in 1909 with the Turkish Ministry of Finance, to which Department the Mesopotamian oil concession had been transferred from the Civil List, by firmans issued in 1908 and 1909. The general upheaval caused by the events [in] those years impeded the progress of the negotiations during the years 1910 and 1911.

5. In 1912 endeavors were made by German interests to obtain the confirmation by the Turkish Government of the arrangements concluded in 1904 between the Anatolian Railway Company and the Sultan’s Civil List, and, with the apparent object of pursuing the matter and of widening the scope of their activity in oil operations in other parts of the Turkish Empire, they formed a British limited liability company called the Turkish Petroleum Company, Limited, the capital of which was partly British and partly German.

6. This development was succeeded by [a] series of negotiations entered into between the British group and members of the Turkish Petroleum Company for the amalgamation of the rival interests and for pursuing jointly the application before the Turkish Government for the granting [of] a concession for the Mesopotamian oil concession [fields]. These negotiations, in which the British and German Governments took an active interest, terminated in the early part of 1914, when an agreement was reached for the fusion of the interests of the original Turkish Petroleum Company and of the original British group in the new Turkish Petroleum Company. This agreement was signed not only by the parties immediately interested but also on behalf of the British and German Governments respectively. The German share in this new company was fixed at 25 percent.

7. In consequence of this arrangement, His Majesty’s Ambassador at Constantinople was able to make the necessary representations to the Turkish Government for the grant to the Turkish Petroleum Company of oil concessions in [the] vilayets of Mosul and Bagdad, while representations of the same nature were made simultaneously to the Porte by the German Ambassador. The negotiation between His Majesty’s Government and the Turkish Government was not confined to the question of the Turkish Petroleum Company but covered a wide field and involved mutual concessions of very material importance. As a result the Turkish Government on the 28th June, 1914, through the Grand Vizier informed His Majesty’s Ambassador in an official communication that the Turkish Ministry of Finance having been substituted for the Civil List in the matter of the petroleum deposits known or to be discovered in [the] vilayets of Mosul and Bagdad had consented to lease the said deposits to the Turkish Petroleum Company, the Ministry reserving the right to fix later on its share in the enterprise as well as the terms of the contract. I should add that during the war the German interests in the company were liquidated and thus came into the hands of His Majesty’s Government.

8. From the facts as narrated it will be seen that the Turkish Petroleum Company’s right to the lease of the oil fields in the two vilayets rests on an official undertaking given by the Turkish Government to the two Governments concerned after prolonged diplomatic negotiations. In the circumstances the oil rights in the vilayets of Bagdad and Mosul cannot be treated merely as a matter of abstract principle or without referring to the special character of the negotiations which preceded the war. Had no war supervened, and had Mesopotamia remained till now under Turkish rule the exploitation of these oil deposits would long since have begun. It can hardly be contended that His Majesty’s Government should now question the validity of [an undertaking granted by the Turkish Government in return for consideration received. And I may add, since the United States] Government will presumably expect His Majesty’s Government to recognize the rights acquired [by] the Standard Oil Company in Palestine from the Turkish Government, that these rights, which are based entirely on the grant of a prospecting license, are no stronger than those of the Turkish Petroleum Company, to whom the Turkish Government had definitely undertaken to transfer a valid and already existing concession.

9. In this connection I feel bound to remind you that the attitude of the United States Government in suggesting that His Majesty’s Government should disregard the rights acquired by the Turkish Petroleum Company is scarcely consistent with that adopted by the United States Government in regard to similar United States interests in oil properties in Mexico. For instance, in his letter of the 25th November, 1920,¹⁹ to Monsieur Pesqueira, the Mexican representative in Washington, Mr. Colby expressed particular satisfaction at the statements made in Monsieur Pesqueira’s letter, then under reply, to the effect that President de la Huerta and President elect Obregon had declared that article 27 of the new Mexican constitution “is not and must not be interpreted as retroactive or violative of valid property rights.”

10. It will be seen from the above facts that the acquisition by the French Government under the San Remo Agreement of an interest in the Mesopotamian oil fields represents the allotment to the French Government of the former German interests in the Turkish Petroleum Company in return for facilities by which Mesopotamian oil will be able to reach the Mediterranean. The agreement so far as it relates to Mesopotamia may therefore be said to be the adaptation of pre-war arrangements to existing conditions, and in this respect His Majesty’s Government far from acting in any selfish or monopolistic spirit, may reasonably claim to have sought [consulted] the best interests of the future Arab state. Neither the rights of the Turkish Petroleum Company nor the provisions of the San Remo Oil Agreement will preclude the Arab state from enjoying the full benefit of ownership or from prescribing the conditions on which the oil fields shall be developed.

11. I have not failed to observe [the] large amount of public attention directed to the reported resources of Mesopotamia, which, Mr. Colby states, furnish a peculiarly critical test of the good faith of the nations which have given their adherence to the mandate principle. Apart from the fact that these resources are as yet entirely unproved, I can discern nothing in this principle which compels the mandatory power to discriminate against its own nationals, who, after years of arduous negotiation, secured certain rights and would but for the war have long since been actively at work, in order to afford an equal opportunity to other groups which before the war were not actively concerned in the petroleum resources of Mesopotamia.

12. I have noted with interest the allusions which Mr. Colby makes to the estimates which have been framed of the distribution of the petroleum resources of the world. While I agree that such calculations are of subsidiary importance in this discussion, I think it [desirable] that they should be placed in the proper perspective. It is stated in Mr. Colby’s note that the United States possesses only one-twelfth approximately of the world’s petroleum resources but I may be permitted to point out that in 1912 the chief geologist of the United States Geological Survey stated that, “the criteria on which such estimates can be based vary in every degree of inadequacy in the different regions”, and he was then referring to estimates dealing with the United States only and was not taking into account the infinitely more problematical resources of countries still partially or wholly unexplored, from a geological standpoint.

13. My object in referring to this aspect of the question in a previous note was to show that the United States controls a home production of petroleum which, whether it is about to reach its maximum point or not, is actually and potentially vast, while in neighboring countries it possesses a predominant interest in oil-bearing regions of exceptional promise. The United States Government will doubtless agree that this statement of the existing situation admits of no dispute.

14. While the potentialities of the future are necessarily problematical, the undisputed fact remains that at present United States soil produces 70 percent and American interests in adjoining territory control a further 12 percent of the oil production of the world. It is not easy therefore to justify the United States Government’s insistence that American control should now be extended to resources which may be developed in mandated territories, and that too at the expense of the subjects of another state who have obtained a valid concession from the former Government of those territories.

15. His Majesty’s Government are nevertheless glad to find themselves in general agreement with the contention of the United States Government that the world’s oil resources should be thrown open for development without reference to nationality. I observe, however, that by article 1 of the Act of the Philippine Legislature of the 31st of August, 1920, participation in [the] working of all “public lands containing petroleum and other mineral oils and gas” is confined to citizens or corporations of the United States or of the Philippines, and I cannot but regard this enactment as in contradiction with the general principle enunciated by the United States Government. In this connection I observe that Mr. Colby does not attempt to refute the statements contained in my note of 9th August last concerning the action taken by the United States Government to prevent the exploitation by British interests of such resources in Haiti and Costa Rica.²⁰

16. In your note of the 28th July²¹ the attention of His Majesty’s Government was called to the existence of reports to the effect that the officials charged with the administration of Tanganyika Territory have accorded privileges to British nationals that have been denied to the nationals of other countries. It is from no mere love of controversy that I recall this matter to your attention but rather from the conviction that misunderstandings between our two countries over oil questions and indeed our present correspondence are largely due to the spirit engendered by reports of precisely this nature which on dispassionate examination can frequently be found to lack any basis of truth. In the absence of particulars, which the United States Government were requested to furnish, I can only express my regret at being unable to prove positively that the reports quoted by you are based on misapprehension.

I have, et cetera. (Signed) Curzon of Kedleston.”

In this connection see my telegram 159, March 1, 4 p.m.²²

Davis

14. Telegram in three sections.
15. Not printed.
16. Foreign Relations, 1920, vol ii, p. 668.
17. Bracketed corrections supplied in text upon comparison with copy of note later received by mail.
17. Foreign Relations, 1920, vol. ii, p. 669.
18. Ibid., p. 655.
19. Foreign Relations, 1920, vol. iii, p. 195.
20. For the comments by the Secretary of State on the statements regarding Costa Rica in the British note of Aug. 9, see telegram no. 216, Apr. 15, to the Chargé at London, vol. i, p. 651.
21. See telegram no. 785, July 26. 1920, to the Ambassador in Great Britain, Foreign Relations, 1920, vol. ii, p. 658.
22. Not printed.