Memorandum by the Adviser on Political Relations (Murray)40

As you know, over a considerable period of time a number of officers in the Department have been giving consideration to the advisability of initiating discussions with the British covering a range of petroleum [Page 944] problems of mutual interest in the Middle East, with a view to exploring the possibility of reaching an agreement on oil in that area.41

It is believed that any discussions with the British should envisage the orderly development on the basis of sound conservation practices of the vast oil resources of the Persian Gulf area, a substantial part of which are now held jointly by British and American interests, with a view to assuring freely available supplies on equal terms to the United States and all other peaceful nations, and proper benefits to the countries in the area from the development of their resources. With this end in view, the discussions would have to deal with the existing restrictions on exploration, production, and marketing by American interests. (For example, the Socony-Vacuum Oil Company and Standard Oil Company of New Jersey, which hold a 23¾% interest in the British-controlled Iraq Petroleum Company, with important concessions in Iraq, Qatar and Trucial Oman, are prevented by the Red Line Agreement42 from seeking outside the Iraq Petroleum Company additional concessions within a large area. The Gulf Oil Company, which owns jointly with the British-controlled Anglo-Iranian Oil Company the important concessions in Kuwait, cannot [Page 945] market its oil from Kuwait in any market of interest to the Anglo-Iranian Oil Company.) The discussion would also have to deal with the questions of the greater development by the British in their own interest of certain oil fields rather than others, and British political pressure on local governments to further their own ends regarding oil. Finally, in order to remove the reason for these restrictions and practices, a solution would have to be sought to the fundamental problem of the disposition of larger quantities of Middle Eastern oil without disorganizing the markets for that oil.

The solution of these problems appears to be clearly beyond the power of the companies, and there are good indications that the companies, both American and British, would welcome discussions between the two Governments. (It will be recalled that the Anglo-Iranian Oil Company clearly indicated to the Gulf Oil Company that their mutual problems regarding the marketing of Kuwait oil could only be dealt with on an intergovernmental basis.) The oil resources of the area are too important from the long-range as well as from the immediate viewpoint for their development to be permitted to remain subject to existing burdens.

In view of the foregoing, the officers of the Department who have been considering this matter are strongly of the opinion that discussions should be initiated with the British on the subject of oil in the Middle East. Furthermore, it is believed to be highly desirable, for the following reasons, that these discussions be commenced promptly and that they be conducted throughout under the firm direction of the Department. There are indications that the British are utilizing present developments to achieve long-range ends. Thus, for the purpose of providing more British-controlled oil from the Middle East, they are urging projects for the expansion of British facilities in that area which, under the existing materials supply situation, cannot but be at the expense of American interests in the area. Therefore, the airing of all problems, including these pending matters, between us should not be delayed.

Because of the delicate situation in the Near East in general and in particular the effect which actions by this Government in the field of Middle East oil will have upon the governments in the area and hence upon American concessions there, it is imperative that developments in the field of foreign oil policy, which include the protection of vital American interests abroad and is so important a part of broad foreign political and economic policy, should be guided by the Department.

Accordingly, if you approve, it is proposed to advise the interdepartmental Special Committee on Petroleum (headed by this Department and composed of representatives of the War and Navy Departments, the Petroleum Administration for War and the Petroleum [Page 946] Reserves Corporation, and the Tariff Commission), that the Department considers it highly desirable that discussions of Near Eastern oil be initiated with the British.

It is also proposed that you give a note to the British Ambassador suggesting that informal and preliminary conversations be undertaken between the two Governments for the purpose of formulating recommendations to the two Governments for the achievement of cooperation concerning oil in the Middle East. It is suggested that at the same time you orally impress upon him the urgency of this matter.

It is further suggested that a memorandum setting forth the Department’s views concerning the conduct of the discussions should be presented to the President at the earliest practicable date for his approval. It is believed that this memorandum should indicate clearly the reasons for the Department’s guiding the discussions and, while providing for a representative of the Secretary of the Interior and the Petroleum Administrator for War, should establish the representative of the Department as head of the group conducting the discussion for this Government. This procedure, if approved by the President, should ensure that the conversations will be kept under the Department’s guidance.

While discussions with the British should contemplate the possible desirability of concluding a formal agreement embodying a settlement of the problems regarding oil in the Middle East, it is anticipated that such a step would follow, rather than precede, a thorough examination of all problems. On the other hand, it appears advisable that an early preliminary understanding be sought with the British, which at the same time would establish the basis for discussions and provide for an announcement which would allay any fears that other countries might have that an arrangement is in prospect for exclusive control of Middle East oil resources by the two Governments.

Accordingly, it is proposed that we seek at an early stage the agreement of the British to the simultaneous issuance in Washington and London of a press release along the lines of the attached.43

[Here follows a discussion of the proposed press release.]

There is also attached for your consideration a draft note to the British Government44 concerning the initiation of discussions with that Government.

It is suggested that you may wish to consult at an appropriate stage the leaders of Congress in regard to this proposed course of action. Also, since it is believed to be very important that the American oil [Page 947] companies operating in the Near Eastern area be advised (the British Government will undoubtedly consult the Anglo-Iranian Oil Company) and have an opportunity to indicate their views concerning the feasibility of any further possible solutions, those companies should be kept sufficiently informed of our plans in this matter. If you approve, we will take steps to inform the companies at the proper time.

Wallace Murray
  1. Addressed to the Secretary of State and the Under Secretary of State (Stettinius).
  2. Departmental consideration of an international agreement as a method of safeguarding and developing Middle East resources may be traced back at least as far as March 22, 1943, when the State Department Committee on International Petroleum Policy, in a report to the Secretary of State, recommended “the promotion of, and participation in international agreements having to do with the exploitation of oil reserves and their free movement in international commerce” (800.6363/3–2243); this memorandum was in turn forwarded by the Secretary of State to the Secretary of War, the Secretary of the Navy and the Secretary of the Interior, respectively, with letters dated March 31 (811.6363/524a, 524b, 524c). The Minutes of the first meeting of the Special Committee on Petroleum on June 15, 1943, record that the Adviser on International Economic Affairs (Feis) “raised the question of the feasibility of an over-all agreement between the United States and the United Kingdom covering the whole [Middle East] area” (811.6363/6–1543); the Special Committee on Petroleum consisted of representatives of the State, War, and Navy Departments and the Petroleum Administration for War.
  3. For text of the Group (Red Line) Agreement between private American and European oil companies, July 31, 1928, see House of Representatives, Current Antitrust Problems: Hearings before Antitrust Subcommittee of the Committee on the Judiciary, 84th Cong., 1st sess., pt. 2, pp. 1004 ff.; the name is derived from the red line drawn on a map which was included as an attached schedule to the agreement, illustrative of certain restrictive provisions imposed by the companies on themselves in the agreement. The red line delimited a “defined area” from which the companies mutually excluded (with slight qualifications) themselves except as shareholders of the Turkish (Iraq) Petroleum Company; as the area of demarcation included generally all of the old Ottoman Empire except the sheikhdom of Kuwait and Egypt, this self-denying provision in effect confined the operations of the participating companies to the Iraq concession area.

    For correspondence regarding the negotiations leading up to this agreement, extending over several years, and the interest of the United States Government therein, see Foreign Relations, 1922, vol. ii, pp. 333 ff.; ibid., 1923, vol. ii, pp. 240 ff.; ibid., 1924, vol. ii, pp. 222 ff.; ibid., 1925, vol. ii, pp. 239 ff.; ibid., 1926, vol. ii, pp. 362 ff.; and ibid., 1927, vol. ii, pp. 816 ff.; the whole subject of Middle Eastern oil is discussed at length in Senate Committee Print No. 6, The International Petroleum, Cartel: Staff Report to the Federal Trade Commission submitted to the Subcommittee on Monopoly of the Select Committee on Small Business, 82d Cong., 2d sess. (378 pages).

  4. Not printed.
  5. Not found attached; for note sent by the Secretary of State to the British Ambassador on December 2, see infra.