The Secretary of State to Admiral William D. Leahy

My Dear Admiral Leahy: I refer to my letter of November 13, 1943 to Secretary Ickes setting forth the policy which this Department believes should be followed in regard to refinery facilities in the Persian Gulf area. Copies of this letter which have been sent to the Secretaries of War and Navy and to the Secretary of the Joint Chiefs of Staff undoubtedly have been brought to your attention.

However, I should like to restate for the information of the Joint Chiefs of Staff the essence of the policy embodied in that letter, which is, that to the fullest possible extent consistent with military requirements, determination as to any future new refinery facilities or expansion of such facilities in the Middle Eastern area should be based on whether such facilities (a) would be controlled by American interests, (b) would utilize American-held oil and thus assist the full development of that oil, and (c) would result in operation in direct benefit to the country in which the oil is produced.

From the long-range viewpoint of the protection of American interests abroad, which normally is the responsibility of the Department of State, it is believed that oil concessions held by American interests in the Middle Eastern area can be assured best to those American interests by the full development of the oil resources accompanied by [Page 951] increasing benefits to the countries in which the resources lie. The inadequate development of American-owned oil concessions in the Middle East would endanger the continuance of those concessions in American hands. Thus for the direct protection of American interests in the Middle East it is believed that wherever possible and consistent with military requirements, refining facilities in that area should be so planned as to use oil produced by American companies in the Middle East and, where possible, should be located in the country of production as envisaged by (c) of the foregoing paragraph.

Accordingly, it is strongly hoped that the Department’s expression of policy as outlined in the Department’s letter of November 13, 1943, and as elaborated here, will be taken fully into account in reaching any future decision to construct facilities in the Middle Eastern area, such as the decision contemplated in the letter of November 18, 1943 from the Joint Chiefs of Staff to the Petroleum Administrator for War.

In general regard to this subject and with particular reference to the specific exclusion, in the above-mentioned letter of November 18, 1943 of Saudi Arabia from consideration as a possible location for the proposed facilities, the Department strongly believes that it might be most disadvantageous to our long-range position in the Middle Eastern area for any country where American interests are so vitally concerned to be thus excluded from consideration in a matter of this nature unless that action is clearly based on military necessity. Although the latter may be the case, the Department is not aware that that is so. As you know, the concessions in Saudi Arabia and Bahrein are owned wholly by American interests; the concession in Kuwait is owned 50% by American interests. American interests have a 23¾% share in the concessions in Iraq, Qatar and Trucial Oman, but the Iraq Petroleum Company holding these concessions is British controlled.

On the other hand, as indicated in the Department’s letter of November 13, 1943, concern is felt regarding the strong pressure for the construction of refinery facilities in Bombay. While the refinery would be owned by American interests, it would be located in a territory of a nation which competes with American interests in the field of international oil and which has in effect placed restrictions on the production and marketing of American-held oil, including the marketing in India of American produced oil. Also the location of the refinery would not be such that benefits from its operation would accrue to an area where American oil producing interests lie. Moreover, it is questionable that its operation would assist the development of American-controlled oil since the refinery would be free to draw upon foreign-controlled oil. Accordingly, it is seriously [Page 952] doubted that the construction of the proposed refinery at Bombay would be in line with the above-mentioned policy objectives. In addition, it is understood that Bombay as a location has economic disadvantages.

It should be made clear that the Department is not objecting to the construction by American interests of a refinery at Bombay, but is of the opinion that since materials are not available for all facilities that might be desired, those best in accord with over-all American interests in the Middle Eastern area should be given priority to the maximum extent compatible with direct war needs.

Sincerely yours,

Cordell Hull