890G.6363/387: Telegram

The Secretary of State to the Minister Resident in Iraq ( Wilson )27

47. Please present the following, embodied in a formal note, to the Iraqi Government immediately:

“The Near East Development Corporation, an American corporation which participates in the ownership of the Iraq Petroleum Company, has informed the United States Government that the Basrah Petroleum Company, a wholly-owned subsidiary of the IPC, is considered by the Iraq Government to have failed on November 29, 1941, to have carried out certain requirements of its concession relating to development of the Basra area which were necessary to be fulfilled by that date to maintain the concession in force. The American Government is informed that despite the Iraqi Government’s attitude as reported above, the Iraqi authorities nevertheless called on the Basrah Petroleum Company on January 1, 1942, for the payment of 200,000 pounds gold, representing ground rent for the concession covering the calendar year 1942. The Company acceded to the Iraqi Government’s demand, as an act of good faith to demonstrate its readiness to perform any proper act within its power under the terms of the concession.

The American Government is now informed that on January 1, 1943, the Government of Iraq made a further demand on the Basrah Petroleum Company for payment of ground rent covering the calendar year 1943.

It is understood that the company has entered a claim of force majeure as reason for its temporary inability to continue the development of the area, and that the Iraqi Government has denied the validity of this claim.

Regardless of the validity or non-validity of the claim of force majeure, the American Government is of the considered opinion that the action of the Government of Iraq in demanding and accepting payment of ground rent on January 1, 1943 and its action in demanding ground rent on January 1, 1943 are inconsistent with any claim that the concession is void.

In view of the fact that the Iraqi Government’s draft for 200,000 pounds gold, covering alleged ground rent due January 1, 1943, is payable on or before March 31, 1943, the American Government hopes to receive an early assurance from the Government of Iraq that the acceptance of this payment by the latter will constitute recognition that the concession remains valid.

In connection with the American Government’s decision to lend its diplomatic support to the Near East Development Corporation in the present matter, it may be pointed out that the position of this Corporation in the Iraq Petroleum Company is not regarded by the American [Page 646] Government merely as that of a stock holder in a foreign corporation. As the Iraqi Government is aware, the American Government insisted, during the period following the first World War, that in the interest of international comity and in the interest of Iraq, no restrictions should be imposed upon the development of the petroleum resources of Iraq which would tend to limit the participation in that development to the citizens of any particular foreign state or states.28 In other words, the American Government advocated in this matter the principle of equality of opportunity for the citizens of all nations. The American Government concurred in the participation by American interests in the Iraq Petroleum Company on the basis of an agreement that the various foreign interests would be entitled to receive their proportionate share of the oil available to the Iraq Petroleum Company for export, and not merely to a participation in any financial profits which the company might earn. The Iraq Petroleum Company is in the nature of an international partnership, and the American Government’s support of the Near East Development Corporation is predicated on that basis.”

At the time of the presentation of the note, you are requested to present orally to Nuri Pasha29 the following considerations:

The American Government has reached its decision to support the Near East Development Corporation in this matter after most serious study, and with what it believes to be the genuine interests of Iraq prominently in mind. It is our considered view that Iraq’s continued demand for an acceptance of substantial ground rent payments for a concession which Iraq alleges to be void is warranted neither in law nor in equity.

The American Government is frankly disturbed, moreover, by reports that the Government of Iraq may even seek to take advantage of the situation by demanding a very substantial additional cash payment or recoverable loan from the Iraq Petroleum Company at this time, over and above the ground rent, in exchange merely for an agreement by Iraq that the concession remains valid. By the acceptance of ground rent, Iraq has eliminated any further question of the validity of the concession, notwithstanding any disclaimers the Iraqi Government may make at the time of acceptance.

As regards the terms of the Basrah concession, which is a separate and distinct matter from the question of the present validity of the concession, the American Government, on the advice of petroleum and fiscal experts, sincerely believes that it would be in the interests of the Iraqi Government to render the concession commercially competitive with those of certain other concessions in the Near East. It will be financially and economically beneficial to Iraq for the concession to be developed fully. Such development can take place only [Page 647] if the terms of the concession are altered. The American Government has been informed by the Near East Development Corporation that the American interests in the Iraq Petroleum Company are prepared to approve such reasonable payment as the Iraqi Government may consider that it is entitled to receive in exchange for such revision.

The Department regards this matter as both important and urgent. For your own information, the Department understands that Mr. Skliros, Managing Director of the Iraq Petroleum Company, has departed from London en route to Baghdad, to undertake negotiations on behalf of the company. It is particularly important that you make known clearly to Nuri Pasha the position of the American interests regarding the revision of the terms of the concession. It is possible that Mr. Skliros may not be sufficiently impressive in this regard, since some of the participants in the IPC do not have the same urgent interest in the development of the Basra area as the American company.

It is understood that Mr. Skliros will undertake negotiations regarding the Mosul as well as the Basra concessions. The considerations discussed in this telegram pertain with equal force, mutatis mutandis, to the interests of the Near East Development Corporation in Mosul Petroleum, Ltd.30 The continued acceptance by Iraq of ground rent payments by the Mosul Petroleum, Ltd. is likewise regarded as constructive acceptance by Iraq of the continued validity of the Mosul concession.

  1. Repeated to London in Department’s telegram No. 1078, February 17, midnight
  2. For previous correspondence relating to this subject, see Foreign Relations, 1927, vol. ii, pp. 816 ff.
  3. Nuri as-Said, Prime Minister of Iraq.
  4. Successor to the British Oil Development Company, Ltd. (B.O.D.).