The Minister Resident in Iraq ( Wilson ) to the Secretary of State
[Received February 25—2:23 p.m.]
77. Department’s 47, February 12. In a talk with my British colleague31 last evening I learned that his information is to the effect that arbitration in this case has been decided upon and that Skliros left England around February 19 with power to act as arbitrator on behalf of company interests. Furthermore that the Iraqi Government had appointed the present Minister of Foreign Affairs Abdul Ilah Hafidh to act as arbitrator for them. No referee has yet been decided upon and the Ambassador feels that the company does not wish to submit to arbitration if this can be avoided but Skliros is being put in a position to do so if unable otherwise to reach an agreement.[Page 648]
In view of the above I think it advisable to summarize the memorandum of my conversation with Nuri which formed the enclosure to my despatch No. 187 of February 1732 which left in last week’s pouch. I have not yet had the promised reply to my note delivered to Nuri at that time when I expressed orally considerations embodied in second, third and fourth sections of telegram under reference.
Nuri has definite prejudice on subject. He asserts that he has always felt that Basra area is distinctly different from Mosul and Baghdad vilayet concessions and that he has always hoped to keep Basra as national oil reserve. He never approved of grant of BPC33 concession. However now that concession has been given he opposes any revision which he feels could only result in detriment to Iraq.
He is aware of Skliros’ forthcoming visit but is not acquainted with nature of proposals for revision.
Nuri says that validity of BPC concession can be kept alive by continued payment of 200,000 gold pounds per annum as ground rent plus further payment of like sum to Iraqi Government annually as forfeit for not fulfilling drilling requirements. Force majeure claim is denied by Nuri because drilling operations have been prevented by external causes namely British Government (failing to send certain plans and live up to requirements) and BPC claims should be presented to British Government for compensatory action.
Nuri professes to be perfectly prepared to go to arbitration and says he does not understand why American interests are unwilling.
If settlement by arbitration is not desired Nuri is willing to waive this upon payment to Iraq Government of additional 200,000 pounds annually as above stated as company’s forfeit for not drilling. Nuri feels that company will easily recover this from output of wells when drilling finally begins and in end thinks that the financial loss to the company would be only the amount of 5 percent annual interest on the 200,000 pounds additional. He said same thing was done in Mosul B.O.D. concession in 1930 for 3 years and claimed that he is asking only for same treatment as was given then.
In short, Nuri’s position is that in addition to annual payment of ground rent BPC owes Iraqi Government development of concession area and royalties accruing from such development. If ground rent alone is paid annually concession is perhaps not wholly invalidated but is left undeveloped while other interests are prevented from developing it to Iraq’s advantage.
Nuri agrees with open door policy and competitive enterprise and does not want to tie up resources of Iraq in restricted field. Revision of concession means for him only one thing—an effort by concessionaires to avoid penalties for defaults such as the present. By simple payment of ground rental one concession development could be held up indefinitely. He cannot see that conditions vary much today from what they were when concession was negotiated. End of summary.
For the Department’s very confidential information there seems to be a probability of a Cabinet reshuffle in the near future which without changing the Prime Minister will take Abdul Hah Hafidh, now Minister of Foreign Affairs, to the Portfolio of Finance and the present Minister of Finance34 to the Ministry of Interior which portfolio he once held and asked [Askari]35 either back to Cairo as Minister Plenipotentiary (which is his preference) or given the Portfolio of Foreign Affairs. The above, of course, is only tentative and has not yet been made public.