Foreign Relations of the United States: Diplomatic Papers, 1944, The Near East, South Asia, and Africa, The Far East, Volume V

800.6363/1–1744

Memorandum by the Executive Officer of the Army-Navy Petroleum Board (Carter)¹²

[Washington,] January 17, 1944.

Proposal

The Problem

1. To outline a course of action to be adopted in connection with the development of petroleum reserves in the Persian Gulf area in such a manner as properly to safeguard United States interests in those reserves.

Facts Bearing on the Problem

2. Beginning about a year ago some of the U.S. oil companies holding concessions in the Persian Gulf area requested that certain agencies of the U.S. Government consider plans under which the government would become interested directly or indirectly with the companies in the ownership of the petroleum reserves in that area. The purpose of such proposed interest by the government was to assure the security of the oil concessions of the companies involved, thus keeping the exportable portion of the oil available for the U.S.

3. During the course of the past year it has become more and more apparent that known petroleum reserves within the continental limits of the United States, and indeed within the Western Hemisphere, are inadequate to meet over a period of years either the war needs of the United States or the needs of the civil economy of the country once normal conditions are reestablished.

4. The great majority of informed opinion supports the thought that steps should be taken to assure to the United States a backlog of petroleum reserves free from any conditional arrangement with foreign governments other than such agreements as may be necessary with the governments of the states in which such reserves are located.

5. Several of the American oil companies holding concessions in the Persian Gulf area have expressed the belief that failure of the Government to act and to act promptly will result in undermining the position of the interested United States companies and will, in their view, threaten the availability of oil supplies from the Persian Gulf area to the United States.

6. The Petroleum Reserves Corporation was conceived and organized with the idea of assuring to the United States a proper backlog of petroleum reserves along lines indicated in paragraphs two (2) to five (5) above, and with the further idea of representing the U.S. Government in the solution of the problem of the long-term availability of petroleum products by day to day contact of representatives of that agency with the government and with the oil industry. The Petroleum Reserves Corporation entered into certain negotiations¹³ which were not successful. This Corporation has not yet made a clear statement of policy with a view to defeating the organized propaganda having as its objective the discrediting of this organization. Objection to U.S. Government participation in the development of petroleum reserves in the Persian Gulf area has been raised through propaganda against government ownership and participation in any business, and specifically in the oil business, whether within this country or abroad.

7. Meanwhile the British, organized effectively as they are, have increased their requests for steel to be used in the expansion of crude oil producing, transportation and refining facilities in the Persian Gulf area, including steel for an additional pipeline to provide another outlet to the Eastern Mediterranean.

8. The United States companies, other than those directly associated with the Anglo-Iranian Oil Company¹⁴ are bewildered. They do not know what course to follow, and, indeed, do not know what course the United States Government wishes them to follow. At least one group of these companies wishes to construct a crude oil refinery, without high octane facilities, capacity 50,000 barrels per day, in the Persian Gulf area, this being that group’s estimate of the output which its anticipated business could justify. Another group has been approached by representatives of the U.S. Government with the idea of obtaining some petroleum for war requirements, but is unable to act because of restrictive agreements imposed by its British partners.

Conclusions and Recommendations

10. Recognizing that existing conditions must be altered with the least practicable delay, the following course of action is proposed:

a. Either confirm the Petroleum Reserves Corporation as the government agency to handle foreign oil problems or, alternatively, designate another agency with a board representing the same government interests as are now represented by the Board of Directors of the Petroleum Reserves Corporation; namely, Departments of State, War, Navy and Interior and the Office of Foreign Economic Administration.

b. The Petroleum Reserves Corporation (or other agreed agency) issue with the least practicable delay a clear statement of policy, stressing the need for the establishment of such an agency and emphasizing the fact that it is not intended to use this agency as a means of forcing United States Government participation in private business or enterprise at home or abroad. (See Appendix “A”, proposed statement of policy.¹⁵)

c. Agree to permit the building of a 50,000–barrel oil refinery in Saudi Arabia and take steps to release the steel and other equipment necessary to enable the California-Arabian Standard Oil Company to undertake this project with its own funds.

d. In conjunction with the State Department as to negotiations, and under the guidance of that Department as to general foreign policy, take such action as is necessary to survey the route, obtain rights of way and build a pipeline to serve as an outlet for United States controlled crude oil and/or petroleum products in Saudi Arabia, Kuwait and elsewhere in the Persian Gulf area, the Western terminus of such line to be at a point to be selected in the Eastern Mediterranean.

e. Arrange for the proposed pipeline to be financed and owned by the United States Government with an agreed sinking fund on the investment to be paid for each barrel transported through the line.

f. Request the State Department to undertake negotiations with the British to remove all restrictions on United States companies as to the production and marketing of products originating in the Persian Gulf area.

g. As a further consideration for these undertakings the United States Government will have the right to acquire a specified amount of oil at a fixed and favorable price to be agreed, such products to be used by or reserved for the U.S. Army and Navy.

h. The United States Government will have an option on an agreed volume of oil of not less than one billion barrels under terms to be agreed for the life of the leases.

i. If subparagraphs 10 c to 10 h are acceptable, abandon the idea of obtaining an equity stock interest in any of the companies owning concessions in the Persian Gulf area at this time.¹⁶

j. The Petroleum Reserves Corporation (or other agreed agency) with the State Department as outlined under paragraph 10 d above will enter into negotiations with the British and such other Government agencies as may be concerned for the conservation of oil in the Persian Gulf Basin and contiguous areas with a view to world conservation, thus preventing wasteful dissipation of assets.

k. The Petroleum Reserves Corporation (or other agreed agency) will have the duty of maintaining continuous contact with its own Board of Directors, with the United States Petroleum industry, with appropriate U.S. Government agencies, and (to the extent required) with British and/or other interests affecting its problems.

12. Copy received from Commodore A. F. Carter by Charles B. Rayner, who had been designated Adviser on Petroleum Policy on January 15.

    The Department of Defense has supplied information to the effect that its records contain no indication that this memorandum resulted from any official action taken by the Army-Navy Petroleum Board. Accordingly, it is presumed to express the individual views of the Executive Officer, ANPB.

13. To obtain an equity stock interest in American oil companies operating in Saudi Arabia and Kuwait.
14. Presumably reference is to the Iraq Petroleum Company.
15. Not printed.
16. There is no indication in Department files that there were further negotiations on this matter. In a memorandum of January 25, 1944, to President Roosevelt, the Director of War Mobilization (Byrnes) opposed the proposed Government purchase of equity in the oil companies and approved the proposed pipeline project in Saudi Arabia; for text of the memorandum, see Investigation of the National Defense Program: Hearings before the Senate Special Committee Investigating the National Defense Program, pt. 41, 80th Cong., 1st sess., p. 25387.