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

811.6363/4–1144

Memorandum by the Inter-Divisional Petroleum Committee of the Department of State ³²

[ Washington ,] April 11, 1944.

Foreign Petroleum Policy of the United States

i

objectives of united states foreign petroleum policy

1. The “equal access” clause of the Atlantic Charter should be implemented in respect of petroleum.

2. General recognition should be achieved of the principle of equal opportunity for American enterprise in exploration for additional sources of supply of petroleum, and in the development of whatever reserves may be found in the future.

3. A broad policy of conservation of Western Hemisphere petroleum reserves should be adopted in the interest of hemispheric security, in order to assure the adequacy for military and civilian requirements of strategically available reserves. This broad policy would need to be implemented by measures of domestic as well as foreign policy. The appropriate foreign policy should include these three elements:

a. Curtailment, in so far as practicable, of the flow of petroleum and its products from Western Hemisphere sources to Eastern Hemisphere markets. This change in the flow of trade in Western Hemisphere oil should be accompanied by reasonable safeguards for the interests of Western Hemisphere producing countries having established market outlets in the Eastern Hemisphere.

b. Facilitation, by international agreement and otherwise, of substantial and orderly expansion of production in Eastern Hemisphere sources of supply, principally in the Middle East, to meet increasing requirements of post-war markets.

c. Removal, by international agreement and otherwise, of impediments to the exploitation of Middle Eastern concessions held by United States nationals.

4. In order that adequate supplies of Eastern Hemisphere petroleum may be available to the United States to permit it to take appropriate part in a system of collective security, steps should be taken to safeguard existing concessions held abroad by United States nationals. These steps are:

a. To use diplomatic assistance where necessary to assure against alienation of those concessions.

b. To arrive at an international understanding concerning the development of Middle Eastern petroleum resources free from unilateral political intervention.

5. This Government should endeavor to assure maximum economic benefits to the foreign areas in which petroleum is located.

ii

application of the policy to middle eastern petroleum

Consideration has been given to the question of whether the accelerating depletion of United States oil reserves necessitates formulation of a program for Government-sponsored net imports of petroleum from the Middle East to the United States, either for current consumption or stockpiling or both. The evidence of the necessity for such a program is not conclusive. Furthermore, the complex political and economic difficulties that would be involved render the program unwise.

A broad policy of conservation of Western Hemisphere reserves, however, does call for curtailment, in so far as practicable, of the flow of petroleum and its products from Western Hemisphere sources to Eastern Hemisphere markets. The logical and natural source of supply for these latter markets is the Eastern Hemisphere terminus of the oil axis, i.e., the broad area of sedimentary basins contiguous to the Black, Caspian and Ked Seas, the Persian Gulf and the eastern end of the Mediterranean. These geologic regions include the great developed oilfields of Russia, Roumania, Iraq, Iran and the Arabian Peninsula as well as the potential petroleum resources of Turkey, the Levantine Coastal areas, Afghanistan and Baluchistan. These latter areas are as yet almost entirely undeveloped. Russian oil production, unless the tempo of exploitation is greatly accelerated, will probably continue to be barely adequate for Russia’s expanding industrial requirements. Roumania has historically been a significant supplier of the European market and presumably will continue to be such; but Roumania cannot supply more than a fraction of Europe’s requirements.

It is then, toward the remainder of this geologic region that the Eastern Hemisphere should logically turn for oil supplies—toward the Middle East—toward Iran, Iraq, and the Arabian peninsula including Saudi Arabia proper and the Sheikhdoms of Kuwait, Bahrein, Qatar and Trucial Oman. It is primarily with respect to these Middle Eastern areas, then that United States policy must be formulated and implemented.

The key points in that policy must be (a) development, and (b) assurance of adequate American participation in that development.

Prompt, full and orderly development of the known reserves of the area should be achieved in order to permit annual Middle Eastern production to supply the expanding net import requirements of Europe, Africa and such parts of Asia as are not more economically supplied from the East Indies. This in turn will conserve Western Hemisphere oil reserves for Western Hemisphere peace-time uses and as a security reserve in the event of War. Moreover, such development will create a potential outside source of supply for the United States in the event that the recent unfavorable curve of domestic discoveries should not take a turn for the better.

In so far as such development is delayed by existing conflicts of short-run interest between the United States and the United Kingdom, and is impeded by existing political and contractual restrictions³³ upon United States companies having concession rights and proprietary interests in the Middle East, a close understanding with the British is most desirable in order to effectuate the basic United States policy.

American participation in the development of Middle Eastern petroleum is equitable because American interests hold a large percentage of proven reserves in that area and participate only to a minor extent in current production. Such participation is desirable because there will then be greater assurance that the tempo of exploitation will be adequate in relation to the desired conservation of Western Hemisphere oil reserves. Furthermore, and of greater importance, United States policy should, in general, aim to assure to this country, in the interest of security, a substantial and geographically diversified holding of foreign petroleum resources in the hands of United States nationals. This would involve the preservation of the absolute position presently obtaining, and therefore vigilant protection of existing concessions in United States hands coupled with insistence upon the Open Door principle of equal opportunity for United States companies in new areas.

The United States petroleum policy in the Middle East, then, must be predicated upon these two overall objectives: (a) full development of Middle Eastern Petroleum production, and (b) the stabilization and safeguarding of American concession rights. The more specific policy objectives are as follows:

1. An intergovernmental understanding with the United Kingdom should be reached immediately on broad principles governing petroleum development and distribution with particular reference to a development program for the Middle Eastern area. This understanding should provide for the establishment of a joint Anglo-American Petroleum Commission, the functions of which are summarized in Part IV hereof.

This bilateral understanding with the United Kingdom should be preliminary to the early negotiation of a multilateral agreement establishing an International Petroleum Council with appropriate representation for producing and consuming countries.

2. A second specific policy objective should be to provide protection against alienation of American-held concessions into non-American hands. To accomplish this it is necessary to forestall those factors that might operate in the direction of alienating American-controlled concessions. They include:

a. Failure to exploit such concessions fully with the resultant failure to confer upon the countries granting the concessions those benefits which they legitimately anticipated as a consequence of discovery of oil within their domains;

b. Failure to foresee and guard against political complications that might develop.

Any proposal of American-owned companies to transfer, in whole or in part, assets in foreign-held petroleum reserves should be subject to prior approval by this Government.

3. A third specific policy objective should be to influence the flow of world trade in petroleum products in such manner as to substitute Middle Eastern oil for Western Hemisphere oil in Eastern Hemisphere markets with due regard for the legitimate interests of the Western Hemisphere. This substitution may come about in consequence of natural economic forces once Middle Eastern production has been adequately stimulated.

4. A fourth objective should be to eliminate the unilateral political intervention that has characterized Middle Eastern petroleum affairs heretofore. This will come about necessarily after the negotiation of the proposed multilateral agreement and the establishment of the proposed International Petroleum Council. In the meanwhile, the preliminary bilateral understanding with the Government of the United Kingdom should include reciprocal assurances that petroleum development, processing and marketing shall not be impeded either by restrictions imposed unilaterally by either Government or by intercompany arrangements.

5. In implementation of the equal access clause of the Atlantic Charter, any international agreements should guarantee equality of treatment to all purchasers in respect of prices, quantities, and terms and conditions of sale. In this connection, it would be desirable to reach an agreed definition of the equal access concept as applicable to petroleum supplies which would assure outside buyers of continuing opportunity to purchase oil at a price based upon true cost plus a reasonable profit.

iii

relation of the policy to latin american petroleum

The effect of the change in the flow chart of world petroleum trade, contemplated by the foregoing policy objectives, on the established marketing interests of Latin American producing countries must receive full consideration. The maximum provision that might be made to safeguard these interests would be firm guarantees with respect to minimum quantities of Latin American petroleum to be absorbed annually by the United States market. This would immobilize the trade position of a particular segment in an industry subject to continuing change and would, therefore, be undesirable. It is, nevertheless, necessary to provide reasonable safeguards for the legitimate interests of Latin American producing countries. To this end, it is imperative that these countries be accorded an effective participation in the proposed International Petroleum Council.

iv

implementation of the policy

1. An immediate objective of the forthcoming conversations with the British, as indicated in Part II, is to reach an understanding with the Government of the United Kingdom on the broad principles governing petroleum development and distribution, with particular reference to the Middle East. To effectuate this understanding, provision establishing a joint Anglo-American Petroleum Commission should be included in the accord.

The agreement establishing this Commission should embody the principles enunciated in Parts I and II hereof. This agreement should be designed to accomplish, among other things, these ends:

a. Schedule aggregate exports from the Middle Eastern area to meet expanding demand. To realize this end it is necessary to work out a flexible schedule of probable import requirements of Eastern Hemisphere markets. This schedule must make allowance for probable rate of annual increase in consumption, for indigenous production, and for probable imports from other sources of supply. The aggregate volume of export so determined should be allocated among the various producing countries on some equitable basis.

b. Assure adequate representation of consuming countries in the determination of export schedules and price arrangements.

c. Consider problems arising in connection with the distribution of Middle Eastern petroleum, all conclusions reached to be consistent with any relevant international understandings.

d. Assure equitably distributed economic benefits to all the producing areas affected.

e. Abolish restrictions on production, refining, transportation and exports of petroleum from concession reserves held solely or jointly by American and/or non-American interests, in so far as inconsistent with the terms of the contemplated agreement.

f. Provide that the two countries will make their petroleum resources available to each other and to all friendly countries in emergencies or for security reasons, consistently with whatever collective security arrangements may be established.

2. Furthermore, the understanding should include the following:

a. That the two Governments will propose to other interested countries a multilateral petroleum convention based upon the principles adopted in the bilateral agreement; and

b. That this multilateral convention will establish an International Petroleum Council, and indicate the views of the two Governments concerning the appropriate composition, functions and purposes of such a Council.

32. A report entitled Wartime Evolution of Postwar Foreign Oil Policy, prepared on May 29, 1947, in the Department of State, stated:

    “Beginning in December of 1943 a working group of economic and political officers in the Department, known as the Inter-divisional Petroleum Committee, met rather frequently to consider policy documents and various drafts of an Anglo-American agreement and of an annotated agenda for Anglo-American discussions.

    “During the period of activity of this Inter-divisional Petroleum Committee the President established on February 15, 1944 a ‘Cabinet Committee’ to prepare for, directly or through designees, petroleum conversations with the Government of the United Kingdom. Secretary of State Hull was Chairman and Secretary of Interior Ickes was Vice Chairman of this Committee. The Cabinet Committee in turn established on April 1, 1944 the ‘Interdepartmental Petroleum Committee to consist of personal designees of the various members of the Cabinet Committee. The function of this Interdepartmental Committee was to examine and discuss documentation relative to the objective of the Anglo-American discussions.

    “The Inter-divisional Petroleum Committee of the State Department produced a policy document entitled ‘Foreign Petroleum Policy of the United States’. A first draft of this document dated approximately February 22, 1944 was considered and approved by the Postwar Programs Committee of the Department of State (which was then one of the two parallel top policy committees within the Department). It was subsequently discussed informally with an [sic] the Interdepartmental Petroleum Committee mentioned immediately above which conducted the first phase of the Anglo-American oil negotiations. As a result of this discussion certain minor changes were made in the document and as amended it was reconsidered and again approved by the Postwar Programs Committee on April 11, 1944. This document, while it still has a ‘secret’ classification and has never been disclosed, is still the only official statement of foreign petroleum policy (although there have been subsequent public statements by State Department officers based upon it and amplifying it; and it is due to be replaced by a policy document now under preparation in the Technical Committee on Petroleum which document should be ready for consideration by the Executive Committee in the summer or fall of 1947).” (811.6363/5–2947) The draft of February 22, identified as “CD I–c” is not printed (811.6363/4–1144).

33. With regard to political restrictions, see correspondence on the inquiry by the United States regarding British policy respecting the holding and operation by foreigners of petroleum concessions in territories such as Bahrein, and on efforts by the United States in support of American interests seeking an oil concession from the Sheikh of Kuwait, Foreign Relations, 1929, vol. iii, pp. 80 ff., and ibid., 1932, vol. ii, pp. 1 ff.

    The contractual restrictions were embodied in the Group (Red Line) Agreement between private American and European oil interests on July 31, 1928. The text is printed in Current Antitrust Problems: Hearings before the Antitrust Subcommittee of the House Committee on the Judiciary, 84th Cong., 1st sess., pt. 2, pp. 1004 ff.; for further information on the agreement and the events leading to the agreement, see Foreign Relations, 1943, vol. iv, p. 944, footnote 42.