Memorandum by Mr. Merrill C. Gay of the Division of Commercial Treaties and Agreements

The Department received despatch No. 1272 dated September 4, 194318 from Cairo describing a pipe line approximately 78 miles long between the main storage tanks of the Shell Company of Egypt, Suez to the Ghamer terminal of that company in Cairo, reported to have begun operations in September 1943. The pipe used in this construction is described by our Legation as American made provided under Lend-Lease for use by the British army in Libya. Such a pipe line was originally projected in 1927 but construction did not begin until April 1943. It was done as a war measure recommended by the Cairo Petroleum Committee of the Middle East War Council and approved by the War Office in London. The financial arrangements for building the pipe line were made by the Cairo Petroleum Committee, under the jurisdiction of the British Minister of State,19 and the Shell Company. The Chairman of the Committee was formerly [Page 63] an executive of the Shell Company and the present Director General of that company was a member of the same Committee.

The Egyptian Government opposed the construction of this pipe line pending settlement of the question of its post-war ownership. The director of the section of the Egyptian department of mines and quarries is said to be an outstanding Egyptian advocate of post-war ownership of the Suez–Cairo pipe line by the Egyptian Government and of steps to restrict the Shell Company from obtaining monopolistic advantages in Egypt. Representation by the British Ambassador,20 however, citing the provisions of the Anglo-Egyptian treaty of military collaboration,21 was sufficient to break the deadlock. The Egyptian Government nevertheless undertook to limit the use of the pipe line to the transport of gasoline for military use, pending the acceptance of its demands that the pipe line become its property after the war and that its State Railroads be compensated for the loss of traffic suffered during the remainder of the war. It was planned that upon settlement of these questions the Shell Company would distribute to both military and civilian consumers the kerosene and gasoline transported by the pipe line.

A supplemental despatch dated October 12, 194322 described some additional construction operations, indicated that it was hoped to have the line working satisfactorily by October 15 and indicated further that under the existing arrangements the pipe line would transport annually about a million and one-half barrels of kerosene for civilian consumption and 147 thousand barrels for military consumption as well as 483 thousand barrels of gasoline for civilian consumption and 484 thousand barrels of gasoline for military consumption.

Upon receiving this information the Department and the Lend-Lease Administration were somewhat concerned about what appeared to be an unjustifiable retransfer and use of lend-lease materials. The Lend-Lease Administration indicated that they had received no notice of this transaction and felt that a rather firm position should be taken by this Government with respect to it. The Department was primarily concerned with the possibility that the title to the materials might be transferred to the Egyptian Government without the authorization of this Government as required under the terms of the lend-lease [Page 64] agreement.23 It felt however that the information at hand was insufficient and that our first step should be to get more information. Before an instruction was sent certain letters from the Lend-Lease Administration to British officials concerning retransfers were found which made the British action in this case appear in a more favorable light although the Lend-Lease Administration still felt that it should have been notified of the retransfer and that the United States Government clearly held the right to the final disposition of such materials.

An instruction was sent on November 25, 1943 to our Ambassador in London24 requesting him to discuss the matter with the proper British officials indicating the interest of this Government under Article 3 of the master lend-lease agreement between the United States and the United Kingdom in any possible transfer of post-war title rights to lend-lease materials, the thought being that the British Government might wish to call this to the attention of the Egyptian Government in case the latter insisted upon an immediate settlement concerning the post-war disposition of these materials. It was pointed out that even if they were transferred to the Egyptian Government, under the terms of the proposed lend-lease agreement between the United States and Egypt we would still have a voice in the post-war disposition of the materials.

The Department requested full information, pointing out its particular interest in the fact that a private company seemed to be closely involved in the transaction and the fact that it appeared probable the pipe line would be used largely for commercial purposes. It was further suggested that the British Government be reminded of the desirability of prior consultation between the two Governments with respect to such transfers wherever practicable and that in any case prompt notification should be made to this Government to avoid misunderstanding. A copy of the instruction was also sent to Cairo.

A despatch from London dated February 4, 1944,25 and enclosures, has just been received. From this it appears that our instruction was interpreted as evidence of concern over the possible transfer of title to the Shell Company although what the Department had in mind was any retransfer of title without our authorization as well as the use of the lend-lease materials for nonmilitary purposes. It is asserted that the title to the materials is still retained by the British [Page 65] military authorities and that the Shell Company “merely act as agents of the War Department in operating the lines”. From an enclosure to the despatch, a letter dated July 19, 1943 from the British military officer in charge of administration, Middle East forces, to the Ministry of Public Works Cairo, it appears that the need to gain the approval of the United States Government for transfer to the Egyptian Government of such installation constructed on Egyptian territory was clearly recognized.

The covering despatch states that the full details regarding pipe line rates are not available at London but that a basic principle in the arrangements with the Shell Company was that it should pay to the British military authorities the going freight charge for petroleum products transported for civilian use. It further states that aside from the fee paid the Shell Company for its services as agent of the War Department the company gains no competitive advantage in transporting petroleum products. It states that the selection of the Shell Company to operate in this capacity appears to have been based on the fact of its holding a larger share of the Egyptian market, owning terminal and refining facilities, and that the arrangement “had the blessing of the Cairo petroleum committee … stated to include representations of United States military offices”.

In the letter from our Embassy at London to the Egyptian Department of the Foreign Office, an enclosure to the despatch, attention was called to the fact that no record of any notice of the retransfer under consideration was received from the British authorities and the desirability was suggested of prior consultation in cases of this sort wherever practicable especially when private firms are substantially involved.

In the reply from the Foreign Office to our Embassy it is asserted that the present pipe line was constructed as an urgent military requirement and that while some civilian use was contemplated the military authorities maintain a priority call on it. The aforementioned letter of July 1943 to the Minister of Public Works is cited as evidence that the United States interests in the materials were in no stage overlooked. Assurance was given that the British authorities in Egypt will be reminded to keep the United States officials on the spot informed regarding installations such as the present, in the ultimate ownership of which the United States Government has an interest.

Our Embassy states that it was informed that the British Government might desire to utilize the pipe line equipment in the Far Eastern theater at a later time and that it would favor the removal of the pipe line for military use elsewhere rather than to cope with the difficulties inherent in its post-war disposition in Egypt.

  1. Not printed.
  2. Richard G. Casey.
  3. Baron Killearn, British Ambassador in Egypt.
  4. Anglo-Egyptian Treaty of Friendship and Alliance, signed at London, August 26, 1936, League of Nations Treaty Series, vol. clxxiii, p. 401.
  5. Despatch No. 1338, not printed.
  6. Between the United States and the United Kingdom, signed at Washington, February 23, 1942; for text, see Department of State Executive Agreement Series No. 241, or 56 Stat. (pt. 2) 1433; for correspondence regarding negotiation of this agreement, see Foreign Relations, 1942, vol. i, pp. 525 ff.
  7. Instruction No. 3429, not printed.
  8. Despatch No. 13721, not printed.