800.6363/12–545

The Ambassador in the United Kingdom ( Winant ) to the Secretary of State

No. 27254

Sir: I have the honor to inform the Department that the subject of the development by the Iraq Petroleum Company of the Basra and BOD29 fields in Iraq was touched upon in a recent conversation with Mr. David Shepard of the Anglo-American Oil Company, the British subsidiary of the Standard Oil Company of New Jersey.

Mr. Shepard said that the question of the development of the above-mentioned fields had been discussed in principle in the IPC. He indicated that all of the IPC groups appeared favorable in principle to the development of those fields, and he said that the budget of expenditures contain items for drilling equipment for use in the fields, Mr. Shepard expressed his view that the Basra and BOD fields should be developed. He referred to the existing two-year moratorium on operations in the fields, and indicated that, to his knowledge, the Iraq officials had not approached the IPC concerning operations in the fields.

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The Red Line Agreement and its purpose, with particular reference to the question of its possible elimination which was raised in passing by Secretary Ickes30 during the Anglo-American oil negotiations in September,31 was discussed at some length. Mr. Shepard pointed out that the purpose of the Red Line Agreement was to prevent an individual IPC group from obtaining a concession in the Red Line area with which that group could compete with the IPC. In this connection, Mr. Shepard also referred to the IPC Group Agreement providing that no member should purchase oil from an outside company within the Red Line area for sale anywhere without the approval of the other IPC groups. It was remarked that this had the same purpose as the Red Line Agreement, i.e. the prevention of competition by an IPC group with the IPC. It was mentioned, however, that the area of the Red Line Agreement was inadequate to accomplish the purpose indicated: the non-inclusion of Iran in the Red Line area permits the Anglo-Iranian, with its concession in that country, to conduct precisely the kind of competition with the IPC which the Red Line Agreement was designed to prevent.

Mr. Shepard said that the Department was informed concerning revisions in the IPC Group Agreements now under consideration. With respect to the above-mentioned Group Agreement, Mr. Shepard said that the contemplated revision in that Agreement would provide that if one of the groups of IPC wished to purchase oil from any outside source (for example, the American group might wish to purchase from the Arabian-American Oil Company), that group would have to offer a part of the oil to be purchased to the other IPC groups. If, however, the other groups did not wish to buy, the group desiring to make the purchase could go forward with it. Mr. Shepard pointed out that the Shell Company and the Standard of New Jersey and Socony-Vacuum groups were in the same position in the Middle East in that both had insufficient crude in that area.

With respect to the question of whether the Red Line Agreement has outlived such usefulness as it may have had, Mr. Shepard expressed [Page 63] his opinion that from the viewpoint of the American companies concerned the Agreement could be abolished. He indicated, however, that since the Agreement was part of the arrangements concluded after the last war as a result of government action to permit the participation of American companies in Middle East oil development, steps looking to the elimination of the Agreement should originate at the governmental level. On the subject of the various IPC groups reaction to the elimination of the Red Line Agreement, Mr. Shepard referred to the probable adverse reaction of Anglo-Iranian, with its Iranian production, but expressed agreement with the view of Sir Norman Duke, as reported in the Embassy’s despatch No. 26875 of November 19, 1945, that Gulbenkian and Compagnie Française des Pétroles undoubtedly would be the only ones really opposed, because of their fear that the abolition of the Agreement would lessen the pressure for as great a development of Irakian oil as they would like to see.

Respectfully yours,

For the Ambassador:
James C. Sappington, 3d

Second Secretary of Embassy
  1. British Oil Development (Company).
  2. Secretary of the Interior Harold L. Ickes.
  3. In the Minutes of Plenary Session No. 3 of the Anglo-American Conversations on Petroleum, held on September 22, 1945, 10 a.m., appear the following two paragraphs:

    “Secretary Ickes said he considered one of the important objectives of the proposed Oil Agreement to be the removal of inequalities arising from unpublished agreements such as the ‘Red Line’ Agreement and the Agreement between the Gulf Oil Company and the Anglo-Iranian Oil Company in respect of operations in Kuwait.

    “The Minister of Fuel and Power replied that the principle of equal opportunity for all was fully accepted by the British Delegation. It would, of course, be of mutual effect and he agreed that it was implicit in the terms of the proposed Agreement.” (841.6363/9–1845)