124.416/10–1446
The Secretary of State to the Chargé in the United Kingdom ( Gallman )
No. 598
The Secretary of State acknowledges with appreciation the receipt of the Embassy’s despatch number 2052 dated October 14, 194633 regarding petroleum reporting and recent oil developments in the United Kingdom.
[Here follows a paragraph dealing with publication of oil statistics.]
[Page 39]The Department has reviewed with considerable interest the Embassy’s comment concerning the Red Line Convention. There is enclosed for the Embassy’s information a copy of a memorandum of a conversation33a held in Mr. Clayton’s office with executives of two American participants in the Iraq Petroleum Company which indicates the nature of the official discussion of this subject. It should be noted that the Department agreed to support the position of the United States companies participating in IPC with respect to the preservation of the basic conception of the inter-company agreement, viz., that the IPC is a consortium based upon shares of oil rather than upon shares in the pecuniary profits of a jointly-owned company. Furthermore, the Department hopes that the American element in IPC will be successful in a renegotiation of the intercompany agreement designed to eliminate its restrictive provisions. The United States Government has officially indicated its view that the Red Line Agreement in so far as it restricts the commercial liberties of the parties to it is a kind of private commercial understanding incompatible with the United States’ views on restrictive business practices. Paragraph 3 of Article II of the Anglo-American Oil Agreement is clearly directed against such arrangements and the Red Line Agreement was explicitly mentioned in the Anglo-American oil talks as being one of the arrangements falling under the indictment of this paragraph.
The Department, however, does not feel that it is competent to or could appropriately enter into a discussion of whether or not the inter-company agreement is de facto void at the present time by virtue of the legal status during the war of Compagnie Française des Petroles and Mr. Gulbenkian. This is a matter on which the private parties at interest must be guided by the opinion of competent counsel. If, however, it is the case that the old agreement is void, the Department concurs with the American companies in the desirability of negotiating a substitute agreement which would preserve the concept of shares in oil; and its unfavorable attitude toward the restrictive clauses of the 1928 Convention is a matter of record.
In this connection it will interest the Embassy to know that this problem was the subject of discussion in Paris between Mr. Sheets of the Socony-Vacuum Oil Company and Mr. Loftus of the Department. Since the concurrence of the French element in IPC is necessary for the successful renegotiation of the inter-company agreement and since the management of CFP is not free to proceed without the advice and consent of the interested French Government entities, Mr. Loftus undertook to explore the problem informally with representatives of various agencies of the French Government as well as with officers of Compagnie Française des Petroles and Compagnie [Page 40] Française de Raffinage. These conversations were protracted and oblique. They indicated quite clearly, however, that the French were not convinced that the commercial liberty CFP would obtain in consequence of the elimination of the restrictive clauses would be a net gain if by obtaining it CFP simultaneously lost the right to prevent its partners in the IPC from improving their supply or production position. It was also evident that the French desire more time in which to appraise this calculus of gain and loss.
Accordingly, Mr. Loftus advised Mr. Sheets that unless there were considerations of urgency unknown to the Department it appeared advisable for the American element not to deliver an ultimatum to the IPC partners at the expiration of the two-week period which had been mentioned during the first IPC meetings in London and if possible to allow the French element a period of six to eight weeks in which to weigh carefully the economic and political considerations.
It is understood that subsequently this recommendation was discussed as between the Socony-Vacuum and Jersey offices. It was the opinion of counsel of the Jersey Company that any protracted lapse of time might cause the former inter-company convention to re-enter into force by virtue of consecutive performance under it. Accordingly, since the recommendation was qualified, the two American companies decided to accept it to the extent of extending the original two-week ultimatum to probably four weeks. It is not believed, however, that the negotiations on this subject will drag on over a long period. Apparently the legal principle which the Jersey counsel anticipated may become operative is a sufficiently practical consideration to make it imperative that the matter be resolved one way or the other in the very near future.
[Here follow last three paragraphs of this instruction, dealing with oil questions other than the Red Line agreement.]
- Not printed; it reported that an important group of oil executives representing Standard Oil of New Jersey, Gulf Oil and Socony-Vacuum conferred in London during the first 10 days of October. Among the problems discussed was that “of the future status of the agreement arising out of the Iraq Petroleum Company concession. It is felt that the conference agreement should now be regarded as abrogated on the ground that during the war the Compagnie Française des Petroles and the Gulbenkian interests in IPC were under enemy control. It is therefore argued that the agreement should now be rewritten in the light of the postwar situation. (124.416/10–1446)↩
- August 27, p. 31.↩