Foreign Relations of the United States, 1947, The Near East and Africa, Volume V

891.6363/1–947

Memorandum of Conversation, by the Chief of the Petroleum Division (Loftus)

[Washington,] January 9, 1947.

Participants:	Mr. William L. Clayton—U–E
	Mr. Orville Harden, Standard Oil Company (New Jersey)
	Mr. Harold Sheets and Mr. Brewster Jennings, Socony-Vacuum Oil Company
	Mr. John A. Loftus—PED
	Mr. Charles B. Rayner—AP1
	Mr. Loy W. Henderson—NEA2
	Mr. Woodruff Wallner—WE3
	Mr. George C. McGhee—U–E4
	Mr. David A. Robertson—NEA5

Messrs. Harden, Sheets and Jennings called at their request to discuss the problems created by the French attitude toward the apparent breach by the American companies of the Red Line Agreement.⁶

The company representatives stated:

1. That they considered themselves to be on absolutely solid legal ground in regarding the Group Agreement as void and in acting as if not bound by it in fact.

2. That they considered their repudiation of the restrictive clauses of the Red Line Agreement to be consonant with their understanding of the United States economic foreign policy.

3. That they considered the consummation of the Aramco share purchase transaction to be in the interest of the United States and to have approval of the Department.

4. That they recognized the seriousness of the French resentment over both the basis and the effects of the denunciation of the Red Line Agreement and the consequences such resentment might have both for them and for Franco-American political relations.

5. That they regarded the French position as being essentially an effort to extort some kind of pay-off under threat of reprisals.

6. That nevertheless they would be willing to work out some kind of arrangement designed to satisfy legitimate French needs if any such arrangement were feasible.

7. That the only alternatives available, however, appeared to be (a) to give the French some specific guarantees (to the extent to which a minority interest in the IPC could give guarantees) as to future development in Iraq, and (b) to arrange some kind of crude purchase contract for the French out of Arabian production; and that both of these possibilities would be explored.

8. That it was out of the question for the French to obtain a participation in the Aramco development; and that it would be desirable if the Department could indicate informally to the French that because of Ibn Saud’s⁷ attitude such participation was in fact impossible.

9. That the production schedules projected for Arabia did not give to the Jersey–Socony group any excess of crude over their own requirements; and, therefore, precluded an offer of crude to the French on long term contract unless all four of the partners in Aramco were willing to participate in an additional production program.

10. That in their opinion the French should be advised officially and in writing about the American Government’s views on the undesirability of reaffirming the restrictive clauses of the Group Agreement.

The Department officers present noted these views. It was indicated to the company representatives that the misgivings of the French about Middle East arrangements were to be taken seriously and efforts should be made to accommodate to the extent reasonably practical legitimate French requirements.

It was indicated that France would probably be advised of the United States attitude about the restrictive clauses and that an effort might be made to explain to them informally the political impossibility of French participation in Aramco. In answer to specific inquiries it was indicated that the Department did not in the light of the French protest want the American companies to withdraw from the Aramco project. In answer to another specific inquiry it was stated that the Department would not object to their voluntary withdrawal from the Aramco project provided such withdrawal did not involve a voluntary reaffirmation of the restrictive clauses.

In the course of the discussion attention was directed to the provisions of the group agreement under which both the CFP and Jersey (which were unable to lift their proportionate share of crude from Iraq during the war) were unable to receive any return for the use of their capital in the IPC during that period. While it was recognized that these provisions were not germane to the immediate problem, it was suggested by Mr. Clayton that they appeared basically inequitable and might constitute reasonable ground for future complaint by the French. Mr. Harden thought that the Jersey company would welcome such future complaint.

Since it appeared that the Compagnie Française was transmitting a letter to Jersey and Socony outlining the conditions which, if met, might induce CFP to withdraw its legal action, it was agreed that further discussion would not be profitable until the contents of this letter were known.

1. Adviser on Petroleum Policy.
2. Director of the Office of Near Eastern and African Affairs.
3. Assistant Chief of the Division of Western European Affairs.
4. Special Assistant to Mr. Clayton.
5. Of the Office of Near Eastern and African Affairs.
6. A name derived from the red line drawn on a map attached to the Group Agreement of July 31, 1928. The red line delimited an area covering generally the former Ottoman Empire except Kuwait and Egypt. Within this area, the partners comprising the Iraq Petroleum Company mutually excluded themselves other than through the IPC. Were these self-denying provisions still valid, Standard Oil of New Jersey and Socony-Vacuum would be denied the right as individual companies to purchase part of the capital stock of the Arabian American Oil Company; for the plans of the two American companies to do so, see Mr. McGhee’s memorandum of conversation of December 3, 1946, Foreign Relations, 1946, vol. vii, p. 40.
7. King of Saudi Arabia.