Memorandum by the Deputy Director of the Office of International Trade Policy (Nitze) to the Under Secretary of State for Economic Affairs (Clayton)


Since announcement of the proposed two Middle East oil deals involving Standard of New Jersey and Socony, serious thought has been given to possible alternatives that, while not preventing the objectives of the deals to be achieved, would be free of some of their immediate and obvious, as well as possible long run, disadvantages. The most desirable alternative would seem to be for Socony to purchase the 11.875 per cent interest of Jersey in the Iraq Petroleum Company and for Socony to withdraw from the Saudi Arabian deal, and possibly also from the Jersey-Socony–Anglo-Iranian crude oil purchase agreement.

This realignment of interests would from a public policy standpoint have the following advantages over the arrangements as presently proposed: (1) It would afford a simple, clear-cut solution to the immediate problem, in contrast to the complex negotiations that have been going on between the parties in London for weeks seeking to accommodate the oil requirements of the French within the framework of the deals as presently proposed by the companies. At the same time it would presumably be an acceptable solution to the French in that no question of their rights under the Red Line Agreement would then be involved. (2) It would also have certain indirect long run advantages: (a) It would simplify and perhaps arrest the trend toward multiplication of the interlocking arrangements between and among the oil companies engaged in the international oil trade. Under the proposed alternative Socony would become the sole American partner in IPC, and in the Saudi Arabian deal there would be three companies instead of four. Moreover, if Socony also withdrew from the Anglo-Iranian crude oil purchase agreement, there would remain one less company involved in it. (b) Belated to (a), but more specific, it would retard the growing consolidation outside the United States of the interests of the two largest American oil companies, Jersey and Socony. These companies gradually have become, and would continue under their presently proposed arrangements to be, partners in all their ventures in the Eastern Hemisphere except in their refining and marketing operations in Europe, and in their marketing in Africa. (c) Also related to the foregoing points is the fact that it would serve, in part, to meet criticism of the deals, such as directed against them by Senator O’Mahoney. (d) Finally, would perhaps go some way [Page 647] toward meeting the criticism of the deals by outside American companies who feel that the petroleum resources of the Middle East are being preempted by various combinations of a very small group of large American and British companies.

It has been reported to the Department that the proposed alternative arrangement was being, or had been, considered by Jersey and Socony at the time the enemy status of France under British legislation on commerce with an enemy gave them a legal basis to go ahead with the deals as proposed by them. Therefore, it is not an entirely new arrangement devised within the Department. I believe the alternative arrangement proposed possesses sufficient merits for you to give serious consideration to inviting Mr. Harden of Jersey, and Mr. Sheets of Socony to Washington to discuss it with the Department as soon as a meeting can be arranged. This should be done promptly since negotiations have been, and still are, going on with the French in London, and the adoption by Jersey and Socony of the alternative above proposed presumably would require a substantial readjustment of their position.

Another alternative which might also be considered, and perhaps discussed with Jersey and Socony, is one that would involve the offer by Jersey of its interest in IPC to a group composed of all other American companies desiring to participate. This would essentially restore ownership to an American group similar to that which originally owned the present Jersey–Socony 23.75 per cent interest in IPC. As compared with the other alternative, this possibility might be considerably less attractive to Jersey and Socony, and would require more positive action on the part of the Department. It would afford the same kind of immediate solution to the present difficulties and possess certain of the long run advantages of the first proposal.