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

890.6363/4–3047

Memorandum of Conversation, Prepared in the Department of State¹

[Washington, undated.]

Participants:	Mr. Harden, Standard of New Jersey
	Mr. Jennings, Socony-Vacuum
	Mr. Darlington, Socony-Vacuum
	Mr. Nitze, State (ITP)
	Mr. Loftus, State (PED)
	Mr. Robertson, State (NEA)
	Mr. Eakens, State (PED)

Mr. Nitze explained to Messrs. Harden, Jennings, and Darlington that the Department had only acknowledged the two notes from the French Government regarding their proposed Aramco purchase and that it would soon have to make a definitive reply. For this reason the Department group were interested in a report on their negotiations with Compagnie Française and the other partners in the Iraq Petroleum Company in regard to a solution of the difficulties which the French would consider satisfactory and on the basis of which they would presumably withdraw their suit. He also explained that the Department was especially interested in learning whether the prospects for such an agreement with the French were considered to be favorable.

Mr. Harden stated that they had endeavored to keep the Department informed regarding the developments in London by supplying the Department copies of all cables exchanged with their representatives participating in the negotiations. From his discussion, it appeared that the Department had received all except the most recent exchange of cables which Mr. Harden was of the opinion had also been sent to us. He pointed out that it had been decided that he and Mr. Sheets should go to London to participate in the negotiations with the French and that they would be leaving on the Queen Elizabeth about March 21 for this purpose. Mr. Loftus indicated that this semed a very desirable move, since the Department had received two messages from Paris indicating that the French were particularly irked by the failure of Jersey and Socony to send top officials to London who had some authority to negotiate. A comparison of the dates on which these messages were sent from Paris with the date the message was sent from New York stating that Messrs. Harden and Sheets were going to London indicated that the Embassy’s message reflected the French attitude before announcement of the Harden-Sheets trip. Mr. Harden stated that he had received a report that the French attitude toward their coming was very favorable.

Mr. Harden pointed out that Jersey and Socony had suggested in their February 15 cable to London, as a basis for an agreement with the French, an entirely new principle which departed significantly from the basic premise under which IPC had operated to date.

This principle was that any partner desiring more oil than his pro rata share could demand that IPC make arrangements to supply him. It was reported that the reaction of the French to this suggestion of Jersey and Socony was favorable. The practical operation of this principle will require the partner desiring more than his proportionate share of the oil to negotiate with the other IPC partners a contract for specific quantities to be taken over a definite period at agreed prices. Messrs. Harden and Jennings were asked whether this would not be an even more difficult matter to negotiate than the simpler basis upon which the negotiations in London thus far had failed to produce agreement. The negotiations at first were predicated upon the assumption that the partner desiring more oil would make the investment necessary to develop it and would pay the other partners a royalty on the oil produced, but no agreement was ever reached on the royalty the French would pay the other partners. Under the principle that IPC will develop the additional oil, agreement must be reached with the overdrawing partner not only with respect to the royalty he will pay, but also with respect to depletion, depreciation, amortization, and profits. Mr. Jennings admitted that this problem was more complex, but he said that in a cable to London they had suggested price and quantity basis for such contracts which in effect set the maximum which they could expect to ask in any negotiations, and that they considered those bases eminently fair. The bases suggested were that a one-year contract might be at fair market price, a ten-year contract for 100,000,000 barrels might be at total cost plus 40 cents per barrel, and a twenty-year contract for 500,000,000 barrels might be at a total cost plus 30 cents per barrel.

In pointing out the advantages to the French of these suggested propositions, Mr. Harden stated the French would have a definite source for any oil that they might require, they would get it at least at market price and on any large contract at substantially less than market price, and as a partner in IPC the French would save their proportionate share of the profit which IPC would realize from the contract. Mr. Harden strongly felt that neither the French nor any other partner could expect IPC to provide oil for one partner at substantially less than what might be considered the market price for the quantity and the period involved. That this was also the thinking of Mr. Jennings was indicated by the latter’s statement that the price agreed upon in their purchase arrangement with Anglo-Iranian might be taken as a general yardstick for comparable quantities of oil taken over a comparable time period.

In replying to an inquiry regarding the chances that the other IPC partners would be able to reach an agreement with the French on the basis of the new principle suggested by Standard and Socony, Mr. Jennings said he thought there was a 60–40 possibility that they could do so.

Early in the discussion, Mr. Nitze pointed out that in view of the increasing commitments of the United States Government in that general area, it could not avoid being greatly interested in developments affecting the Middle East, such as the Middle East oil deals of Jersey and Socony. He mentioned that he understood that Jersey and Socony had considered at one time the possibility that Socony would buy out Jersey and thereby leave Jersey free to purchase an interest in Aramco, and the Department wondered why the companies had apparently abandoned consideration of this possibility. Mr. Harden said that in view of the Red Line Agreement they thought at one time this was the only way they would be able to go through with an Aramco purchase. He said that it had been abandoned only when it became clear that the Red Line Agreement was invalid under the English legislation on trading with the enemy. He said the only commercial reason for preferring to participate in both Aramco and IPC was that it increased their spread in ownership of Middle Eastern oil and they considered that much better than having their whole investment in one area or in one company. Another reason he gave for abandoning this possibility was that Socony would never be able to agree upon a price for the properties which its companies [stockholders?] could not question as being too much, whereas Jersey would be unable to reach a price agreement to Socony which its stockholders could not argue was too little.

An inquiry was also made concerning the intentions of IPC with respect to development plans for areas already under concession to IPC. Neither Mr. Harden or Mr. Jennings knew in detail what these plans are except for the drilling contemplated for Syria, Lebanon, Palestine, and Qatar, but Mr. Harden said all of the concessions had drilling obligation provisions with which IPC would comply. When Mr. Harden was questioned concerning the need of IPC for additional concessions and whether it was in the company’s interest to be bidding on new concessions when there was doubt that it could develop within a reasonable period the concessions already held, Mr. Harden’s first reaction was that he saw no reason why IPC should not bid on new concessions the same as anyone else, that that was the reason the company was in business. He further stated that if IPC obtained the concessions and other people wanted oil, IPC would certainly be glad to sell it to them.

Regarding IPC’s bid on the Sheikh of Kuwait’s interest in the neutral zone between Kuwait and Saudi Arabia, Mr. Harden did say that the French were particularly interested in having a bid made on this area by IPC. He also said that if IPC refrained from bidding on new areas there was nothing to keep the British companies from going in and bidding and perhaps securing the concessions. He said that despite the present position of Anglo-Iranian he was certain that that company would endeavor to secure any other areas now open or that might be available for concession in the future. In an aside discussion with Mr. Loftus, Mr. Jennings’ attitude toward IPC taking on new concessions seemed to be somewhat different from that of Mr. Harden since he told Mr. Loftus that he could see no reason for IPC trying to secure any additional concessions in the Middle East.

There was also some discussion of the possibility or desirability of companies such as IPC and Aramco, who have larger concession areas than they can possibly develop within a reasonable future period, giving up acreage, but the discussion of this phase of the Middle East problem was somewhat vague and inconclusive.

A telephone call from Mr. Darlington on March 10, after the meeting, indicated that the discussion at the meeting had made some impression upon the company officials participating and had given them something to think about. Mr. Darlington indicated that they were a little concerned by the general line of questioning at the meeting which seemed to indicate that the Department was giving undue weight to the situation of the French and also to American companies who, through lack of foresight, had not obtained concessions in the Middle East when the more desirable areas were open. The general attitude of Messrs. Harden, Jennings, and Darlington at the meeting, which was also confirmed by the telephone call from Mr. Darlington, was that they felt that any companies not already in the Middle East could get in the same way they are getting in, by buying an interest in an existing concession.

1. The meeting covered by this memorandum was held in Mr. Nitze’s office at 2:30 p. m. on March 7.