890.6363/1–447
The Acting Secretary of State to the French Ambassador (Bonnet)
The Acting Secretary of State presents his compliments to his Excellency the Ambassador of France and has the honor to refer again to the Ambassador’s Notes No. 8 of January 4, 1947, and No. 18 of January 13, 1947,1 regarding certain aspects of arrangements relating to Middle East oil recently entered into by American petroleum companies. Reference also is made to the interim reply of the Department of State dated February 14, 1947.2 The United States Government has now given careful consideration to the points which the French Ambassador discussed in his notes and, accordingly, wishes to inform the French Government of its views in regard to them.
The United States Government notes with gratification that the French Government recognizes the development of the petroleum resources of the Middle East to be in the general interest and that it views favorably arrangements designed to increase the availability of Middle East oil. The United States Government also is strongly of the opinion that prompt and orderly development of Middle East oil resources will contribute to the economic well-being of consuming nations as well as of those countries in which the oil is situated, and hopes that that development will be equitably balanced and distributed as among the various producing countries of the Middle East.
With respect to the rate at which development is likely to take place in the particular areas in which the Iraq Petroleum Company has concessions, the United States Government notes the concern of the French Government lest the recent undertakings of the American participants in the Iraq Petroleum Company have the effect of retarding the development of the petroleum resources of areas held under concession by the latter company. The United States Government strongly hopes that this result will not ensue and believes that the facts as known to it do not warrant an assumption that such a result will ensue. The United States Government is informed that the Iraq Petroleum Company will construct new pipe line facilities from the Kirkuk area of [Page 658] Iraq to the Mediterranean which will at least treble the company’s present pipe line capacity. The United States Government is also informed that the company plans to initiate drilling operations in 1947 and 1948 on its Mosul and Basra concessions in Iraq and on concessions which it holds in Syria, Lebanon, Palestine, and Qatar. In so far as known to the United States Government at this time, the Iraq Petroleum Company will proceed with its expansion program as planned before the American participants assumed additional obligations in the Middle East. In fact, the United States Government has received assurances from the American participants that their interest in other arrangements in the Middle East will not affect their desire to see the production of the Iraq Petroleum Company further developed. The American participants state that they believe the record of recent years substantiates these assurances, since they have consistently favored the expansion of the Iraq Petroleum Company’s operations and facilities.
In any case it is the belief and hope of the United States Government that the French interest in the Iraq Petroleum Company will be able to obtain from the concessions operated by that company such quantities of oil as it may require. The United States Government understands that negotiations are now taking place in London among the participants in the Iraq Petroleum Company, a purpose of which is to work out arrangements whereunder any participant in the Iraq Petroleum Company may take quantities in excess of its basic pro rata proportion upon payment of equitable compensation to the other participants. The United States Government has urged its nationals, participants in the Iraq Petroleum Company, to facilitate the effective provision of such arrangements.
The United States Government notes, but is unable to accept the contention of the French Government that, because of the governmental negotiations which preceded and made possible the Group Agreement, it is thereby morally obligated to cause the Group Agreement to be respected. The United States Government has always considered the diplomatic negotiations involving Middle East concessions following the First World War to have been concerned with the broad question of the disposition of concessions in mandated territories on the basis of the open door principle. And upon agreement of the other governments concerned that American companies should have the opportunity to participate in petroleum concessions within the mandated territories of the old Turkish Empire, the United States Government considered, in so far as it was concerned, that the requirements of the open door principle were satisfied. Whether American companies took advantage of the opportunity thus offered, and upon [Page 659] what terms, were considered by the United States Government to be commercial decisions of the interested American companies. The American companies which eventually become participants in the Iraq Petroleum Company kept the United States Government informed concerning their negotiations which culminated in the Group Agreement. Upon presentation of the matter for its consideration at the time, they were informed that the United States Government did not raise objections to acceptance by them of the terms of the Group Agreement as a condition to their participation. The United States Government did not participate in any way in the drafting of the Group Agreement nor in any negotiations among the private parties by means of which it was consummated. On the basis of these considerations, the United States Government is unable to consider the consummation of the Group Agreement to have been other than a contractual arrangement among private parties, to which it perceived no objection at the time the arrangement was negotiated.
The United States Government understands that certain considerations raised recently by some of the participants in the Iraq Petroleum Company, acting upon advice of counsel, have caused the present validity and binding force of the Group Agreement to become open to question. The United States Government takes no position with respect to whether the Group Agreement is or is not valid and considers that this is a legal question arising in a jurisdiction other than its own. Furthermore, the American participants in the Iraq Petroleum Company acted solely on their own initiative and responsibility when they recently assumed additional obligations which are discussed in the Ambassador’s notes under reference. The sequence of events, however, has compelled the United States Government to examine what its position would be if the American participants in the Iraq Petroleum Company were to present to their government for its consideration at this time a new or a reaffirmed Group Agreement containing the so-called restrictive clauses or self-denying ordinances. The United States Government feels constrained to inform the French Government that it considers these restrictive clauses of the Group Agreement of 1928 and any comparable covenants in restraint of competition to be incompatible with the economic foreign policy which it espouses and which it hopes that nations generally will adopt; and it would be compelled so to advise its nationals.
The United States Government has not lost sight of the importance to France of having available adequate supplies of petroleum to enable rehabilitation and reconstruction of the French economy to go forward rapidly and on a sound basis. Nor has it lost sight of the good will shown by France in the negotiations by means of which the open [Page 660] door principle was implemented through American participation in the Iraq Petroleum Company. In addition, the United States Government believes that the continuance of mutual cooperation and good will among the participants in the Iraq Petroleum Company is in the interest not only of the private parties, but also of the Governments whose nationals are concerned.
Accordingly, the United States Government in the aforementioned discussions which it has had with American participants in the Iraq Petroleum Company, emphasized the desirability of the early establishment of a basis of intercompany relations which will harmonize and satisfy to the extent possible the desires and needs of the various parties at interest, and which in particular will permit the French or any other interest in the Iraq Petroleum Company to take more than its pro rata share upon payment of equitable compensation to its partners. The United States Government hopes that the French Government shares with it the desire that the negotiations which are now in progress in London in regard to this matter will have an early and favorable outcome.