867N.6363/9–1048

Memorandum by the Assistant Chief of the Petroleum Division (Moline)1

confidential

United States Position Regarding the Reopening of the Haifa Refinery 2

Background

The refinery at Haifa owned by Consolidated Refineries, Ltd. (CRL) ceased operations on April 12, 1948. Except for a brief period in July when it was operated by the Jews, using stocks of crude at Haifa, it has been closed down. CRL is jointly owned by the Anglo-Iranian Oil Company and the Anglo-Saxon Petroleum Company (Royal Dutch Shell). Socony-Vacuum Oil Company has an agreement under which it purchases 15 per cent of the Haifa output. Normally, the refinery processes 4 million tons of crude oil a year, half of which is received by pipe line from Iraq where the Iraq Petroleum Company (IPC) controls production. Socony-Vacuum and Standard of New Jersey jointly hold a 23.75 per cent interest in IPC. French, Dutch and British companies hold equal shares of 23.75 per cent.

It is the position of the United States that the reopening of the Haifa refinery, using crude oil from Iraq, would be highly desirable. The gain in terms of world oil supplies would be substantial. The cooperation of Arabs and Jews, which would be necessary to the operation of the refinery, would provide an important precedent for cooperation in other matters.

Efforts to Reopen Refinery

The United States Government has since early in May been in close touch with the British, representatives of the Provisional Government of Israel, interested oil companies, and the Mediator3 seeking to achieve through the latter, the reopening of the refinery on a basis agreeable to Arabs and Jews. Efforts to date have not been successful. The chief obstacle to agreement has been Iraqi reluctance to allow crude oil movements to Haifa as long as the refinery is under Jewish control and to the apparent Jewish reluctance to permit the degree of international control of the refinery and its operation which will satisfy the Iraqi wishes.

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The Jewish position on the latter point is not entirely clear, Provisional Government of Israel officials in Israel having indicated an unwillingness to permit United Nations supervision or control of the refinery while a Provisional Government of Israel spokesman in the United States had said such control would be acceptable. A clarification of this point is being sought. The United States Government believes an essential part of any agreement regarding operation of the Haifa refinery is an undertaking by the Jews that any production will be distributed on an historical basis to Arab States as well as Israel. It is not clear whether distribution on this basis would be acceptable to the Provisional Government of Israel in the event refinery operations were as little as 25 or 30 per cent of capacity.

The French have urged in an aide-mémoire of August 264 that the difficulties of effecting a settlement involving international control or supervision of the refinery be recognized and that efforts be directed at present to securing the use of the pipe line for export of crude oil from Haifa. It has been pointed out to the French that the proposal seemed unrealistic in its failure to provide for the petroleum needs of Israel. The Provisional Government of Israel would probably be reluctant to surrender the bargaining power given by control of Haifa until Israel’s petroleum needs had been assured. It was further suggested that oil companies which formerly distributed products in the area might be willing to guarantee regular deliveries of products sufficient for current consumption, as indicated by the Mediator, in return for their shares of crude from the line. Preliminary work on the proposal is being undertaken in order that it may be advanced promptly if it is determined that operation of the refinery on a basis agreed by Iraq and Israel is impossible at this time.

The Provisional Government of Israel has indicated that, in the event crude oil for the refinery cannot be obtained from Iraq, it would prefer to provide for Israel’s petroleum needs by importing crude oil by tanker for operation of the refinery rather than by importing petroleum products. It is attempting, therefore, to arrange tanker imports of crude oil. The United States Government has been of the opinion that operation of the refinery, using crude oil imported by tanker, could only be at a small fraction of capacity and with jeopardy to the more important objective of Arab-Jewish cooperation for normal operation of the refinery.

Summary

In brief, the United States position is

1.
That the prime objective of United States interest in the reopening of the Haifa refinery is its operation on as nearly normal a basis as possible, that is, using, primarily, crude oil from Iraq.
2.
That the secondary objective, which should be sought as soon as inability to achieve the first objective becomes evident, is the use of the Kirkuk-Haifa pipe line for the purpose of exporting the line’s capacity of crude oil from Haifa. It is hoped that agreement necessary for the achievement of this objective would lead eventually to agreement on the operation of the refinery.
3.
That attempts to operate the refinery on any basis likely to nullify efforts in behalf of operation on an agreed basis, or likely to endanger the facility, should be discouraged.5

  1. Transmitted by the Chief of the Petroleum Division (Eakens) in a memorandum of September 10 to the Director of the Office of United Nations Affairs (Rusk). It was prepared for the latter who was on his way to Paris to attend the session of the United Nations there.
  2. Further documentation on the closing of the oil refinery at Haifa is included in the section of this volume dealing with the Palestine question.
  3. On Palestine, Count Folke Bernadotte.
  4. Not printed.
  5. The views set forth in this paper were incorporated in the Department’s memorandum of October 7 to the French Embassy in reply to the latter’s aide-mémoire of August 26. Additionally, the memorandum stated: “The French Embassy will recall that Count Bernadotte’s final report to the General Assembly of the United Nations on his work as Mediator in Palestine contained the conclusions that the port of Haifa, including the oil refineries and terminals, should be declared a free port with assurances of free access for interested Arab countries and an undertaking on their part to place no obstacle in the way of oil deliveries by pipeline to the Haifa refineries. The French Embassy will also recall that the policy of this Government, as stated by Secretary Marshall in Paris on September 21, is one of firm support of all Count Bernadotte’s conclusions.

    “Under these circumstances, it is the opinion of the Department of State that it would be advisable to await the outcome of the discussions in the General Assembly on the Mediator’s conclusions before giving final consideration to the proposal set forth in the French Embassy’s note regarding the exportation of crude oil from Haifa.” (867N.6363/10–748)

    Regarding Count Bernadotte’s views on the Haifa refineries, see the “specific conclusions” of his report, paragraph (e), included in documentation on Palestine, scheduled for publication in part 2 of the present volume; for Secretary Marshall’s statement of September 21, see the circular telegram of that date, ibid.