891.6363 AIOC/1–2948

Memorandum by the Director of the Office of Near Eastern and African Affairs (Henderson) to the Secretary of State 1

confidential

Discussion:

Mr. George Koegler, Counsel for Standard Oil Company (N.J.), with Socony Vacuum Oil Company concurring, left with me the enclosed letter dated January 292 indicating that the refusal early in January of the Prime Minister of Iraq to grant a pipeline right of way to Standard and its associates will probably necessitate the abandonment of the proposed pipeline project. The Prime Minister took the position that Iraq would not grant a pipeline right of way to any company in which any American capital participates because of the United States position regarding the Palestine question.

The project, if completed, would transport from 400,000 to 500,000 barrels daily of crude oil from Kuwait and Iran to the Eastern Mediterranean; would be owned 50% by Anglo-Iranian, 40% by Standard, 10% by Socony, and would be constructed of pipe 32″ to 34″ in size.3 The pipe would be manufactured by Consolidated4 beginning not later than fulfillment of orders for the Aramco pipeline. Standard’s participation is indispensable to the project because of financial arrangements whereunder Standard is to be the principal source of dollars needed for the purchase of the pipe.

Standard feels it is impracticable to undertake construction of some 80 to 90 tankers required to move a volume of oil at the rate of 400,000 barrels daily, a distance by water approximating 4,000 miles as compared to some 900 miles by pipeline because of excessive expenditures in money, steel and power machinery involved in the use of tankers as compared with the pipeline.

Although there has been a change in government since Standard was rebuffed early in January, it is believed that the new government in Iraq would be even less likely to grant a pipeline right of way than its predecessor and accordingly an approach under the present circumstances would serve no useful purpose. Thus if the United States or United Nations position regarding the Palestine question and the decision of the Government of Iraq based thereon remain unchanged, [Page 6]it appears that during a period of global oil shortage a pipeline project probably will be abandoned which would otherwise make available some 400,000 to 500,000 barrels of oil daily. The impact of this loss in oil supply will be felt primarily in Western Europe, the normal consumption area of oil from the Middle East. According to the Harriman, Krug and Herter reports the European Recovery Program may be seriously retarded without Middle East oil.

The Department’s proposed reply states that the oil of the Middle East is an important factor in the success of the European Recovery Program, in the continued recovery of Europe and in our own national interest. It is suggested that the company take no action at this time which would result in the abandonment of the project.

Recommendation:

It is recommended that the Department’s proposed reply to Standard be approved.5

Concurrences:

PED A–A

L[oy] W. H[enderson]
  1. Addressed also to Under Secretary of State Robert A. Lovett.
  2. Not printed.
  3. Mr. Koegler informed Mr. Henderson on March 10 that AIOC desired to enlarge the size of the proposed pipeline and that the American partners did not wish to increase their share of the oil flow. Since it was necessary to reconcile the partners’ percentages of stock ownership with percentages of pipeline capacity, it had been tentatively agreed that ownership would be divided as follows: AIOC 60.9%; Jersey Standard 24.7%; and Socony 14.4% (memorandum of conversations, by David A. Robertson of the Office of Near Eastern and African Affairs, 891.6363 AIOC/3–1048).
  4. The Consolidated Steel Company, a California corporation.
  5. Mr. Henderson’s proposed reply of January 30 not printed. The Secretary of State, in a memorandum of February 19 to Mr. Lovett, noted the desirability of coordinating closely with the Departments of Defense and of the Interior. The memorandum concluded with the query: “Why shouldn’t the letter be stronger and point out the national interest of taking no action which would lead to abandonment of the project at this time?” For the reply acually sent to Mr. Koegler on March 8, see p. 7.