886A.2553/8–2950: Despatch

The Consul General in Dhahran ( Hart ) to the Secretary of State 1

confidential
No. 15

Subject: Bahrein Petroleum Company’s (Bapco) Position as Sterling Company

Russell M. Brown, General Manager of the Bahrein Petroleum Company, Ltd. (Bapco), informed me brifly on a recent visit to Dhahran that he has been in correspondence with the company headquarters in New York regarding plans of Bapco and Caltex to ensure the status of Bapco as a sterling company by segregating Bapco’s production and sales sharply from its services as a processor of Saudi Arabian crude. Under the plan envisaged by Bapco’s headquarters, Bapco would continue to produce and refine Bahrein oil with a minimum of dollar costs and sell it through sterling Caltex marketing organizations, such as Caltex India. Arabian crude, which comprises roughly ⅘ of Bapco refinery through-put, would be imported into Bahrein by a dollar Caltex organization as dollar oil, refined by Bapco on a fee basis, and sold by the dollar Caltex organization as dollar oil.

What Aramco’s parent organizations will have to say about this plan was not elucidated. Since Bapco now does more than one-half of the local refining of Aramco’s oil, it may be that this project will be consistent with the recent sterling agreement between Aramco parent companies and the British Government. Apparently the plan is in the exploratory stages, and as Brown gave me this information in confidence, and without time to elucidate, I have felt it unwise to [Page 74] query anyone else on the matter. Possibly, however, the Department will be able to piece the news into a broader picture.

Brown indicated that he had objected to the plan, in a communication to New York, pointing out that Bapco has the exclusive right to import crude oil into Bahrein free of duty. Should a Caltex organization try to assume this privilege the Shaikh of Bahrein might forthwith demand duty; since he has assured Brown that had he been Ruler when Bapco’s concession was granted, he would never have agreed to the inclusion of this privilege. (This privilege appears to be implicit in Article III of the Concession as amended by the deed of June 3, 1936.)

Parker T. Hart
  1. Repeated to Jidda and Cairo.