493.419/7–1850

Memorandum of Conversation, by the Officer in Charge of United Kingdom and Ireland Affairs (Jackson)

secret

Subject: Oil Shipments to Communist China

Participants: Mr. H. A. Graves, Counselor, British Embassy
Mr. R. Burns, Counselor, British Embassy
Mr. K. R. C. Pridham, Third Secretary, British Embassy
Mr. E. M. Martin, RA
Mr. Willis Armstrong, ER
Mr. R.N. Magill, CA
Mr. Wayne G. Jackson, BNA

The British Embassy representatives called at the Department’s request to review certain matters relating to British decisions regarding oil shipments to Communist China. Mr. Graves read at length from the cable which the Embassy had received from London, the substance of which had been conveyed to the Secretary and Mr. Rusk over the week-end.

In substance this message stated that the British Government had decided “to interrupt the flow of oil to China from British sources”. In carrying out that decision the British Government wished to act in such a way as not to appear to be discriminating against the Chinese Communists, wished any action to be taken by the United Kingdom Government and not by the Hong Kong authorities, and considered any action should be overt so as to protect the Shell Company and its employees by enabling them to say that they had acted as a result of a force majeure and not on their own initiative. Accordingly, the British Admiralty was requisitioning all stocks of petroleum products in Hong Kong, intending to include stocks held by American companies. In addition, they had recalled a tanker which was carrying gasoline to North China.

The British were prepared to have all petroleum products put on the International List I, used in connection with East-West trade and to apply such controls in Hong Kong and Singapore. The British wished to know whether the United States could agree to the adding of petroleum products to List I, to apply List I to China, and whether the United States would take initiative in the matter.

The British also referred to the possibility that oil might go to China from sources outside of the jurisdiction of the countries applying List I, e.g., Indonesia, and wished to know the Department’s views [Page 652]on this matter. Mr. Graves left a copy of an extract from their instructions from London, dealing primarily with the List I problem. A copy of the extract is attached.1

The British were anxious to act with great caution in giving publicity to this matter and requested that we not make public their decision to shut-off oil to China. Mr. Graves advised that on the morning of July 18 a press release had been issued in London announcing that the British Admiralty had taken over all stocks of British oil in the theater. Mr. Graves left a copy of an extract from the press release, copy of which is attached.2

During the course of discussion the problem was raised of shipments to China from sources other than Hong Kong. As a result the British representatives were asked and agreed to attempt to obtain a clarification of whether the British Government considered that the requisitioning of stocks by the Admiralty took care of the problem for the immediate future in the sense that that action would, in fact, effectively interrupt the flow of oil to China from British sources.

With respect to adding all petroleum products to List I various points emerged. Aviation gasoline, additives, blending agents, and lubricants are already on List I. The procedures of the Consultative Committee in Paris were fairly slow and it might take some time for action to be completed there. Furthermore, there might be some difficulties in obtaining satisfactory action through this mechanism of the international list. In summary the Department representatives stated that the United States was not opposed in principle to the addition of all petroleum products to List I and had, in fact, suggested the List I controls now in effect, and proposed other petroleum products be included in List II. Likewise, in principle, the United States would support the application of List I controls to China and had, in fact, been urging it in Paris. The United States was willing to take the initiative in Paris and to cooperate with the British in meeting their general problems. The British had indicated that they wished to have petroleum, products added to List I so that they could have a general policy backing for their specific action with respect to China and not appear to be discriminating against the Chinese Communists in relation to other Soviet sphere countries. The Department representatives stated, however, that they would wish to consult their representatives [Page 653]in Paris as to what would be the best tactics and procedure in order to achieve the desired objective of a generalized embargo of petroleum to Communist China. They, therefore, proposed to communicate with the United States representatives in Paris to seek their advice, requesting that they discuss the matter with the British representatives in Paris. Upon receipt of this advice the matter would be discussed further with the British.

The British said that it was intended to release petroleum from the stocks requisitioned in Hong Kong as local Hong Kong needs demanded. It would presumably be necessary in time to replenish the Hong Kong stocks. It was agreed that a procedure would have to be worked out so that the United States companies could take part in this replenishing.

The Department representatives said that they had been checking as to the extent of United States controls on petroleum shipments and could reassure the British that shipments were under control and that the United States Government was moving to stop-up potential loopholes by seeking the cooperation of American companies which operated outside the United States. The United States was anxious to cooperate in any way which could terminate petroleum shipments to China at this time.

Reference was made to the matter raised by Ambassador Franks with the Secretary on July 13 which involved rumors of shipments of gasoline to Latin America which were then diverted to China. As a preliminary report, the Department said that it had been impossible to find any substance in these rumors but that a fuller report would be given to the British Embassy in the near future.3

[Page 654]

The Department representatives asked for clarification concerning British measures, other than the Hong Kong requisitioning, which would render an embargo effective. They also suggested that the proximity of Vladivostok and other Soviet ports to Korea warranted action to prevent shipments to those destinations; the United States is already taking such action.

  1. Not printed.
  2. The text of the attached extract from the press release reads as follows:

    “Shell’s supplies to China in the first six months of 1950 amounted to some 26,000 tons (all products together) which is less than 10% of China’s civilian requirements. This compares with Shell’s total trade with China in 1918 of 257000 tons and 82300 tons in 1949.

    “This question is now academic in view of the fact that the British Service departments have found it necessary to take over all stocks of British oil in the theatre (from which deliveries to China are made) for their own requirements in connection with the action being taken in support of the Security Council resolutions on Korea.”

  3. On August 2, the following memorandum was transmitted to the British Embassy by the Department of State:

    “Reference is made to recurring rumors that petroleum products of American origin are reaching Communist China through indirect channels, especially by way of Latin America.

    “Similar reports have been received by the Department of State from time to time and each one of them has been carefully investigated. No evidence of such transshipment of any petroleum products presently under license control for export from the United States to Latin America has been discovered, and the Department of State is confident that no transshipments of such products in significant quantities have occurred.

    “The products under license control for export from the United States to Latin America include aviation gasoline and aviation lubricants, motor gasoline, the higher grades of lubricants of all kinds, diesel and fuel oils, and crude petroleum.

    “The lower grades of lubricants are not now under license control for export to Latin America but steps are being taken to place all petroleum products under such control.

    “With reference to the activities since June 29, 1950 of American oil companies supplying the Far Eastern market, the Department of State has received assurances from them that they will not sell or ship either to the Chinese Communists or to the North Koreans any type of petroleum product from any source under their control. Moreover, they have assured the Department that they will not sell to any third party suspected of acting as an agent for the Chinese Communists. At the request of the Department, they have ceased all shipments and cancelled all outstanding contracts.” (493.009/7–2650)