880.2553/4–1451: Telegram

The Ambassador in the United Kingdom (Gifford) to the Department of State


5434. 1. Drake, chairman Gulf, called on me yesterday prior his departure for US to report status Gulf’s discussions with Anglo-Iranian Oil Co on problem of increasing Kuwait’s oil revenues. Drake says impasse has been reached with Fraser, chairman AIOC, who objects Gulf transferring its 50 percent interest Kuwait concession to separate US corp which Gulf proposed be set up for purposes. Fraser apparently now concedes necessity giving Kuwait benefits comparable Aramco terms, but due to his objection to transferring Gulf interest to US subsidiary, it has not been possible to discuss other details of proposed arrangement for increasing revenues. Drake firmly convinced necessary apply Aramco principle to Kuwait order given Sheik terms which wld compare favorably with those given to Saudi Arabia, permit Gulf take advantage of US tax credit, and avoid necessity raising basic Kuwait royalty rate (thus increasing fixed charges which might make Kuwait oil non-competitive).

2. Order to solve this impasse Drake believes it may be necessary for Dept to make high level approach to Brit Govt in support Gulf’s position to HMG will “persuade” Fraser change his stand. Drake plans consult with Dept on this matter next week following his return. Proctor and Hamilton, Gulf Vice Presidents, remaining London until latter part of April to work out detailed arrangements if above problem can be resolved.

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Altho specifically pressed, Drake cld not explain what valid reasons Fraser has for objecting to Gulf proposal.1 Drake seems assume that basic reason is Fraser’s reluctance to see what he fears is further American penetration into Kuwait.

Drake says Gulf willing continue all safeguards Brit interests now applying under present set-up.

  1. Telegram 4833 from Washington, April 21, advised the Embassy in London the president of Gulf had assured the Department there was no question of a separate concession. The reorganization was being sought by Gulf “solely secure maximum US tax benefit without altering management status quo.” The Department had been discussing the matter with British officials in Washington and suggested the misunderstanding might be resolved by a fuller explanation to the British Foreign Office and further discussion between Gulf and its British partner. (880.2553/4–1451) Telegram 5579 from London, April 24, reported the Foreign Office was reexamining Gulf’s proposal, since it appeared that the possible complications involved in transferring the title of Gulf’s interest to a U.S. corporation might not be as serious as previously feared. (880.2553/4–2451)