Foreign Relations of the United States, 1951, The Near East and Africa, Volume V

886D.2553/6–451

Memorandum of Conversation, by Richard Funkhouser of the Office of Near Eastern Affairs

secret

[Washington,] June 4, 1951.

Subject: Gulf Oil Company Difficulties Regarding Kuwait Concession

Participants:	Colonel Drake, Chairman, Gulf Oil Corporation
	NEA—Mr. McGhee
	NE—Mr. Funkhouser

Colonel Drake stated that on June 1, 1951 Mr. Jackson, Vice-Chairman, and Mr. Anderson, Comptroller, of Anglo-Iranian Oil Company conferred with the following officials of British Government at joint meeting:

Representative of Foreign Office

Representative of Ministry of Fuel and Power

Representative of Treasury and Tax Authority

Representative of Bank of England

Representative of Inland Revenue

Messrs. Jackson and Anderson presented the tentative agreement which Gulf Oil Corporation and AIOC had reached relative to increasing the revenue of the Sheikh of Kuwait from oil concession now in the possession of Kuwait Oil Company, Ltd.

No representative of Gulf was permitted to attend this meeting. After the meeting Mr. Jackson reported to Gulf that at the meeting no objection to the proposal was raised by anyone except the representative of Inland Revenue who made following statement:

1. Kuwait—a British protected state—has no income tax and doesn’t need one.

2. If Kuwait is permitted to impose an income tax, such action might have wide repercussions on revenues of British Government—for example, similar action might be taken in Iraq and Persia.

3. If Kuwait imposes such a tax, it might not come within the purview of British Finance Act of June 1950, granting tax credit to British corporation operating in foreign countries.

4. Memorandum to above effect is to be delivered to Chancellor of Exchequer by said Inland Revenue representative.

Mr. Jackson told Gulf representative (Mr. Proctor) that he thought Inland Revenue Department could finally be induced to approve proposal of Gulf and AIOC, but that it might take several months to do it and suggested that as a “stop gap”, the royalty to Kuwait be increased to about 30¢ per barrel on a temporary basis, without prejudice to a final settlement along lines of Gulf–AIOC proposal.

Mr. Jackson told Mr. Proctor, also, that Inland Revenue representative suggested that U.S. Government be informed of possible harmful effect on British Government revenues that might result from income taxes imposed by British protected states.

Mr. Proctor told Mr. Jackson that Gulf was strongly opposed to any further delay in this matter and therefore could not agree to the proposed “stop gap”. This means that an impasse has now been reached unless British Government overrules the Inland Revenue representative.

Mr. Proctor has informed Mr. Palmer and Mr. Penfield of U.S. Embassy in London of what occurred at above meeting of June 1, 1951, and asked that Ambassador Gifford see Mr. Morrison, Secretary of Foreign Affairs, immediately and urge that Gulf–AIOC proposal be pushed through with all possible speed. Mr. Palmer and Mr. Penfield promised to help but doubted if anything further would be done without instructions from Washington.

Mr. Proctor said that Victor Butler of Ministry of Fuel and Power was not at June 1 meeting owing to attendance at the International Petroleum Conference in The Hague, but Mr. Proctor is to see him today (June 4).

Colonel Drake stated that only with the cooperation of Mr. Jackson of AIOC could Gulf have overcome the traditional Fraser stubborness. Colonel Drake stated that Sir William Fraser had openly taken the position that he would not agree to the Gulf proposals. Colonel Drake also stated that Sir William Fraser appeared extremely bitter about the operations of American companies in the Middle East, specifically he blamed Aramco for AIOC difficulties in Iran.

Mr. McGhee thanked Colonel Drake for bringing this information to the attention of the Department and stated that he would ask Ambassador Gifford to intercede again in this matter.¹ Mr. McGhee added that the British Government should be able to resolve the impasse which existed in U.K. Government circles. Colonel Drake made an appointment to see Mr. McGhee on June 6 to learn the results of the action contemplated.

1. Telegram 5644 from Washington, June 4, advised the Embassy in London of this conversation and reported the Department of State hoped the British Government could make an immediate and favorable disposition of the problem. McGhee believed the Ambassador’s personal intercession would be appropriate, and he suggested that early announcement of a new profit-sharing agreement in Kuwait would have a beneficial effect on the negotiations in Iran and Iraq. (886D.2553/6–451)

   Telegram 6347 from London, June 5, informed McGhee the Embassy had been in close touch with Gulf officials and the British Foreign Office and had been informed that the Anglo Iranian Oil Company would sign a long-term agreement with Gulf that day and meet with the Foreign Office after the signing. Since the Foreign Office had informed the Embassy the Inland Revenue Office should reach a decision within the next week, the Ambassador did not think his personal intercession at the present time would be helpful but promised to continue to watch the situation closely. (886D.2553/6–551)