890.2553/8–2351: Circular airgram
The Secretary of State to Certain Diplomatic and Consular Offices 1
It would be useful for all Embassy officers to be well briefed on the status of oil company negotiations throughout the Middle East so that in their conversations with foreign nationals the broadest contribution to the realization of our objectives in oil can be made. The Department seeks inter alia (a) to defend oil company performance against further attack by Commies, xenophobes, etc., (b) to prevail on producing states to make optimum use of royalties. Objective (a) may be gained by stressing (b). The next phase in Middle East oil may well be increased efforts to get more than 50–50 or take over increased control of companies; attack may provide some defense against such developments. The following talking points may be useful in private conversations, particularly for officers who are not in close contact with oil developments:
- (1)
- All major Middle East producing states have either been offered or have accepted the 50–50 “partnership” profit-sharing formula based on the highly lucrative petroleum laws of Venezuela. Venezuela as largest producing country in the world after the U.S.A. earns over $600,000,000 per year by this agreement. Aramco offered this formula to Saudi Arabia last year; SAG now earns well over $100,000,000 per annum on much smaller production. IPC has offered the Iraq Government this formula; with the completion of the 30-inch Mediterranean pipeline within the next eight months Iraq will similarly earn well over a $100,000,000 per year. The Kuwait Oil Company has offered the small and sparsely settled Sheikhdom of Kuwait the exceptional returns from this formula. If Iran would agree to such a profit-sharing arrangement, they could be expected to earn in the neighborhood of $200,000,000 per year.
- (2)
- Middle East states have been carrying out an aggressive campaign to get more money out of foreign oil companies. This has resulted in driving foreign oil companies out of Egypt, Syria and temporarily Iran to the economic disadvantage and also apparently to the regret of the states themselves. Now that foreign oil companies [Page 329] are doing their part by making such large financial concessions, it remains to be seen what good will come from these huge revenues. Middle East states are faced with a great challenge: is this money to be used constructively to raise the standard of living throughout the Middle East and to minimize the incidence of poverty, disease, ignorance and despair and consequently the spread of Communism, revolution and political murder or will this money result in only benefit for the few as heretofore. Foreign oil operations make it possible, for example, for Kuwait to have one of the highest standards of living in the world since Kuwait will earn enough money to pay each Kuwaiti without working approximately $2.50 per day. Contribution of oil producing states to the welfare of all Arab states as well as their own welfare could he much greater, i.e., contributions to Arab Refugee relief, educational institutions, hospitals, etc. Performance to date has not been impressive.
- (3)
- The Department hopes that comparison of cents per barrel royalties can be generally avoided and the common and equitable principles of the 50–50 profit-sharing stressed instead. The uniformity of the 50–50 principle and its widespread adoption thus provides an opportunity for stability. While profits obviously will vary among the different oil producing states, these can be explained, for example, by transportation distance from major consuming areas. Thus Venezuela earns 65 to 85¢ per barrel, Iraq (proposed) 65 to 75¢ per barrel, Saudi Arabia 55 to 60¢ per barrel, Kuwait (proposed) 45 to 50¢ per barrel. These will vary from year to year and the sooner Middle Easterners can stop making this calculation the better. It is believed that few Venezuelans know the varying cents per barrel rates of return but rather know the gross income.
- (4)
- In the major producing areas such as Iraq, Kuwait, Saudi Arabia, Iran, government leaders have to take the position that they are getting at least as good a deal as their neighbors and preferably better in order to forestall opposition to either existing or pending contracts. Officers at these posts should know of the particularly advantageous terms offered by the local oil concessionaire and should be prepared to stress them where appropriate. The Department, however, in its publicity and propaganda activities must, particularly in view of the Iranian situation, stress the similarity of the 50–50 profitsharing arrangements adopted or being adopted by the major producing countries of the Middle East and Venezuela. This line will be kept out of Iraq and Kuwait insofar as possible in view of unfinished negotiations which might be adversely affected.
- This airgram was drafted by Funkhouser and cleared by Eakens, Dorsz, Meyer, Jones, and Roberts. It was repeated to Ankara, Athens, Tehran, Baghdad, Cairo, Jidda, Tel Aviv, Colombo, Kabul, Karachi, New Delhi, Amman, Beirut, Damascus, Izmir, Nicosia, Salonika, Istanbul, Aden, Basra, Haifa, Port Said, Alexandria, Dhahran, Jerusalem, Dacca, Bombay, Calcutta, Lahore, and Madras.↩