886D.2553/10–451
The Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (McGhee) to the General Counsel, Department of the Treasury (Lynch)
My Dear Mr. Lynch: Although I can in no way comment on the tax features involved in the Gulf Oil Corporation’s reorganization of their interest in the Kuwait Oil Company or in the plans of the Kuwait Oil Company to give the Sheikh of Kuwait a 50/50 profit-sharing arrangement, I am glad to submit the following observations arising out of our Middle East policies:
First, the Department of State has generally followed a policy of encouraging American corporations to operate directly in the Middle East area rather than through subsidiaries in third countries. This latter method of operation results in a weakening of United States influence over American interests in the area of operations. While certain undesirable features of Gulf’s present contracts with the British Government and interests remain unchanged in the proposed reorganization, the Gulf proposals do envisage the establishment of a direct American ownership of one-half of the assets in the Kuwait concession. Through this reorganization the Company also hopes to protect itself against the possibility of any eventual nationalization of the British oil industry.
Secondly, the stability of oil concessionary arrangements with Middle Eastern states has a direct effect on the stability of the area and the total United States national interest in the area. As you know, [Page 333] developments in Iran have had a seriously disrupting effect on the Middle East oil situation. The Arabian-American Gil Company avoided similar frictions in Saudi Arabia by offering a 50/50 profit-sharing arrangement which followed the concessionary pattern existing in Venezuela. Similar terms have now been offered to Iraq and Kuwait, two areas of vast oil resources and of great interest to the United States. The Department has felt that the establishment of equitable and comparable arrangements in the major producing oil areas of the Middle East would have a beneficial effect on the overall stability of the area. Contrariwise, the prevention of the adoption of such arrangements could, particularly at this time, have an unstabilizing effect on Middle East oil concessions and on our national interest in the area. In so far as this reorganization makes practicable a 50/50 offer by the Kuwait Oil Company, it does contribute to the above policy objectives.
Sincerely yours,