886D.2553/10–2551
The Acting Secretary of State to the Secretary of the Treasury (Snyder)1
My Dear Mr. Secretary: I would like to present for your consideration the Department’s position regarding the Kuwait Oil Company’s concession contract renegotiation with the Sheikh of Kuwait and its implications on United States foreign policy objectives in the area.
Some 46 billion barrels of oil or half of the world’s oil resources lie in the Persian Gulf area. These oil resources are essential to the Western world. Retention and use of a part of this oil is vital to the national security of the United States. The stability of concession contracts in the area are consequently of paramount interest to the State Department and essential to the stability of the Middle East as a whole.
[Page 334]Developments in Iran have had a seriously disrupting effect on the Middle East oil situation. The Arabian American Oil Company avoided similar frictions in Saudi Arabia by offering a 50/50 profit-sharing arrangement which followed a concessionary pattern existing in Venezuela. Similar terms have now been accepted by the Iraq Council of Ministers. By reorganizing its Kuwait interests under direct American ownership, Gulf Exploration Company would be placed on a similar basis to the companies operating in Saudi Arabia and Iraq in regard to its ability to offer a 50/50 arrangement to Kuwait. I attach great importance to the earliest possible decision by the Treasury Department on this reorganization issue.
It has been estimated that the Sheikhdom of Kuwait contains the largest proven oil reserves in the Persian Gulf. The Burghan Field is considered the largest oil field in the world. Reorganization would give the Gulf Exploration Company a direct rather than indirect interest in these immense oil resources. The Department strongly favors this direct interest. There is only one American oil company producing oil in the whole Persian Gulf region. A direct Gulf interest in Kuwait would mean that 70% of current production of the Middle East would be subject to direct American ownership. Even if Iran were producing at full capacity, American interests would with such reorganization of Gulf interests directly own well over half of Middle East production. By direct ownership the attainment of overall United States foreign policy objectives as well as the removal of certain disadvantageous aspects of the present contract could be better effected. These disadvantageous aspects now include possibility of negotiation of industry by the British Government, pre-emptive purchase rights by the British Government, and restrictive trade arrangement written into the 1933 contract. As you know, the State Department is largely responsible for overcoming original British objections to even indirect American company participation in Kuwait oil development and for most recently securing for Gulf Exploration Company British permission to have a direct American interest in the concession.
I understand the top ranking officials of the Gulf Exploration Company have been in London many weeks awaiting a decision from the Treasury Department on their reorganization application. The earliest possible decision regarding Gulf’s application for reorganization would contribute to the resolution of our Middle East oil problems. This is particularly desirable at this time.
Sincerely yours,
- This letter was drafted by Funkhouser on October 24 and cleared by McGhee, Jones, and Eakens. It was attached to a memorandum from McGhee to the Secretary of State, dated October 24, recommencing that the Secretary sign the letter. The memorandum advised the Secretary that the Treasury Department considered the Department of State letter of October 4 indicated no important interest in the Gulf problem and had suggested that if the Department of State had a position it felt Treasury should take into consideration it should submit that position in a new letter. The closing paragraph of the memorandum read: “It seems obvious that Treasury wants State to take responsibility for any positive decision to Gulf. They refuse to say how soon they will take this decision or what the decision will be without any representations from State. Whereas we cannot tell them what decision to make, we can and should make clear our position that they should make up their minds one way or the other immediately, and the attached letter has been prepared for that purpose.”↩