The Secretary of State to the Director of the Office of Defense Mobilization (Flemming)1


Dear Mr. Flemming: This letter supplements and brings up to date the Department’s report of March 30, 19542 on the steps taken to carry out the course of action set forth in Paragraph 15 of NSC 97/6.3

The Department is continuing its efforts to encourage friendly countries, informally and in a spirit of cooperation, in the adoption of policies favorable to oil development within their territories. Oil exploration and development require a very high degree of technical competence and large capital resources which are normally available to underdeveloped countries only from private sources. The Department, therefore, wherever and whenever appropriate, and in such a manner as not to interfere in the internal affairs of other nations, encourages and assists friendly foreign countries in the establishment of conditions favorable to oil development by private capital.

The most notable event since the report of March 30, 1954 has been the conclusion of the agreement which ended the dispute over Iranian oil.4 Some oil has already been shipped under this agreement and the Iranian oil fields and refinery will soon be operating again on a substantial scale.

Favorable developments have also occurred in other countries. Bolivia has substantially increased her production of crude oil and is showing a willingness to grant additional concessions on favorable terms to outside private capital. At least one large U.S. company is seriously interested in securing a concession and investing large funds in oil exploration and development. Argentina continues to show an interest in attracting foreign oil capital, particularly since her Government oil monopoly has been unable to produce enough oil to meet domestic requirements and reduce the heavy exchange outlays for oil imports, and has entered into negotiations with several large private companies. No agreements have been reached. Venezuela has granted no new concessions but there are indications that new concessions may soon be awarded. Cuba issued a new law on August 10, 1954 to stimulate oil exploration and development by private capital. Several oil companies, including [Page 1257] some of the major companies, have undertaken oil exploration work in Cuba. Guatemala is working on a new petroleum law which it hopes will encourage private oil exploration in that country. Brazilian oil field development remains at a standstill under the Petrobras law which prohibits foreign participation in oil exploration and development. The failure of the Government monopoly to find significant quantities of oil and the large exchange outlays for petroleum imports have caused some Brazilians to question the soundness of the Petrobras law and to urge that the participation of foreign private capital be permitted. This whole question is now under active consideration within the State Department. Chile is also considering the enactment of legislation which would permit private capital to participate in oil exploration and development.

Under the policies outlined above new opportunities are opening up for oil exploration and development in the free world, private oil companies who are interested in expanding their oil exploration and oil field development work wherever the investment climate and oil legislation are favorable are going into the new areas, and free world petroleum productive capacity and proved reserves are at a high level and continue to increase.

The Department believes that the policies which are being followed as outlined above offer the best prospects of success and recommends that they be continued in effect.

Sincerely yours,

For the Secretary of State:
Thorsten V. Kalijarvi
Acting Assistant Secretary for Economic Affairs
  1. Drafted by Earl R. Beckner of the Petroleum Staff.
  2. Ante, p. 1139.
  3. Dated Nov. 16, 1953, p. 1054.
  4. Regarding the agreement under reference, see volume x.