Memorandum by the Director of the Office of Near Eastern Affairs (Hart) to the Deputy Director of the Office of International Materials Policy (Armstrong)1

  • Subject:
  • Your Request for NE Views Re (a) Impact of Anti-Trust Suit in the Middle East; (b) Recommendations Regarding Future Course of Action
[Page 1307]

(a) Impact of Anti-Trust Suit in the Middle East

OIR Report 6104 December 172 contains the NEA answer to question (a). Whereas oil companies tend to equate their current problems in the area to the anti-trust action and the FTC report, NEA considers these recent actions have and probably will continue to have only marginal bearing on oil company difficulties in the Middle East. It is extremely doubtful that any of the pressures now on ME oil companies would have been avoided if the U.S. Government had decided not to publish the FTC report or prosecute under anti-trust legislation. The basic causes for the Western oil problem in the Middle East should be equated rather to (a) social unrest, (b) the controversial fifty-year record of ME oil operations, (c) intimate knowledge of Middle Eastern peoples with the forces and effects of colonialism and imperialism, particularly where connected with oil operations, (d) an ostentatiously successful oil industry which to Near Easterners has always been able to “pay more”, (e) the world’s greatest concentration of oil which offers the only means of bringing the greater part of the Middle East into the 20th century immediately, (f) an oil industry which serves as a “whipping boy” for Western and particularly U.S. support for Israel.

Against such deep-seated forces the report and suit mean little, except to add friction where no further friction should be added. The FTC report, principally, and to a lesser extent the anti-trust suit, have lent support to those many Middle Easterners who already are criticizing oil operations. Both these actions will probably prove damaging to settlements of Western problems in the Middle East over the short run. Both actions have served to confirm popular views of Near Easterners that they have had a “raw deal”. Another year of headlines would further complicate the problem.

Among the more intelligent leaders in the Middle East it might be expected that the U.S. Government would stand to gain by supporting the interests of Near Eastern States and the public at large by such self-criticism; it is action not to be expected from either the colonial powers or Communist governments and is consequently somewhat surprising to Middle Eastern peoples. The more intelligent ME student, official, teacher may well have had his faith in the U.S.G. and people strengthened by such action. Unfortunately, however, these voices are not too frequently heard or listened to in the Middle East. Therefore the quick conclusion that the oil companies are guilty can be expected to be the most widespread reaction, to our discomfiture.

The above represents the short-term impact; the long-term impact would presumably depend on what good might come from [Page 1308] the Justice action. The need for remedy is apparent. The Justice Department would undoubtedly claim, as would the FTC Board, that to increase the competitive aspects of Middle East oil would decrease the possibilities of nationalization, and do the most good for the most people in the free world over the long run. NEA agrees with this principle and has consistently worked toward this goal. A strong case can be made that had both British and American companies been operating in Iran, the Anglo-Iranian Oil Company would never have been nationalized. The case is based on the assumption that AIOC would have been forced by a competitive environment in Iran to have adopted many years earlier the demands which were made on the company prior to nationalization. It is also patently more difficult to nationalize and organize an oil industry consisting of many companies than it is of one centralized company.

NEA also believes that a case can be justly made that the large oil companies in the Middle East may not be induced into a more competitive environment by government suggestion alone. This has been tried by the State Department over the years without too impressive effects in the Middle East. In fact cooperation with oil companies may have increased following the FTC report.

Pressure from an Inter-Departmental group such as State, Defense and Interior could from a realistic point of view be expected to produce even a lower common denominator of positive results, as has been seen from previous Inter-Departmental attempts to find Inter-Departmental solutions to the basic oil problems in the Middle East.

Therefore, from a practical standpoint, action to produce important and far-reaching corrective measures may perhaps only be possible by taking the critical facts to the public, facts which perhaps too long have been kept from public view on grounds of strategic and political considerations. Whether the U.S.G. can afford the luxury of the long-term solution at risk of short-term increased friction in the NE is consequently one of the vital questions.

(b) Recommendations Re Future Course of Action

NE has not yet reached any conclusions regarding a future course of action. Withdrawal of the law suit might indicate to the Middle Eastern States a U.S. Government.“whitewash” following the traditional colonial practice of identification of oil companies with foreign governments. The slanted FTC report will be read and believed in the area, and both government and industry criticized for non-prosecution. Whether or not this criticism would be more serious than a series of headlines following a year of lawsuit is difficult to determine. The difference between criminal action and [Page 1309] civil action is probably too refined for those Middle East minds with which we are concerned in this problem; it might provide little solution from strictly an NEA point of view, unless it served to diminish headlines.

In the presence of only poor alternatives, NEA would probably have to make a “command decision” balancing the need for short-term benefits against long-term solutions. In such a case, the situation in the NE is considered such that the short-term answer may have to be seized, i.e. by squashing the headlines and perhaps the lawsuit; by endeavoring to commit the oil companies to desired policy changes in camera, while working to remove basic causes of ME discontent with the West. This course may at least delay the day of more serious crisis in Middle East oil and really provides no solution to Middle East oil problems except a play for time.

(Note: The Eisenhower Administration presumably will take this course of action in any case.)

  1. Drafted by Richard Funkhouser of the Office of Near Eastern Affairs. Attached to the source text were two brief typewritten notes. One, dated Dec. 23 and addressed to Hart from Stephen P. Dorsey, the Officer in Charge of Economic Affairs in the Office of Near Eastern Affairs, stated that appointment of a special commission would be desirable in order to deflect Arab comment that the whole matter had been dropped as a result of the oil companies’ influence. According to Dorsey’s note, it was also important that there be a careful study of the causes of the present situation and the policy changes which the U.S. Government desired. The other note was from Hart to Armstrong, dated Dec. 24, in which Hart said, “I had to delegate this memorandum and I am sure that it covers exactly the points you had in mind, and I am informed that you must have it this morning. However, I am sending it along as a tentative think-piece by NE, very tentative indeed. Please read NE wherever NEA, mentioned in the memorandum as ‘believing’ or ‘feeling’, on this problem. This matter is so serious and has such ramifications that spot studies like this cannot be considered as representing the considered opinion of this office.”
  2. Ante, p. 1293.