800.2553/2–1554
The Assistant Secretary of State for Economic Affairs (Waugh) to the Director of the Office of Defense Mobilization (Flemming)1
My Dear Mr. Flemming: In your letter of February 1, 19542 you requested a report before March 31 on the steps taken to carry out the course of action set forth in Paragraph 15 of NSC 97/63 so that a report could be made to the Council at the end of the present quarter. This letter indicates the present status of the problem.
The general approach which the Department has adopted in attempting to achieve the objectives of Paragraph 15 has been to encourage friendly foreign countries, informally and in a spirit of cooperation, in the adoption of policies favorable to oil development [Page 1140] within their territories. Such an approach has seemed to hold more promise of success than more direct alternatives in view of the intense feeling of nationalism with which some peoples regard the question of oil development. Because of the highly technical nature of the oil industry and the large capital required for exploration and oil field development, such work can normally be carried out only with great difficulty, if at all, by underdeveloped countries without the aid of outside private capital working under a sound petroleum law and/or concession agreement. Accordingly, wherever and whenever appropriate, and in such a manner as not to interfere in the internal affairs of other nations, the Department encourages and assists friendly foreign countries in the development and establishment of conditions conducive to oil development by private capital.
The most notable recent change in oil policy by a friendly foreign country was announced by Turkey last year. That country, after endeavoring for many years to develop its oil resources as a government monopoly, decided to abandon such efforts in favor of private capital. In the early stages of this reversal in oil policy, Turkey received the advice and assistance of the American Ambassador. Later, Turkey engaged American consultants to draft the necessary legislation, and the new petroleum law was passed by the Grand National Assembly on March 7, 1954. Even before its enactment a substantial number of oil companies had become actively interested in oil exploration and development.
In the recent past in other countries, developments have been both favorable and unfavorable. Under favorable laws and policies oil development in Canada has witnessed unprecedented growth since World War II. Proved crude oil reserves are currently estimated at 1.95 billion barrels compared with only ½ billion barrels five years ago. During the same period production rose from about 34,000 to 220,000 barrels daily. With development continuing on a large scale it may be expected that both reserves and production will increase, thereby further adding to this important nearby source of oil.
In South America both Colombia and Peru have enacted more favorable oil legislation and, in Peru particularly, oil exploration is now in progress by a large number of new companies. The first new foreign oil operation in Bolivia since expropriation of the oil industry in 1937 is being undertaken and there are recent indications that Argentina is looking more favorably upon enlisting the aid of foreign capital in oil development. Argentina has not permitted any increase in the area of foreign oil concessions in the last twenty-five years. Venezuela has been outstanding in its cooperative attitude toward foreign oil companies, most of which are [Page 1141] United States owned. Production is at the high level of approximately 1.9 million barrels per day. While no new concessions have been granted since 1945, the Government of Venezuela is currently giving consideration to opening new areas for exploration and development by private capital. Whether or not such concessions will be granted is not yet known. One question which no doubt has a bearing on Venezuelan policy is the possibility of United States restrictions on petroleum imports. If Venezuelan production is to continue to expand with increasing world demand, the opening of new areas to exploration and development is essential. The latter would also be important from the standpoint of our national security.
In Cuba exploratory activity is underway on a small scale. The Cuban Government has made known its desire to have foreign capital participate in oil development under favorable terms and has offered to match the capital expenditures which foreign companies are willing to commit in the drilling of wells. Brazil, on the other hand, has recently enacted legislation which places all exploration and development work in the hands of a government monopoly and precludes completely participation of foreign capital in the development of Brazilian oil resources. After many years of effort by the National Petroleum Council, an entity of the Brazilian Government, Brazilian crude oil production is insignificant in comparison with national requirements.
In North Africa and the Mediterranean area other favorable developments are underway. Egypt has recently granted a large new concession to an American company. The same company has also obtained a concession in British Somaliland. Libya is giving consideration to the enactment of a new petroleum law which, if enacted, will enable concessions to be granted on terms acceptable to the foreign oil companies. In the meantime, preliminary exploratory work is being undertaken by some foreign companies under the general mining law. In Europe the most significant recent development has been the discovery of oil in Sicily.
In addition to activities encouraging the development of greater oil production capacity in the various countries, the Department has been working closely with the British and the Iranian Governments in an effort to bring the Iranian oil fields back into full production.
With regard to the availability, distribution and effective use of petroleum supplies in the event of war, the Department actively participates in developing the United States position on the various issues and in coordinating United States efforts in connection with the NATO Petroleum Planning Committee.
Under the policies outlined above ever-increasing petroleum production and proved petroleum reserves have become available. The [Page 1142] private petroleum companies have shown great interest in widening their exploration and oil development work as favorable laws are adopted and new concession areas become available on satisfactory terms. At present, free world petroleum supplies are at a high level and, if current trends continue, they should be able to keep pace with the increasing free world demand. The Department believes that the policies which it has followed as outlined above offer the best prospects of success and recommends that they be continued in effect.4
Sincerely yours,
- Drafted by Eakens and cleared with Willis C. Armstrong.↩
- Not printed. (800.2553/2–154)↩
- Dated Nov. 16, p. 1054.↩
- In a letter of Apr. 5, Flemming thanked Waugh for the information contained in this letter and promised to incorporate it in a progress report on NSC 97/6 which was due in May. (800.2553/4–554) The progress report, May 27, 1954, is in the S/S–NSC files, lot 63 D 351, NSC 97 Series.↩