PPS files, lot 64 D 563 “Strategic materials (oil)”

No. 265
Memorandum of Conversation, by the Director of the Policy Planning Staff (Nitze)



  • Problems of American Oil Company Operating Abroad


  • State
  • The Secretary
  • Henry A. Byroade
  • Paul H. Nitze
  • Arabian American Oil Company
  • Terry Duce
  • Fred Davies

Mr. Duce began the conversation1 by outlining the difficulties which his company and other American oil companies operating [Page 611] abroad were now in and foresaw in the future resulting from the Federal Trade Commission Report2 and the subsequent grand jury investigation. He said that the impression had been created that the U.S. Government considered the American oil companies as being criminals or potential criminals; that this was having an adverse effect upon their effectiveness; and that it might very possibly lead to a decision by the host countries to conduct investigations themselves as to the propriety of the actions of the oil producing companies.

Mr. Duce also referred to the problem created by the subpoena of all records and memoranda. These records included not only memoranda with respect to matters which were highly classified from the U.S. Government’s standpoint, but also matters which would be extremely embarrassing to the host countries.…

The Secretary pointed out that the question of classified documents was under active consideration and, he felt, that some appropriate procedure would be developed for meeting this part of the question.3

Mr. Duce had with him a chart showing the oil reserves of various countries and their status as importing or exporting nations. He emphasized that the oil reserves of the Middle East were at least three times those of the United States; that the great majority of the peoples of the world lived in countries dependent upon imports of oil; that the population of countries that were large-scale exporters was relatively small. He said that the oil reserves in the Middle East were not only an important asset but, if one contemplated the alternative situation where they were under the control of the Communists, this would give them a very important trading asset with respect to all other countries that were dependent upon [Page 612] imports for their fuel supply. He went on to say that if no solution were found to the problem raised by the Federal Trade Commission Report, he thought it quite likely that developments would result which could completely undermine the position of American oil compaines operating abroad. He thought that operations had already been affected, and that worse developments were to be anticipated.

There was some discussion of the Federal Trade Commission Report, it being pointed out that most of the matter dealt with referred to the 20’s and the 30’s—problems which had been subsequently dealt with. Mr. Duce said that Aramco had tried to keep the State Department fully informed as to its actions, but no one was in a position to tell them what to do or what not to do.

Mr. Duce said that he had been considering what could be done about this situation. He said he felt that there was some analogy to the situation existing within the United States in the period prior to 1924. At that time there was unrestricted competition between the states, accompanied by various abuses. At that time, President Coolidge had appointed a Commission, consisting of the Secretaries of War, Navy, Interior, and Commerce. This Commission had made various recommendations which had eventually resulted in the interstate oil compact and its accompanying machinery. Mr. Duce said he felt that the time might have come when it would be appropriate to contemplate some similar commission to look into the problems of the national interest with respect to the operation of American oil companies abroad.4

The Secretary said that he also had been disturbed by the possible repercussions on our national interest of some of the consequences which might be expected to flow from the publication of the Federal Trade Commission Report. The British, among others, had registered their concern. He felt, however, that there were certain problems which should be considered in connection with Mr. Duce’s suggestion. The first one of these was that useful action might be difficult prior to the election. In the heat of a campaign, either side might well make political capital out of whatever was done. Mr. Nitze said that even though this was undoubtedly a problem, he was not sure that something useful could not be begun.

The Secretary then raised a question as to the composition of any such commission. He wondered how useful a report by Cabinet [Page 613] officers could be whose terms of office were about to be expired. He also wondered whether a report by a commission, composed of outsiders appointed by this Administration, would be considered adequate by a subsequent Administration. The Secretary also said that a problem was presented by the relationship between the work of such a commission and the pending legal action. Clearly an investigation by a commission could not and should not infringe upon consideration of a case before the courts.

The Secretary then asked what issues such a commission might consider and what type of recommendation it was envisaged such a commission might make. At this point the Secretary had to leave temporarily to receive a visiting ambassador.

In the ensuing discussion, the following points were developed. A Commission might find that the operations of American oil companies abroad were affected with a public interest going beyond the range of interest of the antitrust laws and affecting our security interests and our foreign relations. It might also find that certain of the problems involved, such as the relative rates of developments of one producing country as against another, the continued assurance of adequate supplies to consuming countries, and the general price relationships of oil and oil products at various locations affected the national interest of other countries in addition to those of the U.S. to such a degree that international arrangements rather than purely national ones might be required to adequately deal with the subject.

Mr. Duce said that he felt that the American oil companies would be prepared to make all information available to any commission which might be appointed and would fully cooperate with any recommendations which were made.

After the Secretary returned to the meeting, there was some discussion of other elements which bore upon the current situation of American oil companies operating abroad, including the MSA suit and the developments in Iran. With respect to the MSA suit, Mr. Duce said that he would prefer not to discuss the matter since his company was one of the companies involved. With respect to Iran, the Secretary asked Mr. Duce how much oil he thought Iran would be able to sell in the absence of a settlement with AIOC Mr. Duce felt that they might be able to sell between 100–150,000 barrels per day, but he thought this would take a considerable period of time.

  1. A memorandum dated Sept. 16, not printed, was sent by Byroade to the Secretary of State to brief him on his appointment with Davies and Duce. (886A.2553/9–1652)
  2. Department of State files contain an undated summary of the Federal Trade Commission’s “Report on the International Petroleum Cartel.” A handwritten, unsigned memorandum dated Mar. 31, presumably sent to Nitze, stated there had been a meeting on the subject the previous week, and Harold Linder wanted to discuss what should or could be done to avoid publication of the report at that time. (PPS files, lot 64 D 563, “Strategic materials (oil)”)
  3. The matter under reference here was addressed in a letter, dated Sept. 3, not printed, by Parker T. Hart to Leonard J. Emmerglick, Special Assistant to the Attorney General. According to Hart, interagency agreement had been reached on Aug. 28 on a paragraph which the Departments of State and Defense and the CIA recommended sending to all the oil companies receiving subpoenas. The paragraph stated that material in the company’s files covered by subpoena which required special handling for reasons of national security should be segregated and sealed with wax in heavy envelopes marked “Special Handling—Attention Mr. Leonard J. Emmerglick,” so that the interested departments and agencies of the government might conduct a preliminary joint inspection of the material in cooperation with the Department of Justice. (S/PNSC files, lot 61 D 167, “Oil Facilities in the Middle East”) No answer from the Department of Justice has been found in Department of State files.
  4. On Oct. 22. Duce called from New York to leave a message for Nitze, informing him that Duce had talked with Secretary of the Interior Chapman the previous day, and the Secretary had agreed to take up with the President the creation of a Cabinet Commission on the problems of national interest with respect to the operation of American oil companies abroad. (Memorandum of telephone conversation, Oct. 22; PPS files, lot 64 D 563, Strategic materials (oil))