Foreign Relations of the United States, 1952–1954, The Near and Middle East, Volume IX, Part 1

887.2553/6–353

No. 294
Memorandum by the Chief of the Petroleum Policy Staff (Eakens)¹

secret

[Washington,] June 3, 1953.

Subject:

• Department Views in Regard to Furthering Iraq Petroleum Company Transit Negotiations with Syria and Lebanon.

The Department has received a letter from Mr. Charles F. Darlington, representing the Socony-Vacuum interest in the Iraq Petroleum Company, requesting that the Department support IPC’s position in the forthcoming negotiations for pipeline transit agreements between the Company and the Governments of Syria and Lebanon. He has also requested that we suggest an alternative proposal or at least give him our ideas if we cannot support the IPC proposal. The proposal of the Company which has also been submitted to the British Foreign Office is attached. No date has yet been set for the resumption of negotiations, but it is expected that they may again be taken up within two months.

A copy of the letter from Mr. Darlington and of the IPC negotiating paper are attached.² Would you please consider the attached papers, as well as the problem generally, so that we can discuss it at a meeting in my office on Tuesday, June 9, at 10 a.m.?

Crude oil moves from the fields of the Iraq Petroleum Company at Kirkuk (Iraq) through Syria for shipment from Banias via pipeline as well as via an older pipeline system from Kirkuk via Syria to Tripoli, Lebanon. A third IPC pipeline connecting Kirkuk with the refinery at Haifa is not currently in operation because of the embargo imposed by Iraq on oil shipments to Israel.

Crude oil also moves from Saudi Arabian fields via the Trans Arabian pipeline (Tapline) through Jordan and Syria to the port of Sidon (Lebanon).

IPC renegotiated its transit agreement with Lebanon in May 1952, but the Lebanese Government has refused to ratify the agreement which was signed with a previous Government. Tapline also renegotiated its transit agreements with Syria and Lebanon in May 1952, and amended its August 1946 agreement with Jordan in June 1952, to provide for additional payments to all three countries.

Some dispute has also arisen between Tapline and Lebanon regarding the renegotiated agreement. Some official pressure has been put upon Tapline to renegotiate the agreement on the grounds that it has not been ratified. Tapline’s position is that the agreement was so drafted as not to require ratification. Payments currently are being made under the agreement and are being accepted by Lebanon. This latter would seem to constitute evidence of Lebanon’s acceptance of Tapline’s position.

It looks highly probable that the transit agreements of both companies with all these countries will have to be renegotiated in the not too distant future and the question is upon what basis of payments satisfactory and more stable agreements can be reached.

The position of Syrian and Lebanese officials is that the oil companies make a substantial savings in transport costs (over tanker costs) by employing pipelines to move crude oil from producing countries to Eastern Mediterranean ports. They further contend that this saving should be shared equally with transit countries, much in the manner that 50–50 profit sharing agreements are in effect between the producing countries (Saudi Arabia and Iraq) and the producing companies (Aramco and the Iraq Petroleum Company).

The transit countries contend that this saving in the case of Tap-line amounts to the differential between the posted price at Ras Tanura on the Persian Gulf ($1.75) and at Sidon on the Eastern Mediterranean coast ($2.41) or $0.66 as the value added to the crude oil by the pipeline transit. The Sidon price of crude has since been reduced to $2.29 thereby changing the differential to $0.54 per barrel.

The IPC case is not as clear as that of Tapline since there are no facilities for the export of Kirkuk output via the Persian Gulf as an alternative to transiting Syria and Lebanon.

At the present time the British (IPC) have refused to recognize the 50–50 “saving” or “profit” sharing principle as a basis for negotiation. As indicated above, Tapline has considered its agreements, which by their terms did not require ratification, binding and is making payments under their respective terms. The British IPC negotiators have sought to employ the Syria-Tapline Agreement as a basis for their negotiations with Syria, but Syria has replied that the Tapline Agreement could likewise be revised upward by renegotiation. Tapline is meanwhile operating on the theory that it has valid agreements with Syria, Jordan, and Lebanon, and is waiting out developments.

Comments on the proposal of IPC (attached) are contained in Despatch 5400, London, May 11, 1953³ as well as in Despatch 5362, London, May 8, 1953;⁴ in Telegram 914, November 13, 1952,⁵ Department to Beirut; and in A 987, January 19, 1953⁶ and A–869, December 12, 1952, Department to London.⁷

The Department has thus far not taken any position with the foreign governments concerned on the substantive issues involved, but the question has been mentioned by members of the British Embassy in Washington in informal conversations with us.

1. Drafted by Liebhafsky and sent to Robertson, Funkhouser, Corse, Dixon, Metzger, and Kirk.
2. Neither printed. The letter, dated May 28, said Darlington felt it would be most desirable if the Department of State could support IPC’s position when the negotiations got under way. The negotiating paper, transmitted with the letter, dealt with Syria and Lebanon Transit Agreements. (887.2553/6–353)
3. Not printed; it concerned the Syria and Lebanon Transit Agreements. (880.2553/5–1153)
4. Not printed; the subject was further observations on Middle East pipeline transit payments. (880.2553/5–853)
5. Document 269.
6. Not printed; it reported that the Department of State had requested an analysis of the transit payment problem from Tapline, Socony, and Jersey. (887.2553/121652)
7. Document 272.