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

880.2553/9–953

No. 311
United States Record of the Third Session of the United States–United Kingdom Talks on Middle East Oil¹

secret

[Washington,] September 9, 1953.

Subject:

• Third Session—U.S./U.K. Talks on Middle East Oil

Participants:

• British Embassy Team—
• Mr. Harold Beeley, Counselor
• Mr. R. W. Bailey, Political Officer, NE
• Mr. J. A. Beckett, Petroleum Attaché
• U.S. Team—
• NE—Mr. Hart
• NE—Mr. Robertson
• L/E—Mr. Stanley Metzger
• OMP—Mr. Willis Armstrong
• PED—Mr. Robert Eakens

Mr. Hart invited Mr. Beeley to comment on the items to be considered by this session of the U.S./U.K. talks on Middle East oil. Mr. Beeley opened his remarks by stating that he would first like to discuss the question of how the interested companies should meet to discuss the specific questions involved in working out transit agreements. The Foreign Office had suggested that IPC and Tapline meet at the management level, holding several meetings before initiating negotiations with the transit countries. Thereafter the negotiators should consult on the spot as the negotiations proceed. It was hoped that this could be fitted into some sort of procedure meeting the requirements of U.S. anti-trust legislation. Mr. Hart observed that the Foreign Office possibly had in mind, in respect to pipeline negotiations, the kind of discussions undertaken between Davies and Gibson in London. Mr. Beeley indicated agreement.

Mr. Beeley continued that reports from London indicated that the American oil companies’ representatives there were apprehensive over the Davies/Gibson type of talks. Mr. Armstrong observed that as of the middle of September, the oil companies which were defendants in the cartel case would be called on to respond to the Government complaint and were instructed to turn in the documents pertaining to the case. During the course of the past summer they were supposed to have been turning in these documents. The Gulf Oil Company had been complying with the Government request by turning documents over to the Government. Mr. Beckett interjected that he understood the hearings in the case were to begin on September 14. Mr. Armstrong continued that previously under the criminal case, all documents turned in would have been available to the Grand Jury and thus would have become known to members of the public serving on the Grand Jury. However, since a civil suit had been instituted to replace the criminal proceedings, no documents would be made public until a screening committee consisting of Government agencies has reviewed them. However, there would be no restraint on testimony given by witnesses. We may need a legal opinion on the U.K. suggestion that the IPC and Tapline representatives get together. Mr. Hart agreed that we could explore the legal aspects.

Mr. Robertson recalled that in addition to the restraints deriving from the anti-trust laws, there was also the matter of the oil companies being restrained by virtue of traditional commercial and negotiating practices.

Mr. Eakens stated that the Aramco was thinking in terms of a separate pipeline company with a published tariff, slightly below the level of tanker cost, at a figure of about forty cents. Under such an arrangement, the profits on the line would be shared with the Government as in the case of the production.

Mr. Hart informed the group that Aramco has received a summons by the Saudi Arabian Government to Riyadh for the resumption of negotiation on September 24. The Saudi Arabian Government representatives would be headed by Prince Feisal.

Mr. Metzger observed that there is a close line between exchange of information, such as publication of trade statistics on the one hand, and “collusion and conspiracy” to fix prices, divide markets and other acts in restraint of trade on the other. Trade associations have been attacked in one or two instances for their activities. Attorneys for the oil companies, therefore, might well pause before approving the U.K. suggested procedure of the pipeline representatives getting together before and during the course of the forthcoming negotiations.

At this point Mr. Beeley inquired whether the purpose of exchanges of information has a bearing on the case: for instance, would exchanges of geological data be permissible? Mr. Metzger responded that it depended on the purpose involved. Since the enactment of the anti-trust laws, the anti-trust division of the Department of Justice had been loathe to give advisory opinions. It seemed to him that the only way to get an opinion is to get an oil company judgment on the question. Where you get over the line is touchy business in any exchange of information. Any advice from the Department of State to the companies would not absolve the companies from anti-trust prosecution even if they strictly adhered to the Department’s advice. The Department must, therefore, be very careful in the extent to which it advises any American oil company to get together with British companies in any particular set of negotiations; essentially the companies, which are subject to the anti-trust laws, must make the judgment themselves, since theirs is the risk under the law.

Mr. Beeley continued by expressing his understanding that both the British and American pipeline companies were thinking along similar lines. It would be advantageous for these companies to exchange information on conclusions reached before undertaking any negotiations. He hoped, therefore, that we would examine the legal aspects at the earliest possible moment. Mr. Metzger responded that the matter could be put to the companies.

Mr. Beeley suggested that the Anglo–American negotiations of 1945 might be a precedent in that the oil companies were called into the picture. Mr. Eakens observed that the Anglo–American oil agreement negotiations were conducted under the sponsorship of the two Governments and the oil companies concerned only came into the picture to provide information on a basis of requests from the participating governments.

Mr. Armstrong stated that foreign plantation owners in Indonesia had consulted in the past and he assumed that a similar procedure had been conducted elsewhere. This might be an indication as to the extent to which individuals could exchange information.

Mr. Metzger stated that the case of the plantation owners may not fall within the meaning of “commerce” as used in the Sherman Act. He added that consulting on the part of an individual or company with its Government could hardly be considered as conspiratorial under the Sherman Act. The provisions of the Act were directed to actions among companies and individuals. Collective bargaining by labor or management on an industry or area-wide basis was also not considered in contravention of the Act. However, price fixing by labor unions collusively with management would be a violation. Until oil company operations, foreign or domestic, are given an exemption by legislation as had been done in the case of aviation, the sword of Damocles would hang heavily over head and the oil companies must make their judgments accordingly. Mr. Beeley observed that in his opinion the U.K. proposal would not be in the nature of price fixing or market dividing or otherwise in restraint of trade.

Mr. Hart then suggested that the group turn its attention to how we may lay an educational base, the other item for consideration at this session.

Mr. Beeley stated that the position of the oil companies was precarious because of the ignorance of public opinion as regards the nature of oil operations. Heavy pressures continued against them as a result of rising nationalism and sensitivity of the countries concerned. In Iraq, the companies are producing a certain amount of propaganda concerning their operations to an audience of limited literacy. Baghdad newspapers had never seen an oil field but constantly carried articles of a critical nature. IPC had invited people to visit the oil fields and those few who accepted seemed to take a broader view. However, there was a limited response, possibly for the reason that some people did not wish to change their views. The question is whether the companies have the capacities of coping with a problem of this sort and whether additional machinery is necessary. A number of additional alternatives have been considered by the Foreign Office but none have been put forth with any enthusiasm. One suggestion which the Foreign Office wished him to put forth for the purpose of exploration, but not in any sense as a commitment, is the establishment of some form of international consultation on or control of Middle East or world oil through a petroleum council with advisory powers. The Governments of the principal producer and consumer states could participate in the petroleum council. The task would be to achieve a balance and generally broader understanding between producers and consumers.

Mr. Hart inquired whether participating countries could be kept interested in staying in such an organization once it were established. Crude oil must be competitive with coal and this might be a limiting factor. Would consumers have an effective whip in that some of them have indigenous supplies of coal? The factor of price might also be pertinent. Mr. Beckett responded that he thought public opinion and price would be factors. Consuming governments were more powerful politically than producing governments and this might contribute to bringing about a proper balance.

The ILO was cited as an example of how such an arrangement might work out. In it, facts were exchanged and the organization made recommendations to the participating members. The 1945 Anglo–American oil agreement, if ratified by the Senate, would have given treaty status to a study group where information could be exchanged among the participating governments and the oil companies involved. The wheat agreement could be cited as a precedent for a treaty. The rubber study group could be cited as a precedent in this respect. It had some twenty interested countries participating. There are other study groups in cotton, wool and tin. The question of an international oil study group posed certain different problems, however, in that it would involve large companies and governments of a very disparate nature.

Mr. Metzger observed that under an international oil agreement, the Arab countries might act collectively sooner than otherwise. Mr. Beeley responded that while the Foreign Office considered this possibility as mitigating against such an agreement, it seemed to him that the Arab countries were already getting together. An oil commission or study group in which they participated would give them greater knowledge of the implications involved, would permit them to participate and contribute their views to studies made and would inform them of what goes on in other areas.

Mr. Eakens observed that the Anglo–American oil agreement of 1945 was designed to cover the kind of situation we were now confronted with. Its objectives of providing access to the oil resources and of orderly development seemed equally applicable today. The agreement provided for establishing an International Petroleum Commission to make studies, exchange information and facilitate consultation with their nationals engaged in the petroleum industry.

Mr. Beeley stated that the advantages of an international oil treaty would be (1) it would give the governments concerned a feeling of having more knowledge of oil company operations, (2) if a dispute arose between a government and a foreign company, it could be referred to the commission, and (3) such a commission would facilitate the making of studies and exchange of views.

Mr. Robertson suggested that our two governments might well make studies of the merits of an oil treaty.

Mr. Armstrong stated that in the past we have not sought Congressional approval for participating in commodity study groups. We had to go to Congress for approval of the wheat and sugar agreements. We are subject to some criticism on a point of order if participation in a study group is found objectionable by Congress. This is a factor of importance in considering an oil study group, especially in view of the opposition to the Anglo–American oil agreement of 1945.

Mr. Robertson observed that the situation today differed in many ways from that which prevailed when the Anglo–American oil agreement was transmitted in 1945 to the Senate for ratification.

At this point a general discussion ensued concerning the use of an oil treaty or study group as a vehicle, in view of anti-trust limitations, for holding exchanges among governments, between the participating countries and interested oil companies, and among the oil companies serving in advisory panels in response to requests made by the participating governments.

Mr. Hart inquired whether the U.K. would have a problem similar to ours in that in the past there had been some difference between companies which were purely domestic and those which also conducted foreign operations. Mr. Beeley replied that the U.K. has no such problem as there are no domestic interests which conflicted with those of the overseas companies.

Mr. Robertson inquired whether the U.K. would envisage an oil treaty in its inception as being bilateral or multilateral. Mr. Beeley replied that it should be undertaken from the beginning on a multilateral basis in order to encourage a sense of partnership with the West on the part of the producing states.

Mr. Armstrong observed that all commodity organizations were open-ended for interested governments and the USSR could presumably not be excluded if a similar pattern were followed in oil. In this connection, Mr. Eakens observed that if the USSR came in we would have little to lose as free world information was not classified anyway and we could then badger the Russians to reveal statistics which in the past have been kept secret.

Mr. Beeley stated that we should look into the implications of an Anglo–American oil treaty or alternatively some form of commodity study group in view of the current situation in the oil industry, particularly its position in the Middle East.

Mr. Hart inquired whether the Middle East countries would have a common bond in the matter of conservation. There followed a general discussion concerning conservation which revealed that it is not in fact a problem because each oil pool in the area is under single management and conservation measures in the United States are directed at situations in which more than one producer is concerned.

Mr. Beeley suggested that the next meeting cover the two subjects: (1) the legal aspects of the U.K. suggestion that pipeline company representatives consult before and during negotiations and (2) the merits of an oil treaty or some form of commodity study group. He reiterated that the question of an oil treaty was one in which his Government was putting forth as an idea to be explored but not with official endorsement. It was agreed that these items be discussed at the next meeting scheduled at 3 p.m. on September 24 in the NEA conference room.

Mr. Hart observed that Aramco was gratified that the Saudi Arabian Government had hired as consultant the American firm of Degolyer and McNaughton without any request being advanced on the part of the oil companies.

1. Drafted by Robertson.