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

880.2553/12–1853

No. 320
Agreed Minutes of the First Session of the United States-French Talks on Middle East Oil¹

secret

[Washington, December 18, 1953.]

Present:

• French
  • M. Clauzel
  • M. Maillard
  • M. Blancard
  • M. Benard
  • M. Carraud
  • M. Queuille
• Department
  • NE—Mr. Hart
  • NE—Mr. Gay
  • OMP—Mr. Armstrong
  • PED—Mr. Eakens
  • L/E—Mr. Czyzak
  • NE—Mr. Fritzlan
  • WE—Mr. Beigel
  • L/E—Mr. Maurer
  • PED—Mr. Miller

First Meeting, December 18, 1953, 10:00 a.m.

Mr. Hart opened the discussion by welcoming the French delegation and extending the greetings of Secretary Byroade and his deputy Mr. Jernegan. He then gave M. Clauzel an opportunity to make some opening comments.

M. Clauzel replied he welcomed the chance to hold these discussions, noting that he understood they were to be open and informal. He then outlined the Middle East oil policy problems of particular concern to France. He stressed the importance of Middle East oil to the French economy and the vital interest that the French have in future developments concerning that oil. M. Clauzel recalled that up to now the oil companies have taken the leading roles in negotiations with the producing countries. He believed that the oil companies have been at a considerable disadvantage in not being able to cooperate with each other and to exchange information whereas the Arab countries are cooperating more closely on oil matters. M. Clauzel continued by emphasizing that the negotiations of any company operating in the Middle East have a direct bearing on the interests of all the other companies in that area. He mentioned to illustrate this point the effect that Aramco’s 50–50 concession with Saudi Arabia had on both the IPC in Iraq and the AIOC in Iran. M. Clauzel concluded by stressing again the great importance to both France and Western Europe of having sufficient supplies of Middle Eastern oil at a reasonable price.

M. Clauzel then listed the following items that he believed might profitably be discussed during the meetings:

1. The possibility of the Middle East oil companies collaborating more closely concerning their negotiations with the ruling countries.

2. Problems that will be faced with the reappearance of Iranian oil on the markets.

3. The effects that Soviet Bloc oil might have if it is sold in Western Europe.

4. The possible future trends of oil prices.

To give the general background of the problems, M. Blancard outlined briefly the importance of oil supplies to the French economy. France and North Africa are currently consuming oil at the rate of 15,000,000 tons per year, almost all of which comes from the Middle East. Consumption of oil in France is now almost three times that of 1938. M. Blancard estimated that it will increase at the rate of 7 or 8 per cent a year and will double by 1962. He concluded that because of this rapidly increasing consumption and a weak foreign currency balance, France has a need for large supplies of cheap oil.

M. Blancard continued by noting that France now imports 23 million tons of crude annually, 93 per cent of which comes from the Middle East. Of this total, 17 million is for domestic use, from which 15 million tons of products are derived. The remaining 6 million tons are refined for re-export. The crude comes mainly from Iraq, Kuwait and Saudi Arabia. Iraq supplies about one-half of France’s crude consumption, or between 8 and 9 million tons a year. Kuwait supplies 5 million tons and Saudi Arabia 2 million tons a year. Of the amount imported, about 4 million tons a year are supplied by American companies.

M. Blancard then explained that the net expense in foreign currencies for petroleum imports is $170,000,000. Of this total net expense, $60,000,000 is in dollars and $110,000,000 in pounds sterling. He stated, however, that currently sterling oil costs less in foreign currency. This is true in spite of the fact that France pays for only 60 per cent of its dollar oil in dollars, while it has to pay for all of its sterling oil in pounds. M. Blancard explained that payments for exports, freight costs and refinery costs have to be taken into account in arriving at a net cost figure. Since the shutdown of Abadan, a large amount of sterling oil has been refined in France and the products exported. M. Blancard, however, did not think that this situation can be expected to continue. As for transportation costs which are a large factor in the cost of oil supplies, M. Blancard explained 80 per cent of the freight for sterling crude is payable in francs, while only 60 per cent of the freight of American crude is payable in francs.

M. Blancard then traced the recent price levels in the Middle East to show that the prices have a tendency to continually rise. He stated that at the end of World War II the price of 36° API crude oil in the Middle East was $1.00 a barrel. Prices then rose until by 1948 they reached $2.20 a barrel. The ECA, however, forced the level down to $1.75 a barrel. M. Blancard said that as he had expected the price to drop still further, he was very surprised when the prices rose again last July. This rise occurred shortly after the American oil companies raised the price 25 cents a barrel in the United States. M. Blancard believed that increasing prices of oil were due to the fact that the Arab oil countries by cooperating had an advantage in negotiating with the oil companies.

M. Blancard noted that the American oil companies stated they were unable to meet with the other companies to reach agreement on their negotiating positions because of the Sherman Act. Therefore, he noted the Sherman Act, which is supposed to lead to lower competitive prices, actually in this case leads to higher prices. He stated this fact could have serious consequences for France.

M. Clauzel requested at this point that the Department give its views towards the Sherman Act as it affects the American oil companies’ ability to meet and discuss common problems with other companies. He noted that American companies were now meeting in London to discuss Iranian oil and wondered how this was possible under the Act.

Mr. Armstrong replied to the latter point by stating that AIOC had invited the companies to London to talk about possible arrangements for marketing Iranian oil. The Department of Justice advised them, at their request, that there was no objection to their accepting an invitation from the AIOC to have preliminary informal discussions regarding the Iranian oil problem, provided that Mr. Herbert Hoover, Jr., Consultant to the Secretary of State, would be present at the discussions. Mr. Armstrong referred also to the provisions of the Defense Productivity Act (Sec. 708) relating to exemptions of voluntary agreements and programs from antitrust laws, but he added that such exemptions would require the approval of the President and would be only temporary expiring with the Act.

As to the general question of the ability of American companies to consult and make agreements with other companies, Mr. Armstrong stated that it was his understanding that the American companies can and do exchange information and views. However, they must depend on their own judgment as to how far they can go. The Government won’t advise the companies in advance maintaining that it is up to the courts to decide whether or not an arrangement is in violation of the Act or not. However, the companies have numerous court judgments as precedents on which to base their decisions. Mr. Czyzak confirmed Mr. Armstrong’s explanation as to the American companies’ position under the Sherman Act. Mr. Armstrong added that he believed that the companies have usually kept each other reasonably well informed concerning Middle East developments.

M. Blanchard replied that many times information is received too late. He gave as an example Aramco’s offer to the Saudi Government to drop the 32 cents per barrel discount to 4 cent per barrel. Three weeks later (November 21) Iraq made the same demand on the IPC.

Mr. Armstrong stated that it is the Department’s view that because of the Venezuelan 50–50 agreement, it is only a question of time before the same type of arrangements will take effect in the Middle East. Currently there does not exist a true 50–50 sharing in the Middle East since the arrangement is now based on a discounted price for the crude instead of market prices.

M. Clauzel made several comments concerning the Aramco-Saudi negotiations. He noted that there are two points to be negotiated: the price on which the 50–50 agreement is to be based, and whether the new arrangement is to be retroactive to 1950. He remarked that the French much preferred the royalty payments to the 50–50 type agreement, but now believe there is no alternative to the 50–50 principle. M. Clauzel did not believe that Aramco’s offer to reduce the discount from 32 cents per barrel to 2 per cent or 4 cents per barrel would represent a “true 50–50” but more nearly a 55–45 arrangement. He observed that France is opposed to the retroactive feature on the grounds that it would prejudice the principle of the stability of agreements.

Mr. Blancard explained the French position in more detail. He first noted that there is now no alternative to the 50–50 principle. However, he pointed out that under it there will be a tendency for prices to rise but strong resistance to any necessary reductions. This is due to rulers of the oil producing countries opposing any reductions in the price of crude. For example, he stated, the Iraq Government protested the 10 cents per barrel reduction put in effect last March. M. Blancard observed that there may have to be a decrease in the price of Middle East oil if Iranian oil and Russian oil enter the markets.

Mr. Blancard stated that he believed valid reasons existed for basing the 50–50 sharing of profits on discounted prices rather than on the posted prices. While admitting that the 32 cents a barrel discount was too high he considered that a discount of at least 10 cents per barrel could be justified.

1. Circular airgram 3431, Dec. 31, transmitted copies of the minutes of each of the four sessions held by the United States and French Delegations on Dec. 18 and 21, to the American Embassies and Legations in Amman, Ankara, Baghdad, Beirut, Cairo, Damascus, Dhahran, Jidda, Kuwait, London, Paris, and Tehran. The airgram informed them that the enclosed notes had been prepared and agreed to by the two delegations, and advised that, since the discussions were completely informal in character and no official agreements had been reached, it was considered desirable that no publicity be given to the fact that the discussions had taken place. (880.2553/12–3153)