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

800.054/2–1854

No. 333
Paper Prepared in the Department of State¹

confidential

[Washington, February 19, 1954.]

Probable Effect Of Prosecution Of Oil Cartel Suit On United States National Interests And Objectives In The Middle East

The effect which the prosecution of the oil cartel suit may be expected to have on United States interests abroad has constituted from the outset an important factor to be taken into account in policy decisions concerning this proceeding.

It was given special study in the last half of 1952, and the results of that study were set forth in Intelligence Report No. 6104 dated December 17, 1952.²

Subsequently, the grand jury investigation was dropped and the proceeding changed from criminal to civil as a means of minimizing the possibility of adverse effects upon United States interests abroad.

For many months now the proceeding has either been more or less dormant or of such a character as not to generate publicity. As long as no contrary action is taken, it may be expected that at any time the suit will again become active and that a trial may ensue in which the legality of operations of the defendant companies being challenged by Justice will be argued out in open court.

During the last few months three of the defendants have taken the opportunity to have this question studied by their lawyers. The results of this study were presented to State, Defense, and CIA representatives on January 23, 1954. It was strongly argued by those who made the study that the prosecution of the suit even in a civil proceeding would be extremely damaging to United States political, security, and economic objectives and programs in the Middle East, if not, in fact, catastrophic.

In the light of this development, and considering the fact that the Department’s last study of the question was more than a year old, it was decided that a new evaluation should be made.

Procedure

Material for the previous study was obtained from reports which appeared in the press throughout the world and from a wide coverage of American missions. In order not to overlook any areas which might be important, fifty-one missions were requested to report the local reaction which had occurred in their respective areas to the oil cartel proceedings and certain other related matters.

The case which the oil companies are currently making as to the adverse effects on United States interests abroad of prosecution of the suit has been confined to the Middle East. This study has, therefore, been limited to that area, the boundaries roughly being Cairo on the West and New Delhi on the East. The evaluation of the missions in this general area was requested of both past and prospective effects of prosecution of the oil cartel suit on United States national objectives and interests.

As nothing of any significance is known to have appeared in the press in recent months on this subject, this revaluation is based entirely upon reports from the missions.

Evaluations of Missions^*

The evaluations of the missions generally fall into three categories:

(1) The first group indicates that little attention has been given to the oil cartel suit, that it has had little if any significant effect on United States national interests in the area, and that probable future effects either cannot be evaluated or are not likely to be serious. The evaluations of the Embassies at Damascus and Karachi and the Consulate at Kuwait fall into this category.

(2) The second group reports that local government officials have paid some attention to the charges in the Federal Trade Commission Report and the oil cartel suit, that such officials have become more suspicious of the oil companies and have made some use themselves of the charges, that the prosecution of the suit might give them some further ammunition which they could be expected to use. The picture drawn by this group, however, is far from alarming. It would seem to be more properly characterized as mild rather than serious. The reports from Baghdad, Cairo, and New Delhi are of this character.

(3) The third group—Beirut, Jidda, and Tehran—take a far more serious view.

Ambassador Henderson states that the “antitrust suit cannot fail to weaken position of American private enterprise and add fuel to propaganda fire against them” in that part of the world. He also states that “to extent that American interests in area should become weakened in their relationships with local governments and public, vital U.S. interests would be affected.”

Ambassador Wadsworth believes that “publicity attending prosecution oil cartel suit may be expected to have adverse effect on U.S. national interests and objectives in this area [Saudi Arabia]² to even greater degree than during grand jury investigation.” He considers that operations of American oil companies contribute “vitally to both military and economic strength U.S. and other non-Commie countries” and hence “constitute national interest U.S.” It follows therefore that anything rendering operations of American oil companies more difficult would be harmful to United States interests. He believes that “attainment fundamental U.S. objective Saudi Arabia maintenance friendly relations on basis mutual respect would be affected…,”³ that prosecution of the suit would reduce standing and prestige of Aramco and also of the United States, that it might well jeopardize “maintenance of internal stability” in Saudi Arabia, and that it would open door to charges of economic imperialism and lead to damage in economic field similar to that which has occurred in political field from the United States Government’s Palestine policy.

Ambassador Hare thinks that prosecution of the suit would be damaging not so much from the standpoint of United States national interests but rather from that of the American oil companies. He believes that “prosecution of the suit would inevitably serve further to undermine already difficult position of American oil companies in Near East and give Near Eastern governments idea that they could apply screws to oil companies with impunity as far as prospective support by USG concerned.” To his knowledge the F.T.C. report seriously prejudiced Aramco in Saudi Arabia where King’s advisers used report as irrefutable evidence not only of culpability of oil companies but of all allegations made in the report. “In circumstances, prosecution of cartel suit could only be expected to intensify badgering of oil companies, including Tapline, and of placing us in greatly weakened position in protecting their interest, not to mention invidious effect which such publicity would have on general American reputation for integrity.”

Conclusions

From the preceding analysis of the evaluations of the Missions it will be seen that there was no unanimity that prosecution of the oil cartel suit would be seriously damaging to United States national interests and objectives throughout the Middle East. Most of the missions left the impression that the potential effect could not be evaluated or was not likely to be serious. This evaluation was made by missions located in important oil producing or transit countries—e.g., Baghdad, Kuwait, Damascus, and Cairo—as well as by those where oil problems are not so important.

Only two of the missions seem completely convinced that prosecution of the suit would jeopardize vital United States national interests, while a third thought that the position of the oil companies and the ability of the United States Government to support them would be further undermined. It may be significant that the two missions which take the most serious view of the potential effect of prosecution of the suit are those in Iran and Saudi Arabia where currently the problems of oil are most critical.

Thus whether or not the potential damage to United States interests and objectives in the Middle East is to be considered a matter of grave concern as judged by these field reports depends upon the weight to be given the evaluation of the respective missions.

1. This paper was attached to a memorandum by Eakens to Armstrong, Hadsel, Hart, Fritzlan, Metzger, and Dixon. According to Eakens’ memorandum, the paper was based on reports which had been received from nine Missions in the Middle East. (800.054/2–1854)
2. For text, see vol. I, Part 2, p. 1293.
3. Based upon reports from all missions whose views were requested for this study except Amman and Dhahran, whose reports had not been received. [Footnote in the source text.]
2. Brackets in the source text.
3. Ellipsis in the source text.