880.2553/4–754
No. 337
United States Record of the Second
Session of the United States–United Kingdom Talks on Middle East
Oil
Subject:
- US–UK Middle East Oil Talks Meeting, 3:00 P.M., April 7, 1954
Participants:
- Messrs. Beeley, MacGinnis, Brook and Druitt—British Embassy
- Mr. Armstrong—OMP
- Mr. Dorsey—NE
- Mr. Metzger—L/E
- Mr. Eakens—PED
The British opened the meeting by commenting further on the fifty students whose education is provided for in the IPC concession agreement. The British indicated that a preliminary check seemed to show that the expenses of the students were not considered a cost of the concession agreement but were paid for by IPC out of its own funds.
The Department representatives had not had an opportunity to check into the question regarding the royal decree affecting Aramco but indicated they would do so before the next meeting.
IV. Implications for Other Middle East Production of Reentry of Iranian Oil Into World Markets
Mr. Beeley opened the discussion on this subject. It was his view that production programs in other Middle East countries would have to be readjusted although it was not certain that cutbacks would be required. He mentioned the widely accepted assumption that any adjustments in production would be made in the Middle East and not elsewhere. He was not sure how Shell would be able to meet any obligations which it had on this point in view of the small amount of the company’s production in the Middle East. He generally felt that it was desirable that the consortium companies be able to agree among themselves on the adjustments which would be required. He thought this was the only way that the impact of Iranian oil could be equitably spread among other Middle East countries with the minimum political difficulties in the other countries. At the same time he recognized that it was questionable whether American companies could participate in such discussions in view of the antitrust laws.
On the Department’s side it was noted that the Department of Justice opinion on the consortium plan did not give the American companies any clearance on the question of agreed production cutbacks in other areas. The question was raised as to whether cutbacks would in fact be necessary and whether the problem was as serious as some people seemed to think. Eastern Hemisphere demand alone is increasing at the rate of almost 200,000 barrels daily. On the schedule of production contemplated in Iran—200,000 barrels daily the first year, 400,000 barrels daily the second year, and 600,000 barrels daily the third year—it would seem that expansion in Eastern Hemisphere demand would roughly take care of the problem. In addition, it seemed logical to assume that the consortium companies were already tightening up their programs in anticipation of the return of Iranian oil to world markets. Such foresight should cushion the immediate impact of Iranian oil. In [Page 803] addition, it was suggested that the Sheikh of Kuwait might not object too strongly to a reduction in Kuwait production since this would only mean that his assets were kept in oil in the ground rather than in other investments.
On the latter point the British felt that if production in Kuwait were reduced it might raise problems between the oil companies and the ruler. They generally recognized that Kuwait should bear about one-half of the impact from resumption of Iranian oil exports, but they did not generally believe that production could be reduced below the 1954 level without causing difficulties. They noted that the increase in production in Saudi Arabia, Iraq, and Qatar in the last year had been five million tons, two million each for the first two and one million for Qatar. They seemed generally to contemplate that a standstill in production would be shared by these three countries in about these proportions with Kuwait assuming the burden of the other five million tons which would go to make up the 200,000 barrels daily in the first year.
Mr. Armstrong suggested that a change in attitude might well develop as had been the case in regard to the independent oil producers in the United States. When the Simpson Bill was before the last session of Congress, the independents had strongly supported legislation limiting oil imports. Their present attitude seems to be that they would much prefer the exercise of prudence by oil importers.
Mr. Beeley in summing up noted that a number of natural developments were working in our favor and that the prospects did not seem to be alarming. He thought that the only danger was that the problem might become a political one, in which case it would be a real problem of public relations. He and Mr. Brook felt that this was an incipient problem which should be watched. Mr. Eakens made the point that the problem of cutbacks should be played down instead of played up, and that the ideal solution would seem to be for Iranian oil to become lost in the stream of world production so that its impact upon production programs elsewhere is never obvious. All agreed.
Mr. Beeley emphasized that his desire was to underline the potential importance of the problem and to suggest that it be discussed again if it proved to be more difficult than is now anticipated. Department representatives agreed to this.
The question of independents joining the consortium was touched on briefly, and it was noted by Department officials that the addition of independents to the group would seem to be a constructive factor especially since they would not be expected to join unless they were seriously interested in Iranian oil.
[Page 804]On the question of publicity on the Iranian problem, Mr. Beeley felt that the U.S. and U.K. line should be the same, or at least mutually consistent. It was his view that the line should be that the consortium had been generous in dealing with Iran but that nationalization had not paid. It was recognized that carrying out such a line would not be easy. The question was raised on the Department side as to the need for publicity and whether the Iranian example of having lost their production for three years was not well enough known to make publicity unnecessary. It was agreed that when the general form of the settlement in Iran became clear the problem should be looked at again.
V. Oil Company-Government Relations in the Middle East
The discussion under this heading was handled by Mr. Dorsey. He indicated that some complications had developed from the ascension of the new King of Saudi Arabia which could have an unfavorable influence upon Aramco’s already difficult relations. It is not possible at this time to predict the outcome, but Aramco does have serious government relations problems.
Mr. Beeley recounted some of the discussion at the last U.S.–U.K. Middle East oil talks. He mentioned a number of things which it had been felt at that time that the companies might do in order to improve Arab understanding of the western oil companies. This still seemed to him to be a desirable goal in this field.
VI. Relation of Antitrust Questions to Middle East Oil Problems
Mr. Beeley had two questions on this point. He referred to the references in the President’s message on the Randall Report to the problem of the operation of the antitrust laws in such a way as to deter foreign investment by American companies, and the consideration of this problem by the committee now studying the antitrust laws. Mr. Beeley wondered whether the President’s reference to this problem suggested that something might be done about it by the committee. His second question was “What is likely to be the outcome of the oil cartel suit?”
Mr. Metzger undertook to answer these two questions. He mentioned that a committee of some fifty-five representatives had been appointed last year by the President to study the antitrust laws, including their effects on both foreign and domestic business activities. The Chairman is S. Chesterfield Oppenheim. The work of the committee has been broken down into subcommittees, one of which is actively considering the application of the antitrust laws to foreign activities of American firms. It is not certain when the report of the committee will be made although it is not likely to be made in the next month or two. Also it is not possible to predict whether the committee will make any recommendations regarding the operation [Page 805] of the antitrust laws in this field. Mr. Metzger did feel, however, that there was now a more lively appreciation than ever before that this is a real problem which needs to be faced and dealt with.
As to the cartel suit, its status differs now only in minor respects from what it was six months ago. The civil suit of course differs from the criminal suit, among other ways, in that no foreign companies were named as defendants. The venue was changed from Washington to New York and under voluntary stipulations the companies are supplying documents. Justice is examining the documents to determine whether they are adequate. It is therefore not clear at this time whether a motion will need to be made by the Government for compulsory supplying of additional documents. After the documents have been examined the case will eventually be set down for trial. Insofar as the antitrust suits go, it might be noted that the present case is still in a relatively early stage of development. Such cases normally require three or four years and many have required an even longer period of time. Just how long the suit will take is not predictable, however, because it is always possible for it to be settled by various means, including a consent decree at any time.
Mr. Beeley questioned whether the Oppenheim recommendations could have a bearing on the suit. Mr. Metzger thought it would be hard to tell, but his personal reaction was that it was probably unlikely. He thought new legislation would be needed to back up any recommendations of the Oppenheim Committee before such recommendations could be expected to influence pending suits, and new antitrust legislation has never been enacted in any very short period of time.
VII. Should There be Periodic US–UK–Dutch–French Oil Talks?
Both the U.S. and U.K. representatives saw no objections to bilateral talks and in fact considered that there were advantages to be gained from such talks from time to time. The U.S., however, did not favor talks on any other basis. The British, on the other hand, indicated that they would not initiate proposals for such quadripartite meetings but that they would not wish to take a negative attitude if they were pressed to hold them.