880.2553/4–854
No. 338
United States Record of the Third
Session of the United States–United Kingdom Talks on Middle East
Oil
Subject:
- US–UK Middle East Oil Talks Meeting, 4:00 p.m., April 8, 1954
Participants:
- Messrs. Beeley, MacGinnis, Brook and Druitt—British Embassy
- Mr. Armstrong—OMP
- Mr. Dorsey—NE
- Mr. Fritzlan—NE
- Mr. Gay—NE
- Mr. Metzger—L/E
- Mr. Eakens—PED
Mr. Dorsey reported on the royal decree in Saudi Arabia about which the British had inquired at the first session. Under the decree Aramco is required to build six or seven new schools but only for the children of employees. Aramco also is required to expand hospital facilities, but these also are limited in principle to Aramco employees. In regard to hospital facilities, however, it is Aramco’s policy not to turn anyone away, and hence treatment is provided to the general public to the extent that treatment is requested.
VIII. General Economic and Political Trends (e.g., Nationalism) in the Middle East and Their Significance for Petroleum Operations in the Area
Mr. Dorsey also opened the discussion on this question. He did not think there had been any significant new trends which had developed since the previous talks. The increase in activity on the Jordan–Israel border has been of considerable concern to Aramco and Tapline, particularly in regard to the effect which it might have on their employees and on the possibility of forcing a closing of the line. Mr. Dorsey felt that the situation generally has deteriorated markedly in the past six months in this area.
Mr. Gay, who had recently visited the Middle East, observed that the question of the status of the West in the Middle East currently is very much in the minds of the people of the area, perhaps influenced by a recent prediction of a visiting Arabist that Western interests would be expelled from the region within a decade. On the other hand he noted legislative developments which might be regarded as favorable to Western investors.
[Page 807]Mr. Beeley generally agreed with Mr. Dorsey’s appraisal.
The British expressed the view that a pact between Turkey and Pakistan would improve the security of the area although perhaps raising other problems.
The new Turkish Petroleum Law was mentioned as a favorable economic development in the area, and also the recent Egyptian agreement with the oil companies.
IX. Soviet Oil
A. Soviet objectives in expanding sales
According to Mr. Beeley, the British generally expect Russian oil sales to reach an annual rate of about four million tons. They believe that the main purpose of the sales is to earn currency.
B. US–UK Government position on question of their nationals being forced by local governments to handle and/or market Soviet oil
In the Middle East, Egypt and Israel are the only two countries which have been affected by the Russian oil sales. In regard to Egypt, Mr. Beeley indicated that Shell had decided it would have to handle Russian oil but was going to resist the acceptance of any Rumanian oil. Shell felt this position was necessary because of the nationalization without compensation of Shell’s properties in Rumania. Shell will agree to handle Russian oil but only under duress. It will not, however, as first proposed, invite a formal directive from the Egyptian Government requiring it to handle the oil because it was decided that that would be a bad precedent to establish. The British Government has decided to protest to the Egyptian Government not against the origin of the oil but against a British company being compelled against its wishes and contrary to its commercial interests to handle foreign oil that displaces its own production. (Subsequently, the Department was informed by a representative of the British Embassy that the U.K. had decided not to make a formal protest. See memorandum of conversation dated April 14, 1954 on the subject “British Position in Regard to Soviet-Egyptian Oil-Cotton Barter Deal.”) There was some discussion of whether or not this protest had a legal foundation in international law, and the British indicated that insofar as they knew it was not founded on law. They mentioned that they were less inclined to tie such protests to international law than we were.
In Israel, Consolidated Refineries, Incorporated, a wholly owned British company, has been pressed by Israel to refine Russian crude oil, and it was decided under the terms of the company’s original agreement with Israel on establishment of the refinery, which provided that the refinery would refine up to 200,000 tons annually for the Israeli Government, Consolidated had no basis [Page 808] upon which to refuse. At the present time Consolidated Refineries has an agreement with the Israel Fuel Corporation to refine 100,000 tons of Russian crude oil.
On the American side, Mr. Armstrong outlined a number of general views on this question. He indicated that we naturally do not like to see Russian oil forcing American oil out of markets. At the present time, however, the quantities are relatively small compared with the oil moving in international trade. It would seem reasonable to expect, however, that the U.S. would view a large expansion of Soviet oil sales with concern. When a barter deal has been concluded between a country in which American oil companies do business and Russia, it was our feeling that the oil companies had to decide for themselves whether or not to handle the Russian oil. Mr. Eakens mentioned that in the case of Egypt the American Embassy felt that the best course for the oil companies to follow was to handle the Russian oil. In that way the oil would be absorbed in a fashion which would least upset the market and it is always hoped that the deal would not be renewed. The Danish case was reverted to at some length, and it was pointed out that in that case where the country was not in balance-of-payments difficulties the U.S. had protested on grounds of general commercial policy. On the legal side, Mr. Metzger indicated that thus far there had not seemed to be any legal basis for protest against Russian oil sales. He expressed the view that in general the courts hold that under nationalization title passes and an international wrong has been done calling for compensation. He questioned, however, the strength of a legal case which might be made on the basis of confiscated oil.
C. Security aspects, if any, to West of expanding Soviet oil sales
Mr. Beeley indicated that the British thus far were not greatly worried on the security side. Mr. Brook added, however, that if the Russian sales continued to expand it would give the Russians reserve capacity which they could call upon in an emergency.
All agreed that Soviet oil sales could be a problem if the quantity reached large proportions, and that this is a question that the U.S. and U.K. should keep in touch on when and if new cases arise.
At the close of this session all representatives on both sides agreed that the discussions had been very useful and that similar meetings should again be held in about six months. October 1 was agreed as the date for the two sides to check with each other on the holding of the next talks.