886D.2553/8–1154
No. 360
The Chief of the Petroleum Policy Staff
(Eakens) to
the Petroleum Attachè in the United Kingdom (Moline)
official-informal
Dear Ed: This letter is in further reference to the Gulf-Kuwait payments problem. No doubt you have already discussed it fully with Mr. Proctor and Mr. Hamilton and perhaps it has been satisfactorily resolved. There is, however, one thought which has occurred to us which might be useful if you have not already done something along the same line.
[Page 845]As our cables indicate, the Department does not believe that it should officially intervene in this question and there is no change in this position. Gulf does seem to have an idea, though, that seems to have some merit and might be acceptable to all parties concerned or affected. This is that Shell might properly pay the Kuwait tax on the discount at which it receives Kuwait oil. Mr. Swensrud told me that he had discussed this question with Shell and that Shell would be willing to pay such a tax provided it received tax credit in the U.K. Nevertheless, Gulf is reluctant to make this suggestion to the British and wondered whether we might do so. This the Department has declined to do officially, but certainly this is an idea which might occur to anyone in examining all aspects of the problem and possible solutions.
The only loser in such a solution would be the British Government. But the British Government would be the loser also if Gulf charged Shell the posted price. It is possible that someone on the British side might argue that Gulf should go to the posted price for the purpose of settling with the Shaikh but should continue to sell to Shell on the present basis since Gulf is stuck with the contract until 1969. The imposition of such a solution as this on Gulf by the British, if they were able to impose it, would not seem to be a sound and harmonious solution of a problem of one of the parties arising under the Gulf-Shell contract.
While the Department is not prepared to do anything on this officially, it occurred to us that in some of your personal and exploratory discussions with Robert Belgrave or others you might mention that, as a thought that had occurred to you, one solution would be for Shell to pay income tax to Kuwait on its discount below the posted price. You do whatever you wish on this however, but in case you mention this possibility in any of your discussions with the British we would be very interested in any reaction.
You may find that Gulf has already made this suggestion itself. I told Mr. Swensrud I did not see why they could not advance it as one of the possible solutions, but then again you may find that the Gulf officials have not suggested it.
I enjoyed my recent visit with you and Virginia and the very wonderful meal very much. Both turned a very dull day into a very happy experience. I was also glad to have the opportunity to get up to date with you on all of our current problems.
With best regards.
Sincerely,