886D.2553/8–2654: Telegram

No. 365
The Chargé in the United Kingdom (Butterworth) to the Department of State1


1006. Reference Deptel 1029.2 Have discussed Kuwait payments problem fully with Proctor and on basis reftel informally with Foreign Office and Ministry Fuel and Power. Gulf and AIOC latter with Jackson senior representative had meeting with two agencies Monday and with Kemp Wednesday. Result is that situation calmer and problem likely dormant next 4 weeks and perhaps longer.

Companies explained case fully to Foreign Office but did not request specific assistance believing they should first complete talks with Kemp. Foreign Office said however, company case impressive both in facts and moderation with which presented. Following approach by Embassy Officer Foreign Office has informally advised political resident Persian Gulf of potential difficulties in situation if Kuwait takes premature decision against companies from which retreat may be impossible for prestige reasons. Believe he and others, without making a specific issue of it which British unwilling do, will as opportunities offer urge Kuwait authorities keep open mind on matter until companies have made full presentation their case and will also make point perhaps in connection with explanation [Page 854] of Iran Settlement that situations various countries differ and their interests not necessarily best served by insistence on identical per unit returns.

Companies encouraged by foregoing and Kemp’s reaction to detailed presentation facts which Proctor says prove conclusively Kuwait has been more favorably treated both in terms total revenue and per unit rate compared Iraq and per unity basis compared Saudi Arabia. Kemp has asked for memorandum incorporating oral argument made yesterday which he has undertaken transmit to Sheikh. Proctor says this will be ready in 2 or 3 weeks after which depending on reaction of ruler companies may go to Kuwait for further discussion.

Appreciate that company argument however valid in relation past situation may no longer hold if Saudi Arabia and Iraq terms have been or may be changed materially. In this connection has Aramco concluded final agreement with SAG and if so is this as rumored on basis of 2 percent discount from uniform posted price regardless of shipping point?3

Following comments on reftel. Proctor says and Foreign Office confirms that while technically company should negotiate with Sheikh through British this had never been case in practice since agreement signed and will not be done this instance. Company has for all practical purposes free access to ruler. British would be informed of intention to negotiate and of progress negotiations.

AIOC realizations calculated as Gulf does with sales to self or affiliates at posted price are lower than Gulf realizations due to fact Socony Jersey off take of 175,000 barrels per day under long term contract is at lower price than Shell contract.

British say cutback in Kuwait more likely be in neighborhood 100,000 than 200,000 if Iran production is as planned.

  1. Repeated to Kuwait.
  2. Document 363.
  3. Telegram 1313 to London, Sept. 13, reported an Aramco official had told the Department of State an agreement had been reached in principle with the Saudi Arabian Government on the use of the posted price less 2 percent. (886D.2553/8–2654)