888.2553/1–2054

No. 411
The Attorney General (Brownell) to the National Security Council1

top secret

Gentlemen: You have asked my opinion as to the legality of an international consortium which might be arranged along the lines stated in paragraphs I to IV of the “Proposed Iranian Consortium Plan” submitted to me (copy of which is attached), including the legality of participation therein by any or all of the five mentioned or other American oil companies.

Upon the assumption that the proposed consortium will be organized as set out in the memorandum submitted to me, and will be made up of participating companies in accordance with the specified composition of the group, and with particular emphasis upon the provisions respecting the freedom of each member of the group to sell the oil and products acquired by it freely, both as to price and purchaser, it is my opinion that such joint contract or joint company, in view of the facts and circumstances which now characterize the production and refining of Iranian oil and the determination by the National Security Council that the security interests of the United States require that United States oil companies be invited to participate in an international consortium to contract with the Government of Iran, for the production, refining and acquisition of petroleum and petroleum products from within the area of the former AIOC concession, would not in itself constitute a violation of the antitrust laws, nor create a violation of antitrust law not already existing, subject to the limitations stated below.

[Page 902]

This opinion of non-violation is limited to the actions described in said memorandum and does not extend to any other act whatever, such as, but not limited to—

(a)
Any other agreement or understanding among the participating parties, or any of them, or between any of the participating parties and non-participating persons,
(b)
Marketing, distribution, further manufacture, or transportation of any petroleum or petroleum products, and any plan, program, agreement, or understanding, whether past, present or future, relating thereto.

This opinion of non-violation is given only subject to the express reservation of all rights of the United States, unlimited in any way by this opinion, to continue to prosecute the action against Standard Oil Company of New Jersey and others, pending in the United States District Court for the Southern District of New York, Civil No. 86–27, in accordance with the Federal Rules of Civil Procedure, and to prosecute the charges of such complaint with respect to the actions of the defendants therein and any other persons who may be added as parties defendant, as to any petroleum and petroleum products, including any and all actions dealing with petroleum and petroleum products acquired as a result of the consortium, other than any action which the preceding paragraphs of the opinion state “would not, in itself constitute a violation of the antitrust laws, nor create violation of antitrust law not already existing.”

Sincerely yours,2

[Attachment]

confidential

Proposed Iranian Consortium Plan

I.
The British Government (herein referred to as H.M.G.) and the Anglo-Iranian Oil Company (herein referred to as AIOC) on the one hand and the Government of Iran on the other have been disputing the validity of the Iranian Government’s action in purporting (a) to cancel the oil concession agreement between the Government and AIOC; and (b) to nationalize certain properties of AIOC. The United States has long recognized that a settlement of that dispute which will provide for the reopening of the Iranian oil industry on a sound and permanent basis is vital to its national security. For this reason the United States has sought such a solution since the inception of the dispute early in 1951. (See NSC Action 454, March [Page 903] 21, 1951; 473 May 16, 1951; 500 June 27, 1951; 680 November 19, 1952; 735 March 11, 1953; 875 August 6, 1953; 891 August 27, 1953; 947 October 29, 1953; 998 December 30, 1953; 1015 January 14, 1954.)3
II.
Many, including American oil companies engaged in business at home or abroad, have felt that the best solution of the problem would be for AIOC to return to Iran alone but H.M.G., AIOC and the United States now agree that the Iranian attitude makes such a solution impossible. At the same time, H.M.G., AIOC and the United States also agree that it might be possible to organize a group of oil companies which, in turn, might be able to negotiate a sound and permanent settlement. The basic principles of any such settlement would:
(a)
Permit a group of companies to negotiate a commercial contract with Iran;
(b)
Provide compensation to AIOC for such interest it might not retain; and
(c)
Not adversely affect existing oil production concessions from Governments of oil producing foreign countries.
III.
Consummation of a settlement within the framework of these basic principles will be extremely difficult and the final terms cannot be foreseen. It is believed, however, that the following points will be handled, as indicated:
1.
Composition of the group: The group will consist of AIOC and such other oil companies as are approved by H.M.G. and the Government of Iran as being qualified to contribute to a solution by providing capital, and by agreeing to take Iranian crude oil and refined products and otherwise, with the provisos:
(a)
that approximately five American companies will be approved to participate, and actually do participate, in the joint contract (or organize a joint company), and
(b)
that the powers of H.M.G. and Iran to give or withhold approval will not be exercised to establish in advance of approval, or require as a condition of approval, with any American company any conditions, agreements, undertakings or commitments which make impossible compliance, in whole or part, with the provision of paragraph III 2(c) hereinbelow, or which affect, or in any manner relate to, petroleum operations (either with respect to Iranian petroleum or petroleum products, or petroleum or petroleum products of any other origin) outside the AIOC concession area in Iran by such approved companies, or their affiliates. The relative participations by nationalities or companies cannot be foreseen at this time.
2.
Form of organizations:
(a)
The group would seek contractual arrangements with Iran within the framework of the basic principles and such arrangements might take the form of undivided interests in the contract or the organization of a new company to be the contracting party with Iran.
(b)
In any case, the group would determine the total production and each member would take its proportion (based on capital contributions) of the Iranian crude oil and products.
(c)
By the provisions of the consortium, each member of the group would be free to sell oil and products, at prices individually determined by it, to any one, in any market, including sale to any party.
(d)
Provision would be made for adjustment of over-and-under-liftings in advance of any operations under the joint contract or joint company by the group members.
3.
Arrangements with Iran: The contractual arrangements would give the group (however organized) effective management of the oil operations in and exports from the AIOC concession area in Iran. The group would agree to develop the property in accordance with sound commercial practices. This probably would mean, in practice, that the group would expand or contract production, transportation and refining in Iran as economic conditions indicated. All or part of the revenue to Iran would be derived by income taxation.
IV.
While, as noted, the question of participations in the group has yet to be negotiated it is likely that some or all of the five American oil companies which are defendants in the civil suit commenced by the United States in April, 1953 will be invited to participate. It is also likely that any American oil company (including but not limited to the five mentioned companies) which did participate would find it necessary to reduce temporarily (on an individual basis, without agreement, understanding, or combination with any other company) its present takings of crude oil and refined products from other sources in order to be able to absorb such Iranian oil as it might take.
V.
The Secretary of State requests the National Security Council to obtain an opinion from the Attorney General as to the legality of any arrangements which might be made along the foregoing lines, including the legality of participation therein by any or all of the five mentioned American oil companies.
  1. Sent to the President the following day; for text, see The International Petroleum Cartel, p. 75.
  2. The source text is unsigned.
  3. Some of these NSC actions are printed in this compilation. The record copies of all these NSC actions are in S/SNSC (Miscellaneous) files, lot 66 D 95.