Foreign Relations of the United States, 1955–1957, Foreign Aid and Economic Defense Policy, Volume X

224. Letter From the Director of the Oil and Gas Division, Department of the Interior (Stewart), to the Counselor of the Department of State (MacArthur)¹

Washington, June 6, 1956.

My Dear Mr. Macarthur: With reference to the U.K. Middle East oil paper² discussed briefly in my letter to you of May 16, 1956,³ the following brief discussion will highlight the principal steps and critical time elements that we believe must attend solutions of the problems indicated. I hope this will serve the immediate purposes of the Secretary of State in his study and concern with this important area. Certain problems will be common, although varying in degree, to all three cases presented in the U.K. paper:

(1) Serious disruption of vital ocean transport of oil.

(2) Cutbacks of available oil from Middle East sources.

(3) Emergency increases in production from Western Hemisphere sources.

(4) Significant additions to the dollar needs of the U.K./Western Europe, reaching critical proportions.

(5) A great increase in the cost of petroleum products to consumers within the U.S. resulting from incremental demands upon U.S. and other Western Hemisphere oil fields.

To cope effectively with the ocean shipping problem, an obvious first step would be prompt development and activation of a “Plan of Action” by the Foreign Petroleum Supply Committee.⁴ To accomplish this under conditions that prevailed prior to the promulgation of amendments that became effective on May 8, 1956, would have required, in our judgment, a very short time, perhaps 2 to 4 weeks.

This estimate, however, cannot presently be relied upon because the amendments just mentioned have significantly changed the rules under which the Foreign Petroleum Supply Committee operates. Until this situation is clarified and new appointments of Committee representatives made, it must be assumed that more time would be required to initiate such actions.

In the meantime, however, operating companies doubtless would, each as a separate unit, reorient their operations so as to best serve their markets under difficult new circumstances. By these means significant progress could be made toward rerouting effective oil shipments, limited however by inability to fully integrate available sources and transportation without regard to specific ownership until a “Plan of Action” was effective.

Concurrently, steps could be taken to increase oil availability at tidewater from Western Hemisphere sources on an industry operating basis to minimize delay in picking up incremental emergency supplies.

It is our considered judgment and that of industry experts with whom we have consulted that such adjustments as are required by Cases A and B could be effected strictly from an operating standpoint to a point where an even flow of oil from substitute sources would be achieved within a 3-month period. During this interim, a continued receipt from loaded tankers at sea upon the outbreak of trouble could be expected for one or two weeks to supplement available stocks in consuming areas. Subsequently, a reduced flow would begin from supplemental sources and gradually increase in volume as the 3-month period lapses.

The measures outlined, assuming fully cooperative action by Governments and industry units involved could be expected, in our opinion, to meet the emergency pictured in Cases A and B. No attempt is made to appraise the initial stresses within the U.K./Western Europe consuming area. The probable severity of these may not be judged without a careful detailed study on the ground. The financial aspects would, we believe, present serious problems particularly with respect to increased cost to U.S. consumers and the balance of payments of the U.K./Western Hemisphere countries.

Case C involves the most severe conditions. It would result in serious shortages of oil supplies not only for U.K./Western Europe but for the Western Hemisphere as well. It would inevitably mean higher prices and much higher transportation costs. Secondarily, to accomplish optimum results restrictions would be necessary upon consumption of petroleum and controls upon prices. Authority for such measures under peace conditions does not exist. Hence, new laws would be needed to permit reasonable supplies to U.K./Western Europe and to prevent runaway prices.

Sincerely yours,

H.A. Stewart

1. Source: Department of State, State–JCS Meetings: Lot 61 D 417. Secret.
2. Not printed. (Ibid.)
3. Document 221.
4. Regarding a plan of action, see Document 226.