226. Memorandum From the Counselor of the Department of State (MacArthur) to the Under
Secretary of State (Hoover)1
Washington, July 27,
1956.
SUBJECT
Mr. Hoover:
There is attached a communication addressed to me from Mr. H.A. Stewart, Director of the Oil and Gas
Division of the Interior Department, relating to the procedures involved and
the steps which should be taken in the event certain contingencies arise in
the Middle East which affect the supply of Middle East petroleum.
The three contingencies are:
- Case A: Loss or stoppage of the Levant pipelines;
- Case B: Stoppage of the Suez Canal;
- Case C: Loss of both A and B above.
In connection with the above three possibilities, you will recall that the
following studies have already been made within this government:
- 1.
- Memorandum from the Oil and Gas Division of Interior dated March
30, 1956, subject: “Effects on the Free World Petroleum
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Economy Under Certain
Assumed Conditions in the Middle East Area”.2
- 2.
- A preliminary paper entitled “Middle East Oil Situation”, dated
May 3, and produced by the Economic Intelligence Committee’s Ad Hoc
Working Group on Middle East oil.3
- 3.
- The memorandum dated May 174 which Mr. Rountree transmitted to the British
Embassy under a letter dated May 26.5
- 4.
- A table prepared by Interior on the tanker situation under these
assumptions, which was given to representatives of the British
Embassy by Mr. Beckner and
Mr. Lott on June 15.2
It will be appreciated that the attached communication from Mr. Stewart deals largely with the mechanics of
arranging to produce a plan of action to ensure the most efficient use of
available oil, and shipping engaged in transporting it, and not with the
actual plans themselves. I understand that planning involving actual
quantities of oil and numbers of tankers at this stage would be of only
limited value inasmuch as the plan, to be of value, must relate to current
supplies, ships in position, loading schedules, and a variety of information
of that character, which the committee proposed in the attached memorandum
would be able to consider promptly.
You will note from the second paragraph on page 2 of Mr. Stewart’s memo that currently the Foreign
Supply Committee is being reorganized, and it is anticipated that a
reconstituted committee will be in being in the near future. In view of the
most recent developments with respect to the Middle East, and particularly
the Suez Canal, it is for consideration whether we should not urge that the
reconstituted committee be established just as soon as possible.6
It is also for consideration as to whether, when this committee is
reestablished, it should not be requested immediately to undertake certain
planning studies. This seems particularly desirable in view of the fact
(pointed out in paragraph 2 of page 1 of Mr. Stewart’s communication) that the Administrator, after
determination of an emergency, must notify the Attorney General of his
determination not less than ten days before making any request upon the
committee to prepare a plan of action. Mr. Stewart’s paper, which has been carefully gone over by the
Legal staff of ODM as well as Interior
indicates that before the committee can engage in actual planning, there
must be a determination that emergency exists outside the US
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that requires action. Obviously, it would not
be desirous, I think, for such a determination of emergency to be made
publicly, but I do believe the present situation warrants such a
determination, which presumably could be held confidential, so that actual
planning by competent people composing the committee can proceed.
Finally, you will recall that Mr. Dillon
Anderson of the NSC expressed
interest to you with respect to this problem. We undertook to get in touch
with him in due course to let him know whether we believed any NSC or Planning Board actions might be
necessary. Perhaps when you have considered the attached paper you would
wish to let Mr. Anderson know your
views with respect to this point.7
[Attachment]
Letter From the Director of the Oil and Gas Division, Department of
the Interior (Stewart), to the Counselor of the Department of State
(MacArthur)8
Washington, July 27,
1956.
My Dear Mr. Macarthur: As a supplement to our letter to you
of June 6, 1956,9 regarding Middle East oil problems,
the following sets forth in greater detail the measures that the United
States government would have to take to meet effectively the conditions
assumed.
The alleviation of shortages arising from a substantial loss of any of
the current sources of world petroleum supply would require cooperative
action among domestic companies having foreign petroleum operations and
foreign companies. A mechanism for such action exists in the Voluntary
Agreement Relating to Foreign Petroleum Supply under Section 708 of the
Defense Production Act of 1950.
Cases A, B, and C, appear to present situations in which action under the
Voluntary Agreement would promote the national defense,
[Page 615]
and assuming that such a determination
were made, the following steps would be required.
- 1.
- The Administrator (Secretary of the Interior or Assistant
Secretary, Interior-Mineral Resources) determines that an emergency
exists outside the U.S. that requires action.
- 2.
- The Administrator notifies the Attorney General of this
determination not less than 10 days before making
any request upon the Foreign Petroleum Supply
Committee.
- 3.
- The Director of the Voluntary Agreement then submits to the
Foreign Petroleum Supply Committee a request to prepare a plan or
plans of action.
- 4.
- The Committee prepares and submits in writing to the Administrator
recommended plans of action.
- 5.
- The Administrator approves a “Plan of Action” and submits it to
the Director of the Office of Defense Mobilization for approval in
accord with Section 708 of the Defense Production Act of 1950. The
Director of the Office of Defense Mobilization must consult with the
Chairman of the Federal Trade Commission and the Attorney General
and obtain the approval of the latter.
- 6.
- Upon approval of a Plan of Action by the Director of the Office of
Defense Mobilization and the approval and issuance by the
Administrator of schedules prepared by the Committee implementing
the plan, action may be taken pursuant to such schedules.
As previously stated, we estimate that the process summarized above would
take from 2 to 4 weeks. Currently the Foreign Petroleum Supply Committee
is being reorganized in response to new rules promulgated by the
Attorney General of the U.S. as amendments to the Voluntary Agreement
under which the Committee operates. It is anticipated that a
reconstituted Committee will be in being in the near future.
Operations under a Plan or Plans of Action would be designed to integrate
to the extent necessary and appropriate the scheduling and movements of
ocean tank ships under control of both U.S. and foreign companies into a
unified operation, efficiently related to sources of incremental oil
supply as available (or susceptible of rapid development) to offset oil
that is denied its customary markets by emergency circumstances. Related
adjustments to refining operations, crude oil production, and inland
transport would be made by industry management in response to usual
economic incentives. From an operations point of view, it is believed
these measures might reasonably be expected to meet the principal
problems posed by Cases A and B and initial stresses under Case C.
Attendant financial and foreign exchange problems, however, have not been
studied because of the breadth and complexity of this field.
Consideration might be given to a joint task group composed of British
and United States people, or initially to a British group in recognition
of the contribution they could make to knowledge of
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Sterling–dollar capabilities. Such a study
would suggest areas in which U.S. Government action might be considered
desirable.
Conditions of Case C would require drastic action by the United States
Government in the United States, It would undoubtedly create shortages
of petroleum products for domestic use. This would force allocation of
products, possible rationing, and might require price controls.
There is presently no authority to control prices. Authority does exist
under Section 101 of the Defense Production Act to allocate materials in
order to promote the national defense. Presumably Case C would present a
situation which would justify a determination that the exercise of the
priorities and allocation powers would serve such a purpose. These
powers could be exercised to control the general distribution of
petroleum products in the civilian market only after a finding by the
Secretary of the Interior that the products to be allocated or rationed
are scarce and critical materials essential to the national defense, and
“that the requirements of the national defense for such material cannot
otherwise be met without creating a significant dislocation of the
normal distribution of such material in the civilian market to such a
degree as to create an appreciable hardship,” and the approval of such
finding by the Director of the Office of Defense Mobilization.
Assuming that a determination was made that the use of the priority
allocation powers was required for national defense, it would be
necessary as a minimum to establish a headquarters organization of
considerable size if any extensive use of the power to allocate was to
be made. Such a central organization probably could be brought into
being within a period of four to eight weeks. If it became necessary to
institute rationing among consumers, a field organization would have to
be created to administer such program. Such a field organization could
hardly be established in less than four months.
Sincerely yours,
