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

255. Memorandum From the Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (Rountree) to the Secretary of State¹

Washington, May 14, 1957.

SUBJECT

• US–UK Study of Middle East Problems

You will recall it was agreed at Bermuda that the United States and United Kingdom would undertake a review of Middle East problems bearing on the supply of oil to the free world. The Department prepared a paper setting forth its preliminary views with respect to the main factors involved, which we gave to the British some weeks ago.² Rather than preparing a separate paper, the British made comments upon our draft. In succeeding discussions we have now agreed on the attached paper. As indicated in the foreword, the paper is intended to provide a common point of departure at the next phase of the discussions, although it is in no sense a formally agreed document. We have given copies of the present draft not only to the offices of the Department which are concerned, but also to other agencies which participated in the preparation of earlier drafts. While we have not received comments from all of them, I believe that the paper will be found acceptable with minor or no modifications.

We are thus about ready to undertake the final stage of the exercise, namely higher level discussions between the two governments. In this connection John Coulson, who headed the British delegation in talks with us, has informed me that his Government is anxious that the next talks be held in London as soon as possible. While I gather that their representatives have not yet been designated, I understand that Harold Beeley will probably play a prominent role.

I believe that our delegation should include a representative of NEA, a representative of the Policy Planning Staff, and an oil expert. Perhaps the head of the delegation, when designated, might desire other assistants. I would propose that the makeup of the delegation await your designation of the principal representative. We can then suggest a number of names for his consideration.

I have already mentioned to the British the importance we attach to assuring that there will be no publicity regarding the talks. They perceive of no difficulty in this regard, and assured me that they would do everything possible to meet our wishes. If publicity is to be avoided, we will have to treat with particular care the manner in which the group proceeds to London and arrangements for the talks there.

Recommendation:

That we discuss, at some time convenient to you, the designation of the head of the delegation, the manner of communicating with him and the time and place for the meeting.

[Attachment]

Washington, May 10, 1957.

REVIEW OF MIDDLE EAST PROBLEMS BEARING UPON THE SUPPLY OF OIL TO THE FREE WORLD³

Foreword

In accordance with the “Agreed Position on Study of Middle East Problems” reached at Bermuda, officials of the United States and United Kingdom Governments have separately studied Middle East problems bearing upon the supply of oil to the free world, and have exchanged views based on those studies. The present paper summarizes this exchange of views.

While in no sense a formally agreed document, this paper is intended to provide a common United States–United Kingdom point of departure for the next phase, agreed at Bermuda, of deciding “what further procedural steps should be taken to concert the views of the two governments to bring them into accord as far as possible.”

Paragraphs 9, 10 and 14 of this paper report divergencies of United States and United Kingdom views concerning the Persian Gulf sheikhdoms and Saudi Arabia. Paragraphs 16(1) and (11) list several procedures and possible elements of a settlement with respect to the Buraimi issue that might be considered in the next phase.

I. Basic Premises

1. In the next 10 years or so it is unlikely that increased supplies of other forms of energy will be sufficient to make much impact on the demand for oil in the free world. Acceptance of this premise does not, of course, obviate the recognized need for the free world, and particularly Western Europe, to pursue vigorously present and projected plans for the development of alternative sources of energy.

2. Free world demand for oil will increase substantially during the next decade, and the bulk of this additional oil will have to come from the Middle East where most of the world’s proved reserves lie. This premise would be dislodged only if very substantial new crude oil deposits were to be found outside the Middle East.

3. A supply of oil from the Middle East in a steadily increasing volume is essential to the economic progress and the strategic strength of the NATO countries.

4. Certain Middle East governments have shown a willingness and capability to deny Western access to oil reserves (Iran 1951–53) and to disrupt Middle East oil transport facilities (Egypt and Syria 1956–57). It is essential that more effective measures be devised to protect the free world’s, and particularly the NATO countries’ long-term access to Middle East oil and to insure against temporary interruptions of its flow. This requirement confronts the West with the difficult problems of maintaining satisfactory political relations with the Middle East countries concerned with the production and transport of oil, and of securing oil supplies against external attack or internal disturbance.

5. The difficulties and dangers inherent in the free world’s dependence on Middle East oil would be intensified if this dependence came to rest upon one or two countries. Two countries, moreover, would not provide what Western Europe currently needs. The United States and United Kingdom should accordingly seek to retain access to the oil resources of all four of the major Middle East producing states: Iran, Iraq, Kuwait and Saudi Arabia. This effort is favored by the heavy dependence of these four countries on revenues derived from the sale of their oil in free world markets.

II. Political Factors Involved in the Protection of Free World Access to Middle East Oil

6. Continued access to Iranian oil seems least likely to be disturbed. Iran has already had a national convulsion over oil; its Government has adopted a pronounced pro-Western stance; it is relatively immune to the fevers of the Arab world.

7. The countries affected by Arab nationalism which directly concern this study are the producing areas—Iraq, Saudi Arabia, Kuwait and the other Persian Gulf sheikhdoms, and the transit countries—Egypt, Syria, Jordan and Lebanon.

8. In Iraq, Kuwait and Saudi Arabia, strong internal and external pressures exist on behalf of policies in common with other Arab states. Extreme Arab nationalism that looks to Nasser for leadership seeks to present itself, with some effect, as the exponent of true Arabism. Strong feelings existing in Iraq and Saudi Arabia over the Arab-Israel dispute, and in Saudi Arabia over continuing differences with the United Kingdom, provide bases for pressure and agitation by extremist groups. While these factors do not appear immediately to threaten continued access to the oil resources of the three countries, the ability of their present leadership to withstand the extremists would be improved if the bases for pressure and agitation were minimized or removed.

9. Kuwait merits special attention because of the importance of the resources of this sheikhdom to the Middle East oil supply picture. Pressures from indigenous nationalist sentiment, stimulated by Egyptian propaganda, teachers and technicians and by other educated non-Kuwaiti Arabs have been building up… . In the view of the United States, a substantial British position in the Gulf is important to continued access to the petroleum resources… .

10. The Gulf principalities are at different levels of development, and adaptations of the traditional systems may be desirable in some before others. The conclusion of friendly agreements between these states and Saudi Arabia over current issues would be desirable. In the United States view, the possibility of direct discussions in some cases should be considered and would not necessarily affect adversely the present United Kingdom position….

11. Apart from the Persian Gulf, free world dependence upon Middle East oil transport facilities rests principally on two countries (and to a lesser extent on Jordan and Lebanon). Egypt can block the Suez Canal, and Syria alone can breach the existing and operating Iraq Petroleum Company pipelines and Trans-Arabian pipeline. These, moreover, are countries in which Soviet influence is most extensive, Arab nationalism most extreme and involvement in the Arab-Israel dispute currently most immediate. The economic self-interest of both countries in revenues from these facilities, or pressures from petroleum producers and consumers, will serve to inhibit interference with the facilities in normal circumstances, but developments such as a renewed outbreak of Arab-Israel hostilities could well lead to the denial of both Canal and pipelines.

12. Political realities and common prudences dictate that the United States and the United Kingdom should seek to reduce free world dependence on Egypt and Syria. As there is now no practicable alternative to the Suez Canal, the United States and the United Kingdom must also, however, seek to restore normal conditions in the Middle East, so that the Canal, and the existing pipelines, will be available. Security of transit through the countries concerned depends ultimately on their internal political conditions and on United States and United Kingdom political relations with them. Egypt has, of course, an importance which transcends her position as a transit state. Egypt is, and is likely to remain, a center of anti-Western influence and revolutionary tendencies affecting the whole of the Arab world. It is therefore advisable to consider what can best be done to neutralize this influence.

13. In protecting the continued access to Middle East oil resources and transit facilities, the United States and the United Kingdom are assisted substantially by elements of strength resulting from the Baghdad Pact, the application of the American Doctrine to the area, the British position in the Persian Gulf and the United States position in Saudi Arabia. In this context, relations between the West and Saudi Arabia are of particular importance. Saudi Arabia has in the past opposed the Baghdad Pact and differences between Saudi Arabia and the United Kingdom in the Persian Gulf area remain unresolved. Saudi Arabia has, however, endorsed the American Doctrine, extended its cooperation with the United States at Dhahran, and has continued its policy of firm opposition to Soviet influence in the area… .

14. In attempting to steer … in the right direction, the main differences of opinion between the United States and the United Kingdom remain (a) the extent to which the Buraimi issue hampers the cooperation of the Saudi Government with the West, and (b) the extent to which a solution satisfactory to Saudi Arabia could endanger the position in the Persian Gulf. Basically, the difference is that the United States Government believes that a formula can be found which resolves the dispute without undermining the Western position in the Gulf, and that Saudi Arabia’s cooperation with the United Kingdom and the long-term Western position in the area would be furthered by a settlement. The United Kingdom Government, while willing to consider any suggestions, is not so far aware of any solution which would satisfy these conditions. At the same time, it believes that, while the existence of the dispute is an inhibiting factor, it need not seriously hamper the evolution of Saudi policy in the desired direction.

15. Policies at Present Being Pursued. The United States and United Kingdom are already pursuing, either independently or in conjunction, the following lines of action to preserve and strengthen their relationships with the oil producing states and to protect access to Middle East oil transport facilities:

(i) Giving full support to the Baghdad Pact;

(ii) Carrying out the Joint Resolution on the Middle East passed by the United States Congress on March 9, 1957. (Known informally as the American Doctrine and the Eisenhower Doctrine.);

(iii) Fostering the influence and prestige of Iraq and Saudi Arabia in the transit states;

(iv) Reducing the threat of Arab-Israel hostilities by—

(a) Supporting more effective United Nations action to police the Armistice Lines and to prevent the raids across them;

(b) Maintaining pressure on Israel to adopt a less belligerent attitude;

(v) Strengthening the internal security forces of the producing states;

(vi) Curbing the Egyptian subversive apparatus in the Middle East and diminishing extremist influence …;

(vii) Encouraging an increased awareness of the community of interests between oil producing states and the West, by the use of various information media, and stimulating the Governments of the oil producing states to do the same;

(viii) Maintaining the 50/50 principle in Middle East concessions;

(ix) Assisting the transit companies to secure satisfactory agreements with the transit countries;

(x) Fostering treaty guarantees of the security of new pipelines that may be built in the Middle East and seeking opportunities to obtain similar guarantees for existing pipelines.

16. Recommendations.

(i) There should be further United States–United Kingdom discussions of the divergence referred to in para. 14 above. Among other things, the practicability of the following procedures might be considered:

(a) Mediation by the United States;

(b) A resumption of direct United Kingdom-Saudi Arabian talks;

(c) A direct approach by the Sultan of Muscat to Saudi Arabia on border issues, with suitable recognition of the rights of Abu Dhabi as represented by the United Kingdom;

(d) Some system to guarantee the permanency of a border settlement;

(ii) The following might also be considered as possible elements of a settlement:

(a) Saudi recognition of Muscat’s sovereignty over inner Oman;

(b) A treaty establishing a neutral zone under the administration of the indigenous tribes;

(c) The return of some of the Buraimi refugees.

(iii) The two Governments should also consider whether steps should now be taken to promote settlements of the various claims to the islands and the seabed of the Persian Gulf. The following might be considered:

(a) An international conference of interested states;

(b) Reference to the International Court of Justice;

(c) Reference to the United Nations International Law Commission for an advisory opinion;

(d) A joint United States-United Kingdom approach to the interested powers proposing agreement on the median line of the Gulf.

(iv) The United States and United Kingdom should seek to promote the restoration of normal diplomatic relations between Iraq and France, and between Saudi Arabia and the United Kingdom and France. The two Governments should initiate enquiries in Baghdad designed to promote the former, and the United States Government should take any available opportunity to persuade the Saudi Arabian Government of the desirability of the latter.

(v) The two Governments should consider measures to restore tolerable relations with Egypt, or at least to mitigate the violence and efficiency of its hostile anti-Western policies.

(vi) There should be further consultation about the problems presented by the activities of Egyptian and Syrian teachers and technicians in the area, especially in Kuwait.

III. Insurance Against Interruption of Middle East Oil Supplies

17. The Middle East producing and transit states will be less disposed to interfere with free world access to the area’s oil if they are aware that Western Europe is able to cope with temporary interruptions of the flow of Middle East oil.

18. As was shown in the Iranian oil crisis, the existence of excess developed capacity in the four major Middle East oil producing states enabled the free world to defeat attempts by one of these states to impose unacceptable conditions for access to its oil or to injure Western Europe by stopping oil exports. More recently, the Suez crisis also emphasized the importance of having alternative sources of oil supplies, not only within the Middle East but also from non-Middle East sources.

19. The excess oil producing capacity, which made it possible in 1951 to offset the loss of Iranian oil and which during the last six months minimized the effect of the closure of the Suez Canal and the Iraq Petroleum Company pipelines by means of an oil lift to Western Europe from the Western Hemisphere, is rapidly being overtaken by rising consumption. The US will soon be unable to provide substantial quantities of petroleum from its own production to meet a similar future crisis without imposing drastic domestic rationing, a step that would be taken only in a major emergency clearly threatening the security of the US.

20. It is, therefore, all the more urgent that other alternative sources of supply be sought. In the Western Hemisphere, Venezuela could be a significant source if its productive potential were rapidly developed. Colombia also offers opportunities for development. In the Eastern Hemisphere, North Africa is the most promising non-Middle East source and has the special advantages of close proximity to Western Europe and of being a source of non-dollar oil. Burma and Indonesia, too, offer possibilities. These and other promising sources, e.g. Canada, would together provide the means of giving the free world a useful margin of flexibility in future emergencies. It should be stressed, however, that significant development of these potential alternative sources of supply will require several years of concentrated effort. Flexibility would be yet further enlarged if, wherever possible—e.g. in each of the four major Middle East producing states—the oil companies were to maintain stand-by producing capacity in excess of current market demand. It is recognized that the maintenance of significant surplus producing capacity might cause difficulties with the governments of the states concerned.

21. The Suez oil crisis also emphasized the disadvantage of not having a surplus of tankers to cope with the increased movements made necessary by the disruption of Middle East transport facilities. The shortage of tankers provided a stimulus to tanker construction, but with a return to more normal conditions—resumption of use of the Suez Canal and restoration of existing Middle East pipelines to maximum operation—tanker fleet owners may be disposed to begin restricting new construction and expediting scrapping.

22. To forestall such action with a view to maintaining surplus tanker tonnage in being, two methods suggest themselves:

(i) Instituting a program to increase petroleum stockpiles in Western Europe thus affording cargoes for surplus tankers. The resulting supplementary oil stocks would greatly ease the immediate impact of a future oil crisis in Europe;

(ii) Providing inducements to tanker owners to withdraw tankers from active service and place them in tanker reserve fleets for emergency use.

23. Substantial expansion of existing pipeline facilities in the Middle East will almost certainly be required to meet the rapid growth in world petroleum consumption, and would provide additional insurance against interruptions in the flow of the area’s oil. A number of United States and United Kingdom major oil companies are at present considering the merits of an Iraq–Turkey line. Other alternatives might include an Iran–Turkey line, giving an outlet to the new Qum discovery.

24. Recommendations.

(i) The United States and the United Kingdom should consider immediate steps which they may take, either jointly or individually, to ensure alternative oil availabilities. These might include—

(a) Encouraging the oil companies to build up and maintain in each of the four major Middle East producing states developed stand-by capacity substantially in excess of current market demands upon these countries.

(b) Encouraging the oil companies vigorously to pursue oil exploration and development in areas other than the Middle East and, where possible, to maintain in those areas developed stand-by capacity in excess of current market demands upon these areas.

(c) Persuading the governments of free world countries outside the Middle East to permit further exploration for and development of oil resources.

(ii) The United States and the United Kingdom should also reach agreement as soon as possible on a program, involving the most practicable combination of oil stockpiling, maintenance of the tanker fleet at a high level and new pipelines, designed to ensure Western Europe, and to the maximum extent possible other free world areas, against temporary interruptions of the flow of Middle East oil. It will be necessary urgently to examine—

(a) The desirability and practicability of encouraging the completion of present tanker construction programs and of discouraging expedited tanker scrapping, both on account of the intrinsic merit of these steps and with a view to providing tonnage for the movement of petroleum to Western European stockpiles or for possible reserve fleets.

(b) The relative merits of tankers over 60,000 dwt. as compared with tankers of 45,000–60,000 dwt.

(c) The availability in Western Europe of below ground storage (mines, quarries, pits, etc.) for between three and six months’ crude oil requirements, and the cost and steel requirement of unavoidable above ground tank storage.

(d) The utility of crude oil stockpiling in the Western Hemisphere.

(e) The over-all problems of finance and steel availabilities including an examination of the alternative cost, in terms of tonnage of steel, of pipeline construction on the one hand and of tanker building on the other for a line movement of oil.

(f) The vulnerability to sabotage of pipelines in politically unstable areas.

25. Much preliminary work will have to be done before any firm decisions can be taken on the problems discussed above. Moreover, the consideration of many of them cannot be far advanced without seeking the views and collaboration of the industries concerned. The United States and United Kingdom Governments should each consider how such consultation and collaboration with industry may best be secured in their respective countries.

1. Source: Department of State, Central Files, 880.2553/5–1457. Secret. Approved by Dulles.
2. This undated paper, entitled “U.S. Views on Middle East Problems Bearing Upon the Supply of Oil to the Free World,” is attached to a memorandum of April 13 from Rountree to Herter. An April 6 draft of this paper, which was reviewed at a Departmental meeting on April 10, is attached to the April 8 memorandum from Bowie to Francis O. Wilcox, not printed. (Ibid.,IO Files: 60 D 113, IO:Bermuda Conference, Mar. 1957)
3. Secret. Prepared by a Departmental working group coordinated within the Department with ARA, E, EUR, FR, IO, NEA, R, and S/P, and outside the Department with CIA, the Departments of Defense and the Interior, the Maritime Commission, and ODM.