Foreign Relations of the United States, 1955–1957, Near East Region; Iran; Iraq, Volume XII

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

Washington, April 13, 1957.

SUBJECT

• Exchange of Views with the UK on Middle East Problems Bearing upon Oil Supply

Pursuant to the Bermuda agreement that the US and UK Governments would exchange views on Middle East problems bearing upon the supply of oil to the free world on or before April 15, 1957,² a Departmental working group³ has prepared the attached paper. (Tab A)

This paper does not purport to be more than a summary statement of the major problems and possible ways of dealing with them as seen by this Government. It should serve to initiate the agreed exchange of views, leaving to later stages the exchange of more detailed data. The preparation of such data is well advanced as an informal interdepartmental working group has since January been studying various aspects of the oil supply problem. The present paper drew heavily on the work of that group.

This paper has been coordinated within the Department with ARA, E, EUR, FE, IO, L, NEA, and R and S/P, and outside the Department with CIA, Defense, Interior, Maritime Commission and ODM.

Recommendation

It is recommended that you approve the attached paper and authorize me to hand it to a representative of the UK Embassy on April 15.⁴

[Tab A]

US VIEWS ON MIDDLE EAST PROBLEMS BEARING UPON THE SUPPLY OF OIL TO THE FREE WORLD⁵

I. Basic Premises

1. The US Government agrees with the UK Government that “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” (paragraph 4 of Report on Long-Term Requirements for the Transport of Oil from the Middle East transmitted to the Department of State by the British Embassy on January 4, 1957).⁶ 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. The US Government also agrees that free world demand for oil will increase substantially during the next decade and that “The bulk of this additional oil will have to come from the Middle East where most of the world’s proven reserves lie.” (paragraph 2 of above-cited Report). This premise would be dislodged only if very substantial new crude oil deposits were to be found outside the Middle East.

3. The US Government’s estimates of basic data bearing upon free world oil supply differ in some respects from those of the UK Government as indicated in the previously cited Report The US estimates are given in Annex A⁷ for convenient reference.

4. Certain Middle East governments have shown a willingness and capability to deny Western access to oil reserves (Iran 1951–3) and to disrupt Middle East oil transport facilities (Egypt and Syria 1956–7). It is essential that more effective measures be devised to protect the free world’s, and particularly Western Europe’s, long-term access to Middle East oil and to insure against temporary interruptions of its flow.

II. Protection of Free World Access to Middle East Oil

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 US and UK 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.

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. 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 UK 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.

8. Free world dependence upon Middle East oil transport facilities already rests principally on two countries. Egypt can block the Suez Canal, and Syria alone can breach the existing and operating IPC pipelines and Tapline. 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.

9. The political realities and common prudence dictate that the US and the UK should seek to reduce free world dependence on Egypt and Syria. As there is now no practicable alternative to the Suez Canal, the US and the UK must also, however, seek to restore normal conditions in the Middle East so that the Canal, and the existing pipelines, will be available.

10. In protecting continued access to Middle East oil resources and transit facilities, Saudi Arabia is the key country, and relations between Saudi Arabia and the West are of particular importance. If Saudi Arabia could be brought to identify its interests with those of the US and the UK, there could follow a reduction of the extremist threat in Iraq, a curtailment of financial support for Arab extremist movements, constructive Saudi influence on behalf of secure transit rights for oil, Arab acquiescence in a substantial British position in the Persian Gulf and Arab cooperation in opposing the expansion of Soviet influence.

Recommendations

11. The US and the UK should consider immediate steps which they may take, either jointly or individually, for stable and mutually beneficial relationships with Iran, Iraq, Kuwait and Saudi Arabia. These might include:

a. Restoration of normal diplomatic relations between Iraq and France and between Saudi Arabia and the UK and France.

b. An agreed settlement between the UK, the Persian Gulf states, and Saudi Arabia on Buraimi and the frontiers. In this connection, the following courses of action might be considered:

i. Mediation by the US.

ii. Direct talks between the UK and Saudi Arabia.

iii. A direct approach by Muscat to Saudi Arabia on border issues with suitable recognition of the rights of Abu Dhabi as represented by the UK.

iv. Saudi Arabian recognition of Muscat’s sovereignty over Inner Oman.

v. A treaty establishing a neutral zone under the administration of indigenous tribes.

vi. Return of the Buraimi refugees.

vii. Return to arbitration.

c. Obtaining settlements of the varying claims to the islands and the sea bed of the Persian Gulf. In this connection, the following might be considered:

i. An international conference of interested states.

ii. Reference to the ICJ.

iii. Reference to the UN Legal Committee for an advisory opinion.

iv. A joint US–UK approach to the interested powers proposing agreement on the median line of the Gulf.

d. Curbing the Egyptian subversive apparatus in the Middle East, and diminishing extremist influence through the replacement of Egyptian and Syrian teachers and technicians in the area, especially in Kuwait.

e. Strengthening the internal security forces of the producing states.

f. Maintaining the 50–50 principle in Middle East concessions.

g. Supporting friendly indigenous information and exchange efforts stressing community of interests between oil producing states and West.

12. The US and the UK should also consider immediate steps which they may take, either jointly or individually, to protect access to Middle East oil transport facilities. These might include:

a. Increasing the influence and prestige of Iraq and Saudi Arabia in the transit states.

b. Reducing the likelihood of Arab-Israel hostilities by

i. Seeking more effective UN policing of the Arab-Israel Armistice Lines and the prevention of raids across the lines.

ii. Maintaining pressure on Israel to adopt a less belligerent posture.

c. 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.

d. Assisting the transit companies to secure satisfactory agreements with the transit countries.

III. Insurance Against Interruptions of Middle East Oil Supply

13. 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. Several possible measures could provide insurance against such interruptions.

14. As was shown in the Iranian oil crisis, the existence of excess developed capacity in the four major Middle East 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. The rapid rise in petroleum requirements has now greatly reduced the margin of excess capacity that existed in 1951, and it would not be possible today quickly to offset the loss of supplies from one major producing state by increasing output in the other three.

15. The Suez oil crisis emphasized the importance of alternative sources of oil supply. Shipments from the Western Hemisphere to Western Europe contributed substantially to minimizing the effect of the closure of the Suez Canal and IPC pipeline on supplies, although balance of payments difficulties were created. 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. Venezuela could be a significant alternative 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 advantage of close proximity to Western Europe. North African oil would also be non-dollar oil, a further and important advantage. Given reasonable political stability, a considerable expansion of Indonesian production is likely. Burma, too, offers some possibilities. It should be stressed, however, that significant development of these potential alternative sources of supply will require several years of concentrated effort. If this effort is promptly launched, these sources can afford the free world a useful margin of flexibility in emergencies that might arise three or more years hence.

16. The Suez oil crisis also emphasized the importance of a surplus of tankers to cope with increased maritime movements necessitated by disruption of Middle East transport facilities. It must be assumed that world shipping will soon resume and continue using the Suez Canal if, as appears probable, the Egyptian Canal authority provides safe and adequate service. It must also be assumed that existing Middle East pipelines will be restored to maximum operation as soon as possible, if, as a consequence of these developments, tanker fleet owners should be disposed to begin restricting new construction and expediting scrapping, free world Governments would be well advised to consider the desirability and practicability of instituting measures to forestall such action with a view to maintaining surplus tonnage in being.

17. One way to dissuade fleet owners from cutting back would be to institute a program to increase petroleum stockpiles in Western Europe, thus affording cargoes for surplus tankers. Such stocks as did exist greatly eased the immediate impact of the Suez oil crisis in Europe. If between three and six months’ requirements could be stored, it might well be possible for Western Europe to withstand a future transport crisis for as long as a year, on the reasonable assumption that tankers engaged in the Middle East-Western Europe movements, being diverted from the Suez Canal to the Cape route, could provide about 50% of normal requirements. Supplementary stockpiles in the Western Hemisphere might also be of advantage.

18. Another way to discourage tanker cut back would be to provide inducements for the withdrawal of tankers from active service and their placement in tanker reserve fleets for emergency use. Such a program would not only involve substantial financial outlays but would also present many difficulties in implementation. It would, however, provide significant insurance against future transport crises.

19. The continued operation of Tapline during the Suez oil crisis makes a prima facie case for the construction of other alternate pipelines in the Middle East. A number of the major oil companies are giving serious consideration to an Iraq–Turkey line. This proposal has already aroused Arab opposition, and it cannot be excluded that Iraq might succumb to Arab pressures against a line so obviously avoiding other Arab states. If so, an Iran–Turkey line initially tapping the new Qum discovery would be an alternative. As this pipeline would bypass all Arab states, it has an intrinsic attraction. The proposed pipeline through Israel does not appear likely to make a major contribution to the movement of Middle East oil to Western Europe.

Recommendations

20. The US and the UK should consider immediate steps which they make take, either jointly or individually, to insure 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 standby capacity at least 25% in excess of increasing petroleum demands upon these countries.

b. Persuading free world countries outside the Middle East to permit further exploration for and development of oil resources.

c. Encouraging the oil companies vigorously to pursue non-Middle East exploration and development and, in such areas as Venezuela and eventually Algeria, to build up and maintain developed standby capacity at least 25% in excess of immediate petroleum demands upon those areas.

21. The US and the UK 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 insure Western Europe, and to the maximum extent possible other free world areas, against temporary interruptions of the flow of Middle East oil. In order to determine the most practicable program, 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 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. vs. 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 tank storage.

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

e. The impact of proposed pipelines in the Middle East and elsewhere (e.g. the proposed line from Marseille to Rotterdam and the North Sea) on the maintenance of the tanker fleet and on free world, particularly Western European, vulnerability arising from increased dependence on Middle East pipelines.

f. Over-all problems of finance and steel availabilities.

1. Source: Department of State, Central Files, 880.2553/4–1357. Secret.
2. See Document 204.
3. Elbert Mathews of the Policy Planning Staff chaired the interdepartmental working group.
4. Herter initialed his approval on the source text.
5. Secret. Earlier drafts of this paper, prepared by Mathews, are in Department of State, S/P Files: Lot 67 D 548, S/P Record Copies.
6. Not printed. (Ibid., Near and Middle East) See vol. x, p. 647.
7. Not printed.