330. Memorandum From the Assistant Secretary of State for Near Eastern, South Asian, and African Affairs (Allen) to the Under Secretary of State (Hoover)1


  • Soviet Bloc Bid to Construct a Refinery in Syria


Attached (Tab A)2 is a … message … recommending that the United States act to stop the awarding of a contract for the construction of an oil refinery in Syria to the Soviet bloc. [Name deleted] considers the matter of critical importance and believes that the United States should subsidize, if necessary, a Western bid.

Also attached (Tab B) is a staff study discussing the pertinent factors and suggesting: (1) that one of the major U.S. oil companies, perhaps Standard of New Jersey, which has already offered to construct a refinery, be urged to present to the Syrians a sufficiently attractive offer to obtain the contract or, (2) failing this, that the United States subsidize a Western company. This recommendation is concurred in by Mr. Kalijarvi.

We agree thoroughly with the desirability of blocking the Soviet Bloc effort and that the first step should be an approach to Jersey asking it to improve its present offer. However, we see considerable difficulties in the proposal to subsidize a Western offer. These include Congressional and public reactions if it becomes known, which is probable; the precedent established for other similar situations such as the harbor works at Alexandria, the proposed refinery in Jordan and the construction of the Hejaz railway; and the general reluctance in principle to subsidizing U.S. business in this manner.


That you, or if you are unable to do so, NEA, telephone Mr. Page of Standard Oil again; and: (a) emphasize to him the importance of the Syrian refinery to American oil interests in the Near East; (b) urge that Standard send a high-ranking representative [Page 583] immediately to Damascus; (c) suggest that Standard be prepared to improve its existing offer.3
That we take no steps at this time towards subsidizing a Western offer.4

[Attachment—Tab B]



Should the United States, in an effort to prevent a Soviet bloc country from securing the contract to build a Syrian Government refinery, use Government funds unilaterally or jointly with other Western powers to subsidize a Western bid.


The Project: The Syrian Government has enacted legislation establishing a Petroleum Refinery Institute with an appropriation of about $25 million to construct and to operate an oil refinery. These funds are to be repaid within 15 years from the date the refinery goes into operation. During this period the prices of petroleum products are to be fixed at a level necessary to cover refinery expenses and repayment of the loan with interest. The Institute is also directed to sell and distribute refinery products and import petroleum products as required, (Tab A).6

Bidding: The specifications call for a refinery capacity of one million tons per year, (Tab B).7 Bids have been received from Czech, Russian, British, French, Italian and Japanese firms, as well as from at least two U.S. firms, Lummus and Universal Oil Products, indirectly represented through European affiliates, (Tab C).8 Interest has also been shown by Ralph M. Parsons Company and by Tuteur and Company, associated with Foster Wheeler. Embassy Damascus indicates that neither of these firms has submitted bids.

In addition to bids on the Government refinery, the Standard Oil Company (New Jersey) has offered to build and operate a 10,000 [Page 584] b/d refinery, with no Syrian participation either private or Government. Although acceptance of this offer, as an alternative to the Government-owned and operated refinery, is extremely doubtful, the Syrian Minister of Public Works9 has indicated a willingness to discuss the refinery with a company representative. If the company were to inject new concepts into its offer, such as eventual Syrian ownership and joint GOS and/or private Syrian participation, this offer might be made attractive. Although when the matter was last discussed with the company there was no evidence that they wished to make their offer more attractive, this latest development was brought to the attention of Howard Page (Vice President of Standard) July 13 who expressed interest in following up on the Syrian Minister’s interest in discussing Standard’s offer further.

The Syrian Government Attitude and Likely Outcome: Syrian Government sources, the press and public opinion clearly favor a government refinery. The project is considered to be economically sound and its attractiveness is enhanced by the recent IPC-Syrian agreement under which 600,000 tons of crude are to be made available annually at a substantial discount.

June 7 was the deadline for submission of bids. Embassy Damascus reports that two refinery experts (British and Czech) have been selected to assist in reviewing the offers. The lowest Western bid submitted prior to the closing date was by an Italian firm in the amount of £42 million ($11.8 million). A Czech offer of £36 million ($10.1 million) is believed to be the only lower bid, (Tab D).10 The Minister of Public Works claims that he is prepared not to accept a Soviet bloc bid if a better offer is made by the West. The opening of bids is expected during the week of July 15.

Importance of Excluding the Soviets from the Project: The Soviet bloc capability of supplying capital equipment for many industrial enterprises in the Middle East is recognized. Obviously the United States Government cannot counter every Soviet offer to subsidize industrial projects in this region. However, due to the vital importance of the Middle East petroleum resources to the Free World, it is important that every effort be made to secure the awarding of the Syrian refinery contract to a reliable Western firm.

This refinery threatens to become the first refinery to be built by the Soviet bloc in the Free World. Soviet capital and technical methods will be introduced into the Middle East and a large number of Soviet technicians, estimated at 350, will be occupied for several years in the construction and at least the initial operation of the [Page 585] refinery. Training a considerable number of Syrians in the U.S.S.R. is also likely to occur. The Soviets may be expected to use this refinery project as a means of infiltrating and influencing developments in the Syrian and Middle Eastern oil industry, including both the oil fields and transportation facilities, for their economic and political advantage.

Aside from the aforementioned situations which the Soviets can be expected to exploit, it is improbable that there would be any immediate Syrian shift away from Western controlled crude, although intensified pressure for more favorable supply terms might be expected. In any case, regardless of whether the East or the West obtains the refinery contract, the existence of a Government-owned refinery can be expected to increase the difficulties of Western companies now marketing petroleum products in Syria.

Possible Courses of Action:

The Department might discuss the problem as soon as possible with the top management of one or more of the major U.S. oil companies; for example, the Aramco parent companies which have an indirect interest because of Tapline. Two of them have a further interest through IPC. On the basis of this discussion one or more of these companies might be willing to make a sufficiently favorable offer to the Syrians to secure the contract for the West. Such an effort might help to consolidate the sentiment within the country which favors private enterprise.
One or more of the companies might be encouraged to undertake to build and operate the refinery on terms acceptable to the GOS. The Jersey company has already offered to build its own refinery in Syria and might be induced to modify its original position so as to make it sufficiently attractive to encourage the Government to drop its own plans, e.g. by agreeing to turn the plant over to the GOS after the expiration of a period of, say, 5 to 10 years.
One or more of the companies might be willing to assist one of the bidders to make its bid more competitive with the Soviet offer.

The U.S. might discuss with the Government of Italy the feasibility of the U.S. Government assisting, through the Mutual Security Program or the P.L. 480 Program, the Italian company which is reported to have submitted the lowest Western bid for the project. Embassy Damascus believes that this approach might have the advantage of economy, effectiveness and fairness to Western bidders, (Tab D).

This approach raises four major problems: (1) the use of U.S. Government funds for petroleum developments, particularly for government-owned [Page 586] projects; (2) the possibility that ENI,11 the Italian Government oil company, and Enrico Mattei may be involved in the Italian bid; (3) the possibility of publicity to the U.S. effort through Italian Government leaks; and (4) inability to move rapidly enough on this approach in the absence of approved aid legislation. The Syrian problem may be serious enough to justify an exception in the use of U.S. Government funds. Efforts are being made to secure information on possible ENI involvement in the Italian bid; however, the seriousness of the Syrian problem may be sufficient justification to overlook possible ENI participation.

If the Italian Government approach is impracticable or inadvisable, a similar approach might be made to other Western governments in connection with bids by their nationals.
The U.S. might, with appropriate safeguards, support a Western bid with confidential public funds. A U.S. company bid, a bid of a U.S. company European affiliate, or the Italian bid might be considered in this connection. In addition to the Jersey proposal, bids are said to have been made by Kellogg, Lummus, and a European Foster-Wheeler affiliate.
  1. Source: Department of State, Central Files, 883.3932/7–1656. Secret. Drafted by Burdett and initialed by Allen and concurred in by Kalijarvi.
  2. Attached, but not printed.
  3. At this point on the source text, Hoover initialed his approval of the option that he telephone Howard Page of Standard Oil. No record of that conversation has been found.
  4. Hoover initialed his disapproval of this recommendation.
  5. Secret. Drafted by Shaw, Beckner, Dunn, and Boardman.
  6. None of the tabs are attached. According to a list at the end of the document, Tab A was the text of the law establishing the Petroleum Institute.
  7. Tab B was a summary of the specifications for the refinery.
  8. Tab C was a report on the bids received.
  9. Majd al-Din al-Jabri.
  10. The source text identifies Tab D as “Alleged relative position lowest bids submitted East and West”.
  11. Ente Nazionale Idrocarburi, an economic agency established by the Italian State, which was the sole lessee for exploration, extraction, and transportation of oil and gas in the Po Valley in Italy.