123. Memorandum of a Conversation, Lancaster House, London, August 23, 1956, 5–5:50 p.m.1



  • The United States
    • The Secretary and Advisors
  • Great Britain
    • Mr. Lloyd and Advisors
  • France
    • M. Pineau and Advisors


  • Economic Aspects of the Suez Canal

The Secretary reported that a meeting of the Committee of five to consult with Nasser had been called for 11 o’clock tomorrow which would permit Mr. Loy Henderson who was to act for the United States2 to meet with the others. He said he also planned to attend this meeting himself.

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Mr. Lloyd said that it was desirable to consult together about what should be done if Egypt turned down the proposals for negotiation. He said there were two aspects, but which should be done and what other nations should be consulted.

Turning to the subject of the meeting, Mr. Lloyd and his advisors reported on the result of their talks with insurance companies regarding the situation of the Canal. Their conclusion was that there was no immediate pressure regarding insurance.

The discussion then turned to the British paper on economic measures which might be taken to put pressure on Egypt.3 Mr. Pineau began the discussion on payment of the Canal dues. He felt they should be paid into a special fund (paragraph 1. b.). The Secretary was not sure how the United States could do this under its law. We could freeze payments in Egyptian dollar accounts but would have no control over payments outside. The United Kingdom also recognized the existence of such a limitation but hoped to be able to persuade shipping companies to adopt this practice by offering to indemnify them against future liability.

Mr. Lloyd said there were really several questions. First, policy of depriving Nasser of revenue if he rejects the offer; second, how to carry it out; and third, what to do if he refuses passage without payment. The Secretary said this last question was the crucial one; Nasser will hardly allow passage indefinitely without payment. He agreed with the idea of putting pressure on Egypt if he refuses to negotiate but wished to be sure that the methods would put more pressure on Egypt than on the users. The question was if United States tankers go around the Cape, would Nasser or Europe suffer more in view of the resulting shortage of oil and increased costs?

Mr. Lloyd said there were other means of pressure to be considered. They might shut down their base which yielded Nasser [Page 278] four or five million pounds in local spending but the effects would be slow. Another pressure might be to induce the Canal employees to quit, but uncertain who would be hurt most. Mr. Lloyd then asked whether the United States would be willing to block current dollar approvals to Egypt. The Secretary said again that the basic issue was the effect of non-use of the Canal which might result from some of these pressures. The United States would actually benefit from the added demand for United States oil. It was for the United Kingdom and Europe to decide whether they wanted to see the tankers go around the Cape with the attendant rationing and dollar cost of oil. On the issue of blocking of Egyptian capital funds, our only ground has been possible mingling of Canal assets with other assets. If Canal tolls were put into a separate fund it would be hard to block all Egypt’s funds except as explicit economic warfare. The United States again stressed, nevertheless, that this was a strong method of pressure.

M. Pineau said that the French had studied the question of the burdens of going by way of the Cape and were prepared to take the consequences.

The British experts then reviewed other popular measures stressing that many of them would be very much more effective if adopted generally. They then discussed the following possibilities: (1) embargo of imports or exports between the U.K. and Egypt; (2) forbidding U.K. nationals to trade with Egypt outside the U.K.; (3) embargoing wheat from Western sources for shutting off oil to Egypt. Obviously the latter two would require cooperation from others.

The Secretary then mentioned cotton as another field, but the U.K. felt that efforts to disrupt the Egyptian cotton market would seriously hurt others. He felt there were two aspects of the problem; first, the policy decision whether economic pressure should be attempted and, second, the balancing of relative damage to Egypt and to ourselves from specific economic measures. Public support would be required for any such policy and was now lacking in the United States. So far, the political conventions reduced the educational effect of this Conference. If Egypt defies the eighteen nations, opinion would begin to be roused. On specific measures, expert study is needed at once. The United States is prepared to move as rapidly as possible toward study and acting together.

The U.K. again repeated that it would be feasible to bring Egypt’s trade to a stand-still (except for that with the Bloc) by blocking all its current balances.

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At the end of the meeting it was suggested, though not finally settled, that some organized tripartite study should be carried on.4

  1. Source: Department of State, Conference Files: Lot 62 D 181, CF 759. Secret. Prepared in the U.S. Delegation, but the source text does not indicate a drafting officer. According to the schedule and chronology prepared by the U.S. Delegation for August 23, this tripartite Foreign Ministers meeting took place at 11 a.m. at the Foreign Office. The editors have been unable to reconcile the discrepancy.
  2. At 10 a.m. on August 23, the Embassy in London forwarded to the Department of State the following message from Dulles to Hoover: “On reflection, feel Henderson would be best choice as handling at this stage is profoundly affected by Middle East politics. Please advise promptest whether he could come, as I need this information today soonest.” (Dulte 23 from London; ibid., Central Files, 110.13–HE/8–2356) An unnumbered service message from London, sent later on August 23, indicates that Hanes contacted Hoover in San Francisco by telephone at 11:25 a.m. London time and received Hoover’s concurrence to the Secretary’s proposal. (Ibid.) Loy Henderson arrived in London at 8:16 a.m., August 24. (Secto 52 from London, August 24; ibid., 110.13–HE/8–2456)
  3. Not attached to the source text. Reference is to a “UK Paper” entitled “Measures Which May be Required if Colonel Nasser Rejects the Invitation to Negotiate”, dated August 22. This paper listed six possible courses of action to be taken if Nasser turned down proposals for negotiation: (1) denial of Canal dues to Egypt, with payment being made (a) to the Suez Maritime Canal Company either in London or in Paris, or (b) into special accounts set up by each participating government, or (c) into an account held by an interim Suez Canal Board; (2) other forms of economic pressure such as control of all transactions on Egyptian accounts in participating countries; (3) persuading the current Canal staff to remain at work, subject to (a) the attitude of the Egyptian authority toward the staff, and (b) individual willingness to stay; (4) routing of ships round the Cape (a measure which would do more harm to the countries adopting it than to Egypt, but which might become necessary if the operation of the Canal declined in efficiency); (5) establishing machinery to prepare measures to counter a reduction in the flow of oil to Europe; and (6) policies with respect to assets and bank balances of the Suez Canal Company outside of Egypt. (Ibid., Conference Files: Lot 62 D 181, CF 747A)
  4. August 28, 1956—The Secretary has indicated that he does not wish to set up at this time any such Committee as that discussed in the last paragraph of this memorandum of conversation. However, he does wish that appropriate offices in E be informed of this conversation. E.V. McAuliffe S/SRO [Footnote in the source text.]