Foreign Relations of the United States, 1955–1957, Suez Crisis, July 26–December 31, 1956, Volume XVI

585. Memorandum From the Deputy Assistant Secretary of State for European Affairs (Elbrick) and the Assistant Secretary of State for Economic Affairs (Kalijarvi) to the Acting Secretary of State¹

Washington, November 17, 1956.

SUBJECT

• Impact of Oil Shortage Due to Middle East Situation on Our European NATO Allies

In recent days eight² West European governments have approached us, either here or abroad, or in some cases both, to express concern over the prospective oil shortage in Europe due to the Middle East situation and to ask about activating the London Oil Emergency Advisory Committee, or some other agency for cooperating with Western Europe in meeting this problem. Failure on our part to do this in the very near future can expose us to serious risks. In the first place, there are a number of NATO countries, sure to suffer from the prospective oil shortage, which regard themselves as innocent bystanders as far as intervention in Suez is concerned. The Danes, for instance, who by and large disapproved of the Anglo-French intervention in Suez, decidedly do not feel that they should suffer because of our unwillingness to restore cooperation with Western Europe. We rely on many of these countries to maintain our NATO alliance, even though in some cases they have not been as stable supporters of the West as we should like. If we show ourselves unresponsive to their needs, it is questionable whether we could count indefinitely upon their unreserved cooperation with respect to Western defense and NATO.

Scandinavian countries which have very insufficient and inferior coal resources of their own depend heavily on oil for power for industrial purposes as well as for transportation. They are exceedingly vulnerable to any prolonged interruption of their oil supply and there are already signs that some of them are becoming desperate in their efforts to find solutions to the anticipated shortage. That the largest share of the Middle East oil goes to Britain and France does not affect the fact that these smaller sovereign states share a critical dependence on oil and may be expected to react violently if they believe that the United States is dragging its heels in helping them to solve this problem.

So far as Britain is concerned, we appreciate that the appearance of cooperation might have an adverse effect among Arab oil producing states and those through which pipelines run. We must, however, sooner or later face the fact that since British coal production has been relatively inflexible in recent years, British industry, too, has come to depend increasingly on oil. If its supply is too much curtailed, production costs will rise and production volume fall which would affect adversely British exports. This, in turn, would further reduce its gold and dollar reserves which have already declined to $2.16 billion, just $169 million above the assumed danger line of $2 billion. A financial crisis in Britain now could scarcely serve our long-term interests and would certainly weaken that country’s contribution to NATO defense forces.

It appears certain that, at the very least, a 20% shortage in oil will develop in Western Europe this winter and this will tend to make people particularly sensitive to any suggestions that the United States, which appears to them invulnerable to this crisis and hence not disposed to make sacrifices, did not act quickly to help alleviate their situation. We should also recognize the disillusionment in the value of the North Atlantic Alliance which would follow an apparent failure on our part to support the economies of our Western European allies. In addition to this psychological factor, we shall have to contend with the virtual certainty that military stocks in Europe will be drawn down with adverse effects on NATO’s readiness to withstand attack, if we do not assist.

Recommendation:

It is recommended that you bring to the attention of the National Security Council or other appropriate forum the possible serious consequences of further delay in permitting the United States Government to cooperate with Western European nations in meeting the threatened oil shortage.³

1. Source: Department of State, Central Files, 840.04/11–1756. Confidential. Drafted by the Officer in Charge of United Kingdom and Ireland Affairs, William N. Dale; sent through Murphy to Hoover. Concurred in by Moline, John Wesley Jones (EUR/WE), and Rountree. A note attached to the source text, dated November 17, from Rountree to Murphy reads in part as follows: “I believe that NSC should be informed and I am inclined to think that we should be prepared to take substantive action with respect to the oil problem within the next few days. Any such action should deal with the oil problem of the Free World as a whole, and not just Western Europe. I assume that before proceeding with this substantive action we will have replies from the several missions to which the Department’s telegram of November 16 was directed. In that telegram we asked for the estimates of the missions to Arab States as to whether coordinated supply efforts involving the United States, United Kingdom, Dutch and French companies could be taken in present circumstances without serious risk that such action would bring about a significant reduction in oil availabilities in the Persian Gulf and Eastern Mediterranean.” Reference is to telegram 351 to Jidda, November 16, also sent to Kuwait, Baghdad, and Tehran; ibid., 840.04/11–1656. A typed notation on Rountree’s note by Bowie, dated November 20, reads: “I concur on same basis as Mr. Rountree.”
2. Italy, Ireland, Norway, Sweden, Denmark, Portugal, United Kingdom, and the Netherlands. [Footnote in the source text.]

3. A note attached to the source text, dated November 23, from Hoover’s Special Assistant, Earl D. Sohm, to Murphy’s Special Assistant, Richard Finn, reads: “Mr. Murphy left this with Mr. Hoover. Mr. Hoover read last night, but made no comment. Suggest you return to Mr. Murphy. Sorry I can’t be more helpful.”

   Another note attached to the source text, dated November 24, by Finn reads: “Mr. Hoover saw this but apparently did not act on it. Earl Sohm returned it to G. The best thing I think would be for you to take it up with Mr. Hoover if you think action required. Otherwise we can return it to EUR.”