Foreign Relations of the United States, 1958–1960, Foreign Economic Policy, Volume IV

298. Memorandum of Discussion at the 406th Meeting of the National Security Council⁰

May 13, 1959.

[Here follows a paragraph listing the participants at the meeting.]

1. Western European Dependence on Middle East Petroleum (NSC 5820/ 1;¹ NSC Action No. 1999;² Memos for NSC from Executive Secretary, same subject, dated March 26³ and May 4, 1959⁴)

Mr. Gray said that last October, in connection with its consideration of the Near East policy (NSC 5820/1), the Council requested the Director, OCDM to undertake in coordination with other interested agencies (including State, Defense, Commerce, and Interior) “a study of the feasibility of using other sources of petroleum and additional transit facilities (taking into account available information as to other sources of energy) as a means of reducing the dependence of Western Europe on Middle East petroleum and on existing transit facilities ... “⁵ The report was to include any policy recommendations found appropriate or necessary (NSC Action No. 1999–c).

Mr. Gray then called on Governor Hoegh to summarize the report, which had been sent to the Council on March 26.⁶ The Director, OCDM said the decision to ask for a study had been made because the Middle East was in a position to exert too much economic and political leverage against Western Europe; and it was considered desirable to develop means to reduce this leverage. The report prepared by the Interdepartmental Group suggested various means of reducing this leverage. Of course, the surest means of reducing Western European dependence on Middle East petroleum would be the development of alternative petroleum sources in Europe and in other areas of the Free World reasonably accessible to Europe. Governor Hoegh then summarized Paragraphs 5, 6, 7, 8 and 12 of the report; read the description of Cases I, II, and III in Paragraph 13 of the report; and indicated that the recommendations of the report were to be found in Paragraphs 24–33. Governor Hoegh said he had concurred in the report and in addition had recommended that the last sentence of Paragraph 22 of the Near East policy (NSC 5820/1) should be deleted and a new paragraph inserted reading as follows:

“In order to reduce Western Europe’s dependence on Middle East oil, the U.S. should take action to encourage the orderly development of alternative sources of oil and other forms of energy outside the Middle East and the broad diversification of means of transporting fuel in the Free World. The U.S. should also urge Western European countries to have in readiness emergency plans for conservation, sharing, stockpiling, and transportation of oil.”

Some differences of opinion had developed among the interested agencies as to the action which the Council should take. Some agencies thought that the objective should be “to reduce Western Europe’s dependence on Middle East oil” while others urged that we merely “retard Western Europe’s increasing dependence on Middle East oil.”⁷ Governor Hoegh thought the mission should be to reduce dependence and recommended acceptance of this language. He then referred to the words “Economically and politically feasible” in the right-hand version of the draft NSC Action and said that economic and political feasibility was inherent in any policy. Accordingly, he was willing to accept the words “economically and politically feasible” if the draft Action began with the words “in order to reduce Western Europe’s dependence on Middle East oil.” He said one of our objectives was to induce countries of the Middle East to refrain from denying oil to Western Europe; in his view the danger of such a denial would be minimized by a reduced dependence of Western Europe on Middle Eastern oil. Finally, Governor Hoegh referred to the provision (in the “Note” at the end of the draft NSC Action) that the same agencies which had prepared the report would be charged with the task of continuing work on the implementation of the policy adopted and would make yearly progress reports to the Council.

Mr. Gray said that Governor Hoegh had presented a good summary of the report and of the differences of opinion on the draft NSC Action. The Planning Board, he continued, had studied the report and had received written comments on it from State, Treasury, and Justice.⁸ He wished to quote two comments, one by State and one by Treasury:

State: “The Department of State supports measures designed to retard Western Europe’s increasing dependence on Middle East oil by encouraging diversification in sources of supply without, however, implying any reduction of U.S. interest in the Middle East, reducing from present levels the oil-derived revenues of Middle Eastern countries, or depriving Europe arbitrarily of relatively low-priced crude oil meeting the requirements of its refineries.”

Treasury: “The Treasury would not endorse actions to encourage the development of petroleum by government monopolies, nor would it wish to see any modification of the present policy of not providing U.S. public capital to finance petroleum developments overseas, public or private. Furthermore, the Treasury would consider it unnecessary and inappropriate for the U.S. to participate financially in actions by European Governments to reduce dependence on Middle East oil.”

Mr. Gray said that in view of Governor Hoegh’s acceptance of the words “Economically and politically feasible” two issues remained to be settled: (1) The left-hand (OCDM, Defense, Interior, Commerce) version of the draft Action reads “in order to reduce Western Europe’s dependence on Middle East oil” while the right-hand (State, Treasury, Budget) proposal reads “in order to retard Western Europe’s increasing dependence on Middle East oil.” (2) The left-hand version indicates that “the U.S. should take action” while the right-hand version provides “the U.S. should continue to encourage action.” Mr. Gray then called on Secretary Dillon.

Secretary Dillon said the views of the State Department were governed by practical considerations. Middle Eastern oil was not dollar oil and was therefore more attractive to European buyers than oil from other parts of the world. He thought it was not practicable to seek to reduce the present degree of Western European dependence on Middle East oil, but it was advisable to try to retard Western Europe’s increasing dependence on Middle East oil. He wondered where the “new” oil, that is the oil which would replace Middle Eastern oil, would come from. If it came from the Western Hemisphere, a serious dollar problem would be created. He favored the development of oil resources in such areas as North Africa but did not think that the goal of reduction of Western Europe’s dependence on the Middle East was possible of achievement. Therefore, he favored the word “retard” in the right-hand version of the draft Action. With respect to “taking action” vs “continuing to encourage action”, he felt that a great deal was being done already. For example, to prevent Western Europe becoming increasingly dependent on the Middle East, we were working with the oil-producing countries, with EURATOM, with the oil companies in connection with the development of new sources of supply, and with the OEEC in connection with stockpiles. Without the word “continue” the draft Action would indicate that we are about to embark upon some new course of action and he was not aware what that new course of action would be. The U.S. was already taking action of the type listed in the recommendations of the report by the Interdepartmental Group and would continue to do so.

Secretary Dillon then said he would like to turn to a specific problem for a moment. It seemed probable that substantial reserves of petroleum were ready for development in Libya, but the oil companies were loath to push this development too rapidly and thereby jeopardize their position in the Middle East. If the left-hand version of the draft NSC Action were adopted and literally interpreted, the U.S. would be compelled to put pressure on the oil companies to develop the Libyan fields immediately. A rapid development of the Libyan fields would have severe repercussions in the Middle East; it would for example, preclude the purchase of more oil from Iran to compensate Iran for a decline in the price of oil. Secretary Dillon thought that the specific problems he had just mentioned illustrated the enormous complexity of the subject.

The President said another factor should be taken into consideration, namely, that under a system of free enterprise Western Europe would follow economic rather than political impulses and would obtain oil from the Middle East as long as such oil was cheaper than other oil. He thought the reduction of Western European dependence on Middle East oil was an unrealistic objective. We should make certain there are no obstacles to the development by private companies of petroleum sources world-wide without, however, urging private crash programs or adopting governmental programs for oil development. A development by private companies of alternative sources of oil would automatically reduce the degree of Western Europe’s dependence on the Middle East. We sometimes talked about policies which would keep the U.S. petroleum industry ready for expansion in case of an emergency, but we discovered at the time of the Suez crisis that the Texas fields were operating only nine or ten days a month and that it was difficult to step up this production schedule. As long as Middle Eastern oil continues to be as cheap as it is, there is probably little we can do to reduce the dependence of Western Europe on the Middle East. The Libyan oil fields appeared promising, but the oil industry apparently did not want a crash program for development of the Libyan fields. He was not aware of any practicable thing we could do that we were not already doing in connection with Western European dependence on Middle East oil.

Governor Hoegh said our objective should be to reduce Western European dependence; our course of action might be to continue to encourage such action as is economically and politically feasible to facilitate the development of alternative petroleum sources. The President agreed, but doubted that practical results would flow from stating that our objective is to reduce Western European dependence, because Middle East oil will continue to be consumed by Western Europe as long as it is the cheapest oil.

Secretary Dillon thought that to reduce Western European dependence was not a practical objective, but inasmuch as the key language in the NSC Action would be the course of action language, he would not object to “reduce” as an objective as long as the course of action indicated that we should continue to encourage such action as is economically and politically feasible to retard increasing Western European dependence on Middle East oil.

The President failed to see that there was any great difference between “reduce” and “retard”. Certainly in an emergency we would like to have Western Europe less dependent on the Middle East than it was in 1956. Perhaps our objective should be to reduce dependence and our course of action should be to retard increasing dependence.

Mr. Dillon pointed out that petroleum developments in Algeria were also encouraging. Mr. Mueller said that two large pipelines had recently been constructed through Algeria to the Mediterranean and he had been told that by the end of this year 600,000 barrels a day would be flowing through these pipelines. The President wondered what we could do to reduce dependence that would be better than these pipelines. He added that he noted from the report prepared by the Interdepartmental Group that the relative importance of coal as a source of energy for Western Europe was declining and the relative importance of oil was increasing.

The Vice President asked whether the Libyan oil fields were being developed exclusively by U.S. companies. Secretary Dillon said Shell was interested in Libya, but that the big strikes were under the control of U.S. companies. The Vice President said he understood that it was our policy not to push development of the Libyan oil fields. Secretary Dillon said this policy was an oil company policy, not a U.S. Government policy. On the other hand, if we urged the companies to develop the Libyan fields rapidly at this time, the result would be a serious disturbance in the Near East. The Vice President thought the nub of the matter, the immediate problem, was what to do about Libya. We had a great many political problems in Libya. Secretary Dillon said that if the Libyan people were fully cognizant of Libyan oil resources, they would demand their immediate development. Mr. McCone said it would not be long before they were fully informed of these oil resources. The Vice President pointed out that any suggestion that the U.S. oil companies are deliberately retarding the development of the Libyan oil fields would be very unfortunate. The President said the oil companies were not retarding the development of the Libyan oil fields unduly, inasmuch as they were putting 100 million dollars into these fields at a time when petroleum supplies were adequate.

The Acting Secretary of the Interior said that he would like a clear statement that reducing Western European dependence on Middle Eastern oil is U.S. policy. As one who had suffered through the Emergency Committee during the Suez crisis, he felt strongly on this matter. The report prepared by the Interdepartmental Group showed that most of the things that could be done are already being done, but a reiteration of a policy of reducing dependence would be desirable.

Secretary McElroy said the new language proposed by Governor Hoegh would be acceptable to Defense if it were acceptable to State. General White concurred in Secretary McElroy’s position. Mr. Gray suggested that he be permitted, in the light of the discussion, to work out a draft NSC Action. The President concurred in this suggestion and added that he would accept whatever language the agencies could agree on.

Mr. McCone felt he should inform the Council that EURATOM, which had been mentioned in the report, was now operating under a lessened sense of urgency because of the existing excess coal supplies and the decline in the cost of transporting oil and coal.

The President believed that the development of nuclear power should proceed on a cautious, experimental basis. He feared that if we invested huge sums of money in present processes, a breakthrough sometime in the future would wipe out this investment. Mr. McCone indicated that U.S. programs for the development of nuclear power were on a prototype and experimental basis. He agreed there might be a break-through in the future in the development of nuclear power, and added that in any event there would be a gradual evolutionary development.

The National Security Council:⁹

a. Noted and discussed the study on the subject transmitted by the reference memorandum of March 26, 1959, and the accompanying letter from the Director, Office of Civil and Defense Mobilization.

b. Agreed that, in order to retard Western Europe’s increasing dependence on Middle East oil and to reduce the effects on Western Europe of an emergency created by any complete or partial denial of Middle East oil resources, the United States should continue to encourage such action as is economically and politically feasible to facilitate the orderly development of alternative Free World sources of oil and other forms of energy outside the Middle East, and the broad diversification of means of transporting fuel in the Free World. The United States should also urge Western European countries to increase their petroleum stockpiles and to have in readiness emergency plans for conservation, sharing and transportation of oil.

Note: The action in b above, as approved by the President, subsequently referred to the Director, OCDM, for appropriate implementation in the light of the study referred to in a above and in collaboration with the Departments of State, Defense, Treasury, Interior and Commerce, progress reports on such implementation to be submitted to the Council annually.

[Here follow agenda items 2–5.]

Marion W. Boggs

0. Source: Eisenhower Library, Whitman File, NSC Records. Top Secret; Eyes Only. Drafted by Boggs.
1. Scheduled for publication in volume XII.
2. See footnote 1, Document 295.
3. This memorandum transmitted Document 295 to the NSC.
4. In this memorandum, Lay transmitted a draft NSC action for the consideration of the NSC at its May 13 meeting. The draft contained the alternate language proposed by OCDM–Defense–Interior–Commerce and State–Treasury–Budget as explained below. In addition, the transmitting memorandum contained the comments of the Departments of State, the Treasury, and Justice on Document 295. (Department of State, NE/E Files: Lot 66 D 45, ME General, Oil and Petroleum)
5. Ellipsis in the source text.
6. Document 295.
7. The draft NSC action is in Department of State, NE/E Files: Lot 66 D 45, ME General, Oil and Petroleum.
8. See footnote 4 above.
9. Paragraphs a and b and the note that follows constitute NSC Action No. 2080. (Department of State, S/S–NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council)