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

306. Memorandum From the Legal Adviser (Hager) to the Assistant Secretary of State for Near Eastern and South Asian Affairs (Jones)⁰

April 11, 1960.

SUBJECT

• Request for views on foreign relations implications of divestiture or substantial alteration of interests in joint companies owned by defendants in international oil cartel antitrust case

The Department of Justice has requested the advice of the National Security Council concerning the national security implications of possible relief directed at joint production, refining, transportation, and storage companies participated in by the defendants in the international oil cartel antitrust case presently being litigated by that Department. Specifically, Justice has asked the Council whether national security considerations suggest that Justice not seek to secure, either by negotiation or by trial upon failure of negotiation, the divestiture or substantial alteration of defendants’ interests in such joint companies, as well as prohibition against defendants entering into similar joint companies in the future.

The complaint in the oil cartel case, instituted in 1953, charges five defendant American oil companies, Standard Oil Company (N.J.) (Jersey), Socony Mobil Oil Company (Socony), Texaco Incorporated (Texaco), Standard Oil Company of California (Socal), and Gulf Oil Corporation (Gulf), and two foreign oil companies, British Petroleum Company Ltd. (BP) and Royal Dutch-Shell (Shell), named as co-conspirators, but not defendants, with a continuing agreement and concert of action since 1928, in violation of the U. S. antitrust laws, to secure and exercise control over foreign production and supplies of crude oil and petroleum products, to regulate U.S. imports of crude oil in order to maintain an agreed-upon level of world prices, to divide world producing and marketing territories, and to exclude and eliminate independent companies from foreign production and marketing. Pretrial proceedings have been in progress in the case and trial may be expected to begin shortly after defendants produce documents from their foreign files on or before September, 1960 as ordered by the Court in December, 1959.

Defendants, together with BP and Shell, have varying interests in a great number of intertwined joint production, refining, transportation, storage and marketing companies abroad. The oil cartel complaint charges that these joint companies were used to further and carry out the alleged conspiracy to restrain and monopolize U. S. foreign commerce. The principal joint producing ventures are Arabian American Oil Company (Aramco) in Saudi Arabia owned by Jersey, Socony, Texaco and Socal; Kuwait Oil Company (Kuwait) in Kuwait, owned by Gulf and BP; and Iraq Petroleum Company (IPC), owned by Jersey, Socony, BP, Shell and the French Company, Compagnie Francaise Petroles. The defendants, together with BP and Shell, principally through joint companies, control approximately 85% of all foreign oil production. The defendants alone control about 58%.

Jersey has indicated a present willingness to settle the case against it on the basis of an injunction against and splitting up of joint marketing abroad with any of the other defendants or BP or Shell. There is a possibility that the other defendants might also offer to settle on a similar basis. The Department of Justice is now faced with the decision as to the scope of relief it should seek, i.e., whether to seek only the split-up of joint marketing activities, or whether to seek also the split-up of the joint production, refining, transportation, and storage activities. Justice has not requested the advice of the Council on the question of the splitting up of the joint marketing activities abroad, since it considers this relief does not raise national security questions.

In this connection, the Department of State has been asked to consider the possible impact of a court order requiring divestiture or substantial alteration of the joint production, refining, transportation and storage companies, on our foreign relations both with the countries in which the joint companies have concessions and with countries whose companies (such as BP and Shell) may be concerned as partners in such joint companies.

In making this request, the Department of Justice realizes that it may not be possible for the Department of State to make one overall judgment as to the possible foreign relations impact of a court order requiring divestiture or substantial alteration of the joint companies. It is aware that the possible foreign relations impact will vary depending both on the particular joint companies involved and on the country or area in which they operate.

Moreover, Justice is not able at this time to provide detailed information as to the exact forms which the remedies of divestiture or substantial alteration might take in the various cases involved. Thus, in any given case the relief sought might require either the sale to a single defendant of the shares in the joint company owned by the other defendants, or the distribution of the assets of the joint company to separate new companies, each of which would be owned by a single one of the former joint owners.

Thus, in the case of a company such as Aramco, all of whose shares are owned by defendants subject to the jurisdiction of the U. S. Court, the Court might order three of the owners to sell all of their Aramco shares to the fourth owner, or order the assets and operations of Aramco to be split up between four new companies, each owned by one of the former joint owners of Aramco. In the case, however, of companies such as Kuwait and IPC, in which shares are owned by foreign companies over whom the U. S. Court does not have jurisdiction, the only available remedy would appear to be either for one of the defendants to buy out all the other shares or for all the defendants to sell their shares to the foreign owner or owners, since the Court could not order the foreign companies involved to divest themselves of their interests.

In considering the possible impact on foreign relations of the various types of relief which might be involved, you may wish to consider such factors as: (1) the possibility that the split-up of the interests of the joint companies might involve a renegotiation of concession agreements with foreign countries, and terms which might be obtained in such cases; and (2) the possible effect of the various types of relief on movements for nationalization in the foreign countries in which the joint companies operate.

There is attached a list of joint companies¹ operating in the production, refining, storage and transportation fields which might be affected by the relief sought in this case, as well as the joint marketing companies regarding which Justice has not requested any advice. These companies are listed by country of operation, so that those operating within your geographical area may be readily ascertained. While it is recognized that your Bureau may not in the time available be able to give a full assessment of all possible foreign relations considerations which might be involved if varying types of relief were sought in the case of each of these joint companies, we would appreciate receiving by 5 P.M. Friday, April 15 at the latest, your best judgment as to the possible foreign relations impact of the above possible forms of relief as applied to what you consider the most important of the joint companies in your area.

With respect to any legal questions relating to this matter, you may wish to consult with Mr. Maurer, L/E (x4714 or 5906). With respect to any questions relating to the operations of the joint companies involved, you may wish to consult with Mr. Nichols of E (x4763).

0. Source: Department of State, Central Files, 800.2553/4–1160. Secret. Drafted by Hager, Ely Maurer, and Richard B. Bilder (both of L/E). Also sent to Assistant Secretaries of State Kohler, Rubottom, Parsons, Satterthwaite, and Mann. A note attached to the source text indicated that the Department of Justice had requested that the distribution of the information in this memorandum be limited as far as possible and the recipients be particularly cautioned with respect to the classified nature of the matter.
1. Not printed.