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

316. Memorandum From George Weber of the National Security Council Staff to the President’s Special Assistant for National Security Affairs (Gray)⁰

November 30, 1960.

SUBJECT

• Admiral Burke’s letter to you of November 19 on Soviet Oil Sales¹

Admiral Burke is concerned about increasing Soviet oil sales to the Free World, especially to certain countries such as India, Italy, Iceland, Finland and Cuba. He believes that various untoward results will ensue: (1) price cutting in the international oil market; (2) the appearance of Soviet economic superiority over the private enterprise system in this critical field; (3) undue dependence on the Soviet Union by selected Free World countries. He suggests “a thorough study by the interested agencies of our Government working in connection with leaders in the petroleum industry to see if we cannot find a means of combatting this form of economic warfare”. He sent his letter also to the Secretaries of State, Defense, Commerce and Treasury; the Joint Chiefs; Allen Dulles and Jack Irwin.

To my knowledge, the facts cited by Admiral Burke in his letter and enclosed study seem to be correct. With respect to India, a United Press International story from New Delhi on November 23 said that Indian government officials believe that the USSR will be India’s major supplier of petroleum products by 1966.

I believe, however, that the possible consequences of Soviet oil sales are exaggerated. This is not to deny that Soviet oil sales will have some disruptive influence on the international oil market or that some Free World countries may become more dependent on their trade with the Soviet Bloc. But taking Admiral Burke’s three feared results in turn: the effects of price cutting will be limited by the relatively small quantities of oil which the USSR can offer and the Soviet desire to get a good price; most nations have enough knowledge of the Soviet economic system not to automatically equate better prices and terms with superior efficiency; and the dependence of most of the Free World countries involved is not on the supply of oil (which is abundantly available from the Free World) but on the markets for the Free World products (fish, cotton, sugar, etc.).

Turning to the policy problem, it is difficult to see what we can do within the existing general policy framework. Par. 31–d of Basic Policy (NSC 5906/1)² says that the U.S. should act to prevent the Bloc “from subverting or gaining political control of independent nations or undermining Free World economic institutions”. But Par. 45 (d and e) recognizes that Free World countries will engage in trade with the Bloc and rules out attempting to counter each and every move in the Bloc economic offensive. Par. 45–e does provide for taking steps in particular circumstances to discourage less developed nations from accepting Bloc aid in sensitive fields or becoming unduly dependent on Bloc trade. Maybe attempts to thwart some of these oil deals would fall within this policy, but I believe that these statements were directed primarily at Bloc aid which results in swarms of Bloc technicians (e.g., the Czech telephone bid in Uruguay and the Aswan dam proposition in Egypt) and at over-all trade dependence, such as the cases of Finland, Iceland and Cuba. These latter three situations have been the subject of intensive government attention in the past, and continue to be so. In the cases of Finland and Iceland, the problem centers around the dearth of Free World markets for the exports being sent to the Bloc. In the case of Cuba, the political hostility of the Castro regime toward the U.S. and the consequent need for sugar markets are governing. I believe that the realities of the situation suggest that the U.S., in order to do something about Soviet oil sales to the Free World, would probably have to furnish oil to India for nonconvertible rupees, to Iceland for fish, to Finland for wood products, etc. I cannot conceive of our being willing to do this.

One should bear in mind that the U.S. Government doesn’t possess surpluses of oil, that the oil business is conducted in our economy by private business. In other words, oil is not in the same situation as are wheat, cotton, rice, and many other agricultural commodities, where the Government owns vast surpluses which are made available to various foreign nations under several programs. Even those commodities are not disposed of in barter, except for a limited number of metals and minerals.

The foregoing analysis takes into account the intelligence material on the Soviet challenge given in paragraphs C, 11–18, and 34 of the attached draft intelligence estimate, NIE 30–60, “Middle East Oil”. The draft estimate has been approved by the Board of National Estimates and the agency representatives. It will receive final consideration from the USIB on December 6 (next Tuesday).³

Despite my negative view of action by the U.S., I do not recommend that you take a substantive position in your reply to Admiral Burke because the State Department is about finished with a thorough study of the problem. I do not know what is in the study at this stage. It was initiated by Messrs. Dillon, Merchant and Mann. When it is finished, in a week or ten days, State will be able to decide whether it wants to put a paper into the Planning Board on the subject. Bob Packard has promised to keep me informed on the progress of the study and State’s conclusions. In the interim, I believe that a reply to Admiral Burke along the lines of the attached draft would be appropriate.⁴

G.W.

0. Source: Eisenhower Library, White House Office Files, Project Clean Up, Oil. Secret.
1. Document 313.
2. NSC 5906/1 is scheduled for publication in volume III.
3. For the NIE as approved, see Document 317.
4. On December 1, Gray sent Burke a letter stating that he had read the enclosed study “with interest” and informing Burke that the intelligence community was preparing NIE 30–60, “Middle East Oil,” which contained paragraphs on the Soviet oil offensive, and that the Department of State was also currently studying the problem. When these two studies were completed, Gray told Burke, “we will be in a much better position to consider what further work or action may be desirable” (Eisenhower Library, White House Office Files, Project Clean Up, Oil)