Foreign Relations of the United States, 1958–1960, Western Europe, Volume VII, Part 2

205. Memorandum of Conversation⁰

January 16, 1958.

SUBJECT

• Petroleum as a Factor in US-Italian Relations

PARTICIPANTS

• Signor Manlio Brosio, Italian Ambassador
• Signor Giuseppe De Rege, Italian Economic Counselor
• Governor Christian Herter, Under Secretary of State
• Mr. Earl Beckner, FSD
• Mr. Edward T. Long, WE

The Problem

Calling at his own request Ambassador Brosio said he wished to discuss a matter which “might be the most important bilateral problem between our two countries.” He observed that Italian President Gronchi had discussed the problem with Ambassador Zellerbach early in October¹ and said that Foreign Minister Pella had personally requested the Ambassador to bring it to our attention. He said the intervention of our two governments was necessary to prevent “clashes” between ENI and the American oil interests. Previous “clashes” in such places as Iran and more recently Libya, he observed, had caused serious public reaction in Italy and had been exploited by Italian leftists and nationalists as well as by “our enemies on the other side.”

The Proposal

Ambassador Brosio proposed that a responsible American businessman having the confidence of the American oil industry be sent to Rome on an unofficial, confidential basis to hold exploratory talks with Italian businessmen and perhaps high-level, competent economic officers of the Italian Government. He thought talks might cover such points as:

1. Italian continental oil legislation

In this connection the Ambassador observed that the Italian Government could not, of course, make a “deal” on possible legislative changes. Nevertheless, he thought it was conceivable that exploration and development conditions in “Northern Italy” might be made more attractive.

2. Cooperation in Iran

He pointed out that American companies might be interested in cooperating, “technically and financially,” with ENI in the ENI concession areas in Iran and that in addition, there might be joint cooperation in the construction of pipelines for the benefit of both parties.

[Heading and paragraph (4 lines of source text) not declassified]

4. South America

Ambassador Brosio said that another important area where there might be cooperation between ENI and the American companies was South America, where many countries have “oil legislation more similar to the Italian than to the US.” He thought that this might have particular importance in Brazil and Argentina, where government-owned companies such as ENI would have an easier time than American private firms.

Points of Conflict

Ambassador Brosio said he didn’t want to discuss “who was right and who was wrong” in the difficulties which had arisen in the international petroleum field, but he did state that ENI had repeatedly approached the American companies in order that policy and operations be coordinated, but to no avail. He elaborated on places where there had been conflict between ENI and the international companies, as follows:

Iran

During the first Iranian crisis the Government of Iran offered oil to ENI on terms which were very favorable for Italy, but as a result of British official and private intervention Italy did not go through with the transaction. ENI later asked for a small participation in the then new Iranian consortium but was flatly and bluntly rejected by the oil companies. He said more strains had developed recently in Iran where ENI had negotiated a “so-called” 75–25 agreement instead of a 50–50 one.

Libya

He said Libya was the most recent point of conflict, mentioning that Time and the New York Times had both commented fully on this subject. When asked by Governor Herter for details, the Ambassador stated that ENI was in line to get a large concession there but at the last minute the Government of Libya changed its mind, claiming it could not grant concessions to government-owned companies under its petroleum law. The Ambassador said that insofar as Italy was aware the Libyan law contains no such provision. The Ambassador admitted he had no evidence of American discriminatory tactics there but said the important thing to remember was that US-Italian relations were being damaged through Italian public reaction to this concession arrangement in Libya, a country where Italy had “special interests.” Governor Herter said he was bothered by these accusations and asked about the involvement of the US Government. The Ambassador replied that US Government had not been involved. Mr. Beckner observed that he assumed that the Government of Libya had compared the different offers and had decided that the offer of the American company provided greater economic advantage to Libya.

Previous Attempts at Consultation

Ambassador Brosio repeated that ENI had many times approached American companies in order to coordinate policies and operations but without success. In addition, there had been several attempts at other levels to coordinate US-Italian oil policy, viz. (1) Dr. Mattioli of the Banca Commerciale Italiana had written directly to one of the Rockefellers requesting him to mediate but to no avail; (2) the Ambassador himself had discussed the problem with former Under Secretary Hoover with no positive results;² and, (3) as mentioned previously President Gronchi had recently discussed this problem with Ambassador Zellerbach.

Political Implications

Ambassador Brosio stressed that the Italian Government’s interest in this problem was not economic but was based strictly on political grounds. He pointed out that US-Italian relations were excellent and that Italy was wedded to the principle of solidarity with us. Therefore, Italy didn’t want anything to develop which might disturb these excellent relations. Without going into the merits of the differences between ENI and the American companies, he stressed that the difficulties between these two parties had become a political fact and were being used to disturb overall US-Italian relations. He pointed out that the British understood the “practical political implications” of the problem and because of these political realities had reached agreement with Mattei in the petroleum as well as the nuclear energy sphere. The Ambassador said that the USSR was well aware of these differences and observed that the first Bulganin letter to Prime Minister Zoli specifically referred to agreements “particularly in the Middle East, made between the capitalists of the US and UK,” designed to “keep competitors from areas wealthy in mineral resources.”³ Brosio claimed he had read in the Russian language all the Bulganin letters and this latter phrase appeared only in the letter to Italy.

Comments by Governor Herter

Governor Herter observed that the US Government had no direct relationship with the American oil companies and that from many standpoints, not the least of which was the anti-trust aspect, we couldn’t request a private businessman to speak for the oil industry. In addition, the anti-trust legislation made it very difficult for American oil companies to form new groups for foreign activities. He pointed out that a US Government official could not speak for the oil companies nor could he play favorites by negotiating for one company or any one group of companies. About all a US official could do would be to listen to any proposals and, as is the practice in such commercial matters, circularize the industry in general.

In answer to Ambassador Brosio’s remark that he thought we could agree on the principle of consulting in order to avoid political difficulties, Governor Herter said he still wasn’t clear as to which specific complaints the Ambassador was referring to. He said for example the Japanese and others had recently made offers in Kuwait and Saudi Arabia on off-shore concessions which were much more favorable than existing mainland concessions held by our companies, but that we had made no complaint nor would we do so in other instances where foreign companies offer better commercial terms. He observed that perhaps ENI had failed in some of its commercial activities in the highly competitive field of international oil and was therefore placing the blame on others. He wondered whether it was entirely fair to place the blame on us. He also said he was disturbed at the suggestion that there was something we had done or had failed to do which aroused public opinion. Governor Herter stated he assumed there were responsible US oil company officials in Rome who could speak and consult on behalf of their own companies.

Conclusion

Ambassador Brosio agreed that eventually there might be contacts between ENI and the American companies but suggested that first there should be governmental consultation in order to set the framework and establish the general course of future private negotiations. He wondered if this was possible.

Governor Herter, after repeating that he couldn’t at this time conceive how a US Government official would be able to accomplish anything in this sense, said he, of course, wanted to be helpful. He stated that he would study and explore the situation further with Deputy Under Secretary Dillon, Mr. Beckner, and other interested officials.

0. Source: Department of State, Central Files, 865.2553/1–1658. Secret; Limit Distribution. Drafted by Long on January 17. A notation on the source text reads: “Coordinated with FSD—Mr. Beckner.”
1. For Zellerbach’s report on his meeting with Gronchi, see telegram 1340, October 10, 1957, Foreign Relations, 1955–1957, vol. XXVII, pp. 432–433.
2. This conversation has not been further identified.
3. Apparently a reference to a December 10 letter from Soviet Prime Minister Nikolai Bulganin to the heads of U.N. member states opposing NATO military modernization plans and calling for disarmament talks. For text of Bulganin’s letter to President Eisenhower, see Department of State Bulletin, January 17, 1958, pp. 27–30.