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


  • 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

As requested in your memorandum of April 11, 1960,1 there follows an assessment of the impact on foreign relations in the NEA area should the Department of Justice seek divestiture of joint production, refining transportation and storage activities of defendants.

In my opinion, the mere announcement that the U.S. Government, through the Antitrust Division of the Department of Justice, was seeking divestiture of the facilities indicated would in itself have unfavorable repercussions on U.S. relations with countries in the NEA area. In Saudi Arabia for example, the affirmation that the four stock-holding companies of Aramco were charged by the U.S. Government with conspiracy involving restraint of trade and monopolistic practices would provide substantial support to elements in that country which have been pressing for Arabization of the company on integrated lines. While this might not lead immediately to nationalization of the company or cancellation of the concession, it would certainly upset seriously the relations of the company with the Government and strain U.S. Government relations with the Saudi Government. It is reasonable to expect this would be accompanied by a chain effect bringing into question the equity of petroleum concession terms generally.

As we are requested, as I understand it, to speculate on the consequences of an unfavorable court decision, without specific assumptions as to the detailed nature of such a decision, I have chosen to outline the unfavorable potentialities only with regard to the three principal companies in the NEA area involved in the case—Aramco in Saudi Arabia, Kuwait Oil Company in Kuwait and IPC in Iraq.

With regard to Aramco a judgment seeking divestiture by the four parent companies might be satisfied by reposing ownership in just one [Page 252] of them. This would, however, raise a problem as to marketing since at present all of Aramco’s one million barrel a day output is purchased by the parent companies and it is unlikely that any one of them could market this output by itself. Even allowing for substantial reduction of output in a single owner company’s production sources elsewhere, a severe cut in Saudi Arabian output would probably be indicated. The consequent decrease in revenues for Saudi Arabia could create political instability. Continuance of the concession would be brought into question and it is not to be excluded that hostile external political influences would begin to play a strong role.

In my opinion, the possibility that the four companies could as an alternative to single company ownership achieve agreement with the Saudi Government to split the concession into four parts is entirely to be excluded. Most of the production comes from two fields and I am told it is technically impossible to split these into four parts without at the same time agreeing to a unified production policy for each of them.

With regard to Kuwait, the fifty per cent interest of the British Petroleum Company in this enterprise provides a significant source of revenue to the British Commonwealth. It is almost certain that the British Government would not even consider selling out its interest to Gulf, the American partner. Moreover, the value of the fifty per cent share which Gulf under these conditions would be compelled to sell to companies other than the defendants in this suit is so great that it seems quite unlikely that any combination of petroleum companies of lesser resources than the so-called “majors” in the U.S. could find it possible to acquire this interest. In other words, Gulf would in effect be forced to sell to British Petroleum, Shell, or possibly the French Petroleum Company. Kuwait Oil Company controls one of the most significant reserves of petroleum in the world and its forced transfer from American ownership would seem obviously very much against U.S. national security interests.

With regard to Iraq, it is to be recalled that the 23.75 per cent interest which American companies possess in the Iraq Petroleum Company was made possible primarily as the result of U.S. Government pressure in the period after World War I. The value of this holding is less than Gulf’s fifty per cent ownership of Kuwait, but I would estimate that the action proposed would probably require transfer of this holding to non-American purchasers. The impact of such an action would seriously undermine the relations of IPC with the Iraqi Government. It seems reasonable to forecast, therefore, a political crisis which would be detrimental to U.S. relations in the area and with the Government of Iraq in particular.

I understand that the American companies participating in the Iranian Consortium will be excluded from the case because of previous [Page 253] NSC determinations that national security interests were involved. This raises the possibility that the Arab countries would consider prosecution of just those U.S. companies operating in Arab areas as discriminatory with a consequent deleterious effect on our relations with these countries.


Announcement of divestiture action by the Department of Justice would (1) intensify pressures currently being exerted by ME oil states on American oil concessionaires, which in turn would inevitably lead to serious problems in the U.S. Government’s relations with these countries and (2) accelerate the trend toward nationalization or Arabization to the detriment of American private and public interests. In addition, actual divestiture of the non-marketing facilities of American companies in the area would be directly counter to a major U.S. national security interest in the area—i.e., assuring continued availability to the West of ME oil on reasonable terms.


On balance, NEA would support a recommendation that the NSC declare a national security interest in regard to the question posed by the Department of Justice.2

  1. Source: Department of State, Central Files, 800.2553/4–2060. Secret. Drafted by Raymond S. Williams, Jr., of NE/E.
  2. In this memorandum the Legal Adviser informed Jones that the Department of Justice requested the advice of the NSC concerning national security implications of possible relief directed at oil companies in the oil cartel case initialed in 1953 and being litigated by the Department of Justice. (Ibid., 800.2553/4–1160)
  3. For an account of the discussion at the NSC meeting, see Document 86.