Foreign Relations of the United States, 1958–1960, Near East Region; Iraq; Iran; Arabian Peninsula, Volume XII

85. Memorandum From the Assistant Secretary of State for Economic Affairs (Martin) to Acting Secretary of State Merchant⁰

Washington, May 3, 1960.

SUBJECT

• Department of State Comments on a U.K. Staff Paper on Middle East Oil Concession Problems¹

Discussion

The Department has made a careful study of a U.K. paper on Middle East Concession Problems which was given to us last year for comment and informal discussion.² On Pages 1 to 7 of the attached document are Conclusions and Guidelines which, if you approve, will be used in these informal discussions with the U.K. representatives.

The basic problems outlined in the British paper relate (1) to the rapidity and probable result of current trends in the relations between host governments and the concessionaire companies, and (2) to the actions which the U.K. and U.S. Governments can and should take in this connection.

We recognize that trends now under way will probably continue with respect to demands for larger shares of profits and greater host government control over company operations. We believe that the companies’ bargaining position vis-à-vis host governments is relatively favorable now and will continue to be so over the next few years. In view of this we believe that the concessionaire companies have considerably greater scope to oppose concession changes which might basically affect their management prerogatives and their overall position. However, from time to time, it may be tactically useful for the companies to give way on issues of lesser importance. While the Department stands ready to consult with the companies at their request on their negotiations with host governments, we believe that the companies themselves should be responsible for such negotiations and that the United States Government should not enter into or interfere with such negotiations except in extreme cases involving major questions of security, national policy or international law. The U.K., on the other hand, appears to prefer a more direct working relationship between the U.K. and U.S. Governments and their respective companies, and to favor government initiative, if necessary, to encourage the companies to institute and accelerate appropriate concession changes.

The U.K. paper also suggests that the U.S. and U.K. Governments attempt to reach a broad measure of agreement on principles and policies. Rather than have a fairly formal arrangement for consultations, and a formal agreement on principles and policies, we prefer to continue our present method of informal consultations between the Department and British Government officials as the need arises.

The U.K. have shown the draft of their paper to their two companies, British Petroleum and Shell, and have authorized us to show the paper to our companies. We believe it inadvisable to show either the U.K. paper or our own draft to our companies. Instead, we recommend that we continue as before to talk informally with U.S. company representatives as occasion arises on the various problems connected with their company-host government problems.

We recommend that a suitably modified version of our draft paper be given to the U.K. Government prior to the setting up of informal discussions of their paper.

Recommendations³

1. That the Conclusions and Guidelines set forth in the U.S. draft be approved for use in informal discussions with U.K. officials.

2. That the U.S. continue to adhere to its policy of non-interference with the relations of our companies with their host governments, except in extreme cases involving major questions of security, national policy or international law.

3. That the Department should not enter into formal discussions with oil company officials on the U.K. and U.S. papers, but should continue as before to talk informally with representatives of individual U.S. companies on their company-host government problems.

4. That the Department should not attempt to reach formal agreement with the U.K. on principles and policies, but should continue our present method of informal consultations as the need arises.

5. That the Department provide the U.K., for U.K. Government use only, our draft paper with appropriate deletions of a nonsubstantive character.

0. Source: Department of State, Central Files, 880.2553/5–360. Secret. Drafted by Earl R. Becker, Chief of the Fuels Division, with concurrences from Deputy Assistant Secretaries Kennedy of NEA, Ivan B. White of EUR, Avery F. Peterson of FE, Lester D. Mallory of ARA, Political-Economic Adviser George Dolgin of AF, Deputy Legal Adviser John M. Raymond, Morgan of S/P, and Harvey J. Winter, Assistant Chief of BP.
1. Attached but not printed.
2. Received from the British Embassy, May 22, 1959, not printed. (Department of State, Central Files, 800.2553/6–2359)
3. Merchant approved all the recommendations on May 10.