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

95. National Intelligence Estimate⁰

NIE 30–60

Washington, December 13, 1960.

MIDDLE EAST OIL

The Problem

To estimate probable trends affecting Middle East oil and their political and economic implications over the next five years or so.¹

Scope Note

This estimate does not attempt to give detailed information on the production and consumption of Middle East oil; such information is already available in various forms. This estimate is a nontechnical summary of major trends affecting Middle East oil and an assessment of their broad political and economic implications, including the problems likely to be raised for US interests. We avoid specific discussion of the strategic importance of oil and of wartime contingencies. We believe that, for at least the period of this estimate, the picture will not be significantly affected by the development of nuclear power or other new sources of energy.

Conclusions

1. A major factor in the world oil picture for the next several years will be the continuing surplus of producing capacity. This condition reflects the development of new sources in North Africa and expansion of Soviet export capabilities, as well as increasing capacity in the Middle East. As a result, Western Europe will draw a somewhat smaller percentage of its petroleum requirements from the Middle East. Individual sources of oil may be shut down and transit facilities may be blocked temporarily, but we believe that a lasting area-wide breakdown is unlikely during the period of this estimate. Western Europe, in particular, will remain heavily dependent on Middle Eastern oil, and the oil producing Middle Eastern countries will almost certainly continue to receive oil revenues sufficient to support substantial programs of general economic development. (Paras. 10, 34–35, 40)

2. The terms and conditions of Middle East oil concessions are likely to be considerably changed. The position of the Western oil companies will be further weakened by erosion of the 50/50 profit-sharing formula and by the joint efforts of the producing countries to control prices. Greater participation by local governments in the management of the oil companies is likely. We do not believe, however, that large-scale nationalization of industry facilities is probable or that the companies will feel compelled to liquidate their interests in the area during the period of this estimate. (Paras. 24–30, 36–38)

3. By 1965 Soviet oil exports will probably account for as much as seven percent of the oil moving in international trade outside the Bloc. This will enable the Soviet Union to upset markets in various individual countries and even to displace Western companies in some smaller markets. Soviet oil is likely also to spur further price cuts in the world market, and will be used in an effort to promote Soviet influence, particularly in underdeveloped areas; such tactics, however, will probably be limited to some degree by the Soviets’ desire to enjoy the economic benefits their exports bring, especially from Western Europe. Growing Soviet exports, together with an expanded program of economic and technical assistance for the development of new oil facilities in Asia and Africa, will make the USSR a force to be reckoned with in the international petroleum field. We do not believe, however, that the USSR will be able to upset the preponderant position of the Western companies or destroy the present overall pattern of the Middle East oil industry. Even a Communist takeover in one of the producing countries would not necessarily result in a refusal to sell the country’s oil to the West. (Paras. 15–23, 39)

4. On balance, we think the odds are against developments in regard to Middle East oil that would be critically detrimental to US national interests during the period of this estimate. Nevertheless, the US will be faced with a number of broad problems. Among these will be determination of the balance of interest between the desirability of developing alternate sources of oil to meet Western Europe’s needs and the importance of assuring Middle Eastern countries of sufficient oil revenue to avoid instability; resolution of possible conflicts of interest between the US and its Western allies, especially the UK and France; policy differences between Western governments and those of the oil-producing countries; and the difficulty of determining in particular circumstances whether and how US strategic and commercial interests coincide or conflict. (Paras. 39–45)

[Here follow the “Discussion” portion of the estimate (paragraphs 5–45) with sections headed “The Importance of Middle East Oil,” “Changes in the World Oil Picture,” “Middle East Developments,” and “The Outlook”; four appendices entitled “Free World Crude Production and Reserves by Areas and Countries, 1959,” “Estimated Soviet Bloc Oil Exports to Free World, 1959,” “International Petroleum Companies With Shareholdings in the Middle East,” and “Ownership of Principal Middle East Producing Companies”; and a map of the Middle East and North Africa showing oil fields and pipelines.]

0. Source: Department of State, OCB Files: Lot 61 D 385, Middle East—Documents. Secret. A note on the cover sheet states that this estimate, submitted by CIA, was prepared by CIA, INR, and the intelligence organizations of the Departments of State, the Army, the Navy, the Air Force, and the Joint Staff. All members of the USIB concurred with this estimate on December 13 except the representatives of the AEC and FBI who abstained on the grounds that the subject was outside their jurisdiction.
1. The term Middle East is here used to include Egypt, the Arab states east of Suez, Iran, and Israel. Developments in Libya and other North African areas are considered only as they affect the Middle East. [Footnote in the source text.]