291. Memorandum From the Deputy Director of the Office of Near Eastern
Affairs (Davies) to the
Assistant Secretary of State for Near Eastern and South Asian Affairs
(Talbot)0
Washington, July 5,
1963.
SUBJECT
- Conclusions from US-UK Oil
Discussions
The attached document sets forth the agreed conclusions reached by US and
UK representatives to the oil discussions
held in the Department June 10-14.1
The most significant conclusion, item No. 2, derived from statistics and
projections developed by US and UK
technicians prior to the commencement of the talks, is that barring
unforeseen developments, the Middle East (exclusive of North Africa) will
become an increasingly important source of supply of energy to Western
Europe. This contradicts the previously generally accepted assumption that,
in view of Libyan and Algerian oil finds, discoveries elsewhere in the
world, and atomic power developments, the relative importance of the Near
East as a supplier of western Europe’s energy requirements would decrease.
Another conclusion of particular interest to NEA is that contained in point No. 5 of the attached document.
During the course of the talks a spokesman for NEA obtained British agreement that the term “hostile
domination of the area” referred to communist control whereas the phrase
“centralized control” referred to control through Arab unity.
There was complete unanimity of view on the attitude which both governments
should take towards OPEC. Thus both sides
agreed that it would not be to their mutual interests to undertake
discussions with OPEC member governments
nor with the Organization itself on OPEC
matters and that efforts to involve the US and UK governments in OPEC
negotiations with the oil companies should be resisted. At the same time, it
was agreed that we should avoid adopting a stance of hostility to OPEC. These conclusions were reached on the
basis that it was difficult to foresee how OPEC would develop but that we should avoid any act which would
serve to enhance its prestige or effectiveness.
There was agreement, item 12, that insofar as possible each government would
inform the other of the type of advice or suggestions which [Page 631] it was conveying to the oil companies of its
nationality in an effort to ensure that such advice is not conflicting. It
was also agreed, item No. 13, that both governments would seek to keep the
other informed concerning any situation between companies and governments
which required US or UK intervention.
We believe the talks were generally useful. The British used the meetings as
a forum to re-emphasize repeatedly that whereas Near Eastern oil was of
substantial interest to the United States, for the UK it was a matter of overwhelming importance. Mr. Stevenson, the Deputy Secretary of the
Ministry of Power, who headed the British side, said that he could not
over-emphasize this point. Stevenson would have preferred stronger language in the
joint conclusions implying a necessity of maintaining the status quo in the
major producing areas of the Near East in order to ensure continued access
to the oil of the area on favorable terms. The language offered by Stevenson would have drawn us into a
position of appearing to oppose Arab unity irrespective of how conceived. In
this he seemed to go farther than the British Foreign Office position as
expressed during the meetings by British Embassy Minister Greenhill. The language in item 5 is thus a
toning down of the original British proposal for this paragraph.
Attachment2
MINUTES OF U.K.-U.S.
DISCUSSION ON INTERNATIONAL OIL PROBLEMS
Representatives of the Governments of the United Kingdom and of the
United States met in Washington during the period 10th to 14th June,
1963, to exchange views on energy problems and especially problems of
the international oil industry. The following agreed points and
conclusions emerged.
- 1.
- According to the estimates accepted by both sides the demand for
oil will continue to grow strongly at least up to 1970. This growth
picture and pattern may need adjustment from time to time in the
light of changing circumstances.
- 2.
- On the basis of presently foreseen trends the Middle East
(exclusive of North Africa) will become an increasingly important
source of supply. Production in the Middle East is expected to rise
by 90% between 1961 and 1970 by which year it would, at over 500
million tons a year (10 million barrels per day), be as great as
production in the United States and account for about one-third of
total Free World production.
- 3.
- Oil, almost entirely imported, will become an increasingly
important component in the total energy supplies of O.E.C.D. Europe and may by 1970
account for nearly 50% of the total. The U.S.A. on the other hand
would by 1970 import only to the extent of 9% of her total energy
requirements.
- 4.
- Apart from U.K. interest as a
consumer in the security and continuity of supplies, its balance of
payments is heavily dependent on the trading and investment of the
British international oil companies.
- 5.
- The flow of Middle East oil which is important to the growth of
European countries in the year ahead could be impeded by hostile
domination of the area, serious or widespread disorders or
centralized control of the oil policies of the area, although this
last would probably operate through pressure on prices rather than
denial of oil supplies.
- 6.
- The international oil industry constituted along present lines
plays an essential role, providing supplies where they are needed
with a high degree of efficiency and balancing the interests and
requirements of consuming and producing countries. Alternative
systems—direct negotiation between blocs of such countries; an
international commodity agreement; or a public utility status
implying international regulation of the industry—would prejudice
the economic continuity of supplies.
- 7.
- If the international oil industry is to carry out its task, its
profitability must be adequate to secure finance which will be
required on a vast scale. The profitability of the industry has
declined in recent years. The present level of profitability appears
adequate, but the industry might well have difficulty in meeting its
investment requirements without obtaining higher prices if at the
same time it made major concessions to host governments, such as
would be required, for example, by acceptance of the major demands
made in O.P.E.C. Resolutions in June 1962.
- 8.
-
It is difficult to foresee the basis on which O.P.E.C. will
develop and the position, if any, it will eventually occupy in
oil affairs. For this reason, it is not desirable to fix in
detail the attitudes which the U.K. and U.S. Governments should adopt in any
situation in which O.P.E.C. was also involved.
There appears, therefore, to be at present no alternative to the
policy of neutrality and non-commitment towards O.P.E.C. which
has been adopted by the U.K. and
U.S. Governments and their respective oil companies. This policy
involves neither active opposition to, nor a welcome for,
O.P.E.C. and its activities. It also involves the avoidance of
any dealing [Page 633] with
O.P.E.C., even if only indirect, which might tend to enhance its
stature or secure its recognition in international circles. In
this context the U.K. and U.S.
delegations took note of the recent approach by the
Secretary-General of O.P.E.C., Mr. Rouhani,
to the Secretariat of the O.E.C.D., and agreed that both through the U.K. and U.S. Delegations to the
O.E.C.D. and through the
Oil Committee of this organization, the Secretariat should be
asked not to enter into or develop any contacts with the
Secretariat of O.P.E.C. without the authority of the Oil
Committee. Such authority was unlikely to be given in the early
future.
If at any time a modification of this agreed attitude towards
O.P.E.C. should appear desirable, the U.S. and U.K. Governments would consult
together.
- 9.
- The entry of governments into the oil business has in some cases
introduced a disturbing element. Increasing intervention by
producing countries in the oil business may be in the long run
unavoidable. The retention by the companies, comprising the
international oil industry, of the control of oil production in
exporting countries, its selling prices and the destination of
exports, is vital for the proper functioning of the industry.
- 10.
- The divergence of views and interests among the E.E.C. countries
makes early agreement on a common energy policy unlikely. This might
be the best outcome since an early settlement was not likely to
result in a liberal and outward-looking fuel policy. Both sides
recognized that freedom from all restrictions in the fuel field was
not practicable at present and that it might be best to work towards
more limited objectives, using for this purpose the O.E.C.D. Committees and diplomatic
influence on the individual member countries of the E.E.C.
- 11.
- The U.S. side asked about the U.K.
ban on imports of coal and the prospects of some relaxation which
seemed justified on its merits as well as giving a lead to a more
liberal attitude in Europe. The U.K.
side explained in some detail the present state and prospects of the
U.K. coal industry and the
difficulties—social, labor, and economic—which had led the U.K. Government to maintain the present
ban. They assured the U.S. side that the possibility of some
relaxation would be kept under regular review.
- 12.
- It may be necessary from time to time for the U.K. and the U.S. Governments to draw
the attention of their respective companies to factors which they
consider the companies should take into consideration in formulating
their policy, e.g., for production patterns and/or relations with
host governments. Representations on these lines, which the U.K. and U.S. Governments may make to
their respective companies, would generally be more effective if the
two governments gave similar advice to their companies in cases of
mutual concern. The U.K. and U.S.
Governments should therefore exchange information on the general
advice [Page 634] which they are
giving to their companies and consult beforehand as appropriate in
regard to advice given in regard to specific disputes and problems
of mutual concern.
- 13.
- The U.K. and U.S. Governments were
reluctant to intervene formally in any dispute which might arise
between members of the international oil industry and a host
government, but it was recognized that this might be necessary in
special cases. Discreet and informal representation by a British or
American diplomatic representative abroad might from time to time,
and in consultation with the oil company/companies concerned, be
advisable. In regard to such diplomatic activities in cases of
mutual concern, it would be advisable for the U.K. and U.S. Governments to continue to keep each
other informed, and to consult beforehand as appropriate.
- 14.
- The U.K. Government would intend to
consider its oil stockpiling policy and emergency arrangements in
the light of the joint review which had been made of the effect of
various types of interruption in the supply of Middle East oil.
There would be advantage in asking O.E.C.D. similarly to review the emergency planning
arrangements, and the stockpiling program of member
countries.
- 15.
- In view of the projected increasing predominance of the Middle
East, the possibilities of greater diversification of supply sources
took on increasing importance. Possible methods by which Governments
might assist such diversification by the industry were discussed but
few of these appeared to be useful. The subject would, however, need
to be studied further.
- 16.
-
There appears at present to be no satisfactory alternative to
the policy of “caution and restraint” adopted by NATO countries for regulating
imports of Soviet oil.
Recent forecasts do not suggest that Soviet oil exports to the
free world will increase at the rate of past years in the years
immediately ahead; however, they are based on incomplete
information and must therefore be regarded as highly tentative.
It would be advisable for this fact to be taken into account by
the NATO reporting systems when
keeping the pattern of Soviet oil exports under review.
The U.S. side asked about the U.K.’s present policy towards importing Soviet oil. The
U.K. side explained in some
detail the economic, commercial and political factors which the
U.K. Government have to weigh
when considering their policy.
