175. Editorial Note
During the Eisenhower administration steady expansion in oil output and a long period of price stability allowed the United States and United Kingdom to focus attention on strategic defense of the Persian Gulf region and the Soviet threat to long-term access; for documentation, see Foreign Relations, 1955–1957, volume XII, pages 1 ff. Despite British fears that oil company positions were weakening and that closer U.S.-U.K. cooperation was necessary, the State Department believed that the companies were strong enough to resist producer-government pressure for the next few years.
Although global consumption nearly doubled during the 1950s, oil was still plentiful and inexpensive. New production capacity outstripped demand, resulting in a glut. In response, oil companies cut the posted price of crude oil, which served as the basis for calculating net profits in profit-sharing arrangements with producer governments. On paper, oil seemed to be less profitable, although in most cases the companies’ net incomes increased and they were able to pay higher dividends to shareholders. “This has not been lost on concessionary governments, which maintain that the companies, notwithstanding their pleas to the contrary, should be well able to increase their tribute to the government.” (Note by the U.K. Government, May 1963; Department of State, E Files: Lot 69 D 76, PET-Petroleum United Kingdom 7 Visits.UK-US Petroleum Talks, 1963)
As a result of the unilateral price cut, the producer nations founded the Organization of Petroleum Exporting Countries (OPEC) in August 1960. The United Kingdom sought greater coordination with the new Kennedy administration on oil matters during February 1961 bilateral discussions; see Foreign Relations, 1961–1963, volume IX, pages 752–754. In June 1962 OPEC proposed fundamental changes in oil concession agreements which would increase by 20 percent the producers’ share of oil profits. (Note by the U.K. Government, May 1963; Department of State, E Files: Lot 69 D 76, PET-Petroleum United Kingdom 7 Visits.UK-US Petroleum Talks, 1963)
The United States and United Kingdom reached a “general identity of views” on strategic matters in the Persian Gulf in April 1963. Both agreed on the need for the close interrelationship of the oil companies, and they scheduled a series of petroleum talks for June 1963. See Foreign Relations, 1961–1963, volume XVIII, pages 559–561.[Page 316]
In preparation for the talks, the State Department prepared a series of memoranda on various aspects of the oil problem, including one that spelled out the relationship between the oil companies and the government. Oil was unique because of the size of the companies, because it was vital to economic progress and national security, and because of the close relationship between the companies and the producer states: “a more direct relationship to foreign governments than is usually the case with other business enterprises.” The memorandum noted the importance of maintaining frequent contact with the oil companies in case a company “at any time” ran into a “serious crisis in its relationship to a foreign government,” but it concluded: “The United States Government is most reluctant to intervene diplomatically in disputes between American oil companies and foreign governments. Our view is that to do this, except on very rare and critical occasions, is to undermine the responsibilities of the companies themselves.” (Memorandum by Ensor for Session II, June 4, 1963; Department of State, E Files: Lot 69 D 76, PET-Petroleum United Kingdom. 7 Visits. UK-US Petroleum Talks, 1963)
One result of the 1963 oil talks was that the United States and the United Kingdom agreed to coordinate their advice to the international oil companies. “The U.K. and U.S. Governments should therefore exchange information on the general advice 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.” On the question of diplomatic intervention, the two nations agreed: “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.” (Ibid.) This position, with its emphasis on prior consultation, formed the basis for U.S.-U.K. action on oil during the Johnson administration.