179. Telegram From the Department of State to the Embassy in Iraq1

489. Embtel 864.2 Department has given considerable thought to problem posed by American companies seeking concessions in areas expropriated from IPC prior to settlement of the Law 80 issue. Thus far, as Embassy aware, we have gone no further than advising such companies of possibility of legal action by IPC. We have not informed American shareholders in IPC of names of companies which have shown interest in Iraqi concessions but have found that through grapevine they know names of most such firms. We have cautioned shareholders against public pronouncement threatening legal action believing this could force GOI into intransigent position which could threaten chances of success of negotiations. Shareholders, for their part, appear divided as to advisability of public warning but some consideration being given by IPC to sending private warning letter to companies so interested. We have suggested that, at least as first step, IPC might wish consider private discussion with such firms and there is possibility this recommendation will be adopted.

Apparent willingness of Sinclair and possibly of Phillips, Pauley and others3 to take up concessions whether or not there is an IPC-GOI settlement of Law 80 could we fear have broad implications affecting concessionary agreements not only in Iraq but elsewhere. If other companies should bid for concessions without a prior settlement, GOI will have good reason to suppose that concession agreements can be terminated unilaterally and replaced with contracts with other oil companies under conditions dictated by GOI wherever GOI considers that [Page 325] it is in its own interest to do so. Other producing governments could draw same conclusions and concept of unilateral change of agreements which already has its adherents, e.g., Tariki, would be markedly strengthened. Moreover foreign producing governments would be led to conclude that U.S. companies are not concerned for legal rights of others and are motivated solely by advantages to be derived from access to additional oil resources and new profits.

The Department is considering taking initiative in privately informing the American companies which it knows to be interested in Iraq concessions, i.e. Murphy, Phillips, Pauley, Sinclair, Continental and General Exploration and others as they become known, along the following lines:

IPC in which there is 23.75 percent American interest is most interested in reaching a settlement with GOI on the Law 80 matter and we are hopeful that negotiations will open shortly. The USG believes that mutually acceptable settlement is necessary and desirable in interest of all oil companies having or contemplating overseas concessions.
During period of these negotiations we hope that American companies will refrain from making offers to GOI for onshore concessionary areas as this would constitute acceptance by segments of American oil industry of arbitrary alteration of an existing concessionary accord. It would leave new companies defenseless should GOI elect to change the agreement which it had signed with them.
Final decision is up to American companies involved but should companies enter into concession agreement with GOI prior to settlement of Law 80 USG would continue to support rights of American shareholders in IPC and could not assure diplomatic support in Iraq to new American companies should this be requested. It would be inconsistent for Department to support IPC claim and also attempt to protect an arrangement made in disregard of that claim.
We recognize that by asking American companies to defer negotiations of concessions with the GOI we may leave the door open to foreign firms, e.g. ENI,4 but we believe disadvantage of completely passive attitude on part of USG towards developing situation justifies risk of possible lost opportunities to American firms.
We will undertake diplomatic efforts with foreign governments where possible to dissuade similarly their firms from entering Iraq at this time.

Your comments on above requested.

  1. Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964–66, PET 10–3 IRAQ. Confidential. Drafted by Blackiston (NEA); and cleared by Ensor (FSE), Lowenfeld (L), Dinsmore (NE), Davies (NE), Jernegan (NEA), Hilliker (S/S), and Harriman. Repeated to London and Rome.
  2. Not printed. (Ibid.)
  3. U.S. independent oil companies.
  4. Italy’s national oil company.