Foreign Relations of the United States, 1964–1968, Volume XXXIV, Energy Diplomacy and Global Issues

196. Telegram From the Embassy in the United Arab Republic to the Department of State ¹

Cairo, December 16, 1966.

3385. Subject: IPC Dispute. Ref: Jidda 2307 and Kuwait 638.²

1. Cairo line on IPC dispute with Syrians predictably supports Syrian position.³ Ahram on Dec 15 compares situation with 1956 ANC claims powers which exploit Arab oil have forgotten lesson of Suez. Recalls that solidarity of Iraq and Syria with Egypt during tripartite aggression contributed to victory and thus solidarity between Syria and Iraq in confronting IPC will lead to victory. Less cautious Akhbar same day characterizes dispute as similar to Suez dispute which Egypt won by nationalization. Nationalist wave in Near East now irresistible and there strong possibility Iraq will nationalize IPC.

2. Same line given to Embassy political counselor by Mustafa Abdul Aziz, Vice President Zakaria Muhieddin’s Secretary, Dec 15. Abdul Aziz says Syrians are right for first time in their lives. IPC has been making enormous profits and refusing pay what it had already consented to under agreement. Western governments striking pose that this was simple dispute between IPC and Syrians when in effect it threatened to turn the whole oil economy of Middle East upside down. He hoped from bottom his heart Iraqis would nationalize IPC. This would lead to wave of nationalizations. Algerians had already moved against profiteering oil companies, Syrians were now moving and Iraqis were next. Other Arabs, including Libyans, would be forced to go along whether they like it or not. They might have some difficulty marketing their oil, but Soviets and Japanese would help and Arabs would find a way. Nationalizing Suez and building Aswan dam had not been easy but Arabs had done it and would find customers for their oil. We should not underestimate their solidarity in such matters.

3. After going on at some length in this vein, getting progressively shriller, Abdul Aziz suddenly relaxed and said for our information President Nasser had received Iraqi Chargé Dec 14 and latter had carried request from Baghdad that Nasser try ease situation and calm down Syrians. Abdul Aziz commented that Iraqis very irritated with Syrians and Nasser mad at both of them. Indicated Nasser would try reason with Syrians but not enthusiastic about it.

4. Comment: Solidarity forever seems to be theme, but Egyptians likely tread with some caution as long as they anticipating heavy American oil investment here. They may hope however that nationalized Arab oil companies would finance development Egyptian oil resources, in which event UAR would perhaps be prepared lose American investment, particularly now that initial prospecting done and oil actually found.

5. It seems evident from Abdul Aziz’s remarks on LIL marketing, subject he has been following because of involvement in Pan American negotiations, that Egyptians have been studying possibilities marketing their own oil and not relying on foreign companies. His remark about Soviets helping dispose of Iraqi oil made in tone implying Soviets had given some undertaking this regard, but this may have been wishful thinking on Abdul Aziz’s part. In this connection Abdul Aziz said it not true Soviets have excess of oil. Egyptians had asked them for LE 26 million worth in 1965 and Soviets had been unable supply. He admitted situation may be different this year or next.

6. It would be very useful to us have candid appraisal from Department, London, Damascus and Baghdad as to merits respective sides in this dispute. While we second to none in appreciating lunatic factor in Syrian policy, we have impression IPC may in fact be reneging on agreement, or interpreting it too narrowly. If views of Egyptians are relevant, current crisis threatens jeopardize Western oil interests throughout area. If IPC is being fair with Syrians a better case for it should be made in world press and in local contacts.

Battle

1. Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964–66, PET 15–2 SYR. Confidential. Repeated to Amman, Baghdad, Beirut, Damascus, Dhahran, London, Moscow, Tel Aviv, Tripoli, and Tehran. There is no time of transmission on the source text; the telegram was received at 11:11 a.m.
2. Both dated December 15. (Ibid.)
3. Syria had few oil resources of its own, but a pipeline of the Iraq Petroleum Company traversed Syrian territory, feeding Syrian refineries and carrying oil to the Mediterranean with an additional fee payable to the government. At this time, Syria was seeking an increase in the transit fees and a retroactive increase covering the past decade, which was unacceptable to the oil companies. Iraq, involved in its own protracted oil negotiations, wanted to support Syria, but a shutdown meant a significant loss of revenue since the pipeline carried two-thirds of Iraq’s oil output. Syria broke off negotiations with the company on November 23, and on November 28 the Iraqi Deputy Prime Minister asked the oil company to “be generous with Syria.” The company representative said that “IPC had been generous with Syria. Danner said that IPC had been as generous as possible. Could give no more: to do so would make it cheaper ship Kirkuk oil via Basra.” (Telegram 1014 from Baghdad, November 28; ibid., PET 6 IRAQ) On December 9 Syria unilaterally doubled the transit fee and imposed a surcharge to recoup monies it claimed to have been owed for 10 years while seizing the company’s in-country assets. (Telegram 4785 from London, December 9; ibid.)