228. Memorandum From the Director of the Office of Fuels and Energy, Bureau of Economic Affairs (Oliver) to the Deputy Assistant Secretary of State for Economic Affairs (Fried)1

SUBJECT

  • FSE Meeting with Department of Interior Officials on Possible Effects of Middle East Crisis on World Oil Supply

At my request Admiral Lattu, Director of the Office of Oil and Gas, Department of the Interior, called a meeting on May 23 of Interior’s experts on fuel supply and transport to discuss possible effects of the current Middle East crisis on world oil supply.2 State was represented by myself, Jim Akins, Maxwell Harway of the Vietnam working group, and Stephen Rogers of EUR/RPE.

Jim Akins gave a short briefing on the current political scene in the Middle East; we believe that if fighting starts the best we could hope for would be a loss of only the two pipelines, the worst would be a loss, through government action or sabotage of all Arab oil and the closing of the Suez canal. The actual situation would probably lie between the two extremes.

Interior’s experts conclude that the loss of two of the five major Middle East producers (Iran, Iraq, Kuwait, Saudi Arabia and Libya) and the Suez canal would be tolerable. (We note that the loss of Kuwait and Saudi Arabia together would create serious disturbances.) Loss of more would cause disruptions in Europe (and Japan) commensurate to the size of the loss.

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Arab production is now as follows (millions of b/d):

Saudi Arabia—3.2

Kuwait—2.9

Iraq—.9

Total Eastern Arab—7.0

UAR—.1

Libya—1.7

Algeria—.8

Total North African Arab—2.6

Total Arab—9.6

If the oil were lost it could partially be made up from the following sources:

“Immediately” Within six months
North America 1.0 2.5–3.0
Nigeria .2 .35–.5
Indonesia .1 .15–.3
Iran .3 .8
Total 1.6 3.8–4.6

The emergency oil would be expensive. Europe currently imports about 7.5 million b/d for which it pays $6.7 billion per year. Under emergency conditions about 3.9 million b/d could probably be made available to Europe but the cost would be $5.7 billion per year—a per barrel increase of about 67%.

The problem is solely that of crude oil; tankers are available or can be made available to ship it but at a higher cost than currently is paid.

The Foreign Petroleum Supply Committee is responsible for organizing fuel supplies for the U.S. and its allies. It is currently inactive; its members are top level Department of Interior officers and executives of American oil companies with foreign operations. Its company participants are immune from anti-trust action. It last functioned during the Suez crisis but could be reactivated within a week or two.

The permanent subcommittee, the Petroleum Security Subcommittee is composed of Interior officers and oil company employees—mostly those occupying higher technical positions. It met the middle of May and was scheduled to meet again on June 5. If the situation in the Middle East deteriorates it will be asked to come to Washington by the end of this week.3

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Attachment4

OUR TENTATIVE ASSESSMENT OF THE SITUATION REACHED AFTER
CONSULTATION WITH NEA

Production(Mill. b/d) In case war with Israel—no foreign intervention In case of active US support of Israel i.e. sixth fleet action
Libya—very susceptible to Nasserite pressures—large numbers of foreign Arabs work in oil fields. 1.7 Probably will continue supply—at least to European neutrals Probable compliance of Lib. Govt. to Nasser pressures to close fields—if not, probability of sabotage
Kuwait—also susceptible to Nasser pressure. Non-Kuwaitis outnumber Kuwaitis by 2:1 in sheikhdom. 2.9 Some pressure to take action against KOC. Probable continuance supplies to Japan and European neutrals Strong pressure to close and/or nationalize fields. If GOK refuses, strong possibility sabotage
Saudi Arabia—less susceptible to Nasser’s pressures. But Saudis, like other Arabs, emotionally involved in question Israel vs. Arab honor. 3.2 Inclination of Govt. to remain in full production—danger of sabotage Probability SAG will yield to nationalist pressures to close or nationalize fields
Iraq—GOI pays full lip service to Arab solidarity. Iraq is only one of Arab combatants not to sign armistice with Israel after Palestine war. .9 Strong pressure to close or nationalize IPC or at least cut supplies to “imperialists” Increased pressure to nationalize
Iran—non-Arab, enemy of Nasser, friendly to Israel but oil is produced in Arab speaking areas of Iran where nationalists have been working—but heretofore ineffectively. 2.5 Possibility of attempted sabotage Possibility increased of attempted sabotage but also increased Govt. vigilance
IPC and Aramco pipelines. 1.1 (throughput) Cut Cut unless Iraq nationalizes IPC, then IPC line kept open for selected customers

Although it may not be the prime reason for Nasser’s bellicose stand, he seems to be using the overheated atmosphere to excite the citizenry and armies of Saudi Arabia and Jordan to overthrow their “reactionary” rulers. Unless he gets full cooperation from Kuwait and Libya he is likely to try to overthrow the rulers of those two countries as well. His chances of success in these long-standing plans will be enhanced if his armies give a good showing against Israel—the aura of the conquering hero. Paradoxically, they would also be increased if [Page 419]the Israelis succeed in occupying parts of Jordan, Egypt, Syria and Lebanon; the case would then be made that Arabism was threatened and could only survive if the “lackies of imperialism” were thrown out. Hussain is more vulnerable than Faisal.

It is impossible to calculate what is activating Nasser (the Russians? Are they finally yielding to Chinese taunts of being afraid to distract the Americans away from Vietnam?). He may be risking a war with Israel, may even expect to be defeated (and then rescued by the UN) but will consider it worthwhile if he can, during the process, bring down Hussain, Faisal and perhaps the Kuwaiti and Libyan thrones.

  1. Source: Department of State, E Files: Lot 71 D 84, PET 2 Middle East Department Memorandum 1967, Box 6297. Confidential. Drafted by J.E. Akins (E/OR/FSE).
  2. Interior’s Office of Oil and Gas had been studying the problem since the beginning of May. Early that month, the Petroleum Security Subcommittee of the Foreign Petroleum Supply Committee recommended that the Department of Defense, as a precautionary measure, consider alternative sources for the 200,000 b/d purchased from Persian Gulf refineries. This figure represented 80 percent of oil used by U.S. military forces in the Pacific. Alternatives were suggested but the meeting was recessed until June 5 to gather more data. (Memorandum reviewing potential petroleum developments, May 31; ibid.)
  3. The Petroleum Security Subcommittee was called to Washington for a meeting on May 26, 1967. FSE’s May 25 submission for the nightly report for Under Secretary Katzenbach is ibid., FSV Facilitative Service—1967.
  4. No classification marking.