252. Memorandum of a Briefing by Director of Central Intelligence McCone 1

SUBJECT

  • Briefing by Mr. John McCone on the Importance of Middle East Oil to the United States
1.
The U.S. possession of oil in the Middle East is of great importance to the U.S. as is the general question of Middle East oil. Many reasons for this can be cited, but three specific points can be mentioned as examples:
a
We are getting two or three hundred thousand barrels of petroleum products daily from the Middle East for the war effort in South Vietnam.2
b
The activities of the international oil companies through their subsidiaries constitute the largest and most effective channel of contact in the relationship with the governments of the Middle East, with the exception of the State Department. It is useful to maintain this channel.
c
The oil of the Middle East does contribute substantially to the U.S. balance of payments.
2.
It is most important from the standpoint of the U.S. Government that American possession of Middle East oil be maintained as a matter of national interest. The subject is all too often dismissed as purely a commercial and vested interest of the oil companies, whereas if looked at in the broadest sense it is clearly an interest of the U.S. Government as well.
3.
The current situation in the Middle East does not parallel that of 1957, as is often claimed both here and in Europe with the accompanying comment that the oil companies lived through the crisis of 1957 and they will live through this one. The present situation is significantly different. In 1957 the U.S. Government stood absolute in its position against aggression. In that conflict it was really on the side of the Arabs versus Israel. We were forcing Israel back, we were taking a position in opposition to the French and the British, and one which was favorable [Page 453]to the Arabs. This position was stated absolutely unequivocally, condemning the British, the French and the Israelis, and leaving no question as to where the U.S. stood.
4.
Developments in recent weeks, and particularly in recent days, have been working against the interests of the U.S. Government in the Middle East as far as the retention of oil properties is concerned. The friendly Arab states are encountering difficulty in maintaining their position against the constant criticism of the U.S. Government by the hostile states. An example is the problem the Saudi Arabian Government is having in maintaining its position, which is essentially friendly, against the demands of such unfriendly countries as Iraq, which are urging the expulsion of Americans and the nationalization and expropriation of the American-owned companies. Lebanon is having similar troubles with Syria. Lebanon would like to open the port of Sidon, get the Tapline into operation again, and ship oil from the east through the Mediterranean. However, partly because she took little part in the war, whereas Syria suffered greatly, Lebanon does not want to antagonize another Arab state. Public indoctrination by Radio Cairo is placing the heads of basically friendly Arab regimes in a position where they cannot speak out publicly for fear of the indignation of the masses which, whipped up by Cairo propaganda, might even cause the overthrow of such governments.
5.
A very important point is that the friendly consuming countries—the European countries, the U.K., and the Asian states—are confronted with shortages, rationing, and higher prices which they blame on U.S. Government policy. Whereas some 10 or 15 years ago these countries were living on coal as their principal source of energy, in the succeeding period they have converted their economic life to one entirely dependent on oil. They claim that now their source of energy supply is through American interests, that obviously American interests are controlled and affected by U.S. Government policy, and that therefore their economic life is actually tied to U.S. Government policy. In reviewing this dependence and considering what they should do, they are thinking of nuclear energy and alternate sources of energy in the Middle East—a situation very different from that of 1957.
6.
At the heart of the problem, and what makes efforts to correct it difficult, is the fact that the U.S. Government position on territorial issues in the Middle East is considered to be highly equivocal. President Johnson’s speech3 is questioned because when you analyze just exactly what he said on the question of territory, you find that it is subject to a wide range of interpretations. What does he mean when he links [Page 454]territorial boundaries to security? Does he mean Syrian border changes to give security to Israel, or the Gaza Strip takeover? The UN resolution offered by Goldberg likewise cannot be considered unequivocal on territorial issues.
7.
The background of the Israel-Aqaba deal has been forgotten and is not being revived in the memory of the Arabs. A very important point should be recalled on this matter. In order to meet Arab demands, the Israelis pulled back from the Straits of Tiran and the Sinai Peninsula. The U.S. negotiated an arrangement in which the quid pro quo was that Israel move back to her former borders in return for access to the Gulf of Aqaba. This is all forgotten now, and the Arabs believe that we sponsored a great concession on their part to Israel. Actually the reverse is true, and when the issue was argued in the United Nations, our Ambassador was very weak on this point. This point should be surfaced.
8.
Experience with the functioning of executive committees here suggests that our desire for flexibility and the retention of the maximum number of options has left doubts in the minds of the Arabs and of our friends in Europe as to what our true intentions are. These doubts are being exploited by both sides. As a result, the resentment of the Arabs toward the U.S. is intensifying whereas their resentment towards the U.K. is lessening. Brown’s speech was no accident, no slip of the tongue. And Wilson’s rather meager attempt to pacify certain critics by his discussion on the floor of Parliament was rather unconvincing, and certainly received no very wide circulation, particularly in the Middle East.
9.
With these trends in evidence, the dangers of expropriation, expulsion, and nationalization of American interests seem real and should not be dismissed in Washington. Furthermore, the consumer countries are growing concerned that their economic life is dependent on U.S. oil money, and therefore on U.S. Government policy, and they are therefore meddling in this situation.
10.
Current statistics show that the reserves in Western Europe are down to an estimated 30–40 days as of June 30th, as compared to the 60–70 days, and are going down quite fast. Tanker rates are up 100–200 from what they were a month ago. The deficits are forecast to continue at least until the Suez Canal is opened because there are simply not enough tankers to make the long trip around the Horn. It takes 68 days for a tanker to make the round trip from the Persian Gulf to Europe, as against 22–24 days through the Canal. Although there was some excess tanker capacity before the crisis, it just cannot carry the added load.
11.
The reopening of Libyan production would offer some relief. With the Libyan pipeline open and the Canal closed, the deficit would be of the order of 500 thousand barrels daily against a demand of 10 million barrels, provided we take certain action. We would have to [Page 455]increase Texas and Louisiana production to meet our East Coast requirements and divert to Europe Persian Gulf oil which would normally go to the East Coast. This the oil companies would like to do.
12.
If Libyan production and the pipelines remain closed, the daily deficit is of the order of a million and a half barrels a day, which is enough to cause all kinds of trouble. The pipelines are down and the Saudi Arabian Government has declared that it will ship no oil through the trans-Arabian pipeline as long as it runs through occupied territory, namely through a part of Syria now occupied by the Israelis. Until the Israelis pull back to their former border there is no prospect, under the present policy, of a resumption of shipment through this channel.
13.
The Lebanese would like to ship out of Sidon, but they are loath to do so for fear of offending the Syrians. The Libyans on the other hand are endeavoring to get things moving. They are suffering from loss of revenue, and both the Government and the labor leaders want to resume shipments for this reason. However, they are having internal labor troubles—the constant harangue by Radio Cairo is heard loud and clear in Libya, and has the working people stirred up.
14.
The Europeans are definitely making carefully guarded overtures to all of the oil-producing Arab countries, pointing out that should the latter be forced to take over American oil properties, they can depend on the Europeans for assistance. This information comes in many, many ways from apparently rather good sources, [2–1/2 lines of source text not declassified]. The situation is very different from 1957, when none of these countries had the capability to enter the oil business, and therefore the Arab oil-producing states do not have to look back at the tragedy of Iran after Mossadeq expropriated the oil and production was shut off completely because of lack of capability. Now the Arabs can move, although with some considerable inconvenience, most particularly in transportation.
15.
This brings up some ideas about possible U.S. Government action that will help. First, the Government should put more pressure on Texas and Louisiana to increase the allowables for the East Coast, and thus permit diversion to Europe of oil bound for the U.S. from the Persian Gulf. Steps taken hitherto by the Texas and Louisiana petroleum authorities have been very niggardly in increasing their allowables. This is understandable because it is very difficult to cut back the allowables at a later date once they turn those valves open. Furthermore there is a unique situation because some of the oil companies in the Louisiana and Texas oilfields have installed pipelines and pumping facilities capable of handling only their present allowables, whereas others have facilities to handle their total potential production. An increase of allowables would thus put some companies at a competitive disadvantage. The companies are trying to straighten this out themselves [Page 456]and this action could account for several hundred thousand barrels daily.
16.
The second thing the U.S. Government can do is emphasize a balanced position in its statements. This should come through clearer and louder than it does because the attitude of the press, radio, and television is such as to make government pronouncements appear oriented toward Israel. As an example, the New York Times published an article three or four days ago stating that the U.S. is resuming aid to Israel. This went through the Middle East like wildfire. The article didn’t say one word about the fact that a few days earlier we had resumed aid to two or three Arab states. We must be sure that our official statements come out loud and clear and represent a very balanced position because there is a certain amount of brainwashing going on by the press.
17.
The third action the U.S. can take is to come up with some clear and unequivocal statements on the question of territorial aggrandizement through military action. While this represents our policy, we have equivocated somewhat. This is one of the items of flexibility and options on which we have to bear down a little more thoroughly than we have. The background of the 1957 Aqaba transit arrangement should be recalled, probably privately, in every Arab capital in order to make it clearly understood that what was done at that time was done in the Arab interest, and that the story has since been twisted around as something done in the Israeli interest. The concession to Israel to permit their shipping to go through the Gulf was very small compared to what the Arabs wanted, which was to get the Israelis out of the Sinai, out of the Straits of Tiran, out of the Gaza Strip, and back behind their lines.
18.
Finally, we must guard against the Europeans taking advantage of our plight. Brown’s speech was no accident, as said before. The talks going on between the Economic Ministers with the European oil representatives really represent a tremendous threat. These are the realities of the situation as seen from the point of view of the international oil companies.
  1. Source: Johnson Library, National Security File, NSC Special Committee Files, Economic 2 of 2. No classification marking. The meeting was held in McCone’s office. An attached covering note from Helms to McGeorge Bundy reads: “Here is the write up of John McCone’s presentation to us on the importance of Middle East oil to the United States. This is the paper I promised you.”
  2. According to a [text not declassified], June 30, this was an important issue because: “The Saudi official said that three-fourths of the production of Aramco’s Ras Tanura refinery previously has been sold to the U.S. Seventh Fleet as the ultimate consumer.” (text not declassified, June 29; ibid., Economic 1 of 2)
  3. President Johnson spoke on June 19; for text, see Public Papers of the Presidents of the United States: Lyndon B. Johnson, 1967, Book II, pp. 630–635.