205. Memorandum From the Executive Secretary of the Department of State (Eliot) to the President’s Assistant for National Security Affairs (Kissinger)1

SUBJECT

  • Settlement to Iraqi Oil Dispute

Agreement has been reached in Baghdad on terms to end the twelve year old dispute between Iraq and the Iraq Petroleum Company (IPC).2 The terms, announced on Baghdad radio by President al Bakr, involve payment by the Iraqis of compensation for both the Kirkuk oilfield, nationalized last June,3 and the concession areas nationalized in 1961. Against this compensation, which is to be paid in oil worth approximately $300 million, the IPC members will have to balance tax arrears of over $360 million which they owe the Iraqis. The IPC will also receive approximately $70 million as repayment of loans previously made to the GOI. Additional compensation will go to the companies in the form of low cost oil to be made available through the Compagnie Francaise des Petroles (CFP) which recently concluded a 10-year purchase contract.

Conclusion of this agreement will remove a major irritant to Iraqi relations with the west, and may open the door to increased western [Page 602]commercial activity as well as development of Iraq’s large undeveloped oil reserves.4 The major beneficiary, however, will probably be the French, who have been given a preferred position by the Iraqis; the CFP official who served as mediator for the Iraq Petroleum Company was able at the same time to win large new contracts for his company in addition to its long-term purchase of relatively low cost oil. The American partners in the IPC (Exxon and Mobil) were pointedly snubbed by the Iraqis throughout the negotiations, and although the GOI has been negotiating with a number of American companies to purchase the nationalized oil, it is unlikely that the settlement will create any substantial near-term opportunity to advance American interests in Iraq.

Although we and the companies are pleased to have this dispute finally resolved, the terms of the settlement are not fully satisfactory to the American companies. Those terms, however, were dictated by the European companies who control 75 percent of the company and who were anxious for a settlement in order to protect their access to Iraqi oil. Agreement on participation in the Basra Concession was unreachable, and the companies will have to face another difficult set of negotiations on that subject beginning in October. Moreover, the companies were unable to get commitments of long-term purchases for any sizeable quantities of the nationalized oil, leaving the great bulk of it under Iraqi control. That, plus the marginal level of compensation received, may be difficult for them to explain to Saudi Oil Minister Yamani and the Shah, who have looked upon the Iraqi case as being the test of the companies’ readiness to treat their friends better than their enemies. We do not yet know if the advantages to Iraq of its deal are great enough to cause the Shah to dig in his heels on the specific terms of the new arrangements he is now negotiating with the companies, or to cause Yamani to demand redress, but the companies will clearly have some explaining to do.

Theodore L. Eliot, Jr. 5
  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 603, Country Files—Middle East, Iraq, Vol. I. Confidential.
  2. The Interests Section transmitted the details of the IPC-Iraqi agreement in telegram 100 from Baghdad, March 6. (Ibid., RG 59, Central Files 1970–73, PET 15–2 IRAQ)
  3. See Foreign Relations, 1969–1976, volume E–4, Documents on Iran and Iraq, 1969–1972, Documents 312, 314, and 316.
  4. The Interests Section sent telegram 111 from Baghdad, March 13, on “Commercial Opportunities in Iraqi Oil Sector” following the conclusion of the agreement. (National Archives, RG 59, Central Foreign Policy Files)
  5. Miller signed for Eliot above this typed signature.