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240. Memorandum From the Legal Adviser of the Department of State (Maw) to the Assistant Secretary of State for Near Eastern and South Asian Affairs (Sisco), the Assistant Secretary of State for Economic and Business Affairs (Armstrong), the Deputy Assistant Secretary of State for International Resources and Food Policy (Katz), and the Deputy Assistant Secretary of State for International Finance and Development (Weintraub)1

SUBJECT

  • Iraqi Expropriation of U.S. Oil Interests

You will recall that, upon the October outbreak of hostilities between the Arab States and Israel, Iraq purported to nationalize the shares of Exxon and Mobil in Basrah Petroleum Company. The reason advanced by the Government of Iraq to justify the expropriation was to “strike at the interests of imperial States.” The expropriation law provides that “The State shall pay compensation” for the interests taken, provided that various deductions from compensation are made, and further provides that regulations shall be issued “defining the payment of compensation and the deductions to be made.” As far as we know, no such regulations have been issued. Insofar as inconclusive negotiations between Exxon and Mobil with the Iraqi Government, which took place last month, have revealed, the prospects of Exxon and Mobil being paid compensation which approaches international law standards appear to be bleak.

Even if adequate compensation were to be paid, the expropriation would in its origins be illegal, since it is arbitrary, discriminatory and not for a valid public purpose as that concept is understood in international law. The United States plainly has great interest in not permitting to pass without protest expropriation of the property rights of American nationals for reasons of conflict between third States. Failure to protest could be construed, as a matter of international law, as acquiescence in an act which otherwise would be illegal but, because of the failure to protest, is rendered permissible. Moreover, quite apart from the inadmissible precedent that failure to protest might be construed as setting, failure to protest may well embolden Iraq to endeavor to per[Page 674]suade—and to succeed in persuading—other Arab States to expropriate American interests because of Arab differences with Israel.

I am moved to raise this question with you now because of a public statement by the Iraqi Minister of Oil and Minerals, Saadun Hammadi, reported in The New York Times of December 19, 1973. A copy of that report is attached.2 You will note that Dr. Hammadi advocates, as a substitute for the oil embargo, that U.S. interests in the Arab world be nationalized, among other sanctions to be directed against the United States. “Nationalizing American interests in the region is not a difficult matter,” he is quoted as saying—not least, perhaps, because the United States Government has not as yet said a word of protest in response to Iraq’s nationalizing of the interests of Exxon and Mobil.

The U.S. Government has refrained from protesting for two reasons. First, the Department’s desk dealing with Iraqi affairs has been of the view that a protest would not “serve a useful purpose in the present time” (this on October 29 and subsequently) though it saw the possibility of raising the matter in a helpful way at a later juncture. Second, Exxon and Mobil have been negotiating not only with the Government of Iraq about compensation but with their co-shareholders in Basrah on their claims that the Iraqi decree affects Basrah as a whole, and not the particular interests of Exxon and Mobil, with the result that Exxon and Mobil are entitled to a continuing interest in Basrah. They have been concerned that a protest could prejudice their position vis-à-vis their co-shareholders.

The latest communications with Exxon (a memorandum of conversation is attached)3 and with Mobil (on December 20) indicate that those companies, while having preferred to postpone a protest, would be agreeable to a protest, provided that it were so worded as not to prejudice their claims against their co-shareholders in Basrah. Mr. Schwebel has asked them for any further views they may have in the light of Dr. Hammadi’s declaration. In any event, however, the U.S. Government naturally can treat the views of the companies, however important and relevant they are, as no more than advisory. It should be recalled, moreover, that the U.S. interests section in Baghdad recommended when the expropriation was proclaimed that “our overall interests in Iraq itself will be best served by insisting on adequate and prompt compensation but limiting our reaction on discriminatory and political elements to strong protest.” (Baghdad’s 00546.)4

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Accordingly, I invite you to agree to authorize the preparation, in consultation with Exxon and Mobil as appropriate, of a diplomatic note for delivery to Iraq which will protest the expropriation in terms least likely to prejudice claims of Exxon and Mobil against its co-shareholders.5

A first draft of such a note is attached.6 It also includes a protest about Dr. Hammadi’s remarks. I would appreciate your views as to whether we should protest those remarks and, if so, in this note or otherwise.

  1. Source: National Archives, RG 59, Central Files 1970–73, PET 15–2 IRAQ. Confidential. Drafted by Stephen M. Schwebel (L). Printed from an uninitialed copy with a handwritten note that the original was “sent forward” on December 27.
  2. Not attached. The statement appeared on page 13 of The New York Times.
  3. Not attached.
  4. Telegram 546 from Baghdad, October 9, also noted that the Iraqi Government believed that substantial commercial relations with the United States could continue to expand despite the nationalization. (National Archives, RG 59, Central Foreign Policy Files, [no film number])
  5. In telegram 690 from Baghdad, December 30, the Interests Section warned that Iraq’s urging of Arab governments to nationalize U.S. oil companies was “taking on new toughness and immediacy as result apparent success Libyan and Iraqi nationalizations, price increases, flood of high level foreign suitors, and damage Arabs doing to Japan and Europe with present policies rather than main target, the U.S.” (Ibid., [no film number])
  6. Not attached.