Foreign Relations of the United States, 1969–1976, Volume XXXVI, Energy Crisis, 1969–1974

108. Telegram From the Department of State to the Embassies in Saudi Arabia, Kuwait, and Iran¹

Washington, January 29, 1972, 0120Z.

16939. Subject: OPEC Participation Bid. Ref: London 673.²

1. Oil company officials who attended January 21/22 OPEC participation talks confirm reftel’s report with following additions:

a. Although Yamani did almost all talking for OPEC side, other Persian Gulf states represented as follows: Atiqi of Kuwait, Rifai of Iraq, Oteiba of Abu Dhabi, Jaida and Hassan Kamel of Qatar, Froozan of Iran (number two on oil matters in Finance Ministry) and Pachachi of OPEC. All states represented, according to Yamani, were bound by agreement to insist on minimum of 20% participation.

b. Yamani said producers had right to demand participation, based on their accepted right to nationalize. If companies not prepared to agree, producers would exercise their right to nationalize.

c. Iraq specifically mentioned as desiring more than 20% participation. Yamani said however that Saudi Arabia would be satisfied with 20%. If companies made participation agreements, OPEC countries prepared to guarantee their stability.

d. Terms proposed for participation (para 3 reftel)³ follow OPEC staff model. Companies characterized them as confiscatory and in violation of Tehran agreements, as buyback provisions would change financial obligations under agreements. Yamani stressed importance of avoiding market interruptions, but pointed out that consumers needed producers but not necessarily company middlemen. Company representatives said they could not be willing buyers of oil under proposed terms.

e. OPEC side authorized Yamani to proceed with negotiations in whatever manner he saw fit. Yamani informed companies he had to report to OPEC Council of Ministers by end February for decision whether to proceed with negotiations or take action. In interim, he prepared to talk with individual companies. (We have subsequently learned that Jungers of Aramco will initiate discussions with Yamani February 1; it’s not clear however whether Yamani will be speaking for OPEC or in Saudi role only.)

2. While it too early to determine how solidly other Gulf states stand behind Yamani, we are concerned that forcing of the pace by OPEC may lead to early confrontation with the companies. On the other hand, companies not likely to address selves adequately to this problem unless OPEC pressure kept up. In this difficult situation, chances of miscalculation are serious and could lead to disruptive and harmful negotiating crisis. We believe it essential therefore to put our position on record in effort to reduce danger of miscalculation by both sides. We have done so with companies and will continue to urge them to make plans to meet strong, persistent demands of producers for changing their future relationships. Now that OPEC demands are clear, we believe it advisable to inform producer governments of our position before negotiating positions become public and subject to political pressure.

3. We are considering discussing this problem with Governments of Saudi Arabia, Kuwait, and Iran at appropriate Foreign Ministry level. We would not in initial round approach Governments of Qatar and Abu Dhabi. In approaching host governments three action addressees would tailor verbal presentation to reflect apparently differing position of each producer government on participation issue. We would present in each case, however, an Aide-Mémoire stating basic USG position on participation question. We feel this particularly necessary in case Saudi Arabia and Kuwait to assure that oil policy decision makers receive through Foreign Ministry precise exposition of USG position. Our statement of USG position would touch on following factors: a) mutual interest host government and consumer governments in stability of oil supplies; b) key role which international oil companies play in assuring this stability; c) contractual rights of these companies in return for their responsibilities in assuring stability of oil flow; d) importance of host government treatment these contractual rights in determining overall economic relationship between US and host country and security of investment in each other’s countries; e) long and successful tradition of effecting changes to company-host government relationship through negotiations rather than unilateral action; f) our agreement with host government that oil relationships are to be treated as commercial rather than political matter; g) our gratification that Tehran agreement underscored host government’s endorsement of principles noted above; h) our hope that participation question will be approached through deliberate and constructive negotiations between host government and concessionaires.

4. Would appreciate action addressees comments on desirability, substance and modalities of above approach.⁴ We are conferring with companies to assure that our discussions with host governments would not undercut tactics on-going company/producer government negotiations.⁵

End

Rogers

1. Source: National Archives, RG 59, Central Files 1970–73, PET 3 OPEC. Secret; Exdis. Drafted on January 27 by Brown; cleared in NEA, NEA/ARP, NEA/IRN, and Akins; and approved by Katz. Repeated to Dhahran and London.
2. According to telegram 673 from London, January 24, Yamani, speaking for OPEC, told the oil companies that OPEC producers wanted participation. He also requested a second meeting with one or two companies. (Ibid.)
3. According to paragraph 3 of telegram 673, Yamani stated that OPEC nations wanted a minimum of 20 percent initial participation, with the host producing countries share to rise to 51 percent over an unspecified period of time, and the right to market oil themselves or to sell it back to the companies at a halfway price. Compensation would be determined on net book value, presumably paid in forms other than oil. (Ibid.)
4. In telegram 143 from Kuwait, January 31, the Embassy suggested that it was not time for a direct approach to the Kuwaiti Government and that Kuwait was not prepared to carry out nationalization as Yamani had claimed. (Ibid.) The Embassy in Tehran replied that the Shah was more interested in a post-1979 agreement that allowed Iran to participate in downstream operations than in participation negotiations. (Telegram 648, February 1; ibid.) From Jidda, Thacher supported the direct approach to the King. He suggested that oral remarks emphasize the years of successful negotiations between the companies and the Saudi Government, that the United States “regards participation issue of special importance but not on political plane,” that the large moderate Gulf producers could face down radical government tactics, and that the companies needed time. (Telegram 307 from Jidda, January 30; ibid.)
5. On February 1, Akins informed company representatives that a possible aide-mémoire would be based on this telegram, plus Thacher’s approach as proposed in telegram 307 from Jidda. (Memorandum of conversation, February 1; ibid.)