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

151. Briefing Paper Prepared by the National Security Council Staff¹

Washington, January 18, 1973.

Middle East Oil Situation: The several sets of negotiations between the international oil companies and the Arab governments are producing mixed results.

• —The pricing arrangements under the participation agreements (25 percent now and 51 percent in the early 1980s) between the Persian Gulf OPEC members (less Iran) and the companies are in some cases still being worked out. Saudi Arabia, the most important producer, has now been signed up but the Kuwaitis and the smaller producers are still dragging their feet, and the Saudis have let it be known they will expect as much as the Kuwaitis get.
• —The Iranians, who last spring agreed in principle to an innovative “package” settlement, have now, in view of the OPEC settlement, backed away from it. The Shah is now pressing for a so-called “purchase-sales” arrangement under which Iran would take over full operating control of all consortium facilities (they have already technically owned them since 1954) and would enter into a long-term contractual supply arrangement with the companies. The consortium is resisting this approach because of tax problems it would create for them here, the weak position it would leave them with in future price negotiations, and the precedent it would set. From all indications, the Shah is apparently motivated as much by a desire to set the pace of negotiations with the companies as by revenues.
• —In Iraq, talks are resuming concerning compensation for and future operating arrangements of the Iraq Petroleum Company’s facilities that were nationalized last summer. The IPC reports that the Iraqis have been negotiating realistically on a whole range of issues, including compensation.
• —The Libyans will soon open their first serious participation negotiations with the American partners of Oasis, one of the major companies operating in the country, after first having tried and failed to scare a smaller company (Bunker Hunt) into giving up a majority interest right now. Our Embassy believes that for the first time the companies have some significant advantages not only because they are relatively united but, more importantly, because the Libyans have other problems which seem to transcend their basic urge for greater control and more revenue.

The basic problem that the companies are having through all these negotiations is the stabilization of their relationships with the various governments. As soon as a framework is established with one government or group, another has raised the ante and new arrangements have had to be worked out at a higher level. This is why the Shah’s latest gambit is worrisome—not so much because of the added revenue, which is marginal, but because it implies full participation now and could undermine the gradualistic arrangements being worked out through OPEC and with the Libyans.

Iranian Oil Negotiations: The Shah has apparently turned aside a compromise proposal from the consortium of oil companies and, according to the companies, is continuing to demand what would amount to 100 percent “participation.” The Shah reportedly has said that his approach is the only way to assure the security and stability of Iran’s oil supply and to meet attacks being made on him by the Communists. The Shah emphasized that the consortium must say “yes” before January 22.

The Shah’s proposal as it presently stands amounts to 100 percent takeover of consortium management, operating, and financing responsibilities (ownership was technically accomplished in 1954) by 1979 at the latest. This is in sharp contrast to the participation agreements recently concluded with several major Arab governments in the Persian Gulf, which provide for only 25 percent control now and 51 percent in 1982, and also goes beyond current Libyan demands. If the Shah prevails, it will inevitably undercut the agreements with the Arab governments and reopen the negotiations just concluded, leaving the international petroleum scene in a continued state of unrest and uncertainty. The day before the Shah’s most recent meeting with the consortium representatives, Ambassador Farland expressed our “deep concern” to the Shah’s Court Minister about this situation.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 219, Agency Files, Council on International Economic Policy (CIEP), Vol. II, 1973. No classification marking. This briefing paper, prepared for Kissinger prior to a meeting with Flanigan, was based on the following telegrams, which were attached but are not printed: Telegram 5598 to London, January 10; telegram 247 from Tehran, January 13; telegram 6609 to Tehran, January 11; telegram 249 from Tehran, January 15; telegram 280 from Tehran, January 16; and telegram 10218 to Tehran, January 17. The meeting was held on February 6 but Kissinger did not attend. See Documents 160 and 161.