45. Information Memorandum Prepared in the Bureau of African Affairs1

    • Possible Libyan Oil Crisis

After months of inconclusive negotiations between the US oil companies and the Libyan Government, the Libyan oil situation appears to be reaching a serious stage. In the current negotiations the Libyan Government has stunned US oil companies by demanding a radical escalation in the posted price of Libyan crude.2 This has led our Embassy to speculate that the Libyan Government objective may be to create conditions with which the companies will be unable to comply in order to impose some form of national control over the oil industry. The LARG has reportedly broken off negotiations with Occidental Oil Company, whose representative in Libya believes Government seizure of the company is likely within the next few days. Meanwhile ESSO believes that the LARG may impose production rationing which could be tantamount to partial expropriation.

Although the LARG agreed to honor international obligations, including oil company concessions, when it seized power in September, it has recently threatened to take unspecified unilateral action in order to enforce its demand for higher posted prices.

The presence of a Soviet oil delegation in Libya and recent nationalization of US companies in Somalia, Sudan and Uganda are other disquieting developments in terms of the influence they may have on the thinking of the Libyan regime.

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Libya appears to have significant important economic cards in the present situation. Western Europe obtains 25 per cent of its crude oil imports from Libya and would be unable to dispense with Libyan oil without rationing; hence, we believe Libya would be able to find a market for its oil exports even if it nationalized all or part of the industry. Libya probably could also obtain technical assistance from the Bloc or from other Arab states to operate the industry, should the American companies be forced out.

Our traditional policy has been to avoid involvement in Libyan-oil company dealings except in special situations where we could usefully carry information between the parties in the interest of facilitating a settlement of an outstanding problem. We have asked the Embassy whether this tactic would again be useful given the total context of our relations with the LARG. Several weeks ago, for example, we suggested to several companies, in response to their request for our estimate of the situation, that they should weigh carefully the possible consequences of refusing to consider any increase whatsoever in posted prices.

  1. Source: National Archives, RG 59, Central Files 1970–73, PET 6 LIBYA. Secret. Transmitted to Kissinger under cover of a memorandum from Executive Secretary of the Department of State Theodore Eliot.
  2. On October 6, 1969, the Libyan Government denounced Libyan crude oil postings as “unilaterally determined” by oil companies and indicated it would exert every effort to achieve an increase in posted price. (Telegram 2934 from Tripoli, October 8; ibid., Central Files 1967–69, PET 1 LIBYA) According to a May 12 CIA memorandum on the Libyan oil negotiations, the Libyan demands during negotiations culminated on May 11 in a demand for an increase in posted price from $2.21 to $2.65 retroactive to 1961. The memorandum stated that Egypt and Algeria “have independently advised Libya to squeeze all it can out of the oil companies without actually nationalizing them because they recognize that Arab countries needed Western oil expertise.” It concluded that “there is no evidence of real outside pressure on Libya,” although the Soviets were interested in oil and weapons deals. (Central Intelligence Agency, Executive Registry Files, Job 80–B01086A, Box 2)