99. Telegram From the Embassy in Libya to the Department of State1

2302. Subj: UK Démarche on BP Nationalization. Ref: State 225386, Tripoli 2292.2

Summary: This message repeats our concern over UK action proposals to deal with BP nationalization question which we see as ineffective at best and counter-productive at worst. It argues that our interests are not in all respects same as those of UK and that we should not risk losing now however vulnerable an advantage our interests still possess as a result of LARG’s differential treatment of US and UK interests. It ends by proposing certain steps we believe we should avoid and others we should undertake in effort promote cooling off period, assert our views to LARG on principle of compensation and try promote more pragmatic LARG view of its economic self interests.

Action Requested: Department’s reaction to our analysis and proposed US positions and actions, with specific guidance on point raised para 8(E) on compensation.

1.
I recall a British colleague once saying to me “the trouble with you Americans is that you mistake action for diplomacy.” From admittedly scanty information we have here from State 2249283 and contacts with British Embassy, I believe foregoing statement can be turned [Page 234]on our cousins in present BP nationalization context. Problem is not in finding actions to take but in finding actions that are responsive to situation we face and which have some promise of effectiveness.
2.
I do not wish in any way to seem to underestimate extreme importance and far-reaching implication of arbitrary and unwarranted nature of Libyan action in nationalizing BP on unrelated political issue. But we must face facts and among these are: (A) LARG will not reverse itself; (B) LARG will not commit itself either explicitly or implicitly never to do it again; (C) LARG will make its own decision on compensation; (D) official US and UK statements and overt actions are likely to make matters worse and invite retaliation against other of our interests; (E) even if unprovoked, LARG is quite capable, particularly with BP predecent under its belt, of acting against other Western oil interests if it decides in its own wisdom (however mistaken) that this is in interest its self-appointed Arab leadership role.
3.
We should also bear in mind that, although there are admittedly large areas of overlap, our own interests and those of UK in resolution of BP problem do not completely coincide: (A) LARG chose a British issue to establish a principle of political nationalization and quite pointedly refrained from taking over BP’s American partner; (B) in its parallel decision, LARG disposed only of its UK sterling assets and presumably has left its US dollar holdings unaffected; (C) to extent large Libyan claims against UK may have been a subsidiary factor in BP decision, no comparable situation exists in case of US.
4.
So far as US interests are concerned, we see two main vulnerabilities at present time: (A) in short term Libyans might move against Bunker Hunt on grounds of its refusal to cooperate in lifting BP oil and doing enough to assist in operation of AGEC fields, or in retaliation for any US conspicuous support of BP; and (B) in longer term, LARG might move against other US Libyan producers either in context of participation or in connection with some development in Arab-Israeli context.
5.
I recognize that present situation poses very real dilemma for US. Simply to lie low presents danger of LARG misinterpreting our silence as sign of weakness and resignation. On other hand, too high a profile may precipitate what we seek to avoid. In last analysis, LARG’s actions are going to be determined by its own view of its own national interest. Thrust of our efforts, it seems to me, should be in direction of promoting a cooling off period and an effort to influence that view. The latter will not be easy and, from this vantage point, we certainly have no sure-fire formula.
6.
I believe we have, however, certain things going for us: (A) LARG does not have capability at present time to operate BP concession unassisted and it will probably be some time before it acquires a [Page 235]capability with the degree of efficiency which BP brought to operation. Except for short term dangers to Hunt, therefore, there is a good chance that acute indigestion will induce a breathing period before moves are made against other companies. (B) Although LARG is presently receiving far more revenue than it needs, it will undoubtedly try to avoid too much of a revenue loss during this period when its hopes are still running high for achieving, with commitments of Libyan cash, a greater degree of Arab unity and nationalization of the battle. This again bespeaks some caution on part of LARG in moving against other interests. (C) For obvious reasons, LARG has historically placed importance on diversifying its foreign exchange holdings. It has already reduced its flexibility by withdrawing its sterling holdings and is not likely soon to limit further its freedom to deposit by withdrawing or placing in possible jeopardy its dollar holdings.
7.
To summarize up to this point, I see US objectives in this situation as follows: (A) to try to encourage an atmosphere that will assure continued functioning of US oil interests here; (B) to quietly encourage resolution of BP nationalization problem in way that will meet criteria of prompt, adequate and effective compensation; and (C) to encourage the LARG to take a more pragmatic view of its own self interests.
8.
Against foregoing background, I would suggest following inventory of USG attitudes and actions: (A) we should eschew any public USG statements or conspicuous actions which identify us with BP or UK actions. (B) We should similarly avoid any conspicuous USG identification with UK moves to impose even limited forms of oil sanctions against LARG. (C) We should, however, refrain from encouraging any US companies to attempt operation BP concession under contract with AGEC. (We have no problem, however, with limited Bunker Hunt cooperation reported Benghazi 479.)4 (D) Similarly we should encourage US companies to refrain from lifting and marketing BP oil. In so doing, we should base our position on BP’s threat of legal action in order to depoliticize our advice as much as possible. (E) We should try forcefully to bring before the LARG the strength of our feelings on the general question of prompt, adequate and effective compensation. In doing this, however, we should avoid making any direct connection with BP nationalization. We have plenty of precedents of our own for making démarche on this subject, in view unsatisfactory status compensation payments for Seventh Day Adventist hospital, Esso, banks, insurance companies, etc. Even before BP nationalization, I had decided raise this question in general terms during course forthcoming US/LARG negotiations. I am even more convinced that this should be [Page 236]done in light latter development. There is no need for us to make any connection with BP; LARG will draw inference for itself. (F) We should urge UK to encourage Egyptian efforts reported septel5 to persuade LARG to work out some alternative form of arrangement with British interests which would both keep British in petroleum picture here and minimize losses. French have done this in Algeria and we see no reason why British should not at least try it here. Whatever chances of such an arrangement, they will not be improved by petulant tough British words and actions. (G) We should try to get into public domain unattributed information about difficulties which Algeria and other countries which have nationalized their oil industries have encountered. This will have to be sophisticated effort, not specifically targeted at Libya, but laying out facts which they can interpret for themselves. (H) As one final thought, could not British (and perhaps ourselves) use current situation as opportunity to persuade Iran, UAE states, Kuwait and Saudi Arabia to put participation issue on ice for a while? It seems to me British in particularly good position to make case that they have suffered heavily through BP expropriation as result of actions they took in interest stability Gulf, that they should not be penalized further and that to press for participation issue now would further play into LARG hands.
9.
I wish we had more wisdom to offer but that is becoming an increasingly scarce commodity in this country in particular, and area in general. To which I can only add that one predictable thing in this situation is its continued unpredictability.
Palmer
  1. Source: National Archives, RG 59, Central Files 1970–73, PET 15–2 LIBYA. Confidential; Immediate; Limdis. Repeated to Benghazi, Khartoum for Assistant Secretary Newsom, and London.
  2. In telegram 2292 from Tripoli, December 15, the Embassy stated that Libya would react “sharply” to any U.S. public statement in support of BP, and that while Libya’s actions had implications for American interests in Libya, “it was not our ox that was gored and, in fact, the American ox in the same yoke has thus far been spared.” The Embassy promised additional comments. (Ibid.) The Department responded in telegram 225386, December 15, that these additional comments should arrive in Washington by noon December 16. (Ibid.)
  3. As related in telegram 224928 to Tripoli and London, December 14, the British Embassy made a démarche to the Department on December 10, stressing the necessity for oil consumers to stand firm in opposition to Libyan action. The British Embassy spokesman stated that British Petroleum was prepared to take strong action against anyone buying oil from the nationalized concession. The British asked for U.S. support and, as needed, a statement deploring the use of petroleum for political goals. The Department noted in the telegram that the major oil companies had agreed to joint support of British Petroleum. The Department asked the Embassy in Tripoli to comment on the possible effects of U.S. public statements or démarches to European governments in support of British Petroleum and U.S. interests in Libya. (Ibid.) Secretary Rogers and Under Secretary Johnson were informed of the British request for support in a December 18 information memorandum from Moore, Katz, and Hillenbrand; for text, see Foreign Relations, 1969–1976, volume E–5, Part 2, Documents on North Africa, 1969–1972, Document 82.
  4. Dated December 16. (Ibid.)
  5. Not further identified.