314. Telegram 103059 From the Department of State to the Embassies in the United Kingdom, France, and the Netherlands1 2

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Although course which IPC nationalization will run dependent to some degree on results OPEC and OAPEC conferences, and report from French on their contacts with Iraqis, we believe broad lines US interest and position in this case now clear. Our primary concern at this point should be to isolate Iraqi action, to extent possible, from Middle East and OPEC politics while maintaining support for principle prompt and adequate compensation.
While neither we nor companies can be entirely confident French will not seek own settlement at some point, companies have sensibly authorized CFP representative to sound out Iraqis. Companies are also exploring other channels of communication with Iraqis in order defuse situation. Meanwhile, they have held off legal steps instituting formal boycott of nationalized oil.
Iraqis nationalization action could cost GOI up to 500 million dollars in expected revenues for remainder 1972 as result of boycott imposed by companies pending comepensation settlement. We judge Iraq unlikely to get financial aid from OPEC colleagues in this amount, and extent to which other producers willing to put countervailing pressure on companies by freezing or restricting output is uncertain. USSR also likely in [Page 2] short run to be cautious in offering Iraqis massive financial or oil marketing assistance. GOI will be under considerable economic pressure to settle with IPC. Syrian and Lebanese loss of revenues could contribute to this pressure.
In view of existing pressures on Iraq toward settlement, and uncertain degree of Arab and OPEC support, we believe it essential that USG or other parent governments avoid steps which would crystallize situation or provoke sharper confrontation. This would rally OPEC, and particularly Arab producers, into active support of Iraq by production cutbacks, massive financial aid or other steps. We have therefore limited our public comments to expressions of regret at nationalization action breaking off negotiations, and pointing out need for negotiations leading to compensation. At same time we will quietly support company boycott when it established, but will urge companies to refrain from assuming punitive posture, and to maintain negotiating channels with Iraqis open and busy. We believe this strategy can buy time for orderly pursuit of OPEC participation negotiations, while at same time keeping Iraqi action from being successful, and consequently damaging precedent. In this connection, we will continue urge consumer common front on OECD colleagues in June 12–13 oil committee meetings, and with IPC parent governments in Paris meeting June 12.
  1. Source: National Archives, RG 59, Central Files 1970–73, PET 15–2 IRAQ. Confidential. Repeated to Algiers, Beirut, Tehran, Jidda, Dhahran, Manama, Moscow, Kuwait, OECD Paris, Tripoli, and Rome.
  2. The Department advised the posts that U.S. policy regarding the Iraqi nationalization was to isolate it from Middle East and OPEC politics while supporting the principle of prompt and adequate compensation.