90. Action Memorandum From the Deputy Secretary of State (Irwin) to Secretary of
State Rogers1
2
Washington, July 28, 1972
Libya
We are submitting the attached memorandum to the President without a
recommendation. We would like your guidance on how you wish us to
proceed.
Joe Sisco feels we should not make a recommendation to the President.
David Newsom, while recognizing
that each of the three options presents risks, tends toward option two.
He would recommend that we try clearly to separate the oil question from
the arms question and talk to the companies about an approach to the
Libyans which would emphasize the need to avoid abrupt and hostile
action against the companies when they may be moving toward
participation.
I tend to favor fulfilling our contract on the F–5 aircraft without
seeking a specific quid pro quo on the oil company matter. This would
remove an obvious irritant in our relations with Libya and might clear
the way for less hostile discussions of our overall relations in the
future. The rationale of proposing to begin the delivery of the aircraft
could be the changed situation in the area, as well as our desire to
improve relations with Libya.
[Page 2]
Attachment
Memorandum From Secretary of State Rogers to President
Nixon
Washington,
undated
Subject:
We have several indications suggesting that Libya may be seriously
contemplating the partial (51%) or complete nationalization of one
or more of the 13 U.S. companies which currently account for 90% of
Libya’s production.
Senior executives of the companies were summoned to Libya June 9 and
were urged by Major Jallud, currently the Libyan Prime Minister, to
urge the U.S. Government to change its policy in the Middle East and
its policy on arms supply to Libya. A threat to move against the
companies was implied.
Major al-Huni, another high ranking member of the regime, coupled the
arms supply question with our Middle East policy in telling
Ambassador Palmer on July
10 why he saw little prospect for cooperation between the United
States and Libya.
Intelligence reports indicate that Libya may be preparing to
nationalize some or all of the companies on or about September 1,
the third anniversary of the military coup. Although such reports
have been current in the past, these appear to have more substance
to them. Libyan nationalization of the industry would be consistent
with what we know of the aim of the Libyans to control their oil,
the intense Libyan dissatisfaction with our policy in the Middle
East and Colonel Qadhafi’s
desire to use oil as a political weapon against the United
States.
[Page 3]
The Libyan regime also resents our refusal to supply it with certain
fighter aircraft which were contracted for by the former government
and for other military equipment (C–130’s, howitzers, and possibly
Sidewinders) which were not contracted for but which they have
requested over the past two years. Particularly at issue are eight
F–5 aircraft sold to the old regime in 1969 before the coup but not
yet delivered and eight additional C–130’s offered to them by
Lockheed. We have been unwilling to give assurances that we would
issue export licenses for these aircraft in 1973. The fact that we
have continued to license spare parts for the F–5’s and other
military equipment we sold to them and that we have authorized the
Italians to sell Libya armored personnel carriers, howitzers,
recoilless rifles and ammunition which we control through production
licenses has not lessened the Libyan Government’s resentment against
our restrictive arms policy.
Nationalization of the Libyan oil industry would be a severe blow to
American interests. The industry represents a billion dollars (book
value) of U.S. private investment, although some of it (Esso) has
apparently already been largely written off. The industry returns as
much as $400 million annually to our balance of payments. It
produces about two million barrels of oil a day, chiefly for Western
European markets, which would be irreplaceable. Loss of the oil,
coupled with the shutdown of the Iraq Petroleum Company, would
almost certainly force European consumers to come to terms with both
Iraq and Libya, possibly bypassing the U.S. companies and
discounting any U.S. official opposition. The position of those in
the Arab world and elsewhere who wish to nationalize American assets
would be strengthened. The move toward nationalization has already
gained momentum in the Persian Gulf area and elsewhere in OPEC.
[Page 4]
Deputy Secretary Irwin has
recently discussed the Libyan situation twice with oil company
executives at the senior vice-presidential level, reviewing for them
what we might do to head off nationalization. The executives
expressed the hope that the U.S. might find some symbolic gesture it
would make, at least to buy time.
We believe we have three options:
- 1.
-
We could offer to deliver the eight
F–5’s for which we signed a contract in 1969 (in the
trainer version now desired by Libya). As a
symbolic gesture we might offer to deliver two planes by
the end of the year and the rest within a year. The
purpose of this action would be two-fold: to buy time
during which perhaps the Libyans would not take any
precipitate action against our companies, and to buy
enough time for Saudi Arabia and the Gulf States to
negotiate with the oil companies a reasonable settlement
of the “participation” issue. We believe the chances of
a reasonable settlement would be diminished if the
Saudis and the other moderates were confronted by a
total Libyan takeover of the American companies; in such
circumstances they would find themselves under pressure
to nationalize completely as well.
Even if the Libyans were to respond positively to our
offer and we were to obtain a few months time, the basic
problem would not be solved. There can be no guarantee
that this or any other offer to Libya of a modest arms
supply relationship will be effective, even in the short
term. We believe Libya will move against the companies
whenever it believes it can extract the maximum
political and economic advantage. Arms deliveries will
not permanently deflect Libya from such a move; at best,
they may delay it. Such a delay should make a
satisfactory settlement of the oil companies in Iraq
more probable and should make the move toward total
nationalization throughout OPEC less likely
[Page 5]
over the near
to mid-term. One of the serious disadvantages of this
option is that it would link arms supply and oil in the
Libyan mind, thereby opening us to Libyan blackmail.
We must recognize nevertheless that the Libyans are
attaching importance to obtaining some arms from us
despite their extensive acquisitions from the French and
the Russians. This is the only action they have hinted
could lead to improved relations with the U.S. or at
least to a less hostile attitude toward the oil
companies. Under this option we would make clear to the
Libyans that we expect improved relations would follow
this gesture. If at any time during the period of the
delivery of the aircraft Libya moved against the
companies, shipments could be stopped and so could
shipments of spare parts for the aircraft and other
equipment of American origin that Libya now has in its
inventory. Although Libya could assume that its ploy of
linking arms and oil had worked and could ask for more
sophisticated equipment (such as Sidewinders and
C–130’s), each new case could be discussed for a long
period and deliveries prolonged over an extended period
of several years. Libyan oil will decline in relative
importance during the next decade, and any additional
time the companies might have to operate in Libya would
be valuable.
Although Israel could be mollified by an advance warning
of our action and an explanation of it, any supply of
arms to Libya would present grave problems both
domestically and with more moderate countries in the
Mediterranean area. Libya has intervened in the internal
affairs of Morocco, has supported extreme Palestine
groups, and has supported dissidents in numerous
countries.
- 2.
-
We could support orderly
nationalization. The greatest threat in Libya
is that of an abrupt and hostile nationalization which
would cut off oil supplies and jeopardize the payment of
compensation to the companies.
[Page 6]
Under this option, subject to consultation with the
companies, we would indicate to the Libyans that we
recognize their desire for increased participation and
that we will not oppose participation along lines agreed
upon between Saudi Arabia and Aramco. At the same time
we would urge the Libyans not to undertake any sudden or
preemptive nationalizations since this would obviously
create difficulties for the kind of smooth transition
which is in the interest of all parties. We would
emphasize that we continue to believe that future
production rests on arrangements between the companies
and Libya in which the U.S. Government and its official
policies are not involved.
Saudi Arabia and Aramco are currently negotiating a
partial nationalization which would begin with a 20%
participation by the government in Aramco increasing to
51% probably over a period of five years. At least two
of the American Aramco partners and probably a third are
resigned to accepting such an arrangement with the most
serious bar to agreement probably residing in the terms
for compensation. The settlement reached in Saudi Arabia
is to apply also to Libya in accordance with the OPEC
arrangements. Most of the American companies in Libya
are prepared to accept this fact, but their willingness
to do so has not been communicated by them to the
Libyans who may, in any event, want more than 51% and
want it sooner than five years.
If the U.S. were to accept the option of orderly
nationalization and indicate its acceptance to the
Libyans, it would be taking a step less palatable to the
oil companies than a “symbolic” political or military
gesture. Also, it could put the U.S. in the position of
appearing to support nationalizations. The option could
not be exercised without further high level
consultations with the companies.
The main advantage of this option would be its separation
of the oil and arms supply issues from each other.
Having
[Page 7]
received from us an indication that we accepted the
principle of nationalization, Libya would know that it
could not use the threat of nationalization to force
military supply or political concessions.
- 3.
-
Take no action. On the
assumption that the Libyans will proceed to nationalize
on their own timetable and that any intervention on our
part is not likely to be effective, we could take no
action.
While there are signs of a clear Libyan intention to move
at some point against some or all of the companies, we
have no firm evidence that they have made such a
decision. We have no certainty that the interventions
proposed under options 1 or 2 would achieve the purpose
of buying time or deterring nationalization. We have
made clear to the Libyan Government and to the companies
our current policy of not supplying arms to Libya.
Although the companies would like to have us make a
symbolic gesture, they understand the difficulties we
face in doing so. The Libyans probably do not expect
further moves from us.
Under these circumstances we could continue to talk with
the Libyans along the lines of our present policy but
take no action specifically with respect either to the
planes or to the question of nationalization.
The disadvantages of this are that it leaves us open to
charges that we have not been sufficiently active in
protecting the major American interests involved. The
advantage would be that it would not draw us further
into the efforts by Libya to use the companies to
extract arms and changes in policy from us.
We are submitting the foregoing for your review and for
such guidance as you desire to give the Department in
this matter.
