Foreign Relations of the United States, 1977–1980, Volume IX, Arab-Israeli Dispute, August 1978–December 1980, Second, Revised Edition

104. Memorandum of Conversation¹

Washington, October 24, 1978

SUBJECT

• Israeli Position on Oil Negotiations

PARTICIPANTS

• David Korn, Director, NEA/IAI
• David E. Zweifel, NEA/EGY
• John Craig, NEA/RA
• Hanon Bar-On, Israeli Minister
• Joseph Vardi, Director General, Ministry of Energy and Infrastructure
• Elisha Ruih, V.P., Operations, Israeli National Oil Co., Ltd.
• Ely Rubenstein, Secretary to Foreign Minister Dayan
• Naftali Lavie, Press Spokesman, Israeli Foreign Ministry
• Eitan Raff, Economic Counselor, Israeli Embassy

We called on members of the Israeli delegation at the Madison Hotel to learn about the Israeli position on the oil issue and what may have transpired during the course of October 23 Israeli-Egyptian discussions² on this item.

Bar-On recapitulated the Egyptian position as having been as follows. There should be early Israeli withdrawal from the area, a transfer of operating fields in good order, and cessation of exploration activity upon signature of the agreement. Any subsequent cooperation with the GOE (e.g. concessions in free areas) would be on the basis of international bidding practices.

The same would apply to Israeli purchase of Egyptian petroleum at competitive prices. The Egyptians did recognize that, by reason of proximity, Israel would have a competitive advantage as a logical market for Egyptian crude.

He then summed up the GOI position as follows. There is no question about Egyptian sovereignty in the area. The Israelis are prepared to lay aside previous legal argumentation during the current negotiations. During the Egyptian-Israeli meeting on October 23, claims were not discussed. Basic premises underlying the Israeli position are that any economic cooperation is positive and “peace building” should be encouraged. Under GOI auspices, considerable pioneering work has taken place during the occupation. A shutting down of the fields would imply an economic loss to the GOE. On the question of transfer of the fields, there would be no problem if the present operator (Neptune) continues. Under these circumstances it would be a simple matter to arrange for a redirection of revenue flow and that portion of production accruing to the sovereign. Hence, the GOI believes it would be most advantageous to come to an agreement whereby Neptune³ would continue to operate the fields but would do so henceforth under Egyptian aegis. The GOI also would like to arrange for the continuation of Israeli commercial operators (sub-contractors) to work with any Egyptian concessionaire.

Vardi elaborated on Bar-On’s presentation. He noted that petroleum exploration and exploitation is perhaps unique as an area wherein international involvement is a norm. The proposed Israeli arrangement would result not in a petroleum deal between the two governments, but between the GOE and a commercial group. In this regard, Vardi said Israel hopes that Egypt would agree to grant a concession to Neptune and the Israeli National Oil Company (INOC). Neptune and INOC would join together for this purpose, Vardi said.

Vardi acknowledged Egyptian sensitivity on sovereignty aspects, noting that, apparently, any restriction on concession granting authority (e.g. through a negotiated agreement specifying a role for Neptune and/or INOC) would be interpreted by the GOE to be an infringement on that sovereignty. While the Israeli team recognizes the GOE argument re responsibilities to AMOCO as a “very valid argument,” they believe that the 1974 AMOCO concession⁴ was primarily a political instrument. AMOCO “did not come with clean hands” into the present negotiating matrix, since the company accepted with “eyes open” a concession wherein access was not possible.

Vardi went on to state that the GOI has moral commitment to Neptune. He opined that Neptune was entitled to USG help. He alluded to extensive geological data developed for broader areas in the Sinai which could be made available to the GOE in the context of an agreement. He reported that the GOI is “very eager” to buy Egyptian petroleum at current market prices; this would serve GOE interests as much as it does those of the GOI.

According to Vardi, the October 23 discussions touched on the Israeli suggestion that at some future time a gas pipeline might be laid from the Egyptian Delta and Northern Sinai into Israel. This was not discussed at length.

Again on the issue of Israeli future purchases, Vardi stated GOI willingness to accept the concept of international bidding (apart from production from the Alma field where the principle of payment-in-kind would apply). The latter would involve renegotiation of the sharing arrangements between the Israeli proposed Neptune-INOC consortium (as operators) and the GOE.

Mr. Korn asked how much oil the Israelis wanted to purchase from Egypt. After some consultation amongst themselves, Vardi spoke for the Israeli team, stating that they would hope for approximately 22,000 bpd during the second half of 1979; this amount might be doubled in 1980. He also volunteered that the GOI is prepared to help Egypt market additional oil, including possible re-exportation.

When we sought clarification of Israeli thinking on the date of transfer, Bar-On, seconded by Vardi, stated that the present negotiating mandate for the team is to press for the transfer of the present operating arrangement to Egyptian suzerainty. If this transpires, the transfer could take place quickly. Contrarily, the Israelis hinted that Egyptian refusal to accept this formula might cause extended negotiations which, perforce, would delay the transfer.

At the conclusion of the discussion, Vardi and Bar-On argued that AMOCO is a key actor in the considerations, and that that company, by seeking to hold the GOE to legal obligations, might impede progress. The thrust of this remark was that the USG should intervene to move AMOCO towards a compromise along the lines proposed by the GOI (Bar-On made this point to Korn again more specifically as the meeting broke up). We pointed out that we do not feel in a position to tell either of the two American companies what to do. Korn said Neptune’s Counsel, Bill Rogers⁵ of Arnold & Porter, had called at the Department earlier in the day and that we had suggested that he speak to the legal counsel for AMOCO. Finally, we noted that USG responsibility to private commercial firms is essentially to help protect such firms against uncompensated expropriation action.

1. Source: National Archives, RG 59, Bureau of Near Eastern and South Asian Affairs, Files of Alfred L. Atherton, Lot 80D166, Box 6, Memcons 1 of 2. Confidential; Exdis. Drafted by David E. Zweifel (NEA/EGY) on October 25. Copies were sent to Atherton, Sterner, Draper, David Small (L/NEA), Donald F. Hart (EB), Korn, Lewis, Eilts, and Zweifel.
2. No other record of these discussions has been found.
3. Israeli petroleum company.
4. In October 1974, Gulf Petroleum, a joint company formed by Amoco and the Egyptian General Petroleum Company, in line with Egypt’s policy of selling petroleum concessions in territory unoccupied by Israeli forces, made a large strike in the Damadan off-shore oil field in the Gulf of Suez. (“Promising Oil Strike Reported in Egypt,” The Washington Post, November 1, 1974, p. A19) On October 25, Egyptian petroleum negotiators “underlined” to Korn Egypt’s commitment to Amoco, adding that “as sovereign, the GOE should have unfettered right to determine concessions in the area.” The memorandum of conversation for this meeting is in the National Archives, RG 59, Bureau of Near Eastern and South Asian Affairs, Files of Alfred L. Atherton, Lot 80D166, Box 6, Memcons 1 of 2.
5. William D. Rogers previously served as Under Secretary of State for Economic Affairs from 1976 until 1977 and as Assistant Secretary of State for Inter-American Affairs from 1974 until 1976.