867.77/320: Telegram

The Commissioner at Berlin (Dresel) to the Secretary of State

699. From Coffin:

Referring to my 627, June 16, 11 a.m. Please cable me whether in your opinion there is any probability that an American group will seriously consider the Mesopotamian project on the following basis.

The Deutsche Bank has made me the following proposal: That an American group place with it a firm order effective until end [Page 769] July to purchase 25,001 shares of the Bank für Orientalische Eisenbahnen at a price not to exceed $250 a share. If obtainable at a lower price the bank to receive half the difference. This would involve an expenditure of about $6,000,000 and would secure control of the Anatolian Railway, Haidar Pasha and Alexandretta port concessions and Mersina-Tarsus-Adana Railway. If full amount of shares should be unobtainable in open market Deutsche Bank is willing to sell from its own holdings at price named the shares necessary to complete a majority.

To obtain control of Bagdad Railway Deutsche Bank proposes that it purchase for the account of Anatole Railway the necessary number of shares either in Germany or abroad paying 80 percent of par value which is 500 Swiss francs. Anatole Railway has sufficient cash at Deutsche Bank to carry out such project which would involve no additional outlay for American group. Bank states that a board meeting of Anatole Railway to authorize the purchase can be held, provisions must be made by [for] canceling deal should the sale be upset by Allied Governments under article 260 of the Versailles Treaty.

Deutsche Bank desires to retain a minority interest in Bank for Oriental Railways and to make an arrangement whereby in proportion thereto it shall be represented in board and management of the bank and its affiliated companies and share in banking business and industrial orders. This is the reason why Deutsche Bank is making what seems to be so favorable a proposition since it is well aware that only by affiliation with an American group can it hope to retain an appreciable participation in its Mesopotamian investments.

The various enterprises involved represent an investment of about 140,000,000. Exclusive of Bagdad Railway investment amounts to about 40,000,000.

Concerning the oil interests, the property of the Anatole and Bagdad Railway concessions carry priority of right to mineral development in a zone 20 kilometers on each side of their trail. Anatole Railway also made a contract in 1904 with Turkish Ministry of Civil List covering development of an oil concession held by Civil List on its properties in vilayets of Bagdad and Mosul. The validity of this contract has been questioned by Turkish Government but private legal opinion holds that it is good and it was made the basis of a demand for a concession by the Turkish Petroleum Company in 1914 which was about to be granted when war broke out.

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In 1912 the Turkish Petroleum Company was organized, this being a British corporation. In return for a minority interest Deutsche Bank made a contract with it to obtain the transfer to it of the oil rights of the Anatole and Bagdad Railways. The contract was not fulfilled with respect to third of transfer, although the bank furnished to the company all reports of its experts on oil resources of Mesopotamia and received its stock which was held at London agency of Deutsche Bank and has since undoubtedly been sequestered. German legal opinion holds that contract with Turkish Petroleum Company is void under article 299 of Versailles Treaty but in any event it seems to me that contract has no particular value since it was made with a German corporation concerning the rights of two Ottoman corporations and its provisions were not fulfilled with respect to its most important feature.

While the political and legal difficulties in the way of complete fulfillment of the project are considerable, almost all are contingent upon rights which are optional under the two treaties and the exercise of which could be materially influenced by the United States Government. Please keep me informed concerning the probabilities of American participation as British interests are endeavoring to carry through the deal for their own account and I believe have offered a small participation to the Germans. Events may make it necessary for the Deutsche Bank to make a quick decision which would be considerably influenced by the American attitude.

Dresel
  1. Telegram in two sections.