841.6363/5–3145

Memorandum by the Acting Chief of the Petroleum Division (Loftus) to Mr. John D. Linebaugh of the Division of British Commonwealth Affairs

In accordance with our conversation of May 30, I am suggesting a few of the intangible benefits which this Government might wish to obtain from the British Government in the field of petroleum with, in each case, comment upon the applicability to these desiderata of the theory of quid pro quo bargaining:

(1) We want a cessation of British political interventionism in the process of obtaining petroleum concessions in areas directly or indirectly dependent upon British sovereignty. This political interventionism in the past has taken the form of interposing the innumerable and ingenious obstructions of administrative procedure in the path of efforts by United States nationals to obtain concessions in areas within the British sphere of political influence. It required some five years of negotiation for the Gulf to obtain any petroleum [Page 52] rights in Kuwait and in the end the Gulf was required to accept a fifty percent participation with Anglo-Iranian,11 which participation was further conditioned by a marketing clause which largely nullified Gulf’s theoretical rights to exploit. This is the most extreme illustration, but numerous others could be adduced.

Since, however, what we want in this regard is not only an intangible, but a negative objective—that is, we want the British not to do a certain something which cannot be exactly or satisfactorily defined—it does not seem practicable to attain our objective except by securing the agreement of the British Government to certain positive principles governing the process of obtaining petroleum rights in the hope that these governing principles will condition the conduct of British nationals, as well as of British public officials. We have obtained British agreement to such principles in the Anglo-American Oil Agreement12 and as soon as it becomes possible for our Government to put that Agreement into force it will be possible to determine whether the mechanism of negotiating agreement on principles can produce any substantial results. No other mechanism, in any case, seems useful.

(2) We want the operating policies of British private petroleum companies to be in reasonable conformity with our general policy objective of effecting a relative increase in the rate of exploitation in the Eastern Hemisphere (particularly Middle Eastern) petroleum reserves, and a relative decrease in the rate of exploitation in the Western Hemisphere.13 This is an objective which probably cannot be stated in precise or quantitative terms without provoking acute internal political controversy here; and even if precision were possible a quantitative agreement on petroleum production would sufficiently approximate a cartelization of the petroleum industry as to be subject to serious criticism in terms of our general economic foreign policy. Therefore, as in connection with point (1) above, the best, if not the only, approach appears to be to obtain from the British an agreement upon certain broad principles governing petroleum development. In this case the principles would be of such a character as to permit and facilitate the expansion of Eastern Hemisphere (Middle Eastern) oil production. Such agreement, it is believed, has been obtained in the Anglo-American Oil accord and, it [Page 53] is believed, is preserved in the redraft14 which will constitute the basis for renegotiation with the British.

(3) I believe it can be stated (although this point should be confirmed by conversation with officers of NEA15) that this Government wants to further the desire of the Iraqi Government to see a development of petroleum production in the Basra area of Iraq, with outlets to the Persian Gulf and/or the Mediterranean. The views of the Iraqi Government on this matter were stated strongly to officers of the Department on May 29, 1945 by Nuri Pasha, Prime Minister of Iraq, and were taken under advisement. The stated policy position of this Government that petroleum developments should be conducive to the economic advancement and well-being of producing countries has been accepted in principle by the British. The exploitation of the Iraqi oil resources covered by the Basra concession, which would spread more widely the benefits of industrialization and employment throughout Iraq, would be entirely in harmony with this agreed principle. The Basra development had been opposed in the prewar period by the British (controlling) interests in the Iraq Petroleum Company because, from the point of view of the Anglo-Iranian Company, oil from Iraq would be uncomfortably competitive with Anglo-Iranian output from Southwestern Iran, and from the point of view of Shell, development in Basra would have involved investment of substantial additional funds before the Mosul fields had been paid out. The American participants in the IPC probably favored slightly the point of view of the Shell Company but were in the main neutral. In documents prepared and discussed widely throughout the Department in connection with preparations for Anglo-American oil conversations in 1944 it was argued that the broad policies of the IPC should be subject to international control at the government level. I believe it can be stated that this proposition is agreed departmental policy, although the record is ambiguous and the proposition was not embodied in any discernible way in any draft of the Anglo-American Agreement.

I believe that an immediate effort should be made to ascertain whether the Department as a whole concurs in the proposition stated above. If it does, discussions should be held among the United States, United Kingdom, and French Governments about the policies to be followed in the postwar period by the IPC management, and in such conversations the interests of the Iraqi Government should be pressed. Since, however, the problem is one of persuading two other governments that the interests of their respective nationals should be subordinated [Page 54] to an internationally-agreed policy, and then of persuading the several corporate interests involved to agree upon a program reasonably consistent with the interests of the Iraqi Government, it is not easy to see how our objective in this regard can be obtained on any quid pro quo basis from the British Government alone.

I am not aware of any other respect in which, in the field of petroleum, we have anything definite that we want to obtain from the British Government, although issues may arise in relation to the disposition of fixed petroleum installations constructed abroad for war purposes either by the United States Government direct or through lend leased funds or with lend leased materials. I suggest that you check with Mr. Robertson, of PED,16 on this latter point.

John A. Loftus
  1. The Gulf Oil Company obtained petroleum rights in Kuwait on December 14, 1933, as a result of agreement with the Anglo-Persian Oil Company. For documentation on the inability of the Gulf Oil Company to obtain such rights prior to that date, see Foreign Relations, 1932, vol. ii, pp. 1 ff.
  2. Signed at Washington, August 8, 1944; see Department of State Bulletin, August 13, 1944, p. 153. For documentation on negotiations leading to this unperfected agreement, see Foreign Relations, 1944, vol. iii, pp. 94 ff.
  3. This was one of the basic objectives of United States foreign oil policy as formulated by the Department of State on April 11, 1944; see ibid., 1944, vol. v, p. 8.
  4. A renegotiated petroleum agreement was signed at London with the United Kingdom on September 24, 1945, Department of State Bulletin, September 30, 1945, p. 481; for information on this agreement, see vol. vi, bracketed note, p. 244.
  5. Office of Near Eastern and African Affairs.
  6. David A. Robertson of the Petroleum Division.