Foreign Relations of the United States, 1952–1954, General: Economic and Political Matters, Volume I, Part 2

Truman Library, PSF–Subject file

Memorandum of Discussion at the 128th Meeting of the National Security Council on Friday, January 9, 1953¹

top secret

January 9, 1953

The following notes contain a summary of the discussion at the 128th Meeting of the National Security Council, at which you presided. The Vice President was unable to attend the meeting. Mr. Bohlen attended for the Secretary of State, and Deputy Secretary Foster attended for the Secretary of Defense. Mr. Emmerglick for the Attorney General, and the Secretaries of the Interior and Commerce participated in the Council’s action on Item 1.

1. National Security Problems Concerning Free World Petroleum Demands and Potential Supplies (NSC 138/1; SE–28/1²)

In introducing NSC 138/1, the President remarked facetiously that he had heard of this matter before and, turning to Mr. Bohlen, said that doubtless the State Department would want to be heard on it.

In reply, Mr. Bohlen observed that the report spoke largely for itself, and that naturally State had to look at the problem from the broad over-all policy point of view. There were three major facets to the problem: the United States security interests and objectives in the Middle East, the vital importance of Middle Eastern oil, and the business practices which might interfere with the development of international trade. Beyond this, Mr. Bohlen added, the State Department felt strongly that prosecution of the criminal proceedings against the oil companies would prove extremely damaging to United States security interests not only in the Middle East but particularly in Venezuela.

The President then asked Secretary Foster if he had anything to add to Mr. Bohlen’s remarks.

Secretary Foster reminded the Council that he had made quite a speech on the subject once before, but nevertheless felt that he must make another, since he felt so strongly in favor of the recommendations of the Departments of State and Defense in the reference report. We are not criticizing the suits against cartels or monopolies, continued Secretary Foster, but our strong feeling relates to the method chosen in this particular instance, in view of the overriding importance to the national security of procuring petroleum supplies from abroad, of increasing our own reserves and, finally, of helping to save the Middle Eastern countries from Communism. Doubtless, said Secretary Foster, we in Defense are prejudiced, but we are convinced that the national security will be gravely damaged if the present course of a criminal action is followed. What is needed above all is a broad over-all look at the whole problem of this nation’s oil policies, and this is the great advantage of the recommendations advanced by the Departments of State and Defense.

The President then called on Mr. Dulles, who, however, said he would rather defer his remarks until the Council had heard from Mr. Emmerglick.

Mr. Emmerglick stated that he desired to emphasize two or three points in the report of the Department of Justice, and begged the Council’s indulgence while he discussed them. He stated that there were two important conditions to be noted. First of all, the undoubted fact that a monopoly Cartel exists today in the petroleum industry. Secondly, the United States formerly had a large percentage of reserve productive capacity quite adequate for its needs. Such a reserve no longer exists in amounts adequate for peacetime, to say nothing of wartime. In short, while the Cartel has in recent years been expanding its operations overseas, our own reserves and our own supplies of aviation gasoline have been steadily shrinking. The Department of Justice believes that there is a vital relationship between these two conditions, that this relationship has got to be investigated, and that for these reasons the Grand Jury proceedings to ascertain the facts should not be stopped. After these proceedings have resulted in amassing the necessary facts and information, the Government will be in a position to determine whether or not to proceed with the criminal action against the major oil companies.

Mr. Emmerglick also argued that the criminal suit procedure was much more likely to enable the companies quickly to correct their past mistakes and to set their houses in order, than would a civil action, which would leave the corrective arrangements to be determined by a judge. Furthermore, continued Mr. Emmerglick, a criminal suit would be much more expeditious in reaching a decision than would a civil suit. In support of this view Mr. Emmerglick cited a number of examples, notably the aluminum company, in which civil suits lasted for many years. In addition, Mr. Emmerglick stressed the fact that the Grand Jury proceedings would be secret, while the proceedings under a civil suit could not be. He also noted that a committee consisting of officials of the Departments of State, Defense and Justice and the Central Intelligence Agency, had been created to screen sensitive documents before they could reach the hands of the Grand Jury. Finally in support of his position, Mr. Emmerglick referred to arrangements now being made by the Department of State and other agencies of the Government to get Iranian oil on the market by virtue of granting to certain oil companies immunity from anti-trust action for a certain number of years in the future, A civil suit would jeopardize such arrangements as those now being made to save the Iranian situation. Accordingly, Mr. Emmerglick again expressed the conviction of the Department of Justice that the national security would best be served by a continuance of the Grand Jury proceedings looking to a criminal action.

Mr. Dulles, asked a second time by the President for his views, stated that he was prepared to talk only of the probable effects of the various courses of action which were before the Council. Up to this point, he said, the effect of the Grand Jury proceedings had been very serious in Venezuela and somewhat less serious in Colombia. The reactions in the Middle East had not been so notable, thanks largely to the preoccupation of the governments of the Middle Eastern countries with their own problems and because the Soviet Union had not yet seized on the Grand Jury proceedings against the oil companies as a major propaganda instrument. If they did so, however, Mr. Dulles predicted that the effect on American security interests in the Middle East would be very serious indeed.

Secretary Sawyer stated that his observation during the course of his recent visit to Europe more than bore out the views just expressed by Mr. Dulles. It seemed to Secretary Sawyer, therefore, that if any investigation of the major oil companies is really in order, he could not understand why the Cabinet commission recommended in the report of the Departments of State and Defense would not serve that problem better than the use of the Grand Jury.

The President states that he wished this question to be answered by Mr. Emmerglick.

In response, Mr. Emmerglick pointed out that the Cabinet commission had no power of subpoena and, even more important than that, no remedial power; it could, in effect, only make recommendations. Therein lay the value of the Grand Jury proceeding.

In response to this argument, Secretary Sawyer inquired why, if the commission found that it could not get the facts, it could not turn the case back to the Justice Department to proceed with the criminal suit.

Secretary Foster added that it seemed to him possible that the commission might apply to Congress for legislation which would give it subpoena powers.

The President then called upon Secretary Chapman, who reiterated the points which he had made in his remarks to the Council at its previous meeting on this subject. He emphasized the very good record for exploration and development of American oil resources maintained by the major oil companies. He further insisted that the major obstacle to greater exploration and drilling was the lack of steel and other materials needed for this process, and he cited statistics to illustrate this point. In short, Secretary Chapman said that he could not understand how a criminal indictment would solve in any way the problem of increasing domestic production.

In explanation of why he had not positively endorsed the recommendations of the Departments of State and Defense in the reference report, Secretary Chapman noted that he was in the position of being a claimant for these oil companies before the Defense agencies in their search for steel and tubular goods that they so desperately required. To make his point, Secretary Chapman noted that the Government had proceeded to indict one of the major oil companies for obtaining materials on the black market in an effort to correct the deficiencies in the supplies allocated to it by the Department of the Interior. Although Secretary Chapman did not deny that these oil companies might well have been guilty of violations of the anti-trust laws, he himself had no evidence that they were guilty. Furthermore, he could not see how, after the closing down of the Abadan refinery, the oil companies could conceivably have avoided making some kind of agreements among themselves designed to get needed oil supplies from Iran to Western Europe, which had depended on supplies from this area. Moreover, continued Secretary Chapman, this criminal suit could have been brought ten years ago or it might be brought ten years hence. At any rate, this was not the precise moment to bring it. But in any case, Secretary Chapman stated his conviction that in terms of our over-all security problem a criminal suit was not the answer. If the basis of the suit was failure by the major oil companies to drill more oil wells in this country, no jury would indict, or at least none would convict.

After further discussion by Mr. Bohlen and Mr. Emmerglick of the arrangements presently being contemplated by the United States Government to get oil out of Iran, Secretary Sawyer turned to Mr. Emmerglick and asked him if he thought it would be a fair summary of the position of the Justice Department to say that Mr. Emmerglick was proposing to prosecute the oil companies criminally for past practices which he proposed to give them immunity to carry out in the future with respect to Iran.

Mr. Emmerglick denied that this represented a fair statement of his position, and read statistics designed to refute Secretary Chapman’s contention that the oil companies were drilling as many wells as they had equipment to drill.

General Bradley then asked the President’s permission to speak briefly. He said he understood the need for anti-trust laws. He said that he held no brief for the oil companies, but he nevertheless thought that the present Grand Jury proceedings constituted a serious threat to the national security. It was absolutely necessary that this country procure oil from abroad. It was absolutely necessary that this country conserve its own limited resources at home. For this reason General Bradley totally failed to understand Mr. Emmerglick’s arguments. It seemed to him, he said, that what we are now proposing to do, in proceeding against the oil companies by a criminal action, would do more harm to the interests of the national security than any single thing that the Russians were presently doing to us. This, General Bradley admitted, was a very strong statement, but he believed it to be true.

Mr. Harriman and Mr. Gorrie stated their agreement with the recommendations of the Departments of State and Defense.

Mr. Fowler said that he had a very considerable amount to say to the Council on the general subject. The basic issue before us, he said, was how to secure oil in quantities adequate for the national security, and the test of our action at this meeting was what the impact of the decision should be on the national security. The Department of Justice argues that the criminal action will enhance and advance security because it will increase the exploration and use of our domestic resources. Yet Mr. Fowler stated his belief that the real attitude of the oil companies toward the exploration problem was shown by the heavy demands of these companies for tubular goods which ODM could not supply. Mr. Fowler cited statistics to support this argument, and also noted that with regard to aviation gasoline there was now a diminishing market because of the change-over from piston to jet engines. As a result of this changeover, many of the oil companies were being cautious about investing their stockholders’ money in plants which turned out aviation gas. This was understandable, and the way to overcome the difficulty was to have the Government say to the companies that it would be willing to assume some of the risks of this shrinking market. On the other hand, Mr. Fowler did not deny the Government’s responsibility to enforce the anti-trust laws. This being so, the real question was the form of proceeding best designed to discharge this responsibility. Quoting from various legal opinions, Mr. Fowler said that he reached the conclusion that the civil suit was more desirable than the criminal if the Government had in fact long acquiesced, for one reason or another, in illegal actions by the oil companies, or if extenuating circumstances had contributed to this acquiescence. The extenuating circumstances, continued Mr. Fowler, were considerations of national security. Accordingly it seemed to him that the civil proceeding was the best one. Nor could Mr. Fowler agree, he said, with Mr. Emmerglick’s argument that the results of a criminal suit would hasten the process by which the oil companies would feel compelled to set their houses in order. Under the threat of continuing violation of the anti-trust laws after conviction, the oil companies might attempt to get out of their Cartel arrangements so rapidly that not only their own interests but the interests of national security in foreign countries would be overlooked in the scramble. With reservations, therefore, Mr. Fowler stated his agreement with the recommendations in NSC 138/1. The first reservation was that the civil complaint which, in recommendation c on pages 12 and 13,³ was to be merely prepared, should instead be instituted. Secondly, the recommendations of the Departments of State and Defense carried an implication that the Cabinet commission would advise the Attorney General on the propriety of going ahead with the suit. It would be better, thought Mr. Fowler, if the commission were to advise the President as to the nature of the decree which he should issue.

In reply to Mr. Fowler, Mr. Emmerglick stated that the proposals for a Cabinet commission in the reference report were regarded by the Department of Justice as inconsonant with the tradition of procedure in anti-trust cases. He reiterated his conviction that the Grand Jury was the only way to get the evidence required. A civil suit on the basis of evidence now existing would be a mere subterfuge to get the evidence that was required. He did not think this a dignified and appropriate position for the United States Government to take.

At this point Secretary Foster asked permission to make one more point. It was the fact that the Government does not seem to have the evidence necessary to proceed with a civil suit that had caused the Departments of State and Defense to make their second recommendation with respect to the appointment of a Cabinet commission. Secretary Foster emphasized that it was not the intention of this recommendation to interfere with the Attorney General as to his methods of prosecuting anti-trust suits. All that we wanted to do, he said, was to safeguard the national security in all its aspects, and he felt that the commission was the best way to do this. However, if the Attorney General wanted to institute a civil suit immediately, the Defense Department had no objection whatsoever.

Secretary Sawyer expressed strong support of this argument of Secretary Foster’s, and said that the whole point of the meeting was to decide what was best for the national security.

The President agreed with this position emphatically. He recalled to the members of the Council that he had always been a strongly anti-trust President. Moreover, he continued, he had had long and bitter experience with the oil companies, and was of the opinion that they had almost lost us the last war. Nevertheless he believed that the national security was at stake, and he therefore said, “I am approving the recommendations of State and Defense.”

The National Security Council:

a. Discussed the subject in the light of the reference reports.

b. Noted that the President approved the recommendations contained in pages 12–16 of the reference report on the subject (NSC 138/1).⁴

Note: Mr. Bohlen and Mr. Foster represented the Departments of State and Defense, respectively, for the above action. Mr. Emmerglick for the Attorney General and the Secretaries of the Interior and Commerce participated in the above action with the Council, the Secretary of the Treasury and the Director of Defense Mobilization.

[Here follows the conclusion of the meeting with the Council noting the status of NSC projects as of January 7, 1953.]

1. This memorandum, presumably prepared on Jan. 9 by the Secretary of the NSC, was addressed to the President. According to the minutes of this meeting, which consist of a list of the participants and a brief list of the decisions taken at the meeting, the following members of the Council attended: President Truman, presiding, Bohlen for the Secretary of State, Deputy Secretary of Defense Foster, Director for Mutual Security Harriman, and Chairman of the National Security Resources Board Gorrie. Others present at the meeting included Secretary of the Treasury Snyder, Director of Defense Mobilization Fowler, Emmerglick for the Attorney General, Secretary of the Interior Chapman, Secretary of Commerce Sawyer, Special Consultant to the President Souers, Chairman of the Joint Chiefs of Staff Bradley, Deputy Director for Central Intelligence Dulles, NSC Executive Secretary Lay, and NSC Deputy Executive Secretary Gleason.
2. For text of NSC 138/1, dated Jan. 6, 1953, see p. 1317. For text of SE–28/1, dated Jan. 2, 1953, see p. 1316.
3. Part 1, paragraph 43, p. 1329.

4. For paragraphs 43 and 44 of Part 1 and paragraphs 1–3 of Part 2, see pp. 1329–1331.

   This action by the Council was designated NSC Action No. 697. (S/S–NSC (Miscellaneous files, lot 66 D 95, “Records of Action”)