Foreign Relations of the United States, 1952–1954, The Near and Middle East, Volume IX, Part 1

887.2553/3–3152

No. 248
Memorandum of Conversation, by David Longanecker of the Office of African Affairs

confidential

Washington, March 31, 1952.¹

Subject:

• Discussion of IPC New Concession Agreeemnt with Iraq and Operating Plans

Participants:

• NEA—Mr. Jones
• NE—Mr. Stabler
• NE—Mr. Funkhouser
• NE—Mr. Longanecker
• PED—Mr. McMaster
• Near East Development Company—Mr. Brewster;
• Mr. Anderson

Mr. Anderson presented the Departmnet with a copy of the final draft of the new IPC Agreement with the Iraq Government. In response to a question by Mr. Funkhouser, Mr. Anderson expressed the opinion that IPC will produce approximately 14,000,000 tons of petroleum this year, representing a rate of 280,000 bp/d, on which the company will pay the government approximately $5.25 a ton under the new agreement, or a total of some $70,000,000. These figures relate to Kirkuk production sent through the pipeline to Mediterranean terminals. Basra production is expected to amount to 2,200,000 tons during the year, 44,000 bp/d, on which the company will pay the Iraq Government approximately $2,000,000.

The new pipeline to the Mediterranean is now completed and should be in operation around the end of April at an approximate 100,000 bp/d flow. The flow will be built up to the line’s maximum capacity of 280,000 bp/d.

Basra production is to be increased to the annual level of 8,000,000 tons, 160,000 bp/d, in four years. This increase will require the development of greater storage and loading facilities at the Persian Gulf. The IPC is now considering building a pipeline out into the Persian Gulf to enable deep-sea tanker loading. Some thought is being given also to building a pipeline to the Mediterranean from Basra, but this possibility is remote in view of the fact that the company must immediately build up its transmission facilities to the Persian Gulf and its terminal facilities there in order to carry out the production increase to which it is obligated in the new concession contract.

IPC is still faced with the problem of securing the consent of both Gulbenkian and the French to the terms of the new contract.²

With respect to the operations in Qatar of the IPC subsidiary, Petroleum Development, Ltd., the company is faced with a demand from the Sheik of Qatar for a 50–50 concession arrangement similar to the Kuwait Oil Company’s contract in Kuwait. The IPC considers the Sheik’s demand unacceptable in this early stage of production in Qatar. Production is very small both absolutely and in relation to the capital investment and operating cost of Petroleum Development, Ltd. The output in Qatar is only a fraction of the production in those countries where the so-called 50–50 arrangements are in force.

In response to a query concerning Mr. Funkhouser’s recent trip in the Middle East, Mr. Funkhouser reported that the mission in which he participated was extremely well treated by the IPC people in Qatar and elsewhere. He reported that the mission was very much impressed with the caliber of the IPC people and their friendly and cooperative attitude.

The nationalistic desires of each of the small countries on the Mediterranean seaboard, i.e., Lebanon, Syria, and Trans-Jordan, for a local refinery were discussed at some length. Messrs. Brewster and Anderson presented the views of the oil industry, viz., that a small refinery in each country with sufficient capacity to meet its basic products requirements is uneconomic. The demand in these small countries for petroleum products is unbalanced, running heavily to kerosene and fuel oils, and refineries operated to supply the total local demand for these items would have substantial surpluses of other products. The oil industry feels that it would be much more economical to supply these small countries from one refinery. They admit, however, that it will be difficult to withstand the pressure for a small refinery in each of these countries, especially in view of the crude oil to which they are entitled under the pipeline contracts. Mr. Anderson pointed out that Trans-Jordan could obtain its total needs of petroleum products in a few days flow through the now idle pipelines from British topping plants in Iraq.

1. This memorandum of conversation was prepared on Apr. 7.
2. Despatch 164 from London, July 10, reported that IPC had settled matters with the Government of Iraq, but there was still a great deal of work to be done on the agreement among the companies which owned the IPC. The group agreement was extremely complicated, and the point of contention was related to the tax payments to Iraq. (887.2553/7–1052)