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

880.2553/12–3052

No. 278
Memorandum of Conversation, by William McMaster of the Petroleum Policy Staff

confidential

Washington, December 30, 1952.¹

Subject:

• Current problems of Trans-Arabian pipe line Company (Tapline) in the Middle East.

Participants:

• Mr. Duce, Aramco
• Messrs. Eddy, Noble and Britton, Tapline
• Mr. Nitze—S/P
• Messrs. Funkhouser and Dorsey—NE
• Messrs. Eakens and McMaster—PED

This meeting was requested by the oil company officials to discuss current problems confronting Tapline in the Middle East.

Mr. Duce said the situation, particularly in Syria and Lebanon, has become so serious that the company considered it necessary to advise the Department of the impact of the situation on the company’s operations and of the position it expects to take with respect thereto. He requested Mr. Noble to outline the company’s views and their proposal for meeting the impending problems.

Mr. Noble prefaced his remarks with the statement that although he is a counsel of record in the United States Government’s current grand jury investigation of international oil operations, his appearance at this meeting was not in any way connected with the cartel suit. He went on to say that some time ago he had requested the company’s counsel in Beirut, Mr. Frank Bates, to prepare a factual report on the effect on the company’s relations in the Middle East of the U.S. Government’s grand jury investigation and the MSA suit against Tapline’s parent companies to recover alleged overcharges on Middle East oil shipped to participating countries under MSA financing. Mr. Noble said that while he did not intend to discuss the details of Mr. Bates’ report, he would like to point out that it did contain some very alarming facts with respect to the deterioration of U.S. Government and American oil companies relationships in the Middle East. The report concludes that this deterioration of relationships has manifested itself in new demands for a large share of oil profits. (Copies of the Bates report were presented Mr. Nitze and to NE.)²

Mr. Noble said the company had recently heard that the Syrian Government will call for a full discussion of oil company agreements in March 1952 and, of course, renegotiation of their agreement with Lebanon has already been demanded. The opinion of Tapline, as expressed by Mr. Noble, is that the company couldn’t be in a more disadvantageous position to enter into formal negotiations with Lebanon than it is at this time because of (1) the popular prejudice against Americans by all groups in Lebanon and (2) pending negotiations with the Saudi Arabian Government which must be completed before the company will have a firm basis for discussing any revision of pipe line transit agreements with the transit countries. At the moment the company has no basis for measuring pipe line profits. Therefore, the main question is how can they postpone formal negotiations with the transit countries. In this respect, Mr. Noble read a cablegram addressed to Mr. Swigart, Tap-line’s president in Beirut, Lebanon, setting forth the Tapline position. A copy of the cable is attached.³

The oil company representatives believe that it would be disastrous to their Middle East oil operations if Tapline should show any weakness at this time regarding the validity of existing agreements. In order to hold the line the company must; (1) delay any formal showdown, (2) stand firm on existing agreements, and (3) off-set the belief that the American companies are in bad favor with their own government.

Colonel Eddy, who has resided in Lebanon for the past year, commented that the attitude of the Lebanese Government is wholly and emotionally anti-American which is, to some extent, attributable to Ambassador Locke’s recall. Ambassador Locke had left the impression that he was going to have a $350 million development program⁴ and now Middle East countries are looking for some other source for these funds. Lebanon as well as other Middle East countries realize that oil is the western world’s vulnerable spot and for that reason the oil companies must bear the brunt of all political maneuvers in Lebanon and elsewhere in the Middle East. The new President of Lebanon, Col. Eddy said, is a very able man but he is allowing his Foreign Minister, to insist on large oil revenues in order to counter-balance other less favorable accepted actions of the new government.

Mr. Eakens outlined the activities of the Department with respect to these pipe line transit problems, mentioning that the Department has thus far taken no position in the substantive issues involved and that it has already asked the Tapline officials present for a full analysis of the problem and of the various alternative solutions to it. (See Department’s memo of conversation dated December 23, 1952 re principle of division of pipe line profits.)⁵

Mr. Nitze asked the company officials what payments were being made to the transit countries under existing agreements. Mr. Britton stated that Syria and Lebanon were each receiving about $1.3 million annually and Jordan a little less.

In answer to a question regarding the costs involved in operating the pipe line, Mr. Britton said that the cost, not including gathering lines, was about 28 cents per barrel of which about 10 cents was for amortization of the pipe line investment on about an 18 year basis. Mr. Britton said it would be difficult to give an estimate of the cost involved in moving oil by tanker through the Suez Canal. He thought, however, that the cost per barrel on a 26,000 ton super tanker, some of which are in use in moving Middle East oil, is in the neighborhood of 26 cents.

In conclusion, the company representatives asked if there was any objection to the suggested position as stated in the cable to Mr. Swigart. The Department representatives said it would not be possible to offer any guidance until the Department has completed its analysis of the problem. No objection was offered to the suggested Tapline position.⁶

1. This memorandum of conversation was prepared on Jan. 5, 1953.
2. Not found in Department of State files.
3. Not printed; it advised that the company should not refuse to negotiate, but should delay negotiations as long as possible. (880.2553/12–3052)
4. For documentation, see Documents 381 ff.
5. Document 275.
6. Another meeting on the subject of pipeline transit payments in Lebanon, Syria, and Jordan was held on Jan. 22 with officers of the Standard Oil Company of New Jersey. While agreeing it would be necessary to revise the principle of transit payments, the oil company representatives said they had no alternative solution to propose at the time but were still studying the problem and would meet again with Department of State representatives to discuss it. (880.2553/12253)