880.2553/6–2453
No. 297
Memorandum of Conversation, by the
Officer in Charge of Lebanon–Syria–Iraq Affairs (Funkhouser)
Subject:
- Middle East Oil Situation
Participants:
- The Under Secretary
- Mr. J.T. Duce, Vice President, Arabian-American Oil Company
- Mr. Saba Habashi, Egyptian Lawyer retained by Aramco
- Mr. George Ray—General Counsel—Aramco
- NE—Mr. Funkhouser
Mr. Habashi stated (a) the Petroleum Committee of the Arab League had been revived after a five-year period of inactivity, (b) on May 25, 1953, the Ministers of Finance of the Arab states had engaged in discussions on Middle East oil prices, (c) oil price talks between Iraqi and Saudi Arabian officials had taken place recently in Riyadh, (d) the Petroleum Committee planned to convene at an early date to discuss a “minimum price of oil” and a “collective position on oil pricing”.
Mr. Habashi discussed in general terms: (a) the increasing trend in the Middle East towards “gradual” nationalization, (b) the injurious effect in the area of the FTC report and anti-trust action, (c) the importance of United States Government support for progressive elements and individuals in the area, particularly the Arab League, (d) the danger that the extremist elements (Communists, xenophobes and “the greedy”) would gain the upper hand.
The Under Secretary inquired if Mr. Habashi considered these trends “unexpected”, stated that previous information given the Department generally confirmed Mr. Habashi’s conclusions, and requested Mr. Habashi’s views on “what to do about it”.
Mr. Habashi suggested in general terms more positive United States Government official or moral support for the oil companies and for those local leaders who were working towards goals desired by the United States. He mentioned further diplomatic, economic and technical assistance in forms which could have beneficial effects on the oil situation. He specifically asked if “status” could be given to the Arab League, which was now under the progressive leadership of Hassouna, or if a United States diplomatic representative could be accredited to the League.
[Page 678]The Under Secretary pointed out that there would be overriding difficulties for the United States in either of the suggested actions. It was, however, stated that the Department would examine the general problem closely, since it wished to encourage in every appropriate way constructive efforts of such regional organizations.
With respect to Mr. Habashi’s statements that Middle East states were now preparing to work closely together on oil problems, the Under Secretary stated that the United States had in the past supported such cooperative economic efforts and gave as an example the Coal and Steel Community in Europe. He expressed the view that a “Petroleum Community” in the Middle East might not only be an inevitable long-term development, but conceivably a useful one. The United States Government might under those circumstances, as it had in Europe, provide special assistance and official recognition to such a body. The vast proven oil reserves of the Middle East would present a rather substantial base for any United States Government loan to such an organization. The Under Secretary expressed the view that such a “community”, if developed along constructive lines from the beginning, could conceivably be profitable to both the countries and companies concerned; it would also have to take into full account the interests of world oil consumers as well.
Regarding Mr. Habashi’s observance of nationalization trends, the Under Secretary stated that unfortunately “natural resources invite nationalization”, that states appear to be moving towards “increasing control of sources of wealth within their own boundaries”, and expressed his belief that industry leaders should, as military commanders, allow for “the unfavorable” in their planning. He expressed the view that “management contracts” might evolve as the pattern of future development in oil producing countries.
With respect to the FTC report and anti-trust legislation, the Under Secretary generally referred to positions and actions taken by the Department of State. He stated that the Department, however, “had to operate within the limits of the possible” and that “anything further” was “unattainable”.
Other points touched on were: (a) the question of United States technical assistance to the Arab League Petroleum Committee, (b) the question of Point IV technical assistance on oil to local governments, (c) the possibility of Arab states agreeing on oil prices or other oil policies for the Middle East, (d) the effect of Iranian nationalization on surrounding areas.
There was insufficient time to examine critically the following points: (a) Mr. Ray’s repeated statement that Aramco was now “thoroughly discredited” in Saudi Arabia, (b) Mr. Ray’s tendency to [Page 679] equate oil company troubles in the Middle East simply to United States Government anti-trust action and the FTC report, (c) Mr. Habashi’s implication that nationalization would ipso facto make Middle East oil unavailable, (d) the role of oil companies and of Near East officials in countering adverse trends in the Middle East oil situation, and (e) the technical obstacles which Middle East oil producing states would face when seeking agreement on price under varying conditions re distance from market, hard and soft currency transactions, varying costs and transportation charges, short and long-term contracts, Western hemisphere competition, etc.
The Under Secretary expressed his appreciation to Mr. Habashi for his sincerity of purpose and constructive efforts, indicated that there were limitations to what the State Department alone could do, referred to the attention which the Secretary was personally devoting to Middle East problems and to the virtual exhaustion of Secretary Byroade in this work, expressed the need for assistance from individuals and governments in the area directly concerned and stated that recommendations regarding specific lines of action would always be most welcome.
The Under Secretary was most warmly thanked.