Foreign Relations of the United States, 1955–1957, Near East Region; Iran; Iraq, Volume XII

210. Memorandum of a Conversation, Department of State, Washington, April 4, 1957¹

Washington, April 4, 1957

SUBJECT

• New Pipeline in Middle East

PARTICIPANTS

• Eugene Holman, Chairman of the Board, Standard Oil Co. of N.J.
• M. J. Rathbone, President, Standard Oil Co. of New Jersey
• T. E. Monaghan, Standard Oil Co. of New Jersey
• D. A. Shepard, Standard Oil Co. of New Jersey
• W—Mr. Dillon, Department of State

Standard Oil Co. of New Jersey group reported to Mr. Dillon the status of the exploratory talks regarding the construction and operation of a new pipeline from the head of the Persian Gulf through Iraq and Turkey to the eastern Mediterranean. They reported that at the meeting in London on March 18, 19, and 20, attended by representatives of the following groups: Standard Oil Co. of New Jersey, Gulf Oil Corporation, Standard Oil Co. of California, Socony Mobil Oil Co. Inc. Texas Co., British Petroleum Co. Ltd., Royal Dutch Shell, and Compagnie Francaise des Petroles, agreement was reached on the following points:

(i) that a new pipeline system to the Eastern Mediterranean, with a capacity in the region of 1,200,000 barrels per day, should be the immediate objective.

(ii) that the main route of such a pipeline system should be from the head of the Persian Gulf via Iraq and Turkey to the Mediterranean Seaboard and that it was desirable ultimately to transport oil from Iraq, Kuwait, Iran and Saudi Arabia.

(iii) that the objective should be two 34”/36” lines as the main trunk system, the first to be completed in 1960, or earlier if practicable, and the second as soon thereafter as circumstances permit.

(iv) that the maximum protection of the pipeline system should be obtained by International treaties of one kind or another.

(v) that there should be a separate Company, of nationality yet to be decided, which would have the necessary powers and be responsible for the negotiation of transit rights and for the construction, financing and eventual operation of whatever finally became the main trunk system.

(vi) that, in arriving at a recommendation as to the most desirable form of tariff, in relation to transit terms, the appropriate Committee should freely and thoroughly explore and report upon all aspects of the question.

(vii) that outside finance should be obtained to the maximum degree possible compatible with the economics but that such equity capital as would be necessary should be subscribed by the oil companies.

They also reported that there was agreement set up for Four Committees (Organization Committee, Treaty Committee, Finance Committee, and Engineering Committee) to pursue the problem further. They indicated that the main problem to be resolved was that dealing with the form of a treaty to protect the pipeline and its operations, and they stated flatly that such a treaty was a sine qua non of the success of the project. Beyond that, they indicated that there was still a good deal of difference regarding the question of the tariff to be charged and it was not clear as to what the exact share of the different parties in the pipeline would be, although it was indicated that the over-all share of the American companies would be on the order of 45 percent.

Preliminary studies indicate that the cost per barrel of transporting from the head of the Persian Gulf to the United Kingdom by the proposed pipeline and then by 45,000 ton tanker from the Eastern Mediterranean terminus would be approximately one-third cheaper than the present cost of transporting oil from the Persian Gulf to the United Kingdom by 45,000 ton tanker through the Canal. In other words, the project is economical and the only difficulty is the substantial cost of construction, presently indicated at roughly $850 million.

The various committees are to report back their interim recommendations to the principals at a meeting to be held in London on May 13. At that time it is planned to form a company to assume responsibility for the future progress of Planning and Coordination.

Standard Oil Co. of New Jersey representatives inquired as to the general attitude of the Department of State toward this project. Mr. Dillon replied that the Department in general favored the development of alternative routes for the transport of oil, and the Department had agreed to consider problems involved in treaty protection of such an operation.

The representatives of Standard Oil Co. of New Jersey then requested the following action from the Department:

(a) that the Department inform the governments concerned in the area regarding the development to date and indicate that the U.S. looked with favor on this project. (Standard Oil Co. of New Jersey representatives pointed out that since they had as yet no single organization there was no way in which they could talk to the governments involved. They said that there was a good deal of publicity beginning to leak out regarding the project, and they were afraid that the governments in the area would become offended if someone did not apprise them of the facts.)

(b) that the Department of State give its general views, prior to the May 13 meeting, regarding the type of treaty protection that might be considered most practical by the U.S. Government. (There are at present two ideas. The first, favored by the European companies, is for a multilateral general treaty which will protect not only the pipeline but also all existing and future concessions in Turkey and Iraq. The second idea relates only to the pipeline and its operation. While the American companies would be delighted to have the general protection, they are inclined to feel that this is not a practical project and, therefore, to favor a treaty dealing specifically only with the pipeline. Two preliminary drafts of a general treaty and a pipeline treaty were furnished to Mr. Dillon.)

Mr. Dillon promised to consider the matter and inform the Standard Oil Co. of New Jersey representatives as rapidly as possible, and in any event, at least one week prior to the May 13 date of the next meeting.

(c) that the Department of State inform the Department of Justice of the results of the March meeting in London, and request Department of Justice clearance for the May 13 meeting, including the formation of a joint company for the purpose of assuming responsibility for the future progress of Planning and Coordination of the project.

Mr. Dillon said that the Department of State would get in touch with the Department of Justice in an attempt to obtain the clearance desired.

1. Source: Department of State, Central Files, 880.2553/4–457. Confidential. Drafted by Dillon.