403. Memorandum From the Secretary of State’s Special Assistant for Intelligence (Cumming) to the Under Secretary of State (Herter)1
SUBJECT
- Intelligence Note: Iranian-Italian Oil Agreement
The Iranian lower house on August 15 ratified an agreement concluded March 14 with Italy’s state-owned oil agency (ENI) to explore and develop oil resources in Iran. The agreement, expected to be approved by the upper chamber,2 provides 75% of the net profits for Iran. The Iranian government is to contribute 50% of the capital only if oil is discovered. Should oil not be discovered, the Italians will bear the full cost of exploration. This represents a significant and radical change from the pattern now prevalent throughout the Middle East in which profits are split 50–50 and all investment is made by the concessionaire. The result is almost certain to be demands in the Middle East that current arrangements be revised. Should the Italian concession prove to be successful, these pressures will become increasingly difficult to resist. And the opening of this bargaining may well further contribute to the instability of the Western position in the area.
The Italian firm has had considerable post-war experience in Italy with oil and natural gas exploration, equipment production, refining and marketing. In these operations it has engaged foreign, including U.S., technical advice and equipment. Nevertheless, some observers still doubt ENI’s technical ability. Capital is not expected to be a [Page 938] problem. It is reported, and is probably true, that ENI will commit only about 5% of its total annual exploration budget for the Iran concession. Should oil be discovered, finding additional capital would probably not be difficult. Nor are serious transport problems anticipated. However, should production become significant, exceeding the capacity of the Italian market, ENI might have marketing problems.
ENI is also active elsewhere in the Mediterranean basin. It claims to have a Libyan concession in the Fezzan adjacent to the French Sahara oil finds. In this case, Libya will invest only 25% of the capital (compared to 50% in Iran) for exploitation after discovery, the consequent profit split being somewhat less favorable to Libya than to Iran. In Egypt the Italian firm is part owner of the Egyptian Petroleum Company, which has exploration and some production rights in Sinai and owns shares in the National Egyptian Petroleum Company. Moreover, ENI built the new 81-mile pipeline from the Suez Canal to Cairo. ENI is also conducting some exploration in Spain. There are unconfirmed reports that the Italian firm is negotiating for a 210,000 square-mile concession in Saudi Arabia and that ENI has had contacts with the Japanese concerning possible joint development of a Saudi concession. Other reports last spring indicated that ENI was trying to win concessions from the Kuwait and Yemeni Governments. ENI already has distribution facilities in Lebanon, Eritrea, Ethiopia and Somaliland. The head of the organization, Enrico Mattei, went to Morocco on August 19, presumably to negotiate with that government.
The causes for this Italian initiative are many. Foremost is the aggressive character of Mattei, a powerful figure in the Catholic Christian Democratic Party, who is reputed to be one of the most energetic and enterprising business leaders in Western Europe. Closely associated with his ambition is his rivalry over exploration rights in Italy with the great foreign oil companies whom he has successfully fought for some years. Presumably, Mattei is trying to force his way into Middle Eastern oil production either through new concessions or participation in existing companies. He probably has government support for his efforts which could cut the cost of petroleum to Italy. Apart from any direct benefits which might accrue to Italy in terms of lower oil costs, Mattei has Italian support for his Middle East activities because of other considerations. Many Italian leaders, from all parts of the political spectrum, see the underdeveloped Mediterranean basin as a potential market for Italian industrial products, know-how, technicians and excess labor, as well as a traditional area of Italian and Vatican political interest.
A similar memorandum has been addressed to the Secretary.3