Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

340. Memorandum of Conversation⁰

Washington, July 18, 1961.

SUBJECT

• The Secretary’s Interview with the President of Standard Oil Company of New Jersey

PARTICIPANTS

• The Secretary
• Mr. Rathbone, Standard Oil Company of New Jersey
• Mrs. Ruth H. Kupinsky, Office of European Regional Affairs

Mr. Rathbone reported on his recent trip to the United Kingdom, Norway, Denmark and Sweden where he undertook an on-the-spot appraisal of Soviet exports of oil, both as it exists now and future trends. He said he was quite disturbed by his findings. There is considerable interest in, and pressure for, increased trade with the Soviets, with much of this pressure coming from business interests. In order to expand trade with the Soviets, Western European countries were being pressed to take increasing quantities of Soviet oil, which Mr. Rathbone thought the Soviets were using as a tool in the cold war. Soviet oil is priced to Western European countries considerably below oil from all other sources, making it attractive to many countries. Western oil companies could not compete with Soviet prices, since the latter did not have to be based on economic considerations.

The Secretary said that the United States Government is concerned about the increase in Soviet exports and is consulting closely with our Allies on this problem. He asked for Mr. Rathbone’s evaluation of Soviet oil reserves and supplies.

Mr. Rathbone said there was no question but that the Soviets had very large reserves and could produce 5 million barrels of oil a day in the next three years. This compared with current United States production of 7 million barrels a day and a United States potential of 10 million barrels a day. He also felt that internal Soviet consumption would not absorb Russian oil supplies, particularly since the Soviets were developing the use of natural gas for industry and would thus have large supplies of oil available for export. Mr. Rathbone thought the Soviets were very well aware of the usefulness of oil in expanding their trade and the potential mischief this could create in the West. In Sweden, he said, approximately 50 percent of heavy industry depended on Soviet oil. Heavy reliance on Soviet oil was dangerous, since it could lead to an undesirable influence in government decisions affecting policy; it was an unreliable source which the Soviets could manipulate to their advantage; it could endanger the availability of oil from the Middle East, and have serious political and strategic implications for the Middle East. Mr. Rathbone considered it particularly undesirable that close allies of the United States become significantly dependent on the Soviets for their sources of oil.

The Secretary asked Mr. Rathbone to expand on his discussions with the British, particularly his conversation with Selwyn Lloyd. Mr. Rathbone said that he had talked with Maudling, following the latter’s return from Moscow, and with Mr. Wood, the Power Minister, who set up an appointment with him with Mr. Lloyd. Although the British have so far resisted taking any significant quantities of Soviet oil, they were under great pressure to import Soviet oil at their recent trade negotiations with the Russians. They were successful in holding off the Russians for another year on oil, telling them that they had a surplus of oil and would be happy to sell some to the Russians. According to both Maudling and Lloyd, however, it appeared unlikely that the British would be able to hold off taking Russian oil beyond this year, since they were under considerable pressure from their business people to expand UK-Soviet trade. The question now appeared to be not whether the British would take Soviet oil in the future, but how they would handle the oil administratively.

Mr. Lloyd had asked Mr. Rathbone what he thought would be the best way to handle imports of Russian oil. Mr. Rathbone indicated he was not in favor of the idea in principle, and there was no really good way of handling it. He saw, however, three ways of distributing Russian oil in the U.K., if this oil were taken: (1) let the companies using the oil and the Soviets work it out directly; (2) have the Government take over the oil and make arrangements for its distribution; and (3) turn the oil over to the oil companies for their allocation to consumers. Of all three approaches, he thought the third one would be most difficult, if not impossible, for American companies due to United States anti-trust laws. He thought the first approach was also bad, since it might result in serious inequities. While the second approach also had difficulties, it would be the least troublesome of the three.

Mr. Rathbone said that if the oil companies undertook to distribute Soviet crude, there would be a great out-cry from the Middle Eastern oil countries. The Secretary asked whether the Middle Eastern countries have made diplomatic approaches to the Western European countries who are taking substantial quantities of Soviet oil. According to Mr. Rathbone, practically nothing has been done by the Middle Eastern countries, since half refuse to recognize the Soviet danger and the others do not know what to do. He said some 25 million tons of Soviet oil were exported to Western Europe last year, the bulk of which came directly out of the Middle Eastern share. The Secretary then suggested that it might be useful to stir up the Middle Eastern countries to make approaches to the Western European countries and to make them aware of the dangers to their own interests in the Soviet oil export trade.

Mr. Rathbone thought the United States ought to take the following three lines of action to counter the Soviet oil export drives: (1) instruct all our posts abroad on United States policy in this field; (2) hold high level conversations with our allies; and (3) exert “moderate pressure” on the less-developed countries taking Soviet oil, in connection with United States aid programs or loans. He understood the United States had taken action along the lines of his first proposal and that discussions were going forward in NATO and the OECD. Mr. Rathbone considered, however, that there was not sufficient high level attention being given to the discussions with our allies. The Secretary noted we were discussing this question on various levels and that it would probably come up for discussion at the December NATO Ministerial Meeting. Mr. Rathbone thought December might be too late and suggested a greater sense of urgency on this problem. The Secretary said that the question was being currently dealt with and that it would be involved in the Department’s consultations on Berlin which were going forward on a current basis.

The conversation turned to the subject of prices and the Secretary asked what the influence of Sahara oil would be. Mr. Rathbone said that the Soviets are pricing oil to Western Europe at about $1 a barrel below posted prices from Persian Gulf sources and about 75 cents below discount prices. The oil situation would be complicated by the additional supply from Sahara and, Mr. Rathbone estimated that in a year or so, three-fourths of the French requirements would be supplied by Saharan oil. The Secretary asked Mr. Rathbone if his company were contemplating a change in its price structure. Mr. Rathbone said the company had tried to reduce prices a year ago and that they had been faced with what he characterized “almost a revolution” in the Middle Eastern oil countries. Although the companies wanted to reduce prices, he felt it was not possible to do so.

0. Source: Department of State, Secretary’s Memoranda of Conversation: Lot 65 D 330. Confidential. Drafted by Kupinsky. A handwritten note on a transmittal slip from Lucius D. Battle (S/S) to Emory C. Swank (S), July 26, attached to the source text, indicates Secretary Rusk approved the memorandum on August 3.