Foreign Relations of the United States, 1961–1963, Volume XVIII, Near East, 1962–1963

291. Memorandum From the Deputy Director of the Office of Near Eastern Affairs (Davies) to the Assistant Secretary of State for Near Eastern and South Asian Affairs (Talbot)⁰

Washington, July 5, 1963.

SUBJECT

• Conclusions from US-UK Oil Discussions

The attached document sets forth the agreed conclusions reached by US and UK representatives to the oil discussions held in the Department June 10-14.¹

The most significant conclusion, item No. 2, derived from statistics and projections developed by US and UK technicians prior to the commencement of the talks, is that barring unforeseen developments, the Middle East (exclusive of North Africa) will become an increasingly important source of supply of energy to Western Europe. This contradicts the previously generally accepted assumption that, in view of Libyan and Algerian oil finds, discoveries elsewhere in the world, and atomic power developments, the relative importance of the Near East as a supplier of western Europe’s energy requirements would decrease. Another conclusion of particular interest to NEA is that contained in point No. 5 of the attached document. During the course of the talks a spokesman for NEA obtained British agreement that the term “hostile domination of the area” referred to communist control whereas the phrase “centralized control” referred to control through Arab unity.

There was complete unanimity of view on the attitude which both governments should take towards OPEC. Thus both sides agreed that it would not be to their mutual interests to undertake discussions with OPEC member governments nor with the Organization itself on OPEC matters and that efforts to involve the US and UK governments in OPEC negotiations with the oil companies should be resisted. At the same time, it was agreed that we should avoid adopting a stance of hostility to OPEC. These conclusions were reached on the basis that it was difficult to foresee how OPEC would develop but that we should avoid any act which would serve to enhance its prestige or effectiveness.

There was agreement, item 12, that insofar as possible each government would inform the other of the type of advice or suggestions which it was conveying to the oil companies of its nationality in an effort to ensure that such advice is not conflicting. It was also agreed, item No. 13, that both governments would seek to keep the other informed concerning any situation between companies and governments which required US or UK intervention.

We believe the talks were generally useful. The British used the meetings as a forum to re-emphasize repeatedly that whereas Near Eastern oil was of substantial interest to the United States, for the UK it was a matter of overwhelming importance. Mr. Stevenson, the Deputy Secretary of the Ministry of Power, who headed the British side, said that he could not over-emphasize this point. Stevenson would have preferred stronger language in the joint conclusions implying a necessity of maintaining the status quo in the major producing areas of the Near East in order to ensure continued access to the oil of the area on favorable terms. The language offered by Stevenson would have drawn us into a position of appearing to oppose Arab unity irrespective of how conceived. In this he seemed to go farther than the British Foreign Office position as expressed during the meetings by British Embassy Minister Greenhill. The language in item 5 is thus a toning down of the original British proposal for this paragraph.

Attachment²

June 14, 1963.

MINUTES OF U.K.-U.S. DISCUSSION ON INTERNATIONAL OIL PROBLEMS

Representatives of the Governments of the United Kingdom and of the United States met in Washington during the period 10th to 14th June, 1963, to exchange views on energy problems and especially problems of the international oil industry. The following agreed points and conclusions emerged.

1. According to the estimates accepted by both sides the demand for oil will continue to grow strongly at least up to 1970. This growth picture and pattern may need adjustment from time to time in the light of changing circumstances.

2. On the basis of presently foreseen trends the Middle East (exclusive of North Africa) will become an increasingly important source of supply. Production in the Middle East is expected to rise by 90% between 1961 and 1970 by which year it would, at over 500 million tons a year (10 million barrels per day), be as great as production in the United States and account for about one-third of total Free World production.

3. Oil, almost entirely imported, will become an increasingly important component in the total energy supplies of O.E.C.D. Europe and may by 1970 account for nearly 50% of the total. The U.S.A. on the other hand would by 1970 import only to the extent of 9% of her total energy requirements.

4. Apart from U.K. interest as a consumer in the security and continuity of supplies, its balance of payments is heavily dependent on the trading and investment of the British international oil companies.

5. The flow of Middle East oil which is important to the growth of European countries in the year ahead could be impeded by hostile domination of the area, serious or widespread disorders or centralized control of the oil policies of the area, although this last would probably operate through pressure on prices rather than denial of oil supplies.

6. The international oil industry constituted along present lines plays an essential role, providing supplies where they are needed with a high degree of efficiency and balancing the interests and requirements of consuming and producing countries. Alternative systems—direct negotiation between blocs of such countries; an international commodity agreement; or a public utility status implying international regulation of the industry—would prejudice the economic continuity of supplies.

7. If the international oil industry is to carry out its task, its profitability must be adequate to secure finance which will be required on a vast scale. The profitability of the industry has declined in recent years. The present level of profitability appears adequate, but the industry might well have difficulty in meeting its investment requirements without obtaining higher prices if at the same time it made major concessions to host governments, such as would be required, for example, by acceptance of the major demands made in O.P.E.C. Resolutions in June 1962.

8. It is difficult to foresee the basis on which O.P.E.C. will develop and the position, if any, it will eventually occupy in oil affairs. For this reason, it is not desirable to fix in detail the attitudes which the U.K. and U.S. Governments should adopt in any situation in which O.P.E.C. was also involved.

There appears, therefore, to be at present no alternative to the policy of neutrality and non-commitment towards O.P.E.C. which has been adopted by the U.K. and U.S. Governments and their respective oil companies. This policy involves neither active opposition to, nor a welcome for, O.P.E.C. and its activities. It also involves the avoidance of any dealing with O.P.E.C., even if only indirect, which might tend to enhance its stature or secure its recognition in international circles. In this context the U.K. and U.S. delegations took note of the recent approach by the Secretary-General of O.P.E.C., Mr. Rouhani, to the Secretariat of the O.E.C.D., and agreed that both through the U.K. and U.S. Delegations to the O.E.C.D. and through the Oil Committee of this organization, the Secretariat should be asked not to enter into or develop any contacts with the Secretariat of O.P.E.C. without the authority of the Oil Committee. Such authority was unlikely to be given in the early future.

If at any time a modification of this agreed attitude towards O.P.E.C. should appear desirable, the U.S. and U.K. Governments would consult together.

9. The entry of governments into the oil business has in some cases introduced a disturbing element. Increasing intervention by producing countries in the oil business may be in the long run unavoidable. The retention by the companies, comprising the international oil industry, of the control of oil production in exporting countries, its selling prices and the destination of exports, is vital for the proper functioning of the industry.

10. The divergence of views and interests among the E.E.C. countries makes early agreement on a common energy policy unlikely. This might be the best outcome since an early settlement was not likely to result in a liberal and outward-looking fuel policy. Both sides recognized that freedom from all restrictions in the fuel field was not practicable at present and that it might be best to work towards more limited objectives, using for this purpose the O.E.C.D. Committees and diplomatic influence on the individual member countries of the E.E.C.

11. The U.S. side asked about the U.K. ban on imports of coal and the prospects of some relaxation which seemed justified on its merits as well as giving a lead to a more liberal attitude in Europe. The U.K. side explained in some detail the present state and prospects of the U.K. coal industry and the difficulties—social, labor, and economic—which had led the U.K. Government to maintain the present ban. They assured the U.S. side that the possibility of some relaxation would be kept under regular review.

12. It may be necessary from time to time for the U.K. and the U.S. Governments to draw the attention of their respective companies to factors which they consider the companies should take into consideration in formulating their policy, e.g., for production patterns and/or relations with host governments. Representations on these lines, which the U.K. and U.S. Governments may make to their respective companies, would generally be more effective if the two governments gave similar advice to their companies in cases of mutual concern. The U.K. and U.S. Governments should therefore exchange information on the general advice which they are giving to their companies and consult beforehand as appropriate in regard to advice given in regard to specific disputes and problems of mutual concern.

13. The U.K. and U.S. Governments were reluctant to intervene formally in any dispute which might arise between members of the international oil industry and a host government, but it was recognized that this might be necessary in special cases. Discreet and informal representation by a British or American diplomatic representative abroad might from time to time, and in consultation with the oil company/companies concerned, be advisable. In regard to such diplomatic activities in cases of mutual concern, it would be advisable for the U.K. and U.S. Governments to continue to keep each other informed, and to consult beforehand as appropriate.

14. The U.K. Government would intend to consider its oil stockpiling policy and emergency arrangements in the light of the joint review which had been made of the effect of various types of interruption in the supply of Middle East oil. There would be advantage in asking O.E.C.D. similarly to review the emergency planning arrangements, and the stockpiling program of member countries.

15. In view of the projected increasing predominance of the Middle East, the possibilities of greater diversification of supply sources took on increasing importance. Possible methods by which Governments might assist such diversification by the industry were discussed but few of these appeared to be useful. The subject would, however, need to be studied further.

16. There appears at present to be no satisfactory alternative to the policy of “caution and restraint” adopted by NATO countries for regulating imports of Soviet oil.

Recent forecasts do not suggest that Soviet oil exports to the free world will increase at the rate of past years in the years immediately ahead; however, they are based on incomplete information and must therefore be regarded as highly tentative. It would be advisable for this fact to be taken into account by the NATO reporting systems when keeping the pattern of Soviet oil exports under review.

The U.S. side asked about the U.K.’s present policy towards importing Soviet oil. The U.K. side explained in some detail the economic, commercial and political factors which the U.K. Government have to weigh when considering their policy.

0. Source: Department of State, Central Files, PET 1 US. Confidential. Drafted by Blackiston.
1. Memoranda of the series of conversations held are ibid., NEA/NE Files: Lot 66 D 9, MEG. Petroleum. US-UK Oil Talks. Additional documentation is ibid., NEA/NE Files: Lot 68 D 51, PET 1, General Policy, Plans, and ibid., Central Files, PET 1 UK-US.
2. Confidential.