Foreign Relations of the United States, 1964–1968, Volume XXXIV, Energy Diplomacy and Global Issues

176. Memorandum of Conversation¹

Washington, January 29, 1964.

US–UK TALKS

SUBJECT

• Middle East Petroleum

PARTICIPANTS

• Sir Geoffrey Harrison, Deputy Under Secretary of State, British Foreign Office
• T. Frank Brenchley, Head of Arabian Department, British Foreign Office
• Denis A. Greenhill, Minister, British Embassy
• Patrick R. H. Wright, First Secretary, British Embassy
• A. Barry Powell, Petroleum Attaché, British Embassy
• NEA—Phillips Talbot
• NEA—John M. Kelly, Assistant Secretary for Mineral Resources, Department of Interior
• NEA—Frank Sloan, Deputy Assistant Secretary for International Security Affairs, Defense
• NE—Rodger P. Davies
• NE/E—Slator C. Blackiston, Jr.

Mr. Talbot said that since the US–UK talks on petroleum of last June had dealt with the agenda item in detail we did not have a great deal to add.² Since June we have encouraged the companies to do what they can to resolve the OPEC issues with the producing governments. Mr. Talbot asked for Sir Geoffrey’s comments.

Sir Geoffrey expressed pleasure with the results of the June talks. His colleague, Deputy Secretary of the Ministry of Power Stevenson had said he hoped the talks could be repeated some time in 1964. During the past year US–UK policies with respect to petroleum problems in Indonesia, Peru and Ceylon have been closely aligned as a result of the agreed positions reached in June.

Turning to OPEC, Sir Geoffrey observed that the organization might break up as a result of the “unholy alliance” of Venezuela, Indonesia and Iraq, but that its demise did not seem likely. Rouhani has welded the organization together. Necessarily the UK has a greater interest in Middle East oil than the United States.³ In the future the pressure will be on the companies to accept a lower return on their Middle East investments.

HMG has always regarded Aden as providing military protection to UK petroleum interests in the Persian Gulf. Although it can be argued that the Arabs cannot drink their oil and must sell it, a cutoff of oil supplies is not what Britain fears. HMG is concerned for the maintenance of the supply of oil at reasonable prices.⁴ We have always feared Iraq’s getting hold of Kuwait. The combined oil production of the two countries and consequent economic influence would make it difficult for other countries, such as Iran, to follow a line independent of other OPEC members in dealing with the companies. We dread a confrontation between the companies and the producing governments since this would certainly lead to a government-government confrontation with all the political consequences which this would entail. In this connection, Prime Minister Alam of Iran had told the British Ambassador that in view of the then OPEC impasse, it would not be too difficult to resurrect the Mossadeq spirit in Iran. Because of this,HMG is inclined to be a little ahead of but in step with the US in matters involving Middle East petroleum. We continue to believe, said Sir Geoffrey, that the companies should do the negotiating, but we do not believe that our recent actions in Iran diverged from this policy. Rouhani is a slippery character and he was not reporting fully to his government on the negotiations with the Consortium. We wished to be sure that the Iranian Government knew precisely the state of play of these negotiations. We have a special relationship with the Iranian Government and believe it possible to discuss these matters frankly with Alam. We no longer have this same type of relationship with Kuwait or Qatar. (In a subsequent conversation with Mr. Blackiston, Mr. Brenchley explained that HMG reluctance to intervene in Kuwait was not so much a result of the changed UK-Kuwait relationship per se, but rather stemmed from the belief that in the first years after full Kuwait independence the Kuwaitis would suspect Britain of attempting to continue its former prerogatives. By leaning backward to avoid pressuring the Kuwaitis on any issue, HMG hopes that Kuwait will voluntarily resume asking Britain for advice some years hence.

We envisage, said Sir Geoffrey, that a confrontation on OPEC issues might take place in three different ways. 1) We might find ourselves in a position where, despite our wishes, we would have to support the companies. This would have many drawbacks, including the invoking of Arab nationalist sentiments, provide potential for Soviet meddling and create internal political difficulties in the countries concerned. Because of these fears, the Shah was prepared to get out in front in order to avoid enactment of sanctions at the Riyadh OPEC meeting. He, in fact, blocked sanctions against the companies. 2) A confrontation might arise with the Western European consuming governments since our Western allies would not be happy if difficulties over OPEC should lead to an interruption in the supply of their principal energy source. 3) A price rise could likewise provoke a Western European consumer combination to oppose OPEC. However, we incline to the belief that a rise in prices will come about in any event and the European governments will just have to learn to live with it.

Sir Geoffrey said the US and UK Governments should keep closely in touch as in the past as the situation develops.

Mr. Talbot asked whether the companies understood the situation in all its aspects. Sir Geoffrey said that the British companies did understand the situation. The companies do not, however, want to give away money if they can avoid it. The problem is whether they may maintain too firm a position too long.

Mr. Kelly expressed agreement in principle with everything Sir Geoffrey had said. We no longer can brush OPEC under the rug, said he. We are also worried about a consumer-producer confrontation and there is a chance we might provoke this sooner than is necessary. The UK, with respect to the OECD Oil Committee, is about one-half a step ahead of the U.S. We fear, however, that this is too far ahead for our own joint interests. By focusing European attention now on Middle East oil problems we may stimulate European thinking on an oil consumer grouping to counter OPEC, and it was for this reason that we opposed discussions of the dependence of Western Europe on Middle East oil by the OECD Oil Committee. We wish to avoid a confrontation between OPEC and OECD in 1964.

Mr. Kelly said we are also fearful that the three-man team named by OPEC may seek to negotiate with the companies in OPEC’s name rather than as representatives of the individual producing governments. Were this to be accepted by the companies, the next step could be to exclude the companies as bargaining agents in favor of governments.

Mr. Powell expressed agreement as to the danger of creating two massive blocs (consumer and producer) in opposition. However, HMG believes it is possible to have discussions of the problems in small OECD groups without creating the dangers previously noted.

Sir Geoffrey said he wished to reaffirm the joint position reached in the June talks on the desirability of maintaining a stance of neutrality and non-recognition of OPEC. On the subject of whether future OPEC company relations will be bilateral or multilateral, Sir Geoffrey said HMG is encouraged by a Kuwait Government letter on this subject which maintains the fiction of company-government rather than company-OPEC negotiations. We greatly fear the multilateral approach but believe we will get by the next stage of discussions without having to face this problem.

Mr. Talbot remarked that the Department has been under pressure to recognize a number of entities, e.g. Palestine and the Arab boycott. Our position has been to deal only with governments and this policy could be extended to OPEC.

Sir Geoffrey expressed concern about the attitude which OPEC Secretary General-elect Bazzaz will take. He characterized Bazzaz as an “extreme nationalist.” In conclusion Sir Geoffrey said the main point which HMG wished to make is that it is quite concerned over Middle East oil and must watch developments very closely.

1. Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964–66, PET 1 UK-US. Confidential. Drafted by Blackiston.
2. See Document 175.
3. The two nations agreed that oil was becoming an increasingly important energy source for Europe. It was expected to account for about 50 percent of the total by 1970. (Memorandum from Davies to Talbot, January 25; National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964–66, PET 1 US)
4. During their 1963 oil meeting, the two sides had concluded that the international oil industry played an essential and effective role in balancing interests and requirements of producers and consumers. “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.” (Ibid.)