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

178. Telegram From the Embassy in Saudi Arabia to the Department of State¹

Jidda, April 12, 1964, 0505Z.

973. OPEC. Tehran’s 892 to Dept.² During recreational visit by Barger, Pres of Aramco, to Jidda April 10 I asked him whether he had news re OPEC negotiations.³ He said he had no news from Geneva but did not appear to be overly concerned. In reply to his query whether I had spoken to Faysal I told him I had not. He immediately commented “After all, what can you say?” I told him that any line which simply boiled down to suggesting moderation seemed pretty thin. In reply my question as to companies’ current position his question was rhetorical, “What can they do?” Later, in presence UK Ambassador Crowe Barger strongly agreed with us both that it would not be in Arab interest to expel Iran from OPEC.⁴ Barger stated he and Brougham would be taking advantage of ’Id⁵ formalities to make courtesy call on Faysal Jidda this coming week. Believe Barger and Brougham have in mind offering opportunity for review of OPEC matters and companies’ offer although probably will play situation by ear.

British Ambassador this morning (protect source) gave me paraphrase copy of UK Embassy Tehran supplying more detail than reftel. UK Ambassador Tehran reported he informed PM there little merit in trying postpone day of decision and recommended GOI prepare for Arab propaganda attacks by presenting Iran’s case to public for acceptance Consortium offer. He reported that he did not get impression from PM of any weakening of Iran’s position but from other source learned Shah much depressed and particularly disappointed Kuwait’s attitude.

Conclusions:

1. Any attempt by US Govt to advise Faysal at this point would almost surely be countered by reply that of course SAG will not be taken in by extremists but that companies’ offer is not adequate and there no good reason why they cannot pay a bit more, say one or one and a half cents per barrel (Dhahran tel 324 to Jidda, relayed as Embtel 943 to Dept,⁶ describes Faysal’s arguments to Iran FonMin). From here it appears that there is general Arab sentiment in OPEC that some improvement over existing company offer should be made. Dispute among Arabs lies over degree. Iran’s willingness accept Consortium offer essentially little better substantively than December offer invites suspicion there collusion between Iran Govt and US and UK Govts to back companies’ position.

2. For US to urge by implication that companies’ latest “final” offer be accepted would be to inject US Govt into negotiations on side of companies without any clear indication that extremism about to triumph over moderate but hard bargaining. Demand for extra one cent or cent and a half mentioned by Faysal to Aram presumably constitutes basis Yamani’s instructions. Recalling vividly as I do US Dept Justice anti-trust suit against American major oil companies dealing in Middle East oil which began 1952 and settled by separate consent decrees about 1960, question whether companies could justify some additional payment cannot I believe be automatically answered in negative. Oil pricing is enormously complex and profits have been huge, resulting in much re-investment to benefit producer countries as well as great yield to American stockholders. Certain top-level Aramco officials have clearly implied in private conversations they only fighting war of attrition and will have to bow eventually to full expensing of royalties. One of them guesses Arab governments would accept company offer of full expensing royalties over six year period but admitted some companies unwilling go this far, unless very firm guarantees of stability and “quit-claims” also made.

3. More important problem from point view companies may be question of admitting power of OPEC to force companies to yield position which they have taken as “final.” If companies stand by position and Iran stands with them and if Iran is then expelled from OPEC, Arabs face difficult problem of applying sanctions which they know in advance Iran will not back and know that any diminution in off-takes from Arab producers might well be picked up by Iran. Strength of OPEC lies in unanimity and is lost by division. At same time break-up of OPEC would not appear to be against interest of companies nor do I see any particular advantage to US Govt in preservation of OPEC. As we understand it here US Govt position has been to avoid any excuse for formal approach by OPEC country seeking negotiations with USG on OPEC matters. It preferred that no US official be at Riyadh OPEC meeting last year even in observer status.

4. If I were to approach Faysal on basis that OPEC should not be too hard on Iran his conclusion would be that US Govt and GOI working together and would insist that proper course of action for US Govt would be to suggest GOI align itself with “moderate” Arab position which he had suggested to Aram. Actually I suspect Faysal would welcome my approach hoping to get us to save OPEC from disaster.

5. There is, of course, important difference in our position here and that of Embassy Tehran in that GOI has consistently sought and welcomed consultation with USG whereas SAG has never broached OPEC matters with us.

Recommendations:

1. That this Embassy avoid intervention at this stage and let hard bargaining among OPEC members work itself out.

2. If Iran, surprisingly, should be expelled from OPEC that US news media be well briefed for intelligent commentary and that briefing avoid indication USG happy over break-up of OPEC.

3. That in case Geneva meeting results in re-united OPEC position Dept suggest to major oil companies involved searching, hard-headed review of their positions to determine whether they might not make adjusted offer which would enlist “moderate” Arab support and set pattern of peace in industry for lengthy period. Aramco top executives told me in 1950 they hoped 50–50 formula would last “a few years.” Actually its term has exceeded their expectations.

Hart

1. Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1964–66, PET 3 OPEC. Confidential; Limdis. Repeated to Baghdad, Dhahran, Kuwait, London, Tehran, and Tripoli.
2. Not printed. (Ibid., PET 1–14)
3. In an attempt to increase bargaining power, OPEC was conducting contract negotiations on behalf of Iraq, Qatar, and Kuwait and pressuring Iran to insist on similar terms in its own independent contract negotiations. The negotiations, however, were deteriorating. The Iraq Petroleum Company had proposed to OPEC terms similar to those offered by the Consortium to Iran if Iraq would satisfactorily resolve outstanding difficulties, including the provisions of Law 80. When the IPC refused to reconsider this precondition, OPEC suspended the talks. OPEC also rejected similar terms on behalf of Qatar and Kuwait. “It is believed that OPEC, on seeing the companies’ common front, has decided against conversations with Aramco and the Libyan companies at the present time.” (Memorandum from Brodie to Trezise, March 24; ibid., PET 2 US)
4. Oil analysts considered this course of action likely if Iran accepted lesser terms than those on which OPEC was insisting. For example, see airgram A–168 from Dhahran, February 12; ibid., PET 3 OPEC.
5. An Islamic holiday.
6. Not found.