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

202. Information Memorandum From the Deputy Assistant Secretary of State for Near Eastern and South Asian Affairs(Handley) to Secretary of State Rusk¹

Washington, February 1, 1967.

SUBJECT

• Status of Iraq Petroleum Company dispute

In the last week the developments in the Iraq Petroleum Company crisis have succeeded each other rapidly. Early last week Iraqi Prime Minister Talib, fully aware that his country is losing $630,000 a day as a result of the oil dispute, broadcast a vaguely-worded warning to the Iraq Petroleum Company to arrange at all costs to have the oil start flowing across Syria again by January 26. The alternative threat implied by the warning was not specified. However, there had been enough loose talk of seizure or nationalization of some parts of IPC concession areas in Iraq to alarm the American partners, who expressed their concern to the Department.

Meanwhile Prime Minister Talib had summoned our Ambassador and requested the US Government to influence the American share-holders of IPC in favor of a quick settlement with Syria in order to extricate Iraq from its present political and economic predicament. On the 26th our Ambassador under instructions urged Talib to think before undertaking rash or irrevocable actions against IPC and urged the Iraqi Government to support its own concessionary company against Syria.

The Syrians, who may have begun to suffer from the joint squeeze of (1) a dwindling supply of the IPC crude oil on which their refinery primarily depends and (2) a loss of transit revenues of over $2 million a month, then conveyed to the Iraqis their willingness to resume negotiating discussions with IPC on the basis of a new draft agreement rather than a unilateral Syrian Government decree. The key issue as to whether the Syrians will accept arbitration of Syrian claims for retroactive payments, which might amount to over $100 million, was not made clear in the Iraqi version of the Syrian counter-proposal which was given to IPC the 26th. However the first versions of the new Syrian proposal reaching Paris apparently sounded reasonable enough to prompt the French Government to recommend to us and the British that IPC should seize this opportunity to resume contact with the Syrians so as to attempt to settle the crisis.

However, when IPC on the 30th received the specifics of the Syrian proposal, all of the partners including the French unanimously rejected the new proposal because it would not give IPC enough protection on the retroactive payments issue. If it accepted the Syrian proposal, IPC would in effect be admitting liability to retroactive payments back to 1955. The issue would accordingly be not whether IPC was liable for retroactive payments, but what the extent of the liability was. IPC therefore requested its representative in Damascus to seek further clarification of the Syrian proposal, but make clear that IPC cannot agree to make any automatic payments on retroactive claims.

The present status therefore appears to be as follows:

1. The Syrian proposal is actually a step forward in that it would rescind the unilateral decree and put any settlement in the form of a bilateral agreement with IPC.

2. IPC would probably accept the increased payment rates on current oil transit if the Syrians would agree to some form of impartial arbitration or other negotiated settlement of the Syrian claim for retroactive payments.

3. The Syrian counter-proposal has at least re-established the negotiating dialogue between Syria and IPC.

1. Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967–69, PET 6 IRAQ (SYR). Confidential. Drafted by Kinsolving (NEA/ARN), and cleared by Chaplin (E/FSE) and Houghton (NEA/ARN). Rusk’s initials on the source text indicate that he saw the memorandum. A handwritten note after Handley’s name on the “from” line reads “per RPD” (i.e., Deputy Assistant Secretary Rodger P. Davies).