242. Memorandum From the Assistant Secretary of State for Economic Affairs (Solomon) to the Under Secretary of State (Katzenbach)1
SUBJECT
- Walter Levy’s Oil Assessment2
Even though I agree with the chamber of horrors that Walter has predicted as being possible in the event of total oil denial, I doubt that total oil denial will materialize, or that even the current oil denial program will continue in the same intensity.
The most likely outcome to develop during the next few days will be the assumptions of Case 2 or possibly even Case 3 in the attached paper (as distinguished from Case 1 of total Arab oil denial). In other words, even with the closure of the Suez Canal and the Mediterranean pipelines and a total denial of oil from Iraq and with a denial to US and UK destinations of oil from Saudi Arabia, Kuwait and Libya, the shortfall in European and Japanese needs will be quite manageable. The tanker problem, a component of this shortfall, would be the more significant factor but I also assume that the Suez Canal will not be kept closed for more than a few weeks since the Soviets, as well as the rest of the world, will probably bring private if not public pressures to reopen (Soviet tankers and freighters carrying supplies to North Vietnam would have to be almost doubled in number with the Canal closed). If the shortfall in Europe and Japan is manageable and if the OECD Oil Committee contingency arrangements are activated, the dangers of side deals by Italian, French, Japanese and other companies with the Arabs are considerably reduced even though the Middle Eastern crisis might very well push the Italian/Iraqi negotiations to a successful conclusion.
I might live to regret this more optimistic prediction but I felt you should have these views in view of Walter’s feelings on the other side.
- Source: Department of State, E Files: Lot 71 D 84, PET 2 Middle East Department Memorandums 1967. Confidential. The date is handwritten on the source text. A copy was sent to Eugene Rostow.↩
- This undated 5-page assessment of the oil situation, plus two annexes, was attached to the source text under a June 12 covering memorandum from Levy to Katzenbach. Levy speculated that the loss of oil exports for a significant time would not only result in “unmanageable” shortages for the West, but would also cause political instability in the Middle East oil producing states. He believed that the cessation of oil supplies was the only tool left to the Arabs and that they and their Soviet backers would not hesitate to use it. Sequestration and/or confiscation of U.S.-U.K. production facilities would be a real possibility. The political unity of the West would splinter, Levy felt, with a tendency for smaller nations to deal directly with the Arab states instead of looking to oil companies for oil. “While we must obviously try to maintain as long as possible a united political and oil front of the free world, we might, if the crisis should not cease very soon, have to decide whether our longer-term interests would not be better served by either closing our eyes to side deals or trying to handle such arrangements on an agreed upon common basis, say through some machinery of OECD which might provide for some ultimate responsibility to an organized group of countries and to the US and British owners of the oil concessions.”↩