105. Memorandum From Rutherford
Poats of the National Security Council Staff to the
President’s Assistant for National Security Affairs (Brzezinski)1
Washington, August 14, 1979
SUBJECT
- Assessment of Reports of Libyan Expropriation Plans (U)
I asked CIA and State for assessments of
a CIA report that Qadhafi was thinking of nationalizing
the remaining ownership interests of US
oil companies in Libya on September 1 as an anniversary present to
himself. You may not have seen State’s reply (attached), which
discounted the reliability of CIA [less than 1 line not declassified] and doubted
that Qadhafi would behave
irrationally in oil matters; he knows that he needs the US companies’ willing cooperation, State
says. You saw the reply from Bob
Bowie,2 on which you wrote to
Bob Hunter and me: “What do we need to do?” (S)
The first thing to do is to judge whether the aircraft embargo issue and
other sources of Libyan hostility are likely to precipitate a rash
Libyan action or proxy action (sabotage of tankers in the Strait of
Hormuz, for example) seriously damaging to US interests. While the chances of Qadhafi’s recklessly jeopardizing
Libyan oil revenues are low, he could devise a nationalization that
keeps the oil flowing. (S)
The next thing to do is to consider whether the risk is sufficiently real
and great to warrant appeasement of Qadhafi on a non-vital but burning issue, i.e., the
C–130s or the 747s. I have asked Bob Hormats to get some technical and
legal specialists in State to look into the feasibility of a restricted
lease of transport aircraft with crews by a US company, perhaps with assurance of immediate recall by
the lessor if the aircraft are sent on missions outside Libya. This
probably is not practicable. Hormats will explore other ideas and report
back shortly.3 (S)
Bob Hunter doubts that our possible gains from releasing the C–130s
unconditionally would be worth the certain cost to our relations with
Israel. He notes that he has State and Defense working on the Strait of
Hormuz problem. (S)
[Page 267]
Attachment
Paper Prepared in the Bureau of Intelligence and
Research, Department of State4
Washington, July 27, 1979
Colonel Qadhafi’s Purported Intention to Nationalize American
Oil Company Holdings in Libya
Colonel Qadhafi has for years
expressed his intention to nationalize foreign oil holdings in
Libya. These expressions have ordinarily taken the form of
interviews with the press.
Form of nationalizations. There are two forms
of nationalization: One is expulsion, the other is participation.
Expulsion means that all equity is assumed and corporate expatriate
personnel leave the country. Participation, such as in the case of
the Kuwait Oil Company (BP and Gulf), means the same people who
explore, produce, transport, ship and most importantly market the
oil continue their activities, only the price and country take go
up. It is not clear from the TD which form of nationalization is
meant.
Expulsion. If the Colonel intends this, he
would lose the production expertise of the expatriates and their
ability to take care of his marketing. Right now a company, such as
Exxon, would rather lift (the figures are illustrative, not
definitive) Libyan oil at $23 a barrel rather than Algerian oil of
similar quality at $22 a barrel. This is because Libyan oil, which
Exxon produces provides them with U.S. income tax foreign tax
credits while Algerian oil which they acquire on a straight purchase
arrangement gives them no such tax credit. Therefore, Libyan oil
even at a higher price is more competitive than Algerian oil in such
companies. Guaranteed access to markets is another advantage that
the companies provide the producing country; it is not certain
whether Colonel Qadhafi
understands this but his Oil Minister, Ezzedin Mabrouk certainly
does. He knows that, while marketing oil in mid-summer 1979 may not
present a difficulty, selling it in a slack market such as most
observers see coming within six months will be much more of a
problem.
Production expertise will be impossible to replace without increased
cost and lower output. It can be done, but only with lowered
revenues.
Participation. Colonel Qadhafi could increase government
“ownership” of the companies to 100 percent and continue to let the
same
[Page 268]
operators do what
they have been doing all along, a la Kuwait.
This, however, would lower the amount of risk capital put into the
country at a time when all indications are that the GOL wants the
companies to increase capacity. The companies could continue to
benefit from foreign tax credits through a “service fee”
arrangement, as they have done in Kuwait, and they would continue
their marketing function.
[1 paragraph (7 lines) not declassified]
The Oil Minister and other cooler heads will continue to advise the
Colonel against rash action against the companies. While the Colonel
has been cited for acting in an irrational manner on some issues, he
has never done so regarding oil. He did nationalize (expel) BP and
Shell but those companies were not beneficiaries of of foreign tax
credits and the American multinationals were forced to take over
some of their marketing duties. He did nationalize (expel) Amoseas
(Caltex) and Atlantic Richfield but they were new in Libya and their
high depreciation allowances made foreign tax credits
negligible.
