Discussion of OPEC Meeting and U.S. Policy
(December 16, 1963)
This memorandum is in reference to the OPEC meeting in which the oil companies offer of "royalties" was
rejected.
SUBJECT
OPEC--Your Meeting on This Subject This Afternoon, December 16, 1963/2/
Discussion
At an OPEC meeting in Beirut December 4, offers of
the oil companies to an OPEC demand on "expensing" of royalties
were rejected (see attached)./3/ A further OPEC meeting is scheduled
for December 24 in Riyadh and there is grave danger that resolutions
calling for arbitrary member government action against the companies
will be passed. The refusal of the companies' offer has already become
public knowledge. Some representatives in the OPEC organization, notably
the delegate of Iraq, have taken an extreme position. Mainly because
Venezuela seeks to up the price of Middle East oil so that that of Venezuela
will become more competitive, the Venezuelan delegate has sided with
the extreme faction.
Prime Minister Alam of Iran is gravely concerned by
the developing situation and has dispatched an Iranian Government emissary,
Reza Falla, to meet with the Iranian Consortium in London on December
17. He is taking with him a number of proposals described by Alam as
reasonable and flexible. Alam states that if an understanding is reached
between Falla and the Consortium, this will give Iran strength to oppose
extremist Arabs at Riyadh. The Iranian Ambassadors in Saudi Arabia and
Kuwait have been instructed to approach the respective governments in
order to obtain a common front for moderation.
Thus far the steps we have taken are as follows:
With the Oil Companies--At a meeting with senior oil
company executives on December 6, without reference to the merits of
the companies' offer, I urged that means be found to keep discussions
going with the governments and avoid an impasse.
In Iran--Our Charge has informed Prime Minister Alam
that the USG shares Iranian Government concern over the situation. He
commended the sending of Falla to meet with the Consortium.
In Saudi Arabia--Ambassador Hart had dinner with Petroleum
Minister Yamani December 15 at the latter's request. Yamani said he
had begun to see a ray of light in a previously hopelessly bad situation.
Ambassador Hart said Aramco and the SAG were a partnership which should
work together. Yamani agreed but was unwilling to go further in the
discussion. Yamani may be willing to accept an Aramco proposal for a
secret meeting with Consortium representatives, Aramco officials and
Rouhani (OPEC Secretary General) this week, perhaps in Rome. Ambassador
Hart recommends against formal representations to Crown Prince Faisal
or Yamani pending the results of the Rome meeting.
If an impasse is to be avoided, it now seems evident
that the companies must alter their offer. It appears that the amount
of the offer (3-1/2 cents per barrel in the case of Iran) could be accepted
by Iran and Saudi Arabia and probably Kuwait. The governments, however,
object vigorously to the discounting mechanism of achieving this sum
since it would, in effect, mean recognition of further posted price
reductions, which is anathema to them. The governments also object strongly
to some of the conditions particularly that relating to a quit claim
against any future government demands. It therefore appears that if
an impasse is to be avoided, the companies will have to make some modification
in the mechanism of the offer and in some of its conditions. The Kuwait
OPEC delegate has suggested that depletion allowances or a change in
depreciation could be the means to this end.
We have the impression that some of the companies are
now thinking of the possibility of modifying their offer even though
all had previously stated that the offer was final.
The British are very greatly concerned by this situation
and we are exchanging information regularly.
Mr. Talbot and Mr. Jernegan of NEA, Mr. Davies and
Mr. Blackiston of NE, and Mr. Ensor of FSE will attend your meeting.
Recommendation:
We propose the following course of action.
1. That we take no further action with the companies
or with the governments pending the results of the Consortium meeting
now taking place in London and the subsequent meetings with Reza Falla,
Yamani and Rouhani. (We have now learned that a meeting of the Consortium
with Falla took place today, but we have no details.)
2. If no progress is apparent, we call in the American
companies, certainly not later than Friday, December 20, to state that
national policy as well as the companies' own interests require sufficient
modifications in their proposal to permit a useful resumption of the
dialogue with the governments.
3. If the companies agree to (2) above, we consider
instructing Ambassador Hart to intervene with Crown Prince Faisal urging
moderation so that talks with the companies have a chance of success.
4. In the event that our intervention with the companies
and the governments is required, we urge the British to take similar
steps with their companies and suggest an approach by the British Ambassador
to the Ruler of Kuwait.
/1/Source: Department of State, Central Files, PET
3 OPEC. Confidential. Drafted by Blackiston and cleared by Ensor (FSE).
/2/At the Secretary's staff meeting on December 16,
according to the minutes, Talbot reported: "The OPEC oil situation
is reaching a crisis with European meetings today and tomorrow. Mr.
Ball asked to meet Mr. Talbot and Mr. Chayes on this in the afternoon."
No record of the meeting has been found.
/3/The attachment, "OPEC Royalty Expense Resolution
and Companies' Offer," is not printed.
Sources: Foreign
Relations of the United States, 1961-1963: Near East, 1962-1963,
V. XVIII. DC: GPO,
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