John F. Kennedy Administration: Harriman and Oil Companies Discusses OPEC and Middle East Situation

SUBJECT
Discussion of Near East Developments and OPEC/2/

PARTICIPANTS
See Attached List/3/

Governor Harriman noted that the previous four meetings with the oil companies had been held pursuant to their requests./4/ This time the invitation had come at the Department's initiative because of the uncertain political periods ahead which the Department faces. The Yemen situation will likely become worse before it improves. While we are very concerned with developments in that country, no U.S. troops are going to be used to "liberate" Yemen. A second source of difficulty is the impending Israel diversion of the Jordan waters. The Gruening Amendment to the Aid bill will likely create more trouble than it will help. Its effect will tend to reduce our influence in the Near East area.

Governor Harriman asked Mr. Talbot for an extension of these remarks. Mr. Talbot said that we had previously thought that we might ease by the Jordan waters diversion date without major difficulty. Now we are not so sure. UAR attitudes toward this problem are important. We support Israel's diversions of Jordan waters as long as they do not exceed Johnston plan allocations. Belligerent statements from Syria and Iraq and the current meeting of the Arab military leaders on this issue are a source of increasing concern.

We are also disturbed by the growing arms race in the Middle East. There is always the chance of a rash act. The Baath party at least had the advantage of discipline within the ranks, now this is being dissipated. The Baathis have been squeezed out in Iraq and a similar development seems to be taking place in Syria.

The Israelis are quite unhappy about our vote on paragraph 11 of UNGA Resolution 194(III). They have asserted that United States action during last year's debate signified a new U.S. attitude toward the problem. We have not considered our action of last year as in any way reversing our long-standing policy on the refugee issue.

In recent months 80 percent of our energy has been devoted to the Yemen issue. UN Ambassador Spinelli is in the Yemen seeking to find a formula whereby the base of the Yemen government can be broadened. He is due back in about 10 days. Between then and January 4, when the UNYOM exercise terminates, a whole series of policy decisions by the U.S. and the UN must be taken. As matters now stand, it seems unlikely that major withdrawals of UAR forces will take place before that date since, given the nature of the YAR, this is politically and militarily not feasible for Nasser. It appears, therefore, that UNYOM will be terminated in its present form after January 4. It is, of course, already substantially changed from what it was in the first two months of its operation when Yugoslav combat units were on the scene. We want to see a UN political presence remain in Yemen so that pressure can be kept up for a broadened YARG. In our judgment the pressures on the UAR to reduce its presence in Yemen to limits tolerable for Faysal and the British are building up. One of these is the growing disenchantment in Yemen with the Egyptians. There is also the economic burden which the operation imposes on the UAR. Two months ago we made it clear to the UAR that no new economic aid would be forthcoming while the Yemen drain continued. Economic advisers to Nasser will be the first to recognize the effect on the UAR economy.

Pressures for withdrawal are also working within the UAR Government and within the Near East area generally. Nasser's prestige has declined as it becomes clear that he is caught in Yemen and cannot extricate himself nor gain a victory. For us this argues against making January 4 a decisive date.

While UNYOM has not succeeded in removing the UAR force from Yemen, it has kept the conflict from escalating and involving a weak Saudi Arabian regime. The Soviet presence in Yemen has been reduced by about half. Present indications are that the YAR does not wish the Soviets to stay on in any appreciable numbers. The situation thus boils down to the attitude of Faysal. In the judgment of the Department an aid cut-off would not mean UAR disengagement, but it would greatly injure our position in the NE area. There are even those in the UAR who would like to see us abandon our assistance to the UAR so that another cause celebre like the Suez might be created which would serve to rally the Arabs around Nasser.

We are still working with the UAR on the Arab-Israel problem--not with great success but still the UAR is more moderate than Iraq and Syria.

Mr. Owen asked what the USG position would be if, after January 4, the UAR resumes its bombing of Saudi Arabia. Mr. Talbot replied that the question would then be whether or not such bombing were aggression. If the President so determined, then we would have no flexibility in the situation. Mr. Talbot observed that the question of aggression is very difficult to define--the subject having been wrestled with by the League of Nations as well as the UN.

Mr. Noble asked whether the USG is considering withdrawal of recognition of Yemen. Mr. Talbot replied that in considering all possible courses of action, we could pull out our Embassy and aid program from Yemen but we believe this would be interpreted as abandonment of Yemen to the UAR. Mr. Roosevelt said that the Shah feels strongly that withdrawal of recognition would be otherwise interpreted by Nasser and in the Middle East area. Mr. Talbot responded that the monarchies of the Middle East and Israel have one view of the Yemen situation but other states of the area have a different view. As a practical matter there is not for the moment in Yemen an alternative to the present regime.

OPEC

At the suggestion of Mr. Parkhurst, Mr. Page turned the discussion to the subject of OPEC. Mr. Page said that Mr. Pattison (BP), one of the "3 P's", had received a telegram from Rouhani following the December 4 OPEC meeting in Beirut stating that the companies' offer "as made" was unacceptable and that OPEC was going ahead with its plan for a December 24 meeting at which sanctions would be considered. Previously there had been reports that Iran was prepared to accept the Consortium offer but not the mechanism. On the other hand there were reports that the Saudis liked neither the offer nor the mechanism of achieving it. Mr. Page felt that the highest levels of the governments of the OPEC countries were not getting the oil company side of the story since all information was being channeled through Rouhani. Faysal, for example, does not understand the offer, he said.

Mr. Roosevelt demurred saying that as for the Shah he had spent two hours with him a few days ago, and he had found that the Shah had a very clear understanding of the offer and of Rouhani's counter proposals. Mr. Parkhurst asked if the Shah understood why the offer is the maximum which the companies can make. Mr. Roosevelt said that he does. However, he noted that the Shah had said that bargaining is what the companies and governments will have to live with for a number of years to come.

Mr. Page said the company offer gives the governments a 57-58 percent take which is comparable to any arrangements elsewhere in the world including that in Indonesia. It is better for the government than the SIRIP or Pan American deals in Iran. If the Venezuelan tax arrangements were offered to Iran, the GOI would receive less than under the Consortium offer. Mr. Parkhurst emphasized that it was a final offer but that it did not represent the least common denominator of the companies involved.

Mr. Page noted that Faysal now says that the situation is a political problem for him. Page remarked that the problem is one of Faysal's own making. If too much steam is put behind the issue, it will get out of hand. If there is a final breakdown between companies and governments, it will be "real warfare", he said.

Mr. Talbot said that he supposed steps had been taken to inform the governments of the details of the companies' offer and the rationale behind it. Mr. Page said that this had not yet occurred. The companies did not wish to give the impression that they are prepared to better their offer.

Governor Harriman asked what the companies might want the Department of State to do. Mr. Page replied that the companies might request the State Department to make sure, in Iran and Saudi Arabia, that the offer is understood. Mr. Talbot said that the Department would want the companies to have a firm idea of what they wanted in their own minds before we could consider taking any action.

Mr. Parkhurst observed that the coincidence of the impending Yemen and OPEC crises was most unfortunate, especially in view of Faysal's deep involvement in the former.

Governor Harriman asked about the proposal the Shah had made to Mr. Roosevelt. Mr. Roosevelt replied that the Shah had suggested expensing of only a part of the royalties for the time being. Mr. Parkhurst observed that if you accept expensing of part of the royalties, the oil company position against expanding this beachhead is shaky. On the other hand, the offset of the 8-1/2 percent discount on posted prices is sounder economically and can be defended. Mr. Page noted that the Consortium offer would give Iran $22 million more than it would receive under the present arrangement. The offer if applied throughout the Middle East would result in additional costs to the companies of $125 million. Additionally the take per barrel for Iran would be higher under the Consortium proposal than was its take in 1955 when the Consortium agreement was reached. Positively no company was prepared to exceed this offer; and if a showdown was inevitable, it might as well take place now.

Mr. Owen asked Mr. Davis whether, based on his conversations in Kuwait, Sayed Omar (Kuwait OPEC delegate) had indicated that he would oppose sanctions. Mr. Davis said Omar appeared moderate but it was very difficult for any one Arab to stand up against the more extreme in an OPEC meeting.

Mr. Roosevelt remarked on the December 2 Platt's Oilgram interview with Omar in which he had indicated a very conciliatory line and had suggested postponement of the OPEC meeting until March.

There followed discussion of the dangers of the issues becoming a matter of public debate and Mr. Talbot noted that we fear a band wagon situation. Mr. Page remarked that the tactic of OPEC is to get member governments into a position from which they cannot retreat. If any one person in OPEC is pushing the issues harder than the others, it is Yamani, perhaps aided by Watarri who has ambitions to succeed Rouhani as OPEC Secretary General. Perez Alfonso of Venezuela is perhaps also working behind the scenes. Venezuela has nothing to lose if an impasse between the companies and the Middle East governments is reached. If sanctions are applied against the companies, Venezuela is not affected.

Mr. Moses asked what Mr. Talbot thought of a diplomatic initiative with the Shah concerning OPEC in a manner which would not indicate any weakening of the company position. Mr. Talbot said that this was something which we would wish to look at very carefully.

/1/Source: Department of State, Central Files, POL 1 NR EAST. Confidential. Drafted by Blackiston on December 9 and approved in M on December 30.

/2/A memorandum from Davies to Talbot, September 16, contains information on the OPEC Conference, then scheduled for November 1963, and its implications for U.S. policy. (Ibid., PET 3 OPEC) A memorandum from Symmes to Talbot, December 11, contains a recommended course of action with respect to OPEC. (Ibid.) Both memoranda are in the Supplement, the regional compilation. Briefing memoranda prepared prior to the December 6 meeting are in Department of State, NEA/NE Files: Lot 66 D 5, Memos to Secretary and through S/S.

/3/The list is printed below.

LIST OF THOSE ATTENDING MEETING

Oil Executives
G. L. Parkhurst--Vice President and Director, Standard Oil Company of California; Director, Arabian American Oil Co.
William F. Bramstedt--Vice President, Standard Oil Company of California
John Noble--Vice President, Texaco, Inc.; Director, Arabian American Oil Co.
Howard Page--Director and Vice President, Standard Oil Co. of New Jersey; Director, Arabian American Oil Co.
Henry C. Moses--Executive Vice President, Middle East Concessionary Interests, Socony Mobil
Oil Co.; Director, Arabian American Oil Co.
Garry Owen--Director and Vice President, Arabian American Oil Co.
Kermit Roosevelt--Vice President, Gulf Oil Co.
Grady Davis--Vice President of Gulf Oil Co.

Department Officers
M--Governor Harriman
E--Assistant Secretary G. Griffith Johnson
NEA--Assistant Secretary Phillips Talbot
NEA--Deputy Assistant Secretary John D. Jernegan
NEA/NE--Rodger P. Davies
E/FSE--Andrew Ensor
AFN--David Newsom
NEA/NE/E--Slator C. Blackiston, Jr.

/4/Documentation on these meetings is in the Supplement, the regional compilation.

Sources: Foreign Relations of the United States, 1961-1963: Near East, 1962-1963, V. XVIII. DC: GPO, 2000.