Herbert Feis, Three International Episodes, "Episode Number Two: The Government Gives Attention to the Oil of the Middle East" (New York: W.W. Norton & Company, 1946), pp. 93-190



THE American attempt to accumulate reserve stocks of rubber was an attempt to obtain security by forehanded national action. The product was essential, the sources of supply distant and difficult of access in the event of war. The concern of the United States about oil has been and remains the same-to assure adequate supply in the event of emergency.

But nature has compelled the self-protective effort to take a different turn. Rubber is cheaply and satisfactorily stored in great quantities. Oil is not. There is only one good storage place for immense amounts of oil--underground in the pools in which they are discovered. It has been taken for granted--and this narrative is an account of the events flowing from that conclusion--that American interests must have actual physical control of, or at the very least assured access to, adequate and properly located source of supply. Thus the search for oil has taken the United States much further into the diplomatic maze than rubber.

American alarm over its oil situation has twice broken out after participation in great wars. The navies which cut off Germany from the overseas world during World War I and safeguarded the flow of war materials to the allied armies were for the first time oil-burning. They had been forced to rely mainly upon the great developed
oil fields of the United States. The performance of the airplane during the closing months of that war gave alert minds a sign of the part it would play in future warfare. The conception of mechanized armies began to enter serious military treatises. That an adequate supply of oil was a vital element in military power was one of the most easily read lessons of the war.

Recognition of this fact coincided with reputable prophecies that the underground oil reserves within the United States were near exhaustion. 1 Disturbed, the American

1. Eminent geologists in 1919 published estimates that underground reserves of the United States would be sufficient only for six to ten years of average past consumption. The more moderate expressions of opinion of that tenor is illustrated by the comment of George Otis Smith, Director of the U. S. Geological Survey In 1919, "the position of the United States in regard to oil can be described as precarious." A similar estimate was sponsored by a committee of Cabinet members as late as 1926.

government concluded that it was essential that American interests should secure possession or control of reserves in foreign lands. The Department of State carried out during the twenties a stubborn and successful campaign against British and Dutch opposition to make way for American enterprise. The first great acquisitions by American companies of rights to develop oil fields in Iraq, the Netherlands East Indies, Colombia, and Venezuela date from that era.

The same cycle of perception and fear repeated itself during the war which has just ended. We are now again engaged in a clamorous campaign of the same kind as the earlier one. The most significant phase of that campaign--which is on the current diplomatic calendar--centers in the Middle East. There we enter strange territory, troublesome lands, and encounter suspicious rivals. What of our rather stumbling course thus far?



PUBLIC interest affects officials like an electric eye. 'When it transmits an impulse, the mental gates slide open. In the early part of ~ they parted to admit anxiety over the future of our oil situation.

The American people had grown accustomed to profusion in the complacent belief that they would always have enough oil for every purpose. Suddenly they found themselves short and informed that domestic supplies after the war might be deficient even for military needs. The United States--so the alarming conclusion traveled
--was about to become dependent upon other countries for oil; in that event American security, power, and freedom of action would be in peril.

This ominous thought was drawn from sudden startling reports about the drain upon our underground supplies. Articles and charts appeared in technical and popular journals under names that were taken to mean knowledge-to the effect that the United States was consuming known domestic reserves faster than these were being replaced by new discoveries.2 An impression spread of defeated search in swamp and sagebrush; a vista painted of deep, dry holes at the end of long days of frantic drilling.

2. In almost every year between 1928 and 1940 new discoveries or extensions of earlier ones within the United States had been computed to exceed withdrawals. The accepted estimates of proven reserve in the face of earlier gloomy predictions had increased from about thirteen billions of barrels to twenty billions of barrels. The increase, however, was partly "discovery by the pencil rather than the drill"; that is, the consequence of revised estimates of the contents of known fields. This trend began to reverse itself in 1941 despite the extension of search and exploratory effort.

Simultaneously, withdrawals from American resources increased markedly during the war period from about 3.2 million barrels per day to almost 5.0. All experience indicates a large permanent increase of consumption as compared with the pre-war period.

How easily confusion is introduced into reports of the situation is illustrated by the testimony given by Charles P. Rayner, Petroleum Adviser in the State Department, before the Special Senate Committee Investigating Petroleum Resources. He stated that, "Since 1934 the curve of new discoveries in the continental United States (excluding additions to and extensions of known fields) began to turn sharply downward. While the aggregate proven reserves on successive year-end dates were greater in each successive year, the annual increment to reserves was a diminishing one." But witI~in a very few minutes the witness was talking to the Committee of "our diminishing domestic reserves," apparently unaware of the transition in meaning. Hearings, June 27 and 28, 1945, American Petroleum Interests in Foreign Countries, pp. 1-2.

The events in which the American people were then sharing disposed them to attach grave significance to this possibility. Wartime demands were taxing the resources and energies even of a nation that had learned to suck oil out of the ground with extreme skill. The ships that were feeding the fighting in Europe and Africa, the trucks that gave movement in battle, the tanks that gave crushing force, and the planes which were bringing German cities down in ruins were all fueled by oil. Most of that oil was coming from under the American soil. Each ship, truck, tank, and plane that came out of the hands of its builders was an added claim against American underground reserves. German armies in the east had captured the oil of Rumania and two of the important Russian fields. For a time it seemed likely that they would capture the other Russian fields and close in upon the fields of Iraq and Iran. During anxious months it seemed possible that all the ships and forces of our Allies, as well as ourselves, no matter where located, would become wholly dependent upon the oil resources of this hemisphere. And even there the movement of supplies from the Caribbean to the United States had been brought to a stop by German submarines. Oil, enough oil, within our certain grasp seemed ardently necessary to greatness and independence in the twentieth century.

At the same time, American civilians were feeling the inconvenience of shortage in their daily lives. Petroleum products were rationed. There was not enough even for important errands. More critical shortages were being avoided only by the intense joint effort of the industry and government to force every field to yield its utmost, and by the construction in great haste of new means of transportation.

The vastness of tñat effort quickened many minds to wonder how long it could be continued, and how much oil would remain for later days and other emergencies. Would nature continue to provide us with supplies for world-wide battle and have enough left over for peace? In whose hands would the great foreign reserves be when the struggle ended? Questions of this kind crept with increasing insistence into the thoughts of all who followed the great outflow of American oil.

These questions were legitimately born. They properly commanded the attention of the government. But they were baptized in the fluid of foreboding and were darkly dyed. The credulous reader of the more excited stories received the impression that the United States was about to be compelled to return to the bicycle and brougham, and beg or fight for oil. Of the many interpretations to which the known facts were subject the disquieting were favored. The reasons for retaining confidence that the United States would long have an ample supply of oil were gloomily appraised.

The current lag in the discovery of important new fields in the United States was not of proven permanent significance. It might be transient. \Vhen the oil industry was again able to secure equipment and men the trend might be reversed. There were large areas held in reserve by the oil companies and in the national domain to be more thoroughly explored. There were deeper sands to be drilled, other geological structures to be tested. There were improved methods of recovery to be employed.
Even though all these should fail to sustain domestic reserves commensurate to rising demand, sources of supply outside the United States were great and numerous. American enterprise was well established in many of them. But during the first shock of deprivation, the usefulness of foreign sources of supply was discounted. Traffic on the sea might be stopped.

Besides, oil producers were dejected about the future prospects; they were unsure about the wisdom of expanding operations in Latin America. Mexico and Bolivia had recently expropriated the American companies that had produced oil in their territories. Brazil was restricting the rights to own and develop its oil resources to its own nationals. Argentina was striving to confine the American oil companies in that country to a minor place. The view seemed to be spreading throughout Latin America that oil deposits should be nationalized, and foreign interests squeezed or excluded. The same dismal doubt briefly affected plans for future operations in the two most productive of the countries, Venezuela and Colombia, despite the evidence of rapidly increasing profit. 3 This particular worry soon passed as the local

3. South American production in 1945 was about 1,200,000 barrels a day (almost a quarter of the production in the United States) as compared with 671,000 barrels a day in 1938.

governments showed their fair intentions; but it coincided with the worst twitches of anxiety over other features of the situation.

A few of the calmer observers of the outlook tried to remind the country of two other reasons why the situation, though disquieting, did not warrant excited fears. A large part of the possible oil-bearing areas of the world had not been explored and were inviting American enterprise. And we now knew how to make all petroleum products--if need be--from natural gas, shale, and coal; all these the United States possesses in great quantities. The first was ignored as conjectural, the second as costly.

All the uneasiness found expression in the question launched by the Petroleum Administrator for War (Harold Ickes): would the United States be able successfully to "oil another war"? He may have intended the query as a stimulant to action rather than an expression of anxiety. But fears clustered about it, and more frightening utterances competed with it for attention; as, for example, that of the junior Senator from Georgia upon his return from a tour of the Middle and Far East: "Up to now we have been depleting our petroleum stocks at a ruinous rate, supplying not only our own forces, but those of our Allies. It is high time to utilize the petroleum deposits of other parts of the world. Otherwise, the end of the war will find our own deposits practically exhausted." 4

4. The text of his address and that of his fellow Senators on the tour is given in Report 10, Part 15, of the Special Committee Investigating the National Defense Program, 8th Congress, 2nd Session. There was at the time a widespread opinion in the United States that the great rate of use of American oil and the insufficiency of supplies for ordinary civilian use was in large measure due to laxity in supplying other countries with oil on a Lend-Lease basis, and failure of other countries, particularly Great Britain, to draw fully upon the resources they controlled. In the Thirteenth Report to Congress on Lend-Lease Operations (for the period ended Nov. 30, 1943) the whole field of oil supply for war is examined with lucid care, and the facts were correctly explained and interpreted. It concluded that "in the future, as in the past, the petroleum resources of each of the United Nations will be utilized in its own direct war effort and the combined war effort, in proportion to the maximum ability of each to produce and efficiently deliver the petroleum products needed in the prosecution of the war." (p. 45). Secretary Ickes informed a committee of the Senate: "The truth is that American and British oil resources have been employed jointly from the beginning of hostilities. Our plans have been developed in close collaboration and with a view of making the most effective use of the available oil and facilities, wherever located, and regardless of ownership. The British and American contributions may have been unequal; but they have not been inequitable. . . ."

The dangers of German destruction or conquest of Middle Eastern oil fields and refineries, the virtual closing of the Mediterranean to tanker transport, and the length of the sea haul from the Persian Gulf to western Europe combined to confine the usefulness of Middle Eastern oil mainly to nearby military operations and safely accessible points until 1943-4.

The strength of the nations was being deployed for great battles on foreign soil. Was the United States to emerge from them with this vital item of energy spent while other countries grasped the remaining undeveloped sources of supply? Would the country, like a mutilated and decorated veteran, find itself upon the return of peace dependent on the benevolence of others? Such thoughts stirred an impatient wish for protective action.



IN all surveys of the situation, the pencil came to an awed pause at one point and place-the Middle East. There, under the ground between the Mediterranean, Red, Black, and Caspian Seas and the Persian Gulf are oil resources as great as, or perhaps greater than, those of the United States. 5 Stolid geologists flew over the

5. Before the war, the contribution of the Middle East to total world supply was small, about five per cent. This was due to many factors; lateness of discovery, remoteness from main markets, political uncertainties, the invested interest of certain of the companies that held the concessions in other sources of supply, customary price arrangements. When the danger of Axis bombing and perhaps actual conquest of the Middle Eastern fields passed, production was stimulated in various fields and great enlargements of refinery capacity were undertaken. The opening of the Mediterranean made it more feasible, of course, to draw upon the oil of this area for combat operations. Total production in the area in 1945 approximated 575,000 barrels a day, as compared with 333,000 in 1938. During 1946 it is expected to reach almost 700,000 barrels.

Mr. Charles W. Hamilton, vice-president of the Gulf Oil Company, in the Hearings already cited of the Special Committee of the Senate Investigating Petroleum Resources, gave the following comparison between the rate of use thus far of United States and Middle Eastern oil resources and the present estimated reserve Situation p. 54:

  From U. S Near and Middle East
Per cent of World's Estimated Cumulative Production through 1944 63.8 3.8
Per cent of Estimated World Reserves as of Beginning of 1945 32.0 41.1

structures outlined in the desert sands, and thereafter spoke as men who had been granted a peep into the bounties of creation.

The identified fields lie within the territorial domains of numerous small Arab kingdoms, mandates, sheikdoms, or protectorates. Concessions to explore and develop
these fields are shared between the great companies that carry on the international commerce in oil. Three decades of business and diplomatic arrangement have resulted in an intertwined pattern of ownership, partly above ground and partly underground, like the tough roots of the bittersweet vine. The oil enterprises and connected financial interests of different nations work in combination in some parts of the region, manage under a flag of truce in other parts, and compete for existence in still other parts. Some American companies are in virtual partnership with British, Dutch, and French companies; others are rivals with them.6

6. A convenient summary of the division of main details of corporate ownership and political connection is to be found in a short study by the author, Petroleum and American Foreign Policy, 1944.

To a number of fields--all of great promise--certain American oil companies hold exclusive rights.7 The Arabian-American Oil Company (owned jointly by the

7. The original concession for Bahrein had been acquired by a British group. This was purchased by the Gulf Oil Company, which, however, was not free to proceed with its development because of reciprocal obligations into which it had entered with participants in the Iraq Petroleum Company. It therefore transferred the concession to the Standard Oil Company of California, which assigned it to a Canadian subsidiary-the Bahrein Petroleum Co., Ltd. The State Department helped company officials to clear up hindrances which were at first interposed by the British Colonial Office to American entry into this field.

The concession to Kuwait was also acquired by the Gulf Oil Company from the same British group. The consent of the British government was required for the transfer of any petroleum rights in Kuwait to any foreign interest. The Anglo-Iranian Company was interested in the field. In 1934 a partnership was arranged between this company and the Gulf Oil Company.

The first concession in Saudi Arabia was granted by the ruler of that kingdom to the Standard Oil Company of California in 1933. In 1939 by supplemental agreement its area was greatly extended. Both contracts were ratified by royal decree.

Standard Oil Company of California and the Texas Company) have a concession to develop the underground reserves of the vast oil-bearing areas of Saudi Arabia. That largest of the Arab countries stretches out between the Red Sea and the Persian Gulf, and lies south of Palestine and Iraq. This same American partnership also controls the excellent, though smaller, field on the nearby island of Bahrein in the Persian Gulf. Another American company (the Gulf Exploration Company) holds a one-half interest in still another important field in the neighboring Arab sheikdom of Kuwait. Given certainty and a sustained demand, these three sources could, in time of peace at least, provide all the oil that the American people might need and be willing to take. But they are located in primitive Arab states in the path of both local political showers and world-sweeping political cyclones. And they lack large assured markets and a cheap transport route towards Europe and the Western World.

The Arabian-American Oil Company has had a tranquil and thriving experience in Saudi Arabia. The sovereign, Ibn Saud, who granted the concession, was welcoming and eager to see the enterprise expand. A good name and friends have been gained among the local people. Before the war its production was small; but in 1943 a much increased war demand was within sight, and every drilled well extended proof of the greatness of the oil resources within the company's control.

Despite these omens of favorable future fortune, the executives of the company were not at ease. Their words, as they conversed with government officials, unlocked a storeroom of worries.

They felt that their operations were at the mercy of British diplomacy, at a competitive disadvantage, and at the hazard of local disorders and levies.

British diplomacy had long been paramount in most of the Persian Gulf region where it had skillfully maintained British interests against rivals. It had acquired the right to supervise the foreign relations between many of the small Arab states in the neighborhood of Saudi Arabia. The scouts of the American oil companies when entering this area had at times been made to feel unwanted; they had been compelled to pay a fee to the influence of 'Whitehall. They feared that the British would not, if it could be helped, permit them to develop their operations in Saudi Arabia undisturbed. This fear defied the many signs that the sovereign was determined to repel all foreign attempts to rule his mind or actions.

The heads of the oil companies were not wholly sure that the favor shown to American interests might not someday be withdrawn. They longed for assurance that the signed concessions should have a stronger basis than the will of a mortal and impetuous ruler--preferably the assured support of the American government.

The company officials also had convinced themselves that the British government was readier than the American to make opportunity for its own national enterprises; to provide subsidies to local sovereigns, and so ease their way. This attitude had been espoused by a group of touring Senators, who reported to the Senate that:

"Although private American enterprise is responsible for discovering these [i.e. the Middle East] rich resources, relatively unprotected by American diplomacy, it is operating in an area where the British influence has been and still is considered paramount. American companies are not dealing with private interests but with the governments of the countries involved. They are competing either with the British government itself or with companies working in close association with the British government. . . " 8

8. Additional Report of Subcommittee of the Special Conmzittee Investigating the National Defense Program. Section 1-- "Petroleum Matters." 78th Congress, and Session, Report No. 10, Part 15.

The Arabian-American Oil Company faced competition with two large combinations in particular, the Anglo-Iranian Petroleum Company (controlled by the British government) and Iraq Petroleum Company (of which Anglo-Dutch interests own a majority). These were well established in the great oil fields of Iran and Iraq--serving the best established markets for Middle Eastern oil. The owners of the Arabian-American Oil Company did not think that these rivals would readily make place for it. Welcoming acceptance of new competition is not the rule in such business situations; in fact established enterprises have been known to feel satisfaction in the troubles that may beset new entrants. Anecdotes of the rebuffs met during the early American efforts to enter the region and of the coolness of the local British officials seemed to the listener to have grown almost into cherished memories. At any rate, suspicion that seemed to exceed the ordinary alertness of business rivals existed. It was purveyed in Washington.

Worry over local circumstances was also reflected in the catalogue of anxiety through which the oil company officials ran. The men that guided the Arabian-American Company through its first years had become acquainted with the history of local tribal rebellions and forays- especially in Iran. They feared a recurrence of such threats to their operations. They had learned from talk and memoirs the great relief felt by the British oil men who did the early drilling in Iran, of their relief when the British government became a partner in their business. They longed to feel the same glad certainty that Sir Arnold Wilson, a British political officer who had much to do with sustaining the original Iranian concession, had recorded in his diary, "I have read with intense interest of the acquisition of a controlling interest in the A.P.O.C. (Anglo-Persian Oil Company) which will now have no difficulty." 9 In the magnificent area of its concession, the dream of the drill could be made to come true. If only it could

9. Sir Arnold Wilson: A Political Officer's Diary--1907-14, p. 290. The volume gives an extremely interesting account of the state of tribal relations during this period. It also recounts how close the English owners of the original concession in Iran came to quitting work upon it--being persuaded to go on by an embittered geologist and an alert local government representative.

Sir Arnold Wilson, no doubt, would have found vindication for his judgment in the action taken during August 1946, by the British government in sending troops to Basra, Iraq, just across the river from Abadan, the center of disturbances affecting the operation of the Anglo-Iranian Company. The Indian government announced that this measure was taken "for protection, should circumstances demand it of Indian, British and Arab lives and in order to safeguard Indian and British interests in South Persia." Serious fighting between Arab employees loyal to the company and others reported to be members of the extreme left wing had broken out during a strike-over conditions of work and housing. The British Foreign Office simultaneously informed the Iranian government that it would be regarded as responsible for the safety of British lives and property. New York Times, August 3 and 7, 1946.

be secure against the schemes of rivals, the whims of sovereigns, the raids of plunderers!

And, it may be added, from the risk of having to lay out large sums not in production, but merely to preserve its opportunity. For several years the treasury of Saudi Arabia had been in deficit. Unusual defense expenditure and rising costs of imports increased expenditure, while drought and the loss of revenues from the pilgrim traffic to Mecca reduced income. If Ibn Saud failed in his payments to tribal leaders, disorder or rebellion might result. Or Ibn Saud might turn resentfully against the American company that had failed to save him from such troubles. The British government had made various periodical advances to him, as to many other Arab leaders. But these scared rather than pleased the American oil company. The Arabian-American Oil Company had, itself, as of 1943, advanced some seven million dollars against future royalties. In order to retain the full future co-operation of the sovereign it might have to advance substantially greater sums. For the time being, production was small. Unless it was helped to earn greater income or spared the necessity of making further loans, the Arabian venture might turn out to be a costly burden to the parent companies back home.

Still further food for uneasiness was found in the fact that Saudi Arabia was a new state. The peaceful succession of power from Ibn Saud, in the event of his death, to one of his many descendants, was not guaranteed by past history. Even if this were achieved, the kingdom that he had riveted together might not be maintained under his successor.

And lastly there were the unpredictable currents of war. Who knew where the armies of Britain or Russia might end up? The group of Arab kingdoms had emerged from the dissolution of Turkey at the end of the last war; who could foretell their political orbit in the midst of this greater struggle?

Such were the worried thoughts of the men who held the right to draw upon the great golden pools of Saudi Arabia and Bahrein. Light is the spirit of the driller, dark the thoughts of the owner of the treasure.



DURING the late spring days of 1943 these anxieties travelled their murmurous way along the air-conditioned corridors of the Navy and Interior Departments, and filtered through the latticed doors of the State Department. They found an audience in the dingy, square room where the Economic Adviser met with his colleagues on the Inter-departmental Committee on Petroleum Policy. This group was composed of representatives of the State, War, and Navy Departments, and the Petroleum Administrator for War (Ralph K. Davies). Its assignment was to keep informed regarding international oil matters, to formulate policy and suggest action in regard to the future American oil position. Whether and how best to extend aid to the American oil companies established in the Middle East became the most absorbing concern of this group. The maps of these remote lands allured, the tales of the company officials excited, and the geologists' reports impressed.

Some of the dangers to which, it was suggested, the American enterprises in Saudi Arabia, Bahrein, and Kuwait were exposed seemed to be outdated. They were imprints left by the earlier struggle to gain admission into a secluded and guarded area. Diligent questioning revealed little more than a state of mind.

There seemed to the Economic Adviser scant or no evidence that either the British government or the British oil companies would exert themselves deliberately to oust or gravely injure their American rivals. It seemed more probable that--while stubbornly taking care of their own interests--they would find it best to accommodate their activities to the American newcomers. Scotsmen--and they are important in the international realm of oil--are calm and measuring men, not likely to misjudge consequences. It was less possible to have an opinion as regards the ultimate stretch of Russian action. The long sustained wish to have free and assured access to (if not actual control of) a port on the Persian Gulf was not forgotten; in fact, it was deemed certain that it would revive. But even so, it seemed unlikely that in order to achieve that end, or in the course of doing so, the USSR would seek to disturb or dispossess American oil rights so far along the Persian Gulf. The indications were that it would seek rather to secure oil rights nearer at hand, and most probably in Iran, for itself.

Of the various possible local dangers, disorder on the part of the tribesmen seemed to be vanishing. Before many years it would take its place in the movies along with stage holdups in the American West. Nor was there any sign then that Ibn Saud's welcome of American enterprise was growing thin. The dispute over Palestine had not begun to cast even a faint shadow. He seemed clearly to desire an extension of its operations, and therewith an increase of his royalties. Nor was there any rumor that his leadership was threatened. There had been no labor troubles between the company and its workmen up to that time; the Economic Adviser was awakened by subsequent events in Iran to the possibility that they might be sympathetically incited as part of an attack on all Western interests.

Some of the fears of the companies, in short, seemed subject to discount. Still there appeared to be ample reasons to find means of assuring the American companies undisturbed control and a fair chance to prosper. American control would mean more rapid development, greater responsiveness to the ideas of the American government, cheaper oil. It might, though it was not clear how, improve the chance that this source of supply would be available in the event of another war. Discussion within the committee centered on what measures could accomplish our purpose while causing the least disturbance to foreign governments or competing oil companies. The task, as the Economic Adviser understood it, was to find measures sufficient to the end--which could not be construed either by the Arab world or by our war allies as unfair or threatening.

The owners of the Arabian-American Oil Company had made a proposal that appealed to the Economic Adviser. They offered to grant the American government an option to buy a great quantity of the oil that lay underground in Saudi Arabia whenever it might choose to do so, at a discount from the market. Until wanted, the oil would remain underground. The company would see that there would always be enough to meet a government requisition; it was sure that there was more oil underground than could be sold during the life of the concession.

This offer, it was easy to perceive, was prompted by the wish to gain a semiofficial status for the concessions. It was akin to various other situations in which American oil companies had sold or traded substantial shares in their concessions to foreign nationals to secure protection. The proposal seemed to have several advantages. It would be a means whereby the stamp of vital American interest could be placed upon the oil of Saudi Arabia. The arrangement of such an option would display the fact that the American government regarded that source of supply as part of its military reserve. This notice should discourage jealous or unfriendly intrigues. It should make it more probable that the property would be immune from local disorder, and that the Saudi Arabian government would protect its operations. And if by unhappy chance an unfriendly government came into power, it would be less likely to indulge in impulsive mistreatment of the company. At the same time the stamp would not be indelible. The American government would not be obligated to protect the company against its own mistakes, or support it if it was wrong. It could, if it so chose, ignore any or all of its troubles without serious embarrassment.

The acceptance of this option could not be reasonably opposed by other oil interests--American or foreign. It might, if used, mean a loss of future sales to other possible suppliers. But it would in no way interfere with their regular business, or cause the government to become an active element in the oil business. There was no reason why the American government should not enter into similar agreements with other oil companies, both American and foreign, possessing reserves outside of the United States. In this way any charge of favoritism as between oil interests or sources of supply could be met. Extensively used, it appeared to offer a method whereby large supplies of foreign oil could be set aside for our use in time of future shortage or emergency.

And lastly, it would place the Navy and Air Force in an excellent position to procure future supplies cheaply. Winston Churchill had, as head of the Admiralty, professed this to be one of the main attractions which led the British government in 1913 to buy control of the Anglo-Iranian Company. The way was open for the American government to secure the same advantage by a less controversial method.

But this option-contract arrangement was not thought adequate by the representatives of other government departments. Their contrary arguments were several and firmly sustained. It was their view that such an arrangement would in reality impose upon the American government an inflexible obligation to protect a private property. They argued that if the government accepted such an obligation it ought to be certain that the company conducted its affairs with due regard for the welfare of Saudi Arabia and put the interest of the United States above its own. In other words, they were opposed to underwriting, even in a loose way, a private balance sheet.

The Economic Adviser doubted whether the option contract would decisively affect the decision of the American government in regard to the protection of the properties in any truly troublesome situation. That would be settled by our need for the oil and the risks or objections that might present themselves. He had never discovered diplomacy at a loss for phrases to justify whatever course it was determined to pursue. Further, he believed the future need of the company for sympathetic official aid would be so great as to assure compliance with any reasonable suggestion or criticism the American government might wish to make.

What appeared to the Economic Adviser an advantage of the option-contract method, seemed to the others only a weakness. They argued that while the arrangement placed an obligation upon the American government to defend American control of the Saudi Arabian and Bahrein oil fields, it was doubtful whether public opinion would support it in doing so--as long as it was privately owned. If assured American control of this oil was needed, our action should be conclusive; the government should be prepared to defend it against any and all dangers. This, they thought, it would not be able to do unless the rights to the oil were transformed into a public interest. Only then could it be certain of public support in the employment of its diplomatic and economic influence, or if necessary, of its armed force.

This train of judgment came to a bold conclusion. The American government should buy the companies that held the rights to develop the oil of Saudi Arabia and Bahrein!

The Economic Adviser maintained that such a step was unnecessary, disturbing, and would give a false impression of security in the event of war.

It seemed unnecessary because the American government could be just as determined in its defense of the properties whether or not they were publicly owned, and less apt to be shoved into impulsive or excessive measures.

It seemed disturbing in several possible ways. It might incline the American government to shape its decisions on Middle Eastern affairs on wrong grounds. It might involve us needlessly in disputes with local sovereigns or other oil interests. Or our intentions in acquiring so important an enterprise (refineries and pipe lines would almost certainly follow) could be easily misconstrued.

The very fact that it would be a government-owned enterprise, the Economic Adviser suggested, might incite attack upon it. To which view the answer was made that as long as the enterprise was private it would be thought weak and an easy prey; while as a recognized enterprise of the American government it would be immune. In retrospect the Economic Adviser is compelled to admit that in the atmosphere that bathes the Middle East at present, weakness, or suspicion of being weak, is more likely to invite attack than plainly displayed strength.

It seemed to give a false promise of security because the availability of Middle Eastern oil in war time was more likely to be settled by diplomatic and military circumstance, than by ownership. American ownership might give us the chance to deny this oil to others-by destruction. But it would only be available to our forces if they held physical control of the oil fields and refineries. Who could predict whether we would or not? The British ownership of vast supplies in the Middle East was then being of little use in the defense of the British Isles or the fueling of the British Navy. It contributed to the salvation of the Middle East only because the British army and air force had managed to turn back the Germans and Italians at El Alamein.

The longer the mind dwelt upon this aspect of the question, the farther stretched the perplexing and unanswered queries. Would even government ownership assure the availability of Middle Eastern oil in any serious future crisis? Would it not leave the problem of defense the same? Was it in the thought of some advocates of governmental purchase that if the American government acquired these oil rights in Saudi Arabia and Bahrein, other diplomatic and military measures to establish an impregnable military position for the oil fields would follow? Britain had always had bases located near the Iranian field, and had shown herself determined to retain them.

The Economic Adviser knew that there were some officials who were eager, and properly so, to extend our trade connections throughout the whole of the Middle East. To do this they thought, and again there was a good basis for their opinion, the government must exert itself as a counterweight against British and Russian influence.

He also had intimations of a belief in a few circles within the government that it had become prudent to seek to acquire, or at least to assure the use of, naval and air bases in the region. They seemed drawn to this conclusion by the belief that the United States had so vital an interest in the future of the region that it would find itself compelled to enter the struggle for influence; and that it should, therefore, put itself in a position to make its views effective--if a crisis should arise. But these opinions were expressed only vaguely and with reserve, and had no established standing. Still, at midnight when the mind turns round upon itself, he wondered whether
the idea of buying the properties rested upon the view that this oil would be essential to American defense, or whether it was but an item in an impulse towards the broad extension of our interests and activities, civil and military, in the region.

Where did defense end and ambition begin? Where was the line between inert neglect, legitimate and friendly expansion of the national interest, and provocative intrusion?

The advocates of bold action supported their opinion by still another point. Only if the government were in actual possession would it be possible, they thought, to do the many other things required to bring about a large increase in production in these fields. All agreed that new markets must be found, transport improved, and new refineries built. These meant great new capital investment; there seemed little likelihood then that the present owners of the concessions would risk the money unless they felt more certain of their commercial future and political safety. And it was argued that the government should not provide the funds without acquiring control of the properties. The rejection by Congress just at this time of an agreement between the Navy Department and the Standard Oil Company of California for the exploitation of certain parts of our domestic naval reserves was taken as a warning signal. Almost certainly if the government financed the Arabian-American Company the government would bear the brunt of the risk, and the company secure most of the gain; while the great expansion of the Anglo-Iranian activity, under official British control, stood in stimulating contrast.

Finally, it was suggested that only government participation could undo certain hindrances to the expansion of the American-owned companies. Before the Arabian-American Company, for example, could build a pipe line to the Mediterranean and locate a refinery there, the consent of the British, the French, or Egyptian governments would have to be obtained. This might not be granted because of the feared opposition of the other oil interests in the Middle East. As for the very promising field in the nearby sheikdom of Kuwait in which the Gulf Exploration Company held a one-half interest, there too, an obstacle to expansion existed. The Gulf Oil Company was pledged by agreement with its partner (the AngloIranian Company) not to sell the oil of Kuwait in markets already enjoyed by the partner. Its own attempts to have this restraint removed had been evaded. The influence of the American government would be helpful in this situation also.

It would be confusing to follow further the flow of discussion, and misleading to make it seem complete or systematized. The representatives of the Petroleum Coordinator and the Navy stood firm on what appeared to them simple indisputable propositions: the oil was there; the United States might need it; the best way to make sure that it could be had if and when wanted was for the government to buy and defend it; and such a course could properly offend no one. The Economic Adviser chivied at this train of premises and conclusions ineffectively, and without much satisfaction in his quizzical performance. Who has not longed to visit in the tents of the Arabs and have occupation in the Holy Land?



THE discussion of these questiohs within the Interdepartmental Committee on Petroleum did not exhaust their full measure, but they revealed how great was their depth. The argument within the Committee was now interrupted by a troubling crisis. The Economic Adviser had known that two participants--one from the State Department, the other from the office of the Petroleum Administrator for War--had been drawn from the executive ranks of the Standard Oil of California. He had a lurking memory that they may have retained some kind of loose connection with this company; he thought it was an arrangement to safeguard pension rights or something of that sort. Now he was faced with the assertion that they both were continuing to receive large and regular salaries. Inquiry proved this to be correct. Obviously, the Committee was a vulnerable group to formulate government policy in regard to the protection of American oil enterprise in Saudi Arabia and Bahrein. The Economic Adviser, after advising his superiors, disbanded it.

A new group was formed to take up the task-with instructions to prepare a report for the Cabinet and the President. The Under Secretary of the Interior (Abe Fortas) stepped in to represent the Petroleum Administrator; he turned out to be a more determined advocate of government purchase than the offlcial he replaced. The Under Secretary of War (Robert P. Patterson) was prevailed upon to accept the chairmanship of the new group. His training as a judge and fearless directness would, it was hoped, guide the discussions to a correct and unanimous conclusion.

The group met for long afternoons of talk in the office of the Under Secretary of War while soldiers impatiently suffered the interference.

But the differences defied the arts of persuasion and of draftsmanship. The representatives of the Navy and Petroleum Administrator seemed to become more insistent as the talk went on, not less. The able former lawyer who spoke for the supply services of the Army held their view but for a different reason; he did not think Congress would tolerate any other arrangement. But the Economic Adviser remained unconvinced. He was hardly, however, in a position to command agreement. For while the Secretary of State (Cordell Hull) (to whom the course of discussion was reported with animated detail) seemed to believe the Economic Adviser wise and his differing associates foolish, he at no time showed an active wish to step between them. It was decided that the report to be submitted should, after emphasizing the need of some action to safeguard American control over Middle Eastern oil, present the two alternatives on which argument had centered.

The report was signed by the Cabinet officers in whose name the fray had been conducted, and transmitted to the White House. On a hot July afternoon, when the roses in the circular garden outside the windows of the Executive offices stood straight and still in the breathless air, the President gave his authority to the more intrepid line of action. The proposal to try to buy a stock of the Arabian-American Oil Company was selected as the least ambiguous and most effective way to increase the security of our future oil supply. The discussion was jovial, brief, and far from thorough. A boyish note of enjoyment was in the President's talk and nod, as usual when it had to do with the lands of the Middle East. The buoyant certainty of the Secretary of the Navy and the Petroleum Administrator for War that no shorter step would do in this uncertain world and that this longer step could easily be carried off prevailed. The Secretary of State assented with an air of faint but cheerful readiness. His burdened spirit, groping among the formulas that might induce men to live in peace, could not bring itself to grapple with the differing views of assertive colleagues concerned with oil. The tangle of purposes made this subject a rough traverse for everyone. No one was to emerge from it unscratched.

The Petroleum Administrator for War and the Economic Adviser were designated to conduct negotiations for the purchase of the stock of the Arabian-American Oil Company and the Bahrein Petroleum Company, in accordance with the terms of the report submitted. 10 This stock was held in equal shares by the Standard Oil

10. The prospective field of operation was extended early in the negotiations by the decision of the government to construct, or have constructed, another large refinery on the Persian Gulf--and preferably in Saudi Arabia--to fuel the war in the Pacific.

Company of California and the Texas Company. Invitations were immediately sent to the executives of these two companies to come to Washington.



THE purchase was to be made in the name of the Petroleum Reserves Corporation. This was the name given to the new organization created to manage the activities of the American government in foreign oil matters.

A need for a new organization to carry out this assignment had sprung out of the discussions just recounted. It was intended that all the main and usual operations in foreign oil fields should continue to be conducted by, and as, private business. But it seemed prudent that the government should be in a position to take measures for national safety that private business, unaided, might be unable or unwilling to take.

The possible need of its assistance seemed greater because of our tariff policy. It is probable that domestic oil will continue to receive preference in the American market and that imports will be restricted to a small and convenient supplement. This causes the foreign oil undertakings of American companies to be commercial orphans in a sense.

Of all situations that in the Middle East was most in mind. Any and all of the measures proposed to improve the position of the American companies in the Middle East called for government aid or action. An option on underground reserves would be an official agreement. The purchase of the stock of the Arabian-American Oil Company would, of course, be a direct government act. The construction of a new pipe line and refineries for the oil products of the Persian Gulf would, it seemed probable, require government financing. A new organization seemed necessary to conduct such activities effectively.

Further, the duty of safeguarding the American oil position in foreign lands was diffused between several branches of government--which met on terms of mutual watchfulness. The job seemed to call for a specialized organization with more power to act than any existing one. It could maintain more intent watch over the foreign petroleum situation, keep informed of the performance of the American oil companies abroad, and, if need be, harmonize and try to direct them by suggestion. It was viewed as supplementary to, and perhaps an instrument of, the diplomatic support of private American oil enterprise in foreign lands.

Since it was impossible to foresee the exact range of its operations, the powers conveyed by its charter were broadly drawn. It was authorized

"to buy or otherwise acquire reserves of crude petroleum from sources outside the United States, including the purchase or acquisition of stock in corporations owning such reserves . . . and to construct and operate outside the United States such refineries, pipelines, storage tanks, and other facilities as are necessary in connection with carrying out the objects and purposes of the corporation. . . ." 11

11. Federal Register, July 2, 1943.

All departments of government which had an interest in foreign oil matters were given a place in the new agency. This meant the State, War, and Navy Department, Petroleum Administration for War, and the Foreign Economic Administration. The last named possessed, under Executive Order, the right to direct the use of funds to buy raw materials abroad. It was not easy to fit these departments together into a new pattern of authority; and it was not achieved without a bruising of knuckles and some smothered reproaches. The most troublesome of the problems was whether or not to include the Federal Loan Administrator (Jesse Jones). He had long been master of all government establishments that dealt with matters such as these, and he wished to have the newcomer placed in his family. But the Petroleum Administrator for War doubted his grasp of the national need and his willingness to risk money on some of the projects that were in mind. The other participants could not dispute this doubt. The Petroleum Reserves Corporation might be called upon to take swift, novel, and venturesome action; it seemed best not to have to struggle with too conservative, too immobile weight.

Thus, the Federal Loan Administrator was shunted out of the program. The plans of organization that his legal staff had hurriedly prepared, preserving his control, were diverted to the trash basket. Others prepared by the staff of the Petroleum Administrator for War under forced draft appeared in the Federal Register and told their own story. Now, for almost the first time, the commanding figure from Texas who ran the RFC could not draw the right response out of the telephone receiver no matter how positively he talked into it. No aid--not even a direct response--was to be had from the White House. The Petroleum Administrator for War assumed the presidency of the new organization with no more comment than a much decorated, grizzled veteran receiving another medal or award; with only a rough, gruff clearing of the throat, in fact. He was assuming a new command, not retiring to a routine job. In the winter of 1945-6 that command was to come to an unannounced end. The veteran was then, in turn, to learn that he was no longer in control of the Petroleum Reserves Corporation from the pages of the Federal Register or some such anonymous source.

But for this cycle of events, he was in command. And anxiety existed, and not for the first time, in certain parts of the State Department as to what that assertive spirit might do. Certain of the right, he was sometimes given to prefer a fight to a study of the issues in dispute; and in a fight he could twist and turn without benefit of the rule book. He had shown little use for some of the more subtle, patient, or evasive maneuvers of the State Department. He had slapped and snorted at any sign of expedient accommodation to the dictators. He had fought a rough engagement with the State Department over the sale of helium gas to Germany, and had won. He was known to feel that the Department stood in too great awe of the British imperial aura.

The Economic Adviser had admired this assertive figure and, often at unhappy cost, had supported most of his judgments-if not his impulsive and sometimes unfair methods of enforcing them. But the favored technique of negotiation of the self-styled "curmudgeon" seemed that of the blow followed by the kiss; this was not an ideal method for the handling of foreign affairs. And of special importance in regard to the first main assignment before the new organization, he seemed little concerned with the tissue of conflicting interests that centered in the Middle East.

It seemed best, taking all in all, that those presumably responsible for the conduct of our foreign policy have suitable and clearly expressed right of control over the Petroleum Reserves Corporation. With this purpose in mind, two provisions were written into the by-laws of the new corporation:

(a) "The Corporation shall not embark on any major projects or undertakings without receiving the prior approval of the Secretary of State.
(b) "All major negotiations with foreign governments should be conducted through the appropriate missions of the State Department, or else under its supervision."

The Petroleum Administrator showed his amiability by agreeing to these provisions. The Secretary of State recognized their logic but wondered whether the Department might not be putting itself into a rough seat. With so many companions in the driver's box, it might not be pleasant, his manner hinted, to appear to hold the reins or operate the brake. Thus, he seemed to acquiesce in these provisions more out of a wish to satisfy the Economic Adviser's longing to wear a coachman's uniform than out of any anticipation that it would be a pleasant ride.

The directors of the Petroleum Reserves Corporation perceived that any important or novel undertaking and expenditure, such as the purchase of the stock of the Arabian-American Oil Company, would have to be submitted to Congress. This knowledge influenced every idea that was inspected in their meetings and every
clause in the draft that was prepared. It was foreseen that any deal would have to survive the scrutiny of some members of Congress who would oppose any terms that gave the private owners a profit, and other members whose constituents were engaged in domestic oil operations. A witness might have received the impression that the officials concerned were afraid lest they emerge thoroughly smeared with oil. They negotiated in an asbestos wrapper. The better to deal with the ruses that were anticipated, the Petroleum Administrator for War drew in a former associate who had learned the oil busness in Texas. He had the gift of being able to advance preposterous proposals with a quiet and innocent air; everyone liked him and no one was fooled.



THE negotiations for the purchase of the stock began in August and went on fitfully through the whole of the summer. The participants came together in the air-cooled gray offices of the Interior Building in irregular sessions, then drew apart, sometimes for days or weeks. The meetings and separations alike were, in the mind of the Economic Adviser, tinged with ambiguity.

All the previous talk between officials had failed fully to trace the consequences of the stock-purchase plan. The government representatives, therefore, had to stop to review aims, to compose proposals, and to find answers to objections.

As for the companies, they had gone fishing for a cod and had caught a whale. They had first made their way to Washington in search of protection against enemies hard to name and desirous of help in developing their properties. Perhaps also with the inner thought that skillful persuasion might save them from the need to make further advances to local rulers. Then, one day they walked into the Interior Building and were met with a suggestion that they sell their property to the government and withdraw from their enterprise. The more they thought of it the larger became the pearl they held in their hands, the more exciting its possession, the higher the price it might someday fetch, and the more ill luck it might bring to any other owners. Or in language that more literally reports their actual statements, the more billions of barrels of oil they reckoned they controlled, the greater the income it would some day bring, the greater the harm to their chances of getting concessions elsewhere-if they sold to the government those they held in the Middle East. Furthermore, they found none of the financial offers generous. The fear of loss, which had led them to Washington, was not reflected in the appraisals that they placed upon their property after negotiations began. The Economic Adviser received the impression that they were afraid of being trapped into a bargain. At every meeting, the lawyers sat next to the talkers like sentinels.

The part played by the Economic Adviser in the discussions with the oil company group grew fainter at each successive meeting. The Petroleum Administrator for War did not seem to need his partnership and barely acknowledged it. Still the Economic Adviser did his best to quiet certain anxieties that the companies expressed-- particularly that the British government would strongly object to the transaction; for he did not believe that government to be in a position to do so. He found himself suggesting compromises in regard to the money value of the properties; but that only made him suspect to everyone. It was a weak effort to match the hopes of the companies with the pessimistic version of existing realities favored by the government participants.

The talks were impelled on by the taciturn will of the Petroleum Administrator for War and the eagerness of the Secretary of the Navy. They knew, what they wanted; and they were confident it could be had. The latter, in fact, would have bet and lost an excellent Panama hat had the Economic Adviser ever worn one. The wish to complete the deal became the stronger when it became clear that a great new refinery would be needed on the Persian Gulf to supply our forces in the Pacific. It seemed a pity to make this large government investment without acquiring an interest in the fields from which the crude oil would be drawn.

The first proposal made to the Standard Oil Company of California and the Texas Company was that they should sell all of the stock of their subsidiaries that possessed the concessions in Saudi Arabia and Bahrein. When this was refused, it was replaced by an offer to buy a majority of the stock. This was to be accompanied by an arrangement that would have entrusted the business management of the properties to the existing companies and assured them of enough oil for ordinary trade. When the second offer was refused a black and blue mark showed upon the spirit of the government negotiators.

They canvassed ways of trying to extend government control over another important source of oil in the Middle East. It was remembered that the Gulf Oil Company owned a half interest in a most promising, though smaller, oil field in the nearby Arab sheikdom of Kuwait. Talk with the other oil companies was suspended while proposals of partnership were broached to that company. It was thought that if such a partnership were arranged, Kuwait production could be greatly expanded; for the American government might secure a revision of the restrictive conditions of partnership under which the Gulf Company operated and supply funds for expansion. But this initiative did not progress.

Therefore, the negotiations swung back to their original orbit. In late September a new basis was devised under which the government would acquire, in the first instance, only a third part of the ownership. This participation was then to be gradually increased as the government put up capital for new refinery construction and other purposes. Other features of the suggested plan were that the private owners and the government should have equal representation on the Board of Directors, that the companies would retain unhindered control over the commercial operations of the company, but that the government would have deciding authority in certain questions of policy.

This new proposal seemed for a brief time to be acceptable to everyone. The government representatives thought, early in October, that an agreement had been reached, though there were signs that the companies still retained doubts as to just what kind of partner they were about to embrace. But between the last talk and the formal completion of the deal a rebellion took place in company circles.

The government was notified that the companies rejected the proposal and wished to withdraw from any further discussions. This word was a disappointing shock. A missions had been organized by the Petroleum Reserves Corporation to proceed to the Middle East in order to look over the properties and to obtain Ibn Saud's consent to the transaction. It was poised to leave as soon as the contract was drawn. The eminent group of geologists and officials flew off for Arabia, but only as observers, not as emissaries of a new venture.

Why the companies finally reached their negative judgment, the Economic Adviser was not certain. For by that time he was only on the fringe of the bargaining. Probably the companies feared that whatever the terms of the agreement, the government would dominate the enterprise. Then, too, the financial arrangements gave them no obvious cash profit; the government was to obtain its third share in the Arabian-American Company for the same amount as that which each of the two companies had invested in its third share; they doubted whether this would satisfy the stockholders. Further, the companies seemed to grow afraid that they would become suspect in the eyes of other foreign governments and at war with all other American oil companies. And, lastly, the companies would have been stupid not to have divined that they could count upon official interest in their welfare even though the government did not share in the ownership of the oil fields.

Government officials forced themselves to accept the failure calmly. Waves of silence were permitted to wash the memory clean. It remained their duty to see that the opportunities for oil development owned by Americans in the Middle East were made secure and that production in this area went forward. Thought turned to other means of achieving these ends.



THE way was open for a new approach. The Secretary of State had acquiesced in the stock-purchase plan. But there was a repressed judgment throughout much of the Department that it would have been wiser to seek a solution for our problem by a more co-operative method. This judgment the Economic Adviser shared. Risks of misunderstanding and of combative countermeasures existed.

If the American government vigorously pushed production in fields of which it became the owner, set higher standards of work and return, new demands would arise throughout the Arab world. This was no reason for remaining inactive; perhaps, the contrary. But it was well to recognize that Great Britain and the USSR could not fail to wonder whether, if American energy in oil development did not wilt under the desert heat, their influence and position, particularly in Iran, might be challenged. They were almost certain, also, to ask themselves, if not us, whether the American government intended to follow this step by other agreements with Saudi Arabia on economic or strategic matters.

Then, too, there were the other great oil companies of diverse and mingled nationalities who did business in other Middle Eastern fields. Certainly if the American
government became the owner of large producing properties their commercial ties and prospects would be affected. The pattern of competitive relationships in the Middle East was as finely woven as that of a Persian rug. If we walked across it with heavy boots, unintended damage might be done and quarrels might follow.
The United States should if possible make its way in the Middle East as a welcome and reconciling partner, and not stumble into it as an intruder. After the end of the last war, disputes over the rights to develop the oil resources of the Middle East had badly smeared the peace tables. Diplomatic suavity and trust had become submerged in a clamor of national demands. It was important to avoid a repetition of this disruptive grab.

These reflections led the Economic Adviser and his colleagues on the Petroleum Committee which had been set up within the State Department to the conclusion that an international basis should be sought for an orderly and combined program. Since British companies controlled so large a part of the oil resources of that area and British political influence was so widely established therein, it seemed sensible first to seek agreement with Great Britain. Further, it seemed opportune that these two countries should define their responsibility for dealing fairly with other countries. The times called for the affirmation of some rules to be observed by those who controlled a resource of such universal importance as oil--if that control was not to be regarded as an unjust monopoly. To countries that controlled no source of supply, assurance should be given that they could secure the oil produced on fair and equal terms. To countries that permitted others to develop oil resources within their territories, promises should be made that they would secure an adequate share of the benefit.

The certain interests of the USSR in any agreement that affected the affairs of the region was not forgotten. It was clearly understood that no step should be taken in concert with Britain that might injure the USSR or place it at a disadvantage. But it did not seem feasible immediately to include that country in the preparatory discussions. The American and British governments had virtually pooled their oil supplies for the conduct of the war; the USSR was managing independently and not even exchanging information. Discussions with Moscow, even on matters essential for the conduct of the war, usually took a difficult course. In this matter the first formulations were certain to be groping even between participants who approached it with the same economic conceptions. It was impossible to guess what types of proposals the USSR might make; they might bring the whole pattern of ownership in the region into question. It seemed foolish to take this risk before our own policies were defined. Lastly there was the fact that the USSR possessed no oil rights in the region and had shown no recent evident wish to acquire any.

For all these reasons it seemed most practical to find out first whether it was possible to work out in concert with Britain a policy that would be acceptable to the rest of the world. It was not intended to seek any new advantages for the United States; only to safeguard those it possessed and promise that they would be used for common good. In retrospect it still seems to the Economic Adviser that the decision to restrict the first conversations to Britain was the only feasible one; and that any other procedure would have resulted in great confusion.

Such were the thoughts in the minds of the draftsmen of the State Department who set about the formulation of a possible agreement with the British government in the late spring of 1943. They were warmed by the idea that they had a creative opportunity to reconcile the interest of nations by making the oil of the Middle East, in essence, a common asset. The task was novel. It was felt to be important not only in itself, but because the principles that were being formulated might become the model for other raw materials.

Enthusiasm was tempered by a knowledge of the tenderness of such ideals and the toughness of self-interest. That, it had been observed, was why the ideal so often wears out first. Thus fatiguing goals were set aside, and ones thought to be comparatively easy were selected. And even these, it was perceived, must be such as could be reached through voluntary consultation between governments and voluntary co-operation of the oil companies. Neither the United States nor other countries were willing to subject the oil operations of their nationals to international control. The power of the American government itself to give orders to any private oil company in regard to its operations was slight; it consisted of little more than the power to refuse help.

A draft slowly simmered along in the State Department during the summer. This gradually reduced itself to a short and simple text. The Economic Adviser had kept the Petroleum Administrator for War informed of the ideas of its draftsmen. But during the spring and summer months, official decision, as has been recounted, turned towards more direct measures. Doubt existed as to whether the British authorities would deal with us on equal terms until it was clear that the American companies were in an effective position to compete. Thus, the Economic Adviser did not attempt to press the emerging draft upon the inattention of others until early in September. By then he was hopeful that it might provide an acceptable basis for international cooperation in the Middle East.

The failure in October of the stock-purchase negotiations softened the willful spirit in which the subject of Middle Eastern oil had up to then been approached. The idea of an international accord received a cordial we!come in many places where there had been only indifference. The Economic Adviser, on behalf of the Department, circulated a text and became the advocate of immediate commencement of discussions with the British. Talk with a representative of the Anglo-Iranian Company had left an impression that the British oil companies recognized the desirability of an agreement of this kind. Seated along the desk of the president of the Petroleum Reserves Corporation, the Economic Adviser was not spoiled by outspoken praise for the initiative; but he was not discouraged by objection. The gruff reticence he encountered may have been due to his suggestion that these discussions be managed, in the beginning, by the State Department. There may have been belief that the State Department did not understand the question, or would fail to press American requirements with sufficient vigor. Or there may have been a belief that anything having to do with oil should be dealt with by that branch of the government that was responsible for the American oil supply--during the war and the peace to follow. At all events, a trip to London that the Economic Adviser was to have taken (October 1943) to prepare the way for an agreement became entangled in unexplained last-moment objections.

Shortly thereafter, the Economic Adviser ended his connection with the matter. He does not know where the particular text that he had nursed came to rest. He was not told why discussions with the British were delayed until a venture of another character had been tried and failed.



ON February 6, 1944, the Petroleum Administrator for War announced the conclusion of an agreement in principle between the Petroleum Reserves Corporation, and the presidents of the Standard Oil Company of California and Texas (owners of the Arabian-American Oil Company).12 The government undertook to

"construct and to own and maintain a main trunk pipeline system, including requisite facilities for the transportation of crude petroleum from a point near the presently discovered oil fields of Saudi Arabia and Kuwait to a port at the Eastern end of the Mediterranean Sea."

12. The "Outline of Principles of Proposed Agreement," appears to have been signed earlier, on January 24, 1944.

The birth of this project was not as swift or immaculate as it seemed to a surprised public. The companies had often pointed out in public and private discussions that such a pipe line would enable them to enter new markets with new production. Experts, both engineering and economic, were in agreement that it would be, someday, a sound undertaking. But up to that time business judgment had not approved the risk. A more assured traffic prospect was awaited. When company officials had discussed the plan with the State Department, they had been promised help in securing the required diplomatic clearances. Ever since the end of the previous war, the State Department had insisted that our contribution to a common victory entitled American enterprise to equal economic opportunity in the mandated and ex-mandated territories of the Middle East. The opportunity to build this pipe line was deemed to fall within that claim. 13

13. This claim was solidly based, as regards Palestine, on the terms of the Mandate (especially Article 18, which obligated the Mandatory to see that there was no discrimination against any member of the League of Nations "in matters concerning taxation, commerce, or navigation, the exercise of industries or professions ) and the Palestine Mandate Convention between Great Britain and the United States of December 3, 1924, which specified that the United States would enjoy all the rights and benefits granted other countries under the terms of the Mandate.

As regards Bahrein, the local ruler was pledged by letter of May 4, 1914, to the British authorities not to "entertain overtures from any quarters regarding (oil resources) without consulting the Political Agent in Bahrein, and without approval of the High Government." However, since the British authorities had agreed to the original concessions given American interests to develop oil in that territory, it could certainly not object to any pipe line connection.

As regards Kuwait, the local ruler had promised in October 1913 not to make oil grants to anybody except a person appointed from the British government. But again the British government had agreed to the acquisition by American interest to the half-interest held in that territory, and was not likely to obstruct the construction of a pipe line connection; it might bargain, however to protect the commercial interests of the Anglo-Iranian Cornpany.

The announcement issued by the Petroleum Administrator for War declared that the agreement had been entered into with the approval of the President and the State Department, and upon the recommendation of the War Department, the Navy Department, the Joint Chiefs of Staff, and the Army-Navy Petroleum Board

"in appreciation of the critical importance of reserves of petroleum in war and in peace and of the necessity of assuring to the military forces of the Nation and to the people of the United States adequate petroleum supplies. . . ."

Never did a pipe line have so distinguished a diplomatic and military guard of honor. It must have been foreseen that it would have enemies, and therefore it was deemed useful to show that it would also have friends.

Under the terms of the agreement the Petroleum Reserves Corporation was to determine "the most feasible plan for operation of the facilities, and will retain supervision thereof." The newspaper reports implied that the Petroleum Reserves Corporation would ask the companies to arrange for the construction of the line and to manage its operation under official direction. The companies were to be obligated to tender for transport minimum quantities of oil to the pipe line annually; this was a virtual guaranty of enough business to repay the government investment with interest. Furthermore, the companies agreed to maintain underground a crude petroleum reserve "available for production for the account of, and purchase by, the military forces of the United States" of at least one billion barrels. The government was to have the right to call for the delivery of this oil at any time in accordance with an agreement upon rate and schedule of delivery, and at a favorable price. In the event of war or other national emergency the American government was to have the first right and option to buy the total production of the companies.

The precise route of the pipe line was not set out in this preliminary agreement. Its location, size, capacity, and terminal points were to be selected by the government.
It was realized that this was not solely a matter of cost or geography. Decision as to the route to be followed would have to take account of possible political difficulties and diplomatic hindrances. It was explicitly recognized in the text of the agreement that the consent of the rulers of Saudi Arabia and Kuwait was necessary. Alternative sketches under study led the route across Palestine, in which case the consent of the British authorities would be necessary, and into Egypt or Lebanon, where other governments would have to be satisfied. Furthermore, it was seen that the selection of the terminal point on the Mediterranean must take into account harbor facilities, probable markets, and suitability for a great new refinery.

It is probable that the reckoning of the sponsoring officials traveled beyond the immediate end of making the oil of Saudi Arabia and Kuwait more accessible and cheaper. It may be assumed that it was perceived that the establishment of this pipe line would make the American concessions in these countries wards of the American government. For once the pipe line was built, serious disturbance in the intake of oil was certain to attract the attention of the American government. Further, it could easily have been foreseen that the project would, in time, modify the established commercial pattern of oil production and marketing throughout the Middle East. The Arabian-American Company and the Kuwait Oil Company would become more important factors in the total trade. A new effort would almost certainly be made to amend the contractual restraints upon the operations of the American partner in Kuwait oil. Thus it must have been evident that construction of the pipe line would stimulate production in all of the important oil fields of the Middle East. This, it had been agreed in earlier discussions, was desirable since it would lessen the future rate of exhaustion of the reserves of this hemisphere.

The manner of the announcement gave the impression of a foray into hostile, unexplored territory. It was issued without advance notice to the oil interests or foreign governments that would be concerned. The Economic Adviser was not informed of the reason for what appeared to him the wrong way of proceeding. But it is possible to guess at certain notions that may have prompted it. The local rulers could be expected to welcome and give the necessary accommodation to an enterprise that would add to their national wealth and revenues. The British or French authorities could not fairly refuse to grant the right to run the pipe line through Palestine or Lebanon. The project would bring valued economic activity to the locality in which the refinery was located. To chain eagerness for a purpose so well justified must have seemed a pity, and possibly a mistake. The process of counsel and consent in government so often wears down and exhausts intention. What chance was there to secure disinterested counsel? What hope that the vested interests that might be disturbed would not object? What possibility that diplomacy would quickly approve? Foreign offices rarely pass up an opportunity to place a price tag upon the satisfaction of any request of any alien enterprise.

Such could well have been the reasons for announcing completion of the agreement before foreign consent or co-operation was sought. Proof of the will and power to act was evidently thought to be the first step towards obtaining the conditions necessary to complete the action. Disraeli had not hesitated to buy the Suez Canal shares and tell the world later. Churchill had the stock of the Anglo-Iranian Company on its way towards the treasury vaults when he confronted Parliament. The rulers of the desert had been imperious men; their advisers were poets who ignited the soul and praised boldness in triumphant song.



THE sponsors of the pipe-line project first appeared to enjoy the sensation it created. But their hour of satisfaction was brief. Objections appeared from all directions. Some were supported by reason; others merely expressed suspicion; and the strongest were coated with oil.

There was silence throughout the Middle East except for fragmentary newspaper comment. Some native leaders were heard to express the thought that the standards of pay and living which the American government would establish in Saudi Arabia might improve the lot of the workers in other Arab lands. If Ibn Saud's thoughts quickened at the announcement, he gave no sign. It may be surmised that he would have gladly aided the project.

The British Government preserved its calm, though subdued signs of excitement could be perceived by habitual readers of the British press. The Secretary of State for Foreign Affairs, (Anthony Eden) replying to an inquiry in the House of Commons as to whether the United States would acquire sovereignty or extra-territorial rights in the territory needed for the pipe line, contented himself with observing that he believed the project to be in a very preliminary stage, and that "before it is developed, it will no doubt be for the United States Government to approach the other governments concerned." He agreed with the view expressed by another questioner that the British government should be consulted, adding that he awaited the report of the British Ambassador in Washington (Viscount Halifax) before making any detailed statement.

The USSR appeared to be too absorbed in its terrible struggle with Germany to take heed of this project, which would be located far south of its borders. At the time the United States was providing large quantities of oil to Russia under Lend-Lease, thereby lessening its own reserves.

But if the foreign world refused to be upset or astounded, American public opinion and the private interests that thought themselves hurt responded violently. The press chattered in confused surprise. One part sprang to defense of the agreement as a foresighted and bold step to protect America's future on land and sea; another part harshly questioned both its necessity and sense. Senators expressed anger at the fact that even as they were patiently waiting for the officers of the Petroleum Reserves Corporation to give any good reason for its existence, this new and important initiative was announced. Senator Taft of Ohio interjected into the debate a line from Horace found in the London Times, "Iccius, are you now looking enviously at Arabia's rich territory?" Oil companies engaged in production within the United States hastened to organize, the better to express their outraged opposition. Those who had production in foreign fields that might suffer from the competition of Saudi Arabian oil used the telephone industriously.

To the former Economic Adviser (Herbert Feis, the author, who had resigned in November, 1943) the extent and fury of the attacks upon the agreement proved that the government had erred in the manner of its conception and presentation--granting that much is to be said in its support. Certainly it would have been wiser to discuss the project with other American oil groups that were established in the Middle East, and to permit some advance word to reach the British authorities. The objections should have been invited before final action, not after. Had they been, the plan might have survived in the battle of opinion; though no doubt much modified. But who is to know?

Apart from the disturbing manner of its announcement, what were the pertinent questions by which the project could be judged? It was not easy to comb the primary ones out of the tangle, but three primary ones suggested themselves.

First, was the action necessary to safeguard American security?

Second, was it necessary enough to justify the permanent entry of the American government into the maze of interest, economic and political, that existed in or centered on the Middle East?

Third, if the project was carried through, would it become more probable that the American government would strive to establish military bases in the region in order to protect the pipe line and its sources of supply? Every attempt the Economic Adviser made to phrase the third question left him doubtful whether it hit the main point. Perhaps the chain of justification ran in reverse. Perhaps it would be more pertinent to ask: If the United States was about to find itself compelled to take a part in all the issues arising in the Middle East, was the acquisition of bases becoming necessary to support our diplomacy; and if so, was the pipe-line project justified as the means of assuring oil needed to supply the bases?

He was unable to reach conclusive answers to these questions, and cannot do so now. Attempts to analyze the full possible significance of the project led into a vast and uncharted sea of speculation. He could derive little help in his voyage from the murky discussion in the press or the guarded ejaculations of government officials. And, alas, he does not believe that any others who may repeat the analytical journey will receive much help from the narration of his scattered reflections.

The construction of the pipe line seemed to him desirable, if not of proven necessity, to the security of the United States. It would strengthen the position of the American oil enterprises in Saudi Arabia and Bahrein and safeguard their future. It would stimulate the development of production throughout the Middle East. It would contribute to the economic improvement, and perhaps political stability, of the Arab states in whose territories the oil deposits were located. These were all sound American aims.

But did the promise of achieving them justify direct action--in the form of a proposal that the American Government itself build and own the pipe line? It was doubtful. The objections were worrisome though hard to define. The government might find itself involved in contests for commercial opportunity between rival oil companies doing business in the Middle East, or possibly the world over. As owner of the pipe line it might find itself engaged in rivalry not only with oil companies, but also with foreign governments; and not only over markets and concessions, but also over boundaries and treaties.

Furthermore, it was probably only a matter of time when the company, alone or in combination with other interests, would build the pipe line. If need be, the government might loan funds on favorable terms-terms which adjusted the burden to the revenues of the pipe line. This would be a less troublesome commitment, by far.

As for the bearing of the project on our future military and diplomatic position and activities, the only fumbling conclusions that emerged were bothersome. Even if the hour had been reached when it was appropriate, even essential, that the United States participate in the settlement of Middle Eastern affairs, would it not be better that the government be unembarrassed by any direct economic or financial interest? Might not other governments emulate us and seek to install themselves in the Arab countries?

And if the chief reason for going forward lay in its prospective military value, the pipe line was open to the same weakness as the stock-purchase proposal. Its control in the event of war would be decided by the armed forces opposed, not by the character of its ownership. It might, indeed, be made safe--if not accessible--if the United States permanently located strong military forces nearby. But neither the prospective American need for oil, nor any other evident security calculation seemed to justify so important a step. It would be difficult, if not impossible, to defend unless made so powerful as certainly to seem a menace to others. The need for protecting the oil fields did not seem to be a sufficient reason for courting such objections. Nor did the possible military use of such bases in some future war. There were possible future policy responsibilities. But if these were assumed by international accord, presumably the United Nations would agree upon joint use of certain bases, or perhaps even establish them.

The game of question and answer ended in a few private conclusions: that this project should be deferred; an effort should be made to reach agreement with the British and other governments on a co-ordinated program of Middle Eastern oil development. If and when--preferably as an outgrowth of the agreement--a pipe line was undertaken, any necessary government participation should be less direct. The Economic Adviser expressed these conclusions in a brochure, gaining thereby the right to participate in the confused uproar that was to follow.



PERPLEXITY over the project was widespread. To liberal opinion it was disturbing, even sinister, as a glistening corridor for imperialists. To other groups, tinged by isolationist feelings, it was a step to draw the United States into the historic struggle between the British Empire and the USSR in the Persian Gulf region. Anxiety was aroused among supporters of Zionism by the thought that the United States might barter support of their cause against oil.

But the fate of the project was not decided by such misgiving in regard to its political implications. It was rejected mainly because of the opposition of groups who believed it would have an adverse effect upon their business position or prospect. Virtually the whole of the American oil industry condemned the proposed measure as needless and unfair. It was, the industry argued, needless because all the oil that the United States might ever need could be, and would be, supplied by the private American oil industry--from American resources in the main, supplemented by foreign production. It was unfair, the industry asserted, because it would put the American government in competition with the American oil industry. The more extreme critics alleged that in time it would place the American government in control of the whole of the industry. Thus the Senator from Oklahoma (Elmer Thomas) who led the angry battalions of domestic producers, made a charge that the authors of the agreement visualized "the socialization of the oil business and other basic industries."

This industry opposition was organized by and around the producers who owned properties in the United States. But it included many American companies that were engaged in oil production in other foreign lands. The American enterprises that operated large fields in the Caribbean areas felt that their future prospects would be prejudiced. In a measure they were correct. The two great American oil companies that in partnership with Anglo-Dutch and French interests operated in other Middle Eastern countries--particularly Iraq--regarded the proposal as an unjust blow. The Iraq Petroleum Company, in which they were participants, had for some time past sought approval for an application for material wanted for a pipe line from their fields to the Mediterranean. Now the American government proposed to become their powerful rival.

Thus, the opponents rose from right and left. The Petroleum Administrator for War retreated in stunned indignation. The other government agencies whose support had been displayed in the original announcement said little. None stepped forward now to assert firmly that the security of the United States required this measure and required it at once. Except for the enigmatic observation of the Secretary of State that there was no misunderstanding between the American and British governments, the prudent silence of the government press rooms was not broken. In the silence, the opponents made themselves heard all the more effectively.

After a delay of six weeks, the Petroleum Administrator for War made a bluff attempt to defend the agreement in a publiè debate. He stressed the fact that it had the approval of all branches of the government. He repeated that the government must provide sufficient cheap oil for the people ". . . for war, if needs must, and for peace in any event." 14 (New York Times, March 17, 1944.) He vigorously denied that this project would result in competition with or control of private oil industry. But there was something restrained about his manner of argument, as though he knew it was foolish to anger opponents for a cause that was doomed. And when, tired and with shattered collar bone, he repeated his appearance before a committee of the Senate, the usual gleam of combat--finding its way above the rims of lowered spectacles--was replaced by a rueful and conciliating air.

The prevailing judgment of the Senate became evident. It was thoroughly against the agreement in the form proposed; and a vigorous group of Senators seemed determined not only to prevent its consummation but to compel the dissolution of the Petroleum Reserves Corporation. Rather than subject the Administration's policy to direct rejection, friendly Senators used an exit from the situation provided by the critics--that a special committee of the Senate should be established to study and recommend a national oil policy.

The President, in June, promised that he would not proceed to give further effect to the pipe-line agreement without advance notice. The notice was never given. The daring impulse died in mid-air. The Committee, after extended but discreetly managed private hearings, showed no disposition to stir the project into life. The Petroleum Reserves Corporation did not long plead for any revival.

The American oil industry gradually banished its indignation. But it remained alert for any signal that the government might resume the attempt to introduce itself into the circle of dealers in Middle Eastern oil. A blithe note crept into the articles that appeared on the future of American underground resources. Drilling was extended into many untested structures in North and South America, and conducted more thoroughly on the tested ones. Production jumped.



STILL the question of the future of the American oil enterprises in the Middle East did not fade. On the contrary, the controversy over the pipe-line proposal focused public attention upon it. New reports confirmed earlier ones in estimation of the vastness of the resources of the region. The experts sent by the Petroleum Reserves Corporation into the area upon their return issued the opinion that: "The center of gravity of world oil production is shifting from the Gulf-Caribbean areas to the Middle East, to the Persian Gulf area, and is likely to continue to shift until it is firmly established in that area."

All branches of the government now became alive to the fact that any action taken in regard to Middle Eastern oil would command great political interest. It was clear also that, no matter what method was employed, the domestic industry would be against any program for stimulating production in that area. Expediency, if not conviction, made it unwise to confront at the same time this opposition and public fears that we were stumbling into foreign quarrels. Thus appreciation grew of the wisdom of seeking to attain our aims as part of a negotiated international program.

The drafts for an international agreement on petroleum that had been permitted to draw dust during the excitement over the pipe-line project were recalled and re
touched. Officials who had been indifferent became animated. The State Department emerged from the shadows where caution had found refuge. The British government was invited to send experts to the United States to discuss the possible terms of a petroleum agreement. It was announced--the better to appease or outwit opponents of the idea--that the discussions would be merely on a "technical level."

The British accepted the invitation. The mission sent included the heads of the Anglo-Iranian and Royal Dutch Shell Companies and civil servants. Its assured unity impressed the American negotiating group and provoked their envy. For the American delegation was overnumerous and ill-assorted, being drawn from many different branches of the government and the oil industry. The government officials and oil executives could not agree as to the way and the extent that the latter should share in the negotiations. There was a lack of ease between the Secretary of State and the Petroleum Administrator for War. There was ambiguity of aim; the new Petroleum Adviser in the State Department (Max Thornburg) did not seem to know whether our purpose was to stabilize the petroleum trade or safeguard the future American reserves of oil. The clothes of the American officials grew more and more rumpled as the meetings went on; the white carnation in the lapel-hole of the senior British civil servant (Sir Ronald I. Campbell) seemed always fresh and gleaming with dew.

But a spirit of good will and the expertitude of a few technicians in the compounding of formulas surmounted such provocations. The discussions progressed. In May 1944 the two groups of government representatives reached accord on almost all features of a possible agreement. The exchange of views had shown that the purposes of the two governments and the permanent interest of the larger oil companies of the two countries were in a large measure harmonious. It revealed a disposition on the part of the two groups to work with, rather than conspire against, one another.

The few points of difference remaining after the first meeting were settled later. Presently the British government sent another mission, headed by the sensational newspaper publisher then holding office as Lord Privy Seal in Churchill's cabinet (Lord Beaverbrook) to deal with a Cabinet committee of the United States. The Secretary of State was chairman of this committee, and guided it with vague hints. The Petroleum Administrator for War, as Vice-Chairman in control, accepted them. On August 8, 1944, an agreement was signed and shortly thereafter published. It was to enter into effect upon reciprocal notice of the two governments of their readiness to have it do so.

The American officials that had worried over the American future in oil sank back with relief and pride. They felt that the country could be assured of the Middle East as a source of supply. They thought that they had placed the first marker on the way towards harmonious international co-operation in the distribution of raw materials.



READING quickly the agreement then signed, the reader is apt to feel as though he were taking a walk among the angles and spaces of an abstract painting. It was daring one way, timid in another, and obscure in general.

It was daring since it set down principles which were to govern the policies of the two governments in regard to all the foreign oil undertakings in which they or their nationals might engage anywhere in the world. Such matters had always been left to national initiative and the interplay of competition. Here was an attempt to estab-. lish, by agreement, the rules for the control of the whole realm of a vital raw material.

It was timid because it avoided any plain indication of how the Middle Eastern situation would be handled. It provided only a filmy framework of principle to guide future discussions between the two governments of the problems that had worried the American government and oil companies. The British were asked to yield nothing at once. The pipe-line project was not pressed.

It was impossible to be certain as to what had been agreed. The actual meaning, in application, of the phrases employed to express the "principles" which were endorsed, was unclear. The text identified and qualified for recognition (at some future commission meeting) all points that might be pertinent in the administration of a joint policy of oil production and distribution. Then the resultant list of admissible considerations was enclosed in a hedge of guarded language so that neither signatory might find its interest in any point unprotected. To feel forgiving towards the language and form of that document, it is necessary to place oneself in the atmosphere of a tired conference room. When experts become fatigued, technical phrases become the currency of thought; and the issue is inflated as the night drags on. Victory in debate over the words in a clause becomes the conquest of a kingdom, and differences are compromised in language, not in fact. Disputes follow later. Life and meaning existed at the center of this accord, but only the learned could communicate with them, and in code.

Well to illustrate the obscurity that evokes these caustic words about this first draft of the oil accord would require a glossary far longer than the whole of the original text. No doubt the authors were not unaware that the spread of the words used, like the spread of a circus tent, would be large enough and loose enough to admit any animal--whether it be the size of an elephant or the size of a goose.

But, despite its faults, the agreement was a promising forward step. With good will it could be made to serve two most important ends: the adjustment of the interest of nations in oil; and the security of the United States in regard to future oil supply.

In condensation the main points of agreement can be briefly--if not indisputably--summarized.

Each of the two governments appears to have agreed:

First, that, subject to considerations of military security, they and their nationals engaged in oil production abroad should make adequate supplies available to all countries on a fair and nondiscriminatory basis. 15 There is some question as to how significant is the reservation regarding military security; but it is apt to be considerable.

15. In the amended text recommended by the American oil industry subsequently, and accepted by the government, the word "competitive" is suggested as a substitute for the word, "fair."

Second, that the principle of equal opportunity should be observed in regard to the acquisition of rights to explore for oil or develop oil in fields still open.

Third, that each will respect all the existing valid concession contracts and acquired rights of other parties, and not interfere with them.

Fourth, that the activities of their nationals in oil development are not to be hampered by restrictions imposed by either government or its nationals inconsistent with the purposes of the agreement. This last clause is an obviously misty meadow in which the fireflies of debate can dance freely. It was probably designed to provide, along with the next point to be cited, a possible approach to an adjustment of certain existing restraints upon production in the Middle East.

Fifth, that they will establish an International Petroleum Commission, which, among other matters, would be expected, "to analyze such short-term problems of joint interest as may arise in connection with production, processing, transportation, and disposition of petroleum on a world-wide basis, wherever the nationals of either country have a significant interest, and to recommand to both governments such action as may appear appropriate."

If the two countries (and others that might later join them) choose, they could on the basis of this agreement avoid future controversy over the command of oil supplies; and they could arrange joint measures that would contribute towards the security of all. The discussions from which the agreement emerged indicated a strong impulse towards co-operation. Suspicions vanished. The Americans became far less convinced that British interests were disposed to displace or injure them. The British became less inclined to think that the Americans wished to make political trouble for them, or to run amok in the world petroleum market. A vista of division of opportunity was opened.

The agreement could, as the authors hoped, form the basis of a program of increased oil production in the Middle East gradually developing that area as a world supplier commensurate to its great resources. It could make this achievement possible without harsh commercial warfare, and without the exercise of rival diplomatic activity in a dozen small Arab states.

Of course, results of this kind would not grow of themselves. They would only be fostered by fairness and compromise. They would flourish only if the two governments acted in harmony on political matters. And only, also, if the great oil combinations of the two countries showed moderation. For these would be called upon to divide both production and markets with each other, to admit new applicants for opportunity in fields still open, to suffer competition, and to provide oil to the whole world as cheaply as the best technique makes possible.

Further, the two original participants would have to satisfy other countries interested either in obtaining foreign oil supplies or concessions. They did not offer to give up to others rights already acquired. But they pledged themselves to share all other opportunities to acquire rights and thereby granted recognition to the wishes and aims of others. Of all countries the USSR was most likely to put this promise to a test some time or other.

Such were the reflections of the Economic Adviser, quite without consequence--for he was no longer in office.

The reflections of the American oil industry took quite a different turn. The angry belief of its representatives that they had not been sufficiently heeded now found voice. Its spokesmen showed little interest in the merits that patient search could find beneath the obscurity. Their interest centered on a blunt set of questions--would the agreement, could it, might it, hurt or restrict their operations? They soon concluded that it was likely to; and some sections even expressed the opinion that this was its real purpose.



THE delegations attached their signature to the agreement on August 8, 1944. It might have been thought that so mild and aspiring a document would win easy acceptance. It was difficult to see how exception could be taken to the ample principles on which it rested. The loose garment of language in which the doctrines were clothed would make them comfortable. Surely, it seemed, the governments of neither the United States nor Great Britain would fail to give official confirmation to the terms their representatives had contrived to put together.

Ill-informed and moody tribes might fight in the desert for the control of the water wells that slaked their thirst. But the great nations, it was hoped, had learned that it was no longer necessary to struggle against each other in the desert for this other vital fluid. They could, if they worked together, find and develop a thousand wells to slake the thirst of their machines. These were the rules by which they might do so.

It was not possible to cherish this opinion long. The American oil industry angrily assailed the agreement, and the authors fell into confusion. 16

16. The objections were most systematically set out in a resolution of the Petroleum Industry War Council early in December, which called upon Congress not to ratify the Treaty. New York Times, December 11, 1944.

A systematic statement of the view of the larger oil companies on policy in the foreign oil field may be found in a brochure published in November 1943, when reports of the stock-purchase plan spread. It is entitled, A Foreign Oil Policy for the United States. A basic point that is well argued is that "oil in the hands of nationals of the United States is equally available for national security with oil owned or financially shared in by the Government of the United States." Will this be as true in the future as in the past? Will it be true of all locations?

Certainly, in part, the criticism was due to misunderstanding of the involved and unclear form and language of the text. As has been observed, only the stubborn hunter could find its main meaning or interpret its subtleties. To the man on the street--or, rather, to the men in the oil industry--the text meant everything or nothing. And no clear interpretation was offered by any branch of government. It is doubtful whether they had one to offer.

But the opposition was not solely the result of misunderstanding. Some elements in the industry were ready to fight any government action which might stimulate foreign oil production. They rejected the conclusion that American security required restraint in the use of domestic reserves and larger drafts on foreign oil supplies. This attitude was expressed in a superfluous suggestion advanced later--that the agreement be amended to state in specific language that it did not affect the right of the participating governments to limit imports.

But even those elements of the industry that were ready to accept the judgment that it was advisable to encourage production of oil abroad, and to work out an international basis for doing so, found the proposed text objectionable. They interpreted it as a threat that the American government would extend a controlling hand over their domestic operations, or perhaps even enter into competition with them. They feared that in the vague language of the agreement there lurked new authority for the government to do so. This fear was confirmed by legal advice that if the agreement was brought into force as a treaty, the government would be able to ignore the presently presumed limits on its constitutional powers to regulate the industry.

The industry felt that if the government obtained extended powers of control, these would probably be used. It wished for vigorous and unfailing government support in foreign operations, but without subjecting itself to the will of the government. The observation of the Economic Adviser had been that the oil companies were usually ready to respond to guidance, to follow informal advice when it did not mean financial loss; but they were quickly aroused by any sign of official restraint or compulsion. Against that danger they had come to believe eternal vigilance was necessary. In the thicket of phrases composing the agreement, danger--of shape unclear--was scented.

There was ground for the belief that the operation of the agreement might be used to curb the future freedom of private oil interests in some respects. But this would have come about, if it came about at all, in less direct ways than those visualized by the industry. It is quite possible that the rules set forth in the agreement would operate contrary to the plans or advantage of some oil enterprises engaged in foreign operations; and the government might find it necessary to exert itself to secure observance of the rules. For example, an oil company might find itself in a position to obtain exclusive rights to an extensive oil-bearing area, and averse to sharing this opportunity with others. It is interesting to wonder, for example, whether tlie concession later obtained by the Sinclair Oil Company in Ethiopia would have been a!lowed under the agreement, had it been in effect. 17 In such an instance the government might not be in a position to compel obedience to its views; but in indirect ways it could make resistance to its opinion inadvisable.

17. For text of this concession, see New York Times of September 7, 1946.

Then too, the agreement provided for the creation of an International Petroleum Commission with power to study and to make recommendations in regard to all phases of the international oil situation. This commission might make recommendations that would encourage an extension of government regulation or control of private oil operations. The American government might act upon these recommendations--seeking the support of public opinion for new legislative authority to do so. An instinctive grasp of such possibilities probably spurred on the opposition.

Some branches of the oil industry, including large companies that were engaged in foreign operations, expressed dissatisfaction on still another ground. They objected to vague hints in the text of future arrangements for the division of production and marketing among competing sources of supply. Charges were made that a "supercartel" was planned. Some officials of the State Department had in the earlier drafting sessions shown themselves inclined toward an arrangement for the regulation of international trade in oil. The Economic Adviser recalled the necessity of arguing that any world plan of this kind was undesirable and impossible to negotiate. The signed text retained a whiff of the idea.

It would be unrewarding now to try to gauge further the correctness or fairness of this array of doubts and criticisms. Certainly some were expressed in extreme form and measure. The objectors prepared to fight the agreement with all their might in the Senate.

The State Department had felt it prudent to yield to the demand of the senior Senator from Texas (Tom Connally) that the agreement be submitted to the Senate as a treaty. It was transmitted to the Committee on Foreign Relations. By the time it arrived in the committee room it was only breathing faintly. Again the nurses and defenders showed no great will to save their patient. The Petroleum Administrator for War and the Secretary of State were meek and conciliatory. The Petroleum Administrator for War, it may be surmised, did not want to engage in new disputes with the American oil industry when good relations between government and industry were so important to the conduct of the war. The Secretary of State, it may be surmised, did not want to imperil cherished designs for international political organization by falling into a fight with the powerful Senate Committee on Foreign Relations.

Thus, the defense was muted. It was pleaded that the agreement merely set forth principles which the American and British governments were ready to pursue; that the application of these principles would provide new opportunity for American private oil enterprise; that the agreement would not add to the power of the American government to control or regulate the oil industry; that the International Petroleum Commission would be authorized only to give advice and make recommendations; and finally that the agreement would clear the way for other steps urgently required to protect the security of the United States. Thus, the Petroleum Administrator for War on December 9 argued that

"by virtue of the Agreement not only will greater security be assured for the concessions American operators now own, but the application of this Agreement will operate to open freely to the United States enterprise areas in which they have not heretofore been able to compete."

The government decided that if approval was to be obtained for any international oil agreement, the opposition of the American oil industry must be overcome. The Petroleum Administrator for War, no doubt by this time reflecting upon the impotence of office, undertook to work over the terms of the agreement in consultation with the industry. A search for amendments that would satisfy the industry without destroying the purpose of the Agreement began. The President, in order to improve the atmosphere for these new discussions, requested the Committee on Foreign Relations to return the agreement to him

"in order that consideration may be given, in consultation with the Government of the United Kingdom, to whatever revision appears to be necessary to achieve its objectives and remove grounds for misunderstanding."

The following months were given over to discussions between the Petroleum Administrator for War and the industry. There were at first tense sessions in which it seemed the industry seemed bent upon demands that would have made the agreement useless. Gradually its worst fears were quieted. Then a sporadic battle of opinion broke out between government departments. But general agreement on a possible new text was finally reached.

In the autumn of 1945-almost three years after the Saudi Arabian fields attracted the attention of the government-the way opened again for the resumption of negotiations.



WHILE Americans were arguing over the pipe line project and the oil agreement, events outside did not stand still. The oil of the Middle East continued to press for release. Each of the established companies hustled to improve its situation. Other American and British companies went concession hunting in Iran. When the government of the USSR did likewise, the Iranian government sought refuge in a denial of all requests. The echoes of this action were later (1946) to resound in the first major dispute before the United Nations. Competition for the oil of the Middle East became more provoking.

The Arabian-American Company stepped up its production rapidly and carried forward the construction of a great new refinery on the Persian Gulf. The Bahrein Petroleum Company (a virtual partner) expanded its refinery on the nearby island of Bahrein with, it may be noted, the aid of a loan from the Defense Supplies Corporation. These two measures were urgently recommended by the Navy and Army to provide increased supply of oil for the war in the Pacific. Buying contracts of the Navy have since enabled this expansion of production to go much further--to reach almost 200,000 barrels a day by the middle of 1946. Thus the wholly American-owned properties in the Middle East have already gained place among the important oil producers.

The Arabian-American Company completed surveys for alternative routes for a pipe line to the Mediterranean. But no one knows whether, or when it will be built, or how it will be financed. Quietly, and with the discreet help of our diplomatic missions, discussions were carried forward with the governments whose territories the pipe line might traverse. There appears to be no doubt of the consent of Ibn Saud, ruler of Saudi Arabia. It is conceivable that he might, should events in Palestine offend, reject this prospect of great revenue. But it is not likely; Arab rulers, no matter how absolute of demeanor, are not exempt from the charges of their followers. With the authorities of Palestine and Transjordania agreements have been signed. Egypt has been reported to be eager to have the terminus located there.

The rulers of the area now beckon the company to proceed. But it still wavers. For the political atmosphere in the Middle East and the commercial prospects both of the pipe line and of expanded production remain unsettled. Dare it risk great capital in an area so seething with political disputes unless it is certain that some government--presumably the American government--would protect the venture in all circumstances?

Dare it overlook the fact that a great further expansion of production might not be profitable for the first postwar years? Navy contracts are not forever. The total production of Middle Eastern oil, doubled as it has been for purposes of war, may exceed available commercial markets for some years. And the refinery capacity located on the Persian Gulf may exceed demand for the products that can be profitably shipped from there. Further, in some of the prospective markets, the oil, perhaps, could only be sold for "frozen sterling," or other inconvertible currencies, for which the American companies have little need. Thus, the oil that the pipe line would expect to carry may remain under the desert sands for yet a while--remain where it was when only the shadow of the camel and the Bedouin fell across it. But the shadow of the passing airplane signals the approaching hour when the drill will reach it.

The other great oil combinations, the Anglo-Iranian and the Iraq Petroleum Company, were not idle. The former increased its production in Iran, and enlarged its great refinery at Abadan. It is well prepared to hold its own in the future oil trade. The Iraq Petroleum Company similarly increased its production and expanded its refinery at Haifa. It is preparing to build a second large pipe line from its fields in Iraq to the Mediterranean--paralleling the existing one. The French participants in this company are particularly eager to proceed; for France counts upon the oil of Iraq to provide most of its future needs with little outlay of foreign exchange. The mind is drawn to the possibility of a joint pipe line venture in which all the main participants in Middle Eastern oil production would have a common interest.

During the period (1943-45) that American public attention was centered on the oil of Saudi Arabia a crisis was being born in Iran. It had been signalled by earlier incidents. But these had been noted at the time only by the few officials in the State Department who initialed the long accounts that came in the diplomatic pouches. A scant paragraph turned up in the press now and again--enough to reveal that something was afoot but not enough to mark its importance. The news was hard to obtain, and harder to transmit; for the Iranian government maintained a smothering censorship. The most alert reporters were absorbed in the far greater story of the defeat of Germany; the mighty commentators had no thought to spare for the incident.

Two promising oil-bearing areas within Iran were still open to the seekers of concessions. One was in the eastern part of Iran, just north of the land under concession to the Anglo-Iranian Company. The other stretched through the northern provinces.

In 1936 an American group had sent a former American diplomat, whose glad and ready pen had long given pleasure to the readers of his dispatches, to explore these opportunities. He procured rights to explore much of both areas, to select 100,000 square miles to develop, and to build a pipe line to the Gulf of Oman. But the Amiranian Oil Company, as the group called itself, never sank a drill. The supporters of the venture faltered over the economic and political hazards. Well they might have, for it is difficult to compute how oil from this remote interior could have competed with the new undertakings that were under way in Saudi Arabia and Bahrein. When Ogden Mills, former Secretary of the Treasury, died, and his heirs withdrew their inheritance, the concession was returned to Iran. During the whole of this short business flight near its borders, the government of the USSR maintained what was interpreted as indifferent silence. The American oil industry periodicals published reports, based on obscure accounts in the Russian press, that the government of the USSR had sent a complaining letter of protest to the Iranian government.18

18. See the Oil Weekly, Volume XC, No. 2, p. 54. It may be of interest to record that the Amiranian Company undertook, as a feature of the agreement, not to allow the majority of its stock to fall into the hands of "Non-Iranians" or "Non-Americans."

When in 1943 American oil companies showed renewed interest in his domains, the Shah and his cabinet were pleased. The budget was hugely out of balance, and the reforms and economies upon which his American financial adviser was insisting had many enemies. Most of his country was under Russian and British occupation. The presence of Americans was, therefore, reassuring. Thus the Socony-Vacuum Company was invited in September 1943 to begin discussions. The Royal Dutch-Shell almost simultaneously put in a bid. While the proposals of these two groups were under study, a new entrant appeared, the Sinclair Company. Both of the American companies, it should be noted, sought rights in the eastern part of Iran, adjoining the Anglo-Iranian fields, and six hundred miles or so away from the Russian frontier.

Now confronted by a diversity of prospects, and under watchful suspicion that it give away Iranian wealth too cheaply, the cabinet sought independent counsel. It hired (in April 1944) a private American firm of oil consultants to prepare a standard form of concession to which all applicants might be asked to subscribe.

This pursuit of the unassailable concession was rudely interrupted. A few weeks later the Iranian government was informed that the Assistant Commissar for Foreign Affairs of the USSR wished to visit Teheran to discuss oil. He shortly appeared in company with a formidably large group of geologists and other experts. On October
2 he asked that the USSR be granted an exclusive five-year right to explore the country that ran from Azerbaijan through the northern provinces. This was a different territory from the one in which the American companies were interested. Almost all of it was occupied by Russian forces.

Almost a quarter of a century before the government of the USSR had renounced all the economic privileges the Czarist regime had acquired in Iran, in proof of its revulsion against imperialism and exploitation of weaker powers. It is idle to speculate now whether it was spurred on to this reversal by a newly felt need for oil, lured by a wish to establish its influence more firmly in Iran, or provoked by the apparently unlimited quest of American and British interests for oil rights everywhere. It has more lately become known that the Russian oil industry suffered severe war damage, and production within the USSR may not suffice for all future demand.19 If these

19. The Economist (March 30, 1946) estimates that production was at the rate of 30 million tons yearly in 1938 and rose steadily until 1941. Then the Germans seized the Kuban (Black Sea) region and the Maikop (northwest Caucasus) region and imperiled the Groszny fields. The minimum loss from the destruction was an annual yield of 5 million tons. The USSR was not able to increase production in other fields correspondingly because of shortage of equipment and trained workers. This experience may well have evoked fear regarding the sufficiency of supplies for the reconstruction period. The Economist concludes its survey of the situation by observing that "a period of anxiety for to-morrow's oil has clearly set in. . . . Nowhere is this better illustrated than by the part that oil plays in Russian policies concerning the peace treaties. The chief Polish oil-bearing district of Droholycz-Borislaw, and in Asia, the island of Sakhalin have been embodied in the USSR. In South-eastern Europe Russian control has been established over the plant and output of the Rumanian, Hungarian and Austrian industries. The total gain is perhaps 5,000,000 tons annually."

be the facts the Russian demand for a concession in Northern Iran must have seemed but a counterpart to American and British activities. The brisk bidding of foreign companies and the appointment of an American firm as counsellors may have been read to mean that there was little time left if the USSR wished to share in the control of Iranian oil. Such a wish might also have been strengthened by the view that if American interests acquired a permanent position in Iran, that might some day prove disadvantageous, or even dangerous to the USSR.

But this is all conjecture. At the time the Russian mission stepped from behind a wall of secrecy that had seemed veiled by indifference. The representatives of the foreign oil companies were startled. The Iranian government was upset and unhappy. It was afraid to grant the Russian request, afraid of admitting representatives of that revolutionary state into areas so near its frontiers. The rule of the central government over these northern provinces had long been poor and weak; with Russian troops in occupation it had become poorer and weaker. How to refuse the Russian request without giving it plain cause for retaliation was the problem. The cabinet that had failed to remedy any of the ills that beset its people showed that it had not forgotten the arts of outwitting foreign governments. On October 8 the Foreign Minister informed the Russian emissary that the cabinet had decided to postpone all action on oil concessions until the end of the war. The USSR showed its resentment in outspoken press criticism, in the encouragement of demonstrations, and by interfering with the shipment of Iranian goods in and out of the occupied provinces. With some temerity the legislative body (The Majlis) a few weeks later passed a bill prohibiting any cabinet minister from granting any oil concession to any foreign government or company. The Vice-Commissar publicly termed this action "obstructive and objectionable"; he argued that it was inconsistent with the existence of other foreign concessions in Iran. After so signaling the opinion of his government, he departed for Moscow.

This whole incident passed unobserved in Washington except for a few officials immersed in Arab affairs and a few military men concerned with the movement of war supplies through Iran into the USSR. No one cited it as a reason for making haste with the final conclusion of an international agreement. No one felt that the government of the United States could do anything about the situation; and, indeed, it was difficult to see what it could usefully do. Any gesture intended to assist the USSR to secure control over the oil resources of Northern Iran would have been resented in Britain and regarded as a betrayal by the ruling elements of Iran. Besides who knew with certainty what use the USSR would make of the concession? The Teheran Declaration (of December 1943), whereby the three great powers had affirmed the independence of Iran, did not command complete faith while armies were still in occupation.

Perhaps, it was thought, time would heal this newest scar in the contest over the oil resources of the Middle East. But it did not. What generation was it that could believe that "time cures all ills"? What stubborn germ in the blood stream of nations defeats its reconciling effect? That is our enemy.



BUT such lugubrious reflections deserved no place in the mind of the Petroleum Administrator for War as he sweated to arrive at an understanding with the American oil industry. The task took many months. There were misunderstandings to be cleared up, hard words to be forgotten. But patience prevailed. At last in September 1945 he could take a plane for London with a new text in his pocket and powerful representatives of the industry at his side. The mission was brief and satisfactory. A revised agreement was quickly signed. It improved upon the earlier accord in two connected ways.

Some points that had been most obscure were cleared up and simplified.

It was made acceptable to the dominant elements in the American oil industry. Hence it will probably win the ultimate approval of Congress. Whether this has been accomplished without vitally impairing its usefulness experience alone will show. Whether the Government will find itself unable to induce or compel observance of the "principles" endorsed in the agreement, because it might be to the disadvantage of some group, cannot be foretold. The Petroleum Administrator made the correct basic decision in assenting to various demands of the industry in order to secure some recognized basis for the adjustment of urgent international issues.

The main structure and principles of the earlier text, as understood by its negotiators, remain unchanged. Attention need be directed to only a few significant amendments.

The earlier text gave approval to the doctrine that oil should be made available to all countries on a "fair and non-discriminatory basis." This was changed into a "competitive and non-discriminatory basis."

In the new text it is more explicitly stated than in the earlier one that the International Petroleum Commission (to be created) is to stay within clipped and restricted boundaries. It is assigned only tasks of "study" and "report." But any eager international organization, if it is up to its job, is apt to stray over the boundaries that overcautious national draftsmen feel compelled to impose. Presumably the commission would be permitted to "report" ideas and proposals as well as simple fact; presumably it will be permitted to think aloud. The language of the accord is not as clear as it might be on this point. The intention of the authors was to calm the fear of the American oil producers that the commission might become a licensed source of disturbing suggestion.

The better to make sure that any judgments of the commission should not be thought to have authority the new text now provides

"that no provision in this agreement shall be construed to require either government to act upon any report or proposal made by the Commission, or to require the nationals of either government to comply with any report or proposal made by the Commission, whether or not the report or proposal is approved by that Government."

The industry is thus left free to dissent from even such reports of the commission as may be designed to give effect to the principles which the signatory governments endorse.

Another new clause in the agreement is intended to make clear that no one can argue that tariffs or other trade restrictions are contrary to its purpose. It is stated that nothing in the text shall be construed as impairing the right of any participant to regulate imports into its territories. The practical meaning of this new clause was left undecided. The American representatives are said to have been of the opinion that while it affirms the American right to exclude all foreign oil, it does not affirm the British right to import oil for which it could pay in sterling in preference to oil for which it would have to pay in dollars. The British representative is said to have maintained the opposite view; notice was given that if Britain were short of dollars it might have to restrict imports of "dollar" oil. This question might be a subject of dispute later. The Economic Adviser would not like to have to defend the consistency of the American position--if it has been correctly reported to him--before a jury of his peers.

The history of this agreement illustrates again that long and hard is the effort needed to make any plant grow in the stubbly international field. This one still awaits planting. Years of care will be needed before it can come to bud, to flower-years of devoted care, and of good weather. With these it could become the forerunner of an important species.

Countries throughout history have fought each other for control of the sources of vital raw materials. They have grasped with little restraint and shared only when
they found it advantageous. They have acknowledged no obligation to provide for the needs of others on fair terms. In this new oil accord the British and American governments affirmed a willingness to observe other rules--to respect each other's interests, to adjust differences by discussion, to share opportunity, to show regard for those dependent on the supplies they controlled.

The treaty is only a tremulous beginning by the two governments to adjust their interests and activities, and those of their nationals. It was proferred as the basis of a more comprehensive accord among the nations. Up to now it aroused little interest in the United States and won little applause. It has been beset by suspicion, and by the wish of groups that might be affected by its operation to protect themselves against possible injury. Will Congress approve it? Will it turn out to be of genuine importance? The great libraries of the world are cemeteries for ignored international agreements of this character. There they rest on unvisited shelves, mourned only by some obsessed student of the past or some civil servant who earns his living by familiarity with forgotten strivings.



THE Petroleum Agreement will have only as much vitality as there is public appreciation of its necessity. The first test of its usefulness is likely to be in the Middle East. It was in that direction that the Petroleum Administrator cast his words, upon his return home. The treaty, he is reported to have said, would remove restrictions under which it was difficult for Americans to operate in Saudi Arabia and other parts of the area. He added that it would establish there what the Administrator, proving himself a man of homely expression, termed, "honest-to-God competition."

These promises may be fair. But they are not very instructive. How would they be realized? 'What equivalent adjustments must be made by American enterprise? What will be their significance, if realized? Did the Administrator conclude that the most certain way to win approval for the Agreement was to present it as a minor triumph in bargaining with a foreign power?

Let us ask a larger question. What policies must the American and British governments pursue in regard not only to oil, but also in regard to political and military affairs, if the treaty is to have genuine significance? For the stream of oil now flows into the broad ocean of events.

The Economic Adviser felt impelled, out of habit, as he studied the agreement and the current news, to compare the present outlook to that of a few years before-and also to try to figure out the next indicated steps. The probable need of Middle Eastern oil as an emergency reserve seemed less imperative than it did in 1943. Its military usefulness also appeared less clear. The subject was tending to reduce itself to ordinary economic dimensions-except in one respect. We may still be drawn into bitter dispute with other nations over the ownership of rights in the various fields. In other words, the fate of the American enterprises in the Middle East may not be as important a factor in determining whether the United States has a sufficient supply of oil for peace or war as had been earlier thought. But their importance as an element in the political and power relationships between ourselves and other countries has grown. Our poiicy should recognize the transformation. It should continue to reckon the possible usefulness of the oil of the Middle East in peace and war; but it should carefully select means of protection and development that do not cause dissension.

Recent experience has defined rather clearly the elements of a satisfactory policy. The Economic Adviser listed them.

First. The amended agreement with Great Britain should be brought into effect at once. Then as soon as the American and British authors of the agreement have familiarized themselves with its field of operation, the full participation of the USSR, France, and the producing oil countries should be solicited.

Second. The provision for equality of opportunity in oil fields still open should be construed to mean not only equality to compete far new opportunity, but also a disposition to share such new opportunity among all qualified nations. The government should be moderate in support of further efforts of American companies to secure new concessions in the Middle East and counsel them to be moderate in their aspirations. Each of many of the larger American oil companies now seems eager to acquire its own source of supply in the Middle East, lest some day it be at the mercy of its competitors. Care must be taken that this competitive reaching out does not defeat itself by provoking hostility.

Third. The International Petroleum Committee should devcte study to the development of a program of coordinated production in the Middle East. This program should guide the rate of growth of total Middle Eastern production so that it will not swamp world markets in some periods and lag behind the growth of world demand at others. Agreement should be encouraged as to the rate of new development in each of the main Middle Eastern fields. If the Arabian-American Company decides to construct the pipe line, the American government should show itself disposed to share the financial risk. It would be well to encourage at once consideration of the possibility of creating a unified system of pipe lines--both to the Mediterranean and to the Persian Gulf.

Fourth. Increased royalties from production in Saudi Arabia would be the most satisfactory solution for the deficits in its public finances. It is already proving itself to be so. The current increase in production has so enlarged royalties that now (August 1946) the deficit for 1946 is estimated only five million dollars instead of the eleven millions earlier anticipated. Further development of the oil fields of that country would also enlarge the income of the people and provide the means by which agriculture and other forms of suitable local production can be improved.

The immediate growth of production, and the royalties received therefrom, may not be wholly sufficient in the future to meet Ibn Saud's reasonable needs during the next few years. This situation, the Economic Adviser knew, had induced earlier suggestions that the American government make loans or advances. President Roosevelt, at his meeting with Ibn Saud, gave enthusiastic hints of the help that might be expected for various internal projects. In the middle of 1945 the State Department quietly tried to convince influential members of Congress that American security made it advisable to provide the funds--as much as 50 million dollars was suggested. To what extent this initiative arose from a wish to aid the oil companies, or to what extent it was prompted by a desire to cement, through Ibn Saud, American friendship with the Arab world the Economic Adviser did not know. Nor did it make much difference; for the two purposes are closely connected. The State Department was advised that Congress would only provide the funds if the United States received some evident reciprocal advantage or some reliable guarantee of repayment. Thereupon flexible young draftsmen were attracted by the possibility of tying together a governmental loan and American interest in the oil fields.

Then in the late autumn of 1945 Ibn Saud had been offered a 25 million dollar advance by the Import-Export Bank (in addition to 5 million already granted). This time the sovereign of Saudi Arabia refused. Among the reasons given for the refusal was a phrase in the contract drawn up by the lawyers of the bank that Ibn Saud construed as requiring a pledge of oil royalties towards repayment. The sponsors of the proposal convincingly explained that they had no such intention. All that was sought and properly sought was a promise that such royalties would not be transferred to other lenders. Among the circumstances of the refusal was a plea by the Egyptian government to avoid new connections outside the Arab League.

But in the spring of 1946 the ruler of Saudi Arabia hinted a change of mind. This was before the publication of the American-British report on Palestine and subsequent events. These did not deter the arrangement in August of a ten million dollar credit "to modernize Saudi Arabian transport and agriculture." The swelling oil royalties should, if properly employed, take care of further needs. The American government will be ill-advised to acquire a large debt against this Arab people.

Fifth. The American government should be ready to provide proper aid and protection to the American companies against oppression or unprovoked disturbance. It would have to retain, of course, full freedom to decide whether to exert itself in their behalf, when and by what means.

Sixth. The extension of our financial, political, and military activities throughout the Arab world should be marked by the will to secure close working agreement with Great Britain, the USSR, and France. Our purposes in all these activities should be to aid in the settlement in any disputes that might arise within the region, and to aid its economic evolution.

Whether the American government should try to retain or establish, solely for its own use, any type of military base in the area may be debatable. Our war plans included the establishment of a landing field and base in Saudi Arabia. This was designed as one stop on the route that American long-range bombers would take in their battle for the reconquest of China and victory over Japan. The President, at his meeting with Ibn Saud near the Red Sea port of Jidda in February 1945, suggested that the United States be permitted to establish a field for the use of American air forces during and after the war. Ibn Saud accepted the chance to increase his claim for friendliness upon the American government. But he demurred at the nature of the arrangement suggested and at the length of time for which the privilege was sought. The substance of these conversations was carefully guarded at the time; but it is safe to surmise that they were known in London and probably in Moscow.

Construction was begun before any final arrangement was concluded; and Japan surrendered before construction was complete. The field is now ready for use. The terms of the agreement, as finally settled, have not been officially published. But the press has given the main details. Its control is to revert to the Saudi Arabian authorities in the near future. That government is to select an American commercial line to maintain and operate the field, which is to be open to the commercial services of all countries on equal terms. To this arrangement, there can be no objection.

Dogmatism in regard to the steps that the future evolution of power relationship and the arts of war may make advisable would be foolish. But today's circumstances and hopes join to indicate the conclusion that the United States should seek only commercial aviation rights and facilities within Saudi Arabia. The military value of any aviation or naval outpost within that land would be small, and its defensibility doubtful. The maintenance of any American military base in that country would be provocative and contrary to the current bent of our effort to find the terms of permanent peace between the great powers. Certainly, no step of this type should be taken merely to assure continued American control of, or access to, the oil of the Middle East.

One kindred concluding reflection. That no program having merely to do with the protection of oil resources can prevent them from becoming a cause of dispute if the great powers quarrel about the political control of the region. If any one of them takes measures hostile to the others or encourages threatening attacks against established political position of the others, then each oil field in the Middle East will be the scene of turmoil, plot, and counterplot. Within the next year this may become a grave danger. Arab opposition to further Jewish immigration in Palestine might express itself in a repudiation of existing American and British rights and a search for Russian protection in such measures. This is highly unlikely; but if such a situation arises, it must be ardently hoped that the USSR will not exploit it. There will only be "order in oil" if the large powers work with, not against, each other in the management of political affairs of the Arab states. Otherwise, any international agreement on oil will be without future. Its phrases would be merely weapons to wound.

Here lies the test of future diplomacy. If it fails, there will be no harmonious way of assuring the availability of Middle Eastern oil to the United States. Whether or not we protect established American enterprises in the region against the troubles that may beset them will become primarily a matter of military calculation. We shall have to bend over those plotting boards on which the rights and destinies of nations are measured solely in units of force. In other words, we shall be in the anteroom of war.

But this is a prospect we must seek to dispel. The United States will not find security by remaining the triumphant possessor of oil fields in the midst of another world struggle. That is not the true security in oil that we seek. Our task is a greater one than that of assuring continued American ownership of, or access to, any oil field in the world. It is, along with other countries, so to manage human affairs that oil will be wanted only for the lamps of peace. Then, and then only, will it become like
water in a mountain spring-flowing freely out to all travelers alike upon payment of a small fee to the men who take care of the property.

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