The International Petroleum Cartel, Staff Report to the Federal Trade Commission, released through Subcommittee on Monopoly of Select Committee on Small Business, U.S. Senate, 83d Cong., 2nd sess (Washington, DC, 1952), Chapter 5, "Other Common Ownerships in the Middle East," pp. 113-136

In addition to IPC, other joint ventures of major importance in the Middle East are the Arabian American Oil Co. and the Kuwait Oil Co., Ltd. The combined average daily crude production of these companies, in 1950, was approximately 900,000 barrels, which was more than one-half of total production in the Middle East and about 8.6 percent of world production. 1 Undoubtedly, these companies, because of their vast flush fields, will be important suppliers of petroleum for many years to come.


The Arabian American Oil Co. has extensive oil operations in Saudi Arabia, and, except for the Bahrein Petroleum Co.'s operations on Bahrein Island, is the only company holding an important oil concession in the Middle East that is exclusively American-owned and operated.

In recent years the Arabian American Oil Co. (hereafter called Aramco) has increased its operations to such a point that, in 1950, it accounted for 5.3 percent of world production and about 35 percent of all production in the Middle East. 2 Although Aramco did not discover oil in Saudi Arabia until 1938, production increased from an average of 11,000 barrels per day in 1939 to 547,000 in 1950, 3 which made it the second largest producer of oil in the Middle East, exceeded only by the operations of Anglo-Iranian in Iran. 4 The rapid development by Aramco of the oil resources of Saudi Arabia can be traced directly to the ingenuity and persistence on the part of the participating American companies in the face of numerous obstacles. The rapid g:rowth of Aramco's production is shown below: 5

Year Barrels daily Year Barrels daily
1939 11,000 1947 246,000
1940 15,000 1948 390,000
1941 12,000 1949 477,000
1942 12,000 1950 547,000
1943 13,000 1951:  
1944 21, 000

First 6 months

671, 251
1945 59,000


1946 165, 000


758, 705

The original Aramco concession.--After Standard Oil Co. of California discovered oil on Bahrein in 1932, interest immediately shifted to Saudi Arabia, where it was believed the same geological formations existed. 6 Such an attractive oil prospect interested IPC as well as Standard of California, and competition for the concession was with Standard of California winning out in the bidding. 7

The concession granted to Standard Oil Co. of California on May 29 1933, and assigned to California Arabian Standard Oil Co. 8 a wholly owned subsidiary, on December 29, 1933 covered approximately 360,000 square miles, an area comparable in size to the States of Washington and Oregon. 9 In addition, the company was given a preference right, to acquire additional oil concessions in Saudi Arabia by meeting the terms of any other offers made to the Governrnent. 10 The concession agreement was to run for 66 years.

As consideration for the concession, the company was to make an initial loan of 30,000 pounds, in gold or its equivalent plus an annual payment of 5,000 pounds. payable in advance; and, if the agreement was not terminated in 18 months, the company was to make a second loan of 20,000 pounds. 11 The loans were not repayable and were to be recovered by deductions from royalties. 12 Upon discovery of oil in commercial quantities, the company was to advance the Government 50,000 pounds and a similar amount was to be paid 1 year later--both payments to be recoverable by deductions from royalties. 12 On all oil produced, the company was to pay a royalty per ton of 4 shillings gold or its equivalent. If paid in dollars, adjustments for changes in the exchange rate between dollars and 4 shillings gold were to be made in accordance with a formula set forth in the agreement 13

The. company was required to erect a relinery to supply the Government with sufficient gasoline and kerosene to meet ordinary requirements, and it was understood that ordinary requirements was not to include resale of products inside or outside the country. 14 To meet these "ordinary requirements'' the company, upon completion of the refinery, was to supply free to the Government 200,000 gallons of gasoline and 100,000 gallons of kerosene annually.

The Texas Co. obtains a 50-percent interest in the Arabian concession.-- In 1936, the Standard Oil Co. of California and the Texas Co. made an agreement whereby the Texas Co. received a 50-percent interest in the Saudi Arabia and Bahrein Concessions (held by Standard of California) and, in return, Standard of California received a 50- percent interest, in the Texas Co.'s far eastern marketing facilities.

To understand the significance and reasons for this merger, it is necessary to review briefly some of the events that preceded it. Prior to the discovery of oil in Bahrein by the Standard of California in 1932, the world oil situation was being molded to conform to a definite pattern of cooperation, which included limitations on production, sharing of markets, and stabilization of prices. 15 Thus, the Bahrein discovery was a disturbimg event. Standard of California was a newcomer, and as one source put it--

* * * what each large oil group fears more than anything else is the entry of a powerful newcomer in the established order of world oil markets. 16

The Bahrein operation was immediatelv recognized as a threat to the world stabilization plans 17 of Anglo-Iranian, Shell, and Jersey Standard, and these companies lost no time in trying to work out a marketing agreement with Standard of California which would neutralize the effect of Bahrein crude. 18 However, these negotiations failed, 19 and Standard of California proceeded, in 1935-36, to construct a refinery at Bahrein, which, however, presented it with the problem of finding a market for refined products. For some years Standard of California had depended on Socony-Vacuum to market its products in the Far East, 20 and it had not itself developed any foreign marketing facilities or marketing position outside of the United States. Standard of California, therefore, was not. recognized as being entitled to an established marketing position under the cartel arrangements which controlled world markets. 21

The Big Three international oil companies were fearful that Standitrd of California would force Bahrein products into world markets by reducing prices, a. course of action which, however, would be detrimental to Standard of California's own interests in the United States. 22 Such was the position of Standard of California in 1936, prior to its merger with the Texas Co.

Standard of California evidently concluded that the way out of the dilemma was to purchase existing marketing organizations and thus obtain a marketing position which would make it possible to market Bahrein products without having to grant price concessions. Early in 1936, Standard of California opened negotiations with the Texas Co. for an interest in its far eastern marketing facilities. The Texas Co. had developed markets in Europe, China, Australasia, Africa, and other areas in the Far East and had supplied these markets with products from the United States. Thus it was to the mutual ailvantage of Texas and Standard of California to merge these interests--Texas to obtain a source of supply nearer than America, and Standard of California to obtain an outlet for Bahrein products. In reference to a report that negotiations between Texas and Standard of California were proceeding, one commentator stated:

Some such move would not be unlikely, following the failure to come to terms on a marketing agreement for Bahrein crude with the other international powers. * * * 23

On July 1, 1936, an agreement was made between Standard of California and the Texas Co., whereby Standard of California received a one-half interest in the Texas Co.'s marketing facilities east of Suez and the Texas Co. a one-half interest in the Bahrein concession and facilities. 24 Later, in December 1936, an additional arrangement was completed by Standard of Calfornia and the Texas Co. under which the Texas Co. received a one-half interest in California Arabian Standard Oil Co. (now Aramco), holder of the Saudi-Arabian concession. As consideration, the Texas Co. agreed to pay $3 million in cash and $18 million in deferred payments to be paid out of Arabian production. 25

Standard of California now had a marketing outlet for Bahrein products and for any production that might be developed by Aramco in Saudi Arabia. In commenting upon the California-Texas arrangement the Petroleum Yimes stated that--

it is a natural outcome of the failure of the Standard of California to reach an agreement with the Royal Dutch-Shell, Jersey Standard, and Anglo-Iranian groups late last year when a series of conferences were held. 26

The same source went on to point out that from the standpoint--

* * * of world oil circles the advantage of this merger is that, both companies being sound, stable and conservatively managed, it assures that Bahrein production, as well as any output that may eventually come from countries now being developed by Standard of California, will have assured and regulated outlets and will so lessen any possible danger of upsetting the equilibrium of international markets. 27

However, it should be noted that Standard of California's outlets were only east of Suez--a factor which turned out to be of considerable importance.

Oil discovered in Saudi Arabia and a supplemental agreement concluded.--Under the original concession agreement with Saudi Arabia, exploration work was to commence by September 1933. Test drilling was begun in 1934. At first the results were discouraging, but, on October 16, 1938, oil was discovered in commercial quantities in the Dammam field. 28 There then ensued a rush by various parties, particularly representatives of the Axis nations (Germany, Italy, and Japan) to obtain a concession in Saudi Arabia. IPC was also on the scene with offers. 29. But the California Arabian Standard Oil Co. was the successful bidder, and on May 31, 1939, a supplemental agreement was concluded between the company and the Saudi Arabian Government, which added approximately 80,000 square miles to the original concession area. This increased the total concession area held for the exclusive use of the company to about 440,000 square miles, equal to about one-sixth the area of the United States. 30

For extending the territory and making other modifications in the original concession agreement, the company agreed to pay the Saudi Arabian Government 140,000 English pounds in gold, or its equivalent, at the time the supplementary agreement became effective. In addition, the company was to pay an annual rental of 20,000 English pounds in gold, or its equivalent, until oil was discovered in the "additional area" in commercial quantities or until the company relinquished the area. 31 However, if oil were discovered in the additional areas, the company was to pay 100,000 English pounds in gold, or its equivalent, and increase the quantity of free gasoline and kerosene supplied to the government. 32 No change was made in the per ton royalty payments, but the terms of the concession were extended for 60 years, dating from 1939.

Developments during World War II.--Following the discovery of oil in Saudi Arabia, in 1938, further drilling and exploration work continued, and by the end of 1941 three important oil fields had been discovered. 33 For a time crude oil was barged to the refinery on Bahrein, which was located about 25 miles off the mainland of Saudi Arabia. But additional facilities were necessary, and, by 1939, a deep-water loading terminal and storage facilities had been constructed at Ras Tanura (on the Persian Gulf), and a pipeline was completed from the producing fields to the loading terminal. 34 In 1940, a small refinery of 3,000 barrels daily capacity was constructed at Ras Tanura to supply the local requirements of the government and the company. Except for a large refinery constructed at Ras Tanura in 1943-45 as a military project, and an underwater pipeline from the Arabian fields to the Bahrein refinery, there were few new developments made by Aramco until the end of the war. 35

Nevertheless, by 1941, sufficient exploration and development work had been completed to prove beyond question the existence of vast oil reserves in the Aramco concession. Although Aramnco's production in 1940-41 was small, ranging from 12,000 to 15,000 barrels per day, one individual long associated with Aramco indicated that, in 1941, Aramco could have produced from 100,000 to 200,000 barrels per day. 38 Thus the owners of Aramco, i. e., Standard of California and the Texas Co., were faced with the problem of finding an outlet for an extremely large quantity of oil.

In 1941, the owners of Aramco offered to sell petroleum products to the United States Government at reduced prices if certain specified conditions were met. 37 Briefly, the more important conditions were that if the United States Government would advance $6,000,000 annually for 5 years to the King of Saudi Arabia, then Aramco would contract with the King to produce the products ($6,000,000 worth annually) and deliver them to the United States Government, f.o.b. ship at Persian Gulf, for the account of the King. In essence, it was a three-cornered arrangement; the advance payments would give financial relief to the King of Saudi Arabia, the United States Government would obtain petroleum products at special prices, and Aramco would have a market for its products as well as relief from the burden of making further advances to the King against future royalties. 38 The quantities of products and the offering prices were as follows: 39

1,800,000 barrels gasoline at 3 1/2 cents per gallon, 2,660,000 barrels Diesel fuel at 75 cents per barrel, 3,400,000 barrels fuel oil at 40 cents per barrel. Another condition of the offer stated that--

The products taken under this arrangement, except that taken for use by the United States Navy or other United States Government purposes within the area, would have to be moved outside an area approximately defined as follows: Egypt, the East Coast of Africa, South Africa, Australasia, India, the Straits Settlements, China, Japan and possibly the Philippines. 40

It is clear that under the above provision, no private sales were to be made by the United States Government for use in the excluded areas. These excluded areas were precisely the same areas "east of Suez" served by the joint subsidiaries of Texas and Standard of California which marketed Bahrein and Aramco oil. 41 An explanation for limiting sales in the excluded areas was given by James Moffett, former chairman of the board of Bahrein Petroleum Co., Ltd., and its wholly-owned subsidiary, Caltex, 42 before a special Senate committee in 1947-48. It was his view that Bahrein and Caltex had their full share in those markets and if the government made sales in the area "it backed up that much elsewhere and did not give the relief." 43 Relief, i. e., more sales of Bahrein and Aramco products, could be obtained only by finding markets outside the restricted or excluded area. Mr. Moffett stated that Bahrein and Caltex had "cartel" arrangements in the British Empire territory and that "* * * they had a certain percentage in that market * * * 44. Specifically, referring to the excluded territories or the Caltex markets east of Suez, he said "* * * we were operating under cartels and also what, was known as the 'As-is position' * * *" 45

Clearly, Texas and Standard of California were thus limited as to markets, and their offer to the United States Government was an attempt to find an additional outlet for Aramco and Bahrein oil and at the same time not violate existing cartel arrangements. But the United States offer was never acted upon 46 and, until the end of the war, Aramco's principal sales outlets were its limited markets east of Suez and the military departments of the Allied Governments. The latter purchased considerable quantities of crude oil and petroleum products from Aramco during the war,47 but these sales were only in temporary markets. What Aramco needed was a permanent market for its vast oil potential which would justify the large investments necessary for adequate development of this latent resource.

Aramco's position at the end of the war.--Because of their strategic location, the Aramco and Bahrein operations benefited from the war. A big refinery was constructed at Ras Tanura which turned out large quantities of Diesel and fuel oil for the Navy. The capacity of the refinery on Bahrein Island was expanded; some additional wells were drilled and a few short pipelines were built. The additional refinery capacity enabled Aramco to increase its production from 21,296 barrels daily, in 1944, to 58,386 barrels, in 1945, most of which was for military use. A new oil field was discovered in 1945, making a total of four fields in the Ararnco concession. 48 Also, because Aramco was an important supplier of oil products to the military, it was able to assemble and maintain a technical organization. This combination of circumstances placed Aramco in a position to expand rapidly when the war ended.

During the war a plan was conceived to build a pipeline from the Arabian oil fields to the Mediterranean. The United States Government had proposed to build the line in 1944, as a possible means of relieving the tanker shortage, but the proposal was rejected. 49 When the war ended Aramco revived the project as a private, venture without government participation.

With its oil fields proven to the extent of several billion barrels, with added refinery capacity, with basic development work completed, and witH plans well under way for the construction of a large diameter crude oil pipeline from Arabia to the Mediterranean, 50 Aramco, at the end of the war, was capable of supplying oil in quantities far beyond its prewar production. The question of where it would market this oil was a matter of concern not only to Standard of California and the Texas Co. (Aramco and Bahrein's parents) but also to the other international comnpanies.

Jersey Standard and Socony-Vacuum purchase an interest in Aramco and Trans-Arabian Pipe Line.--Aramco did not long remain time exclusive property of Standard of California and Texas. Shortly after the war ended Jersey Standard and Socony-Vacuum acquired an interest in Aranico and its pipeline to the Mediterranean, Trans-Arabian Pipe Line Co. (hereafter called Tapline). Discussions with Standard of California and the Texas Co. were initiated by Jersev and Socony sometime before mid-1946. By December of that year an agreement in principle had been reached whereby Jersey Standard and Socony-Vacuum would obtain a 30-percent and a 10-percent interest, respectively, in Aramco and Trans-Arabian Pipe Line Co. 51 By March 12, 1947, all details were worked out, and the formal documents were signed on that date. The docurnents--Jersey Standard and Socony each made seven agreements on that date--included:

(a) Loan guaranty agreements (called loan agreements), whereby Jersey and Socony guaranteed payment of a $102,000,00 loan which Aramco was obtaining from a group of banks.
(b) Aramco-Jersey and Aramco-Socony stock subscription agreements.
(c) Trans-Arabian-Jersey and Trans-Arabian-Socony stock subscription agreements.
(d) Pipeline agreement between Jersey, Socony, Standard of California, the Texas Co. and Trans-Arabian Pipe Line.
(e) Interim off-take agreement between Jersey, Socony, Caltex Oceanic, Ltd. (owned by Standard of California and Texas Co.) and Aramco.
(f) Off-take agreement between same parties as in (e) above.
(g) Letter agreement between Jersey, Socony, and Aramco regarding the settlement of a gold royalty problem with the Saudi Arabian Government.

Jersey Standard and Soconv each signed further agreements on December 31, 1947, known as the refined products oil-take agreements.

The significant features of these eight agreements are discussed below. At this point it should be noted that a condition precedent to their becoming effective was a favorable settlement of the red-line controversy. 52 If the red-line problem were not concluded favorably to Jersey and Socony within 4 years (by March 12, 1951), or if a court decision adverse to the interest of Jersey and Soconv were rendered prior to March 12, 1951, the agreements giving Jersey and Socony an interest in Aramco and Trans-Arabian Pipe Line were to terminate. Most of the agreements of March 12. 1947, were not to become effective until Jersey Standard and Soconv became shareholders in Aramco and Trans-Arabian Pipe Line. A few, however, such as the loan guaranty agreements, the interim off-take agreement of March 12, 1947, and the refined products off-take agreement of December 31, 1947, were put into effect immediately.

The Jersey-Socony-Aramco arrangement opens up markets for Aramco's oil.--Before discussing the details of the Jersey-Socony-Aramco agreements, it is necessary to examine the rationale underlying the admission of Jersey and Socony into Aramco.

As noted above, Aramco emerged from the war as one of the important foreign oil holdings of the world with not only a tremendous potential to produce crude but a necessity of producing in substantial quantities to increase the total royalty payment to the King of Saudi Arabia. 53 In short, Aramco's production could not be readily shut in or retarded. The owners of Aramco (Standard of California and the Texas Co.) were apparently faced with the choice of either forcing their way by competitive means into markets which, before the war, had been closed to them because of international cartel arrangements, i..e. the "as is position," 54 or permitting companies which did have marketing outlets and positions in areas west of Suez to acquire a pronrietary interest in Aramco.

If the former choice weremade and the international companies refused to make way for Aramco's output, the stability of all oil concessions in the Middle East might be upset, particularly since King Ibn-Saud was unlikely to accept a program of limited output. Moreover, in view of the various pressures to produce, Aramco might attempt to force its way into international markets by competing pricewise.

But if the latter choice were made, Aramco's output would not unstabilize existing world prices and markets, as the production could be fitted into markets over a wide area without the need of price competition. Also, if necessary, adjustments could be made in the production rates of other areas operated by the purchasing companies in order to make room for Aramco's output.

The international oil companies decided to take the latter course of action. Texas and Standard of California would obtain additional markets for Aramco without having to compete for them, while Jersey and Socony, with their world-wide interests, could distribute their shares of Aramco's output, with the result that world prices and markets would not be disturbed. At the same time, Aramco could increase production and pay greater sums to the Saudi Arabian Government.

The latter course of action was, in effect, adopted in December 1946, when the four companies (Jersey Standard, Socony-Vacuum, Standard of California and Texas) agreed in principle to share ownership of Arainco. Almost immediately the Texas Co. sold its European marketing subsidiaries to California Texas Oil Co., Ltd. 55 The Texas Co. commented as follows upon the sale of these subsidiary marketing companies:

For many years the company supplied its subsidiaries with products manufactured in the United States. It became apparent that with the increased domestic demand for petroleum and its products, and the development of petroleum resources iii the Middle East, these European markets can be more logically supplied through the Bahrein Petroleum Co., Ltd. (which through subsidiaries markets east of Suez) and Arabian American Oil Co. with their respective facilities on the island of Bahrein and in Saudi Arabia. Since these two companies will become the future source of supply for these European markets and are jointly owned by the company and Standard Oil Co. of California, the company sold its European subsidiaries to California Texas Oil Co., Ltd., also owned 50 percent by the company and 50 percent by Standard Oil Co. of California. 56

Standard Oil Co. of California was somewhat more precise in it6 statement regarding the acquisition:

A development which widens the outlet for Persian Gulf products was acquisition of the European marketing subsidiaries of the Texas Co. by Caltex, which heretofore has operated throughout the area east of Suez. This move enables Caltex to expand immediately into the market of northern and western Europe, and the countries bordering the Mediterranean Sea. Caltex obtains the major portion of its supplies from the oil fields and refineries of the parent company interests in Saudi Arabia and Bahrein.57

From the above statements it is clear that prior to the acquisition of these European marketing subsidiaries, Caltex (the company that did the marketing for Aramnco arid Bahrein) could not market in Europe. Upon purchasing these subsidiaries, however, Caltex was enabled to move Aramco's output (as well as Bahrein's) into Europe and other markets adjoining the Mediterranean. 58

Reasons advanced as a justification for Jersey and Socony obtaining an interest in Aramco were that Aramco needed additional capital to construct a pipeline and to carry on development work, which Standard of California and the Texas Co. were not in a position to supply, that Jersey and Socony needed oil and were willing to supply the capital needed by Aramco, and that Jersey and Socony had markets which they needed to supply from Middle East sources. 59

Aramco's output could now be marketed not only in Europe, through the marketing outlets formerly owned by the Texas Co. (now owned by Caltex), but also through the extensive marketing outlets of Jersey and Socony, which were world-wide. Even before the agreements between Jersey-Soconv and Aramco were consummated, Jersey and Socony began to purchase crude and refined products from Aramco. 60 The fact that Caltex (Standard of California and Texas Co.) was not permitted to market in areas west of Suez 61 until after the Jersey-Socony-Aramco agreement, is an indication that the "as is position" for sharing markets, which was in operation in 1941, 62 may have continued to be the international oil companies' modus operandi as recently as 1947. 63

Agreements and terms of the participation, of Jersey Standard and Socony-Vacuum in Aramco and Trans-Arabian Pipe Line.--In addition to agreements permitting Jersey Standard and Socony-Vacuum to purchase a stock interest in Aramco and Trans-Arabian Pipe Line, there were several collateral agreements signed at the same time (March 12, 1947), including loan guaranty agreements, a pipeline agreement, a letter agreement concerning the settlement of a royalty controversy between Aramco and the Saudi Arabian Government, agreements relating to the repayment of loans and the amounts Aramco owed Standard of California and Texas Co., and agreements to purchase or off-take Aramco's production of crude and reflned products.

The principal terms and conditions under which Jersey Standard and Socony-Vacuumn were to share ownership of the Aramco-TransArabian Pipe Line operations with Standard of California and Texas Co. are discussed below. Most of the agreements were signed on March 12, 1947, and became effective in December 1948, following the settlement of the red-line problem and the withdrawal of the CFP court suit in November of that year. Although Jersey and Socony did not become active owners of Aramco and Trans-Arabian until December 1948, nevertheless, under some of the agreements, they were able to take a share of Aramco's production and influence the marketing of Aramco's products prior to December 1948.

The Aramco-Jersey and Aramco-Socony agreements.--Under stock subscription agreements of March 12, 1947, Aramco granted Jersey Standard and Socony-Vacuum the right to subscribe to Aramco's capital stock in amounts sufficient to give Jersey a 30-percent and Socony a 10-percent interest in the company. 64 The remaining 60 percent was to be retained on an equal basis (30 percent. each) by standard of California and the Texas Co. For their respective interests in Aramco, Jersey was to pay $76,500,000 and Socony $25,500,000, a total of $102,000,000. 65 But, because of the red-line controversy and the court case filed by CFP, issuance of the stock and final consummation of the agreement had to await a settlement of the red-line question. 66 To meet this issue the Aramco-Jersey-Socony Subscription Agreements provided that in the event the court case regarding the red line was adjudicated or settled adversely to Jersey and Socony or if no settlement of any kind were made prior to March 12, 1951, the agreement would be terminated. 67 In the interim, however, Jersey and Socony were to guarantee $102,000,000 in bank loans to Aramco, with the understanding that if and when Jersey and Socony received their stock in Aramco, the funds paid therefor would be used by Aramco to repay the loans. 68 Upon receipt of the loan funds of $102 million, in March 1947, Aramco paid off debts to its parents (Standard of California and the Texas Co.) of approximately $79.8 million and declared a dividend of about $22.2 million, which was also received by the parent companies. 69

In addition to the above consideration for their respective interests in Aramco, Jersey and Socony agreed to grant Standard of California arid the Texas Co. a prior claim to Aramco's earnings. Jersey and Socony's shares in Aramco were excluded from participation in dividends until the aggregate amount of dividends paid on Standard of California and Texas Co.'s shares equaled $37,234,758 in 1947, $15,000,000 in 1948, $15,000,000 in 1949, and in each year beginning with 1950, a sum equivalent to 10 cents per barrel (U. S. 42 gallons) for each barrel of crude oil produced by Aramco until dividends based on a total production of 3 billion barrels ($300,000,000) had been paid. 70 All of these dividend payments were cumulative, i. e. if all of any part was not paid in the year when due, the obligation was carried over to the next year. Thus the total financial cost to Jersey and Socony for their 40-percent interest in Aramco was nearly one-half billion dollars, 71 a major transaction even for international oil companies.

Jersey and Socony, in addition to receiving a 40-percent interest in Aramco, also obtained a limited veto with respect to the management. of Aramco. The articles of incorporation were amended to permit changes in Aramco's bylaws only by a vote of not less than 66 2/3 percent of the holders of capital stock. 72 Since Texas and Standard of California held 60 percent, this meant that either Jersey or Socoimy would have to agree before any proposed change could he made. Also, the board of directors of Aramco could not sell or transfer a substantial portion of the assets or property of the company unless the holders of 66 2/3 percent of the stock so authorized. 73 Moreover, the articles of incorporation could he altered or changed only by a vote of 100 percent of the holders of the capital stock. 74 This same rule applied to the removal of directors from the board. 75 Thus, it would appear that Jersey and Socony obtained a voice in the management of Aramco considerably out of proportion to their stock holdings. Nevertheless, it was the stated intention of its owners that Aramco should be run for its own benefit as a separate entity, 76 as contrasted to IPC, which was operated for the benefit of the owning groups.

The Trans-Arabian Pipe Line aqreements.--In agreements similar to the Aramco agreements, Jersey Standard and Socony-Vacuum obtained the right to subscribe to stock in Trans-Arabian Pipe Line Co. (hereafter called Tapline) in amounts necessary to give them a 30-percent and 10-percent interest, respectively, in Tapline.77 The agreements contained the same contingent provisions regarding the settlement of the red-line controversy as the Aramco agreements. In other Tapline arrangements (articles of incorporation) Jersey and Socony obtained the same veto power in the management counsels of the company as they had received in Aramco; i. e., substantial changes could be made only if 66 2/3 percent, and in some cases 100 percent, of the stockholders approved. 78

As consideration for their interests in Tapline, Jersey and Socony agreed to guarantee the payment of their proportionate share of a $125,000,000 loan to Tapline. 79 Jersey Standard's guaranty was $37,500,000 and Socony's $12,500,000, with Standard of California and Texas Co. guaranteeing the balance, i. e., $37,500,000 each. 80 This, in effect, was a four-party guaranty with each party liable for its proportionate share, not only of the $125 million, but of such additional amounts as would be needed from time to time to complete construction of the line. 81

Each of the four parties was to have the right to ship crude through the line in proportion to their ownership, i. e. Jersey, Texas and Standard of California, 30 percent each and Socony 10 percent. If the party did not choose to use its full share of the line, the unused share was available for any of the other parties who wished to utilize it. As consideration for the right to use the line, each party was to pay its pro rata share of the line's fixed charges, 82 except in cases where unused capacity of one shipper was used by another. In such cases the user paid additional fixed charges equal to the amount the nonuser would have been required to pay for such use. 83

In addition to payments covering fixed charges, each of the parties (shippers) agreed to pay Tapline a pro rata portion of the cost of operation, maintenance, and management of the line. This was to be a per-barrel charge based on the quantity of oil transported. However, the aggregate liability of the parties (shippers) for fixed charges and the per-barrel charges for operation and maintenance were to be finally determined on the basis of the amounts that were allowable as deductions from gross income for Federal income tax purposes. 84

As noted above, work on the line had begun in 1947, and when Jersey and Socony took up their shares, in December 1948, 85 the construction of the line was well under way. It was completed in 1950 at a cost in excess of $200 million, and the first deliveries of crude through the line were made at Sidon, Lebanon (the Mediterranean terminal), in December, 1950. 86

The off-take agreements.--At the time Jersey Standard and Socony made the Aramco and Tapline agreements, they also made a series of agreements with Aramco and Caltex Oceanic, Ltd. (a marketing subsidiary of Standard of California and Texas Co.) respecting the distribution of the crude and refined products produced by Aramco. One agreement known as the off-take agreement, 87 set up a schedule of "annual minimum" quantities of crude which each of the parties would take (buy) from Aramco over a period of 18 years. Deliveries were to begin when the pipehne (Tapline) was completed. In the event, however, that Jersey and Socony stock subscription agreements with Aramco and Tapline were terminated, the off-take agreement also would be dissolved. The "annual minimums" were each owner's pro rata share of Aramco's annual production, which was set at 380,000 barrels per day in the first year and increased to 500,000 barrels in the 18th year. 88 There were, however, options given which enable an owner (buyer) to obtain oil in excess of the annual minimum.

The prices which the buyers (owners of Aramco) were to pay Aramco for crude and refined products were to be determined by Aramco's board of directors--

* * * in accordance with the principle that seller (Aramco) should be run for its own benefit as a separate entity. 89

Prices were to be the same to all buyers (owners) and price differentials for deliveries at different places or under different conditions were to be so fixed as to cause no discrimination between buyers. However, if any buyer (owner) did not take its "annual minimum," as stated in the agreement, any buyer taking the excess quantity would be granted a credit, which had the effect of reducing his average annual price. Apparently this was a premium granted to a buyer for maintaining Aramco's production at the agreed levels. Conversely, it also could be considered a penalty upon those buyers who did not take their "annual minimums," for the price concession or credit was granted for taking excess quantities above "annual minimums" only in periods when another buyer or buyers took less than its (their) "annual minimum." 90

There could be no assignment of rights under the off-take agreement without the approval in writing of the other parties, except to a corporation that was wholly owned by one or more of the parties to the agreement. Thus, if an outsider (nonowner) wished to purchase any crude or refined products produced by Aramco, such purchases had to be made from the owners and not directly from Aramco. 91

But apparently Jersey and Socony did not wish to wait until the pipeline was completed before they could share in Aramco's output, for at the same time the off-take agreement was signed (March 12, 1947), the same parties concluded an interim off-take agreement, 92 which permitted Jersey and Socony to purchase crude and refined products from Aramco in 1947, 1948, and 1949. 93 Beginning with August 1947, and continuing through 1949, Jersey and Socony were also permitted to purchase specified quantities of crude or refined products left over after Caltex had satisfied its requirements. 94 Prices under this agreement were to be established in the same manner as in the off-take agreement, i. e., by Aramco's board of directors. The interim agreement was to remain in effect until the off-take agreement became effective. But, in the event the off-take agreement was not in effect by January 1, 1950, and Jersey and Socony had not purchased their shares in Aramco, 95 they were to continue to make purchases from Aramco:

* * * in such quantities, for such period of time, and on such terms and conditions as shall be mutually agreed upon. 96

Evidently Jersey and Socony wished to maintain their relationships with Ararnco as long as possible, or, at least until the ownership question was resolved.

In both the off-take and the interim off-take agreements, the parties signified their intentions to enter into a processing agreement which would set forth the conditions and terms for processing crude at Aramco's large refinery at Ras Tanura. 98 On December 31, 1947, the parties, in lieu of the processing agreement, formally recorded the arrangements which would govern the distribution (sharing) of the output of this refinery among the parties (owners) in an agreement called the refined-products off take agreement. 99

The agreement, relating to the sharing of the refinery's output, was to become effective January 1, 1948. It was similar in many respects to the other off-take agreements.1 Each party was given an option to purchase its percentage of the output of the refinery after deducting what Aramco needed to meet local requirements. 2 If a party did not take (purchase) its full share of the output of the refinery in any 6 months' period beginning with January 1, 1948, the parties taking their full percentages were given the option of purchasing the output not taken by other parties. 3

Payments to Aramco were divided into two categories. First, as consideration for the options to share the output of the refinery according to percentage of ownership, the parties agreed to pay Aramco annually their pro rata share of Aramco's fixed charges (less the percentage allotted to cover local requirements) plus $2 million. 4
Adjustments in each party's pro rata share of these payments were to be made to correspond to the quantities of products taken. Secondly, as a price for the refined products purchased, each party was to pay to Arainco its pro rata part of the value of crude used in producing the refined products. The value of the crude was to be computed at the price established for this crude by Aramco's board of directors as provided in the off-take and interim off-take agreements. 5 In addition, the parties were to pay all of Aramco's direct expenses due to operation and maintenance of the refinery, plus an amount equal to 10 percent of such expenses.6

The three off-take agreements discussed above were essentially the working rules for sharing the output and distributing the costs of Aramco among its respective owners. It was the intention of the parties that Aramco should earn profits, but the amount of these profits depended largely upon what Aramco's board of directors thought they should be. This board, composed of representatives of the owning (buying) companies, determined the price to be paid Aramco for crude, and the crude price, in turn, fixed the prices to be paid for refined products. 7 Although the parties were to pay other charges and sums to Aramco, Aramco's principal source of income was to be the sale of crude oil and petroleum products at prices fixed by its own board. The apparent ability of the buyer-owners to determine, themselves, Aramco's profits could be a factor of considerable significance in view of the fact that under the 1950 concession agreement payments to the Saudi Arabian Government were to be determined by Aramco's profits.

Aramco's 1950 concession agreement with the Saudi Arabian Government.--On December 30, 1950, Aramco and the Saudi Arabian Government agreed to a revision of the 1939 concession agreement. The important change related to tax payments to be made by Aramco to the Government. During 1950, the Saudi Arabian Government issued two income tax decrees which, for the first time, imposed income taxes on petroleum producers. In effect, the income taxes which were imposed, together with royalties and other payments to the Government, amounted to 50 percent of Aramco's profits after allowing for income taxes paid to other countries. Aramco agreed to pay taxes up to but not exceeding 50 percent of its net profits, after income taxes to the United States were deducted. It was on this basis that a new agreement was concluded. In return for the additional payment, Aramco was permitted to pay taxes in any currency which it received and in the same proportions as received, and to obtain Saudi Arabian riyals (the local currency) at the prevailing rate of exchange rather than at a premium. 8

The new agreement was retroactive to January 1, 1950, and according to press reports, Aramco was required to pay the Saudi Arabian Government an additional sum of approximately $30 million for the year. No changes were made in the per ton royalty payment, which, in 1950, was equivalent to approximately 34 cents per barrel. 9


Introduction.--Gulf Exploration Co., a subsidiary of Gulf Oil Corp., and Anglo-Iranian Oil Co., each owns a 50-percent share of the stock of Kuwait Oil Co., Ltd., an operating company registered under British laws. The latter holds an exclusive concession to explore for and produce oil in the entire 6,000 square miles of territory constituting the independent Sheikdom of Kuwait on the west coast of the Persian Gulf. The Sheik of Kuwait rules this area under British protectorate and has treaties and agreements with Great Britain giving preference to British subjects or companies of British nationality respecting exploration for and production of oil in Kuwait. The Kuwait concession is for 75 years beginning on December 23, 1934, and covers all of Kuwait, representing an area of about 3,900,000 acres. The one field so far developed at Burgan has been estimated by Gulf to contain at least 10 billion barrels of oil, of which Gulf's half would be some 5 billion barrels in this one field in Kuwait. In 1946, Gulf estimated that in other areas it controlled something less than 2 billion barrels.

This section of the report will describe the setting up of Kuwait Oil Co., Ltd., as an operating company jointly owned by British and American private interests in accordance with (a) the international agreements between the British Government and the Sheik, (b) the British Government's policy of giving preference to British. nationals in British territories and protectorates, 10 and (c) Private cartel agreements among the principal international oil companies in effect at the time.

International background.--The political history of conditions leading up to the 50-percent interest held by Gulf Exploration Co. in Kuwait Oil Co., Ltd., goes back as far as 1899, the year in which Mubarak-al-Subah, Sheikh of Kuwait, agreed with Her Britannic Majesty's political resident in the Persian Gulf, that he:

* * * of his own free will and desire does hereby pledge and bind himself, his heirs and successors not to receive the Agent or Representative of any Power or Government at Koweit, or at any other place, within the limits of his territory, without the previous sanction of the British Government; and lie further binds himself, his heirs and successors not to cede, sell, lease, mortgage, or give for occupation or for any other purpose any portion of his territory to the Government or subjects of any other Power without the previous consent of Her Majesty's Government for these purposes. This engagement also to extend to any portion of the territory of the said Sheikh Mubarak, which may now be in the Possession of the subjects of any other Government."

Fourteen years later, in 1913, Sheikh Mubarak laid the basis for Britain's claim to Kuwait oil by agreeing to show a British Government representative:

* * * the place of bitumen in Burgan and elsewhere and if in their view there seems hope of obtaining oil therefrom we shall never give a concession in
this matter to anyone except a person appointed from the British Government. 12

Similar agreements negotiated by the British Government with other sheiks and rulers in the Arabian Peninsula were part of the steps by which the British sphere of interest was built up in the Near and Middle East. 13 They became the basis upon which the British Government later based its policy of insisting that the rulers of these independent states give preference to British interests in the granting of oil concessions. Under this preference, commonly referred to as the nationality rule, Eastern and General Syndicate, Ltd., a British company headed by Maj. Frank Holmes, later negotiated with various local rulers for concessions. In 1925, such a concession was obtained covering part of Bahrein Island. Others for which negotiations were started included all or part of Kuwait. It should be noted that options on both of these concessions were first offered to Anglo-Persian Oil Co., which rejected them.

When Gulf Oil Corp. first sought to obtain a foothold in the Near East, British geologists had reported adversely on the Bahrein concession. Nevertheless Gulf's subsidiary, Eastern Gulf Oil Co., entered into an agreement with Eastern and General Syndicate, on or about November 50 [sic], 1927, under which Eastern Gulf Oil Co. obtained an option on certain oil concessions then held or yet to be negotiated by Eastern and General Syndicate,. Ltd., in Bahrein island and Kuwait.

At the time these options were taken, Gulf Oil Co. was one of the group of American companies that was negotiating for a participation in Iraq Petroleum Co. (IPC), but the red-line agreement of 1928 requiring all IPC participants not to act individually in an area including most of the old Turkish Empire and all of the Arabian Peninsula, had not yet been signed. Late in 1928, however, when Gulf proposed to take up its option on Bahrein, approval by IPC was necessary under the red-line agreement. Backed by the unwillingness of the British Government to have an American company obtain a foothold in the area, IPC decided that, as a participant in the red-line agreement, Gulf could not exercise its option. Thereupon, Gulf transferred its Bahrein option to Standard Oil of California on December 21, 1928, and, at that time or soon thereafter, withdrew from its participation in IPC. Gulf, however, retained its option with Eastern and General Syndicate, Ltd., for the Kuwait concession. 14

In 1931, when Eastern Gulf Oil Co., acting as an independent American oil company no longer participating in IPC and the red-line agreement, sought to take up the Kuwait option through Eastern and General Syndicate, opposition again arose from both British oil interests and the British Government. The British Colonial Office, in accordance with its long-time policy respecting British colonies and protectorates, insisted that only a British subject or firm should be given the concession. Gulf thereupon brought the matter to the attention of the United States Department of State, which, through the American embassy in London, requested equal treatment of American firms under the open-door policy. The ensuing negotiations were complicated by the fact that Anglo-Persian, which had previously expressed disinterest in Kuwait, also opened negotiations with the Sheikh of Kuwait for a concession. The Sheikh thus found himself confronted by two bidders. 15

The Anglo-Persian, Gulf Exploration Go. agreement, December 14, 1933.--After 3 years of negotiations involved in this competitive struggle for the yet-undiscovered Kuwait oil, Anglo-Persian and Gulf decided to make common cause in endeavoring to secure one or more concessions in Kuwait, which they would operate jointly. On December 14, 1933, they accordingly entered into an agreement:

1. To exercise Eastern Gulf Oil Corp's option on any concession or concessions which Eastern and General Syndicate might obtain in Kuwait;
2. To use the agencies and facilities at the disposal of each to obtain these concessions on terms not substantially more onerous to the concessionaire than those of a draft concession which, by reference, was made part of the agreement;
3. To assume on a 50-50 basis any expenses subsequently incurred by either party in obtaining these concessions, including a cash payment of £36,000 due to Eastern and General Syndicate if and when Eastern Gulf Oil Co. took up its option with the syndicate;
4. To form an operating company (Kuwait Oil Co., Ltd.) to be financed and owned equally by Anglo-Persian Oil Co., Ltd. and Gulf Exploration Co., whose production would be shared equally by Anglo-Persian and Gulf at cost, the ownership of which could not be sold or transferred except (a) with the consent of the other party and (b) subject to the provision that any transferee, would become fully bound by the terms of the 1933 agreement. 16

Two other important provisions relating to the disposal of oil which the Kuwait Oil Co. might produce in the future were covered by the agreement. In the first place, each gave assurance to the other that Kuwait oil would not be used to "upset or injure" the other's "trade or niarketing position directly or indirectly at any time or place." In the second place, each party undertook "to confer from time to time as either party may desire and mutually settle in accordance with such principles any question that may arise between them regarding the marketing of Kuwait oil and products therefrom." It was further stipulated that Anglo-Persian's marketing position in India as a supplier of Burmah Oil Co. was recognized even though its marketing position:

* * * is on an in and out nature dependent on the relation from time to time between Burmah Oil Co.'s and/or the Burmah-Shell Co.'s outlet there and the volume of indigenous production * * * even though in pursuance of such arrangement it [Ang1o-Persian] may not at any given time actually be supplying oil or the full range of its products to that market.

Notwithstanding these restrictive provisions, the agreement stated:

Anglo-Persian recognized, however, that Gulf will wish to have outlets for Kuwait oil, if and when produced; and therefore has no desire that Gulf should assume any restrictions with respect to the marketing of such oil products therefrom which would in any way interfere with Gulf's freedom to obtain such outlets consistently with the observance of the above assurance.

Thus, Anglo-Persian assured Gulf that it would have freedom to seek markets for Kuwait oil, while both bound themselves not to compete with each other in such a manner as to endanger each other's marketing position. These provisions were entirely consistent with the international cartel agreement, heads of agreement for distribution, which had been formulated with the participation of Gulf and which was then in effect. Under this agreement the market positions of all participants were to be determined on the basis of their 1928 "volume of business and their proportion of any future increase in production," 17 and quotas so determined were to apply in every country of the world except the United States.. 18

In entering into this agreement Gulf, which had a "recognized marketing position" in European and Western Hemisphere foreign markets, but none in the Far East, was seeking a Middle East source of supply under its own control. If it obtained such a source free from restrictions on its sale of Kuwait oil, not only would its competitive position be greatly strengthened in European markets, but also it would be able to enter the Far East markets. Naturally Gulf wished to retain these advantages. It declare [sic] in an application to the Securities and Exchange Commission, in 1946, that the restrictive marketing provisions were obnoxious to both Gulf Exploration Co. and its parent company. 19

On the other hand, as noted in a subsequent chapter, Gulf had participated in the formulation of the world cartel's heads of agreement for distribution. Hence, the company was fully aware of the cartel's attempt to divide world markets on the basis of the percentages of trade done in each market in 1928. 20 Its participation in the formulation of the cartel agreement obviously weakened Gulf's position in resisting the marketing restrictions insisted upon by Anglo-Iranian which were based on the cartel agreement itself. Thus even though Gulf had the support of the United States Department of State's "open-door policy," it was virtually compelled to accept various restrictive conditions. Gulf's counsel has stated that further efforts were made to have the British Government modify or remove these restrictions but without success. 21 Gulf was also obliged to accept a condition, insisted upon by the British Government, that only a British company could hold a concession to produce Kuwait oil. 22

Operation of Kuwait Oil Co.--Paragraph 6 of the joint ownership agreement of December 14, 1933, between Gulf Exploration Co.. and Anglo-Persian stated that the quantity of oil to be produced by Kuwait Oil Co., Ltd., would be deterrmincd as follows:

1. Either party would have the right to require Kuwait Oil Co., Ltd., "to produce such quantity of crude oil as may be decided by the party making the request;''
2. That all production from Kuwait produced at the. request of both parties would be allocated "50-50 to Gulf and Anglo-Persian at cost ;"
3. That any addjt.ional oil produced at the request of either Gulf or Anglo-Persian would "be allocated in full to the party making the request, at cost for all such oil." 23

In addition, section 8 of the agreement stated:

The parties have in mind that it might from time to time suit both parties for Anglo-Irailian to supply Gulf's requirements from Persia and/or Iraq in lieu of
Gulf requiring the company to produce oil or additional oil in Kuwait.
Provided Anglo-Persian is in position conveniently to furnish such alternative supply, of which Anglo-Persian shall be sole judge, it will supply Gulf from such other sources with any quantity of crude thus required by Gulf provided the quantity demanded does not exceed the quantity which in the absence of such alternative supply Gulf might have required the company to produce in Kuwait--at a price and on conditions to be discussed and settled by mutual agreement from time to time as may be necessary--such price f.o.b., however, not to be more than the cost to Gulf of having a similar quantity produced in and put f.o.b. Kuwait.

Thus Gulf and Anglo-Persian could order jointly or separately as much oil out of Kuwait as either desired. The above provisions, however, gave Anglo-Persian a powerful voice in determining the actual amount of Kuwait production. Anglo-Persian, having extensive interests in Iran and Iraq, could determine for itself how much of its own requirements would be ordered from Kuwait rather than from Iran and Iraq. Whenever convenient, moreover, a matter of which it was the sole judge, Anglo-Persian, in consultation with Gulf, could decide that part or all of the oil ordered out of Kuwait by Gulf would actually be produced by Anglo-Persian in either Iran or Iraq or both. The provision that such alternative oil would not cost Gulf more than if it had been "produced in and put f.o.b. Kuwait" made it a matter of indifference to Gulf, insofar as price was concerned, whether Kuwait oil or "alternative oil" were actually supplied.

Anglo-Persian's power to substitute, with Gulf's consent, alternative oil for increased Kuwait output accorded perfectly with the principles of the international cartel agreement of 1928, commonly known as the Achnacarry agreement. Under that agreement the major international oil companies, including Anglo-Persian, endeavored to control production by such means as (1) joint use of existing facilities, 2) constructing only such additional facilities as were necessary to supply increased demand, and (3) shutting in any excess of production over consumption. If and when Kuwait produced oil, it would of course become a new source of supply in the international market. Some means of controlling its production by the substitution of oil from other established producing regions would be a logical cartel objective under these principles. The substitution of Persian or Iraq oil would constitute a use of existing facilities and, in effect, be equivalent to shutting in an equal quantity of Kuwait oil.

Reiteration of restrictive clauses in 1937.--By agreement dated March 23, 1937, the 50-percent stock interest in Kuwait Oil Co., Ltd. consisting of 100,000 shares of £1 par value owned by Anglo-Iranian Oil Co., Ltd. (formerly Anglo-Persian) was transferred to the latter's wholly owned subsidiary, D'Arcy Exploration Co., Ltd. 24

The effect of this 1937 agreement was to reaffirm all of the provisions of the main agreement of 1933 and to continue the restrictive provisions respecting marketing and the substitution of oil from other sources for Kuwait oil. Gulf Oil Corp. has stated that the restrictive provisions always were objectionable, and that it originally consented to these provisions in 1933 and continued to do so in 1937 only because of the insistence of the Anglo-Iranian Oil Co., Ltd. 25

Postwar development.--Operations in Kuwait were entirely suspended in 1942, and were not resumed again until after the war. Transportation and loading facilities were completed and commercial shipments began about August 1946, with Gulf selling its share of Kuwait production to Asiatic Petroleum Co., a subsidiary of the Royal Dutch-Shell. In 1946, Gulf Oil Corp. stated that Anglo-Iranian was advised of this sale and raised no objection. 26

In May 1947, Gulf Exploration Co. entered into a long-term contract to sell much larger quantities of its share of Kuwait oil to the Shell Petroleum Co., Ltd., of London, England, another Royal Dutch-Shell subsidiary. This commercial contract, which is of the type commonly referred to in the trade as "sale of oil agreements" is discussed in the following chapter.


When Standard Oil Co. of California and Gulf Oil Corp. first began negotiations to obtain concessions in Saudi Arabia, both were practically newcomers in the world oil trade and both were acting outside the closely cooperating group of international oil companies that controlled Middle East production. The older companies first tried to prevent Gulf and Standard of California from obtaining concessions, and when this failed, attempted to devise other means of preventing the newly discovered oil from disturbing world markets. The history of the development of Ararnco and Kuwait Oil Co., Ltd., therefore, is a history of the difficulties faced by independent American interests in obtaining a foothold in the Middle East and of finding a market for flush production.

Aramco.--In winning an exclusive concession covering an area of about 360,000 square miles in Saudi Arabia, Standard Oil Co. of California faced the competition of Iraq Petroleum Co. representing the combined interests that controlled all production in Iraq and Iran, as well as in most of the remainder of the Middle East. To obtain the concession California Standard agreed to make loans and advances to the Arabian Government in the amount of £150,000; to pay annually a cash rental of £5,000; and if oil were discovered, to pay a royalty of 4s. per ton and to furnish free to the Saudi Arabian Government 200,000 gallons of gasoline and 100,000 gallons of kerosene, annually. Further advances of £100,000 and an increase in the annual rental of £20,000 was the price for obtaining a second concession in 1939 which extended the concession area to 440,000 square miles. The loans and cash advances were recoverable by the company only by deductions from royalties, and the Government also hoped to augment its income through royalties. From the outset, therefore, Aramco's financial relationships with the Saudi Arabian Government required a market outlet for any oil discovered.

With no established position in the Eastern Hemisphere, Standard of California had already come face to face with the difficulty of finding a market for its Bahrein oil without engaging in a competitive struggle with the established international companies. The Bahrein problem was solved on July 1, 1936, when Standard of California bought a half interest in the far eastern marketing facilities of the Texas Co., which already had an established position east of suez, with the Texas Co. buying a half interest in the Bahrein Petroleum Co. Aramco also obtained access to these limited eastern markets when the Texas Co., in December 1936, bought a half interest in Aramco. A trade press comment at the time of the first acquisition stated that--

* * * it assures that Bahrein production as well as any output that may eventually come from countries now being developed by Standard Oil Co. of California will have assured and regulated outlets and will so lessen any possible danger of upsetting the equilibrium of international markets. 27

Up to 1941, Caltex, the marketing company owned jointly by Standard of California and Texas, was able to find markets east of Suez for only 12,000 to 15,000 barrels daily of Aramco's oil. This was reported to be less than one-seventh of what Aramco's developed fields could have produced in 1941. During the war, production was gradually increased to 58,386 barrels daily in 1945. Since a large proportion of this output, however, was refined and sold to the Allied Governments, this proved to be only a temporary outlet, leaving Aramco at the end of the war with crude oil and refining facilities, but no market. Moreover, Aramco's need for markets was aggravated by the discovery of additional fields in 1945 and 1947. At this point, Aramco proposed to build a pipeline to the Mediterranean.

This proposal caused great concern to the established international companies, which immediately endeavored to open up additional markets to Aramco, both east and west of Suez, but in such a manner as not to disturb world markets. This involved several coordinated steps. First, the Texas Co. sold its European marketing facilities to Caltex, thus making its markets west of Suez available to Aramco. Second, Standard of California and Texas permitted Standard Oil Co. (New Jersey) and Socony-Vacuum Oil Co., together, to purchase a 40-percent interest in both Aramco and Trans-Arabian Pipe Line Co. And third, Jersey Standard and Socony-Vacuum entered into contracts to buy oil from Aramco. Thus, while new markets were opened up to Aramco, the recognized marketing positions of the international oil companies were preserved. The principal change was a shift in their sources of supply on the part of three of the four American companies which now own Aramco in order to make room for Aramco's production, which they are now in a position to control.

Kuwait Oil Co., Ltd.--The history of Kuwait Oil Co., Ltd.,is likewise one of an American company which, single-handed, sought to obtain a foothold in Middle East production. In 1931, both Eastern Gulf Oil Co., a subsidiary of Gulf Oil Corp., and Anglo-Persian, separately, began negotiating for a concession in Kuwait. After about 3 years, during which time oil was discovered in nearby Bahrein, AngloPersian and Gulf made common cause to obtain an exclusive concession covering the whole of Kuwait, setting up Kuwait Oil Co., Ltd., on a 50-50 basis to operate the concession.

At the insistence of Anglo-Persian, the contract establishing the operating company contained a provision that neither party would use oil from Kuwait to upset or injure the other's "trade or marketing position directly or indirectly at any time or place," and that they would confer from time to time to settle any questions that might arise between them regarding the marketing of Kuwait oil. In addition, the contract provided that the quantity of oil to be produced in Kuwait would consist of two parts: (1) such quantity as the two owners agreed to produce and share equally, and (2) such additional quantity as either party might order out for its own account. Part or all of the oil, so ordered by Gulf, however, could, by agreement of the parties, actually be supplied by Anglo-Persian "from Persia and/or Iraq in lieu of requiring the company to produce oil or additional oil in Kuwait." Since the cost of such alternative oil to Gulf would be no more than if the oil actually had been produced and delivered in Kuwait, this, in effect, gave to Anglo-Persian a continuing option, subject to Gulf's consent, to control the quantity of oil produced in Kuwait by substituting oil from its other sources.

Although oil was discovered in Kuwait in 1938 and further explorations proving the existence of large reserves continued until 1942, lack of transportation and loading facilities prevented the sale of oil until after the war. The necessary facilities were completed and commercial sales began in August 1946, with Gulf selling its share of Kuwait's production to a Royal Dutch-Shell subsidiary. Nine months later, Shell contracted to take much larger quantities of Gulf's Kuwait oil for a long period of years. The manner in which much of Gulf's share was fitted into the world market under this commercial agreement without disturbing competitive positions is discussed in the next chapter.


1. World Petroleum, January 1951, p. 41.

2. Ibid

3. Summary Middle East Oil Development, by Arabian American Oil Co. and World Petroleum, January 1951

4. World Petroleum, op. cit.

5. Sources: Summary Middle East Oil Developments, by Arabian American Oil Co. for years 1939-46; 1947-50, Bureau of Mines; and for 1951, Platt's Oilgram News Service, July 12, 1951.

6. The Bahrein concession and the conditions under which it was obtained have been previously noted. See p. 71 ff.

7. See Collier's, August 18, 1945, All the King's Oil, an article by Marquis Childs, for an interesting and colorful account of how Standard of California obtained the concession.

The New York Times, July 15. l933, p. 1, reported that fear of British political control was a factor in influencing King Ibn Saud to award the concession to an American company.

The following comment was made in 1935 by the general manager of IPC to NEDC'S representative on the IPC board;

* * * there was a time when you were all sure that there could be no oil at all in Bahrein. And, as for Hasa (Hasa was that section of Arabia where the concession area was located), I told the groups that the concession would be theirs within 48 hours if they planked down £50,000 (gold); they replied that I was far too hasty--'Try Ibn Saud with £30,000 sterling'; within 48 hours California deposited £50,000 (gold) and walked away with it." Apparently IPC was too conservative in its bidding. From a letter by J. Skliros to R. W. Sellers, October 31, 1935.

8. The name of California Arabian Standard Oil Co. was changed to Arabian American Oil Co. (Aramco) on January 31, 1944.

9. Arabian Oil, op. cit., p. 52. One source gives the size of the area as approximately 162,000,000 acres. See Investigation of the National Defense Program, hearings before a Special Committee Investigating the National Defense Program, U. S. Senate, 80th Cong., 1st sess., pursuant to S Res. 46, pt 41, p. 24724.

10. Private letter agreement between Saudi Arabian Government and Arabian-American Oil Co., May 29, 1933.

11. All payments were to be in gold or its equivalent.

12. Original concession agreement between Saudi-Arabian Government and Standard Oil Co. of California, May 29, 1933.

13. Ibid. In 1950, the royalty amounted to about 34 cents per barrel.

14. Ibid.

15. These are discussed in detail in chs VIII and IX of this report.

16. The Petroleum Times, London. May 2, 1936. p. 563.

17. These plans arc discussed in chs. VIII and IX.

18. The efforts of these companies to cope with the Bahrein problem have been discussed in ch. IV. See p. 72 ff.

19. A report in the Petroleum Times, May 2, 1936. p. 563, indicated that the failure might have been due to the refusal of the European cartels to agree to their (referring to K. R. Kingsbury and James Moffett of Standard of California) desires concernirig a controlled market for Bahrein crude.

20. Fortune, The Great Oil Deals, May 1947, p. 175.

21. These "as is" arrangements, as they were known, provided for the allocation of world markets among existing marketing organizations in accordance with the marketing positions held in 1928 in each market. See chs VIII and IX for a discussion of these arrangements.

22. The Petroleum Times, February 20. 1937, p. 263. The discussion is in reference to Caltex, a few months after the California-Texas merger, hut the reasoning is just as applicable to conditions before the merger.
One commentator also indicated that K. R. Kingsbury, President of Standard of California, and Walter Teagle, President of Jersey Standard, had personal differences and were never reconciled. This may have made things more difficult for Standard of California. See Fortune, "Ths Great Oil Deals,'' op. cit.

23. The Petroleum Times, May 16, 1936, p. 626.

24. Investigation of the National Defense Program, op. cit., pp. 24836, 24837; and Moody's Industrials, 1955, p. 2810
The marketing subsidiaries in which Standard of California obtained a 50-percent interest were the Texas Co. (Australasia) Ltd., the Texas Co. (China) Ltd., the Texas Co. (India), Ltd., the Texas Co. (South Africa), Ltd., and the Texas Co. (Philippine Islands). Inc. The Texas Co.'s marketing properties in Egypt were included in the 1936 merger deal. See Investigation of the National Defense Program. op. cit. p. 24837.
The Bahrein concession was held by Bahrein Petroleum Co., Ltd., a Canadian corporation. As a result of the merger, a subsidiary of Bahrein Petroleum Co., Ltd., was formed, called California Texas Oil Co., Ltd. (Caltex), and to this company was transferred control of the marketing facilities.

25. Moody's Industrials, 1950, p. 2810. In addition, for the consideration, Texas received a 50 percent interest in N. V. Nederlandsche Petroleum Maatschappij which held a concession in Sumatra, and a 20-percent interest in N. V. Nederlandsehe Nieuw Guinee Petroleum Maatschappij, which held a concession in Dutch New Guinea. In the same transaction the Texas Co. gave Standard of California an option to purchase one-half of its marketing facilities in Europe. The option lapsed in 1939; but, in December 1946, Caltex paid Texas Co. $28 million for these facilities. See Fortune, op. cit.

26. The Petroleum Times, July 4, 1935, p. 8.

27. Ibid. [Italics added]

28. Summary Middle East Oil Developments, op. cit., and supplemental agreement between Saudi Arabian Government and California Arabian Standard Oil Co., May 31, 1939.

29. Arabian Oil, by Mikesell & Chenery, p. 53.

30. Summary Middle East Oil Developments, op. cit., Arabian Oil, op. cit. p. 53, and supplemental agreement. op. cit.

31. A part of the new territory over which Standard of California obtained concession rights under the supplemental agreement, included Saudi Arabia's undivided half-interest in the Saudi Arab-Kuwait and Saudi Arab-Iraq neutral zones. Supplemental agreement, art. 4.

32. Supplemental agreement, art. 8.

33. Summary Middle East Oil Developments, op. cit.

34. Arabian Oil, op. cit., p. 61.

35. Summary Middle East Oil Developments op. cit. Actually the name of the company holding the concession at this time was California Arabian Standard Oil Co. (called Calarabian) and its name was not changed to Arabian American Oil Co. (Aramco) until 1944, but for the sake of clarity, Aramco is used.

36. See testimony of James A. Moffett in Investigation of National Defense Program, op. cit , p. 24714.

37. "Investigation of the National Defense Program, op. cit., pp. 25359-25361. This hearing also sheds light on the prices Aramco charged the United States Navy for crude and products in 1945. See chapter X of this report for a discussion of this subject.

38. See Investigation of the National Defense Program, op. cit., for a complete discussion of this proposal, the reasons for the advance and the King's financial plight.

39. Ibid., p. 25359.

40. Ibid., pp. 25300-25361. [Italics added.]

41. It will be recalled that Standard of California aeciuired a 50-percent interest In the Texas Co.'s marketing sulisiliaries operating east of Suez in the 1936 transaction described on pp. 115-116; see especially footnote 24, p. 116. Actually ownership of these facilities was directly held by California Texas Oil Co., Ltd. (Caltex)
a jointly owned subsidiary of the two companies.

42. Both these companies were jointly owned by Standard of California and the Texas Co.

43. Testimony of James Moffctt in lnvestigation of the National Defense Program, op. cit., p. 24727. The committee that made this investigation was popularly known as the Brewster committee.

44. Ibid. p. 24728

45. Investigation of the National Defense Program, op. cit., p. 25201. See chs. VIII and IX for a discussion of the As Is Position."

46. In 1943, the parents of Ararnco again offered oil products to the U. S. Government at special prices. They also offered to set aside part of Aramco's reserves of oil for use by the Government. In return, the U. S. Government was to give financial aid to the Saudi Arabian Government. See Investigation of the National Defense Program, op. cit., and S. Rept. No. 440, pt. 4, 80th Cong., by the same special committee for a discussion of these issues.

47. Investigation of the National Defense Program, op. cit. The same source sheds light on the attempts of the U. S. Government through Petroleum Reserves Corp. (a subsidiary of the Reconstruction Finance Corp.) to purchase the stock of Aramco and the Bahrein Petroleum Co. Later the proposal was amended to provide for the purchase of only a minority interest, but the parent companies (Standard of California and Texas Co.) refused to sell and the deal was dropped. Also see Arabian Oil, op. cit.. pp. 90-95.

48. Summary Middle East Oil Development, op. cit.. and Arabian Oil, op. cit., pp. 61-62.

49. Investigation of the National Defense Program, op. cit.. pp. 25235-25246.

50. This pipeline was completed in 1950 by Trans-Arabian Pipe Line Co., which was incorporated in July, 1945, and is owned by the same interests that own Aramco. See following sections of this report for further discussion of this subject.

51. Executive committee minutes.

52. See p. 101 ff. for a discussion of the "red-line" controversy.

53. On December 4, 1946, Harry T. Klein, president of Texas Co., and George V. Holten, vice president and general counsel of Socony-Vacuum, and Edward F. Johnson. general counsel of Standard Oil Co. (New York), called on the Attorney General of the United States to discuss the proposed purchase of an interest in Aramco by Jersey and Socony. In a memorandum of the interview, prepared by Mr. Johnson, there appears the following:

"At the meeting, Colonel Klein explained that Aramco owned a large concession in Saudi Arabia: that in order to keep King Ibn-Saud satisfied with the operation of the concession, it is important that production be increased substantially so that the King would receive greater royalties: that added production and the increase in royalties which would flow therefrom would tend to add stability to the concession: that Standard Oil Co. of California and the Texas Co., owners of Aramco, did not have outlets for the volume of crude that should be produced. * * *" From memorandum of interview with the Attorney General regarding Aramco. [Italics added]

54. See p. 118 and chs. VIII and IX for a discussion of "as is" arrangements.

55. One source, Fortune. The Great Oil Deals op. cit., p. 145, gave the date as December 1946, while another, Moody's Industrials, 1950, p. 2511, said the sale took place as of January 1, 1947.

56. The Texas Co. Annual Report for the year 1946, p. 12. [Italics added.]

57. Standard Oil Co. of California Annual Report to Stockholders, l946, p. 9. [Italics added.]

58. In reference to the Texas Co.'s statement, it is difficult to understand why it was more logical for Texas to supply its European markets from its Middle East sources in 1947 than it was in years prior thereto. Texas had had an interest in Middle East sources for several years and it had the marketing facilities in Europe. The explanation for changing the supply source from America to the Middle East and the shift in ownership of the European marketing facilities may have been due to the opening up of European markets to Caltex. This may well have been part of the quid pro quo received in return for granting Jersey and Socony an interest in Aramco. A statement by Standard of Californta regarding the advantages to Aramco of the Jersey.Socony-Aramco agreement "in principle" of December 1946 is of interest.

"One of the advantageous results of participation in Arabian American by the two additional companies will be the opening of their additional extensive marketing outlets to the oil products of Saudi Arabia, thus permitting increased production from the vast stores of oil in that country. Production has been limited by markets, not by the supply" (Standard Oil Co. of California Annual Report to Stockholders, 1946, p. 8.) [Italics added.]

59. From Momorandum of Interview with the Attorney General Regarding Aramco, March 18, 1947, by E. F. Johnson.

60. See subsequent discussion of interim off.take agreement, p. 125

61. Standard Oil Co. of California Annual Report to Stockholders, 1947, p. 9. Since 1947, when Caltex (owned by Standard of California and Texas Co.) was first permitted to market west of Suez, this company has constructed refineries in Holland, Spain, and France. These refineries operate principally on Aramco crude. In a few years Caltex has become one of the important international suppliers of petroleum products.

62. See pp. 118-119.

63. See chs. VIII and IX on cartel arrangements.

64. Aramco-Jersey and Aramco-Socony Subscription Agreements, March 12, 1947. Jersey Standard was to have 3,500 shares and Socony l,166 2/3 shares.

65. Aramco-Jersey and Aramco-Socony Subscription Agreements, op. cit.

66. See p. 104 ff. for a discussion of this question.

67. Aramco-Jersey and Aramco-Socony Subscription Acreements. op. cit.

68. Agreernent between Aramco and the "banks." Jersey's guaranty was $76,500,000 and Socony's $25,500,000. The loans were to be obtained from 19 large banks. See also Jersey Standard's Prospectus of June 11, 1948.

69. From Report by Price Waterhouse & Co. to board of directors of Aramco, November 29, 1948.

70. Articles of Incorporation of Arabian American Oil Co. art. IV.

71. Due to adjustments in Aramco's net worth and adjustments in payments made to settle a gold royalty controversy with the Saudi Arabian Government (as provided by letter agreement of March 12, 1947), the total payments made by Jersey and Socony, for their 30- and 10-percent stock interest, respectively, when the agreement was consummated in December 1948, were, Jersey $79,092,376.24 and Socony $26,234,125.42. or a total of $105,456,501.66. (See letters from J. H. MacDonald of Aramco to Jersey and Socony, November 24, 1948.) This $105 million plus was for stock interest only; when to this is added the dividend priority payments, the total cost to Jersey and Socony was about $450 million.

In addition to the large financial consideration, there is substantial evidence to support the inference that Standard of California and the Texas Co. also received very valuable marketing privileges. (See previous discussion regarding Aramco obtaining new marketing outlets.)

72. Art. IX of articles of incorporation, as amended.

73. Art. X. op. cit.

74. Art. XV, op. cit.

75. Art. IX. op. cit.

76. Statement of intent.

77. Trans-Arabian-Jersey and Trans-Arabian Socony subscription agreements, March 12, 1947. Jersey Was to obtain 250 shares and Socony 83 1/3 shares.

78. Articles of incorporation of Trans-Arabian Pipe Line Co., as amended, June 30, 1947.

79. The loan was to be obtained from a group of insurance companies and was to enable Tapline to start construction on a pipeline to run from Aramco's oil fields in Saudi Arabia to the Mediterranean, a distance of l,050 miles. It was to be a large diameter line, 30-31 inchcs, with a capacity of 300,000 barrels per day. Work on the line began in 1947 and it was completed in 1950.

80. Pipeline agreement, March 12, 1947, among Trans-Arabian Pipe Line, Standard Oil Co. (New Jersey), Socony-Vacuum Oil Co. Inc.. Standard Oil Co. of California, and the Texas Co.

81. Pipe line agreement, ibid.

82. Fixed charges meant all charges which did not fluctuate in proportion to through-put, including depreciation, interest on borrowed capital, taxes, right-of-way rentals, etc. See article IV of pipeline agreement, op. cit.

83. ibid.

84. Article V of pipeline agreement, op. cit.

85. Letters from B. E. Hull of Trans-Arabian to Standard Oil Co. (New Jersey) and Socony-Vacuum Oil Co., Inc., December 2, 1948.

For their Trans-Arabian shares Jersey paid $25,000 (250 shares) and Socony $5,333.33 (83 1/3 shares).

86. World Petroleum, January 1951, p. 30.

87. Off-take agreement between Aramco, Jersey, Socony, and Caltex Oceanic, Ltd., March 12, 1947.

88. With the completion of Tapline in late 1950, this agreement is now in effect unless it has been revised. Apparently the parties underestimated demand or the potentialities of Aramco to produce, for in April 1951, Aramco was producing in excess of 600,000 barrels per day.

89. Off-take agreement, op. cit., art. IV.

90. The provision reads as follows: "Each buyer shall be entitled to be credited with any amount by which the price of the 'excess quantity' taken by it during the year (computed at the average price per barrel of all crude oil purchased by such buyer hereunder in said year) exceeds the sum of (1) seller's cost of production of such quantity in said year (such cost of production to be determined as provided in article V hereof) and (2) 15 cents per barrel. 'Excess quantity' as used in the preceding sentence means the quantity which represents (1) a percentage of such buyers annual minimum equal to the excess of the percentage (not over 100 percent) of its annual minimum taken by it over the percentage of annual minimum taken by the buyer taking the smallest percentage of its annual minimum (2) multiplied by the quantity of its annual minimum." (From off-take agreement op. cit., art. IV.) The cost of production (in art. V) was to be determined by independent certified public accountants (selected by seller and buyers) in accordance with seller's accounting policies arid procedures as prescribed from time to time by seller's board of directors. (From off-take agreement, art. V.)

91 During the early stages of the negotiations between the parties, Standard of California indicated a willingness to consider insertion of a provision in the agreements to the effect that Aramco would sell only to its stockholders. Socony favored such a provision but Texas, subject to further consideration, objected. However, Jersey believed Aramco should sell only to stockholders and that all such sales should he made at the same price. (Memorandum Regarding Drafts of Aramco Agreements, November 21, 1946, and Memorandum Regarding Status of Aramco Agreements, December 3, 1946, both prepared by George Koegler).

92. Interim off-take agreement, March 12, 1947, between Aramco, Jersey, Socony, and Caltex Oceanic, Ltd.

93. Jersey's schedule of quantities began with 12,000 barrels daily in August 1947 and increased to 25,000 barrels in 1949. Socony's quantities were 13,100 barrels daily in August 1947 and increased to 16,000 barrels in 1949. No specific effective date was given in the agreement but evidently it was August 1947.

94. Arts, I and II of interim off-take agreement.

95. This was contingent, of course, upon a settlement of the red-line question.

96. Art. VII of interim off-take agreement. [Italic added.]

97. The parties were Aramco, Jersey, Socony, and Caltex Oceanic, Ltd.

98. This refinery had a capacity In excess of 100,000 barrels per day in 1947. (See Texas Co. Prospectus, September 17, 1947, p. 11.)

99. The parties to the refined-products off take agreement were the same as to the other off take agreements, i.e., Aramco, Jersey, Socony, and Caltex Ocesnic, Ltd.

1. A party could not assign its rights under the agreement without the approval in writing of the other parties, except to a corporation that was 100-percent-owned by one or more of the parties. Aramco was not to discriminate in any manner, among the parties. If Jersey and Socony's stock subscription agreements were terminated, the refined products off-take agreement would also terminate.

2. Included in the deductions to meet local requirements were the products Aramco providod free of cost to the Saudi Arabian Government, products cousumed by Aramco in its own operations, products supplied Tapline for its own use, and products sold by Aramco for local consumption within Saudi Arabia. (Art. I
of the refined products off-take agreement.)

3. Rules for sharing these purchases proportionately were set out in the agreement.

4. Art. IV of agreement. The sum of $2 million was subject to increase or decrease at the beginning of each year by Aramco's board of directors.

5. See previous discuesion of these arreements.

6. Art. V of the agreement.

7. Jersey Standard's interest in Aramco's operation and the price for Aramco crude is shown by the following quotations from a letter from Orville Harden to Eugene Holman, May 5, 1947. Mr. Harden pointed out that it would not be practicable for him to attend the Ararnco board meeting in San Francisco on the week of May 19 and that he was sorry to miss it for there were two matters that were of great importance. "One is the question of establishing a procedure to assure of giving the Aramco management, in meeting its problems. the maximum benefit of Jersey's erperience and knowledge.* * *
"The other is the question of price for crude. It is essential to get this on a proper basis at the very beginning. After our own Board has reached a conclusion, it might be desirable for you or you and Brewster to have a talk with Rogers in New York. * * * " (Brewster was Brewster Jennings, president of Socony-Vacuum, and Rogers was W.S.S. Rogers, chairman of the board of Texas Co.) [Italics added]

8. From Annual Reports to Stockholders 1950, of Standard Oil Co. (New Jersey), Standard Oil Co. of California, Socony Vacuum Oil Co., Inc., and the Texas Co.

9. The Journal of Commerce, New York, January 3, 1951.

10. The general facts respecting the organization of the Kuwait Oil Co., Ltd.. and the sharing of ownership between Gulf and Anglo-Persian are well known, and the treaties and the agreements between the Sheik and His Majesty's Government are matters of published information. The various contracts and agreements by which all of these parties gave consent to and established the legal status of the jointly owned company, however, have been quite closely guarded secrets.

11. C.C. Aitchinson's Treaties, Engagements, and Sanads, vol. XI, fifth edition (1929), p. 262.

12. Ibid., p. 264-265.

13. Other independent Arab States with which Britain has similar treaties include: Bahrein, Oman and Trucial Oman, all on the Persian Gulf and Gulf of Oman, and Saudi Arabia.
The area referred to as the Arabian Peninsula includes the Kingdom of Saudi Arabia, Yemen, the British Crown Colony of Aden, and the Sheikdoms and Sultanates of Hadramaut, Muscat, Oman, Trucial Oman, Qatar, Kuwait. and Bahrein Island.

14. American Petroleum Interests In Foreign Countries, op. cit., p.313. For further details regarding the Babrein concession, see p.71..

15. The reason for Anglo-Persian's sudden change of interest appears to have been the discovery by Standard Oil Co. of California of oil in quantity in nearby Bahrein in an area previously considered by British geologists to he unfavorable to oil production.

16. Specifically, the agreement was that if either party proposed to sell or transfer his interest in whole or in part to a third party, all the facts as to purchaser, price. etc., bad to be reported to the other party who then had the option of approving the sale or of buying the shares at the price offered by the third party. Only if the other party was willing neither to approve the third party nor to buy the shares at the price offered by the third party, could the sale or transfer to an outsider be completed without the consent of the other Party.

17. Principle No. 1 of the Achnacarry Agreement of 1929. See pp. 200 and 242.

18. Furthermore, before Anglo-Persian Oil Co., Ltd., would sign the Kuwait agreement with Gulf Exploration Co., Gulf Oil Corp. was required to sign a subsidiary agreement, also dated December 14, 1933. This agreement, which was comparatively short, merely stated that in view of Anglo-Persian entering into the main agreement with Gulf Exploration Co.. and of Gulf Oil Corp. procuring Gulf Exploration Co to enter into the main agreement, the two parent companies bound themselves and each of their respective subsidiary and associated companies directly or indirectly under their control to observe two paragraphs of the main agreement. These were respectively par. 3 which provided that any concession obtained in Kuwait by either party, either singly or jointly, would be held in trust for the benefit of both parties. and par. I which eliminated competition between the parties in marketing Kuwait oil as already described.

19. Gulf's application for Nondisclosure of Certain Documents, filed with the Securities and Exchange Commission October 31, 1946, p. 4.

20. See p. 241 ff.

21. Gulf's application to the Securities and Exchange Commission. p. 7.

22 .It appears that the British Government's part in the matter first took the form, in 1929, of notifying Eastern and General Syndicate that any concession it obtained would have to go to a concessionaire bound at all times to be and remain a British company, and of insisting that other restrictive provisions intended to keep American interests out be written into the concession agreement. (For the basis for such insistence, see treaty agreements with the Sheik quoted on p. 129.)
Later, but only following representations by the United States Department of State in 1932, His Majesty's Government modified its position to the extent of waiving the nationality clause in the concession, but stood by its requirement that the concessionaire must be and always remain a British company.

23. "Cost" was defined as the actual out-of-pocket expenses incurred by the company, including exploration, drilling, royalties. duties, taxes, and all other expenses whatsoever applicable to such oil, and depreciation, amortization, and interest on capital at reasonable rates to be agreed upon.

24. In making this transfer, the various companies made the following agreements having to do with the continued observance of the main agreement of Decemher 14, 1933, between Anglo-Persian Co., Ltd., and Gulf Exploration Co.:

1. D'Arcy Exploration Co., Ltd., agreed to become bound by all terms of the main agreement upon the transfer, and Gulf Oil Corp. and Gulf Exploration Co. agreed to continue to be bound by all terms of tbe main agreement after the transfer.
2. Anglo-Iranian Oil Co., Ltd., agreed to continue to be bound by and observe the provisions of clauses 3, 7, and 8 of the main agreement of December 14, 1933.

Clause 3 provided that any concession obtained in Kuwait by either party would be held in trust for the benefit of both parties; clause 7 provided that neither party would use Kuwait oil to encroach on the marketing position of the other directly or indirectly at any time or place; and clause 8 covered the substitution by Anglo-Iranian of oil produced in other areas for oil which Gulf had the right to demand from Kuwait.
It was a mutually agreed that the 1937 "supplemental mvreement" would be binding upon and accrue to the benefit of all of the parties and their respective permitted successors and assigns.

25. The Anglo Persian-Gulf Exploration Co. agreement of December 14, 1933, was canceled in an agreement dated November 30, 1931; see p. 141, footnote 17.

26. Gulf's application to the Securities and Exchange Commission, loc.. cit.

27. The Petroleum Times, July 4, 1936, p.8.

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