Excerpts from the U.S. Senate Report on the Strategy of Deliberately Restricting Iraqi Petroleum Production in the 1960s, 2 January 1975


Source: U.S., Senate, Committee on Foreign Relations, Subcommittee on Multinational Corporations, Report, Multinational Oil Corporations and U.S. Foreign Policy, 93d Congress, 2d sess., (Washington, DC: U.S. Government Printing Office, 1975), pp. 100-102


With Iraq down

The intense strain that Libya placed on the American majors allocation system in the Middle East might well have become intolerable if Iraqi production had also surged during the 1960's. As a consequence of its nationalization dispute with I.P.C., Iraq fell far below the Middle East average growth rate after 1960. "If it had kept pace with the other producers." James Akins 164 wrote in 1968, "Iraq would today be richer to the tune of something over a billion dollars. Even more important is the fact that the companies are not investing in Iraq now and have not for years. In fact, they are disinvesting (although this is a very sensitive point and would be denied to the Iraqis). They are taking as much oil out of Iraq as they can while it is still there to take but there is no question of growth or new facilities." 165 With petroleum reserves privately known to be larger than Iran's, Iraq represented a great potential danger to the owners of Aramco. If Iraqi production had not been impeded by political considerations, it would have backed out some Saudi Arabian production and increased the chance of Aramco losing its concession:

Senator PERCY. Given Libya's capture of most of the growth in Eastern Hemisphere production during the 1960's and the severe problems this created in Iran and Saudi Arabia, what would have happened if Iraqi production had also surged when there was a heavy glut of production facilities?

Mr. PAGE. I admit we would have been in one tough problem, and we would have had to lower our liftings from the Consortium down to the minimum that we could possibly take there and meet the agreement. Remember we were taking more than the agreement called for out of Iran, you see, and we were taking an equal amount, though, from Saudi Arabia, we would have had to cut back on both of those and we would have had to slow down on our development of Libya, which nobody wanted to do, but this was discussed at a time when people came to me and said "Can you swallow this amount of oil?" and "Of course, with Iraq down," the answer was, "yes, I am going to have a lot of problems and some tough problems, but I will undertake to do it.
And I was successful, that is all I can say. But if Iraq had come on, it would have been that much harder but we would have done it because we weren't going to lose any concessions because of this. 166

Under the 1928 concession agreement, the Iraq Petroleum Company acquired an obligation to report each new discovery to the Iraqi Government and to bring on its production as rapidly as possible.167 A recently declassified annex to the 1952 Petroleum Cartel Report concluded:

It appears clear that the delaying tactics and restrictive policies of IPC have contributed substantially to the lagging position of Iraq relative to other Middle East oil developments. . . . the depression of 1929-33 was not the cause of the retarded development of the IPC concessions. This retardation was the result of deliberate decisions by the closely associated groups in the IPC and the developmeat of cooperative relations and integrated policies among them.168

A 1967 Government intelligence report alleges that a search of IPC files by an independent consultant revealed that IPC had drilled and found wildcat wells capable of producing 50,000 barrels a day. "The firm plugged these wells and did not classify them at all," the report concluded, "because the availability of such information would have made the company's bargaining position in Iraq more troublesome." 169 Piercy and Page, however, denied knowledge of any such practice.

As a consequence of IPC's "go slow" approach, the Iraqi Government requested IPC to relinquish parts of its concession. When IPC refused, the Iraqi Government passed Law No. 80 on December 12, 1960, cancelling most of the IPC concession on which there was no production. In 1964 the Government of Iraq formed its own national oil company and began to discuss giving some of the concession it had taken from TPC to other companies. 170

State Department officials talked to other American companies who were interested in Iraq in an effort to convince them that any attempt to obtain new concessions while the dispute went unresolved would undermine United States policy. Among the American companies which were warned off by the State Department in 1964 were Union Oil, Standard Oil of Indiana, Sinclair and Continental. 171 When it appeared that Sinclair was on the verge of making an offer to the Iraqis, Arthur Dean, the attorney for the American IPC companies, asked Under Secretary Averill Harriman to have the Department urge Sinclair not to proceed. In a meeting with State Department officials, the American participants in IPC described the IPC bargaining position as one of take it or leave it. The Department subsequently persuaded Sinclair against making a deal with the Iraq Government. Again in 1967, when the Iraq Government sought bids from foreign national oil companies such as ELF and EIRAP (French), the Japanese and ENI (Italian), the State Department was asked to intervene with the foreign governments to protect the IPC position. As a consequence of the law 80 dispute, Iraqi oil did not become a major factor in the world market during the 60's. 172


Footnotes

164. Akins was then with the State Department's Office of Fuels and Energy and is now U.S. Ambassador to Saudi Arabia.

165. MNC Hearings, Part 8.

166. MNC Hearings, Part 7, p. 309. Howard Page also testified that his fear of losing the Aramco concession led him to keep Exxon from going into Oman where the company believed a 10 billion barrel oil field to exist.

167. MNC Hearings, Part 8.

168. Ibid.

169. MNC Hearings, Part 7. p. 310.

170. MNC Henrings, Part 8.

171 Ibid.

172. As explained in Chapter 3. the five major American oil companies with large foreign investments in Saudi Arabia. Kuwait and Iraq were initially reluctant to make further capital investments in a high-risk area like Iran at a time when they already had more oil in the Persian Gulf than they needed to fill their long-term market commitments. However, at the request of the National Security Council, Exxon, Mobil, Socal, Texaco and Gulf worked out a plan with Herbert Hoover, Jr. whereby they agreed to fit Iranian production back into the world market in an orderly fashion so as to restore the Shah's revenue without a petroleum price war. The five American majors persuaded the pro-Western rulers in Saudi Arabia, Kuwait and Iraq that their production should be held back to make room for Iranian oil as a necessary sacrifice to guard their neighbor--and possibly the region itself--from coining within the Soviet orbit.


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