MIDDLE EAST OIL

Created: 11/22/1960

OCR scan of the original document, errors are possible

CENTRAL INTELLIGENCE AOENCT

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SUWECT: : MIDDLE EAST OIL

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To estimate probable trends affecting Kiddle East oil and their political and eccnoraic implications over the next five years or so**

SCOFE NOTE

This estimate does not attempt to give detailedn the production ond cceisurptlon of Kiddle East oil; oc such information is elrcady available in various forms. What we propose in this estlnatetcchnicalof mojor

The term Middle East is hero used to include Efypt and the Arab States east of Suez, Iran, and Israel. Developments in Libya and other North African areas are considered only ao they affect tho Middle East.

trendsiddle East oil and an assessment of their bread political one'; ec .rsoanc ir. li'-.tl including the problems likely lo be raised for US interests. We avcid specific discussion of the stratopic importance of oil and of wartime c. We believe, for at least the period of this estimate, the picture trill not be sirrdficantly affectec' by the development ofver cr other new sources of energy.

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A. ajcr factcr inld oil picture for the next several years will be the continuing surplus of producing capacity. This will be added to by new sources in North Africa and by expanded Soviet exports, as well as by increased capacity in the Mic'dle East. esult. Western Europe willomewhat smallerf Its petroleum requirements from the Middle Ecst. Nevertheless, it will remain heavily dependent rn the area. The oil-producing Middle Enstom countries are likely t; continue to got cnoufji revenue tort substantial development proframs. Individual sources of oil may be shut down and transit facilities

nay be blocked temporarily, but wecstin? nreawide breakdown Is unlikely during the jeriod of this estimate. (Paraa.

Ba Growing pressuresthe producing countriesresult in major changes in the presentof Middle East oil. Therofit-sharingstand arc1 in the industry will prc-ably cive way

rticipaticn by local jjovernmcnts ln thef the til cfmpanlos is likoly. Wo do not believe, however, thatcale nati;nallzation of industry facilities is lively or thatnies willswelled to liquidate their interests in the area durini- tho period of this estimate.

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C. 5 the USSR will probably control about seven percent of the oil ncrvinr; in international trade. This will enable the Soviet Union to upset markets in various individual ecnsuminr ciuntrles and even to dlsj lace Western companies in some smaller markets. Together with an expanded r f Soviet technical and economic assistance for the development of new facilities in Asia and Africa, it will make theorce to be reckoned with in the international petroleum

field. do not believe, however, that the USSR will be able to upset thesition of the Western companies nrr destroy the present overall pattern of the Middle East oil industry. ommunist takeover in cne of tho producing countries would not necessarily resultefusol to sell the country's oil to the West., 3h)

D. On bclance, wo think the odds ere against any develop- i

ments in regard to Middle East oil critically detrimental toational interests during the period of this estimate. the US will be facedumber of bread problems. Amcnf these will be octcrrai nation of the balance of interest between the desirability of developing alternate sources of oil to moot Western Europe's needs am' the importance of assurinr Kiddle Eastern countries of sufficient oil revenue to avoid instability; resolution of possible conflicts cf interest botween the US and its Western allies,the UK anct Prance; und the difficulty cf determininj in portlculnr circumstancos whether and how US strategic and commercial Interests cincide or conflict* (Paras.

DISCUSSION

1* Two peorjraphical nrecs, the Middle East end the Western Hemisphere, provide between thenercent of ell oil produced outside the Soviet Bloc.?/ The Western Hemisphere consumes of its own production. Allmall part of Middle East oil is exported. iddle East oil constitutedercent of all Free World oil rocnrini; in international trade. Sixty-one percent of Middle East exports went to Western Europe to BUpplyercent of that area's total needs. Host of the rest went to Asia and the Far East where it filledercent of thatequirements. 0ay) which flowed to the Western Hemisphere represented only five percent of that area's total consumption.*^

2. The Kiddle East's key rele in world oil stems partly from the richness of its petroleum resources, portly from the

I, THE IMPORTANCE OF MIDDLE EAST OIL To the Free World

2/

Appendix li "Free World Oil Products nmd Reserves by Areas and Countries,

Tonnnfe per ywar may be calculrtedu. hly by

long-established uattcrn cf efficient exploitation of these resources, and partly from its central geo.Tephic location. Middle Erst reserves are txemcn.'ous, almostercent of the Freetal. Productivity is hirh and hence costs arc low. il production in the Middle East avcrcferftr well, comparedn Venezuela, andn the US. Heavy lnveatoect in pipelines and tankers hasurplus of low cost carrying capacity. Concession areas have generally been lnrpe; the terms of the concessions have boon similar; and. most of the concessions have been in the hnn<'s of crmponics owned by severalmerican, British, and French firms.* Thefficiencies and economies, plus the steadily incrcasinn demand fcr oil, hove provided bothpaniesat countries with substantial profits.

Tc the Middle East

3. In an area whose other natural resources arc slight, the discovery and exploitation of petroleum has had an enormousj social, and political impact. Tc the oil-producing

Principal companies end their hcleings are outlined in Api-cndioes in and IV,

countries the revenueshe production of oil ore thereality. Oil is the one indironr-us source whichfor the development pre: rare, buy the anas, and acquireother technical won, "era and luxuries of the Oil revenues compriseercent of totalin Kuwait,ercent in Saudi Arabia,ercentand aboutercent in Iran. Additionalustoms receipts on poods imported withfunds and forci^ exchange obtained from

expenditures by thepanics. Of thentries, the UAR derives the most substantial benefitsanker tolls in the Suez Canal and from pipelines crossinr Syria. Lebanon and Jordan ret relatively small transit revenues.

km All of the producin: countries in the Widdlo East are heavily dependent on oil revenues. lJ,arying decree,elatively snail reduction in income. If they were to lose most or all of their oil revenues, all would be seriously affected; the impact would dependhe availability of alternate sources of revenue.

5. Deprived cf oil revenues, Saudi Arabia would face eccoccdc ruin ood probably political chooo; the country has built up nc

money reserves and it would be extremely difficult and probably lciposslble for the government to remain effective for soreew months. Kuwait, possessor of the world's largest proven oil. reserves, equal to those of the entire Westernsreation of tbe oil boom. The Ruler has Invested large suds In the UK and Kuwait could existonsiderable time on these investments if present revenues ceased. However, thesewould probably be blocked by the British Government la

the event of an ouster of the Kuwait Oil Conpary. Even if tbe P

funds remained unblocked, the development program would gradually grindalt and business would begin to stagnate. Iron and Iraq possess other sources of revenue, but would face seriousdislocation, as well as drastic reductions in their develop-Dent programs end general governmental activity if oil revenues were to be shut off. In all these countries, substantial and prolonged deprivation of oil revenue, particularly if no resumption were in sight, would, we believe, generate sufficient dislocation andas to make the fall of their governments likely. imilar situation, the economy of tbewould be affected seriously,probably not so much as to threaten politicol stability.

II. CTTAVGES IK TBE WORLD OIL PICTURE revel cpments Id thg Industry

* During this period, the consuming areas may begin to receiveof natural gas from overseas sources as technologicalprovide for new transportation facilities. Eventually world energy supplies will be supplementedariety of new sources: shale oil and tar sands, wind, solar, cellular, and nuclear power.

6. World consumption of oil has increased greatly since World War II. In Western Europe, requirements grew by aboutercent annually6or the Free Worldhole the rise wasercent annually. However, Free World producing capacity has expanded even more rapidly, especiallyecent years. esult, there isubstantial excessroducing capacity over consumption. This situation is expected to continue into theO'c ocd poesfbly beyond. luring this period, Western European requirements will level off (to perhaps an increaseercentotal Free World demand will rise Bccfc-whot less rapidly than In recent years; and producing capacity will continue to grow with the development of new sources ofin the Middle East and elsewhere.* Major discoveries in Algeria and Libya nlone are expected ton tbe market Soviet exports to the Free World will add tosupplies. Transportation, not longimiting factor in the

tooveraoat of oil, is sore than adequate to meet anticipated dennods forc'e. Free World tanker surplus Is substantial andEastern pipelines are eveD now not working at capacity.

7. In recentuDber of sew cccpanles hove entered the industry in North Africa and the Middle East. New sources of supply hove been discovered; cod additional countries hove become producers. Any oil that is discovered by the newcomers will compete increasingly with present Middle East production. In some coses, especially in Africa and Asia, there willemptation for the consuming areas to for soke traditional suppliers in favorcvcoaatr who can^ persuaded to give the consuming country narkedly better termshare ln local refining and marketing operations. Finally, of course, tho more liberal terms the newcomers have offered thecountries are adding to the pressure on the existing pattern of concessions.

6. The oil industry will be Increasingly affected by thepolicies of the consumer countries. Japan is already taking .aeasurcs to ensure dooestic markets for oil produced abroad by its nationals. Italy will probably eventually do likewise. France has already persuaded foreign-owned refining and marketing organizations within its borders to accept French-owned Algerian crude. As core

ond Dore Algerian crude becomes available, Paris my revivequiescent efforts to got Comon Market preference forOaraany my also seek tolace in its domesticfor any crude that my be brought in by the West Germnwhich are new participating in exploration abrusd. Tbefor some tine had ioport controls, though these are designeddomestic production rather than protect local marketsproduced abroad by US

9- Foreign exchange problcias will also continue to affect tbe oil industryonsiderable degree. The foreign exchangeof the Western European ireporting countries have improvedin the past several years, nnd the extent to which oil must be paid for in dollars or other currencies isossfactor than formerly. Honetheless, cost governments are still eager to husband their foreign exchange. Moreover, they will take advantage of offers by now producers selling crudeharp discount and be teopted by deals involving soft currency, barter exchanges, or governnont to government transactions.

10. There is little likelihood that the expanding mrket east of Suez, will provide an outlet for much of the Middle East'sproducing capacity. Consurrption in Asia and the Far East is

expected to Increase at about seven percent during the next five years; but in cbnolute terns, this neons only on overage ofnnually. Therehance that these increaseduireneDts will be partially covered by such developments asproduction in Indonesia or new discoveries in ludia. Soviet oil can be expected to be sold in increasing quantities in this area, as already evidenced by sfcipDents to Japan and India.

The Soviet Chsllenpe

USSR exported considerable amounts of petroleumWorld War ITeoJc of. Exports ceased during the war, and the Soviet Bloc did not re-enter the international oil marketocxx?rcial scaleSince then. Bloc exports, which are almost entirely of Soviet origin hove increased rapidly, rising, for exaople, from8* This year, the Bloc is expected to export.

Soviet Bloc exports now go to at leastree World countries. The USSR has used its petroleum exports, to obtain

See Appendix II: "Estinoted Soviet Bloc Oil Exports to the Free

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copltol equipment In Western Europe and Japan. Where politically expedient, as ia India and Cuba, It has accepted poynect in soft curroocles or commodities. The private coppocles which control Free World oil are especially ill-equipped to cope with the lot

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nlcal services and equipaont for exploration activities in the UAH, Iraq, and India.

* All estinates of 'future Soviet exports to the Free World arcbecause of the lack of reliable information on longer term Bloc production and re quire cents, especially in regard to Cst China. The protent figures are based on the assumption that CoDQunlst China, which now produces aboutnd importsalmost entirely from theill5 producendrom the USSR. While the figures in paragraphepresent our best estimate at this tine, they could be upsetumber of factors, notable amongreater than anticipated increase in Eastern European Satellite or Chinese Cceramist require aentsess thanexpansion of production in Ccaounist China,

13. Soviet activities in international oil will Elnostexpand further in the next few years. The current Seven-Tear Plan goal for petroleuo production in the Soviet Union5 Isil, almost 9 production. This quantity would provide tbe USSR vith an exportable surplus of. About half of this Is likely to be needed to oeet the requirements of other Bloc states. Bonce, the volume available for exports to the Free World would behe soma as*

lA. Bovever, recent infornotion, supported by Soviet per-formnee during the past two years, indicates that-production5 cay exceed flan goals and could run as highil Li. Of this, we estloate that as nuchilould be available for export to the Free World. Whether or not the USSR will indeed exceed its production goal5 and thus have this quantity of oil available for export, will, of course, depend on its ability tc develop refinery capacity, internal transport, and tanker lift, as well as to open new narkcts for such oil. There is evidencehe Soviet Union has enbarkedrogran to do so.

15- Wc estimate that5 Soviet oil will constitute about seven percent of the total international ooveoent into Free World uariwts. We do not believe that this of itself will upset the preponderant position of the Western companieshe international trade nor destroy the present overall pattern of Middle East oil industry- It will, however, enable the Soviet Union to compote actively in the Free World corset to tho detriment of Middle East oil and to upset market* In various individual consuaing countries. In snail markets, the USSR could even displace Western oil ituation of continuing worldwiderowing influx of Soviet oil Is likely also to spur further price cutsonsequent disrupting Influence on relations between the Middle

Eastern governDents and the Western companies. Moreover, onprogram of technical assistance for the developaent of new producing and refining facilities will probably increase Soviet leverage in various underdeveloped countries. All this will make theorce to be reckoned with in the internationalleun field.

16. For the next few years at least, the USSR's use of Its Influence for political purposes will probably be United to some degree by Its desire to deriveon ode benefits for Itself froD its oil exports, which are presently its largest single earner of foreign exchange. It will also consider the possibility of arousing hostile sentiment noong the Middle East countries if Soviet oil appears to be usurping foreign markets from Middle East oil. Even so, Soviet activities in this sensitive field will alcost certainly be directedonsiderable extent against Western In the oil-producing areas, the USSR Is likely to en-cw-rnge nationalist sentinent to make increased demands on the established companies. In the consuming areas it will seek in various ways to impinge on Wostcrn markets and to promote its own influence in the countries concerned.

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17. We believe that for some time to come the USSR will neither wish nor be able to assume the political and economic burdens that would be involved in taking over responsibility for the total oil Industry in tho area. However, in the event of withdrawal cr expulsion of Western oil Interests froa anyountry, such as occurred in Iron under Mossadegh, the Soviet Union probably could provide enough economic support of one kind or another to prevent serious dislocations in the economy of the affected country.

IB. In terms of physical capability, the USSR will soon, if It docs Dot already, have sufficient transporting and marketing facilities to oove and sell most of the production of one or cere of the smaller Kiddle East producers, say Bahrein or Qatar. By the end of the period of this estimate, it nay even havesufficient facilities to transport and market raost of tho oil from one of the largerran, Iraq, or Saudi Arabia. We believe it unlikely, however, that the Soviet Union actually will undertake to do either. British political influence will probably continue to sake the smaller producers In aoeessihle to the USSR; and, except In unusually favorable circumstances, the USSR Is apt to be inhibited froo assuming responsibility for

disposal of tho oil of one of the major producers because of the formidable political, economic, and technical problems involved, as well as Western opposition.

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III. KIDDLE EAST DEVELOPV.aJTS "Btl^pq] Aerations

19. The prospectsontinuing world oil surplus hove introduced now problems into tho relationship between the companies and the oil-producing countries. The governments of the latter are most inoediatcly concerned with problems of revenuerevenue to add to the power and prestige of the ruling groups, and, in most eases, tn support economic development programs. In the past the various producing countries have tale en advantage of each others1 difficulties to Increase their own oil profits. The 4rab atatos were happy to see their oil fill the gap oroatcd by Mossadegh's shutdown of Iranian oil. Iran in turn profited when the flow of Arab oil was disrupted byues difficulties. More recently, however, all of the producing states have seen further increases ln their revenues threatened by two major reductions in

the posted price of crude oil. They responded in Baghdad in0 by setting up with unusual speed and cooperation an Organization of Petroleum Exporting Countries (OPEC) whose demandoice in pricing was strongly supported by the

Beirut Oil Congress in

For sone years there have been other deep and troublesome stirrings in the producing countries. These are based partly on the concept that the oil beneath their territoriesational ratrinor.j which will not last forever and which is being exploited by the Western oil companies under unjust arrangements made when the area and its rulers were under the political domination of the West. From this concept the idea is derived that the national sovereignty and national interests of the contracting states should override the legal rights and commercial interests of the private companies. These feelings are shared even by many members ofgroups, and they are deeply and widely held among most other politically conscious elements In tbe area. Out of them hoveumber of demands aimed at increasing local control of oil

* In the Middleroducing state's revenue is calculated on the basis of posted prices, not actual selling prices.

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operations In addition toand sometimes even apart fromincreasing local profits. In addition, local resentment isby the rising conviction that ruling groups, such as that In Saudi Arabia, are squandering the oil revenues without due regard for the welfare of the peoplehole.

In their nildest forms, the demands for change include replacement of foreign staff of the oil ceBpanies with locals, transfer of company headquarters to tho producing country, supply by the companies of technical and welfare services only remotely connected with tho oil business, and more rapid relinquishment of parts of the concession areas.* There will be increasing pressure on the oil companies on all these issues everywhere in the area. Kost of the demands of this type are considered negotiable by the companies, howevor, and it Is unlikely that any widespread deadlock will develop over them alone.

A moro important area of pressure during the next few years will be the question of profit-sharing. Few producing countries regardormula which is now standard In the industry as equitable. In addition, these countries believe that

The concessions usually cover large areas and generallyfor the gradual relinquishment of areas which theis not exploiting.

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the -eewtrieS are constantly seeking to reduce the countries' share through manipulation of prices and exorbitant claims for amortization and expenses. Demands for upward revision of the formula will, of course, be spurred by the fact that some of the new companies are offering higher percentages of profits to the host countries.

23. Other aspirations pose an even more direct challenge to the companies. Governments of some producing countries are showing increasing interest in participation in ownership and management of the producing companies. Apart from the additional profits they would receive as stockholders, this wouldreater voice in such questions as bow much oil should beand to whom it should be sold. It would also bring them in closer touch with the industryhole and would, they hope, enable them to influence international activities now beyond their control. National participation is provided for in recent ventures by Italian, American, and Canadian companies in Iran, and will almost certain eventually appearemand in negotiations for revision of older concessions.

The most ambitious of local aspirations, put forward chiefly by Saudi Director of Petroleum Abdullah Tariki, daaands

that all operations froo the producing well to the gasoline pump be handled by integrated companies, in the management and profits of which the host governments wouldhare. This goesbeyond the other schemes, since it would give the pro-ducinghare In conti*ol over company facilities and operations beyond their own borders. The threat of nationalization, which tho area governments have always seen as their weapon of last resort in dealing with the companies, could thon extend to the whole integrated company and its facilities inside and outside the producing country. The Japanese company, which was the first to accept this principle in its concession for the offshore areas in the Kuwait-Saudi Arabia Neutral Zone, has already struck oil in promising quantities. If, as appears likely, the Japanese company is able to operate successfully, the pressure for integrationis likely to increase rapidly.

25. Recent developments have given new impetus tn discussions of cooperation between producing states. Arab oil experts have long stressed tho desirability of collaboration among themselves and with non-Arab producers, such as Iran and Venezuela. An Arab tankor fleet and an Arab pipeline have boon discussed, but na progress has been made to translate these schemes into action. We do not

this in the field of pricing. Being unable to accomplish anything W

think that, for the next several years at least, any effective Joint action by the producing states is likely to take plaoechiefly because of mutual jealousy and suspicion and because of competing economic interests. Thereossible exception to

the producing states will probably work morethrough OPEC to bring pres re on the companies than they have in the past. We doubt that they will be able to agreeorkable program for prorotin,; production, the only practical way for them to control prices, but they are likely to succeed in influencing the companies* policies to some degree.

Company, Reaction^

26. The attitudes, intentions, and capabilities of the big international oil companies in regard to the pressures against them are not easy to assess. The position of the companies is strong in many ways. They have developed and control the vast and complex apparatus in Western Europe, Africa, Asia, and America through which Middle East oil is actually marketed. This apparatus is beyond the physical control of the producing countries. They cannot tax it, nationalise it, or shut it down. The companies alone havo the

enormous capital and technical ability required for the heavy development and research activities required In every phase of the oil industry. The negotiating positions of most of the European companies are strengthened by the fact of theirparticipation in their ownership and by the importance which their governments place on continued access to Kiddle East oil. In addition, the companies can exert great influenceospeciallyurplus marketby adjusting their off-takes from the various producing countries*

27. At the same time, the companies labor under major However benign or constructive their policies may be, they arc inextricably linked in the Kiddle Eastern mind with Western imperialism and are subject to political as well as economic pressures. So strong is the bias against the companies that some local elements are likely even to be susceptible to Communist arguments that Soviet activities in the international oil field

* This Is especially true of the British Petroleum Company, in which the UK Government has majority ownership and which in turn holds major interests in Kuwait Oilraq Petroleumnd the Iranian Consortium. While the OK Is less dependent financially on Middle East oil now than some years ago, oil revenues are still valuable economically and access to Kiddle East oil remainsstrategically. With the coming into production of the Algerian fields, French relianoe on Middle East oil is declining.

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(which win almost inevitably be detrimental to Middle Eastern producers) are to be welcomed because they will help break the power of the Western monopolies. Even well-informed local officials-and political leaders fail to appreciate tho intricacy andof the oil industry and underrate the difficulties which they would encounter in trying to run an international oil business. Finally, of course, the international oil industryighly coopetitive one, and thereimit to bow foranics can or will go inommon front.

28. There is talk among company executives, and some evidence in company activities,ew "tough" line toward local demands. The Trans Arabian Pipeline* (TAFLINE) appears prepared to close down rather then yield to demands for higher transit fees. The Iraq Petroleum Company temporarily reduced its off-take fromeavy new port tax Imposed there by the Iraqi Government. The established companies have rejected requests from the producing countriesoice ln pricing, and refuse to consider integration. They viewformuloenchmark of stability and insist that breaching it would loadontinuous spiral of governmental demands. However, the history of negotiations in the

* TAPLINE's ownership is Identical with that of the Arabian American Oil Company (ARAVCO).

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Middle East shows that the co'-panles have time and again given in to or compromised substantially with demands which they firstas completely unacceptable.

IV. THE OUTLOOK

mportant factor in the world oil picture for the next several years will be tho continuing surplus of producing (and, secondarily, tranaportlnr) capacity. Because of the numerous uncertainties involved, political as well as economic and technical, it Is difficult to determine precisely how this surplus will affect the Kiddle East. One thing is clear. The great reserves which the area possesses will continue to makeajor factor in world oil. Its exports to Western Europe will almost certainly continue to increase gradually In absolute terms as Western Europeanexpands. However, with North African and Soviet oilarger role in the international oil trade, its share of the Western European market is expected to decrease fromercent of the total9 to an estimatedercent

While Middle East production is likely to continue to rise slowly for at least the next five years, the rate of increase will be slower, and the halcyon days of spectacular annual Increases

up for the purposes of exploration and exploitation. For then to engage In marketing would place theo in diroct competition with the present parents. Even here, however, it is possible that eventually new limited regional refining, transporting, andorganizations including local interests nay emerge.

32. We do not believe that large-scale nationalizationoil company facilities Is likely during the period ofalthough threats of such action will probably be usedto time for purposes of pressure. The governments of thecountries remember the experience of Mossadegh in Iran,are unlikely to emulate him unless they become

aroused emotionally or come to believe that their loss of revenue would be made up by the Soviet Bloc. However, there nayind ofnationalisation under which the companies gradually retreatosition where they are little more than managing agents of the local governments. We think the odds are against even this goin^ very far in the next few years.

13. In the past the situation usually stabilized for some timeow pattern in government-company relationships was established. This nay happen againasis of greaterprofits and more government participation in control, however,

these periods of quiescence, if they come et all, are likely to be briefer and briefer. At some time, the companies nay come to feel that the oil business in the Kiddle East has become so hasard-ridden and profits so marginal that they may as well liquidate their interests there and concentrate elsewhere. We believe that time is beyond the period of this estimate.

balance,hink the odds are against anyregard to Hiddle East oil critically detrimental to USin the next few yt-nrs. Actual physical seizure ofby tho USSR is unlikely shorteneral war. will continue and could becone dangerousnraaunist-explolted upheaval in Iran followedof the consortium agreement. However, even ain one of the producing countries wouldefusal to sell the country's oil to the West.

these circumstances. Western Europe willto get as much oil as It needs from tho Middle Eastalternate sources west of Sues. The Middleare likely to continue to get enough revenue todevelopment programs. Temporary shutdowns of individual

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sources of oil may occuresult of deadlocks tn negotiations, or sore likely, political upheavals. Transit facilities say also he blocked, especially In the event of another outbreak of the Arab-Israeli conflict; but veasting area widein the Middle East oil situation is unlikely, at least for the period of this estimate. Nevertheless, the balance of interest between the desirability of developing alternate sources of oil to meet Western Europe's needs and the importance of assuring Middle Eastern countries of sufficient oil revenues to avoid instability

will continue to pose problems for US policy.

36. Other problems any emerge from possible conflicts of interest or objectives between the US and its Western allies, especially the UK and France. The UK has in the past considered it essential both strategically and economically toeasure of political control over the oil-producing areas. We believe the British now regard thin policy as outmoded ln large measure, but It will remain possible thatrisis situation, they might feel compelled to exert physical control over Kuwait. France may come to feel that Increasing availability of oil from Algeria enables it toarder line with the Arab states, who are generally hostile to French interestsesult of France's support of Israel and suppression of the Algerian rebels.

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VI. Another set of problems derivedthe difficulty of determining in particular circumstances whether and how DS strategic and commercial Interests coincide or conflict. For example, the question of US import restrictions will almost certainly come up again during the period of this estimate, facing the policy maker with the necessity of weighing the relative importance ofigorous DS domestic petroleum production against the advantages to be derived in the Middle East through increased DS Import! from that area. Likewise, there will be questions involving the desires of certain alliedapan and Italy, to adopt import

policies designed to give preference to oil from producing companies

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run by their own nationals to the detriment of the British

American companies and to the general principles of reciprocal trade.

38. Over the longer term, even broader problems of this nature are likely to emerge. It is quite possible that sufficient supplies for Western Europe and sufficient revenues for the Middle East could be achieved under arrangements where the present concessionary interests of the International oil companies in the area areand Western companies net at most only as agents of thecountries. evelopment would probably reduce the political problems which now confront the West and its relations

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with the producing countriessome of which stem from the close

association in the Kiddle Eastern mind of the companies with Western governments.

39, urrender or large-scale withdrawal of Western oompanr interests under pressure would Initially at least be regardedetback for Western prestige. Liquidation of the role traditionally played by the Western companieseven if they werenlaced by other arrangementswould almost certainly result in some dislocation in tho oil picture which would lend itself to Soviet exploitation. Economic factors of major Interest to the DS would also behe loss of much of the substantial increment to the balance of payments which the Western oil companies now earn through their operations in the area.

UNCLASSIFIED

AFPENHIX I

FREE VORLT CRDTE fIL FRCTVCTICH ARTREAS ANT9 (in barrels)

An-n

of Free World Product loc

Esticated Proved Roserven

f Reserves

EAST

Bahrain Egyptraq Israel Kuwait Neuti-al Zone Qatar

Saudi Arabia Other

Subtotal

0 none

HEMISPHERE

United States Venezuela Canada Other

Subtotal 0

0

AND FAR EAoT

British

3-3

0

0.2

Q-3

3.9

AFRICA

Algeria

Libya

Other

Subtotal WEST AFRICA EUROPE

"W8

0

0

(See next page)

UNCLASSIFIED

UNC1ASSIFTET

Bote and footnote for Appendix I

NOTE: Slno-Sovict Floe production9 vas. of vhich toe USSR providedk percent of total Free World production. No figures arc available for Soviet reserves.

: barrels per day. The US barrelolume of kS US gallons.

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UNCLASSIFIED

Arirarx ii

ESTTWftTEr SOVIET FLCC OIL EXPORTS TO FREE9

(Barrels)

Germny

United

tlcar Eas'.

Lotla Acerlea

Others

) (footnote on next page)

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Footnote to Appendix IT

* Figures for Belgium and the Netherlands include petroleum inported for transshipment to other Free World countries. Actual Imports for domestic consumption were:

Netherlands:

nvamva m

INTERNATIONAL PETROLEUM COMPANIES KITH SHAREHOLDINGS IN THE MIDDLE EAST

NOTE: Virtually all petroleua concessions ore heldbe Aroblan American Oil Coo-pony, Kuvr.it Ml Ccapany. These "producing ct-upanles" ore owned by combinations ol* large international oil ccqpanies, Generally referred to as "parent ccqpanies.B Oil is extracted by the "producing conpoales" and s. id to the parents which in turn transport, refine and market it. This appendix lists the Dost Important of these companies. Appendix IV shows ownerahlp of the principal producing companies.

MAJOR COMPANIES

MUKtfMUl

Controlled

ControlleJ

Controlled

Oil Co.

(New Jersey) Socony Mobil Oil Co. Gulf Oil Corp. Standard Oil Co.

(Callfcrnia) The Texns Co.

Aoerlcon .ndopendent

Oil Co-Getty on Co. Richf1 -Id til Corp. Citlt Service Co.

Stondord til Co. (Indiana)

roli<-d

tutcn/Sbell Group British Petroleum Co. Ltd. Cie. Prancalse desles

rocarburi (Italian)

Japan Petroleum Trading Co. Ltd.

MAJOR

Oil Company (New Jersey)

i. ercent in Arabian American Oil Companyi* 1 percent in Iraq Petroleum Company Ltd, (IPC) and its associated companies in Iraq, Qatar, Trucial Coast and Oman, iii. ercent in Iranian Oil Participants Ltd.

This is the world's larrcst oil company with producingrefineries, and marketing outlets throughout the world. Its interests include concessions in Libya where it has had major discoveries and in Algeria.

Mobil Oil Company

1* ercent in Arabian American Oil Company, il. J percent in Iraq Petroleua Ccapanynd its associated companies, ill. ercent in Iranian Oil Participants Ltd.

Another major international oil company operating in all branches of the petroleum industry throughout the world. Its Interests include concessions in Libya where it hasumber of discoveries and in Algeria.

Oil Corporation

i. ercent in Kuwait Oil Companyercent in Iranian Oil Participants Ltd.

This company also operatesorldwide be sis. It holds concessions in Libya where it hasumber of discoveries.

Oil Company of California

1. ercent in Arabian American Oil Company ii. ercent In Iranian Oil Participants Ltd. iii. ercent in Bahrain Petroleum Co. Ltd.

This is another fully integrated international oil company. In the Eastern Hemisphere it operates through the California Texas Corporationn which itoint interest with the Texas Company. Its holdings include concessions in Libya, where it hasumber of discoveries, and in Algeria.

This leading international oil company has shareholdings in tho Eastern Hemisphere separate from, but identical to, those of Standard Oil Company of California.

Dutch/Shell Group

i. ercent in Iraq Petroleum Company Ltd. and its associated companies, ii. Ih percent in Iranian Oil Participants Ltd, iii. ICO percent in concession covering offshore areas of Qatar.

This aggregation of British and Dutch-owned companies is one of theajor producers, refiners, and marketers of petroleum, with extensive holdings in Venezuela, Indonesia, and the US. It holds Interests in concessions in Algeria jointly with French firms on some of which major discoveries have been made. Concessions are also held in Libya where it has exp-erienced some successes.

Petroleum Company Ltd.

i. ItO percent in Iranian Oil Participants Ltd. U* ercent in Iraq Petroleum Company Ltd. and its associated companies, ill. SO percent in Kuwait Oil Company Ltd. Iv. n Abu Dhabi Marine Areas Ltd* and Dubai Marine Areas Ltd* both of vhich hold offshore concessions in the Trucial Coast.

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This company, with majority UK government ownership, is another of tho world's major petroleum producers and distributors* Reserves are mainly in the Kiddle Erst and refining and marketing larrely in Europe, It holds concessions in Algeria and Libya,

h. Clc. FroncaiFC des Petroles

1. ercent In Iraq Petroleum Company Ltd, and its associated oonpanies. li, ercent in Iranian Ml Participants Ltd, ill, ercent in Abu Dhabi Karine Areas Ltd, and

Dubai marine Areas Ltd. both of which held offshore ccnoeoeioce in tho Irucisl Cc-st.

This conj any, in which the French Governmentarje minority stock interest, operates mainly in the Middle East, North Africa and Europe. Its hcldinfs0 percent interest ln Algeria's most important oil field, Kassi Hsssaoud.

SMALLER

1. ICO percent in concession fronted by the Shaikh of

Kuwait covering his undivided half interest in Kuwait-Saudi Arabia Neutral Zone onshore area.

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ii. ercent in Iranian Oil Participants Ltd.

This company wes set upumber of smaller US oil companies and individuals to engage in petroleum exploration and development abroad and to transport oil.

j. Getty Oil Company

1. ercent in the concession granted by the King of Saudi Arabia covering his undivided half interest in the Kuwait-Saudi Arabia Neutral Zone onshore area, ii. ercent in Iranian Oil Participants Ltd.

Getty Oil Company and AMINOIL operate jointly in the Neutral Zone. Gotty has additional small interests in Iran through its part ownership of Tidewater Oil Company.

k. Richfield Oil Corporation

1. ercent working interest in concession held by Dhofar-Cities Service Corporation covering the Dhofar Province of Muscat and Oman, ii. ercent in Irani en Oil Participants Ltd.

1. Cities Service Company

This company's wholly-owned subsidiary, Dhofar-Cities Service Corporation hasercent interest in concession covering tbe

s:

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Dnofar Province of Muscat end Oman. Cities Service Company also holds concessions in Algeria.

NEWCOMERS

m. l Com;-any of Indiana

This large, inte-TEted company operates mainly in the US. Its foreign interests include offshore concessions in Iran and concessions in Algeria and Libya,

n. Ente Nazicnalc Idrocarburi (EM)

This company, controlled by the Italian Government,0 percent interest with Nationalompany (Iranian Government-owned) in certain offshore and onshore concessions in Iran. It also has interestst and concessions in Libya and other North African countries. It is an Important suppllor of petroleum in Italy whore itonopoly over natural gas production and ccntrcls seme petroleum refinert's.

o. Japan retrcleum Trading Co. Ltd.

This Japanese company, operatin ts eubslci^ry, the Arabian Oil Company, holds two concessions, covering the Kuwait-Saudi Arabia Neutral Zone offshore area, from the Shaikh of Kuwait and the King of Saudi Arabia for their respective undivided half interests.

ArpENnix iv

CWNERSBXP OF PRINCIPAL MLTDLE EAST PRODUCING CCMPANTES

IRANIAN OIL CCNSOKITUM

British Petroleum

Royal

Stondord Oil (New

Standard Oil

Gulf Oil

Socony MobilFrancoise

Smaller US

IRAQ FETROLKON CO.

British Petroleuc

Royal DutchOil

and Socony

Cie. Froneoise

Gulbeakian Interests

Original document.

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