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6. Experience in Persia shows that mere increase in payments is not enough to ensure stability of supply. We need to promote internal political stability and in particular to influence individuals so that public opinion does not become so hostile to our oil companies that their commercial operation becomes impossible. The companies have themselves done much in this direction by their welfare services, education schemes, and "good employer" policies. They could do more, in particular by encouraging local industry and commerce, and by other indirect methods. They are in a better position to do so now that they can obtain relief from United Kingdom income tax in respect of their tax payments to the Middle East Governments. But the scope for oil company action is limited because they are suspect as interested parties. This is a field for Government action. Her Majesty's Ambassador at Beirut has reported as follows:
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we are not doing nearly enough to protect our long-term interests in these countries. We should plough back a much greater proportion of our profits on oil, in our own interests, and build up for ourselves a position of greater strength, not only in the British protected territories and in countries where we have treaty commitments, not only in the sterling-area oil-producing lands, but, as opportunities offer, in every single country in the region, in the region as a whole. One rotten apple can spoil a barrel. We should concentrate particularly on Iraq, on the Sheikhdoms in the Gulf and on the transit' countries. (Syria and Lebanon.)
7. The danger is that our enemies may play on the indigenous forces of nationalism and cupidity in order to disrupt the commercial operation of our oil companies. What are our enemies doing?
(a) The Russians have recently increased their effort in the Middle East. Apart from the supply of arms to Egypt, they maintain bigger missions than we do in many Arab States, they have taken part in the Damascus trade fair for purely political purposes, and they have organised visits of many hundreds of young Arabs to Russia and to the Iron Curtain countries. They broadcast in Arabic, Persian and Kurdish. They use their own Muslim population to emphasise their link with the Middle East. Finally, they organise and pay for a nucleus of support in each country in the shape of the Communist Party.
(b) The Egyptians are exercising their influence against us. They claim the cultural leadership of the Arab world and their main weapons are press, radio and education. They subsidise the salaries of Egyptian teachers throughout the area (as the Greeks have done in Cyprus). The result is that, even where our influence is strongest, e.g., in Iraq and Kuwait, the majority of the teachers are Egyptian. They are also talking of sending a "trade mission " to the Persian Gulf.
(c) The Saudi Arabians use a large proportion of the oil revenues for buying individuals abroad. By this method they are often able to neutralise our influence, even in Jordan. There are also signs of a drive for economic penetration of the Persian Gulf States.
What can Her Majesty's Government do?
8. A major improvement in the area must depend on the solution of political problems. The effectiveness of any action taken must also depend on the degree of co-ordination with the Americans (who now own two-thirds of Middle East cil concessions), and on the extent to which the producing countries themselves can be induced to follow social and economic policies designed to promote stability. But there is no doubt that an increase in Government expenditure, modest as compared with the value of the investment and of the fuel supplies which are at stake, would improve the atmosphere.
9. Her Majesty's Government's expenditure in the Middle East excluding Aden, at present amounts to £15,350,000 a year, of which some £10.7 millions a year goes to the subsidy for the Jordan Government and the Arab Legion. This expenditure of £10.7 millions, which is a direct consequence of our Palestine policy (and which provides us with a division in the Middle East at very low cost), is not
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