TNAG-0947-FCO40-1166-Oil-developments-in-and-around-Hong-Kong-1980 — Page 107

CONFIDENTIAL

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I attach self-explanatory papers passed to us by Hong Kong and General Department for our comments.

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2. I have consulted ESSD and the Department of Energy. Their view is that we should discourage the Hong Kong Government on political grounds from buying fuel oil from Iran. Although the question of possible purchases of Iranian refined product is perhaps less sensitive with the Americans than purchases of crude oil both Shell and BP have been buying a small amount of fuel oil in recent months as part of their overall contracts with NIOC - it would be presentationally unwise to be seen purchasing significant quantities of refined product in present circumstances. (Oil purchases are, of course, not caught by the sanctions measures against Iran.) Moreover, for Hong Kong to buy a large consignment of fuel oil would, to some extent, reduce the effectiveness of the refusal by the West for much of this year to purchase Iranian oil.

3. However, the Department of Energy would not wish, in the last resort, to discourage Hong Kong from its proposed purchase on political grounds if the Hong Kong Government had obtained a price from Iran which was, at the least, in line with normal world prices for fuel oil or, preferably, cheaper.

4. I therefore propose we tell Hong Kong that our preference on political grounds is that they should not buy from Iran. We would prefer that they bought their proposed fuel oil stocks elsewhere, provided this did not unnecessarily disadvantage them by having to forego a particularly favourable proposed Iranian price. If Hong Kong does wish to buy from Iran, and is quoted a particularly favourable price, they should refer again to FCO before going further.

5.

NAD concur. I suggest therefore that Hong Kong and General Department reply to Hong Kong tel no 902 along the above lines.

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SMJ Lamport

Middle East Department W92

233 3982

CODE 18-77

SS 8/78

31 July 1980

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CONFIDENTIAL

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