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Page 422 disclosed to the Argentine Government-of defending at least their position as importers. This is probably due to fears about their situation elsewhere. While no one has yet openly talked about the possibility of discrimination in the sterling area, Standard have, no doubt, said to themselves that if they agree to buy sterling oil for their Argentine market, what is to stop them from being forced to buy sterling oil for their sterling area markets.

American Companies and the Dollar element in Sterling Oil

7. The American oil companies now charge us with behaving in a discriminatory manner in not allowing them to sell for sterling outside the sterling area while we allow British companies to do so in spite of the fact that there is, by our own admission, a considerable dollar element in sterling oil. They cite, of course, Shell's production in Venezuela where there is, obviously, a very considerable dollar element, and suggest that they would be prepared to ask us to convert into dollars the sterling they would receive from the non-sterling area buying countries only to the extent that we should have had to provide Shell with dollars if they had supplied the oil. Standard Oil of New Jersey has specifically approached the Treasury on this point and a memorandum detailing their suggestions is expected shortly. Pending its receipt, all that can be said is that their suggestion is most unlikely to prove acceptable or even workable. What the American companies overlook, is (i) that the Anglo-Iranian is also a potential supplier with a much lower dollar element in its oil and though this company's potential outlet in the Western Hemisphere must to some extent be limited by geographical-i.e., freight considerations, in so far as crude oil is concerned they may well be prepared to accept a low price for marginal quantities, and, the dollar element in A.I.O.C's production of crude oil is very much lower than Shell's Venezuelan production. (ii) Shell sell considerable and increasing quantities of oil for dollars so that the net cost to us in dollars of Shell's Venezuelan operations is only about 45 per cent. of the gross cost, whereas the Americans obviously have in mind a gross percentage of 60 per cent. to 70 per cent. Any arrangement with American companies on the lines of the American companies' ideas would, therefore, have to be on a "horse trading" basis. With the intercompany relationship of A.I.O.C. and Shell-joint marketing in many areas, and very large purchases of Shell from A.I.O.C.-no one can state precisely what is the real dollar content of sterling oil.

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8. Caltex, too, are thinking on somewhat similar lines and are talking of largely increasing their expenditure in the sterling area-and in Europe, when it suits them to talk O.E.E.C. rather than "our" close relationship-to help our dollar position, as they put it. This is a development which merits serious con- sideration since any new outlet for United Kingdom produced oil equipment and other goods is presumably to our advantage. The other side of the picture must, however, be closely examined since American oil companies will not buy over here what they can buy more conveniently and often more cheaply, in America without some kind of a guarantee that they will be allowed to accept sterling (even if only partially convertible) for sales to countries in the sterling area.

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APPENDIX IX

UNITED STATES OIL INTERESTS IN THE MIDDLE EAST

The major United States oil companies with interests in the Middle East area are the Standard Oil Company (S.O.C.) of California and the Texas Cor- poration, the Standard Oil Company of New Jersey, Socony-Vacuum and the Gulf Oil Corporation. Certain of the smaller United States oil companies are also directly concerned.

2. The United States Government own no part of the capital of these companies, and indeed in 1944 decided that it was contrary to national policy for a pipeline from Arabia to the Mediterranean to be built and operated by the Government Petroleum Reserve Corporation. But, although not directly financially involved, the United States Government consult closely with these American oil involved, the 8mited reserve Corporation.

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companiashafe done much to promote their interas, 4uf was due to State Department pressure that the Iraq Petroleum Company in 1927 agreed to allow an American group to participate in its capital.

3. The chief Middle East countries in which American oil interests are concerned are:

(a) Saudi Arabia, where an exclusive concession is jointly held by S.O.C. of California, S.O.C. of New Jersey, the Texas Oil Company and Socony-Vacuum.

(b) Bahrein, where the S.O.C. of California and the Texas Oil Company hold

exclusive concessions.

(c) The Saudi Arabian-Kuwait "Neutral Zone," where the American Inde- pendent Oil Company and the Pacific Western Oil Company hold exclusive concessions.

(d) Kuwait, where the Gulf Oil Company hold a 50 per cent. interest. (e) Egypt, where Socony-Vacuum is an equal partner with Anglo-Egyptian

Oil Fields in the Western Sinai venture.

(f) Iraq, Syria, Israel and Jordan, by reason of a 233 per cent. share of the capital of the Iraq Petroleum Company held by an American group, chiefly S.O.C. of New Jersey and Socony-Vacuum.

(g) Persia, where S.O.C. of New Jersey and Socony-Vacuum have an indirect interest by reason of an agreement with Anglo-Iranian to supply them with crude oil on a long-term basis.

4.

The extent of these United States holdings can be judged by the fact that the American share in Middle East proved oil reserves in 1948 was 41 per cent., and the estimated American share in Middle East oil output by 1956 is 43 per cent. The Middle East's proved reserves now greatly exceed those of the United States (which were 3,600 million tons in January 1949), and its unproved reserves are estimated at still higher figures (20,000 million tons for the Persian Gulf area alone, according to a Texas Oil Corporation estimate).

5. For an analysis by countries of the American share in Middle East output and proved reserves see the Table as the end of this Appendix.

6. Whatever may have been the case in the past, there can now be no doubt that from a political and strategic point of view it is in the interests of His Majesty's Government that the United States should have a large financial interest in the safety and prosperity of the Middle East. At present, this interest is almost wholly derived from the commitments of the American oil companies (though, e.g., the United States airways companies also have Middle East interests and there is one American representative on the Board of the Suez Canal Company).

7. It is therefore a matter of concern to His Majesty's Government that measures designed to reduce the dollar drain of the Sterling Area's oil supplies should not be such as to cause any major reduction in United States oil investment in the Middle East. The danger of such a reduction is the greater since, if commercial factors alone were to operate, any marginal decrease in the United States companies' total oil output would, for geographical reasons, probably all fall on their activities in the Middle East. (It is just possible that the United States Government might bring pressure on the companies to maintain Middle East production at a higher level than commercial policy would dictate, so as to husband oil reserves of the American continent, but this line of reasoning seems to have lost some of its potency in recent years and may be utterly invalidated if Canadian oil reserves prove to be of anything like the size at which they are now tentatively estimated.)

8. Discrimination on the scale, assumed in method (iii) of Section II might lead the United States companies to close down their operations in a particular area of the Middle East or to reduce their production evenly throughout the whole area. But in view of the likelihood of a constantly rising world oil demand in the foreseeable future it is, in fact, much more likely that the United States companies would react to a reduction in demand as a result of discrimination by sus pagding 3hof66esent expansion programmes thangy 4uolithdrawing investments already made.