Multinational Oil Corporations and US Foreign PolicySource: Multinational Oil 
Corporations and U.S. Foreign Policy - REPORT together with individual views, to 
the Committee on Foreign Relations, United States Senate, by the Subcommittee on 
Multinational Corporations; (Washington, Janusry 2, 1975, US Government Printing 
Office). 
  Chapter I - Establishing the American Presence in the Middle East 
  Chapter II - The 1947 Aramco Merger 
  Chapter III - Foreign Policy and Antitrust: The Cartel Case and the Iranian 
  Consortium 



CHAPTER I
Establishing the American Presence in the Middle East
The oil industry was born in the United States around the time of the Civil War. 
As the world's largest oil producer and exporter, the US supplied the oil on 
which the Allied Forces floated to victory in World War I. In 1920, sixty-four 
percent of the world's oil was produced in the United States. The growing uses 
of petroleum in modern American industrial society led several domestic 
companies to secure oil concessions in Mexico but foreign production was not 
actively sought after the First World War. In the early 1920's, however, two 
fears seized the American oil industry. First, it was feared that the United 
States would deplete its own petroleum resources in the not too distant future. 
"The position of the United States in regard to oil," wrote the Director of the 
US Geological Survey, "can best be characterized as precarious."1 Second, while 
a domestic oil shortage seemed imminent, so did the possibility that the major 
sources of petroleum outside North America would soon be locked up by foreign 
interests - primarily by British Petroleum and Royal Dutch Shell. This fear was 
mixed with indignation over the fact the British appeared to be ungrateful for 
America's wartime effort and seemed to be doing everything in their power to 
consolidate their foreign petroleum supply positions at the expense of US 
nationals. "The British position is impregnable," wrote Sir Edward Mackay Edgar, 
a British oilman. "All the known oil fields, all the likely or probable fields 
outside of the United States itself, are in British hands or under British 
management or control, or financed by British capital."2 
The Principle of Reciprocity

In March 1920, the Senate requested that the President report to it on the 
restrictions being imposed on American citizens wishing to explore for petroleum 
in foreign countries.3 The State Department responded with a series of reports 
drawing a startling picture of measures being taken to exclude American 
interests from foreign oil fields, especially from fields under the control of 
Britain and the Netherlands.4 Senator Phelan of California proposed that a 
government corporation be established to develop oil resources abroad.5 But this 
proposal met with no success. Instead, Congress passed the Mineral Leasing Act 
of 1920, which provided that oil and other minerals in US public lands could be 
available for exploitation by domestic foreign-owned corporations but that if 
similar privileges were denied US nationals they could not "by stock ownership, 
stock holding, or stock control own any interest in any lease acquired under the 
provision of this act."6 The Congressional act thus established in limited form 
the principle of reciprocity. 
That same year the United States also learned of the Dutch Government's 
intention to grant the oil concession in the Djambi residency (Southeastern 
Sumatra) of the Netherlands East Indies to a new Dutch company half owned by the 
Royal Dutch-Shell. The prospect of "the most valuable mineral oil fields in the 
whole Colony" being granted exclusively to a Dutch firm led the State Department 
to make a strong protest to the Netherlands.7 When the Dutch were unwilling to 
reconsider their position, the United States Government informed the Netherlands 
that: 
  No foreign capital may operate in American public lands unless its Government 
  accords similar or like privileges to American citizens, and, further more . . 
  . in the light of the future needs of the United States such very limited and 
  purely defensive provisions . . . might become inadequate should the principle 
  of equality of opportunity not be recognized in foreign countries.8
Shortly thereafter the Department of the Interior refused to grant Shell a 
permit to explore for oil on certain public lands in Utah on the grounds that 
the Netherlands discriminated against American business. Since the United States 
was the world's greatest petroleum producer and consumer, the threat of denial 
of investment privileges proved to be a powerful wedge in forcing open the door 
abroad. Finally, in 1927, the Dutch requested the United States to consider the 
Netherlands a "reciprocating" country under the Mineral Leasing Act. An 
agreement was worked out which allowed American companies to explore in the 
Netherlands Indies in return for the Netherlands being declared a reciprocating 
country. 
Opening the Door in Iraq 
The same pattern of State Department support for American corporate entry into 
the colonial territories of the major European countries was followed in Iraq. 
With the consent of the Turkish Government a concession had been granted to a 
consortium of European interests - British Petroleum, Shell, C. S. Gulbenkian 
and the Deutsche Bank. But Turkey's alliance with Germany during World War I 
cost both countries dearly. The German shares of the consortium in Iraq were 
taken by the British. In April 1920 the Allied Supreme Council allotted the 
mandate over Iraq and Palestine to Britain and the mandate over Syria and 
Lebanon to France. The San Remo Agreement was then signed between France and 
Britain in which the latter exchanged the German interest in Iraq in return for 
the right to construct pipelines across France's sphere of influence. News of 
the new European arrangement brought strong protests from the State Department. 
"It is not clear," the Department wrote, "how such an agreement can be 
consistent with the principles of equality understood and accepted during the 
peace negotiations at Paris."9 The State Department's position was based on its 
fear that the British were using their political supremacy in the Middle East to 
establish economic supremacy in the world oil trade. Britain had already secured 
an agreement with the Sheikdom of Kuwait that its oil development would be 
entrusted only to British subjects; a similar agreement had also been signed 
with Bahrein. The San Remo Agreement therefore seemed final proof that this 
important area would be closed to American enterprise. 
The State Department decided against arguing for an American interest in Iraq in 
pure national self-interest terms. It could not argue that only American 
companies should be allowed to explore in the area without appearing to take 
unfair advantage of its victory in World War I. Such a position would have 
contravened Wilsonian principles. The State Department therefore adopted an 
"open door," policy knowing that the only companies then capable of taking 
advantage of an open door would be American. Under this policy the Department 
urged that all areas of the world should be open to development by the nationals 
of all countries, unencumbered by nationalistic regulations or restrictive 
agreements. 
The State Department's diplomatic initiatives found their impetus in the 
American oil industry. When Exxon first expressed an interest in Iraq in 1919, 
the Department said that it could not support one company alone but would help a 
group of American companies. The American Petroleum Institute thereafter adopted 
a resolution which expressed its fear that US companies might be excluded from 
the Middle East and asked that the State Department take steps to correct the 
situation. "If, under a protectorate or any other form of control" the 
resolution declared . . . . "British and French interests . . . should be 
permitted to gain and maintain in exclusive right of development in Persia and 
in Turkey, to say nothing of the other oil-bearing lands embraced within the 
peace settlements . . . we do not hesitate to say that the results to the 
American petroleum industry might eventually prove to be disastrous."10 In 
August 1921, the API was informed by Secretary of State Hughes and Secretary of 
Commerce Hoover that preliminary geological surveys in Iraq should be undertaken 
by the API on behalf of all interested members. In addition to Exxon, the other 
companies that decided to participate were Texaco, Gulf, Atlantic Refining, 
Sinclair, and the Standard Oil Company of Indiana. In November 1921, Secretary 
Hughes told the companies that he would inform them as soon as he had learned 
"that permission for prospecting in Mesopotamia is being or may be granted by 
the authorities in that territory . . ."11 The companies, however, went ahead 
and designated Exxon as their representative in negotiations with British 
Petroleum over an American interest in Iraq. BP was apparently persuaded by 
Gulbenkian that it would be better to join with the Americans rather than fight 
them and suffer the ensuing commercial and diplomatic repercussions. 
When Exxon informed the State Department of its private negotiations, the 
response was quite pragmatic: "It is not the desire of the Department ... to 
make difficulties or to prolong needlessly a diplomatic dispute or so to 
disregard the practical aspects of the situation as to prevent American 
enterprise from availing itself of the very opportunities which our diplomatic 
representations have striven to obtain."12 Although the State Department urged 
the American companies to avoid any restrictive agreement, this became 
impossible as the negotiations with the European interests proceeded. The price 
of establishing the first American presence in the Middle East was the 1928 Red 
Line Agreement which obligated the consortium members not to compete against 
each other within the area of the old Ottoman Empire. "All members of American 
Group have accepted Agreement . . ." the American companies cabled their London 
attorneys on April 17, 1928, "and State Department has approved respecting its 
open door policy and you are authorized to close."13 "Never," Gulbenkian later 
wrote, "was the open door so hermetically sealed."14 The ownership shares in the 
new Iraq Petroleum Company dPC) were as follows: 
       Percent 
      Royal Dutch-Shell23. 75 
      British Petroleum23. 75 
      Near East Development Corp.23. 75
      Compagnie Francaise des Petroles 23. 75
      Gulbenkian5. 00 

The Compagnie Francaise des Petroles (CFP) was formed to hold the French 
interest in IPC; the Near East Development Corporation (NEDC) was formed to hold 
the American interest. By the early 1930's, Sinclair, Texaco, Gulf, Indiana, and 
Atlantic had sold out their shares in NEDC to Exxon and Mobil, leaving those 
companies with 50% each of the American interest in IPC. 
Aramco Gets Lend Lease for Saudi Arabia 
One consequence of the Red Line Agreement had been that a new American entrant 
was able to purchase the Persian Gulf concession on the island of Bahrein. Only 
direct State Department intervention, however, convinced the British Foreign 
Office that Standard Oil of California (Socal) should be allowed to operate the 
Bahrein concession without political interference.15 In one of the oil 
industry's more daring capital ventures, Socal then obtained in 1933 an 
exclusive sixty-year concession in the new desert Kingdom of Saudi Arabia - the 
only principality in the area not under British control. Three years later, need 
for additional capital and market outlets persuaded Socal to take in Texaco as a 
partner in its new venture. The first Arabian oil exports in 1939 so impressed 
King Ibn Saud that he increased the acreage of the American concession to 
444,000 square miles, giving the California-Arabian Standard Oil Company a 
monopoly over a piece of real estate the size of Texas, Louisiana, Oklahoma and 
New Mexico combined.16 Nevertheless, throughout the 1930's the Aramco parents 
were unable to convince the Roosevelt Administration of the potential strategic 
importance of their Saudi Arabian concession to the United States. Not until 
February 1940, did the US representative in Egypt present his credentials as 
Envoy Extraordinary and Minister Plenipotentiary to King Ibn Saud. 
Germany's submarine warfare and Afrika Korps curtailed Aramco's operations and 
convinced the parent companies that the mere establishment of formal 
American-Saudi relations were not enough to guarantee Aramco's continued 
presence in the area. The diverse tribes inhabiting the Arabian peninsula had 
only been welded together by the forceful sword of the great twentieth century 
warrior Ibn Saud, and now the King's fledgling economy began to falter with the 
loss of oil royalties and revenue from annual pilgrimages to Mecca. When the 
King turned to Aramco for aid in 1940, the American company advanced him 
$2,980,988 against future oil royalties. In January 1941, however King Saud 
demanded an additional $6 million and Aramco, which had very little to show its 
shareholders for their heavy Arabian investment, turned to Washington. On April 
9, 1941, Socal Vice Preside James A. Moffet went to the White House and asked 
President Roosevelt to extend Ibn Saud a $6 million US Government loan. In a 
memorandum Moffet gave the President, he strongly advocated that Aramco be 
subsidized as an instrument of US foreign policy in Saudi Arabia: 
  The King has privately expressed himself . . . as strongly pro-Ally. No other 
  man in the Arab countries nor among Moslems the world over, commands prestige 
  equal to his . . . It has now come to a point where it is impossible for the 
  company to continue the growing burden and responsibility of financing an 
  independent country, particularly under present abnormal conditions. However, 
  the King is desperate. He has told us that unless necessary financial 
  assistance is immediately forthcoming, he has grave fears for the financial 
  stability of his country.17
President Roosevelt told the Aramco representative that direct subsidization was 
impossible under existing American laws but suggested that Aramco might generate 
the $6 million by selling its petroleum products to the United States Navy. Navy 
Secretary Frank Knox, however, rejected the plan on the grounds that the amounts 
involved went far beyond the requirements of the American fleet in the Persian 
Gulf and Indian Ocean. When Ibn Saud directly approached Washington for a $10 
million loan in June 1941, moreover, President Roosevelt took the position that 
primary responsibility for Saudi Arabia rested with Great Britain in view of its 
extensive Middle East commitments. 
Under the pressure of mounting American participation in World War II, the 
Roosevelt Administration viewed the British as a convenient ally in bailing out 
the government of King Ibn Saud. Aramco's continuous appeals for direct US aid 
raised serious problems since Congress had only authorized Lend Lease assistance 
for "democratic allies." The solution President Roosevelt finally arrived at was 
to have the British divert a portion of their $400 million US Lend Lease loan to 
help King Saud stabilize his country. During 1941, 1942, and 1943, as Aramco 
reduced its Saudi payments the British Government advanced $5,285,000, 
$12,090,000, and $16,618,280, respectively."18 
Fears of US Petroleum Shortage and British Encroachment in Saudi Arabia 
At the height of World War II, fear of an energy crisis swept the Roosevelt 
Administration. Beginning in the winter of 1942-43, acute shortages of 100 
octane gasoline forced significant reductions in the number of US fighter planes 
and strategic bombers earmarked for combat theater duty. Reminiscent of the 
post-World War I scare, numerous articles began to appear in both technical and 
popular journals announcing that the United States was running out of oil. 
American oil fields were producing more than the rest of the world combined, and 
as a result domestic reserves were being drawn down faster than new reserves 
were being discovered. 
In the shortage atmosphere of early 1943, the Roosevelt Administration grew even 
more receptive to Aramco's problems. The British Government moved to consolidate 
its position in Saudi Arabia. While acting as the conduit of US Government 
assistance, the British portrayed themselves as King Sand's real benefactor and 
soon convinced Aramco that the future of its concession was at stake. The Aramco 
parents therefore stepped up their lobbying campaign with the Roosevelt 
Administration. As Navy Under Secretary William Bullitt wrote:

  The officials of both the Standard Oil of California and the Texas Company are 
  much disturbed about the future security of their concession not only because 
  of the normal insecurity in Arabia but also because they feel that the British 
  may be able to lead either Ibn Saud or his successors to diddle them out of 
  the concession and the British into it. American experts on Saudi Arabia are 
  inclined to agree with this estimate of the situation. They point out that the 
  Anglo-Iranian Oil Company had every opportunity to get this concession and, 
  after examination, rejected it on the ground that there was no oil in Saudi 
  Arabia - and have been regarding the concession with covetous eyes ever since 
  the Americans struck oil. The recent British move to set up a bank of issue 
  for Ibn Sand, and the more recent act of the British Charge d'Affaires in 
  Jeddah - who just after our Minister, Mr. Kirk, had visited Ibn Saud, and 
  promised him Lend Lease aid, informed Ibn Saud that he could get further 
  American Lend-Lease only by applying to the British authorities either in 
  Jeddah or London - seem to indicate a desire to strengthen British influence 
  over Ibn Saud at the expense of American influence, in a manner not quite 
  healthy for the oil concession."19
Socal President Collier and Texaco Chairman Rodgers told the Roosevelt 
Administration that direct US Lend Lease assistance for King Saud was the only 
way to keep their Arabian concession from falling into British hands. President 
Roosevelt's attention was called to the fact that Saudi Arabia was the only 
large neutral country in the Middle East not yet included in the Lend Lease 
Program. In early February 1943, the Texaco Chairman circulated a memorandum to 
the Secretaries of Navy, Interior and War as well as to Under Secretary of State 
Sumner Welles. The Rodgers memorandum emphasized the importance of the Aramco 
concession to America's long-range energy needs and offered to set aside a 
separate petroleum reserve - from which the US Government could be supplied at 
preferentially low prices - in return for direct US Lend Lease Assistance to 
King Ibn Saud. On February 18, 1943, President Roosevelt gave the go-ahead to 
the Lend Lease Administrator: "in order to enable you to arrange Lend Lease aid 
to the Government of Saudi Arabia, I hereby find that the defense of Saudi 
Arabia is vital to the defense of the United States." 
The Petroleum Reserves Corporation 
President Roosevelt's decision to aid Saudi Arabia precipitated a major policy 
debate within his Administration. While the American concession in Arabia had 
originally been granted without Washington's help, it had become abundantly 
clear by 1941 that Aramco's existence depended upon the diplomatic and financial 
assistance of the United States Government. With the advent of direct US Lend 
Lease aid to Saudi Arabia in 1943, the US Government was faced with the question 
of how much control it should exercise over a private company whose operations 
it considered vital to the American national defense. The State Department 
wanted to limit the government's involvement to the quid pro quo offered in the 
Rodgers memorandum. But another group headed by Harold Ickes, the Secretary of 
Interior and Petroleum Administrator for War, argued that the US Government 
should buy out Aramco. On June 8, l943, the Joint Chiefs of Staff requested 
President Roosevelt to authorize the Reconstruction Finance Corporation to 
create a new government corporation to acquire overseas oil reserves as a matter 
of the greatest national security urgency. The Joint Chiefs recommended that the 
corporation's first project be the immediate acquisition of controlling interest 
in Saudi Arabia's oil concessions. 
On June 26, 1943, after considerable interdepartmental debate, Secretary of 
Interior Harold Ickes, Secretary of War Henry Stimson, Secretary of State 
Cordell Hull and Acting Secretary of Navy James Forrestal formally requested 
President Roosevelt to authorize the creation of the Petroleum Reserves 
Corporation. In their memorandum to the President, the four Secretaries 
recommended that the Corporation commence negotiations with Socal and Texaco at 
once with the aim of purchasing "100% of the stock of the corporation now owning 
the (Arabian) oil concessions." The Corporation, however was not to confine 
itself to Saudi Arabia but was to explore all other possibilities: 
  To buy or otherwise acquire reserves of crude petroleum from sources outside 
  the United States including the purchase or acquisition of stock in 
  corporations owning such reserves . . . and to construct and operate outside 
  the United States such refineries, pipelines, storage tanks, and other 
  facilities as are necessary in connection with carrying out the objectives and 
  purposes of the corporations. 
President Roosevelt fully endorsed these recommendations and, on June 30, 1943, 
the Petroleum Reserves Corporation was born. President Roosevelt instructed 
Interior Secretary Ickes and Herbert Feis, the State Department's Adviser on 
International Economic Affairs to begin negotiations with the American 
concessionaires in Saudi Arabia. To assist in this major undertaking Secretary 
Ickes hired Alvin Wirtz, a former Under Secretary of Interior, as the 
Government's special negotiator. On August 2 and 3, Mr. Ickes, Mr. Wirtz and Mr. 
Feis commenced negotiations with Mr. Collier (Socal) and Mr. Rodgers (Texaco). 
When Mr. Ickes proposed a complete government ownership, however, the oil 
executives flatly refused. "They had gone fishing for a cod and had caught a 
whale." Herbert Feis later said of the companie.20 Instead of giving the 
government a separate Petroleum reserve, the Aramco representatives were asked 
to sell their rich Arabian concession to the US Government at cost. Government 
ownership, they feared, would place them "at war" with the rest of the industry. 
Nevertheless, the fact that the US Government had come to their rescue 
apparently persuaded the Aramco parents to carry on negotiations with the 
Petroleum Reserves Corporation. 
The Aramco stock purchase negotiations foundered over the companies' 
unwillingness to accept a US Government ownership interest in the concession. 
The Government's original request for a 100% ownership interest was gradually 
whittled down to a one-third interest but even this minority position was 
rejected. On November 3, 1943, the Directors of the Corporation convened their 
sixth meeting to discuss the outcome of their negotiations. Mr. Ickes announced 
that the negotiations for the acquisition of a minority stock ownership in 
Aramco had been suspended as a result of the companies' intransigence. The 
Directors then resolved that negotiations with Aramco should be terminated. "The 
Board was unanimously of the opinion that the interests of the people of the 
United States and its foreign oil industry required the participation of the 
United States Government . . . in the protection of American oil reserves," the 
official Minutes of the meeting read. "The Directors expressed deep regret that 
the (Aramco) representatives had been unable or unwilling to appreciate the 
urgency of and need for the assistance of this Government."21 
The Petroleum Industry Opposes PRC 
When word of the secret stock purchase negotiations leaked into the press, the 
American oil industry denounced the Petroleum Reserves Corporation and accused 
the Roosevelt Administration of using the wartime emergency as an (excuse to 
nationalize the oil business. Harold Ickes was suspected of being the successor 
to Josephus Daniels, President Wilson's Navy Secretary who had urged the 
nationalization of the oil industry after World War I in the name of national 
security. The most systematic analysis of the major oil companies position was a 
November 1943 Publication entitled "A Foreign Oil Policy for the United 
States."22 It recommended that the US Government not enter into competition with 
its own companies but instead provide strong home government support aimed at 
securing advantages for American nationals overseas in competition with British 
and other foreign nationals. Such a foreign oil policy could only be effective, 
it argued, if American nationals were not subject to the risk of violating US 
antitrust laws where their competitive position vis-à-vis foreign nationals was 
at stake. While US nationals should be afforded all possible diplomatic and 
antitrust protection in foreign lands, the report recommended that the cardinal 
principle of US foreign oil policy should be that the Government not participate 
either directly or indirectly in the ownership or operation of overseas oil 
operations.23 
The State Department shared the industry's view that foreign oil in the hands of 
US nationals was as available for national security purposes as foreign oil 
owned or financially shared in by the US Government. Nevertheless, when the 
Petroleum Reserves Corporation's Aramco stock-purchase plan failed, Secretary 
Ickes turned his energies in early 1944 to a new plan whereby the US Government 
would build a major pipeline from the Persian Gulf to the East Mediterranean. In 
March 1944, the Petroleum Industry War Council publicly called for the 
dissolution of the Corporation and denounced the government corporation's 
pipeline plan as being unnecessary for the war effort. 
The most bitter attack came from the Independent Petroleum Association of 
America which labeled the Corporation's pipeline plan a "fascist approach": "It 
represents a new philosophy that we, a democratic people, having girded our 
sinews of war successfully on the basis of private enterprise and the American 
way of life, must needs revert to the hated procedure of the Nazi and Fascists 
in our Post-War World and commit the government (in fascist fashion) to direct 
engagement in the conduct of private enterprise, in surrender of the freedom and 
the American system of free private enterprise that we are now fighting to 
preserve."24 With the domestic oil industry up in arms, President Roosevelt 
shelved the Corporation's pipeline plan in the Spring of 1944. Thereafter, the 
Petroleum Reserves Corporation lapsed into nonexistence. 
Anglo American Oil Agreement 
The US Government's new concern about American access to Persian Gulf oil did 
not end with the Petroleum Reserves Corporation. The Roosevelt Administration's 
battle over Aramco ownership served to sharpen its awareness of British 
dominance in the Middle East. The experts that had been sent by the Petroleum 
Reserves Corporation to the area had returned with the conclusion that: "The 
center of gravity of world oil production is shifting from the Gulf-Caribbean 
areas to the Middle East, to the Persian Gulf area, and is likely to continue to 
shift until it is firmly established in that area."25 The following chart shows 
the sharp contrast during the Second World War between the British presence and 
the American presence in the region:26 
MIDDLE EAST CRUDE PETROLEUM - 1943 PRODUCTION AND OWNERSHIP 
[Barrels] 
       Ownership 
      Country and company Production American British Other 
      Iraq: Iraq Petroleum25,270,0006, 002, 000 13, 267, 0006, 001, 000
      Bahrein: Bahrein Petroleum 6, 561, 0006, 561, 000 - - -- - - 
      Arabia: California Arabian Standard 4, 866, 0004, 866, 000 - - -- - - 
      Egypt: Anglo-Egyptian8, 953, 000- - - 8, 953, 000- - - 
      Iran: Anglo-Iranian75,323,000- - - 75,323,000- - - 
      Total (barrels)120,973,000 17, 429, 00097,543,0006, 001, 000
      Percent10014. 41 80.634.96 

In 1943, the British controlled 81% of Middle East oil production as compared 
with 14% under American control. Roughly the same disparity existed in Middle 
East refinery capacity, where the giant Abadan refinery in Iran helped to give 
the United Kingdom 85% of the region's refinery capacity as compared with 8% 
under American control. The fact that the Axis powers - Germany, Japan, and 
Italy - had no oil interests in the Middle East did not deter the two major 
Allied Powers from engaging in commercial rivalry in the midst of World War II. 
When Congress complained of the British letting America "oil" the war, the War 
Department studied the problem and concluded:

  A successful attempt to arrange for maximum possible withdrawals of petroleum 
  for use from British-owned reserves would probably be quite adverse to 
  American interests, because it would entail building up British controlled 
  refining facilities beyond the present proportions. These are already much 
  greater than the American-controlled refining facilities in the Middle East, 
  with the result that American-held concessions are jeopardized by the 
  dissatisfaction of the proprietary governments with the relatively small 
  amount of oil production (and resulting revenue realized by these governments) 
  from American-operated concessions, as compared to British-operated 
  concessions.27 
Looking to the post-war period, the Roosevelt Administration not only avoided 
wartime projects that would build up the British position in the Middle East but 
pushed to increase production in Saudi Arabia by supplying American companies 
with scarce construction materials. In all, Saudi Arabia received $99 million of 
direct and indirect Lend Lease assistance during World War II. This US 
government intervention in Saudi Arabia shored up Aramco's position but it did 
not solve the still larger problem of US access to the Persian Gulf region as a 
whole. That problem called for direct US government intervention with the 
British Government. In the Spring of 1944, at the invitation of the Roosevelt 
Administration, representatives of the British Government and its oil industry 
came to Washington to negotiate an agreement pledging cooperation between the 
two allies on international oil questions. In effect, the US asked the British 
to forego the exercise of those colonial prerogatives which prevented US 
nationals from competing on an equal footing with British companies. On August 
8, 1944, after strenuous Cabinet-level negotiations, a vaguely-worded 
Anglo-American oil agreement was signed. By a statement of general principles, 
the Administration hoped to eliminate the restrictive practices imposed by the 
British on American companies operating in the Middle East. In explaining the 
language of the agreement, Secretary Ickes observed: 
  We go on record against the tying of hands and the closing of doors which have 
  cramped the normal operation of trade in the past . . . To me this paragraph 
  means . . . that there will be no more hobbling of American nationals with 
  such devices as the Red Line Agreement. This Red Line Agreement . . . was the 
  price that American companies had to pay in order to participate in the 
  development of the Iraq fields. It provided . . . that no participating 
  company would go after oil within a territory roughly comprising the Old 
  Ottoman Empire. Or, if any such company did go in there and find oil, then it 
  had to share the concession with the certain favored others. Now, whatever 
  else this Red Line Agreement may be, it certainly is not competitive. I say, 
  therefore, that there is no place for it in the new scheme of things which our 
  Anglo-American oil treaty contemplates. Neither is there a place for a certain 
  type of marketing restriction . . . in which a company promises - as the price 
  of a concession - that it will not market in places which another company has 
  staked out as its own. I mention the se as just a couple of cartel practices 
  which we hope, and expect, to consign to oblivion through the operation of the 
  Anglo-American Agreement.28
The Anglo-American Oil Agreement, however was not well received in all quarters. 
The domestic oil industry feared that the agreement was but another attempt by 
the Roosevelt Administration to extend its control over the industry. The 
Agreement was submitted to the Senate as a treaty, but was never acted on. One 
of the most controversial parts of the text was that which established an 
International Petroleum Commission29 whose function was "to analyze such short 
term problems of joint interest as may arise in connection with production, 
processing transportation, and disposition of petroleum on a world-wide basis, 
wherever the nationals of either country have a significant interest, and to 
recommend to both governments such action as may appear appropriate." The 
Commission was to prepare periodic estimates of world supply and demand and to 
recommend how supply could be correlated with demand "so as to further the 
efficient and orderly conduct of the international petroleum trade." The 
International Petroleum Commission was an abortive attempt to approach at the US 
government level the problem of the enormous disparity between international 
petroleum supply and demand. In early 1944, the Petroleum Reserves Corporation's 
mission Summed up the potential over-supply problem: 
  Given reasonable time and a very moderate amount of oil field material, any 
  single one of these four groups (companies operating in Saudi Arabia, Iran, 
  Kuwait in Iraq) can develop and maintain within its own properties sufficient 
  production to supply world requirements from the Middle East area for many 
  years to come. For the next 10 to 15 years at least, the Middle East area is 
  likely to develop and maintain productive capacity of as much as four times 
  its probable market oulet.30 
Given the fact that there was more Middle East oil than there were markets for 
it, it was obvious that production allocations were going to be made and that, 
in view of the past history of the industry, those decisions were not likely to 
be made by the untrammeled operations of a free market. The problem, therefore, 
was not whether but who would control that international allocation mechanism. 
As it turned out, the failure of the Anglo-American Oil Agreement delegated this 
global function to the international oil companies. 
CHAPTER II
The 1947 Aramco Merger 
The Standard Oil Company of California (Socal) had managed to resist IPC (Iraq 
Petroleum Company), attempts during the 1930's to reduce its competitive 
position in Bahrein. While the 1936 merger between Socal and Texaco establishing 
the Caltex joint venture was subsequently attacked by the Justice Department's 
Antitrust Division, Caltex's exclusive ownership of the enormous oil reserves in 
Saudi Arabia in fact made the industry more competitive by threatening the 
market power of the established international majors: Exxon, Mobil, Shell and 
British Petroleum (BP). By 1947, Caltex had tripled its market share both East 
and West of Suez. With 33¢ 31 a barrel production costs, Caltex could market 
Arabian crude for as little as 90¢ a barrel while the older international majors 
were selling for $1.30 and up. Aramco, under Caltex's control, promised to alter 
fundamentally the market positions of the established international companies. 
The special place of Exxon, the largest American oil company in the world, was 
vulnerable. While Exxon's domestic and Venezuelan (Creole) affiliates had 
previously been sufficient to supply most of its market outlets in both the 
Eastern and Western Hemisphere, Exxon's long-range supply and demand forecasts 
at the end of the Second World War indicated that Western Hemisphere demand 
would eventually absorb its U.S. and South American production and that the 
company therefore needed to acquire a larger stake in Middle Eastern production 
to keep its European markets. In 1946, for example, Creole, as the world's 
largest producing company, produced an average of 450,000 barrels per day while 
Exxon as subsidiary in the Iraq Petroleum Company - then its only Middle East 
interest - averaged only 9,300 b/d. Jersey's minor position in Middle East," 
according to Exxon's official biography, "stemmed primarily from the Red Line 
Agreement of 1928 in which all the owners of Iraq Petroleum Company had bound 
themselves not to acquire concessions independently of the others within the 
boundaries of the old Turkish Empire."32 As Exxon's partner in IPC, Mobil also 
shared the constraints of "Red Linery" and needed another Middle East supply 
source to maintain its postwar position in overseas markets. Gulf shared 
Kuwait's output with BP which also controlled all of Iran's production. Since 
the Caltex Group was not a Red Line partner, Exxon and Mobil rightly concluded 
that their long-term market prospects in Europe were unfavorable if they failed 
to get a share of the vast low-cost reserves of the Arabian American Oil 
Company. 
Saudi Arabia's petroleum could be produced so cheaply that if Caltex could not 
be persuaded to use Exxon's and Mobil's outlets it would be able to use Aramco 
to build up a marketing organization no other firm could compete against. Exxon 
and Mobil therefore decided to offer their markets and their capital to Caltex 
in return for a piece of Aramco. "A deal through which (Exxon) would obtain a 
substantial interest in Saudi Arabia," a March 1946 Exxon strategy document 
concluded, "would not only have the advantage of providing additional supplies 
to (Exxon) which would probably be converted into cash and profits more rapidly 
than I.P.C. oil but would have the further advantage of easing the pressure that 
would otherwise come from Caltex in their efforts to expand their outlets."33 
Exxon's planners estimated that the ideal solution for their company would be 
participation in Saudi Arabia at roughly the same ratio as the business that 
might be supplied from this source with existing market outlets, 75:25 Exxon to 
Caltex. 
Buying into Aramco, however, was only the first step in the, Exxon/Mobil 
strategy. Once inside Aramco, they still would not be able to compete on an 
equal footing with Caltex in world markets if the financial structure of Aramco 
went unchanged. Under Caltex's control, Aramco was a cost operation like the 
other major Middle East producing ventures in Iraq, Iran and Kuwait. After 
royalty payments to the local government and capital expenditures for production 
programs, the companies made their profits on their individual sales outside the 
host country. An Aramco merger in itself then would not prevent the Caltex 
companies getting "cost oil" from Saudi Arabia and using it to take away their 
new Aramco partners markets. "As we would not link the purchase of oil with a 
restrictive agreement that would prevent our partners from raiding our markets," 
an Exxon strategy document observed, "it would seem highly desirable to consider 
some such alternative as the sharing on a percentage basis of the difference 
between cost of producing crude oil and the market value."34 After securing a 
position in this Middle East supply source, the next step in the Exxon/Mobil 
strategy was to use the merger to retain profits on all Arabian sales inside 
Aramco where they could be shared by all the partners. The profit-making entity 
into which Exxon and Mobil wanted to turn Aramco required a higher rather than a 
low price it which it would sell oil to its owners. This, a Mobil executive 
wrote, would "lead to the stabilization of the world price of oil by preventing 
oil from being offered on the market."35 But this feature was left unstated 
before the Aramco merger. 
When Exxon opened negotiations with Caltex in May 1946, it found a receptive 
ear. Access to additional market outlets would guarantee a more rapid expansion 
of Aramco's production. Being able to meet King Ibn Saud's constant demands for 
increased revenues was an important consideration just as it had been in 
Caltex's negotiations with the U.S. Government's Petroleum Reserves Corporation 
three years earlier. One of the major limiting factors in European recovery was 
the shortage of oil and the proposed merger promised to increase Aramco's 
contribution to that effort. Socal and Texaco, moreover, had not received any 
substantial return on the heavy foreign investments they had already made in the 
Persian Gulf. Fears of Russian expansion also argued for spreading the risk of 
developing the world's greatest oil concession among more than two American 
corporations. "I have always felt that it was in the vital interest of the 
United States Government that four substantial American oil producing companies 
held 100 percent of the principal producing concession in Saudi Arabia," Otto 
Miller, the recently retired chief executive officer of Socal, told the, 
Subcommittee. "Aramco is, by far, the most important and valuable foreign 
economic interest ever developed by U.S. citizens. When company officials first 
recognized the significance of the Aramco oil finds, it was immediately 
appreciated that its significance went beyond mere commercial implications. The 
finds were recognized as being of tremendous national importance to our 
country."36 
Exxon remained in command throughout the merger negotiations. An initial 
obstacle was Texaco's insistence on $650 million as the price for a one-third 
interest in Aramco. But Exxon argued successfully that it should be permitted to 
participate in Aramco for a nominal sum because its markets would so raise the 
volume of sales from Saudi Arabia that Caltex participation in Aramco' profits 
would be adequate compensation. A major Socal study concluded that under Caltex 
ownership Aramco's market outlets for crude would be 9.2 billion barrels over 
the 53-year life of the concession; if Exxon merged with Caltex in Saudi Arabia, 
on the other hand, it was estimated that Aramco could double its market outlets 
to 18.8 billion barrels and thereby double Aramco's net worth from $1.1 billion 
to $2.2 billion.37 
The Socal study found the economics of the merger attractive since their company 
could make more profits with a one-third interest in the expanded Aramco venture 
with Exxon than with their then 50/50 partnership with Texaco. Texaco also 
concluded that it was better to have a smaller piece of a larger business.38 
The Stoner Memorandum 
Although Caltex was in need of additional capital and market outlets for Aramco 
oil, sharing its Arabian business with Exxon was not the only alternative. The 
fact that Aramco was free to force entry into the markets of the established 
international majors was not overlooked by Socal, whose studies indicated that 
Arabian crude oil could compete very effectively in the European and U.S. East 
Coast markets once the Trans-Arabian pipeline was built. In fact, Socal 
documents reveal that its top management was divided over whether the company's 
long-term interests were best served by taking Exxon into Aramco. The most 
outspoken advocate of the "go it alone" approach was Socal Director Ronald C. 
Stoner. 
In a June 10, 1946 memorandum detailing his arguments against the Aramco merger, 
Mr. Stoner recalled that Socal had brought Texaco into Aramco a decade earlier 
in order to acquire larger market outlets East of Suez and that plans were 
presently underway to extend the Caltex marketing organization into Europe. If 
Caltex was to secure its rightful share of the U.S. domestic market and these 
foreign markets, Stoner argued, Socal must insist that the capital necessary for 
upstream and downstream expansion be generated independently of Caltex's major 
international competitors. Stoner observed that Exxon, unlike Socal, had bought 
rather than explored its way into the foreign oil business and, as a result, was 
tied together with Shell in joint ventures in all of its overseas production. 
Exxon, therefore, could never get ahead of Shell because the more Venezuelan, 
Iraqi and Indonesian crude oil available to Exxon the more became available to 
Shell. In his memorandum, Stoner concluded that Aramco was competitively strong 
against Shell and very strong against Exxon as the only completely American 
overseas producing area with no foreign affiliations to temper production 
decisions: 
  The more they (Exxon) develop and produce in these areas, the greater they 
  allow the Shell position to build up. Once they equalize their position with 
  us, then they can go ahead with the Shell as they have been doing, competing 
  very effectively against us. They are dominated by foreign groups in the area. 
  We, the California-Texas, the only solely American group in the area, 
  therefore, are in a position to expand rapidly, not because we already have 
  the markets, but because we have a cheap oil available right now; i.e., with 
  relatively little investment we can put more oil into the Blue Line Area (East 
  of Suez) and other areas, and by obtaining tankers we can put oil any place in 
  the world until it seems advisable to lay the Trans Arabian pipeline. Our 
  earnings in Arabia are tremendous and are going to be greater, deal or no deal 
  with Standard-Vacuum for the simple reason that it win take such a small 
  investment to put our crude from the oil fields of Arabia to the port of Ras 
  Tanura and then to the world.39 
Stoner's analysis rested on three arguments: (1) with the world's lowest cost 
and largest reserves, Arabia was the key to the postwar structure of the 
international oil industry; (2) as a relative newcomer to the foreign oil 
business, Caltex could use its exclusive control over Aramco to extend its 
markets at the expense of Exxon whose foreign production was limited by 
restrictive agreements with the established European majors; and (3) given the 
importance of Aramco, it was imperative that Caltex not allow Exxon to lock it 
into the existing pattern of supply arrangements in the Middle East. 
The Stoner memorandum recommended that Caltex tie Aramco's growth to the 
independent sector of the U.S. market instead of taking Exxon's money in return 
for the right to share its foreign outlets: 
  It is common knowledge that all large companies in the United States are 
  seeking foreign oil, such as Phillips, Barnsdall, Atlantic Refining, Standard 
  of Indiana, and Sinclair, and hundreds of millions of dollars are being spent 
  to augment the decline in domestic production. It is barely possible that any 
  and all of these companies could afford to buy Arabian oil at a profit to us 
  rather than seek foreign oil by drilling. Should we desire capital, it would 
  seem this avenue should he investigated with the view to making sales or 
  exchange contracts with those companies, which might help us in our expansion 
  on the Atlantic seaboard. They could advance us on the contracts and it would 
  give a number of American companies an interest in Arabian oil, which would be 
  political protection for us in the future. This, I believe, is no small thing 
  to consider since there has been criticism in the United States that this 
  concession is too big for one company and also there has been strong thought 
  in the world of petroleum that all countries and more companies should have 
  access to foreign petroleum.40 
In short, the competitive trade pattern recommended in the Stoner memorandum 
represented a distinct alternative to the Aramco merger. Such a recommendation, 
if followed, would have radically changed the international oil industry by 
giving the U.S. domestic oil industry a large - if not deciding - say in how the 
majors set production levels in the Middle East. Sinclair, Phillips, Atlantic 
Refining, Standard Oil of Indiana and other American independents would leave in 
time put far greater demands on Aramco than Exxon and Mobil which were forced to 
balance Arabian purchases against other competing crude streams both inside and 
outside the Middle East. 
Touching Base With the Attorney General 
On October 28, 1946, at the time the Aramco merger plans were taking shape, 
George V. Holton, Vice President and General Counsel of Mobil, provided the 
Mobil Executive Committee with a penetrating analysis of the antitrust risks 
involved in the proposed merger: 
  The arrangement would place practical control of crude reserves in the Eastern 
  hemisphere in the hands of seven companies. Five of them would be American 
  owned and all of the latter have substantial reserves in the Western 
  Hemisphere also. Obviously this concentrated control would lend itself to 
  arrangements which could affect the import and export trade of the United 
  States . . . there is, of course, possibility that the mere existence of the 
  potential control might under the American Tobacco Company decision be 
  construed as an antitrust violation. 
  I cannot believe that a comparatively few companies for any great length of 
  time are going to be permitted to control world oil resources without some 
  sort of regulation. This is a political question. What restraints will be 
  imposed and by what authority falls within the realm of conjecture. Our job 
  seems to be to play the game as best we can under the rules now in force.41 
On December 4, 1946, Holton along with Texaco General Counsel Harry T. Klein and 
Exxon General Counsel Edward T. Johnson, came to Washington to discuss their 
Aramco negotiations with Attorney General Tom Clark. The Attorney General 
expressed no objection to the continuation of the negotiations but requested 
that drafts of the contracts be sent to him when they were ready. On January 16, 
1947, after an agreement in principle had been reached, the Mobil, Exxon and 
Texaco legal team hand-delivered the draft contracts to the Attorney General, at 
which time the merger was further discussed. The Attorney General again raised 
no objections but it was understood that if the Department had any comments to 
make on the draft contracts. Holton and his associates would be informed. In the 
next two months the drafts were put in final form, and, when no further word was 
heard from the, Attorney General, the merger contracts were signed on March 12, 
1947, and delivered to the Attorney General that same day. 
While Attorney General Clark was well informed about the Aramco merger, the 
Antitrust Division's records indicate that the staff did not begin to analyze 
the merger documents until the following year when the Senate Special Committee 
Investigating the National Defense Program issued a report requesting that the 
Attorney General do so: 
  International oil is a matter of grave concern to many branches of the 
  Government. The State Department interest in the problem is both historic and 
  current . . . since 1944 the State Department has been seeking to have the 
  Anglo-American oil agreement ratified by the Senate. This agreement calls for 
  orderly development of international petroleum. Although the treaty was not 
  ratified by the Senate of the 80th Congress, it nevertheless shows a 
  predilection on the part of the State Department to consider international oil 
  as a part of foreign policy. 
  The Department of the Interior, Department of National Defense and National 
  Security Resources Board are also concerned with the shortage of oil reserves 
  in this country. It is doubtful that they would look with favor upon any 
  antitrust case which might affect American positions in foreign oil. . . . 
  An investigation in the international oil field would probably impinge upon 
  the activities of these governmental agencies. Obviously, antitrust policy 
  must be consistent with overall Government policy and with foreign policy and 
  the promotion of national security. For these reasons, it is recommended that 
  no action be taken at this time.42 
The Justice Department knew as well as Holton that the Aramco merger placed 
practical control of Middle East crude reserves in the hands of seven companies. 
But this was, as Holton said, "a political question." 
Breaking the Red Line 
The postwar Aramco merger plan in Saudi Arabia represented a distinct shift in 
the balance of power in the Middle East oil to the American majors and promised 
to increase the American presence in the European and Japanese markets as well. 
This, of course, pitted Exxon and Mobil against their traditional European 
commercial allies. European control over Middle Eastern oil before the Second 
World War was exercised through the vehicle of the Red Line Agreement; that 
agreement obligated all of the Iraq Petroleum Company partners to participate 
jointly in the petroleum development of the Middle East. Although Exxon and 
Mobil wanted to merge with the Caltex in Saudi Arabia to maintain world oil 
prices, the European interests in IPC were nonetheless faced with a prospective 
loss in their market position vis-à-vis the American majors. The Europeans 
therefore, were unwilling to stand by while the American majors extended their 
control over Middle East oil and the lucrative markets of the Eastern 
Hemisphere. 
Getting the State Department on Board 
To bring the new American quadrumvirate into being, Exxon and Mobil first had to 
find a way to avoid the restrictions of the Red Line Agreement which was part of 
the 1928 IPC Group Agreement. The legal grounds for a change came from three 
eminent English barristers who advised that the Red Line Agreement was 
terminated on the technicality with two of the IPC partners - Compagnie 
Francaise des Petroles (CFP) and Calouste Gulbenkian - had become "enemies" as a 
consequence of being in France at the time of Hitler's occupation. With this 
expert legal advice in band, the two American majors enlisted the support of the 
State Department in getting the British Government to agree to end the Red Line 
Agreement. Mobil Vice President Harold Sheets first raised the subject 
informally with the Department's Petroleum Adviser: 
  I took Charlie Rayner into my confidence Thursday P.M., June 27th. C. R. came 
  to my apartment in New York, spent the evening with me, and I disclosed to him 
  the nature, extent and present status of our negotiations with ARAMCO, with 
  particular emphasis on the Red Line problem. . . . I urged Rayner to get 
  Byrne's and Acheson's support for asking British Government to join with USA 
  in bringing about the elimination of the Red Line restrictions and Kuwait 
  restrictions as soon as possible. The British and Americans should be mutually 
  interested in cleaning up, as between themselves, any unpleasant situations 
  such as those resulting from the restraint of international trade resulting 
  from Red Line and Kuwait agreements.43 
On August 27, 1946, Mr. Sheets and Exxon Vice President Orville Harden came to 
Washington to discuss their Red Line problem with senior State Department 
officials. They reviewed the history of how the Department had actively 
intervened in their behalf with the British Government and approved American 
participation in the 1928 IPC Group Agreements. (See Chapter I) They observed 
that the restrictive features of that agreement now stood in the way of a 
strengthened American interest in Saudi Arabia; that their British counsel was 
of the opinion that the 1928 Group Agreement had been dissolved; and that they 
were proceeding to England in September to invite their European partners to 
negotiate a new agreement which would keep their existing arrangements in Iraq 
intact while eliminating the provisions obligating them to share their new 
participation in Aramco. While urging an amicable solution with their European 
partners, the State Department offered to support the Exxon and Mobil position 
on the Red Line Agreement.44 
Getting the British Group on Board 
With State Department blessing Harden and Sheets went to London to win BP and 
Shell support for the new American plan. The record kept by Sheets' assistant of 
the first meeting held in September 1946 between the American Group and British 
Group reveals the uneasiness with which the latter viewed any change in the 
structure of its close working relationship with Exxon and Mobil: 
  Sir William (BP's chief executive officer) . . . considered the maintenance of 
  the Agreement was important under today's political conditions when the 
  dangers of Government intervention were so great - so much so that if he 
  couldn't secure a revised Group Agreement with his partners, he personally 
  would be prepared to carry on with the old one rather than rock the boat, as 
  he felt that the undisturbed continuity of the partnership was infinitely more 
  important as a defense against the governmental and other international 
  dangers which might otherwise threaten us than anything else.45
Like BP, Shell feared that the American Group's new disdain for "Red Linery" 
might cause the French and Gulbenkian to "drag the ugly question into the public 
arena."46 
As the London negotiations progressed, the British Group gradually came around 
to the American position. Both Shell and BP received similar legal counsel as to 
the technical validity of the1928 IPC Group Agreement. For the more reluctant 
BP, however, the change in viewpoint was hastened by the fact that Exxon and 
Mobil each agreed to purchase large volumes of crude oil from either Iran or 
Kuwait, at BP's option, for a twenty year period. Although the American 
companies repeatedly argued that U.S. antitrust laws strictly forbade them from 
signing a new IPC agreement containing the old restrictions, their long-term 
supply contracts with BP contained restrictions on the markets to which the 
newly purchased oil could be shipped.47 The Department of State announced that 
it had been informed in advance of and welcomed the long-term supply 
arrangements between the British and American companies.48 
The French Demand Participation in Aramco 
The French were unhappy about the American Group's new position on the 1928 IPC 
Agreement, although at first they were not informed by their partners as to its 
real meaning. When news of the Aramco negotiations appeared in the London press, 
however, the French reacted strongly. On December 19, 1946, at the next IPC 
meeting, CFPs Guillaume deMetz and Gulbenkian's representative recommended that 
IPC quickly move to secure an interest in the Saudi Arabian concession.49 On 
January 7, 1947, the American Group's counsel received formal notice that CFP 
and Gulbenkian had "no course left but to seek the protection of the Courts" if 
the Aramco merger proceeded without French participation.50 The French flatly 
charged Exxon and Mobil with bad faith: 
  It would appear that the Sherman Act no longer is the real cause of concern 
  but was merely an excuse upon which to hang a contemplated and now effected 
  breach of the Group Agreement, namely the negotiations leading up to your 
  clients' proposed acquisition of a large interest in Caltex.51
CFP, as the trustee for France's Middle East oil interests, took a particularly 
strong national stance and launched a major campaign to win an interest in the 
American concession in Saudi Arabia. "The French have disturbed our people in 
France," a Mobil official wrote, "to the point that Crampton (Mobil's French 
representative) fears our business will be adversely affected if the French are 
not placated. Apparently the French are using political tactics and commercial 
pressure in addition to the suit to bring us to terms."52 While CFP and 
Gulbenkian threatened to turn the IPC dispute into an international "cause 
celebre," the French Government put the State Department on formal notice that 
it regarded the 1928 Group Agreement as an arrangement between the two 
governments and that it expected the American Government to make Exxon and Mobil 
live up to the terms of the agreement. It became increasingly clear that the 
French felt "frozen out" of Saudi Arabia and that their national objective was 
not so much the negative one of blocking further American participation in 
Aramco as an aspiration to be included in the greatest oil deal in the history 
of the industry. 
The American Group feared that French insistence upon participation in Aramco as 
a prerequisite for settlement of the IPC dispute jeopardized continued American 
control of the Saudi Arabian concession itself. As one Mobil executive explained 
the sensitivities involved: 
  It is well known that Ibn Saud desires Aramco to remain wholly American owned. 
  He has asked whether or not Jersey and Socony are solely American. He wants to 
  know whether British interests are getting into Aramco through this deal . . . 
  whatever the reason for the questions, the result is that Aramco naturally 
  must see to it that there is no possibility of any interest other than 
  American acquiring any right, actual or contingent, in Aramco. It is realized 
  by Aramco that if the French, contrary to all our views, should win the case, 
  the Aramco situation in Saudi Arabia would be a difficult one, to put it 
  mildly.53
In the event the two American partners in IPC merged with Aramco, the Mobil 
executive suggested that a provision be included in the contract stating that if 
any national other than an American, through operation of law or otherwise, 
became entitled to an interest in Aramco, those shares would be automatically 
canceled and surrendered to Aramco. The suggestion was also made that Aramco's 
certificate of incorporation and by-laws could be amended to prohibit any 
non-American national from owning or voting shares in Aramco or receiving 
dividends from Aramco.54 
The IPC/Aramco Swap 
The American Group privately regarded the French legal threat seriously enough 
to plan an alternative strategy: if either Exxon or Mobil opted to "get out" of 
IPC, the country that did so might go ahead with the Aramco merger while 
minimizing its chances of an adverse ruling. On January 14, 1947, 
representatives of Exxon, Mobil, Texaco and Socal met at Aramco's New York 
headquarters to discuss their alternative strategy for dealing with the 
restrictive covenants of the Iraq agreement and the pending litigation in 
London. Minutes of Texaco's Executive Committee meeting of January 22, 1947 
indicate that the four American companies agreed to close the Aramco deal in 
either one of two ways: 
  (1) By either (Exxon) or (Mobil) selling to the other its interest in the Iraq 
  properties, the purchasing company thereby withdrawing from the Iraq agreement 
  and the selling company acquiring one-third stock interest in the Arabian 
  American Oil Company at the proportionate part of the purchase price 
  authorized for sale of the 40% interest; 
  (2) To proceed with the sale of the 30% stock interest to Jersey and the 10% 
  stock interest to Socony on the basis authorized by this Company's Board of 
  Directors. . . . , with an agreement that should the English court of last 
  resort finally decide that the Iraq agreement was valid and binding on the 
  (Exxon) and (Mobil) companies, then the purchase price for said stock would be 
  repaid by Arabian American to the purchasers in annual installments over a 
  ten-year period . . .55
At another conference held by the four American companies on January 30, 1947, 
serious consideration was given to the alternative of Exxon selling Mobil its 
interest in IPC in exchange for a greater share in Aramco. It was agreed that 
Exxon would proceed to acquire 33 1/3 % of Aramco on March 10th if it had agreed 
by that date to transfer its IPC interest to Mobil.56 As the deadline drew near, 
however, the two American majors decided to risk an unfavorable ruling and go 
ahead together with the Aramco merger. 
Like the Stoner alternative, the IPC/Aramco swap arrangement represented another 
crossroads in the history of Middle East oil. Had crude-short Mobil ended up 
holding the entire American interest in IPC, it would have had a far greater 
incentive for the rapid development of Iraq's petroleum reserves. As it was, the 
uneven production performance of IPC contributed to Iraq's nationalization 
legislation (Law 80) in 1960. Without an interest in Iraq, Exxon would 
undoubtedly have increased Aramco's production much faster. By staying together, 
however, Exxon and Mobil increased their flexibility of crude supply. Exxon's 
and Mobil's ability to straddle IPC and Aramco, as explained in Chapter 5, is an 
important part of the allocational system run by the American multinational 
petroleum corporations during the 1950's and 1960's. 
Keeping the French out of Aramco 
The intense strain that the Aramco merger negotiations created in 
Franco-American political relations was of great concern to the State 
Department. In late February 1947, Paul Nitze, Deputy Director of the Office of 
International Trade Policy, concluded that the IPC/Aramco swap alternative had 
political advantages which the Department should raise with Exxon and Mobil: 1) 
it would afford a simple, clear-cut solution to the immediate problem with the 
French since their rights under the Red Line Agreement would not be involved, 
and 2) it would go some way toward meeting Congressional and domestic oil 
industry criticism of the multiplication of interlocking arrangements among the 
small group of large American and British oil comparties.57 
On March 7, 1947, following a second note of protest from the French Government, 
Harden and his Mobil associates were called to Washington to meet with Paul 
Nitze, George McGhee, Special Assistant to the Under Secretary for Economic 
Affairs, John A. Loftus, Petroleum Division Chief, and other State Department 
officials. The company representatives said that their respective management had 
already rejected the IPC/Aramco swap alternative but that the French would be 
taken care of under the new IPC system they were now offering. (Exxon and Mobil 
had been supplying the State Department with copies of their on-going cable 
traffic between New York and London.) The Departments attention was called to a 
February 15th cable in which the American IPC partners agreed for the first time 
to give CFP and Gulbenkian more oil than the IPC Group Agreement allowed. The 
State Department's representatives sought assurances that the new arrangements 
being negotiated would not increase future friction with the French. The Exxon 
and Mobil representatives insisted that once implemented their strategy could be 
harmoniously administered. U.S. domestic oil companies, the Department officials 
noted, were putting increasing pressure on the State Department to help them 
secure concessions in the Middle East. The Exxon and Mobil representatives 
assured the Department that they had not taken any action to cause other 
American companies to be excluded from the Middle East. Mobil's understanding of 
the conference was as follows: 
  It was apparent that the Department's concern was two-fold: that present 
  arrangements should be such as to minimize chances of future friction between 
  American and French interests; and that grounds should not be given for the 
  possible charge that the Government had supported Jersey and Socony in 
  obtaining positions in the Middle East which might be considered exclusive.58 
While the State Department answered the French Government's protests, Exxon and 
Mobil went ahead and made a "standstill" agreement with Caltex in Saudi Arabia. 
The ultimate acquisition by Exxon and Mobil of a stock interest in Aramco and 
the Trans-Arabian Pipe-Line Company (Tapline) was held in abeyance until they 
settled with CFP and Gulbenkian so as to avoid forfeiture of their Aramco stock 
to the French in the event the latter went ahead with their legal threat and won 
in the British courts. In their "standstill" agreement, Exxon and Mobil 
guaranteed a bank loan of $102,000,000 for their 30% and 10% respective Aramco 
interests as well as their equity share of a $125,000,000 capital investment 
loan for the construction of Tapline. Although Exxon and Mobil eventually 
reached an IPC settlement the French never forgave the Americans for keeping 
them out of Saudi Arabia. 
CHAPTER III
Foreign Policy and Antitrust: 
The Cartel Case and the Iranian Consortium 
Prior to the outbreak of the Second World War, the Department of Justice had 
initiated an investigation of alleged worldwide oil cartel activities. 
Information concerning these activities had been obtained through file searches 
conducted under grand jury subpoenas in 1940 and 1941 but this investigation was 
suspended during the Second World War. The investigation was given a new impetus 
after the war by the public hearings of the Special Committee of the Senate 
Investigating the National Defense Program. In late 1949, the Federal Trade 
Commission passed a resolution to investigate "agreements entered into by 
American petroleum companies among themselves and with petroleum companies of 
other nations in connection with foreign operations and with international trade 
in petroleum and petroleum products"59 and the Antitrust Division suspended its 
inquiry pending completion of this report. 
The Federal Trade Commission staff filed its report in October 1951. However, 
the report was not published by the Commission because of national security 
objections. After repeated demands for its release by Senator John Sparkman, 
Chairman of the Select Committee on Small Business, it was furnished to and 
published by that Committee (minus certain sections which were excised for 
national security reasons). In the Committee's preface to the Report, Senator 
Sparkman stated: "Today the power of the international oil companies is so vast 
as to invite its abuse . . . The Senate Small Business Committee believes that 
it is the basic philosophy of the United States to oppose monopolistic 
concentrations of economic power. Practically alone among the great nations of 
the world the United States - through fact finding and through enforcement of 
its antitrust laws - endeavors to hold in check the powers of giant 
orgamzations."60 
On the basis of this report, Attorney General McGranery determined that further 
investigation by Grand Jury process was necessary and recommended such action to 
President Truman. On June 23, 1952, the President instructed the Department of 
Justice to initiate the Grand Jury Investigation, and the Attorney General 
convened a special grand jury in the district of Columbia and appointed Leonard 
Emerglick, Chief of the Foreign Commerce Section of the Antitrust Division of 
the Department of Justice to investigate and prosecute the case. Subpoenas to 
produce documents were served upon 21 oil companies including the seven major 
ones: Exxon, Socal, Mobil, Texaco, British Petroleum Company, Royal Dutch-Shell 
and Gulf.61 But at the same time as the grand jury investigation was proceeding, 
an international political crisis was developing in Iran which had a direct 
bearing on the prosecution of the case. 
Trouble in Iran 
Outside of the Arab oil producing states, Iran was the major source of Middle 
East oil. The Iranian concession had been held by British Petroleum (BP), since 
that company's formation in 1909. In addition to selling its oil in Great 
Britain and to the Royal Navy, BP had developed important European markets. 
Hence, Iranian oil was considered vital to the economic well-being of Western 
Europe. 
Dispute Between Iran and BP 
In the aftermath of the Second World War, Iran had become progressively 
dissatisfied with the amount of revenues derived from BP. In October of 1947, 
the Iranian parliament enacted an oil law which, among other things, required 
the government to renegotiate the terms of the 1933 concession. This was done, 
and on July 17, 1949, a Supplemental Oil Agreement was initiated providing Iran 
with a more favorable financial arrangement than any other oil producing country 
in the area. A year later, the Oil Commission of the Iranian Parliament 
(Majlis), under the Chairmanship of Dr. Muhammed Mossadeq, recommended its 
rejection. 
Despite American efforts at compromise, BP, supported by the British Government, 
refused to budge an inch further, and the Majlis refused to accept the 
agreement. In March 1951, the Majlis unanimously passed a nationalization bill. 
By May, Mossadeq was Prime Minister and the British were out of Iran. 
Soon after the nationalization, Iran organized a corporation, the National 
Iranian Oil Company (NIOC), for the purpose of exploiting the BP concession and 
selling the oil. But the major oil companies refused to market its oil, 
supplying the European markets instead with oil from Saudi Arabia and Kuwait. In 
Iran, oil production came to a standstill and the country was thrown into 
political and economic turmoil. This turmoil led to an apparent increase in the 
political strength of the Tudeh party in Iran which had close ties with the 
Soviet Union. Increasingly, it appeared that as a consequence of the 
nationalization of BP and the inability to arrive at a settlement with the 
company, Iran, which in 1946 had been kept out of the Soviet orbit, might now 
fall under Soviet influence. This fear led the Truman Administration to attempt 
to bring about a settlement of the dispute between BP and the Government of 
Iran. 
Early American Attempts at Settlement 
On June 27, 1951, just a month after the nationalization, President Truman 
approved NSC 107/2, which made the following statement of U.S. Policy: 
  Bring (U.S.) influence to bear in an effort to effect an early settlement of 
  the oil controversy between Iran and the United Kingdom, making clear both our 
  recognition of the rights of sovereign states to control their natural 
  resources and the importance we attach to international contractual 
  relationships.62 
As early as May 1951 the United States had warned Britain against the use of 
force in Iran, but the fact of nationalization and subsequent hostile acts on 
both sides compelled the State Department to take further action. 
On July 4, 1952 Secretary of State Acheson, British Ambassador Oliver Franks, 
George McGhee, Paul Nitze and Averell Harriman met at Harriman's Washington home 
to discuss the Iranian question. According to Acheson: "Sir Oliver left no doubt 
how seriously and angrily both the British Government and public viewed what 
they regarded as the insolent defiance of decency, legality and reason by a wild 
group of men in Iran who, proposed to despoil Britain."63 As a consequence of 
this meeting, Harriman was dispatched to Tehran to attempt to construct a 
formula within which a settlement could be worked out. But the negotiations 
which he helped begin were doomed when the British publicly revealed their 
negotiating position, and had it publicly rejected by Mossadeq. Meanwhile, 
American neutrality in the affair was compromised by the attitude of the 
American companies toward lifting Iranian oil. 
Refusal of Major U.S. Companies to Deal in Iranian Oil 
A May 15, 195l Department of State press release stated that "U.S. oil companies 
. . . have indicated . . . that they would not, in the face of unilateral action 
by Iran against the British company, be willing to undertake operations in that 
country."64 In his testimony before the Subcommittee, Howard Page, then Middle 
East coordinator for Exxon, described the role of the major oil companies in 
refusing to purchase and market Iranian oil: 
  Senator CHURCH: Mossadeq nationalized the oil. 
  Mr. PAGE: He had nationalized the oil. 
  Senator CHURCH: And the reason Iran was in such trouble was, as you say, it 
  couldn't sell the oil. 
  Mr. PAGE: Yes. 
  Senator CHURCH: Because the companies had boycotted Iranian oil, isn't that 
  true? 
  Mr. PAGE: We didn't boycott it. 
  Senator CHURCH: You didn't boycott it? 
  Mr. PAGE: Of course not. Why should we buy it? . . . We weren't buying it 
  before, and we weren't buying it afterwards. 
  Senator CHURCH: And since you had such a very large measure of control over 
  the market, this meant that Iran wasn't able to sell its oil or enough of it 
  to prevent economic chaos in Iran, isn't that correct? 
  Mr. PAGE: Well, that is not only that. Remember that they could bring lawsuits 
  ,and did bring successful lawsuits against buyers for purchasing stolen 
  property. . . . Because it was their property and it had been stolen from 
  them. They had a right of action, no question about that. We don't deal with 
  stolen property and people who do sometimes get lawsuits and sometimes they 
  win them, too.65 
In this colloquy with Senator Church, Mr. Page makes two points. First, he 
claims that Exxon did not purchase Iranian oil before the nationalization, and 
therefore, had no reason to purchase it afterwards. Second, he asserts that an 
additional factor constraining Exxon not to buy "hot" Iranian oil was its fear 
of legal action which might be taken against it by BP. 
Both of these assertions are substantially correct. As explained in Chapter II, 
Exxon had in 1947 entered into a long-term supply contract with BP under which 
Exxon agreed to purchase large volumes of crude oil from either Iran or Kuwait, 
as BP might from time to time determine, for a period of twenty years. But this 
contract, although signed in 1947, was not schedule to go into effect until 
1952. In fact, therefore, although Exxon was preparing in 1951 to begin 
purchasing Iranian crude, it had not yet begun to purchase it. 
Mr. Page was also correct in his description of BP's threat to sue any company 
which lifted what it considered to be "hot" Iranian oil. The company placed 
notices to this effect in the world's major newspapers, and in at least one case 
made good on its threat. In that case, The Rose Mary,66 a British court sitting 
in Aden held that oil from the BP concession which had been purchased from the 
National Iranian Oil Company, and which had come within the court's 
jurisdiction, remained the property of British Petroleum. 
Beyond these reasons, however, a corporation with its own concessions in 
countries around the world is very unlikely to purchase oil from the 
nationalized concession of another company for fear of setting a precedent which 
might redound against itself. Exxon's refusal to purchase Iranian oil may be 
explained therefore on a number of grounds. 
Development of an American Alternative 
Throughout early 1951, American attempts at settling the Iranian controversy 
were based on the concept of restoring BP as sole concessionaire. As it became 
apparent that this would not be possible, the Administration began to explore 
the possibility of enlisting the major American oil companies in a joint venture 
arrangement with BP.
On October 8, 1952, Secretary Acheson outlined a plan to the Secretaries of 
Defense and Treasury, the Attorney General and the Chairman of the Joint Chiefs 
of Staff. Acheson said that "no one other than the majors and . . . (BP) had 
sufficient tankers to move large volumes of Iranian oil."67 He raised the 
question whether the majors should be asked to move Iranian oil. Attorney 
General McGranery's reaction was that Acheson had "presented a most formidable 
legal meal. It would be most difficult to work out a program involving the 
majors and at the same time maintain the present antitrust action."68 He 
concluded, however, that the basic problem was whether the national interest in 
finding a solution to the Iranian crisis was more important than the principles 
involved in the suit. 
Despite the Attorney General's qualms, Secretary of Defense Robert Lovett also 
argued that the possibility of using the five major companies to move Iran's oil 
should be explored. "This would involve some action to get around the present 
obstacle of the government suit against those companies. However, there is no 
doubt in my mind that the interests of the U.S. in connection with the present 
Iranian crisis requires (sic) some such action."69 
In his reply, Secretary Acheson agreed that: 
  One of the concrete problems in securing a resumption of the flow of Iranian 
  oil is to determine whom it is we can call on, and who is able in fact, to 
  move Iranian oil in the volume which is required to save Iran. The 
  independents are not in a position to give us any real help.70

On November 26, 1952, President Truman requested the Secretary of State to: 
  . . . engage urgently in exploratory discussion with representatives of United 
  States oil companies and with the Anglo-Iranian Oil Company . . . in order 
  that I may determine what type of agreement and program would be most likely 
  to contribute to the national defense by leading to a solution of this 
  (Iranian oil) situation.71 
The Departments representative, Paul Nitze, talked to representatives of 
Standard Oil of California, Standard Oil of New Jersey, Texas, Socony Vacuum, 
and Gulf. He described political developments in Iran and stated that the 
cooperation of the major companies operating in the Eastern Hemisphere might 
soon be needed. But the companies that the Department of State hoped to induce 
to participate in such an Iranian Consortium were precisely the same companies 
that were being investigated by the Grand Jury for possible criminal violation 
of the antitrust laws of the United States. The incongruity of the situation was 
apparent: one part of the Administration - the Justice Department - had convened 
a grand jury to investigate alleged criminal antitrust violations arising out of 
the major's Middle East operations. Another part of the same Government - the 
State Department - sought to enlist the cooperation of the very same companies, 
by reason of their Middle East operations, in solving the Iranian problem. The 
issue came to a head in the closing days of the Truman Administration in the 
National Security Council on January 9, 1953. 
Debate Within the National Security Council 
In a position paper presented to the National Security Council, the Departments 
of State, Defense, and Interior recommended that the grand jury investigation be 
terminated.72 
Their argument began by noting the critical importance of petroleum in the 
modern world. "With the increase in demand that will occur under war conditions, 
the successful conduct of a major war by the United States and its allies will 
be dependent upon continuing availability of foreign petroleum supplies." Even 
in peacetime, "major sources of foreign oil are, now indispensable to the 
economy of Europe and in the future may become indispensable even to the 
peacetime economy of the United States." Yet, there were only two known areas 
which could supply the necessary quantities of this petroleum, Venezuela and the 
Middle East. While Venezuela was important for our domestic supply in time of 
war, the Middle East was important for the supply of Europe in time of peace. 
"Since Venezuela and the Middle East are the only sources from which the free 
world's import requirements for petroleum can be supplied . . . nothing can be 
allowed to interfere substantially with the availability of oil from these 
sources to the free world." It was vitally important that these two remaining 
areas of available free world imports not fall under Communist control. Yet, 
turning to the Middle East, this danger seemed real and present. 
Because, the paper continued, the oil producing states of the Middle East "are 
on or near the borders of the Soviet Union," and because of certain local 
conditions, "the Middle East comprises one of the most explosive areas of the 
world." Since oil is "the principal source of wealth and income in the Middle 
Eastern countries in which the deposits exist," the "economic and political 
existence" of these countries "depends upon the rate and terms on which oil is 
produced." Since the rate and terms in question are to a large extent under the 
control of the oil companies operating in the area, the "American oil operations 
are, for all practical purposes, instruments of our foreign policy toward these 
countries." 
Just as important is their role in dealing with the, Arabs, however, is the 
companies' role in dealing with the Europeans. The terms on which they supply 
western Europe with oil "are critical to the strength and balance-of-payments 
position of this area which is vital to our security." 
Because of their role as an instrument of our foreign policy both in Europe and 
the Middle East, any attack on our oil companies would be viewed in those areas 
as a fundamental attack on the whole American system. 
"We cannot afford to leave unchallenged the assertions that these companies are 
engaged in a criminal conspiracy for the purposes of predatory exploration." To 
do so, would leave the companies at the mercy of their critics in the producing 
countries, the report stated. Hence, the "entire situation," i.e., criminal 
prosecution, is "fraught with great potential danger to the U.S. . . . in both 
Venezuela and the Middle East a wave of economic nationalism which might 
endanger American interests is entirely possible." 
Moreover, the report went on, the pursuit of the criminal investigation by the 
grand jury could jeopardize the cooperative relationship which existed between 
the Department of State and the petroleum companies: 
  In many fields no legal or formal control over the action of American private 
  interests abroad is exercised by this Government. This is in accord with the 
  view that a minimum of regulation and control is an accepted American 
  principle. On the other hand, this means that if Government and industry are 
  to act together to promote foreign policy and security objectives in petroleum 
  there must be a basis of mutual confidence between them. Criminal proceedings 
  are not likely to produce such confidence between the two parties in this 
  dispute. 
The report thus recommended that, regardless of what might eventually be worked 
out with regard to Iran, the criminal investigation be dropped an a civil suit 
initiated. In this way, said the report, "a trial might well be avoided and 
hence the great reduction in the number of possible sensational disclosures 
brought about." The report further recommended the formation of a Presidential 
Commission composed of the Secretaries of State, Defense, Interior and Commerce, 
to "give careful attention to the interrelationships of antitrust, security and 
foreign policies in petroleum." The Attorney General was to be invited to attend 
the sessions of the Commission "to the extent considered appropriate by him and 
the Commission." 
The Department of Justice opposed the recommendation to abandon the criminal 
investigation. The Department noted that its earlier investigative efforts had 
revealed the outline of a world oil cartel formed as early as 1928 by one 
American and two foreign oil companies which over the succeeding years had been 
joined by other American oil companies: 
  The cartel arrangements are in effect private treaties negotiated by private 
  companies to whom the profit incentive is paramount. The national security 
  should rest instead upon decisions made by the Government with primary concern 
  for the national interest. 
A civil antitrust suit in the opinion of the Department, was inadequate if the 
cartel was to be attacked effectively: "The discovery process in a civil suit is 
a great deal more cumbersome and could be drawn out over an extended period of 
time by an infinite variety of legal motions designed to delay and wear down the 
Department. The grand jury investigation, on the other hand, would permit the 
Department to uncover all of the relevant facts in a substantially shorter 
time." 
Finally, the Justice Department argued: "The facts presently available strongly 
suggest that the high policy represented by the Sherman Act has been consciously 
and persistently violated by activities long since determined by the Supreme 
Court to be illegal. The cartel should be prosecuted criminally if there is to 
be equal justice under the law and if respect for the law and its even-handed 
administration is to be maintained." 
This debate thus laid bare the differing assumptions which have continued to 
this day with respect to the operations of the major oil companies in the Middle 
East. For the Department of State, U.S. national and company interests were 
coincidental, not divergent; the companies were effective instruments of U.S. 
policy by reason of their American nationality; Hence, control of the Middle 
Eastern concessions by the American concerns was equivalent to U.S. national 
control. Finally, as they were instruments of our foreign policy, the companies 
could not be subject to criminal prosecution without undermining the basis of 
that policy. 
For the Justice Department, on the other hand, enforcement of a national 
competition policy was primary and to the extent that the companies contravened 
that policy in a manner which directly and substantially impacted upon the 
domestic economy, the companies were acting in a manner contrary to the U.S. 
national interest, and contrary to the laws which the Department was sworn to 
enforce. 
The issue had to be resolved by President Truman. 
The Decision 
The National Security Council meeting to discuss whether the criminal 
investigation should be terminated took place on January 9, 1953, a Friday. On 
Sunday evening, January 11, President Truman sent for Mr. Ernmerglick of the 
Justice Department and Charles Bohlen of the State Department and met with them 
in his private quarters. As Emmerglick described it, President Truman informed 
them that he wished the grand jury investigation terminated, that he had reached 
his decision "with great reluctance and that he was constrained to take that 
decision not on the advice of those Cabinet members who attended the Security 
Council meetings, but solely oil the assurance of General Omar Bradley that 
national Security called for that action."73 He emphasized, however, that he 
wished the case to be pursued vigorously in the civil courts. 
By letter dated January 12, 1953, President Truman formally advised Attorney 
General McGranery of his decision. The Department of Justice terminated the 
grand jury investigation and filed a civil complaint on the 21st of April, 1953 
in the U.S. District Court of the District of Columbia. 
The Civil Complaint 
The essence of the government's case was that the "as is" agreement formed in 
1928 continued at least up to the date of the civil. Complaint without 
modification of its essential terms in direct restraint of the foreign commerce 
of the U.S. in petroleum and its products: 
  The objective of the conspiracy was market stabilization; its essential terms 
  were market division and price fixing, both per se unreasonable restraints 
  under the Sherman Act. Other terms, such as those dealing with the elimination 
  of outside competition, sales and exchanges for mutual convenience and 
  controlling expenses by avoiding the duplication of facilities, had the effect 
  of implementing the agreed upon objective of market stabilization."74 
The Government's statement of claims, in sum, said: 
  It appears that the uninterrupted extension and continuance of the basic 
  cartel agreements has resulted in a world-wide pattern in which seven of the 
  major oil companies - (1) control all major oil producing areas outside the 
  states; (2) control all foreign refining operations; (3) control patents, 
  know-how and technology covering the refining processes; (4) effectively 
  divide world markets; (5) maintain noncompetitive world prices for oil and its 
  products; and (6) control foreign pipeline and world tanker transportation 
  facilities.75
August 1953-The Fall of Mossadeq 
In August, 1953, however, barely a few months after the filing of the civil 
complaint, the, Iranian situation boiled to a climax. Mossadeq was intransigent 
on the principle of Iran's right to reclaim control over its main source of 
wealth. Unable or unwilling to effect a settlement with BP, unable to market its 
oil, the Mossadeq Government found itself in perpetual financial crisis. When 
the Parliament refused to grant Mossadeq's demands that it extend for one year 
his right to govern by decree, a wave of demonstrations swept the country. 
Mossadeq directly challenged the Shah, ordered a plebiscite to dissolve 
Parliament and won more than 99 percent of the votes cast and counted. In a 
swiftly moving series of events, the Shah attempted to oust Mossadeq by decree, 
failed, and fled the country as Mossadeq's supporters demonstrated in the 
streets, smashing the statues of the Shah and his father. The military moved in, 
and in bloody street fighting desposed Mossadeq and restored the Shah to Ins 
throne, a move which was assisted clandestinely by the U.S. Central Intelligence 
Ageney.76 
The Foreign Office Gropes for a Strategy 
After Mossadeq was disposed, in August, 1954, a series of high level talks oil 
Middle East oil were initiated at the request of the British Government between 
the State Department and the British Foreign Office. What concerned the British 
and led them to request those meetings was the increasing dependence of Western 
Europe on Middle Eastern oil: "These problems are, therefore, highly strategic 
and political, not just economic in nature and scope," urged the British 
representatives.77 The problem the British wished to discuss with the American 
representatives was the coordination of American and British companies' and 
governments' efforts to avoid sawing by the various producing countries, who the 
British noted, increasingly were acting with a high degree of cohesion. 
The British representatives suggested various alternative methods of 
coordination between companies and consuming governments. They specifically 
noted that "the UK was not primarily concerned in protecting the profit position 
of the British companies." The UK Government was more interested in improving 
its relations with and stabilizing conditions in the countries concerned in 
order to insure the smooth flow of oil. 
The British suggestions ranged from consultations among companies to arrive at 
joint negotiating positions, formation of all international oil Petroleum 
Council consisting of consuming and producing countries, and biannual 
coordination meetings between the U.S. and British Governments. 
Each of these suggested modes of coordination, however, was flawed in some way: 
consultations among the companies involved antitrust problems in the U.S.; an 
International Petroleum Council risked encouraging producer/consumer country 
confrontation and accelerated coordination among the Arab countries; the U.S. 
Government was cool to direct U.S. Government involvement with the producing 
country governments on oil matters: "Aramco's position had in the past been 
fairly strong with the Saudi Arabian Government because it had stood on its own 
feet and maintained its position separate and apart from the U.S. Government."78 

In effect, the Administration made two decisions. First, it had decided that the 
role of the Government was to put the companies in a position where they could 
decide international oil matters: price, supply, allocation, planning. Second, 
it had concluded that British fears as to the eventual dangers of competition 
among producer nations for higher government takes were unjustified. 
Herbert Hoover, Jr. Seeks a Solution 
On August 6, 1953, President Eisenhower requested that the Attorney General 
"seek to develop a solution which would protect the interests of the free world 
in the Near East as a vital source of petroleum supplies." The terms of 
reference under which the Attorney General was to seek this solution were 
explicitly stated in an NSC directive: 
  It will be assumed that the enforcement of the antitrust laws of the United 
  States against the Western oil companies operating in the Near East may be 
  deemed secondary to the national security interest to be served by: 
    Assuring the continued availability to the free world of the sources of 
    petroleum in the near East and 
    Assuring continued friendly relations between the oil producing nations of 
    the Near East and the nations of the free world.79 
Thus, the attitude of the Truman Administration as to the secondary importance 
of the antitrust laws governed the actions of the Eisenhower Administration from 
the outset. 
However, it soon became apparent that the solution to the Iranian problem had 
been taken out of the hands of the Attorney General. By letter dated October 9, 
1953, Robert Cutler, Special Assistant to the President, informed Secretary of 
State Dulles that: ". . . Mr. Herbert Hoover, Jr., is acting as a Special 
Representative of the United States Government, within the Department of State, 
to deal with problems related to an Anglo-Truman oil settlement."80 
On October, 27, 1953, the National Security Council formally revoked the August 
6 instruction to the Attorney General to seek a solution to the oil problem in 
the Middle East and directed that this responsibility be transferred to the 
Department of State."81 
Definition of the Problem 
Seen from Hoover's vantage point, the problem now was to provide the Shah with 
the oil revenues that hid been denied to Mossadeq and to provide them in 
sufficient quantities to generate the resources the Shah would need to develop a 
stable political base, while avoiding a price war in Europe that would lead to 
declining revenues in the Persian Gulf sheikdoms which could potentially 
destabilize those countries. Hoover's solution, as Acheson's before him, was to 
enlist the assistance of the five major American companies already operating in 
the Middle East to participate in an international consortium with BP and Royal 
Dutch Shell. 
These were the companies which could provide the assured outlet for the Iranian 
crude in the necessary quantities: 
  Senator CHURCH: In other words only if the majors were to really control the 
  consortium would it be possible to market the oil. 
  Mr. PAGE: In the quantities desired. 
  Senator CHURCH: in the quantities necessary. 
  Mr. PAGE: That's right. 
  Senator CHURCH: To restore the Iranian economy. 
  Mr. PAGE. That's right.82 
But reliance on the five major oil companies already operating in the Middle 
East, and which were the subject of the cartel suit, posed serious problems for 
their prosecution. Mr. Emmerglick in an October 15, 1953 meeting with the 
Defense and State Department officials noted: 
  I pointed out that Mr. Hoover is going forward with new discussions which 
  would require the grant of antitrust immunities for a proposed solution of the 
  Iranian problem. I emphasized that we could not do effective work in the 
  formulation of a proposal if market arrangements should be worked out to meet 
  the agreed upon cutbacks of artificial controls, likewise agreed upon, in the 
  countries of the Middle East where petroleum production activities are or may 
  be carried on. This would establish legal relationships at the time when the 
  Attorney General is charged with the task of proposing new legal 
  relationships.83 
But Hoover was fixed on his course of solving the Iranian problem with the major 
companies. In November 1953, Hoover visited Tehran and London where he met with 
William Fraser, Chairman of the Board of BP. At Hoover's suggestion, Fraser by 
letter dated December 3, 1953 invited the heads of the five major American oil 
companies to London to discuss the possible formation of a consortium of 
companies (the Iranian Consortium as it became known) to enter into an agreement 
with the Government of Iran for the production and marketing of Iranian oil. As 
the Fraser letter expressed it, "Mr. Hoover has informed me that the ideal 
solution, in his opinion, would be for the Anglo Iranian Company, to return to 
Persia alone, a view which is, of course, held by me and is, I think, shared by 
you. He has, however, said that he doubts whether it is possible to achieve this 
and his conversations in Tehran led him to the view that a solution might be 
found through the medium of a group of companies rather than through a single 
company.84 The letter went on: 
  He has suggested to me that valuable time could well be saved if discussions 
  could be opened with representatives of companies able to make some 
  contribution to a solution of the problem who might, in the interests of 
  progress and stability in the countries of the Middle East, be ready to 
  participate in such a group. 
  I have felt that the companies which could make a constructive contribution to 
  a solution are those who are now engaged in the production of oil in the 
  Middle East and in the marketing of it on a large scale internationally.85 
Orville Harden, Vice President of Exxon, then addressed a letter to Secretary of 
State Dulles referring to the Fraser invitation requesting the State 
Department's view as to the advisability of accepting the invitation and noting 
that, from the strictly commercial viewpoint, our company has no particular 
interest in entering such a group but we are very conscious of the large 
national security interests involved.86 
Exxon's conception of the "large national security interests involved" seems, 
however, to have been somewhat at variance with that of the State Department. 
While, the Department was concerned that Iranian oil might be I lost to the 
West, Exxon was apparently concerned that it might be "dumped" on the world 
market below prevailing prices. "We recognized the dangers if Russia got in, we 
had a real interest in seeing to it that the problem was solved. We didn't balk 
at participation. Had the Russians gotten Iranian oil, and dumped it on world 
markets, that would have been serious."87 
Without exploring these unspoken differences, the State Department evidenced its 
approval for the meeting suggested by Fraser. However, Stanley Barnes, Chief of 
the Antitrust Division of the Justice Department feared that a request for 
Justice Department approval of the London meeting by Texaco was "a possible 
attempt by the cartel companies to secure that kind of approval from the 
Attorney General which, would ultimately make it impossible to go on with the 
cartel case."88 
The meeting among the companies was held in London on January 8, 1954. Progress 
was rapid. The American companies recognized that their bargaining position was 
strong. They thus informed Hoover that "further progress in the London 
discussions would be prejudiced if while the antitrust phases were being 
explored the pending suit against them was actively pressed."89 
Hoover pressed for a swift resolution of the antitrust issues. A letter from 
Herman Phleger, legal advisor to the State Department, summarized a cable from 
Hoover reporting rapid progress in his London talks: 
  He points out that our Government has been putting pressure on the United 
  Kingdom and its highest officials over a long period to solve the Iranian 
  problem in aid of our highest security interests in that in this connection 
  our Government has undertaken obligations to the new government of Iran for 
  the same purposes; that if our Government was now to determine that it could 
  not proceed at this time because of antitrust considerations and as a result 
  negotiations were suspended, the consequences might well be of the gravest 
  kind.90 
If the Iranian Consortium fell through, and Iran went Communist because of the 
failure of the Attorney General to expeditiously approve the consortium, the 
onus would then be on the Attorney General. Under such pressure, it was not 
surprising that the Attorney General found a way to approve in principle the 
Iranian Consortium. Following a meeting of the National. Security Council on 
January 9, 1954, the Secretaries of Treasury, Defense, and State and the 
Attorney General met to talk about "the importance of quickly getting sufficient 
legal clearance for the American companies" so that they might participate in 
"this important matter." According to Dulles' memorandum of the meeting, "The 
Attorney General felt that he could give some sort of agreement not to sue on 
account of the prospective new arrangement if this were requested in the 
national interest by the National Security Council.91 
On January 21, 1954, the Attorney General, in a letter to the President, advised 
that the "proposed Iranian Consortium Plan" in view of the: 
  Facts and circumstances which now characterize the production and refining of 
  Iranian oil and the determination by the National Security Council that the 
  security interests of the United States require that United States oil 
  companies be invited to participate in an international consortium to contract 
  with the Government of Iran, for the production, refining and acquisition of 
  petroleum and petroleum Product, from within the area of the former AIOC 
  concession would not in itself constitute a violation of the antitrust laws, 
  nor create a violation of antitrust laws not already existing.92 
On the same day the National Security Council: 
  Noted that the President, upon the advice of the National Security Council 
  contained in NSC Action No. 1015, authorizes and directs the Secretary of 
  State, at an appropriate time, to inform: (1) The appropriate American 
  petroleum companies (a) of the advice of the National Security Council 
  contained in NSC Action No. 1015; (b) of the contents of the proposed Iranian 
  Consortium Plan; and (c) of the opinion of the Attorney General regarding this 
  Plan. 
  Noted that the pending civil action in the so-called oil cartel case 
  instituted pursuant to NSC Action No. 766-a is an entirely separate matter 
  from the proposed Iranian Consortium Plan, and will continue to be presented 
  by the Department of Justice.93 
In letters dated January 28, 1954 sent to the heads of each of the five major 
oil companies, Under Secretary of State Walter Bedell Smith, pursuant to the NSC 
directive, informed them that: "…the National Security Council has determined 
that it is in the security interests of the United States that United States 
petroleum companies participate in an international consortium to contract with 
the Government of Iran, within the area of the former concession of the 
Anglo-Iranian Oil Company, Ltd., for the production, refining and acquisition of 
petroleum and petroleum products, in order to permit the reactivation of the 
petroleum industry in Iran and to provide to the friendly government of Iran 
substantial revenues on terms which will protect the interests of the Western 
World in the petroleum resources of the Middle East."94 
Nine months later, in a September 15, 1954 memorandum of conversation with 
Attorney General Brownell, Kenneth Harkins, an attorney in the antitrust 
division, pointed out that there were no "national security" exceptions in the 
antitrust laws. He noted: 
  If these arrangements are in fact but an extension of the cartel, it seems to 
  me that the expressions of the Attorney General in January, the findings of 
  the National Security Council as to the security interest of the United States 
  and the desires of the State Department, are irrelevant to any consideration 
  of the narrow legal issue of whether these arrangement disclose a violation of 
  the antitrust laws which after all is what is now requested in an opinion from 
  the Attorney General.95 
But this challenge to the "legality of the approval of the consortium plan" came 
too late. The Attorney General felt that he "had already crossed this bridge," 
when he gave his January 20 opinion to the President with respect to the 
consortium. He agreed with Harkins, however, that "approval of the consortium 
was inconsistent with the cartel case is the complaint is drawn and that 
necessarily the case must proceed with emphasis on the marketing aspects and not 
oil the production control aspects."96 
The Alternative of the Defense Production Act 
Throughout the Truman administration's consideration of the Iranian Problem the 
continuing assumption was that, should it be thought desirable to rise the 
combined resources of the, five American majors to restore oil production in 
Iran, the Defense Production Act (DPA) would be used to accomplish that end .97 
Thus in his November 26, 1952 memorandum to the Secretary of State, President 
Truman said: 
  As you are aware, I am considering a new approach to the Iranian oil dispute, 
  which seriously threatens to deprive the free world of the oil resources of 
  Iran on which depends the integrity and political independence of Iran itself. 
  The approach would include the utilization of the authority granted me by the 
  Congress In section 708(a) and (b) of the Defense Production Act of 1950 as 
  amended. Under these sections I am authorized to approve a voluntary agreement 
  or program under which one or more United States companies, acting in 
  cooperation with the Anglo-Iranian Oil Company, would purchase and market 
  Iranian oil and oil products.98 
Specifically, under section 708 (e) of the DPA, the Attorney General is required 
to submit to the Congress at least once every three months, reports on the 
anti-competitive aspects of any voluntary agreement initiated under the Act. 
Invocation of the Defense Production Act would therefore have required the 
Attorney General to publicly report the degree to which the Consortium 
contravened our official policy of competition at a time when it was considered 
necessary to suspend that policy in the pursuit of national security. As 
Emmerglick stated in a September 15, 1954 memorandum to Assistant Attorney 
General Barnes: 
  It seems to me that the Attorney General would have to stultify himself to 
  give an opinion that these agreements would be lawful. Congress anticipated 
  that needs of the national security might create just such a situation, and it 
  undertook to relieve the Attorney General of the necessity of doing this kind 
  of thing. In Section 708 of the Defense Production Act provision is made for a 
  method by which this kind of arrangement can be approved and given immunity 
  from prosecution under the antitrust laws. I think that resort should be had 
  to the legislation created for occasions like this. 
But the Eisenhower administration never considered use of the DPA to be a viable 
solution to the Iranian problem. 
  Mr. EMMERGLICK. One may legitimately infer that the purpose was to keep 
  Congress from having any control or contact even with this matter.99 
Five Percent for the Independents 
It was the position of the Antitrust Division that Iranian oil production should 
be restored by American companies which had no other significant Middle Eastern 
production. 
  Mr. EMMERGLICK. We were speaking of billions of barrels of oil and if we could 
  introduce new independent companies into international marketing we would then 
  have a price competition which would be beneficial domestically and would 
  stimulate our own domestic resources. This was our principal objective at the 
  staff level. 
  Senator CHURCH. But you were overruled? 
  Mr. EMMERGLICK. I was overruled.100 
As Barnes noted in his December 10, 1953 memorandum to the Attorney General: 
  It seems unfortunate that Mr. Hoover is looking only to the cartel companies 
  to solve present problems, and is not bringing about any invitation to other 
  American companies. But I suppose that we have done everything we can to 
  secure State Department agreement that such an approach be employed.101 
Initially, ownership shares in the Consortium proposed to be divided along the 
following lines: 40% to be divided equally (8% each) among the five major 
American companies; British Petroleum to have a 40% share; Shell to have 14%; 
and CFP, the French Company, to receive 6%. But American independent oil 
companies had been interested in beginning operations in Iran for some time and 
had only doing so while the Iranian/AIOC dispute continued. The State Department 
was aware of this interest and of the manner in which these companies had 
refrained from taking a short run advantage of the situation by buying Iranian 
oil from the AIOC. Thus, when it became known that independent companies were to 
be excluded from the consortium, these companies manifested their anger. In an 
October 15, 1954 letter to Secretary of State Dulles, Ralph Davies, President of 
the American Independent Oil Company wrote: 
  Suffice it to say that we cannot accept the proposition that the benefits to 
  be derived from a proposed consortium be limited to the five major companies 
  that are parties to it. Our government has no less an obligation to 
  independent enterprise than to the integrated giants of the industry whose 
  practices, both at home and abroad, have made them a target for widespread 
  criticism and, indeed, investigation.102 
In response to these complaints, Hoover persuaded the majors to relinquish 5% 
(or 1% each) of their shares in the consortium to be made available to American 
independent companies. 
  Mr. PAGE. Now they, - I don't know their reasons for it - but they had a 
  feeling, well "Because people were always yacking about it we had better put 
  some independents in there." 
  Senator CHURCH. Put a few independents in ? 
  Mr. PAGE. Yes. 
  Senator CHURCH. Window dressing? 
  Mr. PAGE. That's right.103 
The financial capacity of the Independent Companies was to be certified to by 
the public accounting firm of Price Waterhouse and Company, which was at the 
time under retainer to three of the five majors. As of March 4, 1955 Price 
Waterhouse certified 11 oil comes as reliable applicants - rejecting Aminoil 
because of an alleged lack of financial capacity.104 The applicants were to set 
up a single corporation to represent all new participants and divide the total 
5% participation among themselves.105 
The 11 companies, however, requested altogether t 36% share interest. Page was 
asked whether this request did not contradict his statement that the 
independents lacked the "outlets" to manage the Iranian crude, but responded 
that it did not. Since each company knew in advance that the-total share 
percentage which all of the independents together would receive was 5 percent, 
they were each, Page asserted, merely trying to maximize their proportionate 
share of that 5 percent:

  Senator CHURCH: Why couldn't they handle up to 36%, because they didn't have 
  the outlets? 
  Mr. PAGE: Of course, these were American independents who didn't have any 
  outlets abroad, they only had outlets here and you had the problem of 
  disposing (of all kinds of products and it was almost an impossible task 
  unless you had certain outlets for it. 
  Senator CHURCH: And the majors had those outlets but the independents did not 
  have access to them? 
  Mr. PAGE: That's right.106 
Another reason for not using the independents was that they could not cut back 
other Middle East production to make room for the resumption of Iranian 
production. The American majors could do this, but only with the consent of the 
sovereigns involved. Thus Aramco partners sought the approval of King Ibn Saud 
of Saudi Arabia for temporary production cutbacks: 
  This is verbal and I have to give it to you hearsay but it is, I think, on 
  good hearsay ... this was discussed with the King in Saudi Arabia, the old 
  King, Ibn Saud, and he was told that the Aramco partners were being asked to 
  go into this and that we would have to tell him that as a result we would not 
  be able to increase our liftings appreciably for a while in Aramco and we were 
  going in solely oil the basis that there might be chaos out in the area if we 
  didn't, and would he agree with this and recognize that we weren't doing this 
  because we wanted more oil anywhere, because we had adequate oil in the Aramco 
  concession but we were doing it as a political matter at the request of our 
  government, and he said, "Yes, but," he said, "In no case should you lift more 
  than you are obligated to lift to satisfy the requirements of doing that 
  job."107 
The contingency thus occurred that Emmerglick had foreseen in his October 15, 
1953 memorandum -- that market arrangements would be worked out to meet the 
Truman problem which would establish for a period of years a regime of agreed 
upon cutbacks or artificial controls. 
The Role of Congress 
Consideration of the fundamental issues - the U.S. national security interest in 
Iran and its relationship to the American antitrust laws - took place largely 
within the Executive Branch. The issues were debated in the Congress. 
The Administration did, however, inform the relevant leaders of Congress of its 
decision. On January 22, 1954, one day after the crucial NSC decision, Vice 
President Nixon, Secretary of Defense Wilson, Secretary of the Navy Anderson, 
Admiral Radford, Chairman of the Joint Chiefs of Staff, Actmg Secretary of State 
Bedell Smith, and Herbert Hoover, Jr. met with a group of congressional leaders 
to discuss the new Iranian initiative. Nine members of Congress attended the 
meeting - among them the majority and minority leaders of the House and Senate, 
the Chairman and ranking minority member of the Senate Foreign Relations 
Committee, and others. 
"Recent National Security Council decisions in connection with the proposed oil 
consortium were frankly discussed according to the State Department's record. 
The Attorney General's opinion was made dear. No objection was raised by any 
Member of Congress concerning the decision and the course of action 
contemplated. Substantial interest was expressed in the matter of possible 
imports to the Western Hemisphere from Iranian resources. Secretary Anderson 
pointed out emphatically that the production developed in Iran would replace 
other Eastern Hemisphere production and the sale of oil and petroleum products 
from Iran would be in the Eastern Hemisphere."108 
The Oil Import Quota 
Control of the Consortium by the major companies raised fears among the American 
independent oil producers that their competitive position would be undermined by 
the majors' importation of cheap Iranian oil into the United States. (Iran 
before the nationalization in 1951 had been the largest oil exporter in the 
Middle East.) In response to this concern, Senator Lyndon Johnson, who bad 
attended the January, 1954 meeting, addressed a letter to Secretary of State 
John Foster Dulles: 

  Oil producers in Texas are raising the question as to whether there has been 
  any violation of agreements -- written, spoken or implied -- by the companies 
  authorized to engage in the consortium. It has been their understanding, and 
  mine, that care was to be taken to see that this oil did not serve to 
  jeopardize the position of American independents in supplying domestic 
  requirements. Are assurances to this effect still to be considered valid? 
  It is reported that several independent members of the Iranian consortium have 
  exchanged their shares of Abadan refined products for Persian Gulf crude, the 
  explanation for the trade being that the crude can be imported into the United 
  States at tariff considerably below the tariff for refined products."109 
In reply, then Under Secretary of State Herbert Hoover, Jr., 110 stated: 
  So far as I know, there were no agreements in connection with arrangements for 
  the resumption of production of oil in Iran on the importation of oil into the 
  United States. It is my understanding that the original selection of 
  participants in these arrangements was made on the basis that they were 
  engaged in the production and marketing of Near East oil throughout the world, 
  and could and would absorb the Iranian production without unsettling world 
  markets."111 
Two years later, in order to protect the domestic industry, first voluntary and 
then mandatory crude oil import quotas were imposed by the Eisenhower 
Administration. The higher cost of domestic oil was justified on the grounds 
that the import quota system ensured that the domestic industry would continue 
to develop domestic sources of supply so that the United States would never 
become unduly dependent upon unstable foreign sources of crude oil. In the 
actuality, the U.S. forewent the advantage of cheap imported oil but, as the 
1971 Tehran negotiations showed,112 it did not derive the benefit of spare 
capacity which could be rapidly brought on stream. 
The Fate of the Cartel Case 
The Justice Department attack on the majors' control of international oil 
through the joint production ventures in the Middle East, one of the critical 
points in the Justice Department's cartel case, became a casualty of the 
successful resolution of the foreign policy problem of stabilizing the political 
situation in Iran. As Attorney General Brownell had predicted, the case 
proceeded with emphasis on the marketing aspects and not on the production 
control aspects. The result can be seen in a comparison of the complaint in the 
Cartel case with the Statement of Claims. The latter was prepared by the 
Antitrust Division in 1961 in preparation for trial. Unlike the complaint, this 
document focuses entirely on the market control aspect of the cartel with only 
slight and sparing mention of joint producing and refining arrangements. Yet 
this occurred at the very time when the primary focus of the majors market 
Control efforts had shifted - as explained in the next part of this report - 
into control of production. 
The cartel case dragged on in this vitiated form for another ten years and was 
finally settled by consent decrees but these decrees did not impair the major 
companies' ability jointly to control production and through production, the 
world market. 
  Mr. EMMERGLICK: I believe that the consent decrees accomplished very little, 
  if anything. They were cosmetic, and nothing more than that, in my opinion. So 
  that the same power structure and the same joint arrangements between 
  companies which should be competing exist today as existed then.113 



Footnotes 
  New York Times, January 1, 1920 
  Sperling's Journal, August 1919. 
  S. Res. 331, 66th Congress 2d Session. 
  See e.g., S. Doc., No. 272, 66th Congress 2d Session; S. Doc. No. 39, 67th 
  Congress, 1st Session. 
  S. 4396 66th Congress, 2d Session. 
  41 Stat. 437 
  So describe by the American Consul in Jakarta, see For. Rel of the US., 1920, 
  Vol. III, p. 262 
  S. Doc. No. 39, 67th Congress, 1st Session, p. 3 
  Ibid. 
  Hearing before the Subcommittee on Multinational Corporations of the Senate 
  Foreign Relations Committee. "Multinational Petroleum Companies and United 
  States Foreign Policy," Part 8. 
  Ibid. 
  For. Rel. of the US, 1922, Vol. II, p. 337 
  MNC Hearings, Part 8 
  MNC Hearings, Part 7, p. 135 
  When Socal first raised the problem, the State Department instructed the 
  chargé d'affaires in London to make the following representation to the 
  British Government: You are desired by the department to discuss this case 
  informally at an early date with the appropriate authorities of the British 
  Government. You should point out in your conversation that existing 
  legislation is extremely liberal in the US; and you should add that the 
  Department of State would be glad to obtain a statement of the British 
  Government's policy respecting the holding and operating by foreigners of 
  petroleum concessions in territories such as Bahrein. MNC Hearings, Part 8. 
  In January 1944 the CA Arabian Standard Oil Company (Casoc) became the Arabian 
  American Oil Company (Aramco). Hereafter Casoc will be referred to as Aramco. 
  MNC Hearings, Part 8. 
  MNC Hearings, Part 7, p 81 
  MNC Subcommittee Print, A Documentary History of the Petroleum Reserves 
  Corporation, 1943-44, pp. 4-5 
  Herbert Feis. Three International Episodes (Alfred Knopf, NY 1947), p 129 The 
  minutes of the Board of Directors meetings of the Petroleum Reserve 
  Corporation reveal intense preoccupation with 3 major projects during the fall 
  of 1943: (1) negotiations with Socal and Texaco over a stock ownership in 
  their Arabian concession; (2) negotiations with the same American companies 
  over the construction of a major refinery in Saudi Arabia; (3) negotiations 
  with the Gulf oil corporations over stock ownership in and refinery 
  construction of their Kuwait concession. 
  MNC Subcommittee Print, A Documentary History of the Petroleum Reserves 
  Corporation, 1943-44 
  Ibid. p 60 
  Ibid. 
  Ibid. 
  Ibid. 
  Ibid. 
  Ibid. 
  Ibid. 
  Ibid. 
  Ibid. 
  Aramco Productions costs fell during the 1950s and 1960s. In 1973, production 
  costs were 13¢ 
  Larson, H. M. New Horizons, 1927-1950, History of Standard Oil Company (NJ), 
  Harper & Row, 1971, pp. 734-5 
  MNC Hearings, Part 7, p 82 
  MNC Hearings, Part 8 
  MNC Hearings, Part 7, p 82 
  MNC Hearings, Part 7, p 568 
  MNC Hearings, Part 8 
  But Caltex made some serious miscalculations. One of Exxon's bargaining points 
  was that it could get cheap Middle East crude oil from other international 
  majors if the Caltex terms for concluding the Aramco merger did not come down. 
  Once Caltex had lowered its terms and agreed to the merger, it would be 
  surprised by the reduction in sales of Aramco crude by Exxon and Mobil when 
  those 2 companies entered into major long-term supply contracts with British 
  Petroleum. In addition, Caltex did not discover until it was too late that 
  Exxon and Mobil planned to use the merger to control the marketing of Caltex's 
  Arabian crude. Socal mistakenly assumed that it would continue to sell its 
  Arabian crude for 90¢ 
  MNC Hearings, Part 8 
  Ibid. 
  Ibid. 
  Ibid. 
  Ibid. 
  Ibid. 
  Ibid. 
  Ibid. 
  Ibid. 
  Ibid. 
  The Minutes of the IPC meeting read: "Saudi Arabian concession. Monsieur 
  deMetz referred to press reports current in Paris that that the Standard Oil 
  Company of California and the Texas Oil Company were considering the 
  possibility of disposing a very large interest in the Arabian-American Oil 
  Company which holds the concessions for Saudi Arabia. His Group recommended 
  very strongly that the Managing Director be instructed to enter into 
  negotiations with these two companies for the acquisition of the shares they 
  were minded to sell," MNC Hearings, Part 8. 
  MNC Hearings, Part 8 
  Ibid. 
  Ibid. 
  Ibid. 
  Ibid. As it turned out, the Mobil executive's suggestions were not followed. 
  MNC Hearings, Part 8 
  Ibid. 
  Ibid. 
  Ibid. 
  Federal Trade Commission, The International Petroleum Cartel, (1952), pp. 1-2 
  Ibid., p 6 
  British Petroleum and Shell were quickly dropped from the case for 
  jurisdictional reasons 
  MNC Hearings, Part 8 
  Dean Acheson, Present at the Creation, p 507 
  Quoted in State Department: Summary of US Government Actions to secure the 
  cooperation of American oil companies in a settlement of the Iranian Oil 
  dispute. MNC Hearings, Part 8 
  MNC Hearings, Part 7, p 298 
  W. L. R. 246 (1953) 
  Quoted in State Department: Summary of US Government Actions to secure the 
  cooperation of American oil companies in a settlement of the Iranian Oil 
  dispute. MNC Hearings, Part 8 
  Ibid. 
  Ibid. 
  Ibid. 
  MNC Subcommittee Print. International Petroleum Cartel Case, Feb. 21, 1974, p 
  26 
  MNC Hearings, Part 8. The following discussion is based upon this report. 
  MNC Hearings, Part 7, p 103 
  MNC Subcommittee Print. International Petroleum Cartel Case, Feb. 21, 1974, p 
  125 
  Ibid. 
  Fitzgerald, Frances; Giving the Shah Everything He Wants, Harper's, Nov. 1974 
  p 62 
  MNC Hearings, Part 8 
  MNC Hearings, Part 8 
  MNC Subcommittee Print. International Petroleum Cartel Case, Feb. 21, 1974, p 
  52 
  Ibid. p 55 
  Ibid. p 55 
  MNC Hearings, Part 7, p 299 
  MNC Subcommittee Print. International Petroleum Cartel Case, Feb. 21, 1974, p 
  54 
  Ibid. p 57 
  Ibid. 
  Ibid. p 58 
  Statement of "a Standard Oil of NJ Director at a later date." Quoted in 
  Wilkins, The Making of a Multinational Enterprise, p 322 
  MNC Subcommittee Print. International Petroleum Cartel Case, Feb. 21, 1974, p 
  60 
  Ibid., p 61 
  Ibid. pp. 60-1 
  Ibid. p 61 
  Ibid. p 75 
  NSC Action 1021. MNC Subcommittee Print. International Petroleum Cartel Case, 
  Feb. 21, 1974. 
  MNC Subcommittee Print. International Petroleum Cartel Case, Feb. 21, 1974, p 
  76 
  Ibid. p 93 
  Ibid. 
  The Defense Production Act of 1950, 64 Stat. 798, declared it to be the sense 
  of Congress that, "in view of the present international situation," it might 
  be necessary to expand the production of certain industries and to disperse it 
  geographically outside the main producing areas. Section 708(a) of that act 
  provided that the President could approve voluntary programs to accomplish 
  these objectives and Section 708(b) provided that such agreements would be 
  immune from prosecution under the antitrust laws. 
  MNC Subcommittee Print. International Petroleum Cartel Case, Feb. 21, 1974, p 
  26 
  MNC Hearings, Part 7, p 110 
  Ibid., p 114 
  MNC Subcommittee Print. International Petroleum Cartel Case, Feb. 21, 1974, p 
  60 
  MNC Hearings, Part 8 
  MNC Hearings, Part 7, p 297 
  Aminoil was later reinstated as an Iricon member by the State Department. 
  Memo W. B. Watson-Snyder to Messrs. Walter Ronley and Wilbur Fugate March 10 
  1955. MNC Hearings, Part 8 
  MNC Hearings, Part 7, p 298 
  Ibid., p 304 
  MNC Hearings, Part 8 
  MNC Hearings, Part 7, p 110 
  Hoover was confirmed as Under Secretary of State on August 18, 1954 
  MNC Hearings, Part 8 
  These negotiations are discussed in Chapter 6 of this report. 
  MNC Hearings, Part 7, p 116 
Source: Multinational Oil Corporations and U.S. Foreign Policy - REPORT together 
with individual views, to the Committee on Foreign Relations, United States 
Senate, by the Subcommittee on Multinational Corporations; (Washington, Janusry 
2, 1975, US Government Printing Office).