Global Policy Forum

An Interest in Oil

During the interwar period, the United States was by far the world's largest oil producer, yet both political principle and commercial interest dictated conflicts with Britain over control of Middle East petroleum reserves. Washington sought to apply the "open door" to the mandates carved from the Ottoman Empire in every respect, but oil was clearly the most important resource involved.

While the differences on this issue provoked lengthy and acrimonious diplomatic disputes, each was settled by a compromise. The longer-term result was a strong element of mistrust on the part of both American oil companies and State Department Middle East specialists, which would be manifested by differences over oil rights and their political implications, particularly in Saudi Arabia, during World War II.

On this as on other points, the "open door" philosophy neatly combined anti-imperialism with self-interest in promoting American business and strategic concerns. Local governments should have the right to give petroleum concessions to whomever they chose, the United States argued, and mandates should not be treated as colonies.

To the British, there was a large amount of hypocrisy in this position. While the United States wanted to limit European influence in the Western Hemisphere, the Foreign Office noted, it refused to accept any such conditions in other parts of the world. As on so many issues in U.S.-European relations in later years, the United States would see European behavior as shortsighted and greedy, while the Europeans would find American policies inconsistent and self-centered. Still, it is important to remember, the two sides found ways to peacefully and productively bridge their differences.

The whole idea of the mandates, argued the State Department, was to afford equal treatment for all members of the League of Nations, which provided and supervised the mandatory structure, and for participants in the Allied war effort. Since the United States was not a member of the league and had not been at war with the Ottoman Empire, these positions were I modified so as to protect the prewar rights of American companies or to I allow local authorities to make such decisions without British restriction.

The United States said-and the British denied-that London was giving itself special privileges in the mandatory territories, particularly in what was to become Iraq. The clearest statement of this position was contained in a message from U. S. Ambassador John W Davis to Lord, Curzon on 12 May 1920. The American position, said the ambassador, was based on the "general principle that any Alien territory which should be I acquired... must be held and governed in such a way as to assure equal treatment in law and in fact to the commerce of all nations." Otherwise, the department warned, Britain's image in American public opinion would suffer. (12)

The British replied that these accusations were built on a "very mistaken impression" about their oil policy. After all, London complained, the United States produced 70 percent of world output while American companies owned three-fourths of Mexican production, estimated at an additional 12 percent. In contrast, the whole of the British Empire plus the holdings of Anglo-Persian Oil Company (APOC) in Persia accounted for only 4.5 percent of the world total. How then, Curzon asked, could Britain "seriously threaten American supremacy?" Adding that "any prophecies as to the oil bearing resources of countries, at present unexplored and quite undeveloped, must be accepted with reserve."(13) Already, however, as would happen repeatedly in later years, many worried voices were being raised in America warning that U. S. reserves were becoming depleted.

Secretary of State Bainbridge Colby replied on 20 November 1920, welcoming "your pledges to the effect that the natural resources of Mesopotamia are to be secured to the people of Mesopotamia and to the future Arab state" and that the British would protect these assets for that people's "further freedom of action." But, Colby continued, this was contradicted by the Anglo-French agreement at the San Remo meeting to divide Iraqi oil on a 75/25 percent basis. "The question was," writes DeNovo, "whether the British would employ the untried mandate system as a thin veil for old- fashioned protectorates."(14)

These concerns were heightened by the draft peace treaty adopted by the European powers toward Turkey. Since the United States had never declared war on the Ottoman Empire, it had trouble playing a direct role in the negotiations, but would not accept the San Remo division of the spoils. Consequently, the State Department pressured the Foreign Office until Britain agreed on a revision, the famous Red Line agreement. This provided a 23.75 percent share in the holdings of the newly established Iraq Petroleum Company for American firms and pledged a similar minimal portion for the participants in concessions gained by the others within the boundaries of the former Ottoman Empire.(I5)

The Red Line accord maintained British preeminence but with a clearly defined junior partnership role for the United States. Indeed, since the British company, Anglo-Persian, received a royalty on all oil produced and continued to control a major share, there was not a complete equality of treatment. Still, in the following years, the United States would further chip away at the British regional oil position.

Developments in Bahrain, Kuwait, and Saudi Arabia generally resulted, after prolonged bureaucratic skirmishes, in partial American triumphs. In Bahrain, Standard Oil of California purchased a British company's option in 1928, but the British government wanted the operating company to be registered in their country. The State Department finally obtained British agreement that the concessions could be given through a Canadian subsidiary and with British subjects managing in the field. The company also had to agree to conduct relations with the government through the resident British political agent. Exploration began in 1930, and in 1932 oil was discovered in commercial quantities.

Kuwait was outside the Red Line agreement, but there too the British wanted a British company to hold any concession. London procrastinated while the APOC explored until finally, in 1932, the Foreign Office dropped the nationality clause. Finding it difficult to deal with the ruling shaykh, the British and American companies cooperated. The Kuwait Oil Company was registered under British law in 1934; oil was discovered in 1938.

In this case, as in the other conflicts, the State Department sought to establish "the right of American interests to participate in the development of the petroleum resources in Kuwait so that American interests may have an equal opportunity to compete." Great efforts were made in the defense of these claims and repeated inquiries were made to the Foreign Office.(16)

The British replied to this position on 9 April 1932:

When examining the necessity for the continued insistence on the inclusion in any oil concession in respect of Kuwait of " a clause confining it to British interests, His Majesty's Government have been concerned not only with their own interests in the matter, but also with their duty to secure the best terms possible for the Sheikh of Kuwait, and in particular, have had regard to the possibility that it would be less difficult for the local British authorities to control the activities of a purely British concern and to reconcile them with the Sheikh's interest.

The British could play the game of justifying their own interests with concern for local peoples as well as could the Americans. But, the Foreign Office concluded, Britain would not insist on this if the shaykh were willing to grant the concession.(17)

London claimed that the United States wanted preferential treatment- an accusation strongly denied by the State Department-but Washington was willing to change the rules when it was to its own advantage. When U.S. companies began to move into Saudi Arabia, the Americans showed no interest in allowing the British any participation. Indeed, King Abdul- Aziz Ibn Saud was perfectly willing to negotiate with the Iraq Petroleum Company, but the British-dominated corporation thought the king's price was too high. An American consortium was willing to come to terms, however, and U. S. companies gained access to this extremely important resource in 1933. British political predominance, though, continued until well into the 1940s.(18)

The United States had less luck in Persia. American diplomats there were optimistic. The British APOC concession in the southwestern part of the country was secure and London far preferred American companies to move into the north rather than have the Russians or Germans installed there. As one U. S. Embassy dispatch put it in December 1937, "If British interests could not themselves obtain the concessions" in north Persia, "there is no other country in the world they would rather see here than the United States." But these plans did not work out.(19)

While the "open door" policy that originated in 1919 tended to focus mostly on oil questions, it also played an important role in other aspects of Anglo-American relations. For example, when Britain terminated the mandate with Iraq in 1932, Washington insisted it be consulted on the terms for Iraq's independence. London declined, arguing that earlier agreements adequately protected American rights. At the same time, however, the United States was willing to recognize the continued "special relationship" between Britain and Iraq, as long as there were assurances that if it should change, American rights and institutions would still be respected. America even agreed to accept nationalization of property if it was accompanied by compensation. The United States had accepted the mandate on the under- standing that its citizens would have equal rights with those of all other nations. In the Palestine Mandate, it was explicitly stated that such interests would not be affected by termination.(20)

It is worthwhile to note that Britain's attempt to restructure its relations with Iraq through the 1948 Portsmouth treaty failed when public pressure forced Baghdad to renounce the agreement. London tried to reshape military relationships through Iraq's adherence to the Middle East defense alliance, the Baghdad Pact, after 1954. This move, which the United States supported with some hesitancy, was one factor in producing an upsurge in regional radical nationalism during the mid-1950s.

While the United States was skeptical about the utility of these kinds of arrangements, it was willing to acquiesce in them in Egypt as well as in Iraq. For example, in 1933 the State Department abandoned efforts to reverse an Egyptian announcement banning all non-British tenders for a Nile dam project. Although U. S. companies were interested in pursuing this venture, both Secretary of State Henry Stimson and Minister to Cairo William Jardine realized that British influence there could not easily be circum- vented.(21)

The United States was far more spectator than actor in the Arab world during the interwar years. Generally, it paid Britain deference and there were clear and narrow limits to the American government's willingness to become involved in regional issues. Nevertheless, there was a strong feeling that the post-World War I arrangements were somehow transitory and unsatisfying, something far less visible in U. S. thinking toward other parts of what would later be called the Third World. While America acted as an essentially status quo power, its interests and ideology impelled it in a different direction. This would playa major role in shaping U. S. Middle East policy in the years during and after World War II.

12. Davis to Curzon, 12 May 1920, FRUS, 1920, vol. 2 (Washington 1935), pp. 649-55.

13. Davis to Colby, enclosure, 11 Aug. 1920, ibid., p. 665

14. Ibid., p. 670; DeNovo, American Interests, p. 173

15. Shwadran, Middle East, pp. 202-9, 237-39; FRUS, 1920, vol. 2 , pp. 655-58

16. Stimson to Atherton, Dec. 3, 1931 FRUS, 1932, vol. 2, (Washington 1947), p. 2.

17. British Secretary of State for Foreign Affairs to Atherton, 9 Apr. 1932, ibid., p. 14

18. Shwadran, Middle East, pp. 310-11

19. Engert to Murray, 24 Dec. 1937, FRUS, 1937, vol. 2, (Washington 1949), pp. 758-59

20. FRUS, 1925, vol. 2, , (Washington 1940), pp. 231-38; 1927, vol. 2 (1942), pp. 781-95; 1930, vol. 3 (1945), Treaty Series # 835, pp. 301-6; 1932, vol. 2, pp. 672-79

21. Jardine to Stimson, Nov. 19, 1932; US National Archives, Record Group 59, #599, 883. 6113/72; Stimson to Jardine, 17 Jan. 1933, #197; Jardine to Hull, 12 Apr. 1933, #702