Denial: The Rise and Fall of the US/UK Oil Cartel

(The American Energy Society) – In early 1944, when the outcome of World War II was probable but not yet certain, Winston Churchill was confident enough to make very clear his greatest concern about the post-war world:  “make no mistake – oil is the single greatest post-war asset remaining to all of us.”  He wasn’t just speaking about the threat of the Axis or the Soviets taking control of the world’s most precious commodity.  Britain and the US were the closest of allies in every aspect of the war, but not when it came to the future of oil in the post-war world.

In spite of all the geopolitical entanglements that had driven the US and UK to form the 20th Century’s greatest alliance, it turns out that they feared each other, too — a deep and lingering fear that their ally could become a “monster cartel” if left unchecked. The British worried about US control of the massive oil fields of Iran/Iraq, while the US was concerned about British interests in Saudi Arabia. So thick was the tension between the US and the UK about oil that Lord Beaverbrook, whose suspicion of American interests was obvious, may have overstated only slightly his concern about the simmering disagreement: “I guess this could be the next war.”  James Duce, head of Aramco and advisor to FDR, warned his colleagues of Churchill’s intentions: “the lamb better not lay down with this Lion … or else become lamb chops.”

Tensions around the post-war oil world were thick domestically, too –  Harold Ickes got into a bitter scrap about checking British petroleum interests in the Middle East with then-Vice President Harry Truman. As Undersecretary of the Navy, James Forrestal’s incessant lecturing on the critical nature of Middle East oil was a “source of constant irritation” but not a matter of disagreement for future Secretary of State Byrnes, for Undersecretary of the Navy Edwin Pauley, and for America’s leading geologist, E.L. DeGolyer.  Underscoring the import of the issue, FDR was convinced that “the immense oil deposits in Saudi Arabia alone make that country more important to American diplomacy than almost any other smaller nation.” And Winston Churchill was never thrilled to see Americans conferring with monarchs in regions of traditional British influence; he countered by spending an “extraordinary amount of time burning up the wires to all his diplomats, … breathing out threatenings and slaughter if … [Iran/Iraq] potentates were allowed to meet with US officials].”  While the US and Britain found agreement on a host of critical war-time and post-war issues, the post-war oil world did not have an obvious solution.

The Short-Lived Petroleum Agreement

If politics makes for strange bedfellows, necessity makes for even stranger agreements. On August 8, 1944, the US and UK signed The Petroleum Agreement – exactly one year and one day before the US dropped its second atomic bomb on Nagasaki, effectively ending the war.  The Petroleum Agreement was literally a line on a map of the Middle East that divided the oil interests of the region into two: Saudi Arabia for the US, and Iran/Iraq for the British.

“National Security Council, NSC 5714, statement of policy, “Protection and Conservation of Middle East Oil Resources and Facilities,” May 29, 1957; Top Secret, Special Handling” – https://nsarchive2.gwu.edu//dc.html?doc=2869671-Document-12

The idea for the agreement came from the principles that guided the Texas Railroad Commission: in order to assure “equity” to all parties, the Petroleum Agreement would authorize the formation of a commission (aka, cartel) that would estimate global oil demand and then allocate “suggested” production quotas to various countries and regions through oversight of the [US and UK].  Its fundamental purpose also drew from the TRC – “balance discordant supply and demand and guarantee a surplus in the post-war world.” Left unsaid but obvious to those authoring the agreement was the destination of that surplus – it was for the West.  While the agreement may have satisfied the Roosevelt Administration and the Churchill government, no one outside the two administrations liked the deal.  Indeed, the entire petroleum industry – from the independent oil men to the oil “majors” – hated the agreement because it shifted control of the market to an as-yet undermined federal agency. By 1945, less than one year after taking affect, the Roosevelt Administration formally withdrew from the Agreement, citing “anti-trust concerns.”  The failure of the Agreement did not dampen intentions to control the world’s future oil supply, however.

“Joint Chiefs Planning Staff report, “Oil Denial in the Middle East,” December 13, 1955 , Top Secret, U.K. Eyes Only” – https://nsarchive2.gwu.edu//dc.html?doc=2869668-Document-Chiefs-of-Staff-Committee-Joint

 

NSC 26/2

If necessity makes for strange agreements, then desperation makes them even stranger. The end of the War brought precarious peace. The Cold War was beginning to heat up with Communist revolutionaries gaining momentum in Greece, establishing a permanent stronghold in China, and sealing the fate of lasting conflict with their failed blockade of West Berlin.  As an Iron Curtain was descending across Eastern Europe, Churchill’s other warning about protecting Western access to oil in the Middle East became the primary geopolitical concern. In late October 1949 – about the same time that the US learned about “Joe 1” – the Soviet Union’s first successful test of their own atomic bomb – President Harry Truman quietly signed off on National Security Council policy NSC 26/2, which stated that in the event of a Soviet invasion of the Middle East, resources and facilities would be destroyed before the Red Army reached them. Dubbed “Denial,” the scheme called on oil company employees in the region to sabotage and destroy their own facilities when instructed to do so by Washington.  While a US strategy, British Foreign Office documents indicate that Prime Minister Clement Attlee and his government was apprised of NSC 26/2 and enthusiastically backed the strategy, adding a corollary of its own — oil company employees would be “assisted in their efforts by the military, including the Royal Air Force.”

“National Security Council, NSC 26 report, “Removal and Demolition of Oil Facilities, Equipment and Supplies in the Middle East,” August 19, 1948, Top Secret” – https://nsarchive2.gwu.edu//dc.html?doc=2869656-Document-01-National-Security-Council-NSC-26

However, there was at least one obvious problem with “Denial”, which officials noted in internal files — the British Empire’s power and influence in the Middle East and throughout the world was waning, and they no longer held a monopoly on oil refinement and production in Iraq and Iran. Without real power or influence, British officials feared letting employees at the state-owned oil-organizations know about “Denial” because their own intelligence confirmed that the governments of neither Iraq nor Iran, while allied with the UK, would ever agree to carry out its provisions.

“British Foreign Office, Memorandum, “Oil Denial: Record of Meeting Held in the State Department on 1st May 1951” – https://nsarchive2.gwu.edu//dc.html?doc=2869659-Document-04-British-Foreign-Office-Memorandum

Nuclear Option

While negotiations could not solve the quandary, nuclear weapons provided an instant solution.  In 1955, the UK had begun to conduct their own successful nuclear weapons tests in the Australian outback.  For those that heeded Churchills warning, it was assumed that these armaments could be the “most complete method of destroying oil installations” in Iran and Iraq, Britain’s Joint Chiefs of Staff stated in a report.  While it is unclear whether Washington was involved directly in these discussions, the British Joint Chiefs certainly had official sanction and reason to expect that the US would also use its own nuclear arsenal on oil fields in the Middle East in the event of a Soviet invasion.  The combination of British and American nuclear action was judged by British intelligence as “the only feasible means of oil denial.”  Although available files do not note any specific US policy, the CIA did send operative George Prussing to work with Middle Eastern oil companies on “Denial” and inspect Iran’s oil fields and facilities with the assigned duty to investigate the feasibility of implementing various “Denial” proposals. Prussing determined that “Denial” would work best via ground demolition and that “nuclear destruction would not be necessary.” Not willing to trust US intelligence reports, however, British officials sent Bill Otto, an employee of Saudi oil giant Aramco and a former bomb disposal expert, to assist UK officials assess and amend their own Denial plans, confirming too that ground demolition was a better option over nuclear annihilation.

“Meeting for the Petroleum Agreement at the Mount Washington Hotel in Bretton Woods, New Hampshire, United States” – http://www.saudiaramco.com/en/home/inaugurations/sa-timeline.html

While nuclear weapons were off the table, the “Denial” strategy subsequently grew in scope to include a US refinery in Lebanon, a British facility in Egypt, and a then-unfinished refinery in Syria. The US and the UK continued to divide geographic responsibilities for executing the strategy, with the US responsible for the Kuwait Neutral Zone, while the UK would look after refineries and pipelines in Israel and Turkey.  There were some misgivings, but not enough to alter the overarching policy.  George Weber, a Staff Officer at the National Security Council, suggested the policy be jettisoned — but only because it didn’t go quite far enough. He noted the Soviet Union was not the only challenge the West faced in the region. Moreover, he suggested that demolition training programs represented a security risk because it made public exposure much more likely. As a result of Weber’s concerns, NCS 26/2 was replaced with a new policy — NSC 5714 — which removed all civilian involvement and ended collaboration with oil firms, instead leaving the task of scuttling oil facilities solely to British or US military forces.  Concurrently, the British and Americans both independently forged supplemental policies for protecting access to Middle East oil. London pivoted towards pre-emptively protecting key oil installations in the Gulf from “Egyptian subversion,” while Washington primed troops to tackle Arab nationalist elements in key oil-producing countries.

“Preliminary meeting to discuss ‘Denial,’ between the Saudi King Ibn Saud, who also represented Saudi Aramco, and Secretary of State Dean Acheson” – http://www.saudiaramco.com/en/home/inaugurations/sa-timeline.html

The End of “Denial” – Not a Bang, But a Whimper

What ultimately became of these plans — and whether and how Middle East rulers complied with them — is not clear from the declassified files. The last mention of the “Denial” strategy in US memoranda appears in 1963, when a John F. Kennedy staffer asked the State Department whether NSC 5714 was still government policy or had been replaced. The Department’s response, if there was one, isn’t publicly available.

 

In memory of Leonard Sadosky, Ph.D.

A master of the historian’s craft.

Jeffersonian.  Patriot.  G&T aficionado. The sage of Alderman Library.

(Johann – we did indeed learn from him every day … and all the better for it.)

And a friend gone too soon.

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