LETTER TO MR. JOHN NOBLE FROM ALLEN W. DULLES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80R01731R000300030020-8
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 15
• Document Creation Date: December 14, 2016
• Document Release Date: April 7, 2003
• Sequence Number: 20
• Publication Date: March 27, 1959
• Content Type: LETTER

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STAT
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SUBJECT : Brief of Howard W. Page's Talk before
the Middle East Institute
Howard W. Page, Director, Standard Oil Company (New Jersey) delivered
a talk to the Middle East Institute, the subject of which was on economic
aspirations in the Middle East. His talk concerned the oil industry in
'that area and he presented some proposals on improving the health, educa-
tion and living standards of the local people. One plan is to assist in
financing new locally owned businesses and industries throughout the Middle
East and once the enterprise is established and its loan repaid, there would
be no connection with the oil company. The ownership of homes which are
subsidized by the companies as a means of providing housing for employees
has spread the concept of property ownership and has encouraged the growth
of a stable property owning class. Also, oil companies have assisted in
the development of water resources and in town planning.
Mr. Page points out that the development of considerable interest is
an Arab pipeline from the head of the Persian Gulf to the Mediterranean
which is worthy of careful and understanding consideration by the oil
industry. In view of the number of tankers available at the present time,
he feels that such a project could not come into being very soon and also
it requires several years for organizing, financing, engineering and building.
This is, however, an unusual project in that from,four to six countries are
involved and no one oil company would feel justified in furnishing the
capital.
Mr. Page mentions the fact that 1958 was a bad year for his company.
Competition was unusually rough and the overall profit was less than the
amount paid to Middle East Governments for the crude oil taken from that
area. He also mentions the ever present competition from alternate energy
sources, such as coal. He states that it is important to have good rela-
tions between the governments concerned and a dispute in a purely political
sphere might quickly upset the arrangement. He points out that Russia is
an oil exporter of some importance and that there is ample proof the Soviets
do not hesitate to use economic instruments as political weapons.
Mr. Page concludes his talk by saying, "we should avoid the trap of
going along with unsound or impractical projects even if they are tagged
as National aspirations attempting to buy good will by such expedients can,
I feel* weaken the long-term relationship of mutual respect and basic
identity of interests so important to both of us."
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 Approved For Release 2003/05/05 : CIA-RDP80R01731 R000300030020-8 Executive Registry
TRANS-ARABIAN PIPE LINE COMPANY
March 25, 1959
Mr. Allen Dulles,
Director,
Central Intelligence Agency,
2430 E Street, N. W.
Washington 25, D. C.
Dear Mr. Dulles-
I am enclosing a copy of Mr. Howard W. Pagers
address to the Middle East Institute conference on
March 20, which I mentioned in our conversation yester-
day after lunch.
Sincerely yours,
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FROM : Standard Oil Company (New Jersey)
ROOM 1626, 30 ROCKEFELLER PLAZA
NEW YORK 20, NEW YORK ? PLAZA 7-3000
For Release to Morning Papers
of Saturday, March 21, 1959
MIDDLE EAST ECONOMIC ASPIRATIONS
A speech by
Howard W. Page.
Director
Standard Oil Company (New jersey)
before
The Middle East Institute's Thirteenth Annual Conference
on Middle Eastern Affairs
Washington, D. C. March 20, 1959
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The subject of economic aspirations in the Middle East is almost
unlimited. I propose to limit my discussion tonight to a few of the manifesta-
tions of so-called "Nationalist aspirations" in the area which directly affect the
oil industry there. I can, of course, give you only my own views which may
differ considerably from those of others in the industry.
First, I would like to examine the word aspiration. It seems to
leave the impression of something desirable and also something to which the
aspirer is entitled as a basic right with no obligation to earn. Quite often I
have been confronted with the remark: "But that is a National aspiration, or
an Arab aspiration" as if that settled it and there was nothing left to discuss.
I was left with the vague feeling that even to question the validity of the
aspiration was like damning motherhood. To shake off the mesmerizing effect
of the word I find it desirable to recall that the Soviet aspiration is to domin-
ate the world.
Many of the aspirations in the area are sound and proper by any
standards. Desires to improve the health, education and living standards of
the people certainly come in this category. The oil industry is bending every
effort to assist in all of these. There is the aspiration for nationals to take
positions of higher responsibility. The industry is often criticized for not
pushing nationals fast enough. I am one who feels that the industry should
not demand of them the same standards of education, experience and proven
ability that we do of our own people. True, this may result in some lack of
efficiency and some mistakes, but they may well be worth it if it speeds up
the process of developing competent nationals for higher positions. A word of
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caution though. Considerable harm can be done to a man, physically and
mentally, as well as for his future, if he is placed in a position well beyond
his capabilities. His failures can also unfairly reflect on the reputation of
his countrymen as well., This is apparently not realized by those who want
to place nationals in high positions willy-nilly.
There is the aspiration for better housing and particularly to own a
home. Several of the home ownership programs in the industry are now moving
like a prairie fire--and a lot more beneficially.
These are all aspirations common to mankind everywhere. They are
reasonable and desirable and receive very sympathetic assistance.
There are other aspirations in the broader economic fields which
need sorting out as to their justification.
One characteristic of non-industrialized countries seems to be the
desire to industrialize regardless of the effect on the economy. ,It becomes a
matter of national pride. The question of whether or not the resources and man-
power of the country could be put to better use in improving the lives of the
people is not even asked. There are fads in this. National pride demands,
for example, a steel mill, an oil refinery and, more recently,, a petrochemical
plant. Now I do not want to imply that these are not desirable. They are--
in the right place and at the right time. But to build one of these plants
which could never pay its way is a waste of valuable materials and manpower
which could have been put to better use for the benefit of the people of the
country.
I have had it argued, for example, that because natural gas is
being flared and thus wasted-, a very costly petrochemical plant should be built
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to use the gas. However, if such a plant would continually operate at a loss,
the economic waste in building may be far greater than the economic waste of
flared gas. To do something of this nature as a good-will gesture to satisfy
a so-called national aspiration is basically unsound, and, therefore, could
boomerang.
There are other cases where such a plant could be built with a
return on investment equal to that on similar investments at home. Yet quite
often such investments do not materialize because the instability of the area
makes the return appear inadequate when evaluating relative risks. It is in
such cases where I feel that a new approach should be considered by oil
companies with large investments already in the area. If, for example, such
a project might help to improve the stability of the area, then the potential
gain for the larger existing investment might well offset the risk factor in the
smaller new investment. In other words, the evaluation of the risk factor
can be viewed in quite a different light by an established company than by one
whose interest is confined to only the project in question. This is an approach
which might help to break the vicious cycle of instability caused by economic
stagnation, and of economic stagnation caused by a lack of projects sufficiently
attractive to justify the risks of the instability.
Often aspirations conflict and the oil industry finds itself in the
middle. I mentioned before that most every country seems to want at least one
oil refinery.. Sometimes this is merely a matter of national pride. However, in
most cases the government concerned has problems of balance of payments and
this is one method of reducing the drain on its foreign exchange. That is, crude
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oil requires considerably less foreign exchange than finished products. As a
result of this factor, most countries, when oil consumption is of any magnitude,
require all or a large part of their requirements to be refined locally. At the
same time, the countries where oil is produced for export want the refining to
be done in their country. We are innocent by-standers but get quite a kicking
around from the consuming countries for not building or expanding refineries fast
enough and from the producing countries for not refining all the crude at the
source. In a situation where there is more than adequate supply, it is the
consumer that calls the tune. The national aspiration to perform all functions
of the industry 100 per cent cannot be fulfilled merely because some of the
raw material happens to be there.
The failure to realize the facts of life as in this case causes
irritations, suspicions and emotional reactions. One major job of the industry
is to keep trying to bring the full information to the people involved and ex-
plain it carefully and patiently. This is not easy because of the complexities
of the oil industry and international trade generally, but it is a job which we
must not shirk.
In several countries in the Middle East there is a desire to parti-
cipate more and more in oil operations themselves. However, there appears
to be a growing recognition that obtaining an export market for crude oil,
or for products, involves time, effort, experience and plenty of money. For
example, the capital required to provide the facilities to move crude from the
Persian Gulf to Northern Europe, refine it and distribute the products is in the
order of 2 billion dollars for 1 million barrels a day of crude--that is, for the
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export outlet of only one of the four large producing countries in the Persian
Gulf. Without these facilities the crude oil is virtually worthless. As a result,
the interest in participation seems to be turning to the things which can be done
at home. In Iran, a government company is drilling for oil itself and has
apparently found some. It is handling nation-wide distribution and marketing,
as well as some of the refining, itself. It is also developing projects to
utilize gas, both as fuel and as a raw material for fertilizers, etc.
A recent new development of considerable interest is an Arab pipe
line 'project for a pipe line from the head of the Persian Gulf to the Mediterranean.
This is being considered by the Arab League's Economic Committee. This is 'a
participation aspiration ar)d if a definite proposal finally emerges which is
realistic and competitive, I feel the industry should give it careful and under-
standing consideration.
Basically a large diameter pipe line from the Persian Gulf to the
Mediterranean should show a better return on investment than for tankers to do
the same job. The problems of fitting a, large pipe line into the transportation
pattern and organizing the commitments for use of the line is not an easy one.
At present there are some 300 tankers tied up and many operating at reduced
speeds to keep them in service and their crews employed. New tankers are
coming off the ways in record numbers. Tapline is operating well below
maximum capacity. Therefore, this is not a project which could come into
being very soon. However, such a project needs several years for organizing,
financing, engineering and building and in several years the transportation
picture could be considerably different, particularly if it were planned that way
to fit additioRl. r8vgc~ Foir I eF a
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This is an unusual project in that from four to six countries would
be involved. No one oil company would feel justified in furnishing the capital
nor could one company utilize more than a small part of the capacity. Therefore,
an oil industry project would require participation by a large group of companies
of different nationalities and different sources of supply. From experience, I
can say that to organize such a company, except in the case of dire necessity,
is an almost Impossible task. But many of the problems of joint oil company
ownership would be eliminated if the project were organized and financed by an
Arab entity with the agreement and backing of the governments concerned.
Therefore this may possibly be a unique opportunity for Arab cooperation to carry
out a project which can have a natural advantage over competitive forms of
transportation and also one which could not easily be accomplished by the oil
industry. To my mind, its success will depend almost entirely on a realistic
approach by its promoters. For example, they must meet competitive conditions
and provide adequate assurances of performance to wean shippers away from
more flexible tankers and induce them to make the throughput commitments
necessary to obtain financing.
Such a project would involve as participants several of the countries
which have no oil revenue and therefore would provide an improvement in the
relative sharing of benefits from oil in the area among the several countries
involved.
With so many good uses for their talents and money at home, I am
surprised to find a continuing, although decreasing, aspiration to operate abroad.
Several countries--or perhaps I should say certain people in several countries--
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have felt the urge to get into the competitive jungle of transportation,, refining,
distribution and marketing of oil in other countries. As I mentioned before, the
capital required for this is enormous and, unfortunately, the returns are quite
low. Last year, for example, the over-all profit of our company in the entire
Eastern Hemisphere was less than the amount paid to Middle East governments
for the crude oil we took from the Middle East, all of which was used in the
Eastern Hemisphere. Admittedly 1958 was a bad year and competition was un-
usually rough. However, even in good years the percentage return on investment
for the most efficient is less than the return which can be made on some
development projects in the Middle East. Actually, it was the willingness of
the oil industry with Middle East interests to make these investments in other
parts of the world over a period of more than half a century which is the great-
est asset the Middle East producing countries have. It would seem to me that
the oil producing countries would have the best of both worlds by taking advan-
tage of the oil industry outlets, as they generally do today, and using the
proceeds to develop needed projects in their own countries before branching out.
There are other aspirations, often quite ill-defined, that seem to be
based on a theory that runs as follows: Firstly, oil is an essential fuel the
occurrence of which is confined to only a few places in the world. Secondly,
joint action by the governments of these areas to control supplies would make it
possible to (a) exercise control over the price at which oil is sold, and (b)
whether the customer must take the oil in the form of products instead of crude,
and (c) whose transportation would be used. Thirdly, that the oil companies
would welcome--or at least agree to--such controls. In this connection, I. am
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sometimes reminded of the cartoons of the small boy who exists in a dream
world. In his air castles, he does as he likes, unhampered by the usual res-
taints. Unfortunately, these dreams vanish before the hard realism of everyday
life.
The trouble with the theory I have just outlined is in its premise.
Oil is certainly a desirable fuel but it is by no means irreplaceable. There are
certain areas with large reserves that have become major exporting centers, but
as the developments in Canada and North Africa show, oil in quantity continues
to be discovered elsewhere. Governments throughout the world in one way or
another already are encouraging exploration of their territory in the hope of sav-
ing foreign exchange, adding to national security and promoting domestic
industry.
The oil business also faces ever-present competition from alternative
energy sources. The principal one at present is coal. Consumers in many
countries can and do switch rapidly from oil to coal on what we in the oil
business consider to be very slight provocation. There also are enormous fuel
resources in oil shale and tar sands which could and would be tapped today if
the economic incentive were sufficient. Still further down the road is atomic
energy. Oil has an inherent advantage over these other sources of energy which
can be retained for many years but only if supply and prices are not artificially
controlled. Without such interference both producing companies and governments
should continue to prosper.
What we have then is a situation where oil from one area competes
not only with oil from other areas but also with alternative fuel sources, both
existinc an4ip fa*,:ReRmyej3:donnO5tO5nc, S80=1701FIoMODM02oc producing
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countries to control production for their own ends would be as bad as joint
action by the companies for the same purpose. Over the short run, there might
be some gain in artificially creating a short supply and putting a floor under
prices. But it would last only as long as it would take the consuming areas
to develop the necessary supplies elsewhere, either other oil or some alterna-
tive source of energy such as I have mentioned. Once developed the other
sources would not be shutback even if oil again became competitive. In other
words, the loss of business would be permanent.
There sometimes is a rather bland tendency to assume that the oil
companies would be happy to go along with this sort of arrangement and that if
they don't, they are, to. say the least, ungrateful.,. But the oil companies--
and I believe in addition those government officials who have thought the
question through--know that it won't work. There are any number of examples
of the complete breakdown of attempts to control production of a commodity
through international agreements. The only exception that comes to mind is
diamonds, but here the buyers are interested in scarcity and high value.
Furthermore, in the case of industrial diamonds, producers have encountered
competition in the form of synthetics.
Production control schemes such as I am discussing cannot even be
attempted without the support of most of the more important producing countries.
They depend on continued good relations between the governments concerned, or
at least a sincere intention to cooperate. It is easy to see how a dispute in
the purely political sphere might quickly upset the arrangement. In this respect,
I believe we have to bear in mind that Russia is becoming an oil exporter of
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some importance, and there is ample proof the Soviets do not hesitate to use
economic instruments as political weapons. It only takes one maverick to under-
mine the entire scheme even before it begins to work its inevitable and dis-
astrous effect in loss of markets.
Aspirations based on such artificial control of supplies and prices
can hardly be put in the "sound and proper" category of aspirations.
To sum up these comments, we find that some proposals for satisfy-
ing aspirations are practical; others are not. Some require further consideration
and study of all the factors involved. I believe the governments and people in
the' Middle East will find the oil companies willing and anxious to assist where
they can in developing a sound economy. The main contribution these com-
panies make is in the money they pay the governments and which they hope is
used for constructive purposes. In addition, however, there are other ways in
which the companies can help and they sometimes go far afield from the oil
business to do so. They are acting partly out of self-interest because they
know that they will benefit from the stability which comes with a healthy economy.
Along this line I might mention that one company in the Middle East
is considering a plan to assist in financing new locally-owned businesses and
industries throughout the country. Once the enterprise is established and its
loan repaid, there would be no connection with the oil company. All the major
operating companies in the Middle East have a policy of developing local con-
tractors and businesses to provide the services they need, but this plan goes
farther in that it will assist enterprises unrelated to its operations.
There are a number of instances of where the oil companies have
acted to solve their own problems with a substantial resulting benefit to, the
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local economy. The home-ownership plans I mentioned before, which are sub-
sidized by the companies as a means of providing housing for employees, have
spread the concept of property ownership and encouraged the growth of a stable
property-owning class in some areas of operation. Oil companies have' assisted
in the development of water resources and assisted in town planning. Their
clinics and hospitals have given medical treatment to many non-employees as
well as employees who have never known it before. They have helped non-
company clinics and hospitals to get started and to operate on a sound basis.
National employees have gone through company training programs and then left
to use their newly learned skills elsewhere in the country.
What we have-in these countries is a real desire to industrialize
and improve as rapidly as possible, and there may be other areas of proper oil
company cooperation in addition to what the industry is now doing. The main
impetus must come from within the country itself, but those of us who know
this part of the world and like these people can help by encouraging the many
projects of real value, whether directly related to the oil industry or not.
Conversely, I feel we should avoid the trap of going along with
unsound or impractical projects even if they are tagged as National aspirations.
Attempting to buy good will by such expedients can, I feel, weaken the long-
term relationship of mutual respect and basic identity of interests so important
to both of us. "
Middle East Economic Aspirations
A speech by Howard W. Page, Director,
Standard Oil Company (New Jersey)
Before the Middle East Institute's Thirteenth Annual Conference
on Middle Eastern Affairs
Washington, D. C. March 20, 1959
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