285. Telegram 63120 From the Department of State to the Embassies in the United Kingdom, Libya, Iran, Kuwait, Saudi Arabia, Lebanon, France, the Hague, and Austria and the Consulate in Saudi Arabia, April 14, 1971, 2225Z
TELEGRAM
Department of State 63120
ACTION: Amembassy LONDON
Amembassy TRIPOLI
Amembassy TEHRAN
Amembassy KUWAIT
Amembassy JIDDA
Amembassy BEIRUT
AmConGen DHAHRAN
Amembassy PARIS
Amembassy THE HAGUE
Amembassy VIENNA
STATE:
SUBJECT: Middle East Oil Negotiations
REF: London 2851, 2623
1. Oil companies have offered Iraq and Saudi Arabia higher price for oil exported by pipeline from Eastern Mediterranean terminals which is comparable to new price reached in negotiations with Libya, after adjustments for transportation, gravity, and sulphur content. Iraq has rejected offer and demanded additional 20 cent premium for the special qualities of its oil, and reinvestment commitment by companies in desulphurization installations in Iraq. Companies believe they cannot accept Iraqi demands which would leave them open to demands for further upward price adjustments elsewhere.
2. Saudi Arabian Petroleum Minister Yamani has told companies that at Tripoli meeting April 9-10, Iraqi Oil Minister Hammadi tried to get Libyan and Saudi support for Iraqi position. According to Yamani, Hammadi asked Libyans not to "leapfrog" and make further demands from the companies if Iraq received premium. Outcome of meeting was not revealed, but Yamani said there was some friction between Libyans and Iraqis as each claimed to be the most militant in dealing with companies. Hammadi said he would take his case before OPEC if companies did not give in to Iraqi demands.
3. Yamani has given companies choice of signing agreement now with Saudi Arabia on terms offered by the companies provided they do not give Iraq more favorable terms, or not signing agreement now in which case he will use his influence with Iraqi to make reasonable common settlement. Companies are leaning toward signing now with Saudi Arabia. Companies have also given thought to making sharing agreement with CFP in case Iraq oil production is shut down, but have decided against such a move for time being.
4. Syria has told IPC that since companies have given short haul premium to Libya, companies should also increase transit fees for pipelines crossing Syria delivering shorthaul crude to Mediterranean.
5. Meanwhile Iranian Finance Minister Amuzegar told Consortium General Manager Van Reeven that Shah was "displeased" with size of price increase given Libya by companies. Amuzegar said companies had "paid too much in Libya" and that Iranian posted price was now 10 to 19 cents too low. He also said 10 cent low and sulphur premium given Libya was too high and "side payment" to Libya (instead of retroactive price increase) was "objectionable." However no specific demands for higher prices were made by Iranians. Van Reevan told Amuzegar Iran should take heart since Libya pricing was pricing its crude out of the European market.
6. Having given low sulphur premium to Libyans, companies now expect that Abu Dhabi and Oman will demand premium for their low sulphur crudes. Abu Dhabi exports crude with 0.8 percent sulphur (1.9 percent in derived fuel oil) and Oman exports crude with 1.2 percent sulphur (1.8 percent in derived fuel oil). This is a lower sulphur content than other Persian Gulf crudes, but higher than Libyan crude which contains less than 0.5 percent sulphur.
IRWIN
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