210. Intelligence Note From the Director of the Bureau of Intelligence and Research (Hughes) to Secretary of State Rusk/1/
Washington, August 31, 1967.
/1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967-69, PET 15-2 ALG. Secret; No Foreign Dissem; Controlled Dissem.
SUBJECT
Algeria Nationalizes Esso and Mobil Affiliates
The Algerian Government has formally announced the nationalization of five US-owned companies engaged in distributing and refining oil (Esso Standard-Algeria, Esso Africa, Esso Saharienne, Mobiloil Nord-Africaine, and Mobiloil Francaise)./2/ The companies' assets have been transferred to the state-owned company, Sonatrach, which has long had its eye on the Esso and Mobil distribution networks, as well as their holdings in the Algiers refinery. Two other Mobil affiliates, both producing companies, have escaped nationalization. The decrees authorizing the nationalizations provide in principle for compensation after an inventory of the companies' assets, but the details have yet to be spelled out.
/2/The Algerian Government announced the nationalization on August 30. (Telegram 30198 to Algiers, August 31; ibid., PET 15-2 ALG)
Political Motives Uppermost. In nationalizing the Esso and Mobil affiliates, Algeria appears to have been guided mainly by political considerations. Despite strong pressures from the domestic left, Industry Minister Abdesslam Belaid had previously resisted nationalization of the distributing companies on the grounds that Sonatrach would be unable for some time to absorb them efficiently, and that they would eventually fall into the government's hands anyway; indeed, the government has for some time been employing a strategy of graduated harassment. The Middle East crisis has produced compelling reasons, however, for overriding Abdesslam's reservations. Unable to translate its hard line against Israel and its Western backers into effective military action, the Boumediene regime can at least point to its nationalization of US oil firms as proof of its militancy.
Prospects for the Producing Firms. The Algerian Government's intentions towards US oil-producing companies remain unclear. Its short-term goal appears to be to force the producers to accept the government's demands on a wide range of unresolved issues (tax reference prices, arbitration, new investment)./3/ It is currently using both the carrot of new offers of cooperation and the stick of possible nationalization. Two major US producers, Phillips and Sinclair, have been approached with tentative offers of participation in new companies to be jointly owned by the Algerian Government and the US firms. The latter would contribute their present concessions as an investment and, in return, would be allowed to manage the new firms without harassment. However, even should the US companies agree--the initial reactions of the field representatives have been positive--they would have little assurance of long-term security. In Algeria political, rather than economic, considerations will continue to shape government policies in the petroleum sector.
/3/See Intelligence Note 654, "US Oil Companies in Algeria: The Tightening Noose," August 10, 1967 (Confidential/No Foreign Dissem/Controlled Dissem). Footnote in the source text.]
211. Memorandum of Conversation/1/
Washington, September 25, 1967.
/1/Source: National Archives and Records Administration, RG 59, Records of the Department of State, Central Files, 1967-69, PET 15-2 ALG. Limited Official Use. Drafted by Dick.
SUBJECT
United States Government note to the Government of Algeria on the nationalization of the US-owned oil interests
PARTICIPANTS
Mr. Luke W. Findley, Natl. Govt. Relations Dept, Standard Oil
Mr. Grant Kelleher, General Counsel, Standard Oil
AF--Mr. William C. Trimble
AF/AFN--Mr. John Root
AF/AFN--Mr. Rene Tron
L--Mr. Carl F. Salans
L--Mr. Murray Belman
L/E--Mr. Philip Patman
L/C--Mr. Edison W. Dick
Mr. Findley began the discussion by stating that Esso was unhappy that a note was sent to the Government of Algeria without Esso first being consulted as to the content of the note./2/ Mr. Findley stated that Esso objected to the note in that it gave the Algerian Government the alternative of merely paying compensation for the nationalization of Esso interests rather than insisting upon rescission of the actions and restitution of the property. Mr. Findley stated that the ordinances and decrees enacted by the Government of Algeria were clearly discriminatory, arbitrary and confiscatory and that thus restitution was the only appropriate remedy under international law as interpreted by the United States.
/2/The text of the note was transmitted in telegram 38371 to Algiers, September 15. (Ibid., PS 8-4 US-ALG)
Mr. Salans pointed out that the historical United States position was not that restitution was the only appropriate remedy under the circumstances but rather that damages by the United States has always been considered to be an equally satisfactory form of reparation.
Mr. Belman brought out the point that the OECD Draft Convention on the Protection of Foreign Property confirmed this fact. He referred specifically to the notes and comments to Article 5 of the Draft Convention which discussed "full reparation" in the event of an illegal act. He pointed out that these notes and comments were altered at the insistence of the United States to state that "in practice, such reparation will generally take the form of damages." He stated that the reason for the United States insisting on this language is because of a United States Supreme Court decision holding that the federal government could never be bound to restore property it had taken by eminent domain.
Mr. Belman went on to say that the United States position for the OECD draft with respect to this question of reparation was reached following consultation with the Business and Industry Advisory Committee and was concurred in by that Committee. Mr. Belman stated that he worked closely with Mr. Haitt of Shell Oil Corp. on this question and that to his knowledge Mr. Collado of Standard of New Jersey had been involved.
Mr. Findley stated that he was unaware of what had transpired in connection with the OECD Foreign Property Convention and was grateful for the information regarding the United States position on reparations and how it had been developed. Mr. Findley stated that he believed the United States position was a poor one since it would have the effect of selling the United States investment community down the river overseas. He felt that foreign governments (especially those in the Middle East) would have less hesitation about nationalizing United States properties in violation of international law since they only would be required to make some compensation which was rarely ever prompt, adequate or effective. Mr. Salans pointed out that the promptness, adequateness or effectiveness of compensation was a separate question.
Mr. Salans suggested that since the United States note had already been delivered to the Government of Algeria, no decision be taken at the moment on what the tactical position of the United States should be with respect to reparations and that any such decision would await a reply from the Government of Algeria. Mr. Findley agreed with this course of action.
Mr. Dick pointed out that the Government of Algeria in 1964 took the position that "either compensation or restitution at the discretion of the Algerian authorities" was the appropriate remedy with regard to the properties nationalized pursuant to the decrees of 1963.