British Government Files Part 1 - Paperless Archives

ANGLO-IRANIAN OIL CRISIS FILES
BP / BRITISH PETROLEUM / ANGLO-IRANIAN OIL COMPANY
SECTION 2 – PART 1
BRITISH GOVERNMENT FILES
CABINET OFFICE PAPERS
BACM RESEARCH
WWW.PAPERLESSARCHIVES.COM

BP - British Petroleum
(and other appellations)
CIA - British Government Files
1353 pages of CIA, British Government, and State Department files
covering the interest of the once British Government controlled
enterprise subsequently known as BP - British Petroleum. In 1908 BP -
British Petroleum was founded as the Anglo-Persian Oil Company.
The files chiefly covers the British (AIOC/BP)-Iranian oil dispute of the
1940's and 50's, and the United State's involvement in its settlement and
regime change in Iran.
BP - British Petroleum - Anglo-Persian Oil Company
History
In May 1901, British businessman William Knox D'Arcy entered into an
agreement with the Shah of Iran for the exploration of oil. The 1901
concession for the exploration of oil resources in South Persia was
entered into between the Persian Government and Mr. D'Arcy on the 28th
May, 1901. It included the provision of the exclusive right for 60 years
for the exploration of petroleum throughout the Persian Empire, with the
exception of five provinces in Northern Persia. The Persian Government
was to receive £20,000 in cash, £20,000 in paid upshares, and annually a
sum equal to sixteen percent of the Company's profits.
D’Arcy placed his entire fortune into the search for oil, but after
almost seven years, there was no sign of commercial exploitable
petroleum. The venture and D’Arcy’s money was nearing an end. A telegram
was sent to the chief geologist, George Bernard Reynolds, to shut down
operations. Reynolds delayed following the orders due to a strong "rotten
egg" smell that engulfed the drilling camp. A few days later, oil was
shooting high into the Iranian sky. Oil was discovered by D’Arcy’s
venture on May 26, 1908. According to the official BP/British Petroleum
history, upon hearing the news D’Arcy said, "If this is true, all our
troubles are over."
In 1908, the Anglo-Persian Oil Company (Later the Anglo-Iranian Oil
Company, then British Petroleum) was created with its main asset,
D'Arcy's oil rights. In 1914, APOC had accumulated large oil reserves,
greater than demand at the time. Other oil companies had the lock on the
industrial petroleum market. The automobile age oil thirst had not yet
appeared. The lack of revenue drove the company close to bankruptcy.
Winston Churchill, who was First Lord of the Admiralty at the time,
believed that the British Navy should switch from being powered by coal
to oil. Churchill sensed coming years of war. He appealed to Parliament

that Britain should secure a protected supply of oil. In 1914, the
British government subscribed to the Company a total of £2,200,000,
becoming the majority share holder with 56% of the Company's shares.
In 1917, APOC bought the German motor oil company named British
Petroleum. In 1935, the Company was renamed Anglo-Iranian Oil Company,
after Persia changed its name to Iran.
Iranian leaders over the years sought to modify the terms of the
APOC/AIOC oil concession, which many in Iran saw as exploitative. A 1933
re-negotiated concession was later found to be unsatisfactory to the
Persian government. After years of negotiations, the opposing sides were
not able to reach an agreement.
In March of 1951, the Iranian government, elected by the Iranian
parliament, of nationalist Prime Minister Mohammed Mossadegh (also
spelled Mosaddegh, Mosaddeq, Mossadeq, or Musaddiq), nationalized the
British owned Anglo-Iranian Oil Company. The AIOC at the time was
providing 90 percent of the petroleum used in Europe. Mossadeq
transformed the AIOC operations in Iran into the National Iranian Oil
Company.
The January 7, 1952 issue of Time Magazine named Mossadeq as Man of the
Year for 1951.
The British government was infuriated by the takeover of its oil company.
The British government was able to organize a successful boycott of
Iranian oil. Both nations were thus denied revenue from the abundant
Iranian oil supply. The U.S. Secretary of State at the time, Dean
Acheson, 17 years later wrote in his book, "Present at the Creation: My
Years in the State Department," that "Never had so few, lost so much, so
stupidly and so fast."
In October 1951, British elections lead to the Conservative Party taking
power, returning Winston Churchill to the position of Prime Minister.
After the earlier loss of the India colony, Churchill was committed to
not seeing any more dissembling of the Empire.
BP/British Petroleum’s current official history completely omits the
years 1952 and 1953.
The British government began seeking ways, including military action, to
end the rule of the Mossadegh government. When Mossadegh learned of the
British intentions he shut down the British Embassy and deported British
citizens from Iran. The British government turned to U.S. President Harry
Truman. Truman was against military intervention or giving support to a
coup. It has been reported that Truman told the British government that
the CIA had never overthrown a government and that he did not want to
establish such a precedent.
After President Eisenhower took office in 1953, the British government
conveyed its concern that control of Iran could fall into communist
hands. The United States and Britain feared the links Mossadegh had to
the Iranian communist Tudeh Party. In August 1953, the United States and
Britain began planning a coup to remove Mossadeq from power.

The CIA operation in Iran was codenamed TPAJAX. The plan was coordinated
by the CIA's Special Activities Division political action officer in
Iran, Kermit Roosevelt, the grandson of President Theodore Roosevelt. The
covert action combined propaganda dissimilation, encouraged acts of
provocation, demonstrations, bribery, employed agents of influence,
"false flag" operatives, dissident military leaders, and paid protestors.
The goal was to lapse Iran into chaos.
On August 16, 1953, The Shah sent Iranian Imperial Guard Colonel
Nematollah Nassiri to arrest Mosaddegh. Instead, Nassiri was arrested by
forces loyal to Mosaddegh. The next day, the Shah left the country,
taking refuge in Rome. On August 19, the CIA arranged for a mob to march
on Mossadegh's home. Pro-Shah Iranian army forces arrested Mossadeq. The
senior army general chosen by the CIA to lead the coup, Fazlollah Zahedi,
gave a broadcast to the nation declaring that he was the lawful prime
minister by the order of the Shah. The Shah soon after returned to Iran.
Mossadegh was tried by a military tribunal for treason. He was convicted
and sentenced to three years of solitary confinement, followed by life
confined to his home village, where he remained until his death in 1967.
A number of Mossadegh's supporters were taken into custody, imprisoned
and tortured. Mossadegh's closest associate, Minster of Foreign Affairs
Hossein Fatemi, was executed on October 29, 1953 by order of the Shah's
military court. Dozens of military officers and student leaders were
executed by military tribunals. After the Shah returned to Iran, to
remain in control, he governed in an increasingly authoritarian manner.
Mossadegh's National Iranian Oil Company became an international
consortium, and AIOC resumed operations in Iran as one of its members.
The AIOC renamed itself the British Petroleum Company in 1954. After
Margaret Thatcher became Prime Minister, she endorsed privatizing many
British government owned assets. In several stages from 1979 to 1987, the
British government sold all the shares of British Petroleum it owned. In
1998, British Petroleum merged with Amoco, formerly the Standard Oil of
Indiana, becoming BP Amoco plc. In 2000, BP Amoco acquired Arco (Atlantic
Richfield Co.) and Burmah Castrol plc. In 2001, the company formally
renamed itself as BP plc.
CONTENTS
SECTION 1 - CIA FILES
SECTION 2 - BRITISH GOVERNMENT FILES
SECTION 3 - U.S. DEPARTMENT OF STATES FILES
Section 4 - NSC REPORT

CIA FILES
322 pages of CIA files. The files mostly date from 1947 to 1954.
According to CIA staff historian Nick Cullather, who worked in the Agency
during 1992 and 1993, files dealing with on the ground covert action of
Operation TPAJAX were destroyed or lost by the Agency. The files
presented in this research set are comprised of National Intelligence
Estimates, reports from the Office of Reports and Estimates, and Special
Estimates.
Also included among the CIA files is a once Top Secret draft history
written by the Central Intelligence Agency's history staff in 1998. The
agency still considers 88 pages of the 139 page report to be too
sensitive to release, even 57 years after the events the report covers.
The report titled "Zendebad, Shah!: The Central Intelligence Agency and
the Fall of Iranian Prime Minister Mohammed Mossadeq, August 1953," was
released in a redacted form after a lawsuit was filed for materials
relating to Iran in 1953. At first it was denied in its entirety, then
upon review, sections already marked Unclassified were released along
with a single section previously marked Secret. The document is
potentially of great historical value because it was prepared by a
trained CIA historian, with the benefit of access to still classified
supporting documentation and many years of historical perspective.
The set includes a text transcription of a book review from the CIA's
internal journal "Studies in Intelligence." This 2004 article is a review
of "All the Shah's Men: An American Coup and the Roots of Middle East
Terror Intelligence in Recent Public Literature" by Stephen Kinzer. The
review was written by CIA staff historian David S. Robarge.

BRITISH GOVERNMENT FILES
973 pages of British Prime Minister's Cabinet Papers. Files mostly date
from 1946 to 1954, covering the Anglo-Iranian oil crisis. Composed of
papers kept by the Cabinet Office including ministers' memorandums,
cabinet conclusions, and cabinet meeting notes.
The Cabinet Office provides the secretariat for the Cabinet and its
committees. The papers include minutes called "conclusions." Conclusions
document opinions and ideas discussed at cabinet meetings. Memoranda are
kept by the Cabinet Office and are used for policy issues dealing with
specific events. The memorandums usually include an outline of the issue,
its background and significance, possible solutions, and a precise
recommendation for action.
UNITED STATES DEPARTMENT OF STATE FILES
50 pages of State Department files dating from 1951 to 1953. Highlights
include:
A memo from Secretary of State Dean Acheson on the information that
should be dissimilated to the Iranian people as part of its
"psychological strategy program."
A report on the initial findings of a working group consisting of
representatives from the State Department, Department of Defense, the
CIA, and the Joint Chiefs of Staff on plans for "the specific military,
economic, diplomatic, and psychological measures which should be taken to
support a non-communist Iranian Government or to prevent all or part of
Iran or adjacent areas from falling under communist domination."
A memo by Secretary of State John Dulles mentioning that it is sometimes
possible for the Department to inspire editorials in U.S. media. Dulles
writes this would be useful in case, "Embassy should desire certain
points of view brought out for benefit American public or particular
emphasis laid upon points which have not received full understanding and
publicity. Additionally, VOA (Voice of America) might, pick up such
editorials or articles and play them, on Persian program without any
indication U.S. official inspiration."
Nation Security Council (NSC) Report
A 1952 eight-page report from the National Security Council titled, "A
Report to the National Security Council by the Executive Secretary on
United States Policy Regarding the Present Situation in Iran.”

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THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTY'S GOVERNMENT
Printed for the Cabinet. June 1946.
SECRET.
Copy No.
CM. (46)
51th Conclusions.
CABINET 54 (46).
CONCLUSIONS of a Meeting of the Cabinet held at 10 Downing Street, S.W.1,
on Monday, 3rd June, 1946, at 11-45 a.m.
Present:
The Right Hon. C. R. ATTLEE, MP , Prime Minister (in the
Chair).
The Right Hon. HERBERT MORRISON, The Right Hon. ERNEST BEVIN, M.P.,
MP , Lord President of the Council. Secretary of State for Foreign
Affairs.
The Right Hon. ARTHUR GREENWOOD, The Right Hon. HUGH DALTON, MP ,
M.P, Lord Privy Seal
Chancellor of the Exchequer.
The Right Hon. LORD JOWITT, Lord The Right Hon. J. CHUTER EDE, MP,
Chancellor.
Secretary of State for the Home
Department.
The Right Hon. VISCOUNT ADDISON, The Right Hon. G. H. HALL, MP ,
Secretary of State for Dominion Secretary of State for the Colonies.
Affairs.
The Right Hon. J . J . LAWSON, MP , The Right Hon. G. A. ISAACS, M.P.,
Secretary of State for War.
Minister of Labour and National
Service.
The Right Hon. ELLEN WILKINSON, The Right Hon. ANEURIN BEVAN, MP ,
MP , Minister of Education. Minister of Health.
The Right Hon. T. WILLIAMS,
MP , Minister of Agriculture and
Fisheries.
The following were also present:
Field-Marshal VISCOUNT ALANBROOKE, Admiral of the Fleet VISCOUNT
Chief of the Imperial General Staff CUNNINGHAM OF HYNDHOPE, First
(Items 3-5).
Sea Lord and Chief of Naval Staff
(Items 3-5).
Marshal of the Royal Air Force LORD Mr. OLIVER HARVEY, Deputy Under­
TEDDER, Chief of the Air Staff Secretary of State for Foreign
(Items 3-5).
Affairs.
Secretariat :
Sir EDWARD BRIDGES.
General Sir HASTINGS ISMAY.
Sir NORMAN BROOK.
Mr. C. G. EASTWOOD.
[32142^4]
B

CABINET 54 (46).
Minute
No.
1 Parliament
2
Foreign Affairs Debate.
Persia ....
3 Greece ....
Armed Forces.
CONTENTS:
Subject.
4 Polish Armed Forces under British Command
5 Malaya ....
Future Constitution.
Rubber.

Parliament.
Foreign
Affairs
Debate.
1. The Cabinet were informed that, since they discussed on the
30th May the arrangements for Government speakers in the forthcoming
debate on foreign affairs, Mr. Churchill had indicated his
intention of speaking at the beginning of the second day's debate.
It was agreed that in these circumstances the Prime Minister should
speak immediately after Mr. Churchill on the second day. The
Foreign Secretary would open the debate; and the Parliamentary
Under-Secretary of State for Foreign Affairs would reply at the end
of the second day's debate.
The Foreign Secretary said that his task at the meeting of the
Council of Foreign Ministers and in other international discussions
had been made more difficult by the fact that His Majesty's Government
had never publicly dissociated themselves from the views
expressed by Mr. Churchill in his speech at Fulton, Missouri, on the
5th March, 1946. If Mr. Churchill should make similarly provocative
statements in his speech in the. forthcoming debate in the House
of Commons, it would be helpful 4ff it could be made clear that these
views were not shared by His Majesty's Government. The Prime
Minister said that he would keep this point in mind.
Persia.
(Previous
Reference:
CM. (46) 51st
Conclusions, '
Minute 1.)
2. The Foreign Secretary said that, as he had informed the
Cabinet on the 27th May, he had arranged to send a Labour Attache
from the British Embassy at Cairo to assist the Anglo-Persian
Oil Company in reviewing labour conditions at their oil plants at
Abadan. He had also promoted the despatch to Persia of a Parliamentary
Mission consisting of three Members of Parliament with
industrial experience. The Anglo-Persian Oil Company were
spending about £!i\ millions at Abadan on the provision of housing
and other amenities for their workers; and it was important, on
political grounds, that they should pursue a progressive policy in
this matter. As His Majesty's Government owned the majority of
the shares in the Company, they could not escape responsibility for
the Company's policy. The Foreign Secretary hoped that, in any
guidance which they gave to the Government directors, the Treasury
would not be unduly influenced by financial considerations.
Greece.
Armed
Forces.
(Previous
Reference:
CM. (46) 5th
Conclusions,
Minute 2.)
3. The Cabinet had before them a memorandum by the Foreign
Secretary (CP. (46) 213) regarding the withdrawal of British troops
from Greece and the strength of the Greek Army.
The Foreign Secretary said that he was anxious that British
troops should not be kept in Greece any longer than was necessary;
and, subject to the results of the June meeting of the Council of
Foreign Ministers, his present aim was to secure their withdrawal
by September, 1946. He was, however, advised that the Greek
Government could not themselves finance an army of more than
50,000 men and that a substantially larger force than this would be
required to balance the armies of Bulgaria and Yugoslavia. Greece
should not be left with greatly reduced defences until it was clear
that the armies of other Balkan countries would also be reduced.
Until then, if British troops were withdrawn from Greece, His
Majesty's Government should help Greece to maintain her own
forces up to the desired level.
The Foreign Secretary said that he was not proposing a
permanent subsidy for the Greek army. It was difficult to see far
ahead, and he thought that at this stage plans could be laid only
for 1946. He therefore invited the Cabinet to agree in principle
that we should assist the Greek Government to maintain the
minimum forces which they would require to protect their interests,
after the withdrawal of the British troops, up to the end of 1946.
If this could be agreed in principle details could be worked out in
discussion between the Foreign Office, Treasury and Chiefs of Staff.
The cost in a full year of maintaining an army of 100,000 would
[32142-4] B 2

e of the order of £15 millions. Of this, some £2 millions would be
required for the purchase of food; and the Greek Government might
be asked to carry this part of the expenditure with their own
resources of foreign exchange. Equipment would, however, represent
a substantial part of the total cost, and much of this might be
provided from British surplus stocks in Egypt or the United
Kingdom.
The Chief of the Imperial General Staff said that our manpower
plans for the Armed Forces were based on the assumption
that British troops would be withdrawn from Greece before the end
of the year. According to the best information available, the present
strengths of the Bulgarian and Yugoslav armies were 56,000 and
350,000 respectively. If these Armies attacked Greece, after the
withdrawal of British troops, a Greek army of 50,000 men would
be quickly overwhelmed, but an army of 100,000 might deter attack
and should be able to fight a delaying action until other assistance
became available. Fairly good progress was being made with the
training of the Greek army.
The Chancellor of the Exchequer said that he was advised that
it would be impossible for Greece to maintain from her own
resources an army of 100,000 men. He appreciated, however, that
the present year was a transition period and on that basis he could
agree to the proposal which the Foreign Secretary had developed
in the discussion. The Greek Government had not so far made
effective use of our financial assistance to restore their economy;
and he thought it should be made clear to them that this further
assistance would be limited to the current year.
In discussion, it was pointed out that paragraph 9 (2) of
CP . (46) 213 implied a more permanent commitment. The Foreign
Secretary said that, on reflection, he was not now proposing any
commitment beyond the current year. In particular, he withdrew
the proposal in paragraph 9 (2) of CP . (46) 213 that we should not
commit ourselves to wthdrawing British troops from Greece until
the Greek army was strong enough to defend its frontiers against
Yugoslav and Bulgarian aggression; and he agreed that paragraph
9 (3) of his memorandum should be construed as referring only to
commitments in 1946.
The Secretary of State for Dominion Affairs said that, while
he agreed that these proposals should be explained to Dominion
Governments, he thought it unlikely that they would secure the
unanimous agreement and support of the Dominions.
The Cabinet­
(1) Agreed in principle that His Majesty's Government should
assist the Greek Government to maintain up to the end
of 1946 an army sufficient to protect their interests after
the withdrawal of British troops from Greece.
(2) Invited the Foreign Secretary to arrange for the Foreign
Office, Treasury, Chiefs of Staff and Service Departments
to consider in detail the means of giving effect to
this decision.
Polish Armed
Forces under
British
Command.
(Previous
Eeference:
CM. (46) 50th
Conclusions,
Minute 1.)
4. The attention of the Cabinet was drawn to the special
order issued by General Anders to the Polish Second Corps in Italy
regarding their impending transfer to the United Kingdom.
According to news reports this had included the following
statements :—
" We shall go from Italian soil through the British Isles
and to-morrow along the unknown road to Poland. We shall go
to the Poland for which we fought and which no Polish heart
can imagine without Lvov and Vilna. . . . Our march
towards a free and independent Poland goes on."

It was pointed out that these statements were likely to give- 234
offence to the Governments of Poland and the Soviet Union, and
might increase the difficulties of arranging for the dispersal of these
Polish forces.
The Foreign Secretary said that he was considering the
position and was not at present prepared to make any recommendation
to the Cabinet.
Malaya.
Future
Constitution.
(Previous
Eef erence:
CM. (46) 19th
Conclusions,
Minute 7.)
5. The Secretary of State for the Colonies informed the
Cabinet of recent developments in regard to the Constitution of
Malaya. As they were aware, there had been considerable
opposition in Malaya to the proposals contained in the Statement
of Policy (Cmd. 6724). Mr. Malcolm MacDonald, the Governor-
General of Malaya, who had recently arrived in the country, and
Sir Edward Gent, Governor of the Malayan Union, had now
succeeded in arranging meetings with the Malayan Rulers. These
meetings had opened successfully. Two of the Sultans had pressed
for some change in the arrangements made with Sir Harold
MacMichael whereby they had surrendered jurisdiction to His
Majesty, but the Secretary of State thought that it would be
necessary to stand firm on this point. The other matters on which
the Sultans were concerned were the strength of the central
authority and the proposal to extend Malayan citizenship.
Conversations would continue after a short delay and the Secretary
of State hoped they would lead to a settlement satisfactory to all
parties.
The Cabinet took note of the position.
Eubber.
In connection with the discussion recorded above, attention
was drawn to the recent decision of the Lord Presidents Committee
regarding the price of rubber to be aimed at during the forthcoming
negotiations with the United States Government. It was argued
that unless prices of tropical products were maintained at a fair
level it would be difficult to raise standards of living among
producers. On the other hand, in the particular case of rubber the
possible competition of synthetic rubber had to be taken into
account.
The Foreign Secretary expressed the view that there might be
some concealed subsidy affecting the price of synthetic rubber as
declared by the Americans, and suggested that attention should be
given to this aspect of the matter in the negotiations for a price for
a subsequent period.
Cabinet
3rd
Office, S. W. 1,
June, 1946.

TEXT TRANSCRIPTION
FOLLOWED BY ORGINAL HANDWRITTEN DOCUMENT
CM 61 (46) 24th June, 1946
Sixty-First Cabinet Meeting 1946

C.M. 61 (46) 24!h June, 1946
l. Persia
N.B.
E.Sh.
N.B.
Strong repns to P.M. tht. we hold him respons. for B. lives & property. This
has made impn on him.
Has sent Director to receive complts. vice going to Tudeh Party.
M. Berthond has gone out - will send to E.Sh. copy of his directive.
Signs of some improvemts. tribes hostile to Tudeh Party.
Tudeh has strong hold -labour agit n canalised thro' them.
That is E.B. 's policy. Also hopes for form n of T.H.: & Persians show signs
of wanting our help with that.
2. Council of Foreign Ministers: Paris
N.B.
G.H.
N.B.
Going better than we feared. Shd. know by Fri. what hopes of agreemt.
Apart fr. Repns main crux - Trieste. Some signs tht. R. wd. accept
internat. regime & tht. Fr. will put it up. Diffy. may be to find an Ital.
Govt. which wd. accept it.
Repns. Sov. claim is being reduced to nOM: but involves principle of
current prod n . Danger ~ repercussions on Germany when it wd. be
important.
Malta. Rpt. on cost ofrehabil n rec d : estimate over £40M. Ifrepn claimed,
don't forget Malta. We have given or promised £30M & that won't be
enough.
We agreed last Aug. tht. we shdn't demand repns from Italy.
3. Palestine
G.H.
P.M.
J.
J.J.L.
P.M.
G.H.
N.B.
2 of kidnapped offrs. released. Seems tht. other 3 will be retained pro. tern.
Pep. to-morrow.
Anders addressg. P. troops in Pal. - saying workg. for new Poland, includg.
Lwow.
Surely we shdn't allow him to go.
Don't know anything.
Find out. Also what he actually said.
I wasn't told he was going.
Our GenIs. don't make such speeches. Why sh. he?
252

Anglo. Am. discns: progress reported.
No rprt. to Govts. at this stage. Only report to main party.
x Telgr. to go to W'ton urging early arrival of Grady. x.
4. Canada: Long-term Wheat Agreement.
H.D.
A.B.
P.M.
T.W.
N.B.
State Dpt. concerned about re-action on Loan. M/F. was apprehensive: was
expectg. Clayton to press him to delay announcement. I thght. tht. wd.
be embarrassing: send him some gen re Clayton (doctrinaire re bulk
purchase).
Reply from M/F now coming in: can consider in light oftht. whr. we
need hold up announcement.
Argentine wheat. Can we have def. report?
I will ask for rpt. from M/Food.
Any confirm n of RSH's alleg nS of purchase oflinseed oil by Russia.
I will enquire.
5. United Somalia
G.H.
N.B.
P.M.
Purpose ~ keep it open. Did E.B. mean w'drawg. B. trusteeship only or
w'drawg. whole proposal. If the first, don't mind so much: if the second,
must ask for review.
Diff's with Ethiopian (Ogaden) - diff's over B. trusteeship claim. E.B.
concluded it was more trouble than it was worth. And he meant "that's
out". viz., tht. in further discns we wdn't raise again the ques. of United
Somalia.
Further point: deal with Ethiopia for grazing land against camel corridor.
F.O. favour that.
But what E.B. has said needn't exclude takg. up later idea of United Somalia
under international trusteeship.
Cd. understand w'drawg. it fr. discn. See no reason to abandon it
w'out quid pro quo.
A. Agreed. Wider implic ns . W d. be unfortunate to abandon whole idea.
Don't discuss intern. trusteeship in Africa until we know what form
intern. trust will take. Don't be comm d to agreemt. in advance to
intern. principle.
H.D.
Suspended for 12 mos. Somalia is least attractive part of Africa, fr. financial
pt. of view. Cost of administrating this desert.
253

P.M.
N.B.
P.M.
Must look at our posn in area as a whole. Send message to E.B. saying-
Noted w'drawn. Assumes this means no decision: held over 12
months.
Para. 2 of Tel. 233. Can we say B trust w'drawn?
No. Wd. prefer p'ponement.
i.e. horse w'drawn fr. these tasks.
6. Basic English.
P.M.
N.B.
H.D.
J. & A.B.
Whose vote?
F.O. vote: and don't like defending it.
Favour giving some support to this.
Support this.
Personal & financial factors are v. difficult.
But Ogden prefers Ty. to F.O. officials!
Can I explore it. Then M/Ed. can look into it with me now.
Spoke in favour of B. English.
[EnterH.M.
A.B.
F.O. shdn't handle this.
C.E.
P.M.
H.M.
International use - commercial jargon. And on that alc, if no other, not
useful as introd n to wider learning of English.
Ifwe aren't too ambitious, this wd. be useful w'in limits.
Who then shd. look after it? Not B. Council nor F.O. Better suited to BIT
or C.O.I.?
Generally agreed: no ques. of B. Council.
N.B.
P.M.
Three uses
a) commercial code.
b) entry into English
c) auxil. internat 1 language
F.O. object to (c) [& aren't concerned with a) or b)]: for various
reasons.
Agree for these reasons F.O. wrong Dpt. to handle it. Wd. welcome its
being taken up - a) and b) - by someone else.
Begin on trading side.
254

A.B.
Get it in on lower levels: high-ups have taken trouble to learn English.
Agree: official use (take copyright)
let H.M. with Ty. & others consider how to exploit.
7. Coal: Five-Day Week
[Exit o. Sargent
[Enter Barnes
E.Sh.
T.W.
P.M.
A.B.
Explained posn. Drew attention to fonn of announcement.
Read letter from N.U.M. They say over 6 months another 7 1 / 2 cwt. per man
per week wd. result from 5 day week.
Other advantages
a) wd. stimulate recruitment
b) better atmosphere in industry
c) with the condns att d wd. increase prod n .
I'm satisfied tht. w'out somethg. like this we can't improve posn.
Reid Cttee recommd ed 5 day wk. with 8 hrs. day. But Reid has since
admitted to me tht. with condns I propose 8 hour day not essential.
Other demands in Charter (i) 2 wks with pay vice l. (ii) paymt. for 6 stat.
hols.
Propose to reject (i) but accept (ii).
Date of opern. Div" of views. among miners leaders. Some wd. be content
with 111147 (resting date): others want autumn 1946. But most
responsible men wd. be content with May' 47 - at end of current coal
year. This would get us thro' winter. Also wd. give N.C.B. time to
settle details.
Further point:
a) Repercussions. Particularly if applied to surface workers. Prob.
demand fr. agric. We've looked at this point. Cdn't differentiate -
cdn't get it thro' N.U.M.: cdn't work it in practice anyway. It wd.
mean reducing pay of some surface workers.
b) Parly. announcement simultaneously with Bridlington. Have
considered & written to L.P.
Fr. pt. view repercussions on agric., most important to avoid giving imprn
tht. this is Govt. decision. - either that or direct Govt. intervention
betwn. employers & min.
cf. L.P. decision - wording. Para. 5 of draft statement differs from that - &
seems to imply Govt. responsibility for this concession. cf. also "at my
request" on 2 nd page.
This looks like thin edge of wedge of Govt. intervention in wages & condns.
Diff. to suggest Govt. isn't responsible. We are nationalising the industry &
apptg. the Bd. which will negotiate.
And nation n must be made to mean something to the miner. We want to
make it clear to miner that Govt. is author of this.
But we must get time to re-arrange in pits to avoid disastrous drop in output.
255

Traffic is bottle-neck: & shorter working week makes it worse.
Sympathise with MI Ag. re surface worker. The differential betwn. him &
underground worker is too small. You shd. take liberty to use surface
workers on 6 th day if required w'out overtime.
Don't entrust publicity (for conditions) to miners' leaders.
Barnes.
H.M.
Don't see a case for 5-day wk. for surface workers - more than cf. for
transport workers.
Haven't bn. satisfied tht. coal can be cleared fr. the mines with 5 day week.
We shd. have time to go into this before being comm d
Traffic has always bn. a bottle-neck & this will make it worse.
BIT. take serious view. Grave risk of reduced output & increased cost (wh.
is already too high & is a grave liability to B. industry). Our advantage
expected fr. natn was reduced price.
This means in effect a 1/6 th increase of wages. If it leads to increased output
& lower costs, these arguments are invalidated.
L.P. Cttee discussed & recommend the scheme on balance -
Some force majeure because reason to expect strikes etc., w'out this
concessIOn.
E.Sh. assures us he will get quid pro quo by way of conditions.
On ques. whr. Govt. shd. father decision: pity we can't do it via industry,
but M. Assoc n . will be out before details settled, and N.C.B. won't be
in. : we agreed therefore to formula.
But we all think even this degree of Govt. intervention is undesirable.
Mining has bn. too much in politics. They sh. be told why this
happened this time & warned they will have to deal with N.C.B. in
future.
Repercussions. Real case ~ nature of workers job. This doesn't apply to
surface worker: & there is danger of repercussion. Again, we want to
up-grade surface worker to face-work: & mustn't therefore reduce the
differential. I wish this cd. be met.
Announcement.
a) risk tht. will be said E.Sh. gave way (b'mailed) to N.U.M.
b) this will have gt. econ. consequences good or bad. And Govt. are
responsible for it.
They will want a debate. Maybe a Vote of Censure.
Unless Parlt. is treated equal footing with N.U.M. there will be trouble.
Agreed: M/F & P. to make statement in H/C. on previous day.
GAL
E.Sh.
"See no obj""· vice "favour". in the statement.
Replied to points raised in discn
a) Costs. If this leads to 5 days work, we're O.K. because only work
now 4 1 / 2 .
Ifhe doesn't work 5 days he doesn't get 6 day pay.
There is an element of risk.
256

) Surface workers. If this isn't Govt. decision, it's for industry to
settle that.
I could drop a hint at Bridlington. I can't be finn because don't believe its
practicable.
Problem isn't serious, however. They are disappearing gradually: &
we will have none save compens n cases.
c) Transport. True you can't work on Sats. under this scheme. But
you can't do much now: for there is 60-70% absentee-ism on Sats.
And you need Sat & Sun for repair & maintenance work.
P.M.
E.Sh.
Govt. intervention point is not v. strong. For hours have for years past been
regulated by the State.
May I amplify para 3.?
Agreed.
Agreed: as above: simult. statement in H/Lords [Exit Barnes
Agreed: special Cab. mtg. for other points.
4. (Cont'\ Canada: Long-tenn Wheat Agreement.
H.D.
A.B.
Clayton said cdn't defend this if challenged on Loan. Thght. 5/7 latest:
maybe next week.
M/F thinks in these circs. better to p'pone. Want to know ifhe shd. try to
persuade Canadian Govt. accordingly.
No alternatives therefore but to p'pone.
But v. sinister.
257

THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTY'£ GO:
PvNMENT
Printed for the Cabinet. August 1946.
SECRET. Copy No. A 9
CM. (46)
76th Conclusions.
CABINET 76 (46).
CONCLUSIONS
of a Meeting of the Cabinet held at 10 Downing
on Thursday, 1st August, 1946, at 10 a.m.
Street, S.W. 1,
Present
The Right Hon. C. R. ATTLEE, M.P., Prime Minister (in the Chair—Items 3-11).
The Right Hon. HERBERT MORRISON,
M.P., Lord President of the Council
(in the Chair—Items 1 and 2).
The Right Hon. HUGH DALTON, M.P.,
Chancellor of the Exchequer.
The Right Hon. LORD JOWITT, Lord
Chancellor.
The Right Hon. VISCOUNT ADDISON,
Secretary of State for Dominion
Affairs.
The Right Hon. G. H. HALL, M.P.,
Secretary of State for the Colonies.
The Right Hon. J . WESTWOOD, M.P.,
Secretary of State for Scotland.
The Right Hon. E. SHINWELL, M.P.,
Minister of Euel and Power.
The Right Hon. ANEURIN BEVAN, M.P.,
Minister of Health.
The Right Hon. ARTHUR GREENWOOD,
M.P., Lord Privy Seal.
The Right Hon. Sir STAFFORD CRIPPS,
K.C , M.P., President of the Board
of Trade.
The Right Hon. J . CHUTER EDE, M.P.,
Secretary of State for the Home
Department.
The Right Hon. LORD PETHICK-
LAWRENCE, Secretary of State for
India and Secretary of State for
Burma.
The Right Hon. J . J . LAWSON, M.P.,
Secretary of State for War.
The Right Hon. G. A. ISAACS, M.P.,
Minister of Labour and National
Service.
The Right Hon. ELLEN WILKINSON,
M.P., Minister of Education.
The Right Hon. T. WILLIAMS, M.P.,
Minister of Agriculture and
Fisheries.
The Right Hon. JOHN WILMOT, M.P.,
Minister of Supply (Item 3).
The Right Hon. LEWIS SILKIN, M.P.,
Minister of Town and Country
Planning (Item 2).
The Right Hon. P. J. NOEL-BAKER,
M.P., Minister of State (Items 4-11).
Mr. GEOFFREY DE FREITAS, M.P.,
Parliamentary Under-Secretary of
State for Air (Item 4).
Marshal of the Royal Air Force LORD
TEDDER, Chief of the Air Staff
(Items 4-7).
The following were also present:
The Right Hon. ALFRED BARNES, M.P.,
Minister of Transport (Items 1
and 5).
The Right Hon. THE EARL OF LISTOWEL,
Postmaster-General (Item 8).
Mr. J. B. HYND, M.P., Chancellor of
the Duchy of Lancaster (Item 10).
Sir ORME SARGENT, Permanent TJnder-
Secretary of State for Foreign
Affairs (Items 4-11).
Admiral Sir JOHN H. D. CUNNINGHAM,
First Sea Lord and Chief of Naval
Staff (Items 4-7).
Field-Marshal VISCOUNT MONTGOMERY
OF ALAMEIN, Chief of the Imperial
General Staff (Items 4-7).
[32426-7] B

Secretariat.
Sir EDWARD BRIDGES.
Mr. W. S. MURRIE.
Major-General Sir LESLIE HOLLIS.
Mr. C. G. EASTWOOD.
CABINET 76 (46).
Minute
No.
1
2
3
4
5
6
7
8
9
10
11
CONTENTS.
Subject.
Cabinet and Cabinet Committee
Summer Becess .... ....
Business
.... ....
during
....
the
....
Town and Country Planning (Development Rights) Bill....
Future of the Iron and Steel Industry .... .... ....
Demobilisation.... .... .... .... ....
Releases from the Royal Air Force in the last quarter of 1946.
Palestine .... .... .... .... ....
Proposed Conference with Arabs and Jews.
Illegal Immigration.
Persia ....
Despatch of Troops to Iraq.
Anglo-Egyptian Treaty Negotiations
India
Constitutional Position.
British Nationality Law
Germany
Exports of Coal from the British Zone.
Proposal to Abolish Visas .... ....
....
....
....
....
....
....
Page
261
261
263
264
265
267
269
269
270
271
271

Cabinet and
Gabinet
Committee
Business
during the
Summer
Recess.
1. The Lord President recalled that in June the Prime
Minister had circulated a note (CP. (46) 251) proposing that during
the six weeks from the 5th August to the 16th September there
should be no meetings of the Standing Ministerial Committees of
the Cabinet and that the Cabinet itself should meet as rarely as
possible. It seemed clear that there would have to be at least one
Cabinet meeting in the week beginning the 5th August and it was
proposed to hold this meeting on the 7th August at 11 a.m. Only
those Ministers in London or within reasonable distance from it
would be expected to attend this or any subsequent meetings of the
Cabinet during the Recess. Subsequent meetings would normally
be held on Wednesday mornings and the Cabinet Secretariat would
try to let Ministers' Private Secretaries know by Monday morning
at latest, and if possible before the week-end, whether a Cabinet was
to be held in any given week. Every endeavour would be made to
avoid meetings of Cabinet Committees and, unless in special circumstances,
any urgent business for such Committees would be taken
by the Cabinet.
The Cabinet-
Took note, with approval, of the arrangements proposed
for the despatch of Cabinet and Cabinet Committee
business during the Summer Recess.
Town and 2. The Cabinet had before them—
Country
Planning
(i) a memorandum by the Minister of Town and Country
(Development
Planning (CP. (46) 296) seeking their views on certain
Rights) Bill.
outstanding points connected with the Town and
(Previous
Country Planning (Development Rights) Bill; and
Reference: (ii) a memorandum by the Lord President (CP. (46) 311)
CM. (45) 53rd
reporting the views of the Ministerial Sub-Committee
Conclusions,
on Compensation and Betterment on these points.
Minute 2.) The Minister of Town and Country Planning explained
that, since the matter had last been considered by the Cabinet,
he had altered considerably his proposals for the compensation
of owners in respect of the restriction of their land to its
existing use and that he now proposed to pay only in respect
of out-of-pocket loss. Two alternative schemes had been
considered by the Ministerial Sub-Committee, who had come to the
conclusion that the discount basis of compensation for out-of-pocket
loss, details of which were set out in Appendix B to CP . (46) 296,
was preferable. The Sub-Committee had also agreed that the
limitation of compensation to out-of-pocket loss should apply to
developed land as well as to undeveloped land. Appendix C of
CP . (46) 296 set out two alternative methods of assisting local
authorities in connection with the purchase of land. The Sub-
Committee had preferred the scheme of grants outlined in Part I of
the Appendix to the scheme for central purchase outlined in Part II.
The proposed Bill would make substantial amendments in the
machinery of planning, and this raised the question whether
planning functions should not be transferred from county district
councils and the City of London to county councils. So far as
concerned authorities outside London, the majority of the Sub-
Committee were in favour of a transfer of functions. With regard
to the City of London, which presented a special problem, he was
satisfied, after discussion with the Leader of the London County
Council, that there would be no practical difficulties about a transfer
of powers from the Corporation of the City of London to the
London County Council. It was proposed that the Bill should
include provisions for the control of outdoor advertisements. He
would discuss with the Chancellor of the Exchequer certain outstanding
financial points relating to the payment of betterment by
local authorities in respect of land acquired for statutory purposes
and the extent of Exchequer contributions towards compensation
payable for interference with existing buildings and uses which
contravened planning requirements.
[32426-7] B 2

The Chancellor of the Exchequer said that he endorsed the
recommendations of the Ministerial Sub-Committee. With regard
to compensation for the restriction of land to its existing use, the
general view of the Sub-Committee had been that some payment
would have to be made in respect of death duties paid on development
values in cases where no compensation would be payable under
the formula approved by the Sub-Committee. He would discuss
this matter with the Minister of Town and Country Planning and
the Cabinet would have an opportunity of considering it when the
draft Bill was submitted to them. He would also discuss with the
Minister the details of the scheme of grants to local authorities in
aid of the purchase of land.
Further discussion concentrated mainly on the proposal that the
planning functions of county district councils should be transferred
to county councils.
The Minister of Health said that he was opposed to the
proposed transfer of functions. There was no real evidence that the
county district councils were incapable of carrying out planning
functions adequately, and it would be a mistake to divorce these
functions from the functions in regard to housing, water supply
and sewerage which were still discharged by county district councils.
There might well be a case for proposing a general reorganisation of
local government, but to pursue a policy of removing one function
after another from district councils would merely demoralise these
authorities and expose the Government to severe criticism in
Parliament.
On the other hand, it was urged that the typical district council
had not the resources, particularly of staff, to discharge planning
functions adequately, and that the device of grouping district
councils into joint committees did not provide a satisfactory solution.
It was realised that there would be considerable opposition
in Parliament to the proposed transfer of powers, and it would
be desirable for the Minister to consider what arrangements might
be made to enable county district councils to have a say in the discharge
of planning functions, and possibly even to enable planning
functions to be delegated to district councils in particular cases
where this could be justified.
The Cabinet—
(1) Agreed that the basis of compensation for the restriction
of land to existing use should be on the lines set out
in Appendix B to OP. (46) 296, and should apply to
developed as well as undeveloped land.
(2) Agreed that assistance to local authorities for the purchase
of land should be given by way of grants on the lines
suggested in Part I of Appendix C to OP. (46) 296.
(3) Approved the proposal to transfer planning functions from
county district councils to county councils and from
the Corporation of the City of London to the London
County Council, on the understanding that the Minister
of Town and Country Planning would consider what
provisions might be inserted in the Bill for consultation
with district councils in connexion with the discharge
of planning functions and possibly for the delegation of
functions to district councils in suitable cases.
(4) Agreed that the Bill should include provisions for the control
of outdoor advertisements.
(5) Took note that the Chancellor Of the Exchequer would
consider further with the Minister of Town and Country
Planning and the Secretary of State for Scotland what
arrangements should be made with regard to—
(i) the payment of compensation in cases where deathduties
had been paid on development values:
(ii) the payment of betterment by local authorities in
respect of land purchased for statutory purposes;
and

(iii) the extent of Exchequer contributions to the compensation
payable for interference with existing
buildings and uses.
3. The Cabinet had before them a memorandum by the
Minister of Supply (CP. (46) 300) about the proposal to establish
a Control Board to supervise the steel industry during the period
before public ownership.
The Minister of Supply said that he had hoped to be able to
announce the membership of the Board in the House of Commons
before the Recess, but that he had been hampered by the attitude
of the Iron and Steel Federation, who, though they were prepared
to co-operate with any Government agency charged with the control
of the industry, would not associate themselves with a Board
whose duties included giving guidance and advice on technical
matters arising in regard to nationalisation. As indicated in CP.
(46) 300, he had, after consultation with the Prime Minister, the
Lord President and the Chancellor of the Exchequer, given an.
invitation to Dr. Van. der Bijl to act as Chairman of the Board.
Dr. Van der Bijl had intimated that he would be reluctant, to
accept this post, and had suggested that he might be empowered
to discuss with leaders of the iron and steel industry certain proposals
which might induce them to alter their present attitude.
Since CP . (46) 300 had been circulated, it had become clear that
these proposals would not be acceptable to the Government since
they would involve Government control without Government ownership.
In these circumstances he thought that the best course would
be to explore, through Dr. Van der Bijl or otherwise, the possibility
of an arrangement under which the Iron and Steel Federation would
facilitate the recruitment to the proposed Control Board of persons
with experience of the iron and steel industry, on the understanding
that the Boa.rd's functions would not include the giving of advice
on plans for public ownership, and that individual steel members
of the Board would not be called upon to give such advice. If a
scheme of this kind were adopted, the Government would be free
to obtain such technical assistance as they might require on the
question of the scope and nature of the plans for public ownership
outside the ambit of the proposed Control Board. His view was
that, provided the Government obtained voting control by acquiring
the equity, there would be much to be said for retaining the structure
and identity of at least the leading companies in the industry;
and if arrangements were made on these lines there would be less
need for technical advice on questions of severance. The functions
of the Control Board under this plan would be to exercise the
powers now possessed by the Iron and Steel Control and to ensure
that a suitable development programme was carried through.
The Lord President said that it was regrettable that the Iron
and Steel Federation should have been unwilling to co-operate. He
agreed with the solution proposed by the Minister of Supply. The
advantage of proceeding by way of acquiring the major interest in
the equity of the undertakings was that this would enable wellknown
firms to retain a measure of identity, while giving the
Government firm control. It would also enable the pace at which
the industry was brought under public ownership to be regulated
by the Government at will.
In further discussion there was general support for the proposal
made by the Minister of Supply. It was pointed out, however,
that it would probably be undesirable to spread over a period of
time the acquisition of a controlling interest in the various firms
since this would create a general feeling of uncertainty throughout
the industry.
The Cabinet­
(1) Authorised the Minister of Supply to explore the possibilility
of securing an arrangement under which the

co-operation of the Iron and Steel Federation in the
setting up of the Control Board would be obtained by
excluding from the functions of the Board the giving of
advice on plans for public ownership.
(2) Gave general approval to the proposal that control of the
iron and steel industry should be secured through the
acquisition by the Government of a controlling interest
in the equity of the various companies, and agreed that
the Minister of Supply should work out a scheme on
these lines in consultation with the Lord President and
the Chancellor of the Exchequer.
Demobillsation.
Releases from
the Royal Air
Force in the
last quarter
of 1946.
(Previous
Reference:
CM. (46) 9th
Conclusions,
Minute 7.)
4. The Cabinet had before them a memorandum by the Parliamentary
Under-Secretary of State for Air (CP. (46) 312) proposing
that the man-power ceiling fixed for the Eoyal Air Force at the
end of 1946 should be increased by 25,000 by retarding releases
in the last quarter of the year.
The Parliamentary Under-Secretary of State for Air said that
the need for a higher man-power ceiling at the end of 1946 arose
partly from the disappointing results of the scheme for the
re-engagement of trained men and partly from the fact that the
loss of effective man-power involved in the large-scale reorganisation
and regrouping of the Force was proving greater than had been
foreseen. Certain other contributory factors were set out in paragraph
2 of the memorandum annexed to CP. (46) 312. The slowing
down of releases would undoubtedly cause great disappointment,
but it seemed to be unavoidable; and the retention of 25,000 trained
men would make a very great difference to the efficiency of the Royal
Air Force. The situation would be to some extent eased by the
fact that the proposed retardation would still leave releases from
the Royal Air Force slightly in advance of releases from the Army.
the number of effective squadrons which it would be possible to
In discussion, it was pointed out that, even on the basis of the
original ceilings proposed for the Forces at the end of 1946 there
was bound to be a serious shortage of labour, particularly for the
most economical use of the available man-power in the Royal Air
retarded, he would like to examine more closely the question whether
the Royal Air Force man-power ceiling at the end of 1946 need be
ment of the groups to be released in the last quarter of 1946 should
have been made before the end of July, and that it would be
essential to make such an announcement without further delay. At
the same time it was undesirable that too much prominence should
be given to the announcement and, in particular, it was important
^
Force
The Chief of the Air Staff said that, whereas an efficient Air
required about 80 per cent, of skilled men, by the end of
the year the number of skilled men would on present plans be reduced
to 15 per cent.
men by re-engagement
It was vital to obtain a larger number of trained
and to increase the regular entry, and the
Royal Air Force were doing what they could to this end.
recruiting campaign had, however, had little support in the
The
Press
and so far the results had been anything but encouraging.
if the proposed increase in the man-power ceiling were approved,
Even
maintain was alarmingly small.
production of consumer goods. The proposed increase
Force man-power would accentuate still further
in Royal Air
the difficulties
occasioned by this shortage and would also entail additional expenditure.
made
It was therefore most desirable that every effort should be
to persuade more trained men to re-engage and to make the
Force.
The Prime
from the Royal
Minister
Air Force
said that, while he agreed that releases
in the last quarter of 1946 should be
raised by 25,000.^
It was explained that in the normal course a public announce­

that nothing should be said which would imply that the reason for
the slowing down of releases was the need to retain larger Forces
in occupied countries. In these circumstances, the best course would
be to avoid making an announcement in the House of Commons,
and to publish without comment the information about tlhe groups
to be released in the last quarter.
The Cabinet­
(1) Approved the retardation of Royal Air Force releases in
the last quarter of 1946 proposed in CP . (46) 312 and
agreed that as soon as Parliament had risen the
Minister of Labour should announce without comment
these releases and the corresponding releases from the
Army which had been approved by the Defence Committee
at their meeting on the 19th July (D.O. (46)
23rd Meeting, Minute 1).
(2) Took note that the Prime Minister would arrange for
further consideration to be given to the question
whether the man-power ceiling of the Royal Air Force
at the end of 1946 should be increased by 25,000.
5. The Cabinet were informed that the Saudi Arabian and
Trans Jordan Governments had accepted invitations to the proposed
conference on future policy in Palestine, but that replies had not
yet been received from the Syrian and Egyptian Governments.
The Prime Minister said that it was most important that the
conference should meet at the earliest possible date.
The Cabinet—
(1) Invited the Secretary of State for the Colonies and the
Minister of State to take all possible steps to expedite
the meeting of the proposed conference on future policy
in Palestine.
The Secretary of State for the Colonies recalled that at their
previous meeting the Cabinet had asked him, in consultation with
Sir John Shaw, the High Commissioner for Palestine, the Chiefs
of Staff and the Minister of Transport, to draw up for their
consideration a plan for the transhipment of illegal immigrants
in Palestine waters and their removal to Cyprus. After a full
discussion with Sir John Shaw, he had telegraphed to the High
Commissioner, but he had not yet received the High Commissioners
reply and he was, therefore, unable to lay a plan before the Cabinet.
Meanwhile, another ship with 500 illegal immigrants had arrived
and a further ship containing some 2,000 immigrants was believed
to be approaching Palestine. He had ascertained that Cyprus
would be able to accommodate up to 8,000 or 9,000 Jews in camps;
and the necessary legislative and other measures to make this
possible were now being taken.
The Prime Minister said that the Lord President had sent him
a report of the Cabinet's previous discussion of this matter. He
was much impressed by the difficulties of the proposed operation
and feared that it would lead to incidents which would seriously
embarrass the Government.
The Minister of Transport agreed with the views expressed
by the Prime Minister. The operation would also involve a waste
of shipping.
The First Sea Lord said that it was impracticable to intercept
ships with illegal immigrants on the high seas and divert them to
Cyprus. Nor, looking to the condition of the ships and the
desperate state of mind of the immigrants, did he regard it as
feasible to divert immigrant ships from Palestinian territorial
waters to Cyprus. Thus the only alternatives seemed to be either

to bring the ships into harbour and then transfer the immigrants I
directly to other ships or to land them, place them in camps and I
subsequently re-embark them.
The Chief of the Imperial General Staff said that, of these two I
alternatives, the Army would much prefer the former, i; e:
\
transhipment in harbour. The operation would undoubtedly be I
difficult and unpleasant and it would be well to know precisely!
what would be involved. If the Cabinet so desired, he would obtain I
a plan from the Commander-in-Chief, Middle East.
The Secretary of State for the Colonies recalled that the High 1
Commissioner for Palestine was already preparing a plan and j
would no doubt be consulting the General Officer Commanding in I
Palestine. It would be well to ensure that the Commander-in-1
Chiefs proposals were formulated in the light of the results of 1
these discussions.
It was also suggested that the Commander-in-Chief might 1
consider whether the difficulties of the operation could be reduced 1
by removing to Cyprus only the adult males, the women and 1
children being retained in camps in Palestine and set off against I
the immigration quota.
In further discussion it was suggested that, since the Cabinet!
had last discussed the matter, a new factor had been introduced j
by the announcement of the Governments long-term policy for]
Palestine. Under the new proposals, once the constitutional plan!
had been accepted, it would become possible to allow 100,000 Jews
to enter the Jewish Province. Might not the Jewish Agency, who
were responsible for organising illegal immigration, now be anxious,
in their own interests, to stop this traffic, if it were made clear to
them that its continuance during the next few weeks might
endanger or postpone the legal admission of 100,000 Jews ? Would
it not be desirable to put this point to the Agency ? It was true
that they had recently been wholly unco-operative, but it was
proposed that the plan for future policy should now be discussed
with them as well as with the Arabs and they might well be willing
to alter their attitude in the light of the new situation.
The Secretary of State for the Colonies said that he would
take this matter up with representatives of the Jewish Agency,
though he had little hope of a favourable response from them.
The Minister of State said that the Foreign Office were doing
what they could to prevent illegal immigrants from leaving]
European ports. He hoped that the Greek Government would take!
effective action and, though the French Government were doubtful!
about their legal powers, they had been persuaded to agree to doi
what they could to help. On the other hand, the Russian,]
Roumanian and Yugoslav Governments had not so far prove!
co-operative.
The Cabinet—
(2) Invited the Secretary of State for the Colonies to bring its
to the notice of the Jewish Agency that the continuancf
of illegal immigration during the next few weeks coulc
not fail to affect adversely the chances that the plan foi
the immigration of 100,000 Jews to Palestine would bf
implemented in the near future, and to try to enlist thi
Agency's help in putting a stop to illegal immigration
(3) Invited the Chief of the Imperial General Staff to ask the
Commander-in-Chief, Middle East, to draw up a plai
for sending illegal immigrants to Cyprus.
(4) Invited the Secretary of State for the Colonies to complet
the arrangements for the reception of illegal im ffil !
grants in Cyprus, and the Minister of Transport t(
arrange for the necessary shipping to be made availaMj
for their transfer to that country.

6. At their meeting on the 15th July the Cabinet had agreed
that an Indian Brigade should be moved to Basra-Shaiba in order
to deal with any trouble which might suddenly arise in the South
Persian oilfields.
The Cabinet now had before them—
(i) A memorandum by the Minister of State (CP. (46) 314)
suggesting that the nature of the force which was to be
sent to Basra-Shaiba might give rise to an anti-British
agitation in Iraq ; and
(ii) A memorandum by the Secretary of State for India
(CP. (46) 313) stating that the effect on Indian opinion
of the despatch of troops from India to Iraq would be
less unfavourable if the purposes for which they were
being sent were frankly disclosed.
The Minister of State said that the plans made by the Services
seemed to go beyond what was originally contemplated. The Indian
Brigade group which was being moved to Basra-Shaiba would take
with it much heavy equipment, including a field artillery regiment
of sixteen guns. Moreover, on the naval side, twelve landing craft,
together with a number of other vessels, were being taken to Basra.
Under the Anglo-Iraqi Treaty of Alliance His Majesty's Government
were not normally entitled to keep ground troops in Iraq and,
though we had hitherto succeeded in retaining a certain number
of troops for the purpose of guarding military stores, the arrival
of a fully equipped force would inevitably suggest to the Iraqis
that we intended to use their country as a base for an attack on
Persia and might even appear to them as part of a plan to hold
down Iraq during the execution in Palestine of a policy to which
Arab States took objection. In these circumstances there was a
risk of a popular outcry for the immediate withdrawal of our
troops, possibly coupled with a request for revision of the Anglo-
Iraqi Treaty.
The Chief of the Imperial General Staff said that if the force
sent to Basra-Shaiba was to be an effective one it must be so equipped
as to enable it to face any eventuality. Admittedly the most likely
form of trouble would be rioting rather than organised armed
resistance and, if the Cabinet thought fit, it would be possible to
omit from the force the field artillery regiment. He felt, however,
that it would be a wise precaution to include the artillery, since
even if nothing worse that rioting had to be dealt with, the firing
of a few shells might well be the means of saving a considerable
number of lives. The mere omission of the artillery would not
deceive the Iraqis as to the purpose for which the troops were being
sent to Basra-Shaiba, and he saw no alternative to stating frankly
that we were taking this action in order to protect lives and property
in Persia.
The First Sea Lord said that the naval vessels referred to by
the Minister of State were needed to transport the force to Persia
in the event of trouble.
The Secretary of State for India said that it was necessary
that the troops which were being despatched from Indian ports
on the 2nd August should be told where they were going, and that,
in his opinion, it would be futile to attempt to disguise the purpose
for which they were being sent. It should be made clear in any
statement that this purpose included the protection of Indian lives
and interests. He supported the view that the force should be
fully equipped.
The Prime Minister said that no purpose would be served by
attempting to conceal the object for which the Indian Brigade
group was being sent to Basra-Shaiba. He recalled that when the
Cabinet had taken the decision to send this force the Foreign Secretary
had said that he would inform the Government of Iraq of what
was proposed. He understood that nothing had yet been said 10
the Iraqi Government and there was therefore no clear evidence
3-7] c

Avhat the attitude of that Government would be to the proposal.
He thought that a communication should be made to the Iraqi
Government before the force arrived at Basra-Shaiba, and he agreed
with the Secretary of State for India that the Indian troops should
be frankly told why they were being sent to Iraq. Any public
statement should bring out clearly the fact that His Majesty's
Government were seeking to protect Indian and Arab lives and
property as well as their own interests.
The Cabinet—­
(1) Agreed that the plans made by the Service authorities for
the despatch of an Indian Brigade group to Basra-
Shaiba should be implemented without alteration.
(2) Agreed that no attempt should be made to disguise the
purpose for which the Indian Brigade Group was being
sent to Basra-Shaiba, and that it should be made clear
that this purpose included the protection of Indian and
Arab interests.
(3) Invited the Minister of State to arrange for a suitable
communication to be made to the Iraqi Government
before the arrival of the force.
The Cabinet then discussed the situation in the oilfields of
the Anglo-Iranian Oil Company.
The Tudeh Party appeared to have over-reached themselves
and the latest information showed that the position was easier.
Nevertheless, if further trouble was to be avoided it seemed essential
that the Anglo-Iranian Oil Company should show a readier disposition
to promote a rise in the standard of living of their workers.
It was true that the provision of houses and the development of
welfare services had necessarily been slowed down by war conditions,
but it seemed doubtful whether the Company were adopting
a sufficiently enlightened attitude towards the wages claims made
by their workers.
The Minister of Fuel and Power said that he had on the
previous day received a letter, written on behalf of the Foreign
Secretary, suggesting that he should see the Chairman of the Anglo-
Iranian Oil Company and should also convene a meeting of the
chairmen of all the British oil companies with a view to impressing
on them the need for adopting an enlightened policy in the treatment
of foreign labour employed by the companies. He would make
arrangements to see the Chairman of the Anglo-Iranian Oil Company
on the following day and would also take up the question of
making a more general appeal. He felt, however, that it would be
desirable to supplement this by issuing a statement, which should be
given publicity in Persia, to the effect that His Majesty's Govern ­
ment were in favour of all possible steps being taken to raise the
standard of living of the workers.
The Cabinet—
(4) Took note that the Minister of Fuel and Power, in consultation
with the Chancellor of the Exchequer and the
Minister of State, would arrange to see the Chairman
of the Anglo-Iranian Oil Company immediately with
a view to impressing on him that the Company should
adopt an enlightened attitude towards any reasonable
claims made by their workers.
(5) Agreed that, after the meeting referred to in (4) had been
held, the Minister of State in consultation with the
other Ministers concerned should arrange for the issue
of a suitable statement, which should be given publicitj'
in Persia, as to the attitude of His Majesty's Government
in this matter

jnglo-
Egyptian
Treaty
Negotiations.
(Previous
Reference:
CM. (46)58th
Conclusions.)
7. The Cabinet discussed the latest developments in the
Anglo-Egyptian Treaty negotiations, as reported in telegrams
iNos. 33, 35, 39 and 40 from the Secretary of State for Air. These
telegrams indicated that difficulties had arisen over three points—
(i) the timing of the programme of evacuation;
(ii) the proposal in Article 2 of the draft Treaty that British
Forces should have the right to re-enter Egypt if
hostilities broke out in neighbouring countries other
than those adjacent to Egypt; and
(iii) the claim that the Egyptian Crown had sovereignty over
the Sudan.
Though no reply had yet been received to the latest communication
addressed to the Egyptian Delegation, it was desirable that the
British Delegation should be given guidance as to the line which
they should take on the points at issue.
The Cabinet were informed that, so far as concerned the programme
of evacuation, the Chiefs of Staff would see no objection to
a compromise on a period of three to five years, but that they
regarded a period of three years as the absolute minimum. With
regard to Article 2 of the draft Treaty, while the Chiefs of Staff
would prefer to see a provision in the Treaty guaranteeing that
British troops would be able to enter Egypt in the event of a
dangerous situation arising in countries such as Iraq or Syria, they
felt that the primary consideration was that we should secure a
Treaty with Egypt and they would therefore be prepared to agree
to the limitation proposed by the Egyptian Delegation rather than
face a complete breakdown in the negotiations. The Chiefs of
Staff thought it essential that a firm stand should be made on the
question of the Sudan.
The Prime Minister said that he doubted whether anything
material would be obtained by insisting on the acceptance of the
British version of Article 2 of the draft Treaty. Since Egypt was
vital to our position in the Middle East, we were bound to go to
her assistance in any case in which she was threatened; and it
would not help us to have a provision in the Treaty authorising the
entry of British troops into Egypt in certain circumstances if the
Egyptian Government were determined to evade their obligations
under that provision. He agreed that a firm stand should be made
with regard to the Sudan. It would, of course, be open to the
Egyptian Government to make a unilateral declaration on this
matter, but we should resist the inclusion in the protocol of any
words admitting the sovereignty of the Egyptian Crown over the
Sudan.
As regards the proposal that Sidky Pasha should come to
London, while it might in the end be necessary to agree to this, he
would prefer that the negotiations should continue in Cairo.
The Cabinet-
Agreed that the British Delegation should negotiate for
a compromise on a period of not less than three years for
the completion of evacuation; should accept the Egyptian
draft of Article 2 of the Treaty, if it appeared impossible
to obtain the willing agreement of the Egyptian Delegation
to the British version; and should resist the inclusion in
the Sudan protocol of any provision implying recognition
of Egyptian sovereignty over the Sudan.
India.
Constitutional
Position.
(Previous
Reference:
CM. (46) 69th
Conclusions,
Minute 3.)
8. The Cabinet had before them a memorandum by the Secretary
of State for India (CP. (46) 315) regarding the position
resulting from the withdrawal by the Muslim League of their
acceptance of the Cabinet Mission's statement and from a
subsequent interview between the Viceroy and Pandit Nehru. After
discussion at the India and Burma Committee and consultation
with the Prime Minister, a telegram (Annex II to CP. (46) 315)
had been sent to the Viceroy stating that it was impossible to allow

Mr. Jinnah's non-co-operation to hold up progress with the formation
of an Interim Government. The telegram had proposed that
the next step should be for the Viceroy to see Mr. Jinnah and
endeavour to persuade him, even now, to allow members of the
Muslim League to enter the proposed Interim Government. The
Secretary of State for India now proposed that a further telegram
(Annex II I to CP . (46) 315) should be sent to the Viceroy I
indicating the policy which he should adopt if Mr. Jinnah was
unwilling to co-operate in the formation of an Interim Government.
The Secretary of State for India reported that since CP . (46)
315 had been circulated a telegram had been received from the
Viceroy to the effect that he was sure it would not be advisable for
him to see Mr. Jinnah immediately. The Viceroy wished to put
on Congress the responsibility for any attempt to satisfy the League.
In discussion there was general agreement that, if the Muslim
League were unwilling to come in, it would be necessary to proceed
with the formation of an Interim Government with Congress only.
The Cabinet also took the view that the Viceroy should not fie
further pressed to see Mr. Jinnah. and that he should be left to
decide in the light of his local knowledge of the situation whether
the places in the Interim Government, to which it had been proposed
to appoint representatives of the Muslim League, should or should
not be filled by other Muslims.
The Cabinet-
Invited the Secretary of State for India to send a telegram
to the Viceroy on the lines agreed in the discussion.
British
Nationality
Law.
(Previous
Reference:
CM. (45) 55th
Conclusions,
Minute 5.)
9. The Cabinet had before them a joint memorandum by the
Home Secretary and the Secretary of State for Dominion Affairs
(CP. (46) 305) regarding possible changes in British nationality
law consequent on the passage of the Canadian Citizenship Act.
This Act introduced, so far as concerned Canada, a fundamental
change in the system of British nationality Law, since it proceeded
on the principle that the status of a British subject should be based
upon the possession of the local citizenship of a particular part
of the Commonwealth; and it was necesssary to consider what consequential
changes should be made in the nationality laws of the
United Kingdom and the other members of the Commonwealth. To
this end it had been agreed to hold a meeting of experts from
Commonwealth countries in London in October or November, and
before that meeting it would be necessary for the United Kingdom
Government to decide certain major questions of policy, namely :­
(i) whether the United Kingdom was to participate in the
new system;
(ii) what form that participation should take;
(iii) in connection with the latter point, the manner in which
the United Kingdom, the Colonies, India, Burma, Newfoundland
and Southern Rhodesia were to be brought
within the new citizenship scheme; and
(iv) certain special difficulties arising in the case of Eire.
These questions involved intricate constitutional and legal problems
and the memorandum suggested the appointment of a committee
of Ministers to consider them and report to the Cabinet.
The Cabinet—
Agreed that the points set out in paragraph 5 of CP . (46)
305 should be considered by a Committee consisting of the
following Ministers :-—
Lord Chancellor.
Home Secretary.
Secretary of State for Dominion Affairs.
Secretary of State for India and for Burma.
Secretary of State for the Colonies.
Minister of State.
Attorney-General.

10. The Cabinet had before them a memorandum by the
Chancellor of the Duchy of Lancaster (CP. (46) 316) regarding
the export of coal from the British Zone in Germany.
The Chancellor of the Duchy of Lancaster recalled that at the
meeting of the Overseas Eeconstruction Committee on the 21st June
(O.R.C (46) 9th Meeting, Minute 3), it had been generally agreed
by Ministers that the sound economic course was to retain a larger
quantity of coal in the British Zone, but it had not been thought
desirable to impose a complete suspension of exports while
discussions regarding the future of Germany were proceeding at the
Council of Foreign Ministers in Paris. Subsequently, however, the
Foreign Secretary had stated that, if the principle of treating
Germany as an economic unit was not accepted by the four Powers,
the British Zone would be organised in such a way as to eliminate
the burden which the British taxpayer had to bear; and it was
clear that one of the most effective steps to this end would be to
retain more of the coal produced in the British Zone.
The quadripartite Fuel Committee was now about to meet in
Berlin to consider the September coal allocations and it had been
suggested that the British representatives should propose that
exports in September should be reduced from 900,000 tons to 450,000
tons. The Fuel Committee was not normally able to reach agreement
on allocations, but, if the Americans were prepared to support
this proposal, it should be possible for us to implement it despite
French and possibly Russian objections.
The disadvantage of the course proposed was that we should
be anticipating the report of the Committee of Experts appointed
on the instructions of the Council of Foreign Ministers to examine
methods of increasing coal production in all four Zones and to make
recommendations as to the principles on which production should
be allocated between domestic consumption and exports. Nevertheless,
since an increase in coal consumption within the British Zone
was an essential preliminary to economic improvement there, he
recommended to his colleagues that the course proposed should be
adopted.
In discussion Ministers recognised the force of the arguments
advanced by the Chancellor of the Duchy. On the other hand, they
felt that the political repercussions of taking action on the lines
proposed before the report of the Committee of Experts had been
received would be serious. Moreover, a drastic reduction in the
total coal exports from Germany would mean that less coal would go
to Finland and Sweden, with the result that timber exports to the
United Kingdom from these countries would diminish.
The Cabinet-
Agreed that, pending the receipt of the report of the
Committee of Experts, there should be no drastic cut in
coal exports from the British Zone and that these exports
should accordingly be maintained at approximately the
current level.
11. The Cabinet had before them :—
(i) a memorandum by the Foreign Secretary (CP. (46) 302)
proposing the immediate relaxation of the restriction on
the admission of foreign tourists to the United Kingdom
and the negotiation of agreements with those foreign
countries to which British visitors were most numerous
for the mutual abolition of the requirement of a visa;
and
(ii) a memorandum by the Home Secretary (CP. (46) 303)
agreeing in principle with the Foreign Secretary's
proposals, but pointing out certain difficulties which
would arise from their adoption.

The Minister of State emphasised that the Foreign Secretary
attached great importance to securing greater freedom of movement
for tourists. Among other advantages, the proposals would assist
in the rehabilitation of countries such as Italy, Austria and Greece.
They would also be in line with the objects of the conference on passports
and frontier formalities which was being organised under the
aegis of the Economic and Social Council.
In discussion there was general agreement on the desirability of
reducing the formalities involved in international travel and
encouraging tourists to visit the United Kingdom. It was pointed
out that plans were being made for expanding the tourist trade of
the United Kingdom in 1947 and that it was most important that
as many restrictions as possible should be removed before the 1947
season began. At the same time it was felt that the removal
of restrictions would be premature at the present moment, when
there were still many displaced persons in Europe who would take
advantage of any relaxation to obtain entry to the United Kingdom
and when the need for controlling entry to the United Kingdom on
security grounds was still great.
The Cabinet-
Agreed that the initiation of the negotiations proposed by
the Foreign Secretary for the mutual abolition of the visa
system should be deferred for the present.
Cabinet Office, S.W. 1,
1st August, 1946.

THIS DOCUMENT IS THE PROPERTY OP HIS BRITANNIC MAJESTY"S GOVERNMENT
Printed for the Cabinet. August 1946.
SECRET.
CM. (46)
77th Conclusions.
Copy No. 42
CABINET 77 (46).
CONCLUSIONS
of a Meeting of the Cabinet held at 10 Downing Street, S.W. 1,
on Wednesday, 7th August, 1946, at 11 a.m.
Present:
The Right Hon. C R. ATTLEE, M.P., Prime Minister (in the
Chair).
The Right Hon. HERBERT MORRISON, The Right Hon. ERNEST BEVIN, M.P.,
M.P., Lord President of the Council. Secretary of State for Foreign
Affairs.
The Right Hon. ARTHUR GREENWOOD, The Right Hon. LORD JOWITT, Lord
M.P., Lord Privy Seal.
Chancellor.
The Right Hon. J. CHUTER EDE, M.P., The Right Hon. VISCOUNT ADDISON,
Secretary of State for the Home Secretary of State for Dominion
Department.
Affairs.
The Right Hon. LORD PETHICK- The Right Hon. G. H. HALL, M.P.,
LAWRENCE, Secretary of State for Secretary of State for the Colonies,
India and Secretary of State for
Burma.
The Right Hon. G. A. ISAACS, M.P., The Right Hon. E. SHINWELL, M.P.
Minister of Labour and National Minister of Fuel and Power.
Service.
The Right Hon. ELLEN WILKINSON
M.P., Minister of Education.
The following were also present:
The Right Hon. JOHN WILMOT, M.P. , The Right Hon. ALFRED BARNES, M.P. ,
Minister of Supply (Item 3). Minister of Transport (Item 2).
The Right Hon. JOHN STRACHEY, M.P. , The Right Hon. JAMES GRIFFITHS,
Minister of Food (Item 1). M.P., Minister of National
Insurance (Item 4).
The Right Hon. LORD WINSTER, The Right Hon. P . J . NOEL-BAKER,
Minister of Civil Aviation (Item 3). M.P., Minister of State.
Admiral SIR JOHN H. D. CUNNINGHAM, Field Marshal VISCOUNT MONTGOMERY
First Sea Lord and Chief of Naval OF ALAMEIN, Chief of the Imperial
Staff (Item 2). General Staff (Item 2).
Air Commodore G. H. MILLS, Air Mr. R. G. HOWE, Foreign Office.
Ministry (Item 2).
Secretariat.
Sir EDWARD BRIDGES.
Mr. W . S. MURRIE.
Major-General Sir LESLIE HOLLIS.
Mr. C G. EASTWOOD.

CABINET 77 (46).
CONTENTS
Minute
No Subject. Page
1 Foreign Affairs 275
Peace Conference.
Anglo Egyptian Treaty Negotiations.
2 Palestine .... 275
Future Policy.
Illegal Immigration.
Plans for Removal of Non-essential British Personnel.
3 Civil Aviation 279
Civil Aircraft Requirements.
4 National Insurance .... .... .... .... .... .... 281
Payment of Unemployment Benefit to Ex-servicemen from Eire.
5 Civil Service Hours and Leave .... .... .... .... 282
6 Persia .... .... .... 283
Relations with Anglo-Iranian Oil Company.

Foreign
Affairs.
Peace
Conference.
Anglo-
Egyptian
Treaty
Negotiations.
(Previous
Reference:
C.M.(46)76th
Conclusions,
Minute 7.)
1. The Prime Minister said that the Cabinet were glad to see
the Foreign Secretary back again after his illness. They would
observe that, after prolonged discussion, the Procedure Committee
of the Peace Conference had finally accepted the British compromise
on the voting procedure for the Conference. He did not think that
the struggle which had taken place on this matter could have been
avoided and, on the whole, the Delegations from the Dominions were
co-operating well with the United Kingdom Delegation.
The Foreign Secretary said that he proposed to go to Paris later
in the week, as it was desirable that someone should be there who
was fully aware of the background to the present Conference. The
attitude of the United States both at the Berlin Conference and in
the negotiations since then had greatly weakened our bargaining
power with regard to the Balkans. It was, however, vital for us to
arrive at a settlement both in Italy and in the Balkans, in view of
the great strain which a continuation of the present situation would
impose on our resources; and he was reasonably confident that, if we
took a firm line, we should be able to secure the setting up of a
genuine international regime at Trieste and reach a settlement in
the Balkans which would both relieve the pressure on Greece and
Turkey and enable us to re-establish our commercial interests in
Roumania.
The Foreign Secretary said that he hoped that no further
concessions would be made in the Anglo-Egyptian Treaty negotiations.
He felt that the revised draft of Article 2 of the Treaty
contained in Foreign Office telegram No. 31 represented the utmost
limit to which we could go if we were to maintain our position in the
Middle East, and, rather than yield further on this Article, we
should face the alternative of failing to reach agreement on a
Treaty.
The Cabinet—
Took note of the statements made by the Prime Minister
and the Foreign Secretary.
Palestine.
Future Policy.
(Previous
Reference:
CM. (46) 76th
Conclusions,
Minute 5.)
2. The Secretary of State for the Colonies said that he had
had a long talk with Dr. Weizmann on the 2nd August.
Dr. Weizmann had also visited the Colonial Office on the 6th
August. He was a sick man and was shortly to go into hospital for
an operation. He had therefore not been able to attend the meeting
of the Jewish Agency Executive in Paris.
Dr. Weizmann had not been unfavourable to the Governments
proposals for future policy in Palestine. He had, however, made
the following three points : (i) the Jewish province should not be
smaller than the territory proposed for the Jewish State as a consequence
of the report of the Peel Commission; (ii) the central
administration should not continue for more than three or, at the
most, five years; and (iii) the Negeb should be handed over at once to
the Jews, who would, he was confident, be able to develop it.
Unfortunately, the Jewish Agency Executive, in
Dr. Weizmann's absence, had apparently rejected the idea of
attending the Conference to discuss the Governments proposals on
the ground that these did not form a basis for negotiation.
Dr. Weizmann was not certain that this was their final view and
had asked three or four members of the Executive to visit London
within the next two days, when he would try to persuade them to
change their minds. He had also promised to suggest to the Secretary
of State the names of Jews, not members of the Jewish Agency,
who might be invited to the Conference.
As regards the Arabs, it had not yet been possible to deliver an
invitation to Jemal Husseini and his colleagues on the Arab Higher
[32426-8] B 2

Illegal
Immigration.
Committee, since they were at present in Egypt. Invitations had
now been accepted by all the Arab Governments except Egypt, Iraq
and the Yemen.
The Cabinet­
(1) Took note of these statements by the Secretary of State for
the Colonies.
The Cabinet then considered two memoranda by the Secretary
0
f State for the Colonies (CP. (46) 310 and 320) recording recent
developments regarding illegal immigration into Palestine.
The Secretary of State for the Colonies said that there were at
present 2,252 illegal immigrants at Athlit clearance camp, 2,232 on
board ship in Haifa harbour, and a further 2,500 believed to be on
their way to Palestine, with more expected to follow. Those in
Athlit camp and on board ship would alone exhaust the quota up to
December. It was not possible for the Palestine authorities to
guard any more illegal immigrants in Palestine and the choice now
lay between anticipating the quota by releasing a number of the
immigrants in Palestine, and trans-shipping those now in Haifa
harbour and any further arrivals to British ships with a view to
their removal to Cyprus. There were most serious disadvantages
in both courses. The former would almost certainly lead to a clash
with the Arabs, so that we should simultaneously have to face
trouble with both communities, and would also cause us embarrassment
throughout the Middle East. The latter, apart from the likelihood
of awkward incidents, would almost certainly end any chance
of co-operation with the Jews in Palestine, if not outside it.
Despite this, the High Commissioner recommended that a decision
should be taken in favour of this course and the Secretary of State
agreed with this view. There was at the moment accommodation
available in Cyprus for 1,200 illegal immigrants. This could be
increased to 2,000 without much delay, and the Governor of Cyprus
had been asked to make arrangements to receive up to a maximum
of 10,000 persons. The necessary transport could be made available.
The Secretary of State said that he had pointed out to
Dr. Weizmann that the continuance of illegal immigration during
the next few weeks must affect adversely the chances that the plan for
the immigration of 100,000 Jews to Palestine would be implemented
in the near future and had asked him and his colleagues in the
Jewish Agency in their own interest to do what they could to bring
the traffic to an end. Dr. Weizmann had said that the present flood
of illegal immigrants was due to recent pogroms in Poland and
had suggested that to meet the situation some 5,000 or 6,000 certificates
should be allocated forthwith out of the 100,000 which would
have to be granted sooner or later. Dr. Weizmann had also said
that if the immigrants now in Haifa or on their way could be
admitted to Palestine he would do his best to bring further illegal
immigration to an end. Dr. Weizmann had made light of the possibility
of trouble from the Arabs.
The Secretary of State said that Dr. Weizman's proposal
was clearly impracticable and there seemed to be no alternative but
to ask the Cabinet to agree in principle that the illegal immigrants
now in Haifa harbour and any further arrivals should be sent to
Cyprus or some other suitable destination. Annexed to CP. (46) 320
was the text of a public announcement which would be made if this
decision were taken. The High Commissioner had been consulted
about the terms of the announcement and had suggested some minor
amendments. At the same time the High Commissioner had recommended
that action and the publication of the announcement should
be deferred until, at the earliest, the 11th August, in order to allow
time for certain necessary preparations to be made.
The Chief of the Imperial General Staff said that, after consuiting
the Commander-in-Chief, Middle East Land Forces, he was
satisfied that the civil and military authorities between them had

all the resources necessary to carry out the operation of transshipping
the immigrants and removing them in the most humane
manner possible. It was important not to regard Cyprus as the only
destination to which immigrants could be sent, since it might well
be impossible to find room there for all the immigrants. If there
should be strong reactions among the Jewish community in
Palestine, the military authorities would be able to handle the
situation. If, on the other hand, the immigrants were allowed to
enter Palestine there would be every likelihood of trouble with the
Arab as well as the Jewish community, which the military
authorities were anxious to avoid.
The Minister of Transport confirmed that two ships were being
sent to Haifa, each capable of carrying 800 persons. These should
be adequate to deal with the numbers at present in sight. He hoped
that he would be given due notice if further shipping was needed.
In discussion there was general agreement that action on the
lines suggested by the Secretary of State for the Colonies and the
Chief of the Imperial General Staff was the only effective way of
stopping illegal immigration. There was every reason to believe
that if the illegal immigrants now in Haifa harbour or at sea were
admitted to Palestine this would merely encourage more to come,
and the continuance of the traffic would cause the administration of
Palestine to break down and lead to trouble with the Arabs. In
addition to diverting to Cyprus or other destinations immigrants
who had reached Palestine, it was important that everything
possible should be done to stop the traffic at source. There were
signs that the steps which had latterly been taken were having some
effect. Thus, in Roumania one ship was being held up, and certain
South American Governments were taking steps to ensure that their
consuls did not issue visas indiscriminately. On the other hand, our
Ambassador was doubtful whether the Italian Government could or
would take effective action, and had suggested that it might be
preferable to take action through the British military authorities in
Italy and by the diversion of ships at sea.
The First Sea Lord said that it would be impossible for the
British naval forces in the Mediterranean to patrol the coast of
Italy in addition to their many other commitments. Moreover, it
had already been pointed out that the diversion of immigrant ships
on the high seas was not feasible.
Several Ministers expressed the view that it should be possible
to press the Italian Government to take effective measures themselves,
and the Foreign Secretary undertook to consider whether a
telegram should not be sent to the Ambassador in this sense.
The following further points were made : —
(a) An important factor in considering the timing of the action
and its announcement would be the probable effect on opinion in the
United States. There was still a chance that President Truman
might accept the plan for the future of Palestine prepared by the
British and American experts. But news of the action now proposed
would inevitably strengthen the forces working against
acceptance. Accordingly there would be considerable advantage
in delaying action until President Truman had reached a decision.
(b) Special care should be taken to secure favourable publicity
for the action proposed, both in this country and in the United
States. The draft announcement should be greatly strengthened.
It should be less apologetic, should stress the patience which the
Government had displayed, and should expose to the full the nature
of the traffic and its implications. It should also avoid suggesting
that illegal immigrants would be given priority in entering
Palestine.
(c) It was essential that we should make it clear that we were
not indifferent to the very real sufferings of some of the Jews in
Europe. Should not protests be sent to the Governments of Poland,

Plans for
Removal of
Non-essential
British
Personnel.
and possibly of other Eastern European countries, regarding the
anti-Jewish measures which, it was alleged, were still continuing,
and might not such protests be published ?
The Foreign Secretary undertook to consider whether sufficient
evidence was available to justify action on these lines.
It was also suggested that, if such protests were, in fact, made,
a reference to them might be included in the proposed announcement.
The Cabinet—­
(2) Agreed in principle that those illegal immigrants now on
board ship in Haifa harbour, and any further arrivals,
should be trans-shipped and removed to Cyprus or other
suitable areas.
(3) Invited the Secretary of State for the Colonies, in consultation
with the Minister of Transport and the Chief of
the Imperial General Staff, to ensure that all preparatory
measures for this move were taken immediately.
(4) Agreed that the actual movement of the illegal immigrants
and the announcement of the new policy should not take
place until the 11th August at the earliest, and that the
exact date should be fixed by the Secretary of State for
the Colonies in consultation with the Prime Minister,
the Foreign Secretary and the other Ministers immediately
concerned.
(5) Invited the Secretary of State for the Colonies, after
consultation with the Foreign Secretary, to submit to the
Prime Minister a revised draft announcement on the
lines indicated in the discussion, and to consult with the
Lord President regarding the arrangements for giving
publicity to it.
(6) Invited the Foreign Secretary to continue his efforts to
persuade the European Governments concerned to prevent
illegal immigrants from leaving European ports,
and, in particular, to consider whether the Italian
Government could not be induced to take effective steps
to prevent ships from leaving Italy.
(7) Invited the Foreign Secretary to consider whether representations
could be made to the Polish and other Eastern
European Governments regarding the persecution of
Jews in those countries, and whether any such representations
might be published.
The Secretary of State for the Colonies informed the Cabinet
that the High Commissioner for Palestine was anxious that a plan
should be drawn up for the removal from Palestine of British women
and children and other non-essential personnel. He did not suggest
that a decision was now required that they should be removed, but
he thought that it would be well, in view of the possible deterioration
of the situation, that the Palestine Government should be ready
in case such a decision became necessary. The number involved
would be about 2,000. The Palestine authorities had already
prepared a plan for the withdrawal of these persons as far as Egypt
It was, however, undesirable that they should remain there, and the
High Commissioner was now anxious that a plan should be prepared
for their subsequent removal to the United Kingdom.
The Cabinet­
(8) Agreed that a plan should be prepared on the lines
suggested, and invited the Secretary of State for the
Colonies to take the necessary steps to this end.

Civil Aviation.
Civil Aircraft
Requirements.
(Previous
Reference:
CM. (46)25th
Conclusions,
Minute 9.)
3. The Cabinet bad before them a joint memorandum by the
Minister of Supply and the Minister of Civil Aviation (CP. (46)
317) covering the first interim report of the Interdepartmental
Committee on Civil Aircraft Requirements. On the basis of this
report the memorandum recommended—
(i) that six Boeing Strato-Cruisers should be bought at a cost
of about $12 million, in order to enable the United
Kingdom to compete effectively with the United States
on the North Atlantic route between 1948 and 1950;
(ii) that, should any conflict arise in allocating design and
production capacity in the United Kingdom, priority
should be given to civil aircraft of the types enumerated
in paragraph 20 of the memorandum;
(iii) that the Minister of Supply should be authorised in
suitable cases to encourage aircraft manufacturers to
lay down production in advance of actual orders, if
necessary, and, in appropriate cases and with suitable
safeguards, to underwrite such production; and
(iv) that special steps should be taken to strengthen the
technical staffs of the Ministry of Civil Aviation and of
the Air Division of the Ministry of Supply.
The Minister of Civil A viation said that he was satisfied that
unless a fleet of Strato-Cruisers were purchased it would be impossible
for the United Kingdom to hold her own on the North Atlantic
route in the years 1948 to 1950. The Strato-Cruiser would operate
at a speed of 300 miles per hour and an operating cost of 2\d. per
passenger mile as compared with 240 miles per hour and 5d. per
passenger mile for the Tudor I, 230 miles per hour and %\d.
per passenger mile for the Constellation, and 400 miles per hour
and '6d. per passenger mile for the Rainbow. A fleet of six Strato-
Cruisers would enable 750 passengers to be carried back and
forward across the Atlantic per week at a fare of £65. The
corresponding figures for the Tudor I were 190 passengers at a fare
of £110; for the Constellation, 490 passengers at a fare of £78,
and for the Rainbow, 950 passengers at a fare of £58. Since by
international agreement fares were fixed on the basis of the efficient
operation of modern aircraft, we should be compelled to give an
Exchequer subsidy towards bringing down the fares if we continued
to rely on Tudor I's and Constellations during the years 1948-50.
On the other hand, if the proposed purchase of Strato-Cruisers were
made we should obtain, on a conservative estimate, dollar earnings
amounting to $14 million gross in the two years 1948 and 1949.
The purchase price included initial outfits of spare parts, and he
believed that the purchase of these American aircraft was an
essential step to tide the United Kingdom over the two difficult years
before the Brabazon IV came into service. There would be ample
opportunities for using the Constellations which we had already
purchased on other services or, failing that, of selling them overseas.
He was satisfied that, despite its lower speed, the Strato-Cruiser
was a better investment than the Rainbow.
In discussion a number of Ministers expressed misgivings about
the proposal for a further purchase of American aircraft. The
following were the main points made :—*
(a) It was recalled that at a meeting of the Committee on the
Socialisation of Industries on the 24th January (S.I. (M) (46)
1st Meeting, Minute 2), when the purchase of Constellations had
been considered, the Minister of Supply had stated that any
announcement that it was proposed to buy new American planes for
a British air service was likely to be seriously detrimental to the
export prospects of the British aircraft industry, and that once
British operators had obtained American types there would be a
tendency for them to wish to continue to use them. He had therefore
urged that the British operators should wait for the Tudor I
aircraft, twenty of which were expected to be available by October
1946. Moreover, the Lord President had stated in the House of

Plans for
Removal of
Non-essential
British
Personnel.
and possibly of other Eastern European countries, regarding the
anti-Jewish measures which, it was alleged, were still continuing,
and might not such protests be published ?
The Foreign Secretary undertook to consider whether sufficient
evidence was available to justify action on these lines.
It was also suggested that, if such protests were, in fact, made,
a reference to them might be included in the proposed announcement.
The Cabinet­
(2) Agreed in principle that those illegal immigrants now on
board ship in Haifa harbour, and any further arrivals,
should be trans-shipped and removed to Cyprus or other
suitable areas.
(3) Invited the Secretary of State for the Colonies, in consultation
with the Minister of Transport and the Chief of
the Imperial General Staff, to ensure that all preparatory
measures for this move were taken immediately.
(4) Agreed that the actual movement of the illegal immigrants
and the announcement of the new policy should not take
place until the 11th August at the earliest, and that the
exact date should be fixed by the Secretary of State for
the Colonies in consultation with the Prime Minister,
the Foreign Secretary and the other Ministers immediately
concerned.
(5) Invited the Secretary of State for the Colonies, after
consultation with the Foreign Secretary, to submit to the
Prime Minister a revised draft announcement on the
lines indicated in the discussion, and to consult with the
Lord President regarding the arrangements for giving
publicity to it.
(6) Invited the Foreign Secretary to continue his efforts to
persuade the European Governments concerned to prevent
illegal immigrants from leaving European ports,
and, in particular, to consider whether the Italian
Government could not be induced to take effective steps
to prevent ships from leaving Italy.
(7) Invited the Foreign Secretary to consider whether representations
could be made to the Polish and other Eastern
European Governments regarding the persecution of
Jews in those countries, and whether any such representations
might be published.
The Secretary of State for the Colonies informed the Cabinet
that the High Commissioner for Palestine was anxious that a plan
should be drawn up for the removal from Palestine of British women
and children and other non-essential personnel. He did not suggest
that a decision was now required that they should be removed, but
he thought that it would be well, in view of the possible deterioration
of the situation, that the Palestine Government should be ready
in case such a decision became necessary. The number involved
would be about 2,000. The Palestine authorities had already
prepared a plan for the withdrawal of these persons as far as Egypt,
It was, however, undesirable that they should remain there, and the
High Commissioner was now anxious that a plan should be prepared
for their subsequent removal to the United Kingdom.
The Cabinet­
(8) Agreed that a plan should be prepared on the lines
suggested, and invited the Secretary of State for the
Colonies to take the necessary steps to this end.

3. The Cabinet bad before them a joint memorandum by the
Minister of Supply and the Minister of Civil Aviation (CP. (46)
317) covering the first interim report of the Interdepartmental
Committee on Civil Aircraft Requirements. On the basis of this
report the memorandum recommended—
(i) that six Boeing Strato-Cruisers should be bought at a cost
of about $12 million, in order to enable the United
Kingdom to compete effectively with the United States
on the North Atlantic route between 1948 and 1950;
(ii) that, should any conflict arise in allocating design and
production capacity in the United Kingdom, priority
should be given to civil aircraft of the types enumerated
in paragraph 20 of the memorandum;
(iii) that the Minister of Supply should be authorised in
suitable cases to encourage aircraft manufacturers to
lay down production in advance of actual orders, if
necessary, and, in appropriate cases and with suitable
safeguards, to underwrite such production; and
(iv) that special steps should be taken to strengthen the
technical staffs of the Ministry of Civil Aviation and of
the Air Division of the Ministry of Supply.
The Minister of Civil A viation said that he was satisfied that
unless a fleet of Strato-Cruisers were purchased it would be impossible
for the United Kingdom to hold her own on the North Atlantic
route in the years 1948 to 1950. The Strato-Cruiser would operate
at a speed of 300 miles per hour and an operating cost of 1\d. per
passenger mile as compared with 240 miles per hour and 5d. per
passenger mile for the Tudor I, 230 miles per hour and 3\d.
per passenger mile for the Constellation, and 400 miles per hour
and 3d. per passenger mile for the Rainbow. A fleet of six Strato-
Cruisers would enable 750 passengers to be carried back and
forward across the Atlantic per week at a fare of £65. The
corresponding figures for the Tudor I were 190 passengers at a fare
of £110; for the Constellation, 490 passengers at a fare of £78,
and for the Rainbow, 950 passengers at a fare of £58. Since by
international agreement fares were fixed on the basis of the efficient
operation of modern aircraft, we should be compelled to give an
Exchequer subsidy towards bringing down the fares if we continued
to rely on Tudor I's and Constellations during the years 1948-50.
On the other hand, if the proposed purchase of Strato-Cruisers were
made we should obtain, on a conservative estimate, dollar earnings
amounting to $14 million gross in the two years 1948 and 1949.
The purchase price included initial outfits of spare parts, and he
believed that the purchase of these American aircraft was an
essential step to tide the United Kingdom over the two difficult years
before the Brabazon IV came into service. There would be ample
opportunities for using the Constellations which we had already
purchased on other services or, failing that, of selling them overseas.
He was satisfied that, despite its lower speed, the Strato-Cruiser
was a better investment than the Rainbow.
In discussion a number of Ministers expressed misgivings about
the proposal for a further purchase of American aircraft. The
following were the main points made :—'
(a) It was recalled that at a meeting of the Committee on the
Socialisation of Industries on the 24th January (S.I. (M) (46)
1st Meeting, Minute 2), when the purchase of Constellations had
been considered, the Minister of Supply had stated that any
announcement that it was proposed to buy new American planes for
a British air service was likely to be seriously detrimental to the
export prospects of the British aircraft industry, and that once
British operators had obtained American types there would be a
tendency for them to wish to continue to use them. He had therefore
urged that the British operators should wait for the Tudor I
aircraft, twenty of which were expected to be available by October
1946. Moreover, the Lord President had stated in the House of

Commons on the 24th January, on the authority of the Ministers
of Supply and Civil Aviation, that the purchase of Constellations
was a special isolated case and that once it had been made we should
go bapk to British products.
(6) Even after full allowance had been made for the handicap j
of the war years, the British aircraft industry did not seem to be
showing enough enterprise and foresight in the development of
new types. Was there not a tendency on the part of British manufacturers
to make forward plans on the basis of producing aircraft
which would be competitive with current American types rather
than with the improved American types which would be in the
air two or three years hence?
(c) Were we not concentrating unduly on the North Atlantic
route, and did not the attempt to compete on that route lead to an
undue development of large types of aircraft which could use only
one or two airfields in the United Kingdom ? The development of I
shipping showed that it was uneconomic to devote too large a proportion
of our resources to maintaining our prestige on this route, jj
and that a surer foundation for the British aircraft industry would 1
be the production of aircraft for use on other routes.
(cl) I t was doubtful whether the average passenger regarded j
the speed at which an aircraft operated as of paramount importance, f
and it might well be possible to offset any inferiority in the speed I
of British aircraft by guaranteeing passengers greater comfort and 1
safety, and by taking special steps to provide convenient trans- 1
port to and from the airfield and to minimise customs and passport I
formalities.
(e) From the point of view of our export trade, Were British (l
manufacturers not dissipating their resources over too many jj
different types? Thus, it was stated in paragraph 7 of CP. (46) j
317 that more than 30 different types of civil aircraft were on the i
stocks and that Government orders for some 350 aircraft of 23 I
different types were outstanding.
The Minister of Supply said that, since a period of five years f
normally elapsed between the date when the requirement for a new I
airliner was first stated and the date of its coming into service, I
and since in 1942 and 1943 all British resources had been concen- \
trated on the production of combat aircraft, it was inevitable that 1
in the years 1948-50 we should have no new British civil aircraft I
capable of competing effectively with American aircraft on the I
North Atlantic route. I t was hoped to introduce the Tudor I, which p
was a stop-gap type developed from the Lincoln bomber, on the I
North Atlantic service early in 1947; but the Strato-Cruiser, which.
would come into service in the autumn of 1947, would completely!
outclass both the Tudor I and the Constellation; and from thenl
onwards until 1950, when the Brabazon I V was due to come into!
service, there would be no new British type capable of competing!
with the American Strato-Cruisers and Rainbows. He regretted!
that his hope that the Tudor I would be in service by October 1946JJ
had been disappointed, but in the production of new types of air-1
craft delays were inevitable owing to the need to introduce modi-l
fixations to satisfy the requirements of the Air Registration Board;
and of the operators as well as to ensure that the finally approved!
type would be reliable. The fact that the Tudor I would not bel
competitive on the North Atlantic route after 1947 did not, of course!
mean that it would be obsolete for other routes, and it was ch .i 1
that there would be a strong demand for it for Australian and!
South American services. He believed that the Brabazon IV, which!
would be a jet-propelled aircraft with a speed of about 550 miles!
per hour, would be fully equal to anything which the Americans'
would be able to put into the air in 1950. ' In addition, of course!
progress was continuing on the Brabazon I, the prototype of which;
was due to fly in the summer of 1947. In a matter such as the.
design of new aircraft, where very rapid progress was being made!
it was inevitable that any particular type should be virtualljf
obsolescent by the time it was brought into service, but generally

he was satisfied that the British aircraft industry would respond
satisfactorily to the demands made on it once the handicap of our
having concentrated during the war on combat aircraft had been
overcome. We could not afford to neglect the North Atlantic route
if we were to maintain our position in the export market and to
develop our war potential.
The Cabinet were informed that the Chancellor of the
Exchequer had not had an opportunity of examining the proposed
purchase of American aircraft, and that before he expressed a view
on these proposals he would wish to consider how much of the
estimated gross earnings of $14 million in the years 1948-49 could
fairly be set against the purchase price of $12 million.
Summing up the discussion, The Prime Minister said that,
while it was regrettable that it should be necessary to make a further
purchase of American aircraft at the present time, it was difficult
to see any alternative if we were to retain a reasonable share of
the North Atlantic traffic. Subject, therefore, to any views which
the Chancellor of the Exchequer might have, he suggested that the
purchase should be made. As regards the other proposals made
in CP . (46) 317, it would be necessary to consider these at a later
meeting of the Cabinet.
The Cabinet—
(1) Agreed that, subject to consultation with the Chancellor of
the Exchequer, orders should be placed for the purchase
of six Boeing Strato-Cruisers at a cost of $12 million.
(2) Agreed to resume consideration of the other proposals in
CP . (46) 317 at a later date.
4. The Cabinet had before them a memorandum by the Lord
Privy Seal (CP. (46) 318) regarding the payment of unemployment
benefit to citizens of Eire who had served as volunteers in the
United Kingdom Forces.
The Lord Privy Seal recalled that at their meeting on the
21st March the Cabinet had agreed that Eire volunteers who had
enlisted in the United Kingdom Forces should be entitled to payment
of unemployment insurance benefit in Eire in respect of any
contributions credited to them during their service in the Forces,
provided that administrative arrangements were made under which
the payment of benefit could be terminated if it were possible to
offer the recipient suitable employment in the United Kingdom.
Discussions had since taken place between officials of the United
Kingdom Departments concerned, together with an observer from
Northern Ireland, and representatives of the corresponding Eire
Departments, and a draft agreement, a copy of which was annexed
to CP . (46) 318, had been initialled. The agreement, which would
run for a period of two years, provided that ex-Service men and
women who had served in the United Kingdom Forces and had
returned to Eire after demobilisation, would be able to obtain
unemployment benefit in Eire if they satisfied the contribution conditions
in force in Great Britain. The administration in Eire would
be undertaken by the Eire authorities who would apply their own
rules for the receipt of benefit. These rules approximated closely
to those in force in the United Kingdom, and the representatives
of the United Kingdom were satisfied that the Eire authorities
would apply them strictly. At the meeting of the Social Services
Committee, at which the draft agreement had been considered
(S.S. (46) 8th Meeting, Minute 3), it had been suggested that the
agreement might be criticised on the ground that the Eire authorities
would apply a more lenient test in dealing with applicants whose
benefit would be paid from United Kingdom funds, and that in
certain parts of Eire where the standards of living were low there
would be a considerable temptation to ex-Servicemen to draw the
-8] c

maximum amount of benefit. Against this it should be noted that
the agreement limited the payment of benefit to 180 days and made
no provision for the added days for which benefit would normally
be payable in the United Kingdom. Moreover, there was no doubt
that men who had served in the United Kingdom Forces would,
through no fault of their own, be handicapped in their search for
employment in Eire. It would be extremely difficult to retreat from
the agreement that had been initialled at this stage, and on the
whole the Social Services Committee were satisfied that the safeguards
for which it provided were satisfactory. The possibility
of making arrangements to offer employment in the United Kingdom
to claimants for unemployment benefit under the proposed agreement
had been fully discussed with the Eire representatives, but
it had been found that the practical difficulties in operating any
formal scheme of this kind would be very great.
A short Bill would be necessary to enable the agreement to be
implemented, and it was most desirable that this Bill should be
passed during the concluding weeks of the 1945-46 Session.
The Minister of Labour said that the practical difficulties of
offering vacancies, as a matter of rule, in the United Kingdom to
applicants for benefit in Eire would be insuperable. Moreover, any
formal arrangement of this kind would affect adversely the success
of the present drive to recruit Irish labour for mining and
agriculture in the United Kingdom.
The Cabinet­
(1) Approved the draft agreement annexed to CP . (46) 318 for
the payment of unemployment benefit to Eire citizens
who had served in the United Kingdom Forces.
(2) Agreed that the necessary legislation to implement the
agreement should be included in the 1945-46 Legislative
Programme.
Civil Service
Hours and
Leave.
5. The Cabinet had before them a memorandum by the
Chancellor of the Exchequer (CP. (46) 299) recommending that the
Treasury should open negotiations with the Staff Side of the
National Whitley Council with a view to reaching agreement on a
revised scheme of Civil Service hours and leave.
The Cabinet were informed that the Coalition Government had
undertaken to apply to the Civil Service the provisions of the
Restoration of Pre-War Trade Practices Act, 1942, and that the
Staff Side of National Whitley Council were pressing for an early
return to pre-war hours of work and annual leave. The pre-war
arrangements were open to certain objections in that in London the
hours actually worked were too low and too sharply differentiated
from the provincial hours. As against this, there was no provision
in the arrangements for enabling office staffs to be given at least
every other Saturday morning off, a practice which was becoming
increasingly prevalent in commercial and business houses. The
arrangements proposed as a basis for negotiation were set out in
paragraph 8 of CP. (46) 299. They included provision
for allowing Civil Servants to have alternate Saturday
mornings off with a corresponding reduction in the pre-war leave
entitlement; an increase in the London hours, and a longer official
meal interval. The proposals had been approved by the Lord
Presidents Committee at their meeting on the 19th July (LP. (46)
27th Meeting, Minute 6).
In discussion it was pointed out that the negotiations with the
Staff Side would have to be handled very carefully and that, in view
of the possible repercussions on conditions of work outside the Civil I
Service of the adoption of a scheme on the lines proposed, it would I
be important to choose the right moment for bringing it into I
operation.
The Foreign Secretary said that he had not yet been able to I
consider fully how the proposed scheme would affect the work of the 1

Foreign Office and that he would be grateful if there could be -
consultations between the Treasury and the Foreign Office before the
negotiations were started.
The Cabinet—
Approved the scheme outlined in paragraph 8 of CP.
(46) 299 as a basis for negotiations with the Staff Side
of the National Whitley Council, on the understanding
that arrangements would be made for consultation with
the Foreign Office before the negotiations were started.
t u
6. The Minister of Fuel and Power informed the Cabinet that
he had had a long discussion on the 2nd August with Sir William
Fraser, the Chairman of the Anglo-Iranian Oil Company, and had
impressed on him the need for adopting an enlightened policy in the
treatment of labour employed by the Company in Persia. He had
made it clear to him that His Majesty's Government would be
placed in an embarrassing position and would find it difficult to give
effective support to the Company unless they were satisfied that
they were doing their best to secure satisfactory conditions of work
for their employees. Sir William Fraser had declared himself
ready to take any steps which the Government thought necessary. A
statement had been drafted in consultation with him and had now
been issued to the press by the Foreign Office, setting out the desire
of His Majesty's Government to encourage any practicable measures
to raise the standard of living of Persian workers. Sir William
Fraser had asked for Government assistance in reinforcing the
Company's staff concerned with industrial relations and social
welfare. The Minister of Fuel and Power was in communication
with the Minister of Labour about this. It had also been suggested
that the staff of the British Embassy in Teheran should be
strengthened to enable them to deal with these subjects.
The Foreign Secretary said that he hoped to arrange very
shortly for the appointment of a Labour Attache to the Embassy at
Teheran.
It was pointed out in discussion that recent Persian legislation
laid down minimum conditions for the employment of labour. It
was agreed that it would be wrong if the Company came to regard
the minimum so laid down as the maximum standard which they
need seek to maintain.
The Cabinet-
Took note with approval of the position.
Cabinet Office, S.W. 1,
7th August, 1946.

THIS DOOUMEHT IS THE PROPERTY OF HIS BRITANNIC M&JESTY'S GOVERNMENT
Printed for the Cabinet. July 1946.
' The earepiatsosi of this paper lias hmn sfrietly limited.
U is issued
for the persoraai use of ........-Jky...ksfr*rr^^....3^hAdfa.......
TOP SECRET. Copy No. 38
CP . (46) 269.
11th July, 1946.
CABINET.
SITUATION IN SOUTH
PERSIA.
MEMORANDUM BY THE SECRETARY OF STATE FOR FOREIGN AFFAIRS.
MY colleagues will be aware that the situation in South Persia has been
giving me some concern. I have under consideration the various steps which
could be taken to safeguard our interests there in the light of the new political
conditions now obtaining throughout the country. As a result of Soviet influence
in the North the Tudeh Party has been greatly stimulated and strengthened so
that it now exercises a predominant influence even in the South. I am not
disposed, however, to take too tragic a view and I am hopeful that, given time,
it may prove possible to wean the Tudeh Party, or at least some part of its
adherents, from extremist or Communist courses. To judge by the Party's
programme, which in all the circumstances is by no means extreme, this should
not be impossible. In particular I am convinced that much can be clone by means
of sympathetic treatment of labour and social welfare in the oilfields. Members
of Parliament have recently visited the area, whilst a high official of the Ministry
of Fuel and Power has been sent to Tehran to advise on technical matters. What
I may describe as the curative and long-term treatment of the problem is therefore
in hand.
Such remedial measures must of necessity take time. In the meanwhile I
am anxious to avoid being caught by any emergency. His Majesty's Ambassador
at Tehran, who has also recently visited the oilfields, has reported that the Tudeh
Party has been inciting to violence against the British employees of the Anglo-
Iranian Oil Company, and that the Persian authorities may be unable to maintain
order in the event of troubles occurring. I must therefore request authority
for certain emergency plans as outlined below to be put into action only in the
event of sudden necessity.
The numbers of the British and Indian employees of the Company are as
follows :—
2,150 British, with 800 wives and children; and
2,700 Indians, with 950 wives and children.
- The Chiefs of Staff have been preparing plans for—
(a) evacuating British and Indian personnel from the oilfields area with
the help of the Roysil Air Force;
(&) occupying the Abadan area in order to protect the lives of the Company's
employees concentrated there and to guard the valuable refinery
installations.
The Chiefs of Staff have also under consideration the further question of
occupying the oilfields area itself if it becomes necessary to do so, in order that
production may continue. In this connexion, I should draw attention to a
memorandum circulated to the Defence Committee, No. D.O. (46) 45 of the
13427 [32128]

28th March, in which the Minister of Fuel and Power stressed the need to safeguard
1
our Middle East supplies of oil for our vital strategic needs and our
equally vital economic and industrial needs.
I am particularly anxious to ensure that preparation for such measures
should not be taken in any ostentatious way such as might precipitate the very
situation which we wish to avoid. I do not myself believe the situation to be
as grave as it may appear. I must, however, be prepared for eventualities which,
in the light of our reports from Persia, cannot be altogether excluded. Whilst,
therefore, asking for authority for the preparation of plans as indicated above,
I would assure my colleagues that I would not recommend any such drastic action
as the re-entry of British troops into Persia unless I was convinced that there
was no other way of saving British lives. I should accordingly arrange for
His Majesty's Consuls at Khorramshahr and Ahwaz, within whose districts the
Oil Company's operations lie, to telegraph reports of the situation to me, to our
Ambassadors at Tehran and Bagdad, and to the military authorities in the Middle
East, and for the Ambassador at Tehran to report at once to me his appreciation
of the situation.
E. B.
Foreign Office, 11th July, 1946.

THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTY'S GOVERNMENT
Printed for the Cabinet. July 1946.
SECRET.
Copy No.
CP . (46) 280.
17th July, 1946.
CABINET.
PROGRAMME OF THE PERSIAN TUDEH
PARTY.
MEMORANDUM BY THE SECRETARY OF STATE FOR FOREIGN AFFAIRS.
IN Persia the Tudeh (" Mass ") Party has. emerged as the best organised
and most vocal political party. My colleagues may be interested, therefore, to
see the last published programme of the party. The programme is dated 1944
and no detailed programme has been published since, but it may be expected that
a new programme will be published before the forthcoming parliamentary
elections. The text of the programme forms the annex to this paper.
The programme contains many praiseworthy although ill-defined proposals
for the reform of conditions in Persia, and is designed to appeal to the progressive
sections of Persian public opinion. I am sure that my colleagues will feel in
sympathy with many of the objects of the Tudeh programme and will agree that
it should continue to be our policy to encourage their realisation wherever possible.
This is, of course, in accord with His Majesty's Government's general policy in
social and economic matters in the Middle East, and His Majesty's representatives
in Tehran have in the past frequently urged on successive Prime Ministers- in
Persia the necessity of introducing such reforms.
With regard to the Tudeh Party, I must point out that it must be judged by
its practice and not only by its programme. Its activities in Persia have recently
given cause for the gravest concern. The party has been used by the Russians as
their instrument in Persia for subverting the authority of the Central Government
and for promoting the Secessionist Movement in Azerbaijan. The party's
leaders have willingly lent themselves to this, and the success which they have
achieved has been largely due to the intimidation of the Central Government by
the Soviet representatives in Tehran, and during the occupation by the Soviet
Military Authorities in North Persia. At present the influence which the Tudeh
Party has in the labour movement in South-West Persia is being used at Soviet
instances to undermine British influence there. I am considering as a matter of
urgency means of winning the labour movement over to us.
I should add that the present Persian Prime Minister has just formed a new
political party called the Democratic Party of Persia. This party also has a
progressive programme which in the main is similar to the Tudeh Party's and goes
into rather fuller detail than does the Tudeh programme. I propose to watch
progress of this new party and to give it every encouragement if it shows itself
sincere in applying its policy of reforms.
E. B.
Foreign Office, S.W.1,
nth July, 1946.
ANNEX.
EXTRACT FROM THE TEHRAN NEWSPAPER " RAHBAR " OF THE 28TH FEBRUARY, 1944,
GIVING THE TUDEH PARTY PROGRAMME FOR THE 14TH PERSIAN PARLIAMENT.
THE Tudeh members of the Majlis have published their programme. They
have no personal interests, but have entered the Majlis to consolidate the happiness
and protect the forgotten rights of the nation—to spread the voice of Iran
throughout the country and the world—and to establish, with the help of the
13440 [32153]

other freedom-loving Deputies, a stronghold for the defence of the nation's rights.
Of course, it cannot be expected that all the hopes of the Iranian people will be
accomplished in the present session; therefore the Tudeh members have based
their programme on the minimum of the reforms necessary. These are:—
1. To defend to the utmost the independence of Iran and the integrity of
its soil. True independence is indissolubly linked up with economic independence.
They therefore support the extension of new national industries, the acquisition
of economic and vital sources and the use of the natural resources of Iran.
Economic independence is essential to political independence.
2. All Iranian soil should be in the hands of Iranians.
3. "Freedom for all, bread for all, education for all, hygiene for all."
Freedom in its true sense should rule in this country, especially freedom of
assembly. Parties should be -persona juridica. These four principles should not
be exclusive to a favoured few but within the reach of every individual.
4. Strengthening of the force of the country, and protection of the people
against poverty and injustice. Tudeh members will bring before the Majlis
projects for combating alcohol, opium, prostitution and venereal disease, for
pecuniary help to the poor to enable them to marry, and to persons with large
families, in order to further the increase of the population.
5. Combating the corruption, peculation and bribery with which the country
is riddled. To this end, bread must be assured, men must be free, and education
and hygiene universal. The maximum penalties for bribery and embezzlement
must be enforced, especially in the case of high officials.
The following are the measures which the Tudeh members desire the Majlis
to pass. They are regarded as minimum demands : —
Labour Law.—To establish proper relations between employer and employed;
to ensure that the worker can resist any diminution in his pay; to see that his
wages are not stopped in case of sickness, and that compensation for injury shall
also be paid to him.
Employment Law.—The Civil Service Law is obsolete; it does not consider
the younger generation or the honest men. A radical revision, and the cancellation
of illogical regulations are necessary.
Employees in private establishments should be assured of their future and
of just treatment.
Election Law.—This should be revised. Tudeh oppose the project to deprive
illiterates of the vote.
Because of the redistribution of population the old electoral districts are
no longer valid and should be revised. The number of electors in each district
should be established before elections start, to prevent trickery.
Election period should be reduced to the minimum and elections should
begin and end at the same time all over the country.
Judicial Reform.—Abolition of special courts such as the Administrative
Court (Diwan-i-Kifar) and the Financial Tribunals; and revision of the
competence of military courts.
. v Total annulment of laws and regulations damaging to the country; and
especially of the wrong interpretation of article 72 of the fundamental law,
which has prevented the independence of judges.
Revision of the Penal and Criminal Courts Law.
Simplification of Judicial Organisation Laws.
Agricultural Reform.—Purchase of Crown lands and large properties from
owners by Government, and handing, over of them to farmers against payment
in instalments.
Amendment of Agricultural Law to ensure just division of produce between
landlords and peasants.
An improvement project spread over several years; extension of husbandry
and industrialisation, enhancement of economic strength; repair of old aqueducts
and conduits and digging of new ones, generation of electric current,
extension of road making and farm lands.
Strengthening of National Economy.—Adjustment of taxes, taking into
account the resources of-the majority of the nation.
Reinforcement of Government monopolies. In particular, Tudeh members
oppose the sale of factories to persons when, in the decision of the 13th Majlis,
such sale would be against the national interest.

Reinforcement of internal industries.
Encouragement of commerce, to increase exports.
Limitation of rates of profit and prevention of speculation.
Amendment of Municipal Laws.—Extension of municipal vote to all
individuals.
Direct election.
Election of Mayors by, and from among the members of, municipal councils.
Extension of powers of municipal councils in drawing up their budgets,
and in reforms and matters likely to secure the public interest; and also in
-sblving local problems outside the competence of the Government.
Education.—Project for the bringing into force as soon as possible of free
universal education. Stress is laid on the reformation of school curricula, with
regard to civic education and the fostering of the democratic spirit and true
patriotism.
MilitaryReform of military organisation, leading to the formation of a
strong national army to maintain internal security and the independence of
Iran.
Hygiene.—'A Bill for the extension of hygiene, especially in villages, and
free medical care for poor people.
Tudeh members of the Majlis will not cease their efforts to protect the
rights of the nation. To-day all lovers of freedom must unite and co-operate
for the happiness of Iran. The Tudeh Deputies will co-operate with all other
freedom-loving Deputies for the reforms the nation needs.

THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTVS GOVERNMENT
Printed for the Cabinet. October 1946.
SECRET.
CP. (46) 365.
1st October, 19416.
Copy No.
35
CABINET.
LABOUR CONDITIONS IN THE ANGLO-IRANIAN
OIL COMPANY.
MEMORANDUM BY THE SECRETARY OF STATE FOR FOREIGN AFFAIRS.
IN view of the frequent discussions in Cabinet about the affairs of the Anglo-
Iranian Oil Company, my colleagues may be interested to see the attached
summary of the reports rendered to me by the three Members of Parliament who,
at my request, visited the Company's area in June. I am not circulating the full
text of the reports because each Member of Parliament put in a separate report
and there is thus a considerable amount of over-lapping between the reports.
I should add that the report of each member of the Delegation was in all cases
countersigned and approved by the other members.
Since the receipt of these reports I have had a despatch from His Majesty's
Ambassador at Tehran containing recommendations for action which, although
covering a much wider field, are in general consistent with those put forward
by the Parliamentary Delegation, and, as my colleagues are aware, the Minister
of Fuel and Power and I have vigorously impressed on the Chairman of the
Anglo-Iranian Oil Company the need for his Company to do everything possible
to provide satisfactory conditions for its Persian employees and to improve its
relations with them. In this connexion I should like to record that the Anglo-
Iranian Oil Company has recently stated that it is fundamental to its policy
to pay wages to its labour more favourable than those paid by other employers
in Persia. The Company has stated that wage increases granted since the
1st March of this year to Persian employees amount to over two million pounds
a year. At the same time, the Company is building up its Industrial Relations
Department, and with the help of the Ministry of Labour is selecting Labour
Officers for duty in Persia. The Company's housing and amenity programme
requires supplies from this country, and I have therefore asked my colleagues
in the Supply Ministries to ensure that everything possible is done to meet the
Company's requests for materials. They have all given the most helpful replies.
On the political side, the Delegation made two principal recommendations :
That there should be a strong British publicity drive in Persia and that we should
impress on the Persian Government that we look to them to provide for the
security of our nationals in South Persia. Action has been taken in the sense
of both of these recommendations.
Foreign Office, S.W. 1,
1st October, 1946.
E. B.
ANNEX.
SUMMARY OF REPORTS ON LABOUR CONDITIONS IN THE ANGLO-IRANIAN OIL
COMPANY, PRESENTED BY MR. W. N. CUTHBERT, M.P., MR. F. LEE, M.P.,
MR. J. JONES, MP, AFTER THEIR VISIT TO SOUTH PERSIA IN JUNE 1946.
The Company's Educational and Training Facilities for Persians.
A high standard is maintained at the Company's training and educational
centres. Speaking of the Abadan Technical College, Mr. Jones reported that
the papers were well up to the best of British standards and that the college
offered splendid facilities for Persian youths. The facilities offered at youth'
hostels for young Persian students were also excellent.
13597 [32474]

The Company's Hospital and Medical Facilities for Persians.
Excellent work is being done by the Company's medical staff, but more staff
and accommodation is needed. Mr. Jones noted at one Company hospital an
unusual treatment for burns which he thought worthy of consideration by the
British medical services. Special praise was given to the Ophthalmic Department
of the Company's medical service which was very busy treating trachoma,
which is common in Persia.
Conditions of Work.
Mr. Lee reported that at the refinery at Abadan, where more than 30,000
men are employed, general conditions were good; in fact, the Trade Union did
not complain of the working conditions.
The only criticism of working conditions noted in these reports is one by
Mr. Jones of a sulphur plant at Masjid-i-Suleiman.
Mr. Cuthbert reported that when the Governor-General of Ahwaz was asked
whether his countrymen would rather work for Persian or British-owned
industry, he replied that they seemed to prefer the Anglo-Iranian Oil Company,
as workers were always applying to him for recommendations to enable them to
get jobs with the Company.
Housing.
The houses built by the Company are far better than the others in the
district, most of which are small mud huts erected by the workers themselves.
There is a great need for many more thousands of homes. This situation has
arisen because during the war oil output was practically doubled and the number
of employees of the Company was more than doubled, and, as in this country,
provision of housing and social amenities was checked. Houses are now being
built for the Company in fairly substantial numbers by British contractors.
Relations between the Company and its Persian Labour.
The Company's attitude towards its employees appeared more favourable
than that displayed in other Persian industries in areas visited by the Delegation.
The Delegation felt that the Labour Movement in Khuzistan was genuine but
had its immediate clangers in that it was to some degree encouraged and enforced
by intimidation and was being exploited in an anti-British sense at Soviet
instigation. They considered it essential that the initial stages of this genuine
Trade Union Movement should be handled from the Company's side by trained
staff with a good knowledge of how negotiating machinery should be set up
and used. The following quotations from Mr. Jones's report are of particular
interest in this connexion :—
'' To summarise the position as I personally saw it, I am bound to state
that the interests of His Majesty ^Government with reference to oil supplies
from Persia are being jeopardised by the influence now being exercised
through the Tudeh Trade Union Movement by our Russian Ally. There is
not the slightest doubt that the desire of the Persian working masses for a
higher and better standard of life is being exploited for reasons which are
difficult to determine. It is, of course, humanly impossible to expect even
a Persian to advance his knowledge technically in the interests of British
oil production and at the same time expect any individual Persian or Persians
not to acquire knowledge which creates within them a desire for a much
better existence than has obtained heretofore. Other influences have had
their effect upon the mind of the Persian, i.e., employment by the American
forces during the war at comparatively high wage levels for camp
duties, &c."
" The great immature force which has sprung up in this new Trade
Union Movement should in my opinion be carefully handled by trained
personnel who are well versed in Trade Union activity and with a very sound
and complete knowledge of collective bargaining. It would be absolutely
futile to make the effort to deny the right of this new Movement to gain full
and complete recognition as we know it in this country, and a very serious
effort should be made to obtain the goodwill and constitutional procedure
of the officials of the same. The conception of the rights of the Persian
as known 20-30 years ago by the Company must undergo a complete and
fundamental change and, therefore, I would with respect suggest that His
Majesty's Government make representation as strongly as possible to the
Company on these lines."

Wages.
The lowest-paid workers in Persian-run industries received considerably less
pay than the lowest-paid workers in the Anglo-Iranian Oil Company. The
Company also provided various facilities such as the medical treatment and so on.
Mr. Lee reported that much of the unrest could be attributed to the changeover
from overtime conditions during the war when a 60-hour week brought a
far bigger wage packet than obtains now. There was room for great improvement
in the pay of the lower-paid workers.
Local A uthorities.
The standard of Persian local administration was very bad and because of
this living conditions for workers not provided for by the Anglo-Iranian Oil
Company were of a very low order. Despite the revenue which the Persian
Government derived from the Anglo-Iranian Oil Company, including income tax
on the pay of all Anglo-Iranian Oil Company employees, they spent nothing on
hospitals, schools and housing for Anglo-Iranian Oil Company employees,
although these were all matters which should normally be dealt with by the local
authorities and not left to the Company. The Delegation hoped that it might
eventually be possible for these responsibilities to be taken over by Persian
authorities from the Company. The Delegation noted the impotence of local
Persian Government officials to control the local representatives of the Tudeh
Party.
Political Questions.
(a) Security of the British Staff.—There was considerable apprehension lest
the Persian Government should fail to provide security and lest British staff and
their families might be subjected to violence. The Delegation recommended that
immediate steps should be taken to compel the Persian Government to provide the
necessary forces for such security and failing this that His Majesty's Government
should take urgent measures themselves to ensure the safety of the British
interests in South Persia.
(b) Propaganda.—The Delegation stressed the need of a strong propaganda
movement with a view to moulding the Labour Movement into a democratic form
.as a result of which it would look to us rather than to others.

Printed for the Cabinet. March 1947
CP. (47) 75
3rd March, 1947
CABINET
SOUTH
PERSIA
MEMORANDUM BY THE SECRETARY OF STATE FOR FOREIGN AFFAIRS
My colleagues will recall that in July 1946, when the internal situation
in Persia was' such that there was a grave and imminent risk that serious
disturbances might arise in South Persia, which would be likely to threaten
the lives of the British and Indian employees of the Anglo-Iranian Oil Company
and disrupt the flow of our essential oil supplies, they authorised the despatch
from India to Southern Iraq of a brigade group known as Force 401. (Cabinet
Conclusions of 15th July, 1946, CM. (46) 68.)
I now recommend that :—
(1) The Government of India should be asked for their agreement to the
withdrawal of Force 401 without replacement as soon as the Ambassador
in Tehran confirms that the maintenance of that force in
Southern Iraq is no longer necessary.
(2) The Foreign Office, in consultation with the other Departments concerned,
should consider the desirability of making a public announcement
about the withdrawal of Force 401 and the form of any
announcement which may be found necessary.
(3) As soon as Force 401 has been withdrawn, the withdrawal of the
remaining land forces in Iraq should be resumed.
(4) The Chiefs of Staff should be invited to prepare an outline standing
plan for action in South Persia in case serious disturbances should
occur in the future.
I put forward these recommendations for the following reasons : —
Recommendation 1.—Firstly, in recent months the situation in Persia has
greatly improved and the Ambassador at Tehran has now recommended that, if
the present Persian Prime Minister obtains a majority in the new Persian
Parliament, the position will be sufficiently stable for it to be not only possible
but desirable for Force 401 to be withdrawn from Southern Iraq. I am in
agreement with the Ambassador.
Although the Persian elections are not yet over, the indications are that
the present Persian Prime Minister will have a majority in the new Parliament.
Secondly, it so happens that for administrative reasons the Government of
India have not been able to maintain the force at Basra at its original strength
and it must now be considered!, owing to repatriation of men due for release,
as inoperative.
Recommendation 2.—It was suggested by the Ambassador in Tehran that a
public announcement about the withdrawal of Force 401 should be made. This
requires rather careful consideration and i would suggest that it should be left
to my Department, in consultation with the other Departments concerned and
the Government of India, and if necessary after further reference to Tehran,
to decide as to whether or not any public announcement is necessary or desirable.
The terms of any such announcement would, of course, need to be agreed with
the Government of India before issue.
13924 [33240]

Recommendation 3.—Apart from Force 401, there is at Basra the remnant
of the war-time garrison Which we maintained in Iraq. -They are engaged in
guarding and disposing of the base installations which we set up during the war
The disposal of these installations and the evacuation of the forces concerned was
to have been completed by 31st May, 1947, but this evacuation was halted by the
arrival of Force 401, as many of the installations concerned were required for thp
maintenance of this force.
It is the intention of the Service authorities to resume evacuation of Iraq by
these troops as soon as Force 401 is withdrawn, since it is not considered that
circumstances justify the retention of this body of troops in Southern Iraq, nor is
there any provision in the existing Anglo-Iraqi Treaty for the location of British
land-forces in Iraq in peace-time. Moreover, this would effect an economy in
overseas spending.
Recommendation 4.—There will thus shortly be no British land forces in
Iraq. It is, however, unfortunately not possible to assume that there will never
in any circumstances be disturbances in South Persia which might compel us to
take action. It therefore seems essential that the Service authorities should prepare
in broad outline a standing plan for the despatch of troops for the protection
of British life and property in the oilfields area, which could be put into effect if
ever required. The" carrying out of such a plan would depend on Iraqi co-operation,
since the troops would have to be sent through or over Iraq. Provided that
our relations with Iraq remain on their present satisfactory footing, there is a
reasonable prospect that the Iraqi Government may agree to afford, when
requested to do so, all possible facilities for the movement of our forces in transit
across Iraq.
E. B.
Foreign Office, 3rd March, 1947.

S 0OGUMI
IS THE PROPERTY. OF HIS BRITANNIC MAJESTY'S GOVERNMENT
Printed for the Cabinet. April 1947 " EiO
SECRET
C oPy ^
CP. (47) 125
10*A 4-^7, 1947
CABINET
ANGLO-IRANIAN OIL COMPANY
MEMORANDUM BY THE MINISTER OF STATE
IN view of the interest taken by my colleagues in the Anglo-Iranian Oil
Company, I attach for their information, with reference to CP. (46) 365 of
1st October, 1946, a summary of a report by the Labour Attache recently appointed
to His Majesty's Embassy at Tehran on labour conditions provided by the
Company.
The Ministry of Fuel and Power have taken up with the Company the various
recommendations for action made in the report.
Since the report was written, His Majesty's Ambassador at Tehran has visited
Abadan. He reports that during the past six months a great amount has been
done in the way of developing housing, essential services, clinics, stores, &c.
Among the new developments is a comprehensive sewage scheme, which will cost
about one and a quarter million pounds and will be the only one of its kind in
Persia. He concludes that all these activities should impress any impartial
observer with the seriousness with which the Company are tackling their great
task. The general impression which he derived from his visit was distinctly
encouraging and reassuring.
H. McN.
Foreign Office, lQth April, 1947.
SUMMARY OF A REPORT ON LABOUR CONDITIONS IN THE ANGLO-IRANIAN OIL
COMPANY DATED 31ST DECEMBER, 1946, BY MR. K. J . HIRD, LABOUR ATTACHE
AT HIS MAJESTY'S EMBASSY, TEHRAN
1. Terms of Service
Minimum wages, maximum hours, overtime rates, leave and holidays have
been laid down in. recent Persian Government legislation. The Company's
workers enjoy conditions that are in most respects superior to the minima of the
Labour Law. The Company's hours of employment—44-^ in winter, 45 in
summer—are more favourable than those prescribed by the Labour Law, viz., 48.
Employees are able to purchase food and clothing at cheap prices in the
Company's shops.
2. General
At Abadan, where the Refinery is situated, little attempt is made by Persian
officialdom to discharge the functions of a public authority. The making of roads,
street cleansing, the building of schools, medical services, the inspection and
cleaning of the municipal abattoir are left to the Company. There is a marked
aifference between facilities (hospitals, clubs, housing) afforded by the Company
to its own employees and those available to non-employees. Social conditions
and amenities of Company labour are, in general, superior to those to which the
normal Persian manual worker is accustomed, and the contrast with living conditions
of non-employees is therefore all the more marked. The provision of
satisfactory social amenities and community services for that part of the population
not employed by the Company depends on the provision of better municipal
officials by the Persian Government whom the Company might be able to
encourage by contributing to the cost of public works or by assisting with
materials and equipment.
3- Housing
The present shortage of houses provided for Company labour is fully realised
by all concerned and the future programme of construction is comprehensive. But
[33442

it will be some time before minimum housing requirements are met; estimates
vary from two years for the Abaclan area to five years- for the Oil Fields. In
particular at Agha Jari Oil Field the problem is complicated by the imminent
transfer of the Oil Field Centre to a point some 10 miles from its present site.
Extensive building is going on at the new Centre, but it may be years before
the move is completed, and meanwhile many workers will be in a state of
discomfort. The quality of the new housing is excellent, the four-room type, both
in Abadan and the Oil Field, comparing very favourably with the accommodation
available to large numbers of workers in Great Britain. At Abadan existing
two-room houses are being turned into three-room houses. It is open to doubt
whether, with such a large number of workmen without Company accommodation,
it might not be better to concentrate present efforts on mass producing emergency
accommodation and then rebuilding to raise standards. With regard to the
development of Oil Fields which may be brought into production in the future, it
is the intention of the Company to see that the development of production shall
not outstrip the provision of facilities for workers and their families.
4. Up-grading of Persian Workers
The quality of Persian workers is, on the whole, good. There appears to
be scope for more up-grading of Persian workers. This would largely be at
the expense of Indians. The Company have arrangements for reviewing the
contracts of Indian employees with special reference to the possibility of replacing
them by Persians.
5. Contractors' Employees
- A problem is presented by the employees of Persian contractors engaged on
work for the Company. As these men are not directly employed by the Company
they do not receive all the amenities of Company employees and are vulnerable
to such malpractices or irregularities as their employers may pursue. Out of
63,000 men working for the Company some 11,000 are the employees of contractors.
This problem needs review, and if it is impracticable to transfer large
numbers of these men to the Companj^s direct employment it should be ensured
that the terms and conditions of contract labour are not less favourable than
those of men directly employed by the Company.
6. Training
The various training schemes at Abadan are well conducted. There is,
however, large wastage as many youths after completing their training go off to
jobs elsewhere. In present conditions this is probably partly due to a fear of not
finding in Abadan accommodation comparable to that enjoyed in the hostels
attached to the Training Centres. A remedy lies in the speeding up of action
on the housing problem as a whole. A special survey might be conducted into
this problem.
7. Industrial Relations
Workers' organisations or any form of authoritative representation do not
exist. The development of joint negotiating machinery and the growth of freely
elected Trade Union organisation is vital. Factory Councils are a first essential
and through these workers' representatives should be encouraged to organise
Trade Unions. (Note.—Since this report was written the Persian Government
and the Anglo-Iranian Oil Company have decided to introduce Factory Councils
into the Company's establishments forthwith. The Persian Government approved
on 3rd March the regulations which under the Persian Labour Law are to govern
the formation of Trade Unions and define their status).
8. Medical
Free medical services are recognized conditions of service. The Company's
scheme for medical treatment and compensation for sickness and injury compares
very favourably with the requirements of Persian Law. Benefits granted by
the Company range from full pay during sickness to the provision of artificial
limbs and free burial, all of which exceed the requirements of the Law.
9. Education
Abadan is probablv far better served than anywhere else in Persia with
educational facilities. ' The donation of 17 schools to the municipality and
financial aid to the teaching staff demonstrate the Company's real desire to
ensure adequate facilities shall be available. There are sufficient adult
educational facilities for any worker wishing to become literate.

(THIS DOCUMENT IS THE PROPERTY OP HIS BRITANNIC MAJESTYS GOVERNMENT)
S E C R E T COPY NO. t
CP. (U8) 208"
25th August, 19U8,
CABINET
FINANCIAL AND COMMFRCIAL RELATIONS WITH JEWISH
"AUTHORITIES
Memorandum "by the Secretary of State for Foreign
Affairs
The general lines of a future settlement for Palestine
are still not clear. Meanwhile, there are several particular
questions arising as regards commercial and financial dealings
with the Jews on which it is. desirable to have an agreed and
consistent interim policy. The most important of these
questions are:­
(1) Whether we should take any further steps to secure
the resumption of operations by the Haifa refinery and the
delivery of crude oil to it through the pipeline from Iraq.
(2) Whether British oil companies should be authorised to
supply oil to the Jews pending the resumption of v/ork at Haifa
refinery.
(3) Whether we should have any discussion with the Jewish
financial authorities about future financial relations and, in
particular, the disposal of the Palestine Governments assets,
(k) Whether we should release small quantities of sterling
from blocked Palestine accounts for the immediate needs of the
Jewish authorities.
(5) What our reaction should be to the issue of a new
currency by the Jewish authorities in Palestine.
(6) Whether any citrus fruit should be bought from the *
J ews.
Recommendations
We should in general seek to avoid discrimination
between Arabs and Jews, and v/e should try to prevent either
side profiting at the other's expense from the results of their
military operations. Subject to this there should be no bar
to normal commercial dealings. Particular recommendations on
the above problems are:­
(1) No further steps should be token by us for the time
being or by British oil companies to put pressure on either
party with a view to the resumption of operations at Haifa
refinery.

(2) No official objection should be made if British oil
companies wish to supply the Jewish authorities with refined
petroleum products from outside the Middle East provided that
such deliveries are limited to normal peace-time requirements
and that no opportunity is given for the accumulation of stocks
which might be used for military purposes. Such authority
would be limited to British oil companies with established
trade in Palestine and should not exceed the previous share of
trade held by such companies. In practice only Shell are
involved on the British side and Standard/Vacuum on the United
States side.
(3) No general financial discussions should be held with
the Jewish authorities at present, and no encouragement should
be given to the idea of the eventual inclusion of a Jewish state
in the sterling area.. The disposal of the Palestine Government'
assets cannot be discussed until the future settlement of
Palestine has become clear*
(h.) No large releases from blocked Palestine accounts
should be made without the prior approval of all the
Departments concerned. In discussing with representatives
of the Jewish authorities how any funds to be released should
be spent, strict attention should be paid to the conditions
which have been laid dowm
(5) We have no general reason to take any strong line
with regard to the issue of new currency by the Jewish
authorities, but there are one or two points which will have
to be taken up with the Jews if and when, at a later stage,
we enter into discussion with them. Meanwhile, the Palestine
Currency Board should continue its functions for the time
being, and in particular, should pay sterling (in blocked
accounts) against surrender of the old Palestine currency In
accordance with its existing obligations.
(6) Every effort should be made to purchase our citrus
requirements elsewhere than in Palestine.
(7) Finally it should be agreed that no decision on any
economic or financial questions affecting our relations with the
Jewish authorities in Palestine should be taken without prior
approval by all the Departments concerned, to be obtained through
the Overseas Negotiations Committee..
Discussion
In general I feel that it is necessary to proceed
with great caution in all these matters. It appears fairly
clear that a Jewish state of some kind will form part of the
eventual Palestine settlement, but the state which the Jews
now claim to have set up still falls far short of the normal
criteria demanded for recognition, and the aggressive
declarations of the Jewish leaders are not consistent with - ­
their desire to be accepted as a member of the United Nations.
If they succeeded in establishing their state we should have
to negotiate with them, on a number of questions including those
mentioned above, but any undue haste on our part to do so would
seem most Undesirable. The Jews would interpret any such
action as success for their aggressive policy and, in particular,
for the excessive claims and irresponsible/actions of the
extremists. The Jews are still making violent denunciations
of His Majesty's Government's alleged lack of neutrality.
They have shown no respect for British interests in their
unlawful operation of the refinery, in their detention of a

British aircraft and. in the condonation of the Irgun's action
in seizing British subjects working under the aegis of the
Truce Commission and committing two of them for trial for
offences allegedly committed in an area where the Jewish
authorities had not even claimed jurisdiction. They have
been putting all kinds of difficulties in the way of the
British Consul-Genera1 in Haifa. Apart from this, any sign of
a more forthcoming attitude on our part towards the Jews would
convince the Arabs that they have no more to hope from the
Western Powers and induce in them a dangerous mood of desperation
in which the most unwise counsels might prevail. Admittedly
most of the Arabs have not done much to deserve our continued
friendship, but it is.always unwise to look for gratitude in
international affairs and even the passive tolerance of the
Arabs continues to be of the greatest importance to us in view
of the national resources and strategical situation of the areas
in which they live. They will undoubtedly have great difficulty
in accepting any Palestine settlement which can possibly emerge
in present circumstances. The only hope of acquiescence lies in
our retaining some of our influence.
(1) A detailed description of the present situation is
given in the Annex.
The Haifa refinery is not operating at present. The
British company which owns the refinery, Consolidated Refineries,
Ltd., is not in physical possession of the refinery and the
Jewish authorities have been operating it under their own control
to refine small stocks of crude which were left in the tanks.
As a result of these operations they have stocks of various
refined products which will last about another one to three
months according to the type of product. The Iraq Government
refuse to allow crude to be pumped to Haifa so long as there is
no full international control. They maintain that no Iraq
oil can go to the Jews. The Jews are making efforts to obtain
cargoes of crude from outside the Middle East in order to
re-start the refinery. They have not met with any success from
American companies so far and the transport of crude from the
Western hemisphere to Haifa would be most uneconomical. Supplies
of crude could theoretically be obtained from other Middle East
sources (Persian Gulf) but it is almost certain that Egypt would
make very great difficulties about the transit of such supplies
through the Suez Canal. It is understood that the Jews are
also making enquiries from Russian and Roumanian sources. They
may be able to obtain some cargoes from the Black Sea, but not
enough to run the refinery at capacity for any length of time.
Iraq oil continues to flow down the northern branch
of the pipeline to Tripoli where some of it is refined at a
small refinery and the rest shipped as crude mainly to Europe.
The stoppage of Haifa refinery means a loss of
refining capacity of h million tons a year, about half of which
is normally used to supply countries outside the Middle East.
Sooner or later some arrangement will hove to be
reached by which pumping of Iraq crude is resumed, some
guarantee being given that refined products will be distributed
' from Haifa in accordance with normal commercial practice and
that stocks are not built up as a reserve for war purposes.
This would obviously be in the best interests of both the Iraq
Government, who are at present losing royalties, the Jews, and
the British companies, but it seems most doubtful whether the
Jews would at present agree to the kind of international control
which the Iraqis would.think sufficient. This being so, and

in the"light of the very aggressive statements being
continually made by the Jewish authorities, it seems
undesirable that His Majesty's Government should become
directly or indirectly involved in negotiating arrangements
for the resumption of work at the refinery, since it is
clear that hie should at some stage be asked to apply very
severe pressure .to Iraq, pressing them to agree to
arrangements in which they did not have confidence and which
we could not honestly recommend as meeting the dangers which
they have in mind. If we are pressed by the American or
French Government, who also have interests in the pipeline,
to take any.action, this will be a different matter, since
we shall then be able to ask that they secure Jewish acceptance
of really satisfactory conditions before we approach the Iraq
Government, and we should not ourselves be in a position of
asking favours of the Jews..
(2) It is recommended that the British oil companies
should be authorised to supply to the Jews by way of imports
normal quantities of refined products pending resumption of
work at the refinery. The immediate Jewish requirements are
for one month's supply of herosene, gas/Diesel oil and furnace
oil. Petrol is not immediately required. If we refuse to
allow these imports, we shall be accused of imposing oil
sanctions on the Jews, and they will be the more tempted to
operate the refinery themselves with imported crude. Supplies
are being distributed in Arab countries by British companies.
(3) Suggestions have been made by the Jewish authorities
that they might send an official here to discuss general
financial relations including the entry of the Jewish State
into the sterling area and the disposal of the Palestine
Governments assets. These assets are held by us pending
their transfer to "successor authorities". In present
conditions the Jews cannot properly claim to be a successor
authority. I understand that there would be no advantage on
balance to His Majesty's Government in the inclusion of the
"Jewish State" in the sterling area. Discussions would
therefore not be advisable at present.
The Jews have also suggested that they might take
over holdings of Eastern European currencies which they
understand that we have in blocked accounts. I understand
that we have no such holdings and, in any case, it seems most
undesirable that we should encourage or facilitate closer
relations between the jews and Eastern Europe.
(li) when Palestine was removed from the sterling area
the Palestine sterling accounts.were blocked. Substantial
releases were made at the same time to provide for normal
trade requirements up to 15th May (the end of the Mandate).
Further releases were promised to pay for essential foodstuffs
up to 30th June, as we had accepted some measure of obligation
to procure foodstuffs for Palestine until that date. In the
statement made on the exclusion of Palestine from the sterling
area it was announced that our policy with- regard to future
releases -would be discussed with the United Nations Commission
(which however never functioned effectively). In a further
statement at the time of the termination of the Mandate it
was announced that while it was impossible at present to
release further fixed amounts, His Majesty's Government would
consider applications from banks for releases of reasonable
amounts to meet essential payments in sterling. On the
strength of this statement the Anglo-Palestine Bank have
been informed that a sum not exceeding £3 millions can be.
released for the purchase of essential foodstuffs, subject

to certain conditions, e.g. that all purchases should be in
the sterling area. I feel strongly that releases of this
kind should not be made without the agreement of the Foreign
Office in view of the important political implications and
of the changed political circumstances since the original
statement wag made . It is essential that no further releases
should be made without proper inter-departmental co-ordination.
(5) We were not consulted by. the Jewish authorities
about the Issue of their new currency but they could not well
have done so, -and in most respects the change is being made
with as little offence as possible. The two respects in
which we have cause of complaint are that the decision was
founded in fact on alleged shortcomings of the Palestine
Currency Board (which we do not admit), and that provision
is made for a sterling - United States dollar cross-rate of
$3 to the £. for certain purposes. The Palestine Currency
Board in London should continue its operations including
the prompt payment in "blocked sterling for old Palestine
currency surrendered to it.
The issue of new currency by TransJordan is to be
expected in the fairly near future.
(6) We normally "buy about 9 million cases of citrus
fruit from Palestine, half being bought from Jewish growers
and half from Arab. In present circumstances some 85%
of the fruit growing areas are understood to be in Jewish
control and only 15)?* in the south, in Arab-held territory.
The Arab inhabitants of the Jewish areas have almost all been
driven out and it seems likely that many of the Arab
properties have been taken over by the Jews. In these
circumstances, if we are to buy from the Jews there will be
no means of ensuring that they do not include in our purchases
a large amount of fruit which has come from properties owned
by the Arabs, now in Jewish hands. We should in fact be
condoning the improper acquisition of these properties by
the Jews and enabling them to profit from their expulsion of
the Arab inhabitants. We are advised that any such action on
our part would produce considerable indignation in the
neighbouring Arab states and cause a further reduction in our
influence there.
I realise the necessity for some citrus imports and
the difficulty of using dollars to acquire them from the
Western hemisphere (even though the price would be less), but
I understand that we can obtain at least a large part of our
requirements from Spain, and there is a small exportable crop
in the Lebanon. If we can make full use of these and other
sources, it may be possible to avoid altogether the verydelicate
situation in which we should "be placed in dealing with
Jewish exporters, ana I would recommend that this should be
done. We shall then not have to deal with Palestine until
the respective rights of Arab and Jewish owners have been
cleared up. If our minimum essential requirements cannot
be met in this way and we have to buy from Palestine, we should
confine our purchase to such an amount as can be equally
divided between Arab and Jewish suppliers, (i.e. some 30%
of the normal purchase on the assumption that the Arabs will
control 15% of the crop), Even then we should have to be
sure that the Arabs could actually deliver their -quota, since
they may have considerable difficulties in packing and
transporting it.

(7) The Cabinet 5 s ruling en these points will carry us
some distance, hut other slsllar questions will no doubt arise
in the future and It Is essential that all Departments concerned
should be properly consulted, before action is taken. I
suggest that this should, "toe done through the Overseas
Negotiations Committee.
E. B.
Foreign Office,
S.W.1.
25th August,

ANNEX
.IFA OIL REFINERY
THE HA IF
Ownership,
output and relation to E..R.?,
The Haifa Oil Refinery belongs to Consolidated
Refineries. Limited, a British company jointly owned by two
British oil companies, the Shell Company and the Anglo-
Iranian Oil Company, its replacement value is approximately
£30 million. Its annual capacity is h million tons and its
input of crude oil normally comes from the following sources: ­
by pipeline from the Iraq Petroleum Company oil
field at Kirkuk, 2 million tons: . by pipeline
from Kirkuk to Tripoli (Lebanon) and thence by
tanker to Haifa, 1 million tons; by tanker from
the Persian Gulf I million tons. Just over 70%
of the output belongs to the ;,..I.0,C. & Shell, the
balance being -refined for a fee on behalf of the
American companies, who are partners in the Iraq
Petroleum Company.
as
In 19h7 the refined products were
follows
United Kingdom and other British
350,000 tons
distributed
territories
British Armed Forces (direct purchase from Haifa)
150,000 tons
EtE.Pi, countries (excluding U.K.)
850,000 tons
Arab countries (excluding Palestine)
1,300,000 tons
Palestine,
600,000 tons
Ships'
r
.bunkgrs
500,000 tons
Other
i
countries
150,000 tons.
These figures do not, however, provide a very'reliable
guide to future distribution, since the needs of some of the
importing countries have altered in the interval. Egypt,
for instance, which took over 1,100,000 tons in 1947., has
recently increased her own indigenous production and is

unlikely to take more than 300,000 tons from Haifa in the
future. As a rough estimate, however, Haifa may he expected
to provide between 1,000,000 and 1,500,000 tons of refined
products to E.R.P. countries other than the United Kingdom
or from 6% to % of all the refined oil products imported
by those countries. The British oil exported from Haifa
amounts to approximately 1% of British world trade in oil,
2. Closing of the Haifa refinery
The Haifa refinery originally closed down on the
12th April as a result of Jewish attacks on the Arab labour
employed by the Company. It has remained closed ever since
for three reasons:­
(a), the Company considered conditions in Haifa so
insecure that the continued operation of the
refinery would have jeopardised the safety of
their employees;
(b) the Government of Iraq have refused to allow
the Iraq. Petroleum Company to pump oil from
the pipeline from Kirkuk to Haifa;
(c) the refinery itself has subsequently
occupied by Jev/ish troops.
been
The Jews have lately re-opened a portion of the plant in
order to refine about 20,000 tons of crude oil left" in the
tanks when it closed down. These stocks have now been exhausted
and the Jews will have difficulty in obtaining any more crude
oil and will find it almost impossible to obtain regular
supplies without the co-operation of the British and/or
American oil companies. At present, therefore, the refinery
is at a standstill.
3* Previous attempts to secure the reopening of the refinery
Both the Jewish authorities and the British oil
companies are anxious to reopen the refinery as soon as
possible. Unfortunately, their anxiety is not shared by the
Government of Iraq, who control the two pipelines (Kirkuk -
Haifa and Kirkuk - Tripoli) through which three-quarters
of the refinery 1 s crude oil is normally received. The Iraq
Petroleum Company (23 ^ of whose shares are held by each of
the following:- Shell. A.I.0.C, French Oil companies and
American oil Companies) accordingly asked the Government of
Iraq on what conditions they would permit the resumption of
oil supplies through the Kirkuk-Halfa pipeline. The Iraqi
Prime Minister replied that he would never allow Iraqi oil
to go to Haifa as long as the Jews were in control there,
and that, unless Haifa were internationalised, further
negotiations were useless. The oil companies have not yet
approached the Jewish authorities, but Jewish representatives
have told U.S. officials that, although they would never
willingly agree to relinquish any sovereignty over Haifa
itself, they might nevertheless accept some form of international
control over the operation of the refinery and the
distribution of its products.

h* A possible caapromise
It
concerned
following
(a) that the refinery should be operated by its
British owners under the supervision and
protection of the Mediatorj
(b) that the Arab states and the Jews should
receive a proportion of the refinery's output
equal to their normal requirements, the
remainder being exported to countries outside
the Middle East;
(c)
that the Mediator should ensure that reserves
of crude or refined oils in Haifa did not
exceed an agreed maximum^
might be possible to persuade all the parties
to agree to the reopening of the refinery on the
conditions;­
The Jewish authorities are known to consider that,
if Iraq's consent cannot be secured, the refinery should
nevertheless be reopened and operated on crude oil imported
by tanker and have threatened to operate the refinery themselves,
if this is not done. The A0I0O.C and the Shell
Company are willing to comply but are opposed by the Iraq
Petroleum Company who' fear, with considerable reason, that
such a step would be so resented by the Government of Iraq
that the latter would cut off the flow of oil through the
Kirkuk - Tripoli pipelinea 2,000,000 tons of crude oil
are now being exported annually from Tripoli to European
refineries. Not only would this oil be lost, but there
would be a risk that the Iraq Petroleum Company might lose
their concession^ It would, therefore, be entirely contrary
to our interests to allow the refinery to be opened without
Iraqi consentc

THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTY'8 GOVERNMENT /
1
210
Printed for the Cabinet. February 1949
SECRET
CP. (49) 26
VSth February, 1949
Cojiy^ No.31
CABINET
SEA-BED OIL IN THE PERSIAN
GULF
Memorandum by the Secretary of State for Foreign Affairs
ON 4th November, 1948 (CM. (48) 68th Conclusions, Minute 6), the Cabinet
agreed at my request to defer for the time being consideration of a memorandum
(C.P. (48) 248) which I had circulated on the exploitation of the oil which is
believed to exist under the sea-bed of the Persian Gulf. I have now considered
this matter further and wish to bring it before my colleagues again. The subject
is one of considerable difficulty and complexity, but it seems necessary that some
decision should be taken with regard to it. The present memorandum supersedes
CP . (48) 248.
2. It is now technically possible to drill for oil under the sea. There is
reason to believe that oil exists in the bed of the Persian Gulf outside the limits
of territorial waters. The problem therefore immediately arises how these
potentially valuable resources should be divided up and developed. I have sought
the opinion of the Law Officers on the principles involved in such division, and
I attach the text of their opinion-as Annex A: :
3. I have been hoping that it might be possible to avoid taking any definite
attitude on this question in view of the disturbed state of the Middle East: and
the conflicting territorial claims in the area, but there are various factors which
will not allow.of any further delay. The Saudi Arabian Government asked us
and the United States Government sOme time ago for advice as to the claim" they
should make to extend their sovereignty or jurisdiction beyond territorial waters
in order that they might give a concession for the oil under the sea. The United
States Government, no doubt largely under pressure f rqm the Arabian-American
Oil Company, have now decided they can wait no longer and intend very shortly
to give certain advice to the Saudi Arabian Government. At least one of the
British-protected rulers of the States on the western side of the Gulf is under
heavy pressure from the oil companies to grant them similar concessions. They
cannot take any step of this kind without our consent. Once Saudi Arabia has
taken action it will hardly be possible for us to advise these States to delay any
longer.
4. The States having sovereignty over the shores of the Gulf are ­
(i) Persia. ­
(ii) Iraq. ..
(iii) Saudi Arabia.
(iv) Certain British-protected States, namely: the Arab Sheikhdoms of
Kuwait, Qatar and Bahrein and the seven minor Trucial Sheikhdoms
of Ajman, Kalba, Dubai, Sharjah, Ras al Khaimah, Umm al Qawain,
Abu Dhabi.
(v) The State of Muscat and Oman, which, although fully independent, is
in great measure under British influence.
5. It is clear what our general objectives should be
(a) The British-protected States in (iv) above have entrusted to His Majesty's
Government the control of their foreign relations, and this special
political position is of considerable advantage to us: In return we
have a strong obligation to look after the interests of the rulers under
36552 B

our protection to the greatest possible exent. It would be difficult for
His Majesty's Government to advise these rulers not to take action
when it appears to be clearly in their interests to do so, specially as
regards the grant of concessions for oil development. We must not
let them claim what is not properly theirs, but neither must we let
any just claims of theirs go by default or be prejudiced by the acts of
other States.
(&) We must so far as possible avoid taking action which will upset international
relations in the Persian Gulf and in the Middle East
generally. This means in particular that we must take great care not
to offend Iraq or Persia, who have important legitimate interests in
the Persian Gulf. This objective is complicated by the fact that
Persia has a long-standing, but we believe quite unjustifiable, claim
to the island of Bahrein, which is one of the Sheikhdoms under our
protection, and other less important claims to some other small islands
in the Gulf. There is a serious danger that, whatever action is taken;
whether by Saudi Arabia alone or otherwise, will precipitate further
trouble with Persia over Bahrein or perhaps even lead the Persian
Government to make some wild claim to the sea-bed of the Persian
Gulf as a whole or at least to that surrounding Bahrein.
(c) While not being unduly influenced by the oil companies, we ought to see
that the British companies get a fair deal and fair opportunity to
negotiate for such concessions as may be legitimately available, i.e., we
should not use our influence to restrain British companies while
American companies are free to negotiate as they wish.
(d) We should try so far as possible to keep British and American policy
in line.
Recommendation
6. I should hope to receive the endorsement of the Cabinet for the general
objectives stated above.
7. I set out below a summary of several courses which might be adopted in
pursuit of these objectives, most of which are open to one or more objections which
I have briefly noted. I do not feel able confidently to recommend the adoption
of one of these courses, but I hope that the Cabinet will consider these alternatives
and either come to a decision which should be adopted or give me discretion which
course or which combination of courses to follow in pursuit of the general obiectives
I have mentioned, on the understanding that I would, of course, keep in close
touch with the Minister of Euel and Power and that on legal issues I would be
guided by the Law Officers.
8. The following are the possible courses of action :—^
(1) To call a conference of the riparian States. This is at first sight
attractive, since it avoids any suggestion of secret decisions or unfair
pressure, such as we might perhaps be accused of if any of those
concerned were confronted with a fait accompli. But it seems to
have insuperable obstacles. We hope that in certain circumstances
the Persian Government might refrain from taking objectionable
action in this matter in relation to Bahrein and the other Persian
claims, but there is no chance that at a conference of this kind any
Persian Government could do anything but put forward the most
extreme Persian territorial claims to Bahrein and other islands and
refuse to accept any arrangement which did not take account of them,
i.e., there is a chance of Persian acquiescence but not of their outright
acceptance. Secondly, there is a long-standing dispute between Iraq
and Persia on boundaries in the Shafct el Arab which would no,doubt
cause great difficulty and delay. Thirdly, at the best such a conference
would take a very long time and it is clear that neither the Saudi
Arabian Government nor the Arabian-American Oil Company nor
the United States Government are prepared to wait. Fourthly,
America could not be represented at such a conference, whereas we
would have to be represented, since we are responsible for the foreign
relations of the protected States. We should then no doubt be accused
by America of plotting to damage American interests.

. (2) We could seek with American co-operation to ensure the adoption of
the Continental Shelf " theory adapted to the special needs of the
Persian Gulf, i.e., the " Median Line Scheme." A full description
of this plan and some of its difficulties is given in Annex B. In essence
it is as follows. President Truman made a proclamation in 1945
extending United States jurisdiction over the continental shelf of the
United States, i.e., the sea-bed extending round the coasts of the United
States up to the 100-fathom depth. (The text is given in Annex C.)
We have made a similar proclamation with regard to the Bahamas
and Jamaica and a similar principle was incorporated in a treaty
which we made with Venezuela in 1942. The manner in which this
principle would be applied to the Persian Gulf, all of which is under
100 fathoms in depth, has been worked out in considerable detail by
British and United States technical experts. The most equitable
method would be for a " median line " to be drawn down the middle
of the Gulf and for lateral lines to be drawn from the shore to this
median line extending the land boundaries. These lines would divide
the sea-bed between the riparian States in accordance with the position
of the land frontiers between them. This division of the sea-bed
would not in any way affect the extent of territorial waters or the
rights of navigation on the high seas or fishing and pearling rights.
The practical result would be that Persia would acquire control of
the sea-bed in all the north-eastern half of the GulfIra q would
get a comparatively small area at the northern end; and the western
and south-western "half would be divided between Saudi Arabia and
the British-protected States. The opinion of the Law Officers deals
specifically with the validity in international law of an arrangement
of this kind, and their observations are generally favourable. They
say that, while no one can foretell exactly what decision the
International Court might take, there are good grounds for holding
that proclamations by the States Concerned putting into effect a scheme
of this kind would be legal provided that they were followed by acts
of effective occupation, i.e., in this case provided that drilling for oil
started soon after the proclamations were made. If we were going
to pursue this course we and the Americans would advise the Saudi
Arabian Government to issue a proclamation extending their territory
in accordance with this plan. We would advise our protected rulers
in the same sense and we and the Americans would tell the Iraq
and Persian Governments that we had given this advice.
- This is undoubtedly the tidiest and most equitable form of
arrangement which can be devised, but to put it into practice by the
, means mentioned above would amount to facing Persia and Iraq with
more or less of a fait accompli and, therefore, probably cause most
undesirable political difficulties.
(3) The United States Government have also been seriously impressed by
the political difficulties of going for a full and immediate implementation
of the median line proposal. After considerable reflection they
are now thinking of a revised plan under which they would explain
in the very near future to the Saudi Arabian Government the general
principles of the Truman declaration and the way in which these
could be applied in the Persian Gulf. They might then suggest the
issue of a proclamation "extending jurisdiction and control over
submerged areas of the Persian Gulf sea-wards beyond territorial
waters within boundaries to be determined as occasion arises on
equitable principles by the Saudi Arabian Government in agreement
with States having jurisdiction over adjoining submerged areas."
The next alternative for us to consider is, therefore, that we should
join the Americans in giving advice on these lines to the Saudi
Arabian Government; The general idea would be that this Saudi
Arabian proclamation might be regarded as experimental, to test the
reactions of other States and to see whether the principle was
challenged in international law. The timing of similar advice by us
to our protected States would require consideration. We could either
give advice to the Sheikh of Kuwait in the same sense immediately,
since he is the ruler under the most severe pressure, or we could advise
36552 B 2

them all in the same sense at once, or we could advise them all to
hold their hands for the time being in order to see how the Saudi
Arabian proclamation was received.
If all went well the situation would no doubt develop gradually in
the direction of a division of the sea-bed on the basis of the median
line scheme referred to above, but there would be no need to commit
ourselves to the whole scheme from the beginning.
The State Department do not, so far as we can tell, seem to have
considered whether they should tell Persia and Iraq that they are
giving this advice to Saudi Arabia or merely let them learn of it
when the proclamation is issued. There seems no reason why, if we
adopted this course, we and the Americans should not tell the Iraq
and Persian Governments that we were giving this advice. But this
would certainly mean that we must tell our protected rulers at least
at the same time. We should also have to ensure that the Sheikh of
Bahrein was ready to issue a proclamation of his own on the above
lines in order to forestall any Persian proclamation relating to the
sea-bed round Bahrein in case the Persian Government seemed likely
to make such a claim.
To sum up, this alternative is that we should join with the United
States Government in advising the Saudi Arabian Government to
extend its jurisdiction over the sea-bed (but not over the sea itself)
outside territorial waters but without laying down fixed boundaries,
that there would be advantage in informing the Persian and Iraq
Governments that we were giving this advice, and that if we did so
inform them we must at the same time inform all our protected rulers
in order that they might be ready to take early action to stake their
own claims in a similar manner.
(4) We could refrain from taking any initiative for as long as possible.
This would mean that the Americans would give their advice to the
Saudis, who Avould no doubt issue their proclamation at once. This
might precipitate action by Iraq and Persia, and it would certainly
lead to intensified pressure on us from our protected rulers and from
the oil companies with a view to concessions being granted in respect
of the sea-bed off the protected States. It seems most doubtful if we
could resist this pressure for more than a short time or whether having
in mind the interests of the protected rulers we ought to do so. There
is a serious risk that if we adopt this negative attitude the States for
whom we have responsibility may lose patience, particularly when they
see Ibn Saud receiving further large sums from the oil companies, and
may decide to go ahead, either openly or secretly, on their own, in order
to obtain further contributions from the oil companies in respect of
concessions for the sea-bed. If they did this our whole position in the
Persian Gulf would be undermined and we should have lost the chance
that we now have of guiding these States in the direction of healthy
social and economic development, with the prospect of full independence
by the time they are ready to stand on their own feet.
E. B.
Foreign Office, S. W. 1,
10th February, 1949.

THE PERSIAN GULF
Opinion of the Law Officers of the Crown
The principles of international law applicable to the appropriation of the
subsoil of the sea cannot be said to be settled; and it must be to some extent a
matter of conjecture how the International Court would view the proposed appropriation
of the sea-bed and subsoil of the Persian Gulf. The matter must be
approached on the basis that the Court would, in applying existing principles
so far as they can be ascertained, adapt them to new circumstances brought about
by modern methods of exploitation of the sea-bed and subsoil, with their vastly
increased range and potentialities. In effect, however, if not in theory, the Court
will really be called upon to exercise a legislative jurisdiction, and it is quite
impossible to say with confidence how they would deal with the matter.
Subject to this qualification, we think it can be said to be broadly recognised
that, whereas the high seas outside territorial waters form an international
highway, and, as res communis, cannot be the subject of appropriation, the subsoil
and possibly the sea-bed itself are still res mdlius; and, therefore, in accordance
with the ordinary principles applicable to the acquisition of new territory, can be
appropriated by effective occupation. Occupation in this sense, however, means
more than mere notional occupation. In general, a mere declaration of an intent
to occupy, not followed by any effective de facto occupation, is not sufficient, to
convert new territory into the property of the would-be occupying State. The
application of these principles to the given case produces an uncertain result,
and the Court would look for guidance to such precedents as can be found. We
think that the Proclamation of the United States relating to the Continental
Shelf, which has not been the subject of objection by other nations and which,
indeed, has been followed by similar Orders in Council by the Crown in relation
to the Bahamas and Jamaica, and which moreover itself followed the United
Kingdom and Venezuela Treaty of 1942 in relation to the submarine areas of
the Gulf of Paria, constitutes a precedent, not only confirmatory of the right
of a State to acquire the sea bed and subsoil of the seas adjacent to its territorial
waters, but also affording some guidance as to the extent to which such acquisition
may be recognised in international law. At the same time, we are not at present
satisfied that the precedent would be accepted as establishing that the subsoil
and sea-bed can be appropriated by a mere proclamation not followed by any
acts of " effective occupation," at any rate as a principle of general application.
Upon this basis, it seems to us that the following general principles are
likely to be followed in the further development of this branch of international
law by the International Court:—'
1. A riparian State can acquire the subsoil and probably the sea-bed of the
high seas adjacent to and beyond its own territorial waters.
2. In order so to do, it must exercise some measure of effective occupation
in the areas which it seeks to acquire.
3. Effective occupation in this sense must be conditioned by the type of acts
of occupation which in the nature of things can be carried out in
relation to the sea-bed and subsoil.
4. The subsoil can, so far as experience has gone (whatever the future may
bring) be brought into possession by boring or some similar process,
which presumably in general will be carried out from the territory
of the riparian State, and could, strictly, only amount to effective
occupation in a very limited area.
5. International confusion, however, would result unless such boring were
carried out within the framework of some announced plan of operations
in relation to a specific region which could be co-ordinated with
similar activities on the part of neighbouring States. It is thus to
be expected, and it will be a necessary feature of " effective occupation
'' for this purpose, that the acquiring State should announce
and de-limit some zone of the sea-bed within which it proposes to
carry out these acts of occupation. The zone should be announced
in order to avoid incident and dispute with neighbouring States before
the purported Acts of occupation are carried out.
36552 b 3

The above principles, if the scope of exploitation should in the future increase
in range so far as to extend over the whole bed of an ocean, will no doubt need to
be adapted to the then existing circumstances. But in present circumstances these
principles may, we think, in relation to the case under consideration be summarised
as follows :—
A riparian State can lawfully announce its intention to acquire and develop
an area of the subsoil and probably also the sea-bed underlying the waters adjoining
its own territorial waters so long as the claim that it makes is not extravagant in
relation to the area which it has the means, either through its own nationals or in
conjunction with other friendly States effectively to possess and develop. If,
having announced its intention to acquire such a reasonable stretch of the subsoil
of the ocean, it then proceeds by boring or other similar methods to make reasonable
use of the subsoil, it will be recognised in international law as the owner at least
of the subsoil in the zone which it has so declared its intention to acquire.
On the other hand, we think that the International Court would, without
further authority from precedent in the form of international treaties and
accepted practice, hesitate to go beyond this principle in recognising appropriation
of the subsoil of the ocean by particular States. The question has, for
example, beexi put whether acts of occupation by a Great Power remote from its
own shores and immediately outside the territorial waters of a smaller distant
nation, could be recognised as conferring a title upon the Power carrying out these
acts of occupation. In our view, the International Court would not recognise such
occupation, [at all events until it had been long and effectively persisted in], as
conferring a title unless it was accompanied by some long-standing historical
historical association between the areas to be acquired and the acquiring State, so
as to bring into being something which could be regarded as in the nature of a
prescriptive title.
We think, however, that, as in the case of the Bahamas and Jamaica, a country
can, consonantly with the principle which we above enunciated, acquire the subsoil
of seas adjoining the territorial waters of its possessions, as distinct from its own
metropolitan territory. We do not, furthermore, think that of necessity there
must be something in the nature of a Continental Shelf to enable the subsoil to be
acquired. The existence or otherwise of a Continental Shelf and the question!
whether the waters are shallow or deep is in our view only relevant in the sense
that (as we assume) it is less likely that very deep subsoil could be in fact exploited
or bored in such a manner as to constitute effective occupation in the sense above
indicated.
A further complication arises in relation to the Persian Gulf, in that in
substance the acquiring States would be acting, although of their own volition, in
fact under the guidance and at the instigation of the United Kingdom through the
influence which the United Kingdom can bring to bear in the conduct of the affairs
of those States. We think it likely that the International Court, if it appeared
that the Governments of those States were in fact willing and. consenting parties
to the attempted acquisition, would recognise such acquisition as being valid in
international law if the other requisites above indicated were fulfilled, although,
of course, the resulting property rights would be vested in the acquiring State.
This being so, in our view, it would be in international law possible for a good
title to be obtained by the littoral States on the shores of the Persian Gulf to the
subsoil of the Gulf by purporting to partition it up to the median line, provided
that, with the assistance of the British and American enterprises willing to
operate under licence from those States, the subsoil can be effectively exploited to
an extent which reasonably covers the area sought to be appropriated by each
littoral State.
We accordingly think that, upon the assumption that the above-indicated
conditions are fulfilled, and upon tils further assumption that there is no effective
challenge supported by actual acts of occupation by any other Power, a good title
to the subsoil, and probably the sea-bed could be acquired by the littoral States.
We are, of course, assuming that the method of exploitation would not materially
interfere with ordinary user of the high seas as such. We would emphasise, however,
that this expression of opinion in such an uncertain domain of international
law must remain to a large extent conjectural; but, in our view, in modern circumstances,
the case could be argued with a sufficient degree of plausibility to justify
the claim being asserted, if the matter ever came before the International Court.

We should, however, add that it seems to us most probable that if the contemplated
action does give rise to any international dispute, attempts might be made
to raise it in the Assembly or even in the Security Council of the United Nations,
rather than before the Court. If so raised, it would, of course, be dealt with on
purely political grounds.
Law Officers' Department,
l%th January, 1949.
(Signed)
HARTLEY SHAWCROSS.
FRANK SOSKICE.
. ANNEX B .
The Median Line Scheme
This is the scheme on which the opinion of the Law Officers was specifically
sought. When our advice was first asked for, it was the view of the Departments
of His Majesty's Government concerned that it would be most objectionable in
principle and create endless difficulties in practice if, in an area say 15 miles
off the coast of State "A," but nearer to State " A " than to any other State,
State "B" were to claim jurisdiction over the subsoil underneath the sea on
the grounds that its nationals were working the minerals there, and that it had
acquired the sovereignty and jurisdiction over the part of the sea-bed in question
by occupation. Occupation is a method of acquiring territory which is res
nullius (i.e., belongs to no State). The bed of the sea is res nullius and, according
to the prevalent view of international law, capable of being acquired by occupation
though the sea itself cannot be so acquired. Consequently, it had been felt that
matters must be so arranged that, in the instance given above, it should be
State " A " which should have the jurisdiction and the sovereignty over the
occupied sea-bed outside territorial waters but nevertheless off its coasts. On
this view, the right principle for the solution of the problem would be that
embodied in the proclamation with respect to the natural resources of the subsoil
and sea-bed of the continental shelf made by President Truman on 28th September,
1945, a copy of which is annexed (Annex " C ") for convenience of reference.
2. His Majesty's Government have already decided to follow the Truman
Declaration in establishing. British sovereignty over the sea-bed with its natural
resources adjacent to the Bahamas and to Jamaica up to the limit of the continental
shelf which surrounds these islands. The relevant Order-in-Council
for so doing has now been issued.
3. Although President Truman's proclamation is the most important
declaration on this subject, the United Kingdom and Venezuela had previously,
by a Treaty signed in February 1942, divided the sea-bed and subsoil of the
submarine areas of the Gulf of Paria outside territorial waters. By this Treaty
each party agreed not to assert any claim to sovereignty or control over those
parts of the submarine areas lying on the other's side of the boundary, and the
submarine areas renounced by Venezuela under this Treaty were subsequently
annexed to His Majesty's Dominions by an Order-in-Council.
4. On the other hand, the application of the principle of President Truman's
proclamation to the Persian Gulf is difficult. In the case of the Eastern coast
of the United States, as also in the case of the Bahamas and Jamaica, the
application of the United States principle is relatively simple. There is a
continental shelf (where the sea-bed is shallow and the depth of the water does
not exceed 100 fathoms) extending 40 or 50 miles from the shore, followed by
a drop in the ocean bed to great depths. The place at which the sea-bed drops
is more or less clearly marked and comes at about the 100 fathom line, and for
the purpose of President Truman's declaration and for the purposes of our own
annexations in the Bahamas and Jamaica, the 100 fathom limit is being taken
as the extent of the continental shelf, and in these cases there is no doubt to
whom the bed of the sea belongs by the application of this principle. The Persian
Gulf is, however, a shallow sea which may be regarded as being entirely a
-continental shelf. There is no deep water below the 100 fathom line to form
a boundary-the lowest depth in the whole Gulf is about 50 fathoms-nor
indeed is there any marked submarine configuration in the form of a sudden
- drop in the level of the sea-bed. The United States Proclamation itself recognised

that circumstances such as these might exist, but it merely says that in these
cases the boundary should be determined by the States concerned in accordance
with equitable principles. The solution in this case which best carries out these
principles would be for the areas claimed by the different States bordering on
the Persian Gulf to be delimited by a line extending lengthwise down the centre
of the Gulf equidistant from the eastern and western shores and by transverse
lines extending the boundaries between the territorial waters of adjacent States
to the median line.
5. The division of the bed of the Gulf is also complicated by the existence
of islands, in the case of a few of which the title is in dispute, and secondly by
the fact that the boundaries on the land between the various States are not
precisely settled. In one area, indeed, the boundary between Saudi Arabia on
the one hand and the British-protected States of Qatar and Abu Dhabi on the
other hand is in dispute between His Majesty's Government and Saudi Arabia,
and the disputed area includes some coastline on both sides of the Qatar peninsula.
Thirdly, there is the further complication that the British-protected State of
Bahrein, which is most important from the oil point of view, is claimed (albeit,
according to the advice of the Law Officers, without any legal justification) to be
Persian territory.
6. There will be available at the meeting of the Cabinet at which this
memorandum is discussed a map giving a rough indication of the results of
dividing up the whole of the sea-bed of the Persian Gulf by a median line drawn
between the north-east and south-west shores. The map will also show the
transversal division of the sea-bed on the western side of the median line, and
the place where the median line is terminated at the north-west end and replaced
by lines running to the Iraqi-Persian and Iraq-Kuwait frontiers. It must be
recognised that no proposals for dividing up the bed of the Persian Gulf, however
equitable, would be likely to lead to complete agreement between all the States
interested. In the first place, Persia might be likely to try to hold up any final
agreement since, though getting the lion's share, she would not be able, under
her present legislation, to grant any concession over it, and she would at the
same time experience considerable embarrassment in giving her consent to any
action by Bahrein on the lines proposed. In the second place, as stated above,
the land boundaries are not in all cases defined or demarcated, and any final
division of the waters of the Gulf would depend upon settled land boundaries.
Thirdly, the possession of certain islands is in dispute, and lastly, in some areas,
there is likely to be scope for disagreement as to what in fact would be an equitable
division.
7. If the median line proposals were taken as a basis for action or discussion
with other Governments it would be made clear that—
(a) The division of the sea-bed would in no way affect the general character
of the waters outside territorial waters as high seas, or the right of
free navigation therein;
(b) all existing rights in regard to fishing or pearling or any other established
right appertaining to any riparian State must be protected and would
in no way be affected by the division proposed;
(c) suitable adjustments of the division of the main sea-bed would have to be
made to take account of islands and their territorial waters appertaining
to a State other than that off whose shores they lie;
(d) the median line must cease at a certain point in the north-west (closed)
end of the Gulf and there is some question as to precisely where it
should cease and be replaced by lines radiating to the Iraqi and Kuwait
boundaries.
8. It will be seen from the Law Officers' Opinion that they consider that the
proposals are sound and that action to claim jurisdiction over the sea-bed taken
under them would, if followed by acts of effective operation, be likely to be
sustainable if called in question before an international court.
9. The division of the sea-bed on equitable principles by means of individual
States claiming jurisdiction over an area, the boundaries of which shall be fixed
in consultation with neighbouring States, appears to,have reasonable legal
justification. There is no doubt that, though for the present the United States
Government will not specifically mention the median line proposals in advising

the Saudi Arabian Government, these or similar equitable principles will, nevertheless
be the underlying ones governing any division of the sea-bed which may
ensue in due course and may at a later stage require to be referred to by the
Saudi Arabian Government (and such of our protected Governments as we may
permit to act similarly) should their action be called in question by other States.
In any case, the present technical limit on the depth of water in which sub-surface
boring can be carried out is about 16 fathoms. This means that effective occupation
by boring can only be carried out in comparatively shallow water well
away from mid-Gulf boundaries which might be the subject of dispute. The
suggestion has been considered that jurisdiction should be proclaimed only over
the area which can effectively be occupied, that is within the 16-fathom line.
The objection to this is that technical advances will no doubt soon make it
possible to extract oil at depths greater than 16 fathoms, and if jurisdiction has
been claimed only over the area less than 16 fathoms deep, it will then be necessary
to make a further series of proclamations. This would be less convenient than a
single series of proclamations.
10. By virtue of His Majesty's Governments special treaty position with
the Arab Sheikhdoms of the Persian Gulf, we could ensure that their rulers would
apply the principles agreed between us and the Americans for the division of the
Persian Gulf waters. The interest of the Government of Iraq is comparatively
unimportant as far as concerns the area which any equitable division of the sea-bed
would allot to them, but they will appreciate that the problem requires an early
solution and they would naturally attach the greatest importance to their own
share, small as it must be. The place where the median line is terminated is
thus of importance to them. The application of the present principles might
conceivably lead to difficulties between the Iraqi and the Persian Governments,
but this is a risk which would have to be accepted if this scheme were to be
adopted.
11. In the worst possible circumstances, Persia might feel impelled to take
us to the United Nations about Bahrein if the issue were brought to a head by the
continental shelf proclamations. We have discussed this possibility with the
Americans and have been assured of their close support. If it were impossible to
avoid a reference to the United Nations, we should try for a reference by the
United Nations to the International Court. The Law Officers have recently stated
that the Persian case for Bahrein has no legal validity, but they cannot, of course,
guarantee how the International Court may react in any particular set of circumstances.
In any case, we could not avoid the difficulty by refraining from implementing
the median line or similar proposals. The oil companies have for some
time been busily making enquiries about concessions in the sea-bed off the Arab side
of the Persian Gulf. If they were to ask the Sheikh of Bahrein for a concession,
we could hardly advise him to refuse on the ground of the unfounded Persian claim.
12. Strong objections to the immediate application of the median line scheme
have, however, been raised by the American Ambassador at Tehran, whose views
were supported by His Majesty's Ambassador at Tehran. The ambassador considered
that it might affect adversely the present delicate situation in Persia,
where an unstable but friendly Government carries on under the hostile eye of the
Soviet Union. Persia cannot, owing to the legislation preventing the grant of
concessions to foreigners, itself benefit from the proposals, and the ambassador
considered the only results for Persia would be to attract Russian pressure in the
form of a propaganda campaign based on Persian participation in what might be
styled an Anglo-American " imperialist oil deal." The ambassador was, therefore,
in favour of delaying action until the situation in Persia improved and felt
that, in view of the important political considerations involved, it was reasonable
to resist the heavy pressure of the oil companies, particularly since there was no
over-riding world shortage of oil. These views appear to have considerable force;
and there is the added consideration at the moment that the Anglo-Iranian Oil
Company have this week resumed in a tense atmosphere discussions with the
Persian Government on a number of points which the Persians have raised about
the operation of the company's concession. Course (3) in the main paper above
seems to go a long way to avoid this difficulty.

POLICY OF THE UNITED STATES WITH RESPECT OF THE
NATURAL RESOURCES OF THE SUBSOIL AND SEA-BED OF
THE CONTINENTAL SHELF
By the President of the United States of America
A Proclamation :
Whereas the Government of the United States of America, aware of the longrange
world-wide need for new sources of petroleum and other minerals, holds,
the view that efforts to discover and make available new supplies of these resources,
should be encouraged; and
Whereas its competent experts are of the opinion that such resources underlie
many parts of the continental shelf off the coasts of the United States of America,
and that with modern technological progress their utilisation is already
practicable or will become so at an early date; and
Whereas recognised jurisdiction over these resources is required in the
interest of their conservation and prudent utilisation when and as development
is undertaken; and
Whereas it is the view of the Government of the United States that the
exercise of jurisdiction over the natural resources of the subsoil and sea-bed
of the continental shelf by the contiguous nation is reasonable and just, since
the effectiveness of measures to utilise or conserve these resources would be contingent
upon co-operation and protection from the shore, since the continental
shelf may be regarded as an extension of the land-mass of the coastal nation
and thus naturally appurtenant to it, since these resources frequently form a
seaward extension of a pool or deposit lying within the territory, and since selfprotection
compels the coastal nation to keep close watch over activities off its
shores which are of the nature necessary for utilisation of these resources;
Now, therefore, I, Harry S. Truman, President of the United States of
America, do hereby proclaim the following policy of the. United States of America
with respect to the natural resources of the subsoil and sea-bed of the continental
shelf.
Having concern for the urgency of conserving and prudently utilising its
natural resources, the Government of the United States regards the natural
resources of the subsoil and sea-bed of the continental shelf beneath the high
seas, but contiguous to the coasts of the United States as appertaining to the
United States, subject to its jurisdiction and control. In cases where the continental
shelf extends to the shores of another State, or is shared with an adjacent
State, the boundary shall be determined by the United States and the State concerned
in accordance with equitable principles. The character as high seas of
the waters above the continental shelf and the right to their free and unimpeded"
navigation are in no way thus affected.
In witness whereof I have hereunder set my hand and caused the seal of the
United States of America to be affixed.
Done at the City of Washington this twenty-eighth day of September, in
the year of our Lord nineteen hundred and forty-five, and of the Independence ­
of the United States of America, the one hundred and seventieth.
By the President.
Dean Acheson,
Acting Secretary of State.
(Seal) HARRY S. TRUMAN.

POLICY OF THE UNITED STATES WITH RESPECT OF THE
NATURAL RESOURCES OF THE SUBSOIL AND SEA-BED OF
THE CONTINENTAL SHELF
By the President of the United States of America
A Proclamation:
Whereas the Government of the United States of America, aware of the longrange
world-wide need for new sources of petroleum and other minerals, holdsthe
view that efforts to discover and make available new supplies of these resourcesshould
be encouraged; and
Whereas its competent experts are of the opinion that such resources underlie
many parts of the continental shelf off the coasts of the United States of America,,
and that with modern technological progress their utilisation is already
practicable or will become so at an early date; and
Whereas recognised jurisdiction over these resources is required in the
interest of their conservation and prudent utilisation when and as development
is undertaken; and
Whereas it is the view of the Government of the United States that the
exercise of jurisdiction over the natural resources of the subsoil and sea-bed
of the continental shelf by the contiguous nation is reasonable and just, since
the effectiveness of measures to utilise or conserve these resources would be contingent
upon co-operation and protection from the shore, since the continental
shelf may be regarded as an extension of the land-mass of the coastal nation
and thus naturally appurtenant to it, since these resources frequently form a.
seaward extension of a pool or deposit lying within the territory, and since selfprotection
compels the coastal nation to keep close watch over activities off its
shores which are of the nature necessary for utilisation of these resources;
Now, therefore, I, Harry S. Truman. President of the United States of
America, do hereby proclaim the following policy of the, United States of America
with respect to the natural resources of the subsoil and sea-bed of the continental
shelf.
Having concern for the urgency of conserving and prudently utilising its
natural resources, the Government of the United States regards the natural
resources of the subsoil and sea-bed of the continental shelf beneath the high
seas, but contiguous to the coasts of the United States as appertaining to the
United States, subject to its jurisdiction and control: In cases where the continental
shelf extends to the shores of another State, or is shared with an adjacent
State, the boundary shall be determined by the United States and the State concerned
in accordance with equitable principles. The character as high seas of
the waters above the continental shelf and the right to their free and unimpeded
navigation are in no way thus affected.
In witness whereof I have hereunder set my hand and caused the seal of the
United States of America to be affixed.
Done at the City of Washington this twenty-eighth day of September, in
the year of our Lord nineteen hundred and forty-five, and of the Independence
of the United States of America, the one hundred and seventieth.
By the President.
Dean Acheson,
Acting Secretary of State
(Seal)
HARRY S. TRUMAN.

THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTY'S GOVERNMENT
Printed for the Cabinet. A ugiist, 1949
The circulation of this paper has been strictly limited.
It is issued
for the personal use of . . . . . .^£.?*Y??rf***..^pCSS&t
y.,.
TOP SECRET
Copy No.
CP . (49) 176
ISth August, 1949
CABINET
OIL AND
DOLLARS
MEMORANDUM BY THE MINISTER OF FUEL AND POWER
In E.P.C. (49) 71 of 29th June I set out the dollar deficit expected to be
incurred on oil for the whole of the sterling area in the fiscal year 1949-50 and
examined the possibilities of effecting economies in the various items. The Committee
agreed on 1st July that the issues raised in my paper should be discussed
by officials before they were considered by Ministers (E.P.C. (49) 25th Meeting,
Minute 2).
2. A Working Party of officials had already been set-up as a result of
the decision to make a comprehensive enquiry into the whole oil position (E.P.C.
(49) 17th Meeting, Minute 2 (3) ), and subsequently this Working Party was asked
to prepare a brief on oil for the forthcoming talks in Washington. It was
accordingly decided to combine the preparation of this brief with the discussion
of my earlier paper. I now attach as an Annex the Working Party's report, which
is also intended to serve as a brief for the Washington talks. Paragraphs 49-59
of this report contain a summary of the conclusions.
The Problem
3. The Working Party have re-examined the estimates on which the calculations
made in E.P.C. (49) 71 were based. As a result, they expect that the dollar
deficit on oil in 1949-50 will be 580 million dollars compared with the figure of
600 million dollars given in my earlier paper. They have also estimated the dollar
deficit for 1953, by which time the major part of the British oil companies'
expansion plans should have been completed. A year ago, it was thought that the
dollar deficit in 1953 would be reduced to 359 million dolTars,* but it is now thought
that it will still be 500 million dollars. The main reason for this change for the
worse in the forward estimates is the fall in oil prices (averaging 30 per cent, for
refined products and about 20 per cent, for crude oil) which nas occurred during
the past year.
In calculating this deficit it was assumed that the present restrictions on
the use of oil in this country would be maintained, except that the basic petrol
ration would be restored to the 1947 level of 270 miles motoring a month by 1953.
It was also assumed that British companies would produce oil to the maximum
extent that their physical resources would permit, and that the United States
companies would maintain their present share of trade in the sterling area.
* This represents the £55 million (222 million dollars) given in the table annexed to E.P.C. (48)
72 plus 137 million dollars for sales to the Western Hemisphere countries which are no longer regarded
as equivalent to dollar sales.
37457 B

4. But on these assumptions it is also expected that the British companies
will have a substantial oil '' surplus ' ' above what they require to meet their
sales in the sterling area and to third countries. The surplus in 1949-50 is
estimated by the Working Party at no less than 4 million tons, most of which
is fuel oil, and in a few years' time the surplus would be enough to enable all
restrictions on consumption in the sterling area to be removed. Because of the
non-discrimination provisions of the Anglo-American Loan Agreement, however,
we should not be able to consume this oil without at the same time buying a
considerable additional amount of dollar oil and so increasing the dollar deficit.
Alternatively, if oil consumption in the sterling area remains restricted these
surpluses could be used to displace imports of dollar oil and so reduce the dollar
deficit by amounts varying from 50 million dollars in 1949-50 to about 125 million
dollars in 1952 onwards; but, again, action of this kind would almost certainly
be regarded as an infringement of the non-discrimination obligations we have
assumed. This is the main problem on oil that we have to face.
5. Our object must be to reduce the dollar deficit on oil as much as possible
while maintaining a reasonable standard of consumption in the sterling area
and involving ourselves in as little trouble as possible with the American oil
companies and the United States Government.
The British Oil Companies' Expansion Programme
6. The Americans will probably suggest that we should cut back our oil
expansion programme and so avoid producing the " surpluses" referred to in
paragraph 4. The American authorities are known to be anxious about what
they feel to be an over-expansion in refinery capacity, particularly in Europe,
and E.C.A. has for the time being refused to finance refinery expansion in Europe
beyond an arbitrarily selected figure (see Annex, Appendix VIII). We embarked
on our oil expansion programme for both strategic and economic reasons. It
was designed to enable us to maintain and develop our share of world trade in
oil so as to maintain our concessionary rights (i.e., our production of oil), to
develop an export for which there is an assured and expanding market in the
interest of our overall balance of payments and to reduce the dollar drain involved
in the present dependence of the United Kingdom and the rest of the sterling
area on the dollar oil provided by American companies. It was originally contemplated
that the dollar drain would be reduced not so much by reducing the
purchases of dollar oil as by increasing the sales of sterling oil to dollar and hard
currency countries. But, as I have, indicated in paragraph 3, owing to the fall
in the price of oil and the quantity that can be sold, prospects for sales of sterling
oil for dollars in 1953 are not as good as was previously expected. We can only
reduce the dollar drain, therefore, by substituting for dollar oil in the sterling
area the increased production of sterling oil which our expansion programme
(and especially the refinery programme) will provide.
7. The Americans may argue that, since our own production of oil involves
a substantial dollar cost, there is little benefit to be gained from displacing their
oil by ours. Although the dollar element in the cost of Anglo-Iranian production
is low, it is very much higher in the case of the Shell Company's operations in
South America. But this is precisely the area where on strategic grounds it is
most important to maintain and expand British-controlled production of oil;
moreover, the oil produced by Shell in South America is being sold in increasing
quantities for dollars and other hard currencies in the United States and the
Western Hemisphere generally. And our balance of payments position will
obviously benefit from the substitution of oil costing a proportion of dollars in
place of oil imported into the sterling area by American companies, the whole
cost df which has to be paid in dollars.
8. I suggest, therefore, that we should resist firmly any suggestion by the
Americans that we should curtail the expansion of British oil companies'
production in order to guarantee to the Americans their present share in the
increasing oil trade in the sterling area. At the same time, the British oil
companies should do everything possible to reduce the dollar costs of their
expansion programme. The Working Party consider (Annex, Section Hiparagraphs
39-43) that a saving of the order of 50 million dollars in the
expenditure originally estimated for 1949-50 could be made without any reduction
in oil production, and I shall certainly press the oil companies to do everything
possible to achieve this saving.

The American Share of Trade in the Sterling Area
9. If, however, we are to get the full benefit of the British oil companies'
expansion, we must take vigorous action to achieve a substantial reduction in the
dollar cost of the American share of trade in the sterling area, since this accounts
for 60 per cent, of the dollar deficit in, 1949-50 and 77 per cent, in 1953. Ways
of doing this are examined in Section It of the Annex (paragraphs 22-38).
10. I fully agree with the conclusion (paragraph 24) that there would be
no advantage to be gained by endeavouring to oust United States oil from the
sterling area by a price war. In the first place, it is most unlikely to succeedthere
is no evidence to suggest that we can permanently sell oil in the sterling
area at an appreciably lower price than the Americans—and as we sell so much
more oil than we buy, the general reduction in prices that would result from a
price war would have a markedly adverse effect on our general balance of payments
position.
11. In view of this, discrimination against American imports of oil into
the sterling area is the only way of reducing the dollar cost of the American share
of trade without drastic curtailment of consumption, which is dealt with in
paragraph 13 below. The Working Party examined. three possible ways of
discriminating.
(a) By pegging American imports at the 1948 figure and using the
"unallocated surpluses" of British companies to provide for the
whole of the increases in consumption in the sterling area which have
been allowed for in the previous calculations. This is estimated to
save at the annual rate of 20 million dollars in 1949-50 and 60 million
dollars in 1953.
(b) By reducing A merican imports to 90 per cent, of the 1948 figure.—This
would save at the annual rate of 42 million dollars in 1949-50 and
68 million dollars in 1953.
(c) By reducing American imports to the full content of the British companies'
unallocated surpluses. This would save at the annual rate of 50 million
dollars in 1949-50 and 116 million dollars in 1953.
12. Method (a) would not absorb the whole of the potential surplus of
British Companies and the balance could be used to remove some of the restrictions
on consumption in the sterling area without additional dollar cost. The Americans
could hardly maintain a serious resistance to this. Even they should appreciate
that it is politically impossible for us to continue restrictions on the use of .oil
indefinitely on the grounds that we cannot use the oil we produce ourselves
because, while non-discrimination is in force, we should have to allow a proportionate
increase in imports of dollar oil which we cannot afford!
Methods (b) and (c) will be more difficult to get the Americans to accept;
for the American oil companies would find it difficult to secure other markets
for the oil displaced and might have to cut back production. Moreover the
American oil imports into the United Kingdom are at present financed with
E.R.P. dollars and any reduction in them might cause a corresponding cut in
the allocation of E.R.P. dollars. Proposals (5) and (c) would also add to the
difficulties in getting E.C.A. to finance a part of our refinery expansion programme;
for the American oil companies will argue that American aid should
not be used to finance British companies in taking away their oil trade.
Consumption in the Sterling Area
13. Under a policy of non-discrimination, it is useless to try to save dollars
by cutting sterling area consumption; for to save 1 ton of dollar oil, consumption
would have to be cut by 3J tons in the United Kingdom and 2\ tons in the
rest of the sterling area. There would also be no point in cutting consumption in
addition to pegging the level of American imports (method (a) above). For,
once the level of American imports was settled, any cuts in consumption would
merely fall on sterling oil. If, however, we were to pursue a fully discriminatory
policy, any cuts in sterling area consumption would serve to increase British
companies " unallocated surpluses " and so enable more dollar oil to be displaced.
The Working Party are examining the extent to which further economies in
consumption in !the United Kingdom and the rest of the sterling area are
37457
B
2

possible (Annex, Appendices Yla and VI6) but it does not appear likely that the
scope for economy is very great unless drastic cuts—involving considerable
political difficulties—are imposed.
The Discussions in Washington
14. I do not think that we need yet make up our mind which of the three
methods of reducing the American share of trade in the sterling area we should
advocate. The best course to adopt in the Washington talks seems to me to present
the problem as we see it to the Americans, and try to get their agreement to our
negotiating a solution with the American oil companies direct which, while
securing for us the dollar savings that we must have, will damage them as little
as possible. Under this procedure we should not press the discussions on oil too
far in Washington but would aim at securing a firm understanding that the
principle of non-discrimination should not apply strictly to oil in the United
Kingdom and the sterling area. The subsequent negotiations with the American
oil companies, which are bound to be highly technical, should, I suggest, be conducted
Dy the Treasury and my Department in London in close touch with the
Foreign Office and the American Embassy.
Summary
15. I recommend:—
(a) That the British oil companies should be encouraged to proceed with their
rt i* ,1'
i t r* * * . .
the same time cutting the dollar cost of their 1949-50 operating
expenses by 50 million dollars.
(b) That we should, in the Washington talks, present our problem on oil to
the Americans, endeavour to obtain their agreement that the principle
of non-discrimination should not apply strictly to oil in the sterling
area and suggest that a solution to our problems that will damage the
American oil companies least should be sought by negotiations in
London between the British Government and the American oil
companies.
I should hope that the outcome of the measures recommended above would be
a reduction in our dollar deficit on oil in 1949-50 of the order of 70 million dollars.
Ministry of Fuel and Power,
7, Millbank, S.W.1,
ISth August, 1949.
H. G.

ANNEX
OIL AND
DOLLARS
REPORT BY A WORKING PARTY OF OFFICIALS
Section
(i) The
I.—Introductory
Problem
The Sterling Area is at present finding a net sum of nearly $600 million a
year on account of oil. This paper examines the ways by which this dollar drain
can be reduced whilst, on the one hand, maintaining a satisfactory level of
consumption within the Sterling Area of what is a basic and essential raw
material, and, on the other hand, arousing the least antagonism in the United
States of America or in other countries who are dependent on oil supplies from
British-controlled companies.*
(ii) The Trading Background
2. British and United States oil companies are the main competitors in the
international oil trade, a position that arises as a matter of history from the
enterprise of British and American nationals. At one time certain of these
companies came to an arrangement establishing their relative positions in
particular markets, but no such arrangement any longer exists. The international
trade had, however, reached a certain degree of stability before the war and the
various major companies had achieved relatively settled market positions. During
the war these relative positions were in most areas preserved on Government
initiative by the establishment of rigid pools, such as the Petroleum Board in the
United Kingdom, or through more flexible arrangements which preserved the
companies' identities. The majority of these arrangements have continued in
one form or another into the post-war period, but are gradually being eliminated.
In the United Kingdom the Petroleum Board was dissolved in June 1948, but
under the terms or the inter-company agreement which set up the Petroleum
Board, the companies maintained tneir existing share of trade for twelve months.
Now the importing of oil is handled under normal import licensing procedure.
3. As a result United States companies market oil in the Sterling Area in
the same way that the Shell Group and the Anglo-Iranian Oil Company (A.I.O.C.)
both sell considerable quantities of oil to United States companies. Oil is, therefore,
a commodity that the Sterling Area buys from dollar sources at the same
time that British companies, in effect, export—although geographically, their
main production is outside the Sterling Area—for dollars as well as for other
currencies.
4. Table I shows the physical requirements of petroleum products by the
Sterling Area in 1949-50 and 1953 and how far those requirements are expected
to be met by United States companies, and how far by British. It also shows
the disposal of sterling oil to other markets. It is expressed in terms of refined
products as far as the Sterling Area is concerned, but sales of crude are included
as such in the tonnages of sales to other countries.
5. For the United Kingdom requirements, the Ministry of Fuel and Power
have provided estimates of consumption assuming the continuation of present
restrictions except in the case of motor spirit as regards which it is assumed that
by 1953 the basic ration for private motorists will have been restored to the 1947
level. For the rest of the Sterling Area, the figures are derived from British and
United States oil companies' estimates and for foreign trade from British
companies' estimates.
* The British-controlled companies, which are hereafter referred to as British companies, include
for balance of payments purposes the Shell/Royal Group.

6. The availabilities of British companies' production are based on the
implementation of their expansion schemes as presently notified to us—but see
Section III. In particular, they assume that the Haifa refinery will, as seems
probable, be reopened in January 1950, and that the present delay in O.E.E.C.
approval to the European refinery programme will not adversely affect the date
of completion of present plans.
A. Sterling Area requirements—
TABLE
I
1949-50 1953
Tons Tons Tons Tons
000 000 000 000
United Kingdom 13,915 16,906
Rest of Sterling Area 16,032 19,081
Ships' bunkers 11,586 14,124
Total 41,533 50,831
B. United States companies share in—
United Kingdom 4,275 5,111
Rest of Sterling Area 5,846 6,984
Ships' bunkers 2,646 2,848
Total 12,767 14,943
C. British companies supplies—
To the Sterling Area (A-B) ... 28,766 35,888
To Dollar Areas 13,584 26,995
To Hard Currency Areas 7,579 9,443
(Switzerland, Belgium, Persia, Argentina)
To other participating countries 14,926 23,263
To the rest of the world ... 5,186 8,260
Total 70,041 103,849
D. British companies availabilities—
Own production ... 71,517 106,533
By purchase 2,540 995
74,057 107,528
E. Unallocated supplies 4,016 3,679
7. The British companies' unallocated supplies in Line E represent only
marginal quantities and they will not be produced if the oil companies can find
no profitable outlet for them. They include in 1949-50 relatively small quantities
of aviation spirit, motor spirit, gas oil and bitumen, for which outlets would
certainly be found, but nearly 3 million tons of fuel oil for which no immediate
market exists. In 1953 the position is reversed. The possibility of using these
to reduce our dollar deficit on oil is discussed later (Section II).
(iii) The Sterling Area Oil Balance of Payments
8. The Sterling Area dollar outgoings in oil arise from—
(a) imports of dollar oil by United States companies;
(&) purchases of dollar oil by British companies to meet their trading deficit;
(c) the dollar element in the cost of producing so-called " sterling " oil arising
largely from purchases of specialised American equipment and from
local costs in countries whose currencies are the equivalent of dollars.
Against these can be set-British companies' earnings of dollars and the capital
contributions by United States oil firms to projects in the Sterling Area.
9. Table II compares estimates of the position in 1949-50 and 1953 on the
basis of prices as at April 1949. A more detailed statement for these years
and for 1948 is contained in Appendix I.

Dollar
TABLE II.-STERLING AREA OIL DOLLAR BALANCE OF
Expenditure—
PAYMENTS
$ million
1949-50 1953
(a) Imports of oil by United States companies ... 342 387
(b). Purchases of oil by British companies 56 16
(c) Costs of production and expansion—
(d)
(i) Royalty and tax payments 137 .117
(ii) Other operating and local expenditure ... 149 157
(iii) Purchases of dollar equipment (including
those for which United States companies
provide dollars) 153 117
Tanker hire and freight on United States companies
c.i.f. imports 72 100
909 894
Dollar Receipts—
(a) Sales of oil 225 370
(b) From dollar loan raised by Shell Caribbean Petroleum
Company 68
(c) Net miscellaneous items (including United States
companies' provision of dollars in respect of projects
in United Kingdom and joint ventures 36 24
329 394
Net dollar deficit -580 -500
10. In return for this dollar deficit the Sterling Area receives oil to the
value of $1,072 million in 1949-50 and $1,262 million in 1953. Moreover the
United Kingdom balance of payments should receive net (i.e., after deducting
local expenditure) in sterling from the rest of the Sterling Area or in currency
other than dollars $458 million in 1949-50 and $665 million in 1953 as the net
receipts from oil.
II. Calculations made a year ago put the Sterling Area dollar deficit on
a comparable basis at $621 million in 1949 and $359 million in 1953, whilst the
United Kingdom was expected to receive $806 million from the rest of the Sterling
Area and from non-dollar countries in 1949 and $1,044 million in 1953. The
reasons underlying the changed outlook are analysed in detail in Appendix III
but the main reason is the reduced value of oil sales. This is due to a com-,
paratively small reduction in estimated volume of sales but primarily to the fall
in oil prices. Since last summer the average price of petroleum products has
fallen by 30 per cent., whilst the price of Middle East and Venezuelan crudes has
fallen by 15-25 per cent, according to specification.
12. On the other hand the local costs of production are increasing. In
Venezuela this is offset by an expected reduction in taxation as gross profits fall
away from the high level of the immediate postwar years : but, as regards Persia
allowance has had to be made for an increased rate of royalty owing to the present
negotiations.
13. Nevertheless, the above figures may show a bias to pessimism. The
Venezuelan Oil interests are at present preparing a joint approach to the
Venezuelan Government with a view to securing a revision of the royalty terms
and they are not unhopeful of results since the Venezuelan Government is known
to be concerned about the possibility of increasing competition from Middle
East oil.
14. As regards future movements of oil prices a general reduction is to
the disadvantage of the overall balance of payments, since we sell much more
oil than we buy. As far as dollars are concerned, there would be, at the moment,
some advantage from a fall in oil prices, since the value of dollar imports of oil
exceeds the value of sales for dollars by a margin (in terms of value) that is,
however, expected to be insignificant in 1953. A general rise would, obviously,
have the opposite effect. In fact, however, oil prices do not necessarily rise and
fall as a whole. During the last year the relative movement in prices has been
particularly damaging. Motor spirit prices have fallen by 10 per cent, only,
while fuel oil prices have fallen by over 50 per cent. As we are net buyers of
motor spirit for dollars and net sellers of fuel oil, this has seriously affected our
dollar position. For example, if motor spirit prices were to fall by 10 per cent.

and fuel oil prices were to rise by 10 per cent, the dollar balance of payments
would benefit by $10 million whilst the non-dollar balance of payments would
only show a loss of f 1 million.
15. The general conclusion, therefore, is that on the whole forces already
at work should lead to some improvement in the above picture of the Sterling Area
dollar balance of payments (though not necessarily in the balance in other
currencies), but that this improvement in the dollar balance will hot make any
major change so far as we can forecast at the moment in the 1949-50 or 1953
position.
16-. This memorandum therefore examines the scope for positive action to
reduce the dollar drain on oil not only in the context of the immediate dollar
crisis of 1949-50 but also with regard to long-term considerations.
(iv) The Possibility of Increasing Dollar Receipts
17. Everything possible is already being done to maximise sales for dollars,
but, in view of the extraordinary swings that occur in the United States of
America domestic oil position, it is not felt that it would be wise to assume
higher sales than those which have been taken in the estimates and of which in
fact about 80 per cent, are covered by contracts or are with purchasers with whom
the British selling companies have historical or financial connections. Last year
a more optimistic view was taken.
18. The question of dollar invoicing of oil has been re-examined and found
to be unlikely to yield any substantial net gain to the dollar balance of payments
as a whole (Appendix IV).
19. It might also be possible to draw some immediate benefit by accelerating
the drawings on the Shell Caribbean Loan (Appendix V). Any action of this
kind would aggravate our position in later years.
(y) The Possibility of Reduced Dollar Expenditure
20. Possible ways of reducing dollar expenditure on each item shown in
Table II have been considered together with the probable repercussions of such
reductions. The courses that have been considered are:—
(a) Reducing the Cost of Dollar Imports by United States Companies
1. Reduction of United Kingdom Consumption.—Under present trading
conditions of non-discrimination a cut in consumption only reduces United
States companies' dollar imports by the proportion of their share of trade
which, overall, amounts to one ton in three and a half in the United Kingdom
and one in two and a half in the rest of the Sterling Area. There is therefore
no major dollar saving to be obtained from this method on its own. Furthermore,
any reduction of consumption in the United Kingdom would raise
considerable difficulties and there is no reason for thinking that oil is any
less an essential raw material to the rest of the Sterling Area (Appendix VI).
2. Discrimination.—It is possible, however, that to some extent dollar
oil could be replaced by ' ' sterling '' oil now that British companies, owing
to the expansion which they have already carried out, are likely to have
surpluses instead of the deficits which they have had to meet in the past by
buying from United States companies (see next paragraph). Apart from
the remote possibility of ousting dollar oil by a price war, discrimination
against United States companies is the only way of reducing dollar imports:
A detailed examination of the scope and consequences of discrimination is
set out in Section II, where it is also shown that a price war is not likely to
improve the dollar balance significantly and would have a serious effect on
the United Kingdom's earnings of other foreign currencies.
(b) By Reducing British-Controlled Companies' Purchases of Dollar Oil
These purchases are already at a minimum and consist of oil bought
under contract at a time of shortage, of crude oil bought as part of an
arrangement whereby the resulting products are sold at a dollar profit or of
specialised products which British-controlled companies do not produce all
or in sufficient quantity (see Appendix II). In 1949-50 the possibility of
A.I.O.C. negotiating the earlier termination of their contract for the
purchase of motor spirit and gas oil is under consideration and may save

$3 million. In any case the dollar cost is expected to fall from $56 million
to $16 million by i953.
(c) By Redticing the Dollar Costs of Production and Expansion
. This possibility is examined in paragraphs 39-43.
(d)- By Reducing the Dollar Cost of Tanker Hire and Freight
This is examined in paragraphs 43-^46. ". "
(e) By A ction in certain Special Cases
This is considered in detail in Appendix VIII. The special cases are : ­
1. Britmeos, an American-controlled bunkering company. By
discriminatory action some saving might be made in the coming year and
until 1953, when it is estimated that almost its entire needs will be met
by the production at Fawley.
2. Bahrein Petroleum Company, an American-controlled company
refining oil in the Sterling Area but operating largely on dollar crude.
The substitution of sterling for dollar crude does not appear a practical
proposition in the light of the considerations discussed in Appendix VII.
The supplies by this company can, however, be treated as part of the
American companies' dollar imports into the Sterling Area, and this is
the assumption adopted in Section II.
21. It was clear that dollar savings on any significant scale could only be
achieved by some form of limitation of American companies' imports or by
reducing the rate of dollar expenditure by British-controlled companies on
production and expansion. These two possibilities are examined in the following
sections.
Section II.—Replacement of United States Companies' Imports of Dollar Oil
into the Sterling Area
22. The f .o.b. cost of imports of dollar oil into the Sterling Area by United
States companies is estimated to rise from $322 million in 1949-50 to $383 million
in 1953* As pointed out in paragraph 20 (a) (1), so long as present trading
conditions in the Sterling Area continue, a reduction in the dollar cost can only
be obtained by a larger reduction in total imports, i.e., by reducing total consumption
by the larger amount, United Kingdom and United States companies reducing
their imports proportionally.
23. This position might, of course, change from normal commercial developments,
but any major change is unlikely. Governmental action to produce any
change would involve discriminatory measures of some kind. It has never been
settled exactly how far the non-discrimination provisions of the Loan Agreement
apply to the oil trade. Since a large part of the United States companies'
imports of dollar oil are, for the convenience of suppliers, shipped from sources
outside the Continental United States, they may be held not to be subject to
these provisions, and certainly the Dominions are not bound by them. Nevertheless,
any discrimination against oil anywhere in the Sterling Area would undoubtedly
be held by the Americans to involve important questions of principle that could
not be settled on technical grounds. The Argentine Agreement has already
provoked unfavourable American comment even though we nave been able to point
out that it was Argentina and not the United Kingdom that chose to discriminate.
Some of Commonwealth countries may, indeed, be already preparing to discriminate
of their own accord, but it would be difficult to convince the Americans
that they were doing so without prompting from the United Kingdom, especially
afer the publicity accorded to the meeting of Commonwealth Ministers last July.
24. It has been suggested that British companies could drive United States
companies out of their Sterling Area market by price-cutting. The suggestion
assumes that British companies can produce oil at lower cost than United States
companies. While there is no direct evidence available, there seems to be no
reason for thinking that British companies have any advantage over United States
* These figures differ from the Table II estimates because they exclude $20 million in 1949-50
and $4 million in 1935 for purchases of dollar oil by Britmex referred to in paragraph 20. (e) 1.
37457 C

companies since United States and British companies are both producing in
contiguous areas in Venezuela and in the Middle East so that it may be assumed
that local operating expenditure is at the same rate. The question therefore
depends largely on the relative efficiency of the British and American oil
companies, and here, again, there is no reason to assume any great difference.
Furthermore, in a price war selling prices are not related directly to costs and in
the. past the oil companies have been prepared to accept heavy marketing losses
for short periods in order to retain the physical volume of their trade. The net
result would probably be that each company would sell the same quantities of oil
in the same markets but at lower prices. Since, as is pointed out in paragraph 14,
lower prices do not substantially improve the dollar balance of payments and cause
a large deterioration in our balance in other currencies, it appears that a policy
of price cutting would be a dangerous expedient from the United Kingdom point
of view.
25. Any decision to attack the level or growth of the American-controlled
oil companies' trade in the Sterling Area must therefore be regarded against the
general background of the issue of discrimination which is dealt with elsewhere
in the brief. A further difficulty peculiar to oil is that the American oil
companies, with the encouragement and often the active support of the State
Department, have built up a large investment in crude oil production and refining
in the Middle East, from which to a large extent they draw their supplies for their
Sterling Area markets.
26. Clearly, the general questions of discrimination and of- American
participation in the Middle East requires some estimate of the quantities and
values of the oil involved. These are set out below on the assumption that only
the quantities of oil described in paragraph 7 as British companies' unallocated
supplies are used for discriminatory purposes.
27. Below are given the dollar savings that would arise from three methods
pf replacing dollar oil with British-controlled companies' unallocated supplies.
These calculations must only be regarded as a rough estimate of possible savings
in view of the lack of adequate data on the past trade of the American companies
in the Sterling Area. Any scheme involving other Commonwealth countries will
obviously have to be cleared with them after discussion with the United States.
28. The three methods are r—
(I) Limiting United States companies' dollar imports into the Sterling-
Area to the amount of their dollar imports in 1948-49.
(II) Cutting their dollar imports to a given percentage of their 1948-49
dollar imports.
(Ill) Replacing United States companies' dollar imports with the full
amount of British companies' unallocated supplies, as and when they
arise.
29. Only the replacement of the main petroleum products has been considered.
We shall not for some time produce enough of some grades of lubricants
and other special products even to meet British companies' own trade, so that no
question of replacement can arise.
Method I.—Limiting Dollar Imports by United States Companies to Present Level
30. Table III sets out the future increment over the 1948-49 level of dollar
imports by United States companies into the Sterling Area assuming pro rata
increase of business done by them and compares it with the British companies'
unallocated supplies in each year. In each year British companies' unallocated
supplies are, in the aggregate, sufficient to replace the net increment over 1948-49.
This statement conceals differing positions with regard to individual products;
for example, there is a slight deficit in kerosenes even at the present level of
trade, whilst in the long run there appears to be a deficit in fuel oil. But small
shortages in the immediate future can probably be met by drawing down stocks,
whilst, in the long run, shortages of fuel oil can probably be made good at the
expense of other products. The last column therefore shows the full value of
the increment as a potential saving under this method of discrimination.

TABLE
III
000 Tons 000 Tons
$ Million
Net increments in dollar
imports by U.S. companies British companies',
Potential saving
over 1948-49 level
unallocated
Method II
supplies* ^ value o f (iii))
To U.K. T o R.S.A. Total
(i) (ii) (iii) (iv)
M
1949-50 (full year) ... 522 219 741 2,033 21-8
1951 ... 954 987 1,941 4,211 45-5
1952 113 1,263 1,376 3,633 41-1
1953 78 1,611 1,689 3,172 54-.6
1954 79 1,879 1,958 3,949 63-3
to-
NOTE
1. It is estimated that United States companies' imports of dollar oil amounted in 1948-49
U.K. = 3,500,000 tons
R.S.A. = 3,971,000 ,,
These figures may need revision as statistics are brought up t o date, and the R.S.A. figures will have
to be checked with other Commonwealth countries.
2. The reason for the fall in the increment in dollar imports into the United Kingdom after
1951 is the assumed completion of United States-owned refineries in United Kingdom in 1952. This
will not, however, eliminate imports o f all dollar products by United States companies.
3. Some United States companies already buy part of their supplies from British companies.
These sterling supplies are excluded from the above calculations.
Method II.—Cutting Dollar Imports by United States Companies to 90 per cent.
of 1948-49 Level
31. To replace a cut of more than 10 per cent, in white products would be
impossible in 1949-50 as we have already assumed the maximum stock reduction
that would seem to be practicable; and, in fuel oil in the later years it may be
difficult to provide British oil to replace even as much as a 10 per cent. cut. On
balance, however, it is felt justifiable to show the full value of the increment as
the potential saving under this method of discrimination.
TABLE
IV
000 Tons 000 Tons
$ Million
Net increments in dollar
imports by U.S. companies
British companies'
Potential saving
over 90% o f 1948-49 level
unallocated
Method II
supplies*
Rvalue o f (iii))
T o U.K. T o R.S.A. Total
(i) (ii) (iii) (iv) (v)
1949-50 (full year)
1951
... 865
1,304
577
1,384
1,442
2,688
2,033
4,211
42-9
67-8
1952 ... 154 1,660 1,814 3,633 55-7
1953 85 2,008 2,093 3,172 68-4
1954 ' ... 86 2,276 2,362 3,949 77-1
* The figures for 1949-50 and 1951 exclude fuel oil for which there would be n o " discriminatory "
outlet in the sterling area. The potential " discriminatory " outlet for fuel oil in the special case o f
Britmex could be met out of these excluded quantities up t o 1952, by which time Britmex is expected
directly or indirectly to draw its requirements from the Fawley refinery.
Method III.—Replacing Dollar Imports with the Full Amount of British
Companies' Unallocated Supplies
32. This method assumes the use of all British companies' unallocated
supplies as at present estimated to replace dollar oils, but the actual quantities
available may in the event prove to be less or more.
37457 c 2

TABLE
V
000 Tons 000 Tons
$ Million
Imports of dollar oil
by U.S. companies
British companies'
unallocated
supplies*
Potential saving
Method III
T o U.K. T o R.S.A. Total
(0 (ii) (hi) (iv) (v)
1949-50 (full year)
1951
... 4,015
4,454
4,068
4,958
8,083
9,412
2,033
4,211
50-9
94-7
1952 2,967 5,234 8,201 3,633 133-8
1953 559 5,582 6,141 3,172 116-3
1954 520 5,850 6,370 3,949 136-6
NOTE.—The value o f column (v) is the value o f the products in column (iii) that can be replaced by
products in column (iv) plus the value of any stockdraft assumed under Methods I or II.
* The figures for 1949-50 and 1951 exclude fuel oil for which there would be no " discriminatory "
outlet in the sterling area. The potential " discriminatory " outlet for fuel oil in the special case of
Britmex could be met out of these excluded quantities up t o 1952, by which time Britmex is expected
directly or indirectly to draw its requirements from the Fawley refinery.
33. The amount of British Companies' unallocated supplies and, therefore,
the scope for discrimination under Methods I I and III would of course be
increased if consumption i n the Sterling Area were reduced or if supplies to
other areas could be cut. The practicability of making reductions i n Sterling
area consumption is examined i n Appendix V I and though there may be some
savings possible in consumption they are not likely to be large. The saving of
250,000 tons a year i n United Kingdom motor spirit consumption which has been
specifically suggested as the possibility would increase the amount of the British
Companies' unallocated supplies available to replace dollar oil. Under Method I I
this would make it possible to peg imports a t 8 5 per cent, instead of 90 per cent.
I t would make no difference under Method I, since the United States Companies'
dollar imports are based on the 1948-9 level. I t would, of course, be possible,
though obviously commercially distasteful, to restrict supplies to these countries
to current levels or to check the rate of increase, but i t must be remembered that
of the increase of over 10 million tons i n sales of oil to other than dollar or hard
currency countries shown i n Table I as expected to occur between 1949-50 and
1953, nearly 7 million tons is in respect of crude oil and would not therefore
increase British companies' supplies of refined products. Moreover any such
restrictions would be liable to raise political issues which might result in the
matter being raised a t United Nations on the grounds that we were depriving
people of a n essential raw material. On balance it was, therefore, felt wise
to treat such possible additional available supplies as a margin of safety.
34. Administratively Methods I, I I and III would all throw u p problems.
These would be more troublesome under Method III owing to the inherent uncertainty
that there will inevitably be about actual availabilities and demand (as
opposed to forward estimates) which would make the planning of movements of
oil—in which both United States and British companies would be involved—
a difficult operation.
35. Further, we shall have to ensure that other Commonwealth countries'
systems of control over dollar oil import is effective—there has already been
considerable confusion over imports from Bahrein, which is i n the Sterling Area
but whose oil is in effect 90 per cent, dollar oil (see Appendix VII). Moreover,
even if it may not prove necessary to have a Commonwealth allocation scheme
for British companies' oil under Method I or II, i t would certainly be necessary
under Method III. '
36. The potential savings shown i n Tables III-V are a t a n annual rate.
I n fact, the machinery for operating any of the methods of discrimination would
take time to set u p and retrospective restriction on United States Companies'
imports would probably not be practicable, t A s a working hypothesis, it would
t For this reason, the possibility o f the Haifa refinery resuming operations before January 1950
—which is the date assumed—would be unlikely to enable any additional saving t o be made.

probably be wise to assume a potential saving of only half the amounts shown
for 1949-50 to be derivable from the three methods of discrimination examined.
Probable American reactions
37. While to date nothing has been said in America about discrimination
a
in the Sterling A r e there has, of course, been a great deal said about " unfair
competition " in markets outside the Sterling Area since lack of dollars has already
encouraged some Governments to insist on oil companies importing sterling oil
rather than dollar oil. The Anglo-Argentine Trade and Payments Agreement
caused a considerable stir. We must, therefore, expect adverse reaction to any
suggestion of further "discrimination '' though some people in the United States
Government service if not United States oil companies have certainly envisaged
the possibility of our being forced to do something to reduce our dollar outgoings
on oil. It is because of this that there has been so much trouble regarding the
United Kingdom's and European countries' plans to build refineries. Broadly
speaking, the Americans feel that there is a serious risk of over-expansion of
refinery capacity and crude production and that this constitutes a threat to
American oil interests. What has happened on these two questions is set out
in Appendix VIII. It is mentioned here since any emphasis on availability, of
sterling oil to oust dollar oil will exacerbate the refinery trouble.
38. Methods I and II would certainly be less objectionable to them than
Method III, though it must be noted that there is a fundamental difference
between pegging at current levels and pegging at something lower. In the former
case we are in effect telling the Americans that they must not expand any further
until the world's currency position has been corrected; in the latter case, they
must actually cut back—since there is little hope of the Americans being able
to find new outlets for any displaced oil. Method III would probably be particularly
repugnant to them since the inroad on the American companies' business
would be progressive as British companies' expansion proceeded. In point of
fact, there would appear to be little point in broaching Method III at the
moment. It would not produce in the first years a much bigger saving than
Method II and it could always be introduced later if our position necessitated such
drastic action.
Section III
The Possibility of Saving Dollars by restricting the British Companies'
Expansion Schemes
39. The direct dollar cost of expanding the production and refining of oil
consists of payments for dollar equipment and designers' fees. Where, however,
the expansion is taking place, physically, within countries whose currencies are
the equivalent of dollars in addition to these items, account has to be taken of local
expenditure on wages and materials.
40. It is in any case difficult to distinguish between expenditure on
expansion and expenditure required to maintain production at the current level
even as regards refineries. Where crude oil production is involved it is virtually
impossible since new wells have to be drilled even to maintain production.
41. Moreover, the expansion of refinery capacity achieved in any one year is
the result of expenditure over a number of years and work on a considerable part
of the expansion programme has already been undertaken. In fact, out of a total
estimated dollar expenditure on equipment and fees during the period 1949-1954
of $116 million only $33 million is in respect of projects which have not yet been
started. Any reduction above $33 million in current dollar expenditure must
therefore involve delay in completing plans which have already been started.
42. In these circumstances, it was felt that the only way of assessing the
effect of a cut in expenditure was to put direct questions to the oil companies.
Accordingly, we have asked the major oil companies concerned what effect specified
cuts in dollar expenditure would have on their future operations. They have not
been able to give very specific answers at the moment, since, to do so, involves
re-working their whole plans. But, it seems that a reduction of about $50 million
on the figure at present taken to cover dollar operating expenses and purchases
of equipment may be achieved in 1949-50 largely due to Shell's hopes regarding

a revision of the basis of calculation of the value of royalty crude, to their
present expectation that outgoings for 1949-50 on royalties and for taxes will
in any case be lower than was estimated last September, and to postponements of
capital expenditure. A saving of more than $50 million could only be
achieved by:-—
(a) Shell reducing current production, for example Shell have indicated that
to save an additional $40 million might involve a shutting back of
production in Venezuela by 6 million tons or nearly 30 per cent, of
their current Venezuelan production. But as, broadly speaking, the
value of oil produced is greater than the total costs of production, the
loss in value of oil produced would be substantially more than the
saving in dollar expenditure. Moreover, any suggestion of a large
cut in production would be very badly received by the Venezuelan
Government.
(b) Slowing up the construction of refineries that have already been started.
43. It would be theoretically possible to eliminate expenditure on exploration,
but this would be deplored by Shell (which dollarwise, is the only company
involved) since the work will have to be done some time—and, it must be remembered
that exploration work has its disappointments as well as its successes—and
it is more satisfactory to operate a steady programme of exploration work than
to find oneself one day in the position of having to do more exploration work than
can conveniently be handled at one time. Shell 's estimated expenditure on
exploration work is $10 million in 1949-50.
Section IY
Tanker Hire and Freights
44. The increase in the dollar expenditure on tanker hire and freight
between 1949-50 and 1953 is largely on account of freight on United States Companies
shipments of oil into the Sterling Area and reflects the increase in imports
"by them during this period.
45. The dollar expenditure of the British-controlled oil companies on tanker
hire is rigidly supervised, and is at present confined to period charters entered
into in 1947-48, at a time of great tanker shortage. It is unlikely that they will
require to charter additional tankers for dollars during the period under review.
46. The main dollar expenditure on tanker hire so far as the United
Kingdom is concerned is by the Anglo-American group and discussions are in
progress to see what reduction in dollar expenditure under this head is possible,
e.g., by chartering soft-currency instead of dollar tankers.
47. The freight on oil shipped by American companies into the rest of the
Sterling Area also costs us dollars. The methods of reducing their dollar imports
of oil considered in Section II did not necessarily envisage a reduction in their
total imports, since it may be agreed to allow them to import sterling oil in place
of dollar oil.
48. A dollar saving would be achieved if this substituted sterling oil were
sold c.i.f. to the United States distributing companies and carried in non-dollar
tankers. As regards dollar oil in the United States distributing subsidiaries in
the Sterling Area might be persuaded to change their existing practice and to
buy f.o.b. from their parent companies and to transport their oil in non-dollar
tankers directly chartered by the subsidiaries themselves. It is not certain
whether the nondollar tonnage available would be sufficient to displace all dollar
tankers now employed in the Sterling Area programme and the United States
companies would doubtless offer considerable opposition to the suggestion that
they should alter their trading practice on these lines.
Summary
49. Present estimates are that the Sterling Area dollar deficit on oil will
be $580 million in 1949-50 and that by 1953 it will still be $500 million in spite
of the oil companies' very large expansion plans.

50. These estimates are based on normal expansion of consumption in the
rest of Sterling Area and the maintenance of restrictions on the consumption of
petrol and fuel oil in the United Kingdom where, however, it has been assumed
that the basic petrol ration will have been restored by 1953 to the 1947 level.
51. The estimates also assume what are regarded as being maximum sales
for dollars which can reasonably be expected in the light of current circumstances.
These are put at $225 million in 1949-50 and $370 million in 1953.
52. It would be possible to achieve a cut of $50 million in the dollar
expenditure involved in the production of sterling oil in 1949-50 without serious
effects on the current rate of output. Any further cuts would have an immediate
effect on production.
53. As regards dollar expenditure on freight some small savings, to the
extent of a few million dollars at first but more in the long run, may be possible
if United States companies can be persuaded to use non-dollar tankers to import
oil into the Sterling Area.
54. Purchases of dollar oil by British companies are already expected to
fall from $56 million in 1949-50 to $16 million in 1953.
55. Dollar expenditure on oil which United States companies import into
the Sterling Area can only be reduced by—
(a) reducing Sterling Area consumption—and so long as the United States
companies are allowed to meet their share of trade with dollar oil
the reduction on consumption to achieve any given reduction in dollar
imports will have to be 2^ and 3^ times as much in the rest of the
Sterling Area and the United Kingdom respectively;
(b) using British companies' supplies to replace United States companies'
imports of dollar oil. Three methods have been examined :—
(I) Limiting American companies' dollar imports into the Sterling-
Area to the amount of their dollar imports in 1948-49.
(II) Cutting their dollar imports to a given percentage of their
1948-49 dollar imports. A cut to 90 per cent, could be put
into operation by using British companies' supplies at present
unallocated and this is illustrated below; a cut to 85 per cent.
Avould be possible if United Kingdom consumption of motor
spirit can be reduced by the suggested 250,000 tons a year.
(Ill) Replacing American companies' dollar imports with the full
amount of British companies' unallocated supplies as and
when they arise.
56. Savings under these three methods are estimated as below. (In 1949-50
the saving has been calculated on the basis of six months' effective operation) :—
$ million
1949-50 1951 1952 1953
Method I 11 46 41 55
Method II 21 68 56 68
Method III 25 95 134 116
57. Any of the three methods would be distasteful to the Americans and
Method III particularly so since it would involve the prospect of progressive
replacement of dollar oil to an undefined extent; it would certainly accentuate
our present difficulties with the Americans over the United Kingdom oil companies'
refinery expansion plans. The Americans regard these as excessive and
therefore likely to aggravate the difficulties of American companies selling oil in
a world that is short of dollars.
58. Apart from discrimination on United States oil imports into the
Sterling Area there is the special case of Britmex (an American-owned but
British-registered bunkering company) on which an additional dollar saving might
be achieved at the expense of arrangements that have been in force for 30 years.
59. By adopting discrimination on the lines of Method II outlined in paragraph
56 assisted by the cuts in consumption referred to in paragraph 55 and
a parallel reduction in the dollar cost of Britmex's operations a saving of

$ 80 million to $100 million would be achieved in 1953. To achieve a comparable
saving without discrimination would require a combination of drastic cuts in
consumption (both of dollar and sterling oil) throughout the Sterling Area;
a very severe shutting back of Shell 's Venezuelan production, which would have
political repercussions in both Venezuela and Holland, and a curtailment of
British companies' oil expansion programmes everywhere with consequent
restriction of foreign sales.

APPENDIX
I
UNITED KINGDOM OIL BALANCE OF PAYMENTS 1948, 1949-50, 1953
Valued at April 1949 prices
1. American Account Countries include Canada, Cuba, Hayti, Dominican Republic, Panama, from Bahrein in respect of local operati
Philippines, Ecuador and Central America. shown in HIB 3 as the Bahrein dollar a
2. Hard Currency Countries are taken as Argentine, Belgium and Possessions, Iran and 4. The figure for Hard Currency '
Switzerland.
1947 and 1948 to be made when the propoi
3. Bahrein Petroleum Compan/s imports into the Sterling Area and its purchases of equipment has been ratified.
are shown at their full dollar cost in IIIA. In fact, however, mere is a sterling element in all oil sold
NOTES
I
V. Rest of Sterling
I. United States II. American account III. Hard currencies IV. Rest of World Area
1948 11949-50 I 1953 1948 [1949-501 1953 1948 11949-50 I 1953 1948 11949-501 1953 1948 I 1949-501 1953
I.—British Controlled Companies
A.—Expenditure
1. Purchase of oil 97 48 16 12 8 8
2. Tanker hire. 32 8 12 52 64 137
3. Equipment 69 93 61 12 4 12 24 28
4. Local costs: (a) Royalties and taxes ... 137 117 32 125 89
266
(b) Others 149 157 113 153 153 "44 109 165 69 89
5. Miscellaneous (net cost of Tetra Ethyl,
office expenses in U.S., financial transactions,
&c.) 28 44 44
Total 226 193 133 278 294 274 157 282 242 116 197 330 69 89
B.—Receipts
1. Sale of oil 169 137 290 36 44 44 149 157 189 439 508 753 210 254
2. Sales for dollars to countries outside
American Account Area 24 20
3. Shell Caribbean Loan (see App. V.) ... 68
4. Other income (financial transactions,
processing fees, dividends, &c.) 40 28 20
Total 233 253 310 36 44 44 149 157 189 443 510 755 210 254
C-Net of I 4- 7 -I- 60 +177 -242 -250 -230 -125 - 53 4-327 4- 313 4-425 4-141 4-165
II.—Joint Ventures (Iraq Petroleum Co.,
Middle East Pipe Lines, Kuwait Oil Co.)
A.—Expenditure
1. Equipment 24 40 40 8
2. Local costs: (a) Royalties 24 32
0) Other "32 40 48 52 40
Total 24 40 40 40 40 48 76 72
B.—Receipts
1. Sales to partners and locally 12 16 28 20 32 40
2. Capital calls 44 32 28 20 16 24
Total 56 48 56 40 48 64
C-Net of II -f 32 4- 8 + 16 4- 4- 16 76 72
ID.—American Controlled Companies
A.—Expenditure
Oil to U.K 121 125 145
Oil to Rest of Sterling Area (R.S.A.) ... 206 197 238
Oil for Britmex bunker trade overseas 44 20 4
Freight: (a) To U.K 24 28 44
(b) To R.S.A 28 36 44
Equipment 12 20 16
Dividends 4 4
Total 439 430 499
B.—Receipts
1. Sale of oil 16 8 12 12 12 197 153
2.' Capital calls
4
3. Bahrein dollar adjustment (see Notes) 20 20 28
Total 36 32 36 12 12 12 197 153
C-Net of III. -403 -398 -463 4- 4 4- 4 - 4 4- 12 4- 12 4­
4-197 4-153
IV.-Net Balance -364 -330 -270 -242 -250 -230 - 4 -121 49 4-339 -1-333 4-449 4-262 4-246

APPENDIX
I
UNITED KINGDOM OIL BALANCE OF PAYMENTS 1948, 1949-50, 1953
Valued at April 1949 prices
NOTES
s Canada, Cuba, Hayti, Dominican Republic, Panama, from Bahrein in respect of local operating costs. This offsets the gross dollar cost to the extent
a. shown in IIIB 3 as the Bahrein dollar adjustment.
n as Argentine, Belgium and Possessions, Iran and 4. The figure for Hard Currency Royalty payments in 1949-50 include back payments for
1947 and 1948 to be made when the proposed new agreement of A.I.O.C. with the Iranian Government
ts into the Sterling Area and its purchases of equipment has been ratified. ^
n fact, however, there is a sterling element in all oil sold
$ million
1
V. Rest of Sterling VI. Total Dollar VII. Total Other VIII. Total All
1 States II. American account III. Hard currencies IV. Rest of World Area (^I.4-H.) cies (^IlL+IV+V.) cies (-VL+VTL)
-50 1953 1948 1949-50 1953 1948 1949-50 1953 1948 1949-50 1953 1948 1949-50 1953 1948 1949-50 1953 1948 1949-50 1953 1948 1949-50 1953
-8 16 12 8 8 109 56 16 8 117 56 16
8 12 52 *64 137 32 1 8 12 52 "64 137 84 72 149
*3 61 "l2 "4 12 24 28 69 93 61 24 28 28 93 121. 89
j*266 / 1*37 in 32 125 "89 / 137 117 32 125 89 206
1 4 9 ^524 j -£UZ,
I 157 113 153 153 "44 i'69 165 "69 89 "85 j-266 \ 149 157 226 351 403 560
14 44 ... ... ...
-
... ... ... ... ...
"
... ... 28 44 44 ... ... 28 44 44
13 133 278 294 274 157 282 242 116 197 330 69 89 85 504 487 407 342 568 657 846 1,055 1,064
I 500
i7 290 36 44 44 149 157 189 439 508 753 210 254 306 205 181 334 798 919 1,248 1,003 1,100 1,582
10 ... ... ... ... ... ... - ... ... 24 20 24 20 ...
18 ... a.. a"mm ... . . - . . . 68 ::: ::: 68
-
18 20 ... ... ... ... 4 2 2 40 28 20 4 2 2 44 30 22
13 310 36 44 44 149 157 189 443 510' 755 210 254 306 269 297 354 802 921 1,250 1,071 1,218 1,604
iO 4-177 -242 -250 -230 - 8 -125 - 53 4-327 4- 313 4-425 4-141 .4-165 4-221 -23 5 -19 0 - 53 4-460 4-353 4-593 4-225 4-163 +540
0 40 ... ... ... 8 24 40 40 8 32 40 40
... ... ... "24 "32 69 24 "32 "(69 24 32 69
*32 "4O 48 52 40 56 84 80 104 84 80 104
-
TO 40 ... ... ... ... 40 40 48 76 72 125 24 40 40 116 112 173 140 152 213
6 28 ... ... ... ... ... ! ... 20 32 40 ... ... 12 16 28 20 32 40 32 48 68
2 28 20 16 24 44 32 28 20 16 24 64 48 52
18 56 ... ... ... ... ... ... 40 48 64 56 48 56 40 48 64 96 96 120
8 4- 16 ... ... ... ... 4- 8 4- 16 - 76 . - 72 -125 4- 32 4- 8 4- 16 - 76 - 64 -109 - 44 - 56 - 93
m
15 145 ... ... ... 121 125 145 121 125 145
*7 238 ... ... ... ... 206 197 238 206 197 '238
10 4 ... 44 20 4 44 20 4
18 44 "4 24 28 44 "4 24 28 48
16 44 28 36 44 ... 28 36 44
10 16 12 20 16 12 20 16
4 8 4 4 8 4 4 8
50 499 ... ... ... ... 4 ... 439 430 499 4 439 430 503
8 8 ... ... 4 4 4 12 12 12 197 153 . 169 16 8 8 213 169 185 229 117 193
4 4 4
10 *28 "20 20 "28 "IO 20 "28
12 36 ... ... ... 4 4 4 12 12 12 197 153 169 36 32 36 213 169 185 249 201 221
(8 -463 4- 4 + 4 - 4 4- 12 4- 12 4- 8 4-197 4-153 +169 -403 -398 -463 4-213 4-169 4-181 -190 -229 -282
-270 -242 -250 -230 - 4 -121 - 49 4-339 4-333 4-449 4-262 4-246 4-265 -60 6 -58 0 -50 0 4-597 4-458 4-665 - 9 -122 4-165

Ift
APPENDIX
I
UNITED KINGDOM OIL BALANCE OF PAYMENTS 1948, 1949-50, 1953
Valued at April 1949 prices
NOTES
s Canada, Cuba, Hayti, Dominican Republic, Panama, from Bahrein in respect of local operating costs. This offsets the gross dollar cost to the extent
a
- shown in IIIB 3 as the Bahrein dollar adjustment.
n as Argentine, Belgium and Possessions, Iran and 4,. The figure for Hard Currency Royalty payments in 1949-50 include back payments for
. - , 1947 and 1948 to be made when the proposed new agreement of A.I.O.C. with the Iranian Government
ts into the Sterling Area and its purchases of equipment has been ratified. ^
n fact, however, there is a sterling element in all oil sold
$ j
1
V. Rest of Sterling VI. Total Dollar VII. Total Other VIII. Total All
1 States II. American account III. Hard currencies IV. Rest of World Area ^L+II. ) cies ^III.-r-IV.-t-V.) cies ^ VI. 4-VII.)
-50 1953 1948 1949-50 1953 1948 1949-50 1953 1948 1949-50 1953 1948 1949-50 1953 1948 1949-50 1953 1948 1949-50 1953 1948 1949-50 1953
18 16 12 8 8 109 56 16 8 117 56 16
8 12 52 "64 137 32 i 8 12 52 "(64 137 84 72 149
3 61 12 "4 12 24 28 69 93 61 24 28 28 93 121. 89
/ 137 117 32 125 "89 f 137 117 32 125 89 206
J*266 \ 149 157 113 153 153 "44 109 1*65 "69 89 "85 j-266 X 149 157 226 351 403 j.524 I 500 560
4 44 ... ... ... ... ... ... ... ... ... ... 28 44 44 ... ... 28 44 44
i3 133 278 294 274 157 282 242 116 197 330 69 89 85 504 487 407 342 568 657 846 1,055 1,064
17 290 36 44 44 149 157 189 439 508 753 210 254 306 205 181 334 798 919 1,248 1,003 1,100 1,582
:o ... ... ... ... ... ... - ... ... 24 20 ... 24 20 ...
i8 ... ... a * . aa a ' 68 .:: ::: ::: 68
18 20 ... ... - ... ... 4 2 2 ... 40 28 20 4 2 2 44 30 22
13 310 36 44 44 149 157 189 443 510' 755 210 254 306 269 297 354 802 921 1,250 1,071 1,218 1,604
SO +177 -242 -250 -230 - 8 -125 - 53 -f-327 -f 313 4-425 +141 .+165 4-221 -235 -190 - 53 4-460 4-353 4-593 4-225 4-163 4-540
* 40 ... ... 8 24 40 40 8 32 40 40
... ... ... ... "24 "32 69 24 "32 "69 24 32 69
*32 40 "48 52 40 56 84 80 104 84 80 104
fO 40 ... ... ... -
- 40 40 48 76 72 125 24 40 40 116 112 173 140 152 213
6 28 ... ... ... ... - ... 20 32 40 ... ... 12 16 28 20 32 40 32 48 68
2 28 20 16 24 44 32 28 20 16 24 64 48 52
8 56 ... ... ... ... ... ... 40 48 64 56 48 56 40 48 64 96 96 120
8 4­ 16 ... ... ... ... ... ... 4­ 8 4­ 16 - 76 . ­ 72 -12 5 -F- 32 4­ 8 -1­ 16 - 76 - 64 -10 9 - 44 - 56 - 93
41
15 145 ... ... ... 121 125 145 -. 121 125 145
1
(7 238 ... ... ... ... 206 197 238 ... 206 197 238
SO 4 ... 44 20 4 44 20 4
T8 44 "4 24 28 44 "4 24 28 48
6 44 28 36 44 28 36 44
0 16 12 20 16 12 20 16
4 8 4 4 8 4 4 8
10 499 ... ... ... ... ... ... 4 ... 439 430 499 4 439 430 503
8 8 ... 4 4 4 12 12 12 197 153 . 169 16 8 8 213 169 185 229 117 193
4 4 4
10 "28 "20 20 "28 "io 20 28
12 36 ... ..: 4 4 4 12 12 12 197 153 169 36 32 36 213 169 185 249 201 221
t8 -463 -H 4 + 4 - 4 -F 12 + 12 + 8 +197 +153 4-169 -403 -398 -463 +213 4-169 4-181 -190 -229 -282
;
o -270 -242 -250 -230 - 4 -121 - 49 4-339 -1-333 4-449 -f-262 -(-246 -1-265 -606 -580 -500 4-597 4-458 4-665 - 9 -122 + 165

APPENDIX
II
PURCHASES OF DOLLAR OIL BY BRITISH COMPANIES
British-controlled companies before the war regularly purchased oil from
other producers and refiners in order to fulfill their own marketing needs.
Refinery operations were hot flexible enough to ensure that the product outturn
of a particular company equalled its product demand and, in any event, there was
often considerable profit in petroleum " jobbing."
2. Since the war the freedom of purchase has been restricted to sterling oil
or to direct exchange of oil and, to a considerable extent, the deficit companies
can balance out their needs with the surplus companies. Nevertheless, permission
to purchase oil for dollars has been given to meet short-term deficiences or longterm
requirements. In addition certain purchases are made as part of reciprocal
arrangements whereby other products are sold for dollars.
Contracted Purchases
3. The contracted purchases are :—
(1) By A.I.O.C. from Socony Vacuum of motor spirit and gas and diesel
oil. These contracts were made at a time of great shortage and were
facilitated by offering concurrently a contract for substantially larger
quantities of products from Abadan. The contract to purchase
ceases at the end of 1950, but the sales contract continues until end
1952.
(2) By Shell of Casinghead. Casinghead gasoline is liquefied from natural
gas given off at wellhead. It is used for blending, with low grade
naphtha in the proportion of 1 in 3 to yield commercial grade motor
spirit and in the production of aviation spirit. The present contract
ends in December, 1949, but Shell have intimated that they will
probably want to continue to make this purchase in 1950.
(3) By Shell of gas oil and crude oil from Mexico. This purchase was made at
a time of acute shortage and at an advantageous price. The contract
ends in December, 1950.
(4) By Trinidad Leaseholds Ltd: (T.L.L.) of crude oil. In return products
are sold back for dollars at a profit. The contract is being renegotiated
but covers a period of some years.
(5) By Shell and A.I.O.C. of a proportion of that crude oil which Mr.
Gulbenkian receives from his 5 per cent, interest in the Iraq Petroleum
Company.
(6) By Manchester Oil Refinery (M.O.R.) of crude oil of special specification
for the manufacture of lubricating oils that would otherwise only be
available for dollars.
(7) By Berry Wiggins of special grade crude.
The contracts for the last three are on an annual basis.
Lubricants
4. Certain basic grades of lubricants can only be bought in United States
and British companies have not finalised plans for producing them.
The bulk of the present sales to countries outside the sterling area are for
dollars as part of F.E.24 trade and so are not a net dollar cost. No allowance
is made for the. continuation of this trade in 1952 and 1953-
Certain purchases are, however, to supply the sterling area and this deficit
will be wiped out by 1952.
Other Products
5. Petroleum coke of a suitable grade for electrodes is bought for dollars and
minor quantities of special grade waxes and petroleum chemicals.

By A.I.O.C. from
Motor spirit
Gas/Diesel oil
By
PURCHASES OF OIL, 1948-1953
Stanvac— 1948
178
155
1949-50
166
190
Shell-
Casinghead gas 282 252
000 tons
1952
Mexico contract—
Motor spirit
Gas/Diesel oil
Fuel oil.....
Crude
...
Other deficit purchases-
Motor spirit
Gas/Diesel oil ..;
Fuel oil
75
145
148
265
196
649
119
160
270
By Trinidad Leaseholds,
Crude oil
Ltd.—
462 807 769 769
Gulbenkian 170 340
By
M.O.R.-
Crude oil 66 54 100 100
By Berry Wiggins—
Crude oil
Lubricants
Petroleum coke
103
225
5
110
181
10
96
10
20
96
10
20
Ministry
of Fuel and
29th July,
Power,
1949.
APPENDIX
III
CHANGES IN THE ESTIMATES OF THE 1953 OIL BALANCE OF PAYMENTS
Dollar Balance of Payments Position
1. The 1953 dollar deficit on oil is, on latest estimates, expected to be $500
million. A year ago it was calculated that with the oil companies' plans as then
envisaged our deficit with the Western Hemisphere on oil would be $220.
At that time we looked at the Western Hemisphere as a whole and took credit
for sales to South American countries. It is now felt desirable only to take credit
for sales for actual dollars and to American account countries (Canada, Venezuela,
Colombia, Cuba, Haiti, Dominican Republic, Panama, Philippines, Ecuador and
Central America. Expenses in any of these countries are taken into account as
representing dollars. The E.P.C. (48) 72 figure for 1953 should, in fact, be
increased by $137 million to bring the two estimates into line. The reasons for
the changed position are as follows :—
Improvement in 1953 dollar position— $ million
Reduced purchases of dollar oil by British companies ... 4
Reduced value of the United States share of trade in Sterling Area
(due to price changes) ... ... ... ... ... 61
Reduced net dollar expenditure on equipment ... ... 56
121
Deterioration in the 1953 dollar position—
Reduced value of sales (partly as the result of a reduction in
quantity (3£ million tons (mostly crude) value $65 million)
partly as a result of lower prices) 230
Increased cost of tanker freight ... ... ... ... -20
Increased operating expenses ... ... 12
Net Deterioration
262
141

Non-Dollar Balance of Payments Position
2. There has been a similar change for the worse in our 1953 position.
E.P.C. (48) 72 showed a credit balance of f1,028 million. Adjusted for South
American sales this becomes $1,165 million. Current estimates show a credit of;
" million. The change is due to the following causes -.r-*
Improvement in 1953 non-dollar position— -$ nullibn
Reduced net expenditure on oil equipment ... ... ... 28
Miscellaneous receipts 28
Deterioration in 1953 non-dollar position—
Reduced value-of oil sales (due largely to the fall in prices, but
partly to the fact that no receipts of foreign currency are
now claimed for British companies' production at present
unallocated to any particular market. A year ago it was
assumed that $150 million worth unallocated production
would be sold in this way) 391
Increased expenditure on tanker hire 44
Increased operating expenses (due largely to increased royalty
payments in the Middle East) ... ... 137
Net Deterioration ... ... 516
3. As regards expenditure on equipment, this is now estimated lower than
it was a year ago. In the estimates of expenditure on equipment made then
allowance was made for continued expansion at an increasing rate after the
completion of the schemes then included in the programme. The change in the
world oil position and indications of reduced business activity have caused the
oil companies to postpone some/plans which they had in mind. This does not
imply that no further expansion is expected when present schemes are complete,
but, oh present indications, the rate of new capital investment will slacken.
It is now estimated that the peak of expenditure will occur in 1951 and it is also
estimated that the bulk of the dollar expenditure on the Middle East pipeline
schemes will be offset by contributions from the American shareholders. In the
case of non-dollar equipment the previous estimates are now thought to have been
too high. A year ago Belgian currency was nothing like as hard as it is to-day
and the purchase of considerable quantities of Belgian steel was allowed for.
56
572
APPENDIX
IV
DOLLAR INVOICING OF BRITISH OIL COMPANIES' CUSTOMERS IN NON-DOLLAR,
NON-STERLING AREAS
This proposal' has prima facie the attraction of being a means of recovering
from our customers some or all of the dollar costs which we incur for their benefit
in obtaining the oil that we sell to them.
Technically, we could invoice for dollars all oil supplied above a certain basic
amount for each country, this would be difficult to justify convincingly now that
our oil-producing companies no longer make large marginal purchases of the
major refined products from dollar sources. Alternatively, we could invoice in
dollars all shipments not originating from Sterling Area sources, such as Trinidad
and Sarawak. The sterling element in the cost of our so-called "sterling oil"
from, e.g., Curacao (N.W.I.) may be small, but in so far as we fail to give our
customers the benefit of it we should, to say the least, invite retaliation and give
an impetus to dollar invoicing by any country which considers herself as an
important alternative source of supply to the United States of America. It may
also lead to a demand for dollar royalties from Middle East countries, and it is
not possible at this stage to estimate what effect such a payment of royalties
wholly or, partly in dollars would have on the net amount of dollars which we are
having to make, available to these countries. Lastly, we could adopt proportionate
dollar invoicing for crude oil and products shipped from sources outside the
Sterling Area. The proportion chosen is to a certain extent arbitrary and so
the less justifiable. That which could best be defended is that of the net dollar
cost of oil to ourselves plus the payments of gold or dollars to Curacao and Iran
(which are largely attributable to the operations of the oil industry) in relation
37457 D 2

to the total value of British-controlled companies' production. This gives a figure
of 40 per cent, in 1949-50 and 20 per cent, in 1953. Although we might succeed
in justifying such a policy as a mere modification of our existing " dollar for
dollar " principle in the merchanting trade, even this method might lead to strong
protests from our customers if at the expiry of present agreements or even earlier
they were faced with a request for at least some dollars for oil which our companies
had hitherto supplied for sterling. Theoretically, however, the amounts of dollars
involved, taking 1949-50 for purposes of illustration, are : ­
$ million
From hard currency non-dollar countries ... ... 63
From the countries where British oil companies own
concessions or wayleaves or hire tankers 57
From O.E.E.C. countries not included above ....... ... 104
From others ... ... ... ..." 42
266
In the case of hard currency countries such as Belgium and Switzerland,
there would be no advantage in switching to dollar invoicing, since sterling
invoicing equally reduces our balance of payments deficit, which is settled in
gold. In the case of certain other countries which do not cost us gold, such as the
Argentine, dollar invoicing would increase pressure for settlement in dollars or
for a dollar ration. If these countries are exempted from dollar invoicing, there
might well be protests from others on grounds of discrimination. There is no
doubt that we would meet with the strongest opposition from E.C.A. if we adopted
dollar invoicing for oil. They have recently been pressing for the elimination of
the dollar sign from inter-European trade, and they have urged United States
of America-owned companies in France and Italy to sell for local currency instead
of dollars. We on our side have been pressed to abandon dollar invoicing of sugar
and nickel. - Moreover, if we included the dollar cost of refinery equipment in our
percentage calculation (as is done above) we should reduce still further the already
doubtful possibility of obtaining E.R.P. financing for many of our purchases of
such equipment.
The broad conclusion, therefore, remains, that quite apart from the obvious
undesirability of extending the dollar sign further into the trade of the nondollar
world, while we still reserve the right to resort to dollar invoicing of oil
if our dollar difficulties force that course upon us (in particular, if the Division
of Aid is not settled to our reasonable satisfaction) we should only adopt that
course as a last extremity as it would involve major political repercussions in
our relations both with the United States of America and with the non-dollar
world, including particularly the other O.E.E.C. countries. It is for this reason
very doubtful whether in the end an attempt to dollar invoice oil would result
in any net gain to the United Kingdom overall dollar balance of payments.
APPENDIX
V
SHELL CARIBBEAN PETROLEUM COMPANY'S DOLLAR LOAN
Last year, with the agreement of the Treasury, the above company, an
American company and a wholly-owned subsidiary of the Shell-Royal Dutch
Group of companies, borrowed $250 million in New York. Under the terms of
the loan this money must be invested in capital projects in the Western
Hemisphere. One way and another it was expected that these dollars would be
expended over a three-.to four-year period, and they will relieve the United
Kingdom Treasury of a considerable part of the dollar demands that Shell are
likely to put forward on capital account.
It is currently estimated that Shell Caribbean will spend in new projects
a further $8 million during 1949-50—the big expenditure will not come until
later. Credit has been taken for this in making out the Balance of Payments.
Purchase of Western Hemisphere assets is allowed as well as investment in new
projects, and one transaction of this kind has already been completed—viz., the
urchase from another member of the Group of a 60 per cent, share in Shell of
anada for about $20 million. A similar transaction is under consideration,
P

WmM. Purchase of a half-share in Shell of Colombia (the price is still under
negotiation, but it is expected to be of the order of $40 million). Any dollars
paid over m respect of such transactions will become available for use by other
members of the Group (under Treasury and Ministry of Fuel supervision) and
Will thus ease, our position. It is probable that the full ^6 0 million could be
used in this way during 1949-50 and credit has been taken for this
. lf c is, however, possible that further transactions of this kind cOuld be
-arranged, though this would require discussion with Shell and would involve the
necessity of finding investments which would attract the Board of Shell Caribbean
It would, furthermore, increase the extent to which Shell would come to the
Treasury in future years if the loan were thus prematurely expended
' , " APPENDIX VIA
THE POSSIBILITY OF REDUCTION IN OIL CONSUMPTION IN THE
UNITED KINGDOM
1. Total inland consumption of petroleum products in the United Kingdom
-(excluding ships' bunkers and petroleum industry's own use) in 1949-50 is now
estimated at 13,915,000 tons; The main components of this figure are as follows
^figures for 1948 and estimates for 1953 are included for purposes of
comparison):-
''"
(Figures in 000 tons)
1948
" ' ' . " '
1 9 4 8
'
1949-50 1953
Aviation spirit ... ... ... 290 373 540
Aviation turbine fuel ..; ... 71 124 350
Burning oil ... 556 590 520
Vaporising oil ... ... 810 885 875
M / Gas/Diesel oil (exc. DERV) 1,394 1,591 1,960
Fuel oil ... ... 2,664 2,920 3,510
Motor spirit ... ... ... 4,264 4,912 6,241
DERV fuel ... 817 927 1,149
2. The following remarks on the end uses of these "products are confined to
the immediate 1949-50 position since the long-term trends are still under
"investigation.
Aviation Spirit
3. Out of the estimated consumption of 373,000 tons in 1949-50, over
200,000 tons is attributable to the fighting services. The balance is accounted
for by the three air corporations, charter aircraft, foreign airlines flying to and
from the United Kingdom and by engine manufacturers for bench and flight
testing of new machines or machines being overhauled. In addition there is a
small consumption by private fliers and flying clubs, which are strictly rationed.
Any attempt to limit foreign airline services might well lead to retaliation against
British airlines abroad, while economies by the British corporations could only
be achieved by reducing services, thus weakening their competitive position
vis-a-vis foreign operations. Enforcement of cuts on the engine manufacturers
would interfere with development work or reduce standards of testing of engines
before they go into service. The private flier and flying-club use is already very
small and strictly rationed, and the complete abolition of the ration would be a
severe discouragement of an activity which is considered by the Ministry of Civil
Aviation to have considerable value.
Burning Oil (including Air Turbine Fuel)
4. All the consumption of air turbine fuel (estimated at 124,000 tons) is
accounted for by' the services and the engine manufacturers. Consumption of
normal burning oil is estimated at 590,000 tons, of which approximately twothirds
is consumed for domestic heating, lighting or cooking. The balance is
principally consumed in industry, agriculture and the railways (for signal lamps)!
Deliveries to dealers and to industrial consumers are restricted to maxima laid
down on control cards, which each consumer must hold. How far cuts could be
applied to domestic consumers, without intolerable hardship, cannot be assessed,
but it will be appreciated that for the most part those using burning oil for

lighting, heating or cooking do so because they either do not have other sources - ,
of fuel or are too poor to use them.
(
Vaporising Oil **
5. Of the estimated consumption of vaporising oil (885,000 tons) over
840,000 tons is accounted for by agricultural tractors and stationary engines.
The small balance is used in fishing vessels and miscellaneous tractors. Any
immediate cut in consumption could only be achieved by limiting the use' of
machines in agriculture, which would afiect production proportionately. The
vaporising oil tractor is, by comparison with the diesel tractor, uneconomical in.
fuel consumption. There is likely to be a long-term trend towards the use of
diesel tractors, but at present the extra initial cost of these tractors makes them
uneconomical for the average farmer. Even with the adoption of special financial
measures to encourage a. turnover to diesel engines, it is not thought that any
substantial result could be achieved on less than two or three years as extensive
retooling of factories (possibly involving dollar expenditure) would be necessary.
Gas/Diesel Oil (excluding Road Transport)
6. Inland consumption of gas/diesel oil is estimated at 1,591,000 tons. The
largest single item is the gas oil used by gas works j where it is used in earburetted
water gas units mainly in order to cope with demand at peak periods. Such
plant could be replaced by coal-using plant, but this would be expensive and take
a long time to carry out owing to the existing commitments of coke oven and
as works plant manufacturers. It would also involve a very large extra demand
f or gas coal. Industrial power units of various kinds are the other big item in
consumption of this product, including auxiliary generating sets installed to help
overcome the present shortage of generating capacity : a prohibition of the use
of these sets would save about 115,000 tons of gas oil, but would increase the
estimated gap in winter electricity supplies by about 25 per cent. The balance
of consumption is accounted for by coastal and inland vessels, agriculture,
bakeries, pottery and glass kilns, industrial furnaces and central heating, for the
most part individually small.
Fuel Oil ' / t n .
7. Inland consumption of fuel oil is estimated at 2,920,000 tons (excluding
oil used in refineries). The greater part of this consumption is for industrial
furnaces and steam raising (2,200,000 tons) and principally is used by firms whoconverted
from coal to oil burning as a result of the Government-sponsored
campaign to save coal. The compulsory reconversion of these firms back to coal
would clearly be open to very serious criticism and raise difficult issues Of
compensation. Moreover, in certain processes, particularly in steel and other
metal industries, the use of fuel oil has considerable technical advantages over the
use of coal. Reconversion would, moreover, require the provision of coal-burning
equipment which would take a considerable time to obtain. New applications to
Use fuel oil are only permitted when there is exceptional economic advantage to
the country or where the use of an alternative fuel is impracticable. One Other
item in fuel oil consumption is central heating, which accounts for 200,000 tons
a year, nearly half of which is consumed in schools, hospitals, factories and greenhouses
and only a small proportion in private houses. The supply of oil;to new
plant is only allowed now in most exceptional cases, but existing users are only
limited by an arrangement of some years' standing made with the oil companies,
to restrict supplies to the minimum required for efficient operation. More
stringent restrictions could only be enforced by the ;
institution of an elaborate
system of rationing by the Ministry, involving increased use of man-power and
Government expenditure. How far it would be possible to restrict consumption'
without excessive hardship is impossible to estimate without a detailed assessment
of individual cases.
8. The above analysis indicates the fields of consumption which would be
affected by cuts in oil supplies. The effect on industrial and agricultural activity
would depend upon the extent of the cuts and also where they fell. At present,
apart from burning oil, there is no rationing system controlling the allocation of
these oils to various users, and it would therefore be difficult to apply selective
cuts intended to hit hardest the least essential undertakings or to ensure that,
available supplies Were evenly distributed.

9. In the, view q£ the Mi^st^y of Fuel and Bower, significant cuts in the
(estimated consumption by these users would be undesirable and impractical.
Motor Spirit and Diesel Oil for Road Vehicles ,
10. In the case of private, commercial and passenger vehicles, a strict
rationing system is enforced- Arrangements for colouring commercial petrol have
been introduced which have virtually eliminated, the black market. The private
motorist receives only a small ration sufficient for 90 miles motoring a month
(doubled for three months in summer). Supplementary allowances are only
granted for essential use. .
Private Motoring
11. The Minister of Fuel and Power has suggested that the most that can
reasonably be achieved in the field of private motoring would be a saving of
100,000 tons. It would be difficult to obtain the whole of, this saying in 1949-50.
12, If it were nevertheless decided to abolish the standard petrol ration and
summer bonus, this would give a saving of about 350,000 tons m a full year, or
.200,000 tons in 1949-50 To achieve a comparable saving by cutting supplementary
petrol allowances, would require an effective cut of 30 per cent, (and a
much bigger initial cut to allow for appeals).
13. Past experience in the abolition of the basic ration and also in the
application of percentage cuts to, supplementary allowances suggests that any
action to obtain savings on a large scale would lead to a flood of appeals from
the public AND thus to ^erjous administratiye difficulties, necessitating increased
use of man-power in the Civil Service, and that the saving would not be'permaherit.
There would also be a serious danger of the re-establishment of the black market.
'ComrtiereialTmw&sport
.14. The Ministry of Transport consider that a saving at the rate of
150,00Q tons per annum on the current rate of consumption could be achieved in
the ease of commercial goods and passenger vehicles by (a) a general icut of 15 per
cent, in the issues to goods vehicles, with restoration in part or in whole (where
need is ,shown giving a net saving of approximately 7^ per cent, in cpnsumption,
and (6) reimpqgition qf the 12i per cent, cut (at present per cent.) in allowances
for excursions and tours and private parties, with a distance limit for private
parties of 70 smiles (rpund trip), except with special permission qf £he Regional
Transport Commissioners. The full rate pf saving would not be realised until
-'3 months after the date of announcement pf the cuts.
15. Further saving could be made by a return to austerity in the use of
fuel. It wpuid create material hardship, involve considerable changes in present
methods of transportation and distribution, and could not be justified for cpmmercial
vehicles unless tlie standard ration for private cars were abolished witjh &
drastic pruning pf supplementary issues. Fpr goods vehicles, there would be
-a net put of IP per cent- This would involve a consideration of individual traffjps
and facilities as well as a general cut- It would mean considerable reorganisation
of wholesale distribution and some reduptipn in retail deliveries which wpvild
hit the still harrassed housewife. For passenger service vehicles there would have
to be a pruning of ordinary bus and short-distance coach services, as well as a
cut in long-distance express services. The cut on excursions and tours and private
parties would be increased to 20 per cent. The further saving so realised might
amount to some 70,000 tons a year.
16. Further cuts could be imposed, but these would mean virtually a return
to war-time conditions in the use of oil fuel and, as then, could only be achieved
with the co-operation of industry and the public, who would have to be convinced
that the hardships involved were necessary and were being shared equitably by
all users. The net cut on goods vehicles would be increased to 15 per cent. This
would necessitate the reintroduction (under the aegis of the Departments concerned)
of war-time schemes for the zoning and rationalisation of wholesale
distribution and a heavy reduction in retail deliveries. For road passenger
vehicles, there would have to be a material pruning at off-peak hours of ordinary
bus and short-distance coach services, without disturbing essential, e.g., workers'
services. ^ Long-distance express services would be eliminated except where no
other facilities exist. The cut on excursions and tours would be increased to
'25 per cent. These cuts could be expected to yield a further saving of 120,000 tons,

making a total saving under all the cuts referred to above of about 340,000 tons,
in a full year.
17. The Ministry of Transport considered that action on the lines set out
above can only be undertaken successfully if—
(i) the public are convinced that the savings are necessary, that road
transport is not being singled out, and that comparable cuts are being
made in other dollar purchases (e.g., other consumption of oil fuel,
films, tobacco, &c.);
(ii) the necessary staff both in numbers and in quality can be made available
to enable the cuts to be adjusted so as to avoid a hold-up of traffic;
(iii) additional coal—including a proper proportion of large coal—is made
available to the railways to enable them to carry the additional traffic,
including additional passenger excursions to replace tours and excursions
and private parties by road; and
(iv) the standard ration for private cars is abolished with a further pruning
of supplementary allowances should a cut on commercial transport in
excess of 150,000 tons per annum be imposed.
18. The Ministry of Fuel and Power do not accept that conditions (iii)
and (iv) are a necessary prerequisite of reductions in commercial consumption.
APPENDIX
VI(6)
POSSIBILITY OF SAVINGS IN OIL CONSUMPTION BY THE REST OF THE STERLING AREA
1. At the conclusion of the Conference of Commonwealth Finance Ministers
the other Ministers went away with an undertaking to seek to limit their total
dollar expenditure on imports to 75 per cent, of the expenditure during the
calendar year 1948. In addition the Commonwealth Finance Ministers were
addressed by the Minister of Fuel and Power on the need to save dollar oil, but
were told at that time that our policy regarding possible discrimination against
oil imports from dollar sources had not yet been settled.
2. The United Kingdom has had no detailed information yet from the
Commonwealth about the cuts and indeed the other members of the Commonwealth
are not bound to tell us in detail how they propose to achieve the cut.
As regards oil we have had a communication only from the Government of
Australia who say that their consumption programme for 1949-50 is below that
for which the oil companies programmed. This almost certainly is not due to
deliberate post-conference cuts.
3. The self-governing territories of the Commonwealth, not being bound
by the Anglo-American Financial Agreement of 1945, might find it easier than
the United Kingdom to discriminate against dollar oil, but if they all sought to
make a 25 per cent, cut in imports British oil companies could not in total replace
more than about a 10 per cent, reduction in dollar imports. Further replacement
of dollar imports could therefore only be made in conjunction with cuts in consumption
in the Commonwealth countries; it would be unrealistic to count at this
stage on obtaining any very substantial saving by this means.
APPENDIX
VII
THE DOLLAR DRAIN ARISING FROM CERTAIN ACTIVITIES OF UNITED STATES
COMPANIES IN THE STERLING AREA .
Apart from the dollar liability arising on imports from dollar sources some
dollar liability arises from United States oil companies' own activities in the
Sterling Area or from their subsidiaries' activities in the United Kingdom. Two
cases that call for comment are :—
1. American-owned Bunkering Companies
American-owned bunkering companies registered in the United Kingdom
conduct a soft currency trade which, to a considerable extent, they have taken over
because their customers abroad could no longer provide dollars for dealing direct
with the American parent companies, as used to be the case.

i It is for consideration whether these companies should be limited not to a
figure of dollar oil purchases based
o n
past performance as has /been the case in
1.948 and 1949, but rather to a figure equal to. their sales of oil to dollar shipping.
In as far: as this-policy relates to bunkering stations owned by those companies
in the * United Kingdom itself, it is merely a part of the general discrimination
issue. ,-r:As - iegards xthe; companies'; bunkering stations outside the United
Kingdom, such restrictions might, even be imposed without the possibility of being
effectivelycchallenged,under.Article 9 of the Anglor American Agreement of 1945,
since this-Article relates only to Sport s into,the United, Kingdom. The possible
saving could he of the, order of $13 million a year, but the American, companies'
reaction is likely t,o be unfavourable particularly as the principal company concerned-Tf-British
Mexican Petroleum (Britmex)—has been in business for 30 years.
2. Bahrein Petroleum Company
The position of the wholly American-owned Bahrein Petroleum Company is
special. This'company produces some oil at Bahrein but in addition purchases
crude oil for dollars in order to keep fully occupied the Bahrein refinery, whose
capacity is about three times the crude oil production in that Sheikdom. At
present we find dollars ($44 million net ihT948—against which the sterling area
got oil worth $60 million c.i.f.) for the company's crude oil purchases, expenses
and profits on the understanding that they do not invoice oil to non-sterling
!
territories in sterling. To treat this company wholly as a sterling company would
immediately involve a request from these American interests to sell their oil
outside thei sterling area for sterling and to convert the profits from such third
country sales into dollars at our expense. The alternative would be to treat the
company as a United States company and this is how it has been dealt with in
Section III.
Representatives of the California Texas Group, to which the Bahrein
Petroleum Company belongs, are about to have discussions with United Kingdom
-officials. Until these are completed no action is necessary.
: . APPENDIX VIII
UNITED STATES PRESENT ATTITUDE TOWARDS DOLLAR/STERLING PROBLEM
There are, at the moment, two interrelated oil questions which have been
receiving much American attention recently and which are closely bound up
with the question of discrimination. These are (i) European and United Kingdom
overseas refinery expansion plans, and (ii) the displacement of dollar oil by sterling
oil which is already taking place in non-sterling area countries, e.g., Argentina
1
and Egypt. .
" Overeapansion "
2. The Americans feel that the refinery plans may aggravate the position
of the American oil companies and E.C.A. has, for the moment, refused to
finance European countries' refinery expansion plans-beyond an arbitrarily
selected amount-on the grounds that anything in excess of this would represent
an overexpansion of world refinery capacity. The oil people in E.C.A. had even
hinted that they would like to stop the use of free dollars for "unagreed"
refinery projects, though this would raise a point of general policy which E.C.Amight
not wish to advocate. In any case, as the result of difficulties in Paris
O.E.E.C. asked the British, Dutch and American Governments to make a review
of their overall refinery position. The Americans were asked to join in since
American companies are not only concerned in the building of refineries in
Europe but also have plans for non-European areas as have the British companies.
3. The review has just been completed and though no report has yet been
issued it is likely to show that in 1953 the plans for erecting refineries would
show a theoretical surplus of 10 per cent, to 15 per cent, over what is likely to
be the demand for oil on the basis of normal expansion. To decide where the
overexpansion is taking place is, however, a different matter owing to the conflict
of different interests. The European countries assert that as it is cheaper in
37457
v

foreign currency to import crude oil than refined products expansion of their
Own refinery capacity up to their total consumption requirements is not only
justified but necessary to achieve viability. In view of this both the United
States and United Kingdom oil interests plan to build refineries in Europe in
order to protect their market positions. On the other hand, the big oil interests
have certain concessional obligations to erect refineries in the countries where the
oil is actually produced. The position is also complicated by the fact that some
European countries favour the establishment of locally-owned refineries arid as
these are likely to want to operate on sterling crude-which is likely to be available—this
is again a matter of concern to the Americans and is leading them to
blame us not only in connection with our refinery plans but also with our plans
for the expansion of the production of crude oil. Any suggestion that this
" over-expansion" should be directly or indirectly financed by the United States
is naturally somewat galling to them.
,4. The position is also confused by the fact that, while we have as yet
no precise figures, it is clear that some companies are pruning their plans in the
light of the present outlook for oil demand. A year, ago, when most of the
refinery projects were drawn up, the world envisaged a shortage of oil that might
go on tor years and would certainly be very acute in the winter of 1948-49. The
1948-49 winter shortage never occurred, largely owing to an exceptionally mild
winter in the United States, and since the spring, given the currency to pay for
it, there has been no difficulty in buying oil. It is quite possible, therefore, that
the figures of availability on which the view that overexpansion is likely is based
may prove to be excessive. It is also very difficult to assess world demand three
or four years ahead.
Displacement of Dollar Oil
5. The possible effect of the world shortage of dollars on their overseas
sales has been on the American oil companies' minds for some time. It was not,
however, until the Anglo-Egyptian Financial Agreement and the Anglo-
Argentine Trade and Finance Agreement that the issue came to a head. The
* former, which was an exceptional case, has been settled more or less to American
companies' satisfaction in that the United Kingdom subsidiaries of American
companies are being allowed to put in oil to meet their Egyptian associates'
requirements. Since, at the moment, we allow United Kingdom subsidiaries
of American companies to buy oil from their parents for dollars, this arrangement
not only protects the American companies' distributive position in Egypt, but
also the outlet for the oil which they produce. This arrangement was only made
because at the time of the agreement additional sterling oil products—of the kind
required by Egypt—did not appear to be available to supplement what British
companies will in any case be putting into Egypt to meet their own commercial
demand. With the expansion of British companies' production which has already
taken place, this situation will not continue. British companies are likely to have,
even in 1949-50, ' ' unallocated supplies ' ' of oil—see paragraph 7 of text. The
Anglo-Egyptian arrangement, in fact, represented a concealed way of providing
Egypt with more dollars. The Anglo-Argentine Trade and Finance Agreement
was different. We undertook to make available-at any rate for 1949-50—
against sterling payment quantities of fuel oil and crude oil which would cover
Argentina's entire import requirements. And, as British companies are likely
to have the additional quantities of fuel oil and crude oil needed, there would
be no point in our making an arrangement such as was made in the case of Egypt.
The American companies therefore lose the outlet for the oil that they could
produce and would in ordinary circumstances sell to Argentina. We have,
however, endeavoured to make arrangements whereby the American companies'
Argentine subsidiaries would themselves buy the additional British companies'
oil and therefore retain their position as importers, partly because we do not
wish to create unnecessary difficulties for the American oil companies, and partly
because we feel that if Y.P.F., the Argentine Government-controlled oil company,
were to take over the importation of oil for the American distributors in
Argentina they might then be inspired to try to do the same with Shell.
6. Somewhat curiously, the Standard Oil Company of New Jersey, which is
the principal American company involved in Argentina, has decided against
availing themselves of the opportunity that we fiave offered them-and have

disclosed to the Argentine Government--of defending at least their position as
importers. This is probably due to fears about their situation elsewhere. While
M
no one has yet openly talked about the possibility of discrimination " in the
sterling area, Standard have, no doubt, said to tnemselves that if they agree to
buy sterling oil for their Argentine market, what is to stop them from being
forced to buy sterling oil for their sterling area markets.
American Companies and the Dollar element in Sterling Oil
7, The American oil companies now charge us with behaving in a
discriminatory manner in not allowing them to sell for sterling outside the sterling
area while we allow British companies to do so in spite of the fact that there is,
by our own admission, a considerable dollar element in sterling oil. They cite,
of course, Shell's production in Venezuela where there is, obviously, a very
considerable dollar element, and suggest that they would be prepared to ask us
to convert into dollars the sterling they would receive from the non-sterling area
buying countries only to the extent that we should have had to provide Shell
with dollars if they had supplied the oil. Standard Oil of New Jersey has
specifically approached the Treasury on this, point and a memorandum detailing
their suggestions is expected shortly. Pending its receipt, all that can be said
is that their suggestion is most unlikely to prove acceptable or even workable.
What the American companies overlook, is j[i) that the Anglo-Iranian is also a
potential supplier with a much lower dollar element in its oil and though this
company's potential outlet in the Western Hemisphere must to some extent be
limited by geographical—i.e., freight-considerations, in so far as crude oil is
concerned they may well be prepared to accept a low price for marginal quantities,
and, the dollar element in A.I.O.C's production of crude oil is very much lower
than Shell 's Venezuelan production, (ii) Shell sell considerable and increasing
quantities of oil for dollars so that the net cost to us in dollars of Shell's
Venezuelan operations is only about 45 per cent, of the gross cost, whereas the
Americans obviously have in mind a gross percentage of 60 per cent, to 70 per cent.
Any arrangement with American companies on the lines of the American
companies' ideas would, therefore, have to be on a "horse trading" basis.
With the intercompany relationship of A.I.O.C. and Shell—joint marketing in
many areas, and very large purchases of Shell from A.I.O.C.—no one can state
precisely what is the real dollar content of sterling oil.
8. Caltex, too, are thinking on somewhat similar lines and are talking of
largely increasing their expenditure in the sterling area—and in Europe, when it
suits them to talk O.E.E.C. rather than " our " close relationship—to help our
dollar position, as they put it. This is a development which merits serious consideration
since any new outlet for United Kingdom produced oil equipment and
other goods is presumably to our advantage. The other side of the picture must,
however, be closely examined since American oil companies will not buy over here
what they can buy more conveniently and often more cheaply, in America without
some kind of a guarantee that they will be allowed to accept sterling (even if
only partially convertible) for sales tp countries in the sterling area.
APPENDIX
IX
UNITED STATES OIL INTERESTS IN THE MIDDLE EAST
The major United States oil companies with interests in the Middle East
area are the Standard Oil Company (S.O.C.) of California and the Texas Corporation,
the Standard Oil Company of New Jersey, Socony-Vacuum and the
Gulf Oil Corporation. Certain of the smaller United States oil companies are
also directly concerned.
2. The United States Government own no part of the capital of these
companies, and indeed in 1944 decided that it was contrary to national policy
for a pipeline from Arabia to the Mediterranean to be built and operated by the
Government Petroleum Reserve Corporation. But, although not directly financially
involved, the United States Government consult closely with these American oil
37457 v

companies and have done much to promote their interests; thus, it was due to
State Department pressure that the Iraq Petroleum Company in 1927 agreed
to allow an American group to participate in its eapital.
3. The chief Middle East countries in which American oil interests are
concerned are :-—
(a) Saudi Arabia, where an exclusive concession is jointly held by S.O.C.
of California, S.O.C. of New Jersey, the Texas Oil Company and
Socony-Vacuum.
(b) Bahrein, where the S.O.C. of California and the Texas Oil Company hold
exclusive concessions.
(c) The^Saudi Arabian-Kuwait " Neutral Zone," where the American Independent
Oil Company and the Pacific Western Oil Company hold
exclusive concessions.
(d) Kuwait, where the Gulf Oil Company hold a 50 per cent, interest.
(e) Egypt, where Socony-Vacuum is an equal partner with Anglo-Egyptian
Oil Fields in the Western Sinai venture.
(/) Iraq, Syria, Israel and Jordan, by reason of a 23f per cent, share of the
capital of the Iraq Petroleum Company held by ah American group,
chiefly S.O.C. of New Jersey and Socony-Vacuum.
(g) Persia, where S.O.C. of New Jersey and Socony-Vacuum have an indirect
interest by reason of an agreement with Anglo-Iranian to supply
them with crude oil on a long-term basis.
4. The extent of these United States holdings can be judged by the -iact
that the American share in Middle East proved oil reserves in 1948 was 41 per
cent., and the estimated American share in Middle East oil output by 1956 is
43 per cent. The Middle Easfs proved reserves now greatly exceed those of
the United States (which were 3,600 million tons in January 1949), and its
unproved reserves are estimated at still higher figures (20,000 million tons for
the Persian Gulf area alone, according to a Texas Oil Corporation estimate).
5. For an analysis by countries of the American share in Middle East
output and proved reserves see the Table as the end of this Appendix.
6. Whatever may have been the case in the past, there can now be no doubt
that from a political and strategic point of yiew it is in the interests of His
Majesty's Government that the United States should have a large financial
interest in the safety and prosperity of the Middle East. At present, this interest
is almost wholly derived from the commitments of the American oil companies
(though, e.g., the United States airways companies also have Middle East
interests and there is one American representative on the Board of the Suez
Canal Company).
7. It is therefore a matter of concern- to His Majesty's Government that
measures designed to reduce the dollar drain of the Sterling Area's oil supplies
should not be such as to cause any major reduction in United States oil investment
in the Middle East. The danger of such "a reduction is the greater since, if
commercial factors alone were to operate, any marginal decrease in the United
States companies' total oil output would, for geographical reasons, probably all
fall on their activities in the Middle East. (It is just possible that the United
States Government might bring pressure on the companies to maintain Middle
East production at a higher level than commercial policy would dictate, so as
to husband oil reserves of the American continent, but this line of reasoning seems
to have lost some of its potency in recent years and may be utterly invalidated
if Canadian oil reserves prove to be of anything like the size at which they are
now tentatively estimated.)
8. Discrimination on the scale, assumed in method (iii) of Section II might
lead the United States companies to close down their operations in a particular
area of the Middle East or to reduce their production evenly throughout the whole
area. But in view of the likelihood of a constantly rising world oil demand in
the foreseeable future it is, in fact, much more likely that the United States
companies would react to a reduction in demand as a result of discrimination
by suspending their present expansion programmes than by actually withdrawing
investments already made.

9. The conclusions to which these considerations lead would thus seem
to be—
(a) that any reduction in demand incurred by the United States oil companies
as a result of discrimination against them by the Sterling Area would
probably lead them tb revise their programmes in the Middle East;
(b) that such a revision would be more likely to result in the suspension of
expansion programmes and some shutting back of production over
their Middle East ventures as a whole than in the complete abandonment
of any one of them.
10. It might therefore appear that there is no reason to avoid a policy of
discrimination on the ground that it might lead to such a reduction in United
States investment in the Middle East as would be politically and strategically
dangerous to British interests should that policy of discrimination be on balance
desirable from all other points of view. These preliminary conclusions are,
however, derived only from study of the problem from the technical angle of
United States oil investment commitments, and they require to be re-examined
in the light of future Anglo-United States relations as a whole.
11. A discriminatory policy would presumably be adopted by His Majesty's
Government either—
(a) as part of an agreement with the United States Government; or
(b) as part of the measures of a more desperate nature taken independently,
if no satisfactory conclusion emerges from the Washington discussions.
12. In the first case the policy of Anglo-United States co-operation in the
Middle East would presumably be covered by the agreement, and would not be
affected by some contraction of activity by the American oil companies. In the
second case, discrimination would be only one of many steps we should have
to take which would prejudice Anglo-United States relations, so that a general
deterioration in those relations would in any event threaten Anglo-United States
co-operation in the Middle East.
13. There is, however, one final consideration which must weigh in the
scales. So long as United States exports exceed United States imports, the only
long-term solution to the problem of balancing trade may be the encouragement
of United States investment overseas of both Government funds and private
capital. Such investment could hardly fail to be discouraged by a policy of
discrimination on oil that results in a considerable decline in the profits derived
from the largest of all existing United States overseas investments, the interests
in the Middle East of the American oil companies.
14. On balance, however, provided the general question of United States
overseas investment is borne in mind, a policy of discrimination, if acceptable
on other grounds, need not be rejected because of possible repercussions on
United States policy in the Middle East.

TABLE TO APPENDIX IX
MIDDLE EAST OIL OUTPUT AND PROVED RESERVES (MILLION TONS)
Country
OUTPUT
PROVED RESOURCES
1948 ' American Per 1951 Est. American Per 1956 Est. American Per 1948 American Per
Total Share cent. Total Share cent. Total Share cent. Total Share . cent.
Persia ... 24-87 Nil Nil 33-0 Nil Nil 42-0 Nil Nil 1,775 Nil Nil
Iraq 3-48 0-74 23-75 13-5 3-0 23-75 30-0 6-8 23-75 1,720 408-5. 23-75
Egypt ... 1-8 0-2 11 2-7 0-7 25-93 4-0 1-5 33-75 14 2-5 18
Kuwait ... 6-3 3-15 50 29-1 14-6 50 36-0 18-0 50 1,400 700 50
Qatar ... ... ... ... 2-0 0-5 23-75. 3-0 0-75 23-75 100 23-75 23-75
Saudi 19 0 19-0 100 25-0 25-0 100 38-0 38-0 100 . 1,500 1,500 100
Arabia
Bahrein ... 1-46 1-46 100 1-5 1-5 100 1-5 1-5 100 60 60 100
TOTALS ... 56-91 24-55 43-1 106-8 45-3 42-4 154-5 66-55 43-1 6,569 2,695 41

TEXT TRANSCRIPTION
FOLLOWED BY ORGINAL HANDWRITTEN DOCUMENT
C.M. 39(50) 27th June 1950
Thirty-Ninth Cabinet Meeting 1950

C.M.39(50)
27 th June 1950
l. Schuman Plan - Debate.
[EnterG.S., H.G., N.B.: R. Makins
P.M.
R.S.C.
P.M.
R.S.C.
H.D.
G.W.
R.S.C.
R.M.
R.S.C.
P.M.
A
R.M.
AB.
H.G.
R.S.C. made good case - we had better of debate.
W.S.C. may upset his Party by going too far in dir n of Fed n .
AE. was reasonable.
May address himself mainly to Labour Party pamphlet.
My task will be to bring debate back to real issue.
Times has publ d much of Fr. proposals.
Our inform n about them has bn. obs d in confidence and can't be used.
AE. gave guarded reply when pressed. Cd. P.M. tempt W.S.C. into
un-guarded answer.
[Enter R. Makins.
W.S.C. alleged tht. Fr. Govt. supported "our amendment". Massigli
was saying the same in lobby.
Serious notice shd. be taken of that.
Was sugg d to us unofficially in negot nS tht. we might adopt same line as
Dutch. Was never put to us officially.
It was not Monnet's view.
Let R.S.C. try to get AE. to stop W.S.C. from repeatg. this.
W.S.C.'s main case will be tht. we haven't bn. helpful- shd. have
taken initiative.
i) For 2 wks. before Fr. announcemt. we were in closest consult ns with
French on Franco-G. ques. and not a word was said.
ii) To improve Fr. G. relat nS only people who cd. take initiative were
French.
Decl n . of Interna{ Socialist Conference is an answer to pamphlet
criticism.
Refer to financial plans for expansion - no word of that yet.
For capital expn in Europe some new financial inject n is necessary if
inflation is to be avoided.
os"
Turns on AE.'s words "subject to necessary safeguards and cond .
This is crucial weakness of Tory Opposn.
68

R.S.C.
H.McN.
P.M.
H.D.
lG.
N.B.
R.S.C.
TW.
P.M.
H.McN.
H.W.
P.M.
TW.
R.S.C.
E.Sh.
Care over that - it cd. have bn. done that way: acceptg. principle.
Dutch did.
Supported R.S.C.
Our main obj" must be to supra-nat l auth Y
And stress defence consid ns in that connection.
TU.C. and Unions have expr d gt. concern. TU.C. will prob.
pronounce on it today.
Miners also v. anxious for internal arrangemt. as protn v. slumps and
raising wages all round. Fear of compet n We can welcome internat l
arrangemt.
* In O.E.E.C. it broke down because Belgians said tht. cdn't control their
steel industry.
[Exit N.B. and G.S.
[Enter M.W.
2. White Fish Industry.
Prod n Ctt" approved Bd. in principle.
Smaller mtg has discussed subsidy.
Circulated draft answer. Verbal amendments approved.
Not much comfort in this.
Agree: that is why I urged subsidy - but no one wd. agree with me.
Subsidy of £3 - 3Yz m. p.a. is near: middle water fishermen.
Considered at a mtg. last night - all Ministers save H.McN. were
against it.
And H.McN. admitted it was only to buy time pendg. leg n of foreign
landings etc.
But promise offuture leg n doesn't help.
l.900 fishermen unempld in Grimsby alone.
Our purpose in suggestg. subsidy was to help in m'taining existg.
catches pending O.E.E.C. discn and long-term policy.
But other Ministers didn't support it.
You didn't advocate subsidy.
Disastrous to try to buy off this sort ofposn with a subsidy. It will put
no-one in work. If you give more to put them in, the prices will go
lower still.
Problem: under-consumption not over-prod n . Subsidies won't touch
that.
69

P.M.
H.D.
H.W.
P.M.
E.Sh.
H.M.
P.M.
H.D.
R.S.C.
H.G.
T.W.
P.M.
R.M.
R.S.C.
H.W.
P.M.
R.S.C.
P.M.
Are we sure tht. we can stick to this line?
Don't announce today - Korea and Schuman.
Let MID. get Services to eat more fish. But long-term.
If we are going to give subsidy in reply to pressure, I don't want to
refuse it today.
Willing to play my part in an "Eat More Fish" campaign.
Ought we to restore price control? (minimum price).
" "" restrict foreign landings?
This looks rather hurried ....... .
Put this off.
Stimulate demand.
M/F. think there's little to be done.
Fish has done v. well for years: and dropping now because other foods
available.
Can't subsidise indies for dropping demand.
There may be case for reducg. subsidies to eggs and meat and
transferring it to fish. Then: not on grounds of helping a distressed
industry.
Can't alter Feb Y review w'out amending leg n .
I will promise a statement next Tuesday.
Services to say by then how much more they can eat.
M/F. to consider stimulatg. consumption.
Disc ns in O.E.E.C. will be v. diff - esp. with our Scandinavian friends.
Truth is: industry must contract.
Also dist n is bad - fish still costs consumer too much.
Special enquiry now into fish dist n
Let D. and M. Ctt ee look at this.
A subsidy if given will go largely to distributors.
Special Cabinet this week.
70

3. Marginal Land.
P.M.
R.S.C.
H.M.
As in my brief.
Also puts up value of land - extra capital value will go to owner. Shd.
be provision ensurg. tht. extra value accrues to State, or at least to
farmer.
"Stock breeding land" via "marginal land".
Exhibited some pictures - before and after.
Some of this wd. do us more good than higher prices for food imports.
A.B.
Shd. this be pre-digested by Cab. Ctt"?
[Exit R.M., M. W., H.G.
4. Korea.
[Enter W.S., Att.Gen. K.Y.
K.Y.
i) Holmes has given me copies of telegrams fr. State Dpt. Sent to all
N. Atlantic Powers, Austr. India. N.Z. Read out longer of these.
Fleet action to forestall attack on Formosa.
Re-inforcement of Phillipines.
Mil. aid to Indo-China.
Announcement 27/6 at 12 noon E.D.T. ~ 5 pm G.M.T.
ii) Telegram to U.K. Govt. only v. resol n in Security Council
recommendg. U.N. members to give such aid to S. Korea as will
enable it to repel attack.
iii) Read also message fr. U.N. Mission to S. Korea. No contact
possible earlier with N. Korea. Rapid deterior": N. Korea won't heed
Sec. Council resol n or accept our offices. Suggest they be asked to
accept mediator etc. (as in this a.m.' s Times).
In reply to R.S.C. - both N. and S. Korea have applied to U.N. for
membership and neither has bn. accepted. But elect nS etc. mean tht. S.
Korea has bn. recognised by U.N.
P.M.
A.B.
R.S.C.
This action by U.S. links up S. Korea with no. of matters not before
xl Sec. Council at all.
Also reversed China policy, w'out consultg. us. Ready to defend
Formosa v. regime recognised by us.
Sec. Council havg. asked N. Koreans to w'draw and asked all members
to render assist ce in execution - U. S. action is consequent on that, so
far as S. Korea is concerned.
71

K.Y.
A.B.
E.Sh.
P.M.
H.M.
R.S.C.
Also Art. 51. entitles friends to come to aid of nation attacked. That
wd. be easier argument for u.s. to use. And they will follow up with
2 nd resol n .
E.B. thinks we must support 2 nd resol n .
On xl. E.B. doubts wthr. we shd. publicly say anything to isolate
Korean incident fr. others because don't want discourage u.s. support
in our diff's in Malaya and Fr. in Indo-China.
Ref'to civil war as instrument of policy - in his last F.A. debate.
But stick to what U.N. authorises - don't go outside it.
Defiance of U.N. and Sec. Council resol n can't do less than support 2 nd
resol n . But on those grounds. And advise u.s. to stick to those
grounds.
u.s. statement designed for release before Sec. Council meets.
Text and time will be known by 2.30 p.m.
We shd. certainly support U.N. on S. Korea.
But Soviet haven't identified themselves with N. Korean action: and
we might have avoided affront to Soviet.
But Truman's decln opens offensive v. Soviet Union. W'out consult n
with interested Powers. Gives R. no chance to w'draw.
May be calling a bluff: but cd. have bn. called in S. Korea alone: w'out
takg. this enormous risk.
Telegram fr. Moscow last night. U.S. Amb. instructed to call on R. to
disavow interest in N. Korea and urge them to w'draw their troops etc.
U.S. have taken other action as well.
Also telegram from Tedder. We replied to him last night askg.
following ques. re military situation. His reply received.
S. Korean resistance has collapsed. Bradley's view: ifU.S. air had bn.
given free hand attack cd. have bn. held, but too late now to restore
military situation. R. instructors are with N. Koreans - 3.000 (500
U.S. left in South K.). No policy decision on Formosa. Addendum:
next move is Iran: early U.S./U.K. concerted plan on that.
Throwing down major challenge, in mood of levity, to U. S. S.R. And
unnecessarily, for cd. have bn. limited to S. Korea.
v. important point in history. Likely beginnings of '39 - Jap. attack on
Manchuria. Ques: what is the point at who you make it clear you aren't
putting up with it.
Doubtless Truman thght tht. w'out immed. action S. Korea wd. have
bn. over-run and Soviet wd. have got away with mil. aggression. Once
that is conceded there's no stopping them.
Firmness is only thing likely to stop R.
We can't refuse to support the resolution.
Qua Korea and support of U.N. - we agree we must go all out.
Ques: can we do anything to stop U.S. linking this up with Formosa.
V. serious for us in H. Kong.
No ref' to Malaya.
72

We shall have to comment today.
H.McN.
P.M.
AVA
E.Sh.
K.Y.
AB.
J.
AB.
H.W.
P.M.
Nothg. can be done now to save S. Korea.
Does R.S.C. suggest attack on N. Korea?
It isn't wording. Bite in U. S. statement is action taken, who is not
related to S. Korea as such.
u.s. purpose is to give due notice to R. tht. they won't run into
Formosa and Indo-China while eyes are directed to S. Korea. They are
concentratg. their strategy.
I think u. S. are right. Risks, no doubt: but greater risks in not doing
this.
Fatal if we don't respond.
Don't fall foul of U.S. just when they are keyed up to act boldly.
Doesn't commit us to mil. action save at request of U.N.
Read F.O. draft of tel. to u.s. Govt. - deprecatg. ref'to "centrally
directed Comm. imperialism": allowg. Formosa etc. action to speak for
themselves.
Allows Sov. to climb down.
But do we believe u.s. action v. Formosa etc. is right.
We must keep R. in the wrong throughout.
Ifwe can't get u.s. to alter their decn(and time alone prevents it) don't
let it appear there is any division of opinion betwn. us.
Whatever we say to them in private, let there be no open division on
policy betwn. them.
U.K. faced with succession of coups d'etat: first Schuman and now
Truman. We shd. be consulted by U. S. at least, before we are exposed
to air attack in U.K.
Also: make sure preamble to resolution doesn't include references to
Formosa etc.
Comm. Govts. shd. know our views at once.
Jebb. shd. go out to N. York.
Early appreciation by C.O.S.
73

THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTVS GOVERNMENT
Printed for the Cabinet. November 1950.
SECRET Copy No. 32
CP. (50) 250
26th October, 1950
CABINET
PERSIA: LABOUR SITUATION IN THE OIL AREAS
MEMORANDUM BY SECRETARY OF STATE FOR FOREIGN AFFAIRS, MINISTER OF
LABOUR AND NATIONAL SERVICE AND MINISTER OF FUEL AND
POWER
At their meeting on 1st August (D.O. (50) 16th Meeting, Minute 1 (4)) the
Defence Committee invited the Minister of State and the Minister of Fuel and
Power to arrange for a general discussion to be held with the Anglo-Iranian Oil
Company on the political and labour situation in Persia and on methods of
removing the causes of labour unrest. The Committee also invited the Minister of
Labour to obtain a report from the Labour Attache in Persia on the present labour
situation. The labour situation in Persia has now been discussed interdepartmentally
and with representatives of the Anglo-Iranian Oil Company and we
circulate for the information of our colleagues a memorandum on the issues raised
by the Defence Committee. Attached to this memorandum is the report of the
Labour Attache in Persia on the present labour situation (Annex A) and an extract
from an earlier report by the Attache on the housing situation in Abadan and
the oilfields (Annex B).
General
2. The Company's general position in Persia to-day is overshadowed by the
problem of the Supplemental Oil Agreement between the Persian Government and
the Company, signed in July 1949 but still unratified. Ratification of this
Agreement would secure for the Persians not merely a large lump sum (approximately
£38 million) in respect of back payments, but an increase in annual
royalties from about £15-7 million to about £30 million (on the basis of estimated
1950 production). Only the Agreement can provide Persia with the funds required
for her Seven-Year Plan of development. Without such a development programme,
calculated to raise the standards of the masses now living in poverty, ignorance and
disease, the pro-Soviet Tudeh Party might well regain the ascendancy which it
achieved in 1946, and would certainly continue to find fruitful ground for agitation
and for fomenting discontent.
3. The delay in ratifying the Agreement has been due to opposition by a small
body of nationalistic members of the Majlis, and to the unwillingness of successive
Prime Ministers to sponsor a document produced by a predecessor. Both these
factors have caused each Government of the day to demand additional concessions.
The Company's attitude towards these demands is that they are not prepared to
consider fundamental modifications in the terms of the Agreement, which is
undoubtedly fair, and even generous ; but they have never wished to close the
door on discussions with the Persian Government and, in fact, confidential negotiations
between the Persian Prime Minister and the Company's Chief Representative
in Tehran are now in progress. Although it is stated in paragraph 10
of Appendix A that fresh criticism of the Agreement had helped the Tudeh
campaign in the oil areas, there is no reason to believe that the oil workers as a
39566 - - B

whole have yet shown any great interest in the fate of the Agreement. But a
deadlock or complete breakdown of the negotiations would create a situation which
might become critical and would afford fresh opportunities for agitation.
4. Since military government law is of great importance for the maintenance
of tranquillity in the oil areas, any troubles which affect the loyalty of the army
would tend to weaken law and order in those areas, and hence interfere with oil
production; but there is at present no evidence of widespread disaffection in the
army. Beyond this factor, it is not necessarily true that trouble in other parts
of Persia would affect the oil areas. In any case the Company can exert little or
no direct influence on general policies designed to forestall labour unrest in Persia
as a whole. Attention may therefore be concentrated on matters of specific concern
to the oil workers.
Labour Situation and Conditions of Work
5. There is no doubt about the good record and standards of the Company
as an employer of Labour. Impartial observers, including experts from the International
Labour Office, have recently confirmed this. The many developments of
recent years which are of particular importance in improving labour relations and
conditions of work include the foundation of an industrial relations department,
whose staff include a considerable number of Persians; the establishment of some
fifty-five to sixty joint consultative committees; action to control cost of living
by subsidising necessaries and opening a co-operative store; increased provision
of workers' houses and clubs, and expanded health and educational services.
6. The joint consultative committees consist of Company and workers'
representatives; the latter are elected. The aim of the scheme, which ha.s worked
well on the whole, is not only to provide machinery for remedying grievances, but
also to educate Persians in the formulation of collective views, and there is hope
that a healthy form of unionism will emerge from it. The joint committees are,
in fact, more effective in promoting the interest of the workers than the Central
Union of Oil Workers itself. Although the Tudeh Party has a number of members
in the oil areas, at the moment there is no sign of overt activity on their part, and
they signally failed to cause any trouble over the dismissal by the Company of
the oil workers' leader in Abadan who had been trying to stir up unrest.
7., The Company has a good record on wages, and there has been no recent
trouble on this score. It has treated the statutory minimum Wage of 40 rials a
day as a real minimum and the great majority of Abadan unskilled workers now
receive 42 rials a day and upwards; 90 per cent, of the manual workers in Abadan
have wage rates above 42 rials a day, and 50 per cent, of all manual workers
receive wage rates ranging from 62 rials a day to 136 rials a day. Thanks to the
Company's supply to its workers of various essential commodities at favourable
(in some cases subsidised) prices, the cost of living, subject elsewhere in Persia to
substantial fluctuations, has remained very steady for Company employees.
Housing
8. Apart from political influences the only cause of unrest which appears at
all likely is the shortage of houses. By the end of last March only 5,500 Persian
workers out of 30,500 were housed by the Company in Abadan, and only about
35 per cent, in the field areas. These figures do not take account of employees
living with occupiers, either as lodgers or dependants. It is also to be borne in mind
that a substantial number of workers (particularly unskilled workers) return
frequently to their own tribal or home areas, and that the number of tlose who
are permanently employed in Abadan and field areas is much less than the total
labour force at any given time. In order to ameliorate hardship caused by high
rents charged by Persian landlords, the Company provides a rent allowance to
workers not living in Company houses.
9. The rapid increase in the production of oil has resulted in a corresponding
increase in man-power, which commenced in August 1941 and which continues
to remain at a high level. This, allied to the fact that the Company's building
programme was largely suspended during the war years, has left a back log of
building, which the Company are making strenuous efforts to overtake. Since the
end of the war there have been difficulties connected with the procurement of

uilding materials, a large part of which has had to be transported from abroad
and the Company has also had to undertake construction work for social amenities,
such as water supply and sanitation, in addition to expansion of production and
refining facilities.
10. The Company, claim that the cost of all housing in Persia is very high;
a Worker's two-roomed house costs £2,100; a worker's three-roomed house £2,800;
and a small house for an executive in the oilfields £14,000. The policy of the
Company is to build houses of good quality and they are unwilling to build workers'
quarters which would later become slums, or build houses of mud or other constructions
which would merely invite criticism from many quarters. This policy
has naturally tended to limit the building programme.
11. A new and satisfactory type of house for the general body of workers,
which can be built more quickly than the earlier models, has now been developed.
For the present year a total of 1,700 bouses are projected, of which 875 will be
in Abadan. To-day the Company is concentrating on building houses for the
worker (especially the skilled worker) more than ever before, and there is said to
be less complaint about housing than there was a year ago. The Company would
like the Abadan Municipality to take more responsibility for housing as well as for
other public services, and have offered to assist the Municipality with materials
and technical advice.
12. A certain amount of discontent was caused early this year by the mass
dismissal of some 500 workers. However, provided production is maintained, the
Company do not think that it will be necessary to dismiss many men in the next
year or two, and they do not expect further trouble under this head.
13. Conclusions
(i) The labour situation in the oil industry is better than it has been since the
end of the war.
(ii) There can, however, be no absolute safeguard against labour agitation
which may be based on extraneous political factors, and may first
develop outside the oil industry.
(iii) The only cause of renewed unrest which appears at all likely to arise from
the Company's social and labour policies relates to the shortage of
houses for Persian workers. In this connexion the Company recognise
that it is important that they should do everything possible to accelerate
their building programme.
(iv) Outside the oil industry, there are many causes for discontent amongst
the workers and peasants Which can only be removed by economic
development, coupled with enlightened social reforms of the kind which
the British and American Governments have been pressing upon the
Government of Persia. While these lag behind, the possibility will
always remain of widespread unrest being fomented in which the oilworkers
would.be bound to be involved.
26?/? October, 1950.
E. B.
G. A. I.
P. J. N-B.
39566

ANNEX
A
!
NOTES ON THE LABOUR SITUATION IN PERSIA
;
Introduction
1. Total population of Iran as estimated at March 1950 was roughly
18 million, of which roughly 9 million were males. Urban population was about
3,600,000, of which 1,800,000 were males. The rural population was given as
14,700,000, of which 7,300,000 were males. These figures are, in fact, estimates
and the total may be 2 to 3 million more. Population by nationalities is unknown,
but there are not more than a few thousand European foreigners in Tehran, and
about 3,000 British and 1,500 Indians employed with the Oil Company in
Khuzistan.
Working Population
2. Working population by main industrial groups is divided (roughly) as
follows: —
(a) Manufacturing industry—Governmental and private... 64,000
of which
Government sugar refineries
4,500
Government textile
Government tobacco
Government chemicals
...
...
...
...
...
...
...
8,400
2,000
2,500
Private textiles
... 20,600
Private wool carding
Private match factories
... ... ... 2,000
4,000
Other industries (miscellaneous) 20,000
Anglo-Iranian Oil Co ... 72,500
Government Railways 17,900
Mines 4,900
Silos 1,100
Fisheries 2,300
Hand looms and carpet weavers (estimated) 151,000
Grand total 313,700
(b) Civil service, including teachers, amounts to about 77,000, without including
the Ministry of Finance and its subsidiaries, which may have anything
from 40,000 to 70,000 personnel, plus the Army, Gendarmerie, Police
and Ministry of War, exact figures of which are unknown.
(c) Agriculture.—About 12 million of the population are directly or indirectly
engaged in agriculture.
3. Before and since the war economic life in Iran has been perilous. Every
year there has been acute distress particularly during the winter months, which
could have been largely avoided by planning in advance. Last winter adverse
weather and heavy snow interrupted deliveries and prevented supplies reaching the
town, thereby causing a temporary rise in prices. Attempts to counter this increase
by fixing maximum prices proved unsuccessful and merely served to drive certain
goods off the market. Refugees from Azerbaijan (the northern danger spot on the
Russian frontier) came to Tehran following the failure of various relief schemes and
had to be sent back at considerable public cost.
4. During March and April the Ministry of Labour estimated that about
40,000 adult male workers were wholly unemployed in Tehran alone. The figure
for the whole of the country was given as roughly 100,000. The seasonal depression
was partly responsible, but the main cause was said to be prevailing credit restriction
policy. The textile industry has remained in a depressed condition over
several years and a number of factories have shut down completely. The textile
factory owners attribute the trade depression to high wages, taxation and foreign
competition. The textile industry is at present relying on help by way of loans from
the Seven-Year Plan. The Trade Union leaders claim, however, that nothing less

than a complete reorganisation of the industry will save it from total economic
disaster. They also suggest the introduction of British experts, but this would not
be any solution unless they were given executive authority, which so far the Persians
have refused. (Incidentally, the newspaper Dad of 13th August stated that a
meeting has been held between the factory owners and Government representatives,
where it was decided that a delegation of foreign experts shall be called in to study
and decide the future position of the factories.) The Seven-Year Plan, for example,
goes no further than to sanction the admission of Overseas Consultants. Roadmaking
and repairing have been the main palliatives for reducing unemployment
and many thousands of men have been absorbed into the various road schemes
in Tehran and the provinces. The Council of Ministers has also approved money
allocations for various other projects, including the building of hotels at Tehran
and other provincial towns. There are no reliable statistics to indicate the exact
state of employment, but it has been estimated that at least a quarter and probably
nearer one-third of workers outside the agricultural industry are unemployed.
In Tehran the Government has recently cleared the beggars from the streets and
accommodated them in a camp where they are to be sorted out and the able-bodied
section of them placed in temporary employment. This arrangement has minimised
the outward visible sign of local distress. In the agricultural industry there is at
present more or less full employment on seasonal work. The return to the peasants
for their labour under the feudal system, however, barely provides a living for most
of them, and the average annual income valued in rials for peasants working their
own plot of ground is said to be about 3,000, aproximately £30. A short time ago
the former Prime Minister told the Ambassador that the peasants had little to
complain about, as in some cases they received as much as 75 per cent from the
land allotted to them. What the Prime Minister omitted to add was that even if
they got all the proceeds from the plot of land they cultiyate it would still not bring
them above poverty level. The peasants are unorganised, but Trade Union leaders
I have spoken to say that the vast majority of the peasants are bordering on
starvation and in many of the villages have to eat grass at certain periods of the
year to keep them alive, while at the other end of the scale the wealthy landlords
ride about in luxurious limousines and never see the land they are supposed to
control. Instead, they rely on their local agents to ensure that they get their share
of the profits. A Bill to distribute Government lands is awaiting approval of the
Majlis. The Bill provides for the sale of land at fixed prices. If passed, however,
it will not benefit the small farmers very much as they have no money for land
purchase.
Anglo-Iranian Oil Co.
5. The main problem at the A.I.O.C. has been redundancy of labour. In
the early part of this year the Company decided on the bulk discharge of
500 redundant workers after a review of the labour position. There was a good
deal of local agitation about these discharges owing to the heavy unemployment
in Iran generally and the obvious difficulty of finding alternative employment for
the discharged workers. Mohammadi, leader of the Central Union of Oil Workers,
approached the Company through the normal channels of negotiation and asked
for the notices of discharge issued to the redundant workers to be withdrawn.
As the Company refused to consider their decision, Mohammadi approached the
Ministry of Labour in Tehran for assistance in pursuing his claim on behalf of the
discharged workers. Conferences were held between representatives of the
Company, including Lindon, the Industrial Relations Adviser, and Ministry of
Labour officials. The Company refused to give way on the question of the bulk
discharges, but undertook to pay special gratuities to each discharged worker over
and above the retiring gratuity of one week's pay for each year of continuous service,
payable under the Labour Law. Mohammadi at first accepted the Company's offer
but later repudiated it at meetings in Abadan, and then proceeded to threaten a
general stoppage of work throughout the Abadan Refinery. These threats were
expressed at open meetings and the military authorities decided to detain
Mohammadi. The Company then decided to discharge him, but arranged for him
to have the full gratuity to which he was entitled in respect of his 25 years' service
with the Company. The military authority afterwards ordered him to leave the
district and placed a ban upon his return. Thus ended the career of Mohammadi,
who at first showed signs of becoming a reliable Trade Union leader. It seems]
however, that his too close association with Tudeh elements proved his undoing.
39566 n 7

There were no awkward repercussions as the result of his dismissal, and the position
at Abadan has been very much quieter without him. A new leader of the Centra?
Union of Oil Workers has been appointed, but it is doubtful whether he will make
the grade.
6. After Mohammadi was discharged he made various complaints about
the A.I.O.C. The main ones were:­
(1) Shortages of housing accommodation for Iranian labour grades.
(2) Inadequacy of the minimum wage.
(3) Extension of sub-contracting.
(4) Company's hostility to workers' organisations and union leaders.
The only one of these complaints with any real validity was the shortage of housing
accommodation. . At the end of March this year 5,498 Iranian workers out of a
total of 30,521 were housed by the Company at Abadan. In the Fields areas
approximately 35 per cent, of the labour grades were housed in Company quarters.
A special rent allowance, given by the Company to unhoused workers, of 69 Rials
per month mitigated hardship to some extent, but there is a general feeling of
discontent over the Company's failure to build more houses.
7. The cost-of-living position in Khuzistan was rather more favourable this
year than last. Figures supplied by the Company's economic adviser showed that
the average minimum " basket" cost, including subsidised items supplied by the
Company for the twelve months ended March 1950, was 38 Rials per day as
against the statutory minimum of 40 Rials. It is significant that no claim for a
revision of the minimum wage (statutorily fixed for February of each year under
the Labour Law) has yet been tabled by the workers' representatives.
8. So far as could be ascertained there had been no extension of the Company's
policy to sub-contract various kinds of work such as, building, road
construction, &c, on which about 10,000 workers are employed. It is nevertheless
a sore point with ex-employees of the Company employed by sub-contractors that
they are doing the same kind of work they originally performed as direct employees
of the Company, but are now deprived of the enhanced minimum wage secured
by the Company's subsidies on various commodities, and also do not enjoy the
other Company privileges and amenities, including housing accommodation.
9. When I visited Khuzistan last May I could find no general evidence of
hostility by the Company to the workers' representatives or Union leaders, though
some of the Management criticised the tactics of certain troublesome officials. It
is probably true that some of the junior Management are still a little apprehensive
of joint consultation, and occasionally the efforts of Industrial Relations Officers
may be nullified by the Management through a wrong handling of staff problems.
The Industrial Relations Staff under Lindon appear to be performing a very difficult
task with sympathy and tolerance. One of their major difficulties is that the
majority of the Iranian workers are illiterate and know very little about the true
purposes of Trade Unionism. In consequence it is not easy to direct their growing
assertiveness into constitutional and mutually advantageous channels. Joint
Departmental Committees on a voluntary basis, and informal discussions between
workers' representatives and Industrial Relations Officers resolve most of the dayto-day
problems. The tri-partite Factory Councils (which include a Ministry of
Labour representative) set up under the Labour Law are how mainly used to fix
the minimum wage and administer the Health and Aid Funds. The Tudeh Party
have sufficient active members in Khuzistan to ensure the regular distribution of
the weekly Communist paper Mardum and periodical Tudeh pamphlets. It is
significant however that, although they must have exploited to the full the bulk
discharge of Workers at Abadan, the Tudeh enthusiasts failed to provoke a stoppage
of work. In my opinion their influence will diminish as Trade Unionism is
developed in the area.
10. Fresh criticism of the Supplementary Oil Agreement has greatly helped
the Tudeh campaign. Great play has been made of the large profits of the A.I .O.CJ
in articles published in the Persian press, and Trade Union leaders have asked
why some of the profits cannot be devoted to the building of more houses for the
Iranian workers, and are by no means satisfied with the explanation that the main
reason is the shortage of building supplies, : ; o;

General
11. The independent Trade Union leaders have little faith in the present
Government. They say it is merely the old gang operating under a new label. They
distrust Razmara, former staunch supporter of the politically controlled E.S.K.I.,
because they believe that he has no intention of allowing the independent Trade
Unions to become strong enough to take an active part in supporting the workers'
interests. They think that anything they try to do will be frustrated, and that the
rulers will continue to talk about social reforms while the workers look in vain for
positive signs that the national authorities intend to improve conditions or are
really interested in the welfare of the mass of the population. When Razmara
became Prime Minister he instructed Khonsari. who replaced Nafisi as Under-
Secretary to the Ministry of Labour, to call the Union leaders together in an
endeavour to co-ordinate their activities. At first the independent leaders refused
to co-operate unless, and until, the Labour Law was enforced throughout the
country. (It is doubtful whether any employers, apart from the A.I.O.C., are
observing the Labour Law.) Later they withdrew this condition, and a Provisional
Committee has been set up comprising five representatives from each of the four
main Trade Union sections—E.S.K.I., E.M.K.A., Gezelbash's breakaway Union, and
the oil workers in Khuzistan. Up to the time of writing this report the oil workers'
representatives have not actually joined the Committee, although they have been
invited to do so. The independent Trade Union leaders fear that the Provisional
Committee is yet another political trap to bolster up E.S.K.I., which, since the
failure of Hidayat (E.S.K.I.'s leader) to secure a seat in the Majlis from the Tehran
elections last March, has shown signs of disintegration.
12. After two years the Seven-Year Plan is regarded with suspicion because
of the slowness of its operation; it is now popularly referred to in Trade Union
circles as the 70-Year Plan. It is doubtful whether more than 2,000 workers are at
present employed on Seven-Year Plan projects.
13. The cost of living has risen apart from sugar, bread and meat, which are
artificially controlled for the time being. There is a good deal of labour unrest
because of inefficient management and plant, and the resultant failure of industry
to produce at prices sufficiently low to compete with imported goods.
14. The Trade Unions also strongly oppose the continuation of martial law
in Khuzistan, and while they are not enamoured of the National Front members
of the Majlis (numbering 11 out of 126), the Trade Unions support them in their
recent demand for a modification of the power of the Government to impose martial
law in any area at any, time and continue it indefinitely. The independent Unions
have suffered considerably in the past through military intervention in the various
localities, and greatly resent the restrictions placed upon their activities in this way.
At Isfahan recently the Military Commander informed Kaivan (local leader of
E.M.K.A. Federation) that Razmara wanted everybody to belong to E.S.K.I. In
May last the Military Governor at Isfahan issued an order in which he stated that,
owing to disturbances from conflicts between E.S.K.I. and the independent Unions,
all gatherings or meetings would be regarded as disturbing order, and would be
dealt with according to the regulations of the Military Governor.
15. Another item troubling the independent Unions is the rigging of elections
for the Majlis. At present the wealthy landlords hold the field and take full
advantage of the illiterate workers they control, whose votes enable them to get
themselves elected and continue in office as Deputies under consecutive Governments.
The National Front has tabled a Bill for the franchise to be confined to
those voters who are literate. The Bill has not the slightest chance of being passed,
as the present reactionary members of the Majlis can hardly be expected to vote
themselves out of office.
16. The Trade-Union position itself is perhaps less tense as a result of the
setting up of the Provisional Committee referred to above. With a view to testing
the possibility of setting up a central Trade Union organisation, the independent
leaders have agreed to co-operate with E.S.K.I., but before reaching the preparation
of a draft constitution they have suggested that one member from each of the four
groups on the Provisional Committee should draw up a programme indicating their
views on social reforms and improvements, examination of the Labour Law, organ ­
isation of the peasants, &c. In this way the independent Unions propose to test the
bona fides of E.S.K.I. before agreeing to join with them through the medium of
some central organisation. It is not possible at this stage to foresee the ultimate

esults of these developments. If once again they end inconclusively it is difficult
to see what the next move can be.
17. There have been several strikes and demonstrations during the past six
months, mainly about low wages and the withholding of wages by employers. A t
the tobacco factory in Tehran there were free fights last April between supporters
and opponents of E.S.K.I. over Hidayafs failure to win the Tehran elections, and in
the general melee two workers were badly injured. At the Government textile
factory in Shahi riots developed during the latter half of April over the threatened
dismissal of a number of workers alleged to be ex-members of the Tudeh Party,
who had enjoyed a privileged position and high wages since the time that the Tudeh
Party was strong in the area. The military restored order, but in the process a few
people were killed and others wounded. There were also several unorganised strikes
at individual factories over non-payment of wages and employers' failure to observe
the statutory minimum wage.
18. These strikes and demonstrations have been spontaneous outbursts, but
they are undoubtedly ominous signs of a growing discontent over unsatisfactory
working conditions. The strict enforcement of the Labour Law would go a long
way towards remedying the position. It is doubtful however whether any effective
steps to achieve this will be taken by the Government in the absence of any driving
force from organised Trade Unionism. Trade Union activities can, of course, only
be co-ordinated successfully through a central body. If this could be secured the
employers may be forced to follow suit. At present organisation on their side is
practically non-existent. Quite clearly sound organisation on both sides is an essential
prerequisite of collective bargaining, and in the present uncertain position the
dsillusioned worker can hardly be blamed for turning to the Tudeh Party as an
alternative hope for his survival.
British Embassy, Tehran,
\Ath August, 1950.
W. E. THOMAS, Labour Attache.
ANNEX B
EXTRACT FROM A REPORT BY THE LABOUR ATTACHE IN PERSIA ON HOUSING IN
ABADAN AND THE OIL
FIELDS
The main complaint in Abadan and the fields is the shortage of housing accommodation
for Iranian graded staff. At the end of March this year the position
was: —
Category Strength Housed Percentage
Head Artisans 1,386 1,288 92-9
Grade I 8,791 2,518 28-6
Grade II 6,268 549 8-7
Grade III 2,007 49 2-4
Unskilled classes ... 12,069 1,094 9-1
30,523 5,498 18-0
There are four housing areas in Abadan—Bahmashir, Ferahabad, Bahar and
Ahmedabad. In the first three of these there are 5,454 brick-built houses; 3,461
have been allocated to labour, the remainder to non-graded.staff, Pakistani and
Indian labourers, or used for various services. Each house has its own drinking
water supply, sanitation and electricity. All but about 500 houses have electric
fans for cooling purposes. In the Ahmedabad area there are 812 labour quarters
built of mud bricks. Some of the houses are occupied by Iranian Police and a
number used for other services. Fifty houses are unsuitable for allocation. Drinking
water is supplied at communal water points and lavatories are communal. There,
are no asphalt roads between the quarters and no electricity supply, and generally
speaking there is no surface drainage. A number of the quarters in this area were

demolished during the year, but the workers are not anxious for further demolition.
They apparently prefer mud brick houses to bazaar accommodation at high prices.
There are also 388 tents in an area known as the Abol Hassan Camp. The tents
mainly accommodate married couples and their families. There is a possibility that
these tents will be dispensed with before winter and the occupants moved to other
more permanent accommodation. Overcrowding was prevalent in all areas. Of
4,058 labour quarters, 1,177 house two married couples and 172 three married
couples. There are 6,000 lodgers in the brick-built houses. Failure to make more
rapid progress on the housing schemes has been severely criticised by workers'
representatives and also by the Tudeh propagandists. The present building programme
is about 800 new nouses per year, which may be extended by the adoption
of a new type of brick house known as the Arcoh house. A terrace of these was
built for inspection by the Company's directors who visited Abadan a few months
ago. Several Arcon houses can be built under one roof, which means a considerable
saving of time and building materials. It may therefore be possible this year for
the building programme to be stepped up, assuming that the Arcon type of house is
finally approved. In the Fields areas approximately 35 per cent, of the labour
grades are accommodated in Company houses or quarters. All unhoused workers
receive a special rent allowance of 60 rials a month. This increases the " basket "
allowance from 150 to 210 rials. Average bazaar rentals for one room in workingclass
quarters have fallen from 350 rials per month in 1948 to about 240 rials in
March 1950. As the Company's housing scheme progresses bazaar rentals will
doubtless continue to fall.
British Embassy, Tehran,
23rd June', 1950.

THIS' DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTY'8 GOVERNMENT
Printed for the Cabinet. November 1951
SECRET Copy No. 3 7
C.C. (51)
5th Conclusions
CABINET
CONCLUSIONS of a Meeting of the Cabinet held at 10 Downing Street, S.W.1,
on Thursday, 8th November, 195.1, at 11 -30 a.m.
Present:
The Right Hon. WINSTON S. CHURCHILL, M.P., Prime Minister and Minister of
Defence (in the Chair).,
The Right Hon. LORD WOOLTON, Lord The Most Hon. the MARQUESS OF
President of the Council.
SALISBURY, Lord Privy Seal.
The Right Hon. LORD SIMONDS, Lord The Right Hon. Sir DAVID MAXWELL
Chancellor.
FYFE, K.C., M.P., Secretary of State
for the Home Department and
Minister for Welsh Affairs.
The Right Hon. R. A. BUTLER, M.P., The Right Hon. LORD ISMAY, Secretary
Chancellor of the Exchequer.
of State for Commonwealth Relations.
The Right Hon. OLIVER LYTTELTON, The Right Hon. JAMES STUART, M.P.,
M.P., Secretary of State for the Secretary of State for Scotland.
Colonies.
The Right Hon. LORD LEATHERS, Secre- The Right Hon. H. F . C. CROOKSHANK,
tary of State for Co-ordination of M.P., Minister of Health.
Transport, Fuel and Power.
The Right Hon. Sir WALTER MONCKTON, The Right Hon. HAROLD MACMILLAN,
K.C., M.P., Minister of Labour and M.P., Minister of Housing and Local
National Service.
Government.
The Right Hon. PETER THORNEYCROFT, The Right Hon. LORD CHERWELL,
M.P., President of the Board of Trade. Paymaster-General.
x
The following were also present:
The Right Hon. DUNCAN SANDYS, M.P., The Right Hon. DAVID ECCLES, M.P.
Minister of Supply (Item 4). Minister of Works (Item 5).
The Right Hon. PATRICK BUCHAN-
HEPBURN, M.P., Parliamentary Secretary,
Treasury (Items 1-2).
Secretariat:
Sir NORMAN BROOK.
Mr. T. PADMORE.

CONTENTS
Minute
No. Subject Page
1 Parliament ... 25
Business in the House of Commons.
2 Judges'Salaries ... ... 25
3 Malaya ... ... ... ... ... ... ... ... 25
4 Iron and Steel Industry 26
5 The Festival of Britain and the Festival Gardens ... ... 26
6 North Atlantic Treaty Organisation ... ... ... ... 27
Middle East Command.
7 Persia ... 28

Parliament. 1. The Cabinet discussed the arrangements for handling the
Business in the remaining stages of the Debate on the Address, which would be
House of concluded on 13th November. They agreed that the Secretary of
Commons. State for the Colonies should reply to the Debate that evening, and
that the Government spokesmen on the following day should be the
Minister of Food and the President of the Board of Trade. On 12th
November, when it was expected that the Speaker would call the
Opposition amendment regarding steel and road transport, the
Government spokesmen would be the Minister of Supply and the
Home Secretary. On 13th November, when the second Opposition
amendment would be debated, the Minister of Housing and Local
Government and the Minister of Health would speak on behalf of the
Government.
The Cabinet were also informed of the business to be taken in
the House of Commons during the remainder of the following week.
The proposed debate on foreign affairs was likely to be held in the
week beginning 19th November, and would probably last for two
days.
The Cabinet reviewed the proposal for a long Christmas Recess.
It now seemed unlikely that Parliament would be able to finish before
7th December the business which must be completed before
Christmas; and it seemed expedient that the Government should go
some way to forestall the objections which the Opposition were likely
to raise to a proposal for an exceptionally long Christmas Recess.
The Cabinet therefore agreed that it should be announced, early in the
debate on 13th November, that it was the Government^ present
intention that Parliament should be adjourned from 7th December
until the end of January.
Judges'Salaries. 2. The Cabinet were informed that the Legislation Committee
had considered the draft of a Judicial Offices (Salaries, &c.) Bill, which
would increase the salaries of County Court Judges, Metropolitan
Magistrates and certain other judicial officers. The proposals in this
Bill had been put forward by the previous Government and welcomed
by the other political Parties; and the Legislation Committee recommended
that the Bill should be introduced forthwith.
The Prime Minister said that, as this was a non-controversial
measure, it might go forward at once. He hoped, however, that the
Lord Chancellor would examine the possibility of granting some form
of expense allowance to Judges of the High Court. This proposal,
if it were found feasible, might be put forward when Parliament met
again after the Christmas Recess.
The Cabinet—
(1) Agreed that the Judicial Offices (Salaries, &c.) Bill should be
introduced into Parliament forthwith, in the form
approved by the Legislation Committee.
(2) Invited the Lord Chancellor to consider, in consultation with
the Chancellor of the Exchequer, whether some form of
allowance should not be granted to Judges of the High
Court.
Malaya. 3. The Prime Minister said that he was disturbed at the high
(Previous cost of our military commitments in Malaya. He suggested that the
Reference: Secretary of State for the Colonies, before he left for Malaya on 26th
C.C. (51) 1st November, should submit to the Cabinet an appreciation of the
Conclusions, present position and his proposals for remedying it.
Minute 8.)
The Cabinet—
Invited the Secretary of State for the Colonies to submit for
their consideration a memorandum on Malaya.

iron and Steel
industry.
(Previous
Reference:
C.C. (5i)4th
Conclusions,
Minute 6.)
4. The Cabinet had before them a note by the Secretary of the
Cabinet (C. (51) 8) covering a draft of a direction which the Minister
of Supply proposed to issue to the Iron and Steel Corporation. The
purpose of this direction was to instruct the Corporation not to take
any action, without the Ministers consent, which would alter the
management or financial structure of any company under their
control, or might prejudicially affect the transfer of such a company
to private ownership.
In discussion the question was raised whether the Minister had
power under the Iron and Steel Act, 1948, to issue a direction which
in effect instructed the Corporation not to carry out duties which were
laid upon them by the Act. It would be most unfortunate if, after
the issue of the direction, doubt were cast upon the competence of
the Minister to make it.
The Minister of Supply said that as required by law he had shown
the draft of the direction to the Iron and Steel Corporation, who had
offered no comment upon it.
The Cabinet—
Authorised the Minister of Supply to issue a direction to the
Iron and Steel Corporation in the terms of the draft annexed
to C. (51) 8, provided that the Law Officers (who should be
asked to consult with the Lord Chancellor) confirmed that
it was within his statutory powers to issue it.
The Festival of
Britain and the
Festival
Gardens.
.
5. The Prime Minister informed the Cabinet that he had asked
the Minister of Works to take general responsibility for the winding
up of the Festival of Britain and for the future of the Festival Gardens.
He had asked the Minister to work in close consultation on this with
the Minister of Housing and Local Government, particularly in
relation to questions affecting the future of the South Bank site. The
Prime Minister said that an urgent decision was required on the future
of the Festival Gardens.
The Minister of Works explained that the Lord Privy Seal was
under an obligation to make an order appointing 11th November
(being six months after the opening of the Gardens) as the date for
their formal closing. If the law remained unchanged, the Minister of
Housing and Local Government would thereafter make an order
setting a date for the completion of reinstatement of Battersea Park.
Immediate legislation would therefore be required if the Gardens were
to be continued.
The Minister of Works handed round a memorandum (subsequently
circulated as C. (51) 10) setting out estimates of the profits
which might accrue if the Festival Gardens were kept open for a
further period. He would propose that in future years the Gardens
should be open only from 2-30 p.m. to 10-30 p.m., which would
make it possible to employ one shift only, and that the Fun Fair
should be closed on Sundays. On that basis, and on the conservative
estimate that the numbers visiting the Gardens would be only half
of the figure for the 1951 season, there might be a net profit of £360,000
over the next two years, after taking account of further capital
expenditure of £150,000. On the same basis, continued operation for
five years would wipe out the total indebtedness of £1,162,000. He
believed that there was a continuing demand for a pleasure resort
of this kind in London, since it was estimated that 70 per cent, of the
visitors in the 1951 season had been Londoners. The London County
Council were willing to see the Festival Gardens continued for a
further term of five years, subject to their being consulted on their
further continuance after an initial experimental period of two years.
Local opinion in Battersea was believed to be somewhat divided, but
there was not likely to be serious objection to the continuance of the

Gardens. The Minister hoped that no difficulty would be felt in
approving the further capital expenditure of £150,000 contemplated,
since very little of this would be spent on scarce building materials
and the management of the Gardens did not propose to spend more
than £1,000 on any one project. If the Gardens were continued he
would take steps to ensure continuity of efficient management.
The Minister of Works recommended that legislation should be
introduced enabling the Festival Gardens to be continued for a period
of five years, subject to the Governments being empowered to close
them after the first two years of this period should they and the L.C.C.
so desire.
The Chancellor of the Exchequer said that he supported the
proposal made by the Minister of. Works. On the basis of the
attendance given in the estimates (which he thought might well be
exceeded) the initial return to the Exchequer in the first two years
would be only £52,000, since the share of the initial loss to be borne
by the London County Council was limited by agreement to. £40,000.
But if attendances reached two-thirds of this year's figure, the return
to the Exchequer in the first two years would be as much as £472,000.
From his point of view he believed that the balance of advantage was
in favour of keeping the Gardens open.
The President of the Board of Trade also supported the proposal
since he was advised that the Gardens might continue to provide some
attraction to visitors from abroad.
Discussion then turned on the question whether it would be wise
to proceed, at a time of great economic stringency, with what was a
pure amenity unless Parliamentary opinion had freely endorsed it.
It was suggested that it might be well on this account to allow a free
vote of the House of Commons on a Motion approving the continuance
of the Festival Gardens, though if such a vote were favourable
the subsequent legislation would be handled as ordinary Government
business. On the other hand, it was argued that a free vote
should not be allowed on a proposal which was mainly financial in
character. It was the general view of the Cabinet that this was not
a matter which could properly be left to a free vote of the House.
The Cabinet—
(1) Invited the Minister of Works to announce forthwith that the
Government had decided to provide for the Festival
Gardens to be continued for a period of five years, subject
to a provision enabling the Gardens to be closed after
an experimental period consisting of the first two of these
years,
(2) Invited the Minister of Works to prepare the necessary legislation
for introduction in Parliament after submission to
the Legislation Committee.
6. The Prime Minister said that he had discussed with the Chiefs
of Staff their latest proposals regarding the organisation of the Middle
East Command, which it was desired to form following the admission
of Greece and Turkey to the North Atlantic Treaty Organisation.
The Turks were most reluctant to join any command structure which
would be confined to the Middle East and placed under a British
Commander. They were anxious to be included within General
Eisenhower's European Command, partly because this would imply
recognition of their claim to be a European country and partly because
it would give them a better assurance of receiving military equipment
from the United States. In these circumstances the Chiefs of Staff
had formulated new proposals for the establishment of a Supreme
Allied Command for the Eastern Mediterranean and Middle East,
which would be divided into four sub-commands, namely, Greece,
Turkey, the Mediterranean and ^Egean, and the Middle East.

The Prime Minister said that he was doubtful whether this plan
would prove acceptable to the other Governments concerned. After
consultation with the Chiefs of Staff, however, he had accepted the
Foreign Secretary's suggestion that it should be put forward as a basis
for further discussion by the Standing Group in Washington. The
important objective, which must be kept in mind throughout all these
discussions, was to secure that the United States should commit some
forces, even token forces, to the defence of the Middle East.
The Cabinet took note of the Prime Minister^ statement.
Persia.
(Previous
Reference:
C.C. (51) 1st
Conclusions,
Minute 7.)
7. The Secretary of State for Co-ordination of Transport, Fuel
and Power said that at the Prime Ministers request he had examined
the latest American proposals for a settlement of the Anglo-Persian
oil dispute, which the United States Secretary of State had put to the
Foreign Secretary in Paris. These had been formulated after discussions
with the Persian Prime Minister in Washington; but it was far
from clear that he would accept them, even if we were willing to take
them as a basis for renewed negotiations. In fact, however, they were
quite unacceptable to us; for they would provide a wholly inadequate
financial return on the capital which we had invested in Persia, and
they contained no assurance that the refinery at Abadan would be
operated by British technicians. Alternative proposals had therefore
been formulated for discussion with Mr. Acheson in Paris. These
were based on the principle that United States oil companies should
join with us in operating the refinery at Abadan and should, in return,
give us some share in the operation of their oil concessions in
Saudi-Arabia.
In discussion there was general agreement that the latest
American proposals could not be accepted as a basis for renewed
negotiations with the Persian Government.
Cabinet Office, SWA,
Sth November, 1951.

THIS DOCUMENT IS THE PROPERTY OF BIS BRITANNIC MAJESTVS GOVERNMENT
Printed for the Cabinet. November 1951
SECRET Copy No. 3 7
C.C. (51)
7th Conclusions
CABINET
CONCLUSIONS of a Meeting of the Cabinet held at 10 Downing Street, S.W.1,
on Thursday, \5th November, 1951, at 11 -30 a.m.
Present:
The Right Hon. WINSTON S. CHURCHILL, M.P., Prime Minister and Minister of
Defence (in the Chair).
The Right Hon. ANTHONY EDEN, M.P., The Right Hon. LORD WOOLTON, Lord
Secretary of State for Foreign Affairs. President of the Council.
The Most Hon. the MARQUESS OF The Right Hon. LORD SIMONDS, Lord
SALISBURY, Lord Privy Seal.
Chancellor.
The Right Hon. Sir DAVID MAXWELL The Right Hon. R. A. BUTLER, M.P.,
FYFE, K.C., M.P., Secretary of State Chancellor of the Exchequer.
for the Home Department and
Minister for Welsh Affairs-.
The Right Hon. LORD ISMAY, Secretary The Right Hon. OLIVER LYTTELTON,
of State for Commonwealth Relations. M.P., Secretary of State for the
Colonies.
The Right Hon. JAMES STUART, M.P., The Right Hon. LORD LEATHERS, Secre-
Secretary of State for Scotland. tary of State for Co-ordination of
Transport, Fuel and Power.
The Right Hon. H. F. C. CROOKSHANK, The Right Hon. Sir WALTER MONCKTON,
M.P., Minister of Health.
K.C., M.P., Minister of Labour and
National Service.
The Right Hon. HAROLD MACMILLAN, The Right Hon. PETER THORNEYCROFT,
M.P., Minister of Housing and Local M.P., President of the Board of Trade.
Government.
The Right Hon. LORD CHER WELL,
Paymaster-General.
Also present:
The Right Hon. PATRICK BUCHAN-
HEPBURN, M.P., Parliamentary Secretary,
Treasury (Items 1-3).
Secretariat:
Sir NORMAN BROOK.
Mr. T. PADMORE.
41469

CONTENTS
Minute
No. Subject Page
1 Economic Situation ... ... ... 35
Import Programme.
2 Persia 35
3 Parliament 35
Business in the House of Commons.
4 Germany... ... ... ... ... ... ... ... 35
Financial Contribution to Defence.
5 Central African Territories ... ... 36
Federation of Southern Rhodesia, Northern Rhodesia and Nyasaland.
6 Sudan ... ... 36

Economic
Situation.
Import
Programme.
(Previous
Reference :
C.C. (51) 4th
Conclusions,
Minute 4.)
1. The Cabinefs attention was drawn to the fact that their
plans for reducing imports were being criticised on the basis that,
while food imports were to be reduced, no cuts were proposed in
imports of tobacco, wines and spirits.
The Chancellor of the Exchequer undertook to send a note on
this point to the Prime Minister, and to furnish the Lord President
with material which would enable Government speakers to meet this
criticism.
Persia.
(Previous
Reference :
C.C. (51) 5th
Conclusions,
Minute 7.)
Parliament.
Business in
the House of
Commons.
2. The Foreign Secretary said that the balance-sheet of the
Anglo-Iranian Oil Company was due to be published early in the
following week. Its publication at this stage would embarrass him,
both in the forthcoming debate on foreign affairs in the House of
Commons and in his negotiations with the United States Government
regarding the future handling of the Persian oil dispute.
The Cabinet—
Invited the Foreign Secretary - and the Chancellor of the
Exchequer to consider together means of deferring for a time
the publication of the balance-sheet of the Anglo-Iranian
Oil Company.
3. The Cabinet were informed of the business to be taken in
the House of Commons in the following week.
They were also informed that the proposed debate on Defence
might now be postponed until early in December.
Germany.
Financial
Contribution
to Defence.
4. The Cabinet considered a memorandum by the Foreign
Secretary (C. (5.1) 15) on the steps to be taken to determine the amount
and form of the financial contribution to be made by Germany to the
defence of Europe. Germany's total contribution was unlikely to
cover the combined cost of maintaining Allied troops in Germany
and providing German units for the European Army. Unless the
United States were willing to fill the gap we should be faced with three
difficult choices, viz. (i) to reduce our own forces in Germany or
economise elsewhere in our defence programme in a manner which
would relieve our balance of payments; (ii) to depart from our present
policy of declining to accept any additional defence burdens or any
additional external burdens; or (iii) to see the German military
contribution substantially reduced.
The Foreign Secretary recommended that in the first instance
he should seek agreement with the Americans and the French to
proceed to negotiations with the Germans at an early date, making
it clear that our agreement to enter into such negotiations did not
mean that we should at any time be prepared to accept any additional
financial burden. If the Cabinet agreed, he would put this, proposal
forward at the meeting of the three Foreign Ministers on
21st November.
In discussion it was pointed out that the figures given in the
memorandum were admittedly rough estimates and might prove to
be substantially higher than the expenditure which would actually be
incurred if our occupation costs had to be defrayed from the
Exchequer. These estimates would require careful scrutiny before
they were used in international discussion.
The Cabinet were disposed to agree that the Foreign Secretary
should open discussions in the coming week with United States and
French Ministers, with a view to negotiations with the Germans in
the near future. They asked, however, that before final decisions
were taken the issues should be further examined by a Cabinet
Committee.

The Cabinet—
Appointed a Committee (consisting of the Lord Privy Seal,
the Chancellor of the Exchequer, the Paymaster-General and
a representative of the Foreign Secretary) to review the
problem set out in C. (51) 15 and to submit a report early in
the following week.
Central
African
Territories,
Federation of
Southern
Rhodesia,
Northern
Rhodesia and
Nyasaland.
5. The Cabinet had before them a memorandum by the
Secretary of State for Commonwealth Relations and the Secretary
of State for the Colonies (C. (51) 11) on closer association in Central
Africa.
The Cabinet were informed that the case for federation of the
three Central African territories was based in part on their interdependence
economically and in part on the necessity for creating a
stronger unit of Government which would be better able to resist the
infiltration of Afrikaners from the Union of South Africa. Federation
would serve the real interests of all the peoples of the three
territories. When the plan had been discussed with local representatives,
there had been general support for federation from the white
population of the territories but general opposition from the native
populations. A firm lead from the United Kingdom Government at
this time might, however, have a substantial effect on native opinion
and, given such a lead, the prospects of achieving federation next year
were better than they would become later.
The Cabinet—
Invited the Secretary of State for the Colonies to make a
statement in the House of Commons in the following week
in the terms of the draft set out in Appendix I of C. (51) 11.;
and simultaneously to make the statement available to
Parliament in the form of a White Paper.
Sudan.
6. The Cabinet had before them a note by the Secretary of the
Cabinet (C. (51) 16) covering a draft of a statement which the Foreign
Secretary proposed to make on the future of the Sudan.
Discussion turned on the question whether this statement should
hold out the hope that a constitution providing for self-Government
might be in operation by the end of 1952. The Cabinet were
informed that this hope was already entertained in the Sudan, as a
result of announcements made by the Amendment Commission, and
that the object of the statement would be defeated if it contained no
reference to this date.
The Cabinet-
Authorised the Foreign Secretary to make a statement in
the House of Commons on the lines of the draft appended
to C. (51) 16.
Cabinet Office, SW. 1,
\5th November, 1951.

THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTY'S GOVERNMENT
Printed for the Cabinet. December 1951
SECRET
C.C. (51)
18th Conclusions
Copy No.
2
CABINET
CONCLUSIONS of a Meeting of the Cabinet held at 10 Downing Street, S.W. 1,
on Wednesday, 19th December, 1951, at 11 a.m.
Present:
The Right Hon. WINSTON S. CHURCHILL, M.P., Prime Minister and Minister of
Defence (in the Chair).
The Right Hon. ANTHONY EDEN, M.P., The Right Hon. LORD WOOLTON, Lord
Secretary of State for Foreign Affairs. President of the Council.
The Most Hon. the MARQUESS
SALISBURY, Lord Privy Seal.
OF The Right Hon. LORD SIMONDS, Lord
Chancellor.
The Right Hon. Sir DAVID MAXWELL The Right Hon. R. A. BUTLER, M.P.,
FYFE, K.C., M.P., Secretary of State Chancellor of the Exchequer.
for the Home Department and
Minister for Welsh Affairs.
The Right Hon. LORD ISMAY, Secretary The Right Hon. JAMES STUART, M.P.,
of State for Commonwealth Relations. Secretary of State for Scotland.
The Right Hon. LORD LEATHERS, Secre- The Right Hon. H. F. C. CROOKSHANK,
tary of State for Co-ordination of
Transport, Fuel and Power.
M.P., Minister of Health.
The Right Hon. Sir WALTER MONCKTON, The Right Hon. HAROLD MACMILLAN,
K.C., M.P., Minister of Labour and M.P., Minister of Housing and Local
National Service.
Government.
The Right Hon. PETER THORNEYCROFT, The Right Hon. LORD CHERWELL,
M.P., President of the Board of Trade. Paymaster-General.
The following were also present:
The Right Hon. ANTONY HEAD, M.P., Sir LIONEL HEALD, K.C. M.P., Attorney-
Secretary of State for War (Items 1-3). General (Items 1-3).
41671-1
B

CONTENTS
Item
No. Subject Page
1 France ... ... 85
Visit of Prime Minister and Foreign Secretary to Paris.
2 Egypt ... ... ... ... ... ... 85
3 War Criminals ... 85
4 Persia ... ... ... ... 86
International Bank Proposals.
5 The Kashmir Dispute 87
6 The High Commission Territories ... 87
Transfer to the Union of South Africa.
7 Bechuanaland Protectorate 88
Chieftainship of the Bamangwato Tribe.
8 The Economic Situation ... 88

1. The Prime Minister gave the Cabinet an account of the
discussions which he and the Foreign Secretary had held with French
Ministers and with General Eisenhower during their visit to Paris on
17th and 18th December. The visit would, he thought, be of benefit
to Anglo-French relations: in particular, it should have removed any
French apprehensions lest their interests should be overlooked in the
talks which he and the Foreign Secretary would shortly be having in
Washington. It had also been valuable to have a free exchange of
views with the French Ministers about the European Army. He had
been able to make plain, in private conversations, his disappointment
at the shape which the European Army was assuming under the
Pleven Plan: but, as the United Kingdom was not to be a member
of the European Defence Community, he had not felt able to press
these technical points too far. The communique which had been
issued at the end of the talks had made it clear that the United
Kingdom Government favoured the creation of a European Defence
Community, though they could not join it, and that they were ready
to associate themselves with it as closely as possible in all stages of
its political and military development. This should forestall any
further suggestion that the delay in securing agreement to the creation
of a European Army was due to the unhelpful attitude of the United
Kingdom" Government.
The Cabinet took note of the Prime Minister^ statement.
2. The Foreign Secretary informed the Cabinet of an interview
which he had had with the Egyptian Foreign Minister during his visit
to Paris. He had spoken in strong terms about the existing state
of Anglo-Egyptian relations, and had made it clear that it was the
first duty of the Egyptian Government to see that order was restored
and the present tension relaxed. Thereafter he hoped that it might
be possible to resume the search for a lasting settlement and he had
urged the Egyptian Government to study the four-Power proposals
which had already been placed before them, the Egyptian Foreign
Minister, whose mood had been more reasonable than had been
expected, had promised to put these points to .his Government.
The Foreign Secretary said that he had no great confidence that
the attitude of the Egyptian Government would be changed as a result
of this interview. He had in view, however, other possible methods
of breaking the present deadlock. The position now looked a little
less intractable.
The Cabinet took note of the Foreign Secretary's statement.
3. The Cabinet had before them two memoranda by the Foreign
Secretary (C. (51) 53 and 54) on the future treatment of German war
criminals.
When the Cabinet had considered on 7th December the proposal
(C. (51) 36) that periods spent in custody before trial should be
reckoned as counting towards the sentence imposed, it had been
suggested that the Foreign Secretary should first ascertain the extent
to which the courts had taken account of the period of pre-trial
custody in assessing sentences. In C. (51) 54 the Foreign Secretary
reported that at this date it was impossible to establish this in each
particular case; and he recommended that the period of pre-trial
custody should now be reckoned as counting in all cases towards the
sentence imposed, even though this might involve extending a double
benefit to some of those still in custody. The application, pf this
principle would have the result that forty persons now in custody
would qualify for immediate release. He had, as requested, given the
Prime Minister a list of the persons affected.
-1 B 2

The Cabinefs discussion turned mainly on the Foreign Secretary's
long-term proposals (C. (51) 53) for transferring to the German
Federal Government the responsibility for the custody of all German
war criminals save those sentenced by the International Tribunal at
Nuremberg and confined under quadripartite control in Berlin.
Under these proposals clemency would be exercised on the advice of
an independent tribunal of three judges—one Allied, one German and
one neutral. In the Cabinefs discussion the following points were
made: —
(a) This plan would be unpopular with those sections of public
opinion in this country which believed that no further clemency should
be shown to Germans convicted of war crimes. On the other hand,
the announcement of this policy might well revive pressure for the
release of some of the better-known German Generals, such, for
example, as Manstein and Kesselring.
(b) The plan would have to be negotiated with the Germans as
part of the arrangements for placing on a contractual basis the
relations between the three Occupying Powers and the German
Federal Government.
(c) The constitution of the tribunal would have the result that
the decisive voice would lie with the neutral. This would be appropriate
if the tribunal were concerned with issues of justice. In fact,
however, they would be concerned solely with clemency; and it would
be more logical to reserve powers of clemency to the Government
which had imposed .the original sentence. This, as noted in paragraph
5 (iv) of C. (51) 53, was the system which it was proposed to
apply in Japan. Against this it was argued that the Foreign Secretary's
proposal could be defended on the ground that these war
crimes had offended the conscience of the world, and that it was this
which justified the proposed composition of the tribunal.
(d) It would be preferable that the neutral representative should
be a Swiss rather than a Swede.
(e) The tribunaFs revision of sentences should be based solely
on grounds of clemency. It would be inappropriate that a mixed
body of this kind should be empowered to pass judgment on the
" justice " of sentences imposed by a British military court.
The Cabinet­
(1) Reaffirmed their decision of 7th December that, as regards
German war criminals in British hands, periods spent in
custody before trial should now be reckoned as counting
towards the sentence imposed.
(2) Approved, subject to amendment on the point noted in paragraph
(e) above, the long-term proposals in C. (51) 53 for
transferring to the German "Federal Government the
responsibility for the custody of war criminals held in the
three Western Zones of Germany; and invited the Foreign
Secretary to put these proposals in the first instance to the
United States and French Governments and thereafter to
the German Federal Government.
. Persia.
International
4. The Cabinet had before them a memorandum by the Foreign
Secretary (C. (51) 46) on the suggestion of the Internationa] Bank that
Bank Proposals, they might make temporary arrangements for the operation of the
(Previous Persian oil industry pending a final settlement. The Bank were
Reference: likely to formulate early in January specific proposals with a view to
C.C. (51) 7th the management of the whole Persian oil industry on behalf of the
Conclusions, Bank by a suitable staff headed by a " neutral." The bulk of the
Minute 2.)
operating staff would probably have to be provided by the Anglo-
Iranian Oil Company and profits would be divided equally between
the Persian Government and those operating the industry.

The Foreign Secretary suggested that, while in public we should
be well advised to appear indifferent to the fate of the Persian oil,
we should assist and encourage the Bank in drawing up their scheme.
If specific proposals were received we should not publicly commit
ourselves to a view on them until the Persian Government had
accepted them as a basis for negotiation. The intervention of the
Bank offered some prospect of an ultimate arrangement with the
Persians not materially less favourable to us than the terms which
we had been willing to offer in the early stages of the dispute. It
was important, however, that the United States Government should
not grant any financial assistance to the present Persian Government,
since this would only have the effect of prolonging them in office.
The Cabinet took note of the Foreign Secretary's statement.
The Kashmir
Dispute,
5. The Cabinet considered a memorandum by the Commonwealth
Secretary (C. (51) 47) summarising the history of the Kashmir
dispute and proposing that United Kingdom policy should aim at
securing through the United Nations further progress towards the
holding of a plebiscite and the essential demilitarisation which must
precede it. Direct intervention would be likely to prove fruitless. A
solution could only be reached between the two Governments
concerned. It was, therefore, proposed to promote a resolution in
the Security Council favouring the immediate appointment of a
plebiscite administrator and calling upon the two parties to settle
within two months their differences on methods of "demilitarisation.
We should aim to work in close consultation with the United States
Government and with the other Governments of the Commonwealth
in putting this resolution forward.
The Cabinet—
Authorised the Foreign Secretary and the Commonwealth
Secretary to approach the United States Government and
the Governments of other Commonwealth countries with a
view to the promotion in the Security Council of a resolution
on the Kashmir dispute on the lines suggested in paragraph 8
of C. (51) 47.
The High 6. The Cabinet had before them a memorandum by the
Commission Commonwealth Secretary (C. (51) 49) recommending that no action
Territories. should be taken to anticipate the demand which the Prime Minister
Transfer to of South Africa was expected to make for transfer of the High
the Union of Commission Territories (Basutoland, Bechuanaland and Swaziland)
South Africa. to the Union of South Africa. This demand, when made, would have
to be met with a firm refusal. Public opinion in this country would
be whole-heartedly behind the Government in refusing to transfer
the territories without the consent of their inhabitants; and this, if
sought, would certainly be refused. Any attempt to dissuade
Dr. Malan from raising the matter, on the ground that we should
have no option but to refuse transfer, would create resentment and
would not secure any substantial deferment of the question, since
Dr. Malan was committed to raising it.
The Cabinet—
Agreed that no action should be taken to anticipate the
expected demand for the transfer to South Africa of the
High Commission Territories.

Bechuanaland
Protectorate.
Chieftainship
of the
Bamangwato
Tribe.
(Previous
Reference:
C.C. (51) 11th
Conclusions,
Minute 4.)
. 7. in connection with the discussion recorded in the preceding
Minute,, the Cabinet again considered their decision that, although
Seretse Khama would have to be permanently excluded from the
chieftainship of the Bamangwato tribe, they would announce for the
time being only that they adhered to the intention of their predecessors
to review the situation within five years. So long as this was left
in uncertainty, relations with the Government of South Africa would
be made more difficult. On the other hand, the Governments policy
regarding Tshekedi Khama had been well received and Parliamentary
difficulties could not be raised over Seretse Khama so long as the
Government were able to say that they would maintain the policy
announced by their predecessors.
The Cabinet-
Agreed for the time being not to vary their public statement
that as regards Seretse Khama they adhered to the policy
of their predecessors as set forth in the White Paper
(Cmd. 7913) of March 1950.
The Economic
Situation.
(Previous
Reference:
CC.(51) 12th
Conclusions.)
8. The Cabinet had before them a memorandum by the
Chancellor of the Exchequer (C. (51) 48) covering a first report by
the Sub-Committee of the Economic Policy Committee appointed to
fomulate proposals for remedying the economic situation.
The Chancellor of the Exchequer said that, while the proposed
Parliamentary statement on the economic situation would not be made
until the end of January, decisions must be taken on some of the
conclusions set out in paragraph 2 of his memorandum before the
end of the year, notably on those relating to textile exports, the Health
Service and education, since these might require the preparation of
legislation. A decision on the level of expenditure for the Hospital
Service should be taken before Christmas in order that the estimates
could be worked out in detail in consultation with the hospital
authorities. -
Discussion turned mainly on proposals designed to reduce the
civil estimates for the coming year at least to the same figure as the
total (inclusive of supplementary estimates) for the current year.
Without special cuts, the total of the civil estimates for next year
would rise to a level some £60 million higher than the total for the
current year. The Sub-Committee had examined possible economies
which would reduce this figure by £100 million, i.e., to a level some
£40 million below this year's expenditure.
The Cabinet—
Agreed to resume their discussion of C. (51) 48 at their next
meeting.
Cabinet Office, S.W.1,
19th December, 1951.

11 H /
THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTYS GOVERNMENT * V
Printed for the Cabinet. January 1951
SECRET
CP. (51) 28
22nd January, 1951
Copy No,
6
CABINET
PERSIA
MEMORANDUM BY THE SECRETARY OF STATE FOR FOREIGN AFFAIRS
Recent developments in Persia have been causing me some concern, and in view
of the widespread interest in Persia as a possible victim of Russian aggression, I
wish to give my colleagues an account of the present situation there.
2. In the spring of 1950 the internal situation in Persia was showing signs of
deterioration. A succession of weak and ineffective Prime Ministers had lowered
the never high standard of administration, and the policy of deflation pursued by
the State Bank had produced trade stagnation. Public confidence in the regime
had therefore been seriously sapped, and the influence of the Communist-controlled
Tudeh Party was increasing correspondingly.
3. In June 1950 the Shah decided to entrust the Premiership to Razmara, the
Chief of General Staff, who had a good reputation for intelligence and energy, but
was unversed in politics. Razmara formed a Government, obtained a formal vote
of confidence, and has remained in power since with only minor Cabinet changes.
His appointment reassured public opinion, and for the time being the danger of
an expansion of Communist influence receded.
4. Razmara's achievements so far are difficult to assess. He has failed to
control the Majlis (Parliament), which has proved itself more than usually ineffective
and obstructive and in which undue influence is exerted by a handful of extreme
nationalists, the so-called National Front. Consequently many potentially beneficial
measures which Razmara has introduced, including a long-overdue Banking
Law and a scheme of administrative decentralisation designed to reduce absentee
landlordism in the provinces, have been blocked in the Majlis, which is now said
to be holding up 110 Bills. He has also displayed irresolution in confronting the
Majlis on important issues. On the other hand, he has concluded trade agreements
with Russia (see paragraph 7 below), France and Western Germany, which should
materially assist Persia's economy, and is negotiating a similar agreement with
Italy; and by tightening up the formerly lax exchange control regulations he is
said to have brought $4 million into the State Bank in the last two months.
5. The Americans, who last summer had viewed the Persian situation even
more seriously than ourselves, in July appointed Mr. Grady, former Ambassador
in Greece, to be their Ambassador in Tehran and sent out with him technicians to
review Persia's economic needs. As a result, an Export-Import Bank line of credit
to Persia of $25 million was proposed, and negotiations for it have recently been
concluded in Washington, though it still awaits Majlis ratification. The Persians
seem to have regarded this line of credit as a disappointing result of Mr. Grady's
much heralded arrival, and to have consequently lost faith in American ability to
assist them.
6. In September 1950 His Majesty's Government, after discussing the question
of aid to Persia with the Americans, decided to offer Razmara a sterling loan of
between £2 and £3 million as cover for an additional note issue, as it appeared that
shortage of local currency rather than of foreign exchange was holding up the
40007

prosecution of the Seven-Year Plan of economic development. Razmara, while
grateful for the offer, declined to accept it on the grounds that if, as he hoped, he
secured ratification of the Anglo-Iranian Oil Company's Supplemental Agreement
(see paragraph 9 below), his Government would receive sufficient funds. As will
be seen, this hope has not been fulfilled, but Razmara has not since reverted to the
question.
7. One of Razmara's first acts was to negotiate a trade agreement with Russia,
eventually signed in November 1950, which by providing opportunities for both
countries to dispose of exportable surpluses of their products seems to have been
of genuine mutual benefit. In doing so he successfully maintained the principle
that the resulting trade should be conducted between the Russians and five
Government-controlled Persian Companies set up for the purpose, thus avoiding
direct Russian contacts with the population. Shortly after the signature of the
trade agreement with Russia, the Persian Government banned the relaying of
B.B.C. and Voice of America broadcasts in Persia, undoubtedly as a sop to the
Russians; and it seems clear that, while the Shah and Razmara continue to be
apprehensive and suspicious of the Russians and to have no desire to collaborate
with them, public opinion in Persia now favours a reversion to Persia's traditional
policy of balancing between Russia and the Western Powers.
8. In their relations with the United Kingdom, both the Shah and Razmara
have continued to display a spirit of co-operation and have constantly taken His
Majesty's Ambassador into their confidence, especially in regard to defence matters.
Our relations with them have, however, been overshadowed by the problem of the
Anglo-Iranian Oil Company's Supplemental Agreement.
9. This agreement, signed between the Company and the Persian Government
in July 1949, provides for a retroactive increase in royalty rates, and for an
additional element of Persian participation in the Company's profits. No Prime
Minister before Razmara was, however, prepared even to submit it to the Majlis
for ratification because of the opposition it was expected to arouse. Razmara
finally presented it in October 1950, but a Majlis Commission subsequently reported
that the agreement, which in our view is fair and even generous, " did not correspond
to Persia's interests," and considerable political feeling has been aroused,
including an unrealistic suggestion by the National Front minority that the Persian
oil industry should be " nationalised." The Agreement, after various political
manoeuvres, is still before the Majlis Commission, which is unlikely to report for
some two months. Meanwhile the signature by the Arabian-American Oil Company
of an agreement with Saudi Arabia on terms involving a 50:50 division of
profits, which for technical reasons would be extremely difficult to apply to Persia,
has introduced a further complicating factor; and it seems now unlikely that a
regularisation of the Company's operations in Persia can be expected for, at best,
many months to come, or on any terms comparable with those of the Supplemental
Agreement.
10. Had the Supplemental Agreement been ratified, the Persian Government
would have received an immediate payment of about £38 million in respect of its
retroactive element, in addition to higher royalty payments for the future. The
Company's payments to the Persian Government are in theory devoted to the
Seven-Year Plan (though this principle is frequently not adhered to), and the
irresolution of successive Persian Governments, combined with the obstruction and
lack of realism of the Majlis, have consequently deprived Persia of a sum which
would not only have enabled the Persian Government to get ahead with much
needed measures of economic development, without which the menace of communism
is difficult to contain, but would probably also have restored their finances
to health. As it is, the indications are that Razmara is finding himself seriously
short of money. It has been announced that the contracts of Overseas Consultants
Inc. technicians, who were responsible for advising on the Seven-Year Plan project,
have not been renewed as from 1st January, 1951, for financial reasons, and it has
even been suggested that official and army pay may shortly fall into arrear.
11. On the basis of the information available, it would appear that no better
Prime Minister than Razmara is in view, and that he should therefore be supported;
and that he must be given some financial assistance, if the Seven-Year Plan is to
be re-started and the danger of another resurgence of communism averted. His

Majesty's Ambassador considers that the Majlis, in its present mood, would be
unlikely to ratify any foreign loan; and the only obvious source of financial aid
is therefore the Anglo-Iranian Oil Company. The Company are so far unwilling
to pay money to Persia except on the basis of a regularly ratified agreement, but
might be prepared to make advances to the Persian Government on account of
future royalties. The whole question is being actively pursued between the
interested Departments of His Majesty's Government and with the Company;
and the conclusions reached will be submitted to my colleagues in a subsequent
paper.
E. B.
Foreign Office, S.WA,
22nd January, 1951.

THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTVS GOVERNMENT
Printed for the Cabinet. April 1951
SECRET Copy No. 4 5
CM . (51)
28th Conclusions
CABINET 28 (51)
CONCLUSIONS of a Meeting of the Cabinet held at 10, Downing Street, S.W. 1,
on Monday, \6th April, 1951, at 12 noon
Present:
The Right Hon. HERBERT MORRISON, M.P., Secretary of State for Foreign Affairs
(in the Chair)
The Right Hon. H. T. N. GAITSKELL,
M.P., Chancellor of the Exchequer.
The Right Hon. VISCOUNT ADDISON,
Lord President of the Council.
The Right Hon. HUGH DALTON, M.P.,
Minister of Local Government and
Planning.
The Right Hon. VISCOUNT ALEXANDER
OF HILLSBOROUGH, Chancellor of the
Duchy of Lancaster.
The Right Hon. VISCOUNT JOWITT, The Right Hon. J. CHUTER EDE, M.P.,
Lord Chancellor.
Secretary of State for the Home
Department.
The Right Hon. E. SHINWELL, M.P., The Right Hon. ANEURIN BEVAN, M.P.,
Minister of Defence. Minister of Labour and National
Service.
The Right Hon. T. WILLIAMS, M.P., The Right Hon. GEORGE TOMLINSON,
Minister of Agriculture and Fisheries. M.P., Minister of Education.
The Right Hon. J. H. WILSON, M.P.,
President of the Board of Trade.
The Right Hon. HECTOR MCNEIL, M.P.,
Secretary of State for Scotland.
The following were also present:
The Right Hon. JAMES GRIFFITHS, M.P.,
Secretary of State for the Colonies.
The Right Hon. P. C. GORDON-WALKER,
M.P., Secretary of State for Commonwealth
Relations.
The Right Hon. P. J. NOEL-BAKER, M.P., The Right Hon. G. A. ISAACS, M.P.,
Minister of Fuel and Power. (Items Minister of Pensions. (Item 4.)
1-3.)
The Right Hon. G. R. STRAUSS, M.P., The Right Hon. H. A. MARQUAND, M.P.,
Minister of Supply. (Items 1-2.) Minister of Health. (Item 4.)
The Right Hon. LORD HENDERSON,
Parliamentary Under-Secretary of
State for Foreign Affairs. (Items 1-2.)
Secretariat:
Sir NORMAN BROOK.
Mr. A. JOHNSTON.

THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTYS GOVERNMENT
Printed for the Cabinet. April 1951
SECRET Copy No. 4 5
CM . (51)
28th Conclusions
CABINET 28 (51)
CONCLUSIONS of a Meeting of the Cabinet held at 10, Downing Street, S.W. 1,
on Monday, \6th April, 1951, at 12 noon
Present:
The Right Hon. HERBERT MORRISON, M.P., Secretary of State for Foreign Affairs
(in the Chair)
The Right Hon. H. T. N . GAITSKELL,
M.P., Chancellor of the Exchequer.
The Right Hon. VISCOUNT ADDISON,
Lord President of the Council.
The Right Hon. HUGH DALTON, M.P.,
Minister of Local Government and
Planning.
The Right Hon. VISCOUNT ALEXANDER
OF HILLSBOROUGH, Chancellor of the
Duchy of Lancaster.
The Right Hon. VISCOUNT JOWITT, The Right Hon. J. CHUTER EDE, M.P.,
Lord Chancellor. Secretary of State for the Home
Department.
The Right Hon. E. SHINWELL, M.P., The Right Hon. ANEURIN BEVAN, M.P.,
Minister of Defence. Minister of Labour and National
Service.
The Right Hon. T. WILLIAMS, M.P., The Right Hon. GEORGE TOMLINSON,
Minister of Agriculture and Fisheries. M.P., Minister of Education.
The Right Hon. J. H. WILSON, M.P.,
President of the Board of Trade.
The Right Hon. HECTOR MCNEIL, M.P.,
Secretary of State for Scotland.
The following were also present:
The Right Hon. JAMES GRIFFITHS, M.P.,
Secretary of State for the Colonies.
The Right Hon. P. C GORDON-WALKER,
M.P., Secretary of State for Commonwealth
Relations.
The Right Hon. P. J. NOEL-BAKER, M.P., The Right Hon. G. A. ISAACS, M.P.,
Minister of Fuel and Power. (Items Minister of Pensions. (Item 4.)
1-3.)
The Right Hon. G. R. STRAUSS, M.P., The Right Hon. H. A. MARQUAND, M.P.,
Minister of Supply. (Items 1-2.) Minister of Health. (Item 4.)
The Right Hon. LORD HENDERSON,
Parliamentary Under-Secretary of
State for Foreign Affairs. (Items 1-2.)
Secretariat:
Sir NORMAN BROOK.
Mr. A. JOHNSTON.

CABINET 28 (51)
CONTENTS
Minute
No. Subject Page
1 Mr. Ernest Bevin 221
2 Integration of French and German Coal and Steel Industries 221
3 Persia 222
4 Armed Forces 223
Balance of Civil Pay.
5 Stone of Scone 223
6 North Atlantic Treaty ... 224
Command Organisation.

Mr. Ernest
Bevin.
1. The Foreign Secretary said, that the members of the Cabinet
must have been shocked and distressed at the news of Mr. Bevin's
death on 14th April. Mr. Bevin had played a great part in the work
of the Labour Government; and his Cabinet colleagues would feel
very keenly the loss of his loyal support and his wise counsel. His
death was a grievous loss to the Labour Party and the trade union
movement and, indeed, to the country as a whole. He would be
widely mourned by all sections of the community.
The Cabinet asked that an expression of their sympathy should
be sent to Mrs. Bevin.
Integration of
French and
German Coal
and Steel
Industries.
(Previous
Reference:
CM. (51) 22nd
Conclusions,
Minute 4.)
2. The Cabinet had before them a memorandum by the Foreign
Secretary (CP. (51) 108) inviting them to agree in principle that the
International Authority for the Ruhr, the Combined Coal and Steel
Groups, and the existing limitations on German steel production and
capacity should be discontinued as soon as practicable after the
Schuman Plan came into operation.
The Parliamentary Under-Secretary of State for Foreign Affairs
said that the Departments directly concerned were not seeking the
retention of the International Authority for the Ruhr, or of the Coal
and Steel Groups. The limitations on German steel capacity and
production raised more difficult questions; but, as had been indicated
in an earlier memorandum (CP. (51) 89), the United States Government
were anxious to take an early opportunity of revising the
existing agreements. An increase in German steel capacity and production
would mean that less scrap would be available for export
to the United Kingdom; but the British Iron and Steel Corporation
were already doubtful whether, quite apart from the Schuman Plan,
the scrap which they required could be obtained from Germany, and
they were envisaging the need to import semi-finished steel from
Germany instead. The United Kingdom High Commissioner in
Germany was in agreement with the recommendations which were
now being put forward.
In discussion it was pointed out that at one time it had been
assumed that agreement on the Schuman Plan would not be reached
without great difficulty; but, now that the Treaty was on the point of
being signed, it would be undesirable for this country to leave the
other two Occupying Powers with all the credit for willingness to
allow the new arrangements to work. There was reason to believe
that, as soon as the Schuman Treaty was signed, the French Government
would inform the German Government, and possibly make a
public disclosure, of the lengths to which they were prepared to go in
relaxing Allied control over German heavy industry after the
Schuman Plan came into operation. The United Kingdom Government
should indicate to the German Federal Government that they
too were prepared to facilitate the operation of the Schuman Plan.
Allied control of German heavy industry had been designed to safeguard
the military security of Western Europe, not the commercial
interests of British industry. It was not proposed to abrogate Allied
High Commission Law 27, which would leave the High Commission
with power to supervise the reorganisation of the German coal and
steel industries.
On the other side, doubts were expressed about the wisdom of
removing Allied control over German heavy industry at a time when
the German Federal Government were deriving unjustifiable
advantages from the operation of the European Payments Union and
failing to fulfil their promises to provide scrap steel. As regards the
European Payments Union, it was explained that the Organisation for
European Economic Co-operation were insisting on close control of
German import licences and would be holding a further review of the
40611-1 B 2

alance between German imports and exports at the end of the
present month. As regards scrap steel, the Federal Government
were limiting by decree the amount of scrap which could be sent out
of the country; but here also there might be means other than
delaying the execution of the Schuman Plan by which the United
Kingdom steel industry could be assured of the supply of German
scrap or semi-finished steel.
Concern was also expressed at the risks involved in relaxing
Allied control before it was known precisely how the Schuman Treaty
organisation would operate and what implications it would have for
the future of the United Kingdom coal and steel industries. The
Schuman Plan might give to German industrialists extensive control
over the coal and steel resources of Western Europe, and they might
use their powers ruthlessly at the expense of this country, as they had
done in the years before the war. It would be no contribution to the
defence of Western Europe if the vulnerable heavy industries in the
Ruhr were expanded at the expense of the iron and steel industry in
this country.
It was the general view of the Cabinet that the United Kingdom
Government should indicate their willingness to enter sympathetically
into discussions between the three Occupying Powers and the Benelux
countries about the conflict of jurisdiction between the Schuman
Treaty organisation and the Allied controls over Germany's heavy
industry. They should not, however, declare at this stage that they
were willing in principle that the existing Allied controls should be
discontinued as soon as the Schuman Plan came into operation.
There was no urgency in reaching such a decision since the Schuman
Plan could not come into operation until the Treaty had been ratified
by the Parliaments of the countries concerned. United Kingdom
policy in this matter could not be finally formulated until the full
implications of the Schuman Plan on our own industries had been
studied in detail.
The Cabinet­
(1) Authorised the Foreign Secretary to announce that the
United Kingdom Government would be willing to participate
in the international discussions proposed by the
French Government regarding the conflict between the
Schuman Treaty and the Allied controls over Germany's
heavy industry.
(2) Invited the Foreign Secretary to do his utmost to persuade
the French Government to limit any public statement, or
any statement to the German Federal Government, to a
similar promise to enter into discussions on this question,
and to refrain from indicating at this stage their readiness
to abandon these Allied controls as soon as the Schuman
Treaty came into operation.
(3) Invited the Chancellor of the Exchequer to arrange for the
committee of officials which had considered the Schuman
Plan at an earlier stage to prepare, for the Cabinefs
consideration, a report on the implications of the Plan as
finally agreed on the future of the United Kingdom coal
and steel industries.
3. The Foreign Secretary said that the Cabinet would have seen
from the Press that the Anglo-Iranian Oil Company had been compelled
to close their refinery at Abadan, as the majority of their
employees had been prevented, by picketing and intimidation, from
reporting for work. The latest reports suggested, however, that the
local situation might be improving. Persian troops had been able
to break up hostile crowds and seemed to be making an effort to
control the situation.

Armed Forces.
Balance of
Civil Pay.
(Previous
Reference:
CM. (51) 24th
Conclusions,
Minute 5.)
4. The Cabinet had before them a memorandum by the
Chancellor of the Exchequer (CP. (51) 107) covering a report by
officials on the question whether civil servants who were called up as
reservists during the current summer should receive the difference
between their civil and military pay.
The Chancellor of the Exchequer said that, pending any general
decision to change the existing practice, it would be generally agreed
that those civil servants who were to be called up for three months
or for eighteen months should receive the balance of their civil pay.
The only question which was open to argument was the treatment to
be accorded to Z reservists in the Civil Service who were called up
for a period of only fifteen days. There would be great administrative
inconvenience in paying balance of civil pay for so short a
period; and the proposal in the memorandum annexed to CP. (51) 107
was that these men should be given special leave with pay for a part
of the period of their absence on military duty. They would receive,
in addition, their military pay and the tax-free bounty of £4. This
would put the Z reservist in a position half-way between the National
Serviceman and the Territorial. This seemed to be a reasonable
solution, and he commended it for the Cabinefs approval.
The Minister of Defence said that he supported the proposals put
forward in CP. (51) 107.
The Cabinet agreed that similar arrangements would have to be
made for other public servants, such as persons employed in the
National Health Service. They were informed that for this purpose
fresh legislation would be needed.
The Cabinet—
(1) Approved the proposals put forward in CP. (51) 107 regarding
the supplementing of the military pay of public servants
called up as reservists.
(2) Agreed to resume at a later meeting their discussion of the
question whether public servants should receive the
balance of civil pay in any future war.
Stone of
Scone.
(Previous
Reference:
CM. (51) 27th
Conclusions,
Minute 6.)
5. The Cabinet were informed that the police had now identified
the persons responsible for removing the Stone of Scone from Westminster
Abbey, but the Attorney-General was disinclined to institute
criminal proceedings against them. He was due to answer that afternoon
a Parliamentary Question asking whether proceedings were
to be taken.
In a short discussion reference was made to various points of
criticism which might be made if it became known that the authorities
were aware of the identity of those responsible for this act but were
not proposing to take any proceedings against them. It was agreed
that these considerations should be made known to the Attorney-
General before he reached his final decision in this matter. Meanwhile
the Attorney-General could return a temporising answer to the
Question which was being put to him in the House of Commons that
afternoon.
The Cabinet-
Invited the Lord Chancellor to arrange a meeting at which
the Ministers directly concerned could indicate to the
Attorney-General the considerations which they would wish
him to have in mind in deciding whether or not to institute
criminal proceedings against those responsible for removing
the Stone of Scone from Westminster Abbey.

North Atlantic
Treaty.
Command
Organisation.
(Previous
Reference:
CM. (51) 27th
Conclusions,
Minute 2.)
6. The Minister of Defence said that it was now clear that it
would be impossible to resolve before 19th April the difficulties which
had arisen with the United States military authorities over the
Mediterranean Command. Moreover, the Americans were now
showing reluctance to authorise the official announcement of Admiral
Fechteler's appointment as Supreme Commander, Atlantic, until after
19th April. In these circumstances it would not be possible to present
a satisfactory White Paper for the purposes of the proposed debate
on that date; and it would not be easy to make an effective reply to
the debate without increasing our difficulties with the United States
military authorities. The Minister therefore proposed that a further
attempt should now be made to secure the postponement of the debate.
The Cabinet-
Invited the Foreign Secretary, together with the Home
Secretary and the Minister of Defence, to explain to the
leaders of the Conservative Opposition the situation which
had been reached in the discussions with the United States
military authorities and to urge them to agree to the postponement
of the proposed debate on the North Atlantic
Treaty command structure.
Cabinet
Office, S.WA,
16th April, 1951.

North Atlantic
Treaty.
Command
Organisation.
(Previous
Reference:
CM. (51) 27th
Conclusions,
Minute 2.)
6. The Minister of Defence said that it was now clear that it
would be impossible to resolve before 19th April the difficulties which
had arisen with the United States military authorities over the
Mediterranean Command. Moreover, the Americans were now
showing reluctance to authorise the official announcement of Admiral
Fechteler's appointment as Supreme Commander, Atlantic, until after
19th April. In these circumstances it would not be possible to present
a satisfactory White Paper for the purposes of the proposed debate
on that date; and it would not be easy to make an effective reply to
the debate without increasing our difficulties with the United States
military authorities. The Minister therefore proposed that a further
attempt should now be made to secure the postponement of the debate.
The Cabinet—
Invited the Foreign Secretary, together with the Home
Secretary and the Minister of Defence, to explain to the
leaders of the Conservative Opposition the situation which
had been reached in the discussions with the United States
military authorities and to urge them to agree to the postponement
of the proposed debate on the North Atlantic
Treaty command structure.
Cabinet
Office, SWA,
16th April, 1951.

THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTY'S GOVERNMENT
Printed for the Cabinet. April 1951
SECRET
CM . (51)
30th Conclusions
Copy No.
45
CABINET 30 (51)
CONCLUSIONS of a Meeting of the Cabinet held at 10 Downing Street, SWA,
on Monday, 23rd April, 1951, at 10 a.m.
Present:
The Right Hon. HERBERT MORRISON, M.P., Secretary of State for Foreign Affairs
(in the Chair).
The Right Hon. H. T. N . GMTSKELL,
M.P., Chancellor of the Exchequer.
The Right Hon. HUGH DALTON, M.P.,
Minister of Local Government and
Planning.
The Right Hon. VISCOUNT ADDISON, The Right Hon. VISCOUNT ALEXANDER
Lord President of the Council.
OF HILLSBOROUGH, Chancellor of the
Duchy of Lancaster.
The Right Hon. VISCOUNT JOWITT, The Right Hon. J. CHUTER EDE, M.P.,
Lord Chancellor. Secretary of State for the Home
Department.
The Right Hon. E. SHINWELL, M.P., The Right Hon. T. WILLIAMS, M.P.,
Minister of Defence.
Minister of Agriculture and Fisheries.
The Right Hon. GEORGE TOMLINSON,
M.P., Minister of Education.
The Right Hon. HECTOR MCNEIL, M.P.,
Secretary of State for Scotland.
The Right Hon. P. J. NOEL-BAKER, M.P.,
Minister of Fuel and Power (Item 3).
The following were also present:
The Right Hon. JAMES GRIFFITHS, M.P.,
Secretary of State for the Colonies.
The Right Hon. P. C. GORDON-WALKER,
M.P., Secretary of State for Commonwealth
Relations.
The Right Hon. H. A. MARQUAND, M.P.,
Minister of Health (Item 1).
Secretariat:
Sir NORMAN BROOK.
Mr. A. JOHNSTON.
Mr. O. C. MORLAND.
40659-1 B

CABINET 30 (51)
Minute
No.
CONTENTS
Subject
1 National Health Service Bill ...
2 , Houses of Historic or Architectural Interest ...
3 Persia ,
4 Japanese Peace Treaty ... ... ... ...
Individual Claims.
General Scope of the Treaty.
5 . Organisation for European Economic Co-operation
Proposed Merger with Council of Europe.
6 Film of Berlin Youth Rally

1. The Cabinet were informed that, in pursuance of their
decision of 19th April, the Ministers directly concerned had met to
consider what could be said, by the Government spokesmen in the
Second Reading debate on the National Health Service Bill, to allay
the fears of some Government supporters that the limit upon expenditure
on the National Health Service and the charges imposed by this
Bill would become a permanent feature of the Service and would lead
in due course to the imposition of charges for other facilities provided
under it. It had not been found possible to find a form of words which
would satisfy the Minister of Labour, and he had now resigned from
the Government. The other Ministers concerned were agreed in
making the following recommendations to the Cabinet:— ;
(i) In moving the Second Reading of the Bill, the Minister of
Health' should say that the proposed imposition of a charge for
dentures and spectacles need not necessarily be regarded as a permanent
feature of the Health Service: it could be revoked or modified
by Order-in-Council on an affirmative resolution.
(ii) In replying to the debate, the Secretary of State for Scotland
should amplify the statement made by the Chancellor of the
Exchequer in his Budget speech about the upper limit of expenditure
on the Health Service. After recalling the Chancellor^ statement that
this limit would be maintained only " for the time being," he should
say that expenditure on the Health Service, as on the food subsidies,
would be looked at afresh each year in the light of the general
financial situation and all the many claims made upon the Exchequer,
including those for defence and other social services as well as for
the Health Service itself. He should add that it would be obvious to
the House that very heavy burdens would have to be carried by the
Exchequer in the next year or two.
The Cabinet-
Approved these recommendations; and invited the Minister
of Health and the Secretary of State for Scotland to include
statements in the terms set out above in their speeches in
the debate on the Second Reading of the National Health
Service Bill.
2. The Cabinet had before them a memorandum by the
Chancellor of the Exchequer (CP. (51) 110) on the report of the
Committee, under the Chairmanship of Sir Ernest Gowers, which had
considered what arrangements the Government might make for the
preservation, maintenance and use of houses of outstanding historic
or architectural interest.
The Lord President said that there had been a preliminary discussion
of this memorandum by the Lord President's Committee, who
were agreed in supporting the proposals outlined by the Chancellor
of the Exchequer as the right way to begin to handle this subject.
These proposals, in their view, were more consistent with Labour
Party principles than the scheme put forward in the Gowers Report.
They therefore invited the Cabinet to approve the Chancellors
proposals.
In a short discussion the following points were made: —
(a) The Minister of Agriculture suggested that any agricultural
land which might be acquired by the State under these proposals
should be administered by the Agricultural Land Commission. The
Cabinet agreed that this suggestion should be considered in the
course of the preparation of the necessary legislation.
-1 B 2

(b) The Secretary of State for Scotland drew attention to the
fact that special arrangements would have to be made for handling
this problem in Scotland.
The Cabinet—
Approved the proposals set out in CP. (51) 110.
Persia. 3. The Cabinet considered a memorandum by the Foreign
(Previous Secretary (CP. (51) 114) regarding the basis on which negotiations for
Reference: a new oil agreement might be opened with the Persian Government.
CM. (51) 28th This proposed that, if the Persian Government agreed, a mission
Conclusions,' headed by a junior Minister should visit Tehran, as soon as order had
Minute 3.) been restored in the oilfields, to negotiate a fresh agreement.
The Foreign Secretary said that it would be necessary to go some
way to meet Persian national aspirations regarding the nationalisation
of their oil resources, while at the same time taking all practicable
steps to ensure that the Anglo-Iranian Oil Company continued to
work the oil and that adequate supplies of oil were available for this
country. The United Kingdom Government should take the initiative
in suggesting a settlement before the Majlis Oil Commission had completed
their investigation and the Persian Government were committed
to some extreme course. He hoped that it would prove practicable
to find a solution along the lines indicated in paragraph 4(i) of
CP. (51) 114, which would admit some Persian directors to the Company
and share the profits^ between Persia and the Company,
while retaining full company shareholding in a United Kingdom
company. The United States Government had, however, indicated
that they could not give active support to such a proposal, though they
would maintain an attitude of benevolent neutrality towards it: they
themselves believed that it would be necessary to agree to a solution
which might involve the vesting of the Company's assets in Persia in
the Persian Government. The objection to that solution, which was
outlined in paragraph 4(iv) of his memorandum, was that it would
almost certainly involve the abrogation of the existing concession, and
thereby subject the Company to the jurisdiction of the Persian courts.
The United States Government had suggested that it would be preferable
to leave the conduct of the negotiations to His Majesty's
Ambassador in Tehran. The Prime Minister had taken the view that
a junior Minister should not be sent to head a mission to Tehran, since
it was by no means clear that a suitable agreement could be negotiated
at this stage. The choice therefore lay between leaving the negotiations
to His Majesty's Ambassador, or finding some suitable person
other than a Minister to head a mission from this country.
The Minister of Fuel and Power said that the Company should
be enabled to retain control of the oilfields, the refinery and their
other assets in Persia. At the same time it would be a mistake to
under-estimate. the pressure in Persia for the transfer of the
Company's properties to the Persian Government. Oil supplies were
a wasting asset; and, if the Persian Government considered that they
had failed hitherto to secure a sufficient share of the profits of the
Anglo-Iranian Oil Company, they would be all the more inclined to
press for substantial control during the remaining life of the oil wells.
It might therefore become necessary to envisage a settlement on the
lines indicated in paragraph 4 (iv) of CP. (51) 114. The Company
had shown little appreciation in recent years of the political forces at
work in Persia, and he supported the proposal that the negotiations
should be undertaken by the United Kingdom Government rather
&
than by the Company.
In subsequent discussion there was general agreement that the
United Kingdom Government should take the initiative in opening
early negotiations with the Persian Government for a fresh agreement.
At the outset there would have to be some informal soundings by His

Majesty's Ambassador in Tehran. While later developments would
to some extent be determined by the result of these preliminaries,
Ministers favoured the despatch of a mission from this country
headed by some suitable person who was not a member of the Government
and accompanied by a director of the Anglo-Iranian Oil
Company. His Majesty's Ambassador in Tehran had been heavily
involved in the recent developments and it would be easier for a
mission from this country to make a fresh start in negotiations with
the Persian Government. Every endeavour should be made to reach
an agreement with the Persian Government along the lines indicated
in paragraph 4 (i) of CP. (51) 114.
The Cabinet—
(1) Invited the Foreign Secretary to instruct His Majesty's
Ambassador in Tehran to take informal soundings about
the opening of early negotiations for a fresh oil agreement,
and to arrange, if it were found to be appropriate, for a
mission headed by a suitable person who was not a
member of the Government to visit Tehran as soon as
order had been restored in the oilfields.
(2) Agreed that the proposal in paragraph 4 (i) of CP . (51) 114
should be treated as the basis on which negotiations with
the Persian Government might be opened.
Japanese
Peace Treaty.
(Previous
Reference:
CM . (51) 29th
Conclusions,
Minute 6.)
Individual
Claims.
4. The Cabinet considered a memorandum by the Foreign
Secretary (CP. (51) 97) seeking authority to make an early public
announcement of the Cabinefs decision of 2nd January (CM. (51) 1st
Conclusions, Minute 4) not to press for the inclusion in the Japanese
Peace Treaty of an obligation on Japan to pay individual claims for
compensation.
The Foreign Secretary said that in his view (which was shared
by the Chancellor of the Exchequer and the President of the Board
of Trade) the balance of advantage lay on the side of making the
Cabinefs decision public as soon as consultations with the other
Commonwealth Governments and Colonial Governments had been
completed. He also proposed that, in order to make clear the Governmenfs
intentions in respect of the £1£ millions of Japanese assets
in their possession, the statement annexed to CP. (51) 63 should be
expanded to indicate that this sum would be used for the benefit of
organisations assisting former prisoners-of-war and internees who
had suffered at the hands of the Japanese.
The Secretary of State for the Colonies said that this was a matter
of keen interest to Colonial Governments, who held Japanese assets
totalling about £5^- million. If we decided to use the Japanese assets
in the United Kingdom as proposed by the Foreign Secretary the
Colonial Governments might wish to take similar action. He understood,
however, that this £5^ million might already have been com-,
mitted for payment into the United Kingdom Exchequer in
connection with the payments already made to the Colonies under
the war damage schemes, and he would wish to discuss the position
with the Chancellor of the Exchequer.
In discussion the following points were made: —
(a) Some Ministers thought it would be unwise, in advance of
the discussions on the Peace Treaty, to make an explicit statement
virtually abandoning the hope of obtaining any compensation from
Japan. A shorter statement, making it clear that we were continuing
to press our claims on Japan, and that we were consulting other
Commonwealth Governments, should suffice for the purpose of the
debate on the Motion calling upon His Majesty's Government to give
early consideration to obtaining payment of compensation from
Japan.

'
(b) It would be politically inexpedient to differentiate between
prisoners-of-war who had suffered at Japanese hands and those
who had suffered at the hands of the Germans. It was a duty of His
Majesty ? s Government to furnish assistance to former prisoners-ofwar,
Whatever monies could be extracted from ex-enemy countries
for this purpose.
(c) When the decision was announced, it would be undesirable
to leave in doubt the negligible prospect of obtaining substantial
compensation from Japan. The United States Government would
be able to advance a much more powerful claim than ours in the
unlikely event of any compensation being forthcoming.
It was the general view of the Cabinet that it would not be
desirable at present to make a full statement on the lines of the draft
annexed to CP. (51) 97. The Government might accept the
Motion when it came before the House and a shorter statement might
then be made, bringing out the principal points in the draft statement
and explaining in addition the position of the Japanese assets in the
Colonies, which required further elucidation.
The Cabinet­
(1) Invited the Foreign Secretary, in consultation with the other
Ministers directly concerned, to reconsider the form and
timing of a statement in the light of the views expressed
in the Cabinets discussion.
General Scope
of the Treaty.
The Cabinet then resumed their consideration of the Foreign
Secretary's memorandum (CP. (51) 104) on the issues for decision in
connection with the discussions with the United States Government
on a Peace Treaty with Japan.
:
The Foreign Secretary said that it was important that we should
enter into these discussions without delay. There might be a number
of points on which the Cabinet would wish to defer a final decision,
but he proposed that in the preliminary discussions our representatives
in Washington should follow the line indicated in his paper.
The accession of Japan to the cause of democracy would be of verygreat
value, and he felt that this could best be secured by the
conclusion.of a Peace Treaty on relatively liberal lines. An unfriendly
Japan, allied to the Soviet Union, would constitute a grave peril to
our interests in the Far East and to the peace of the world.
In discussion the following points were made: —
id) The paper did not deal clearly with the question of Chinese
participation in the negotiations for a Treaty. It was the Cabinets
view that the Peking Government should participate; but the United
States Government appeared to contemplate the participation of the
Nationalist Government. The Foreign Secretary said that this was
a matter which could best be considered further after some
preliminary discussions had been held with the United States
Government.
(e) The Secretary of State for Commonwealth Relations said that
he could not support the proposal in paragraph 5 (e) of-CP. (51) 104
that Japan should not be required to renounce her claims in
Antarctica. There was strong feeling about this in Australia and
New Zealand.
(/) The Chancellor of the Exchequer said that he was not in
favour of abandoning at the outset our claim to a share in the stocks
of Japanese gold (paragraph 5 (i) of CP. (51) 104). We might have
to agree to this in the end, but our representatives should not concede
it without argument.
(g) The, Secretary of State for the Colonies said that it was
important that the Treaty should include a Colonial application
clause.

(h) Some Ministers doubted whether it was desirable to omit
from the Treaty, as proposed in paragraph 5(c) and (d) of CP. (51)
104, clauses referring to , Japan's moral guilt and unconditional
surrender. The balance of opinion in the Cabinet was, however, in
favour of omitting these clauses. This would assist friendly relations
with Japan in the future and would not involve the sacrifice of any
benefit which could be obtained by the other parties to the Treaty.
The Cabinet­
(2) Authorised the Foreign Secretary to arrange for preliminary
discussions to be held with the United States Government
regarding the content of a Japanese Peace Treaty.
(3) Agreed that, subject to modification on the points noted in
paragraph (e) to (g) above, the proposals in C.P. (51) 104
could be adopted as guidance for our representatives in
these preliminary discussions with the United States
Government.
Organisation
for European
Economic
Co-operation,
Proposed
Merger with
Council of
Europe.
5. The Cabinet had before them a memorandum by the Foreign
Secretary (CP. (51) 101) regarding a proposal by the Swedish
Government that a committee should be appointed to study means
of promoting the creation of a new organisation into which the
Organisation for European Economic Co-operation (O.E.E.C.) and
the Council of Europe would be assimiliated. It was proposed in the
memorandum that the United Kingdom Government should oppose
this proposal and should seek to prevent, or delay, the appointment
of such a Committee; but that, if the proposal were strongly pressed,
they should finally aquiesce in it, provided that the terms of reference
of the Committee did not pre-judge the issue which it would be
required to consider.
In a short discussion it was suggested that it would be impolitic
for the United Kingdom Government to appear obdurate in their
opposition to the appointment of the proposed Committee. On the
other hand, strong opposition was expressed to the project of merging
O.E.E.C. in the Council of Europe.
The Cabinet—
Approved the proposals in paragraph 10 of CP. (51) 101.
Film of Berlin
Youth Rally.
(Previous
Reference:
CM. (51) 27th
Conclusions,
Minute 5.)
6. The Cabinet resumed their discussion of the action to be
taken in respect of a film of the Berlin Youth Rally.
The Foreign Secretary said that he was sorry that so few of his
Cabinet colleagues had attended the showing of the film which had
been arranged in the House of Commons, in accordance with the
Cabinefs decision of 12th April. He himself still feared that the film
might give young people in this country an unduly favourable
impression of conditions in Eastern Germany.
Other Ministers who had seen the film thought it more likely
that the average audience in this country would not be favourably
impressed, since they would find in it too many reminders of the
Nazi regime in pre-war Germany.
The Cabinet were informed that the President of the Board of
Trade had come to the conclusion that cinematograph exhibitors in
this country would not be interested in the film, and that it would not
therefore be practicable to get one of the film companies to acquire
exclusive rights for its public exhibition in this country.
It was the general view of the Cabinet that there were no grounds
on which the Board of Trade could properly take action, whether bywithholding
an import licence or otherwise, to prevent the National
Union of Students from showing this film to private audiences in this
country.

The Cabinet­
(1) Agreed that the President of the Board of Trade could not
withhold the grant of an import licence in respect of this
film, or take any other action to prevent its being shown
to private audiences in this country.
(2) Agreed that the Government should not themselves take any
action with a view to promoting the exhibition of an
edited version of this film to a wider range of audiences
in this country.
Cabinet Office, S.W.I,
23rdApril, 1951.

- 169
THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTYS GOVERNMENT
Printed for the Cabinet. May 1951
SECRET
CM. (51)
35th Conclusions
Copy No.
45
CABINET 35 (51)
CONCLUSIONS of a Meeting of the Cabinet held at 10 Downing Street, S.W. 1,
on Thursday, 10th May, 195:1, at 10 a.m.
Present: ;
The Right Hon. C. R. ATTLEE, M.P., Prime Minister (in the Chair)
The Right Hon. HERBERT MORRISON, The Right Hon. H. T. N. GAITSKELL,
M.P., Secretary of State for Foreign M.P., Chancellor of the Exchequer.
Affairs
The Right Hon. HUGH DALTON, M.P., The Right Hon. VISCOUNT ADDISON,
Minister of Local Government and Lord President of the Council
Planning. (Items 7-10).
The Right Hon. VISCOUNT ALEXANDER The Right Hon. VISCOUNT JOWITT,
OF HILLSBOROUGH, Chancellor of the Lord Chancellor.
Duchy of Lancaster.
The Right Hon. J. CHUTER EDE, M.P.. The Right Hon. E. SHINWELL, M.P.,
Secretary of State for the Home Minister of Defence.
Department.
The Right Hon. T. WILLIAMS, M.P., The Right Hon. GEORGE TOMLINSON,
M.P., Minister of Education.
Minister of Agriculture and Fisheries.
The Right Hon. P. C. GORDON-WALKER,
The Right Hon. HECTOR MCNEIL, M.P.,
M.P., Secretary of State for Common-
Secretary of State for Scotland.
wealth Relations.
The Right Hon. Sir HARTLEY SHAW- The Right Hon. ALFRED ROBENS, M.P.,
CROSS, K.C., M.P., President of the Minister of Labour and National
Board of Trade.
Service.
The following were also present:
The Right Hon. P. J. NOEL-BAKER, M.P., The Right Hon. MAURICE WEBB, M.P.,
Minister of Fuel and Power (Item 7). Minister of Food (Item 9).
The Right Hon. JOHN DUGDALE, M.P., The Right Hon. WILLIAM WHITELEY.
Minister of State for Colonial Affairs M.P., Parliamentary Secretary,
(Item 8). Treasury (Items 1-6).
Secretariat:
Sir NORMAN BROOK.
Mr. A. JOHNSTON.
Mr. O. C. MORLAND.
40660-3 B

CABINET 35 (51)
CONTENTS
i
Minute
No. - - u Subject - Page
1 Amendment of British North America Act 17.
2
Parliament ... ... 17
Business in the House of Commons.
Stone of Scone ...
17
3
Strategic Exports to China
17
4"
Parliament
5 Legislative Programme for 1951-52 Session.
18
Education Act ...
Denominational Schools. 18
Persia
Reply to the Persian Prime Minister. 19
Further Action.
8 Korea ... 20
Reply to Mr. Acheson's Message.
9 Retail Food Prices
21
10 Germany ... ... 21
Soviet Proposal for a Meeting of Foreign Ministers.

Amendment
of British
North America
Act.
(Previous
Reference:
CM. (49) 66th
Conclusions,
Minute 5.)
1. The Secretary of State for Commonwealth Relations said
that the Canadian Government were asking for immediate legislation
by the United Kingdom Parliament to enable the Canadian Parliament
to legislate on the subject of old age pensions. Under the
existing provisions of the British North America Act this was a
matter for the provincial legislatures in Canada; and it was now
desired that the Federal Parliament should legislate on the subject.
The Bill would occasion no controversy in the Parliament at Westminster
and, if notice of presentation were given before the Recess,
it could be passed through all its stages immediately after Parliament
re-assembled.
Attention was drawn to previous occasions on which the
Canadian Government had asked for amendments of the British
North America Act to be made at very short notice. The Canadian
Government should be asked to try to give longer notice in future.
The Cabinet-
Agreed that a Bill should be introduced forthwith to amend
the British North America Act to enable the Federal
Parliament of Canada to legislate on old age pensions, and
that the necessary steps should be taken to secure its
speedy passage into law immediately after the Whitsun
Recess.
Parliament.
Business in
the House of
Commons.
2. The Cabinet were informed of the business to be taken in
the House of Commons in the week following the Whitsun Recess.
A Private Member had tabled a motion for debate on Friday,
1st June, proposing fundamental alterations in the constitution of
Northern Ireland. The Cabinet agreed that special steps should be
taken to ensure that this motion was not carried.,
Stone of
Scone.
(Previous
Reference:
CM. (51) 34th
Conclusions,
Minute 5.)
3. In the debate on the Stone of Scone in the House of Lords
on the previous day the Paymaster-General had said that the
Government were considering where the Stone should be placed and
that consultations with the Church of Scotland were in progress. This
statement, which was not in full accord with the views expressed in
the Cabinefs discussion on 7th May, might give rise to the impression
that an early decision was likely to be taken regarding the future
custody of the Stone. The Cabinet were therefore asked to consider
whether the Secretary of State for Scotland should make a statement
in the House of Commons on the following day to dispel any such
impression.
It was the general view of the Cabinet that no further statement
should be made on this subject at the present time. Nothing more
could be said than that the Government were not prepared to
consider the matter so soon after the recent act of vandalism. The
Church of Scotland authorities would be aware that no consultations
with them were in progress.
Strategic
Exports to
China.
(Previous
Reference:
CM. (51) 34th
onclusions,
inute 2.)
4. The President of the Board of Trade said that in the debate
in the House of Commons that afternoon on strategic exports to
China he proposed to announce, with the agreement of the Foreign
Office and the Colonial Office, that a complete embargo would now
be placed on the export of rubber from Malaya to China. The recent
increase in the volume of exports from Hong Kong to China would
undoubtedly be the subject of unfavourable comment in the debate;
and doubt might with some justification be thrown upon the extent
to which the United States Government could be said to have cbncurred
in the policy which we had followed hitherto regarding the
export of rubber to China.
40660-3 B 2

Amendment
of British
North America
Act.
(Previous
Reference:
CM. (49) 66th
Conclusions,
Minute 5.)
'
1. The Secretary of State for Commonwealth Relations said
that the Canadian Government were asking for immediate legislation
by the United Kingdom Parliament to enable the Canadian Parliament
to legislate on the subject of old age pensions. Under the
existing provisions of the British North America Act this was a
matter for the provincial legislatures in Canada; and it was now
desired that the Federal Parliament should legislate on the subject.
The Bill would occasion no controversy in the Parliament at Westminster
and, if notice of presentation were given before the Recess,
it could be passed through all its stages immediately after Parliament
re-assembled.
Attention was drawn to previous occasions on which the
Canadian Government had asked for amendments of the British
North America Act to be made at very short notice. The Canadian
Government should be asked to try to give longer notice in future.
The Cabinet—
Agreed that a Bill should be introduced forthwith to amend
the British North America Act to enable the Federal
Parliament of Canada to legislate on old age pensions, and
that the necessary steps should be taken to secure its
speedy passage into law immediately after the Whitsun
Recess.
Parliament.
Business in
the House of
Commons.
2. The Cabinet were informed of the business to be taken in
the House of Commons in the week following the Whitsun Recess.
A Private Member had tabled a motion for debate on Friday,
1st June, proposing fundamental alterations in the constitution of
Northern Ireland. The Cabinet agreed that special steps should be
taken to ensure that this motion was not carried.,
Stone of
Scone.
(Previous
Reference:
CM. (51) 34th
Conclusions,
Minute 5.)
3. In the debate on the Stone of Scone in the House of Lords
on the previous day the Paymaster-General had said that the
Government were considering where the Stone should be placed and
that consultations with the Church of Scotland were in progress. This
statement, which was not in full accord with the views expressed in
the Cabinefs discussion on 7th May, might give rise to the impression
that an early decision was likely to be taken regarding the future
custody of the Stone. The Cabinet were therefore asked to consider
whether the Secretary of State for Scotland should make a statement
in the House of Commons on the following day to dispel any such
impression.
It was the general view of the Cabinet that no further statement
should be made on this subject at the present time. Nothing more
could be said than that the Government were not prepared to
consider the matter so soon after the recent act of vandalism. The
Church of Scotland authorities would be aware that no consultations
with them were in progress.
Strategic
Exports to
China.
(Previous
Reference:
CM. (51) 34th
Conclusions,
Minute 2.)
4. The President of the Board of Trade said that in the debate
in the House of Commons that afternoon on strategic exports to
China he proposed to announce, with the agreement of the Foreign
Office and the Colonial Office, that a complete embargo would now
be placed on the export of rubber from Malaya to China. The recent
increase in the volume of exports from Hong Kong to China would
undoubtedly be the subject Of unfavourable comment in the debate;
and doubt might with some justification be thrown upon the extent
to which the United States Government could be said to have cbncurred
in the policy which we had followed hitherto regarding the
export of rubber to China.
40660-3 B 2

The Cabinet agreed that the President of the Board of Trade
should speak in the debate immediately after the Leader of the
Opposition, and that the Minister of State for Colonial Affairs should
make a short speech in reply to the debate.
Later in the meeting, The Minister of State for Colonial Affairs
said that telegrams had now been received from the High Commissioner
for Malaya and the Governor of Singapore forecasting strong
local opposition to the proposed embargo on rubber exports to
China. It was feared that some Asiatic members of the Malayan
Executive Council in Malaya might resign as a protest, and that the
controversy over this decision would endanger the working of the
new federal constitution. The rubber producers in Malaya assumed
that rubber would continue to be sent to China from Ceylon and
Indonesia, and considered that a sacrifice was being imposed upon
them which other exporters of rubber were, not being called upon
to make.
The Cabinet agreed that, despite these representations, they must
uphold the decision to impose an embargo on the export of rubber to
China. It should be made clear to the producers in Malaya that the
United Kingdom Government would buy rubber for which forward
contracts with China had already been made, and that the Collective
Measures Committee would be asked to secure a general embargo
on the export of rubber to China from other rubber-producing
countries. The President of the Board of Trade should, however,
take care to use, in his speech that afternoon, language which suggested
that the embargo would be imposed in consultation with the
Colonial Governments concerned.
Parliament.
Legislative
Programme for
1951-52
Session.
5. The Cabinet considered a memorandum by the Home Secretary
(CP. (51) 125) setting out a provisional programme of Bills for
the 1951-52 session, which had been prepared by the Committee on
Future Legislation.
The Home Secretary said that the primary purpose of the paper
was to ensure that there was an even flow of work to the Parliamentary
CounseFs Office during the summer, and that enough Bills would
be ready to keep both Houses occupied in the opening weeks of the
new session. The provisional programme consisted of Departmental
Bills; and the political content of the King's Speech would have to be
considered at a later stage. Departments had brought forward proposals
for some further minor Bills since the programme was framed.
The Minister of Labour said that some of the Bills included in
the programme raised points on which he would wish to hold consultations
with the Ministers concerned.
The Minister of Local Government said that he might at a later
stage bring forward proposals, arising from the recommendations of
the Local Government Man-Power Committee, for a Bill designed to
secure some simplification of the administrative procedure of local
authorities.
The Cabinet-
Approved the legislative programme outlined in CP.
(51) 125.
Education Act
Denominational
Schools.
^Previous
Reference:
CM. (50)28th
6. The Minister of Education said that he wished at an early
date to enter into confidential discussions with the Church authorities
about some concessions which might be made in respect of denominational
schools. He understood that the Opposition were now prepared
to support concessions of this kind. They should not impose j
any serious financial burden on the Exchequer.

The Cabinet-
Invited the Minister of Education to discuss his proposals
with the Chancellor of the Exchequer and thereafter to bring
the matter before the Cabinet.
P e r s i a
- 7. The Cabinet considered a note by the Foreign Secretary
(Previous (CP. (51) 129) covering the revised draft of a reply to a message from
Reference: the Persian Prime Minister on the nationalisation of the oil industry
CM. (51) 33rd in Persia, together with instructions to His Majesty's Ambassador in
Conclusions. Teheran on an oral communication to be made when the reply was
Minute 1.) delivered. -
Reply to the The Foreign Secretary said that he had revised the reply in the
Persian light of the views expressed at a meeting of Ministers on the preceding
^rime Minister, day. He had arranged that the United States Government should be
consulted on the terms of the reply but he had not yet received their
views. The reply did not enlarge upon the serious consequences of a
Persian refusal to negotiate, or of unilateral action by the
Persian Government, but he proposed to instruct His Majesty's
Ambassador to remind Dr. Mossadeq that dispossession of the Anglo-
Iranian Oil Company (A.I.O.C.) must lead to economic chaos in
Persia and to a situation from which only the Communists could
profit.
The Prime Minister said that it should be made quite clear in our
reply to the Persian Government that the United Kingdom Government
desired to reach a settlement of the problem by direct negotiation
with the Persian Government. They would represent the interests of
the A.I.O.C. in the negotiations, but they were not prepared to treat
the issue as one between the Company and the Persian Government.
In discussion it was agreed that paragraph 4 of the draft
should be omitted, since it was not essential to our case and would
be particularly unacceptable to the Persian Government, and that
for similar reasons the reference in paragraph 3 to the " double
character " of the 1933 Agreement should be replaced by a reference
to the " two main purposes " of the Agreement. It was also agreed
that paragraph 7 should be amended to make it clear that the issue
was one between the two Governments, and that the proposed Mission
would represent the United Kingdom Government, though it would
also speak for the A.I.O.C., since the interests of the Government and
the Company were identical.
Further Action. In a general discussion of the situation in Persia the following
points were made: —
(a) The Chancellor of the Exchequer said that the Company's
withholding of royalties under the supplementary agreement had
already put the Persian Government in serious financial difficulties..
It would, however, be unwise to increase this form of pressure, since
it would create in Persia economic disorders which might precipitate
a Communist revolution.
(b) The economic effects of our losing control over the Persian
oilfields could hardly be overestimated. It might in the end be necessary
to take military action, but our best hope of retaining possession
of the oil and control over its distribution lay in a settlement by
negotiation, and we should concentrate our efforts on reaching such
a settlement.
(c) Military intervention for the protection of British lives would
not be difficult, militarily or politically. But intervention for the protection
of property would involve the deployment of much larger
numbers of troops and might have serious political repercussions. If
such intervention was challenged few countries were likely to support
us. India would oppose it, and her lead would probably be followed
by the other Asiatic countries. It was essential that we should secure
the support of the United States Government for any decision to send

military forces into Persia. Some Ministers felt, however, that circumstanoes
might arise in which, for the sake of preserving our prestige in
the Middle East, we might have to risk serious opposition in the
Security Council. ­
(d) Our strategic position in the Middle East was dependent upon
our ability to maintain our position in Persia. If we were forced by
the Persian Government to withdraw from the oilfields the attitude
towards us of Iraq and Israel, and particularly Egypt, would be
radically changed.
(e) The Persian Government seemed at present to be willing to
negotiate, on the basis of the nationalisation law, only With the
A.I.O.C.; but, even if they maintained this attitude, the Mission sent
to Persia could be effectively a Government Mission, and His
Majesty's Ambassador at Teheran might be instructed to find out
whether a Mission led by a Junior Minister would be acceptable to
the Persian Government.
It was the general view of the Cabinet that, before a reply was
sent to the Persian Government on the lines of the draft annexed to
CP. (51) 129, the Foreign Secretary should assure himself that the
United States Government would give solid support to such an
approach. His Majesty's Ambassador in Washington should be
instructed to discuss the whole situation with the United States Secretary
of State and to ascertain his views. The older members of the
Commonwealth should be informed of the views of the United Kingdom
Government. It would also be useful if the Pakistan Government
could be persuaded to bring their influence to bear on the Persian
Government to assist us in reaching a settlement by negotiation: the
Foreign Minister of Pakistan should be consulted personally, if he
was still in London.
The Cabinet-^­
(1) Invited the Foreign Secretary to arrange for immediate consultation
with the United States Government about the
terms of the proposed reply to the Persian Government
and about the general situation in Persia.
(2) Agreed that the reply should not be despatched to the Persian
Government until the views of the United States Government
had been obtained.
(3) Invited the Foreign Secretary to ascertain whether the Persian
Government would be willing to enter into negotiations
with a Mission led by a Junior Minister.
(4) Ihvited the Secretary of State for Commonwealth Relations
to inform the older members of the Commonwealth of the
views of the United Kingdom Government on the situation
in Persia.
(5) Invited the Secretary of State for Commonwealth Relations
to invite the Government of Pakistan to bring their
influence to bear on the Persian Government in order that
a settlement by negotiation might be reached.
Korea.
(Previous
Reference:
CM. (51) 33rd
Conclusions,
Minute 2.)
Reply to
Mr. Acheson's
Message.
8. The Cabinet considered a memorandum by the Foreign Secretary
(CP. (51) 127) covering the draft of a reply to the message from
the United States Secretary of State On Far Eastern policy.
The Foreign Secretary said that in drawing up the reply he had
taken into account the Cabinet's decision of 3rd May about the
retaliatory bombing of bases in China and their subsequent discussions
on strategic exports to China from British territories (CM. (51) 34th
Conclusions, Minute 2). -
In discussion the Cabinet approved, in addition to certain drafting
changes, the following amendments of substance in the draft
reply: —
(a) The reply should make it absolutely clear that we must be

consulted before a decision was taken to authorise retaliatory bombing,
even though the bombing was to be carried out solely by United
States forces.
(b) The reply should state that we were now informing the older
members of the Commonwealth of our decision on retaliatory
bombing.
(c) The reply should include a reference to the recent decision
to discontinue all exports of rubber to China.
The Cabinet—
Authorised the Foreign Secretary to reply to the United
States Secretary of State in the terms of the draft annexed to
CP. (51) 127 subject to the amendments approved in their
discussion.
Retail Food
Prices.
(Previous
Reference:
CM. (51) 21st
Conclusions,
Minute 3.)
9. The Cabinet had before them a memorandum by the
Chancellor of the Exchequer and the Minister of Food (CP. (51) 126)
outlining the increases in retail food prices on which they had agreed,
in the light of developments since the Cabinet discussed this question
on 19th March.
The Cabinet-
Took note of CP. (51) 126.
Germany.
Soviet
Proposal for
a Meeting of
Foreign
Ministers.
(Previous
Reference:
CM. (51) 31st
Conclusions,
Minute 3.)
10. The Foreign Secretary said that, in the discussions in Paris
with a view to framing an agenda for a meeting of the Council of
Foreign Ministers, the Western Powers had now reached the limit of
the concessions which they were prepared to make to the Soviet
Government. If therefore the Soviet representative continued to be
intransigent, there would be no point in continuing the conversations;
but, in order to avoid the impression that there had been a final breakdown,
it would be announced that the meetings of officials had been
interrupted and that further consultations regarding the possibility of
a Ministerial meeting would be pursued through diplomatic channels.
Cabinet Office, S.WA,
10th May, 1951.

THIS DOCUMENT IS THE PROPERTY OF HIS BRITANNIC MAJESTY'S GOVERNMENT
Printed for the Cabinet. May 1951
SECRET
Copy No.
CM. (51)
37th Conclusions
CABINET 37 (51)
CONCLUSIONS of a Meeting of the Cabinet held in Conference Room " B,"
Cabinet Office, Great George Street, S.W.1, on Monday,, 2%th May, 1951,
at 11 a.m.
Present:
The Right Hon. C. R. ATTLEE, M.P., Prime Minister (in the Chair)
The Right Hon. HERBERT MORRISON,
M.P., Secretary of State for Foreign
Affairs.
The Right Hon. H. T. N. GAITSKELL,
M.P., Chancellor of the Exchequer.
The Right Hon. HUGH DALTON, M.P., The Right Hon. VISCOUNT ALEXANDER
Minister of Local Government and OF HILLSBOROUGH, Chancellor of the
Planning.
Duchy of Lancaster.
The Right Hon. VISCOUNT JOWITT, Lord The Right Hon. J. CHUTER EDE, M.P.,
Chancellor. Secretary of State for the Home
Department.
The Right Hon. E. SHINWELL, M.P., The Right Hon. T. WILLIAMS, M.P.,
Minister of Defence.
Minister of Agriculture and Fisheries.
The Right Hon. GEORGE TOMLINSON,
M.P., Minister of Education.
The Right Hon. HECTOR MCNEIL, M.P.,
Secretary of State for Scotland.,
The Right Hon. JAMES GRIFFITHS, M.P.,
Secretary of State for the Colonies.
The Right Hon. P. C. GORDON-WALKER,
M.P., Secretary of State for Commonwealth
Relations.
The Right Hon. Sir HARTLEY SHAW- The Right Hon. ALFRED ROBENS, M.P.,
CROSS, K.C., M.P., President of the Minister of Labour and National
Board of Trade.
Service.
The following were also present:
The Right Hon. P. J. NOEL-BAKER, M.P., I The Right Hon. G. A. BROWN, M.P.,
Minister of Fuel and Power (Item 3). I Minister of Works (Items 1--2).
The Right Hon. JOHN DUGDALE, M.P.,
Minister of State for Colonial Affairs
(Item 6).
40675-2 B

CABINET 37 (51)
CONTENTS
Minute
No. Subject Page
1 Parliament.., ... ... 33
House of Lords Chamber.
2 Memorial to Field-Marshal Smuts ... 33
3. Persia ... ... 33
4 Korea ... ... ... ..... 35
5 Germany ... ... ... ... ... 36
Soviet Proposal for a Meeting of Foreign Ministers.
6 Colonial Development Corporation 36
7 Japanese Peace Treaty ... 37
9

Parliament. 1. The Prime Minister said that it had been suggested to him
House of Lords that the House of Commons might be given some opportunity of
Chamber. expressing their satisfaction that the House of Lords were now able
to resume their occupation of their old Chamber in the Palace of
Westminster. He himself thought it unnecessary that the Commons
should pass any formal resolution on this subject, and that it would
suffice if Mr. Speaker made an appropriate statement from the Chair
when Parliament reassembled on the following day.
The Cabinet endorsed the Prime Ministers view and invited him
to communicate with Mr. Speaker accordingly.
Memorial to 2. The Cabinet had before them a memorandum by the Prime
Field-Marshal Minister (CP, (51) 142) suggesting that a statue of Field-Marshal
Smuts. Smuts should be erected at Government expense on some suitable
site in Westminster.
The Prime Minister said that Field-Marshal Smuts had been an
outstanding figure among Commonwealth statesmen, and had been
a member of the Imperial War Cabinet in the first world war. He
had held a unique position in the Commonwealth; and there was no
real danger that, if a statue were erected in his memory in London,
other Commonwealth countries would feel that the same should be
done for some of their former Prime Ministers. The Secretary of
State for Commonwealth Relations said that he shared this view. He
would, however, like to be able to inform the Prime Minister of South
Africa before any public announcement was made.
On points of detail the Prime Minister said that, since circulating
his memorandum, he had held further conversations with the Minister
of Works and did not wish to ask the Cabinet to decide at this stage
that the statue should be erected in Parliament Square. There were
alternative sites which should be considered. On the choice of the
sculptor, and possibly also on the choice of a site, representatives of
the other political parties should be brought into consultation.
The Cabinet—
(1) Agreed in principle that a statue, of Field-Marshal Smuts
should be erected at Government expense on a suitable
site in Westminster..
(2) Authorised the Secretary of State for Commonwealth
Relations to arrange for the Prime Minister of South
Africa to be informed of this decision.
(3) Took note that the Prime Minister would take an early
opportunity of announcing this decision in the House of
Commons; and invited him to arrange for representatives
of the other political parties to be brought into consultation
regarding the choice of the sculptor and other details.
Persia..
v
3. The Foreign Secretary said that His Majesty's Ambassador
(Previous. at Teheran had delivered on 19th May the note to the Persian Govern-
Reference: ment which the Cabinet had considered on 10th May. No reply had
CM. (5.1) 35th yet been received from the Persian Government. Meanwhile,
Conclusions,
Minute 7.) '
however, the group of Ministers which had been watching developments
in the Persian situation on the Cabinets behalf had approved
his proposal that an appplication be made to the International Court
for a ruling that the Persian Government were under an obligation to
submit the dispute to arbitration. The application had been lodged,
with the Court, and the Persian Government had been informed.
Before it was known that the United. Kingdom Government were
making an application to the International Court, His Majesty's
Ambassador at Teheran had held a private conversation with the
Persian Prime Minister. In the course of this conversation
40675-2 * B 2

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