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Commander Paul Foleyand L. I. Thomas to Edward N. Hurley, Chairman, United States Shipping Board

Subject Copy.                               File No. <46-4-1>

              Cablegram Sent 14 August OGD

To   Opnav Washington                       Serial No. 2882

Prep. by LES                 LES D.R.

                                     31 ADR

2882 Petoleum Mission No. 31 from Foley and Thomas for Hurley. Following telegram has been despatched today by Mr. Walter Long1 to Sir Frederick Black.2 QUOTE: H.M. Government received with appreciation the information communicated in telegrams No. 12 and 13 to Foley and Thomas.3 H.M. Government are extremely anxious that no questionas to trade advantages or disadvantages should delay the consummation of the routing arrangements on which the two Governments have so happily come to an agreement. They feel however that at present they are not fully informed as to the reasons which have prompted the United States Government to substitute a financial adjustment for an exchange of products in dealing with the distribution of kerosene in the East. The proposals of the British Government as to distribution contained in pages 16 and 19 of the British memorandum,4 were most carefully framed with the object of avoiding difficulties of price and were so far as could be seen such as to leave neither of the Trading Companies with any advantage over the other. H.M. Government would therefore be much assisted in the discussion of the U.S. Governments counter proposal in paragraph 3 of telegram No. 12 if they could be informed as quickly and concisely as possible of the nature of the objections of the U.S.Government to an adjustment on the basis of an exchange of products rather than on a financial basis. UNQUOTE.

          We have done our utmost to reach a settlement of whole Eastern rerouting question and British Authorities are in complete agreement with your telegram No. 12 except as regards paragraph 3. While not declining to accept paragraph 3, or proposing modification thereof, British Government feel they should be first advised of your views as to why the agreement respecting kerosene oil trade in the various Eastern areas cannot be adjusted on basis of exchange of products as originally proposed by them instead of on a financial basis as proposed by you. They state that this information is desired not only for themselves but to assist them in reconciling feelings of British oil interests.

          We have emphasized, firstly, that an adjustment on an exchange of products basis must necessarily favour British interests who would have their markets at remote distances from Eastern fields, say North China and Japan and possibly Egypt supplied with American kerosene in exchange for supplying American markets near to Eastern producing fields with Eastern kerosene.

          Secondly, that as it is impossible to state what quantity of kerosene would be produced in the future from Eastern refineries and what quantity it would be jointly agreed to distribute in Eastern areas that an adjustment except on some current financial basis must have the effect of discounting the future making either interest liable to deliver to the other a very large quantity of kerosene after the war.

          That such an arrangement would ther<e>fore be a gamble difficult to contemplate as the oil would be sold on basis of current costs which might be out of all proportion to after war costs including open freight rates.

          Please cable us fully and with least possible delay your views. 084214. 2882


Source Note: Cy, DNA, RG 45, Entry 517B.

Footnote 1: Secretary of State for the Colonies Walter H. Long.

Footnote 2: Sir Frederick Black, British Director General of Munitions Supply.

Footnote 3: See: Hurley to Foley and Thomas, 17 July 1918, and 20 July 1918.

Footnote 4: This memorandum has not been located.

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