Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
Paper Prepared in the Department of State
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40. Paper Prepared in the Department of State 1 Washington, undated. A CONTINGENT ENERGY STRATEGY It is the object of this paper to demonstrate that the U.S. should mini- mize its energy dependence upon the Persian Gulf and disperse its pattern of energy acquisition so as to maximize the political and geographic disparity of its suppliers. Such a policy is both feasible and consistent with current U.S. energy initiatives internationally and in Project Independence. If adopted, the objective of such a policy would be to reduce acquisi- tion of U.S. petroleum imports from the Persian Gulf and the Mediterranean to an absolute minimum and to maximize imports from Canada, Mexico, Indonesia, Nigeria, and Venezuela. Key Considerations 1. While U.S. oil interests in the Persian Gulf have been very sub- stantial, the area was not a significant source of supply to the U.S. until recently. Historically, these U.S. corporate assets were developed to service primarily Europe and Japan, not the U.S. They are now in the process of being liquidated. The U.S. international oil industry antici- pates it will very shortly have no fixed assets in the Gulf and, with their disappearance, will go a long-standing U.S. national interest—mainte- nance of the industry’s concessionary stakes. 2. In contrast to the virtual insignificance of the Gulf as a source of U.S. petroleum imports, Canada and Venezuela have been very sub- stantial suppliers to the U.S. market. In earlier days, Mexico supplied the U.S. and remains a logical and probably an increasingly important source. More recently, both Indonesia and Nigeria have expanded their position in the U.S. market. This is particularly true of Nigeria. With the possible exception of Canada, these variegated sources are fully capable of satisfying all their domestic needs and still provide an impressive export potential. Assuming U.S. import volumes decline chiefly as a result of the President’s National Energy Program, these sources—even without Canada—could meet U.S. import requirements . 3. From the U.S. perspective, the Persian Gulf is geographically the most distant point of all significant petroleum sources. Strategically it is the least defensible because of the high concentration of the wells, pipe- lines, storage tanks, docking facilities, tankers, and increasingly, refin- 1 Source: Ford Library, National Security Adviser, Backchannel Messages, Box 4, Middle East and Africa, Outgoing 2/75. Confidential. There is no drafting information on the paper. Kissinger was traveling in the Middle East February 10–15 and it was possibly prepared for his use.
365-608/428-S/80010 136 Foreign Relations, 1969–1976, Volume XXXVII eries. Moreover, tankers from the Persian Gulf must traverse the Straits of Hormuz and the African Coast routes which are, under almost any realistic situation, exceptionally vulnerable. A realistic assessment of the implications of defense appropriations in the United States in re- cent years does not warrant confidence that the Congress will provide adequate and timely resources to build an Indian Ocean fleet with the capacity to defend a U.S. petroleum lifeline transiting that region. By contrast, Canada and Mexico are both contiguous with the United States; Venezuela is accessible via the Caribbean, and petro- leum from both Nigeria and Indonesia can be given protection by the Atlantic and Pacific fleets respectively. All of these represent far more se-
4. Geography, culture, and contemporary political affairs all con- stitute unifying factors above and beyond petroleum for the countries of the Persian Gulf. While this observation applies with less force to Iran, it nevertheless applies.
. The five countries indicated above have the qualities of disparity. All have a voracious appetite for revenue; access to U.S. technology is clearly of major interest; and with the exception of Canada, all would pay a substantial price in their internal affairs were they to forego in- come resulting from an embargo. With the possible exception of Iran and Iraq, this is not now true of the countries of the Persian Gulf. 5. With political instability a widespread phenomenon among the states of the Persian Gulf, the instability of one significant supplier tends to be destabilizing to all of the others. Thus endemic political insta- bility in the Gulf compounds the problem of supply security . The same observation applies to the possibility of military conflict within the region and between Gulf states. Such conflict would tend to compound itself and spread to other countries. There is no such com- pounding effect among the alternative sources .
Current U.S. strategy for dealing with the energy/fiscal crisis ema- nating from the producer states is to take steps (a) to limit our de- pendence upon foreign supply, (b) to stimulate the discovery of addi- tional domestic petroleum and gas reserves and (c) to encourage research into and the most efficient use of alternative fuels. Simulta- neously, the U.S. is making a major diplomatic effort to encourage sim- ilar efforts on the part of other consuming states. In addition, the U.S.
365-608/428-S/80010 August 1974–April 1975 137 has committed itself to a concerted program with its allies for sharing oil in the event of an emergency. 1. A major objective is to break the political and economic power of
The principal tactic is to create a situation of consuming states’ solidarity on emergency supply arrangements and common acceptance of a significant reduction over time of their dependence upon OPEC crude. Thus a clear signal is flown to OPEC states warning them they will have to decide amongst themselves how a diminishing market for their crude will be shared. The fundamental assumption is that a mounting
with OPEC states having different circumstances and needs, the resultant divisions will bring their house down. 2. The critical difficulties facing the U.S. initiatives rest on (a) the Arab-Israeli dispute and the extent to which this may continue to be seen by other consuming states as a problem in which the U.S. is the principal actor—and thus it is U.S. policy and actions in that arena which threatens oil supply; and, (b) the very significantly different de- grees of consumer states’ dependency upon OPEC oil; a severe cutback which seriously affected the U.S. might literally imperil others. Hence the unwillingness of many consumer states to identify their energy interests and issues too closely with those of the United States. 3. The forces which divide consumers and bind producers are such that a prudent U.S. policy for the international acquisition of petroleum must
Cohesion of consumers is less than complete. There is discord over the financial safety measures to be taken. The French continue to em- phasize the differing degrees of interest of the Europeans vs. the United States. Most consumers wish to pursue a policy which they describe as avoiding all aspects of “confrontation”. On the producer side, there is mounting evidence that Kuwait, Saudi Arabia, and Iran may be pursuing a strategy of granting substan- tial loans or other emoluments to key consumers in return for their less-than-active participation in U.S. energy strategy. To Europeans and Japanese, this is a seductive approach. OPEC pricing policy since the embargo has been to ratchet up the price, and in each instance exploit the differences among the consumers in order to lessen the chance of consumer cooperation. The use of finan- cial resources to pursue this end further is simply an extension of cur- rent policy. The critical question is whether or not Iran and Saudi Arabia will be able to coordinate their responses to pressures from the consumers and in particular the United States. If they are not, and they compete,
365-608/428-S/80010 138 Foreign Relations, 1969–1976, Volume XXXVII OPEC will be broken. Such a falling out, however, could be danger- ously destabilizing in the Persian Gulf especially if it entails physical conflict. 4. Because of the hazards indicated above, the U.S. pattern of petro- leum acquisition should be such as to minimize its vulnerability under any cir- cumstances. This can be accomplished by (a) diversifying the sources to the five countries indicated, and (b) creating with those countries a convincing mutuality of interests such that the arrangements made will stand a reasonable test of surviving changes in political regimes. This can be accomplished by proceeding down two parallel “tracks” to diversify and secure U.S. pe- troleum sources abroad. Track One This approach entails the creation of a group in either the ERC or the NSC of experts on each country to: (A) assess the oil and gas producing capabilities of each country over time, (B) assure that the oil and gas qualities are such that they will meet U.S. import requirements, (C) develop a careful survey of broad national economic needs with an evaluation of the particular contributions that the U.S. could make to each country’s development particularly but not exclusively in the area of energy. Because all five of these countries—Canada, Vene- zuela, Mexico, Nigeria and Indonesia—have limited proven oil re- serves, means should be available to engage their national interests in this pursuit which could provide them with unique and privileged access to U.S. technology and markets. The implications of such findings to U.S. relations with each of the countries would transcend any other bilateral relationship the U.S. has ever attempted.
This entails the launching of an unprecedented technological tri- lateral approach to the exploitation of the tar sands of Canada, Vene- zuela and the United States; each of the deposits presents unique problems. There are still key questions to be answered before they can be processed at reasonable capital costs; neither Canada nor Venezuela can realistically hope to master in a timely fashion the vast research and capital requirements entailed in the exploitation of these immense and untapped resources. Yet their development could unlock to the U.S., Canada and Venezuela, as well as others, huge reserves. The scale of this effort could be greater than any international research undertaking ever attempted. The benefits from a successful effort would be incalcu- lable. The U.S. is presently the only nation which could make the neces- sary vital contribution. Nor need the energy resource tackled be lim- 365-608/428-S/80010 August 1974–April 1975 139 ited to tar sands. Shale, solar power, nuclear fusion are available candidates. This approach has a unique aspect. National sensitivities of Canada and Venezuela are met by each contributing to a common tech- nological effort while they still retain the exclusive control over the tar sand reserves. Progress down this track in tandem with the wider ranging programs proposed in Track One would provide a powerful incentive for Canada and Venezuela to reach energy agreements with the U.S. to supply us in the interim with a major portion of their surplus crude and gas thereby giving the U.S. a near equivalent of internal supply lines. While key emphasis would be given Canada and Venezuela, nothing need preclude attention to energy research opportunities in Mexico, Indonesia and Nigeria. 41. Memorandum of Conversation 1 Riyadh, February 15, 1975. SUBJECT Secretary’s Meeting with Yamani PARTICIPANTS Ahmed Zaki Yamani, Minister of Petroleum, Saudi Arabia (Y) The Secretary (K) Ambassador James Akins (A) Under Secretary Charles Robinson Deputy Assistant Secretary Harold Saunders K. We haven’t had a chance to talk for a long time. There are so many things to talk about that I’m delighted to have this chance. What would you like to begin with? I suppose we should talk about oil. Y: Oil should be the subject, yes. K: Let me be very frank. I’m told you think I’m against a producer- consumer dialogue and want a confrontation between consumers and producers. Y: I feel you’re not in favor of the French proposal, which we Saudis originated. 1 Source: National Archives, RG 59, Records of Henry Kissinger, Lot 91D414, Box 10, Classified External Memoranda of Conversations, January–April 1975. Secret; Nodis. Drafted by Saunders. The meeting was held in the Guest House in Riyadh. 365-608/428-S/80010 140 Foreign Relations, 1969–1976, Volume XXXVII K: I’ll tell you exactly what my position is. There must be a cooper- ative relationship between producers and consumers. You want secu- rity for your investments. We want security of supply. You want a rea- sonable price for your oil. We want the lowest price that is compatible with your interests. We have an interest in a number of issues associ- ated with development. We have some special problems. We have to reduce our depend- ence on imported oil. Either that or we have to have an absolute assur- ance on the continuity of supply. It isn’t tolerable for a major power to be as vulnerable as we now are. These are the issues. The point is that the method for solving these problems has to be a cooperative one. We are ready on many of these issues to discuss our and your ideas. My reservation on the French idea of a conference is that it is easy to start a conference but it is hard to make one produce results. Your original idea was a very small conference—just 3 on each side. We are not eager to let other countries maneuver with our chips. We want a technical conference, not a political conference. We, in our government are now trying to come up with substantive proposals for a conference. We support a conference. The only question is what will come out of a conference. If we follow the Algerian approach, it will be another UN Special Assembly. It will just produce a set of abstract principles that will not have any effect on the situation. Robinson can tell you in detail when you meet tomorrow exactly what we are trying to accomplish. Y: We have nothing against your reducing your dependence on imported oil. Saudi Arabia is playing a difficult role in OPEC. Others want to raise the price to $15–17 per barrel. We see no alternative but for us to have a producer-consumer meeting. We don’t think you will reduce prices by reducing consumption. We will stand with you if it is in the form of cooperation. We think there should be a meeting. We think the UNGA was equivalent to having no meeting because it did not get to a serious discussion of the real issues. The idea of a small conference with limited issues was fought by the Algerians. The U.S. did not help us. K: We did not help you because we did not trust the other consumers. Y: The Algerians wanted to discuss other issues in a large group. We think of the EEC, the U.S., Japan, Iran, Saudi Arabia, Algeria, Vene- zuela, India, Zaire, Brazil. The French have developed the same list. I was told you strongly opposed including the developing countries and that you oppose discussing issues other than price. I understand you oppose indexing. K: No, I don’t oppose discussing other issues. I don’t see how you can discuss price without discussing other issues. You have to discuss investment and some development issues to discuss price.
365-608/428-S/80010 August 1974–April 1975 141 On indexing, I have an open mind. I’d be willing to consider an index starting from a lower price. Y: If the USG takes the lead, we are prepared before and during a conference to harmonize our views. K: Why don’t we begin trying to harmonize our views—right now? How do we do it? Y: We are the only ones who have such closely related interests. I’ll talk about how we are embarrassed by the new taxes. It’s the high oil prices—now you are adding $3. You are trying to serve a number of conflicting objectives at the same time. I understand you have no objection to the tripartite meeting. K: Right. I am willing to have an exploratory talk with you. If you try to relate all raw materials we’ll end up with another UN Special Assembly. Y: I won’t object to raw materials as an item on the agenda but we don’t have to talk about them all at once. The atmosphere is not healthy. We could find a reasonable way to talk about raw materials. K: We have to separate two problems: (1) Mr. Robinson will talk to you about how a conference might be organized. (2) We will do our ut- most to coordinate our positions. My nightmare is that the actual conference will turn into a rhetor- ical exercise. Y: The atmosphere can be better provided we have a meeting. K: Well, as I understand it, we are planning on a preparatory meeting at the end of March or early April. If we could make progress in our talks together I would feel better about a conference. Y: We’ll have a discussion that no one will know about. K: We will keep it secret. Y: We agree on a preparatory meeting in late March. We agree that the number of countries would be 10 or 11. K: That meeting should be at the officials’ level. Y: Experts. K: Another reason this has to be kept secret is that we haven’t said this even to the Europeans. Y: You agree that the developing countries should be present? K: Yes.
Y: We were told you were opposed to this. K: By whom? I won’t do anything. Y: Your Ambassador in Algeria said you have reservations about including the developing nations and raw materials. On raw materials, 365-608/428-S/80010 142 Foreign Relations, 1969–1976, Volume XXXVII I am not thinking about putting everything on the agenda at once, but there are some issues that need to be discussed. K: Talk to Robinson. My concern about raw materials is that it not be too theological. If you and Robinson and Jim (Akins) can work something out, I’ll be very sympathetic. I don’t exclude raw materials. See what you can work out. I just want to be sure we know what we are doing when we go to this confer- ence. To the degree that the U.S. and Saudi Arabia are coordinated, I have considerable confidence in the conference. But it is in our interest to keep our coordination quiet. Y: Even in each capital or camp there are interests that are not all the same—for instance, Algeria and Saudi Arabia have different posi- tions. The U.S. and Japan have different positions. K: I’m trying to prevent the conference from becoming an auction. Y: We cannot stop this entirely. So I can tell my friends you are not blocking a conference? K: Absolutely. But I want it to succeed. The best way to block it would be to call it now and have it discuss all the issues. That would assure that nothing would come out of it. Y: I don’t know how well it will be prepared. I’m not a perfec- tionist. A well-prepared conference may not be in your interest. We have an area of mutual interest. A: I think we both have an interest in a reduction of price, tied to indexing. K: We have to keep our coordination quiet because there are very different views in our own government: If I agreed to indexing . . . I could put it across in our government. Y: We have discussed in OPEC a freeze price with an index but not at the full inflation rate. But not at $2–3. Some American official has mentioned that. K: Oh no. That is ridiculous. (Rising) It has been very nice to see you again. 2 2
on February 15 and told them: “There is no area with more nonsense spoken than energy. We are trying to reduce the power of OPEC. We are trying to decrease our dependence on OPEC and to restore the West’s freedom to act. Without this a sense of impotence will seize Western Europe and Japan until vague fears about what the oil producers will do will create unmanageable abuse. I am not saying we want confrontation.” Kissinger later explained: “We have meant to avoid three possibilities: 1. To discourage threats to use the oil weapon in the current situation; 2. To encourage moderates so they won’t rely on the Soviet Union; 3. To decrease the readiness to go to war because they (Arab side) rely on the oil weapon.” (Memorandum of conversation; ibid.)
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