Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
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Memorandum of Conversation
Helsinki, August 1, 1975, 1:30–2:35 p.m.
Valery Giscard d’Estaing, President of the French Republic
Jean Sauvagnargues, Minister of Foreign Affairs
Claude Pierre-Brossolette, Secretary General of the Presidency of the Republic
Dr. Henry A. Kissinger, Secretary of State and Assistant to the President for
National Security Affairs
Lt. General Brent Scowcroft, Deputy Assistant to the President for National
Source: Ford Library, National Security Adviser, Memoranda of Conversations,
Box 14. Secret; Nodis. The luncheon meeting was held at the U.S. Embassy Residence.
Presidents Giscard and Ford were in Helsinki for the conclusion of the Conference on Se-
curity and Cooperation in Europe.
April 1975–October 1975 253
Economic Policy/Cyprus; French Nuclear Programs; Energy
[Omitted here is discussion unrelated to energy.]
Giscard: A third point, about energy. Everyone is agreeing there
should be a meeting of ten to agree on following process. Then a convo-
cation of a full conference—of 27—at the Foreign Minister level. We are
drilling off our west coast for oil. Britain thinks they have a big find but
I don’t believe it. We have had thus far three commissions—on oil, raw
materials, and development. The financial end was to be handled as
sub-groups of these. The Conference would reconvene to get the re-
ports of the commissions. But Fahd and Saud came here ten days
ago. They were very motivated. They wanted a consumer-producer
meeting announced before the OPEC meeting to help hold the prices at
least until early 1976. Maybe that is a little unrealistic but they seem to
want to help. But they insisted on a fourth commission to deal with fi-
nancial matters. We remonstrated, but they insisted—in cooperation
with the Algerians. They said they would pledge if there is a fourth
commission to fight against price rise. We said we would be in touch to
get the American reaction.
Kissinger: They have insisted to us on a fourth commission. Our
people violently oppose it. First, for jurisdictional reasons; second be-
cause they feel it as a device by you to get monetary issues into a new
forum, and third these issues are under discussion in IMF, etc. where
we have weighted voting. In the fourth commission we would be
killed. This is a valid point. Perhaps it could be restricted to issues
related to the other three committees.
The President agrees that invitations should go out at the end of
August. I think we need a meeting next week.
The President: I would like to know more about it.
Kissinger: These financial issues will be discussed. It is a question
of whether we discuss them all together or within each committee.
Sauvagnargues: Perhaps we could restrict it to issues that are not
being discussed in IMF, etc.
Kissinger: That would help.
Giscard: We have no intention of using it to shift the issues to a
Schmidt thinks we could be in an offensive stance in this fourth
committee as we have some leverage here.
The President: If you had it spread among the three committees,
you would get more diversity. It might be better to centralize it.
254 Foreign Relations, 1969–1976, Volume XXXVII
Kissinger: I think we can manage in a week or so.
Can we get back
Sauvagnargues: I see little likelihood of getting invitations out by
the end of August.
Kissinger: If you could send me, Jean, by next Tuesday, a paper,
we will get to you by Friday.
Giscard: For the Japanese, I will deny that there was any decision
yesterday. The Japanese want any information before they meet with
Can I mention that we asked private experts to study the
Kissinger: That would be fine. We may mention the three or four
Giscard: I don’t think they care.
The President: I am looking forward to seeing you next May.
Giscard: That will be fun.
[The meeting ended.]
Robinson sent a message to Yamani on August 7, stating that the United States
would suggest that a fourth commission be established “to study financial problems re-
lated to the work of the three other commissions except those which infringe on the com-
petence of the IMF and IBRD,” thus satisfying Yamani’s “desire for a single mechanism to
consider financial issues.” (Telegram 186960 to Jidda; National Archives, RG 59, Central
Foreign Policy Files, P850038–1748) Yamani received the note on August 11, just before
leaving for Damascus for 2 days. He said that he “had no comment at the time” and
“wanted to consider the matter” before responding, which he would do upon his return.
(Telegram 5617 from Jidda; ibid., P850106–2383)
Tuesday, August 5, and Friday, August 8.
During an August 6 meeting at the White House, Japanese Prime Minister Miki
raised the issue of Japan’s energy vulnerability and linked it to the unresolved
Arab-Israeli dispute, noting that if a “fifth war in the Middle East” occurred, “Japan’s in-
dustry would likely be faced with a situation in which it would no longer be viable.”
After discussing U.S efforts to achieve a settlement in the Middle East, President Ford
said that “the United States, Japan, and the other consuming nations should work closely
together to try to develop a firm position among the consumers,” and that it was “essen-
tial” that they “achieve a high degree of unanimity to work out the problems of supply
and price.” He added: “We must prepare to meet any contingency that may arise from
ill-advised actions by the producers,” and stressed that Japan’s cooperation was “highly
essential, including the minimum floor price.” (Ford Library, National Security Adviser,
Memoranda of Conversations, Box 14)
Brackets in the original.
April 1975–October 1975 255
Memorandum of Conversation
Washington, August 7, 1975, 4 p.m.
EXXON’s views on IEA, OPEC, and Nationalizations
Clifton Garvin, Chairman, Exxon
J.K. Jamieson, Chairman, Exxon (retired)
The Deputy Secretary
Thomas O. Enders, Assistant Secretary for Economic and Business Affairs
Monroe Leigh, L
Donald Hart, EB/ORF/FSE (Notetaker)
The Secretary: I understand the oil companies are knocking the
IEA. Why is this?
Jamieson: I don’t know what you mean unless it is on the aspect of
getting too much control. We have been supporting the IEA, but it
sometimes seems to be moving too far towards control rather than
Garvin: The concept of the IEA is top-notch. Excellent. It’s moving
right along. If you don’t mind my being honest . . .
The Secretary: I know what you think anyway.
Garvin: . . . there are philosophical differences. We feel that the IEA
emphasizes some areas that are not as important as others.
The Secretary: I understand that it is not you who are knocking the
IEA. Not you two. I don’t have any reports on you.
Garvin: I have been speaking to Yamani for months . . .
The Secretary: Would you like coffee or tea?
Garvin: There is an actual problem and it is the data collection of
the IEA. It’s trying to get to the point that some countries want—data
company-by-company. Actually these countries are 2 years behind.
What they want is crude price information to see if they are getting
screwed compared to some other countries. Crude prices are now so
simple that the UK and Germany, for example, are getting crude for
just about the same price.
The Secretary: The point is that if the IEA collapses, your negotia-
ting position collapses in the whole Arab world. The IEA must be
Source: National Archives, RG 59, Central Foreign Policy Files, P820123–2003. Se-
cret; Nodis. Drafted by Hart.
256 Foreign Relations, 1969–1976, Volume XXXVII
strong and, more importantly, must look strong. Take the minimum
safeguard price. I have heard great philosophical objections to this but I
have yet to hear a practical objection to it. It represents no threat to ex-
isting prices. It is to prevent a drop in prices in the event of a fall in oil
prices. As a matter of fact, it’s primarily to prevent the U.S. from be-
coming a high-cost energy country while the rest of the world would
enjoy low-cost energy.
Jamieson: The trouble I have with that is that I don’t see a low price
The Secretary: Well then, either the situation would never happen
or the minimum safeguard price would become necessary. Suppose we
go into development of alternative energy sources? This could drop oil
Jamieson: In the time frame we are looking at, it would not have
The Secretary: What harm does it do? It’s a symbolic gesture to
Garvin: What they are laughing at is to see so much effort being
spent on this and not on other things. Yamani has said to me, “what
does $7, $8, $9 mean?”
The Secretary: The minimum safeguard price is primarily sym-
bolic and it is insurance if one wants to use it.
Garvin: If a company were putting in 10 coal mines, this would be
more plausible to the producers.
The Secretary: I agree the program is not having plausible results.
Last year now, we had them psyched.
Enders: If we win on oil decontrol, that will be a step. If not, we
will be in one helluva mess.
Garvin: I agree that the IEA is a central political element.
Jamieson: It is a necessity if we consider a future embargo possible.
God knows, I don’t want one.
Enders: If the cartel has to cut back, how can we make it more un-
comfortable for them?
Garvin: A decision is not fundamental. Except for 2 or 3 countries,
the allowables that are set do not have an effect on production levels.
They are set so high. Each company makes its own decision on produc-
tion. We try to do it equitably as between, say, Iran and the Gulf. The
Shah gets numbers, you know, and would get on our backs.
The Secretary: Who gives him the numbers? You do, don’t you?
Garvin: No. No. He gets the numbers the same as we. They must
be reported to the governments.
The Secretary: Who determines the production at a price?
April 1975–October 1975 257
Garvin: They do. They say that each barrel that is sold must be sold
at 93% of posting.
The Secretary: You adjust deliveries on the basis of price.
Garvin: Yes, but we just don’t know the answer as to the elasticity
of demand. We have tried to find out how much of the reduction in de-
mand is due to recession; how much is due to the whole jaw-boning.
We don’t know the answers.
Ingersoll: If you had decontrol at the end of the month, then you
Garvin: Yes, we might have more of the answer, but the reduction
has been in total energy use, you know, not in gasoline. In Japan, gaso-
line is up to 1973 levels.
Enders: Once the price is fixed, then the amount of production is
worked out by the companies. Then it’s how to avoid getting the Shah
on your back. Therefore, the cartel is able to make the liftings come out
acceptably to it. Is there a way to interfere?
Jamieson: To take an extreme case, you could cut Iran and raise
Garvin: Wait. In Iran, you have Dutch and British companies, too,
for whom this might not work out.
The Secretary: Well then, what about going all the way up in Iran?
Garvin: You would get just one million barrels per day more. You
would probably take it out of Saudi Arabia but Yamani doesn’t need it.
Ingersoll: What must be done is to increase his ability to spend.
The Secretary: Not with the U.S. bureaucracy we have. We have
too many school teachers. They want to sell him things that are useful. I
don’t care if they are useless as long as they cost him lots of money.
Jamieson: Perhaps you would like to hear about our situation in
Saudi Arabia. Cliff has been negotiating.
Garvin: Progress is just about zero. Saudi Arabia desires 100%
ownership of the concessions that were to run until 1999.
The Secretary: What if you insist on your legal rights?
Garvin: Well, they would say we have none.
Jamieson: I believe that to take that position would force them to
nationalize us completely.
The Secretary: What’s the difference between nationalization and
Jamieson: Well, we would still be in there with a vehicle to operate
Garvin: The Saudis have said that they prefer to take over on a vol-
untary basis. They say they’ll pay net book value. They say that they
258 Foreign Relations, 1969–1976, Volume XXXVII
don’t want the companies to leave. They say they want the companies’
technical expertise. Not the capital. They have plenty of that.
Leigh: They got it from you.
Garvin: They say they want to sell you crude. It sounds simple so
we have been trying to make a new arrangement, a viable arrangement
to help expand the operation and particularly to help with industriali-
zation. But it is not at all simple to bring this about. Yamani is very
emotional. He has changed his thinking during two years. He was very
angry last summer so he got the King to put on an 85% income tax and
20% royalty. That was punitive taxation. The net effect is that the com-
panies have been experiencing a negative cash flow. Yamani did this
deliberately and he admitted it in November, telling me that the reason
was that you were not being serious in negotiating. He was national-
izing us through fiscalization. I asked him if he could undo it. He an-
swered, “If I want to.” So here we are in August after 8 meetings with
him. We are trying to get another date around Labor Day. I don’t know.
You see, he has become accustomed to the nice income he is getting. In
Venezuela, we are in the same bind.
The Secretary: How do they nationalize you by fiscalization?
Garvin: By the tax and royalty rates. They leave a 22¢ margin on
the 40% production which is equity oil. This is not enough for the cost
of capital. We are still expanding there. The companies are putting in $1
billion per year. We are committed to an agreement to increase capacity
to 12–12.5 million barrels per day by the end of 1976.
The Secretary: Why?
Garvin: Because of the damned dilemma we are in because of
people like Yamani. We are not willing to put down the gauntlet.
The Secretary: Why not?
Garvin: We are probably being led down the garden path by
Yamani. The new arrangements. He throws out the proposals we make.
Enders: About what?
Garvin: Our intent is to make a long-term arrangement. I don’t like
net book value compensation but if it’s part of a long-term arrangement
package . . .
Leigh: So you get a long-term package that is 5 years and after 1
year it’s no good.
Enders: The November action was a major factor in the viability of
The Secretary: How low can Yamani go?
Ingersoll: He can go to 3–4 million barrels per day.
Garvin: The Saud Government had only $1 billion a year. Last
year, Saudi Arabia got $24 billion. Foreign reserves are $20 billion as of
April 1975–October 1975 259
July. The Saudis announced a $142 billion Aid Program. I asked
Yamani about this and he said this will keep the developing countries
off his back. He knows very well he can’t spend that kind of money.
The Secretary: Do you deal with the King?
Garvin: All authority has been delegated to Yamani.
Jamieson: We feel that Yamani is in an even stronger position now.
The Secretary: Don’t they have needs?
Garvin: We have no bargaining position.
The Secretary: Yamani doesn’t care if you feel good.
Ingersoll: In Venezuela it could be tougher.
Garvin: Venezuela produces about 2.5 million barrels per day.
Ingersoll: You could just get out.
Jamieson: What you are suggesting would mean the company ap-
plying sanctions to Venezuela without the U.S. Government saying to
Ingersoll: That is what I am saying.
The Secretary: Saudi Arabia wouldn’t play along with it.
Jamieson: No, Saudi Arabia wouldn’t let us get away with it.
Garvin: These countries are trying to keep their prices set at levels
competitive with each other. This is true of Venezuela with its complex
system of pricing. Except for Saudi Arabia, no other country has been
cut back much more than any other. Saudi Arabia will be willing to
take the bigger cut.
The Secretary: It has no needs.
Jamieson: And it is concerned for its relationship with the others.
The Secretary: That is why I could never see how the Shah could
break the oil price, as some have argued. We would have 5 million
barrels per day cheaper but it wouldn’t break the others.
Jamieson: Just take an across the board $1 cut and see how much
more production is needed to maintain revenues.
Garvin: I don’t see any way to break OPEC.
The Secretary: Analytically, people can’t get it that the key is Saudi
Arabia, not the Shah. There are only 2 things he could do. He could sell
his excess production. So then, Saudi Arabia has to go down by 1 mil-
lion barrels per day. Or he could unilaterally lower his price. But even if
he did, so what?
Enders: No. It would have to be the other way around, with Saudi
Arabia doing it. How could you create the conditions to put heat on
The Secretary: If anyone needs heat put on them, it’s the Saudis.
But they don’t need the money. They could cut the price.
260 Foreign Relations, 1969–1976, Volume XXXVII
Garvin: You won’t break up the OPEC in this way.
The Secretary: I agree. The Saudis have to get along with the rad-
ical Arabs. They are just too weak domestically not to.
Garvin: Even if you succeed in defusing the Arab/Israeli issue this
may surprise you, but it wouldn’t solve the OPEC problem.
The Secretary: Defusing the Arab/Israeli issue will only reduce the
extreme case, of an embargo.
Enders: Over time, though, it could make a considerable difference
if Saudi Arabia is at 5, 7, or 9.
Jamieson: You must realize that the others are reserve-limited, for
example, Libya. If demand had continued to increase as in the early
’70’s, they would all have become reserve-limited, Saudi Arabia too.
The Secretary: We have never unleashed Tom on the Saudis. That
would be quite an experience.
Garvin: I am not sure I would want to be there.
The Secretary: Oh, so you know Tom, do you?
Garvin: There is an issue that bothers me. I have come to despair of
there being alternative energy sources in any reasonable time-frame.
Enders: Not in the mid-’80’s?
Garvin: It will still be on a small scale. We see the US still de-
pending on imports for 50% of its needs in the 1980’s. FEA doesn’t say
this, but I would put money on it.
Enders: The FEA’s study is counting heavily on NPR–4 and the
Jamieson: The trouble with the FEA study is that it overestimates
the rate of finding and marketing new production. It overestimates sec-
ondary and tertiary recovery. It overestimates the possibilities of devel-
oping coal. It is overoptimistic all the way through. FEA says the U.S.
will be importing 3 million barrels per day in 1980. We say the US will
be importing 10 million b/d.
Enders: The FEA estimates U.S. imports at 8 million b/d in 1980
and 5.5–6 million in 1985. You people have it at 12 million in 1985.
Garvin: We don’t just look at the United States. We are thinking of
the rest of the world too.
Ingersoll: What about Mexico?
Garvin: I just don’t believe all that is said about Mexico.
Ingersoll: And China?
Jamieson: There is not enough. 3.5 million barrels per day.
Enders: Yes. In the 1980’s China could produce 5 million barrels
per day at most.
Ingersoll: How do you see the possibilities for conservation?
April 1975–October 1975 261
Garvin: I think you have seen all that you are going to see right
Jamieson: We see the U.S. importing 9–11 million b/d in 1980.
Project Independence says 5 million b/d.
Enders: The President’s program says 30% would be covered by
imports by 1985.
Garvin: As I look at the practical problems and at other countries,
at the problems of Europe and Japan, I see a long dependence on OPEC.
I want to be tough with them, but I feel that I must live with them.
Therefore, I am motivated to try to find a relationship with them that I
can live with.
The Secretary: If I hadn’t just negotiated with Israel, I’d say let
them take over. You ought to see Rabin.
Garvin: Venezuela will be the first 100% takeover. By August 24,
by their own timetable, the Venezuela Congress will finish the bill.
Then the Government of Venezuela has 120 days to negotiate, at the
end of which the concessions expire. Once again our company seems to
be the leading horse. I fear a crunch is coming. They are offering net
book value. This is nothing. I see that former president Betancourt an-
nounced that the companies have agreed to net book value. That is not
The Secretary: We also have a decision to make as a government on
whether to bring in other factors, political.
Garvin: It is late. President Perez is out on a limb.
The Secretary: So what to do with OPEC? People say to be tougher.
Jamieson: There is a great desire from Saudi Arabia for industriali-
zation. This is all we’ve got to work with. To be perfectly realistic, we
don’t have much bargaining strength.
Enders: In the Venezuelan case, should the Government take up
the companies claims if there is net book value and the long-term ar-
rangement is phoney? This would change the situation politically and
Jamieson: With the trend that could be set by Venezuela, it would
become more difficult to explore off-shore. With the trend and with a
changed tax treatment of foreign operations, there would be no
Enders: There is a real question. When you have a narrow balance,
it is better to show your teeth.
Garvin: We are in a dilemma. They are not going to make us an
offer with which we will be comfortable. The companies will have to
say that we prefer walking away to taking the offer. In that case, I
would not be worried about the crude but there would be a loss of US
262 Foreign Relations, 1969–1976, Volume XXXVII
The Secretary: I am not worried about a loss of presence in Vene-
zuela. Yes, I would be about a loss of presence in Saudi Arabia. A loss of
presence in one country wouldn’t bother me. If you have ideas, I want
to hear them.
Garvin: I have despaired of putting reason into Yamani.
The Secretary: From my experience, I have learned that if you
show weakness in such a situation, you are dead. But what would
show strength? To buy oil from Russia?
Jamieson: They don’t have enough. They send 1 million b/d to the
The Secretary: If we took Russian oil, this would only strap
The Secretary: It couldn’t happen to a nicer group of people. I
found this discussion very instructive. I mean it. If you have ideas,
some options to suggest, I would like to hear from you.
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