Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
Memorandum From the President’s Assistant for National
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- Robinson 92. Memorandum From the Administrator of the Federal Energy Administration (Zarb) to President Ford
Memorandum From the President’s Assistant for National
Security Affairs (Scowcroft) to President Ford
Washington, December 10, 1975.
Conference Energy Bill
I have examined Frank Zarb’s memo to you on the Conference En-
ergy Bill and concluded that, from a foreign policy point of view, the
Bill on balance merits your signature.
From my perspective, the following points are key:
—From a foreign policy point of view the main impact of the Bill is
to slow down the timetable of our reduced dependency effort. The “do-
mestic composite” pricing scheme
will almost certainly lead to greater
dependence on OPEC oil over the next three years than would immedi-
ate decontrol, and thus fall sharply behind your State of the Union tar-
gets. It is, however, unlikely that dramatic progress in reducing our de-
pendence on OPEC can be made during this three-year period in any
Source: Ford Library, National Security Adviser, Presidential Subject File, Box 4,
Energy (10). Secret. A stamped notation on the first page reads: “The President has seen.”
Zarb’s memorandum was not found. Ford recalled in his autobiography that his
“economic advisers,” Simon and Greenspan, advised him to veto the bill, but his “polit-
ical advisers” and Zarb urged him to sign it. (A Time To Heal, pp. 340–341)
The average of the price of oil produced and sold domestically and the price of im-
ported oil, weighted by their respective quantities, plus sales tax.
October 1975–January 1977 325
case. Even under immediate decontrol US imports will be 8 million bpd
at the end of three years as opposed to roughly 9 million bpd under the
most unfavorable scenario under the Conference Bill.
We will begin to have a chance to put real pressure on OPEC only
at the turn of the decade. At that time, the Conference Bill will have en-
abled us to catch up in our efforts to reduce dependence by increasing
prices substantially and thereby providing a strong incentive to pro-
duce and conserve. And decisions made over the next couple of years
in anticipation of the higher energy prices in 40 months will have
brought about important structural changes such as greater use of en-
ergy efficient industrial equipment and cars. Thus, while we will move
more slowly towards the desired objectives we still will have a firm ba-
sis for reducing dependence.
—You have the ability to exert pressure for higher prices than cur-
rently set in the Bill in February, 1977, and every ninety days during the
40-month life of the agreement. This becomes a stronger lever as de-
pendence on OPEC oil climbs as the result of the initial price reductions
legislated by the Bill.
—Stockpiling authorities in the Bill would enable the US to begin
moving promptly to build reserves and thereby to lower our vulnera-
bility to embargoes.
—Authorities required to implement our commitments for sharing
and conservation under the International Energy Program are con-
tained in the Bill.
—Authorities for the USG to buy and sell foreign oil are also con-
tained in the Bill. This would enable us to undertake bilateral deals
with USG participation such as we could not do in the case of Iran and
the Soviet Union.
—There appears to be a strong preference from our allies for
having a firm base for slower but more certain progress toward re-
duced US dependence as opposed to a fragile base for quick and ambi-
tious progress as under immediate decontrol. Congressional attempts
to relegislate rollbacks or controls, perhaps of a highly stringent nature,
or to enact other punitive measures against the companies, would
create greater international uncertainty than that in the Conference
Bill’s Congressional review process.
—The adverse impact on the US economy of immediate decontrol
(CEA estimates 1.2% decline in GNP and .3–.4% increase in unemploy-
ment by the fourth quarter of 1976; Treasury estimates 1.2% decline in
GNP in 1976 and .2% increase in unemployment) would be a psycho-
logical and economic blow to our trading partners who, as expressed at
Rambouillet, see our recovery as vital.
326 Foreign Relations, 1969–1976, Volume XXXVII
That you sign the Energy Bill.
had first proposed on January 30 (see footnote 3, Document 33), on December 22. (P.L.
94–163) For his remarks on signing the bill and his statement on the legislation, see Public
Papers of the Presidents of the United States: Gerald R. Ford, 1975
, pp. 1991–1994. Ford later
called the bill “an inadequate measure” and decried the full year that Congress took to
complete it: “People still didn’t believe that the energy crisis was real. In an attempt to
break the deadlock, I did everything I could to convince Congress that it had to move. For
nearly a year, I’d been giving speeches about the problem; I sent formal messages up to
Capitol Hill, and I met with key lawmakers on at least thirty-three separate occasions. In
less than three years, I warned, our petroleum imports would grow to nine million bar-
rels a day, and we would be twice as vulnerable to an oil embargo as we had been in
1973.” (A Time To Heal, p. 340)
The Conference on International Economic Cooperation met at the
Ministerial level in Paris December 16–18, 1975, and established four
commissions to deal with issues related to energy, raw materials, de-
velopment, and finance. Participants agreed to schedule a meeting on
January 26, 1976, of conference and commission co-chairmen to “pre-
pare the work of the four commissions” within “the framework of the
general guidelines” established at the October Prepcon (see Document
85). As for the energy commission, which, along with the other three,
would hold its first meeting in Paris on February 11, 1976, the Depart-
ment of State believed that it should concentrate on two areas: 1) ana-
lyzing “the relationship of energy supply, demand, and prices to the
development of the global economy in an effort to seek to narrow the
differences in perceptions of this relationship among the participants”;
and 2) promoting “cooperative endeavors among producers and con-
sumers to develop new energy supplies, to accelerate and smooth the
integration of the producing countries into the global economy, and to
facilitate the transfer of energy-related technology and expertise to the
non-oil developing countries to help relieve their energy burdens.”
Stephen Bosworth, Director of the Office of Fuels and Energy, would
head the U.S. delegation as the industrial country co-chairman of the
energy commission. (Telegram 9962 to all diplomatic posts, January 16;
National Archives, RG 59, Central Foreign Policy Files, D760018–0154)
On December 19, 1975, the International Energy Agency Gov-
erning Board met in Paris and concluded an agreement on a Long-
October 1975–January 1977 327
Term Energy Cooperation Program, which included “a minimum safe-
guard price of $7.00 FOB” for Persian Gulf oil in addition to a “commit-
ment to implement it” in a way that was “acceptable” to the United
States. The agreement also included a “provision for large joint
projects, improved international access to energy investments, and all
other elements of an overall package that we have considered essen-
tial.” Until the Governing Board convened in January to “conclude the
definitive agreement,” had the status of a “Governing Board recom-
mendation to governments,” but it was “understood and accepted”
that negotiations had ended. (Telegram 33322 from USOECD Paris, De-
cember 20; ibid., [no film number]) Telegram 33526 from USOECD
Paris, December 23, contains the complete text of the draft. (Ibid.,
D750445–0901) See footnote 2, Document 94.
Washington, December 31, 1975, 1730Z.
305385. Subject: Impact of US Energy Bill.
1. Please deliver following message from Assistant Secretary
Thomas O. Enders to head of host government delegation to IEA Gov-
erning Board. Brussels for Davignon. OECD Paris for Lantzke.
2. Begin message. “You will have heard that President Ford signed
the Energy Bill into law on December 22. The authorities contained in
this legislation will make it possible for the United States to adhere per-
manently to the Agreement on the International Energy Program. We
are now in the process of preparing to deposit the formal notification of
our consent to be bound by the IEP.
This legislation also contains many of the essential portions of the
administration’s energy program.
Source: National Archives, RG 59, Central Foreign Policy Files, D750451–0625.
Confidential; Priority. Drafted by Raicht; cleared by Katz, Preeg, and Phillip Trimble
(L/EB); and approved by Enders. Sent to Ankara, Bern, Bonn, Brussels, Copenhagen,
Dublin, London, Luxembourg, Madrid, Oslo, Ottawa, Rome Stockholm, The Hague,
Tokyo, Vienna, Wellington, and USOECD Paris. Repeated Priority to USEC Brussels.
See footnote 4, Document 89.
Sent on January 7, 1976, in telegram 4007 to Brussels. (National Archives, RG 59,
Central Foreign Policy Files, D760006–0262)
328 Foreign Relations, 1969–1976, Volume XXXVII
It establishes a number of important conservation measures which
will have increasing impact over the next five years.
—It sets average fuel economy standards for automobiles for 1980
—It extends the authority of the Federal Energy Administration
(FEA) to direct power plants and other major fuelburning installations
to convert to the use of coal;
—It requires energy efficiency labeling of major appliances and
certain other consumer products and sets energy efficiency standards
for certain categories of appliances;
—It requires FEA to set 1980 conservation targets for the ten major
energy consuming industries, thus establishing a program to encour-
age increased efficiency in US industrial energy use;
—It provides for development and implementation of state energy
conservation programs with Federal financial and technical assistance.
We estimate that these measures will have a substantial impact on
energy demand over the next decade and will make a major contribu-
tion to the ability of the US to meet its goals for reduced dependence on
imported oil by 1980 and 1985.
The oil pricing provisions fall short of what we had originally pro-
posed to the Congress. The Act sets an average price of $7.66 per barrel
for all domestically produced oil. With the removal of the $2 per barrel
import fee on December 21, we estimate that prices will decrease about
$0.40 per barrel as a result of the rollback. The law gives the President
authority to adjust the composite price upward by as much as ten per-
cent annually, with Congressional approval.
The Act also contains the following provisions supportive of our
joint efforts in the IEA:
—It authorizes prompt initiation of a strategic oil storage program;
an early storage plan to build additional stocks up to 150 million barrels
or 25 days of imports by 1978, and a long-range reserve of up to one bil-
lion barrels, which will be completed by 1982. This is over and above
present stockpiling levels of about 100 days under the IEA definition.
—It requires the President to submit to Congress mandatory con-
servation plans within six months. After Congressional approval, these
plans can be used to carry out US obligations to restrain demand under
—It authorizes the President to promulgate rules for oil allocation
as necessary to carry out US obligations under the IEP. This would not
be subject to approval by Congress.
—It establishes a legal basis for US industry cooperation with the
IEA under a voluntary agreement.
—It provides authority for collection of oil market data and autho-
rizes transmittal to the IEA of information required under the IEP.
Although it only partly meets our original targets, I believe this
legislation provides a solid foundation for a continuing U.S. effort to re-
duce our dependence on imported oil to an acceptable level. Over the
October 1975–January 1977 329
next two years we estimate that US oil imports will increase marginally
(about 250,000 barrels per day) because of the effect of this legislation.
After that, however, the impact of the bill will become much more pro-
nounced and our import levels will decline. By 1985 US imports are
projected at five million barrels per day—compared to eight million
barrels per day under our prior estimates. In addition, legislation now
close to passage by Congress for production and exploration of our
Naval Petroleum Reserves and other measures proposed by the Presi-
dent should reduce US oil imports even further.
This bill reinforces the US commitment to joint cooperation in the
IEA. The Long Term Cooperation Program, on which we achieved ten-
tative agreement earlier this month, is essential to ensure that our indi-
vidual and collective efforts are adequate to achieve our energy objec-
tives. I look forward to completing this agreement at our next meeting.
With best regards.”
Washington, January 13, 1976.
U.S. Government Oil Purchase Agreement
The USG has the opportunity to negotiate with Iran an agreement
for the purchase of 500 MB/D of crude oil for a period of five years, at
prices below OPEC levels and with price adjustments tied to changes in
the U.S. wholesale price index. The State Department proposes to nego-
tiate for a firm discount of at least 50 cents per barrel with further sav-
ings anticipated on periodic price adjustments. Defense and FEA be-
lieve a firm discount of at least $1.00 per barrel is necessary to minimize
the risk of short-term loss by the USG in reselling the oil. Iran’s interest
in the agreement reflects anticipated financing difficulties in meeting
Source: Ford Library, National Security Adviser, NSC Middle East and South
Asian Affairs Staff: Convenience Files, Box 7, Iran—Oil. Secret.
330 Foreign Relations, 1969–1976, Volume XXXVII
its development and military needs and the low level of demand for
Iranian crude in the currently depressed market.
The USG would purchase the oil directly from Iran and resell it to
U.S. companies for delivery to the U.S. The Technical Purchasing Au-
thority (TPA) provision of the Energy Policy and Conservation Act
(EPCA) would provide enabling legislation, although the required ap-
propriations legislation would be enacted only after the Congress had
the chance to review the proposal. (A more detailed paper developing
the mechanics of the proposal is attached.)
The principal advantages of the proposal identified by the inter-
ested agencies are essentially international and political.
• The relationship between the U.S. and Iran would be strength-
ened, and a possible severe cutback in Iranian purchases of U.S. mili-
tary equipment and industrial goods could be averted.
• A measure of instability would be introduced into the interna-
tional oil market by Iran’s violation of OPEC agreements, and the dou-
bling of Iran’s share of the U.S. market at the expense of other OPEC
countries. These factors could weaken the OPEC cartel’s ability to uni-
laterally establish prices and production levels.
• The U.S. would switch about 8 percent of its oil imports to a
cheaper and a politically more secure (i.e., non-Arab) source. An esti-
mated annual savings of $180 million—assuming an average $1.00 per
barrel discount—versus a total import oil bill of over $28 billion would
The principal disadvantages of the proposal identified by Defense,
CEA and FEA focus on the energy and economic aspects and the do-
mestic political implications.
• Involving the USG in the business of buying and selling oil
would encourage those proponents of greater governmental involve-
ment in the oil industry generally and of nationalization of imports
• The amount of savings to be gained is not significant and the
benefits to consumers would not be identifiable.
• The 500 MB/D lifted from Iran would displace some liftings
from Saudi Arabia, which probably would threaten the US/Saudi
“Mechanics of Oil Purchase Agreement” is attached but not printed.
October 1975–January 1977 331
• The size of the discount would not significantly undermine
OPEC’s strength, and the indexation feature would represent an unfor-
tunate precedent, not only with respect to Iran, but also with respect to
other oil producers and raw materials exporters in general.
• The market and revenue pressures on Iran that have caused Iran
to seek a bilateral agreement with the U.S. represent precisely the
OPEC vulnerability to market forces that consuming countries are try-
ing to encourage.
• The nature of the advantages preclude their being discussed
publicly with Congress, either because of the political sensitivity of the
issue or because the economic advantage would not be deemed to be
Consideration of a Possible Alternative
If it is decided not to pursue the proposal currently under consid-
eration, the possibility of entering into a sizable oil purchase agreement
to fill the strategic reserves mandated by the EPCA may warrant con-
sideration. Since the USG, under such an arrangement could commit
the oil to reserves and therefore obviate any market impact, a potential
supplier might consider a deep enough discount, providing sufficient
economic benefit, to override domestic political considerations. Such a
proposal could be evaluated in the context of the Early Storage Pro-
gram and the Strategic Storage Program presently being developed in
the Federal Energy Administration.
State discounts some of the disadvantages outlined above, but
joins Defense, CEA and FEA in concluding that a decision to proceed
with the proposal should be deferred for further evaluation of the likely
responses of the oil market and of the Congress.
After reading Zarb’s memorandum, Scowcroft sent a memorandum to White
House Staff Secretary James E. Connor, January 17, in which he wrote: “I fully support
the objectives of the proposed arrangement with Iran. However, while it may not be pos-
sible to conclude the arrangement immediately, I recommend that we press ahead as a
matter of the highest priority to resolve the issues which we now find troublesome.”
(Ford Library, National Security Adviser, NSC Middle East and South Asian Affairs Staff:
Convenience Files, Box 7, Iran—Oil)
332 Foreign Relations, 1969–1976, Volume XXXVII
National Security Study Memorandum 237/Council on
International Economic Policy Study Memorandum 38
Washington, February 5, 1976.
The Secretary of State
The Secretary of the Treasury
The Secretary of Defense
The Administrator, Federal Energy Administration
The Director of Central Intelligence
U.S. International Energy Policy
The President has directed that a study be undertaken of measures
to ensure a reliable supply of required energy imports at reasonable
prices over the next five years. The study should especially consider
possibilities for influencing pricing and production decisions in ex-
The study should address the following:
—The likely level of U.S. energy import dependence over the next
—Possibilities for diversifying imports of energy by type and
source and for encouraging increased production capacity in countries
willing to export more oil.
—The degree to which diversification and increased production
could influence OPEC pricing decisions and improve the security of
supply for the United States and our allies.
—The international and internal dynamics of the OPEC cartel and
the motivations and objectives of its more important members, includ-
ing possible reasons for and likelihood of embargoes or price increases
over the next five years.
—The factors most likely to influence the cartel’s decisions, in-
cluding the anticipated level of world demand for OPEC oil, the likely
balance of trade positions of OPEC countries over the next five years,
strategies they may follow to increase income and ways in which the
United States might influence those strategies to its advantage, includ-
ing the use of bilateral agreements.
—Means to strengthen consumer solidarity in the IEA.
Source: Ford Library, National Security Council, Institutional Files, Box 41, NSSM
237—International Energy Policy (1). Secret; Sensitive.
October 1975–January 1977 333
—Possibilities for the United States to encourage restraints in
OPEC pricing over the near term, including examination of possibilities
for unilateral action, multilateral action, use of the CIEC, and use of the
The study should contain options and recommendations on the
above issues. It should be conducted by representatives of the ad-
dressees, the National Security Council Staff and the Staff of the
Council on International Economic Policy, and be chaired by a repre-
sentative of the Secretary of State. The report should be submitted to
the President by March 15, 1976.
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