Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
Briefing Memorandum From the Acting Assistant Secretary
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- 101. Memorandum by Robert Hormats of the National Security Council Staff
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100. Briefing Memorandum From the Acting Assistant Secretary
of State for Economic and Business Affairs (Katz) to
Secretary of State Kissinger
Washington, July 16, 1976.
Assessment of the International Energy Agency
The IEA has been in existence for slightly more than a year and a
half. Its record to date is one of considerable achievement, tempered
however, by a number of shortcomings. In political terms the agency
has been an unqualified success in forging a cooperative consumer ap-
proach under US leadership and in formulating an integrated strategy
on energy which responds to the challenge posed by the Third World.
The key elements of the International Energy Program (IEP) are now in
place—an emergency mechanism to ensure a collective response to fu-
ture embargoes; a long-term cooperative program which provides the
tools which will enable us over time to shift the supply/demand condi-
tions in the world oil market and thus lessen OPEC’s unilateral pricing
power; and an oil market information system. The agency has been sig-
nally useful as a forum for coordinating industrialized country posi-
tions for the dialogue on energy in CIEC.
There have, however, been some disappointments—particularly
our inability to move ahead rapidly on certain portions of the coopera-
tive programs which have been agreed upon. This is especially true in
the field of conservation where we have failed to apply our resources
adequately. The US record is even worse than that of Europe and Japan.
We account for some 50% of the IEA’s oil consumption and have the
greatest potential among the IEA countries for implementing meaning-
ful measures. Our IEA partners expect us to take the initiative on con-
servation, and to date we have not met the challenge. We have failed to
approach energy conservation in the IEA with the degree of commit-
ment that has been directed toward energy supply expansion.
Negotiation of the January 1976 long-term program to reduce our
joint dependence on imported oil constitutes one of the agency’s major
achievements. The program provides for coordination of national ef-
forts and cooperative measures in conservation, the accelerated pro-
duction of new energy, and R&D. It provides us with the framework
necessary to achieve our common objective of reduced dependence and
Source: National Archives, RG 59, Central Foreign Policy Files, P760114–1151.
Confidential. Drafted by D.S. Wilson (EB/ORF/FSE) and cleared by Raicht.
358 Foreign Relations, 1969–1976, Volume XXXVII
vulnerability. Several elements of the program such as national re-
views, sectoral studies and R&D cooperation are well underway. Oth-
ers such as project cooperation, the MSP and the setting of medium and
long-term import dependency goals are in the process of being elabo-
rated. The US has identified three priority areas for possible joint
project cooperation—coal, synthetic fuels, and enriched uranium serv-
ices. IEA work programs are already underway in the nuclear and coal
sectors which, together with conservation, constitute the most viable al-
ternatives to oil over the next decade.
As concrete and visible evidence of our commitment to reduced oil
imports we are pressing for the establishment of national reduced de-
pendence targets by IEA countries over the next 6–9 months.
called for an IEA Ministerial meeting which would endorse these tar-
gets and ensure that member countries make the political commitment
to implement the more vigorous policy necessary to achieve them.
Such a commitment could assist the Administration in persuading a re-
luctant Congress to adopt a strong and effective US domestic energy
Coordination for Energy Commission
Another of the agency’s notable successes has been the key role it
plays in the coordination of industrial country strategy and tactics in
the Energy Commission of the CIEC. Common industrial country posi-
tions are formulated and endorsed by the IEA Governing Board. The
IEA mechanism has proved extremely useful in thrashing out specific
issues such as the question of an ongoing post-CIEC dialogue with pro-
ducers and how to present our International Energy Institute (IEI) pro-
posal to the Energy Commission. Through the IEA we have succeeded
in moderating the European push toward a comprehensive post-CIEC
consultation on oil prices and in alleviating concerns over the expected
scope and mandate of the IEI. The IEA mechanism has greatly facili-
tated our effort to ensure that the industrial countries speak in the en-
ergy dialogue with one voice.
In order to reduce our short-term vulnerability to supply interrup-
tions the agency established as a matter of priority an emergency oil
sharing scheme. That program is now in place and operational. A test
of the oil allocation mechanism will be conducted this fall to verify its
The United States introduced this proposal in the March 16 IEA Governing Board
meeting as part of its plan to implement the Long-Term Cooperation Program. (Telegram
62056 to USOECD Paris, March 13; ibid., Central Foreign Policy Files, D760096–0217)
Kissinger reiterated the proposal in his opening statement to the OECD Ministerial
meeting on June 21. For the text, see Department of State Bulletin, July 19, 1976, pp. 73–83.
October 1975–January 1977 359
effectiveness. The program provides important psychological protec-
tion and evidence indicates that it would considerably reduce the fu-
ture impact of a 1973-type embargo. It would also reduce the tendency
for individual IEA countries to compete for available oil, thus bidding
up prices to a higher level than would otherwise prevail, as occurred
during the 1973 embargo.
Future of the IEA
To date the IEA has been highly successful in projecting the excep-
tional image of an action-oriented organization. Now that its key pro-
grams are in place, we will have to work to sustain the momentum
which has propelled the agency up to the present. As has been the case
for other international bodies there is a danger that interest will wane
and levels of offical representation at meetings will drop. Your pro-
posal for establishing joint reduced dependency objectives backed by
concrete programs and a Ministerial-level meeting to endorse them
should serve to maintain the impetus over the months ahead.
US Energy Policy and the IEA
By virtue of the dominant position of the US in the IEA, our own
domestic energy program has a significant bearing upon the effective-
ness of the agency. As is true for the IEA, our domestic program has
been a mixture of achievements and shortcomings. The impasse over
domestic energy policy which prevailed throughout most of 1975 seri-
ously hindered our efforts to extract strong commitments from other
IEA member countries. The Energy Policy and Conservation Act
(EPCA) signed by the President in December 1975 constitutes a step in
the right direction—albeit insufficient. On the positive side it provides
for major conservation efforts and authorizes the creation of a strategic
storage program to lessen the adverse economic consequences of new
embargoes. But it falls short of what is required if we are to make mean-
ingful headway in achieving our energy independence objectives. The
bill does not immediately decontrol oil and natural gas prices which is
viewed by most IEA countries as a matter of the highest priority for the
US; neither does it contain financial incentives for the accelerated de-
velopment of energy supplies. The Administration is pressing for addi-
tional legislation—e.g., to deregulate interstate natural gas prices, to es-
tablish an Energy Independence Authority, to provide authority for US
participation in the OECD Financial Support Fund—but both the up-
coming election and Congressional skepticism about the reality of the
energy crisis make uncertain the prospects for these efforts.
Our IEA partners understandably expect us to take the initiative
on conservation and new supplies. Perception of doubt or hesitation on
our part will complicate and can ultimately compromise our efforts to
bring forth the major commitment of the national resources which will
360 Foreign Relations, 1969–1976, Volume XXXVII
be required to achieve our IEA objectives. Hence there exists a direct re-
lationship between convincing and effective US domestic energy poli-
cies and credible IEA programs.
Washington, July 19, 1976.
The Secretary of Commerce
The Deputy Secretary of State
The Deputy Secretary of Defense
The Administrator, Federal Energy Administration
The Chairman, Council of Economic Advisors
Questions for Attention in Further Development of NSSM 237
The following is an effort to pose questions which merit attention
in the further development of NSSM/CIEPSM 237. They reflect a con-
sensus derived from the July 14 meeting
which you attended under
Frank Zarb’s Chairmanship, and the papers you submitted pursuant to
that discussion. These questions will be considered in light of the analy-
ses, conclusions, and recommendations contained in the NSSM/
CIEPSM at the Undersecretary level meeting to be chaired by Under-
secretary Rogers later this week.
1. Assumptions: Are the main assumption of the NSSM study valid;
continued significant US, European and Japanese dependence on
OPEC oil through 1985, inextricable linkage of interests between the US
and its major allies and thus an unavoidable necessity to pursue joint
international energy objectives and strategies, significant supply and
price vulnerability of major US allies and thus the necessity for both a
non-confrontational strategy with respect to OPEC and lower oil
Source: Ford Library, National Security Council, Institutional Files, Box 41, NSSM
237—U.S. International Energy Policy (1). Secret.
No record of the meeting has been found. See Document 99.
No record of the meeting has been found. A July 21 memorandum from Joseph A.
Greenwald in the Bureau of Economic and Business Affairs provided Rogers with a gen-
eral framework to address the issues raised in Hormats’s memorandum. (National Ar-
chives, RG 59, S/S Files: Lot 80D212, NSSM 237)
October 1975–January 1977 361
prices, and the critical role of Saudi Arabia as a moderator of OPEC
pricing policies and a guarantor of supply.
2. What are US objectives and interests with regard to OPEC pricing?
What level of international oil prices is in the US interest? Are
short-term US price objectives consistent with US long-term interests?
This should be explored in terms of the impact of the international oil
price on U.S. efforts to accelerate energy conservation and develop al-
ternative sources as well as on U.S. global interests. Is the same oil price
which is in the U.S. domestic interest also in the interest of our eco-
nomic partners? Is there a difference? If so, what are the implications
for joint strategies, policies and actions with other industrialized na-
tions? To what extent would a price increase affect U.S. national secu-
3. Contingency Planning: To what extent can policies be developed
during the present non-crisis period in order to strengthen the basis for U.S.
counter-action in the event of various types of crises?
What U.S. counter-
actions would be most appropriate to deal with differing types of po-
tential oil-related crises? What specific forms of economic leverage are
available to the U.S. unilaterally, or with its IEA partners, for counter-
action in the event of unacceptable price increases or supply interrup-
tion? How might such leverage be used as a deterrent? What consid-
erations are likely to increase or decrease U.S. counter-leverage? Do
longer-term supply contracts provide an improved basis for U.S.
counter-action in the event of a disruption; for instance would the abro-
gation of contracts significantly improve the U.S. case domestically or
internationally with respect to forceful U.S. counter-action? Would
such arrangements thereby serve as a deterrent to the interruption of
4. How do the non-oil exporting developing countries fit into U.S.
Is there any significant linkage between their interests and
moderation by OPEC? What policies or actions should the U.S. under-
take to support the developing countries’ position? What are the risks
associated with attempts to split the LDCs from OPEC? What policies
or responses should the U.S. consider in the event of a change in the de-
veloping countries’ position brought about, for example, by an OPEC
decision to grant them lower oil prices?
5. How might the U.S. better diversify sources of energy supply? Are
there ways of encouraging more production in non-Arab countries?
What might the U.S. do to advance its oil interests in relation to poten-
tially large and more reliable suppliers such as Mexico, the PRC, or
Venezuela? What might such country-specific strategies include?
6. How might the U.S. better address the critical significance of Saudi
Arabia to both U.S. and IEA supply security and price objectives?
prospects for a significant shift in the internal Saudi political situation
362 Foreign Relations, 1969–1976, Volume XXXVII
between now and 1980? What are the implications for US policy? What
demands are the Saudis likely to make in order to continue to play a
moderating role; what considerations are involved in their decisions?
What US policies should be considered to support a moderating role
for the Saudis? What policies or actions should the US consider in the
event of a change in the Saudi policy?
102. Memorandum From Robert Hormats of the National Security
Council Staff to the President’s Assistant for National
Security Affairs (Scowcroft)
Washington, July 26, 1976.
NSSM 237 and US Energy Policy
Developing the response to NSSM 237 has been an unsettling proc-
primarily because it reveals the sorry state of US domestic energy
policy and its very dubious foundation in Project Independence. In
short, there appears to be grounds for a complete rethinking of US en-
The early stages of the NSSM study brought out again what we
have known all along—that while FEA’s ambition to achieve “energy
independence” may be useful as a rhetorical goal, it is neither an attain-
able objective nor a basket in which we should put many of our eggs.
at any reasonable cost, even
under FEA’s extremely optimistic assumptions about our ability to
conserve energy and increase production from alternate sources. In the
course of the study, FEA revised its likely import requirement figures
Source: Ford Library, National Security Council, Institutional Files, Box 41, NSSM
237—U.S. International Energy Policy (1). Secret; Eyes Only. Sent for information.
See Documents 93, 99, and 101. Scowcroft wrote in the margin: “But what do we
do about the study? Use it as a vehicle to surface those questions?” Hormats responded in
an August 9 memorandum to Scowcroft: “The answer is yes. We are now addressing
both the types of changes which might be necessary to strengthen our domestic attempts
to reduce oil imports and the international issues of price and security based on the as-
sumption that we will be more dependent on imports than we had earlier anticipated in
view of the optimistic forecasts of Operation Independence.” He added: “Everyone now
appears satisfied that the new orientations of the study are more consistent with the
policy needs of the USG over the next several years.” (Ford Library, National Security
Council, Institutional Files, Box 41, NSSM 237—U.S. International Energy Policy (1))
October 1975–January 1977 363
upward considerably, but they are still 10%–20% lower than those of
most other analysts. When somewhat more realistic import require-
ments are used, it becomes evident that over a 10–15 year period en-
ergy independence has almost no meaning for us in terms of decreas-
ing our vulnerability to supply interruptions; we are going to remain
very vulnerable for the foreseeable future. Perhaps more important in
the short run, we will remain politically vulnerable through the irre-
versible dependence of our industrialized allies no matter how inde-
pendent the United States may become. (On the price side, however, re-
ducing demand does make it more difficult for the OPEC cartel to set
prices, since it increases the excess of supply over demand.)
As meetings have progressed toward the policy level, it has also
become increasingly apparent that there are questions of the most basic sort
and that as a
result our energy policy is built on what are at best unfounded assump-
tions. The major assumption was that an international energy policy
should be based on the understanding that domestically we would be
making steady progress toward reduced dependence, which in turn
would decrease our vulnerability and indirectly that of our allies, and
exert downward pressure on prices. FEA has now openly admitted that
progress toward independence is a questionable proposition at best
and that they do not know whether it is in our interest to see oil prices
rise or fall. FEA is now telling us that we on the international side should
work through our analysis and tell them how to revise their Project In-
Furthermore, it has become apparent that purely economic analysis is
inadequate to the study.
The NSSM analysis shows that the oil-producing
countries will maintain their ability to set prices, at even higher levels,
as long as the producers with small populations, and therefore limited
capacity to absorb revenues, are willing to provide financial support—
either directly or by restricting production—to those producers which
need or believe they need greater income. Whether they will continue
to do this is a political rather than economic question.
The implications are sweeping. If everything we do economically
is at once uncertain, unlikely to produce any results, and at the margin
of political events, then there are a number of political actions which we
will have to consider more seriously. One key question is how we can
induce moderation in OPEC cartel members and build relationships
which avoid price or supply disruption. We are not now examining this
systematically. (Accepting increased vulnerability may also raise the
cost of holding to our preferred—and frequently negatively per-
ceived—positions in the North-South dialogue, and argue instead for a
more accommodating U.S. position.)
364 Foreign Relations, 1969–1976, Volume XXXVII
It would be useful to you to confront Zarb with a number of key
questions so that he can either persuade you that the problems do not
exist or agree that we must trace through their implications. Such ques-
tions would center on the issue of whether we must now adjust our in-
ternational policy to the probability that our dependence in imports
will increase over the next decade or more. Then we must decide
whether the thrust of U.S. policy should shift to a more calculated
policy of encouraging the oil producers to exercise restraint, adopting a
more accommodating view on commodity issues, diversifying our en-
ergy sources on a priority basis, building strategic reserve stocks more
rapidly (which, as you know, I believe to be our best economic means
of coping with, and deferring, an embargo), or more actively seeking
agreements to reduce the possibility of arbitrary supply and price
103. Memorandum From Robert Hormats of the National Security
Council Staff to the President’s Assistant for National
Security Affairs (Scowcroft)
Washington, September 15, 1976.
Your 5:30 Meeting on OPEC Price Increase
Zarb has called this meeting
(to include you, Greenspan, Rich-
ardson, and Robinson) to discuss an OPEC price increase.
[less than 1 line not declassified] Saudi Arabia, Iran, and Venezuela
have already agreed to a 10–15% increase, to be formally decided in
Doha, Qatar in December. Arguments supporting the increase include:
greatly increased demand for oil in industrialized countries, increasing
the market strength of OPEC; desire by some OPEC countries to make
up lost purchasing power caused by inflation in industrialized nations;
less fear of harming recovery in the West now that economic activity is
Source: Ford Library, National Security Adviser, Presidential Subject File, Box 5,
Energy (15). Secret. Sent for action.
No record of the meeting has been found. A September 23 memorandum from
Hormats to Scowcroft briefed him for a meeting he would attend later that day on the po-
tential for an OPEC price increase. (Ibid.)
October 1975–January 1977 365
Pursuant to your instructions, I asked State last week to work with
CIA and Treasury to prepare an options paper outlining the types of
things which might be done to prevent a price increase.
This will be
completed by the end of the week. After having examined a number of
options, the working group concluded that the following steps should
—Porter should be instructed to follow-up his recent conversation
with Prince Fahd
and indicate US appreciation of his position op-
posing a price increase this year.
—A letter to King Khalid, along with letters applying pressures on
the Shah and Perez of Venezuela, later in the fall.
—US Ambassadors should make de´marches in other OPEC
—Delegates to CIEC should speak up publicly and in the corridors
against a further price increase.
A number of other “hard-ball” options were considered and re-
jected. These include: more support for Congressional actions on the
boycott; an export surcharge by industrialized countries on sales to
OPEC countries; and threats not to help non-oil LDCs to overcome dif-
ficulties which would be caused by a new oil price increase. In addi-
tion, some incentives to be more responsible—expansion of the activi-
ties of the corps of engineers, indexation of Saudi reserve access in the
US, and facilitation of Saudi investment in American agricultural and
other commodities—were also considered and rejected.
What this all boils down to is:
—It is likely that a decision has already been made to increase the
price of oil from 10% to 15% next year.
—[less than 1 line not declassified] such a decision has not been
reached, our leverage (given the substantial increase in demand for oil
by industrialized countries) is very weak.
—To the extent that the only undecided element in the minds of
the OPEC countries is whether the price should be increased 10% or
15%, we might have some marginal influence.
—The Saudis are keyed to equation, but the key to insuring Saudi
help is pressure on the Iranians and Venezuelans to oppose a price in-
The paper, “Strategy Paper for the President on December Oil Price Decision,” un-
dated, is attached to Hormats’s September 23 memorandum.
According to telegram 6094 from Jidda, September 8, Porter met with Fahd on
September 7 at the former’s request to discuss a September 2 letter from President Ford to
the Crown Prince on arms sales. (National Archives, RG 59, Central Foreign Policy Files,
D760339–0131) The letter was transmitted in telegram 217223 to Jidda, September 2.
366 Foreign Relations, 1969–1976, Volume XXXVII
crease (which could, at best, result in their moderating the presently ex-
treme demands for a large price increase).
—In any case, the US must put forward its best case against an in-
crease lest we appear indifferent to an impending development which
will be highly costly to us, to our allies, and to the developing countries.
(We should, however, avoid investing too much prestige if we believe
this to be a losing cause.)
—The first step is a letter to Khalid attempting to lock him into
Fahd’s recent statements on his behalf opposing a price increase (Tab
If we wish to be tougher, we could send a high-level American offi-
cial to Saudi Arabia to indicate the enormous problems which could re-
sult for American Presidents wishing to support the Saudi dynasty if
the price of oil is increased. The emissary could also point out the still
fragile condition of a number of developed country economies.
—Strong letters to the Iranians and Venezuelans arguing against a
price increase on grounds that it would be politically disruptive and
—De´marches in other OPEC capitals.
—Gentle reminders in key non-oil LDCs as to the likely impact of a
price increase on their economies and on the will and ability of other
developed countries to assist them.
Not attached and not found.
President Ford met with Prince Saud on September 17 and told him that “any in-
crease this December or for ’77 would be extremely damaging, not only for the United
States, but even more so for our industrial colleagues who are in a much more fragile situ-
ation.” Ford added: “We plan to discus this not just with you but also with Iran and Vene-
zuela. It would be disastrous to push the world economy back to the recession of last
year. So we hope His Majesty’s views will prevail.” Saud replied: “His Majesty is just as
determined as last summer not to have an increase. But it will be difficult, and it will de-
pend heavily on what you can do with Iran and Venezuela. His Majesty has said at least
he will refuse more than a modest increase, and will categorically refuse anything be-
yond 5 percent.” (Ford Library, National Security Adviser, Memoranda of Conversa-
tions, Box 21)
October 1975–January 1977 367
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