Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
Vance 127. Memorandum From the President’s Assistant for National
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- Zbigniew Brzezinski Tab A
- 128. Memorandum From the President’s Assistant for National Security Affairs (Brzezinski) to President Carter
- Attachment Paper Prepared in the Department of State
- 129. Editorial Note
- 130. Briefing Memorandum From the Acting Assistant Secretary of State for Economic and Business Affairs (Hormats) to Secretary of State Vance
127. Memorandum From the President’s Assistant for National
Security Affairs (Brzezinski)
Washington, August 19, 1977.
The Secretary of State
The Secretary of Defense
The Secretary of the Treasury
The Secretary of Energy
The Director of Central Intelligence
The Director, Office of Management and Budget
Administrator, Federal Energy Administration
Chairman, Council of Economic Advisors
Petroleum Supply Vulnerability Assessment
The President has directed that an assessment be made of the vul-
nerability of the United States to disruptions in world petroleum
This memorandum confirms the interagency effort underway
to accomplish this task and establishes the terms of reference for the
The assessment should be focused on the period between now and
Source: Carter Library, National Security Affairs, Staff Material, Middle East File,
Box 65, Subject File, Oil. Confidential. The Department of Energy was established on
August 4 when Carter signed the Department of Energy Organization Act. The
Cabinet-level agency officially began to operate on October 1.
On July 11, Bert Lance, Director of the Office of Management and Budget, sent
Brzezinski a memorandum informing him that Carter had asked for the petroleum
supply vulnerability assessment at a June 21 budget planning session. Lance requested
that the National Security Council lead the effort and attached a paper listing the objec-
tives and specific issues to be addressed by the assessment. (Ibid.)
434 Foreign Relations, 1969–1976, Volume XXXVII
The assessment will be submitted for consideration by the Special
In accordance with the attached terms of ref-
erence (Tab A), the Departments of State and Defense will chair
working groups composed of members from the interested agencies.
The Department of State will submit its report to the National Security
Council by September 2, 1977; the Department of Defense by Sep-
tember 9, 1977.
PETROLEUM SUPPLY VULNERABILITY ASSESSMENT
Terms of Reference
1. To identify and assess the vulnerability of the United States and
its allies to petroleum supply interruptions and substantial price
2. To identify the petroleum supply disruption and substantial
price increase contingencies for which the United States should be
3. To identify and assess the policy options available to the United
States to reduce its vulnerability to petroleum supply disruptions and
substantial price increases and to cope with these contingencies should
A. International Energy Analysis (Chaired by the Department of
—World petroleum market analysis by country to identify the
range of supply and demand estimates and assess their validity with
special emphasis on the dependence on foreign sources of the United
States, the Soviet Union, and the advanced industrial economies.
—Analysis of the vulnerability of the world petroleum supply
system to interdiction, including acts of terrorism, acts of nature, and
premeditated political, economic, or military action.
—Analysis of possible supply disruption scenarios to include
those that would be most stringent and those that are most probable;
determination of the implications for supply disruptions of potential
The SCC met to consider the assessment in March 1978. See Documents 144 and
February 1977–January 1979 435
political discontinuities such as sudden changes of regime or gov-
ernment in important OPEC/OAPEC countries.
—Analysis of the probability and impact of sudden substantial pe-
troleum price increases precipitated by OPEC/OAPEC action, both
in times of normal supply conditions and in times of a supply
—Analysis of options available to the United States acting alone,
and the United States in conjunction with its allies, to deter supply in-
terruptions and substantial price increases, and cope with and over-
come them should deterrence fail; determination of the optimal size,
crude oil and refined product mix, and date of completion of reserve
petroleum stocks in the United States and its allies; assessment of the
credibility and deterrent value of various levels of petroleum reserves.
B. Military Contingency Analysis (Chaired by the Department of
—Analysis of the adequacy of petroleum resources to meet mili-
tary and civilian needs of the United States and its allies under the most
stringent and the most probable wartime scenarios; assessment of sce-
narios short of war in which forces must be kept at high states of read-
iness due to increased threats.
—Analysis of the vulnerability of the world petroleum supply
system to interdiction, including acts of terrorism, acts of nature, and
premeditated political, economic, or military action.
—Identification of petroleum supply interruption scenarios which
would significantly impair United States ability to execute existing mil-
itary contingency plans.
—Analysis of United States military and related requirements for
securing petroleum resources in each of the above scenarios; similar
analysis with the addition of allied forces.
—Assessment of the existing and planned United States and allied
military capabilities to meet requirements noted above.
—Identification and assessment of additional policies and options
that would fulfill any requirements noted above which would be
unmet due to inadequate existing or planned military capabilities.
C. Integrated Overview Report (National Security Council staff)
—Synthesis of the reports of the Departments of State and Defense
into an integrated overview report to serve as the basis for review by
the Special Coordination Committee.
—The integrated overview report should include:
—Identification of major issues.
—Identification of United States policy choices.
—Identification of topics requiring further analysis.
436 Foreign Relations, 1969–1976, Volume XXXVII
128. Memorandum From the President’s Assistant for National
Security Affairs (Brzezinski) to President Carter
Washington, August 31, 1977.
Cooperation for Energy Development
In late June, President Perez quietly raised the issue of energy con-
servation with you.
His purpose was probably two-fold: to obtain
some technological help for developing the Orinoco Tar Belt and to ob-
tain our support for two regional organizations OLADE and SELA
which Venezuela leads.
From our perspective, we have an interest in responding to his
proposal, which he is likely to repeat, for three reasons:
1. We have an interest in encouraging Venezuelan leadership in
this and in other areas in which other developing countries could ben-
efit from new and appropriate technology.
2. We have a number of other important interests in U.S.-
Venezuelan relations, and we want to be responsive when Venezuela
raises certain issues.
3. We do want to help develop the Tar Belt, though most recent
studies indicate that such development is not economically feasible
now, and not likely to be for a number of years.
In addition, as State’s paper points out, our interests in the field of
energy cooperation are primarily global, and to this end, we have solic-
ited support from other industrialized and OPEC countries and LDCs
for the International Energy Institute. This would facilitate technical
assistance and energy technology development for the LDCs. NSC sup-
ports State’s recommendation that we continue to pursue this ap-
Source: Carter Library, National Security Affairs, Staff Material, North/South
File, Box 46, Pastor Country Files, Venezuela. Confidential. Sent for action. Under the
subject line, Brzezinski wrote: “Mainly with President Perez.”
Carter met with Pe´rez on June 28 and 29. At their June 29 meeting, Carter said that
“he was greatly concerned about increases in the price of oil,” given that “such increases
would contribute to worldwide inflation and serve no one’s interest.” Pe´rez “compli-
mented President Carter for supporting OPEC by urging Americans to conserve on en-
ergy,” and observed that “thanks to oil and OPEC,” the world “realized the gravity of the
energy crisis.” Carter “expressed his eagerness to work with Venezuela and with other
OPEC nations on scientific research on petroleum production and exploration—for ex-
ample, on developing technology for the Orinoco tar belt.” Pe´rez replied that “any agree-
ment to develop technology for the tar belt must be within the context of an overall plan
or agreement between the United States and Venezuela.” (Ibid.) The memoranda of con-
versation of their meetings are scheduled for publication in Foreign Relations, 1977–1980,
volume XXIV, South America; Latin America Regional.
February 1977–January 1979 437
proach, but I disagree with State’s position that there is such a clear-cut
choice between a regional and a global approach. Both are needed.
COOPERATION FOR ENERGY DEVELOPMENT AS A RESPONSE
TO PRESIDENT PEREZ
Issue for Decision
The issue is whether we should continue to explore with the Vene-
zuelans possibilities for bilateral cooperation in the development of
new technology for energy production and/or indicate to the Vene-
zuelans our interest in discussing with them a Latin American regional
approach to cooperation in energy planning and technology.
In June, Presidents Carter and Perez agreed that energy should be
an area for continuing US-Venezuelan consultation and cooperation
and that Schlesinger and Energy Minister Hernandez, who met during
the visit, should meet again for this purpose. The meeting will take
place later this year, after preparatory discussions in late September or
early October. We hope that at the meeting we can reach agreement on
a process for cooperation in energy technology.
We are not currently pursuing with the Venezuelans the sugges-
tion for US-Venezuelan leadership in a hemispheric program for coop-
eration in energy technology and planning raised by Perez during the
previous Administration. In the past he also raised the possibility of ex-
amining what role, if any, existing Latin American organizations might
play, such as those for economic affairs (SELA), energy development
(OLADE), and nuclear non-proliferation (OPANAL). The US is not a
member of these organizations and we have had limited dealings with
them thus far.
As part of our global approach to energy problems, we have pro-
posed an International Energy Institute (IEI), to be backed by industri-
alized countries and leading oil exporters, to facilitate technical assist-
ance and energy technology development for the benefit of LDCs. The
development of such an institution (which is supported by UN
Brzezinski added by hand all the text after “pursue this approach.”
438 Foreign Relations, 1969–1976, Volume XXXVII
Secretary-General Waldheim) could form part of an agreement to re-
sume a multilateral energy dialogue if, after an initial cautious recep-
tion, it attracts sufficient support from LDCs. These issues will be
played out over the next several months, with one possible outcome an
IEI decentralized along regional lines.
1. Use the upcoming energy talks with Venezuela to revive the subject of
regional energy cooperation
This would be responsive to an earlier Venezuelan suggestion, and
by raising it we could better evaluate whether the Venezuelans have
specific ideas of potential mutual benefit. Raising a proposal not cur-
rently being pressed by the Venezuelans, however, could raise false ex-
pectations, as we are likely to shape our multilateral energy policy in
response to interests that are broader and deeper than regional
2. Leave regional energy cooperation in abeyance pending the outcome of
UN and other multilateral consideration of the future of the energy dialogue
and the IEI
This would save the multilateral energy technology “carrot” for
possible use in conjunction with some form of ongoing energy dialogue
of benefit to all oil-importing countries. At the same time, it would not
foreclose a regional approach as a complement to global energy cooper-
ation. It would not, however, acknowledge special concern for the en-
ergy problems of the Latin American region.
That you approve Option 2.
Panama Canal Treaty. He met with President Carter on September 7. The memorandum
of conversation is scheduled for publication in Foreign Relations, 1977–1980, volume
XXIV, South America; Latin America Regional.
Carter checked the Approve option and initialed.
129. Editorial Note
The International Energy Agency held a Ministerial meeting in
Paris October 5–6, 1977, which Secretary of Energy James Schlesinger
and Under Secretary of State for Economic Affairs Richard Cooper at-
February 1977–January 1979 439
tended. At the meeting, the Ministers expressed “deep concern” over
medium-term energy supply/demand prospects and the implications
for the overall economic, social, and political objectives of their coun-
tries. They also “unanimously voiced” their determination to seek na-
tional and cooperative measures to reduce dependence on imported oil
and assure adequate energy supplies for future economic develop-
ment. As a result, they adopted: 1) a “reduced dependence package”
with a group import target of no more than 26 million barrels of oil per
day; 2) twelve principles for energy policy; and 3) strengthened review
procedures designed to monitor progress toward the group target. Fi-
nally, the Ministers signed seven new cooperative research and devel-
opment agreements within the IEA framework. (Telegram 29526 from
Paris, October 7; National Archives, RG 59, Central Foreign Policy
During the meeting, Schlesinger delivered an address in which he
recognized the “major role” that the United States would have to play
in the common effort of IEA members to reduce dependence on im-
ported oil. He also emphasized the Carter administration’s determina-
tion to adopt measures that would limit imports to a previously stated
goal of 5.8 million barrels per day by 1985. The administration received
“strong support” for its energy plan, accomplishing one of the ob-
jectives it had established for the meeting, but the other countries repre-
sented expressed “deep concern for its fate in Congress.” (Ibid.) The
statement that the United States submitted for the record at the meeting
is in telegram 237279 to Paris, October 1. (National Archives, RG 59,
Central Foreign Policy Files, D770359–0493) A copy of Schlesinger’s
speech is in the Carter Library, Staff Office Files, Council of Economic
Advisers File, Box 25, Energy (2).The text of the communique´ is printed
in Scott, The History of the International Energy Agency, volume III, pages
353–357. The Ministerial Decision on Group Objectives and Principles
for Energy Policy is ibid., pages 59–80.
440 Foreign Relations, 1969–1976, Volume XXXVII
130. Briefing Memorandum From the Acting Assistant Secretary
of State for Economic and Business Affairs (Hormats) to
Secretary of State Vance
Washington, October 17, 1977.
Implementation of Strategy on Oil Prices
There are strong pressures within OPEC from revenue-short mem-
bers like Venezuela and Algeria for a further price increase for 1978. In
July, Saudi Arabia publicly supported a price freeze and Iran, atypic-
ally, did not rule one out. Each has kept ample room to maneuver,
however, and we believe it possible that they might in the end agree
to a price increase of as much as 10 percent in the name of OPEC
unity. At the same time, there is no OPEC consensus as yet, and we
have an important opportunity to encourage the key members to
support a price freeze and to discourage others from pushing for an
We have developed a strategy consisting of the following principal
—high level approaches by the President and Secretaries Vance,
Blumenthal, and Schlesinger in all their meetings with OPEC member
leaders this fall so that our opposition to a price increase is clearly un-
derstood. Such meetings are our best opportunities to convey our seri-
ousness and make clear the importance we attach to a price freeze. We
must be careful, however, to avoid giving weak signals through omis-
sion or lack of clarity;
—possibly a letter from President Carter to King Khalid to indicate
appreciation for the Saudi position in favor of a price freeze and
pointing out that we are assisting the Saudi effort. The point of depar-
ture would be whatever line Prince Saud indicates the Saudis are cur-
rently prepared to pursue on prices;
—de´marches by our ambassadors in the OPEC capitals. These will
ensure that we touch all bases and get firmly on record in OPEC
—appropriate contacts with selected LDC’s and IEA countries to
provide arguments for a price freeze and encourage, directly or indi-
rectly, approaches to OPEC members. Although our own efforts will be
central to the outcome of our campaign, we want to build additional
pressure at the margin and ensure consistency on the part of other ma-
jor oil-importing countries.
Source: National Archives, RG 59, Central Foreign Policy Files, P770173–1821.
Confidential. Drafted by Hart and cleared by Sober.
February 1977–January 1979 441
The US Case
Our strongest economic arguments against a price increase are that
it would imperil the fragile global economic recovery and is not justi-
fied by the current market supply and demand balance for oil. We must
also be prepared to counter OPEC claims that continued world infla-
tion and currency exchange fluctuations justify a compensating oil
price increase. Secretary Blumenthal is best-suited to make these global
economic arguments authoritatively. In addition, we want to call
in some of the chits that the Administration has earned by its expendi-
ture of political capital on bilateral and regional initiatives of great
importance to such countries as Saudi Arabia, Iran, Venezuela,
and Nigeria, while pointing out that an oil price rise would be
likely to arouse a strong negative reaction in Congress and among
the American people, complicating the pursuit of these initiatives. The
President and you can make these political arguments with best effect.
The basic arguments in our approaches to the OPEC countries will
—An oil price increase will be harmful to the world economic recovery
and will seriously threaten progress in reducing inflation and unem-
ployment; it would place particular burdens on the oil-importing de-
veloping countries. These outcomes would not serve the OPEC coun-
tries’ own interests in trade, investments, and development.
OPEC appreciation of the impact of oil prices on the world econ-
omy has increased since 1974, but there is a strong belief in OPEC that
we exaggerate the danger of “moderate” increases on the order of 10
percent. We must make clear that the marginal impact of any increase
at this time could set off a downward spiral in the world economy from
whose effects OPEC would not be immune.
The US and world economic recovery are at a critical juncture. Par-
ticularly worrisome is the uneven sharing of the world deficit which
matches the oil producers current account surplus, with the United
States carrying the lion’s share. This is already placing the international
trading and financial system under significant strain, encouraging pro-
tectionism and creating international financial uncertainty. A price in-
crease of 10 percent would raise the global bill for oil imports by more
than $15 billion and the initial impact would be to aggravate the
problem of the unevenly shared international deficit. This would in
turn heighten investor uncertainty and tighten the constraint on public
expansionary policies. Thus, the impact of a marginal increase in the
OPEC price could set in motion an unravelling of the faltering world
Key OPEC countries must be made to understand the magnified
repercussions another price increase could have. At the same time, we
must be careful not to implant doubts about the ultimate strength of the
442 Foreign Relations, 1969–1976, Volume XXXVII
dollar in the minds of OPEC leaders, particularly of those countries
with large dollar-denominated holdings.
—Market conditions do not justify any price increase. The oil market
has slumped since early this year, and this condition will continue for
The impact of new oil supplies from the North Sea, Alaska, and
Mexico began to be felt in the oil market in the second half of this year.
The addition of 3 million b/d of new supply from these sources be-
tween mid-77 and mid-79 will meet most of the increased need for oil
in this period, assuming moderate economic growth. Current supply
and demand lend no market justification for an OPEC price rise at this
—Oil prices are at this point a sensitive issue among the American
people. A hike now would generate a negative reaction among Americans
toward countries supporting the increase.
The Administration believes and is trying to put across to the
public that the energy problem is a global one requiring a longterm
transition to other energy sources than oil and gas and that this can
only be achieved successfully through the cooperation of oil producing
and consuming countries during the difficult transition period. Under
present circumstances, a price increase would be viewed as irrespon-
sible and this will increase the difficulties of building support for bilat-
eral and regional initiatives of high interest to individual oil producing
—Oil price decisions must be made on broader considerations than
and currency exchange fluctuations.
However, even accounting for such factors, our analysis is that the
terms of trade of the OPEC countries are still better than they were in
1974, itself a very favorable year for oil exporters.
World inflation has slowed markedly since January 1, 1974, and
the oil producers have taken actions to increase government per-barrel
oil take by one-third since that date. Although we have been careful not
to concede that there is economic justification for basing oil price in-
creases on world inflation rates, we have had to track this issue to be
able to counter OPEC claims of substantial erosion of oil purchasing
power. CIA’s conclusion is that the terms of trade, denominated in dol-
lars, between OPEC and the leading industrialized countries place
OPEC ahead by about 5 percent over 1974. It would not be useful to
state that precise figure with OPEC but we can make the general point
and emphasize that a further price rise would be self-defeating as it
would contribute to world inflation and currency problems. The re-
quirement now is for a period of stability in oil prices.
We want to approach all the OPEC countries bilaterally and in-
volve other oil importing countries to the extent this is not counterpro-
February 1977–January 1979 443
ductive. Our bilateral efforts should be concentrated on the three key
players: Saudi Arabia, Iran and Venezuela.
—The visits of Prince Saud to Washington and Secre-
tary Blumenthal to Riyadh provide our best opportunities to:
—verify that the Saudis are still willing to press for a freeze, since
without their cooperation our campaign cannot succeed;
—impress upon them that economic and political considerations
require a freeze; and
—reassure them that we are trying to help them persuade the other
We understand that the President and Crown Prince Fahd talked
in terms of a 1978 price freeze during the successful state visit in May.
For Prince Saud’s visit, we have prepared talking points for the Presi-
dent to flag the importance of a price freeze and to elicit Saud’s re-
sponse. Saud was personally uncomfortable with the decision of Prince
Fahd and Abdullah to split with OPEC last year,
but we trust he will
reflect current official Saudi views during his visit to Washington. We
recommend that you and Secretary Schlesinger follow up with Saud as
necessary after he and the President meet.
After these talks, we plan to consider the desirability of recom-
mending that the President send a letter to King Khalid. The content
would depend upon what we learn from Saud.
Meanwhile, Secretary Blumenthal will have spoken for the Ad-
ministration with the key oil price decision-makers in Saudi Arabia
(suggested talking points attached).
If all goes well in the Washington
and Riyadh meetings, we and the Saudis will be on the same wave
length and no further high level representations to them will be
Secretary Blumenthal has a rare opportunity to influence
Iran because, for once, Iran has not locked itself into a public position
favoring another price increase. If the Shah, who will decide the Iranian
position, has made up his mind, he has not revealed it. Moreover, the
Iranians now acknowledge for the first time since 1974 that the state of
the global economy and world-wide unemployment are factors to be
taken into account in price decisions. At the same time, the Iranians as-
sert that world inflation and currency exchange fluctuations should be
factors in oil pricing. Secretary Blumenthal can be helpful in guiding
See Document 124.
See Document 113.
See footnote 4, Document 136.
Talking points for Blumenthal’s meetings in Saudi Arabia, Iran, and Kuwait are
attached but not printed.
444 Foreign Relations, 1969–1976, Volume XXXVII
the Shah as he weighs the respective merits of these various consider-
ations (suggested talking points attached).
As noted, Tehran’s silence on the upcoming OPEC meeting is un-
usual, and we do not know whether its position will be open when the
Shah arrives here for his state visit.
It is possible that the visit is a factor
in the Shah’s silence on oil prices, and we are preparing talking points
for the President’s use. We do not believe that generalized talking
points on the world economy will be as effective as hard-hitting points
on the state of the dollar and U.S. world strength. (We should be aware,
however, that the Iranians have in earlier periods of dollar weakness fa-
vored the denomination of oil prices according to a basket of currencies
or in SDR’s and that they could revive such proposals within OPEC.)
We have not recommended a letter to the Shah because previous for-
mal communications on the subject of oil prices have appeared to bring
out the Shah at his most extreme for the record. An exchange now
could reduce the chance to influence his decision.
The President has already raised the oil price question
with President Perez twice—in June and September.
But Venezuela is
still in the forefront seeking to build an OPEC consensus around a price
increase at the December 20 meeting in Caracas. We intend to raise the
issue during our November 10–11 bilateral working level meeting in
Washington with GOV energy policy advisors. It is possible that Secre-
tary Schlesinger and the Venezuelan Energy Minister will also meet be-
fore the OPEC meeting. However, it would be desirable for the Presi-
dent to make one more major effort during his November 22 visit to
Venezuela to present our case to President Perez,
with whom he has
established a close rapport on regional and other political issues.
Secretary Blumenthal will have an opportunity to talk about oil
prices on his trip to Kuwait (suggested talking points attached). The
President has already raised the price issue with Nigerian President
and will be advised to do so again in Lagos. We have also
made our views known to visiting high Indonesian officials. We are ex-
pecting at the end of this week CIA’s detailed analysis of the potential
impact on the world economy of an oil price rise in 1978. This, along
with Treasury analyses, will form the basis for:
November 15–16. See Document 139. The OPEC meeting was held December 20.
See Document 136.
See footnotes 2 and 4, Document 128.
Carter did not travel to Venezuela, but see footnote 7, Document 138.
President Obasanjo visited the United States October 10–13. Documentation is
scheduled for publication in Foreign Relations, 1977–1980, volume XVII, Africa.
February 1977–January 1979 445
—de´marches by our ambassadors to the OPEC governments with
which high-level meetings are not in prospect;
—instructions to embassies in key LDC capitals to present our
views to appropriate officials on the consequences of a price increase;
—guidance to embassies in IEA capitals to encourage host gov-
ernments to approach OPEC members and to use mutually consistent
arguments for an oil price freeze.
In addition, we are preparing talking points for the President’s use
in the oil-importing LDCs and industrialized countries he will visit
in November (Brazil, India, Belgium and France). Under Secretary
Cooper will have an opportunity to raise the price issue with Jamaica in
his bilateral on North/South issues. We cannot count on oil-importing
LDCs to make approaches to OPEC; but Brazil, India and Jamaica are
among the most suitable targets for efforts to encourage involvement.
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