Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
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- 147. Memorandum From the President’s Assistant for National Security Affairs (Brzezinski) to Secretary of Energy Schlesinger
- Zbigniew Brzezinski
- 148. Memorandum From the President’s Assistant for National Security Affairs (Brzezinski) and Henry Owen of the
- 149. Memorandum From Henry Owen of the National Security Council Staff to President Carter
- 150. Memorandum From the President’s Assistant for National Security Affairs (Brzezinski)
- Zbigniew Brzezinski Tab I
146. Memorandum of Conversation
Caracas, March 29, 1978, 9:15–10 a.m.
North-South Dialogue, Energy, the Caribbean and Law of the Sea
President Jimmy Carter
Secretary of State Cyrus R. Vance
Dr. Zbigniew Brzezinski, Assistant to the President for National Security Affairs
Terence A. Todman, Assistant Secretary of State for Inter-American Affairs
W. Anthony Lake, Director, Policy Planning Staff
Robert A. Pastor, NSC Staff Member
Ambassador Viron P. Vaky
Guy F. Erb, NSC Staff Member
Carlos Andres Perez, President
Simon Bottaro Consalvi, Minister of Foreign Affairs
Manuel Perez Guerrero, Minister of State for International Economic Affairs
Valentin Acosta Hernandez, Minister of Energy and Mines
Carmelo Lesseur Lauria, Minister, Secretariat of the Presidency
Hector Hurtado, Minister of State, President of the Investment Fund
Ambassador Ignacio Iribarren
Dr. Reinaldo Figuerido, Director of Foreign Trade Institute
[Omitted here is discussion unrelated to energy.]
Perez said that the recent talks in Washington between Secretary
Schlesinger and Minister Hernandez were useful, significant, and very
We should now like to push ahead on concrete cooperation
more rapidly. We were worried, Perez said, because our productive oil
Source: Carter Library, National Security Affairs, Staff Material, North/South
File, Box 47, Pastor Country Files, Venezuela, 3–4/78. Confidential. The meeting was
held at the Miraflores Palace. The President visited Caracas March 28–29 and then Bra-
silia and Rio de Janeiro March 29–31.
At the March 6 meeting with Minister of Energy and Mines Herna´ndez, Schle-
singer outlined the status of U.S. energy legislation and its “likely impact on the future”
of the U.S. market. He stressed the “importance of both price and security” of the oil
supply and that “private companies rather than governments would remain the major
contributors to energy R&D and development of new technologies.” Herna´ndez “sought
assurance of a long-term market for Venezuelan residual fuel oil,” proposed that the U.S.
Government assist with development of the Orinoco Tar Belt, and promised “additional
information on how this assistance could work.” Schlesinger and Herna´ndez agreed on
“regular informational exchanges, normally at the technical level but with the possibility
of future Ministerial sessions,” and agreed to “establish a bilateral program of energy co-
operation.” (Telegram 60227 to Caracas, March 9; National Archives, RG 59, Central For-
eign Policy Files, D780105–0913)
February 1977–January 1979 475
capacity is declining. Production limits were in the neighborhood of 2.5
million BPD. Thus, Venezuela’s capacity to help in an emergency, such
as the 1973 embargo, was limited, and it could not do now what it did
Venezuela has reserves, Perez went on. The tar belt was one of the
world’s largest reserves of non-conventional oil. The nation’s capacity
to expand exploration and productive capacity is limited because its
access to technology and capital is limited. Perez said he hoped that the
USG could cooperate in helping Venezuela advance its productive ca-
pacity for the future, since such capacity would be strategically impor-
tant to the U.S. as a safe source of future hydrocarbons.
Perez explained that the Japanese had made a proposal to invest a
billion dollars in a pilot project for developing the tar belt. The GOV ac-
cepted it in principle. It would like to consider similar cooperation with
Europeans and the U.S. This may be possible with the Europeans. Un-
fortunately, there is no U.S. state entity, and it was politically impossi-
ble to deal with the private companies.
One thought that has occurred to us, Perez said, was a possible
joint venture with the U.S. and Canada. Petrocan, as a state entity,
could be the channel for funneling technology and capital. U.S. capital
through private companies could associate with Petrocan. Trudeau,
Perez said, would be willing to cooperate.
Venezuela was also worried, Perez continued, about plans to in-
crease domestic refining capacity and to reduce imports of refined
products. (This referred to the Haskell Amendment.)
present a serious problem to Venezuelan exports of residuals. There
was also concern about imposition of tariffs on imports.
Director of Foreign Trade Figueredo, at Perez’ request, explained a
situation in which the U.S. may have violated the U.S.-Venezuelan
commercial agreement on tariffs on oil. He provided an Aide-Me´moire
on this item.
Minister Hernandez elaborated on Perez’ remarks and covered the
same ground asking in effect how can the U.S. and Venezuela coop-
erate to develop reserves and obtain technology and financial help,
bearing in mind the political problem of being unable to deal directly
with the TNC’s.
The Haskell amendment to the Trade Expansion Act of 1962 aimed to protect U.S.
refiners. The amendment’s language encouraged the President to impose or adjust im-
port fees specifically on petroleum products, if product imports threatened “the eco-
nomic welfare of the domestic refining industry.” (Paper attached to a May 17 memo-
randum from Schlesinger to Brzezinski; Carter Library, National Security Affairs,
Brzezinski Material, Country File, Box 85, Venezuela, 1/77–12/78)
476 Foreign Relations, 1969–1976, Volume XXXVII
Hernandez also pointed out that while Venezuelan crude makes
up only about 10 percent of U.S. crude imports, Venezuelan fuel oil
makes up about 40 percent of imports of that product. Therefore, Vene-
zuelan residuals were important to the U.S. He asked whether it would
not be possible for the USG to purchase fuel oil for its strategic reserve.
He also asked: “Can we count on a stable market?” He suggested that
some long-term arrangements might be in order to guarantee a stable
market in return for a secure and assured supply, perhaps some sort of
Western Hemisphere preference.
Perez said that the strategic reserves of the U.S. were important to
Venezuela as well, and he wondered if the U.S. and Venezuela cannot
cooperate now, then it might be even more difficult in the future. After
the Presidential elections in December, Perez said that he planned to
raise prices of gasoline. It would be very unpopular to do now, but
Venezuela’s problem is that it is consuming so much gasoline that it has
too little to export while having too much residuals.
Hernandez said that Venezuela’s refineries were built to fit the
needs of the U.S. East Coast, but Venezuela’s principal goal is to have a
mechanism which will permit greater stability for supplying petroleum
Perez said that the Dutch Antilles would soon be independent.
There are two refineries on those islands, one owned by Exxon, the
other by Shell. The GOV intends to “associate” itself with these refiner-
ies making arrangements to guarantee crude supplies. Because an inde-
pendent Antilles will need this industry, this complex will have politi-
cal importance for the Caribbean. The U.S. should therefore consider
giving some assurance of a market for these refineries.
President Carter said that the U.S. had to pass an energy program
first. As far as the U.S. is concerned, the only major investment for the
Orinoco would have to come from the U.S. companies. These com-
panies would be eager to invest if they could have some stability for
their contracts. They are disturbed about the nationalizations and out-
standing law suits. Right now, the oil companies were busy lobbying
the Congress, but perhaps after the energy bill passed, they may have
time to invest in Venezuela.
President Carter said that he welcomed the development of the Or-
inoco by Japan, Canada and others. The U.S. is not competing against
them. They have national oil companies, and Japan has a lot of capital
to invest. He said that he was not aware of any effort in the Congress to
restrict refineries in the U.S., but that if it were introduced, he doesn’t
think it would pass. Jim Schlesinger would know, and he’ll find out.
President Carter said that he was aware that Venezuela wanted a
long-term agreement, and he thinks it’s a good idea. The President said
that he would take this proposal up with Secretary Schlesinger aggres-
February 1977–January 1979 477
sively when he returned. Meanwhile, he suggested to Perez that he
might want to send Minister Hernandez to the U.S. to talk with the
companies about research and development on oil shale and tar sands.
[Omitted here is discussion unrelated to energy.]
147. Memorandum From the President’s Assistant for National
Security Affairs (Brzezinski) to Secretary of Energy
Washington, April 14, 1978.
The President’s Conversation With Venezuelan President Perez: Follow-up
In the President’s second conversation with Venezuelan President
Carlos Andres Perez on March 29,
the President said he thought Perez’
idea for a long-term supply arrangement was a good one, and that he
would aggressively pursue it when he returned. Perez also explained
the mutual interest of both countries in developing the Orinoco, but
said that it was politically impossible for Venezuela to deal directly
with the U.S. oil companies. He suggested an interesting proposal
whereby the U.S. companies and government could work with the Ca-
nadian government’s oil company to finance and develop technology
for the Orinoco. The President said that the energy program had
highest priority, and that Venezuela should try to improve its invest-
ment climate so that the oil companies would be less reluctant to invest.
The President was also asked to respond to two specific concerns:
Congressional plans to increase domestic refining capacity and the pos-
sible violation of a U.S.-Venezuelan commercial agreement on tariffs
Could you please coordinate with State and prepare a short paper
for the NSC dealing with the following issues:
—possibilities for a long-term supply agreement with Venezuela;
—Congressional plans to increase the domestic refining capacity
and its implications for Venezuela;
Source: Carter Library, National Security Affairs, Staff Material, North/South
File, Box 47, Pastor Country Files, Venezuela, 3–4/78. Confidential. A copy was sent to
See Document 146.
478 Foreign Relations, 1969–1976, Volume XXXVII
—the possible violation of a 1972 U.S.-Venezuelan commercial
agreement on tariffs and oil (ref: Caracas 3048);
—whether the USG would purchase Venezuelan residual oil for
our strategic reserve;
—and, whether there is anything that we can do as a government
to encourage U.S. participation in the research and development of the
Tarbelt, either official or private.
Please provide this report to the NSC by May 1, 1978.
Not printed. (National Archives, RG 59, Central Foreign Policy Files)
Schlesinger forwarded the paper, “Energy Issues Raised During The President’s
Trip to Venezuela,” to Brzezinski on May 17. The issues covered included: 1) The Ques-
tion of a Long Term Supply Agreement, 2) Congressional Actions to Protect U.S. Re-
finers, 3) Alleged U.S. Violation of a 1972 U.S.-Venezuelan Exchange of Notes, 4) Re-
sidual Fuel Oil for the Strategic Reserve, 5) Possible USG Actions to Aid in Research and
Development of the Orinoco Tarbelt, 6) Public Sector Cooperation, 7) Examination of Ar-
rangements Involving Private Sector Participation, and 8) Next Steps. (Carter Library,
National Security Affairs, Brzezinski Material, Country File, Box 85, Venezuela,
148. Memorandum From the President’s Assistant for National
Security Affairs (Brzezinski) and Henry Owen of the
National Security Council Staff to President Carter
Washington, April 15, 1978.
Saudi Oil Production
1. Introduction. Jim Schlesinger’s memo concerning Saudi oil pro-
duction (Tab A)
raises two issues with broad policy implications: oil
prices, and Saudi investment plans in the energy sector.
2. Oil Prices. Jim correctly points out that we may have to recon-
sider our strategy toward OPEC. We managed to avert a price hike last
December, but a freeze may be difficult to maintain beyond 1978 in
Source: Carter Library, National Security Affairs, Brzezinski Material, Country
File, Box 67, Saudi Arabia, 1–5/78. Secret. Sent for information. At the top of the page,
Carter wrote: “Zbig—Send cc memo back.”
Undated; attached but not printed. Carter wrote a note on this memorandum
asking Brzezinski for “brief comment” on it.
February 1977–January 1979 479
view of the dollar’s weakness in exchange markets, continued high in-
flation in the industrialized world, and strong pressures on Saudi Ara-
bia and Iran within OPEC. Furthermore, a freeze might not be in our
best interest, if it were followed by a sudden and substantial price rise
which could have a disruptive effect on the world economy. The next
decision point will come shortly before the December OPEC meeting, if
not earlier. Thus, a review of our strategy toward OPEC pricing is both
timely and appropriate. We will arrange to have this strategy consid-
ered in an inter-agency framework, so that recommendations can be
prepared for your consideration.
3. Saudi Investment Plans. Jim suggests that we acquiesce in a
modest (5–10%) price increase in 1979
if the Saudis will agree to ear-
mark additional revenues for investment in new production capacity.
We strongly doubt that acceptance of a price hike would give the US
any leverage over Saudi investment plans. The US should, however,
take every opportunity to urge Saudi Arabia to step up capital outlays
in production facilities without linking investment to any increased
revenues resulting from higher prices, since the Saudis must invest
more if we are to avoid a potentially serious shortfall in oil supplies
during the early or mid-1980s. If you agree, Zbig will send the attached
memo to Jim Schlesinger to underscore this point. (Tab B)
Owen wrote a note on an April 15 covering memorandum to Brzezinski: “ZB—I
strongly disagree with the idea of accepting a 10% price increase in 79. You should not en-
dorse that and instead refer it to Schultze, etc.” (Carter Library, National Security Affairs,
Staff Material, Special Projects File, Box 5, Henry Owen, Chron: 4/16–30/78)
Not attached, but a copy is ibid. In this undated and unsigned memorandum,
Brzezinski wrote that Carter agreed that the United States “should take every opportu-
nity to urge the Saudis to step up capital outlays in new production facilities, regardless
of near-term price developments.” He also wrote: “As we strengthen our overall relations
with Saudi Arabia on both the political and economic front, we should intensify energy
cooperation to assure that there is adequate installed production capacity in Saudi Arabia
to meet anticipated needs for oil in the 1980s. Meanwhile, price strategy should be
studied in an appropriate inter-agency forum, and I will be in touch with you shortly
with specific proposals.” According to a note from Rich Hutcheson to Brzezinski, April
17, the memorandum was forwarded to Schlesinger. (Ibid.)
480 Foreign Relations, 1969–1976, Volume XXXVII
149. Memorandum From Henry Owen of the National Security
Council Staff to President Carter
Washington, May 11, 1978.
Energy and the Summit
1. Attached is a memo to you from Mike Blumenthal suggesting
that you call in key members of the Congress to stress the need for US
action to limit oil imports before the Summit, and to indicate that you
will be compelled to take administrative action if a COET has not been
enacted by the time you go to Bonn. (Tab A)
2. I endorse Mike’s recommendation from the standpoint of for-
eign policy; I’m not competent to judge the domestic implications.
If we are to get the economic concessions from other countries
needed for a successful Summit—notably higher German and Japanese
growth, and British and French trade liberalization—we will have to
contribute something to the package. The contribution that our
partners want and expect is effective US action on energy. Schmidt im-
plied to me at Bonn that “German stimulus measures would hinge on a
favorable international economic environment—i.e., the US vigorously
attacking its inflation and energy problems”, in order to strengthen the
dollar. He was more direct at London: According to a report received
yesterday from Prime Minister Callaghan, Schmidt “told the Prime
Minister explicitly that if President Carter would act on inflation and
energy, then he would act (notwithstanding his lack of intellectual con-
viction) on stimulating the FRG economy”. So the outcome of the
Summit hinges, to some extent, on what we do about energy.
I realize that other parts of the energy legislation are important;
nonetheless, our Summit partners have made clear their belief that the
Source: Carter Library, National Security Affairs, Staff Material, Special Projects
File, Box 5, Henry Owen, Chron: 5/9–15/78. Secret. Sent for information.
Reference is to the G–7 Bonn Economic Summit scheduled for July. Blumenthal’s
May 8 memorandum is attached but not printed. In a May 11 memorandum to Carter,
Schultze wrote: “I agree with the Secretary [Blumenthal] that it is very important to have
some concrete results in the energy area for the Summit. It would strengthen your leader-
ship role, and would be a major bargaining chip with the Germans and Japanese for ac-
tion on their part. (Ibid., Box 25, Henry Owen, Summit: Bonn, 5/78) In a May 11 memo-
randum to the President, Director of the OMB McIntyre explained that, while he agreed
with Blumenthal “on the pressing need for an energy policy that over the longer term
eliminates subsidies for domestic oil and, more realistically, prices oil at world market re-
placement cost,” he questioned whether the July Summit should drive the President’s
“overall approach to Congress on energy.” (Ibid., Box 30, Henry Owen, Summit: Prepara-
tory Group Meeting, 5/27–29/78 in Washington, 3–6/78)
February 1977–January 1979 481
test of whether the US will reduce oil imports is whether COET is
passed or administrative action is taken in its place.
The most effective way of convincing Schmidt and others that you
will act to limit oil imports would thus be for Congress to have passed
COET or for you to have taken administrative action before the Sum-
mit. If a pre-Summit action is not feasible for domestic reasons, you
could announce publicly at the Summit that you would take adminis-
trative action by a fixed and specified date, if COET had not passed by
then. This would have far less impact on our allies’ attitudes than
150. Memorandum From the President’s Assistant for National
Security Affairs (Brzezinski)
Washington, May 12, 1978.
The Secretary of State
The Secretary of the Treasury
The Secretary of Defense
The Secretary of Energy
The Director, Office of Management and Budget
The Chairman, Council of Economic Advisers
The Assistant to the President for Domestic Affairs and Policy
The Director of Central Intelligence
Long-term National Security Strategy on Oil Prices
1. The President needs a paper on long-term policy (including
1979) on imported oil prices for PRC consideration.
2. The paper should be prepared by an inter-agency task force, and
should address the question at Tab I, among others.
3. In preparing this paper, the task force should take into account
the contingency planning being done as to what action the Executive
Branch should take on domestic oil prices if the crude oil equalization
tax is not passed by Congress.
Source: Carter Library, National Security Council, Institutional Files, Box 72, PRC
80: Oil Pricing, 12–1–78. Secret.
482 Foreign Relations, 1969–1976, Volume XXXVII
4. The task force should be chaired by the Secretary of Energy and
composed of the Departments of State, Treasury, Defense, OMB, CEA,
DPS and NSC.
5. A preliminary report should be made by June 30, for consider-
ation at a meeting of the Policy Review Committee.
Terms of Reference for the Inter-Agency Task Force on
Long-term Strategy on Imported Oil Prices
1. What is the best estimate of the extent to which the prices of im-
ported oil are likely to increase over the next ten years?
2. What problems will major countries have in adjusting over this
period to the estimated price increases (a) if these are arrived at gradu-
ally, whether in regular preannounced steps or otherwise; (b) if they
are arrived at suddenly in one or two large leaps?
3. In light of the above and of the implications for national security,
what are the advantages and disadvantages of different strategies with
regard to the rate of increase of imported oil prices? Among the strat-
egies to be considered are:
—Trying to persuade the OPEC countries to keep any oil price in-
creases as small and as infrequent as possible. (In appraising this alter-
native, the task force should assess the risk of large, abrupt price in-
creases following several years of no or small increases.)
—Attempting to get OPEC agreement to publish a ten-year sched-
ule of small, annual price increases. (In studying this possibility, the
task force should consider the merits and feasibility of getting a firm
ten-year supply commitment.)
4. In evaluating these strategies, account should be taken of the
probable reaction of OPEC and other countries to the possible imposi-
tion of import fees or quotas on imported oil, and the national security
implications of these reactions.
February 1977–January 1979 483
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