Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
Memorandum From Director of Central Intelligence Turner
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- Stansfield Turner 2 Attachment
- 159. Memorandum From Timothy Deal of the National Security Council Staff to the President’s Assistant for National Security Affairs (Brzezinski)
- 160. Paper Prepared in the Department of State
158. Memorandum From Director of Central Intelligence Turner
to Secretary of Energy Schlesinger
Washington, August 14, 1978.
Attached is a very short report on the role intelligence might best
play in supporting U.S. energy policy and planning. This was prepared
by my Science and Technology Advisory Panel. After you have an op-
Source: Library of Congress, Manuscript Division, Schlesinger Papers, Box 1, CIA
Documents, File Four. Confidential.
February 1977–January 1979 505
portunity to read it, I would like very much to get together with you to
discuss this report and any other ideas you may have on how we can be
supporting you better. May I invite you and two or three of your assist-
ants to come to the Agency for luncheon with me and our top people
involved in collecting and analyzing energy information.
Proposed Intelligence Activities in Support of
US Energy Policy and Planning
Observations and Conclusions
1. A number of studies have indicated clearly that a driving force
in the strategic position of the major powers in the 1980s–1990s will be
the availability and price of major energy resources. In this time frame,
oil, natural gas, coal, and uranium are the only resources that need be
considered. At present, a number of agencies and departments—CIA,
DOE, Defense, Treasury, and State—have limited efforts to examine
the present situation and are making limited extrapolations of what
might happen over the next 10 years or more with the emphasis on the
shorter term projections.
2. There is a high probability of continued increases in the price of
oil and a possible severe shortage of oil relative to the demands of the
world economy by the end of the coming decade. The “crunch” will be
massive under the almost certain condition that the Soviets will no
longer be a net energy exporter. The situation will be even worse if CIA
forecasts of the Soviet need to become a substantial importer are valid.
Alternative sources of energy will simply not be available in practical
economic terms in the necessary volume by that time.
3. The implications of this situation in itself and for the actions of
governments as it becomes closer and more salient are numerous, crit-
ical, and complex. With the probable exception of the nations of arid
Africa, the consequences of the impending energy crunch will impact
heavily on most governments and thus on most major international
economic issues; on the stresses felt by existing alliance systems
(NATO and Warsaw Pact); on regional power balances and emerging
regional powers; and on perceptions of the need for and incentives to
use military forces. Without engaging in overstatement, the energy fac-
Turner signed “Stan” above this typed signature.
The report is dated June 1978.
506 Foreign Relations, 1969–1976, Volume XXXVII
tor will have at least as much impact on the role of the United States in
the world in the coming decades as nuclear weapons have had in previ-
4. Relative to nuclear weapons, the energy factor will create far
more difficult requirements for information and thus tasks for the US
intelligence and policy analysis communities. The implications cannot
be adequately grasped simply through concentration on a very small
number of foreign countries, on military as distinct from economic
matters, and on meeting the problem through unilateral US procure-
ments or dispersal of technology.
5. The US energy policy community now has on its agenda a large
number of relevant issues and action programs. These developments
are relatively recent and fluid in terms of the division of executive
branch responsibility and focus on coordination. Nevertheless, the
policy community is well ahead of the current production capacity and
institutional priorities of the Intelligence Community on energy and
energy-related matters. Without substantial increases in the resources
allocated to intelligence production pertinent to the energy factor, the
gap will grow.
6. Scientific and technical development will greatly influence the
pace of energy resource recovery and production in countries
throughout the world. Much of this information is in the open literature
or available from easily accessible sources. At one time, the Intelligence
Community maintained almost routine coverage of these engineering
(non-nuclear) developments. Shifting emphasis to assumed higher pri-
ority items has vastly degraded the US capability in monitoring tech-
nical developments in many areas of fossil fuel recovery, conversion,
and use. For example, our knowledge of technological possibilities of
the use of the high BTU gas production developed in East Germany is
extremely limited. Our knowledge of the South African technology for
the development and use of Solvent Refined Coal is similarly limited. A
list of comparable examples is virtually limitless. The failure to main-
tain cognizance of technical developments in the non-nuclear energy
area will severely limit technical developments in the use of fossil fuels
in the United States.
7. Many of the policy alternatives now under active consideration
and increasingly detailed formulation call for syntheses of two kinds.
First, they require the integration of political, economic, and scientific
and technical intelligence. Second, they require the integration of esti-
mative intelligence on the policy intentions, capacities, and responses
of numerous governments in OECD, in CEMA, and in the developing
8. Unfortunately, these two sorts of syntheses are precisely what
the US Intelligence Community is poorly organized to provide. Given
February 1977–January 1979 507
other production burdens and historically established interagency and
interoffice divisions of labor, it is unrealistic to expect these syntheses
to be generated in the absence of high-level guidance and demand.
There clearly exists competence among individual analysts as demon-
strated by a superb ORPA report on the political economics of energy
in the Warsaw Pact.
9. Analyses which synthesize across types of information and per-
tinent nations obviously can be no better than the descriptive intelli-
gence information and “single discipline” and “single country”
analyses on which they can draw. The activities being undertaken and
the priority questions identified for production are by and large com-
mendable and necessary. They are in no way sufficient, however, to the
scope of the problems posed by the energy factor.
10. It would obviously be inappropriate to assume that the sole
provider of information pertinent to energy and energy-related policy
issues will or should be the Intelligence Community. However, there is
little evidence of a thorough assessment of which information needs
should be met by the Intelligence Community, which would be best
provided by analysts working under other public and private sector
auspices, and how these streams of production should be organized to
complement each other efficiently.
11. An examination of these efforts to understand (a) the energy
policy of the Soviet Union, (b) the implications of the energy shortages
to the LDCs, and (c) the significance of these developments to the fu-
ture of the United States convinces us that US efforts in this area fall far
short of what is needed. In our view, the availability of energy will de-
the economic situation in the world in the 1985–2000 period.
There is at present no unified effort to understand the long-term view of
the Soviets regarding their energy policy or even their assessment of
the US policy. Limited efforts are under way to understand Soviet R&D
developments. We believe that these are relatively weak attempts
which reflect an evaluation of Soviet R&D in terms of our own
12. The rapid evolution of requirements for intelligence on energy
systems poses two kinds of important problems. First, our lack of expe-
rience will hinder the developments of the kind of analysis important
in the 1985–2000 time period. Second, the users of intelligence analysis
will also require experience as to the kind of analysis that will be of
greatest aid in the formulation of policy. The development of the ap-
propriate analytical capabilities and the acquisition of the means to use
analysis will require the close cooperation of the analytic and policy
1. The DCI should charge his staff to develop a community-wide
plan for the production of energy and energy-related intelligence and
508 Foreign Relations, 1969–1976, Volume XXXVII
the identification of the additional resources necessary to support the
framing and evaluation of US policy choices. The plan should also
identify the focus of leadership responsibility to ensure that the synthe-
sized analyses mentioned earlier will be forthcoming.
2. The DCI and his representatives should clarify with the Secre-
tary of Energy and his representatives the information needs of the lat-
ter and the contributions each will make to the provision of needed
analyses. Resolution of their relationship is important for getting on
with the substantive intelligence needs posed by the energy factor. Fail-
ure to do so is likely to result in unproductive hassles about control of
the turf and additional intelligence resources.
3. While all necessary work cannot be done at once, the Intelligence
Community should pursue major synthesized analyses of, and devote
ongoing intelligence attention to, a small number of particularly crucial
questions and problems facing US policymakers. These include:
• Preparations to maintain the safety of oil transport by sea to the
United States, Western Europe, and Japan.
• Feasible and acceptable US initiatives to enhance the
non-nuclear energy alternatives available to the developing countries
(and in particular to potential nuclear proliferators).
• Alternative adaptations by major OECD nations to the coming
energy crunch, including their responsiveness to collective action pro-
posals in cooperation with each other and the United States.
• Clarification of the extent and the economic and technical condi-
tions for feasible exploitation and use of energy mineral endowments
on a worldwide basis (in particular oil, natural gas, uranium, and coal).
• Alternative strategies to create sufficient interdependence be-
tween major energy exporters and importers to induce the latter to
sharply boost extraction rates in time of emergency and to acquire the
facilities on a standby basis which will make that possible in a timely
• Development of institutional techniques that will facilitate the
rapid application of energy technologies developed outside the United
States but knowledge of which may have been obtained through intelli-
February 1977–January 1979 509
159. Memorandum From Timothy Deal of the National Security
Council Staff to the President’s Assistant for National
Security Affairs (Brzezinski)
Washington, August 30, 1978.
Proposed Meeting on Short-Term Oil Price Strategy
State recommends (Tab A)
that we convene a meeting in Sep-
tember to review our short-term oil price policy. The memo notes that
OPEC appears to be moving quickly toward a decision to increase oil
prices. State argues that if the US hopes to influence that decision, we
must reach agreement soon on our tactical position on oil price issues.
We cannot defer consideration of this question until completion of the
PRC study on our long-term oil price strategy, which should go for-
ward to meet other needs.
State proposes an ad hoc meeting among NSC, State, Treasury,
and Energy during the week of September 11. You chaired a similar
meeting in your office last September shortly before Mike Blumenthal
left on his Middle East trip.
It was successful producing important pol-
icy decisions and a diplomatic campaign for a price freeze throughout
The week of September 11 is inconvenient because of the Camp
David Summit and a heavy NSC schedule during the latter part of the
week. Under the circumstances, I have suggested to State that the meet-
ing take place on September 18 or 19. State concurs. State will coordi-
nate with DOE and Treasury in preparation of an agenda and briefing
papers. Henry Owen and I will monitor that preparation.
That you agree to convene an ad hoc meeting among State, DOE,
Treasury and NSC on September 18 or 19 to discuss our tactical posi-
tion on oil price increases.
Box 66, Subject File, Middle East Oil, 12/77–12/78. Confidential. Sent for action. Trans-
mitted through Owen.
An August 29 memorandum from Tarnoff to Brzezinski; attached but not printed.
The meeting was held in October. See Document 132.
Brzezinski checked the Approve option. Quandt initialed his concurrence with the
recommendation. Dodson also concurred and wrote: “fine with me; you could, of course,
if you thought the process and decision making necessary warrants it, elevate this
meeting to an SCC. Tim tells me State will go along with that too.”
510 Foreign Relations, 1969–1976, Volume XXXVII
160. Paper Prepared in the Department of State
Strategy Toward December OPEC Price Decision
The OPEC Ministers will meet on December 16 in Abu Dhabi to
decide the price of the market crude from January 1979. We must de-
cide on our objective with regard to the price issue and our tactical ap-
proach over the next several weeks.
Most producers last increased oil prices in January 1977 by ten per-
cent, based on a marker price of $12.70. Saudi Arabia and UAE raised
their prices by five percent then and by a further five percent in July
1977. At the Caracas meeting last December, Saudi Arabia and Iran ef-
fectively blocked any price increase for 1978, citing world economic
and oil market conditions, and have maintained that the freeze applies
for the full year.
The small and middle producers only reluctantly acquiesced in the
price freeze and have sought unsuccessfully to overturn it through the
year. Rising revenue needs, declining purchasing power of oil
earnings, and the approaching end of the agreed price freeze period
have contributed to strong pressures within OPEC for a price increase
at the next meeting. No member currently espouses a continuation of
the freeze. The Shah has gently signalled that an increase is desired;
and while Saudi Arabia has not indicated it would support an increase,
Source: Carter Library, National Security Affairs, Staff Material, Middle East File,
Box 66, Subject File, Middle East Oil, 12/77–12/78. Confidential. The paper is attached to
a September 19 memorandum from Bosworth to the National Security Council, Depart-
ment of Energy, Department of the Treasury, and the White House, explaining that the
NSC Staff had asked that he distribute the paper to principals for use at the September 21
NSC-chaired meeting on short-term OPEC price strategy.
While the report of the Interagency Task Force on Long Term Strategy toward
OPEC prices has not yet been reviewed by the PRC, its conclusion is that gradual in-
creases by OPEC in the real price of oil are not preferable to a later, sharp oil price in-
crease by the mid-1980’s. The report recommended that the U.S.:
—Reaffirm the policy of seeking to keep OPEC price increases as small and infre-
quent as possible within the limits of U.S. influence and advisable tradeoffs with other
—Establish the longer-term strategic goal of seeking to expand world productive
capacity as a major foreign policy objective.
—Review periodically U.S. posture and tactics with respect to OPEC in the light of
market developments and past success in moderating price and expanding capacity.
[Footnote in the original. For the terms of reference for the task force, see Document 150.]
February 1977–January 1979 511
it has clearly not ruled one out and is not working for a continued price
freeze as it did prior to the meeting last December. Saudi Oil Minister
Yamani has continued to comment publicly on the desirability of small
but frequent price increases as an alternative to a sudden, large mar-
ket-induced increase at some point in the future.
The second issue likely to come up at Abu Dhabi is a proposal for
adoption of a mechanism to adjust oil prices for exchange rate changes.
Several OPEC countries have sought oil price adjustments to compen-
sate for loss of purchasing power caused by dollar depreciation. This
effort has been resisted by Saudi Arabia, and Iran and Venezuela are
not supporting it. For the moment it appears unlikely that such a mech-
anism will be adopted. However, continued rapid depreciation of the
dollar against the yen, mark, and Swiss franc could intensify pressures
for an exchange rate adjustment mechanism.
In making price decisions, OPEC members take a number of fac-
tors into account. OPEC’s perception of these factors also affects the in-
fluence we can have on the Abu Dhabi decision.
1. Current and expected demand for oil. The rate of growth of oil con-
sumption by the major oil-importing countries has declined since 1976,
and non-OPEC oil production increased by 7 percent during the first
half of 1978 over the same period of 1977. As a result, demand for
OPEC oil has remained roughly level during the period 1976–78 at
about 31 million b/d. The market will tighten through the remainder of
1978 as a result of seasonal inventory accumulation and anticipatory
buying in advance of an expected price increase. Based on assumed
constant real prices, demand for OPEC oil in 1979 will continue at
about this same level, as rising global consumption is largely met by in-
creased production from the North Sea and Mexico.
Saudi production policies introduce an element of some uncer-
tainty in the market outlook for the next 15 months. The Saudis have
imposed a limit on production of light Arabian crude, on an annual
basis, to 65 percent of total liftings, compared with the traditional por-
tion of about 75 percent. Misunderstandings involving how the limit
would be calculated caused Aramco to overproduce light crude earlier
this year, and reductions necessary to meet the limit will further tighten
the oil market during the remainder of 1978. It is possible that the Sau-
dis could tighten the heavy/light limitation further in 1979 by, for ex-
ample, reducing the allowable proportion of light crude production to
50 percent (roughly in line with the proportion of light oil in Saudi
Over the longer term OPEC has no significant fear that demand for
their oil will decline as a result of short-term price increases, nor are the
512 Foreign Relations, 1969–1976, Volume XXXVII
revenue surplus members persuaded that oil in the ground will be less
valuable than financial assets accumulated now. This expectation lends
force to the demands of Venezuela, Kuwait, and others that the price of
oil should be adjusted at least to maintain constant purchasing power.
U.S. demand for imported oil is an important element in OPEC’s
perception of future demand because of the sheer size of U.S. demand
and the U.S. potential for developing alternative conventional and
non-conventional energy sources. Saudi Arabia in particular asserts
that it cannot be expected to pursue the pricing and production policies
we desire if our demand for oil goes unchecked. Enactment of the four
pending parts of the U.S. energy plan
will be helpful in influencing the
upcoming price decision and should bolster our case for price modera-
tion over the longer term.
2. World economic conditions. Except for maverick Iraq and Libya, all
OPEC members and particularly the leading ones, have been respon-
sive to some degree to the impact of oil price increases on the world
economy. While economic growth in the oil-importing countries can
hardly look robust to OPEC, it is also unlikely that OPEC currently be-
lieves that any oil price increase at all would necessarily endanger cur-
rent levels of economic activity world-wide. Nevertheless, the impact
of oil price increases is significant and may act as a restraining factor in
OPEC’s decision as to the amount of an increase. Further analysis is un-
derway to obtain an agreed view on the impact of price increases which
can be used in our tactical approaches. However, preliminary analysis
indicates that a five percent price increase for oil for 1979 could raise
inflation in the Big Seven OECD countries by 0.4 percent and reduce
OECD growth by 0.25 percent, thus intensifying the problems of fiscal
and monetary management of those OECD economies. The trade bal-
ances of the OECD countries in 1979, even taking into account in-
creased exports to OPEC, would deteriorate by almost $4 billion, with
the U.S. bearing about 40 percent of that total.
The oil-importing developing countries would be hit even harder.
A 5 percent price increase would raise their oil bills by $700 million in
1979 and would add $450 million to the cost of their non-oil imports.
Their export revenues would also decline because of slowed economic
growth by developed countries. The net result is estimated to be a dete-
rioration of $1.2 billion in the trade accounts of oil-importing devel-
3. OPEC Purchasing Power and Revenue Needs. The strongest argu-
ment made within OPEC for a substantial price increase for 1979 is
based on the effect of dollar depreciation and inflation on the purchas-
See footnote 3, Document 153.
February 1977–January 1979 513
ing power of OPEC revenues, particularly in the markets of Europe and
Japan. DOE has calculated that OPEC purchasing power for oil reve-
nues (on a trade-weighted basis) has declined to about 80–90 percent of
its value in 1974 depending on the country involved, with about 7 per-
cent of the decline in the last quarter alone. OPEC’s desire to recoup the
loss through an oil price increase is restrained to some degree by the
fear of leading producers, particularly Saudi Arabia, that a price rise
could precipitate a further dollar depreciation and by their hope that
the dollar will stabilize and strengthen.
This loss of purchasing power and the stagnant demand for OPEC
oil has had a direct adverse effect on the ability of OPEC members to fi-
nance growing public expenditures. For members such as Venezuela,
Indonesia, and Nigeria, immediate revenue needs will tend to out-
weigh concern over depressing effects of a price increase on global oil
demand. The Saudis are not immune to this concern and have cut back
production in the past year in part to assist the sales of other OPEC
4. Political and security. The political and security stake of indi-
vidual OPEC members in cooperative relations with the West may not
dictate the outcome of OPEC’s decision, but at a minimum it will affect
the receptivity of approaches we make on price. Here the priority Saudi
concern will be the post Camp David-Summit implications for the Mid-
dle East, while Iran’s first concern will be internal stability. These fac-
tors can conceivably strengthen our influence on the price decision.
Conversely, the amount of influence we must concentrate on gaining
continued Saudi support for our Mid-East peace strategy will deter-
mine how much we can press the Saudis on the short-term price issue.
5. Attitude of other oil-importing countries. The convictions and ap-
proaches of other governments will reinforce or weaken the arguments
and approaches we make. Several industrialized countries are unlikely
to take a strong position against any price increase in 1979. German and
Japanese credibility is undercut by appreciation of their currencies
which has resulted in major declines in the mark and yen price of oil.
They will be more disposed to counsel unspecific price moderation,
stressing the threat to financial and economic stability of a large price
increase. The British now have a stake in high oil prices,
and they are
unlikely to oppose a 5–10 percent price increase. Most oil-importing de-
veloping countries would hope that a price increase could be avoided
but are unwilling to oppose it actively.
As a result of oil development in the North Sea.
514 Foreign Relations, 1969–1976, Volume XXXVII
Options for U.S.
1. Seek a price freeze
Since no one in OPEC is espousing a freeze, it is extremely difficult
to expect this can be achieved. To carry it would require a Saudi lead,
probably the backing of Iran, and some neutralization of Venezuela
and others pressing for a price increase. If we decide to support this op-
tion, we would have to try to convince other major consuming coun-
tries to adopt a parallel and consistent posture. We would have to act
quickly with high-level de´marches to the Saudis, Iran, Venezuela and
others. Publicly we would make clear that the onus of a price hike
would rest squarely with OPEC, that market conditions do not justify
an increase, that we want to avoid not only an increased burden on our
own shoulders but a heavier burden for the non-OPEC LDC’s.
—Tactically, it is a clear U.S. position which cannot be misunder-
stood, which OPEC has come to expect and which might act as a re-
straining factor on the eventual amount of any increase; and
—It accords with public and Congressional perception that the
OPEC price is already unjustifiably high.
—Achievement of the objective would be the best outcome for the
world economy and for the dollar.
—Governments of some important oil-importing nations might
not be willing to press for a freeze under present circumstances.
—To have a chance of acceptance probably requires extremely fa-
vorable linkage or costly actions on political and security matters of
concern to leading producers.
—Would damage our domestic and international credibility if the
objective were publicly announced and failed.
2. Try to hold increase below ten percent
Recognizing that some increase is highly probable, we would try
to minimize severely the amount of the increase. We would indicate
privately to the Saudis that while any price increase can compound
global economic problems, we could consider an increase of, say, five
In a September 20 memorandum to Brzezinski attached to this paper, John Renner
of the NSC Staff recommended that Brzezinski favor this option because: “a. It is in line
with the decision the OPEC countries are likely to make; b. It would appear to the Saudis
as the more reasonable position and would enable us to use our influence to try to per-
suade the Saudis to support the Camp David agreements; c. It would put us in a better
position to argue for increased investment in production capacity, which is essential to
avoid supply problems in the late 1980s.” Renner also noted that Henry Owen agreed
with his recommendation.
February 1977–January 1979 515
percent for the full year to be at the outer limits of that which the world
economy could absorb without serious damage and that which would
not jeopardize our efforts to strengthen the dollar.
We could at the same time raise the issue of capacity expansion,
pointing out the favorable impact that a firm Saudi decision to increase
investment in capacity would have on the U.S., thus mitigating some-
what the adverse reaction to a price increase. We would make parallel
approaches on the price question to Iran, Venezuela, and others. In any
public statements we would avoid giving any specific number as to the
price increase we would be prepared to accept but would stress that
any increase would have some impact on the world economy and that
OPEC governments have a direct responsibility for the health of the
world economy. We should make our own efforts on inflation, domes-
tic energy policy and the balance of payments a central feature of our
overall approach to the oil price increase.
—Other major oil-importing countries would probably adopt a
—If the dollar does not decline further, our objectives may be
achievable within the limits of U.S. influence and without concessions
on other questions.
—Achievement of an understanding would minimize the extent of
potential damage to the world economy and could settle foreign ex-
change and oil markets if a small increase is understood to be the prob-
able outcome of the OPEC meeting.
—There is no strong justification for a price increase in oil market
—Position could be misconstrued by OPEC as acquiescence in a
larger increase or future price increases.
—Is subject to criticism from segments of U.S. public and Congres-
Regardless of the option decided upon, many of the tactics which
can be employed will be the same. These include public pronounce-
ments, letters to key OPEC governments from the Secretaries of State
and/or Treasury and the President, de´marches by our Embassies to
OPEC governments, consultations with key oil-importing countries, in-
clusion into agendas during meetings with key OPEC officials, coordi-
nation of importing country positions via IEA and possibly other fo-
rums. In this regard, we should take advantage of the Bank/Fund
516 Foreign Relations, 1969–1976, Volume XXXVII
meetings in Washington and the UNGA later this month and the op-
portunities for contact with key OPEC ministers.
Our approaches should cover the elements analyzed in this paper,
including the state of the oil market, the impact of oil price issues on the
world economy, and the relationship between OPEC’s decision on oil
prices and the success of our efforts to control inflation and improve
our trade deficit as fundamental to a strengthening of the dollar.
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