Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
Memorandum From James Cochrane of the National Security
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- 192. Telegram From the Department of State to Selected Diplomatic Posts
- 193. Memorandum From the President’s Assistant for National Security Affairs (Brzezinski) to President Carter
- 194. Memorandum From James Cochrane of the National Security Council Staff to the President’s Assistant for National Security Affairs (Brzezinski)
- 195. Memorandum From Secretary of State Vance and Secretary of Energy Schlesinger to President Carter
191. Memorandum From James Cochrane of the National Security
Council Staff to the President’s Assistant for National
Security Affairs (Brzezinski)
Washington, February 23, 1979.
Last evening, in Rud Poats’ absence, I attended a meeting on en-
ergy. This committee doesn’t officially exist, but meets regularly after
dark. It’s chaired by Kitty Schirmer and is (often) called the Interagency
Energy Working Group.
Two major issues were discussed last night.
First, the group worked through alternative ways the US could ab-
sorb its share of an anticipated world crude oil cutback of two million
b/d. DOE’s projected US 1979 demand is 19.2 million b/d. DOE has de-
veloped a series of multiple responses which would reduce US oil de-
mand from this status quo estimate, beginning in summer 1979. Much
of the meeting was devoted to discussing the economic and political
costs associated with various response measures. It was obvious after
about an hour of discussion that a great deal of econometric work re-
mained to be done, while political speculations are not in short supply.
Both the CEA and DOE were to return at the next meeting, scheduled
for February 26th, with additional analytical results.
Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File,
Box 48, Oil, 8/78–2/79. Confidential. Sent for information.
See footnote 5, Document 187.
January 1979–January 1981 615
The second major topic discussed at the meeting was the issue of
the USG position to be taken at the next International Energy Agency
(IEA) meeting, March 1–2.
Steve Bosworth (State/Economic and Busi-
ness Affairs) argued that the US should make a quantitative commit-
ment to cut back crude oil imports. The group agreed that the US com-
mitment would be a 4–5 percent reduction in oil imports. Bosworth
pointed out that the promise would probably not be carried out by
summer, but rather as 1979 went by. Bosworth argued that the actual
percentage reduction in US oil consumption was less important to
other IEA members than implementation of a mandatory USG conserva-
tion program. He further pointed out that the FRG is being tough on
the issue of quota reductions. The FRG wants to maintain the status
quo. The other IEA members will look to the US for resolution of this
difference between the USG and the FRG. Finally, Bosworth pointed
out that an OPEC Ministerial was scheduled for late March so that any
actions taken by the IEA could possibly be reacted to quite soon.
See Document 192.
192. Telegram From the Department of State to Selected
Washington, February 23, 1979, 2001Z.
44863. Subject: U.S. Proposals for Meeting of IEA Governing
Board, March 1–2. Ref: Paris 5576.
Confidential; Immediate. Drafted by Bosworth and Richard E. Hecklinger (EB/ORF);
cleared by Bergold, Poats, Eizenstat, and Hormats and in EUR/RPE and the Treasury De-
partment; and approved by Cooper. Sent to Athens, Bern, Bonn, Brussels for the Embassy
and USEC, Copenhagen, Dublin, London, Luxembourg, Ankara, Madrid, Oslo, Ottawa,
Rome, Stockholm, The Hague, Tokyo, Vienna, Wellington, and Canberra. Repeated Im-
mediate to Paris for the Embassy and USOECD and Priority to Caracas, Kuwait, Jidda,
and Abu Dhabi. In a February 21 memorandum, Poats informed Owen and Brzezinski
that this telegram was being sent. (Carter Library, National Security Affairs, Staff Mate-
rial, Special Projects File, Box 9, Henry Owen, Chron: 2/10–28/79)
Telegram 5576 from Paris, February 20, reported that the IEA Standing Group on
Emergency Questions (SEQ) had accepted the IEA Secretariat’s estimate that the world
oil shortfall was likely to average 2 million barrels per day in 1979. As a result, a majority
of the IEA members supported the idea of restraining oil demand by an amount to be
agreed upon, a decision that the Governing Board would make at its March 1–2 meeting.
(National Archives, RG 59, Central Foreign Policy Files, D790079–0089)
616 Foreign Relations, 1969–1976, Volume XXXVII
1) (C—entire text)
2) Posts are requested to convey on Saturday
if appropriate, if not,
as soon as possible, the following points concerning the world oil situa-
tion and the March 1–2 meeting of the IEA Governing Board to
high-level host government officials. OECD please pass to IEA
—The U.S. believes strongly that the IEA countries must take coor-
dinated action to meet the problems posed by the current shortfall in
global oil supplies. We are sharing our thoughts with IEA governments
in advance of the meeting of the Governing Board on March 1 and 2
and urge that all delegations come to that meeting prepared to join in a
strong and effective Governing Board decision.
—Events in Iran have resulted in 5 million barrels of oil per day
(MMB/D) being taken off the world market. Increased production by
other countries has reduced the cumulative loss to about 2 MMB/D.
—The situation in Iran remains uncertain. We cannot predict when
Iran will resume oil exports. Even when production is resumed, it
could again be reduced or terminated. Other producers may not exceed
current production levels. And as Iran resumes exports, other nations
could decide to lower their production before stocks are at satisfactory
—We thus face a serious situation requiring effective, coordinated
action by all countries, consumers and producers. While we must take
care not to stimulate panic and hoarding of oil, we must act prudently
to minimize the economic disruption which could result from a pro-
tracted shortage of oil supplies.
—The U.S. believes that since we cannot be assured that oil pro-
duction prospects will improve considerably within a short period of
time, the oil-consuming countries will have to take effective steps to re-
duce their demand for oil through use of a variety of measures, mainly
conservation and fuel switching. This could entail some political, so-
cial, and possibly economic costs, but these are of a far smaller magni-
tude than the potential costs of other alternatives.
Christopher informed the President about the U.S. proposal to be presented at the
March 1–2 meeting in a February 23 memorandum. After explaining the proposal’s objec-
tives, Christopher concluded: “The strongest resistance to our proposal will probably
come from the Germans and the Japanese. The Germans prefer to avoid demand restraint
measures and instead rely on a rise in oil prices to balance supply and demand. The
Germans are, of course, more able than most other IEA nations to manage the economic
consequences of such a course of action. The Japanese are wary of demand restraint
measures, claiming that in their case the only alternative would be to cut oil supplies to
industry which would slow economic growth.” (Carter Library, National Security Af-
fairs, Staff Material, Special Projects File, Box 9, Henry Owen, Chron, 2/10–28/79)
January 1979–January 1981 617
—Relying on accelerated stock drawdowns to cover the shortfall in
the hope that Iranian production will soon return to pre-crisis levels
simply will not work. Those holding stocks will not be willing to draw
them down substantially. And if they were, this would only result in
inadequate stocks to take us through the next winter and in serious
spot shortages by the summer and possibly well before.
—Relying on oil price rises to balance supply and demand would
have serious economic costs, including increased inflation and interna-
tional monetary instability, severe disruptions in certain industries and
sectors, a likely recession, and inordinate transfers of resources to pro-
ducing countries. Another very disturbing consequence is that this is
likely to result in a permanent increase in the OPEC price.
—The U.S. administration has called for voluntary conservation by
all users, including governments at the Federal, State, and local level,
industry, the driving public, and the residential sector, and we are cur-
rently preparing a major public program to maximize the effect of vol-
untary measures. We are also preparing a series of mandatory conser-
vation and fuel switching measures and are prepared to impose them if
the savings from voluntary actions are not sufficient. Other nations are
also considering or are taking such measures. However, in order to
have the desired effect on the oil market, the oil-consuming nations
must act together. A carefully coordinated international effort in the
IEA will enable us to have the maximum effect on the oil market—both
by reducing demand and establishing a positive psychological cli-
mate—and will assist each government to gain the support of its Parlia-
ment and public for strong and effective domestic measures.
—The U.S. therefore believes that the Governing Board in its
March 1–2 meeting should call on IEA countries to implement meas-
ures in whatever way is appropriate to their individual circumstances,
voluntary to the extent feasible and mandatory to the extent needed, to
achieve a substantial reduction in oil demand to be shared equitably by
all IEA countries. We do not believe it would be feasible to attempt to
dictate what specific measures should be taken by individual gov-
ernments, rather each government would commit itself to take what-
ever measures would be necessary to achieve a common reduction in
demand. The exact amount of the reduction will have to be decided at
the GB meeting in light of the current IEA analysis of the oil market. But
we believe it must be at least equal to the IEA countries’ group share,
based on projected 1979 demand, of the current shortfall in world pro-
duction. (FYI—While we will not be prepared to propose a specific re-
duced demand target until we have completed our review of the U.S.
contingency plans, we believe a common IEA percentage target of 4–5
percent will be required to produce the necessary reduction in pro-
618 Foreign Relations, 1969–1976, Volume XXXVII
—The purpose of this initiative is twofold: to achieve a significant
improvement in the world energy market, and to demonstrate, particu-
larly to key producer countries, that the major oil-consuming nations
are taking this situation seriously and are willing to do their share to
—The U.S. would suggest that the GB also recommend that strong
measures be taken to increase IEA oil production to the extent possible.
—The GB should also recognize the efforts of some OPEC nations
to increase production of oil in response to the cut-off of exports from
Iran. We should stress the shared responsibility of oil producers and
consumers to meet such a situation in a way that will maintain the
health of the world economy.
—In order to make credible this demand restraint effort, the GB
should establish a system to monitor the progress of IEA members
toward reaching the collective target. The Standing Group on Emer-
gency Questions (SEQ) should be charged with meeting periodically
over the next 30 to 150 days to review member country demand re-
straint programs in terms of effectiveness and equivalence of efforts.
—The GB action would constitute an important commitment for
its members. The U.S., as the largest energy consumer in the IEA,
would take such a commitment very seriously. We are developing a se-
ries of demand restraint measures that we believe will enable us to do
our part. We will explain them in some detail during the meeting.
—We would appreciate any comments on these proposals
member countries might wish to make in advance of as well as during
Embassies may note that they are broadly consistent with
the approach suggested by IEA Executive Director Lantzke at the SEQ
meeting February 19 (reftel).
On March 9, the Embassy in Brussels wrote: “our suggestion made a month ago
[see Document 189] for placing a ceiling on spot market petroleum prices probably came
too late to be acted on at the March 1–2 IEA Governing Board meeting. Demand restraint
measures undoubtedly were more readily acceptable to IEA and possibly OPEC gov-
ernments as well. But the recent moves of Iran, Libya, etc. to divert into the spot market
increasingly substantial amounts of crude produced ordinarily for shipment under long-
term contracts impels us to raise the ceiling price issue once again.” (Telegram 4564 from
Brussels, March 9; National Archives, RG 59, Central Foreign Policy Files, D790109–0075)
Telegram 57501, March 8, reported that the IEA Governing Board agreed IEA
member countries should reduce their demand for oil by some 2 million barrels per day,
equivalent to about 5 percent of IEA consumption. (Ibid., D790107–0810) The Governing
Board decision, “Action on the Oil Market Situation in 1979,” is printed in Scott, The His-
vol. III, pp. 110–113.
January 1979–January 1981 619
193. Memorandum From the President’s Assistant for National
Security Affairs (Brzezinski) to President Carter
Washington, March 16, 1979.
Crude Oil Intelligence
Today you have received the Domestic Policy Staff’s status report
on the Interagency Energy Group. The group is charged with pro-
ducing options papers for you on several interrelated energy issues, in-
cluding domestic crude oil pricing and a program to reduce US oil con-
sumption by 5 percent.
The NSC Staff is actively participating in the group. Independent
of that activity, I thought you might want to read the DPS report in con-
junction with best present estimates of the international crude oil situa-
tion. Three documents are attached:
—1979 Oil Supply Expectations (Tab A)
—OPEC: Price and Production Developments (Tab B)
—Free World Oil Market Through First Quarter 1980: Possibility
of Supply Shortfalls (Tab C)
To summarize, there is substantial uncertainty about the Saudi
crude oil production response to the Egyptian-Israeli peace treaty.
should have a clearer picture of this after Warren Christopher, General
Jones and I return from Saudi Arabia and Jordan. We do know that the
crude oil production this week was 2.5 million barrels, low
when compared with mid-1978 daily takes of 6 million barrels, but
higher than many experts predicted possible. At the March 26 OPEC
Ministerial, Ali Ardalan, Iran’s Minister of Economic Affairs and Fi-
nance, will state that Iran is technically unable to produce more than
3–3.5 million barrels per day during the next three months. One key to
the outcome of the OPEC Ministerial is the Saudi reaction to this infor-
mation, both their production response (moving above or below the
current daily take of 9.5 million barrels) and their position on price. The
Source. Carter Library, National Security Affairs, Brzezinski Material, Subject File,
Box 48, Oil, 3–6/79. Secret. Sent for information.
See Document 191.
Tabs A–C are attached but not printed.
While the peace treaty was not formally signed in Washington until March 26, the
Israeli Government announced on March 14 that the Cabinet had voted to accept a com-
promise on the remaining two issues that stood in the way of an accord. (The New York
, March 15, 1979, p. A1)
620 Foreign Relations, 1969–1976, Volume XXXVII
Saudis appear to want the OPEC Ministerial to result in immediate im-
position of what would have been fourth quarter 1979 prices.
On March 26, the OPEC Ministers will have to weigh the Iranian
production information, and the Saudi production response, with esti-
mates of market demand. It is evident that consensus on price has not
yet been reached.
Therefore such a consensus can be shaped by energy
decisions taken within the major oil-consuming nations.
OPEC held an “extraordinary” meeting in Geneva March 26–27, after which it re-
leased a closing statement. The conference: 1) agreed to “take steps to instruct lifting com-
panies to guarantee the quantities supplied to developing countries”; 2) agreed to “moni-
tor the prices charged by the lifting companies to developing countries continuously”; 3)
expressed concern about “the price speculation practices on the part of the major and
trading oil companies in the open market” and “the lack of necessary measures” taken
“by the industrialized, developed countries with a view to controlling the market situa-
tion”; and 4) “decided to undertake only a moderate and modest adjustment in the price
by bringing forward the price adjustment of the fourth quarter, 1979” and “applying it as
of 1st April, 1979,” making the market price of crude $14.546 at that time. (Telegram
3036 from Vienna, March 29; National Archives, RG 59, Central Foreign Policy Files,
D790146–0535) The OPEC statement was published in full in The New York Times, March
28, 1979, p. D11.
194. Memorandum From James Cochrane of the National Security
Council Staff to the President’s Assistant for National
Security Affairs (Brzezinski)
Washington, March 23, 1979.
Defense Energy Consumption and the Iranian Response Plan
During the Interagency Energy Group’s deliberations on reducing
US oil consumption by five percent, an options paper on defense en-
ergy consumption was developed.
The options were
—no reduction in defense energy use
—a three percent reduction
—a five percent reduction
Source: Carter Library, National Security Affairs, Brzezinski Material, Country
File, Box 29, Iran, 4–10/79. Confidential. Sent for information. A stamped notation reads:
“ZB has seen.”
Neither a record of the meeting nor the paper has been found.
January 1979–January 1981 621
Last night, Stu Eizenstat was convinced of the merits of the no re-
duction case. The issue is now dead, an options paper on this subject
will not be part of the energy package going to the President.
Presumably for the President’s speech; see Document 196.
195. Memorandum From Secretary of State Vance and Secretary
of Energy Schlesinger to President Carter
Washington, March 30, 1979.
US-Mexico Natural Gas Negotiations
As follow-up to your meeting with Lopez Portillo,
we have pro-
posed and the Mexican Government has agreed to begin discussions on
April 3 and 4 in Mexico City on possible United States purchases of
Mexican natural gas.
Our objective at this first meeting will be to resume the previously
terminated discussions and to obtain a better understanding of the cur-
rent Mexican position. Specifically, we will seek to ascertain the read-
iness of the Mexican Government to proceed with gas sales in the near
future, the volumes which might be available, the term of a possible
contract, and, finally, the pricing mechanism.
The indications we have so far are that the Mexicans may not be in
a hurry to conclude an understanding. They may continue to maintain
that they have not yet determined available volumes. They will un-
doubtedly open with the position that the price should be determined
on the basis of the BTU equivalent of distillate fuel oil—a formula
which would yield a price in excess of $3.30 per mcf.
Source: Carter Library, National Security Affairs, Staff Material, North/South
File, Box 31, Pastor Country Files, Mexico: Gas Negotiations Briefing Book, 1–3/79. Con-
fidential. Sent for action. Brzezinski sent this memorandum to the President under a
March 30 covering memorandum, in which he concluded: “Before too long, I believe we
will be faced with some hard decisions on how much we will be willing to pay to develop
a good relationship and to contribute to the development of Mexico. We will be in a better
position to know after these negotiations.” He recommended that Carter approve Vance
and Schlesinger’s strategy, and the President indicated that he did by checking the Ap-
prove option. (Ibid.)
See Document 190.
622 Foreign Relations, 1969–1976, Volume XXXVII
For these reasons we propose to use the initial meeting to probe
Mexican intentions, to analyze the market for Mexican gas, and to seek
to establish what are the competitive alternatives for Mexican gas in the
US market in order to determine the appropriate BTU equivalency. In
this manner, we believe that we can find areas of agreement and avoid
prematurely an impasse on the question of price. After this initial meet-
ing we can better determine our follow-on strategy.
In preparation for our meetings with the Mexicans, an advisory
group was formed, made up of a number of representative groups from
the private sector including interstate pipeline companies, natural gas
distribution companies, state regulatory authorities, and gas con-
sumers. In the first meeting, held on March 26, there was a useful ex-
change of views which established a clear interest in the importation of
Mexican gas at an acceptable price.
The general view was that a price
of $2.60 per mcf at the present time would be in the interest of natural
gas consumers but that a price as high as $3.30 would limit the market
severely. The advisory group suggested a number of useful areas for
discussion with the Mexicans. We intend to consult with the advisory
group following our meeting with the Mexicans and as our negotia-
tions with the Mexicans proceed.
We will, of course, keep you closely advised of the progress of the
discussions with the Mexican Government.
We recommend that you approve the exploratory approach we
propose to have the United States delegation take at the first meeting
with the Mexicans.
Below this recommendation, the President wrote: “Do not let the Mexicans nor US
oil companies adversely affect the interests of American people. Do not assume the role of
supplicant. Do not let imported gas prices boost overall domestic prices.” Brzezinski re-
turned the memorandum to Vance and Schlesinger on March 31, informing them that
Carter had approved their strategy and asking them to “note the President’s handwritten
comment.” (Carter Library, National Security Affairs, Staff Material, North/South File,
Box 31, Pastor Country Files, Mexico: Gas Negotiations Briefing Book, 1–3/79)
January 1979–January 1981 623
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