Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
Memorandum From the Executive Secretary of the
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- Peter Tarnoff 223. Telegram From the Department of State to the Consulate General in Alexandria, Egypt
- 224. Memorandum From Henry Owen of the National Security Council Staff to the President’s Assistant for National Security Affairs (Brzezinski)
|222. Memorandum From the Executive Secretary of the
Department of State (Tarnoff) to the President’s Assistant for
National Security Affairs (Brzezinski)
Washington, June 29, 1979.
North American Energy Community
This responds to your request of May 11 that we examine the con-
cept of a “North American Energy Community” as suggested by sev-
eral members of the Congress.
The proposals currently under consideration by the Congress for
some form of North American energy cooperation range from informa-
tion exchanges to “cooperative planning” and “energy security guar-
antees.” We do not believe these approaches add to current arrange-
ments. The United States already has in place bilateral mechanisms for
extensive cooperation with Canada on virtually every energy issue in
which there is significant mutual interest and is beginning to elaborate
similar mechanisms for cooperation with Mexico. Adding a trilateral
dimension would probably not increase the technical value of the coop-
eration. Energy security guarantees to the U.S., i.e., price and/or
Source: Carter Library, National Security Affairs, Brzezinski Material, Country
File, Box 49, Mexico, 5–6/79. Confidential.
In his May 11 memorandum to Vance, Brzezinski asked that the Department of
State prepare the study in consultation with the Department of Energy and that it “ex-
amine long-term energy supply and pricing agreements and include a recommendation
on whether or not an initiative in this area by the U.S. Government would be desirable.”
(Ibid., Staff Material, International Economics File, Box 1, Subject File, Mexico, 5–12/79)
708 Foreign Relations, 1969–1976, Volume XXXVII
supply commitments, would be political anathema to both Canada and
Mexico. It is doubtful they would be given any consideration at all
without an offer from the U.S. of powerful incentives in the form of an
above market price for energy purchases or other important economic
concessions. We think the U.S. should continue efforts to improve bilat-
eral energy cooperation with both neighbors.
North American Energy Community Proposals
There are several bills, including S. Con. Res. 27, S.J. Res. 58, and H.
Con. Res. 124, currently under consideration by the Congress pro-
posing some form of multilateral North American energy cooperation.
Most of them focus on technical cooperation and information ex-
changes although some advocate “cooperative planning and mutual
energy security guarantees.” These latter two concepts are loosely de-
fined but seem to contemplate supply and price commitments to
the U.S. by Canada and/or Mexico and some form of multilateral
decision-making on the development of energy resources.
Information Exchanges and Technical Cooperation
Many of these proposals do not take account of the extensive bilat-
eral energy consultation and coordination already underway. Energy
cooperation with Canada is a long standing and highly developed
process. It includes both government-to-government arrangements
and extensive private sector activities in the development, production
and trade of energy. Cooperation with Mexico is less well developed
but it was given high priority by the two Presidents at their meeting
this year and is being pursued actively by the responsible agencies.
Taken together, we think these arrangements meet the information ex-
change and cooperation objectives of the various Congressional
President Carter and former Prime Minister Trudeau recently
agreed to establish a consultative mechanism on energy to discuss the
range of our bilateral energy relationship. This group will meet regu-
larly to review progress in key energy areas and will act as a useful
management mechanism to encourage continued mutually beneficial
energy cooperation. Although this cooperation takes place at the initia-
tive and under the sponsorship of commercial entities acting in their
own interests, the two governments are actively involved in facilitating
and guiding such activities.
Energy trade has been and will be an important element in our re-
lationship with Canada. Canada is currently in the process of phasing
down exports of crude oil shipments to the U.S. but we import almost
3.0 billion cubic feet of Canadian natural gas per day or about 4.5 per-
cent of domestic consumption. Also, there are now pending before
January 1979–January 1981 709
Canada’s National Energy Board applications for natural gas exports
which could eventually add another billion cubic feet per day. Further,
we have an extensive electricity exchange with Canada, with the U.S.
being a net importer of some 17.5 million megawatt hours per year.
Our most important bilateral energy project with the Canadians is
construction of the Alaska Highway Gas Pipeline by private interests.
We are engaged in frequent discussions with Canadian authorities on
all aspects of the pipeline’s construction, regulation and operation.
We have also undertaken, in conjunction with the Department of
the Interior, preliminary discussions with the Canadian Government
regarding routes for a crude oil pipeline to supply the northern tier and
inland states. We anticipate continued close cooperation with the Cana-
dian Government as the evaluation of route proposals results in a rec-
ommendation to the President later this year.
We are involved in extensive information exchanges and technical
cooperation with Canada through the International Energy Agency, of
which we are both members. A still greater exchange of information
and technical cooperation takes place between Canadian and American
business entities involved in the energy field. Indeed, with the possible
exception of the automobile industry, energy may be the most highly
integrated sector in our two economies.
Although our energy relations with Mexico are less extensive than
those with Canada, they are growing rapidly, and cooperative mecha-
nisms for discussion and problem management are being developed.
During the visit of President Carter to Mexico in February
tiatives were taken. The United States/Mexico Consultative Mecha-
nism has been restructured and broadened, and a new Energy Working
Group, co-chaired on the U.S. side by the Departments of State and En-
ergy, is coordinating energy cooperation and problem management
with Mexico. This Working Group will report to the newly established
sub-cabinet Advisory Group to the Consultative Mechanism, which
will review its progress.
Discussions concerning possible natural gas purchases are contin-
uing, and a joint study of electricity exchanges has begun. Both gov-
ernments have reviewed a number of bilateral energy-related science
and techology proposals, including solar research, geothermal cooper-
ation and enhanced oil recovery techniques. We fully expect that these
initial cooperative activities with Mexico will prove mutually benefi-
cial. We should strive to broaden such activities as our energy relation-
See Document 190.
710 Foreign Relations, 1969–1976, Volume XXXVII
Canada and Mexico have distinctly different interests in coopera-
tion with the United States because of the difference in their respective
levels of technical and economic development, natural resource bases,
climates and overall economic and political policies. Adding a trilateral
dimension to these consultations, even if it were acceptable to the Mex-
icans and Canadians, could probably mean increased complexity
without offsetting benefits.
Energy Security Commitments
It is in the areas of price and/or supply commitments and the joint
development of potential energy supplies in Canada and Mexico that
many Americans, including certain members of Congress, see the
greatest possible U.S. benefit from “North American energy coopera-
tion.” But it is precisely in these areas that sensitivities in Canada and
Mexico are most pronounced. It is possible that those sensitivities could
be overcome, but we believe the political and economic price that
would be required would be more than the U.S. would be willing to
Mexico’s potential interest in long term price and supply commit-
ments to the United States is called into question by two factors. First is
Mexico’s longstanding and extremely strongly held policy of resisting
any foreign influence over its energy development decisions. This posi-
tion dates back at least to 1938 when foreign (principally U.S.) oil
holdings were expropriated, an event which is commemorated by a na-
tional holiday. Mexico’s current efforts to reduce its dependence on the
U.S. as the principal market for its petroleum exports from 80% to 60%
notwithstanding, normal commercial considerations tend to direct
Mexican crude to the U.S. Their decision to sell natural gas to the U.S.
also required high level political review because it involved increased
economic ties to the U.S. in the energy sector.
The second factor which could limit the prospects for a Mexican
energy supply commitment to the U.S. is the policy that hydrocarbon
exports will be based solely on Mexico’s need for foreign exchange to
implement its development objectives. This policy, if sustained, would
preclude any energy development decisions motivated by satisfaction
of U.S. demand. However, the internal political pressures to expand de-
velopment plans and hence foreign exchange requirements may prove
irresistible to the Mexicans and necessitate a substantially higher level
of petroleum exports than is currently evisaged.
These current energy policies may also be subject to modification
by the initiatives on the rationalization of world energy economics
which Lopez Portillo is currently contemplating, but probably only in a
January 1979–January 1981 711
global context. Domestic Mexican sensitivities and suspicions on this
issue are too great for Lopez Portillo to be able to consider such a move
if the U.S. would be the sole consumer beneficiary.
Similarly, in Canada, which is a significant net importer of oil, the
policy objective, embodied in legislation, is to attain self-sufficiency
and export energy only to the extent it is surplus to Canadian needs.
Canada’s energy export policy includes tying prices to world levels. In
1974 the Government imposed an officially determined export price,
which is now linked to world oil prices, on the commercial contracts
governing gas trade with the U.S. A variable tax on oil exports is used
to keep the cost of Canadian oil to U.S. buyers in line with world prices.
While in general Canada is wary of too close an economic involvement
with the United States, there have from time to time been proposals
from Canadians for greater economic integration with the United
States in particular sectors; energy resources, however, have always
been specifically excluded.
The U.S. could potentially benefit from long term energy supply
cooperation with Canada and Mexico of the type we believe is con-
templated by the Congressional proposals. However, we believe that
prevailing attitudes and political conditions in both countries are such
that a trilateral arrangement acceptable to the U.S. could not be made at
By far the greatest part of the cost of a bilateral energy security ar-
rangement would be the quid pro quo the U.S. would have to pay to
Canada and Mexico for supply access. As mentioned above, domestic
political opposition to any such agreement would be substantial in both
countries and would remain substantial regardless of how much we
were willing to pay. Under these circumstances it is virtually certain
that the U.S. would have to agree to some significant compensation
in addition to the market value of the energy, such as a price pre-
mium, preferential trade arrangements or other economic or political
Further, it may not be in the U.S. interest to discuss supply ar-
rangements with Mexico and Canada on a trilateral basis. To some ex-
tent, particularly with respect to natural gas, these two countries have
been competitors as sources of energy supply to the U.S. and we would
like to maintain that situation. Trilateral discussions might well facili-
tate development of a concerted stance by Mexico and Canada which
could weaken the U.S. bargaining position on some issues.
Finally, any long term supply/price arrangements which sug-
gested that the U.S. was seeking a bilateral solution to a substantial por-
tion of its energy needs would be in violation of at least the spirit of our
712 Foreign Relations, 1969–1976, Volume XXXVII
commitments in the IEA, especially if such arrangements involved
above market prices. They could weaken that organization and encour-
age a return to the counter-productive scramble for energy supplies
which followed the 1973–74 embargo. We recognize that some of the
other IEA countries have sought long term supply agreements but we
believe there would be a quantum difference if the U.S., the founder of
the IEA, tried to lock up North American supplies as a private preserve.
A modest arrangement which merely recognized the mutual interests
of three neighboring states and the natural transportation economies
inherent in their geographic proximity to each other would not neces-
sarily have a severe effect on cooperation in the IEA.
We do not believe that proposing a North American Energy Com-
munity as contemplated in congressional proposals would make a con-
structive contribution to the solution of our energy problems. Its objec-
tives, to the extent they are politically feasible, are already being
discussed in existing consultative mechanisms, where the overriding
purpose is to explore areas of mutual interest and further those in-
terests within the context of respect for national sensitivities and polit-
ical differences. The energy security commitments which might offer
some benefits to the U.S. run contrary to the basic energy policies of
Canada and Mexico and might well end up costing more than they
were worth, even if they were possible.
223. Telegram From the Department of State to the Consulate
General in Alexandria, Egypt
Washington, July 6, 1979, 1737Z.
174919. Alexandria pass USMEDel Strauss for Amb. Strauss SNT9.
Subject: Presidential Message on Saudi Production Increase.
Source: National Archives, RG 59, Central Foreign Policy Files, D790307–0300.
Confidential; Niact; Immediate; Exdis. Drafted by Twinam; cleared in NEA, EB, S/S, and
by Gary Sick of the NSC Staff; and approved by Cooper. Repeated Immediate to Riyadh,
Amman, and Jidda.
January 1979–January 1981 713
1. President has asked that Ambassador Strauss, during his visit to
Saudi Arabia, convey following personal message to Crown Prince
Fahd, and to King Khalid should he meet with him:
—I am deeply appreciative of the indication that the Government
of Saudi Arabia has decided to increase oil production temporarily to
help relieve the serious strains in the international oil market.
—This is a statesmanlike decision which reflects Saudi Arabia’s
notable sense of responsibility toward the welfare of the international
—As you know, we in the US are in the process of taking some dif-
ficult steps in the US which will serve the same purpose by reducing US
demand for imported oil.
—I have asked Ambassador Strauss to convey my appreciation for
Saudi Arabia’s action and my conviction that this represents in striking
manner how our two governments can work toward the common goal
of promoting an orderly world economy.
2. If Ambassador West has not yet relayed to Crown Prince Fahd
the oral message from the President on Saudi moderating role in OPEC
those points might also be delivered by Strauss along with
reported that on July 3 the Saudi Government announced on
radio in Riyadh that oil production would increase. (The New York Times, July 4, 1979,
p. D1) The White House issued a statement on July 9 indicating that the President had re-
ceived a “personal commitment” from Crown Prince Fahd on the increase in Saudi oil
production. The statement expressed the President’s appreciation for the decision. For
text of the statement, see Public Papers of the Presidents of the United States: Jimmy Carter,
, p. 1226.
Not further identified.
714 Foreign Relations, 1969–1976, Volume XXXVII
224. Memorandum From Henry Owen of the National Security
Council Staff to the President’s Assistant for National
Security Affairs (Brzezinski)
Washington, July 6, 1979.
Coping with OPEC
You asked for an annotated inventory of carrots and sticks for
coping with OPEC or some of its members.
In responding I will indi-
cate briefly the possible utility of a measure or countermeasure in serv-
ing either our price or supply security objectives, but closer examina-
tion based on actual circumstances would be essential. I will deal only
with economic measures, leaving to others such considerations as US
policy on the West Bank or Jerusalem, security assistance or military
A. Indexed bonds could be offered by the USG or by all the indus-
trial nations to oil exporting countries to protect their financial pro-
ceeds against inflation. In the US, at least, such bonds also would have
to be offered to the US public as well, raising enormous fiscal and struc-
tural problems. Treasury is, understandably, adamantly opposed.
B. Immunity to US seizure of assets could be proffered by treaty with
a major oil supplier such as Saudi Arabia in exchange for increased pro-
duction. Such a treaty might waive a potential US claim for inadequate
compensation of ARAMCO owners or guarantee Saudi Arabia against
US reprisals for other acts, such as price increases. A big enough supply
increase could warrant such a deal. The problem of precedents would
be limited because other OPEC countries could not offer a comparable
quid pro quo. Its appeal to the Saudis would be limited in comparison
with their presumed political price for a major increase in oil capacity
and output. A war exception also would reduce its value to the Saudis.
C. Indexed oil price increases linked to agreed broader price levels
and monetary values could be offered by the US or a group of indus-
Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File,
Box 48, Oil, 7/79. Confidential. Sent for information.
Owen had sent Brzezinski a shorter memorandum on July 5 entitled “Coping
With OPEC: What Else Can We Do?” It begins: “You asked for a quick review of possible
means of improving our leverage on OPEC or some of its members in trying to persuade
them to moderate price increases and increase production. I deal only with economic ac-
tions to this end. I don’t consider such issues as the West Bank or military and other
forms of security support.” (Ibid.)
January 1979–January 1981 715
trial countries in the form of a “commodity agreement”. In today’s tight
oil market and the prospective seller’s oil market of the future, it is un-
likely that we could negotiate with OPEC an oil price index acceptable
to the US public, and we could not be sure it would survive a sharp
change in the oil supply-demand balance. Discrimination in favor of
the oil cartel relative to all other suppliers of commodities would be
A. We could impose a requirement that all suppliers must pay for
the right to sell oil to the US.
The Energy Department would sell “entitle-
ments” at auction to suppliers of foreign oil. In a soft market, this
would give us a discount equal to the amount of the payments for enti-
tlements, or access tickets. This is Prof. Adelman’s
concept. It does not
seem promising in the present and prospective tight market. If nobody
offered to pay for the tickets, we would quickly have to issue free enti-
tlements, with red faces.
B. We could nationalize the business of importing oil, confronting
foreign government sellers with a government buyer.
If the US oil monopoly
(read President) had the will to hold out for a break in the cartel’s price
by the hungriest OPEC countries, we might temporarily reverse the up-
ward price spiral. OPEC’s action might be further restriction of produc-
tion, so as to destroy our bargaining power.
C. We could reverse traditional US Justice Department positions
and support the IAM anti-trust suit against OPEC members.
In order to
assure that a court judgment imposing penalties on OPEC countries
could be enforced, we would need to move promptly to get a court or-
der freezing OPEC country assets in the US. This series of actions would
evoke OPEC counter-measures, including withdrawal of assets from
foreign branches and affiliates of US banks, suspension of the flow of
new assets to the US, and possibly an embargo. The IEA emergency
sharing system might unravel in the face of such a provoked embargo
unless the initial US action were cleared in advance with our IEA part-
ners. The impact on the US balance of payments and the dollar would
be very adverse.
D. We might set up an OECD counter-cartel and fix discriminatory
prices on our major exports to the OPEC countries or to any country
imposing unacceptable prices on oil. (The variant of a lone US stand of
Morris A. Adelman, professor of economics at the Massachusetts Institute of
The International Association of Machinists and Aerospace Workers sued OPEC
and its member nations in December 1978, alleging that their price-setting activities vio-
lated U.S. anti-trust laws.
716 Foreign Relations, 1969–1976, Volume XXXVII
this sort clearly would not work.) Our participation probably would re-
quire some form of export tariff, which raises constitutional questions.
None of our discussions with other OECD countries encourages expec-
tation that they would go along. Even if wide participation were
achieved, leakage through intermediary countries and competition by
advanced developing and communist countries would reduce the
E. Unilateral economic warfare measures could be adopted in re-
prisal against confiscatory OPEC price increases, severe withholding of
vital oil supplies, or acts we judge to be violations of international law.
The President has broad discretion under the Emergency Economic
Powers Act of 1977 to declare a national emergency and impose a se-
lective export embargo or selectively seize foreign assets. Like a
counter-cartel, this extreme measure would need to be orchestrated
with similar action by other countries to have much chance of achiev-
ing the desired change in policies by oil producers. It would carry the
same extreme risks as the chain of events flowing from anti-trust
None of these carrots and sticks is promising in today’s circum-
stances. The cure would be worse than the disease. Some of the positive
measures and counter-measures would be worth closer consideration,
however, in the event acts of economic warfare, including an embargo,
were threatened or imposed by some OPEC countries. In the meantime,
I believe we are on the right course with the Tokyo Summit policies to
reduce demand and increase supply. The recent Saudi production deci-
probably reflects, in part, a favorable reaction to these policies.
The practical outcome should be a cushion against oil shortages and
some relative softening of prices.
See Document 223.
January 1979–January 1981 717
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