Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
Memorandum From Henry Owen of the National Security
Download 8.4 Mb.Pdf ko'rish
- Bu sahifa navigatsiya:
- 232. Telegram From the Department of State to Selected Diplomatic Posts
- Vance 233. Memorandum From the Director of the Policy Planning Staff (Lake), the Deputy Assistant Secretary of State for Economic
231. Memorandum From Henry Owen of the National Security
Council Staff to President Carter
Washington, August 27, 1979.
Publication of CIA’s World Oil Outlook
Stan Turner has sent to you a copy (Tab A) of the unclassified CIA
assessment of the world oil market in 1979–82.
NSC, State and Energy
worked with the authors to sanitize and clarify the classified original
version for publication.
We believe publication of this excellent study
will help to instill realism in public debate on energy issues.
The introductory summary highlights the conclusions. Pages 2–3
of the main report reveal and explain CIA’s tentative preference for the
oil industry’s estimate of a 1 million barrel per day decline in US oil
production between now and 1982, as compared with the Energy De-
partment’s belief that domestic production will not fall significantly in
this period. Pages 11–12 carry the main policy implications, which are
consistent with the positions you took at the Tokyo Economic Summit
and in your April and July energy speeches.
Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File,
Box 48, Oil, 8–12/79. No classification marking. Sent for information.
Turner sent the study, prepared in the National Foreign Assessment Center,
under a covering memorandum to the President on August 22. (Ibid.) A classified draft of
it, July 1979, is ibid., 7/79. The unclassified version was published in August 1979.
On July 12, Brzezinski sent Turner a memorandum about the study in which he
wrote: “With regard to publication of the paper in an unclassified form, I have no doubt it
would make a useful contribution to greater public realism about the energy problem,
both here and abroad. Nevertheless, I believe the paper should not be published in an un-
classified form without major revisions that would affect its tone and attempt to avoid
possible interpretations adverse to our short-term national interests.” Among the ex-
amples he cited were: 1) “The study could be used by OPEC to justify further substantial
price increases”; and 2) “Its objective view of production restrictions by OPEC countries
and rising prices could be characterized as ‘soft on OPEC.’” (Ibid., Agency File, Box 3,
Central Intelligence Agency, 5–8/79) Ambassador West, after having seen the study in
July, argued against publishing it in an unclassified form. [3 lines not declassified] (Tele-
gram 35915 from Jidda, July 10; ibid., Subject File, Box 48, Oil, 7/79) West delivered the
“pertinent parts” of the study to Yamani on August 12, explained to him the “back-
ground of the report,” and stated that, in his judgment, “the references to Saudi Arabia
were favorable and did not make public any classified or proprietary information which
had not already been divulged.” (Telegram 5910 from Jidda, August 13; National Ar-
chives, RG 59, Central Foreign Policy Files, P850036–2651)
See footnote 2, Document 196, and footnote 2, Document 226.
736 Foreign Relations, 1969–1976, Volume XXXVII
The World Oil Market in the Years Ahead
A Research Paper
Summary and Conclusions
The gas lines and rapid increases in oil prices during the first half
of 1979 are but symptoms of the underlying oil supply problem—that
is, we can no longer count on increases in oil production to meet our en-
ergy needs. Although the current oil shortages may disappear when
economic activity slows, they are likely to recur during the upswing of
the next business cycle. Thus, contrary to the view that had become
popular during the temporary supposed “oil glut” of 1977–78, the
world does not have years in which to make a smooth transition to al-
ternative energy sources. Consumers are already being forced to make
adjustments, not only through higher prices and shortages but also
through slower economic growth.
In its broadest scope, the world energy problem reflects the limited
nature of world oil resources. Although the world is not running out of
oil, current consumption is greatly exceeding new discoveries of oil. If
this trend continues, as most experts expect it will, output must fall
within the decade ahead. Limited oil reserves have already forced a fall
in US production and we expect soon will do so in the USSR. Together
these two countries account for one-third of world oil production, and
the number of discovered reserves in both countries has fallen sharply
in recent years.
Some countries with oil reserves that are large relative to produc-
tion are increasing their production capacity only slowly or not at all.
These cautious policies reflect both a strong preference for production
profiles that stretch out reserves over longer periods and an aversion to
even a small risk of impairing ultimate oil recovery. Among key Per-
sian Gulf countries—Saudi Arabia, Iran, Iraq, Kuwait, and the United
Arab Emirates (UAE)—financial, social, and political factors also influ-
ence capacity and production decisions. These nations are extremely
reluctant, partly because of past experience, to keep a large share of
their wealth in the form of financial assets, and they are also worried
about the disruptive social effects of an excessive inflow of oil money.
The number of countries that have imposed policy constraints on
production has grown markedly over the past several years and now
No classification marking. A typed note at the top of the title page indicates that
this copy of the study was a confidential draft not yet approved for release. Another note
identifies the paper as ER 79–10327 of July 1979.
January 1979–January 1981 737
includes countries with roughly 60 percent of total world reserves.
Some of these are outside the Organization of Petroleum Exporting
Countries (OPEC). Norway, for example, has established rigid policies
regarding the rate of reserve development and capacity expansion. The
Mexican Government also has conservative views on the kind of
reserve-to-production ratios it wishes to maintain in the years ahead.
Many major producers not only are restricting development of
new capacity but also are holding production below capacity. Saudi
Arabia has had a production ceiling of 8.5 million barrels a day
1974. Kuwait’s production ceiling of 2.0 million b/d reflects its strong
conservationist views. The UAE limits output to 80 percent of capacity
for similar reasons. Iran and Iraq are the most recent OPEC countries to
formulate production ceilings. For Iraq, the goal seems to be a limit of
2.4 million b/d, and the Iranian Government has talked of a ceiling of
3.5–4.0 million b/d.
These production limits are not rigid; they have been and can be
relaxed. During the first three months of 1979, Saudi Arabia and Ku-
wait boosted output temporarily to help offset some of the shortfall
caused by the Iranian disruptions, although Saudi Arabia cut back pro-
duction to its ceiling of 8.5 million b/d when Iranian output partially
recovered. Saudi Arabia again announced its intention to increase tem-
porarily output beyond the ceiling shortly after the June OPEC meet-
ing. The ceilings may also be changed in the future, although revisions
are more likely to be downward than upward, in view of the basic mo-
tivations behind the oil policies of most of these countries.
Oil production in OPEC countries outside the Persian Gulf is
limited by productive capacity, which is unlikely to expand during the
next few years. Consequently, if the Gulf countries’ production stays at
announced ceilings, total output will remain nearly constant. Although
OPEC production could rise if ceilings are lifted, it could also fall, either
because of a lowering of ceilings or because of disruptions of a political
or technical nature.
Outside OPEC, the likely changes in production and capacity will
tend to offset each other. In particular, we expect:
• A marked increase in North Sea oil production, to a probable
peak in 1982–83.
• A decline in US production.
• An increase in production in less developed countries (LDCs)
outside OPEC, especially Mexico and Egypt; most of the increase, how-
ever, will be offset by a rise in LDC consumption.
• A decline in the net exports of oil from Communist countries, as
Soviet production peaks and begins to drop.
An unknown hand circled “8.5” and wrote “update” in the margin.
738 Foreign Relations, 1969–1976, Volume XXXVII
On balance, industrial nations of the West cannot count on any in-
crease in oil supply in the foreseeable future; indeed, it is prudent to
plan on some decline in the next few years.
With traditional oil supplies thus restricted, the importance of al-
ternative energy sources—tar sands, shale oil, natural gas, coal, and nu-
clear energy—will increase. Except for natural gas, the resource base
for these energy sources is sufficient to allow a large expansion of
output, but there are severe cost and environmental constraints. More-
over, even with the enhanced profitability resulting from higher real oil
prices, large-scale development of these resources would take many
years. During the next three to four years, even an optimistic projection
of production of nonoil energy sources in the member countries of
OECD (Organization for Economic Cooperation and Development),
which assumes an increase of 2 million b/d oil equivalent in coal sup-
plies and no further delays in the nuclear power programs, would
result in only a 1.0- to 1.5-percent annual rate of growth in the total
energy supplies of the OECD countries.
The consuming countries will find it very difficult to adjust to such
a slow growth of energy supply. Holding energy demand to projected
supply levels without lowering economic growth targets of OECD
countries below the 3- to 3.5-percent rates generally considered accept-
able would require unprecedented rates of conservation. Although
government policies can help, most conservation is likely to be im-
posed by market forces. The interaction between consumer-country
policies supporting economic growth and producer-country policies
limiting oil production will operate to push up the price of oil. Higher
oil prices in turn will slowly stimulate energy production and conser-
vation. During the next few years at least, the higher oil prices will
work to cut demand by holding down the economic growth of the
OECD countries—to perhaps 2.5 percent annually or less on the
Oil price increases are likely to come in spurts, such as that of
January–June 1979. The average OPEC price will reach more than $20 a
barrel in July, or some 60 percent above the 1978 level. These higher oil
prices will have a depressive impact on economic activity in the next
two years, and, in turn, real oil prices could stabilize or even decline
slightly. Thus, weak demand may mask the worsening energy situa-
tion, as was the case during 1975–78. The problem of public perception
is complicated by the fact that very small swings in production and/or
consumption can create enough slack in the oil market to create the illu-
sion of ample oil supplies.
The oil market may, of course, be either tightened or eased by the
policy reactions of both oil exporters and oil importers to these events.
At the same time, other contingencies would almost certainly make
January 1979–January 1981 739
things worse rather than better. For example, a major lesson from the
Iranian revolution is that the United States and other major consuming
countries are highly vulnerable to unpredictable supply interruptions.
The political situation in Iran remains extremely unstable, and exports
from that country could fall or even cease. Unexpected supply inter-
ruptions could occur elsewhere as well. In a basically tight energy
market, even such common events as a harsh winter or a coal strike
could create disruptive energy shortages and higher prices. Use of oil
as a political weapon by one or more producers, of course, would also
cause economic dislocations.
In the longer term, the oil supply problem is likely to get worse
later in the 1980s. Although higher prices will stimulate oil exploration
and development, enhanced recovery, and production of heavy and
shale oil, progress in these areas will take time. The predominant view
among geologists is that the chances of discovering enough quickly ex-
ploitable oil to offset declines in the known fields are slim. If the Persian
Gulf countries and some non-OPEC producers continue to limit pro-
duction, as we expect, world oil production probably will begin to de-
cline in the mid-1980s. As time goes by, the possibilities for energy
conservation and substitution of other energy sources multiply, but in
the decade of the 1980s the required adjustment will be extremely
[Omitted here is the remainder of the paper.]
740 Foreign Relations, 1969–1976, Volume XXXVII
232. Telegram From the Department of State to Selected
Washington, August 30, 1979, 0147Z.
228164. Subject: Crude Oil Spot Market Sales.
1. Entire text Confidential.
2. At the Tokyo Summit, participants pledged that they would
“urge oil companies and oil-exporting countries to moderate spot
market transactions.” That same week, at the June 26 OPEC meeting,
OPEC Ministers agreed “that member countries would take steps to
limit transactions in the spot market in a collective effort to stop the
present price spiral.” Two months later, cargoes of crude oil are being
offered and sold in the spot market at prices between $30 and $35 per
barrel. The Department is concerned at reports that larger volumes of
crude oil are now being offered for spot sales, and at the increasing evi-
dence that producer governments themselves are diverting production
from contract sales to the spot market.
3. Posts in OPEC capitals should, at their discretion, raise this mat-
ter with appropriate host government officials to emphasize impor-
tance USG places on dampening spot market activity and urge that
they follow through on the OPEC commitment. (Department under-
stands the difficulty in contacting appropriate level officials in Moslem
countries during the next week;
thus posts may delay approach until
these officials are available.) For Jidda: You should inform SAG that we
are making this approach in other OPEC capitals, and that we hope it
will complement Saudi efforts to minimize quantities of OPEC crude
traded on the spot market.
4. Posts in Summit capitals should inform appropriate officials that
USG is making this approach in key OPEC capitals.
5. Posts may draw upon the following points:
—The USG welcomed OPEC’s commitment to limit transactions in
the spot market, and the United States together with other major indus-
trial oil consumers pledged at the Tokyo Economic Summit to moder-
ate participation by their oil companies in the spot market.
Source: National Archives, RG 59, Central Foreign Policy Files, D790396–0559.
Confidential. Drafted by Todd; cleared by Katz, Calingaert, Rosen, and Twinam and in
DOE/IA, EA/J, EUR/RPE, AF/W, and ARA/AND; and approved by Cooper. Sent to all
OECD capitals, USOECD Paris, USEEC Brussels, Jidda, Kuwait, Tripoli, Baghdad, Abu
Dhabi, Algiers, Doha, Tehran, Caracas, Lagos, Jakarta, Libreville, Quito, Helsinki, Lisbon,
Reykjavik, and Belgrade.
Muslims observed the holy month of Ramadan in August of that year.
January 1979–January 1981 741
—We are very disturbed that spot sales of crude oil continue to
take place in the $30 to $35 range, and at reports that growing quan-
tities of crude oil are now being offered for sale on the spot market.
—Instability in the world oil market, as evidenced by abnormally
large quantities or abnormally high prices in the spot market, benefits
neither oil producers nor consumers in the long run, as shown by the
dramatic coincidence of views on this topic in Tokyo and Geneva last
—The U.S. Government takes seriously its commitment at the
Tokyo Summit to moderate spot market transactions, and is fully pre-
pared to do its share.
6. For posts in other IEA capitals: This message for your info only
at this time.
Washington, September 6, 1979.
While we are not ready at this point to recommend specific actions
in the energy area, a number of ideas have been considered in the De-
partment. These relate specifically to the problems of a) a producer-
consumer arrangement to stabilize world oil prices and supplies, b) fi-
nancing energy exploration and development in LDCs, and c) im-
proved interagency coordination of US energy activities affecting de-
Price and Supply
One proposal for a producer-consumer arrangement to stabilize
prices and supplies is to negotiate a commodity agreement for oil. Such
Source: National Archives, RG 59, Central Foreign Policy Files, P790149–2411.
Confidential. Drafted by Lissakers and sent through Cooper. A stamped notation indi-
cates Vance saw it.
742 Foreign Relations, 1969–1976, Volume XXXVII
an agreement would include a) an agreed formula to maintain or grad-
ually increase the real price of oil, b) a possible premium for incre-
mental production above present levels, c) international oil stock
building in periods of slack demand, to be used in the event of an emer-
gency such as the Iranian cut-off, d) fees and/or direct OPEC and in-
dustrial country contributions to a fund to finance LDC oil stock build-
ing and energy development, e) regular consultation and exchange of
information on national oil production and consumption plans. Con-
sumers would agree not to import oil above the agreed price and to em-
bargo oil from producers who disrupt supplies for political reasons.
Such an arrangement could give the oil producers what they at
least say they want: inflation-proof income from their oil. Consumers
would have some assurance of stable prices and supplies for the dura-
tion of the agreement. The LDC’s would stand to gain from the financ-
ing program and from the real clout which an oil commodity agree-
ment, if it becomes a member, could give to the Common Fund.
The advantage of an international commodity agreement for oil is
that it would bring OPEC into an international process for considering
price and supply, and thus make the world oil market less subject
strictly to the balance of forces between hawks and doves within OPEC,
the whims of individual producers, and the day-to-day state of rela-
tions between a major consumer such as the U.S. and a key producer
like Saudi Arabia.
The question is whether such an agreement would hold sufficient
attraction for key OPEC members to overcome their heretofore firm re-
sistance to outside influence on their production and pricing policies.
Much more modest efforts to draw OPEC into discussions of supply
and demand trends in world energy markets, with no direct reference
to price, have been strongly resisted. Moreover, there is a question of
whether such an agreement would be meaningful without the addition
of spare production capacity by key producers such as Saudi Arabia.
An international commodity agreement of the sort postulated would
ensure that prices increase during periods of market slackness, but
might well be ignored by oil producers when because of deliberate de-
cisions on production or capacity, or unforeseen events such as those
occurring in Iran, market conditions are tight. Consuming countries,
desperate for scarce oil, would have little leverage, except the weight of
the agreement itself, to prevent higher-than-agreed-upon price in-
creases. (Today we do not even have that leverage.) Producers would
have to pay the political price of having broken their word and abrogat-
ing an international agreement.
And if the agreement were to break down, there would still be con-
siderable pressure on the developed countries to continue to live up to
their part of the bargain to finance LDC energy development.
January 1979–January 1981 743
Additional Support for LDC Energy Development
According to INR, Lopez Portillo is going to propose in his UNGA
speech, a universal dialogue on energy consumption, production, mar-
keting and transport and relating energy problems to other economic
will call for creation of a special fund to finance development of energy
resources, especially in developing countries. The U.S. needs to come
up with an appropriate response or a counter proposal before the end
IDCA has proposed the establishment of an international energy
bank with annual operating capital of $2–$3 billion, to finance energy
research, exploration development and training in developing coun-
tries. Henry Owen and Dick Cooper feel strongly that even if the pro-
posal has merits per se, proposing it to Congress at this time could jeop-
ardize the President’s domestic energy program.
A proposal which has apparently not been given serious consider-
ation by the Administration but is under discussion in the House Ways
and Means Committee, is to give preferential tax credit treatment for
income from oil exploration and development in non-OPEC develop-
ing countries. Through a series of recent rulings, IRS has considerably
tightened its definition of creditable foreign income “taxes”. At least
one major US oil company has protested that these rulings will make
oil exploration in many LDC’s unattractive, and unprofitable. Giving
differentiated tax treatment, i.e., exempting the non-OPEC LDC’s from
these rulings, would be consistent both with our interest in helping the
LDC’s with their energy problems and in encouraging the develop-
ment of potential sources of US oil imports outside OPEC. We know
from past history in the Middle East that tax considerations are a criti-
cal factor in determining where oil companies invest.
At the same time, it would be confrontational with respect to
OPEC as a group and damage relations with countries such as Indone-
sia, Nigeria and Venezuela. It would not be consistent with our interest
in expanding global oil supply, including OPEC supply, in order to
moderate pressures on the world price.
The US delegation to UNCSTD was authorized to invite the World
Bank as part of its on-going efforts to coordinate energy assistance ef-
forts to developing countries, to review existing research, development
and training in national and regional energy facilities in developing
countries; identify any gaps that may exist; and recommend possible
new approaches and institutional arrangements. This proposal was not
See footnote 5, Document 236.
744 Foreign Relations, 1969–1976, Volume XXXVII
formally presented at UNCSTD, and you may want to include it in
your UNGA speech.
In addition, we can give a high priority to energy in the AID and
ISTC budgets; continue to support expanded MDB programs in this
area as their expertise and ability to manage energy projects grows, and
improve the coordination of domestic agency programs that affect LDC
Agency Roles in Developing Country Energy Programs
Several USG agencies have policy or program concerns in the LDC
energy area. While effective informal coordination has been possible in
some instances, considerable friction has developed between DOE and
AID over which agency should have primary, or major responsibilities
for undertaking programs in the LDCs, with each arguing on the basis
of their respective energy and development mandates. This question of
agency responsibilities is closely related to other issues:
—Energy programs in non-AID countries: the U.S. should be able
to undertake energy programs with developing countries not currently
receiving AID assistance (and has to some extent on an ad hoc basis). At
issue is what form this assistance should take and where within the
USG the capability should be housed.
—Legislative authorities: we need revisions in existing legislation
which contains duplicative and overlapping authorities for energy pro-
grams with developing countries.
—Coordination: close coordination of activities among agencies is
needed so that our overall foreign policy objectives are effectively
served. A key question is what type of mechanism would best serve
IDCA is perhaps the logical agency to take the lead in establishing
a permanent coordinating mechanism and drawing up a set of pro-
posed legislative changes.
The UN Conference on Science and Technology for Development met in Vienna
August 20–31. See Yearbook of the United Nations, 1979, pp. 633–651. President Carter did
not address the UN General Assembly, but Secretary Vance, in a speech to the General
Assembly on September 24, noted U.S. support for global negotiations aimed at stabi-
lizing the price and supply of oil. For the text of his speech, see Department of State Bul-
, November 1979, pp. 1–6.
January 1979–January 1981 745
Download 8.4 Mb.
Do'stlaringiz bilan baham:
ma'muriyatiga murojaat qiling