Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
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- 248. Memorandum From the Deputy Secretary of Energy (Sawhill) and the Under Secretary of State for Economic Affairs (Cooper) to President Carter
- 249. Memorandum From Secretary of the Treasury Miller to President Carter
- 250. Memorandum From Henry Owen of the National Security Council Staff to President Carter
The final Iran Oil Sitrep from London, No. 69, February 2, 1980, was telegram
2481. (Ibid., D800058–0469) The Department assigned Grossman to the Embassy in Paris
as a commercial officer, where he continued, with the Department’s approval, “his tele-
phone contact work and reporting out of Paris.” Because the Department “and other in-
terested agencies” found the Iran Sitreps “valuable in helping Washington understand
current developments in Iranian oil sector and general economy,” it instructed the Em-
bassy in Paris to tailor Grossman’s duties “to allow him to include reporting on condi-
tions in Iran until hostage crisis is resolved.” (Telegram 29929 to London and Paris, Feb-
ruary 3; ibid., D800059–0691) The first Iran Oil Sitrep from Paris was telegram 4055,
February 5, but beginning with telegram 5684 from London, March 14, the reports came
exclusively from London. (Ibid., D800063–0233, D800131–0146) The last Iran Oil Sitrep—
at least under that subject heading—was telegram 19807 from London, September 17,
1980. (Ibid., D800447–0495)
248. Memorandum From the Deputy Secretary of Energy
(Sawhill) and the Under Secretary of State for Economic
Affairs (Cooper) to President Carter
The International Energy Agency (IEA) has decided to move for-
ward its previously-scheduled January Ministerial-level meeting to De-
cember 10. This was done largely on the initiative of the U.S., for two
1. The Tokyo targets for the Summit countries, and other tentative
1980 oil import targets for the remainder of the EC and for non-
Summit, non-EC countries, do not give the prospect of a balanced oil
market in 1980; even against a projected optimistic OPEC production
level of 30 mmb/d, after allowance for net demand for the rest of the
world, the aggregate IEA oil import targets may overshoot OPEC out-
put by 600 to 900 mb/d.
Source: Carter Library, National Security Affairs, Staff Material, International Eco-
nomics File, Box 45, Rutherford Poats File, Chron, 12/79. Confidential. At the top of the
page, Carter wrote: “cc: To Duncan, Vance. Sounds good. C”
778 Foreign Relations, 1969–1976, Volume XXXVII
2. With the exception of France, which controls carefully its
volume of oil imports, no other industrialized country has considered
putting in place effective import control mechanisms such as an import
We therefore face the prospect of a worsening scramble for oil next
year; this would aggravate price pressures in the market, would subject
importing countries to political blackmail, and would create political
tensions among importing countries.
To deal with this problem, we are proposing that the IEA adopt a
system of national oil import targets, which would be adjusted quar-
terly to a level which gives a reasonable prospect of market balance. As
a part of this system other countries will be required to put in place ef-
fective and credible enforcement mechanisms as well as demand re-
straint measures directed at achieving the targets. The proposed system
would include penalties against countries exceeding the targets. Such
an allocation mechanism should reduce incentives for buying at high
spot market prices.
As part of the pro-rata reduction in import target levels to match
available world oil supplies, the U.S. would have to be prepared to ac-
cept a 1980 oil import target below the level of 8.5 mmb/d agreed upon
at the Tokyo Summit. Preliminary analysis indicates that the U.S. could
comfortably accept an import ceiling in 1980 of approximately 8.1
mmb/d without adopting additional demand restraint measures. An
interagency task force has completed a preliminary review and
adopted an “unconstrained demand” estimate of 7.90–8.05 mmb/d
(not including any SPR fill) as a safe projection for 1980.
In the judgment of some of your advisors, there is an additional
safety margin built in to the high end of that range for the following
• An inventory build-up during 1980 of 100 m/b is included even
though 1979 end-of-year inventories will be close to an all-time high;
• A voluntary nuclear moratorium is assumed which increases oil
consumption by up to 250 mb/d. This moratorium could be offset in-
stead by other policy actions such as coal-fired electricity and use of re-
sidual fuel oil from inventories. Additionally, if world oil supplies are
as limited as currently expected, action to bring some of these 9 affected
plants on line during 1980 will have to be considered.
We will press other countries to adopt stringent import control
systems comparable to a quota mechanism as backstops for the re-
duced import targets. In the event that other countries resort instead to
softer measures, such as “political” commitments rather than legisla-
Next to this sentence, Carter wrote: “Tell me briefly how France does it.”
January 1979–January 1981 779
tive actions, it would be appropriate for us to follow suit, and back up
our lower target with a political commitment rather than an actual
downward adjustment in the 8.5 mmb/d import quota trigger point.
If the industrialized world is unprepared to adopt stringent de-
mand restraint measures of its own choice, demand will be effectively
limited by short supply leading to still higher prices and further eco-
nomic slowdown. We can take the fixed volume of oil that will be avail-
able on the world market in one of two ways: at the very high price that
will result from IEA nations bidding against each other, which is politi-
cally as well as economically damaging, or at a somewhat lower price
under a cooperative system of demand restraint where shortfalls are
In the upcoming working group meetings in Paris, we will stress
the criticality of adopting meaningful enforcement systems (e.g., im-
port quotas) to the success of any effort made at the Ministerial, while
conditioning our willingness to lower our quota commitment on other
nations’ willingness to commit to a rigorous enforcement mechanism.
We will report back to you on our progress following the Gov-
erning Board preparatory meeting in Paris next Monday.
249. Memorandum From Secretary of the Treasury Miller to
Washington, December 5, 1979.
Middle East Trip Report
Visit to Saudi Arabia, United Arab Emirates, Kuwait
November 23–29, 1979
The three countries together produce almost one-half of OPEC oil
and earn well over one-half of OPEC financial surpluses. In each coun-
try, our party was received with warmth and cooperation, despite ten-
sion in the area.
Source: Carter Library, National Security Affairs, Brzezinski Material, Agency
File, Box 22, Treasury Department, 3/79–3/80. Secret. Copies were sent to Vance,
Duncan, and Eizenstat. At the top of the page, the President wrote: “Good trip. J”
780 Foreign Relations, 1969–1976, Volume XXXVII
It is probable that the three countries will maintain oil production
into the early part of next year at current levels, in excess of their pre-
ferred rates. This will be favorably influenced by evidence that the U.S.
and other oil importing countries are making progress in containing
and reducing demand. However, some scale-back in production can be
anticipated as 1980 progresses, if the expectation of the three countries
that supply will be comfortable is realized.
The countries seek return to a single benchmark price system,
though they do not believe it is likely to be achieved at the OPEC meet-
ing in December. However, they feel that continued higher production
levels will put downward pressure on spot prices as stockpiling ends
and it becomes apparent (in their view) that production now exceeds
final oil consumption. Their price objectives for December appear
moderate, but uncertain because of the breakdown in OPEC price
All this is on the assumption that there is no serious reduction in
Iranian oil exports.
The three countries’ production and pricing plans seem motivated
by (1) desire to return to stable oil pricing system with all producers re-
ceiving equal treatment, (2) concern over impact of oil shortages or sub-
stantial price increases on U.S. and world economies and hence on their
own investments, and (3) internal pressures which question desir-
ability of more rapid production than needed to finance orderly devel-
Kuwait is most likely to cut back production somewhat next year,
probably starting in the second quarter.
The three countries all expressed concern over the freezing of Ira-
nian official assets.
After explanation of the unique circumstances,
there was a better appreciation and some public expression of under-
standing and acceptance of the action. Nonetheless, there remains an
underlying nervousness, perhaps best illustrated in the comment:
“capital is a coward.” If the hostages are released and the assets un-
blocked promptly thereafter, the concern will probably fade away.
Underneath is the nagging question: “If we embargo oil or oppose
the U.S. on major policy issues, will our assets be blocked?” We did our
best to reassure them on this score.
See footnote 3, Document 220.
Carter issued Executive Order 12170 freezing Iranian Government assets in the
United States on November 14. It reads, in part: “I, Jimmy Carter, President of the United
States, find that the situation in Iran constitutes an unusual and extraordinary threat to
the national security, foreign policy and economy of the United States and hereby declare
January 1979–January 1981 781
The incident at Mecca
somewhat preoccupied the Saudis. My ap-
pointment with Crown Prince Fahd in Riyadh was cancelled since he
remained in Jeddah (or possibly Mecca itself) to deal with the Mecca
In the aftermath of the Iranian revolution and the cut back in Ira-
nian crude exports, each of the three Arab countries increased or main-
tained production. (Saudi Arabia from 8.5 to 9.5 mb/d; UAE stayed at
1.8 mb/d; Kuwait from 2.1 to 2.6 mb/d, including the neutral zone.)
Even so, the world oil supply has been tight and there has been a break-
down in the pricing system. Officials of the three countries believe that
current production is slightly above actual final oil usage, but that
excess demand is resulting from stock building either as a hedge
against shortages or to reduce dependence on supply from major oil
companies. They, therefore, expect the supply-demand relationship to
be more comfortable in the near future as stockpiling subsides.
The three also take the position that oil supplies will be adequate in
1980—with perhaps one million barrels per day surplus—provided
there is no substantial reduction in Iranian output. Underlying this
viewpoint is an implied willingness on their part to maintain produc-
tion levels at or near present rates.
There is some reluctance to make public commitments as to pro-
duction levels. Each country is now generating substantial financial
surpluses, and there are internal pressures to reduce output to levels
more in line with financial needs. There are those who question the
wisdom of converting domestic oil resources into financial assets held
outside their domains. Recent events in Iran and Mecca add weight to
these voices. But the Governments recognize their interdependence
with the world economy and appear prepared to maintain somewhat
higher levels of production as their “sacrifice”, provided the U.S. and
other oil importing countries make their “sacrifice” by conservation
and constrained demand.
Saudi Oil Minister Yamani has stated publicly that his Govern-
ment will consider extending the current production level of 9.5 million
barrels/day into the first quarter of 1980 if the consuming nations will
a national emergency to deal with that threat.” The full text of E.O. 12170 is printed in
Public Papers of the Presidents of the United States: Jimmy Carter, 1979
, pp. 2118–2119.
On November 20, 26-year-old Saudi religious extremist Muhammad Abdallah
and approximately 300 well-armed followers seized the Grand Mosque in Mecca and
took hostages. An assault on the Mosque by Saudi forces on November 24 ended the inci-
dent. The Embassy in Jidda reported on the incident in telegrams 8041, November 21, and
8119, November 25. (National Archives, RG 59, Central Foreign Policy Files, D790536–
782 Foreign Relations, 1969–1976, Volume XXXVII
do their part to constrain demand. Any public commitment to this ef-
fect is not likely to be made until after the upcoming OPEC meeting.
Privately, the assurances are somewhat more positive, again depend-
ing on evidence of U.S. and others taking measures to curtail demand.
The value placed on our conservation is reflected in Minister Yamani’s
statement that Saudi production was increased in the third quarter
as a direct result of the Tokyo Summit commitments on energy
In the UAE, there seemed to be an unqualified and public commit-
ment to maintaining the current production level of 1.8 mb/d. How-
ever, in more specific discussions, we were informed that 1980 produc-
tion would be down by about 70,000 b/d because of the need to treat a
field that has been mishandled by the oil operating company. The pro-
duction would be restored after treatment, we were told.
The Kuwaitis were more outspoken about cutting back produc-
tion. This may be because of the greater internal pressure, a reflection of
the population mix which includes large numbers of Palestinians and
substantial numbers of Iranians. In private conversations with Oil
Minister Ali Khalifa, I was told that the Council of Ministers was likely
to approve a production scale-back (perhaps several hundred thou-
sand b/d) in 1980, to be effective sometime between April and July. Ac-
tual cutback may be influenced by supply conditions, and the Minister
told me he would advocate higher production rates if there was a sig-
nificant reduction in Iranian exports.
Oil Production Capacity
Privately and in confidence, the Saudis indicate plans to expand
production capacity to 10.5 to 11.0 mb/d by the end of 1980, and then
going on to the 12 million level by 1982. The UAE, after some setback to
treat a field, expects to double capacity to about 4 mb/d. Kuwait indi-
cates a return to its previous maximum capacity of 3 to 3.5 mb/d.
Such expansion in capacity is, of course, important for longer run
stability in the oil markets and I came away increasingly impressed
with our own energy vulnerability. I believe that these three countries
will respond positively on production as our energy program increas-
ingly takes hold and accelerates. In view of existing plans, I see no need
at this point for us to propose inducements to expand capacity levels.
All three countries share our desire to return to a single benchmark
price for oil and limit the spot market—though none are confident that
this can be accomplished soon. No one seems able to predict the out-
come at Caracas and no one has decided or was willing to reveal his
own position. The Kuwaiti Oil Minister—an avowed price hawk—told
me privately that he is thinking of an increase of $2 from the current av-
January 1979–January 1981 783
erage price of about $23. The Saudis and UAE will almost certainly be
moving to bring their prices up to the level of the other producers. The
effect of this on oil consumers will depend on overall pricing and the
change in the average of actual selling prices.
Our freeze of Iranian assets was uppermost on the minds of all
those we met, both governmental officials and private business execu-
tives. Most of the officials expressed concern about the precedential im-
plication on their own sizable holdings.
At the same time, putting aside the question of blocked assets, they
noted that the dollar had become increasingly superior to other cur-
rencies as an outlet for their investments—given the instability of ster-
ling and the yen, and increased German restrictions on foreign in-
vestors. These attitudes are central to our own efforts to maintain a
stable dollar over the longer term.
The three countries will probably run a combined surplus of over
$50 billion next year ($30–35 billion for Saudi Arabia alone).
In this context, I stressed your commitment to reduce inflation and
strengthen the dollar. All my counterparts indicated satisfaction with
our efforts, though they also adopt a wait-and-see attitude regarding
The Saudis seem to have become somewhat unhappy with the
American companies who have traditionally been their close friends.
They said that these companies had taken advantage of Saudi price
moderation by increasing their profits rather than passing on the lower
prices to consumers. Although unrelated, the Saudis noted that a U.S.
windfall profits tax would capture some of the excess profits; other-
wise, they would consider larger price increases. Saudi officials, partic-
ularly Yamani, are also incensed that two of the companies complied
with a Church Committee subpoena to reveal what they consider to be
Crude allocations of those companies have been re-
duced as a form of punishment.
At present, the Saudis are extremely agitated with us over two
company-related issues: the risk that Saudi taxes on oil companies will
be declared non-creditable against U.S. tax liabilities of the companies
(this affects Aramco, of which they own 60%); and the Justice Depart-
ment’s Civil Investigative Demand (in connection with its anti-trust in-
The Subcommittee on Multinational Organizations of the Senate Foreign Rela-
tions Committee, chaired by Senator Frank Church (D–ID), was investigating bribery
payments by U.S. companies to foreign governments.
784 Foreign Relations, 1969–1976, Volume XXXVII
vestigation of the oil companies) for data which the Saudis consider to
be their own sovereign property. These matters deserve early attention.
Deep reservoirs of good will for the United States continue to exist
in all three countries, despite the current unrest in the area and some
unhappiness with our Middle East efforts. We must expect occasional
bursts of unhelpful rhetoric, but I believe their underlying interests will
keep them largely in harmony with our own, if we do our part in the
In the economic area, this means above all showing steady
progress in (1) reducing our requirements for imported oil and (2)
maintaining a stable dollar. As we do so, I believe we can count on
these three Arab countries to maintain adequate oil output, seek or-
derly pricing with greater stability, and continue to invest the bulk of
their earnings in dollar assets.
There is, understandably, an underlying concern about the current
Iranian incident (and the Mecca incident) and the fear that violence or
force could spill out into the region and cause great harm. While less
explicit, there is also concern about regional security and the Mid East
It is clear that personal relationships are of critical importance to
the Arab countries. The trip has strengthened ties with my counterparts
there, and I plan to maintain contacts on a regular basis.
Washington, December 7, 1979.
Status Report on IEA Ministerial Meeting, December 10
Charles Duncan phoned Count Lambsdorff, pursuant to his talk
with you yesterday.
He indicated to Lambsdorff that he might not at-
Source: Carter Library, National Security Affairs, Staff Material, International
Economics File, Box 45, Rutherford Poats File, Chron, 12/79. Confidential. Sent for
According to the President’s Daily Diary, Duncan met with Carter in the Oval Of-
fice from 10:32 to 10:37 a.m. on December 6. (Ibid., Staff Office Files)
January 1979–January 1981 785
tend the Ministerial Meeting on December 10 unless we could have
some assurance that it would demonstrate effective IEA action to re-
store order to the oil market by either cutting targets one mmbd or by
the proposal outlined in paragraph 3(b), below. Lambsdorff was pre-
pared to accept the latter proposal. UK Energy Minister Howell indi-
cated that he wanted the meeting to succeed, and reserved his position
until then. So here is the present state of play:
1. All major IEA countries agree that the December 10 meeting
should fix 1980 import ceilings for each IEA country. Each country’s per-
formance will be regularly monitored to see that ceilings are not ex-
ceeded. If they are, a country will be committed to take specific
remedial action. There will be nothing fuzzy about the ceiling or the
commitment; consequently, this part of the agreement will represent an
important step forward in building an effective mechanism for collec-
These country ceilings are too high in terms of both
likely market demand and likely OPEC supply:
—This year’s oil price increases, lower economic growth, and a
probable reduction in the rate of stock-building may reduce IEA import
demand by perhaps one mmbd below the agreed ceilings.
—On the other hand, OPEC is not likely to supply more than 30
mmbd of the 31 mmbd required by the IEA import ceilings, and it may
well supply less.
2. There is also agreement among major IEA countries on the principle
that the countries, as a group, should adjust demand to available supply.
question that will have to be settled at the December 10 meeting is how
this should be done.
3. To meet this need, the US has made two alternative proposals:
a. Reduce 1980 ceilings now by at least one mmbd, allocating the reduc-
tions among countries, and making the reduced targets binding. If
greater stringency is required in the future, in light of the changing
market situation, the process would be repeated. Germany, the UK,
Canada, and probably others are firmly opposed, arguing they will not
go below the 1980 ceilings in the absence of demonstrated need.
b. Agree on how future reductions in 1980 ceilings are to be made. This
—Staying with the 1980 ceiling as the starting point.
—Agreeing now to meet at a specific date during the first quarter
(say March 1 or earlier, if the supply situation worsens), to determine
by how much these ceilings have to be reduced to adjust demand to
—Agreeing now that any reductions in ceilings will be binding.
—Agreeing now, to the maximum degree possible, on the prin-
ciples for allocating any further reductions, e.g., pro rata in proportion
786 Foreign Relations, 1969–1976, Volume XXXVII
to oil consumption, adjusted for such factors as growth rates, weather,
or other individual circumstances.
This (3(b)) is the compromise that we discussed with Lambsdorff
and Howell. The chances of securing this agreement appear sufficiently
promising to warrant Charles Duncan’s going to Paris. But it will be
tough going. Other countries will try hard to water down the proposal
seeking to avoid any commitment to unpleasant action until the need is
4. If we obtain the agreement described under 3(b), above, the meeting
It will clearly reflect IEA determination to take what-
ever measures are necessary to restore equilibrium to the world oil
market. We will lose the possible benefit of announcing now a one
mmbd cut in the IEA import ceiling, but we will achieve a strong IEA
commitment to make whatever cuts prove necessary in March—even if
they are more than one mmbd. Obtaining agreement in principle on
how cuts would be allocated among countries will also be a step for-
ward, although a wide area for disagreement will remain regarding
5. Under this proposal, there would be no need at this meeting to
to any import ceiling other than the 8.5 mmbd repre-
senting the initial target for 1980. When an adjustment is required,
however, we would have to reduce our ceiling, as would the other IEA
countries and France. This reduction would depend on available sup-
ply and on the adjustment formula to be negotiated in the next month
January 1979–January 1981 787
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