Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
Memorandum From Secretary of Energy Duncan and Henry
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- 252. Telegram From the Embassy in Venezuela to the Department of State and the Department of Energy
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251. Memorandum From Secretary of Energy Duncan and Henry
Owen of the National Security Council Staff to President
Washington, December 12, 1979.
We reached agreement with our IEA partners at Paris on the main
elements that we mentioned to you last week:
—Agreement on firm 1980 import ceilings by all 20 IEA countries
(paralleling the import ceilings agreed to by seven of these countries at
—Agreement to meet again in the first quarter of 1980 to decide
whether, and if so how much, to cut these ceilings in light of what we
then estimate to be likely oil availability.
—Agreement to meet quarterly thereafter to review and revise
these ceilings in light of changing oil availabilities.
—Agreement by all countries to take additional restraint meas-
ures, as needed, to avoid exceeding their ceilings.
—Agreement to review each country’s performance quarterly.
—Agreement to convene meetings of ministers, as necessary, to
confront countries that are exceeding their ceilings and shame them
publicly into taking additional measures.
—Agreement to undertake an urgent study of whether the IEA al-
location system, which goes into effect whenever there is a 7% drop in
oil availability, can be structured so as to penalize countries that violate
the commitments they make at this IEA meeting. This system is em-
bodied in agreements that have been ratified by some parliaments, but
we are hopeful necessary changes can be made.
What we have done, in effect, is to create a structure for continu-
ously adapting the Tokyo Summit national import ceilings to changing
circumstances—and for monitoring national observance of these
ceilings. If IEA Members carry out the commitments that they made at
Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File,
Box 48, Oil, 8–12/79. No classification marking. Carter initialed the memorandum.
See Document 250. The IEA Governing Board met at the Ministerial level in Paris
on December 10. The communique´ issued at the end of the meeting was transmitted in
telegram 38652 from Paris, December 10. (National Archives, RG 59, Central Foreign Pol-
icy Files, D790569–0839) Telegram 327981 to all OECD capitals, December 20, circulated
an account of the meeting. (Ibid., D790586–0729) The communique´ is printed in Scott, The
History of the International Energy Agency,
vol. III, pp. 364–367.
788 Foreign Relations, 1969–1976, Volume XXXVII
this meeting, oil supply and demand will be brought into continuing
balance—which should substantially mitigate pressure on oil prices.
We obtained this agreement through difficult negotiations. Many
of our allies would rather have waited for bad news on oil availability
to materialize next year instead of anticipating it now. The British were
particularly concerned about any changes in the targets because of their
fear that this would reopen the debate over the relationship of in-
creased North Sea oil production to EC import ceilings. The Germans
were more helpful than expected and the British became more support-
ive through the course of the meeting as they observed the emerging
It will be imperative that we maintain the same level of U.S.
firmness and leadership as we proceed, through a newly established
working group, to the even more difficult meeting that will be held in
allocation principles agreed upon in Paris into an allocation of specific
cuts among countries.
We were pressured to include in the Communique´ a statement en-
dorsing the need for replacement cost energy pricing, and were able to
finally secure agreement to the exact oil pricing language used in the
It was clear that our ability to secure further
demand restraint commitments is related to our willingness to deal
with U.S. oil pricing levels. In particular, the U.K. Energy Minister and
others said privately that it would be much easier for them to secure
firm domestic support for U.S. proposals for greater demand restraint
if U.S. gasoline were selling for more than a third of European prices.
Thus, any action in this area before next March could help in our forth-
Carter wrote “I agree” in the margin next to this sentence.
See footnote 18, Document 221. Both communique´s “agreed on the importance of
keeping domestic oil prices at world market levels or raising them to these levels as soon
Under this paragraph, Carter wrote: “It’s more than 1/3 now.”
On December 14, the Department of State sent an aide-me´moire to the Embassy in
Venezuela to be delivered to the Government of Venezuela as well as to the Embassies of
OPEC members in Caracas, which in turn were asked to transmit it and the IEA commu-
nique´ to their nations’ representatives to the OPEC Ministerial meeting scheduled for De-
cember 17–20. The aide-me´moire described the “firm action” taken by the member states
of the IEA at their December 10 meeting “to help restore stability to the international oil
market.” It concluded: “The IEA nations agreed that a solution to the world’s serious en-
ergy problems requires a common approach by producing and consuming countries,
both developed and developing. They expressed their confidence that oil producers will
recognize their important role in pursuing policies which contribute to the stabilization
of conditions in the world oil market and in the world economy.” (Telegram 321925 to
Caracas; National Archives, RG 59, Central Foreign Policy Files, D790574–0785)
January 1979–January 1981 789
252. Telegram From the Embassy in Venezuela to the Department
of State and the Department of Energy
Caracas, December 22, 1979, 1130Z.
12285. Subject: OPEC Conference—Preliminary Analysis. Ref:
1. (C—entire text)
2. Summary. OPEC appears unlikely even to meet to discuss a uni-
form oil price system for at least three and possibly six or more months,
that is, until (1) Saudi Arabia and the other moderates believe the spot
market has weakened enough to moderate the demands of those mem-
bers seeking higher prices, or (2) they are convinced that this is not go-
ing to happen. There also appears to be no agreement on production
cutbacks. Among the individual participants, the biggest surprise was
Iraq’s new moderate look. End summary.
3. The following is our preliminary and somewhat impressionistic
assessment of the results of the 55th OPEC conference on prices and
production levels, as well as comments on the special roles played by
some OPEC members during this conference. We will attempt to pro-
vide more detailed comments on these and other aspects of the confer-
ence at a later date.
4. Prices—As best as we can piece together the development of the
closed discussions, Saudi Arabia initially held fast in its insistence that
the conference adopt a marker crude price of $24 per barrel, while the
African countries insisted on $30 per barrel, either for the marker crude
or for their own higher quality oil. Nigeria suggested as a compromise
a 10 percent increase over $24, that is to $26.40, which was widely but
erroneously reported as $26. Saudi Arabia agreed to this level provided
Source: National Archives, RG 59, Central Foreign Policy Files, [no film number].
Confidential; Niact; Immediate. Repeated Priority to Abu Dhabi, Algiers, Baghdad,
Bonn, Brasilia, Brussels for the Embassy and USEEC, Dhahran, Doha, Geneva, Jakarta,
Jidda, Kuwait, Lagos, Libreville, London, Mexico, Oslo, Ottawa, Paris for the Embassy
and USOECD, Quito, Rome, Tokyo, and Vienna.
In telegram 322193 to Caracas, December 14, the Department instructed the
Embassy to transmit the full text of the final communique´ and any other official state-
ments from the OPEC Ministerial meeting held December 17–20. The Department also
requested “coverage of press conferences held by OPEC spokesmen or by Petroleum
Ministers from key countries,” as well as information on “any discussions of assistance
by OPEC to oil-importing developing nations, possible membership in the food aid con-
vention, the report of OPEC’s Long-Term Strategy Committee, and proposals for
North-South discussions of energy in various fora.” (Ibid., D790575–0933) The Embassy
sent the final communique´ in telegram 12246 from Caracas, December 20. (Ibid.,
D790586–0417) The communique´ was published in The New York Times, December 21,
1979, p. D3. The OPEC Long-Term Strategy Committee, chaired by Yamani, aimed to de-
vise a unified policy to support oil prices and stabilize international markets.
790 Foreign Relations, 1969–1976, Volume XXXVII
a realistic set of differentials was established and maintained. The tech-
nical experts met to decide on such a system of differentials and agreed
on a maximum spread of $3 above the marker. Algeria, Libya, and ap-
parently then Nigeria, insisted, however, on a larger spread, thereby
creating the final deadlock.
5. It appears at this point that OPEC is unlikely to agree on a single
official price for at least the first quarter and probably well into the
year. Saudi Minister Yamani, in his press conference following the con-
ference, said the extraordinary conference to establish prices would
convene some time in the future (with emphasis on some time) and that
Saudi Arabia would hold its price at $24 as long as possible. He said the
world has managed with chaos in the oil market for the past year, and
that he saw no reason why this situation could not continue for at least
one or two quarters more. He expressed as his personal view that there
would be a glut of oil in the market in the next few months resulting in
lower spot market prices, and thus the decision not to set an OPEC
price should be considered good news by the consumers, since prices
could be much lower in the future. Kuwaiti Minister Al Sabah followed
Yamani, also predicting that demand would drop in 1980, causing a fall
in spot market prices, but adding that no member of OPEC wished to
see prices drop below the official OPEC price (apparently the $24–26
4. Production. There was clearly no agreement on production cut-
backs, and it is not even clear that this issue was discussed at any
length. Venezuelan Minister Calderon Berti stated in his final press
conference that many countries believe production levels should not be
discussed in OPEC, since each country should be free to decide its pro-
duction based on its own criteria. Yamani confirmed that Saudi pro-
duction would remain at 9.5 million BPD through the first quarter of
1980, and Al Sabah, replying to a question re Kuwait’s reported inten-
tion to reduce production by 500,000 BPD, said that while he has al-
ways said that Kuwait will reduce its production, he has never indi-
cated the amount or timing of such a reduction.
5. Thus, it appears to us that the moderates, at least those in the
Gulf, intend to keep production close to current levels in an effort to
drive spot market prices down to what they see as the correct price for
oil, that is, a range of prices corresponding to a marker crude of
$24–26.40 per barrel. What is not clear is the extent to which other
member countries will try to counter these efforts by production cut-
backs of their own.
6. A number of member countries appeared to play particularly
important or unusual roles in the Caracas conference. The following
represent our impressions of this aspect.
January 1979–January 1981 791
A. Saudi Arabia—By all accounts, Saudi Arabia remained the most
moderate of the moderates.
Yamani scheduled and then cancelled a
number of individual and general press interviews over the course of
the conference, but in all other respects appeared to be a perfect gen-
B. Kuwait—The Kuwaitis appeared to take an unusually low pro-
file throughout the conference, until Al Sabah’s press conference, when
he went out of his way to praise Saudi Arabia for its efforts to reach a
compromise, and otherwise came out in support of the Saudi views.
C. Iraq—Probably the greatest surprise of the conference was
Iraq’s moderate position. In his December 18 press conference, Oil Min-
ister Karim said Iraq did not intend to reduce its current production of
3.7 million BPD because it was still attempting to balance supply with
demand, but would be one of the first to act on production levels, if
there was a glut. There were a number of clear indications that Iraq
supported the moderates and nothing to indicate that it wavered signif-
icantly from this support.
D. Iran—Reactions to Iran’s public and official statements were
universally negative. Oil Minister Moinfar also reportedly antagonized
the other OPEC members with his constant political revolutionary
comments, and when Yamani called for a meeting of the Ministers
about midway through the conference, Moinfar reportedly insisted
that his whole delegation be included. While he apparently eventually
backed down in this demand, it created just another delay. While Iran
was generally accepted to have been one of the major stumbling blocks
in the price discussions, and Yamani, asked if Iran was one of those
seeking a higher price, agreed that this was the case, it now looks like
Iran was not one of those causing the final deadlock.
E. Nigeria—By one report, it was Nigeria’s late intervention for a
high differential that caused the final deadlock, even though Nigeria
had apparently initiated the earlier compromise on the price level for
the marker crudes.
F. Venezuela—As the host, Venezuela apparently did everything
possible to avoid a breakdown on prices, possibly including a tele-
On January 10, 1980, the Department of State instructed the Embassy in Jidda:
“You are authorized to transmit a verbal message of appreciation from President Carter
to Crown Prince Fahd concerning the Saudi decision to maintain production at current
levels at least through the first quarter of 1980. You should indicate that: —President
Carter is extremely pleased by the announcement that Saudi Arabia will continue pro-
duction for the first quarter of 1980 at 9.5 MBPD; —this decision further reflects Saudi
Arabia’s statesmanlike concern for the health of the international economy; —this level of
Saudi production will be most helpful in our common effort to maintain balance in the
international oil market and stability in the world economy; —for our part we remain
dedicated to continuing effective efforts to restrain demand in the United States and
other major consuming countries.” (Telegram 6722 to Jidda; National Archives, RG 59,
Central Foreign Policy Files, D800051–0502)
792 Foreign Relations, 1969–1976, Volume XXXVII
phone call by President Herrera to King Khalid, and Calderon Berti’s
final press conference clearly showed his disappointment at the final
outcome on this point. At the same time, Venezuela apparently did suc-
ceed in obtaining an increased OPEC commitment to assist the oil im-
7. Administrative Support—The facilities and services provided
the conference and the press by the GOV appeared adequate, and ac-
cording to some veteran OPEC watchers, were among the best they had
seen. The OPEC press office, however, drew heavy and largely well-
deserved criticism for its failure to provide information on what was
happening or even when something might happen, and the little infor-
mation which was provided often proved to be unreliable. At least in
part, this failure to provide the press with up-to-date information re-
flected the general uncertanties and confusions of the conference itself.
The Embassy in Caracas provided daily reports on the conference in telegrams
12148 and 12164, December 18, and 12169, 12217, and 12274, December 19, 20, and 21, re-
spectively. (All ibid., D79058–0581, D790583–0006, D790584–0108, D790585–0098, [no
film number]) The conference ended on December 20 with no agreement on a uniform
pricing structure for oil. On December 28, Venezuela, Libya, Indonesia, and Iraq an-
nounced price increases of 10–15 percent. (The New York Times, December 29, 1979, p. 1)
Washington, December 24, 1979.
Developing a strategy and capability to cope with the growing en-
ergy crunch should rank as high on our list of security objectives as
coping with the Soviet threat. Indeed, at the moment the energy crunch
is undermining the security of the West far more rapidly than the So-
viet military buildup. CIA now estimates that already announced oil
price increases will slow real economic growth in the developed coun-
tries to about half of one percent next year, and push their average in-
Source: Carter Library, National Security Affairs, Brzezinski Material, Subject
File, Box 65, Summits, 9/79–5/23/80. Secret; Sensitive. The President initialed the
January 1979–January 1981 793
flation rate into double digits. Moreover, OPEC can: (1) keep raising
prices; (2) cut back production if prices soften; or (3) do both.
The economic impact of the above will play hob with defense resource
Higher direct fuel costs (already painful) will be minor com-
pared to indirect effects from inflation and recession. This will be even
more the case with our chief Allies, owing to their even greater depend-
ence on OPEC oil. And the bleeding of Western economies could con-
tinue indefinitely. Ergo, how can we finance the needed Western de-
fense buildup, when more and more real resources are siphoned off to
pay for oil, and when meeting recession and inflation competes with
defense spending? As only one example, FRG abandonment of 3% real
defense growth was primarily an anti-inflation move.
Thus the West desperately needs an energy strategy which will get
us out of this bind, or at the least reduce its impact. This much is pain-
fully obvious; the hard part is “what strategy”? I have few ideas be-
yond those already being widely discussed, but I will make it one of
our highest priority planning tasks to try and come up with more. In
the meantime how do you react to the following preliminary thoughts?
1. A crucial precursor task is to do a better job of sensitizing the
country—and the free world—to the sheer national security impact of
the energy crunch. It is in effect “the moral equivalent of war” (the only
trouble here was that the President declared war three years too early
and then wasn’t politically able to follow through). I see “national secu-
rity” as the only compelling argument around which to rally the
Congress (by appealing to the patriotism of oil state senators). Other-
wise we and others will continue fumbling around (like the US
Congress) without facing up to the need. DOD can play a major con-
tributory role: (a) in cabinet you should press hard for vigorous meas-
ures; (b) your Posture Statement should highlight this problem—not
just in terms of RDF (which frightens mostly our friends) but of impact
on our defense strength; (c) we should play up this theme in speeches
as well, the objective being to influence Congress and the Administra-
tion to adopt stronger conservation measures.
2. Next, we must explain to friendly OPEC countries that they are
undermining the very national security umbrella which they count on
the US holding over them. For example, have we gotten across ade-
quately to the Saudis and Kuwaitis that our ability to defend them is
being gradually hamstrung? They look at how our defense budget is
going up, plus all the stress on RDF and probably conclude the exact
3. Our overall security objective must be to retain acceptable access to
In practical terms this means ensuring that at
least the lower Gulf states (Saudi Arabia, the sheikdoms, Oman, maybe
Kuwait) remain in friendly hands, and firmly under our security um-
794 Foreign Relations, 1969–1976, Volume XXXVII
brella (which means that we must have a visible will and ability to de-
fend them). This is not to say that we should “abandon” Iran and Iraq
as outside our “security perimeter,” but that in classified strategic
terms we treat them as a buffer area—which we want to hold too if at
4. We should examine the pros and cons of an overt declaratory
that ME oil is vital to our security and we will do whatever is nec-
essary to retain access to it. This is tricky but may be essential. If possi-
ble, we should try to get our Allies (including Japan) to join us in an ac-
ceptable formulation. I have in mind a formulation aimed at deterring
intervention, rather than one aimed at indigeneous states.
5. Since Saudi Arabia is the key to security of the lower Gulf, we
along lines which we are
already exploring (non-US presence but Saudi development of a base
structure we can use). In return for our security “guarantees,” the
Saudis should help pay for security assistance to other friendly coun-
tries, which is vitally needed to rent base and access rights to enable us
to come to Riyadh’s assistance. We also need Saudi aid in denying the
to similar base and access rights (for example, maybe in-
stead of defending N. Yemen against PDRY, we should look at whether
N. Yemen could take over PDRY—this would require a lot of Saudi
6. Strategically speaking, Egypt looks like by far the best main base for
projecting any sizable ground/air response into the Gulf. Despite all
the problems, it is politically and militarily the best bet. Since this in
turn dictates a Saudi/Egyptian rapprochement, it should be a major
objective of our policy. It also dictates convincing the Israelis not to
upset the applecart.
7. Oman looks like the best bet for a peacetime forward base. Be-
sides the ships offshore, we need some visible US onshore presence in
the PG area itself. We must convince the Saudis that if they don’t want
US forces on their soil, they should agree to having them nearby.
8. In the Saudi, Omani, Egyptian and other cases we must actively
buttress internal stability
via economic and internal security aid and ad-
vice. While the price will be high in the Egyptian case, it is imperative
that Sadat be able to show early visible payoff from a pro-US policy. If
this requires buying off Israel, that too is cheap at the price—compared
to the stakes for which we are playing.
9. Our Iran policy must be geared to this overall strategic design.
My own sense is that preserving Iran as a unitary buffer state, however
radical, is more in our interest than a fragmentation that invites parti-
tion. The last should be a worst case fallback, in event Iran nevertheless
breaks apart or Tehran comes under Soviet influence.
January 1979–January 1981 795
10. We must also hedge our bets by cementing relations with non-PG
It amazes me that (1) we are on the verge of cutting real aid
level to Indonesia; (2) we are not exploiting Nigeria’s interest in F–4s;
(3) we are not encouraging in every way Venezuela’s exploitation of
Orinoco heavy oil; and (4) we are not more actively seeking long term
modus vivendis with Canada and Mexico. All this will take billions in
aid and investment, but this price is modest indeed compared to what
oil is even now costing us—with more increases yet to come.
11. Last but not least, we must press harder for major user country
conservation measures, using our economic clout with Europe and
Japan to reinforce our security arguments.
The above is the merest outline of a strategy; it leaves out most of
the all-important obstacles, costs, and details. But I hope it can serve as
a strawman for active discussion and debate, first in this building and
then in interagency fora. I’d value your personal reactions.
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