Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
Telegram From the Department of State to Selected
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- 281. Telegram From the Department of State to the Embassy in Saudi Arabia
- 282. Memorandum From the Assistant Secretary of Energy for International Affairs (Goldman) to Secretary of Energy
280. Telegram From the Department of State to Selected
Washington, August 7, 1980, 1335Z.
209320. Subject: Resumption of Oil Acquisition for the Strategic Pe-
1. Confidential—entire text.
2. This cable describes the status of the Strategic Petroleum Re-
serve (SPR) program. Posts should not repeat not raise this issue with
host governments or local press. However, in response to inquiries, in-
formation provided here may be used, unless otherwise noted.
3. The USG is committed strongly to the SPR program. The Energy
Security Act of 1980 requires the President to “immediately undertake
. . . crude oil acquisition, transportation, and injection activities” to fill
the SPR at an average rate of at least 100,000 b/d for each year begin-
ning in FY 81.
4. FYI: We may achieve a higher average rate over FY 81, if present
market conditions continue. End FYI.
5. Use of Naval Petroleum Reserve Oil. The Federal share of the
production of the Naval Petroleum Reserve (NPR) at Elk Hills, Califor-
nia will be a major source of oil for the SPR. This will probably be about
6. Most of the NPR oil cannot be placed directly in the SPR because
NPR production areas are on the west coast and SPR storage sites are
on the gulf coast. Most NPR oil will therefore have to be exchanged for
more accessible oil. This will be accomplished by competitive bids or
by regulatory action requiring certain U.S. refiners to take cash or NPR
oil in exchange for oil for the SPR. We plan to proceed simultaneously
with both the competitive and the regulatory approaches, along with
efforts to arrange the direct transport of some relatively minor quanti-
ties of NPR oil to the SPR facilities.
7. The competitive exchange will begin with a solicitation of offers
from oil companies and traders. A request for proposals (RFP) will be
issued in early August by the Defense Fuel Supply Center (DFSC) as
Source: National Archives, RG 59, Central Foreign Policy Files, D800377–1021.
Confidential; Immediate. Drafted by J. Geocaris (DOE/IA); cleared by Twinam and in
EB/IEP/EPC, E, ARA, EA/IMBS, EUR/RPE, DOE/IA, and DOE/S; and approved by
Edward L. Morse (EB/IEP). Sent to Mexico, Port of Spain, Ankara, Athens, Bern, Bonn,
Brussels, Canberra, Copenhagen, Dublin, Lisbon, Luxembourg, Madrid, Ottawa, Rome,
Stockholm, The Hague, Tokyo, Vienna, Wellington, Lagos, Libreville, Quito, Jidda, Ku-
wait, Paris for the Embassy and USOECD, Abu Dhabi, Algiers, Doha, Caracas, Jakarta,
January 1979–January 1981 883
purchasing agent for the SPR. Foreign national oil companies can and,
in the past, have responded to RFPs for the SPR. The USG is at present
neither encouraging nor discouraging them to do so.
8. The regulatory process for NPR/SPR exchanges will begin this
August when DOE’s Economic Regulatory Administration issues a No-
tice of Proposed Rulemaking (NOPR) to amend DOE’s regulations un-
der the Emergency Petroleum Allocation Act.
9. Potential Additional Sources. The USG has assured producer
and consumer countries that we will use discretion in the purchase of
foreign crude oil for the SPR. Therefore, we do not plan at this time to
solicit offers for direct sole-source (non-competitive) purchases from
foreign governments or national oil companies. (FYI: We will consider
unsolicited offers of crude oil from such sources on a case-by-case ba-
sis. End FYI.) Other domestic crude sources such as the outer continen-
tal shelf and Alaska North Slope are being considered, but they present
a number of technical and legal difficulties. DOE and other concerned
agencies will continue to work on these and other domestic sources.
(FYI: USG may also issue solicitations that will remain open for short
time periods and seek individual cargoes available on the domestic and
international market. End FYI.)
10. Foreign Policy Considerations. Secretary of Energy Duncan
conducted consultations on the SPR with our Summit partners, as re-
quired by the Tokyo communique´, and with other European countries
at the IEA Ministerial and Venice Summit. The USG believes that cur-
rent oil market conditions warrant renewal of strategic stockpiling by
all governments having stockpile programs. Others with whom we
have consulted concur.
11. Most consumer nations seem to understand the considerations
underlying resumed SPR oil purchases and most have accepted our as-
surance that we will control the scale and timing of procurements so as
to avoid significant effects on oil prices. Most producers continue to ex-
press opposition to the US SPR and to the use of “their” oil in it. But we
believe the modest initial procurement rate now contemplated and the
NPR/SPR concept will preclude reductions in output. The DFSC and
the SPR office are confident that there is sufficient administrative flexi-
bility in the procurement process to avoid cargoes that might give rise
to adverse foreign reactions during the first few months of SPR fill
when attention will be focused on the program.
The Emergency Petroleum Allocation Act was signed by President Nixon on No-
vember 27, 1973, and President Ford extended the provisions of the act on September 25,
1975. (P.L. 93–159 and 94–99)
884 Foreign Relations, 1969–1976, Volume XXXVII
281. Telegram From the Department of State to the Embassy in
Washington, September 9, 1980, 0043Z.
238781. Subject: New Presidential Correspondence: IMF/IBRD
1. (Secret—entire text)
2. This telegram transmits in para 4 below a letter from the Presi-
dent to Prince Fahd that you should deliver and amplify with respect to
our concerns re an early cut in production.
[Omitted here is an instruction unrelated to oil.]
4. Text of oil letter:
Your Royal Highness:
I want to share with you recent evidence that the major industrial
nations are now firmly committed to sustained efforts to reduce oil con-
sumption and to curb inflation, as you have frequently advocated to all
of us. These were our paramount objectives at the recent Economic
Summit meeting in Venice. Subsequent reports from each of the seven
countries indicate determined follow-up action and impressive
I also wish to express my appreciation for your efforts to restore
stability and establish greater predictability in the world oil market. I
hope that you will not relax these efforts.
In adopting an ambitious plan to break the link between economic
growth and oil consumption, the seven major industrial nations have
undertaken to increase the production and use of substitutes for oil by
the equivalent of 15 to 20 million barrels per day by 1990. Each country
is adopting measures toward this goal. For example, on June 30 I signed
legislation establishing the Synthetic Fuels Corporation,
which will be
committed to the financing of plants capable of producing an estimated
two million barrels per day of substitute fuels by 1992. I have also inten-
sified the campaign to increase U.S. domestic use of coal and to export
Recent progress in oil conservation by these seven countries has
greatly exceeded our predictions. U.S. petroleum imports have
dropped by more than two million barrels per day as compared with
last summer; our imports through August were 17 percent below the
Source: National Archives, RG 59, Central Foreign Policy Files, P870094–0800. Se-
cret; Nodis. Drafted in the White House; cleared by Owen, Miller, Duncan, Twinam, and
Morse; and approved by Cooper. Repeated Immediate to the White House.
This was part of the Energy Security Act signed on June 30.
January 1979–January 1981 885
same period of 1979. These nations, as a group, now estimate that their
total oil imports in 1980 will be eleven percent below 1979.
The major industrial nations have also pledged themselves to ef-
fective policies to reverse the spiral of inflation. Recent reports confirm
that the seven governments are maintaining both fiscal and monetary
restraint; U.S. inflation rates have declined markedly since early this
year. By increasing the efficiency of the U.S. economy over the longer
term, the economic policy decisions that I announced on August 28
should lower inflation.
In carrying out the energy policies described above, the industrial
countries wish to work closely with Saudi Arabia for an orderly transi-
tion away from excessive dependence on petroleum resources, which
must be preserved for future generations. We appreciate your gov-
ernment’s responsible attitude on oil production and prices.
I recognize that your representatives may face pressures at the
forthcoming OPEC meeting in Vienna
to reduce Saudi Arabia’s cur-
rent oil production and that such pressures may occur before achieving
dependable assurances of moderation in future oil pricing. I want to
share with you my strong belief that action at this time by Saudi Arabia
to reduce production or increase prices would be widely misinter-
preted in the United States and could have a serious impact on our pub-
lic opinion and on oil market psychology.
Recent international events give clear warning that the free coun-
tries will face growing challenges to their vital security concerns in the
years ahead. The industrial powers have expressed determination to
strengthen our military and economic capacity in order to defend our
common interests. I believe that this will greatly benefit Saudi Arabia,
just as your country’s growing capacity to meet emergency shortfalls in
oil supply will be of great importance to the security of the industrial
One of the lessons of the past year is that the Free World’s eco-
nomic security depends heavily on the availability of a significant
margin of oil production capacity to offset sudden disruptions of
supply. Your margin of unused production capacity may well prove to
be the Free World’s margin of safety and order.
Looking back over the last several years, I am pleased to see how
the dialogue between our two governments has developed on a wide
range of international economic, political, and security matters. In the
context of this dialogue, I hope that you will write to me, fully and
President Carter announced on August 28 a program of domestic measures to
strengthen the economy. For the text of his remarks, see Public Papers of the Presidents of
the United States: Jimmy Carter, 1980
, pp. 1585–1591.
The OPEC Ministers met in Vienna September 15–17.
886 Foreign Relations, 1969–1976, Volume XXXVII
frankly, about your concerns. I look forward to developing our consul-
tations further and to benefiting from your counsel. Sincerely, Jimmy
His Royal Highness
Crown Prince Fahd Ibn ’Abd al-’Aziz Al Saud
5. In delivering the foregoing letter you should add to penultimate
paragraph the following two verbal points emphasizing that this is on
instructions of the President:
—Saudi Arabia’s policy of raising sustainable capacity to 12 mil-
lion barrels per day will thus be a major contribution to world order.
—As the future unfolds, you may find that a further increase in ca-
pacity beyond 12 million barrels per day would serve Saudi Arabia’s
interest in a secure, stable international environment.
6. FYI: In making these points you should be aware that Aramco
has confidentially informed the Department that Saudi plans to in-
crease capacity to 12.3 MBPD are on track.
On September 14, West replied: “Crown Prince Fahd told me that he would in-
struct Foreign Minister Saud, Oil Minister Yamani, and Finance Minister Aba al-Khayl to
make no rpt no statement or commitment with respect to Saudi Arabia’s decreasing pro-
duction at the forthcoming Vienna meeting; that he would also instruct them to hold firm
against any price increase, regardless of the pressure of other Arab OPEC countries. He
stated that he would authorize them to negotiate an increase in SAG’s price from $28 to
$30 per barrel provided other OPEC countries would agree to reduce their prices to that
figure from the current $32 per barrel. Fahd stated that Saudi Arabia would not go be-
yond that concession, which he pointed out would create a unified price system and
would result in an overall price decrease from OPEC oil.” (Telegram 5545 from Jidda; Na-
tional Archives, RG 59, Central Foreign Policy Files, P870094–0795) At the OPEC meet-
ing, Saudi Arabia did agree to raise its price to $30 per barrel and other OPEC members
agreed to decrease their price to $30, achieving a unified price for OPEC oil. Saudi Arabia
also agreed unofficially to decrease production to 8.5 million barrels per day beginning in
1981. (The New York Times, September 18, 1980, p. A1)
Telegram 238899 to Jidda, September 9. (National Archives, RG 59, Central For-
eign Policy Files, D800428–1040) On October 3, Owen sent the President a memorandum
informing him that King Khalid “ordered an increase in Saudi oil production of at least
500,000 b/d” and “asked other Arabian Gulf producers similarly to help offset the cur-
tailment of Iraqi and Iranian exports.” A “reliable US source” said the figure was actually
900,000 barrels per day. (Carter Library, National Security Affairs, Brzezinski Material,
President’s Correspondence with Foreign Leaders File, Box 17, Saudi Arabia: Crown
Prince and First Deputy Prime Minister Fahd ibn Abd al-Aziz Al Saud, 6–10/80) Carter
sent a thank you letter to Khalid on October 7. (Telegram 268622 to Jidda; National Ar-
chives, RG 59, Central Foreign Policy Files, D800480–0144)
January 1979–January 1981 887
282. Memorandum From the Assistant Secretary of Energy for
International Affairs (Goldman) to Secretary of Energy
Duncan and the Deputy Secretary of Energy (Sawhill)
Washington, September 23, 1980.
SCC Meeting on Iran–Iraq, September 24, 1980
The agenda for the meeting is attached at Tab A;
the topics to be
—United Nations Efforts
—Additional Steps (political)
—Strait of Hormuz (military and political)
—Oil (discussed below)
—Public Posture (further statements by President or others)
The “oil” topic is framed as four questions:
—What is the present status of oil flow from the Persian Gulf?
—What are the implications of a partial interruption?
—What should be our public posture?
—What non-public steps should we take?
We have also been advised by the Domestic Policy Staff that Stu
Eizenstat plans to participate, and will suggest that the President de-
liver a statement on the Iraq/Iran situation; Eizenstat will urge that the
President strike a reassuring note on the energy side, presumably
pointing to the high inventory positions in the U.S. and worldwide.
Source: Department of Energy, Executive Secretariat Files, Job #8824, Box 3135, In-
ternational Affairs: 9/80. Secret.
Attached but not printed. No other record of the SCC meeting has been found. The
Iran–Iraq war began when Iraq invaded Iran on September 22. In his diary, Carter wrote
about the meeting: “We agreed to do everything we could to terminate the Iran–Iraq con-
flict as soon as possible, to stay strictly neutral, to call other nations to stay out of the con-
flict and be neutral, and to keep open the Strait of Hormuz.” (White House Diary, p. 467)
The President, in remarks to reporters after the September 24 SCC meeting, ac-
knowledged the concern that oil supplies would be reduced because of the conflict, but
asserted: “This concern is not justified by the present situation. It is true that oil compa-
nies and shipments relating directly to Iran and Iraq have been interrupted or suspended
during the outbreak of the hostilities. But even if this suspension of Iran and Iraqi ship-
ments should persist for an extended period of time, the consuming nations can compen-
sate for this shortfall.” For the full text of his statement, see Public Papers of the Presidents of
the United States: Jimmy Carter, 1980
, pp. 1921–1922.
888 Foreign Relations, 1969–1976, Volume XXXVII
Oil Flow from Persian Gulf/Implications of Interruptions
Interruption of Exports from Iran and Iraq
Iraqi crude oil production during January–August 1980 is esti-
mated at 3.3–3.5 MMB/D with exports of 3.1–3.3 MMB/D. Iranian pro-
duction during the same period is estimated at 1.6 MMB/D with crude
oil exports of about 0.6 MMB/D and 0.2 MMB/D of refined product ex-
ports. Thus, some 4.0 MMB/D of combined exports from Iran and Iraq
could be interrupted.
More than half of Iraq’s oil exports are sold to industrial countries.
The three largest volume purchasers from Iraq are France at 550 MB/D,
Italy at 255 MB/D, and Japan at 375 MB/D. Brazil (at 500 MB/D) is
highly dependent on Iraqi oil with more than 50 percent of its oil im-
ports from that country. Communist bloc countries import approxi-
mately 350 MB/D from Iraq.
Spain and Turkey are the only IEA countries with significant crude
oil imports from Iran, at about 0.1 MMB/D each. Most of Iran’s crude
oil exports go to communist countries (0.1 MMB/D) and LDCs such as
India, Brazil and South Korea. Iran exports 0.2 MMB/D of residual fuel
oil, mostly to Japan.
The United States imports very little oil directly from Iraq, and
none from Iran. During January–June 1980, U.S. imports from Iraq
were less than 50 MB/D, accounting for less than one percent of total
IEA countries as a group import about 1.5 MMB/D of crude oil
from Iran and Iraq. Of the total, 1.2 MMB/D comes from Iraq and about
230 MB/D from Iran.
Oil exports through the Strait of Hormuz are estimated to be about
17 MMB/D during 1980. More than half of these exports originate in
Saudi Arabia. Exports through Hormuz represent nearly 60 percent of
the oil in world trade and about one-third of the oil consumed in the
Free World. The United States is dependent on Persian Gulf crude oil
for about one-fourth of its oil imports, both directly and indirectly
through Caribbean refineries, representing about 10 percent of U.S.
consumption. Western Europe receives about 60 percent of its oil im-
ports through Hormuz, which represents about one-half of its con-
sumption. Japan has the most at risk, with about 70 percent of its oil
supply transitting Hormuz. The table at Tab B
shows the origin and
destination of Persian Gulf oil estimated for 1980.
Attached but not printed.
January 1979–January 1981 889
Availability of Unused Production Capacity
There could be as much as 3.0 MMB/D of unused production ca-
pacity in the world in September 1980. Most of this capacity centers in
Persian Gulf countries and other OPEC members; the availability of
most of this capacity is in question. The largest unused capacity is in
Kuwait with nearly 1.0 MMB/D; Kuwait’s capacity is 2.5 MMB/D and
production is currently restricted to 1.5 MMB/D. Abu Dhabi has an es-
timated 0.7 MMB/D of unused capacity. Saudi Arabia could have up to
0.5 MMB/D of unused capacity, according to Aramco estimates.
[2 lines not declassified]
Outside the Persian Gulf, Libya is the producer with the largest
unused capacity—0.4 MMB/D. Other smaller amounts of unused ca-
pacity are in Venezuela and Nigeria, 0.2 MMB/D and 0.1 MMB/D re-
spectively. Among the non-OPEC countries, only Canada and the U.K.
(North Sea) may have some spare capacity, approximately 0.1 MMB/D
The Persian Gulf states may be reluctant to make their unused ca-
pacity available while hostilities continue, for fear of retaliation. Ku-
wait did allow production to rise above its government ceiling in 1979
during the Iranian supply interruption. Abu Dhabi stuck firmly to its
ceiling in 1979. Libya probably would not allow production to rise,
unless it perceived it to be in its political interest, and could probably be
counted on to maximize the price effect of any supply interruption.
Drawing upon the testimony recently submitted by Deputy Secre-
we should emphasize
—Measures already in place to strengthen our ability to respond to
disruptions in supply; and
—Specific actions that could be taken to cope with a disruption.
We could also draw attention to the favorable inventory situation
in the U.S. In the past several months the supply situation in the United
States for crude oil, gasoline and several other petroleum products has
improved significantly over what it was during the corresponding pe-
riod of 1979. At the end of August 1980:
—Crude oil stocks stood at 393 million barrels, a 22 percent in-
crease over last year’s level;
Sawhill testified before a Senate subcommittee on September 22 that U.S. oil in-
ventories were high enough to offset a disruption in oil supply from the Middle East. (The
New York Times
, September 23, 1980, p. D1)
890 Foreign Relations, 1969–1976, Volume XXXVII
—Gasoline stocks at the primary level were about 259 million
barrels, up 27 million barrels or about 12 percent over August 1979
—Distillate stocks were at 223.2 million barrels or 30 million
barrels above last year’s level;
—Aggregate primary stocks of crude oil and petroleum products
were 1,351 million barrels—near record high levels—and 164 million
barrels, or 13 percent, above last year’s normal operating level.
These stock levels are not only high in absolute terms, but are par-
ticularly high considering that total petroleum consumption for the
four weeks ending August 29, 1980, had declined about 12 percent as
compared to the corresponding period of a year ago, and imports for
the first 8 months of 1980 have decreased by about 20 percent from the
same period in 1979.
Measures already in place to cope with disruptions include:
—Establishing the Office of Energy Contingency Planning within
ERA, with direct reporting responsibility to the Secretary;
—Streamlined data-gathering systems, national and international,
to track crude oil shipments from the source through the refinery to dis-
—A program of systematic consultations with the major refiners to
determine more accurately, and in a timelier fashion, inventory posi-
tions and refiner inventory management plans.
We also have under active review a set of specific actions in the
In the area of fuel-switching we would encourage oil-to-gas substi-
tution, and promote electricity generation from non-oil fuels through
our authorities under the Fuel Use Act
and other statutory authorities.
Considerable cooperative work is now underway with utilities and pri-
vate industry to develop a detailed implementation program.
In the area of public information, we are developing a comprehen-
sive program to tell the general public:
—What the current foreign situation is to the best of our
—What the present domestic supply/demand situation looks like;
—What actions we are taking on a voluntary as well as regulatory
The Power Plant and Fuel Use Act (P.L. 95–620) was part of the National Energy
Act of 1978.
January 1979–January 1981 891
—What we want each energy use sector to do in response to the
dynamics of the situation.
The basis for effective action to influence, and regulate—if neces-
sary—inventory management is in place through the combination of
consultations and supporting data systems, which will provide more
accurate and timely information.
Finally, there are several demand restraint actions, of the non-price
variety, which are on stand-by and could be activated rapidly if
needed; among these actions are:
—Stricter enforcement of 55 mph speed limit;
—Extension of building temperature restrictions;
—Other emergency conservation measures such as odd/even and
minimum purchase requirements, and even, if necessary, state manda-
tory consumption targets (Title II of EECA).
We will have to maintain close consultations with our partners in
the IEA, with other affected consuming countries such as France, and
possibly with Brazil, given its more than 50 percent dependence on Iraq
and Iran for oil supplies.
IEA countries as a group obtained 1.2 MMB/D from Iraq, and 230
MB/D from Iran for the first half of 1980. (These figures are being veri-
fied with the Secretariat in Paris.) At a combined total of approximately
1.5 MMB/D of crude supply, this amounts to roughly 4 percent of IEA
consumption of 36.5 MMB/D for the year ending March 30, 1980; con-
sequently, there is no immediate reason to invoke the general allocation
The Secretariat currently estimates that based on its data, the fol-
lowing countries could be over the individual 7 percent disruption
The Mediterranean countries, in category A, obtain much of their
Iraqi oil through the pipeline that goes through Turkey; thus it is pos-
sible that if this pipeline is not interdicted, the effect of an interruption
in shipments via the Gulf would be attenuated; we are working with
the Secretariat to develop the figures.
892 Foreign Relations, 1969–1976, Volume XXXVII
Preliminarily, it appears that the IEA Secretariat is inclined to
work with the affected member countries to determine the precise mag-
nitude of their shortfall, and to see whether informal ways, through
voluntary reallocations, can be devised. The IEA Secretariat advises
that the first reaction of the Governing Board Chairman, Niels Ersboll
(Denmark), is that the IEA should avoid the mistakes of 1979, and find
a combination of conservation measures, restraint on the spot market,
and coordinated uses of high inventories to deal with what could be a
price problem rather than a supply problem, unless events change their
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