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
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287. Memorandum From Secretary of Energy Duncan and
Secretary of State Muskie to President Carter
Washington, November 19, 1980.
IEA Measures for Dealing with the Continuing Oil Supply Crisis
The increasing possibility of a longer Iran–Iraq war and a longer
repair period for damaged oil facilities once the war ceases lead to the
conclusion that stronger measures by consuming countries will be
needed if we are to avoid a sharp increase in oil prices such as occurred
during the 1979 Iran crisis. We seek your approval of a two stage
strategy, involving a U.S. lead effort to secure informal oil allocations
by relatively crude-rich multi-national oil companies for those IEA
countries most immediately hurt by the supply disruption, and rapid
negotiation within the IEA of realistic national oil import ceilings for
The continuation of hostilities, as well as increasing damage in re-
cent weeks to Iraqi oil facilities, leads to the conclusion that a normal oil
market is unlikely for the next several months. Both sides seem capable
of several more months of war and while the intensity of the fighting
should decline due to the advent of winter, our judgment is that hostil-
ities are unlikely to end soon. At present, we estimate a 3- to 6-month
period will be needed to repair facilities before Iraq can begin to export
more than 1 million barrels per day (MMB/D) (prewar exports were 3.1
MMB/D). Even with the increased production from other OPEC coun-
tries, we expect that the shortage in the first quarter of 1981 will be
some 2.5 MMB/D. Cumulative losses to the world oil market are, there-
fore, expected to reach at least 300 MMB, and could exceed 500 MMB or
750 MMB. This can be compared to the 200 MMB shortfall experienced
during the Iran crisis of 1979, which resulted in a doubling of world oil
prices. We are indeed fortunate that inventories are substantially
higher today, but the potential for price increases is real.
While the United States imported no oil from Iran and very little
from Iraq (35,000 B/D from Iraq), IEA countries such as Turkey and
Portugal lost 70 percent and 50 percent of their consumption needs re-
Source: Carter Library, National Security Affairs, Staff Material, International Eco-
nomics File, Box 49, Rutherford Poats File, Chron, 11/12–30/80. Secret. Carter initialed
January 1979–January 1981 907
spectively, while Spain, Italy, and Japan also lost large volumes. Allow-
ing for production increases and stock drawdowns, these IEA countries
will be left with an aggregate shortage in the range of 500 MB/D, mov-
ing into the first quarter of 1981. Several non-IEA countries, such as
France, Brazil, and India were also hurt.
Spot market prices began increasing in October as an initial re-
sponse to the fighting. They have been rising slowly but steadily since
then, and are now about 30 percent above pre-war levels though
volume has been thin thus far. In the coming months one can expect
further and perhaps accelerated increases to levels well above $40, and
perhaps approaching $50 if a way other than the spot market is not
found to meet the shortfall of the most affected countries. As happened
in 1979, this could give OPEC Oil Ministers a rationale to increase offi-
cial prices substantially, and press reports indicate this possibility.
The first IEA response to the crisis was appropriate; on October 1,
the IEA members agreed to encourage companies to avoid abnormal
spot purchases and to draw stocks in the fourth quarter to meet short-
However, with the worsening situation of the West European
and Mediterranean countries and the date for resumption of full pro-
duction receding, these measures will have to be augmented if we are
to avoid the potential of significant price pressures in early 1981.
As the first step in our preferred strategy, the United States and
other principal IEA members would launch a vigorous, informal effort
to have multinational companies (predominantly the ARAMCO part-
ners) redistribute supplies to those IEA countries most in need. Initially
this means Turkey and Portugal, perhaps to be followed by others as
we move into the first quarter of 1981.
Simultaneously, we would push for the negotiation and adoption
of realistic national oil import ceilings, to be set for 1981 and reviewed
quarterly, by the IEA countries and France. Earlier this year the IEA
agreed to adopt such a system for converting national oil import yard-
sticks into binding ceilings if market conditions warranted. Our objec-
tive at the December Ministerial would be to adopt the ceilings for
1981; if this proves too difficult, we would at least aim to have com-
pleted the difficult ceiling negotiation and put in place a system for im-
mediate adoption by the IEA Secretariat and/or Ministers of binding
ceilings if they believe rising spot prices early next year so require.
The IEA members, noting lowered oil consumption, high levels of oil stocks, and
spare production capacity, were convinced that “overall supply of IEA Countries and
other countries can be managed so as to meet demand over the next few months.” (Scott,
The History of the International Energy Agency,
vol. III, pp. 121–123)
908 Foreign Relations, 1969–1976, Volume XXXVII
The United States is in a strong position to initiate this action. The
supply shortfall to us is minimal, while our stocks are at historic levels
and our consumption is declining. In the IEA negotiations, we would
make it clear that we are prepared to urge our companies, particularly
the ARAMCO partners, to redistribute supplies to the five troubled
IEA countries, in exchange for assurances that all members were pre-
pared to abide by the ceiling levels once established. We have already
contacted the four ARAMCO partners (Texaco, Exxon, Mobil, Socal);
they have indicated a willingness to discuss an effort to avoid the for-
mal triggering of the IEA allocation system.
If you concur in the proposed action, we will need to move quickly
with our IEA partners to begin the yardstick/ceilings negotiations with
other consuming nations. The IEA Governing Board meets November
20–21, and IEA Ministers meet December 8–9. The Europeans and Japa-
nese are reviewing options and the time to propose a U.S. initiative is
now. High-level EC meetings, at which the Europeans will firm up
their positions, are scheduled for November 27 with Energy Ministers,
and December 1–2, at the Heads of Government level. Our initial
soundings with EC officials indicate that if we are able to assist the
most severely affected countries in their short run allocation problems
via the ARAMCO partners, then the EC may be forthcoming on the
The character of the U.S. domestic response will be a crucial tool in
persuading our partners to follow our lead. A separate memorandum
concerning recommended domestic initiatives is being prepared for
That you authorize us to seek in the IEA an informal allocation
agreement to distribute supplies to those IEA countries most seriously
affected and to undertake the process of establishing national oil im-
port ceilings. This approach is also supported by Bill Miller, Charlie
Schultze, Stu Eizenstat and Henry Owen.
Carter checked the Approve option and initialed.
January 1979–January 1981 909
288. Memorandum From Secretary of Energy Duncan to the
President’s Assistant for National Security Affairs
Washington, November 20, 1980.
DOE Response to Persian Gulf Security Framework Memorandum
Our response is limited to the two sections dealing with DOE re-
lated oil issues:
(A) Current Status of Goals: Economic Component, Oil
We believe the oil outlook is less favorable than suggested in the
memorandum. If Persian Gulf military hostilities continue through the
winter, as now seems likely, oil exports from the Gulf will not approach
pre-war levels until after mid-1981. Spot prices are rising steadily, al-
though thus far most buyers have remained publicly calm and re-
frained from large-scale purchases. However, with heavier demands
for winter heating supplies, recent warnings by Saudi officials that the
world may be on the verge of a new round of panic oil buying and a
world-wide reluctance to deplete existing stocks, the situation could
easily deteriorate. If buyers panic, producers may seek to impose
higher contract prices and premiums on their long-term customers.
(B) Goals for the Future: Economic Component, Oil
We agree that continued progress on oil pricing, availability and
conservation is critical. We also feel that prices might soon rise as much
as $8, $10 or even by much larger increments per barrel if a more
widely destructive war, a harsh winter, or other unforseeable risks
occur. We should seek IEA agreement on oil import ceilings for 1981 to
reduce pressure on the world oil market. We could also take the lead by
adopting a variety of moderately stimulating energy supply enhance-
ment, fuel switching, and oil demand-restraint measures. These actions
Source: Department of Energy, Executive Secretariat Files, Job #8824, International
Affairs, 10/80–12/80. Secret.
Brzezinski’s November 5 memorandum to Muskie, Brown, Miller, Duncan, McIn-
tyre, Jones, and Turner on the Persian Gulf Security Framework noted that the loss of
Iraqi oil due to the Iran–Iraq war was “yet to be felt” because Saudi Arabia and others
helped make up for the shortfall. Brzezinski added: “Prices are stable and consumption
in the West is down. We have begun to fill the strategic petroleum reserve. The Venice
Summit and actions by the IEA have helped convince oil producers that we are serious
about our energy policies and have helped stabilize the oil market.” (Ibid.) Brzezinski
sent an earlier memorandum on the subject to the same recipients on June 3. It included a
summary of the status report that was sent to Carter based on the 12 SCC meetings on the
security framework for the Persian Gulf. (Carter Library, Brzezinski Donated Material,
910 Foreign Relations, 1969–1976, Volume XXXVII
could provide the basis for a multilateral effort to impose import fees or
other measures that would pre-empt producer price increases and min-
imize economic damage to consumer economies.
Washington, December 4, 1980.
Further IEA Measures for Dealing with the Continuing Oil Supply Crisis
On November 19, you approved a two stage U.S. strategy for the
upcoming IEA Ministerial in Paris on December 8 and 9.
a U.S.-led effort to secure informal oil allocations by relatively
crude-rich multinational oil companies for those IEA countries most
immediately hurt by the Iraq–Iran war, and rapid negotiation within
the IEA of politically-binding national oil import ceilings for 1981.
At the November 21 IEA Governing Board meeting,
ingness of the U.S. to help correct supply imbalances was well received,
but most member countries indicated reluctance to adopt national oil
import ceilings at this time. Another meeting was set for December 5,
however, to review the country-specific numbers that would be re-
quired to establish binding import ceilings for 1981 to bring supply and
demand into balance.
In addition, the Reagan transition organization
has advised me
today that it is opposed to the concept of import ceilings, thus implying
that efforts by me to persuade the IEA to adopt binding ceilings now
would be disavowed by the new administration when it takes office.
My judgment is that market conditions still warrant the adoption
of import ceilings now. The spot market has been calmed somewhat by
the reopening of the Turkish and Syrian pipelines from Iraq, but the
Source: Carter Library, National Security Affairs, Staff Material, International Eco-
nomics File, Box 49, Rutherford Poats File, Chron, 12/1–8/80. Confidential.
See Document 287.
Telegram 36747 from Paris, November 24, summarizes the meeting. (National Ar-
chives, RG 59, Central Foreign Policy Files, D800563–0317)
Republican nominee Ronald Reagan won the November 4 Presidential election.
January 1979–January 1981 911
potential for significant supply problems in 1981 if member countries
do not take measures to reduce import levels still remains very high.
However, given the clear reluctance of other member countries to
adopt binding import ceilings now and the views of the Reagan organi-
zation on ceilings, it is not realistic to expect that the upcoming Ministe-
rial meeting will adopt import ceilings.
In these circumstances, I request your approval of a strategy that
would have the U.S. delegation state at the IEA meeting that:
• It is our view that ceilings should be adopted now;
• If adoption of ceilings is not a realistic alternative at this time,
the ministers should agree to a standby mechanism that could be im-
mediately implemented by a Secretariat decision that would result in
a Ministerial convocation on 48 hours notice for purposes of quick
In addition, we would continue to offer U.S. assistance in cor-
recting informally the supply imbalances that currently exist.
The annual IEA import reduction level I would propose for the
standby program would be in the range of 1.5 MMB/D. Based on our
share of IEA oil consumption, this would imply a U.S. import ceiling
no lower than 6.5 MMB/D. (U.S. oil imports will average about 6.6
MMB/D in 1980, but less than that in recent weeks.)
The U.S. delegation at the November 21 meeting of the Interna-
tional Energy Agency made some progress in moving the member
countries towards serious consideration of realistic national oil import
ceilings for 1981, although several members still have a wait-and-see at-
titude. The resumption of Iraqi crude exports via pipelines to Turkey
and Syria, and the continuing exports of modest quantities of Iranian
oil, combined with higher production from Saudi Arabia, Kuwait, Ni-
geria and a few others, have had a temporary calming effect on the spot
market, where prices have recently declined slightly for the first time in
ten weeks. This temporary market reaction, however, belies the serious
risks which lie ahead. Even with the improved supply picture, world
oil production will fall some 2 MMB/D short of projected demand in
the first quarter of 1981. Even with a gradual restoration of Iranian and
Iraqi export facilities, the shortfall could average 1 MMB/D for the
Under the agreement reached last May in the IEA,
tentatively agreed upon likely levels of pre-war imports for 1981. These
See Document 273.
912 Foreign Relations, 1969–1976, Volume XXXVII
yardsticks amount to about 22.5 MMB/D. They have also agreed to
convert these yardsticks into binding levels of imports, called ceilings,
if market conditions so warrant. Our objective in the upcoming De-
cember 5 meeting and the Ministerial on December 8 and 9 will be to
agree upon an appropriate aggregate reduction in the yardsticks that
will bring supply and demand into balance and secure a commitment
from all countries to reduce their yardsticks proportionately to accom-
modate this shortfall and turn them into binding ceilings. The ceilings
would be implemented on a quarterly basis to allow for market
tracking and timely review.
The IEA Secretariat, which essentially agrees with our analysis of
the situation, assumes that the reduction in imports which each country
undertakes should be proportional to that country’s oil consumption,
not its level of imports. The Secretariat, backed by most member coun-
tries, argues that a consumption-based cutback is most equitable since
a nation’s potential for conserving oil is related to its total oil consump-
tion, not just imports. It is argued that countries with a high level of im-
ports would be penalized with a greater conservation requirement by
an import-based sharing of the shortfall. It will be most difficult for us
to convince either the Secretariat or other countries to allocate the
shortfall pursuant to imports.
The table below gives the import ceilings for the U.S. and other
IEA countries plus France under varying levels of worldwide shortfall.
The figures in parentheses show what the respective import ceilings
would be if they were based on imports rather than consumption.
U.S. and IEA Import Levels
Import Ceilings Based on Consumption and (Imports)
Other IEA Countries
*Includes U.S. Territories and 100,000 B/D for SPR.
With the recently-reported resumption of Iraqi exports to the Med-
iterranean via Turkey and Syria and periodic reports of Iranian exports
from Kharg Island and the lower Gulf, we could prudently seek to have
IEA import demand reduced by 1.0 to 1.5 MMB/D in the first quarter.
If the situation does not deteriorate, and if key non-IEA members such
as France participate in the reduction of import needs, an effort of this
magnitude gives us the prospect of heading off significant price
January 1979–January 1981 913
On a consumption basis, the U.S. would have an import level for
1981 in the range of 6.5–6.7 MMB/D under a 1.0 to 1.5 MMB/D world-
wide shortfall. This compares to a projected 1980 import level of 6.6
MMB/D. Without any further price increases, this estimate is at the low
end of the range of U.S. oil import requirements for 1981 presented in
the latest forecast by DOE’s Energy Information Administration, and
could well require additional pricing, demand restraint, or fuel switch-
ing measures to fulfill. If new initiatives should prove necessary, either
you, or more likely the Reagan Administration, could decontrol gaso-
line, accelerate the decontrol of crude, impose an import fee or imple-
ment mandatory demand restraint or fuel switching measures. In any
event, the implementation and full effects of additional measures,
should they be needed, would come well after the imposition of ceil-
ings at these recommended levels.
In the upcoming meeting leading to the Ministerial, other coun-
tries will continue to press us to exert ourselves with those U.S. com-
panies with large inventories to correct short-term imbalances. This, as
well as growing concern about the oil market, will give us an opportu-
nity to press for a serious effort to cut back oil import demand in 1981
through negotiation and adoption of binding national oil import
ceilings. While we will express our view of the need for adoption of
1981 ceilings now consistent with the 1.0 to 1.5 MMB/D worldwide
shortfall we realistically will be in a position only to seek the placement
of the appropriate ceilings in a standby status that could be triggered
quickly following the December 8 and 9 meeting in the face of rapidly
rising spot market prices.
That you authorize us to seek a 1.0 to 1.5 MMB/D reduction in the
projected IEA oil import demand of 22.5 MMB/D and seek a procedure
to transform this cutback into country-specific, politically-binding na-
tional oil import ceilings (6.5 to 6.7 MMB/D for the U.S.) for 1981 at the
December 9 meeting or at the earliest required time thereafter.
as possible. J”
914 Foreign Relations, 1969–1976, Volume XXXVII
290. Telegram From the Department of State to the Embassy in
Washington, December 4, 1980, 0302Z.
320369. Subject: Ambassador West’s Meeting with Yamani. Ref:
State 302502, State 283573.
1. Confidential—entire text.
2. There are several points which we would like you to include in
your discussion with Yamani December 4, as discussed below. These
cover five general areas: exchange of views on oil market situation; dis-
cussion of consumer country (IEA) actions; Saudi efforts to assist Iraq’s
customers; expression of concern for supply to Portugal and Turkey;
and the OPEC meeting in Bali.
3. Oil Market Situation. We are grateful for incremental production
provided by Saudi Arabia and (to extent it has occurred) some other
Gulf states. Resumption of Iraqi pipeline exports through Turkey and
possibly Syria, and small Iranian exports, are positive developments
but these supplies remain vulnerable. Spot prices appear to have
turned around, showing again how meaningless the spot market is in
terms of long-term prices. However, the oil market will continue to call
for the best efforts by all of us until the Iraq–Iran war ends and nor-
4. IEA Measures. The consuming countries grouped in the IEA,
have, as you know, been taking measures to help cope with the situa-
tion. At the beginning of October, the IEA countries agreed to encour-
age their companies to refrain from abnormal spot market purchases,
and to draw on stocks as needed to balance the market.
Total U.S. oil
stocks have been drawn down by more than 300,000 B/D since late
September. We also agreed to encourage further conservation efforts.
Similar decisions on stock management, spot market restraint, conser-
vation, and maximizing domestic production have been taken by the
Source: National Archives, RG 59, Central Foreign Policy Files, D800577–1002.
Confidential; Niact; Immediate. Drafted by Bullen; cleared by Morse and Twinam and in
EUR/RPE, EUR/WE, EUR/SE, E, DOE/IA, and DOE/IE; and approved by Hinton. Re-
peated Immediate to Lisbon, Ankara, and Paris, and Exdis to USOECD Paris.
The reference to telegram 302502 to Kingston, November 13, which concerns an
unrelated matter, is apparently an error. (Ibid., D800543–0500) Telegram 283573 to Jidda,
October 24, instructed West to take the opportunity, if he felt it “appropriate,” to seek
Yamani’s “assessment of the progress of efforts to assist countries most seriously affected
by the cut-off of Iranian and Iraqi exports.” (Ibid., D800507–0486)
See footnote 2, Document 287.
January 1979–January 1981 915
EEC countries at the EEC Energy Ministers’ meeting and Heads of
Government meeting during the past week.
5. We are now looking forward to further strengthening the IEA
measures at the IEA Ministerial meeting scheduled for December 8–9 in
Paris. The Ministers will discuss the full range of options for strength-
ening consumer country efforts in the light of rapidly changing market
conditions, including the possibility of instituting import ceilings if
needed in accord with the decision of the previous IEA Ministerial last
May, or of meeting again on short notice to do so. Secretary Duncan
would be more than willing to come to see Yamani in Saudi Arabia on
the 10th or the 11th to give him a full briefing of the results of the Minis-
terial and our current view of the market situation.
6. Iraq’s Customers. We are grateful to Saudi Arabia for under-
taking to fulfill partially Iraq’s commitments to its customers through
incremental production. We hope Saudi Arabia will monitor the needs
of these customers as they secure alternative supplies and allocate its
incremental production to help assure that country imbalances are cor-
rected and not exacerbated.
7. Turkey and Portugal. We continue to be concerned about sup-
plies to these two countries. Turkey is in a very tight situation because
of its lack of stocks. We understand that the Saudis are planning to
supply increased amounts of oil to Turkey in 1981, and that will be a
great help. The Turks are, however, so close to being out of stocks that
anything which can be done to ensure a prompt start-up of 1981 deliv-
eries in January, or pre-delivery of some volumes in December, would
be of real benefit to the Turks.
8. Portugal, a strategically important country, is able to handle its
oil needs through December by using stocks, but has been unable to
line up adequate supplies for 1981. We understand the Portuguese are
approaching the Saudis about 1981 purchases, and hope that it will be
possible to be responsive.
9. We would also like you to check with Yamani our impression
that the OPEC conference at Bali is now likely to go ahead as planned,
and if this reading is correct, to explore his thinking on what decisions
may be reached. In this connection, you might note with appreciation
the indications we have seen of Saudi opposition to a price increase at
this time, a position that we believe has had a constructive impact on
10. (FYI. Ed Deagle of Rockefeller Foundation reports on basis of
recent conversations with Yamani and Petromin officials Saudi concern
The leaders of the European Economic Community nations met in Luxembourg
916 Foreign Relations, 1969–1976, Volume XXXVII
about publicity on high SPR fill rates. If appropriate, use following
points to correct their misapprehensions. End FYI) SPR. Saudis may be
under mistaken impression that US Strategic Petroleum Reserve is be-
ing filled at rate of 300,000 B/D. Such is not the case. Recent legislation
does mention the 300,000 B/D rate as a target, but that legislative lan-
guage is not mandatory, and administration is not filling at that rate.
Current fill rate on an annualized basis is 100,000 B/D; however, prede-
liveries have raised the fill rate temporarily to about 140,000 B/D. An
average of 100,000 B/D for the full year FY-81 is the minimum possible
under existing law without reducing Elk Hills production. (The stock
drawdown given in para. 4 above takes into account these additions to
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