Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
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- 291. Telegram From the Department of State to the Embassy in Saudi Arabia
- Christopher 292. Memorandum From Secretary of Energy Duncan to President Carter
West met with Yamani on December 5 and reported: “Yamani had met earlier that
day with Oil Ministers of Kuwait and Indonesia, and he hoped that he had been able to
persuade them that a price increase was not necessary. Although he expected a fight from
the price hawks at Bali, he was guardedly optimistic that the price line could be held.
Yamani mentioned SAG efforts to help Portugal to meet its oil needs. He considered that
the oil requirements of Turkey and the Philippines would be met by the resumption of
Iraqi oil exports via the pipeline through Turkey (soon to be operating at capacity) and
the limited resumption of Iranian oil exports as evidenced by the loading of two 500,000
ton vessels at Kharg Island this week.” (Telegram 7341 from Jidda, December 5; National
Archives, RG 59, Central Foreign Policy Files, D800579–1056)
Washington, December 10, 1980, 1713Z.
327156. For the Charge´. Subject: Presidential Letter on Oil Market
1. (Confidential—entire text).
2. The following message from the President to Prince Fahd should
be delivered as soon as possible, preferably by Secretary Duncan. Sug-
gest you work out how best to deliver and advise us when and to
Source: National Archives, RG 59, Central Foreign Policy Files, D800588–1002.
Confidential; Niact; Immediate; Exdis. Drafted by Poats; cleared by Twinam and in
EB/IEP/EPC, E, and the Energy Department; and approved by Johnston.
January 1979–January 1981 917
whom delivery was made. Similar Presidential letters are being sent to
Indonesia, Nigeria, and Venezuela.
3. Begin text:
Your Royal Highness:
I believe that all nations should be gratified by the recent parallel
actions of oil exporting nations and industrial nations to avert an oil
crisis during the war between Iraq and Iran. We can take justifiable
pride in our success, thus far, in preventing further inflationary blows
to the economies of all countries.
As you know, a more severe test will come during the winter
months of normally higher oil demand if the curtailment of oil exports
from Iraq and Iran persists without a clear prospect of peace. In this sit-
uation it is important that all parties cooperate in coping with the
shortages created by the war. For their part, the industrial nations
agreed in Paris yesterday to reduce by about 10 percent (2.2 million
barrels per day) their demand for oil on the world market in the first
quarter of 1981, to discourage purchases at high prices, and to work
with oil companies to correct imbalances of supply among countries.
These measures to balance the market complement the helpful actions
of Saudi Arabia and other oil producing nations in providing increased
supplies to countries formerly dependent on Iraq and Iran. Saudi
Arabia’s substantial increase in production has been particularly ap-
preciated throughout the world. Energy Secretary Duncan will brief
Minister Yamani on details of the measures agreed to in Paris.
Together we can assure a balanced oil market and relieve pres-
sures on oil prices until Iraq and Iran resume normal exports. By stabi-
lizing the oil market we will help many developing nations avert ex-
ternal payments crises and enable the industrial nations to avoid
simultaneous recessions and aggravation of inflation.
If you agree that these must be our common objectives at this time,
I hope you will reflect this conviction in your national oil production
and pricing policies and in Saudi Arabia’s position at the OPEC confer-
ence in Bali next week. I assure you that the United States and other in-
Brzezinski recommended in a December 9 memorandum that Carter send the
letters. He wrote: “Pursuant to your exchange of letters with President Giscard, the en-
ergy ministers of the US, Britain, France and Germany agreed on a common approach to
OPEC countries designed to encourage them to adopt a price freeze at the OPEC meeting
in Bali next week. The main feature of these joint approaches will be letters to heads of
government with whom one or more of these four governments has potential influence.”
Carter checked the Approve option on the memorandum and initialed it on December 10.
(Carter Library, National Security Affairs, Staff Material, Middle East File, Box 84, Subject
File, Saudi Arabia, 11–12/80) Copies of all four letters are attached to a December 9 mem-
orandum from Poats to Brzezinski. (Ibid.)
See Document 292 and footnote 2 thereto.
918 Foreign Relations, 1969–1976, Volume XXXVII
dustrial nations are determined to do our part to maintain stability in
the oil market and thus to contribute to the world’s economic health.
His Royal Highness
Prince Fahd Ibn Abd Al-Aziz Al Saud
First Deputy Prime Minister of Saudi Arabia
292. Memorandum From Secretary of Energy Duncan to President
Washington, December 12, 1980.
Trip Report (December 6–11, 1980)
Visit to Saudi Arabia
Producer Bilaterals in Paris
Summit Energy Ministers’ Dinner
It was necessary to do considerable preparatory work with other
delegations in advance of the meeting. On Sunday and Monday
had bilateral or multilateral discussions with the United Kingdom,
Germany, Canada, Japan, Holland, New Zealand, Australia, Turkey,
Greece, Spain, Austria, and Sweden. In addition, I had dinner Sunday
evening with Minister Giraud of France and attended a dinner of
Summit energy ministers that he hosted Tuesday evening.
Source: Carter Library, National Security Affairs, Staff Material, Special Projects
File, Box 19, Henry Owen, Chron, 12/10–31/80. Confidential.
The IEA Governing Board met at the Ministerial level in Paris December 8–9. The
meeting is summarized in telegram 38287 from Paris, December 9. (National Archives,
RG 59, Central Foreign Policy Files, D800587–0490)
December 7 and 8.
January 1979–January 1981 919
Though there remains considerable variance in Ministers’ atti-
tudes respecting the severity of the current situation and appropriate
actions to take now, it was apparent that the range of differences had
narrowed substantially since the May meeting and that there was a
greater sense of urgency and the need for discipline and cohesion than I
have observed at any prior IEA meeting. It was apparent that the Min-
isters were not ready to adopt country specific import ceilings, particu-
larly the Germans, but opposition was less vociferous than heretofore
and U.S. efforts to at least quantify a group goal for lessening market
demand in the first quarter were successful.
Ministers concluded in the meeting that the current situation is
manageable in the short-term, and agreed on a series of actions de-
signed to remove market pressure which could lead to higher prices.
The actions taken are essentially embraced in the following five-point
—Drawing on stocks as necessary to maintain a balance between
supply and demand in the world market for the first quarter.
—Taking further action to pursue and implement policies to en-
courage the rational use of oil (demand restraint) and its replacement
by other energy sources.
—Discouraging undesirable purchases of oil at price levels that
serve to increase market pressures.
—Working together to correct serious imbalances in oil supplies
among countries and companies.
—Encouraging high levels of indigenous oil and gas production in
The group’s aggregate quantitative commitment is contained in
the Secretariat’s statement that the successful implementation of this
program will result in an oil demand reduction by member countries of
about 10% in the first quarter of 1981, with demand reduced from a pre-
viously anticipated 264 million tons to a new estimate of 238 million
tons (a savings of approximately 2.2 million barrels per day). The EC
has separately committed to meet their entire share of this cutback with
a stockdraw through the first quarter, although the U.S. remains free to
use a mix of options like stockdraw and demand restraint to meet our
share. For this program to work, the Secretariat and the U.S. will have
to monitor the efforts of each country and be prepared to jawbone our
companies and other countries on import levels and prices paid.
There was considerable discussion about the need to price petro-
leum products in member countries at levels indicated by international
oil prices. This is repetitious of the discussion on energy pricing in the
Venice Summit. The Canadians dissented vigorously from language
proposed by the United Kingdom, which was acceptable to all other
920 Foreign Relations, 1969–1976, Volume XXXVII
major delegations. We did include a paragraph on energy pricing
which tracks language used at the Summit meeting and in the Euro-
pean Community meetings.
There is also language in the communique´ which addresses the
need to review continuously the situation and to consider further ac-
tion if necessary, “including the possible use of oil import ceilings.”
This language was objected to by several delegations, but primarily
through our persistence it remained in the communique´.
There was also considerable discussion respecting the appropriate
mechanism to discourage “undesirable purchases.” (The Japanese ob-
jected strongly to use of the word “undesirable.”) Only after significant
pressure from us and others did Japan realize that it was isolated on the
issue, and that payment of high prices for spot purchases or high pre-
miums on conventional purchases was an undesirable practice.
I have attached hereto a copy of the communique´ of the meeting
which provides further detail.
1. IEA Meeting
Minister Yamani seemed well informed as to the conclusions of the
meeting and the content of the communique´. He asked several ques-
tions about the stockdraw plan, the system for correction of stock im-
balances, and the plan to discourage “undesirable” purchases. (On the
latter item he seemed interested in the attitudes of individual country
delegations.) It is my impression that he thought the actions taken were
appropriate ones, though he did not make a categorical statement to
He was particularly interested in the stockdraw plan and related
that to expected OPEC production and pricing, and linked it to the
forthcoming Bali meeting.
2. OPEC Production and Supply Levels
Yamani felt that OPEC production levels would be maintained at a
rate approaching 25 million barrels/day (mb/d) provided there are no
further “political interruptions.” He said this was approximately the
The text of the communique´ was transmitted in telegram 38286 from Paris, De-
cember 9. (National Archives, RG 59, Central Foreign Policy Files, D800587–0318) Tele-
gram 327578, December 11, instructed the Embassies in Libreville, Quito, Jidda, Kuwait,
Abu Dhabi, Algiers, Lagos, Doha, Caracas, and Mexico to deliver the communique´ to
their respective Energy Ministers and OPEC Ministers before they left for the Bali meet-
ing beginning on December 15. (Ibid., D800589–1048)
The communique´ is printed in Scott, The History of the International Energy Agency,
vol. III, pp. 377–384. The statement on Ministerial Measures on Draw of Stocks, Undesir-
able Purchases of Oil, and Correcting Imbalances, which includes an annex entitled “De-
cision by the Governing Board for Correcting Imbalances” is ibid., pp. 123–129.
January 1979–January 1981 921
present level. He assumes that Iraq exports will soon approach 1.5
mb/d, primarily through the pipelines, and noted that Iran is now be-
ginning to export again, mentioning two supertankers having loaded at
Kharg Island last week. His expectation is that the current production
levels, in combination with a successful IEA drawdown of stocks as
envisioned in the Paris meeting, will permit 1981 to “go smoothly.”
Other IEA actions, such as correction of stock imbalances and avoid-
ance of “undesirable purchases,” are also important. He assumes that
economic recovery will not contribute much to demand in 1981 as he
feels economies will remain flat.
Yamani is optimistic concerning 1982 supply. He feels we can as-
sume that the war will have been terminated by that time, and that Iran
and Iraq “will have to resume exports at high levels.” He said it was en-
tirely reasonable to assume that the combined exports of the two coun-
tries would be 5.0 mb/d. Iraq was exporting 3.5–4.0 mb/d just prior to
the conflict and Iran would only have to add 1.0–1.5 mb/d to those
numbers to accommodate a 5.0 mb/d combined total. He feels their
revenue needs will require exports at these levels.
The combination of Iran’s and Iraq’s resumption of exports, con-
tinued demand reduction in the consuming countries, and increased
production in non-OPEC countries “amounting to about 1.0 mb/d,” in-
dicate to him that there will be substantial supplies of crude oil on the
world market in 1982. This would permit, he said, certain OPEC coun-
tries, “like Saudi Arabia and perhaps Kuwait,” to reduce their export
levels to quantities more compatible with their long-term interests. He
stated, for example, that Saudi Arabia might then reduce its export lev-
el to a number more like “7.0 mb/d” because world demand and pro-
duction levels would accommodate a reduction of that magnitude
without precipitating undesirable market impact.
3. Pricing and the Bali OPEC Meeting
The above scenario, in combination with current world economic
conditions, causes him to feel that there should not be any agreement
on a price increase at the Bali meeting.
The prospective supply picture
The meeting in Bali, held December 15–16, concluded with OPEC’s decision to
raise “allowable official prices” by up to $4 per barrel. The price of Saudi marker crude
was fixed at $32 per barrel, while the price of OPEC crudes could be “set on the basis of an
oil price ceiling for a demand marker crude” of up to $36 per barrel. The maximum price
of OPEC crude was set at $41 per barrel. While the Iran–Iraq conflict “figured promi-
nently throughout the conference” it did not “disrupt its basic business,” and the meeting
ended without “an open confrontation” between the two countries. (Telegram 19269
from Jakarta, December 16; National Archives, RG 59, Central Foreign Policy Files,
D800597–0887) Summaries of the conference’s first day are in telegrams 19196 and 19200
from Jakarta, December 15, and a “wrap-up” is in telegram 19323 from Jakarta, December
17. Telegram 19268 from Jakarta, December 16, contains the final communique´. (All ibid.,
D800597–0241, D800596–0481, D800599–0861, D800598–1167)
922 Foreign Relations, 1969–1976, Volume XXXVII
outlined above indicates the probability of downward price pressure in
the 1982 time frame, and he felt “OPEC should avoid a situation such as
followed 1973 when real prices of oil declined for several years.” He
said that while he opposed price increases now, he also opposed future
price decreases, noting that the price decreases in real terms following
1973 contributed to energy waste, the lack of alternative energy devel-
opment, and the deferral of conservation investments.
He said that Algeria, “joined by others,” had been advocating
“substantial” increases and that he had been working with other OPEC
oil ministers to argue against this. (He likened this to our twenty per-
cent prime rate earlier this year, which declined temporarily and has
now climbed back to twenty percent.) I believe his expectation is that
the meeting in Bali will be brief, that there will be little or no price in-
crease, and that the primary effort will be to re-establish OPEC
Notwithstanding all of the above, Yamani did indicate that at
some point Saudi Arabia would be raising its price to $32.
stood this comment to be unrelated to the Bali meeting. He said that
maybe other members “would be satisfied if we came to the agreed
OPEC minimum.” I told him that this had never worked before, and
any time the Saudi price was raised, it invariably caused instantaneous
similar action on the part of others.
4. Iran/Iraq War
Yamani indicated that he saw no evidence that the parties were
any closer to a political settlement; therefore, it was impossible to pre-
dict the duration of the conflict. He observed once again the importance
of strict U.S. neutrality. He noted that the Soviets are actively sup-
porting Iran now with petroleum product supply and seem anxious to
get closer to Iran. He said the Soviets are also sending a “small quan-
tity” of spare parts to Iraq.
During lunch I mentioned that I had seen Minister Nabi of Algeria
while in Paris. (Yamani invariably finds out who I talk to and I felt it
Yamani personally announced the Saudi price increase at the OPEC meeting in
Bali. The $2 per barrel price increase would be retroactive to November 1, and the new
base price of $32 per barrel “would hold for only the 9.5 million barrels per day,” mean-
ing that oil produced beyond that level would be sold at $34 per barrel. West commented:
“Decisions on oil production beyond 9.5 MB/D are made on monthly basis and state-
ment that 10.3 MB/D production level would continue through January has no implica-
tion for later months. Oil sales agreements have clause allowing retroactive price rise for
previous month, if notification is received by 15th of the subsequent month. Notification
of price increase was received on 15th of December.” (Telegram 7663 from Jidda, Decem-
ber 17; ibid., D800599–1091)
Algerian Oil Minister Belkacem Nabi.
January 1979–January 1981 923
better not to disguise the fact that I had seen Nabi since we were dis-
cussing Algeria at some length.) He was interested in our discussions
on liquified natural gas and I gave him a quick brief on the difference
between Algeria and the United States on LNG pricing. Yamani’s atti-
tude was that gas competes with fuels other than oil and its price does
not move identically, in absolute terms, with increases in oil prices. Gas
prices move in proportion to oil price increases which is, of course, the
U.S. position with Algeria.
I gained the impression through subtle, but not direct, comments
by Yamani, that the fact that we did not close a gas deal with Algeria
prior to the Bali meeting was beneficial to his efforts to achieve either
no increase or extreme moderation in any price increase at that
6. ARAMCO Tax Issue
Yamani mentioned the Aramco tax issue and asked me if I had
seen the letter Secretary Miller had sent him.
I told him I had seen it
and I had some familiarity with the conversation he and Ambassador
West had about the letter. Yamani said that he would personally appre-
ciate my getting into this issue, that he was very anxious that it be re-
solved during this Administration, that while he expected a “clarifica-
tion from Secretary Miller” he felt the issues were very important. He
talked to me in a very low-key, very friendly way about the matter, but
it was apparent that he feels very strongly that we should resolve this
issue immediately. He noted Saudi Arabia’s repeated actions re-
specting price moderation and oil production levels to accommodate
U.S. interests and requests. He directly linked those actions to this re-
quest, and urged that this matter be handled in a very expeditious and
positive way. I told him I would discuss the matter with Secretary
7. Breakfast Meeting with Calderon-Berti, Minister of Venezuela
Yamani knew that I had seen Calderon-Berti in Paris and invited
me to comment on this meeting by saying that the Venezuelans “sur-
prisingly” supported the Algerians in seeking a price increase in Bali
but he did not believe that to be “the Minister’s attitude.” I told him I
had had a lengthy discussion with Calderon-Berti at breakfast Monday
morning and that he had focused with unusual intent on what I was
In the letter, transmitted in telegram 320362 to Jidda, December 4, Miller informed
Yamani that on November 12, the Internal Revenue Service issued a revised proposal on
the issue of which foreign taxes were creditable against U.S. taxes. Miller wrote: “The re-
vised proposals make clear that a country may impose a tax only on non-nationals and
still have a creditable income tax for U.S. purposes. It is my understanding that in April
1980 Saudi Arabia restructured its relationship with Aramco and that it is likely that there
will be new Saudi tax arrangements because of the new relationship.” (National Ar-
chives, RG 59, Central Foreign Policy Files, D800577–0744)
924 Foreign Relations, 1969–1976, Volume XXXVII
saying when I discussed the economic havoc that would be precipi-
tated by another round of price increases at this time, noting its infla-
tionary impact, its impact on a fragile economic recovery, and the
shrinkage in world gross national product which would result. I told
him I felt I had made an impression on Calderon-Berti but only time
8. U.S. Political Scene
Yamani inquired as to whether the Department of Energy would
continue and who the next Secretary of Energy might be. I told him I
was the wrong person to ask about either question but mentioned to
him “press reports” of President-elect Reagan’s substantial retreat from
campaign rhetoric on energy and those mentioned as possible candi-
dates for Secretary. He indicated that everyone would have to go
through a learning curve once again.
I also told him about statements made by Senator McClure
tended to indicate more consistency in energy policy than had the cam-
He asked about oil and gas decontrol. After I mentioned a “press
report” on the issue, he stated that oil decontrol in September seemed
“sensible” to him since it avoided inflationary shock, September was
close anyway, and firms considering exploration expenditures would
not be impeded considering the short time frame. I told him in quanti-
tative terms about the substantial increase in drilling in the United
States. We discussed gas decontrol and I told him of developing atti-
tudes in the Congress and elsewhere to accelerate the decontrol of gas,
but warned that this was an intensely political issue where Congres-
sional sentiment ran high.
He said he had heard that Reagan tends to surround himself with
capable people and I responded I certainly hoped that would be the
case because it would be in our National interest.
In conclusion, we spent some time discussing my personal plans.
He seemed interested, as a friend, in knowing what I would be doing.
He said he would be in the United States in March and would call me
before coming so that we could arrange to meet.
1. Algeria—Minister Nabi
I had two meetings with Minister Nabi on Sunday involving more
than three hours in total. Nabi seemed anxious to conclude an interim
agreement on Algerian LNG prior to the next Administration’s assum-
Senator James A. McClure (R–ID) had recently been elected chairman of the
Senate Republican Conference.
January 1979–January 1981 925
ing office. (It is my impression that he fears the political clout of our do-
mestic gas producers which might discourage the importation of gas.) I
believe we could reach agreement on the basis of a $3.25/MMBTU
f.o.b. Algeria price which would reconstitute in U.S. markets at a price
only a few cents above the current Canadian and Mexican import
prices. However, the Algerians were also insisting that we accept an es-
calation formula which would move gas prices upward in the full btu
equivalent amount of oil price increases. We explained that gas com-
petes with fuels other than oil and that while its price moves in a pro-
portionate way to oil price increases, it does not move in identical btu
equivalence to oil price increases. We also explained our regulatory
mechanism respecting the approval of prices for imported gas.
At our second meeting with Nabi we advised him that we could
not agree to an escalation formula such as envisioned above, and he
would, therefore, have to recommence negotiations with the next Ad-
ministration. We stated that we regretted this since we felt starting over
would involve substantial delay, perhaps many months, and that we
felt it was in the interest of both countries that gas begin flowing again.
After hearing these statements, Nabi said perhaps we could agree
to their formula, but also agree to a provision that the price would not
exceed that of other gas imports into the U.S. This might avoid the reg-
ulatory problem for a short-term (up to one year) agreement and would
insure competitive pricing. This means, in effect, that they might be
willing to put a “cap” on their prices at the Mexican/Canadian level.
We agreed we should analyze this new proposition, and repre-
sentatives of Algeria will be coming to Washington for this purpose De-
I also discussed with Nabi the disastrous economic consequences
of further oil price increases at this time, and expressed our view that
price action at Bali was not appropriate for these reasons.
2. Venezuela—Minister Calderon-Berti
I had breakfast Monday morning with Calderon-Berti and we dis-
cussed a variety of subjects. (He told the press Sunday morning, before
our appointment was arranged, that he would be seeing me.) We spent
considerable time discussing the world economic situation and I men-
tioned the report of the Economic Policy Committee of the OECD
which projected the severely adverse consequences of another round
of oil price increases. I urged that there not be any increases in Bali.
Calderon-Berti followed this discussion carefully.
He concluded the meeting by saying to me that “price was not the
priority in Bali” and that his objective would be to help reestablish
OPEC cohesion and not to seek price increases.
He said that his information was that the hostages would be re-
926 Foreign Relations, 1969–1976, Volume XXXVII
We discussed the Venezuela/Mexico program to help Central
American and Caribbean governments finance their oil purchases and
diversify their energy sources. He said they had received good cooper-
ation from all American oil companies except Texaco in Guatemala. He
said that Texaco wanted to charge a $4/barrel refining fee which he re-
garded as excessive.
He mentioned Jamaica and the fact that Mexico and Venezuela
had each granted a $60 million credit under this new program. He felt it
important that we support the new Jamaican government and stated
that there was “disappointment” that a $45 million U.S. assistance
package has not yet been approved. (I have no knowledge of this issue.)
Calderon-Berti expressed satisfaction at the progress being made
between the two countries in our technical cooperation. He urged that I
communicate to the Reagan transition team the fact that Venezuela re-
gards this program as a key part of our bilateral relations, that Vene-
zuela would “respect its commitments,” and that he hoped the pro-
gram would continue.
Minister Giraud of France hosted a dinner Tuesday evening for
Summit energy ministers. The principal subject discussed was medium-
and long-term energy strategy. It centered around progress being made
on the energy objectives of the Venice Summit, the need for an energy
affiliate of the World Bank, the forthcoming U.N. Conference, and the
importance of our having a coordinated reaction to the OPEC
long-term strategy plan when it surfaces in an official way. There was
general agreement that these issues need to be addressed but I, of
course, disqualified myself respecting any actions of the next
Both Giraud and I urged the others to become more realistic as
they approached the future, particularly concerning the need for
stronger collective action. It is my judgment, and I expressed it rather
positively, that all member countries of the Summit continue to lack the
political will to do what is really necessary to manage effectively our in-
evitable transition from excessive oil dependency to a more diversified
energy resource base.
As discussion progressed, a consensus seemed to emerge that an
overriding issue of the 1980s would be the ability of the industrialized
world to deal with intermittent supply interruptions, not only from an
energy supply standpoint, but also from the standpoint of associated
economic and security questions.
January 1979–January 1981 927
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