Foreign relations of the united states 1969–1976 volume XXXVII energy crisis, 1974–1980 department of state washington
Paper Prepared by the Deputy Assistant Secretary of Energy
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- 294. Memorandum From Rutherford Poats of the National Security Council Staff to the Deputy Assistant Secretary of State for International Energy Policy (Morse)
- 295. Telegram From the Department of State to the Embassy in the United Kingdom
- 296. Telegram From the Department of State to the Embassy in Kuwait
293. Paper Prepared by the Deputy Assistant Secretary of Energy
for International Affairs (Treat) and Rutherford Poats of the
National Security Council Staff
Contingency Planning for Energy Emergencies: Agenda for
Through the IEA, we have improved our capability to deal with oil
supply emergencies. As a result of the 1979 experience, the IEA has be-
gun to develop a graduated response capacity, which offers three levels
of policy options:
(1) Stock Management—Use of stocks is the first line of defense. The
October 1 IEA decision,
as amplified by the December 9 Ministerial de-
cision, exercises this option, which is most appropriate for an interrup-
tion of 100–200 million barrels.
(2) Import Ceilings—The transformation of oil import “yardsticks”
into binding oil import ceilings is the second level of response, most ap-
propriate for a somewhat larger and/or longer interruption in the
range of 200–400 million barrels. In such a situation, stocks would be
increasingly difficult to draw down; demand restraint measures should
be initiated as early as the limitations of stock management can be fore-
seen and intensified as may be required, using prepared authorities
and procedures. An informal reallocation/balancing of world supplies
by oil companies would be an important supporting action, if anti-trust
concerns could be appropriately handled.
(3) Emergency Sharing System—Triggering the formal IEA sharing
system at the 7% or higher shortfall level would be the third level of re-
sponse. It would probably require parallel national allocation meas-
ures, as well as tax measures to balance demand with supply. This re-
sponse probably will be appropriate only for shortfalls of 400 million
barrels or more. The system has now been tested three times, but the
lack of agreement on pricing could prove to be extremely contentious.
Source: Carter Library, National Security Affairs, Staff Material, International Eco-
nomics File, Box 49, Rutherford Poats File, Chron, 12/9–23/80. Confidential. Sent to
Hinton and Goldman under a December 19 covering note by Poats, in which he wrote: “I
would like to offer the successors to Zbig and Henry an agenda for action to improve our
energy security in the near term. John Treat and I have drafted the attached skeletal out-
line of an objectives paper with this in mind. Please let me have your thoughts on this set
of ideas by January 5 or 6.”
See footnote 2, Document 287.
928 Foreign Relations, 1969–1976, Volume XXXVII
The IEA response capacity has been improved in the past year by
the partial development of stock management and import ceiling op-
tions to deal with supply interruptions which fall short of the 7% level
necessary to trigger the IEA agreement. However, additional measures
to improve each of these options is essential. In addition, the growing
dependence of Western Europe on gas imports, particularly from the
Soviet Union, constitutes a political/security vulnerability which
should be addressed by the EC and NATO. Finally, the US Government
itself should organize better its own response capabilities.
In support of these objectives, the following actions should be
• International Energy Agency—The IEA should remain the focus of
our international response efforts. Additional pressure should be
brought to bear on the French, after the spring 1981 French Presidential
elections, to bring the French into IEA.
Within the IEA, we should concentrate on two issues:
(1) Increase IEA national stocks susceptible of government control, so as
to strengthen their reliability in both minor and major shortages and develop
an emergency stock-sharing system
(see Tab A for further discussion).
(2) Elaborate the IEA import ceiling option (2 above) to provide for oil
company participation through international allocation.
• NATO and EC:
(1) Continue to push for development of Western European nat-
ural gas contingency plans, including serious analysis of a strategic gas
reserve using spare capacity in the Netherlands and/or North Sea and
enhanced readiness for fuel-switching.
(2) Try to overcome European resistance to joint contingency plan-
ning for military action in the Middle East, including heightened read-
iness to deter/respond to attacks on major oil facilities.
• USG—Two areas deserve increased attention:
(1) Better coordination of energy security policy through the establish-
ment of an NSC energy security committee.
(2) Development of “snap back” plans to restore major oil facilities in
the event of attack, with the cooperation of host governments and pri-
vate companies. Evaluate need for USG stockpiling of critical
US initiatives on the IEA actions should be prepared for presenta-
tion early in the new Administration. An EC study of an enhanced
Western European gas reserve system should be urged now; a NATO
staff study already has been proposed by the USG. The USG actions
January 1979–January 1981 929
should be pursued in the light of the new Administration’s organiza-
tional decisions. International objectives requiring additional political
impetus may be pursued in preparations for the Ottawa Economic
Coordinated Stock Policy Issues
If a coordinated stock policy is to become a more effective option
for dealing with supply interruptions, a number of crucial issues
should be resolved. Some of these issues must be decided to implement
the IEA Ministerial decision of December 9; others should be decided
in 1981 to improve IEA response capability to future supply crises.
Broadly speaking, the issues are:
• Optimum level of stock requirements, including at least three sub-
—Should IEA mandatory stock levels be increased above 90 days?
By how much?
—Should IEA stocks be defined in terms of consumption versus
—Should minimum IEA stock requirements be adjusted to reflect
actual availability, i.e., excluding pipeline fill, tank bottoms, etc.?
• Coordinated stock drawdowns—How/when should stocks be
drawn down and how should imbalances be corrected, e.g., Giraud
• Government control over private stocks—should the US expand its
control over private stocks.
The principal objective of US policy in this area should be to en-
couage other countries to follow our lead to build up stocks, under gov-
ernment control, which can be used to offset the loss of supplies. Spe-
cific issues are discussed below:
• Level of Reserves. The United States is building a Strategic Reserve
which, depending on its eventual size, will increase aggregate US
stocks to well over twice the 90 day minimum agreed by the IEA. In-
creasing the IEA minimum level of stocks would exert pressure on our
allies to match our efforts. While more analysis needs to be done on the
optimum level, an increase of minimum levels in annual increments of
No classification marking.
930 Foreign Relations, 1969–1976, Volume XXXVII
5–10 days to at least 120 days of imports seems highly desirable. This
would increase IEA minimum stocks by more than 600 million barrels.
Planned increases in the US SPR would more than account for our con-
figuration. Scheduled increases in the Japanese and German reserves
would also make a contribution, but other IEA countries would have to
take new action. Some consideration could be given to considering
surge production capacity and gas reserves as substitutes for oil stocks.
• Definition of Reserves. Since disruptions are most likely to affect
imports, we should continue to define reserve levels in terms of im-
ports, not consumption. An import basis also serves US national in-
terests by multiplying the size of our reserves. Since a somewhat larger
percentage of US commercial stocks are not usable in an emergency
(i.e., pipeline fill, tank bottoms, working inventories), we should also
resist efforts to redefine stocks.
• Coordinated Stock Drawdown. Stock drawdowns offer an appro-
priate policy response to supply disruptions which are of longer and/
or deeper duration, stock drawdowns also offer an initial response
measure to “buy time” for demand restraint action. Since supply dis-
ruptions will not necessarily hit all countries equally, however, there
needs to be an agreed formula/procedure for ensuring that countries
which have to draw down their national stocks more rapidly will be
compensated by the less affected countries.
The IEA should develop urgently such a procedure. Several op-
tions are available:
(1) Coordination of national stock draws by an agreed formula,
similar to the IEP formula; or
(2) Establishment of a stock “pool” with drawing rights and obli-
gations on a dedicated volume of oil held separately from national
This approach would parallel the allocation formula of IEA Emer-
gency Sharing system, assigning stock rights and obligations to indi-
vidual countries on the basis of consumption shares. This difference be-
tween such an approach and the full-scale allocation program would
(1) lower trigger level—perhaps 1–2%, and
(2) periodic reallocations (perhaps every 60–90 days) would be re-
quired, rather than attempting a daily reallocation effort, as attempted
[called for?] by the IEP.
Option 2—Stock Pool
A more formal approach to the issue would be a stock “pool” as
proposed by French Energy Minister Giraud, to provide an “interme-
diate” response option short of full-scale international allocation
January 1979–January 1981 931
through the IEA and EC. His proposal remains ill-defined, but seems to
include the following elements:
—Size: About 160 million barrels, although could range from
140–200 million barrels (20–50 million tons). Pool would not be counted
as part of “national” stocks.
—Contribution: Each country would contribute stocks equivalent
to 4 days’ consumption, implying that the US would provide about
45%, Europe about 30% and Japan, 15%.
—Drawing Rights: Each country could draw in excess of its own
contribution, up to 50% of the total. If two countries simultaneously
drew, the limit would be 67% (2/3 of the total). If three countries drew,
the limit would be 75%. Drawing on the stock pool beyond the national
contribution would be approved by a “qualified majority” of the partic-
—Stock Ownership: Giraud is flexible on who owns the stocks, as
long as government retains effective control.
The Giraud proposal has conceptual merit but would have to be
modified considerably to gain our support. The limitation of drawing
rights to 50% of the total pool would severely limit the attractiveness of
the proposal to the U.S., which would be contributing about 45% of the
entire pool. It would be more appropriate to define drawing rights in
terms of multiples of national contributions.
Both these options should be further developed with the participa-
tion of the IEA Secretariat, which should be asked to prepare a recom-
mendation for further action within 90 days. In particular, the IEA
should be asked to address:
(1) The appropriate size of the pool;
(2) The appropriate “trigger” for its activation;
(3) The size/distribution of national drawing rights;
(4) The mechanism by which such rights could be exercised;
(5) Period and method for payback;
(6) Legal authorities necessary to establish such a pool; and
(7) Proposed timetable for establishing such a pool.
An important implementation issue, particularly in the United
States, is how government can induce private stockholders to act in
support of an IEA decision, particularly if U.S. stocks must be drawn
down to offset a shortfall which has little or no direct impact on the U.S.
market. DOE should urgently address the US issue, including regula-
tory authorities and possible anti-trust implications. A number of op-
tions are available:
(1) Mandatory Private Stock Levels—as required in many European
countries, large consumers can be required to hold a certain level of
stocks; this is the concept of the Industrial Strategic Reserve (ISR).
932 Foreign Relations, 1969–1976, Volume XXXVII
(2) Public Private Corporation either to hold mandatory stocks or, on
a voluntary basis, to reduce costs of stocks through economies of scale.
The corporation could be financed either by the companies or privately
(through bonds) or publicly.
(3) Tax Incentives to encourage appropriate stock management con-
sistent with USG policy goals.
(4) Voluntary Targets (Jawboning), backed up by the threat of man-
datory allocations, as used in 1979 to build up distillate stocks.
Concurrently the IEA should review the issue in all IEA countries.
Washington, December 23, 1980.
Approach Paper on OPEC Long Term Strategy
Your planning paper on an Ottawa Summit approach to a deal
with oil producers on long-term supply and pricing principles
be most useful if it forced us to recognize, and at least start the process
of reconciling, conflicting US ambitions. As you know, much of the talk
within the USG and among the IEA countries about a producer-
consumer deal derived from the OPEC Long Term Strategy has fallen
short of resolving the hard choices among alternative consumer goals.
Your paper might helpfully delineate our price, supply, and political
For example, do the industrial nations want to minimize OPEC
price increases and rely on means other than international oil prices to
keep demand and supply balanced and to allocate supply among na-
tions? Or do we want steady, predictable real OPEC price increases to
assure market allocation of supply and guide decisions in oil-importing
nations on energy-related investments and conservation?
Source: Carter Library, National Security Affairs, Staff Material, International Eco-
nomics File, Box 49, Rutherford Poats File, Chron, 12/9–23/80. Confidential.
Not found. The seventh G–7 Summit was held in Ottawa in July 1981.
January 1979–January 1981 933
Do the industrial nations want rising OPEC production, including
higher Persian Gulf production, so as to permit rising or at least stable
oil consumption by the industrial countries, with consequent faster de-
pletion of reserves and narrower margins of stand-by production ca-
pacity than otherwise? Or do we want a stable and predictable supply,
implying a slowly declining availability of OPEC oil to the industrial
nations but prolongation of reserves and greater surge capacity for
Are we ready to accept, much less rely on, intergovernmental as-
surances of oil supply containing an express exception for politically
determined oil export embargoes, thus implicitly condoning Arab use
of the oil weapon? Or do we prefer to leave the OPEC supply assur-
ances loose and unspecific rather than encourage injection of Middle
East political issues into the producer-consumer negotiation?
These questions simply illustrate the point. We need to deal with
objectives in addition to terms and conditions of a deal.
934 Foreign Relations, 1969–1976, Volume XXXVII
295. Telegram From the Department of State to the Embassy in
the United Kingdom
Washington, January 8, 1981, 2313Z.
5142. Subject: North Sea Oil Prices. Ref: (A) London 119, (B) Ku-
1. Embassy is requested to advise HMG at an appropriate level of
our continuing concern over oil prices, including those for the North
While we appreciate BNOC’s relative moderation, we regret that
it apparently feels constrained to match Algeria’s and Nigeria’s $3 in-
creases. We understand that commercial considerations require BNOC
and other North Sea producers to relate their prices to those for African
crudes, but believe that an increase somewhat below $3 would still
meet these considerations while strengthening consumer country ef-
forts vis-a`-vis OPEC to slow the oil price spiral. We trust that in any
case, the new forties field marker price will not exceed the $39.25 level
mentioned in ref A. Many analysts believe the more extreme increases
(e.g. Libya) may prove to be excessive if current market conditions
2. FYI: Our concern over price movements is a general one, and we
appreciate the fact that BNOC has not taken the lead in price increases
Source: National Archives, RG 59, Central Foreign Policy Files, D810011–0674.
Confidential; Immediate. Drafted by R. Knickmeyer (EB/IEP/EPC); cleared by Bullen
and in EUR/NE, EUR/RPE, EB/IEP/ECC, E, and the Department of Energy; and ap-
proved by Morse. Repeated Priority to Oslo, Kuwait, and Jidda.
In telegram 119 from London, January 5, the Embassy reported that the British
National Oil Company made its quarterly adjustment in the price of North Sea crude oil,
which, effective retroactively to January 1, was “likely to settle at $39.25 per barrel,” a
$3 increase. The Embassy added that the British Government and the BNOC “waited
to move until the post-Bali price conduct of West African light crude producers became
apparent,” including Libya’s $4 increase to $41 per barrel, Nigeria’s $3 increase to $40
per barrel, and Algeria’s $3 increase to $40 per barrel. (Ibid., D810007–0113) In telegram
48 from Kuwait, January 6, the Ambassador commented: “If British National Oil Corpo-
ration makes quarterly upward adjustment in price as indicated in reftel, I hope Depart-
ment will express same public and private criticism that price increase is not justified as it
has to OPEC governments for price decisions taken at OPEC meetings.” (Ibid.,
The Embassy in Oslo was instructed to take the same approach with the Norwe-
gian Government. (Telegram 6139 to Oslo, January 9; ibid., D810012–1137) Embassy of-
ficers met with Johan Nic Vold, Deputy Director General of the Energy Policy Depart-
ment of the Ministry of Petroleum and Energy, who promised to bring the views of the
U.S. Government to the Minister of Petroleum and Energy. Vold stressed that Norway’s
overall interests placed it in the ranks of “nations which favor oil price moderation,” but
added: “At the same time, given present private nature of Norwegian oil trade, GON had
little ability to restrict private firms from acting with a maximum of freedom in a market
whose terms of reference are heavily influenced by the African producers.” (Telegram
274 from Oslo, January 19; ibid., D810027–0875)
January 1979–January 1981 935
recently. However, we believe that it is valuable to give the British an
expression of our continuing concern. It may also be useful in our con-
tacts with certain OPEC countries (e.g. Kuwait) to be able to say that we
have expressed concern to the UK about North Sea prices.
The Embassy in London replied that it had previously “urged HMG to use as
much price moderation as possible,” and did so again using the arguments provided by
the Department. It concluded: “To review, the ability of HMG and BNOC to maneuver is
limited by the existing mandatory participation agreements. These are a legacy of the for-
mer Labor government, but they are continued under the current government and will
also be a feature of contractual obligations for oil discovered under current exploration
licensing rounds. They enable BNOC to pre-empt up to 51 percent of all oil produced; in
return, BNOC is obligated to pay the companies market prices for the oil. If BNOC does
not, the companies can go to arbitration.” (Telegram 609 from London, January 12; ibid.,
Washington, January 13, 1981, 2250Z.
9129. For Ambassador fm Under Secty Cooper. Subject: North Sea
Oil Prices. Ref: Kuwait 48.
1. Confidential entire text.
2. I agree that our criticism of oil price increases should not be re-
served solely for OPEC or Arab producers. We have criticized other
producers, including BNOC for increases in the past and are again ap-
proaching the British and Norwegians now re North Sea prices. At the
same time, there are a number of differences between OPEC’s Decem-
ber 16 announcement
(and previous OPEC price announcements) and
the impending actions of North Sea producers which account for the
milder tone and private nature of our representations to the British and
Norwegian Governments. Most significantly, the OPEC announce-
Source: National Archives, RG 59, Central Foreign Policy Files, D810018–1028.
Confidential; Immediate. Drafted by Knickmeyer, cleared by Patterson, Twinam, Morse,
Johnston, Conway (E), and Hecklinger (DOE/IA), and approved by Cooper. Repeated
Immediate to Jidda, London, Oslo, Abu Dhabi, Doha, Paris, Jakarta, Caracas, Algiers,
Lagos, Cairo, Mexico, and USOECD Paris.
See footnote 2, Document 295.
See footnote 6, Document 292.
936 Foreign Relations, 1969–1976, Volume XXXVII
ments generally lead the way and establish the floor for official prices
of all producers, OPEC and non-OPEC. Also, as London 119
out, announcement of BNOC’s (and Statoil’s) new prices will follow
those of the African producers and are likely to be maintained slightly
below the official prices (much less the prices with surcharges) of com-
parable African crudes. Finally, we have generally not spoken out pub-
licly against price rises by individual producers, except in some cases
where these have been clearly out of line with prevailing price levels,
e.g. Iran in 1979. In our public statements on OPEC decisions, we have
generally noted our appreciation to those OPEC countries, e.g. Saudi
Arabia, which have shown restraint.
3. You may draw on the above, including the fact that we are
making representations to the North Sea producers in your conversa-
tions with Kuwait officials as you deem appropriate.
follows providing talking points requested Kuwait 104.
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