Foreign Relations of the United States, 1969–1976, Volume XXXVII, Energy Crisis, 1974–1980

146. Memorandum of Conversation¹

Caracas, March 29, 1978, 9:15–10 a.m.

SUBJECT

• North-South Dialogue, Energy, the Caribbean and Law of the Sea

PARTICIPANTS

• President Jimmy Carter
• Secretary of State Cyrus R. Vance
• Dr. Zbigniew Brzezinski, Assistant to the President for National Security Affairs
• Terence A. Todman, Assistant Secretary of State for Inter-American Affairs
• W. Anthony Lake, Director, Policy Planning Staff
• Robert A. Pastor, NSC Staff Member
• Ambassador Viron P. Vaky
• Guy F. Erb, NSC Staff Member
• Venezuela
• Carlos Andres Perez, President
• Simon Bottaro Consalvi, Minister of Foreign Affairs
• Manuel Perez Guerrero, Minister of State for International Economic Affairs
• Valentin Acosta Hernandez, Minister of Energy and Mines
• Carmelo Lesseur Lauria, Minister, Secretariat of the Presidency
• Hector Hurtado, Minister of State, President of the Investment Fund
• Ambassador Ignacio Iribarren
• Dr. Reinaldo Figuerido, Director of Foreign Trade Institute

[Omitted here is discussion unrelated to energy.]

Energy

Perez said that the recent talks in Washington between Secretary Schlesinger and Minister Hernandez were useful, significant, and very positive.² We should now like to push ahead on concrete cooperation more rapidly. We were worried, Perez said, because our productive oil capacity is declining. Production limits were in the neighborhood of 2.5 million BPD. Thus, Venezuela’s capacity to help in an emergency, such as the 1973 embargo, was limited, and it could not do now what it did then.

Venezuela has reserves, Perez went on. The tar belt was one of the world’s largest reserves of non-conventional oil. The nation’s capacity to expand exploration and productive capacity is limited because its access to technology and capital is limited. Perez said he hoped that the USG could cooperate in helping Venezuela advance its productive capacity for the future, since such capacity would be strategically important to the U.S. as a safe source of future hydrocarbons.

Perez explained that the Japanese had made a proposal to invest a billion dollars in a pilot project for developing the tar belt. The GOV accepted it in principle. It would like to consider similar cooperation with Europeans and the U.S. This may be possible with the Europeans. Unfortunately, there is no U.S. state entity, and it was politically impossible to deal with the private companies.

One thought that has occurred to us, Perez said, was a possible joint venture with the U.S. and Canada. Petrocan, as a state entity, could be the channel for funneling technology and capital. U.S. capital through private companies could associate with Petrocan. Trudeau, Perez said, would be willing to cooperate.

Venezuela was also worried, Perez continued, about plans to increase domestic refining capacity and to reduce imports of refined products. (This referred to the Haskell Amendment.)³ This would present a serious problem to Venezuelan exports of residuals. There was also concern about imposition of tariffs on imports.

Director of Foreign Trade Figueredo, at Perez’ request, explained a situation in which the U.S. may have violated the U.S.-Venezuelan commercial agreement on tariffs on oil. He provided an Aide-Mémoire⁴ on this item.

Minister Hernandez elaborated on Perez’ remarks and covered the same ground asking in effect how can the U.S. and Venezuela cooperate to develop reserves and obtain technology and financial help, bearing in mind the political problem of being unable to deal directly with the TNC’s.

Hernandez also pointed out that while Venezuelan crude makes up only about 10 percent of U.S. crude imports, Venezuelan fuel oil makes up about 40 percent of imports of that product. Therefore, Venezuelan residuals were important to the U.S. He asked whether it would not be possible for the USG to purchase fuel oil for its strategic reserve. He also asked: “Can we count on a stable market?” He suggested that some long-term arrangements might be in order to guarantee a stable market in return for a secure and assured supply, perhaps some sort of Western Hemisphere preference.

Perez said that the strategic reserves of the U.S. were important to Venezuela as well, and he wondered if the U.S. and Venezuela cannot cooperate now, then it might be even more difficult in the future. After the Presidential elections in December, Perez said that he planned to raise prices of gasoline. It would be very unpopular to do now, but Venezuela’s problem is that it is consuming so much gasoline that it has too little to export while having too much residuals.

Hernandez said that Venezuela’s refineries were built to fit the needs of the U.S. East Coast, but Venezuela’s principal goal is to have a mechanism which will permit greater stability for supplying petroleum and residuals.

Perez said that the Dutch Antilles would soon be independent. There are two refineries on those islands, one owned by Exxon, the other by Shell. The GOV intends to “associate” itself with these refineries making arrangements to guarantee crude supplies. Because an independent Antilles will need this industry, this complex will have political importance for the Caribbean. The U.S. should therefore consider giving some assurance of a market for these refineries.

President Carter said that the U.S. had to pass an energy program first. As far as the U.S. is concerned, the only major investment for the Orinoco would have to come from the U.S. companies. These companies would be eager to invest if they could have some stability for their contracts. They are disturbed about the nationalizations and outstanding law suits. Right now, the oil companies were busy lobbying the Congress, but perhaps after the energy bill passed, they may have time to invest in Venezuela.

President Carter said that he welcomed the development of the Orinoco by Japan, Canada and others. The U.S. is not competing against them. They have national oil companies, and Japan has a lot of capital to invest. He said that he was not aware of any effort in the Congress to restrict refineries in the U.S., but that if it were introduced, he doesn’t think it would pass. Jim Schlesinger would know, and he’ll find out.

President Carter said that he was aware that Venezuela wanted a long-term agreement, and he thinks it’s a good idea. The President said that he would take this proposal up with Secretary Schlesinger aggressively when he returned. Meanwhile, he suggested to Perez that he might want to send Minister Hernandez to the U.S. to talk with the companies about research and development on oil shale and tar sands.

[Omitted here is discussion unrelated to energy.]

1. Source: Carter Library, National Security Affairs, Staff Material, North/South File, Box 47, Pastor Country Files, Venezuela, 3–4/78. Confidential. The meeting was held at the Miraflores Palace. The President visited Caracas March 28–29 and then Brasilia and Rio de Janeiro March 29–31.
2. At the March 6 meeting with Minister of Energy and Mines Hernández, Schlesinger outlined the status of U.S. energy legislation and its “likely impact on the future” of the U.S. market. He stressed the “importance of both price and security” of the oil supply and that “private companies rather than governments would remain the major contributors to energy R&D and development of new technologies.” Hernández “sought assurance of a long-term market for Venezuelan residual fuel oil,” proposed that the U.S. Government assist with development of the Orinoco Tar Belt, and promised “additional information on how this assistance could work.” Schlesinger and Hernández agreed on “regular informational exchanges, normally at the technical level but with the possibility of future Ministerial sessions,” and agreed to “establish a bilateral program of energy cooperation.” (Telegram 60227 to Caracas, March 9; National Archives, RG 59, Central Foreign Policy Files, D780105–0913)
3. The Haskell amendment to the Trade Expansion Act of 1962 aimed to protect U.S. refiners. The amendment’s language encouraged the President to impose or adjust import fees specifically on petroleum products, if product imports threatened “the economic welfare of the domestic refining industry.” (Paper attached to a May 17 memorandum from Schlesinger to Brzezinski; Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 85, Venezuela, 1/77–12/78)
4. Not found.