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

155. Memorandum From the President’s Assistant for National Security Affairs (Brzezinski) to President Carter¹

Washington, July 6, 1978.

SUBJECT

• Energy Issues Raised by Venezuelan President Perez

DOE and State have prepared reports on the energy issues raised by Venezuelan President Perez on your visit to Caracas.² Below is a brief summary of their findings:

Long-Term Supply Agreement

DOE notes that Venezuela has frequently expressed interest in a long-term supply agreement with us. The Venezuelans see a preferential arrangement with the US as a way of obtaining a more secure market and, if possible, higher prices than would otherwise be available. In March, Jim Schlesinger told Venezuelan Energy Minister Hernandez that the US was unable to separate security of supply and price, that American oil importers would shift sources of supply in response to price differences, and that the USG itself was sensitive on the price issue.³ In DOE’s view, a long-term supply agreement would only be in our interest if it resulted in lower prices.

State underscores the US interest in assuring access to foreign oil but stresses that we must weigh the costs as well as the benefits from special bilateral arrangements. On balance, State concludes that, since Venezuelan oil will flow to the US market as long as it is competitively priced, there are probably more disadvantages than advantages in a preferential access scheme.

Despite these negative assessments, both DOE and State believe we should continue bilateral discussions with Venezuela on both supply and price issues. We believe this is a wise approach because of the overall importance of our relations with Venezuela.

Orinoco Tarbelt

With respect to development of the Orinoco Tarbelt, DOE is generally skeptical about energy cooperation with Venezuela beyond a government-to-government technical exchange program. DOE questions the desirability of supporting the development of expensive, high-risk sources outside the US or of subsidizing private sector investment in such projects if no interest exists on commercial grounds. Our private sector would not be interested in developing the Tarbelt into a commercial resource unless Venezuela offered substantial new incentives. However, there is still considerable hostility within Venezuela to permitting foreign firms to develop the country’s energy resources, and so the Venezuelans have asked the USG to play an intermediary role.

DOE is prepared to explore cooperative arrangements with Venezuela which might range from a USG–GOV umbrella agreement to facilitate or encourage private sector participation in the development of the Tarbelt, to a trilateral arrangement with Canada under which US affiliates could participate in such a scheme through PetroCan, an official Canadian entity.

Other Issues

The DOE report also addresses a number of specific issues raised by Perez. It provides an update on pending energy legislation, comments on the alleged violation of our bilateral commercial agreement, and assesses the possibility of storing residual fuel oil as part of our strategic petroleum reserve.

Next Steps

We plan to respond to Perez through our Embassy in Caracas. In the meantime, DOE will proceed with early consultations on specific areas for government-to-government technical cooperation in the Orinoco project.

I recognize and understand DOE and State’s reservations about development of the Orinoco and a long-term supply agreement for crude oil. At the same time, we cannot afford to antagonize Perez, who has been a useful supporter of American policy in non-energy areas. It would be a serious mistake to break off our dialogue on energy cooperation prematurely. In this instance, the tone of our response may be more important than its substance. We will, therefore, urge DOE and State to continue their discussions with the Venezuelans in the hope that we will eventually find some areas for fruitful and mutually beneficial cooperation.⁴

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 85, Venezuela, 1/77–12/78. Confidential. Sent for information.
2. See Document 146. An NSC summary condensing the two reports is attached but not printed.
3. See footnote 2, Document 146.
4. Carter wrote “I agree” and initialed below this paragraph and drew an arrow pointing to the last sentence. On July 12, Brzezinski sent a memorandum to Vance and Schlesinger informing them that the President wanted them to continue their discussion with the Venezuelan Government in a “positive manner with the purpose of trying to find areas for fruitful and mutually beneficial cooperation.” (Carter Library, National Security Affairs, Staff Material, North/South File, Box 47, Pastor Country Files, Venezuela, 7–12/78)