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

199. Briefing Memorandum From the Acting Assistant Secretary of State for Economic and Business Affairs (Hormats) to the Deputy Secretary of State (Christopher)¹

Washington, undated.

SUBJECT

• Producer-Consumer Conference on World Oil Market Conditions

This memorandum responds to your request² for an analysis of the advantages and disadvantages of a conference or informal discussions between oil producing and consuming countries on world oil market conditions.

We have been and are interested in any dialogue with oil exporters that is likely to be productive. Such a dialogue ideally would further convince OPEC countries of their stake in the health of the world economy, and the importance to that health of stable supplies of oil at reasonable prices; it would also be a way of mobilizing pressures from developed and developing countries alike for moderate OPEC policies. We actively pursue these ends in our bilateral relations with key OPEC countries—notably Saudi Arabia, but also Venezuela, Kuwait, Abu Dhabi and others. We favor a multilateral dialogue as well, but as yet we have no reason to believe that the time is ripe for formal or informal multilateral discussions between oil exporters and oil importers on the key questions of oil prices and supply.

We made a major effort to achieve a meaningful dialogue in the 1977 Conference on International Economic Policy (CIEC)³ but we were stymied by the strong opposition of OPEC countries as a group, notwithstanding indications that the Saudis and perhaps a few others were disposed to engage in further discussions so long as they did not deal directly with price. Since then, OPEC countries have strongly opposed attempts within the UN (e.g. by the Secretary General and in relation to the preparations for the 1981 Conference on New and Renewable Energy) to promote discussions of oil supply and demand, even when they were assured there would be no explicit references to price. They appear to consider any multilateral discussions as a threat to their freedom in making pricing and production decisions.

The time for pursuit of a broad initiative for a dialogue is particularly bad now, because the oil market is tight and we have little bargaining power. We would risk appearing not only as demandeurs but as supplicants. We will be in a somewhat better position when concrete results are visible from the consuming countries’ recent decision to reduce oil imports by 5 percent. (Even then, it is probable that OPEC would insist on broadening any discussion to include a whole range of North/South issues on which we would have limited flexibility, in effect a replay of CIEC.) In this regard, in a recent memorandum prepared for Dr. Brzezinski, Walter Levy concluded that before undertaking any joint discussions with OPEC, oil importers need a joint policy and course of action—including the allocation of oil among and within countries, and measures for the support of financially weaker nations.⁴

The Saudis appeared to be inviting a broader dialogue in a communiqué issued in February.⁵ They have since backed off, making it clear that they are unwilling to discuss the topic of most interest to the US—oil prices—in a multilateral forum. Saudi Petroleum Minister Yamani told our Ambassador that he was not present when the Saudi royal court issued the communiqué, implying that its form and substance would otherwise have been substantially altered.

In Europe there is a vague but widespread desire for such a dialogue. The French are currently pressing the European Community to seek a dialogue with OPEC. We understand that the French have received little encouragement from Yamani, though they may not have been entirely candid in their reports to other EC countries. Moreover, we are concerned that the French may be trying to achieve a short-term advantage in the oil market through distancing the EC from the U.S. with respect to the Middle East peace effort. Guido Brunner, Energy Commissioner of the European Communities, has been trying to sell his own plan for a five man experts group, including representatives from the U.S. and Japan. West German Chancellor Schmidt apparently has been urging bilateral contacts between oil producers and consumers but there are contradictory reports on whether he believes the time is ripe for a multilateral dialogue.

We believe we should continue to explore the possibilities for a dialogue between oil exporters and importers. This should be done in a low key way, however, mindful of the implications for both our Middle East policy and for our relations with key European allies.

1. Source: National Archives, RG 59, Central Foreign Policy Files, P790149–2314. Confidential. Drafted by Rosen on April 12 and concurred in by Robert M. Beaudry (EUR/RPE) and Twinam. Sent through Cooper.
2. Not found.
3. See footnote 2, Document 125.
4. In an April 18 memorandum to Brzezinski, Poats described Levy’s paper as “strong on analysis of the problem and short on feasible remedies.” The paper is Tab B to Poats’s memorandum. (Carter Library, National Security Affairs, Staff Material, International Economics File, Box 45, Rutherford Poats File, Chron, 4/12–30/79)
5. The Washington Post reported on February 28 that Saudi Arabia had issued a Royal court decree announcing that it would not raise oil prices during the first quarter of 1979 and calling for a meeting of oil producers and consumers.