219. Telegram From the Department of State to the Embassies in the United Kingdom and France1
153526. London for Calingaert, also for USOECD. Subject: IEA Informal Meeting on Actions To Reduce Pressures on World Oil Prices. Ref: Paris 18632.2
1. Following gives analysis and U.S. position for your use in Saturday informal meeting of IEA in Paris. Sections are arranged in same sequence as “Options” in reftel, with brief summary of each followed by U.S. position.
2. Demand restraint: summary of IEA proposal. The IEA paper calls for accelerating the group 5 percent demand restraint effort, and for considering the possibility of going to 7 percent. It points to the need to be able to respond within 4–6 weeks in the event of some further cutback in oil availability. It points out that reliance on price to restrain demand (German style) is not sufficient. The paper also points out the very serious product imbalances (e.g., plenty of resid but not enough distillate).
3. U.S. position. We support the idea of accelerating the 5 percent demand restraint as much as possible and have already made major progress toward achieving our target. We would be interested in more information on progress on demand restraint by other countries (U.S. has already forwarded its updated demand restraint questionnaire to IEA Secretariat). We favor the idea of extending 5 percent demand restraint into 1980. At this point we consider it premature to go to a 7 percent level, but deepening the cut should be given further consideration. We see the same product imbalance problem, and would be interested in suggestions on how to rectify it.
4. Spot market monitoring: summary of proposal. The EEC has already begun a voluntary program to collect weekly and monthly information on transaction prices and volumes from spot operators. The IEA paper presents as one option a mandatory reporting system for all persons trading oil into, out of, and between IEA countries. The IEA [Page 677] paper also discusses a “code of conduct” for buyers and sellers, but gives only cursory indication of the content of such a code and no indication of how it could be enforced. But the IEA paper cautions that setting up a reporting system and code of conduct would be difficult and take a long time. It notes that reporting system might run into legal problems in some countries.
5. U.S. position. U.S. supports the idea of studying the spot market, and in that sense monitoring it. DOE/ERA already requires information from companies on spot purchases of crude landed in the United States. We have taken a position in favor of the proposed IEA study of the spot market, and are sympathetic to the EEC’s studying it. However, we are not presently in favor of moving beyond an information-gathering exercise to some more active type of monitoring. We join the IEA Secretariat in being skeptical that an IEA-wide data-gathering system of sufficient timeliness and reliability could be instituted fast enough and could keep pace with the market for the present crisis. We share the IEA Secretariat’s skepticism that a code of conduct would be really meaningful, though we would be willing to discuss the idea further. The United States believes that careful attention should be paid to possible anti-competitive effects of any measures taken to monitor the spot market, particularly the potential for disclosure of proprietary information that would affect competition adversely.
6. Relax anti-trust: summary of IEA paper. The paper examines the proposition that anti-trust restrictions should be relaxed to permit cooperation among the oil companies, but expresses doubt that the intended cooperation could be designed and set up fast enough. However, the paper does not say what company cooperative measures are envisaged, and simply assumes such measures would be desirable.
7. U.S. position. We do not at this point see any justification for a further relaxation of anti-trust requirements beyond what is already permitted as needed for implementation of the IEA agreement. As a basis for further consideration of such an idea, we would need to see a fully developed discussion of what cooperative measures would be envisaged, what benefits they would provide to the consuming world, and what the risks would be.
8. Activate the IEA and EEC allocation systems: summary. The paper discusses the benefits and risks of international allocation. It poses the basic question of whether the governments and their publics are politically ready to carry out international allocation with enough dedication to make it work in the shortfall. An unsuccessful effort to allocate internationally would discredit the system and the IEA. But the paper suggests that, if properly presented, allocation could be made acceptable to consumers, and producer countries could be persuaded that allocation was a reasonable move to manage the situation and not a con [Page 678] frontational step. The paper stresses the need for domestic allocation if international allocation is triggered, and points out that the IEA allocation system has no price control mechanism.
9. U.S. position. We believe the emergency sharing system should not be triggered at this time. We appear to be confronted with a shortfall of limited depth and uncertain duration. There is, however, the possibility of further supply disruptions, or market anticipation of further disruptions, which could aggravate significantly the current imbalance. For the time being, we favor a close monitoring by the IEA of supply distribution, an accelerated implementation of agreed measures to restrain demand on the world market, and a consideration of possible measures to reinforce the demand restraint effort. Active consideration should be given to allocation or other steps if these measures in time prove insufficient.
10. International price controls: summary. The IEA paper shoots down the idea of international price controls as unworkable, at least without international oil allocation. It points out that to work, an international price control would also have to be supplemented by agreement on appropriate intra-IEA transfer prices, and domestic price control systems within all participating countries; and these domestic price control systems would have to be harmonized. The IEA Secretariat paper says that agreement on an import price level, transfer price, and harmonized national price control systems would pose insurmountable technical and political problems. It also points out the danger that an IEA ceiling price would risk becoming an OPEC price floor.
11. U.S. position. We concur in all the arguments against international price control advanced by the IEA paper. Price controls would be treating the symptoms, not the disease, and would in any case be extremely difficult to manage. We do better to strike at the underlying problem of supply/demand imbalance through demand restraint and other measures. In addition, a price control system would tend to drive oil supplies away from the IEA group.
- Source: National Archives, RG 59, Central Foreign Policy Files, D790269–1104. Confidential; Immediate. Drafted by Bullen, cleared by Katz and Schotta and in DOE/IA and EUR/RPE, and approved by Rosen. Repeated Immediate to Copenhagen, Ottawa, Bonn, Rome, Tokyo, The Hague, and Brussels.↩
- Telegram 18632 from Paris, June 11, transmitted the text of an IEA paper entitled “Options for Action To Reduce Pressures on World Oil Prices.” According to the Embassy, Lantzke explained that it represented documentation for informal discussion by a restricted group that he hoped to convene in Paris on June 16, just prior to the EC Energy Ministers meeting on June 18. (Ibid., D790265–0094)↩