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

278. Memorandum of Conversation¹

Washington, July 1, 1980.

SUBJECT

• Highlights of Secretary Duncan’s Meeting with Venezuelan Energy Minister, Humberto Calderon Berti, Tuesday, July 1, 1980

LIST OF PARTICIPANTS

• U.S.:
• Secretary Duncan
• Henry Owen, Ambassador at Large and Special Representative of the President for International Economics
• Richard Cooper, Under Secretary, DOS
• Leslie J. Goldman, Assistant Secretary for International Affairs, DOE
• Edward Fried, Consultant, NSC
• Bob Swandby, International Affairs Officer, Office of Energy Producing Nations, International Affairs, DOE
• Venezuela:
• Perez Chiriboga, Ambassador
• Humberto Calderon Berti, Minister for Energy
• Ivan Sigurani, Minister Counsellor for Petroleum

USG/GOV Energy R&D Cooperation

After being welcomed by the Secretary, Venezuelan Energy Minister Calderon expressed his pleasure at the progress which has been made in implementing the Energy R&D Agreement signed on March 6 during his visit to Washington. The Minister indicated that despite some criticism by leftist opposition for cooperating with the U.S., the presentation of the Agreement to the Congress has gone very well.

Further OPEC Price Increases

The Minister stated that the recent OPEC meeting in Algiers,² was marked by feuding, particularly between Iran and Iraq. The Secretary asked him how prices might be moving and whether there was a chance for pricing unity prior to the next OPEC Ministerial in November. He responded that Venezuela planned to increase its prices approximately $.50/BBL, effective July 1. He also stated that Saudi Arabia would probably increase their price to $32/BBL, but in two steps, possibly to $30/BBL before the next OPEC meeting. He was uncertain whether such a move would help to achieve price unity. He also indicated that Saudi Arabia might cut production by 2 MMB/D.

The Secretary expressed his concern over possible Nigerian and Algerian price increases and that the current prices of these countries were not justifiable based on historical ratios. Assistant Secretary Goldman stated that the exploration fees being charged by African countries amounted to a surcharge because few companies had decided to increase exploration activities. The Minister indicated that it was extremely difficult to convince the African producers and Iran that prices and production levels could not be discussed separately. The Secretary stated that the only way to convince them is for the other producers to keep substantial supplies available to the market, and that the OPEC long-term pricing formula can only work when there is unified pricing. Ambassador Owen asked what was likely to result from the November Ministerial. The Minister replied that an aid program for the developing countries was likely to be formulated, but he was uncertain whether oil price unity could be achieved.

New Role for OPEC

The Minister indicated that OPEC is beginning to realize that its continuous price increases are contributing to a vicious cycle of inflation which is eroding the economies of Venezuela and other developing countries. He stated that both the perceived reduction in living standards, and in some cases, absolute decline in family income would pose increasing political problems. The Minister indicated that he believed that OPEC would be broadening its role to include bilateral agreements whereby producing countries would supply oil and consuming countries would supply the producing countries with technical and other services at agreed prices. He indicated that he believes such arrangements could be beneficial to both producing and consuming countries by providing the former with badly needed technology in such areas as housing and agriculture and the latter with oil at prices which they know will not be arbitrarily increased.

Ambassador Owen stated that the USG is willing to establish a USG/GOV Joint Commission to explore the implementation of such agreements. He pointed out that the USG has a similar arrangement with Saudi Arabia which has worked very well.³ Under Secretary Cooper pointed out that, historically when barter arrangements were tried between countries, problems arose over the use of money, but he reaffirmed Ambassador Owen’s recommendation to facilitate a Joint USG/GOV Commission. Ambassador Perez pointed out that the USG and GOV already had established a number of joint agreements in the areas of agriculture, energy, science and technology, and that soon there would also be a joint agreement in health. Ambassador Owen indicated that the USG was flexible, and that if the GOV preferred, we could continue to pursue sectoral joint agreements without establishing a joint commission. Minister Calderon indicated that he would think further about these suggestions and elaborate his ideas in a month.

Country Energy Assessment

Minister Calderon stated that due to domestic political considerations, it would be necessary for the GOV to conduct the assessment under the auspices of a Venezuelan university. Assistant Secretary Goldman stated that under U.S. law, a government-to-government agreement was required to conduct the assessment. The Secretary and Minister Calderon agreed that the cooperative country energy assessment was important for both countries and that a way would be found to overcome any potential legal difficulties. Assistant Secretary Goldman suggested that DOE consult our legal counsel and thereafter further consultations could be held with GOV officials, if required.

Oil Assistance to Central American and Caribbean Countries

Minister Calderon stated that President Herrera and Mexican President Lopez Portillo will announce, before August 15, an agreement to share oil supplies for Caribbean and Central American countries. The announcement will be made in Costa Rica to show support for this democratic government. Up to 30 percent of the region’s oil purchases (up to $700 million) will be jointly financed by Mexico and Venezuela by five-year loans repayable at 5 percent, or convertible to 20 year loans repayable at 2 percent if the participating country converts the loan to energy development projects. The Minister indicated that this is the most important agreement he has negotiated with a non-OPEC country because he views it as an essential first step toward halting the deteriorating political and economic condition in this region resulting from increasing oil prices. Trinidad will also be invited to join the program. He stated that even though Trinidad exports only about 10 MB/D, its acceptance into the program would mean that all of the region’s oil needs could be supplied by these three countries and therefore add solidarity to the pact. He also indicated that he has discussed the program with Minister Yamani and believes that a similar program could work in Asia and Africa.

Western Hemisphere Energy Cooperation

Ambassador Owen asked Minister Calderon how the Venezuelan/Mexican agreement on oil sales to the Caribbean and Central America fit into the Minister’s proposal for hemispheric energy cooperation. Minister Calderon stated that he believed the former agreement to be an important first step in avoiding further political deterioration in the region, but that broader hemispheric cooperation must also be implemented to assist these smaller countries to develop alternative energy supplies which will reduce their dependence on imported oil. He further stated the role accorded to the Organization for Latin American Energy Development (OLADE) in the draft outline developed last March was too modest.

Ambassador Owen stated that he hoped that during the drafting of the outline it was pointed out to GOV officials that the USG would not have funds for participation in such a program. Minister Calderon indicated that he could approach other countries for financial assistance, but that U.S. trechnical support was essential to the success of any such program. He pointed out that many of the solutions to energy supply problems in the region are probably low-cost, but that many of the countries do not know how to begin—for example, to develop their geothermal energy resources.

Mr. Fried pointed out that the World Bank oil exploration program was moving in the direction of increased funding for pre-exploration and exploration activities, as well as providing governments advice on exploration contracts with private firms. Under Secretary Cooper raised the problem of funding such a program, in terms of obtaining adequate breadth and depth of technical expertise, as well as an adequate funding level. He indicated that one of the problems with the World Bank program is that risk sharing for dry holes is not spread among the participating countries, rather each country is responsible for funding the program within its borders.

Ambassador Perez stated that there was a need for USG financial participation in a hemispheric energy cooperation program, and that the Congress might be more amenable to providing funding under the aegis of energy development rather than foreign aid. Ambassador Owen indicated that funding was not so much a problem with Congress as with the Executive Branch’s commitment to maintain an austere budget with no new funding programs at this time.

Minister Calderon reiterated the importance of implementing a hemispheric energy cooperation program by pointing out Brazil’s dangerous position as an importer of approximately 700 MMB/D of oil, of which approximately 80 percent comes from Iraq. The Minister believes that Iraq’s Government is unstable and that political instability in that country could cause a major oil supply disruption. He also reaffirmed his commitment to funding such an initiative through an international organization such as the World Bank and that the OPEC Special Fund could also be a partial source of funding. Under Secretary Cooper suggested that even though funding were through the World Bank, the U.S. would probably have to increase its contribution.

The Secretary indicated that hemispheric energy cooperation was both in the interest of the USG and the hemisphere. The Secretary and Minister Calderon indicated that they would separately assess what might be next steps in implementing hemispheric energy cooperation and talk again in a few weeks after the Minister’s emissaries return from Brazil, Argentina, Ecuador and Colombia.

North/South Dialogue

Minister Calderon asked how the North/South Dialogue was going. Under Secretary Cooper replied that while progress had been made on some issues, there were several major problem areas. A major issue was that some of the G–77 countries were demanding that IMF fund contributions be negotiated in New York. The Under Secretary stated that this position is entirely unacceptable to the USG due to potential Soviet subversion of the negotiations. He further indicated that the North/South Summit proposed by the Brandt Commission had been discussed at the Economic Summit,⁴ but was not mentioned in the communiqué due to divisions among the industrial countries. Ambassador Owen indicated that the Austrian and Mexican Governments have been pushing for a North/South Summit.

The Ambassador stated that he met privately with Austrian officials during the Summit and indicated to them that President Carter had reservations. The President was not sure that concrete objectives could be achieved at such a meeting, and if they were not achieved, the USG would be blamed. The President also believes that the agenda for a North/South Summit would have to be carefully developed.

1. Source: Department of Energy, Executive Secretariat Files, Job #8824, Box 3135, IA Memoranda of Conversation. Confidential. Drafted by Swandby on July 2 and approved by Goldman who signed at the bottom of the last page.
2. At the June 9–11 meeting, OPEC members established a new price structure, which sought to achieve “an equilibrium between supply and demand in order to avoid further stockpiling” that they considered “harmful to producers and consumers alike.” OPEC set the marker crude price of oil at a ceiling of $32 per barrel starting July 1, a limit that would be reviewed at an autumn meeting. OPEC also determined that the value differentials which would be added over and above the $32 ceiling “on account of quality and geographical location should not exceed in any case” $5 per barrel. (Telegram 1864 from Algiers, June 11; National Archives, RG 59, Central Foreign Policy Files, D800285–0481) Telegram 1838 from Algiers, June 9, and telegram 1853 from Algiers, June 10, detail the meeting’s highlights. (Ibid., D800281–1076, D800283–0407) Excerpts from the June 11 communiqué were published in The New York Times, June 11, 1980, p. D4.
3. See footnote 5, Document 143.
4. See Document 276. The Independent Commission on International Development Issues was chaired by former German Chancellor Willy Brandt in 1980.