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

282. Memorandum From the Assistant Secretary of Energy for International Affairs (Goldman) to Secretary of Energy Duncan and the Deputy Secretary of Energy (Sawhill)¹

Washington, September 23, 1980.

SUBJECT

• SCC Meeting on Iran–Iraq, September 24, 1980

The agenda for the meeting is attached at Tab A;² the topics to be covered are:

—Intelligence Update

—United Nations Efforts

—Additional Steps (political)

—Strait of Hormuz (military and political)

—Oil (discussed below)

—Public Posture (further statements by President or others)

The “oil” topic is framed as four questions:

—What is the present status of oil flow from the Persian Gulf?

—What are the implications of a partial interruption?

—What should be our public posture?

—What non-public steps should we take?

We have also been advised by the Domestic Policy Staff that Stu Eizenstat plans to participate, and will suggest that the President deliver a statement on the Iraq/Iran situation; Eizenstat will urge that the President strike a reassuring note on the energy side, presumably pointing to the high inventory positions in the U.S. and worldwide.³

Oil Flow from Persian Gulf/Implications of Interruptions

Interruption of Exports from Iran and Iraq

Iraqi crude oil production during January–August 1980 is estimated at 3.3–3.5 MMB/D with exports of 3.1–3.3 MMB/D. Iranian production during the same period is estimated at 1.6 MMB/D with crude oil exports of about 0.6 MMB/D and 0.2 MMB/D of refined product exports. Thus, some 4.0 MMB/D of combined exports from Iran and Iraq could be interrupted.

More than half of Iraq’s oil exports are sold to industrial countries. The three largest volume purchasers from Iraq are France at 550 MB/D, Italy at 255 MB/D, and Japan at 375 MB/D. Brazil (at 500 MB/D) is highly dependent on Iraqi oil with more than 50 percent of its oil imports from that country. Communist bloc countries import approximately 350 MB/D from Iraq.

Spain and Turkey are the only IEA countries with significant crude oil imports from Iran, at about 0.1 MMB/D each. Most of Iran’s crude oil exports go to communist countries (0.1 MMB/D) and LDCs such as India, Brazil and South Korea. Iran exports 0.2 MMB/D of residual fuel oil, mostly to Japan.

The United States imports very little oil directly from Iraq, and none from Iran. During January–June 1980, U.S. imports from Iraq were less than 50 MB/D, accounting for less than one percent of total U.S. imports.

IEA countries as a group import about 1.5 MMB/D of crude oil from Iran and Iraq. Of the total, 1.2 MMB/D comes from Iraq and about 230 MB/D from Iran.

Total Oil Trade through the Strait of Hormuz

Oil exports through the Strait of Hormuz are estimated to be about 17 MMB/D during 1980. More than half of these exports originate in Saudi Arabia. Exports through Hormuz represent nearly 60 percent of the oil in world trade and about one-third of the oil consumed in the Free World. The United States is dependent on Persian Gulf crude oil for about one-fourth of its oil imports, both directly and indirectly through Caribbean refineries, representing about 10 percent of U.S. consumption. Western Europe receives about 60 percent of its oil imports through Hormuz, which represents about one-half of its consumption. Japan has the most at risk, with about 70 percent of its oil supply transitting Hormuz. The table at Tab B⁴ shows the origin and destination of Persian Gulf oil estimated for 1980.

Availability of Unused Production Capacity

There could be as much as 3.0 MMB/D of unused production capacity in the world in September 1980. Most of this capacity centers in Persian Gulf countries and other OPEC members; the availability of most of this capacity is in question. The largest unused capacity is in Kuwait with nearly 1.0 MMB/D; Kuwait’s capacity is 2.5 MMB/D and production is currently restricted to 1.5 MMB/D. Abu Dhabi has an estimated 0.7 MMB/D of unused capacity. Saudi Arabia could have up to 0.5 MMB/D of unused capacity, according to Aramco estimates. [2 lines not declassified]

Outside the Persian Gulf, Libya is the producer with the largest unused capacity—0.4 MMB/D. Other smaller amounts of unused capacity are in Venezuela and Nigeria, 0.2 MMB/D and 0.1 MMB/D respectively. Among the non-OPEC countries, only Canada and the U.K. (North Sea) may have some spare capacity, approximately 0.1 MMB/D each.

The Persian Gulf states may be reluctant to make their unused capacity available while hostilities continue, for fear of retaliation. Kuwait did allow production to rise above its government ceiling in 1979 during the Iranian supply interruption. Abu Dhabi stuck firmly to its ceiling in 1979. Libya probably would not allow production to rise, unless it perceived it to be in its political interest, and could probably be counted on to maximize the price effect of any supply interruption.

Public Posture

Drawing upon the testimony recently submitted by Deputy Secretary Sawhill,⁵ we should emphasize

—Measures already in place to strengthen our ability to respond to disruptions in supply; and

—Specific actions that could be taken to cope with a disruption.

We could also draw attention to the favorable inventory situation in the U.S. In the past several months the supply situation in the United States for crude oil, gasoline and several other petroleum products has improved significantly over what it was during the corresponding period of 1979. At the end of August 1980:

—Crude oil stocks stood at 393 million barrels, a 22 percent increase over last year’s level;

—Gasoline stocks at the primary level were about 259 million barrels, up 27 million barrels or about 12 percent over August 1979 levels;

—Distillate stocks were at 223.2 million barrels or 30 million barrels above last year’s level;

—Aggregate primary stocks of crude oil and petroleum products were 1,351 million barrels—near record high levels—and 164 million barrels, or 13 percent, above last year’s normal operating level.

These stock levels are not only high in absolute terms, but are particularly high considering that total petroleum consumption for the four weeks ending August 29, 1980, had declined about 12 percent as compared to the corresponding period of a year ago, and imports for the first 8 months of 1980 have decreased by about 20 percent from the same period in 1979.

Measures already in place to cope with disruptions include:

—Establishing the Office of Energy Contingency Planning within ERA, with direct reporting responsibility to the Secretary;

—Streamlined data-gathering systems, national and international, to track crude oil shipments from the source through the refinery to distribution; and

—A program of systematic consultations with the major refiners to determine more accurately, and in a timelier fashion, inventory positions and refiner inventory management plans.

We also have under active review a set of specific actions in the areas of:

—Fuel switching

—Public information

—Inventory management

—Demand restraint

In the area of fuel-switching we would encourage oil-to-gas substitution, and promote electricity generation from non-oil fuels through our authorities under the Fuel Use Act⁶ and other statutory authorities. Considerable cooperative work is now underway with utilities and private industry to develop a detailed implementation program.

In the area of public information, we are developing a comprehensive program to tell the general public:

—What the current foreign situation is to the best of our knowledge;

—What the present domestic supply/demand situation looks like;

—What actions we are taking on a voluntary as well as regulatory basis; and

—What we want each energy use sector to do in response to the dynamics of the situation.

The basis for effective action to influence, and regulate—if necessary—inventory management is in place through the combination of consultations and supporting data systems, which will provide more accurate and timely information.

Finally, there are several demand restraint actions, of the non-price variety, which are on stand-by and could be activated rapidly if needed; among these actions are:

—Stricter enforcement of 55 mph speed limit;

—Extension of building temperature restrictions;

—Other emergency conservation measures such as odd/even and minimum purchase requirements, and even, if necessary, state mandatory consumption targets (Title II of EECA).

Non-Public Steps/IEA

We will have to maintain close consultations with our partners in the IEA, with other affected consuming countries such as France, and possibly with Brazil, given its more than 50 percent dependence on Iraq and Iran for oil supplies.

IEA countries as a group obtained 1.2 MMB/D from Iraq, and 230 MB/D from Iran for the first half of 1980. (These figures are being verified with the Secretariat in Paris.) At a combined total of approximately 1.5 MMB/D of crude supply, this amounts to roughly 4 percent of IEA consumption of 36.5 MMB/D for the year ending March 30, 1980; consequently, there is no immediate reason to invoke the general allocation system.

The Secretariat currently estimates that based on its data, the following countries could be over the individual 7 percent disruption threshold:

Group A	Group B
Greece	Japan
Italy	Netherlands
Spain	Belgium
Portugal
Turkey

The Mediterranean countries, in category A, obtain much of their Iraqi oil through the pipeline that goes through Turkey; thus it is possible that if this pipeline is not interdicted, the effect of an interruption in shipments via the Gulf would be attenuated; we are working with the Secretariat to develop the figures.

Preliminarily, it appears that the IEA Secretariat is inclined to work with the affected member countries to determine the precise magnitude of their shortfall, and to see whether informal ways, through voluntary reallocations, can be devised. The IEA Secretariat advises that the first reaction of the Governing Board Chairman, Niels Ersboll (Denmark), is that the IEA should avoid the mistakes of 1979, and find a combination of conservation measures, restraint on the spot market, and coordinated uses of high inventories to deal with what could be a price problem rather than a supply problem, unless events change their course.

Leslie J. Goldman⁷

1. Source: Department of Energy, Executive Secretariat Files, Job #8824, Box 3135, International Affairs: 9/80. Secret.
2. Attached but not printed. No other record of the SCC meeting has been found. The Iran–Iraq war began when Iraq invaded Iran on September 22. In his diary, Carter wrote about the meeting: “We agreed to do everything we could to terminate the Iran–Iraq conflict as soon as possible, to stay strictly neutral, to call other nations to stay out of the conflict and be neutral, and to keep open the Strait of Hormuz.” (White House Diary, p. 467)
3. The President, in remarks to reporters after the September 24 SCC meeting, acknowledged the concern that oil supplies would be reduced because of the conflict, but asserted: “This concern is not justified by the present situation. It is true that oil companies and shipments relating directly to Iran and Iraq have been interrupted or suspended during the outbreak of the hostilities. But even if this suspension of Iran and Iraqi shipments should persist for an extended period of time, the consuming nations can compensate for this shortfall.” For the full text of his statement, see Public Papers of the Presidents of the United States: Jimmy Carter, 1980, pp. 1921–1922.
4. Attached but not printed.
5. Sawhill testified before a Senate subcommittee on September 22 that U.S. oil inventories were high enough to offset a disruption in oil supply from the Middle East. (The New York Times, September 23, 1980, p. D1)
6. The Power Plant and Fuel Use Act (P.L. 95–620) was part of the National Energy Act of 1978.
7. Peter Borré signed for Goldman above this typed signature.