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

285. Memorandum From Secretary of Energy Duncan to President Carter¹

Washington, October 10, 1980.

SUBJECT

• Trip to Venezuela and Meetings with President Herrera and Minister of Energy and Mines Calderon Berti

At the invitation of Energy Minister Calderon Berti, I visited Venezuela on September 30 and October 1. Because of the need to monitor world oil market developments and develop coordinated stocking policies with our allies, the originally planned three day trip was shortened to a day.

The discussion with President Herrera on the morning of October 1 lasted almost an hour and a half and was frank and cordial. The discussions through the remainder of the day with Energy Minister Calderon Berti covered a broad range of issues, including the world oil market and the expanding technological cooperation between our two countries. A speech I gave to the Venezuelan-American Chamber of Commerce offered the opportunity to stress our own domestic energy achievements and reassure public opinion that the U.S. and Venezuela have a growing and mutually beneficial energy relationship.

Attached you will find detailed memorandums of conversation of these meetings as well as a copy of the joint communiqué we issued.²

Summary of Meetings

President Herrera asked that the U.S. help insure that major oil companies act with restraint in world crude markets. He stressed the importance of the Venezuelan aid program being organized for energy development in the hemisphere, and asked for our technical and financial help. He took note of my observation that countries, like Brazil, heavily dependent on Iraq for oil, will need short-term supply relief and indicated a desire to settle outstanding nationalization tax claims with U.S. majors.

In a confidential meeting, Minister Calderon Berti expressed interest in reviewing funding possibilities for heavy oil development through our Energy Security Corporation. He also stated his intention to help Brazil secure additional oil supplies and to urge Mexico to also provide such aid. In a wider meeting he expressed approval of our intention to encourage refinery retrofits to use Venezuelan heavy crude oil, and asked our help in acquiring excess residual fuel oil for the next two years in exchange for future oil supply assurances. He also asked our help in securing Canadian participation in Venezuela’s hemispheric energy development program and expressed a desire to settle the nationalization tax claim issue with U.S. majors, although he said it might take some time.

Following is a more detailed review of the most significant aspects of these meetings.

Meetings with President Herrera

• U.S. Oil Companies

The President stressed the importance of the U.S. role in insuring that major multinational oil companies did not bid up spot prices in the delicate world oil market brought on by the Iran–Iraq war. The President indicated that Venezuela wanted to be responsible, but if oil company speculation caused major price rises, the OPEC nations would find it difficult not to take such additional profits for themselves. I assured him that we had already been in touch with approximately 30 of the top companies and were working closely with our IEA partners to develop a coordinated stock policy to insure the continuation of calm markets.

• Western Hemisphere Energy Facility

The President stressed the importance of Venezuela’s efforts through the Organization for Latin American Energy Development (OLADE) to develop a hemispheric aid program designed to support energy development in the smaller nations. He noted that at the appropriate time it would be important for the U.S. to provide technological and financial support. I indicated that the United States was prepared to pursue this important objective on a world-wide basis through an expanded World Bank facility. The President said he would study how this might fit with the Venezuelan effort.

• Help to Brazil

I indicated the importance, in view of the potential psychological market difficulties presented by the Iran–Iraq conflict, that hemispheric countries like Brazil, which were heavily dependent on Iraqi oil, be provided some kind of temporary aid so as to avoid inflaming the spot market. I did not press the President for a specific commitment on this point, but was assured later by Calderon Berti that Venezuela would help Brazil.

• Nationalization Claims

I concluded by noting the importance of settling the outstanding oil nationalization tax claims between Venezuela and several U.S. majors in view of the growing importance of our bilateral relations. The President expressed a desire to do so, indicated that they would be moving within the next several weeks on settlements with several smaller companies, and would continue to seek solutions to the multimillion dollar claims against the American majors formerly operating in Venezuela.

Meeting with Calderon Berti

• Confidential Session

In a confidential session I indicated to the Minister that the authorizing legislation for the Energy Security Corporation³ provided for two hemispheric projects outside the United States involving a potential of several billion dollars. I indicated that the Corporation would be willing to explore participation in the massive investment that would be needed to develop heavy oil facilities. The Minister expressed an interest in studying a memorandum we promised to provide on this possibility. The Minister also expressed Venezuela’s intention to urge other countries, like Mexico, to help Brazil with oil supplies. He also indicated his strong desire to solve the politically difficult nationalization claims question. He offered no other details.

• Heavy Crude Oil Trade

He complimented me on my statement before the Chamber of Commerce referring to the U.S. intention to encourage the construction and retrofit of refineries to handle Venezuela’s increasing heavy crude production. He stressed that the greatest quantities of heavy crude would go to those countries which offered the most in return to Venezuela. While noting that negotiations for guarantees of heavy crude supplies to some U.S. companies were underway, the Minister said that Venezuela was very close to closing deals with France and Germany for specific heavy crude quantities in exchange for broad-ranging assistance programs.

• Residual Fuel Oil Problem

The Minister noted a special refinery problem Venezuela will have over the next several years and asked for our help. When Venezuela’s major refinery upgrading program is complete in two years, they will have maximum flexibility to produce a broad range of crude oil products. Until then they must refine a minimum amount of residual fuel oil to meet domestic gasoline demand. This includes a need to sell approximately 400,000 barrels per day of residual fuel oil to the United States. In part because of our efforts to back out of oil, residual sales to the U.S. have sunk to as low as 260,000 barrels per day. The Minister suggested that if the U.S. could guarantee enough fuel oil sales to solve this Venezuelan surplus problem over the next two years, Venezuela in turn would be willing to give some specified level of supply assurance to the U.S. for the future. In the alternative, the need to sell this residual fuel oil in European markets would mean less future supplies to the United States. I promised the Minister to study this matter and get back to him. We are currently developing options, including the possibility of using such fuel oil for a regional SPR, to take advantage of this offer.

• Hemispheric Energy Program

The Minister elaborated on Venezuela’s plans for a hemispheric energy development program. He noted there would be a meeting this week in Rio de Janeiro of the OLADE countries to continue to develop their proposal and another meeting at the end of November to finalize the package. After the first of the year, he expected that the OLADE countries would be in a position to seek possible technical and financial participation from the United States and Canada. He specifically asked my help in convincing the Canadians that this would be a worthwhile undertaking. While making no long-term commitments concerning our financial participation, I continued to endorse the general concept and indicated I would speak to the Canadians.

• Oil Facility Agreement

The Minister also asked if we would help facilitate implementation of the Venezuelan-Mexican oil facility designed to assist nine small Caribbean countries with their oil purchases. He noted that implementation of this agreement would require cooperation from the major oil companies, an area where we could prove helpful. I observed we had already responded to such a request from Mexico with regard to Nicaragua and stood prepared to help if Venezuela would provide us with the appropriate specifics.

• OPEC Meeting

The Minister observed that he doubted the November 3 OPEC heads of state meeting in Baghdad would take place, although he indicated that the October 14 meeting of OPEC oil ministers in London would now take on new significance in view of the Iran–Iraq conflict.⁴

In the afternoon I received a briefing from the Chairman of the Board of Petroleos de Venezuela concerning Venezuelan heavy oil development plans and the massive investment that will be needed to meet the goal of one million barrels per day of heavy oil production by the year 2000. In this regard, the Umbrella Agreement on technical cooperation I initialed with Calderon Berti when he visited here last March⁵ was expanded during this visit by the addition of three more projects specifically directed at perfecting heavy oil technologies.

The continuing expansion of our technology exchange and the frank expression of our views concerning the complementary roles of Venezuela, OPEC, the United States and its consuming allies in acting responsibly to stabilize world oil markets, served to further develop the expanding relationship with Venezuela and Energy Minister Calderon Berti.⁶

1. Source: Carter Library, National Security Affairs, Staff Material, North/South File, Box 47, Pastor Country Files, Venezuela, 1–12/80. Confidential. Carter initialed the memorandum.
2. The memoranda of conversation are attached but not printed. The joint communiqué is not attached, but the text was transmitted in telegram 8851 from Caracas, October 6. (National Archives, RG 59, Central Foreign Policy Files, D800479–0428)
3. The Energy Security Corporation was renamed the Synthetic Fuels Corporation in the Energy Security Act of 1980.
4. Both meetings were postponed. The Oil Ministers of Saudi Arabia, the UAE, Qatar, and Kuwait met in Taif on October 10 and agreed to increase production by a million barrels jointly. (The New York Times, October 14, 1980, p. D1)
5. The agreement was signed on March 6 during Calderon Bertí’s visit to Washington.
6. On October 11, Owen sent a memorandum to the President commenting on Duncan’s memoranda: “Charles Duncan’s visit to Venezuela appears to have advanced two of our major energy security purposes: to cement the kind of US-Venezuelan energy relationship that will help to accelerate the development of Venezuela’s huge heavy crude oil resources, and to secure reliable access for hard-hit countries to additional Venezuelan oil supply in an emergency.” (Carter Library, National Security Affairs, Staff Material, North/South File, Box 47, Pastor Country Files, Venezuela, 1–12/80)