288. Memorandum From Secretary of Energy Duncan to the President’s Assistant for National Security Affairs (Brzezinski)1
SUBJECT
- DOE Response to Persian Gulf Security Framework Memorandum2
Our response is limited to the two sections dealing with DOE related oil issues:
(A) Current Status of Goals: Economic Component, Oil
We believe the oil outlook is less favorable than suggested in the memorandum. If Persian Gulf military hostilities continue through the winter, as now seems likely, oil exports from the Gulf will not approach pre-war levels until after mid-1981. Spot prices are rising steadily, although thus far most buyers have remained publicly calm and refrained from large-scale purchases. However, with heavier demands for winter heating supplies, recent warnings by Saudi officials that the world may be on the verge of a new round of panic oil buying and a world-wide reluctance to deplete existing stocks, the situation could easily deteriorate. If buyers panic, producers may seek to impose higher contract prices and premiums on their long-term customers.
(B) Goals for the Future: Economic Component, Oil
We agree that continued progress on oil pricing, availability and conservation is critical. We also feel that prices might soon rise as much as $8, $10 or even by much larger increments per barrel if a more widely destructive war, a harsh winter, or other unforseeable risks occur. We should seek IEA agreement on oil import ceilings for 1981 to reduce pressure on the world oil market. We could also take the lead by adopting a variety of moderately stimulating energy supply enhancement, fuel switching, and oil demand-restraint measures. These actions [Page 910] could provide the basis for a multilateral effort to impose import fees or other measures that would pre-empt producer price increases and minimize economic damage to consumer economies.
- Source: Department of Energy, Executive Secretariat Files, Job #8824, International Affairs, 10/80–12/80. Secret.↩
- Brzezinski’s November 5 memorandum to Muskie, Brown, Miller, Duncan, McIntyre, Jones, and Turner on the Persian Gulf Security Framework noted that the loss of Iraqi oil due to the Iran–Iraq war was “yet to be felt” because Saudi Arabia and others helped make up for the shortfall. Brzezinski added: “Prices are stable and consumption in the West is down. We have begun to fill the strategic petroleum reserve. The Venice Summit and actions by the IEA have helped convince oil producers that we are serious about our energy policies and have helped stabilize the oil market.” (Ibid.) Brzezinski sent an earlier memorandum on the subject to the same recipients on June 3. It included a summary of the status report that was sent to Carter based on the 12 SCC meetings on the security framework for the Persian Gulf. (Carter Library, Brzezinski Donated Material, Box 5)↩