Foreign Relations of the United States, 1955–1957, Foreign Aid and Economic Defense Policy, Volume X

231. Letter From the Director of the Office of Defense Mobilization (Flemming) to the Oil Importing Companies¹

Washington, October 17, 1956.

I

On February 26, 1955, the Presidential Advisory Committee on Energy Supplies and Resources Policy issued a report in which it stated its conclusion that if the imports of crude oils should exceed significantly the proportion that these imports bore to the production of domestic crude oil in 1954, the domestic fuel situation could be so impaired as to endanger the orderly industrial growth which affects the military and civilian supplies and reserves that are necessary to the national defense.

In this report the Committee also recommended that the desirable proportionate relationships between imports and domestic production be reviewed from time to time in the light of industrial expansion and changing economic and national defense requirements.

A short time ago the Advisory Committee decided to initiate a review of the question of the desirable proportionate relationships between imports and domestic production. The Committee requested the members of the task force who participated in the development of the February 1955 report to assist in making this review. The members of the task force are: James F. Brownlee of J. H. Whitney & Co., J. Ed Warren of the First National City Bank of New York, Charles J. Potter of Rochester and Pittsburgh Coal Company, and Judge Robert N. Wilkin, U.S. Court House, Washington, D.C. The task force had the benefit of assistance from a group of consultants representing all aspects of the oil producing industry.

The members of the task force have looked at the problem in the light of industrial expansion and current information relative to economic and national defense requirements. They have met on two occasions with the members of the Advisory Committee and have given the members of the Committee the benefit of their views.

II

As a result of these deliberations, the Presidential Advisory Committee has decided to make the following recommendations:

1. The imports of non-Canadian and non-Venezuelan crude oil into Districts I–IV should not exceed significantly during any quarter of the year 1957 the proportion that these imports bore to the production of domestic crude oil in those Districts in 1954.

Unless the objective is realized there will be in the period immediately ahead an impairment of our national security position because there will be an inadequate incentive for exploration and the discovery of new sources of supply.

The Committee believes that the deviation from the above policy reflected in the import programs announced for the third and fourth quarters of 1956 would constitute, if continued into 1957, a threat to our national security.

2. Imports from Canada and Venezuela, although not included in Recommendation No. 1, should continue to be kept under close surveillance.

The Committee understands that in accordance with the close cooperation which has existed with Venezuela in the past, appropriate action will be taken to bring about a scheduling of exports from that country into Districts I–IV throughout 1957 consistent with the objective being sought. The Committee appreciates the fact that such action will be taken.

3. The present policy of excluding imports into District V from consideration in determining the question of conformity with Recommendation No. 1 should be continued.

This practice should be followed for the present in order to permit desirable flexibility as the industry effects adjustments made necessary by the transition from a surplus to a deficit producing area. Periodic review of the situation in the area should be made, however, during the course of any one year to determine whether it would be appropriate to include District V within the policies set forth for Districts I–IV. It is clear that the ends of national security would not be served by suggesting restrictions on imports into this area at this time. It should be pointed out, however, that from a national security point of view, emphasis should be placed on imports into District V from Western Hemisphere sources. To this end, appropriate arrangements should be made as rapidly as possible.

4. The imports of residual fuel oil at present or expected levels do not require the establishment by the Government of standards for the guidance of importing companies.

The Committee believes, however, that this matter should be reviewed at periodic intervals during the course of any one year to determine whether or not the situation has changed to such an extent as to make it desirable for the Government, in the interest of national security, to recommend some standards covering imports of residual fuel oil, if the imports exceed significantly the amounts required to supplement domestic supply of residual oil or impair the production of other fuels required for national defense.

III

If the objectives that the Committee has set forth in this report relative to the importation of crude oil are to be achieved, it will be necessary, taking into account the adjustment that is to be made in Venezuelan imports, for all oil importers to reduce, on an individual voluntary basis, their average level of imports in each quarter during 1957 of non-Canadian and non-Venezuelan crude oil into Districts I–IV by 1 percent under their average level of imports for the period of January to June 1956. This determination takes into account the anticipated increase of 5 percent in domestic production of crude oil in 1957, as estimated by the Department of the Interior.

The Committee recognizes that it may be possible to devise methods for reaching the objectives set forth in this report which, for example, would deal more satisfactorily with the problem of how the new importers can be provided with a share in the over-all import relationship. It has suggested, therefore, to the Director of the Office of Defense Mobilization that he invite, in connection with the public hearings that are to be held on the oil import problem beginning on October 22, interested parties to propose any methods which, in their judgment, would help to achieve the objectives set forth by the Committee in this report. The Committee will then give these presentations careful consideration following the hearing and decide whether or not such suggestions should be adopted.²

1. Source: Department of State, Central Files, 811.2553/10–1756. The letter had been revised and finally approved by officials in the Fuels Division of the Office of International Trade and Resources in the Bureau of Economic Affairs and by members of the Presidential Advisory Committee on Energy Supplies and Resources Policy.
2. Printed from an unsigned copy.