540. Memorandum of Conversation1

US/MC–14

SUBJECT

  • Petroleum Problems

PARTICIPANTS

  • United States
    • President Johnson
    • Mr. Walt Rostow
    • Assistant Secretary Gordon
    • Assistant Secretary Solomon
    • Mr. Neil A. Seidenman, Interpreter
  • Venezuela
    • President Leoni
    • Sr. Ignacio Iribarren Borges, Foreign Minister of Venezuela

President Leoni said that it was very gratifying for him to receive President Johnson and to have the opportunity on this occasion to discuss with him a very serious problem affecting Venezuela that had already been mentioned through correspondence on two previous occasions.2 This was the problem that had been posed by President Leoni’s personal envoys in the past, namely former Minister of Mines Guerrero and former Minister of Interior Barrios, who had discussed the fundamentals of the matter with the President at the White House.3

[Page 1121]

President Johnson replied that he was happy to have the opportunity to visit with President Leoni. He expressed the desire of the Administration to be of help to Venezuela and said that he had read the letter4 from the Venezuelan Government that had been received the week before. The President added that in the event that President Leoni got tired of having those fellows around, he, President Johnson, would not mind having their very able services to help him develop our trade relations with many countries in the world.

President Leoni stated that he could appreciate the workload being shouldered by the President. At the same time Venezuela has problems that must be grappled with and to which solutions must be found. At this particular time the most serious problem for Venezuela is oil. Today this problem is being compounded and Venezuela’s prospects are being rendered increasingly obscure by the new restrictions that have gone into effect relating to the sulphur content of Venezuelan oil.

President Johnson stated that very careful consideration is being given to this problem. We realize what oil means to the Venezuelan economy, so that what we want to do is to try to roll with the punches and help Venezuela as much as possible. In this respect what we are aiming at is: 1) to solve the sulphur problem; and 2) to be able to use more oil from Venezuela. The President added that President Leoni and his associates have done such a good job in this area that the United States buys more oil from Venezuela than from any other country. The percentage involved here is 60 percent of our imports, and Venezuela has at least 30 percent more of our oil import market than any other country. We want to keep Venezuela’s oil sales high, and therefore one thing we are doing at this time is to initiate talks with Canada to see whether or not we can get Canada to reduce its share (i.e. share of the growth rate, as Solomon explained to Mayobre the next day).

The President indicated that he had just signed a very important amendment to the proclamation on the oil import program that was going into effect relating to our imports of asphalt.5 By this means certification could be issued by the Secretary of Interior for additional imports of asphalt based on the situation as evaluated by the Secretary. Such additional imports of asphalt would appear to be beneficial to Venezuela and would help us to meet our national requirements. We [Page 1122]are studying the asphalt situation, and various members of the Cabinet have examined the issue of import controls. We are convinced that with additional imports of asphalt Venezuela would stand to benefit, and this would be useful to our people. The Secretary of Interior will have the authority to issue new allocations and documentation for such imports.

The President pointed out that this new paragraph means that the Secretary will carry out a continuing study of the supply and demand situation, and based on his judgment, consistent with our needs and objectives, will have additional authority to recommend maximum levels of asphalt importation outside of the present MOIP. This means that he can authorize additional imports of asphalt on this basis for consumption in our country without additional allocations or licensing procedures. President Johnson told President Leoni that if he had no objection to sending us this additional asphalt at a low price, he would issue the order the following day.

President Johnson went on to say that he took pride in, and wished to maintain, the record dollar volume of imports into this country, from Venezuela, of crude oil, residual oil, and asphalt, of any period in history. He noted that as he was signing this proclamation he had noticed some of the figures involved: in the period of his predecessor’s administration—1961–63—the volume of imports was at 1,394 million barrels; during this administration, from 1964 to 1966, the volume was 1,604 million barrels. We went from $3.1 billion to $3.5 billion. Those were the three highest years for imports and revenues. In 1964 the figure was $1.127 billion; in 1965, $1.208 billion; and in 1966, $1.314 billion. The President summed up that we want to do three things: 1) to see what we can do to get the sulphur out of Venezuelan oil so that we can use it for our cities in a way that will not aggravate our air-pollution problems; 2) we want to try and see if we can get Canada to reduce its exports (i.e., its growth rate of exports) to this country, and the President said, “If I lose friends on the Canadian side, I hope that you will make them up to me on the Venezuelan side”; and 3) we would like to increase our purchases of asphalt at low prices so that we can put in roads for some of our poor farmers. This, concluded President Johnson, was just about all he could do at this time. This may make the Canadians mad at him.

President Leoni stated that he could recognize that we are now importing more volume from Venezuela than in the past; however, there has been a trend recently in Venezuelan exports that is not considered good. At present, these exports to the United States consist of cheaper grades of oil, which bring in smaller returns. There has been an increasing trend away from the crude oils toward the residual oils, which of course sell at lower prices, and each time the price per barrel [Page 1123]goes down by five cents there is a huge loss involved for Venezuela. This trend has been noticeable and growing since 1959, and there has been a drop in the price each year. For this reason, the Venezuelan Government, together with the companies, is grappling with this problem and an arrangement has been reached by which to curb the downward trend of the price.

With regard to the sulphur, the Venezuelan Government endorses compliance with the regulations that have been put into effect by the health and municipal authorities. The government is working with the companies to encourage them to adopt the necessary techniques and processing that will enable them to comply with these standards. The largest American company operating in this area in Venezuela is, of course, Creole, which as things now stand will have to invest between $110 million and $118 million in order to be able to meet the new requirements.

President Leoni went on to say that the problem of the Venezuelan oil market in the United States is considered not merely from the standpoint of Venezuela’s self-seeking interests, but also in the light of what Venezuela represents as a country in the Latin American area. Venezuela is a nation that is building a democracy with strong foundations. Its policy has reflected the principles that were endorsed in this very place (Punta del Este) at the time the Alliance for Progress was launched a few years ago. Venezuela has brought about a transformation in the lives of its people in the rural as well as in the urban areas. This has involved considerable expenditure on the part of the Venezuelan Government. This, of course, is something that the Venezuelan Government desires, and a part of this is the wish to promote industry in the country. But Venezuela in the past has been fertile soil to the natural enemies of democracy in Venezuela, and of the United States.

President Johnson said in answer to this that he was in agreement with what President Leoni was saying. He reiterated that we want to buy more oil from Venezuela so as to raise these purchases in volume and in dollar value. At present the totals for both of these items stand at their highest mark in our history, and we want to increase them. We are now trying to get Canada to reduce their participation in our market, to help us to do this. The President said that, in the second place, he wished to lift restrictions on residual oil imports, which from his political experience he knew would make a lot of miners mad at him. He added his hope that this would make the Venezuelans love him. The President explained that by using more residual we are cutting more and more into the coal market. Number three, we are requiring the Defense Department to supply its oil needs from Caribbean sources, which would mean that we would use large amounts of oil from [Page 1124]Venezuela for defense purposes. Fourth, an increase in refining capacity will open up greater opportunities for Puerto Rico, where Venezuelan oil is used. Finally, the President pointed out that his own state of Texas produced more oil than all of the other oil-producing states in the United States. At the present time the production quota is down to eight or nine days per month. The pumps are idle during the other twenty-two days of the month. Many people have gone away as a result—many operators have folded. The President said that we are doing all of this to help Venezuela sustain a sound economy. We are aware of the problems that Venezuela has to face and we are aware of the activities of our natural enemies in Venezuela and in the Hemisphere.

The President stressed that he hoped President Leoni understood that we were taking an unprecedented step in these talks with Canada, which involve an attempt to get Canada to change its trade relations with our country by limiting Canadian access to the U.S. oil market. As these talks progress, there is bound to be a strain on relations between the United States and Canada, but we are doing this in order to insure that the MOIP will not work to the detriment of Venezuela. This means a change in our treatment of Canada, but we consider it to be the best way to assure Venezuelan access to the U.S. market on a high level of sales.

President Leoni stated that the Venezuelan Government has recognized and appreciated the receptive approach on the part of the United States authorities toward the problem faced by Venezuela involving unequal treatment of Venezuelan oil. The measures that the President mentioned seemed to constitute one more step in the direction in which Venezuela was striving; namely, to attain equal treatment of Venezuelan oil vis-à-vis Canadian oil. What the President said about the talks with Canada would be helpful but the ideal solution would be to give Venezuela the same treatment as Canada. The solution to these problems admittedly is no easy undertaking, but with perseverance Leoni said he was confident that a way could be found to devise a formula satisfactory to the interests of both countries.

Going back to a previous point, President Leoni said he wished to call the President’s attention to the fact that Venezuela, despite guerrilla activities, has developed a solid and stable political situation. It is sufficient to witness that labor unrest is no more to be found in Venezuela, whereas if we look over at the situation in the United States we find that there are frequent labor-management disputes, and a serious strike seems to be in the offing at present.

President Johnson interrupted President Leoni to report that a bill he had proposed in connection with the strike mentioned had just been passed in the Senate by a vote of 82 to 1, and in the House by a majority of 400 to 8, putting off the strike for a 20-day grace [Page 1125]period.6 He explained that at the end of these twenty days something else would very likely have to be done, but we were not going to have a major railroad strike in the country. The President explained to Leoni that he thought he would be interested in this, as the leader of a democracy.

President Leoni went on to say that several years had gone by without major strikes in Venezuela and industrial peace in his country now seemed to be on a solid footing. If, however, Venezuela were unable to maintain budgetary stability and thus were to run into difficulties in financing programs now underway for national development and social progress, there was no doubt that Venezuela would be subject to social upheaval. Our natural enemies have not been able to gain a foothold in Venezuela heretofore, but if this were to happen—if Venezuela were to be rocked by social imbalance—this could provide a welcome opening to them. This is why the oil problem appeared to be of significance to hemispheric security.

President Leoni said that it would perhaps be desirable for his Minister of Mines to be in touch with Assistant Secretary Solomon in connection with the dispositions that were mentioned by the President.

President Johnson heartily agreed, adding that if the President of Venezuela had no objection he would hold off issuing the asphalt order until the following morning just so that it would not appear that he had come here to “lose his trousers”.

President Leoni said that this was encouraging to him, in view of the fact that he had hoped to be able to take something concrete back to Venezuela with him as a result of the encounter in Punta del Este. He was glad to receive information of the forthcoming talks with Canada and hoped that these would lead to the desired solution.

The President warned President Leoni that he would possibly have to pry him away from chasing communists in his country in order to get some angry Texans off his back. President Leoni replied that he was confident Texans would always be his friends. President Johnson said that Texans had always been his friends until he came to Punta del Este and spoke with the Venezuelan President. He went on to say that if a man is working only eight days a month, he will get very angry at anyone who tries to take one of those days away from him, and when they get angry these people sometimes lose their judgment. President Leoni reiterated his confidence that Texans would continue to be their friends, since they had once been “Latin Americans” themselves. He added the expression of his understanding of the heavy burden the President had [Page 1126]to carry, and that this problem was not nearly as grave as the struggle the President had to face in Vietnam, which he does in solitude and with admirable strength and wisdom.

The President reiterated his desire to cooperate with the Venezuelans in the work of facing the trials they are going through. The President once again said that we will try to find a solution to the oil problem through talks with Canada. The President concluded the conversation by telling President Leoni that the latter was fortunate to enjoy the services of one of the most popular and capable of all the Ambassadors to our country—that he and his wife were among the best liked members of the Diplomatic Corps.7

  1. Source: National Archives and Records Administration, RG 59, Central Files 1967–69, POL 7 IA–Summit. Confidential. Drafted by Seidenman and approved in the White House on April 28. The memorandum is part 1 of 3; parts 2 and 3 are Documents 541 and 50, respectively. According to George Christian, the meeting was held at Leoni’s residence in Punta del Este. (Press statement, April 11; Johnson Library, President’s Daily Diary) President Johnson attended the meeting of American Chiefs of State at Punta del Este, April 12–14.
  2. Leoni raised the oil issue in two letters to Johnson, March 13, 1965, and January 17, 1966. (National Archives and Records Administration, RG 59, Central Files 1964–66, PET 1 US–VEN and POL 7 VEN, respectively)
  3. For an account of Johnson’s meeting with Barrios and Perez Guerrero, January 21, 1966, see Document 536.
  4. Dated April 4. The Department forwarded the text of the letter to Punta del Este on April 10. (Telegram 1172104/Tosec 64 to USDEL Punta del Este; National Archives and Records Administration, RG 59, Central Files 1967–69, POL 7 IA SUMMIT) In an April 7 memorandum to Bowdler, Sayre summarized the letter, outlined the U.S. position, and suggested points for the President to make in his meeting with Leoni. (Ibid., ARA/NC/V Files: Lot 69 D 19, PET 17–2, U.S. Import Program 1967, January–April)
  5. Proclamation 3779, April 10. (32 Federal Register 5919)
  6. On April 11 the U.S. Congress passed the President’s proposal for an additional 20 day “cooling-off” period in the nationwide railroad labor dispute. The bill was delivered to Punta del Este where it was signed into law on April 12. (81 Stat. 12)
  7. Enrique Tejera-Paris.