106. Briefing Memorandum From the Acting Assistant Secretary of State for Economic Affairs (Katz) to the Under Secretary of State (Irwin)1

GENERAL TALKING POINTS FOR YOUR MEETINGS WITH OTHER AGENCIES TO DISCUSS THE DEPARTMENT’S OIL STUDY

Introductory Remarks

  • —We have all seen the numerous recent studies on our energy problems. There seems to be little dispute over supply and demand projections which show that the U.S. may be dependent on foreign sources for as much as 50 percent of its petroleum requirements by 1980. Recent N.P.C. studies indicate this may happen much sooner. These projections also indicate that as much as three-quarters of our imports could come from Eastern Hemisphere sources, an area that we have always considered less secure.
  • —The Department views this with great concern. The foreign policy implications of an energy policy which makes us dependent on other countries for a large percentage of our petroleum supplies, which are essential to our national security, are obvious. In the past we were given some protection by a substantial surplus in production capacity in the world and by the producers’ urgent need for coal. Both of these circumstances have changed.
  • —We therefore believe that urgent steps must be taken in both the international and domestic areas to lessen the likelihood of severe confrontations between the companies and the producing countries, which might result in cut-offs of supply, and to lessen the dependence on imports of oil from potentially insecure sources.
  • —After the signing of the Tehran agreements early in 1971, the world’s petroleum consuming countries thought they could look forward to 5 years of relative stability in the world’s oil market. Recent developments indicate, however, that this was a false hope. OPEC countries are now making new demands for part ownership in the operations of the oil companies.
  • —We hope that such demands can be forestalled until 1976, when the Tehran agreements expire. Failure to reach some arrangement on [Page 255]the participation issue could well lead to a significantly reduced role for international oil companies in the production end of the oil business.
  • —This would have severe consequences for the United States in terms of our national security, as much of the world’s oil could fall into hands of elements hostile to the United States who might seek to use oil as a political weapon, or resort to economic blackmail. We also believe that the world’s future supplies of petroleum would be substantially reduced, should production be taken over totally by the countries, as sufficient capital could not be found to bring forth new reserves and production needed to meet the world’s growing petroleum requirements. Consuming countries would then be forced to compete among themselves for available supplies, and present alliances would be subjected to severe strain.

Departmental Action

Over the course of the last year the Department has taken several steps to protect our energy supplies.

  • —In meetings of the OECD Oil Committee and in bilateral discussions we have stressed the importance of maintaining consumer solidarity in the face of OPEC demands. We have also urged them to allow the companies sufficient profits to generate a significant portion of the capital the industry will need in the next decade.
  • —We have urged the OECD countries to increase their stock levels as a form of protection against supply cut offs.
  • —In January of last year I, acting as an emissary of the President, called on the rulers of Saudi Arabia, Iran and Kuwait2 to emphasize the importance which we attached to continuing reasonable negotiations with the companies and the necessity of avoiding serious supply interruptions.
  • —We have recently taken steps in the Department to establish a loose, informal consultative body composed of senior officers of the oil companies and the Department. The committee would serve to solicit industry views on how best to deal with the changes which will face the international oil industry, and to give the industry the benefit of our judgment.3

The State Department Paper

While the actions that we have taken to date have been important in preventing serious confrontations between the companies and the [Page 256]producing countries, and resulting interruptions in supplies, we will need to do much more in the future. The study which I am giving you today contains a number of recommendations for further moves in both the international and domestic areas.4 I realize that most of the measures taken domestically will have to be taken by other agencies. We are making these suggestions primarily because of the foreign policy implications inevitably arising from non-action.

Our Recommendation for Action

We believe that it will probably not be possible to expect an effective energy policy unless responsibilities are centered in one place. We are therefore recommending that the President appoint a coordinator for all domestic energy matters.

Other steps we will take include:

  • —Continuing our efforts to work out an energy agreement with Canada
  • —Providing diplomatic support, as necessary, to the companies in their negotiations with the producing countries
  • —Accelerating the exchange of information on nuclear energy with Europe and Japan
  • —Exploring possibilities for developing new sources of petroleum in other countries of the Western Hemisphere.

Domestically we will recommend that:

  • —Development of new forms of energy be accelerated
  • —Measures be taken to increase domestic production of petroleum
  • —Measures be considered which would decrease rates of energy consumption in the United States.

We also believe that some change in the present relationships between the companies and the producing countries is inevitable. To resist this change, we believe, can only lead to severe confrontation to the detriment of the consuming countries as well as to the companies. At some time we may therefore wish to discuss with the companies our hope that they will be willing to consider some forms of new relationships after 1976.

We would like to explore with you now and after you have had time to go over the paper, your views on the subject, particularly how the State Department can work with you to help solve the problem.

  1. Source: National Archives, RG 59, Central Files 1970–73, FSE 15 US. Confidential. Drafted by Akins.
  2. See Documents 7476, 78, and 79.
  3. See footnote 2, Document 104.
  4. A reference to “The U.S. and the Impending Energy Crisis,” March 9, which is summarized in Document 116. The NSC Staff’s assessment of this paper, including an analytical summary, is Document 128.