109. Memorandum of Conversation1

  • SUBJECT
    • Conversation with the White House Staff on the Impending Energy Crisis and State Department Suggestions on Meeting It—(Part III of a series of Talks)
  • PARTICIPANTS
    • Peter G. Peterson, Assistant to the President for International Economic Affairs and Secretary of Commerce-designate
    • Peter M. Flanigan, Assistant to the President and Assistant to the President for International Economic Affairs-designate
    • James Loken, Mr. Flanigan’s Office
    • Under Secretary Irwin
    • James E. Akins, Acting Deputy Assistant Secretary, E/ORF

The Under Secretary outlined at length the State Department concern about the impending energy crisis and our growing reliance on imported crude oil. Mr. Akins elaborated on these remarks with a set of charts (attached to Memorandum #1 in this series)2 which summarized projections in consumption and production of hydrocarbons over the next decade.

Mr. Peterson said that these concerns were not new; the matter had been studied as early as 1951 and even at that time there were those who recognized the trends. Under Secretary Irwin said that this was precisely the point we were making; the energy situation has been studied and restudied over many years and the conclusions were always the same. We believe there is little utility in undertaking additional studies; all the information we need is already at hand; and there is no need to fill in the few minor details that are still missing. In short the time for action has come.

The Under Secretary told Mr. Flanigan and Mr. Peterson about the State Department paper on oil and energy problems3 and our [Page 262]proposals to start moving to solve them now rather than waiting until we face actual shortages. The Under Secretary said the State Department was taking action abroad, in the OECD and elsewhere; we intended to continue encouraging cooperation among our allies but it seemed clear that the only hope of solving the problem would be largely through domestic action. The first move should probably be to coordinate energy policy. It seemed to us that, for structural purposes, the “coordinator” should be in the new Department of Natural Resources and, pending its establishment, in the Department of the Interior.

Both Mr. Peterson and Mr. Flanigan agreed that it would be of great importance to the nation to centralize authority on energy matters. Both thought, however, that with the present disarray in the Interior Department it would not be practical to place the coordinator there. Mr. Peterson said that he understood there was considerable feeling in the Administration that energy policy should not even be in the new Department of Natural Resources; the new Department would only implement policies determined elsewhere.

Mr. Flanigan said that he had set up a small ad hoc body in the White House to look into energy matters and that State would be included in future deliberations. Under Secretary Irwin pointed out that the paper we have already completed might be used to further its work.

Mr. Flanigan said that the picture was not as black as we had painted it. We could get oil from the outer continental shelf, from shale, from Prudhoe Bay, Alaska and from Navy Petroleum Reserve No. 4 in Alaska. Mr. Akins said we agreed but, as we had pointed out, our projections were made on the basis of no change in present policies. And unless present policies are changed, none of this new oil Mr. Flanigan had postulated would be available by 1980—if ever. We had, in our paper, specifically mentioned the four items Mr. Flanigan raised. We also had a number of other suggestions for domestic action.

Mr. Flanigan said that he doubted if it would be possible to take significant action in 1972, an election year. Nonetheless, he hoped the Administration would follow our suggestion, would appoint a coordinator who would set up a plan for action and then we could put it into effect very shortly after the election. He said the one major obstacle the Administration faces is the large body of Congressmen and Senators which has accepted the “energy conspiracy” theory. He said the White House so far had not been effective in convincing many of these men that there is any danger of supply cut-offs. Perhaps the State Department could do a better job; he hoped so.

Mr. Flanigan then raised the subject of tariffs on crude oil and residual oil. They apparently will revert automatically on July 1 to their statutory levels as a result of the Venezuelan termination of the U.S.-Venezuela [Page 263]Trade Agreement.4 Mr. Akins said we should first decide whether we want the duties to rise. If we don’t, there seemed to be three courses of action, all difficult:

1.
Persuade the Venezuelans not to terminate all of the agreement. Our Embassy believes that this is a non-starter but Ambassador Mc-Clintock will be in Washington the end of this week to discuss this and other matters. Ambassador McClintock will see Mr. Flanigan on Friday, February 7.
2.
Pass legislation keeping the tariff at the present concessionary rates. Such a bill would open up the whole oil import program and would most likely be submerged by many amendments on other tariff items. We are not pleased at the prospect of such a bill being introduced.
3.
Have a national security finding that it is in our interest to keep the tariff low. This would be hard to defend as long as we have a quota program designed to keep imported oil out. It would be particularly hard to justify on residual oil which comes in without restrictions into District I. Such a security finding would be attacked by the small oil producers and the coal industry.

Mr. Flanigan thought that the third method would be feasible. He said we keep out imported oil with our quota system; it could therefore be maintained that it is in our security advantage to keep the price of all imported oil low.

Mr. Akins said that he did not believe the increased price of oil would be significant to the ultimate consumer, although admittedly the increased payments by power companies for residual oil would cause them anguish. With the higher duty it would be easier for us to eliminate restrictions on Canadian oil with less worry of Canadian impositions of export taxes. And in any case, the price rise would not be caused by any Administration action—or even lack of action—but by Venezuelan unilateral abrogation of the agreement.

Mr. Flanigan said he disagreed; the price increases would cause loud complaints from New England. The Administration will be blamed and we should avoid this if we can. He asked that we look again at the means of keeping tariffs low and inform him of our conclusions.

  1. Source: National Archives, RG 59, Central Files 1970–73, FSE 1 US. Secret. Drafted by Akins. This memorandum of conversation is Part III of a series of memoranda covering six meetings Irwin and Akins held with other heads of agencies. They met with Lincoln and Schlesinger on January 21 (Parts I and II), Morton on February 1 (Part IV), Nassikas on February 2 (Part V), and Stein on February 8 (Part VI). (Ibid., FSE 15 US) They also met with Connally on March 8. (Ibid., FSE 1 US) The reception of the Department’s presentations, which were based on Document 106, was both positive and supportive.
  2. The charts are attached to the February 8 memorandum of conversation with Stein.
  3. 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.
  4. See footnote 3, Document 104.