130. Airgram From the Department of State to the Embassies in All OECD Capitals 1
- SUBJECT
- Highlights of Meeting of High Level Group of OECD Oil Committee, Paris, 13 June 19722
Meeting of the High Level Group was marked by what, in the opinion of several long-time observers, was the frankest exchange ever to take place between delegations. This exchange is reviewed in the following.
1. US (Akins) opened the survey of the current oil situation, the only major item on the agenda, by stating that the more sensitive matters had been saved for this forum. The US Delegate described the recent action of Libya calling in all US oil companies operating in Libya for an emergency meeting, which subsequently proved an outlet for an emotional harangue on US foreign policy.3 These US companies were given one month to change certain aspects of prevailing US policy in the Middle East. In July the companies will of course report back that they have had little success. With this in mind, we must consider what might happen. All Libyan and Iraqi crude could be nationalized and Tapline we must assume would be out. There simply is no way that we could make up the resultant loss of almost 4 million b/d. The British delegate (Beckett) agreed and said only that 1 million b/d could be made up from other sources.
[Page 314]The US Delegate added that anyone might set out to strike individual deals with the Iraqis, but he should keep in mind the recent example of the Commonwealth Oil Refinery Company (CORCO), which thought it had made an advantageous, long-term, low-price purchase of oil from Algeria, only to see the contract torn up when other deals, at higher prices, came along. And the French delegate might wish to comment on ERAP’s unhappy experiences in Iraq.
World oil prices could well reach the level of US prices by 1976, that is, after the end of the Tehran and Tripoli agreements.4 If this does happen, then alternative supplies (shale oil, tar sands, etc) could come in. (It is well to note that prices could be a lot higher, unless consumers decide otherwise, for if we begin to compete one with the other, $5 oil will seem cheap). In any case the lead time in developing this synthetic oil would be very long.
Producing capacity in Saudi Arabia is currently at a physical limit and there is almost no chance of Kuwait upping its output. Abu Dhabi, Iran, Nigeria and Venezuela all offer some shut-in capacities, and together could offset the 600,000 b/d loss of Iraqi crude, discreetly, so that no one will notice. But again, a loss of 4 million b/d could not be offset.
2. The Delegate from France (Vaillaud) expressed some surprise at the US statements, admonishing that France, in its continued dependence on imports, had become accustomed to keeping its cool. The US comments, from a country now becoming a major importer, and one starting to cry “wolf,” are inflammatory.
Referring to the various crises that might arise, Vaillaud volunteered that he was a bit blasé about it all. While not denying there are problems, he admonished the delegates to see what can be done to hold prices down, to attempt to create a good investment climate, and try not to complain too loudly. When other delegates started referring to the “black Akins picture” and the “rosy Vaillaud picture”, Mr. Vaillaud objected, saying he is no way optimistic, only that he was somewhat less pessimistic than Mr. Akins.
3. The Chair (Beckett) backed the U.S. position by noting that 4 million b/d could indeed be lost and we should be prepared for it. By way of explanation, the US delegate added that we had not said Libya would cut off its oil, only that we must consider the possibility. Refusal to do so would be irresponsible. The short-term depends on what Libya will decide to do; the longer term is more dangerous and it would be a grave error to presume that oil will be available.
[Page 315]4. At this juncture, the Chair returned to a familiar theme by observing that inevitably there must be a major change in Middle East oil production, and that he would like to see Japan, Italy and Germany coming into the structure, implying that such entry would give them access to the current scene which they now lack.
5. The Dutch (Wansink) aired the interesting concept that the oil companies were afraid of the consumer governments, afraid that the price increases put forward by the companies would not be accepted, knowing of their general preoccupation with inflation. The Dutch also took the opportunity to agree with the French, to note that Europe was more accustomed to “walking on the razor’s edge,” having lived with a heavy reliance on imports for so long. The Dutch Delegate broke sharply with the French, however by asking if it were not possible to create machinery to tell the companies what is acceptable, and what is not, in their negotiations with the producing countries and then to give them full backing—even to the point of restricting imports, if the producing governments [omission in the original]
6. Attention then turned to a discussion of the role participation oil might be expected to play, the prices at which this oil might be sold and the volumes that might become available. Some believed that when participation oil becomes available in large volumes, competition for a place in the market will drive prices down. The US Delegate saw no basis for optimism in this respect. Oil is not infinite, and the time when prices were dropped to increase sales is long since past.
7. Mr. Vaillaud continued his reprobation of the US by commenting that participation was not a major problem of today for most consumers; it involved only the Anglo-Saxon companies and the producers. What can we do today, he queried, that will have a favorable impact 5 to 6 years from now? He answered his own question by stating that our real problem was our dependence on the Middle East, and that we lacked any means of overcoming this dependence.
8. The Delegate from Germany (Lantske) returned to the thought that the companies have let their positions be determined by the fear that price increases would not be allowed. We hope, he continued, that the US fear of an oil supply crisis will not be realized but, he said, we must act on the premise that it will. The companies have been on the defensive now for the past 18 to 24 months and no end is in sight. Could not the consumers take a more active role? Italy joined in by inviting, without further comment, and without further support, their colleagues to some form of militant action to avoid (oil supply) crises.
9. Japan normally turns out a sizeable delegation for the OECD Oil Committee meetings, but in the past has been content to listen, to take notes but not to contribute. Considerable insight into present Japanese thinking was provided when the delegate from Japan, in [Page 316] responding to an invitation from the US to speak to the matters at hand, observed that nuclear energy is the only prospect for freeing dependence on oil, and Japan intended to proceed as rapidly as possible with the development. The Japanese delegate said he viewed government-to-government action as dangerous, and that commercial risk cannot be eased through political action. Japan, he said, realistically works through private channels and the implication was clear that it would continue to do so. He said he did not share the French view that nationalization was only a US–UK concern; it vitally affected all consumers.
10. The Swedish delegate (Blomquist), in picking up the tempo, volunteered that it had little of substance to contribute but that Sweden shared the US gloomy view. In essence, one must be prepared for the worst, and be happy if the worst does not come about. But, he continued, he had given thought to the search for expanded communications with industry, and would it not be possible to use the International Industry Advisory Body (IIAB) in a reverse manner. That is, the IIAB originally was created as an advisory body to us, the governments. Could not we now advise them?
11. The European Community (Spaak), while not holding as gloomy an outlook as the US over the short run, was considerably more concerned than was France. He said he saw two dangers emerging: first, the danger of the consumers becoming a buffer between the companies and the host nations; and second, the danger of consumers not knowing what was going on.
12. The Chair summed it all up this way:
- a)
- We cannot expect to be in agreement on the near term on all points, but he thought all showed to some degree the U.S. concern over oil supplies.
- b)
- The prospect of contact between the OECD and OPEC filled him with horror; but
- c)
- the Swedish suggestion of using the IIAB was most intriguing. The GWG was charged with investigating the possibility of bringing either the HLG or the plenary into direct contact with oil industry representatives through use of the IIAB.
- Source: National Archives, RG 59, Central Files 1970–73, PET 3 OECD. Confidential. Drafted by R. Ebel on July 12 and approved by Akins.↩
- The meeting was reported in airgram A–7373 to all OECD capitals, July 21. (Ibid.)↩
- As related in telegram 930 from Tripoli, June 5, and telegram 939 from Tripoli, June 9. (Ibid., PET 6 LIBYA)↩
- Regarding the Tripoli agreement, see Document 88.↩