16. Memorandum From C. Fred Bergsten of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)1

  • SUBJECT
    • Oil Import Policy—Progress of Cabinet Task Force

The Cabinet Task Force on Oil Import Control is now in the final stages of preparing its report to the President, which should be submitted by the end of November. Its recommendations should provide [Page 56]the basis for the 1970 oil import program, although I have doubts about the feasibility of moving so quickly on a program of such domestic political sensitivity.

At present, the United States limits oil imports to about 20% of U.S. consumption. This control is justified on national security grounds: freer trade would allegedly lead to excessive U.S. dependence on foreign oil, due to its much lower price, which might not be available in a crisis or might be denied us for political reasons. The main argument for liberalizing the program is its high cost to U.S. consumers.

The administration of the program has caused major domestic political problems and also a number of foreign policy headaches, most notably with Canada, Venezuela and Iran. (Canada and Mexico receive de facto preferential treatment, but they both want more.) Virtually all observers, except some oil companies, agree that the present program should be scrapped, but there is very little agreement on what should replace it.

The Task Force has been holding all-Saturday meetings for the past two weeks and will continue them (or the equivalent) until the report is ready. Last Saturday Secretary Shultz, who is Chairman of the Task Force, summarized the direction of its thinking as follows:2

1.
Reducing oil prices in the U.S. from the present $3.30 per barrel to about $2.50 per barrel through increased imports. (This would raise imports to about 40% of domestic consumption by 1980. The Task Force staff estimates show that with such a program we could stand a one-year interruption of non-Canadian supplies without running short of oil. We would have to ration if the interruption lasted much more than a year. And our allies, who would have problems under any interruption of more than a few months, would not then be able to get as much substitute oil from us because our production would have declined in the interim.)
2.
Shifting from quotas to tariffs as the import control mechanism, perhaps with quotas still in reserve if imports soared beyond our intentions.
3.
Preferential treatment for Canada, then for Latin America, and probably some preference for our friends (e.g. Iran and Indonesia) among the rest. This preference would also be justified on our security grounds. Important foreign policy problems will arise whatever scheme we adopt regarding foreign suppliers.
4.
An increased strategic reserve, preferably through shut-in production capacity rather than storage.
5.
An improved management system for the program.
6.
A transitional period to phase in the new program.

I am highly doubtful that the Task Force will reach unanimity on any of these issues. Secretaries Shultz and Kennedy strongly favor a significant liberalization of imports. Secretaries Hickel and Stans are resisting any significant changes at all. Neither State, Defense, nor OEP3 has yet expressed a position.

The President will therefore probably get a paper with at least two or three options. It is for this reason, and in view of the desirability of getting a decision by January 1, that I have suggested the possibility of an NSC meeting on the subject in mid-December.4

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 367, Subject Files, Oil 1970. No classification marking. Sent for information. A stamped notation on the memorandum reads: “HAK has seen. November 17, 1969.” A handwritten note by Kissinger reads: “President leans to 3. Let’s consider meeting.”
  2. Minutes of the November 8 meeting are summarized in Document 15.
  3. In a November 7 memorandum to Lincoln, John Seigle, an officer in OEP, wrote that the Task Force was “slanted—if not stacked” in favor of the removal of import quotas. He cited procedural problems (the prepared papers arrived Thursday for Saturday meetings), the fact that neither X–1 nor X–2 had a “clear concept of national security to use as a test in determining the effect upon such security of various levels of oil importation,” and that the papers subsumed all oil interruptions into a Middle East interruption. Seigle thought interruption of supply from Alaska might pose “a much more serious threat.” (National Archives, Nixon Presidential Materials, NSC Files, Box 267, Agency Files, OEP, Vol. I)
  4. Kissinger decided against an NSC meeting. On an attached draft memorandum to Nixon, prepared by Bergsten for Kissinger’s signature but not sent, Kissinger initialed the disapprove line and wrote: “Let me have discussions.”