169. Memorandum From James H. Critchfield, Special Assistant to the Deputy Director of Operations, Central Intelligence Agency, to the Deputy Director of Operations (Colby)1

    • King Husayn’s Interest in a Multinational Oil Consumers-Producers Group
Among the three principal parties in the international oil and gas trade, the consuming countries appear, at first glance, to be least organized. OPEC feels, of course, that the oil companies and the consumer nations are together the adversary of OPEC. Actually, the oil companies have acted quite independently but coordination between the oil companies and their governments is increasing.
OPEC has existed more than a decade; its action record is in pricing negotiations in 1971–72 and participation negotiations 1972–73. There are polycentric tendencies in OPEC. Its future as an action instrument is not assured.
The international oil companies are well organized. Since January 1971 a policy group in London has been in business on (a) pricing and (b) participation. This has required for US companies a Justice Department waiver on the anti-trust side.
The UN and all of its affiliated organizations interested in resources, sovereignty, “Law of the Sea,” the human environment, labor, etc. are indirect forces only. There is no UN direct role in oil. A world regulatory agency is still not on the horizon but will come.
The OECD in Paris is the only existing and functioning international mechanism in energy affairs. All major importers are represented. The OECD energy committee is advanced as the center for research and analysis; it has some influence on policies of OECD nations; it has no action capability. The EC energy committee in Brussels is little more than a subordinate effort in the shadow of OECD. As Europe becomes more unified, it will be more effective.
OPEC and the London Policy Group have both demonstrated a capability for policy formulation, for making decisions and, through their members, for taking action.
Polycentrism is on the upswing in OPEC, in the London Policy Group and among the consuming nations. There are conflicting forces in each group—international interests holding all together and competitive national interests dividing them.
The US dominates the international oil industry because it had the power, the capital and the technology to develop the industry after World War II. The UK, because of its still formidable influence in the Middle East after World War II, maintained a strong foothold. Holland and France also acquired substantial concessions using their residual influence in colonial areas. Japan, Germany and Italy have been attempting belatedly to join the club. In Europe and Japan the tie between government and the oil companies is much closer than in the US. The UK, France, Italy and the Netherlands governments are major shareholders in their respective oil companies. We are moving into an era in which competition among oil companies and their governments for access to crude oil sources will be intense.
The options open to the US in considering collective action to protect its interests in international oil and gas affairs are:
To support the development of an international resources authority as a world organization, in or outside of the UN.
To support the development of the OECD as a forum for formulating policies representing the collective interests of the member nations in energy affairs and to seek collective action by interested nations within the framework of OECD.
To develop, in concert with the European Community and Japan, policies designed to protect common interests in the relationship with OPEC.
To develop a national US policy for protecting US energy interests abroad.
Option a. does not appear to offer a solution to our problems in the decade or two ahead. We cannot, however, neglect this area. The [Page 426]control of energy resources, international maritime shipping, the “Law of the Sea,” ecological considerations and the economic fate of the developing nations will all preoccupy the UN membership in the years ahead. While the US cannot neglect option a., it does not appear to be a realistic choice in terms of the question at hand.
Option b. offers the US a partial solution. The OECD will be a forum in which the basic requirement for a coordinated and regulated approach to the division of oil and gas from the exporting nations will be developed. At the same time, the pressures on the US, the EC and Japan to fiercely compete for access to energy resources will inhibit effort within OECD.
Option c. is a corollary to option b. and not necessarily in conflict with option d. It will almost certainly be necessary for the US to negotiate directly and separately with Japan and the EC to provide a framework of policy within which the OECD energy effort might be effective.
Under option d. the US has a great variety of choices of action. For example, the Gulf region, including the Arabian Peninsula and Iran, is where most of the world’s oil reserves are located. Here the US has an opportunity to develop solutions that cut across the conceptual lines which divide the exporting nations, the importing nations and the oil companies into three unified elements. In the Gulf, competition among the oil companies is increasingly evident; oil companies (including the “majors,” the “independents” and the national oil companies) are being forced into a closer association with their respective governments. Among its foreign policy options, the US has regional bilateral arrangements that will maintain US national interests without sacrificing US ability to participate in constructive programs under options a., b. and c.
King Husayn’s proposal should be handled with some caution. It is possible that he is reacting, at least in part, to Senator Javits’ proposal to him that an international group be organized to maintain control of the oil exporting areas to ensure that “another Qadhafi” does not emerge to add to the inherent instability in the oil-rich Middle East.2 If King Husayn has in fact reported accurately on Senator Javits’ proposal, Europe and the US might employ forces to control access to oil. We may come to that but it is not an attractive option and should not now be considered since the very consideration of it could, in the short term, prejudice other more attractive options.
The question of an “Oil Consumers Group” is, of course, an issue that is receiving much attention. Walter Levy is publicly seized with it. Eugene Rostow is reportedly a main mover in the current debate in unofficial circles. Maurice Adelman, from a somewhat different vantage point, probably set off the current debate. Reportedly, this issue will top the agenda at the international seminar on energy in Amsterdam later this month.3
I do not recommend that the Agency inject itself into this issue at this time. The White House is well along in organizing itself on the energy problem. On a day-to-day basis the Agency will continue to make a contribution; also, the new NIE on energy4 will be a timely contribution. One can ponder the logic of producing a great intelligence estimate and a great policy study concurrently and with limited coordination. With a little luck, the NIE may be published in advance of the unveiling of the energy study at the White House.5
James H. Critchfield
  1. Source: Central Intelligence Agency, Executive Registry Files, Job 80–M01048A, Box 4. Secret. On an attached routing slip, the Director of the Near Eastern Division wrote Colby that “We think Critchfield has usefully categorized ways of thinking about forms of joint action in support of consuming countries’ interests in Middle East oil. We have no difficulty with his analysis as far as it goes but think that divergent interests among the consumers would be a formidable obstacle. His comment on King Husayn’s proposal in para. 14 closely parallels the piece I sent you yesterday.”
  2. Neither King Hussein’s nor Senator Javits’ proposal has been identified.
  3. Walter Levy was an oil analyst and strategist, author, and consultant on oil issues to the Department of State. Eugene Rostow was Under Secretary of State for Political Affairs 1966–1969, and was the President of the Atlantic Treaty Association in 1973. Maurice Adelman, a scholar on industrial organization at MIT, wrote an article in Foreign Policy (Fall 1972), stating that the oil companies were agents of foreign powers, that there was no scarcity in oil for the coming 15 years, and that talk of scarcity served the interests of the companies.
  4. Document 185.
  5. The study was being prepared in response to NSSM 174, Document 171.
  6. Printed from a copy that indicates Critchfield signed the original.