17. Memorandum From the Deputy Assistant Secretary of State for Near Eastern and South Asian Affairs (Rockwell) to the Assistant Secretary of State for Near Eastern and South Asian Affairs (Sisco)1

    • Mr. Samuels’ Oil Meeting

At Mr. Samuels’ oil meeting today, Phil Trezise reported on the meeting last Saturday of the Shultz Committee.2

[Page 58]

He said that a consensus has developed in the Shultz group in favor of a tariff approach to the problem. Although the situation is still highly tentative, the general idea is that within a couple of years we would change over to a tariff system preferential to the Western Hemisphere—i.e. Canada, Venezuela and the rest of Latin America. The objective would be to establish tariff levels which would bring about a price in the United States per barrel of oil of $2.50, as against the present world price of $2.00 and the present price in the United States of $3.30. This would be achieved by setting a low tariff for Canada and Venezuela, say 10¢ per barrel, and a much higher tariff for imports from elsewhere.

Phil said that this procedure presented many difficult problems such as that represented by the important U.S. interests which depend on the present quota system. The Department will have to negotiate with Canada, Venezuela and others some kind of arrangement about assurances and commitments. Some of these difficulties and pressures may be so great that the President will not wish to confront them and perhaps the outcome of all of this will be a decision to keep the present system with some modification.

Phil made clear that the basis for the trend in the Shultz group toward a tariff system discriminating in favor of the Western Hemisphere was national security. There was a feeling in the Shultz group that if we open the gates to Middle Eastern oil a situation could develop where 50% of our oil supplies would be coming from Kuwait and Libya. There was a strong feeling that we should not become dependent upon Middle Eastern suppliers because of the inherent instability in the area and the likelihood of interruption of supply. Accordingly, said Phil, there was “zero” chance of acceptance by the Shultz group of the position that access to the U.S. market should be open to all suppliers, without discrimination.

Phil commented that under a tariff system Middle Eastern suppliers would be in a better position than they are under the existing quota arrangement although he foresaw that most of the oil coming into the U.S. under the new arrangement would be Venezuelan or Canadian. However, Middle Eastern suppliers could move into the European market now being supplied by Venezuela. Phil could see no particular way that Iran could obtain preferred access to U.S. markets except by getting under the tariff price. There was the possibility of company-to-company arrangements but this might involve legal difficulties for the U.S. Government.

Under the new arrangement the President would be given wide discretionary powers to adjust tariffs up or down. Thus, if experience showed that the tariff on non-Western Hemisphere oil was too high to permit achieving a desired price in the U.S., it could be lowered. There [Page 59] might also be a provision for a review of the structure every 4 years or so.

The new tariffs could be established by the President without new legislative authority on grounds of the interest of national security. In effect, Phil said, the U.S. consumer would be asked to pay for U.S. security.

Phil said that the oil industry has already got wind of this trend in the Shultz Committee and is very opposed to it. The matter is obviously a very delicate one and should not be discussed outside the Department. We may be asked to take a formal position before too long on a paper coming from the Shultz group.3

  1. Source: National Archives, RG 59, Bureau of Near Eastern and South Asian Affairs, Office of Arabian Peninsula Affairs, Lot 72D30, Records Relating to Saudi Arabia, Box 4, Saudi Arabia Pet, Petroleum General 1969. Confidential. A copy was sent to Davies, Van Hollen, and all NEA Country Directors.
  2. November 8; see Documents 15 and 16.
  3. A handwritten notation reads: “Nothing re gradual phase-out of tariff.”