Foreign Relations of the United States, 1969–1976, Volume XXXVI, Energy Crisis, 1969–1974

179. Action Memorandum From the Assistant Secretary of State for Economic and Business Affairs (Armstrong) to the Under Secretary of State for Economic Affairs (Casey)¹

Washington, April 20, 1973.

Your Participation in the Next Meeting of the OECD High Level Group of the Oil Committee—Paris, June 12, 1973

You are already aware of our interest in you heading the United States delegation to the next meeting of the OECD High Level Group of the Oil Committee. As you also know we are seeking to reschedule this meeting so that it takes place on June 12 following the OECD Ministerial session which you will attend June 6 to 8. The President’s energy policy message² will have been out one and a half months by that time. Also there will have been sufficient time to formulate USG positions and proposals for cooperation, including seeking support for them in a few key bilateral conversations. Your presence at both the Ministerial (where energy is a likely topic) and the High Level Oil Group (HLG) meetings will clearly demonstrate that our government is serious in its efforts to keep competition for petroleum from becoming a dangerous, divisive international issue.

The OECD Oil Committee and especially its restricted-membership High Level Group have long been the main forums for consultations and action on oil matters by the major consumer nations—i.e., US, EEC countries, Japan and Canada. The June OECD HLG meeting will be the most suitable time following the President’s Message for specific multilateral consultations on the energy situation. The OECD members expect and hope that specific proposals and ideas for cooperation on oil and other energy matters will be floated by the U.S. at this meeting. If we fail on this occasion to give concrete evidence that we are willing to take the lead in proposing and advancing cooperative efforts, this could well lead other major consumers to interpret the President’s message and the new oil import arrangements as a purely national response by the US to its worsening energy supply problem. This interpretation can be expected to lead them to intensify their own individual (or EEC group) efforts to meet their needs through unilateral and bilateral efforts. There is no need to describe the adverse price, investment and political repercussions likely from such unrestrained competition.

Either I and/or George Bennsky would remain on in Paris following the High Level meeting to chair the U.S. delegation at the subsequent two days of sessions of the Oil Committee proper.

Attached is a summary of the positions of other governments on cooperation as they have so far expressed them and suggested proposals that might be put before the OECD membership for discussion and consideration. This material will be the basis from which we seek inputs and clearance from the large number of USG agencies and offices with interest in the international aspects of the energy problem. Leadership (including memoranda from you and/or the Secretary) will be required to further this process. State must continue to represent the US at these meetings and we must respect the restricted nature of the HLG by limiting the size of the delegation.

Recommendation

That you review the attached suggestions as possible U.S. proposals for presentation at the OECD HLG and Oil Committee (Tab A).³ If they meet your approval we will begin preparing the position papers and statement for your use as head of the U.S. delegation to the High Level Group of the Oil Committee.⁴

Tab B⁵

VIEWS OF OTHER COUNTRIES

Some generalized conclusions may be drawn from the various country and group priorities summarized below. All major consumer nations in the West favor some form of increased cooperation among themselves. The nature and limits of this generalized desire for cooperation vary when specific alternatives are considered.

The highest degree of consensus exists for two concepts: cooperation on development of new sources of energy and increased protective security measures. Most major consumers favor expanding the range of energy supplies through the development of alternative sources. Japan prefers bilateral arrangements on research and development with the US rather than a multilateral framework. France wants to focus primarily on long-run aspects of this type of cooperation and can be expected to press for a united EEC front in dealing with the U.S. Increased security measures, such as emergency oil sharing arrangements and enhanced storage capacity, have wide support. Discussions are now underway to consider expanding, along the lines of the existing OECD European oil apportionment plan for time of emergency, an apportionment plan to include the US and other non-European members.

A policy of avoiding actions that would unduly provoke OPEC is a clear and common position of all major consumers. The continuum of specific positions ranges from extreme sensitivity on the part of the Japanese to reasonable concern by the US. The generally accepted position of avoiding confrontation with oil producing countries and the sensitivity of this subject are based on the potential threats of radical producing governments to use oil as a political or economic weapon. More responsible OPEC governments have recognized that producers and consumers alike must work toward some kind of accommodation. Saudi Arabia has though Yamani, its Petroleum Minister, suggested a special oil relationship with the United States.⁶ In advancing this proposal, Yamani made clear he sought, in part, to ensure that country’s future security as it becomes more and more a dominant and controversial force in the supply of world oil requirements. More recently Yamani, reflecting differences in thinking among Saudi decision makers, has been emphasizing the investment rather than special oil marketing arrangements of his proposal.

There is a growing body of opinion in Europe and Japan that consumer governments must have or will by events be forced to have a voice in future negotiations with the producing countries, either directly or through the oil companies, by advising on options and on the extent of commitments the companies should, or should not, make. This general desire for a greater government role varies in degree by country. Some countries favor greater government support for companies in future negotiations with OPEC. The bureaucracy of the EEC has come up with ideas that would put the companies under considerable common market government direction. No major country, except Japan has suggested immediate direct government-to-government contacts. Japan has suggested informally that it may be desirable for the consuming countries, through the OECD or other mechanisms, to enter into direct negotiations with OPEC nations to ensure the future availability of oil in the quantities required and at assured prices.

Recent conversations in Washington with visiting energy officials at the EEC and British Government⁷ has revealed a desire to see some not too formal arrangement fashioned in which consumer government energy policies, especially as they relate to competition for crude imports, could be synchronized.

Growing concern is also evident in Europe and Japan about the ability and willingness of the United States to continue to supply nuclear fuel to other nations at reasonable costs. Other major consumers welcome the expressed willingness of the US to share enrichment technology, subject to adequate safe-guards. However, progress in cooperation and the development of nuclear power has been slow indeed and a major effort will be required if atomic energy is to become a meaningful source of energy within the next ten years.

1) European Community. The Commission of the European Community’s attempts to develop a common energy policy has been consistently delayed and a common policy does not presently exist. Considerable weight must be given to the national policies of the major member states, which play the decisive role on energy matters. The Commission favors, in principle, cooperation among petroleum consuming and producing states. The Commission is also favorably inclined towards specific consumer cooperative measures dealing with security and stock building, more rational use of energy resources and the development of alternative sources of energy. The Commission has not adopted a position on a consumer-country organization of a “cartel” type, but hopes to avoid bilateral relations between consumer and producer governments. A concern exists that the formation of a consumer country bloc could lead to solidifying a common front by the producers.

We have learned that a draft document prepared by the Commission currently is being circulated among member governments. It proposes much closer future cooperation on and tighter joint control of energy among European nations and may be designed to counter what the Commission fears will be US and Japanese efforts to unilaterally seek assured oil supplies.

2) Japan. Japan is the most sensitive OECD member to reductions in oil supplies and would oppose any joint consumer bloc designed to confront OPEC. The Japanese continue to stress that their complete dependence on imports makes them unique and does not permit them to offend anyone. They oppose bilateral deals between producer and consumer governments that involve preferential treatment (such as the recent Saudi proposal to the US), but consider deals by companies for the purchase of crude or participation in a concession to be acceptable. Many Japanese Government and private sources favor “in principle” some joint producer-consumer organization, but reaction is not uniform. Closer consultation with the US and EC are sought, but on a bilateral basis. Japan probably would welcome a cooperative arrangement with the US, involving the OECD countries, for apportioning oil in an emergency, but only if a basis for burden sharing it considers equitable can be agreed upon. The Japanese would probably be very much interested in participating with the US in joint research and development projects for new forms of energy if this would lead to a privileged position for them.

3) United Kingdom. The UK is the most cooperative-minded of the major Community countries and might take the initiative on cooperative venture if the US does not. Thinking on the subject has reached the ministerial level. The UK supports efforts to expand energy supplies and to develop alternative energy forms. In the UK view oil has become too important to be left entirely to the companies and producer governments. At the same time, it wishes to avoid the appearance of confrontation with OPEC or introduce government-to-government arrangements supplanting the companies as negotiators or marketers. The UK would like to improve relations with OPEC producers, but sees some type of producer-consumer institutional relationship as far in the future.⁸

4) France. The French are interested in consumer cooperation, but place a much higher priority on cooperation in the long-run development of alternative sources of energy than on short-run defensive cooperation. They feel the scope for action in the short-run is very limited and the risks of provoking OPEC quite high. In addition, a precondition for French cooperation is the development of a common European energy policy along French lines. France does not want Community members to negotiate individually with the US and Japan. These policies seriously reduce the chance that France would be willing to join in cooperative ventures with other consumer bloc countries that could be considered as provacative to OPEC.

5) Germany. German officials have repeatedly stated their general support for expanded consumer cooperation, but they oppose the formation of a consumer’s bloc which they fear would lead to a strengthening of and confrontation with OPEC. Germany would be very cautious on cooperative proposals aimed at holding down prices, supporting major international oil companies or pressuring key countries to increase production. German officials do favor intensified consumer country consultations, cooperation on new energy sources and increased security measures such as emergency sharing arrangements and enhanced storage capacity.

6) Other European Countries. Other European countries have been less specific and less vocal in spelling out the extent or type of cooperation they would be willing to support. As a group they generally favor consumer cooperation, but seek restraint and avoidance of any confrontation with oil producing countries. Some industry sources believe that Italy is advocating cooperation while at the same time seeking a privileged position in Libya, Iraq and other producing countries.

7) Canada. The Canadians appear to favor cooperation with other consumer countries, but they would wish to proceed cautiously and on a multilateral basis. They are sensitive to insuring that Canadian interests be served and that adequate voice be given to smaller countries in any sort of cooperative arrangement.

8) Developing Nations. The oil importing LDCs have until recently regarded the “energy crisis” as a developed country problem. There are, however, some advanced developing nations, such as India, that are beginning to feel the economic pinch of increasing oil prices. In India’s case, the response has had to be curtailment of consumption and hence development. Brazil is another of the alerted LDC’s and is actively seeking world petroleum sources as both buyer and producer. While most LDCs have not yet felt the energy problem in a significant way, there is an awakening concern about the present burden of payments for oil imports and the costs they will have to pay in the future. This concern can be expected to mount as both their oil needs and oil prices move upward. These pressures provide a significant and exploitable force to complement developed country opposition to increased oil prices forced by OPEC on all oil buyers. The LDCs have, on occasion, through the U.N. and elsewhere sought special treatment of their needs by the oil producing countries.

9) Communist Nations. The USSR, Eastern European countries and the Peoples Republic of China generally are not considered part of the consumer country group. The Soviet Union is a net exporter of over one million barrels of oil per day, to both Communist and non-Communist nations. The PRC is not presently a significant importer or exporter of oil. As a group, the three areas play a modest role in the consumer equation. However, the possibility of incorporating some or all of them into planning a solution to the energy problem should not be discarded.

10) OPEC. All OPEC spokesmen have publicly opposed the formation of a consumer bloc as contrary to OPEC interests. Privately, many appear bemused at the failure of the consuming countries to join together to defend their interests. More responsible OPEC governments have recognized that producers and consumers alike must work towards some kind of accommodation. The former Secretary General of OPEC has indicated privately to U.S. officials that consumer country cooperation would only be “normal.” Failure of the U.S. and other major consuming countries to make clear their intentions towards OPEC and individual producing countries is a major source of preoccupation among the oil producing countries. The OPEC countries will be carefully watching U.S. and Western initiatives and can be expected to react promptly to signs of a “bloc approach.” They also are concerned by the alleged failure of the U.S. to take a more helpful and forthcoming “attitude” towards producer country problems and aspirations. There are certainly legitimate security, financial and development concerns on the part of Saudi Arabia and Iran that deserve serious attention by the U.S. and its allies.

1. Source: National Archives, RG 59, Central Files 1970–73, OECD 3. Confidential. Drafted by Bennsky and Mau; and concurred in by EB/ORF, EUR/RPE, L/EB, and SCI.
2. See Document 177.
3. Undated; attached but not printed.
4. Casey initialed his approval on April 26. Casey addressed the HLG on June 12; see footnote 9, Document 187.
5. No classification marking.
6. See Document 140.
7. Not further identified.
8. The views of the United Kingdom are in telegram 2929 from London, March 13; National Archives, RG 59, Central Foreign Policy Files.