3. Memorandum to the Files1
- Discussion with Robert Ellsworth on Oil Imports
I. Domestic Considerations
- The major sources of domestic pressure against higher imports are:
- The independent producers.
- The oil producing states:
- Alaska poses a special problem since the north slope is expected to start producing soon and the exact proportions of the reserves in that area will not be known for as long as five years. The supply also leads to a shipping problem since American flag shipping will be demanded for the intercoastal transport of this oil. The largest American flag tanker is 100,000 tons, while the more efficient foreign ships are in the 300,000 ton to 500,000 ton class. Thus there will be demands to subsidize the construction of two or three 400,000 ton American flag vessels.
- The major sources of domestic pressure in favor of higher imports
- Petrochemical industry.
- Refiners other than major oil companies.
- Politicians in the oil consuming states, particularly in New England where the development of the Machaisport, Maine trade center is under consideration.
The major international oil companies are neither for nor against increased imports.
II. International Considerations
- Venezuela and Canada have special quotas because of a Western Hemisphere agreement. They may be expected to oppose a general increase in U.S. imports which would reduce the value of their quotas.
- Iran wants a special quota so it can construct a hydroelectric plant with the revenue. G.E. is the contractor/supplier and can be expected to support Iran’s request. There is a need for some immediate work on this particular problem since the Shah is going to visit the President in June and an answer in May is desirable.
- One bizarre suggestion is to give the State Department a quota to distribute as it deems appropriate.
III. National Security Considerations
- The traditional argument against higher imports is based on the need for domestic crude supplies during wartime. Low quotas serve to subsidize exploration and the development of domestic reserves. (On the other hand, low quotas also lead to depletion of domestic reserves.)
- The two Suez crises are used to illustrate this point. In 1956 when there were no quotas (?) there were shortages in the U.S. and Western [Page 4] Europe after Suez closed. In 1967, with quotas, no shortages occurred. (U.S. producers, however, made a lot of money in the European market.)
- If low quotas are maintained there is a threat that Middle East suppliers will consummate long term agreements to provide “unfriendly powers” with oil. This would have an unspecified but disadvantageous effect on stability in that area.
IV. Organizational Considerations
- A preliminary report should be ready in 90–180 days.
- Immediate attention must be given to the Machaisport and the Iranian situations.
- Some sort of regular procedure should be established to permit concerned parties to communicate their views to the task force. Advisory panels might be established for this purpose.
- The office of the task force will be in the Executive Office Building.