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

66. Telegram From the Department of State to Certain Diplomatic Posts¹

Washington, January 8, 1971, 2236Z.

3565. Subj: Talks with US Oil Companies on OPEC Demands.

1. January 7 Ambassador Johnson met with reps of five US major oil companies (Esso, Mobil, Gulf, Texaco and Socal) and attorney John McCloy to discuss OPEC demands.

2. McCloy said cartel of producing countries now in very strong bargaining position because of combination of circumstances. Companies now seeking ascertain whether there are some leverages USG and consuming countries along with oil companies could use in present circumstances with producing countries. Diplomatic efforts he said might not be successful and at best there will be further price increases but because of threat to vital oil supplies some concerted action might be necessary. McCloy said Europe and Japan have felt oil companies have not been assiduous in protecting interests of consuming countries but oil companies are now trying to show consumers that interests of companies and consumers are the same in present circumstances.

3. Hedlund (Esso) said for years companies have kept down prices to consumers and posted prices today still lower than they were 15 or 20 years ago. Bargaining position of producing countries is now much stronger because of Suez Canal closure; fact that demand has grown faster than industry expected; Tapline closure; Libyan cutbacks; and now Venezuelan legislation increasing tax rate and giving GOV power to set tax reference prices.

4. Ambassador Johnson observed that political situation apparently ran away from Venezuela Government and we have pointed out to them that legislation will not encourage further investment in Venezuela. Companies thanked Ambassador Johnson for the Department’s initiatives with Venezuela.

5. Company reps said producing countries now threatening action which contrary to existing concession contracts and clearly without legal basis. Deputy Undersecretary Samuels asked in absence of the threat of unilateral action what would companies be prepared to do to modify present agreements in response to OPEC demands. Moses (Mobil) said companies felt no changes in current agreements were justified. However, Martin (Gulf) added companies were prepared to be flexible and forthcoming in present circumstances to OPEC demands.

6. McCloy asked whether Department could be helpful with Department of Justice in obtaining permission under anti-trust laws for companies to coordinate response to OPEC demands. Ambassador Johnson observed that joint action would involve more than just five US major oil companies. Foreign companies and US independent producers would also be involved. He said Department and Justice would need more information on nature of proposed joint action before firm determination could be made under anti-trust laws. He indicated however Department would be willing to consult with Justice on problem which clearly involves our vital interests and our relations with Europe and Japan.

7. Samuels observed that some authorization by Department of Justice would be seen by OPEC as diplomatic intervention by consuming countries. Questions raised of course involve prices and supply which are exactly the problems that concern Justice in regard to anti-trust problems.

8. Parkhurst (Socal) said it was very difficult to get consensus within industry on joint action to be taken but there were clear advantages to dealing with OPEC countries collectively. Johnson said companies should be extremely discreet about joint dealing with OPEC until we have opportunity to consult with consuming countries.

9. Assistant Secretary Trezise reviewed a meeting that morning with reps of UK, France and Netherlands (see septel).² Trezise said in particular it was suggested that Iranian Consortium bring into the picture companies outside the Consortium which are directly affected and keep them informed of developments. In particular he said it would be useful for companies to inform the Arabian Oil Company (Japan), ENI (Italy), Petrofina (Belgium), and Deminex (Germany). Trezise said how this should be done could be left up to Consortium members. Company reps indicated this would be possible.

10. Trezise said it had also been decided that it was not desirable at this time to convene OECD High Level Group on Oil to discuss problems; however it could be called on short notice. US, UK, French and Dutch reps will meet again in London week of January 18 to discuss developments if situation warrants.

11. Hedlund expressed fear that OECD or consuming countries collectively might set limits for oil companies on negotiations with OPEC and that companies could find themselves trapped between competing OPEC and consuming country demands. Trezise said we agree fully and to avoid problem Department needs all the information and candor on developments companies can provide.

12. Company reps discussed danger of meeting between Occidental and Libya January 9³ which could lead to escalation OPEC demands world-wide. They said they had given thought to some production sharing plan with Occidental and others who might be affected by production cutbacks in Libya. Shell has had discussions with Occidental, but no agreement has been reached. Samuels observed that if such arrangements became known to Libyans it could invite further retaliation by Libya. Companies agreed.

13. Company reps each said their respective companies were prepared in principle to accept Shell plan of collective negotiation with OPEC countries⁴ although they not at this time prepared to accept initial figures proposed by Shell for posted price increase and short haul premium. Johnson said we felt strongly no plans for joint action by industry with OPEC countries should be made known until we have opportunity to consult with consuming countries.

14. Company reps said Consortium members in London had proposed telling Iranians they have reached no agreement among themselves and will have to postpone January 12 meeting in Tehran. We said not going to meeting could be dangerous. Companies agreed and indicated some “hostages” would probably have to be sent to Tehran.

15. In separate conversation, senior Continental Oil officials, headed by Dr. John Kircher, head of Continental’s Eastern Hemisphere Division, met with AF Assistant Secretary Smith. Conversation focused principally upon prospects for reasonable settlement with LARG which company and Smith agreed did not appear encouraging. Company officials indicated willingness cooperate, assuming antitrust legal problem resolved, with majors to assure companies were not picked off one by one either in Libya or in wider OPEC negotiations. Also expressed belief situation had now reached point in both arenas where governments of consumer countries would have to take stand against seemingly endless escalation energy costs. Finally, Continental officials expressed belief company still has major role to play in development and production petroleum resources abroad, [in] view its flexibility with respect to arrangements it prepared make with host governments and its own vast technical knowhow. Smith assured company representatives Department following situation closely. Noted signs of intergovern-mental cooperation to meet problem are now appearing through OECD consultations. He cautioned, however, any agreed intergovernmental program of cooperation likely to be complex and long in preparation and therefore probably not completed in time to be of practical use in current situation companies face. Continental officials gloomily agreed.

16. Company reps promised to keep in close contact with Department on developments.

Irwin

1. Source: National Archives, RG 59, Central Files 1970–73, PET 3 OPEC. Secret; Exdis. Drafted by Clark (E/ORF/FSE); cleared by Trezise and in E/FSE, E/ORF, S/S, and E; and approved by U. Alexis Johnson. Sent to USOECD Paris, London, Bonn, Brussels, Paris, Rome, Tokyo, The Hague, Luxembourg, Copenhagen, Stockholm, Oslo, Caracas, Tehran, Tripoli, Beirut, Jidda, Djakarta, Lagos, Dhahran, USEC Brussels, USNATO Brussels, and Algiers.
2. Document 66.
3. In telegram 49 from Tripoli, January 11, the Embassy stated that Libya had presented “extreme financial demands” to Occidental and Bunker Hunt on January 9. Libya’s strategy replicated that of 1970, which focused on intense confrontation with individual oil companies and the exploitation of divisions among the companies and the gulf between the companies and consumers. The Embassy thought this could be countered, “if at all, only by broadening scope of confrontation beyond Libya and by establishing agreed community of interest among companies and between companies and consumers.” (National Archives, RG 59, Central Files 1970–73, PET 6 LIBYA)
4. See footnote 2, Document 68.