86. Memorandum From C. Fred Bergsten of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)1

  • SUBJECT
    • World Oil Situation

State’s memorandum (Tab A)2 informs you of the details of an agreement signed on February 14 between the six Persian Gulf members of the Organization of Exporting Countries (OPEC): Abu Dhabi, Iran, Iraq, Kuwait, Qatar, and Saudi Arabia—and representatives of the thirteen oil companies.

The agreement was effective February 15 and continues until the end of 1975. It contains assurances designed to establish security of supply and stability in the financial arrangements between the oil companies and the governments of the Persian Gulf for the five-year period. Payments by the companies to the governments will increase [Page 212]about 30¢ per barrel in 1971 (from the current rate in the Gulf of about 95¢ to about $1.25) and about 50¢ per barrel by 1975 to reach a total of about $1.45. Total revenue to the Persian Gulf states will increase by about $1.4 billion in 1971 as a result of the settlement, and by nearly $12 billion over the five-year period.

The agreement applies only to crude oil exported directly from terminals in the Persian Gulf. Terms for crude exported by Persian Gulf countries through pipelines to terminals in the Mediterranean will reflect the outcome of negotiations for new oil prices which are currently being conducted by Libya on behalf of Mediterranean producers. These negotiations, in which Algeria, Iraq and Saudi Arabia are also parties, have demonstrated that Libya is taking a tougher line than did the Iranians, who represented the Persian Gulf producers in the previous negotiations. Libya’s demands would increase the payments by the companies to the governments by an amount significantly higher than that demanded at the outset of the Persian Gulf negotiations.

State (Tab B)3 believes our posture should be the same as it was toward the Gulf talks: we should encourage the companies and the Libyans to keep talking to each other, and avoid identification with any specific set of company offers. (We know from experience how flexible the companies can be when the heat is turned on.) State points out that we should also make it clear through consultations with our Western European allies that we share their interest in seeing the flow of Libyan oil to Western Europe continue without interruption. (There is some grumbling there that the area is hostage not only to the producing countries, but also to the American petroleum companies.) Finally, State feels it is clearly in our interest to avoid politicizing the issues between the companies and Libya.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Box 367, Subject Files, Oil 1971. Secret. Sent for information.
  2. Attached but not printed. Tab A is a February 23 memorandum from Arthur A. Hartman, Staff Director of the Under Secretaries Committee, to members of the Committee.
  3. Attached but not printed at Tab B is a February 23 memorandum from Eliot to Kissinger.