9. Memorandum From the Deputy Assistant Secretary of State for International Resources and Food Policy (Katz) to the Assistant Secretary of State for Economic Affairs (Trezise)1
- Comments on Task Force Paper on Possible Foreign Oil Supply Interruptions2
The Task Force concluded in its paper that substantial dependence on foreign oil supplies is unlikely to be prejudicial to the interest of the United States in any war or emergency in which the United States might be drawn. Before drawing such a conclusion we believe that closer attention should be given to the problem of US dependence on oil from Arab countries. These problems are:
- Arab countries might all cease oil exports to the US at the same time.
- The Task Force paper recognizes that Arab-Israeli tensions in the Middle East could result in disruption of oil from all Arab countries for up to a year. Arab countries in 1967 acted in concert to deny oil to the United States and other countries, and the possibility that they would do so again in time of crisis cannot be discounted, even though on the surface to do so would appear to be against their own interests. The recent Libyan coup3 has replaced a conservative regime with Arab [Page 36] nationalists who are much more likely to maintain solidarity with other Arab states against the West, particularly the United States, on issues such as Palestine.
- Arab countries have the financial reserves to limit oil exports and still remain viable for a sustained period of time.
- The combined financial reserves of the three principal Arab oil exporting countries, Libya, Kuwait, and Saudi Arabia, are about $3.1 billion. Their combined annual rate of imports plus the annual subsidies to Jordan and Egypt, are only $2.1 billion. (See Appendix A.) Imports would be less should oil activity slow down or stop. It is therefore evident that these countries have the capability of restricting oil exports while maintaining necessary imports for a sustained period of time.
- Arab countries will continue to dominate the oil export market in the foreseeable future.
- Although oil supplies are becoming more diverse, projections for availability in 1975 (see Appendix B) show that Arab countries will still have well over twice the export capacity of non-Arab countries in the Eastern Hemisphere. Oil reserves in Arab countries are about 315 billion barrels, while reserves in the rest of the non-Communist Eastern Hemisphere are only about 73 billion barrels, of which 54 billion are in Iran. Arab oil costs less to produce than any other oil in the world, and if US imports were liberalized, most new imports would come from Arab countries. Of all Eastern Hemisphere countries with large known reserves in place which could be made available for export at a relatively rapid rate only one is non-Arab—Iran.
- Imports of large amounts of Arab oil could not be entirely replaced from non-Arab sources in the Eastern Hemisphere.
In 1975 there will still be only three main non-Arab supplies of oil in the Eastern Hemisphere—Iran, Nigeria, and Indonesia. Based on 20 percent shut-in capacity in these countries (companies usually prefer to operate at 85 or 90 percent of capacity) these three countries in 1975 will have only about two million b/d spare capacity. Non-Arab countries in the Eastern Hemisphere now have less than one million b/d spare capacity (see Appendix C). In the event of an emergency which denied us Arab oil, the United States would therefore expect to increase imports from non-Arab sources by this amount at most; if the Arabs were also to deny oil to Europe, the Europeans would compete with us for the remaining available oil.
If all oil import restrictions were lifted, the Interior Department estimated in its submission to the Task Force that we would import between 5 and 7.78 million b/d in 1975. Of these imports 3 to 6 million b/d would be likely to come from low cost Arab countries. Such a quantity clearly could not be made up by non-Arab sources in the Eastern Hemisphere.
- Source: National Archives, RG 220, Records of the Cabinet Task Force on Oil Import Control, Box 21, Agency Comments to Staff, Department of State Comments on Fact Papers. Limited Official Use. Drafted by Clark and cleared in E/FSE. The appendices are attached but not printed.↩
- A reference to Task Force Paper No. A–8, “Possible Foreign Oil Supply Interruptions.” (Ibid., Box 20, Fact Papers “A Draft Series”, September 1969)↩
- Documentation on the September 2 coup in Libya and its implications for U.S. oil policy is in Foreign Relations, 1969–1976, volume E–5, Part 2, Documents on North Africa, 1969–1972, Chapter 3.↩