Attachment
OPEC Negotiations
Negotiations began in November between the Persian Gulf members of
the Organization of Petroleum Exporting Countries (OPEC) and the international oil
companies over OPEC’s demand for
increased payments in compensation for revaluation of the “oil
dollar.” (See my memorandum of October 18 for background to the
negotiations.)4 The
negotiations, including the work of a technical committee which has
been meeting in Vienna in an attempt to sort out the complex fiscal
and economic relationships involved, have proceeded without either
incident or much progress. Both sides seem to be playing for time;
the OPEC members in anticipation
that a setting of new parities will strengthen their negotiating
claim of compensation on the order of 8–14 percent, and the
companies in the hope that they will be able to reduce the
producers’ claims through hard bargaining. Both sides appear
committed to carry the issue through by negotiation. The OPEC position on this score was
reaffirmed at the just-concluded conference in Abu Dhabi, which
called in its resolutions for a continuation of the negotiations. We
believe the negotiations will continue for the next several months,
at the end of which the companies will accede, with retroactive
effect, to pay some compensation beyond that provided for in the
Tehran and other pricing agreements.
Participation
The second OPEC demand, for participation, has not yet
been discussed in a formal manner. The Aramco partners are expected to meet on the subject in
January with Saudi Oil Minister Yamani (who has apparently been handed the
negotiating role by the other Gulf states). The recent OPEC conference limited itself to
endorsing further negotiations on the subject. There is substantial
difference between members of OPEC,
as well as between the various oil companies, in their positions on
the issue and it is probable that meaningful discussions will [Page 231] be ultimately possible
only on a country-by-country basis. For the moment, however, the
issue has been in effect put aside while the compensation issue is
brought to conclusion.
Events in Libya
The oil companies were already in a confrontation with Libya before
the LARG’s nationalization of
British Petroleum (BP) on December
7.5 The issue has been a Libyan
attempt to change previous agreements through imposition of a
two-level foreign exchange regime on the companies; the latter (able
to act in concert as a result of Department of Justice Business
Review Letters given October 22)6 have refused to abide by the new
regulation. This confrontation may now be deepened by the
nationalization of BP. Even though
the latter action was ostensibly taken in the purely political realm
of UK-Libyan relations, the companies
may see it as a test of strength with the LARG and contest it through efforts to block sale of
the nationalized oil. Whether or not the BP nationalization can or should be treated in
isolation from the other aspects of the LARG-company confrontation will depend to some degree
on decisions now being taken by the companies, who are meeting in
London. The oil companies appear determined to stand up to Libyan
pressure, and are strengthened in their position by the knowledge
that, even if Libya were to take sweeping action and close down all
production, European supply is assured for the winter as long as
Persian Gulf and other production can be maintained. The takeover of
BP, however, may serve to tie
down the LARG and restrain it from
taking action against the other companies in their continuing
confrontation over the exchange issue.
Conclusion
An early major oil crisis is not likely. Negotiations with the
Persian Gulf producers will probably continue, ending eventually
with a settlement in which the companies agree to pay some
compensation for currency revaluations. Negotiations on the more
important participation
issue will begin in earnest only after the compensation issue is
settled, and will most probably not come to a head this winter; both
[Page 232] sides appear to
recognize the importance of the questions involved and appear ready
to take a measured approach.
In Libya, however, there are always chances of a supply cut-off
resulting either from the currency exchange issue, or from strong
industry support to BP should it
contest the nationalization. In either event, the crisis could
probably be limited to Libya alone. The major Arab Persian Gulf
producers are unlikely in the present circumstances to support Libya
in its anti-British and Iranian posturing, and Libya in effect
further isolated itself by refusing to attend the latest OPEC conference. Iraq, the one state
which might feel inclined to support Libya, is probably too
dependent on current oil revenue to do so by taking action against
the companies. The other Persian Gulf states would clearly prefer an
OPEC with Iran and without
Libya than the other way around.
Even if a crisis in Libya does occur, the companies are in good
position to meet European petroleum needs for the remainder of the
winter. One major company has estimated that the industry could meet
a shutdown in Libya for 6 to 8 months, with some drawdown of
presently high European stock levels.
We continue to keep closely in touch with the international oil
companies over developments in the situation. Under Secretary
Irwin spoke to
representatives of several companies on December 2,7
at which time the companies set forth their objections to the OPEC demands, particularly for participation.
