117. Briefing Memorandum From the Assistant Secretary of State for Economic and Business Affairs (Katz) to the Under Secretary of State for Economic Affairs-Designate (Cooper)1
PRM #8—North/South Energy Issues
Issues: The attached paper frames North/South energy issues in the context of our overall energy policy.2 The paper focuses on two key issues: 1) whether we should take new initiatives to ensure adequate quantities of energy at manageable prices until domestic and consumer-coordinated action can cause a shift in the global energy balance, and 2) whether some initiative on financing LDC energy development would be useful to our energy and North/South objectives and, if so, the nature of that initiative.
Summary of Paper’s Analysis and Conclusions
—Toward Saudi Arabia: OPEC will continue to be the residual supplier for world energy demand for at least two decades. Saudi Arabia will remain the decisive force within the cartel on both production and pricing policies. With its massive oil reserves, Saudi Arabia has the potential to raise production substantially and ensure that sufficient supply is available for world needs without a major increase in real prices. Whether it will do so is problematic. Saudi Arabia can meet current revenue needs with production levels considerably lower than present ones. The paper assesses possible policy measures open to us to support our interest in Saudi Arabia (1) rebuilding an excess production capacity to maximize its influence within OPEC; and (2) continuing to produce at a level which constrains the ability of the revenue-hungry members of OPEC to raise prices.
In particular, the paper identifies Saudi concern over the status and value of its surplus assets as a potential constraint in Saudi production decisions. The paper recommends that we not get out in front on [Page 411] this issue but that we be prepared to discuss it if the Saudis raise it. Our opening position would be to avoid appearing willing to give special treatment for these assets. But since future production levels might later depend on the assets issue, the paper examines the advantages and disadvantages of:
—Offering preferential treatment for OPEC (Saudi) assets in return for 1) a Saudi commitment to progressively increase production levels, to continue to moderate price decisions within OPEC, and to produce enough oil to prevent future tight market situations, or 2) a Saudi commitment to enforce within OPEC an oil price agreement that provides for small, gradual price increases over a limited time period (5–6 years).
—Toward Mexico: Mexico has enormous oil reserves. It plans to increase production and exports, though at a slower rate than is technically feasible. It is in our interest to encourage and facilitate the development of the Mexican oil industry because most of its exports would flow to us and because these additional supplies on the world market would reduce somewhat OPEC’s pricing leverage. However, we must be sensitive to Mexico’s suspicion about foreign involvement in its oil industry.
Our paper recommends that we periodically advise the Mexicans of our willingness to help if they want our aid; that we be prepared to respond promptly to facilitate Mexican access to US technology, expertise, and/or finance for energy development; and that we study within the USG the merits of a bilateral oil agreement in the event that such an arrangement would subsequently appear attractive to Mexico.
—Toward the Energy Deficient Developing Countries: Imported oil is a major source of energy for most EDDCs. Development of indigenous energy supply would enhance their development prospects and marginally affect the global energy balance.
IBRD studies show many EDDCs have economically recoverable energy resources. Large amounts of capital are required, most of which must come from the private sector. However, increased financial participation by the IBRD in LDC energy projects could catalyze development (not exploration) of proven energy resources. IBRD participation would reduce the political risk to private investment and improve the investment climate. The Bank might provide essential funds for projects of utility to the host country but without export potential.
Aside from a status-quo position, the paper examines two options:
—to seek CIEC endorsement for increasing the financing capability of the IBRD for LDC energy development, and
—without providing new funds, to seek a CIEC recommendation that the IBRD give greater priority to lending for energy development.
- Source: National Archives, RG 59, Central Foreign Policy Files, P850109–2221. Confidential. Drafted by Creekmore on February 18.↩
- Attached but not printed. PRM 8, “North-South Strategy,” January 21, directed a study of U.S. policy options on relations between developed and developing nations. The Department of Energy was tasked with leadership on energy issues, the Department of State on relations with OPEC and other LDCs, and the Department of the Treasury on related financial issues. (Carter Library, National Security Affairs, Brzezinski Material)↩