Foreign Relations of the United States, 1969–1976, Volume XXXVII, Energy Crisis, 1974–1980

183. Memorandum From Rutherford Poats of the National Security Council Staff to the President’s Assistant for National Security Affairs (Brzezinski)¹

Washington, January 16, 1979.

SUBJECT

• Follow-up to Guadeloupe Discussions on Oil²

All concerned (in State, CIA, DOE and NSC) with forecasting Iranian oil production agree that we should expect a prolonged and substantial shortfall, with a serious possibility of further use of the oil weapon by contending Iranian political factions if not by a new government(s).³ Management of Iranian production by foreign oil companies through expatriate technicians seems to be finished. The necessary programs of investment in oil well rehabilitation and enhanced recovery have been suspended for three months and are unlikely to resume for at least another three months. Meanwhile, world oil stocks will be drawn down, despite partially offsetting increases in other OPEC country exports.

Consequently, the world oil market will be tight through at least the first half of 1979. In this situation, we cannot reasonably expect political appeals to the Saudis or market conditions to cause an undermining of the scheduled OPEC price increases. Our best hope is to avoid real shortages by using the Iranian situation to persuade the Saudis to set aside arbitrary production ceilings and to encourage their Arabian Gulf neighbors to do the same.

State is sending an instruction to West to tell the Saudi government that (1) we appreciate their authorization of Aramco’s continued production at maximum levels (10.3 mmbd) to help offset the Iranian shortfall, (2) even after Iran has resumed substantial oil exports there will be a need for continued Saudi and other Arabian Gulf production above normal limits to restock inventories, and (3) the Iranian case further emphasizes the importance of expanding Saudi capacity.⁴

I understand that Dick Cooper plans to suggest to his British, French and German counterparts attending the OECD XCSS meeting tomorrow that they use the first two points summarized above.

Saudi responses to these approaches will help define two issues for the PRC meeting in preparation for the Fahd visit: whether and how to press Fahd during the visit to commit to lifting the 8.5 mmbd limit for all of 1979; and whether and how to influence a Saudi decision to proceed with the stalled investment program to raise capacity to 13 mmbd.

1. Source: Carter Library, National Security Affairs, Staff Material, Middle East File, Box 121, Stoddard File, Oil, 11/77–11/79. Secret. Sent for information. Copies were sent to Aaron, Owen, and Quandt. A notation on the first page reads: “ZB has seen.”
2. Carter met with Giscard, Schmidt, and Callaghan on the island of Guadeloupe January 4–5 to address common issues, including the Iran crisis and the energy issues associated with it. On January 10, Brzezinski sent a memorandum to Aaron and Owen informing them: “The four agreed informally that we would explore the possibility of obtaining an OPEC price increase stretch-out. The basic notion would be that the first price increase would be delayed by three months; the second by some six months; etc. Our allies are supposed to send messages along these lines to Saudi Arabia prior to the Fahd visit to Washington.” (Ibid.)
3. On January 16, the Shah left Iran for Cairo, beginning what became a permanent exile. Ayatollah Ruhollah Khomenei returned to Iran on February 1, after having been exiled himself by the Shah for 15 years, and on February 11, the Bakhtiar government, which Khomeni declared illegal, resigned. Documentation on the revolution in Iran is scheduled for publication in Foreign Relations, 1977–1980, volume X, Iran: Revolution, January 1977–November 1979.
4. See Document 182. The instructions were sent to West in telegram 11004 to Jidda, January 15; see footnote 6 thereto. On January 22, West reported that he had a 2-hour meeting with Prince Fahd the previous day. Analyzing his meeting with the Crown Prince, and one with Yamani the day before, he wrote: “Both [Fahd] and Yamani have been extremely sensitive to USG’s criticism of the OPEC price increase and it was my sense that he welcomed this opportunity to demonstrate once again SAG’s friendship and concern. However, both Fahd and Yamani recognize the leverage they now have in terms of supply because of Iran.” (Telegram 567 from Jidda; National Archives, RG 59, Central Foreign Policy Files, D790031–1032)