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193. Memorandum From the President’s Assistant for National Security Affairs (Brzezinski) to President Carter 1

SUBJECT

  • Crude Oil Intelligence

Today you have received the Domestic Policy Staff’s status report on the Interagency Energy Group. The group is charged with producing options papers for you on several interrelated energy issues, including domestic crude oil pricing and a program to reduce US oil consumption by 5 percent.2

The NSC Staff is actively participating in the group. Independent of that activity, I thought you might want to read the DPS report in conjunction with best present estimates of the international crude oil situation. Three documents are attached:3

—1979 Oil Supply Expectations (Tab A)

OPEC: Price and Production Developments (Tab B)

—Free World Oil Market Through First Quarter 1980: Possibility of Supply Shortfalls (Tab C)

To summarize, there is substantial uncertainty about the Saudi crude oil production response to the Egyptian-Israeli peace treaty.4 We should have a clearer picture of this after Warren Christopher, General Jones and I return from Saudi Arabia and Jordan. We do know that the Iranian crude oil production this week was 2.5 million barrels, low when compared with mid-1978 daily takes of 6 million barrels, but higher than many experts predicted possible. At the March 26 OPEC Ministerial, Ali Ardalan, Iran’s Minister of Economic Affairs and Finance, will state that Iran is technically unable to produce more than 3–3.5 million barrels per day during the next three months. One key to the outcome of the OPEC Ministerial is the Saudi reaction to this information, both their production response (moving above or below the current daily take of 9.5 million barrels) and their position on price. The [Page 620]Saudis appear to want the OPEC Ministerial to result in immediate imposition of what would have been fourth quarter 1979 prices.

On March 26, the OPEC Ministers will have to weigh the Iranian production information, and the Saudi production response, with estimates of market demand. It is evident that consensus on price has not yet been reached.5 Therefore such a consensus can be shaped by energy decisions taken within the major oil-consuming nations.

  1. Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 48, Oil, 3–6/79. Secret. Sent for information.
  2. See Document 191.
  3. Tabs A–C are attached but not printed.
  4. While the peace treaty was not formally signed in Washington until March 26, the Israeli Government announced on March 14 that the Cabinet had voted to accept a compromise on the remaining two issues that stood in the way of an accord. (The New York Times, March 15, 1979, p. A1)
  5. OPEC held an “extraordinary” meeting in Geneva March 26–27, after which it released a closing statement. The conference: 1) agreed to “take steps to instruct lifting companies to guarantee the quantities supplied to developing countries”; 2) agreed to “monitor the prices charged by the lifting companies to developing countries continuously”; 3) expressed concern about “the price speculation practices on the part of the major and trading oil companies in the open market” and “the lack of necessary measures” taken “by the industrialized, developed countries with a view to controlling the market situation”; and 4) “decided to undertake only a moderate and modest adjustment in the price by bringing forward the price adjustment of the fourth quarter, 1979” and “applying it as of 1st April, 1979,” making the market price of crude $14.546 at that time. (Telegram 3036 from Vienna, March 29; National Archives, RG 59, Central Foreign Policy Files, D790146–0535) The OPEC statement was published in full in The New York Times, March 28, 1979, p. D11.