204. Note From Henry Owen of the National Security Council Staff to the President’s Assistant for National Security Affairs (Brzezinski)1


You asked for two memos:

1. A memo on contingency plans for reacting to OPEC use of its pricing power as a means of short-term pressure on the US, e.g., in connection with the Arab-Israeli dispute. Such a memo (by Rud Poats) is attached at Tab A. It describes the ways in which we would cooperate with other countries to cushion the effect of oil shortages. It does not describe how we would counterattack; neither Rud nor anyone else has any good idea as to how to do this. Rud suggests a group review of possible counter-measures; let me talk to Dick Cooper and Tony Solomon and I’ll be back to you about this.2

2. A memo on our long-term response to continually rising oil prices. Such a memo (by Jim Cochrane and me) is attached at Tab B. As you will see, although this memo mentions possible counter-actions, its main emphasis is on the need to reduce demand and increase production.

Henry Owen3
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Tab A

Memorandum From Rutherford Poats of the National Security Council Staff to the President’s Assistant for National Security Affairs (Brzezinski) and Henry Owen of the National Security Council Staff4


  • Contingency Plans for Coping with or Countering Severe OPEC/OAPEC Actions

We have three contingency plans for absorbing a serious interruption of foreign oil supply: the “International Energy Program” (IEP) agreement for allocation of an oil shortage among the 20 IEA member countries; withdrawals from the US Strategic Petroleum Reserve; and domestic crude and product allocations. In all likelihood, the three measures would be combined in a severe, prolonged shortage.

We have no agreed contingency plans for taking counter-measures against various combinations of oil producing nations that might conduct a long-term embargo. Nor do we have a contingency plan for retaliating against a further radical price increase by OPEC or some of its members.

Supply Interruption

The IEP scheme provides for sharing the burden of either a targeted embargo or a random interruption of production. It may be triggered when either a member or the entire group faces a loss of more than 7% of total oil supply as compared with a recent 12-month consumption average. The IEP has been simulation-tested and its international aspects have been de-bugged. A refresher training program is scheduled next month for oil company officers who would work with the IEA secretariat in operating the program. The regulatory framework of USG participation is in place: the third of three Energy Department regulations required to carry out mandatory allocations, refinery controls and import-restraints was published today. OMB now is reviewing an Energy Department legislative package including extension of authority expiring June 30 for US oil companies to get anti-trust clearances to cooperate in the IEP supply allocations.

Plans for domestic execution of the IEP may need re-thinking in the light of the Congressional action rejecting three of the four DOE [Page 643] mandatory conservation programs and the rationing plan. However, the basic US response plan is built on mandatory DOE allocations of crude to refineries and control of refinery slates. The allocation plan leaves end-user shares to the option of private distributors, with limited exceptions, probably meaning long lines and shortened hours at gas pumps and supply of oil to homes and other customers based on a fraction of last year’s use. At a level of 15–20% gasoline shortage, rationing would be necessary to minimize outrage and mayhem.

At least annually since the 1973 OAPEC embargo there have been reviews by State, Energy, Treasury and other USG staffs of proposed countermeasures against embargoing nations. Recently several suggestions for retaliating against a further radical increase in OPEC prices have been examined. A US counter-embargo of key exports such as grain, arms and machinery has been judged likely to be futile because the principal perpetrators of an oil embargo have very small populations, great financial reserves, and very little need for our key exports; in most foreseeable situations they could get substitute supplies from non-US sources. A USG export price surcharge equal to a further OPEC price increase or oil surcharge probably would have the same consequence as a US embargo, simply shifting the business to the countries that won’t join us in concerted price reprisals. An export price surcharge in the form of a tax on US exports is unconstitutional; no manageable alternative to an export tax has been found.

Systematic contingency planning on active countermeasures has not been undertaken since 1975, to my knowledge. Energy policy makers have considered the risks of military or extreme political countermeasures as disporportionate to the costs of foreseeable oil price increases. The probability of a further Arab oil embargo has been discounted heavily in recent years, but this optimism could change if the Israeli-Egyptian negotiations fail to produce movement on the Palestinian-Jerusalem issues by early in 1980.

You may wish to commission a limited group review of contingency measures in this field, bearing in mind the small likelihood of finding a usable reprisal tool and the risk of leaks during Phase II of the peace process.

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Tab B

Memorandum by James Cochrane and Henry Owen of the National Security Council Staff5


  • Long Term Response to Rising OPEC Oil Prices

Ever since the embargo of 1973, there has been discussion within the United States about how to deal with the long-term pricing problem posed by the OPEC cartel. It is easy to think up gimmicks, but most of these don’t get to the core of the problem: how to ease the world oil market, by increasing supplies of energy and reducing demand. Unless progress is made on these fronts, “dialogues” between crude oil producing and consuming countries will not get very far, since we will lack needed bargaining power.

Nor are threats of the industrial countries acting as a monopoly—either in purchasing oil or in boycotting exports (e.g., of food) to oil-producing countries—apt to be credible, given the evident distaste of Japan and European countries for such policies. The only idea along this line that may be worth exploring is Charlie Schultze’s notion of imposing a tax on some of the Summit countries’ exports to OPEC countries, in an amount sufficient to offset the effect of any future increase in oil prices. Even this would probably be objectionable to European countries and Japan.

In the end, we come down to the plain fact: OPEC decisions are shaped largely by judgments of what the world oil market will bear. Indeed, the OPEC price of oil is now probably a bit below the price that would clear the world oil market. Market forces are, if anything, pushing upward instead of downward on the Saudi market price.

So the question is how to affect these market forces. We will submit to the President specific proposals to increase production and reduce consumption, which could be acted on at the Tokyo Summit. Each of these proposals will run up against powerful domestic objections, since restricting consumption is unpopular and increasing production involves costly investments. If we can’t overcome these objections, there is little prospect of devising a successful long term oil price strategy.

  1. Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 48, Oil, 3–6/79. Confidential. Sent for information.
  2. Brzezinski wrote “OK” next to this sentence in the margin.
  3. Owen initialed “HO” above this typed signature.
  4. Confidential. Sent for information.
  5. Confidential.