212. Paper Prepared by the National Security Council Staff1
The Politics of the Tight Oil Market
The tight oil market is tempting governments of middle-rank oil powers to rattle the oil weapon and is multiplying the significance of political turmoil in oil exporting nations. Five current cases outline the shape of the future:
Nigeria’s Obasanjo threatens to end US “preference” in Nigeria’s oil export market if the long-pending joint project to provide LNG to the US east coast is frustrated by US Government action. Meanwhile, lesser Nigerians are passing the word that our oil interests may suffer in some way if we lift economic sanctions against Zimbabwe Rhodesia.2
Libya lets it be known that the Qadafi government is thinking of denying oil to the United States in retaliation for our denial of export licenses for large commercial transport aircraft.
Revolution in Iran, the prime cause of the present tight oil market, now threatens further reduction of the world’s oil supply, enhancing the political and economic power of the remaining producers. The current Arab rebellion in the Kuzestan oil fields, if not promptly suppressed, is almost certain to involve the rebels’ internal use of the oil weapon against the Tehran government, which cannot function without domestic revenues from oil.
Our current search for a way out of the oil supply/price bind leads us back to Saudi Arabia, whose cutback in oil production to normal levels seems to have been designed in part to build leverage over the Middle East peace process. Now, as we plan a new appeal for increased Saudi production, coupled with more credible restraint on oil imports by the industrial nations, we must consider the political price we may be asked to pay, now or next winter.
Finally, France and several European allies are probing for a new “dialogue” with the Arab oil producers in which Europe might dis[Page 660]tance itself somewhat from the United States should a climacteric in the Middle East peace process next winter evoke oil reprisals from the Persian Gulf.
None of these signals portends disaster. Nigeria has only limited alternatives to the use of the US oil companies’ distribution network and cannot afford a prolonged reduction of export revenues. Saudi and other conservative leaders in the oil world would be unlikely to support Nigeria over the Zimbabwe issue. Libya is unlikely to get Saudi or other conservative Arab OPEC members’ collaboration in an embargo against the United States, and a lone Libyan sanction against us would simply cause shifts in the world oil marketing pattern without reducing US supply.
A targeted anti-US embargo by all the Arab OPEC countries would, if not coupled with reduction in their total oil exports, send shock waves through the world economy, but the IEA sharing system would be likely to work in minimizing actual economic distress. However, a simultaneous cutback in production by the OAPEC nations would be a different, far more serious, matter than the 1973–74 embargo. Today Iran would be an ally of the Arabs rather than a collaborator with the United States, and the international oil companies would have much less latitude to increase other countries’ production than five years ago.
Nothing in our present political intelligence suggests Arab planning for an embargo. Rather, more subtle pressure, designed to impose pain on industrial nations capable of influencing US policies as well as directly on Washington, appears to be the strategy of Arabian peninsula leaders. Their objective is both political—movement in favor of Arab interests in the West Bank/Gaza and Jerusalem—and economic—reduction of the pace of depletion of their oil reserves.
It is in the formerly very marginal area of a million or so barrels daily oil production that prices and political clout are formed today. This seems likely to be the main arena of oil politics in the near future. In any event, the broader availability of the oil weapon is likely to whet the international political ambitions of oil state political leaders.
- Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 48, Oil, 3–6/79. Confidential. The paper is attached to a June 1 note to Brzezinski in which Poats wrote: “Here is a hurried response to your request for a paper for the President on the new politics of oil. Please let me know whether you want it further developed.” Poats added that Gary Sick concurred.↩
- International sanctions had been imposed on the white minority Rhodesian Government of Ian Smith, which had declared unilateral independence from the United Kingdom in 1967. In April 1980, the United Kingdom granted independence to Rhodesia, which was renamed Zimbabwe, and Robert Mugabe became the first Prime Minister.↩