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

214. Memorandum From the Executive Secretary of the Department of State (Tarnoff) to Secretary of State Vance¹

Washington, June 7, 1979.

SUBJECT

• Your Breakfast Meeting with the President Friday, June 7

1. International Energy Policy. As you know there has been considerable foreign criticism of some recent decisions that we have taken in the field of international energy. The $5 per barrel entitlement decision has drawn the most attention in foreign government and press circles.² You might want to alert the President to the full dimensions of the problem along the following lines:³

—Energy may be the most important single issue discussed at the Tokyo summit, and we have to make sure that the moves that we make in the energy field are coordinated with our Summit partners and allies. While the U.S. will have to make energy decisions on its own, we have an interest in gaining the maximum understanding from our major trading partners whenever possible. The senior administration officials charged with developing energy policies—including Cabinet officers—should be fully aware of the foreign policy dimensions of our energy policy decisions. We cannot afford a repetition of some of the shocks given our friends by several of President Nixon’s unilateral decisions in the economic field. The State Department will be working closely with other government agencies and the NSC to make sure that our approaches to foreign governments on energy issues are well coordinated.

—With the Schmidt visit, we have made considerable progress.⁴ One reason for this success was the work of the recently organized oil policy inter-agency task force directed by Secretary Blumenthal. It might be useful to continue the task force beyond the Summit to insure that all aspects of our foreign oil policy are under continuous inter-agency review.

—On a substantive point, we should hold open the possibility of triggering the IEA sharing mechanism and controlling spot market bidding, if our approach to the Saudis this weekend on increasing production gets negative results. These steps may be the only way to curb further price increases until additional conservation efforts begin to take hold.

Attached is the summary section of a recent S/P paper on policy options in the international energy field at Tab 1.

[Omitted here is material unrelated to energy.]

Tab 1

Briefing Memorandum From the Director of the Policy Planning Staff (Lake) to Secretary of State Vance ⁵

Washington, June 5, 1979.

U.S. Oil Policy

Attached is a memorandum describing the present oil market situation and summarizing a number of steps that the U.S. and other oil importing nations might take to counter the present critical surge in world oil prices.⁶

The paper has not been cleared with other bureaus in the Department. But in view of the urgent need for strong and concerted action by the oil importing countries, I thought it would be useful for you to have a paper which pulls together the basic facts and summarizes various policy options. Almost every idea in this paper is controversial, within the government as well as outside.

Immediate Measures

—Announce at the Summit that the major industrial countries have agreed a) to stop purchasing oil in the spot market above official OPEC prices, b) to trigger the IEA sharing agreement to assure equitable distribution of available supplies and c) to take additional conservation measures to reduce consumption by 5–10% in 1980.

—Press the OPEC members, jointly or individually, in light of this determined consumer action, to exercise moderation in setting official prices.

—Ask Saudi Arabia to increase production, or at least use a potential increase to press for an OPEC price freeze.

—In the event OPEC continues to hold back supplies and push up prices, consider a consumer agreement not to import oil priced above the present levels.

—Conclude a gas purchasing agreement with Mexico.

Medium Term Measures

—Seek continuous discussion or dialogue among consumers, OPEC, and non-OPEC oil exporters to examine the future world oil supply and demand situation.

—Encourage closer contact between OPEC and non-OPEC oil exporters like Canada, Britain, Norway and Mexico, which can act as a moderating force on OPEC. Perhaps encourage them to seek membership.

—Provide multilateral financing and investment guaranties, and unilateral tax incentives to stimulate petroleum exploration and development in the developing countries.

—Examine the desirability of negotiating a long-term commodity agreement for oil to provide predictability in production and pricing.

—Create a U.S. Government purchasing agency to act as an independent check on private oil company transactions in the international oil market.

1. Source: National Archives, RG 59, Executive Secretariat Files: Lot 84D241, Box 3, President’s Breakfasts, 5/1/79–8/31/80. Secret; Nodis.
2. According to an undated NSC briefing paper, the Economic Regulatory Administration of the Department of Energy announced a temporary program, lasting from May 1 to August 31, “for a $5 per barrel credit within the entitlements program on imports of middle distillates,” or home heating oil, because of “concern over low levels of U.S. distillate stocks.” The paper noted that officials at the OECD “howled” about the decision, with the EC Executive Commission telling the Ambassador in Brussels that the Community viewed the “subsidy” as “an attempt to shift U.S. energy difficulties to them.” In addition, Schlesinger “was criticized for failing to warn his IEA colleagues during the May 21–22 meeting,” and Van Lennep “privately told the U.S. Government that the program ‘undercut the credibility of the IEA.’” (Carter Library, National Security Affairs, Staff Material, International Economics File, Box 32, Rutherford Poats File, Summit: Tokyo)
3. Carter held a breakfast meeting on June 7 from 7:30 to 9 a.m. with Vance, Harold Brown, Brzezinski, and Hamilton Jordan. (Ibid., Staff Office Files, President’s Daily Diary)
4. Chancellor Schmidt visited Washington June 6.
5. Secret. Drafted by K. Lissakers. Copies were sent to Cooper and Katz.
6. The memorandum was not found.