220. Telegram From the Department of State to Selected Diplomatic Posts1
161420. Subject: Presidential Letters on Oil Prices.2
1. Embassies are requested to deliver letters from President Carter to head of government at earliest opportunity. Embassies Jidda and Jakarta only may either deliver letter or make the points orally at their discretion. Signed copies of letters will not repeat not be sent. Text follows:
2. First paragraph: Please note variations in opening paragraph.
A. For Caracas only: Vice President Mondale has told me of his excellent meetings with you and your associates in Caracas in March. I understand that action is now moving forward on a number of topics that you discussed, and I look forward to working with you in the months ahead.
(New paragraph)
In the spirit of close and continuing cooperation between our two countries, I thought that you might find it helpful before the June 26 OPEC meeting3 to have some indication of the measures that I believe [Page 680] the leaders of the seven main industrial countries will agree on at the Tokyo Summit meetings next week.
B. For Jidda and Quito only: In the spirit of close cooperation and friendship that has characterized relations between our countries, I thought that you might find it helpful before the June 26 OPEC meeting to have some indication of the measures that I believe the leaders of the seven main industrial countries will agree on at the Tokyo Summit meetings next week.
C. For Lagos, Doha, Kuwait, Abu Dhabi, and Jakarta: I thought that you might find it helpful before the June 26 OPEC meeting to have some indication of the measures that I believe the leaders of the seven main industrial countries will agree on at the Tokyo Summit meetings next week.
3. Following six paragraphs for all repeat all letters:
A. First, we will commit ourselves to a series of long-term steps to increase the supply of energy from alternative sources. The United States is already taking a number of wide-ranging actions toward this goal. Through such measures I am convinced that the economies of the industrial countries can and will adjust to a situation in which oil is becoming an increasingly scarce resource.
B. But these measures will take time to produce results. No economy can adjust successfully to very sharp and sudden increases in the price of such an important commodity as oil. The consequence of such increases is to promote not adjustment but unemployment and inflation. This would mean a worldwide recession, a speedup of inflation, and a significant reduction in the value of financial assets. No country would be immune to these developments’ effects.
C. The effects would be particularly devastating for developing countries that depend upon petroleum imports. Many of these countries already face large external deficits and have borrowed heavily from abroad to pay for past petroleum price increases. Not only would these countries need to borrow more to finance any increases in petroleum prices, but they would pay higher prices for other imports, both because of the resulting increase in inflation elsewhere and because of reduced demand for their exports in recession-plagued economies of their trading partners.
D. I believe, therefore, that governments of the Summit countries meeting in Tokyo will also undertake a second series of measures, designed to ease the current imbalance between world oil demand and supply and to help create greater stability in the world oil market. These steps should include measures to reduce consumption and imports, and to establish a means of continuously monitoring performances in achieving specific import targets.
[Page 681]E. Through these and other measures more specifically addressed to the problem, we will seek to diminish substantially the role of the spot market—and thus bring more order into the world’s oil pricing and marketing system. We recognize that although the spot market is only marginally important in quantitative terms, it has considerable psychological effect on the price climate.
F. These short-term measures will only be effective, however, if they are matched by efforts of producer countries to stabilize prices and increase production during this transitional period. The Tokyo Summit’s actions will be an effective response to urgings by oil exporting countries to reduce reliance on oil. We hope that they will thus help to make possible a constructive partnership between oil exporting and importing countries to strengthen the world economy.
4. For Jakarta only (closing paragraph): We share your desire for a highly successful meeting of the ASEAN Foreign Ministers, which Secretary Vance looks forward to attending, in Bali July 2–3.
5. For all posts (complimentary closing): Sincerely, Jimmy Carter.
6. Posts may supplement presentation of letter with talking points from State 1470004 as they deem appropriate.
7. Report reaction to SecState with caption: Please pass Presidential aircraft for Under Secretary Cooper, and to Tokyo with caption: Please pass Under Secretary Cooper.
- Source: National Archives, RG 59, Central Foreign Policy Files, D790325–0282. Confidential; Niact; Immediate. Drafted by Thomas A. Forbord (E), cleared by Owen and in S, and approved by Cooper. Sent to Kuwait, Jidda, Jakarta, Lagos, Doha, Caracas, Quito, Tokyo, and Abu Dhabi.↩
- In his June 20 memorandum requesting that the President approve the letters, Vance wrote: “While we should not expect too much as the result of such messages, we concur in these assessments—as do the Treasury and Energy Departments—and think they would be worthwhile.” (Ibid.)↩
- The meeting was held in Geneva June 26–28. The communiqué issued at the end of the Ministerial conference announced that OPEC would increase the market price of crude oil to $18 per barrel. The move would allow member countries to add to the prices of their crude a “maximum market premium” of $2 per barrel “over and above their normal differential, if and when such a market premium was necessitated by market conditions.” The maximum price that member countries could charge was not supposed to exceed $23.50 per barrel, “whether on account of quality and location advantage or market premia.” Finally, OPEC members agreed to take steps to limit transactions in the spot market and expressed concern about the “movement of the U.S. dollar vis-à-vis the international major currencies with a view to eroding the real price of oil.” (Telegram 10885 from Geneva, June 28; ibid.) The communiqué was published in The New York Times, June 29, 1979, p. D4. On June 30, West commented on the results of the conference: “Although the exact outline of the new pricing structure is still hazy, it is clear that the Saudis are convinced that they have done all they can on behalf of the United States and the West in terms of oil pricing. In adopting a two-tier pricing system with Saudi marker crude selling at $18 as opposed to a nominal marker price of $20 for the rest of OPEC, the Saudis reversed an earlier oft-revealed [repeated?] decision never to return to a 1977-type two-tiered pricing system. At least for the immediate future, the Saudis perceive that they have sacrificed OPEC unity and their own immediate financial gain in favor of the needs and desires of the United States.” (Telegram 4848 from Jidda, June 30; National Archives, RG 59, Central Foreign Policy Files, D740296–0966)↩
- Document 215.↩