244. Telegram From the Mission to the Organization for Economic Cooperation and Development to the Department of State1
36138. Dept pass also DOE and NSC. Subject: Proposal Tabled at IEA Governing Board Meeting, November 16.
1. (C)—Entire text.
2. Following is the text of a proposal for concerted action in response to worsening oil market situation prepared by U.S. delegation and circulated by Secretariat at International Energy Agency Governing Board meeting on November 16. Posts may draw on this text in energy policy discussions with host governments.
3. Begin text
Recent developments in oil exporting countries, including growing uncertainty over production prospects in Iran, have dramatized the urgent need for additional action by consuming countries to further limit oil import demand. Additional production cutbacks by Iran or other producers for political, technical, and economic reasons are a very real possibility. The 1980 oil import targets proposed by the IEA Secretariat, taken collectively, are higher than the prospective supplies, particularly from OPEC. There is therefore an obvious need to set more stringent 1980 oil import targets for the IEA countries. In addi [Page 771] tion, given oil market uncertainties, any system of targets must be capable of revision in light of future market developments.
Given the urgency of this situation, the IEA should convene a Ministerial meeting in early December, to be held before the OPEC meeting in Caracas.
The IEA Ministers should establish 1980 oil import targets for all member countries. The targets must be stringent, clearly stated on a national basis, and adjusted to expected supply availability. A working group should be established immediately to assess 1980 supply availability as a basis for establishing targets at the Ministerial.
The 1980 targets of Summit countries and similar targets for other countries should be used as a starting point. They should be adjusted by the Ministers to meet the projected available supply. The targets should specify oil import levels, but an evaluation of national efforts, consumption and inventory changes should also be taken into account. The targets should be strict; they should meet the low range of estimated supply. They should also be adjustable on a quarterly basis to meet changing market conditions.
Since these targets must be credible if they are to have any effect on the oil market and on other nations, particularly members of OPEC, it should be a major part of this program that each country should devise and present the specific national policies to implement its target.
Ultimately, the credibility of our actions will rest on our performance, not on pledges or policies. The IEA should therefore regularly monitor the progress of each country in meeting its targets. Every quarter, a formal review should take place. These should be thorough, frank, and confrontation should not be avoided. Private and public pressure should be applied to nations which do not meet their targets, and they should be even more closely monitored in the next quarter. Triggering the emergency sharing system would be the last resort to ensure compliance if political persuasion fails. This represents a substantial strengthening of the more informal, less stringent review process which occurred after the IEA initiative of March, 1979.2 However, the seriousness of the current and prospective oil market situation and the need for strong internationally credible action to meet it, fully warrants this new approach.
Medium Term Measures. Looking beyond 1980 the IEA should give added impetus to the SLT to develop targets for 1981–85, taking into account the results of the ongoing SLT review process. The SLT should be instructed to prepare a recommendation for Governing [Page 772] Board action to deal with the supply outlook, which may deteriorate through 1985.
Spot Market. The IEA should also intensify efforts to analyze the changing structure of the world oil market, with particular emphasis on the role of spot markets. Rapid implementation of the oil registry system, including the quick reporting procedures and extension to product sales should be given the highest priority. We need to persuade exporting and importing nations, traders, and companies to abstain as much as possible from spot market transactions. The success of our efforts to improve the demand/supply balance will strengthen our activities in this regard. At the same time, the extent to which IEA nations are perceived to be concerned about spot market trends and to be taking actions to moderate them, will be critical to the success of our larger efforts to instill greater stability in the oil market. End text.3
- Source: National Archives, RG 59, Central Foreign Policy Files, D790528–0085. Confidential; Immediate. Repeated Immediate to all IEA capitals.↩
- See footnote 6, Document 192.↩
- According to telegram 300912 to all OECD capitals, November 20, the Governing Board “reached provisional agreement to advance the date of its next Ministerial meeting to the week of December 10” and “made further progress toward the adoption of individual country 1985 oil import targets and a reduction of the current IEA group 1985 import goal of 26 MMB/D.” (National Archives, RG 59, Central Foreign Policy Files, D790533–0827)↩