272. Telegram From the Department of State to Selected Diplomatic Posts1

125558. Subject: OPEC Meeting in Taif and Algiers.

1. Secret entire text.

2. Action addressees are requested to seek early meetings with Oil Ministers or other appropriate officials to seek impressions of OPEC long-term strategy meeting held May 7 in Taif.2 You should cast your inquiry in context of importance USG attaches to sustaining an exchange of views with producers on how consumers and producers can best work together over long haul to fulfill common responsibility to achieve orderly transition to new energy economy in a manner that safeguards the health of the international economic system.

3. During course of discussion of long-term market prospects you should take occasion to reinforce recent approach in certain capitals on maintaining or increasing production levels (State 112009)3 and that USG view is that price restraint by producers continues to be essential. You may draw on the following:

[Page 854]

—World economic conditions and the basic oil market situation over next few months do not in our view justify a new round of oil price increases. Such increases at this time would deal a severe blow to the world economy, struggling to cope with the extraordinary price increases of the last eighteen months.

—We are urging buyers to exercise restraint and to follow rational stocking policies. Producers in turn should feel responsibility to avoid raising prices or imposing new premiums and to refrain from testing the market to bid up prices. It would be inconsistent with our long-term common interests and common responsibilities for producers to take advantage of the current short-term uncertainty.

—The U.S. is making strong and painful efforts to cope with inflation, about which producers have indicated great concern, by restraining credit and balancing the budget. Equally painful and intensive efforts to reduce dependence on imported oil are in train and have been welcomed by producers. These are taking effect: U.S. oil imports have dropped and per capita energy use, as well as oil use, is declining. Interest rates have fallen and we believe we have turned the corner on inflation.

—We face the prospect of very low or negative growth rates in several major countries, a trend that would be accelerated by new oil price increases.

—If recession deepens sharply in major industrial countries, with attendant declines in general imports, the developing countries, a number of which are now in serious difficulty, will be caught in a hopeless squeeze between declining export revenues and rising oil import costs.

—It is imperative that producers carefully consider the full impact of their decisions in order to avoid lasting damage to the structure of international trade, finance and security in which they have a large and growing stake.

3. For Jidda, Abu Dhabi, Doha, and Kuwait: We are aware that Gulf countries oppose Iranian sanctions and might argue that uncertainty in market is a result of USG actions and is thus USG responsibility. If they do so, you should respond by drawing on standing guidance on U.S. policy. In doing so, you should stress that Gulf countries have urged that we seek to resolve Iranian situation by peaceful means and that sanctions are important component of our efforts to do so.

4. For Jidda: You should point out to Yamani that in line with his urgings we have engaged in strong and sensitive efforts to resist Iranian attempts to pressure consumers to accept higher prices (State [Page 855]122313 and State 122311).4 You should add that we appreciate his efforts at price unification; in view of market situation, which we would characterize as tightening somewhat in an atmosphere of uncertainty, we hope SAG will be cautious about trying to achieve reunification unless it has firm assurances that others will cooperate by holding the line on prices.5

5. For Lagos: This cable is FYI at this time, since Nigeria reportedly did not attend the Taif meeting, but you should draw upon it if appropriate occasions arise.

6. For Quito, Libreville, Algiers, Baghdad: You may draw upon this cable if you believe it might be useful and if appropriate occasions arise.

Muskie
  1. Source: National Archives, RG 59, Central Foreign Policy Files, D800236–0401. Secret; Exdis. Drafted by David Patterson (NEA/ECON) and Todd; cleared by Rosen, Schotta, John A. Bushnell (ARA), and Morse (E) and in EA/IMBS, NEA/ARP, EUR/RPE, ARA, AF/W, and the Energy and Treasury Departments; and approved by Twinam. Sent Immediate to Jidda and Priority to Abu Dhabi, Kuwait, Jakarta, and Caracas. Repeated to Algiers, Quito, Libreville, Baghdad, Dhahran, Lagos, Manama, Muscat, Riyadh, Cairo, London, Paris for the Embassy and USOECD, Bonn, Rome, Tokyo, Ottawa, and Brussels for the Embassy and USEC.
  2. The meeting in Taif considered the report of the Long-Term Strategy Committee.
  3. Document 269.
  4. In telegram 122313 to London, May 9, the Department informed the Embassy that in response to a request by the British Ambassador for clarification on whether the U.S. Government was opposed to BP and Shell purchasing Iranian oil at the old price of $32.50 per barrel, the British were asked to “hold the line.” (National Archives, RG 59, Central Foreign Policy Files, D800229–0086) Telegram 122311 to Tokyo, May 9, described Duncan’s meeting with the Japanese Ambassador in which Duncan asked for “strong Japanese support on national numerical oil import ceilings” and explained that “an Iranian oil price effectively or nominally above $32.50 would be too high.” (Ibid., P890016–0460) According to a May 8 memorandum from Dodson to Tarnoff, the President directed that the Department of State “inform the Japanese and the British (and others who may inquire)” that the United States was “asking them not to purchase Iranian crude oil above an effective price of $32.50 per barrel.” (Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 31, Iran, 5/80)
  5. Saudi Arabia announced a price increase of $2 per barrel on May 14. Yamani explained the decision to West on May 15. (Telegram 3116 from Jidda, May 15; National Archives, RG 59, Central Foreign Policy Files, D800240–0506) On May 17, in telegram 129124 to posts in oil-producing countries, the Department described the Saudi increase as a “catch-up” increase and a “step in the Saudi campaign to return to a normal alignment of OPEC oil prices.” The telegram instructed Chiefs of Mission to “seek prompt opportunity to express to appropriate host government officials USG concern that recent Saudi price increase should not be taken as an occasion for increases by others.” (Ibid., D800242–0971)