283. Memorandum From Henry Owen of the National Security Council Staff to President Carter1
SUBJECT
- Comments on the Duncan–Yamani Conversation
Although the conflict between Iran and Iraq dominates our immediate concerns about oil supply and prices, I believe the most important development on the international energy front continues to be Saudi Oil Minister Yamani’s campaign to institute scheduled OPEC price adjustments indexed to OECD inflation, exchange rate movements, and OECD economic growth rates. As Charles Duncan reported in his September 19 memorandum,2 Yamani was confident immediately after the OPEC Vienna meeting that he could win agreement by the time of the OPEC Summit meeting in Baghdad, November 4–5. Now, of course, the Iraq–Iran war may force postponement of that meeting and possi[Page 893]bly also prevent holding preparatory sessions, the first of which was to be in London October 14.
Yamani gave Duncan a surprising assurance about the most obvious flaw in the scheme’s early draft: it will, he said, contain a supply management component providing for injection of additional supplies of oil (from countries with excess capacity) into the market when a shortage threatens, as well as providing for production cuts when a glut threatens. If this is confirmed by OPEC decision, the one-sided floor price scheme that we feared was in the making could become, instead, a price-regulating system designed to bring OPEC prices gradually up to some notional parity with alternative fuels.
Duncan properly sounds a note of caution on whether a supply assurance actually will be adopted by OPEC and given operational meaning. Undoubtedly any supply assurance will be loose enough to permit use of the oil weapon over Arab-Israeli issues. In addition, the price-indexation formula now proposed needs adjustment to cure its inflationary bias.
Nonetheless, if Yamani is right in his optimism, we may be within hailing distance of an OPEC decision that offers a qualified promise of two years of fairly predictable gradualism in oil prices.
The next step is to work out a common response among the Summit countries to the pending OPEC price-supply strategy—a response designed to produce needed improvements in its terms without exposing us to pressures for extraneous concessions on aid, trade and financial issues in the UN North-South arena. Charles Duncan discussed today with the Italian and French energy ministers the possibility of an October meeting of officials to this end.
- Source: Carter Library, National Security Affairs, Staff Material, International Economics File, Box 48, Rutherford Poats File, Chron, 9/17–30/80. Secret. Sent for information.↩
- Duncan met with Yamani in Geneva on September 19; the memorandum of conversation, September 19, is ibid., Brzezinski Material, Country File, Box 68, Saudi Arabia, 8–9/80. Duncan’s memorandum to Carter about the conversation is ibid.↩