290. Telegram From the Department of State to the Embassy in Saudi Arabia1
320369. Subject: Ambassador West’s Meeting with Yamani. Ref: State 302502, State 283573.2
1. Confidential—entire text.
2. There are several points which we would like you to include in your discussion with Yamani December 4, as discussed below. These cover five general areas: exchange of views on oil market situation; discussion of consumer country (IEA) actions; Saudi efforts to assist Iraq’s customers; expression of concern for supply to Portugal and Turkey; and the OPEC meeting in Bali.
3. Oil Market Situation. We are grateful for incremental production provided by Saudi Arabia and (to extent it has occurred) some other Gulf states. Resumption of Iraqi pipeline exports through Turkey and possibly Syria, and small Iranian exports, are positive developments but these supplies remain vulnerable. Spot prices appear to have turned around, showing again how meaningless the spot market is in terms of long-term prices. However, the oil market will continue to call for the best efforts by all of us until the Iraq–Iran war ends and normalcy returns.
4. IEA Measures. The consuming countries grouped in the IEA, have, as you know, been taking measures to help cope with the situation. At the beginning of October, the IEA countries agreed to encourage their companies to refrain from abnormal spot market purchases, and to draw on stocks as needed to balance the market.3 Total U.S. oil stocks have been drawn down by more than 300,000 B/D since late September. We also agreed to encourage further conservation efforts. Similar decisions on stock management, spot market restraint, conservation, and maximizing domestic production have been taken by the [Page 915] EEC countries at the EEC Energy Ministers’ meeting and Heads of Government meeting during the past week.4
5. We are now looking forward to further strengthening the IEA measures at the IEA Ministerial meeting scheduled for December 8–9 in Paris. The Ministers will discuss the full range of options for strengthening consumer country efforts in the light of rapidly changing market conditions, including the possibility of instituting import ceilings if needed in accord with the decision of the previous IEA Ministerial last May, or of meeting again on short notice to do so. Secretary Duncan would be more than willing to come to see Yamani in Saudi Arabia on the 10th or the 11th to give him a full briefing of the results of the Ministerial and our current view of the market situation.
6. Iraq’s Customers. We are grateful to Saudi Arabia for undertaking to fulfill partially Iraq’s commitments to its customers through incremental production. We hope Saudi Arabia will monitor the needs of these customers as they secure alternative supplies and allocate its incremental production to help assure that country imbalances are corrected and not exacerbated.
7. Turkey and Portugal. We continue to be concerned about supplies to these two countries. Turkey is in a very tight situation because of its lack of stocks. We understand that the Saudis are planning to supply increased amounts of oil to Turkey in 1981, and that will be a great help. The Turks are, however, so close to being out of stocks that anything which can be done to ensure a prompt start-up of 1981 deliveries in January, or pre-delivery of some volumes in December, would be of real benefit to the Turks.
8. Portugal, a strategically important country, is able to handle its oil needs through December by using stocks, but has been unable to line up adequate supplies for 1981. We understand the Portuguese are approaching the Saudis about 1981 purchases, and hope that it will be possible to be responsive.
9. We would also like you to check with Yamani our impression that the OPEC conference at Bali is now likely to go ahead as planned, and if this reading is correct, to explore his thinking on what decisions may be reached. In this connection, you might note with appreciation the indications we have seen of Saudi opposition to a price increase at this time, a position that we believe has had a constructive impact on the market.
10. (FYI. Ed Deagle of Rockefeller Foundation reports on basis of recent conversations with Yamani and Petromin officials Saudi concern [Page 916] about publicity on high SPR fill rates. If appropriate, use following points to correct their misapprehensions. End FYI) SPR. Saudis may be under mistaken impression that US Strategic Petroleum Reserve is being filled at rate of 300,000 B/D. Such is not the case. Recent legislation does mention the 300,000 B/D rate as a target, but that legislative language is not mandatory, and administration is not filling at that rate. Current fill rate on an annualized basis is 100,000 B/D; however, predeliveries have raised the fill rate temporarily to about 140,000 B/D. An average of 100,000 B/D for the full year FY-81 is the minimum possible under existing law without reducing Elk Hills production. (The stock drawdown given in para. 4 above takes into account these additions to the SPR).5
- Source: National Archives, RG 59, Central Foreign Policy Files, D800577–1002. Confidential; Niact; Immediate. Drafted by Bullen; cleared by Morse and Twinam and in EUR/RPE, EUR/WE, EUR/SE, E, DOE/IA, and DOE/IE; and approved by Hinton. Repeated Immediate to Lisbon, Ankara, and Paris, and Exdis to USOECD Paris.↩
- The reference to telegram 302502 to Kingston, November 13, which concerns an unrelated matter, is apparently an error. (Ibid., D800543–0500) Telegram 283573 to Jidda, October 24, instructed West to take the opportunity, if he felt it “appropriate,” to seek Yamani’s “assessment of the progress of efforts to assist countries most seriously affected by the cut-off of Iranian and Iraqi exports.” (Ibid., D800507–0486)↩
- See footnote 2, Document 287.↩
- The leaders of the European Economic Community nations met in Luxembourg December 1–2.↩
- West met with Yamani on December 5 and reported: “Yamani had met earlier that day with Oil Ministers of Kuwait and Indonesia, and he hoped that he had been able to persuade them that a price increase was not necessary. Although he expected a fight from the price hawks at Bali, he was guardedly optimistic that the price line could be held. Yamani mentioned SAG efforts to help Portugal to meet its oil needs. He considered that the oil requirements of Turkey and the Philippines would be met by the resumption of Iraqi oil exports via the pipeline through Turkey (soon to be operating at capacity) and the limited resumption of Iranian oil exports as evidenced by the loading of two 500,000 ton vessels at Kharg Island this week.” (Telegram 7341 from Jidda, December 5; National Archives, RG 59, Central Foreign Policy Files, D800579–1056)↩