87. Telegram From the Department of State to Secretary of State Kissinger in Tokyo1
Tosec 160270/251836. Subject: Strategy Paper for Summit. Reference: Secto 16028.2 Paris for Robinson, Eyes Only, exclusively.
1. Following is strategy paper for Summit which has been developed with Hartman, S/P and Hormats. I am sending this simultaneously to Chuck Robinson in Paris who may comment directly. Hormats is working on a scenario paper and draft communiqué for your return.
[Omitted here are paragraphs unrelated to energy.]
105. Our underlying objectives are (A) to reduce the OPEC manipulation of price and supply, and thus (B) to restore the independence of action of industrial countries under US leadership.
State of Play:
106. Deadlock with the Congress has undercut our leadership on most energy issues.
107. In the absence of an effective U.S. lead few countries have taken more than perfunctory action on conservation (Britain, Germany [Page 296] and France have the best program), or on alternative supplies (nuclear is lagging in all countries, and government policies on petroleum and gas pricing and taxes inhibit development in Canada and Britain as well as the U.S.).
108. Despite this weakness, fewer industrial countries now think that the solution can be found in negotiations with the producers than did six months ago. This is because of repeated evidence at Prepcons I and II of producer reluctance to negotiate on oil prices, combined with repeated failure in IEA exercises to identify multilateral oil deals that would be both in our interest and negotiable. The best we could get, most people reason, is the current price indexed. That would provide protection against an eventual increase in the real price, but the future is so uncertain that most countries are not interested in committing themselves. Only France seems at this moment to retain interest in an oil commodity agreement.
109. The latest OPEC price increase3 was taken lying down by the Europeans, but it has stiffened the Japanese, who now talk of taking a firmer line with the producers.
110. With this conjuncture, chances now are fair that the IEA will adopt its Long Term Program on December 1, with a minimum safeguard price at about $7 a barrel.4 Canada (worried about having to soften its nationalistic stand on foreign access to Canadian energy), Japan (worried about Diet reaction to MSP) and France (which sympathizes with the MSP concept but wants to preempt any IEA action and is trying to get the EC to block action) each presents a problem. But all of these resistances seem to be reducible as of this point (October 22).
111. The United States also has a major possible action open to it between now and the Summit. Conferees are now working to finish the Congressional alternative to the Ford energy program. The emerging bill will have most of the provisions we want, except oil decontrol. By law, oil price controls come off November 15. Congress is pledged to complete action beforehand. The President can thus go to the Summit with an agreed bill, the best he can get but with a low conservation content. Or he can veto or plan to veto the House–Senate bill. The President’s willingness to face the unpopularity of a veto on oil price decontrols is his most important energy card vis-à-vis the Europeans and Japanese.
112. In their new tough mood, the Japanese are talking about using the Summit to “complete consumer solidarity” (i.e., bring the French into IEA). We have, however, no indication from Paris that this would [Page 297] be feasible; if anything the Gaullists are even more opposed to membership now than last year, when they won a Cabinet debate on the question.
113. The most important thing is that the President will have made up his mind on oil decontrol by the time he leaves for the Summit. Further uncertainty on this issue—the key to the administration’s energy policy—would be destructive. This is particularly true since the President is scheduled to lead off on energy. The Europeans and Japanese will be nervous about an energy policy by veto. But even with decontrol by veto, the US would recover some of its lost prestige in energy. The President has enough strength to sustain a veto, provided he gives some or all of the $2 import fee.
114. With such a base, the Summit can give a sense of direction on two issues: Negotiations with the producers and reduced dependence. On the first it would be worthwhile talking through the issue: The damaging economic and political effects of high oil prices; the relative unattractiveness of indexation (it gives you protection against real price increases, but ratifies cartel gains and exposes political leaders to charges they are conspiring with producers to put prices up, and makes cartel management easier); the unlikelihood of obtaining a cut in prices, and therefore the difficulty of attempting to negotiate prices with the producers. On that basis, we are forced back on what we can do within our own borders. The Summit should recommit IEA members and France to lessened dependency.
115. There is likely to be little advantage, and much potential mischief, in following the Japanese idea of trying to get France in the IEA. Giscard has no internal political base for such a move, even if he wanted to make it. Attempts to negotiate with France now would only delay the Long Term Program, and demoralize the agency. The Japanese should be turned off in advance.