105. Telegram 1100 From the Embassy in Indonesia to the Department of State, January 26, 1974, 0304Z.1 2

TELEGRAM
Department of State
JAKARTA 1100

P R 260304Z JAN 74

FM AMEMBASSY JAKARTA TO SECSTATE WASHDC 539
INFO AMEMBASSY ABU DHABI
AMEMBASSY CARACAS
AMEMBASSY KUWAIT
AMEMBASSY LONDON
AMEMBASSY ROME
AMEMBASSY TEHRAN
AMEMBASSY SKIDDA
AMEMBASSY TRIPOLI

JAKARTA 1100

STATE ALSO FOR T/IEP

E.O. 11652: GDS TAGS: ENRG, ID

SUBJECT: ENERGY: OIL PRICES
REFS: A. JIDDA 330; B. JAKARTA 985 (NOTAL); C. JAKARTA 721 (NOTAL); D. JAKARTA 964 (NOTAL); E. JAKARTA 0155 (NOTAL); F. TEHRAN 560

1.
SUMMARY: WE BELIEVE THAT INDONESIAN LEADERSHIP WOULD RESIST OIL PRICE REDUCTIONS, DESPITE SOME CONCERN ABOUT ADVERSE EFFECTS ON INDONESIAN LDC AND WORLD ECONOMIES, ARGUING THEIR PRICE IS “REASONABLE” AND THAT COMPANIES ARE BASICALLY RESPONSIBLE FOR HIGH PRICES. MOST CONSTRUCTIVE APPROACH WOULD BE TO SOLICIT INDONESIAN VIEWS, AS CONCERNED MEMBER OF LDC COMMUNITY. INDONESIA MAY ALSO REACT POSITIVELY TO URGINGS FROM LDC CONSUMER NATIONS. RECOMMENDATION: THAT HIGH WASHINGTON ENERGY OFFICIALS ATTEMPT SCHEDULE MEETING WITH INDONESIAN OIL CHIEF IBNU SUTOWO DURING HIS VISIT TO US EARLY FEBRUARY TO OBTAIN HIS VIEWS AND SUGGESTIONS. END SUMMARY.
2.
INDICATIONS HERE ARE THAT IT WOULD NOT RPT NOT BE REALISTIC TO EXPECT INDONESIANS TO TAKE LEAD FOR REDUCTION OR EXERT PRESSURE TO MODERATE OIL PRICE DECISIONS OF OPEC COUNTRIES. RATHER WE SHOULD EXPECT GOI TO RESIST PRICE REDUCTION, ALTHOUGH IT IS UNEASY ABOUT POTENTIAL DISRUPTIVE EFFECT OF HIGH OIL PRICES ON WORLD AND INDONESIAN ECONOMIES AND ON DEVELOPING NATIONS. GOI HAS ALSO BEGUN TO WORRY ABOUT PROSPECTS FOR DECLINING INTERNATIONAL AID TO INDONESIA IN LIGHT ITS INCREASED EXPORT EARNINGS. HOWEVER, ATTITUDES OF GOI OFFICIALS REFLECT MUCH STRONGER CONCERN, IN PART FOR DOMESTIC POLITICAL PURPOSES, THAT INDONESIA DO NO LESS WELL THAN OPEC COUNTRIES IN OBTAINING BEST RETURN FOR ITS OIL EXPORTS. GOI CURRENTLY CONCLUDING HARD NEGOTIATIONS WITH FOREIGN OIL PRODUCERS TO OBTAIN 85/15 SPLIT OF OIL PROCEEDS IN EXCESS OF $5 PER BARREL. (REFTEL C). THIS EFFORT FURTHER REFLECTS GOI PREOCCUPATION WITH IMPROVING ITS RETURN ON OIL, BELIEF IT EXERCISED RESTRAINT IN RECENT OIL PRICE INCREASE, AND PERHAPS SOME REGRET IT DIDN’T INCREASE MORE. (REFTEL E).
3.
FURTHER AND MORE FUNDAMENTAL CONSIDERATION IS THAT INDONESIA HAS TO OUR KNOWLEDGE NEVER DEVIATED FROM ROLE OF OBSERVER EED FOLLOWER IN OPEC MEETINGS AND DECISIONS. IN RECENT DISCUSSIONS WITH EMBOFFS, GOI ENERGY OFFICIALS HAVE REACTED AGAINST SUGGESTIONS THAT INDONESIA URGE RESTRAINT ON ITS ARAB PARTNERS IN OPEC. SOME KEY GOI OFFICIALS HAVE COUNTERED THAT CONSUMING GOVERNMENTS SHOULD PUT PRESSURE INSTEAD ON OIL COMPANIES TO KEEP PRICES DOWN. AND STATE OIL COMPANY DIRECTOR IBNU SUTOWO HAS EXPRESSED MISGIVINGS TO AMBASSADOR ABOUT FACT IT WAS USG THAT TOOK INITIATIVE IN CALLING CONSUMERS/PRODUCERS MEETING ALTHOUGH IBNU THOUGHT MEETING WAS GOOD IDEA. (REFTEL B)
4.
ON BALANCE, WE BELIEVE INDONESIA WOULD RESPOND NEGATIVELY TO ISOLATED US INITIATIVE FOR LOWERING OF OIL PRICES — THE MORE STRONGLY SO IF IT COMES FROM HIGH LEVELS. WE WOULD EXPECT GREATEST INDONESIAN RESPONSIVENESS TO LDC EXPRESSIONS OF CONCERN FOR THEIR OWN PROBLEMS; GOI EFFORTS TO MEET OIL NEEDS OF INDONESIA’S ASEAN PARTNERS ILLUSTRATIVE OF THIS POTENTIAL. INDONESIANS LIKELY TO COUNTER ANY US OR EEC INITIATIVES FOR LOWER OIL PRICES WITH DEMAND THAT DEVELOPED NATIONS MUST ALSO SOMEHOW PROTECT LDCS AGAINST INCREASED COST OF INDUSTRIALIZED COUNTRY EXPORTS TO THEM.
5.
INDONESIA INCREASINGLY AWARE OF ITS GROWING STATUS AS POTENTIAL SUPPLIER OF IMPORTANT INCREMENTS OF CRUDE WORLD OIL DEMANDS AND ITS POTENTIAL FOR INFLUENCE AMONG LDC CONSUMERS IN ASIA. WE BELIEVE INDONESIA MIGHT RESPOND POSITIVELY AND HELPFULLY TO SOLICITATION OF ITS VIEWS RPT VIEWS BY HIGH LEVEL US OFFICIALS. GENERAL IBNU SUTOWO, INDONESIA’S HAIL CHIEF TO BE IN US EARLY FEBRUARY (REFTEL D). WE SUGGEST DEPT CONSIDER SCHEDULING APPOINTMENT FOR IBNU TO MEET AT LEAST WITH ENERGY ADMINISTRATOR SIMON AND STATE UNDER SECRETARY DONALDSON, AND POSSIBLY WITH SECRETARY SHULTZ. WOULD STRONGLY URGE THAT SUCH TALKS NOT BE USED TO PRESSURE FOR INDONESIAN LEADERSHIP WITH OIL PRODUCERS ON OIL PRICING MATTERS BUT RATHER TO OBTAIN SUGGESTIONS FROM INDONESIA, FROM LDC VIEWPOINT, OF HOW BEST TO CONCERT EFFORTS OF USG WITH LDC CONSUMER INTERESTS IN FUTURE PRODUCER/CONSUMER ENERGY TALKS.
6.
WE ARE IMPRESSED BY ARGUMENTS SET FORTH IN REF F AND URGE FAVORABLE CONSIDERATION FOR RECOMMENDATIONS IN PARA 7, WITH ATTENTION TO LAST POINT OUR PARA 4 ABOVE. GALBRAITH
  1. Source: National Archives, Record Group 59, Central Foreign Policy Files. Secret; Exdis. Repeated for information to Abu Dhabi, Caracas, Kuwait, London, Rome, Tehran, Jidda, and Tripoli.
  2. The embassy analyzed the Indonesian government’s view on oil prices.