Foreign Relations of the United States, 1961–1963, American Republics; Cuba 1961–1962; Cuban Missile Crisis and Aftermath, Volumes X/XI/XII, Microfiche Supplement

226. Memorandum of conversation, February 19, between President Kennedy and President Betancourt and other U.S. and Venezuelan officials¹

February 19, 1963, 4:30 p.m.

SUBJECT

• U.S.-Venezuelan Petroleum Relations (Part 1 of 2 Parts)

PARTICIPANTS

• For the United States:

  • The President
  • Mr. Edwin M. Martin (ARA)
  • Mr. Griffith Johnson (E)
  • Ambassador C. Allan Stewart (ARA)
  • Mr. Teodoro Moscoso (AID)
  • Mr. John M. Kelly, (Interior)
  • Mr. Ralph A. Dungan (White House)
  • Mr. Myer Feldman (White House)

• For Venezuela:

  • President Betancourt
  • Dr. Andres Germán Otero, Minister of Finance
  • Dr. Godofredo Gonzalez, Minister of Development
  • Dr. Enrique Tejera París, Venezuelan Ambassador to U.S.
  • Dr. Carlos Pérez de la Cova, Venezuelan Embassy

Following President Kennedy’s opening remarks at 4:30 p.m. on other matters, the conversation turned to petroleum. President Betancourt stated that he would like to refer only to economic matters of common interest during this meeting and would leave consideration of political questions for the meeting to be held the following day when the Foreign Minister would also be present. He indicated his interest in extending the exchange of views to other areas of the world such as Europe and Asia.

President Betancourt stated that the main problem confronting Venezuela is that of oil. He noted that the Presidential Proclamation of November 30, 1962 had produced a scare in Venezuela, and had serious political repercussions. In Venezuela there is a national awareness of the importance of this problem and every six months the country lives a period of anxiety until the determination is made of the amount of crude and residual fuel oil that Venezuela will be able to place in the United States market. He asserted that Venezuelan crude oil was being sold in the U.S. market at a price which was not only under the domestic price but also under the price of Canadian oil. The system of giving import allocations to inland refineries, instead of limiting them only to the traditional importers, resulted in the practice of discount sales that placed a pressure on Venezuelan prices. He stated that Creole Petroleum discount sales represented a loss of Venezuelan revenue amounting to 70 cents per dollar.

President Betancourt said that present U.S. policy discriminates against Venezuela, a consistent war and peace oil supplier of the United States, and benefits Mexico and Canada. He stressed that high level technical discussions should be continued in order to seek a mutually satisfactory solution. He suggested that the final press communiqué state that in the future joint consultations would be held before any steps are taken on matters affecting oil imports to the U.S. market. He did not consider that consultations held 48 hours before the proclamation allowed sufficient time for a careful study.

President Betancourt advocated the establishment of a system of Western Hemisphere quotas that would assure stable prices, in the belief that this would be a satisfactory solution that would maintain the “terms of trade”. With stable prices and a stable quota Venezuela would not need Alliance for Progress assistance (AID or Social Progress Trust Fund loans) because World Bank and Export Import Bank financing would suffice. He emphasized the political importance of oil that makes Venezuela the number one objective of the Castro-Communist offensive.

President Kennedy agreed that there should be prior consultation and that this should be stated in the communiqué. Oil was a matter of great interest to the U.S. Congress because it affected the balance of payments situation. For national security reasons it was also an important factor in relations with Canada and Mexico. It was very difficult to satisfy all parties concerned and the reason the U.S. had not consulted at greater length was our belief that Venezuelan oil interests were adequately protected under the terms of the last proclamation. The White House experiences considerable pressure of all kinds on this matter—from coal producers, from Middle Eastern, Canadian and Mexican oil producers, and also from consumer groups. Consultations should be held in the future, not 48 hours before a proclamation, but real consultations. As was expressed by the Feldman mission, it was hoped that the Venezuelan share of the U.S. market would not diminish. He asked whether President Betancourt was more concerned about the November proclamation than about the future.

Dr. Otero explained that Venezuela was facing the same problems confronted by other developing countries dependent upon the sale of their raw materials. In the last few years the terms of trade have deteriorated. Oil represents 92% of the export earnings of Venezuela and these have increased only 2 or 3% in the last few years. However, the price index of manufactured goods imported from the U.S. and Europe has increased between 24 and 30%. It is necessary to stop this trend and the problem is of special urgency because it affects a kind of resource (oil) that is irreplaceable. U.S. restrictive policies since 1957, while justifiable to strengthen the domestic industry, have been implemented in a manner which has adversely affected oil prices. The system of allocating quotas to inland refineries exerts a downward pressure on prices. Bilateral studies at the technical level should continue in order to find a formula to achieve U.S. objectives without adversely affecting Venezuelan oil prices. Unfortunately, the areas of agreement reached in recent technical discussions are still limited. Discrimination is one problem. Venezuela would like a similar treatment as that accorded to Mexico and Canada and therefore it proposes a quota system for the entire Western Hemisphere.

Dr. Otero said that another area of disagreement is the matter of considering liberalized residual fuel oil imports as a means for compensating Venezuela for lower crude oil imports. Residual fuel oil is a low value product. The U.S. refining processes have improved to such a degree that U.S. refineries only produce 9 percent of residual oil. Venezuelan oil is refined in such a manner that 50 to 60 percent of it is residual oil. The trend therefore is for Venezuela to receive the lowest earnings for its oil.

To a question of President Kennedy, Mr. Feldman replied that Canadian oil imports were 125,000 barrels daily in Districts I through IV and that this figure was much lower than the 450,000 barrels a day imported from Venezuela. The 30,000 barrels a day imported from Mexico is a very small amount that is not of great concern. Voluntary restrictions on the part of Canada would allow Venezuela to share in the increasing U.S. oil market.

Dr. Otero replied that Venezuela did not object to imports from Canada of 120,000 or 130,000 barrels daily but that the objection was to the system of quota allocations to inland oil refineries.

Mr. Feldman stated that there was disagreement between U.S. and Venezuelan technicians on this point, and that, although allocations to inland refiners were necessary to U.S. security, the impact of the present balance between coastal and inland refiners would be studied further.

Mr. Kelly stated that there was actually a discount on Canadian prices. Canadian oil was not being sold at the same price as U.S. domestic oil. Allowing imports of 125,000 barrels daily from Canada removed the pressure for Canadian industry to build a pipeline to the Montreal area market that presently imports Venezuelan oil at the rate of 220,000 barrels daily.

Responding to President Kennedy’s question regarding the reasons for differences in U.S. import conditions between Canada and Venezuela Mr. Kelly stated that U.S. security considerations were initially responsible. At first the U.S. market was unrestricted to Canadian exports but during the last 15 or 16 months these had increased 100 per cent. For this reason we recently asked Canada to establish voluntary restrictions, limiting exports to the U.S. to 125,000 barrels. The balance of the U.S. market is open to competition and Venezuela is one of the competitors who captures a very large share of this market. With a growing U.S. market, Venezuela can share in the growth while Canada and Mexico are restricted. The present system is considered a balanced one, that offers a price umbrella to Venezuelan exports to Canada and to the U.S. The volume balance might not be perfect but the revenue balance is quite good when you consider both the number of barrels and the price of oil.

President Kennedy then instructed the U.S. experts present to look further into the inland refinery distribution structure to report its effects on the Venezuelan crude oil price structure.

Dr. Otero stressed Venezuela’s concern over the import system of tickets that are subject to trading with a deteriorating effect on prices. Venezuela would prefer a system of free competition with payment of custom duties, rather than a system of tickets that further depresses already low prices.

President Betancourt stated that although it is true that Venezuela would benefit from U.S. market growth in terms of number of barrels, it would not benefit from the standpoint of increased revenues. Venezuela is selling oil cheaper to Western Europe, but this is due also to the deteriorating prices in the U.S. oil market. It is unfortunate that countries such as Italy and France, that have been made prosperous by the Marshall plan, should be buying raw materials from underdeveloped countries at low prices.

President Betancourt then referred to the attempts of the Organization of Oil Exporting Countries (OPEC) to achieve stable prices in order to improve national incomes and carry out social reform. He said that the Middle Eastern countries are also seriously menaced by the Communists. He had been informed that the Shah and King Faysal were going to meet with the directors of the oil companies to discuss problems relating to oil income. He had been asked to convey to President Kennedy a request to have the State Department cooperate with those countries in order to improve their income from oil.

President Kennedy agreed that it was unfortunate that Western European countries should be bargain hunting and playing Middle Eastern oil against Latin American oil and also using Soviet oil as a bargaining factor. The U.S. would try to convince its Western European allies of the need to protect common interests.

At this point the petroleum discussion ended and the conversation turned to another subject.

1. Petroleum issues. Confidential. 5 pp. Kennedy Library, National Security Files, Countries Series, Venezuela, March–May 1963.