Foreign Relations of the United States, 1969–1976, Volume XXXVI, Energy Crisis, 1969–1974

249. Paper Prepared in the Office of the Director, Installations and Logistics, Department of Defense¹

Washington, November 27, 1973.

FOREIGN OIL DENIALS

(U) DoD has traditionally depended on foreign refineries for nearly half its total supply needs. Those needs, which reached 1,090,000 barrels per day in FY 1969 at the peak of the war in SEA, were projected at 650,000 barrels per day during FY 1974, a reduction of about 12% from FY 1973. Some 275,000 barrels per day were under contract from foreign sources for delivery during the first half of FY 1974.

(C) Much of our foreign source petroleum products supply has now been denied. The largest increment has been lost through direct embargo action of Arab governments against DoD supply sources located on Arab soil, principally Saudi Arabia and Bahrein. Other increments have been lost, or will be lost, as follows:

• —Total cutoff in supplies from all refiners in Singapore. Cause cited as expressed wish of Singapore government not to become “another Rotterdam.” Has impacted heavily on supply to Viet Nam, Cambodia and Thailand.
• —Heavy reduction by Exxon and its Eastern Hemisphere subsidiaries in the amounts which will be delivered under existing contracts. Reductions allegedly equate to percentage of Arab oil being used by Exxon to make military products. Denials in some major countries are 56% in Japan, 60% in Italy, 63% in FRG, 70% in UK, 76% in Greece, and 100% in Thailand and the Philippines, the latter two supposedly at the direction of the governments concerned. (Exxon’s worldwide loss of crude is less than 20% of total supply.) Exxon is our largest supplier in many areas, particularly in the Mediterranean and Europe. Basis for reductions is Arab pressure on Exxon.
• —General reductions in product deliveries by most offshore suppliers, regardless of nationality. In most instances these reductions are percentage-wise less severe than those imposed by Exxon. Generally, they are attributed more to shortages of crude oil than to Arab pressure on the companies concerned.
• —Impending losses from refineries which will soon be out of crude, or in short supply. Guam Refining has lost all supply and will run out of crude in December, and some Western Hemisphere sources, heavily dependent on Arab crude oil, will probably have to reduce supply under military contracts.

(C) All offshore supply denials must eventually be made up from domestic sources. In the meantime our only alternative is the use of our prepositioned war reserve stocks (PWRS), a process which has already become well advanced, and which serves to degrade military readiness until the inventories can be reconstituted.²

(C) Aside from direct Arab embargo actions, the worst impacts have come from the Singapore Government and from Exxon. State and the local Embassies are now seeking to re-establish SEA supplies from Singapore refineries under direct local government procurement actions, to remove the stigma of U.S. involvement. ASD(I&L) has talked to senior Exxon officials to no apparent avail about Exxon’s excessive zeal in appeasing the Arab states at the expense of DoD.

1. Source: Washington National Records Center, OASD/IL Files: FRC 330–85–0035, Petroleum—Arab Oil Embargo 1973–74. Confidential. A stamp on the bottom of the page reads: “Sec Def has seen. 1 Dec 1973.” Schlesinger wrote at the top of the page: “Bill Clements: What’s your reaction on Exxon issue? JS.”
2. According to a November 30 memorandum from Arthur I. Mendolia, Assistant Secretary of Defense for Installations and Logistics, to Brigadier General Richard Lawson, Air Force Military Assistant to the President, the Department of Defense had reduced its petroleum consumption by 22 percent from FY 73 to FY 74. Mendolia wrote that “while some reductions in activity, particularly training, can be accepted in the short term they cannot be continued for the long term without an adverse impact on readiness.” He concluded that “the near term DoD petroleum shortage is very serious,” and the Defense Department “will soon be forced to begin standing down operational forces.” (Ibid., Nixon Presidential Materials, NSC Files, Box 321, Subject Files, Energy Crisis, Nov 73–Feb 74)