250. Memorandum From Henry Owen of the National Security Council Staff to President Carter1
SUBJECT
- Status Report on IEA Ministerial Meeting, December 10
Charles Duncan phoned Count Lambsdorff, pursuant to his talk with you yesterday.2 He indicated to Lambsdorff that he might not at [Page 785] tend the Ministerial Meeting on December 10 unless we could have some assurance that it would demonstrate effective IEA action to restore order to the oil market by either cutting targets one mmbd or by the proposal outlined in paragraph 3(b), below. Lambsdorff was prepared to accept the latter proposal. UK Energy Minister Howell indicated that he wanted the meeting to succeed, and reserved his position until then. So here is the present state of play:
1. All major IEA countries agree that the December 10 meeting should fix 1980 import ceilings for each IEA country. Each country’s performance will be regularly monitored to see that ceilings are not exceeded. If they are, a country will be committed to take specific remedial action. There will be nothing fuzzy about the ceiling or the commitment; consequently, this part of the agreement will represent an important step forward in building an effective mechanism for collective action.
Comment: These country ceilings are too high in terms of both likely market demand and likely OPEC supply:
—This year’s oil price increases, lower economic growth, and a probable reduction in the rate of stock-building may reduce IEA import demand by perhaps one mmbd below the agreed ceilings.
—On the other hand, OPEC is not likely to supply more than 30 mmbd of the 31 mmbd required by the IEA import ceilings, and it may well supply less.
2. There is also agreement among major IEA countries on the principle that the countries, as a group, should adjust demand to available supply. The question that will have to be settled at the December 10 meeting is how this should be done.
3. To meet this need, the US has made two alternative proposals:
a. Reduce 1980 ceilings now by at least one mmbd, allocating the reductions among countries, and making the reduced targets binding. If greater stringency is required in the future, in light of the changing market situation, the process would be repeated. Germany, the UK, Canada, and probably others are firmly opposed, arguing they will not go below the 1980 ceilings in the absence of demonstrated need.
b. Agree on how future reductions in 1980 ceilings are to be made. This means:
—Staying with the 1980 ceiling as the starting point.
—Agreeing now to meet at a specific date during the first quarter (say March 1 or earlier, if the supply situation worsens), to determine by how much these ceilings have to be reduced to adjust demand to available supply.
—Agreeing now that any reductions in ceilings will be binding.
—Agreeing now, to the maximum degree possible, on the principles for allocating any further reductions, e.g., pro rata in proportion [Page 786] to oil consumption, adjusted for such factors as growth rates, weather, or other individual circumstances.
This (3(b)) is the compromise that we discussed with Lambsdorff and Howell. The chances of securing this agreement appear sufficiently promising to warrant Charles Duncan’s going to Paris. But it will be tough going. Other countries will try hard to water down the proposal seeking to avoid any commitment to unpleasant action until the need is demonstrated.
4. If we obtain the agreement described under 3(b), above, the meeting will be a success: It will clearly reflect IEA determination to take whatever measures are necessary to restore equilibrium to the world oil market. We will lose the possible benefit of announcing now a one mmbd cut in the IEA import ceiling, but we will achieve a strong IEA commitment to make whatever cuts prove necessary in March—even if they are more than one mmbd. Obtaining agreement in principle on how cuts would be allocated among countries will also be a step forward, although a wide area for disagreement will remain regarding critical details.
5. Under this proposal, there would be no need at this meeting to commit the US to any import ceiling other than the 8.5 mmbd representing the initial target for 1980. When an adjustment is required, however, we would have to reduce our ceiling, as would the other IEA countries and France. This reduction would depend on available supply and on the adjustment formula to be negotiated in the next month or two.
- Source: Carter Library, National Security Affairs, Staff Material, International Economics File, Box 45, Rutherford Poats File, Chron, 12/79. Confidential. Sent for information.↩
- According to the President’s Daily Diary, Duncan met with Carter in the Oval Office from 10:32 to 10:37 a.m. on December 6. (Ibid., Staff Office Files)↩