Foreign Relations of the United States, 1969–1976, Volume XXXVII, Energy Crisis, 1974–1980

252. Telegram From the Embassy in Venezuela to the Department of State and the Department of Energy¹

Caracas, December 22, 1979, 1130Z.

12285. Subject: OPEC Conference—Preliminary Analysis. Ref: State 322193.²

1. (C—entire text)

2. Summary. OPEC appears unlikely even to meet to discuss a uniform oil price system for at least three and possibly six or more months, that is, until (1) Saudi Arabia and the other moderates believe the spot market has weakened enough to moderate the demands of those members seeking higher prices, or (2) they are convinced that this is not going to happen. There also appears to be no agreement on production cutbacks. Among the individual participants, the biggest surprise was Iraq’s new moderate look. End summary.

3. The following is our preliminary and somewhat impressionistic assessment of the results of the 55th OPEC conference on prices and production levels, as well as comments on the special roles played by some OPEC members during this conference. We will attempt to provide more detailed comments on these and other aspects of the conference at a later date.

4. Prices—As best as we can piece together the development of the closed discussions, Saudi Arabia initially held fast in its insistence that the conference adopt a marker crude price of $24 per barrel, while the African countries insisted on $30 per barrel, either for the marker crude or for their own higher quality oil. Nigeria suggested as a compromise a 10 percent increase over $24, that is to $26.40, which was widely but erroneously reported as $26. Saudi Arabia agreed to this level provided a realistic set of differentials was established and maintained. The technical experts met to decide on such a system of differentials and agreed on a maximum spread of $3 above the marker. Algeria, Libya, and apparently then Nigeria, insisted, however, on a larger spread, thereby creating the final deadlock.

5. It appears at this point that OPEC is unlikely to agree on a single official price for at least the first quarter and probably well into the year. Saudi Minister Yamani, in his press conference following the conference, said the extraordinary conference to establish prices would convene some time in the future (with emphasis on some time) and that Saudi Arabia would hold its price at $24 as long as possible. He said the world has managed with chaos in the oil market for the past year, and that he saw no reason why this situation could not continue for at least one or two quarters more. He expressed as his personal view that there would be a glut of oil in the market in the next few months resulting in lower spot market prices, and thus the decision not to set an OPEC price should be considered good news by the consumers, since prices could be much lower in the future. Kuwaiti Minister Al Sabah followed Yamani, also predicting that demand would drop in 1980, causing a fall in spot market prices, but adding that no member of OPEC wished to see prices drop below the official OPEC price (apparently the $24–26 level).

4. Production. There was clearly no agreement on production cutbacks, and it is not even clear that this issue was discussed at any length. Venezuelan Minister Calderon Berti stated in his final press conference that many countries believe production levels should not be discussed in OPEC, since each country should be free to decide its production based on its own criteria. Yamani confirmed that Saudi production would remain at 9.5 million BPD through the first quarter of 1980, and Al Sabah, replying to a question re Kuwait’s reported intention to reduce production by 500,000 BPD, said that while he has always said that Kuwait will reduce its production, he has never indicated the amount or timing of such a reduction.

5. Thus, it appears to us that the moderates, at least those in the Gulf, intend to keep production close to current levels in an effort to drive spot market prices down to what they see as the correct price for oil, that is, a range of prices corresponding to a marker crude of $24–26.40 per barrel. What is not clear is the extent to which other member countries will try to counter these efforts by production cutbacks of their own.

6. A number of member countries appeared to play particularly important or unusual roles in the Caracas conference. The following represent our impressions of this aspect.

A. Saudi Arabia—By all accounts, Saudi Arabia remained the most moderate of the moderates.³ Yamani scheduled and then cancelled a number of individual and general press interviews over the course of the conference, but in all other respects appeared to be a perfect gentleman throughout.

B. Kuwait—The Kuwaitis appeared to take an unusually low profile throughout the conference, until Al Sabah’s press conference, when he went out of his way to praise Saudi Arabia for its efforts to reach a compromise, and otherwise came out in support of the Saudi views.

C. Iraq—Probably the greatest surprise of the conference was Iraq’s moderate position. In his December 18 press conference, Oil Minister Karim said Iraq did not intend to reduce its current production of 3.7 million BPD because it was still attempting to balance supply with demand, but would be one of the first to act on production levels, if there was a glut. There were a number of clear indications that Iraq supported the moderates and nothing to indicate that it wavered significantly from this support.

D. Iran—Reactions to Iran’s public and official statements were universally negative. Oil Minister Moinfar also reportedly antagonized the other OPEC members with his constant political revolutionary comments, and when Yamani called for a meeting of the Ministers about midway through the conference, Moinfar reportedly insisted that his whole delegation be included. While he apparently eventually backed down in this demand, it created just another delay. While Iran was generally accepted to have been one of the major stumbling blocks in the price discussions, and Yamani, asked if Iran was one of those seeking a higher price, agreed that this was the case, it now looks like Iran was not one of those causing the final deadlock.

E. Nigeria—By one report, it was Nigeria’s late intervention for a high differential that caused the final deadlock, even though Nigeria had apparently initiated the earlier compromise on the price level for the marker crudes.

F. Venezuela—As the host, Venezuela apparently did everything possible to avoid a breakdown on prices, possibly including a telephone call by President Herrera to King Khalid, and Calderon Berti’s final press conference clearly showed his disappointment at the final outcome on this point. At the same time, Venezuela apparently did succeed in obtaining an increased OPEC commitment to assist the oil importing LDCs.

7. Administrative Support—The facilities and services provided the conference and the press by the GOV appeared adequate, and according to some veteran OPEC watchers, were among the best they had seen. The OPEC press office, however, drew heavy and largely well-deserved criticism for its failure to provide information on what was happening or even when something might happen, and the little information which was provided often proved to be unreliable. At least in part, this failure to provide the press with up-to-date information reflected the general uncertanties and confusions of the conference itself.⁴

Luers

1. Source: National Archives, RG 59, Central Foreign Policy Files, [no film number]. Confidential; Niact; Immediate. Repeated Priority to Abu Dhabi, Algiers, Baghdad, Bonn, Brasilia, Brussels for the Embassy and USEEC, Dhahran, Doha, Geneva, Jakarta, Jidda, Kuwait, Lagos, Libreville, London, Mexico, Oslo, Ottawa, Paris for the Embassy and USOECD, Quito, Rome, Tokyo, and Vienna.
2. In telegram 322193 to Caracas, December 14, the Department instructed the Embassy to transmit the full text of the final communiqué and any other official state-ments from the OPEC Ministerial meeting held December 17–20. The Department also requested “coverage of press conferences held by OPEC spokesmen or by Petroleum Ministers from key countries,” as well as information on “any discussions of assistance by OPEC to oil-importing developing nations, possible membership in the food aid convention, the report of OPEC’s Long-Term Strategy Committee, and proposals for North-South discussions of energy in various fora.” (Ibid., D790575–0933) The Embassy sent the final communiqué in telegram 12246 from Caracas, December 20. (Ibid., D790586–0417) The communiqué was published in The New York Times, December 21, 1979, p. D3. The OPEC Long-Term Strategy Committee, chaired by Yamani, aimed to devise a unified policy to support oil prices and stabilize international markets.
3. On January 10, 1980, the Department of State instructed the Embassy in Jidda: “You are authorized to transmit a verbal message of appreciation from President Carter to Crown Prince Fahd concerning the Saudi decision to maintain production at current levels at least through the first quarter of 1980. You should indicate that: —President Carter is extremely pleased by the announcement that Saudi Arabia will continue production for the first quarter of 1980 at 9.5 MBPD; —this decision further reflects Saudi Arabia’s statesmanlike concern for the health of the international economy; —this level of Saudi production will be most helpful in our common effort to maintain balance in the international oil market and stability in the world economy; —for our part we remain dedicated to continuing effective efforts to restrain demand in the United States and other major consuming countries.” (Telegram 6722 to Jidda; National Archives, RG 59, Central Foreign Policy Files, D800051–0502)
4. The Embassy in Caracas provided daily reports on the conference in telegrams 12148 and 12164, December 18, and 12169, 12217, and 12274, December 19, 20, and 21, respectively. (All ibid., D79058–0581, D790583–0006, D790584–0108, D790585–0098, [no film number]) The conference ended on December 20 with no agreement on a uniform pricing structure for oil. On December 28, Venezuela, Libya, Indonesia, and Iraq announced price increases of 10–15 percent. (The New York Times, December 29, 1979, p. 1)