Foreign Relations of the United States, 1969–1976, Volume E–11, Part 2, Documents on South America, 1973–1976

382. Telegram 145991 From the Department of State to the Embassy in Venezuela¹

Washington, July 6, 1974, 0031Z.

145991. Subject: Démarche Opposing High Oil Prices. Ref: Caracas 5954.

For the Ambassador

1. Our previous efforts to induce moderation on the part of the producers on the question of oil prices have not been very fruitful. Most producers, including Venezuela, seem determined to continue the trend of escalating prices. Our information suggests that only the opposition of Saudi Arabia prevented much larger price increases from being agreed to at Quito.

2. We are concerned by the apparent belief of Venezuela and some other producers that they can raise prices with impunity. In this respect, we regard Venezuela’s recently announced increase as particularly unfortunate and unwarranted. We have decided to press more vigorously, and in a bilateral context, our opposition to high prices and our conviction that lower prices are in the long term interests of both producers and consumers. On July 8, the Department will make known its views to the acting Chargé in the Venezuelan Embassy. You should seek an early appointment with the appropriate senior Venezuelan official to make a similar representation. The talking points prepared for the Washington meeting are provided below. You should draw on them in making your démarche in Caracas. FYI—similar démarches will also be made to other OPEC governments to seek avoidance of new price increases. End FYI.

3. Talking points—

—I have asked you to come in because of our interest and concern in oil pricing developments.

—Reports from Caracas indicate a further increase in tax reference values (TRV). Our information is not yet official and complete, but our understanding is that the average TRV for all crude and products has risen 35 cents from 14.08 dols. to 14.43 dols. per barrel.

—We are disturbed by this announced increase. We believe the continued upward trend for oil prices is both unfortunate and unwarranted.

—As you know, the United States strongly believes that world oil prices are already critically high. As a result, the world economy is dangerously strained and world development is being retarded. The new increase just announced by the GOV will compound the difficulties consuming countries face in trying to adjust to the enormous and abrupt increase in price over the past eighteen months. On the basis of current market conditions, oil prices should be falling rather than rising.

—The direct and indirect burden of high oil prices on the US consumer is a heavy one. The plight of developing consumer countries is even more pressing. Their increased expenditures for energy are surpassing their total aid receipts and could lead in some cases to virtual economic collapse.

—We believe current price levels are contrary to the long-term interests of Venezuela and other producers. In our interdependent world, the economic futures of all countries are closely related. All nations, producers and consumers, will suffer in a world that is characterized by faltering and failing economies.

—The Government of Venezuela should be aware of the negative impact its attitude on price is having on its image in the United States. The US public, press, and Congress have not overlooked the fact that Venezuela is a leader within OPEC for continued price increases.

—For months we have tried to be understanding of the position and policies of Venezuela. We appreciated that Venezuela continued to supply oil to US during the recent Arab embargo. But we strongly oppose high oil prices. I hope you will bring to your government’s attention our firm conviction that high prices are detrimental to all countries and our hope that it will see fit to reconsider its views on prices in general and this most recent decision in particular.

—We would also hope that we could build on our historic ties and traditionally good relations to ensure meaningful cooperation between producing and consuming nations and thereby contribute to an international economic system that provides for continued economic growth at sustainable price levels.

4. The GOE official, with whom you speak, will probably insist that the tax increase was designed to reduce company profits and not increase the cost of oil to the ultimate consumer. In fact, the tax rise will increase oil prices. Should the issue arise, you may wish to draw on State 117824, which discusses the relationship of taxes to company profits.

5. Please report reaction of GOV to your démarche.

Sisco

1. Summary: Asserting that Venezuela’s recent oil price increase was unwarranted, the Department instructed the Ambassador to encourage the Venezuelans to lower oil prices so as to create conditions for continued economic growth in the international economy.

   Source: National Archives, RG 59, Central Foreign Policy File, D740179–0492 Confidential; Immediate. Drafted by Creekmore; cleared by Katz, Bosworth, Shlaudeman, Devine, and McCullough; approved by Katz. On July 8, Shlaudeman and other Department officers, in a meeting with Rossi, emphasized U.S. Government concern over the higher price of oil and its negative impact on the U.S. public. (Telegram 148195 to Caracas, July 10; ibid., D740183–0429) On July 9, the Ambassador delivered his démarche to Schacht and informed the Department that the Foreign Minister would take the matter up with the President. (Telegram 6263 from Caracas, July 9; ibid., D740183–0003) Oil prices were among the subjects discussed when McClintock met with Pérez on July 13; Pérez expressed “satisfaction that after many, many years Venezuela was at last receiving a good price for its oil.” (Telegram 6500 from Caracas, July 13; ibid., D740188–0412) Telegram 5954 from the Embassy in Venezuela, July 1, reported the Venezuelan Government’s announcement that tax reference values will increase by 35 cents per barrel. (Ibid., D740174–0288)