United States-OPFC relations, selected materials


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United States-OPFC relations, selected materials
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United States -- Congress. -- Senate. -- Committee on Interior and Insular Affairs
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Table of Contents
    Front Cover
        Front Cover 1
        Front Cover 2
    Title Page
        Page i
        Page ii
    Issues in U.S.-OPEC relations
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    Table of Contents
        Page vii
        Page viii
        Page ix
        Page x
    The evolution of United States-OPEC relations
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    Appendix 1. Oil groups producing and exploring in Middle Eastern countries
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    Appendix 2. Statements by OPEC officials
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    Appendix 3. Selected documents on U.S. international energy policy October 1973-Novemeber 1975
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    OPEC and U.S. policy options
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    A. OPEC: Organization and operations
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    B. U.S. policy and policy options
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    Back Cover
        Back Cover 1
        Back Cover 2
Full Text



94th Congress 1
2d Session









S. Res. 45

Serial No. 94-25 (92-115)


Printed for the use of the
Committee on Interior and Insular Affairs




This publication is printed for the use of Senators participating in the National
Fuels and Energy Policy Study, authorized by Senate Resolution 45 of the 92d
Senate Resolution 45, introduced by Senator Jennings Randolph and Henry
M. Jackson, was amended and agreed to by the Senate -on May 3, 1971. Th@ reso-
lution authorized the Senate Committee on Interior and Insular Affairs and ex
officio members of the Committees on Commerce and Public Works and -the Joint
Committee on Atomic Energy to make a comprehensive study of programs and
policies required to meet national energy needs.
Subsequently, the Senate approved the addition of ex officio members from the
Committees on Aeronautical and Space Sciences, on Finance, on Foreign Rela-
tions, on Government Operations, and on Labor and Public Welfare.


HENRY M. JACKSON, Washington, Chairman

FRANK C H U R C H, Idaho


GRENVILLE GARSIDE, Special Counsel and Staff Director
DANIEL A. DREYFUS, Deputy Staff Director for Legislation
WILLIAM J. VAN NESS, Chief Counsel
D. MICHAEL HARVEY, Deputy Chief Counsel
OWEN J. MALONE, Senior Counsel
W. 0. (FRED) CRAFT, Jr., Minority Counsel


Committee on








FRANK E. MOSS, Utah, Chairman


RUSSELL B. LONG, Louisiana, Chairman


ABRAHAM RIBICOFF, Connecticut, Chairman



HOWARD H. BAKER, JR., Tennessee

RICIIAIt D. GRUNDY, Executive Secretary and Professional Staff
DAVID STANG, Deputy Director for Minority


Since 1969 a revolution has taken place in the energy supply system
of the world and the place of the United States in that system. At the
beginning of the 1970's crude oil producing facilities almost every-
where were controlled by multinational oil companies, most of them
based in the United States. The number of producing countries and
the number of operating companies had both grown steadily since the
end of World War II, resulting in an increasingly competitive world
market for crude oil; Persian Gulf prices had in 1969 fallen to an all-
time low of about $1.40 per barrel. The trade association of the pro-
ducer governments, the Organization of Petroleum Exporting Coun-
tries (OPEC) seemed then to be little more than an informational
clearing-house and propaganda vehicle.
The United States, while it did import foreign oil, mostly from the
Western Hemisphere, was effectively insulated during the Sixties from
world crude oil markets. A combination of producer state production
controls and strict volumetric limitations on imports stabilized domes-
tic crude oil prices at levels in the range of $3 to $4 per barrel and
preserved sufficient spare domestic producing capacity that the United
States was at least potentially self-sufficient in petroleum. The most
critical issue in the United States' energy policy debate in those days
was whether to free the domestic oil industry from these controls, and
allow prices to fall toward world levels in the interest of consumer
welfare and economic efficiency.
Today, almost all the principal oil exporting countries are in the
final stages of nationalizing the concessions and facilities of the multi-
national oil companies. Crude oil prices are dictated unilaterally by
the governments of these nations, and OPEC has emerged as the steer-
ing committee of an effective producers' cartel. The export price of
Arabian "marker" crude oil lhas risen to $11.15 per barrel. The United
States is now the world's largest oil importer, and foreign oil accounts
for more than 40 percent of our total supply. MIore than half of these
imports in turn come from the Eastern Htemisphere, and the United
States now imports more crude oil from Saudi Arabia than from any
other country. No end is now in sight to the growth of American de-
pendency on imported oil, and particularly on Middle Eastern oil.
These radically changed circumstances in world markets for petro-
leum have had a powerful impact on the world economy and on the
distribution of the world's wealth and economic power. The rapid in-
crease in world oil prices during 1973 and 1974 contributed to an
acceleration of price inflation in all of the advanced market economies.
and deepened a worldwide recession from which nmost of then are now
just beginning to emerge.
(I II)

For the low-income less-developed nations without oil exports, par-
ticularly those of South Asia and Sub-Saharan Africa, higher fuel
prices joined with drought and crop failures to spread famine to mil-
lions and to lower the levels of living for hundreds of millions. On
the other hand, several oil exporting countries with otherwise back-
ward economies have suddenly become immensely rich; they and
others have been able to step up their industrial and military develop-
ment programs at a pace far faster than their most extravagant hopes
of a decade ago, and in some cases far more rapidly than they can
rationally manage.
Many of the elements of this upheaval had begun to emerge well
before the curtailment of exports from Arab producing countries in
1973-74. At the Teheran negotiations in early 1971 the producing
nations already showed more cohesion and more self-confidence than
any effective combination of oil companies or oil importing country
governments; it was at that time that the world price of oil first began
to move up decisively. Between 1968 and 1972 Algeria, Libya and Iraq
all expropriated substantial )parts of the multinational companies in-
terests in their countries, and Saudi Arabia and other Gulf states were
already beginning to talk about "participation" in production. By
early 1973 both Iran and Venezuela had announced advancement of
the dates on which existing oil concessions would terminate.
During the early 1960's a series of successful unilateral price actions
and expropriations by different exporting nations were met with
neither military action nor effective economic retaliation by the United
States or other Western nations. The self-confidence and aggressive-
ness of the producers rapidly escalated, culminating in the Arab coun-
tries' attempted embargo against the United States and their general
curtailment of oil exports to all countries in October 1973.
This action by the Organization of Arab Oil Exporting Countries
(OAPEC) was not especially successful in its direct object, namely
to punish the United States for its military support of Israel. The
multinational oil companies were able to allocate non-Arab supplies
so that the curtailment was shared proportionately by oil consumers
all around the world. The United States was indeed less seriously
affected by the curtailment than other countries such as Japan and
Italy, which were regarded as "friendly" by the Arab governments.
The most important and lasting effect of the curtailment, however,
was one which was apparently not one of its direct purposes-an
almost fivefold increase in the world price of crude oil over a period
of about six months. The beneficiaries of this price rise were not
limited to Arab countries, or for that matter to members of OPEC,
but included crude oil producers, and the producers of competing
fuels, in all countries including the United States. The export reduc-
tions struck at the, peak of a worldwide economic boom, in which
YNorth Akiverica. Western Euro)pe and Japan had all been enjoying
unprecedented rates of growth in real product and income. Because
of this boom, petroleum consumption had increased at record rates,
absorbing most of the world's surplus producing capacity, including
all of the effective excess capacity in the United States.

In this situation of tight demand, the deliberate reduction of pro-
duction by the Arab countries created a worldwide oil shortage (as a
similar Arab action during the 1967 Seven Days War had been unable
to accomplish). This shortage, compounded by panic buying and
stockpiling, bid up world oil prices much more rapidly than the indi-
vidual producing nations or OPEC as a group could increase their
own revenues per barrel. In early 1974, a few spot sales of Gulf crude
oil reached $15 per barrel or more, and there were cargoes of heavy
fuel oil sold for as much as $24.
Because of the newly found cohesion and self-confidence of the ex-
porting countries and the disarray of the importers, tlhe high price
levels decreed by OPEC in 1974 did not come down after full pro-
duction was resumed. OPEC indeed was able to implement one fur-
ther price increase in 1975, despite the existence of much surplus pro-
ducing capacity and continual wrangling among the exporting nations
over prices.
Contrary to some of the fears expressed in Western countries in
1973 and 1974, it now appears that the richer industrialized countries
can live quite comfortably with oil prices at their present levels. The
monetary "recycling" problem did not cause a collapse of the world
financial system, and the shift of the major trading nations to floating
exchange rates has, during the same period, virtually banished "bal-
ance of payments" worries from our economic vocabulary. In 1976,
several leading countries, including Britain and Italy, do remain in
chronic economic distress despite a general upturn in the world econ-
omy, but oil prices are only a small part of their problems.
Imports of commodities, technology and services by the oil export-
ing nations have outstripped all forecasts made two years ago, so that
earlier projections of OPEC surpluses in the hundreds of billions of
dollars now seem to be serious exaggerations. And the producer govern-
ments are not in fact buying control of large blocks of industrial,
financial and real estate assets in the United States and other Western
countries as many feared they would.
Finally, the inability of the Arab producing nations to carry out a
selective boycott in 1973-74, plus the reemergence of significant excess
producing capacity., have made a deliberate repetition of that crisis
look unlikely in the. immediately foreseeable future. The leveling off in
the rate of oil price increases since 1974 and the failure of the most
fearful scenarios to materialize have recently pushed energy issues
deep into the background of public consciousness and political urgency
in the I7nited States and other advanced oil importing countries.
Nevertheless, the security and cost of imported energy continue to
deserve serious concern. Despite the possibility of a gradlimal erosion of
world oil prices in real dollar terms (if not in curlrenlt dollars), there
is little prospect for the "collapse" of OPEC in thie imindliate future.
Two and at. most foimr nations (Saiudi Arabia and Iran. plus perhaps
Venezuela and Kuwait) are still able, with or withliout OPEC(, to dic-
tate tlhe world price of oil, so long as they (c;in agree tacitly on the
division of shut-in producing 'capacity amiong tliemviselves.
There are, moreover, several potential groupings of nations (OPEC,
all Islamic countries, the A ral bloc, or tlie ,countries of tlie Gulf)
which could plausibly cripple tlie world economy with a concerted
shutdown or curtailment. in belhalf of their political or ,c.monoic de-

mands. The bulk of the world's oil reserves, and about one-third of
current world producing capacity are in countries with sparse popula-
tions and large cash accumulations; these nations are arguably in an
especially good position to risk cutting off all or a part of their ex-
ports. Even more plausibly, exports from the whole Middle East
region might be shut off or seriously reduced as a result of sabotage or
military action during a new Arab-Israeli war, even in the absence of
any deliberate action by producer governments.
U.S. domestic oil and gas production continues to decline, while con-
sumption has apparently resumed its growth after a two year pause.
The outlook now is for continuing increases in oil imports and particu-
larly imports from the Middle East, both absolutely and as a propor-
tion of total consumption. Accordingly, the United States economy is
becoming even more vulnerable to both the price and security risks of
import dependency.
Over a longer period-perhaps around the end of this Century-
Middle Eastern and world resources of conventional oil and gas will no
longer be able to provide for ever increasing production. World oil out-
put might "top out" even earlier if the biggest new discoveries con-
tinue to occur only in countries (e.g., Saudi Arabia and Iraq) which
already have a disproportionate share of world reserves.
In the near and mid-term, the policy options for the United States
in responding to these risks fall generally into five, sometimes over-
lapping, categories:
1. Measures to reduce energy consumption (or to slow the growth
rate of energy consumption);
2. Measures to increase domestic energy production (or to slow the
rate of decline in domestic production), including substitution of
domestically produced for imported fuels (e.g., coal for oil as electric
utility boiler fuel) ;
3. Measures to reduce the impact of any curtailment of oil imports:
e.g., stockpiling; domestic and international sharing; emergency con-
sumption cutbacks, allocation and rationing; and
4. Measures to broaden the world oil production base or otherwise
weaken the ba rga i n in g power of the cartel; and
5. Measures to increase the economic, political and sentimental inter-
dependence between oil exporting and oil importing nations.
What the likely future course of world oil prices will be, how serious
are the risks of supply interruptions, and what is the likely effective-
ness of measures which the United States might take on its own or with
other consuming nations remain serious and controversial issues, whose
answers are critical in evaluating policy options for the United States.
The present volume has been compiled for the Committee on Interior
and Insular Affairs by the Congressional Research Service of the
Library of Congress to provide background on these issues to mem-
bers of the Senate's National Fuels and Energy Policy Study, initially
authorized by Senate. Resolution No. 45 (Ninety-second Congress, Sec-
ond Session). This Committee Print contains a chronology of major
events in world petroleum markets, with a 1)articular emphasis on the
evolution of relations between OPEC and the United States, and a
cross-section of recently published and significant or authoritative
writings on these subjects.


Issues in U.S.-OPEC Relations--------------------------------------- III
Introduction -------------------------------------------------------- 1
1960 ---------------------------------------------------------------3
1961 --------------------------------------------------------------- 3
1962 --------------------------------------------------------------- 3
1963 -------------------------------------------------- ------------- 3
1964 --------------------------------------------------------------- 3
1965 ---------------------------------------------------------------4
1966 --------------------------------------------------------------- 4
1967 --------------------------------------------------------------- 4
1968 --------------------------------------------------------------- 5
1969 --------------------------------------------------------------- 6
1970 --------------------------------------------------------------- 8
1971 -------------------------------------------------------------- 13
1972 -------------------------------------------------------------- 16
1973 -------------------------------------------------------------- 20
1974 -------------------------------------------------------------- 44
1975 -------------------------------------------------------------- 82
1976 ------------------------------------------------------------- 108

Appendix I.-Oil Groups Producing and Exploring in Middle Eastern
Countries -------------------------------------------------------111
Appendix II.-Statements by OPEC Officials-------------------------- 123
Appendix III.-Selected Documents on U.S. International Energy Policy
October 1973-November 1975----------------------------------- 1



OPEC Organiza tiorn of the Petroleum Earporting Coun tries-------------- 229
A background and review analysis, presenting a general picture of
OPEC and including a selected bibliogra)phy by I)ario Scuka, analyst
in international trade and finance, Economics Divisionl, Congresionial
Research Service. Library of Congress: October 24, 1974 (74-189E),
35 pp.
The OPEC Process ------------------------------------------267------27
An article by Zuhayr Mikdashi, professor of business administra-
tion, American University of Beirut, describes OIEC's structure aind
function, the effectiveness of the operativese 1bonl, OPEC and tIhe
importing countries and OPEIC('s performance from Daedatlus, Fall
1975, "The Oil Cri.si.: In Per.perft ire;" issued as vol. 104, No. 4 of the
proceedings of the American Academy of Arts and Sciences : 203-215.
The Dcrvelopmcnt of Crisis ------------------------------------------ 2,1
An excerpt. "Supply anil Demmiwd." from an article by Edith Pen-
rose, professor of economics at tlie Sc. i,,l of O)rietl tali and African
Studies. Tniiversity of L iIndoni, in Da'dqilu.x op. cit: 47-51.
Thie Oil Companies in Perspeetire------------------------------------- 2
An excerpt from an article, h. Minra Wilkins ih Da[id nu.s, op. cit:


The Oil Companies in the Crisis -------------------------------------299
An excerpt "The Companies as Managers" from an article by
Robert B. Stobaugh, professor of business administration at Harvard
University, in Dacdalu.', op. cit: 186-201.
The Distribution of Power------------------------------------------ 309
Excerpts "The Role of the Multinational Enterprise" and "The
Independents and the Majors" from an article by Raymond Vernon,
inDafulalus, fall 1975, op. cit: 5-7,161-169 and 394.
Recent Economic and Technical Agreements Between Oil-Producing and
Oil-Consuming Contries ----------------------------------------- 319
An excerpt from Oil and Security by the Stockholm Peace Research
Institute, New York: Humanities, November 1974 (pp. 116-117).
World Oil Cooperation or International Chaos---------------- ---------321
An article by Walter J. Levy, economic consultant, in Foreign
Affairs, vol. 52, July 1974: 690-713.
The Future of OPEC---------------------------------------------- 339
An article by Richard B. Mancke, associate professor of inter-
national economic relations, Fletcher School of Law and Diplomacy,
Tufts University, in Journal of Business, vol. 48, January 1975.
End of an Era ----------------------------------------------------347
From Concessions to Contracts, in the Petroleum Economnist, January
1975; 21-25.
OPEC Is Starting To Feel the Pressure------------------------------ 355
An article by Louis Kraar in Fortune, May 1975, p. 189 suggests that
the oil cartel is inherently unstable; its 13 diverse members are divided
on basic economic and political goals.
The Future of OPEC----------------------------------------------- 367
An article by Charles T. Maxwell in the Cyrus J. Laiwrence Report:
No. 268, "Energy Follow-up," October 28, 1975, 6 pp.
OPEC and the Industrial Countries: The Next Ten Years---------------- 373
An article by Thomas 0. Enders, Assistant Secretary of State for
Economic and Business Affairs, in Foreign Affairs, vol. 53, No. 4,
July 1975, 625-637.
Those Unspcn t Balances------------------------------------------- 385
An article on the problems caused by OPEC's surplus oil revenues
in The Petroleumn Eronomi.ist, vol. 42, August 1975: 282-284.
The Coinig Crack in OPEC----------------------------------------- 391
An article by Richard N. Farmer, chairman of the Department of
Intermnatimial Business at Indiana University, in Busin ess Horizons,
vol. xviii, No. 6, December 1975.
OPEC Aid to the Non-Oil Third World------------------------------- 399
An article by Maurice J. Willianis, chairmann of the OECD Develop-
ment Assistance Committee, Eurontitone (London) March 1976, 65-71.
A New Era of Stability in Energy Economuuics------------------------- 405
An article by Ahmed Zaki Yamani. Minister of Petroleum and Min-
eral Resources of the Kingdom of Saudi Arabia in the Journal of
Energy ant( Derclopment, Autumn 1975: 1-8.
Energy, Styles of Life and Distributive Justice-------------------------- 413
An article by Manuel Perez-Guerro, Venezuelan Minister of State
for International DEo.onmic Affairs in tie Journal of Energy and De-
'elopnict', op. cit.: 38-44.

Oil Inmprts and Energy Security ---------------------------------- 421
Summary and recommendations from a report of the ad hoc com-
mnittee on the Domestic and International Monetary Effect of Energy
and other Natural Resource Pricing of the Committee on Banking and
Currency, House of Relpresentatives, U.S. Government Printing Office,
September 1974, 3-20.
l.fiis'. I lrted to Foreign Sourcc.s of Oil for the United States---------- 443
A report to Congress by the Comptroller General deals with the
Department of State's involvement in the international petroleum
situation as of January 23, 1974.


The Economic, Political, Military Solution---------------------------- 513
An article by Daniel Yergin, research fellow at the Center for Inter-
national Affairs, Harvard University, in New York Times Magazine,
February 16, 1975.
American-Import Policy and the World Oil Market-------------------- 527
Excerpts from three articles by M. A. Adelman, Professor of Eco-
nomics at the Massachusetts Institute of Technology: in Energy
Policy, Vol. 1, September 1973; co-authored with Soren Friis, in
Energy Policy December 1974; 289-291; and in Challenge January/
February 1976: 17-22.
Changing Monopolies and European Oil Supplies---------------------- 533
Oil Import Quota Auctions------------------------------------------ 537
Demand in the Next Ten Years--------------------------------------- 545
An outline, in the Petroleum Economist January 1975, of An Analysis.
of World Energy Demand and Supply (1974-1985) with Special Refer-
ence to OPEC Oil, a study by Zuhayr M3ikdashi and others.
Pressures on OPEC Prices------------------------------------------ 549
Comments in the February 1976 Petroleum Economist on a meeting
of the London oil analysts group. Colin Robinson, Professor of Eco-
nomics at Surrey University outlined possible futures for oil prices.
Hostages to Fortune----------------------------------------------- 553
An article in the Petroleum Economist, February 1976, discusses
implications of the Energy Policy and Conservation Act.
The OECD and Its International Energy Agency----------------------- 559
Excerpt, "The Scope and Objectives of the International Energy
Program," from an article by Ulf Lantzke. executive director of the
International Energy Agency and Special Counselor to the Secretary
General of the OECD on energy questions, from Daedalu.s, Fall 1975
(op. cit.) 223-227.
Can Middle East Producers Prescerc Their Petro-Wcallh ? -------------- 563
An article by H. A. Merklein, Director of the International Insti-
tute, The University of Dallas, analyzes the problem and suggests sonime
solutions. World Oil, December 1974, 78-88.
Oil Pri.oing Policy Options from the Producers' Point of View ------------- 571
A theoretical approach by L. Donald Fixler and Robert L. Ferrar,
both of the Department of Economics at tihe American University in
Cairo, in Energy Policy, vol. 3, June 1975: 136-143.
OPEC Can Wait-We Can't ----------------------------------------- 579
An action proposal by Richard Moorsteen, in Foreign Policy, Spring
1975: 3-11.
Oil and the Future: Economic Con.-wequevncx. of the Enecig-y Rcrolution---- 5.s.-
An article by Neil H. Jacobiy, Professor of Business Econmomics and
Policy in the Graduate Sch(-ool of Management at the University (of
SCalifornia in The Journal of Energ!y and DeOelopment, op. cit.: 45-52.
Latest Oil Hike: "One More Step on the Road To Disaster" ---------------5 93
An interview with C. G. Bluhdorn. Chairman. Gulf and Western
Industries. Inc., in U.S. Ncr'. and World Report, October 13, 1975:
Energy Independence for America ------------------------------------ 507
An article by lMason Willrich, Professor of Law at the University of
Virginia, School of Law, in International Affair.s. vol. 52, no. 1, Janu-
ary 1976, 53-60.
Part 1.-A selected list of journal articles and Government l)publllicatiolns.
annotated and prepared by the Library Services Division (if the Congres-
sional reference service -------------------------------------------6 f0)
Part 2.-Books---------------------------------------------------- 646

Prepared by
Environmental Policy Division
Library of Congress
at the Request of
Committee on Interior and Insular Affai's
United States Senate

July 1976


On October 17, 1973 the Arab members of the Organization of Petro-

leum Exporting Countries (OPEC) imposed an oil embargo on the United

States. This action was followed by a succession of sharp increases in the

price of crude oil. Western economies, including the United States, have

not yet fully recovered from those shocks and are only now beginning to

make adjustments to the new realities of limited availability and high prices.

Before the events of October 1973, it is doubtful that many outside

of the petroleum industry and the Federal Government were aware of the

existence of OPEC, and there had been little apparent reason for concern.

Seemingly overnight, this cartel had been transformed from a weak and

insignificant association of widely diverse and under-developed countries

into one of the most powerful, influential, and wealthy organizations in the


The 1973 embargo was not the first to be imposed by these countries.

A similar oil cutoff was agreed to by the Arab oil-producing states in 1967

as a consequence of the Six-Day War, but it was scarcely noticed by the

American consumer. The second embargo was much more effective than

the first because of twofactors that were of primary importance in the six-

year period between the two embargoes: the rapid increase in the use

of petroleum products in the United States and the fact that the Arab states

had the only excess producing capacity to meet the additional demand. By

late 1973, therefore, the United States was far more dependent on Arab

Oil than it was in 1967, just as it is now more dependent than it was in


1973. No one can say with certainty that the likelihood of an economy-

shattering embargo necessarily rises with increased imports from oil-

producers that are seeking political concessions of some sort, but the

vulnerability unquestionably increases.

To deal effectively, therefore, with an organization so important to

the future economic well-being of the United States, it is important to under-

stand the many events that have already transpired, not just those that have

received national attention.

This chronology is intended to provide perspective on the events that

have shaped U.S. -OPEC policy over the past 16 years. This perspective,

unfortunately, is often lost inthe midst of crises, when one event or another

is of particular concern. Beginning with the formation of OPEC in 1960

and tracing its relationship with the United States through early 1976, this

chronology may make more apparent the evolution of policies and attitude

between the two, both as friends and as adversaries. It is based primarily

on events as reported in the Oil and Gas Journal and supplemented from

various other news sources. A narrative of each event is provided to

give an explanation, if available, for the action and reaction, as well

as appropriate comments that might have been made at the time Also

included are a list of the oil groups producing and exploring in OPEC

countries, a collection of statements by OPEC officials, and a compilation

of selected documents concerningU.S. International Energy Policy from

October 1973-November 1975.

The cooperation and assistance of Clyde Mark of the Foreign Affairs

Division, Congressional Research Service, is gratefully acknowledged.

1960: Representatives of Venezuela, Saudi Arabia, Kuwait,

Iran and Iraq held the first meeting of the Organization of

Petroleum Exporting Countries (OPEC). Major oil companies

had reduced posted prices in Venezuela in 1959 and in the

Middle East in 1960. OPEC was founded to counter company

control of pricing and to bargain collectively with the major

oil companies.

The Corporation Venezolana de Petroleo (CVP) was

formed to act as the Venezuelan Government agency in partner-

ships with the foreign companies operating under the service

contract law. Foreign companies were responsible for the

costs of exploration, but once commercial deposits were

found, the companies became partners in exploitation with


1961: In January, Qatar joined OPEC.

On December 11, Iraq issued Law Number 80, which re-

claimed for the Government 99% of the Iraqi Petroleum Co.

(IPC) concession area. IPC was left with only the Kirkuk

field. The ensuing IPC-Iraqi dispute over compensation and

concession rights continued until the nationalization of June


1962: Indonesia and Libya joined OPEC in July.

1963: The field at N-urban, Abu Dhabi, began production.

1964: There were new oil discoveries at Zakum, off the coast

of Abu Dhabi, in the Sultanate of Oman, and at Mlarun, Iran.

1965: The Indonesian Government placed all oil companies

under state supervision. Permina (later Pertamina), the

Indonesian Government oil agency, purchased the holdings

of Shell, and took over the Shell operations on Sumatra.

Libya enacted a new Oil Law was enacted which stated that

taxes and royalties paid to the government would be based

on the posted price and not the lower market price.

1966: The restrictions on Indonesian oil companies were re-

scinded in December (after Suharto replaced Sukarno as

President) and foreign oil companies were invited to return

to Indonesia. The companies operated under a production

sharing contract with the state agency, Permina.

1967: The Iraqi Government and the French company Entreprise

des Recherches et d'Activites Petrolieres (ERAP) signed

an agreement for the development of the North Rumaylah

field, with ERAP as the contractor operating for the Iraqi

National Oil Company (INOC).

On May 30, Biafra seceded from Nigeria, precipitating a

civil war that lasted until January 1970, and interrupting

oil production from the southeast fields. A dispute arose

between Shell-British Petroleum and the rival governments

over oil royalty payments.

The Suez Canal was closed and Tapline was shut down during

the Arab-Israeli fighting which began on June 5 (Tapline

reopened in 1968). Arab oil ministers, meeting in Baghdad

on June 6, agreed to stop all oil shipments to states friendly





May 14:

August 21:

to Israel. Iraq, Kuwait, Saudi Arabia, Libya, and Algeria

stopped oil shipments to the United States, West Germany,

and the United Kingdom. The Soviet Union offered to supply

oil to any European state during the Arab Embargo, but with-

drew the offer on June 20. On June 17, Israel announced that

it would begin operating the Italian-Egyptian oil fields in the

occupied Sinai Peninsula. At an August meeting in Khartoum,

Sudan, Arab leaders agreed to leave decisions on the oil em-

bargo up to each state; most of the Arab states had resumed

shipments by the first of August.

All American-owned firms operating in Algeria were put under

state supervision on June 6. Algeria nationalized five American-

owned oil distributing and refining companies in August.

Kuwait, Saudi Arabia, and Libya formed the Organization of

Arab Petroleum Exporting Countries (OAPEC).

Venezuela opened the bidding on the concession area of south-

ern Lake Maracaibo under the revised service contract formula.

The final contracts, signed by Continental,Mlobil, and Shell in

July 1971, called for a royalty of 6-1/6% on 90 % of the production,

with 10% of crude production to go to the state company, CVP and a

60% tax rate on company profits.

Algeria nationalized 14 foreign firms (12 French and 2 British-

Dutch) involved in oil and gas distribution and delivery.

Iraq and IPC agreed to reopen negotiations on the status of IPC


70-017 0 76- 2

1968 (Cont'd)

September 26:

October 19:

October 20:

December 8:

December 10:

December 11:


February 21:

March 3:

Oil companies operating in Algeria revised their sales

contracts by raising prices after the Algerian Government

imposed a ban on the export of oil at reduced prices.

Getty Petroleum signed a contract with Sonatrach, the

State company of Algeria, to cede 51 % of Getty interests

to the Algerian Government in return for a release from

Government sequestration.

Libya announced an agreement with the oil companies

for a revised royalty calculation formula and for payment

of taxes 30 days after the end of each quarter.

The Libyan Government announced the adoption of a reg-

ulationto control the conservation of petroleum resources.

OPEC made public the resolutions passed at its Nov-

ember meeting calling for coordination among the members

of pricing policies and regulation of conservation.

The French Government (ERAP-ELF) group meeting in

Algeria agreed to raise crude oil prices and to review prices


Algeria told French oil companies that the 1965 agreement

for export reference prices would be considered provisional.

Franco-Algerian negotiations to revise the 1965 tax reference

prices began on November 24.

Four American-owned oil companies operating in Algeria

raised their posted prices.

1969 (Cont'd)

March 14:

March 24:

May 30:

July 23:

August 7:

September 25:

The Iranian Government told the consortium to raise

revenues by 17% within two months. On May 15, the

consortium and the Government announced a new agreement

for an increase of $1. 01 billion in revenues, derived from

a 10% increase in production and a 12% increase in income


Algeria voided the Sinclair concession after Sinclair

merged with Altantic Richfield.

Shaykh Ahmed Zaki Yamani, Saudi Minister of Petroleum,

said in Beirut that the oil producing states should try to

maintain the oil price structure, should assume greater

roles in oil operations through national companies, and

should participate in downstream operations. He did not

advocate complete nationalization, however, fear, that

in case of nationalization, the national oil companies of

the producing countries will enter into competition on the

world market and prices will fall to $l/bbl in the gulf.

El Paso Gas of the United States agreed to buy $1 billion

in liquefied natural gas (LNG) from Algeria. El Paso and

Sonatrach, the Algerian state oil company, signed the agree-

ment on October 9.

Libya opened negotiations with the oil companies to raise

posted prices by 10 cents per barrel, from $2.21 to $2. 31.

Iraq warned the Iraq Petroleum company that unless

production was raised, Iraq would take over the oil industry.

1969 (cont'd)

October 12:

October 26:

December 16:


January 7:

January 20:

The Libyan Petroleum Ministry announced that the oil

companies had agreed to begin negotiations on the price

of crude. After the coup d'etat of September 1, the new

Government continued the campaign begun by the Monarchy

to win higher posted prices for Libyan crude.

The Shah of Iran said that if the United States increased

its imports of Iranian oil, Iran would spend the money earned

from the sales on American goods.

OPEC ended its 3-day meeting in Qatar. The subjects

under discussion at both the Qatar meeting and the Vienna

meeting, in July were participation, Algerian negotiations

with France, and member control over production programs.

Algeria became a member.

National oil companies of Algeria, Libya, Iraq, and

Egypt ended a 3-day meeting at which they discussed their

policies toward foreign monopolies operating in their countries.

Lybian Oil Minister Izz al-Din al-Mabruk met with

representatives of the 22 companies operating in Libya to begin

negotiations to raise the posted price of crude. When the

negotiations stalled in April, Colonel Muammar al-Qadhdhafi,

Chairman of the Revolutionary Command Council, said that

if the companies remained intransigent, Libya would take

unilateral action. A new round of negotiations began on

May 6, after Libya rejected the price increase of Esso (Exxon)

and Occidental.

1970 (cont'd)

February 12:

March 14:

March 15:

March 16:

May 20:

Iraq announced the cancellation of Article 3 of Law No. 80

of 1961, which allowed the Government to allocate other lands

to the IPC in lieu of the concession areas expropriated under

the law.

A 3-day meeting between the National Iranian Oil Com-

pany (NIOC) and the consortium ended, to be resumed

in one month to allow time to consider the various pro-

posals. A second meeting ended on April 20 without reach-

ing an agreement. On May 6, an Iranian Ministry of

Finance communique said that the negotiations had been

successfully concluded.

The Libyan Revolutionay Command Council announced

the formation of the Libyan National Oil Corporation (Linoco).

On July 5, Linoco took over all oil and gas distribution

in Libya, and announced that the companies would be paid

compensation for their nationalized holdings.

An American firm, Distrigas Corporation, a subsidiary

of the Cabot Corporation, signed a long term contract for

Algerian LNG.

The 1965 agreement between Kuwait and Saudi Arabia

to divide the Neutral Zone between their two countries

went into effect.

May 23:

June 8:

June 12:

June 15:

June 24:


1970 (cont'd)

Oil Ministers from Libya, Algeria, and Iraq issued a

communique stating that they would set time limits on the

negotiations with the companies, realize their demands

by unilateralaction if necessary, and establish a joint fund

in case of a confrontation with companies.

The Shah of Iran said that profits are not made at the

wellhead but downstream, and that the present system of

exploiting companies must disappear.

The Libyan Government reduced the amount of production

of the Occidental Oil Company from 800,000 barrels per

day to 500, 000 b/d. In the next two months, Libya cut

the production of Texaco-Chevron by 100,000 b/d, Oasis

by 150, 000 b/d. Esso by 110, 000 b/d. Mobil by 40, 000

b/d. and Occidental, again, by 60,000 b/d. Oil Minister

Mabruk said the cuts were for conservation purposes, and

were not intended to pressure the companies into accepting

the Libyan price increases.

Algeria nationalized the holdings of Royal Dutch-Shell,

Elwerath, and Phillips. Phillips signed an agreement

for compensation on August 4, and Royal Dutch-Shell ac-

cepted compensation on November 19.

Algerian President Boumedienne told the opening session

of the OPEC meeting that the producing and consuming

countries should have direct contacts and that the compa-

nies should be bypassed.

1970 (cont'd)

July 21:

August 30:

September 4:

September 9:

September 28:

October 27:

Algeria raised the tax reference price of CFP crude

from $2.08 to $2.85, retroactive to January 1969. France

rejected the price rise on July 22 and requested for arbitra-

tion as called for in the Franco-Algerian agreement of


Iraq announced the signing of an agreement with Soviet

Techno-export for the development of the North Rumavlah

field. Iraq and France had signed a similar agreement in


Occidental agreed to raise the posted price of Libyan

crude by 30 cents per barrel, from $2.23 up to $2.53

and to pay a 5% surtax on exports. By October, Esso,

Oasis, Mobil, and BP had accepted similar price increases,

and production was restored to the pre-June levels.

It was reported from Iran that the consortium had agreed

top raise crude production by 200,000 barrels per day,

but on October 6, the Shah warned the oil companies either

to increase production or face the consequences.

Exxon and BP said the posted price of Iraqi crude would

be increased by 20 cents per barrel, up to $2.41. Within

days, Shell and CFP also raised their posted price by 20


The Iraqi Government announced the signing of an agree-

ment with the Iraq Petroleum Company and its subsidiaries,

Mosul Petroleum Company and Basrah Petroleum Company,

1970 (Cont'd)

October 28:

October 28:

November 12:

November 22:

November 24:


which raised annualproduction of crude oil from the south-

ern Iraq fields from 16 million tons up to 21 million tons

in 1970, and up to 28 million tons in 1971, with annual

increases of 4. 5 million tons thereafter.

BP announced that posted prices on crude shipped from

Bandar Mah Shar, Iran, would be increased from between

2 cents to 10 cents per barrel. On November 16, the

consortium announced that the posted price of Iranian crude

would be raised by 9 cents per barrel, and that the tax

rate would be increased to 55 %.

Algeria nationalized the holdings of Mobil and Newmont

Overseas Oil. Mobil spokesmen said that compensation

had been agreed upon prior to the nationalization decree.

Newmont said it would contest the nationalization. On

November 13, Algeria nationalized Atlantic Richfield hold-

ings and announced that compensation would be paid.

Iraqi Oil Minister Sadun Hammadi said that IPC should

raise the tax rate to 55 % and the posted price by 9 cents,

following the Iranian example of November 16.

The Kuwait Oil Company raised the posted price by 9

cents, from $1. 59 to $1. 68 per barrel and raised the tax

rate to 55%.

The new Venezuelan tax law raised the tax rate on com-

pany profits from 52% to 60%, and gave the President the

right to raise posted prices without negotiations with the


1970 (cont'd)



Pertamina, the Indonesian Government oil company, and

Pexa Oil of Australia signed a production sharing contract

calling for 73. 75% of the proceeds from production (compared

to previous Pertamina share of 65%) and a 25 % working

interest in the Kalimantan concession for the Government.

OPEC announced its decision to set 55% as the minimum

tax rate on net income, and to work toward substantial

increases in the price of crude oil. The OPEC meeting

in Venezuela began on December 9.


January 12:

Feburary 14:

Negotiations began in Teheran between Kuwait, Abu

Dhabi, Saudi Arabia, Iraq, Iran, and Qatar and representa-

tives of the 22 companies operating in the countries, over

tax rates and posted prices. When the talks stalled in

early February, spokesmen for the countries threatened

to raise prices unilaterally or to impose a total embargo.

Oil company negotiators issued a statement in Teheran

announcing a5-year agreement between the companies and

Abu Dhabi, Iran, Iraq, Kuwait, Saudi Arabia, and Qatar,

which called for a stabilized tax rate of 55% on Persian

Gulf crude, a fixed price increase of 35 cents per barrel,

a crude-quality graduated price scale according to API

gravity, four incremental price rises of 2-1/2 % for infla-

tion, and four incremental price rises of 5 cents per bar-



1971 (cont'd)

February 23:

February 24:

April 2:

April 26:

June 7:

June 7:

Libya, also representing Saudi Arabia, Iraq, and Algeria,

began negotiations with oil companies on adjusting the posted

prices of Mediterranean crude.

Algeria nationalized all French assets in gas pipelines

and 51 % of French assets in other oil operations. During

the subsequent Franco-Algerian negotiation, French spokes-

men said they did not mind the nationalization but wanted

the 49 % French share paid in crude oil. When the nego-

tiations stalled in April, Algeria demanded payment for crude

oil prior to shipping, and raised the price from $2.85 to

$3. 60 per barrel. France broke off negotiations and started

a boycott of Algerian oil.

Libya and the companies operating in the country signed

the so-called Tripoli Agreement, which raised the posted

price of crude by 90 cents, up to $3.45 per barrel, and

raised the tax rate to 55%.

Nigeria formed a state oil company, the Nigerian National

Oil Company (NNOC), was to participate with the French

firm (ERAP-ELF) in four Nigerian fields. NNOC was to hold

a 35 % interest in the operation.

The OAPEC meeting in Kuwait ended in dispute over the

membership application of Iraq, according to reports.

Iraq and IPC agreed to raise posted prices of crude

by 80 cents per barrel, up to $3. 21. IPC also agreed

to loan the Iraqi government $30 million and to postpone

for four years the repayment of the previous loan of $60

1971 (Cont'd)

June 7:

June 23:

June 30:

September 14:

September 22:

December 7:

million. On June 10, Iraq revived its claim for 20%

participation in IPC.

Aramco signed an agreement with Saudi Arabia, which

raised posted prices of Ras Tanura crude up to $3.18 per

barrel and raised the tax rate to 55%.

The Algerian state company Sonatrach and the French

state company CFP agreed to a $50 million compensation

for the 51% of French-owned property nationalized in Feb-

ruary. France ended the boycott against Algerian oil.

Oman cancelled the Phillips concession because the

company did not fulfill all conditions under which the con-

cession was granted. Oman's new reformist government

came to power in July 1970.

OPEC passed resolutions (made public on October 7)

calling for the members to seek participation in their

concessions, and to seek compensation for the devaluation

of the dollar. (The devaluation was announced in August

15.) Negotiations on devaluation compensation began in

Teheran onOctober30. Nigeria was admitted to member-

ship in OPEC.

Libya nationalized the British Petroleum Company oper-

ating in Libya because, Libya clained, the British con-

spired with Iran's in its November 30 seizure of three

islands in the Straight of Hormuz. Libya said it would

pay compensation.

1971 (cont'd)

December 9:

December 14:


January 11:

January 15:

January 20:

OAPEC opened its membership to states with oil revenues

as an important source of income rather than the principle

source of income.

Saudi Arabia and Aramco described the oil strike at

Masalij as equal to the Ghawar field. Ghawar was the world's


The Venezuelan tax reference price increase, announced

on December 21, 1971, took effect. Increases ranged from

14 cents to 63 cents per barrel, averaged about 32 cents

per barrel, and were apparently in lieu of a negotiated

increase for the devaluation of the dollar, as called for

by the OPEC. In an apparent attempt to stabilize filling

crude production, the Government also announced tax penal-

ties for reductions in production of more than 2% below

the 1970 production, and penalties for production increases

above 4% over 1970 production,

Iraq and IPC began considering a 17-point Iraqi proposal,

which included Iraqi participation in the IPC concession,

Iraqi representation on the IPC board of directors, and

Iraqi participation in IPC capital.

In Geneva, oil companies and Persian Gulf countries

agreed to raise the posted price of crude oil by 8.49%,

about 16 cents per barrel, to compensate for the devalua-

tion of the dollar, and to review the value of the dollar

quarterly for readjustment of prices. Oman, not a member

of OPEC or OAPEC, and the Petroleum Development (Oman)

1972 (cont'd)

January 20:



March 5:


April 1:

Company agreed to a similar devaluation compensation in


Libya and the Mobil Oil Company began negotiations on

compensation for the devaluation of the dollar. Esso repre-

sentatives joined the talks in April.

In the first round of participation talks, Aramco,

the operator in Saudi Arabia, offered 20%o participation

to Saudi Arabia, which was accepted. Kuwait and the Kuwait

Oil Company, and Iraq and the Iraq Petroleum Company,

also agreed to 20%, but Libya stated that 20% was not enough.

Detailed negotiations on participation began in San Francisco

in April, and moved to Geneva in May.

Egypt, Syria, and Iraq were admitted to membership

in OAPEC. Applications for membership were received from

Tunisia and Oman. OAPEC members initiated an agreement

to form a multinational tanker fleet.

The Government of Kuwait limited the Kuwait Oil Company

(Gulf and SP) to 2.9 million barrels per day production,

thus becoming the first Persian Gulf producer to begin

a conservation program.

Pertamina, the Indonesian Government company, raised

the posted price of crude from $2.60 to $2.96 per barrel,

a 13.8% increase. (In 1971, Pertamina raised the price

twice, 17. 6% on April 1, and 30% on October 1.) The

landed priced of Indonesian crude in Japan rode to $3.27

per barrel after the 1972 increase, as compared to the landed


1972 (cont'd)

April 1:

April 22:

May 3:

Mlay 17:

June 1:

price of Iraqi crude of $3. 07, but the difference was offset

by the Indonesian sulfur content of 0.08% compared to Iraqi

sulfur content of 2. 3%.

The Government of Qatar formed its own oil company,

the Qatar National Petroleum Company (ONPC).

The companies and the Government of Libya agreed to

an 8. 49 % increase in posted prices to compensate for the

devaluation of the dollar. Esso did not sign because the

company was holding separate negotiations on LNGproduc-

tion of liquefied natural gas (LNG).

The Iraqi Government told IPC to raise production,

to formulate a long-term production program, and to agree

to participation, or Iraq would take action. The Government

offered three choices: IPC could form a partnership with

the Government to raise production, with the Government

taking the excess; IPC could increase production and

give the excesstothe Government; or IPC could surrender

the Kirkuk fields to the Government. IPC claimed it could

not sell any more production due to a glut caused by cheap

tanker rates. IPC production dropped from 1.2 million

b/d in February, to 931,000 b/d in March, to 720,000 b/d

in April.

Iraq nationalized the IPC operation in Kirkuk; the

Basrah and Mosul operations were not affected. On June

2, Britain asked the Central Treaty Organization to pressure

Iraq to pay compensation for the nationalized property.


1972 (cont'd)

June 1:

June 24:

June 26:

July 23:

August 4:


Negotiations between IPC and Iraq began on June 28, with

Nadim Pachachi, then Secretary-General of OPEC, and

Jean Duroc-Danner, Director of CFP, acting as mediators.

Syria nationalized the IPC pipelines and refineries.

The Shah of Iran said that his country was not pressing

for participation, but did want more oil for its own marketing

and refining, as well as new price agreement to link prices

to Western market purchasing power.

Trinidad and Tobago was accepted as the twelfth member

of OPEC at the Vienna meeting, pending ratification by Iraq.

Ecuador's application for membership was offered at the

OPEC meeting in Lagos in November.

Iran and the consortium began negotiations on NIOC's

share of crude, increased production, and maintenaing parity

of price of crude to Iranian imports. The NIOC-consortiumrn

negotiations ended on July 26, but no agreement was an-


Saudi King Faisal said that the proposal to use oil as a

weapon against the United States should be ruled out because

a boycott, while feasable, was very complex. The King

warned that United States interests in the Middle East were

"in for a rough time. "

Libya and AGIP, the Italian state company, agreed to

50% participation, compensation at net book value of assets,

and a buy-back price halfway between tax-paid cost and

posted price. The AGIP-.Lvbian agreement was ratified

in March 1973.


19 72 (cont'd)

October 5:




The Persian Gulf States and the oil companies reached a

preliminary agreement on participation. Each state will

ratify the agreement and enter more detailed negotiations

with the companies operating in the country.

Libya stopped loadings of crude from the Nelson Bunker

Hunt portion of the Sarir field formerly shared with the

since-nationalized BP. Hunt had rejected Libya's proposal

for 50 % participation.

The Shah of Iran informed consortium representatives that

he would not extend their operating agreement with NIOC

beyond 1979. This followed the successful agreements

reached by Saudi Arabia, Abu Dhabi, Qatar and Kuwait

which increased their participation to 25%, rising to 51%

by 1982.

The participation principle agreement, which came into

effect on 1 January after ratification by Saudi Arabia and

Abu Dhabi, was approved by Kuwait and Qatar. Initially,

the participation purchased by the producing countries was

set at 25%, eventually rising to a 51% controlling interest.

The oil companies agreed on the provisions that the 25%

level would be maintained until 1978. The oil companies

were to be compensated on the basis of the "updated" book

value rather than the original cost. The agreement contained

1973 (cont'd)


January 7:

a complex set of interrelated provisions which are designed

to: (1) enable each of the parties to have access to the

quantities of crude needed to meet their current and fore-

cast requirements, (2) Provide a market for sizable volumes

of the government's oil during the transition period (phase-in

oil), and (3) Givethe operating company adequate notice to

enable it to install additional capacity as may be required

to meet the forecast needs of all parties.

The agreement also provided that each participating country

have the right to take an active part in management and that

each party would bear its share of all expenditures, including

those required to maintain and expand capacity. All con-

cession agreements were to remain in effect.

Iraq continued its negotiations with the nationalized IPC,

and Iran, the last of the six Persian Gulf states in the

participation talks, had decided in June 1972 to pursue

its own negotiations with the consortium.

Libya and Oasis (Continental, Marathon, and Amerada/Shell)

opened negotiations on 50% participation. Negotiations between

Government and Nelson Bunker Hunt on 50% participation

resumed. Hunt was allowed to resume crude shipments from


The Arab Maritime Company for Oil Transportation was

founded in Kuwait, at the OAPEC meeting. The OAPEC

joint owners were Saudi Arabia, Bahrain, Qatar, Libya.

70-017 0 76 3


1973 (cont'd)

January 7:

January 22:

January 23:

Algeria, Abu Dhabi, and Kuwait. Dubai withdrew from

OAPEC when the organization decided to build its drydock

in Bahrain.

First National City Bank reported that the seven largest

international oil companies were increasingly dependent on

the Eastern Hemisphere as a crude-supply base and that

the U.S. could not escape heavier reliance in the future.

The Bank reported that the net assets of the seven inter-

nationals more than doubled from 1961 to 1971.

The Shah of Iran said if the output of Iranian oil were

not doubled by 1977, the contract with the consortium

would not be renewed when it expired in 1979 and that the

oil industry would be nationalized at that time. In February,

Iran revived the contract purchase arrangement of 1954,

whereby the consortium would surrender its management

and investment rights to NIOC, and became a contractor

to purchase oil from NIOC fields being operated by the con-

sortium. The Shah reversed his position of June 24, 1972

when he said that he intended to sign three 5-year extensions

to the consortium's operating agreement when it came up

for renewal in 1979, extending it to 1994. The oil companies

estimated that doubling of production to meet the Shah's

revenue needs would cost over $1 billion. The Shah threatened

to deny the renewals on the basis that the companies had

not used the "proper technology" to increase output per well

and the they were "ignoring" secondary recovery operations.


1973 (cont'd)

February 5:

Proposals for cooperation to protect interests of major

oil importing countries through development of a common

energy strategy were discussed in statements filed with Sen-

ate Interior Committee AMost officials reported that the

problems could be minimized by improved cooperation

between producing and consuming states. It was felt that

the consuming nations could band together to give producing

nations incentives for maintaining production while estab-

lishing counterforces to limit exporters' leverage and avoid

intense competition among consumers. The Interior Depart-

ment advised that the best forum for western importers

would be the OECD. Several national oil companies in

Europe had already tried to form a counter cartel called

the "Zurich Group", but it was unsuccessful because of its

lack ofstrength relative to OPEC. There was considerable

concern over the prospect of bidding contests among con-

sumers to obtain oil supplies through bilateral deals. The

Saudi offer to make long-term oil commitments to the U. S.

in return for investment opportunities, was an example of

such possible cooperation.

It was reported that Nigeria was seeking a one-third

share of the Shell/BP operation in Nigeria. Nigeria had

signed participation agreements for one-third interest in

the AGIP/ Phillips field and for one-third interest in the

ERAP/ELF fields. Shell/BP had offered a 25-1 participation.


1973 (cont'd)

February 19:

February 28:

March 19: *,/

Saudi Arabian Oil Minister Ahmad Zaki Yamani said

that he was all for cooperation between producing and con-

suming countries, but that "if it is war they want, then

war they shall have. They will be starting it. Referring

to proposals for a consumer-country united front to offset

the growing power of OPEC, he said that in a confrontation

the consumers could only lose. He added that "many

secret developments will be revealed within the coming

months, and not years, but declined to elaborate further.

Iraq and the IPC signed an agreement (ratified by Iraq

on March 1) for the settlement of the dispute which began

with the 1961 concession reversion and which finally resulted

in the nationalization of June 1, 1972. Under the settlement,

IPC agreed to pay royalty arrears of $141 million due since

1964, and Iraq agreed to furnish one million tons of crude

per month for 15 months at Mediterranean ports as com-

pensation for the nationalization of the Kirkuk operation.

IPC agreed to surrender the Mosul field without compen-

sation (the field was uneconomic to operate) and Iraq agreed

to allow IPC to retain the Basrah field.

The first open threat of an oil cutoff by one of the

traditionally conservative, major-oil producing Arab states

was made by the Kuwaiti ruler, Shaykh Sabah Al Salem Al

*/ Denotes date of publication of the event in the Oil and Gas Journal.
The actual event occurred several days earlier but a precise date was not


1973 (cont'd)

February 28:

March 19: */

March 22:

March 26: */

Al Sabah who declared flatly that Kuwait would shut off

its oil flow -- then running at about 3 billion b/d --to

western consumers if there should be another outbreak of

hostilities between the Arab countries and Israel. The

more volatile Arab states--Syria, Libya, Iraq, and Egypt

-- had threatened such action, but the conservative Arab

regimes in Saudi Arabia, the Trucial Coast area, and

Kuwait had not. We are committed to this," the Kuwait

ruler declared. '"When the zero hour strikes, we shall

use our oilas an effective weapon inthe battle with Israel.

This is our irrevocable position. The battle begins with

oil and ends with human lives. "

Following the second devaluation of the dollar, Venezuela

raised the posted price by 8.83 %, or about 27. 5 cents

per barrel, average ING about 15 cents perbarrel in taxes.

The Ministerial meeting of OPEC members agreed to

seek negotiations for further adjustments of posted prices

after the second devaluation of the dollar.

OPEC warned oil-consuming countries against forming

any organizations of petroleum importing countries. An

OPEC communique warned that concerted action on the

part of industrialized oil-importing countries, was "not

in the best interest of orderly international trade and could

have negative effects on the present energy situation. Shaykh

Yamani suggested that the developed industrial countries

should build petrochemical plants, export refineries, and


1973 (cont'd)

.larch 26: */

April 2: */

April 2: */

other downstream facilities in the producing coun-


The Shah declared that the Iranian operating consortium's

facilities had been "handed over" to the government March

21. The consortium was to provide technicians to NIOC

but they would operate under Iranian management. In the

20-year agreement the member companies would be con-

sumers rather than producers and would pay for their oil

in advance. The Shah insisted that Iran would not be paid

less for its oil than other Persian Gulf oil producers.

Earlier, the Shah had said that the consortium members

would be given "good prices and the kind of discounts which

are always given to a good customer."

The Algerian state petroleum monopoly obtained U.S.

Government financing for LNG facilities for shipment of

1 billion cfd to the U.S. East Coast. The U.S. Export-Import

Bank approved a direct loan of $157 million at 6% interest

and a guarantee of an additional loan in the same amount

plus other loans for a total of $366. 5 million.

The President's first international economic report

to Congress predicted that Arab producing countries with

large currency surpluses "will probably invest much of

this money in refining and distribution facilities or take

other direct or portfolio investment positions in consuming




April 2: */

April 9 : /

April 30: */

British Professor Neville Brown warned that an Arab

embargo of oil to the West could result from an Arab-

Israeli conflict. Walter J. Levy added that there was "an

extremely urgent need for a common energy policy among

the three leading oil consuming areas. If they pursue

their separate courses in world oil markets, they will be-

come targets for potential political and economic black-

mail, such as some have already experienced." Levy

recommended establishment of an "International Energy

Council" with a permanent staff to coordinate these pol-


The economic adviser to the Saudi Arabia Ambassador

to the U.S. stated that the formation of an oil-consuming

organization by the OECD could be a fortunate and welcome

development if it were used as a basis of cooperation

between oil-buying and oil-exporting nations. He warned,

however, that if the organization developed into a "cartel"

for purposes of confrontation, it would cause an "unhealthy

and abrasive" situation.

After failing to get its way with the international oil

companies on crude-price increases, OPEC issued an ulti-

matum that the companies submit a written counter-proposal

to provide for an increase that would offset the loss of pur-

chasing power resulting from the second dollar devaluation.

The companies had offered a 7. 2% increase, while OPEC

was insisting on 11.1%.


1973 (cont'd)

April 30:

Mlay 15:

May 17:

May 21:

The Government of Libya changed its participation pro-

posal from 50% to 100%, with the Government to pay com-

pensation at net book value and to purchase crude oil from

the operating companies at market prices. The Libyan

proposal was presented to the Oasis group (Continental,

Marathon, Amerada/Shell), Amoseas (Texaco, California

Standard), and to the independent Occidental.

Libya, Kuwait, Iraq, and Algeria forced a complete

shutdown of oil shipments for periods of 1 hour in the latter

three and 24 hours in Libya. The shutdown was termed a

protest against the 25 th anniversary of the funding of Israel

but was also intended to showthe world what could happen.

The May 17 deadline for submission of new participation

proposals in Libya passed with no apparent action.

The OPEC ministerial conference was postponed be-

cause of differences between conservative members (Saudi

Arabia, Abu Dhabi, and Iran) and the more radical states

(Libya, Iraq, and Kuwait). Libya was reported to want

a confrontation with the oil companies while the three Persian

Gulf states sought to avoid one for fear of upsetting recently

negotiated participation agreements. Libya called on all

OPEC states to abandon the participation concept and to

take over 100% control of the oil resources as Iran had



1973 (cont'd)

May 23:

May 24:

May 26:

June 1:

June 1:

King Faisal warned that U.S. support for Israel

was making it impossible forSaudi Arabia to preserve Am-

erican commercial interests. If some solution weren't

found, the king said, the Saudis would find themselves

isolated inthe Arab world, and he would remove American

interests to prevent this.

Iran and the consortium signed a preliminary agreement

which provided for Iranian management control of the oil

industry and for a 20 year guaranteed crude oil purchase

for the companies. The oil companies were to purchase 800

of Iranian crude oil at a price no less than that paid to

other Persian Gulf states, and the National Iranian Oil

Company was to sell the other 20% of the crude production

on the open market.

Confrontation over oil-prices was averted when the Saudi

Arabian and Nigerian oil ministers were added tothe nego-

tiating team represented by the oil ministers of Libya,

Iraq, and Kuwait. The companies had agreed to a 6. 6%

in the Geneva Pact and had later raised that to 9%, but

OPEC held out for minimum of 11. 1%..

In Geneva, OPEC and Western oil companies agreed to raise

posted prices by 11. 9% to compensate for the second devalua-

tion of the dollar.

Aramco prepared a memo for communication to Washington,

listed the major points made by King Faisal. "Action must

be taken urgently," the memo stated, "otherwise, everything

will be lost. The executives who conveyed that message


1973 (cont'd)

June 1:

June 4: /

June 11:

June 27:

July 1:

who conveyed that message to Washinton, however, didn't

find the same concern among U.S. officialdom. "The im-

pression was given that some believe H. M. (King Faisal)

is calling wolf when no wolf exists except in his imagina-

tion, the memo said.

Saudi Arabia sold all of its participation crude for

1973, 1974, and 1975, at 93% of its posted prices ($2. 48-$2. 74)

to a group of American, Japanese, and European independents

plus Brazil's Petrobras and Taiwan's Chinese Petroleum

Group. "

Libya nationalized the Nelson Bunker Hunt oil company.

Hunt had rejected the Libyan proposal of October 1972 for 50%

participation and a retroactive payment of 50% of Hunt's pro-

fits back to December 1971, when Hunt's partner, British

Petroleum, was nationalized. Hunt and the Libyan Govern-

ment had gone to arbitration in early May but apparently

were unable to settle the dispute.

The Organization of Petroleum Exporting Countries

(OPEC) at its 34th regular meeting in Vienna set up a

ministerial committee headed by Venezuelan Oil Minister

Hugo Perez La Salvia to "continuously review the world

energy situation and the statement of policy adopted by the

conference and to follow up on the studies to be undertaken

in this respect.

Libya warned Oasis, Occidental, and Amoseas that they

should accept the Government's offer of net value compen-

sation for 100% participation. The warning was considered

July 1:

July 4:

July 16: */

August 6: */

August 13: *1

to be a threat that the companies would be nationalized, fol-

lowing the Hunt example of June 11.

King Faisal of Saudi Arabi said that his country would

find it difficult to continue on friendly terms with the United

States because of American support for Israel. The state-

ment was interpreted as a warning that Saudi oil would not

be sold to the United States unless the United States adopted

a more "even-handed" policy.

Kuwait demanded immediate 51% participation in Kuwait

Oil Co. instead of 25% rising to 51% in 1982. Agreement

on the latter terms had been agreed to in January but it

had not been ratified by the national assembly and was

considered "null and void.

The Shah of Iran signed into law the legislation author-

izing the take-over of the Iranian oil industry. This action

followed unanimous approved by both houses of the Iranian

parliament. Iranian negotiators said that Iran would seek

downstream ventures and would emphasize the building

of refineries in Iran with the purpose of eventually export-

ing more product than crude oil.

U.S. decided that Libya's expropriation of the Nelson

Bunker Hunt Oil Co. holdings was invalid under interna-

tional law, had "no public purpose," and was a case of

political reprisal. The U.S. said it would notify foreign



August 13:

August 13: */

August 20: *t

August 27: */

governments and would try to persuade them to forbid

imports from the fields in question. Libya had been nego-

tiating for a 50% interest in the fields.

Gulf Oil and Texaco signed a 20-year agreement with

Ecuador to continue exploitation and development in its

operating area. The Ecuadorian oil industry reserved the

right to acquire up to 25% of the joint venture in 1977.

Libya expropriated 51% of the assets of Occidental Petro-

leum Corp., which "acquiesced" to the transfer of assets

to the Libyan National Oil Co. (LNOC) for an immediate

cash payment of $135 million. Production of a second

large producer, Amoseas was cut by Libya to 50% to in-

crease the pressure to submit to nationalization. Amoseas

and Oasis Oil Co (Conoco, Marathon, and Amnerada Hess)

were given until Sept. 1 to accede to 100% Libyan control.

Libya pressured Oasis Oil Co. to accept a 51% takeover,

but Shell refused to capitulate fearing that acceptance would

trigger favored nation clauses. The Libyan government

said that the takeover "is certain to have an impact on other

oil-exporting countries" and that itwould result in imposi-

tion of new conditions on oil companies operating in other

producing countries. Libyan officials also said the new

policy required the discovery of one new barrel of oil for

each one exported. The new agreement allows the companies


1973 (cont'd)

August 27: to buy back the 51% of production claimed by Libya and

provides for compensation for expropriated assets based

on book value. Libyan Premier Jallud said that Libya

would demand $6 per barrel instead of the $4.90 agreed

to for buy-back oil and would not accept payment in dollars.

He added that "if industrial nations and oil consumers

gang up against us in a so-called cartel, we shall see that

they bear the consequences of their wrongdoing. "

August 27: */ OPEC warned that when the 1971 Teheran agreement ex-

pired at the end of 1974, it would to demand price in-

creases that could move Persian Gulf Crude prices to

$5 to $6 per barrel. OPEC Secretary General Nadim Pa-

chachi said these prices could top $10 by 1980.

September 1: Libya nationalized 51 % of the interests of Esso Libya/

Sirte, Mobil, Shell, Gelsenberg, Texaco, Standard Oil of

California, Libyan-American (Atlantic Richfield), and Grace.

September 15-16: 35th OPEC conference designated Abu Dhabi, Iran, Iraq,

Kuwait, Qatar, and Saudi Arabia (the "Gulf Six") to nego-

tiate collectively with the companies over prices. Other

OPEC members were to negotiate individually.

September 17: */ Secretary of State Kissinger said that there was no

near-term alternative to increasing imports of oil from the

Middle East. TheArabs had made clear that their willing-

ness to sell increasing volumes of oil to the U.S. would

be closely linked with change inthe U.S. political position


1973 (cont'd)

September 17:* in the Middle East. Kissinger said that "we have excellent

relationships with our principal Middle Eastern suppliers

of oil, Saudi Arabia and Iran, and we do not foresee any

circumstances in which they would cut off our supply. "

September 24: */ Hisham Nazer, president of Saudi Arabia's Central Plan-

ning organization, said that his country's oil income since

1970 was so far ahead of its needs for economic and social

development that further increases in production would

depend largely on Saudi Arabia's ability to establish more

domestic industry and to train more skilled manpower to

operate it. He said that "In Saudi Arabia, we believe

that we are in a period of history where the possibility

exists to turn the course of time, and we are eager to ac-

cept that challenge ... Saudi Arabia is answering the call

to sustain modern civilization-- this is an obligation to

to its people and to the world."

September 27: OPEC resolved to take "appropriate measures" against

oil companies resisting take-over and endorsed Abu Dhabi's

claims to higher prices for its high-gravity low-sulphur


October 1: */ Kuwait announced that it was seeking immediate 51%

participation in the operations of Kuwait Oil Co (50% Gulf,

50% British Petroleum).

October 1: */ OPEC sent formal notices to all principal oil companies

to meet in Vienna on Oct. 8 to open new price negotiations

on crude oil.

1973 (cont'd)

Ocotber 3: */

October 3: */

October 6:

October 7:

October 8-10:

October 12:

James Akins, Ambassador to Saudi Arabia, reported

that it was serious about its intentions to refuse to expand

oil exports unless the U.S. adopted a more even-handed

Middle East policy. The Saudis were reported to be

unwillingto expand production merely to meet U.S. needs,

unless Washington revised its traditional policy of strong

support for Israel. Akins predicted that soaring demand

and tight supply would boost world crude prices to $10 by


William Simon, Chairman of the Oil Policy Committee

and Deputy Secretary of the Treasury, said:

... The need for improvement in the political atmos-
phere in the Middle East, and this subject has the
highest priority for us.... The U.S. is giving
serious attention at the highest levels of our Govern-
ment to helping Saudi Arabia meet its objectives of
economic diversification and sound growth.
... We expect that any differences between us and
Saudi Arabia will be resolved through negotiation
and in the spirit of long-standing close relations
between our countries.

The fourth Arab-Israeli war began.

Iraq nationalized the holdings of Exxon and Mobil in the

Basrah Petroleum Company, corresponding to 23. 5 % equity

in the company.

OPEC ministerial committee of the Gulf Six met with

companies' representatives to discuss revision of the 1971

Teheran agreement and oil prices but negotiations failed.

A joint memo was sent to President Nixon by the

chief executives of the Aramco owner companies. He


1973 (cont'd)

Ocotber 12:

October 16:

was warned that the Saudis threatened to cut back crude-

oil production due to U.S. support to Israel. "A further

and much more substantial move will be taken by Saudi

Arabia and Kuwait in the event of further evidence of in-

creased U.S. support of the Israeli position," the execu-

tives told President Nixon. The company executives warned

that a single action by one producer government against the

U.S. "would have a snowballing effect that would produce

a major petroleum supply crisis. They warned that the

situation not only jeopardized their commercial interests,

but also the entire position of the U.S. in the Middle East

with "Japanese, European, and perhaps Russian interests

largely supplanting United States presence in the area,

to the detriment of both our economy and our security. "

A later company memo stated that "the general at-

mosphere encountered [in Administration] was attentive-

ness to the message and acknowledgement by all that a

problem did exist -- but a large degree of disbelief

that any drastic action was imminent or that any measures

other than those already under way were needed to prevent

such from happening. "

The Teheran agreement was scrapped as six Persian

Gulf members of OPEC imposed a $1. 989 increase to

$5/bbl (market price of $3. 65 /bbl)for key Arabian light

crude. Saudi Arabia, Qatar, Kuwait, Iraq, Abu Dhabi,

and Iran alsodeclared themselves to be the sole arbiters


1973 (cont'd)

October 16:

October 17:

of price and that all other OPEC countries would endorse

the measures. OPEC claimed that the increase was only

17% higher than prices in recent direct sales by governments

in direct sales to buyers, although BP said that was mis-

leading and that the true increase would be about 70"1. Income

taxes and royalty payments to producer governments were

expected to rise about $1.25 /bbl.

Arab oil ministers agreed on the use of the oil weapon

in the Arab-Israeli conflict including a mandatory cut in

exports and a recommended embargo against unfriendly

states. Oil production was to be cut at least 5% by eleven

Arab countries each month unless Israel were to with-

draw from the territories occupied in the 1967 war. The

participating countries were Saudi Arabia, Abu Dhabi,

Algeria, Bahrain, Dubai, Egypt, Kuwait, Iraq, Libya,

Qatar, and Syria. Individual states were free to cut the oil

flow by more than 5%if they wished. The official statement

from Kuwait said:

Unless the world community corrects the situation
by forcing Israel to withdraw from our occupied ter-
ritories and by making the U.S. realize the high
price European industrialized counties will pay as
a result of the unlimited American support for Israel.

... The conferees are aware that this reduction should
not harm any friendly state who assisted or will as-
sist the Arabs actively and materially. Such countries
would receive their share (or Arab oil) as they did
before the reduction. This exceptional treatment will
be extended also to any other countries which might
take active steps against Israel in a way to force
Israel to end its occupation.

70-017 0 76 4

1973 (cont'd)

October 19-20:

October 23-28:

November 4:

November 5: */

November 7:

Saudi Arabia and other Arab states proclaimed the em-

bargo on oil exports to the United States.

Oil embargo was extended by Arab States to the

Netherlands, Portugal, Denmark, Rhodesia, and South


Arab producers met to set production cutbacks at

25%0 and to agree on a unified embargo agaisnt the U.S.

and the Netherlands. Prior to the meeting each Arab State

had been acting on its own.

The U.S. military reported t hat the embargo was

having a more serious effect on it than on the civilian market.

President Nixon announced in a television address man-

datory allocation of crude oil and refined products and a

reduction in distillate fuel-oil allotments to 85% of 1972.

He ordered the Federal Government to take steps which

would conserve up to 2. 3 million b/d. The goal of energy

self-sufficiency was stated as the goal of a new program

which he proclaimed "Project Independence. Industries

and utilities were prevented from converting to oil from

coal and were encouraged to convert from coal to oil. Air-

lines were asked to reduce speeds and reschedule flights

to save 10% of their fuel consumption. He recommended

a 50 MPH speed limit and said that standby rationing plans

for gasoline and fuel oil were being made. He asked Con-

gress for authority to suspend natural gas prices at the

1973 (cont'd)

November 7: wellhead during the emergency, to waive clean-air stan-

dards, to waive environmental impact standards, to pro-

duce oil from the Elk Hills Naval Petroleum Reserve, and

to adopt ear-round daylight savings time.

November 12: *1 Nigeria became the last major producer to raise posted

export prices. The increase was from $4.29 /bbl to $8.31

/bbl, a jump of 93, 7 %.

November 12: */ The major U.S. oil companies said that rationing was

necessary to offset crude losses. The Department of

Interior created an Office of Petroleum Allocation to handle

mandatory allocations.

November 18: Arab oil ministers cancelled the scheduled 5 percent cut

in production for EEC.

November 19: The National Petroleum Council warned that shortages

of major products could average 25'" nationwide. It re-

commended immediate rationing of all petroleum fuels on

a national scale.

November 19: */ Shaykh Yamani said that Saudi Arabia wanted help in build-

ing an export-oriented industrial economy before its oil

reserves are eventually exhausted. He emphasized that it

was politics, not "petty economics, that would determine

the extent to which the U.S. would have future access to Saudi

Oil, referring to Arab demands of withdrawal of occupied

lands by Israel and restoration of rights to displaced Pales-

tinians. He indicated that a strongly symbolic statement

altering the seemingly absolute support of Israeli, together

1973 (cont'd)

November 19:

November 19:*/

November 19:*/

with visibly subtantive change, would be required from the

U.S. "We did not want the embargo. We hope that we can

do something, but there must be something that we can

show as change. The ceasefire isn't enough, he said.

In addition, he noted it would take another meeting of Arab

oil ministers before the embargo could be modified or

lifted. He said King Faisal would go along with whatever

the combatants in the war agreed to.

The Saudis also had due regard for public opinion, both

in their own country and among their Arab neighbors,

the minister said. For example, he cited Iraqi anger over

Saudi Arabia's failure to nationalize Aramco when the U.S.

resupplied Israelafterthe start of the war Oct. 6. Yamani

declared prices for oil in 1974 would "jump beyond your

imagination, although he said the Saudis want commercial

stability. Yamani said that Arabs acted as they did because

only a cutoff of oil to the U.S. would change the attitude

of the American public.

Saudi Arabia demanded immediate 51% control of Aramco

instead of in 1982 as called for in the 1972 participation


OPEC Secretary General Khine said that the Persian Gulf

States had "put a final end to the abnormal practice of

negotiating oil prices with the international oil companies. "

He added that the producing countries will continue to need

the "presence" of the oil companies, in many ways, especial-

ly in exploring new reserves.



November 19: */ Libya raised its buy-back price for crude oil from $4.9-

to $7.60 /bbl.

November 25: Iraai Oil Minister Murtada Abdel Baki said in an inter-

view that the embargoes were useless. "Our petroleum

policy should be aimed more at winning friends rather than

creating foes and rivals," he said. Oil cutbacks that

damage Japan, Europe, Latin America, and Asia serve the

interests of the U.S. he declared. The U.S. competes in-

dustrially with those areas, he said, and it is wrong to

damage European and Japanese economies. Prices, Baki

declared, should be set at levels that "will not lose our

old and new friends -- not to let our enemies and the

monopolistic oil companies make political gains out of the

recently increased prices. "

November 25: The Shah of Iran offered to try to make up western oil

losses, but could not because was producing at capacity

levels. The Shah said that any increases would depend

upon the discovery of "new wells. "

December 3: */ Venezuelan President Caldera rejected suggestions

that Venezuela cut back oil production but said it would

not increase it either. An oil ministry official had previously

said Venezuela could cut oil output to 2 million b/d from

3. 3 million b/d and still meet national budget needs with

a 30% surplus. Caldera contended, however, that this step

was "not justifiable at this time when our traditional clients

need the product. "



December 3:*/

December 3:-/

December 3: */

December 9:

Kuwait appealed for understanding by the American people

via full-page advertisements in the Washington Post and

New York Times. It published an open letter explaining

Arab actions, reflecting a growing fear among Arab lead-

ers that they were becoming villains to the American public.

The Shah of Iran urged that the oil embargo be ended.

"You have played your hand well, he said, "but you should

now play your cards equally well in times of peace. Since

you have accepted the cease-fire for the sake of a peaceful

settlement, why do you continueto cutoff the oil and reduce

production? Petroleum is like bread. It must not be

cut off during peacetime. Why do you want to appear as

if you want to starve the world? Why punish those in Europe

who stood by your side?"

What has Japan done that it should be made to reduce

its national product by 20%?"

The Arab oil ministers announced further production

cut of 5 percent for January but friendly countries were

exempted. The cuts were to continue "to the extent that

the reduction in income accruing to any of the producing

countries should not exceed one-quarter of the 1972 income

level." The summit also established a committee to establish

friends and foes. It included the foreign and oil ministers

of the producing states, andits jobwasto classify the con-

suming countries into three groups: friendly, neutral and

hostile. Saudi Arabia, largest of the producers, had already


1973 (cont'd)

December 9: publicized its friends as : Britain, Spain, France,India,

and Brazil, all Arab states, Islamic oil-importing states

(Pakistan, Turkey, and Malaysia), and African countries that

have severed diplomatic relations with Israel. Embargoed

foes were the U.S., Portugal, the Netherland, South

Africa, Rhodesia, and all centers that tranship oil to the

U.S. -- such as the Carribbean island countries.

December 22-25: OPEC ministerial committee of the Gulf Six decided

to raise posted price of market crude to $11. 651 per bar-

rel effective January 1, 1974. This was an increase of

128 %. The Arab oil states, except Iraq, also announced

that they would increase January production by 10% and

and would cancel a planned 5% cutback. The govern-

ment take from the new prices was to be about $7/bbl, an

increase of 275% since October. The Shah of Iran was

believed to be the architect of the increase.

December 24:*/ Kuwait Oil Minister Abdel Rahman ai Atiqi declared his

country would continue to cut oil production and might

eventually cut its production to half its former level,

or to only 1. 5 million b/d. By government decree, pro-

duction had been limited to 3 million b/d and after the

earlier cuts stood at a little less than 2. 5 million b/d.

December 24:*/ Iraqi Oil Minister Sadun Hammadi, declared again his

opposition to the oil cutbacks and said Iraq would boost

its production from a current 2.1 million b/d to 3.5 b/d

in 1975. The cutbacks, Hammadi said, harm both friends


1973 (cont'd)

December 24:


December 27:

December 28:

and foes. He repeated his call for total nationalization

of U. S. interest in the Middle East, withdrawal of Arab

funds from American banks, and severance of Arab diplo-

matic relations with U.S. Hammadi deplored the spiral

in crude prices. "As producers of oil, we must think of

the future and must set the ceiling to which we can allow

prices to rise, "he said. "The industrialized nations which

are in need of oil possess gigantic scientific potentials

and have alternative sources of energy for the future. We

can't expect to place the economies of the industrialized

nations in danger without expecting a backlash."

Mandatory oil allocation regulations were issued by Wil-

liam Simon, FEA Administrator.

Crude imports into Districts 1-4 fell to 1, 752, 000 b/d

for the week ending Dec. 28, little more than half of the

3,454, 000 b/d for the week ended Nov. 2, 1973. These

levels indicated that the embargo was nearing projected

levels of maximum effectiveness.


January 14:*/

President Nixon invited representatives of six major oil-

consuming countries to Washington to discuss means of

ending the embargo and dealing with the higher oil prices

imposed by OPEC. The meeting was partially the result

of unilateral arrangements between France with Saudi Ara-

bia and others that Secretary of State Kissinger was trying


1974 (cont'd)

January 14 :/

January 17:

January 21:*/

January 21. */

to prevent. The Administration avoided actions that would

upset relations with the Arabs and were pressing Israel

to reach a peace settlement. The U.S. continued to export

food and machinery to the embargo participants, including

shipment of 70 advanced FSE Freedom Fighter jets to

Saudi Arabia. The reason given for this extraordinary

action was that it would provide the Arabs with more

reason to return to normal trade.

Shaykh Yamani admitted that the oil embargo had not

been effective against the U.S. and the Netherlands, large-

gely because of rearrangement of oil supply systems by

the major oil companies. Yamani said "We don't intend

to take other measures to stop oil outside the Arab world

from going to these countries. "

The Shah of Iran called for OPEC consultation with the

OECD and the EEC.

France concluded a 3-year oil-supply deal with Saudi

Arabia and was negotiating on a 5.8 billion bbl/ arrangement

that would cover 20 years. French Prime Minister Mess-

mer said that France would continue to seek unilateral sup-

ply arrangements. France was skeptical of the U.S. proposal

of a consumer alliance and called for a massive international

conference to seek solutions to the energy crisis. The

French proposed that the meeting be held within the frame-

work of the United Nations to avoid a confrontation between

producers and consumers, which it feared would result from


1974: (cont'd)

January 21: the U.S. approach. Britain, West Germany, and Japan

were also seeking supply deals with the Middle Eastern


January 21:*/ Venezuela rejected OPEC plans for a price increase on

April 1 and decided to raise its prices as of February 1 to


January 22-23:*/ OPEC promised the developing countries of Africa that

they could have all the oil they wanted provided that they

did not reship the oil to embargoed countries. OPEC refused

to reduce the price, fearing that it could be resold at a profit.

January 28:*/ An official of Aramo said that production could be quickly

restored to October 1973 levels after OPEC ended the em-

bargo. That would require an increase in production of

nearly 1. 5 million b/d and could reach western markets

within 5-6 weeks of the lifting of the embargo. He added

that the flow could reach 9. 3 million b/d by the end of the year.

January28 :*/

January 28:*/

Indonesia proposed the imposition of profit restrictions

on oil producing companies. The Government would take 90%

of income over company realization per barrel of $5 on

each barrel selling at $10.80/bbl/ Existing contracts, which

the Government was trying to break, allowed the production

to recover exploration and development costs; the remaining

60% was split 65% for Pertamina and 35% for the producer.

Two large projects to import Algerian liquefied natural

gas to the U.S. were canceled because of U.S. Federal

Power Commission inaction before December 31, 1973.


1974 (cont'd)

January 28:*/

February 4: */

February 11. */

February 11. */

Most oil-consuming nations were reported to be

actively negotiating unilateral oil deals.

A new round of participation negotiations was triggered

by Kuwaiti demands that Kuwait Oil Co. permit 60% govern-

ment control effective January 1, 1974 with 100% transfer

possible by the end of 1979. Compensation was set at

$112 million, the net book value less depreciation.

Kuwait also announced that it would not agree to long-term

supply contracts with consumer governments but would auc-

tion oil instead. It also indicated that it did not expect

to receivethe "panic" pricesthat Libya, Nigeria, and Iran

received at the height of the oil war which had since sub-


Norway proposed that all nations-exporters, importers,

and developing countries -- form an international agency

to distribute oil and eventually to produce it. Norway

maintained that the agency would be preferable to current

oil company control of most world oil distribution.

Clovis Maksud, special envoy of the League of Arab

States, referred to the Washington Culroy Conference by

saying that "to confine the meeting to a select group of in-

dustrialized nations is tantamont to an affirmation of a

continual economic hierarchy in a world seeking to even

disastrous economic discrepancies .... In economics, as


1974 (cont'd)

February 11: */

February 11: */

February 11: */

in politics, dialogue is preferred to economic confronta-

tion. He said that if the energy crisis is one with world-

wide impact, then energy producers and energy consumers

sh uld meet within an international framework such as the

United Nations, to remove chances of "suspicion" and/or
"confrontation. He defended, however, the rights of oil

producers to form their own block on the grounds that

"the economically weakare encouraged toforge closer co-

ordination. "

President Nixon proposed legislation to halt the use of

surplus credits earned in producing nations to eliminate

U.S. tax liability elsewhere and to end to depletion allowances

for foreign production and deductions for intangible drilling

expenses in foreign countries. A sliding-scale tax was

recommended to prevent windfall profits.

Hunt and Exxon officials testified that private companies

lacked the power to halt the spiral of oil prices in host

countries. They said that a U.S. Government/industry

team was necessary to deal with the producing countries

and that a conference of consuming nations was a positive

step and could be the last chance their governments had

to restore stabilityto the international market. They said

that the weakness in past negotiations resulted from a fail-

ure of Government and industry to cooperate. They blamed

the plight of the consuming nations on successive de-

monstrations of weakness by their government


1974 (cont'd)

February 11:

February 12-14:

February 18:*/

industries. They said that "Such weakness produced higher

demands at an ever-faster pace until we have reached a

point that industrial economics are imperiled, the world's

monetary system is threatened, governments have fallen,

and alliances are severely strained... The businessman failed

to take into consideration the political significance of his

economic acts, and the diplomat failed to recognize the econo-

mic and financial consequences of the producing states's pol-

itical demands."

Libya announced total nationalization of units of Texaco,

Standard of California, and Atlantic Richfield, while

delegates from the world's major oil-consuming nations

were meeting in Washington, D. C. Texaco said that its

position was "that any unilateral Libyan Government ac-

tion designed to deprive it of its interests is contrary to

international and Libyan law and to the terms of Texaco's

concession deeds." Texaco said that it was taking the

necessary steps to protect its rights and that it had ini-

tiated procedures for arbitration. It also diverted tankers

headed for Lybia.

Heads of state of Algeria, Egypt, Syria, and Saudi Arabia

discussed oil strategy in view of the progress in Arab-

Israeli disengagement but agreed to continue the embargo.

The U.S. partners in Aramco denied that they would sell

their remaining 75% interest to the Saudi Arabian Govern-

ment of $1. 5 billion in return for a Saudi pledge to give



February 18:*/

February 18:*/

February 18: */

the U.S. companies preferential treatment in purchasing

crude supplies.

The oil ministers of Abu Dhabi and Qatar began talks

with their oil companies on, renegotiation of their participa-

tion agreement to a 60-40 ownership comparable to that of


At the Washington Conference, the major oil-consuming

nations, led by the U.S., agreed on the need to discuss

with oil exporters "the problem of stabilizing energy sup-

plies with regard to quantify and prices." Only France

objected to the key points which included agreement "to

develop a cooperative multilateral relationship with pro-

ducing countries, and other consuming countries that takes

into account the long-term interests of all. The 13 in-

dustrialized countries represented stopped short of a con-

frontation with the producing nations but reached a unanimity

that was greater than expected on the subject of avoiding

bilateral bidding contests that would drive up the price

of oil. The communique issued at the close of the conference

did not call for a rollback, but it did mention the severe

economic problems that had been created by soaring oil

prices in the preceding six months. Kissinger, however,

stressed the need for a "fair price" for oil which would

be "lowerthan existing prices but considerably higher than

September prices. The conference concluded that the large

rise in oil prices was a serious concern, that the price

1974 (cont'd)

February 18:*/

February 25:*/

March 4:

situation could lead to serious deterioration in income

and employment, could intensify inflationary pressures,

and could endanger the welfare of nations, and that inter-

national cooperation, including the oil producing countries,

could improve the supply demand situation and could ease

the adverse consequences so that "a more equitable and

stable international energy relationship" would be estab-


Venezuela's President-elect Carlos Andres Perez said

that all foreign-owned oil companies would revert to the

state withintwo years after his inauguration. He said that

the companies would be compensated for their properties.

Under exisisting law the concessions were scheduled to

revert beginning in 1983.

The EEC moved to begin a "new and wide-ranging dialogue

with theArab states, generating U.S. concern that it might

encourage the Arabs to prolong the embargo until the

EEC approach could be analyzed. The three-phase ap-

proach was to begin with EEC President Herr Walter Scheel

inviting 20 Arab states to send representatives to Bonn

for preliminary talks. Then, several joint work parties

would be organized to study possible areas for long-term

economic cooperation and possibly political problems.

Lastly, there would be a full-scale, 29-country conference

of foreign ministers.


1974 (cont'd)

March 11: */

March 11: */

March 13:

March 17:

March 18:* /

BP Chairman Sir Eric Drake warned Europen consuming

nations that bilateral oil deals could be "fixed" once a ration-

al oil supply system came into operation and that such deals

acted against the world interest.

Treasury Secretary George Schultz asked the Senate

Finance Committee for the authority to withhold trade con-

cessions from countries which impose "illegal or unreason-

able restraints on sales of commodities in short supply" and

for the power to negotiate for "adequate commitments on

the availability of key raw materials. "

The Arab ministers agreed to end the embargo against

the United States and to restore production to pre-October

levels. A formal announcement was postponed because Libya

objected to the lifting of the embargo.

Arab oil ministers announced the end of the embargo against

the United States. The embargo was continued for the

Netherlands and Denmark.

Iranian Finance Minister Jamshid Amouzegar declared

that his government would not let oil prices drop, even

if it meant the breakup of OPEC. He also said that Iran

would use "at least $700 million of its revenues to soften

the financial problems of industrial countries whose bal-

ance of payments had been disrupted by oil-price increases.

He added that the Shah suggested that the other OPEC states

follow Iran's example and make deposits in proportion to

their surplus revenues.


1974 (cont'd)

March 25: */

March 25: */

April 1: */

Mobil, operating under protest against Libya's 51% nation-

alization decree, notified the Libyan Government that it

was willing to continue operations under the provisions of

the law and "to enter a participation agreement with the

government and national oil corporation.

Crude oil prices were frozen until July 1 at a meeting

of OPEC oil ministers in Vienna. The move was a com-

promise between those states favoring new price increases,

led by Iran, and those wanting price cuts, led by Saudi

Arabia. Shaykh Yamani agreed tothe freeze only on condi-

tion that OPEC review the situation in three months. OPEC's

economic commission had recommended an increased in

postings of 10%. OPEC qualified the freeze, however,

by warning that new price increases could come if the

consuming countries did nothing to restrain their inflation

rates. OPEC also criticized the high profits of the oil

companies and planned radical revisions of its members'

tax structures.

Saudi Arabia notified Aramco that it could increase

its production by 1 million b/d. Shaykh Yamani said that

production would be restored to the September 1973 level

or to the average of the first nine months of 1973, which-

ever is higher." Shipments to the U.S went to be frozen

at 1,052,000 b/d "until we remove the Israeli-Arab conflict

from our way." The amount was 300,000 b/d more than

70-017 0- 76 5


19 74(cont'd)

April l:*/

April 8:*/

April 15: *1

April 15: */

at the beginning of the'embargo to make up for U.S.

crude losses of crude due to continued embargo by some

other Arab countries, principally Libya.

Major oil companies with interests in Aramco

and the Iranian consortium were charged with benefiting

from high posted prices and not resisting them. Financial

data released by the Senate Subcommittee on Multinational

Corporations showed that Aramco's 1973 profits were nearly

twice as high as those for 1972. The charges were denied

by the companies.

U.S. Commerce Department reported that the embargo

did not reach full force until January and that it took two

months for the oil lifted prior to the embargo to work its

way through the distribution system. Only a small amount

of Arab oil (809,399 bbl from Saudi Arabia and 588,445

bbl from Tunisia) entered the U.S. in January and February.

The Department said that a portion of the Arab imports re-

flected leakage through the embargo, although most of the

volume was crude lifted before shipments to the U.S. were

proscribed. In additionto the crude received directly from

Arab countries, other volumes reached the U.S. via trans-

shipment from other nations: 647,173 bbl from the Nether-

lands in November and December, 224,334 bbl from France

in November, 50, 574 bbl from Belgium in that month, and

132,543 bbl from Italy.

Saudi Arabia and the U.S. agreed to strengthen cooperation

in economic, military, and industrial areas. The Saudis


1974 (cont'd)

April 15:*/

April 22: *1

April 22: */

April 29:*/

April 29: */

planned to buy the latest U.S. tanks and 200 fighter planes.

The U.S. denied that the deal was a reversal of U.S.

policy and stated that Europe, Japan, and Israel had been

consulted in advance. The Saudis gave Aramco permission

to spend $2.25 billion to increase productive capacity bv

2 millionb/d by the end of 1975, which would have permit-

ted production of up to 11. 2 million b/d.

The United Nations, at the request of Algeria on behalf

of the "group of 77"developing nations, held a special ses-

sion on world raw materials and development problems.

U.S. Secretary of State Kissinger warned against cartels

and the inflationary spiral that could be set off by high

oil prices and pledged a major effort to aid developing

countries. Arab diplomats defended their crude-oil prices

and contended that they were already committed to sizable

financial contributions for assistance to developing countries.

Exxon and Mobil signed over 51% of their Libyan operations

to the Government of Libya. Both entered production-sharing

agreements that would provide for additional exploration

acreage as well as compensation for the assets relinquished.

The major oil companies agreed to pay 93% of the posted

price for 60% of Qatar's participation oil.

Libya reduced its contract prices for government owned

crude by $1. 50-$1. 75/bbl.


1974 (cont'd)

May 6: */

May 13: */

May 13 :*/

May 20: */

May 26:

May 27: */

May 27: */

FEO reported that the profit margin for U. S. producers

in the Middle East jumped from $0.79/bbl to $3. 73/bbl

during 1973. FEO said it was probing transfer prices to

determine if the entire amount should be permitted to be

passed through to U. S. consumers.

Nigeria reached agreement with Shell-British Petroleum

for 55% participation in their large Nigerian operation.

Shaykh Yamani rejected the "Wilson Lever Plan"for

consuming countries to set up a purchasing agency to buy

crude collectively for the large importers. Yamani said

that "any action of this kind would lead to a sharp increase

in oil prices based on reduced production.

Kuwait approved a 60% participation pact with Kuwait

Oil Co in a surprise move.

Kuwait offered for bid its entire crude entitlement from

Kuwait Oil Co. for the second half of 1974 and all of 1975.

Kuwait said that if KOC were not willing to pay its price,

the Government would gladly supply KOC's traditional

customers at its asking price of about $11. 05 /bbl.

Nigeria reached agreement with five more producing com-

panies for 55% government participation.

Venezuela announced the appointment of a presidential

commission to formulate a plan for a take-over of oil

concessions and assets held primarily by foreign-owned



1974 (cont'd)

June 1-2:

June 10: */

June 10:*/

June 17: */

The OAPEC oil ministers, except Iraq, decided to

continue deliveries to the U.S. and to continue the em-

bargo on oil exports to the Netherlands and Denmark. Algeria

said that it did not approve of the action and would resume

oil shipment to the two countries immediately. Saudi Arabia

wanted to continue the embargo. Syria expressed satisfaction

with U.S. peace efforts and recommended that the embargo

on the U.S. not to be reimposed.

Texaco and Gulf agreed to demands by Ecuador for 25%

of their oil production and transport facilities in Ecuador.

FEA Administrator John Sawhill testified before a Senate

Committee that there are some types of international oil agree-

ments that should require prior government approval. Sawhill

said twointeragency studies were under way --one "which

will for the first time indicate the full true cost of imported

oil, includingthe riskof interruption and national-security

implications, the other to determine the kinds of com-

pany/foreign-government deals over which the U.S. should

have veto power. He agreed that the firms should not have

sole authority to negotiate supplies and prices and that

there should be be a Federal veto power in certain situations.

TheU.S. and Saudi Arabia signed an agreement establish-

ing a special relationship between the two countries. There

was no promise from Saudi Arabia to supply guaranteed

volumes of oil to this country or for the price reductions


1974( Cont'd)

June 17: :/
(cont'd) -

June 17: */

June 17: */

that were sought. The accord established a joint com-

mission on economic cooperation and another on military

matters, aimedat industrial development and modernizing

Saudi Arabian armed forced. The economic commission

had the Treasury Department as the lead agency, with

participation also from State, Commerce, the National

Foundation, and other related U.S. agencies, plus their

counterparts in the Saudi Government. The U.S. also agreed

to aSaudi proposal to consider setting up government-industry

committees: composed of prominent American and Saudi

participants from the private sector to work together to

further the aims of the cooperative arrangements between

the two countries. They were also considering a U.S. -Saudi

Industrial Development Council, which could include govern-

ment as well as private enterprise representatives.

Saudi Arabia reached an interim agreement with Aramco

to increase its ownership from 25% to 60% retroactive

to January 1, 1974.

Yamani revealed that the ministers of OAPEC had dropped

the quota system under which oil exports to consuming coun-

tries were allocated on a "friendly" and "unfriendly" basis.

This meant that the embargo on Holland and Denmark (which

were retained at the June 1-2 meetings) was effectively

inoperative. The international oil companies were free

to resume normal marketing distribution, and that included


1974 (cont'd)

June 17: */

June 17: */.

June 24: */

Scandinavian countries, as well as Portugal, Rhodesia,

and South Africa. Yamani also revealed that the 15% pro-

duction cutback was a dead issue and that each Arab state

would set its own production level.

The Arab oil states informed the Organization of African

Unity that oil prices were not negotiable and that pref-

erential price treatment could not be extended even though

they had supported the Arabs in the October war.

OPEC agreed to continue the price freeze for three

more months but increased royalty payments by 2%. Saudi

Arabia opposed a price increase and effectively offset the

determination of the other OPEC states to see both prices

and taxes raised. The 2% increase in royalties was expected

to add 10 cents/bbl to government revenues. OPEC warned

that new increases could be expected if the industrial states

did not curbe their rates of inflation. Shaykh Yamani said

that SaudiArabia was seeking $10. 70/bblin buy-back nego-

tiations with Aramco (92% of the tax preference price rather

than the 95. 7% that some states had been asking.) OPEC

unity on policy was shown to be less than absolute when

Yamani told the conference that his government would

taxes were increased. Yamani was adamant against a

have to "review its position in OPEC" if crude prices or

proposal favored by a number of OPEC members to raise

the tax rate on companies to 87% to siphon off "excess

profits after prices quadrupled from crude in inventory,



June 24:*/

July 1: */

July 8: */

July 10-11:

but he said "this is no longer the situation... Since we

are going to take over 100% ownership of our foreign part-

ners soon, it would be ridiculous to set up a system to

tax ourselves. In the post-conference communique, Saudi

Arabia was quoted as saying it "shall not associate itself"

with the 2% royalty increases, thus revealing basic policy

differences within OPEC.

Oil consultant Walter J. Levy cited four elements as

essential to reach "reasonable adjustment:" far reaching

cooperation among the oil-importing nations; an under-

standing by the importing nations of the interests and as-

pirations of the producing countries; a clearcut (and pain-

ful) program of energy austerity bythe oil-importing coun-

tries; and a recognition by the producing countries that

even in an austerity situation any attempt to hold prices

high must result in worldwide dangers to which they could

not be immune. "

Indonesia, Venezuela, and Ecuador increased their oil

prices effective July 1.

The Arab oil ministers officially lifted the embargo

against the Netherlands "in appreciation of the desired re-

lations between the Arab nations and the European com-

munities. The partial embargo against Denmark had al-

ready been tacitly withdrawn. In the strongest statement

by a Saudi official since the lifting of the embargo, how-

ever, Shaykh Yamani warned that the embargo could be re-

imposed "very soon", unless the Arabs received assurances

1974 (cont'd)

July 10-11:

July 15: *f

July 15: *1

July 15:*/

that Israel would give up territory conquered during the

1967 June War.

Auctions of government-owned oil in the Middle East

proved unsuccessful. Iran received bids well under the 93%

of tax-reference price they were seeking and had only one

bid (for 8, 000 b/d) at that level. Kuwait auctioned 1. 25

million b. d and demanded minimum bids of 95. 7% but re-

ceived none. Japanese bidders bid not more than 86.6% of

tax reference.

The U.S. issued strong warning to OPEC against using

production cutbacksto reduce supply surpluses. Treasury

Undersecretary Jack Bennett warned that further produc-

tion cutbacks, would be "counter productive" and called

for rollbacks in foreign crude prices as "the appropriate

remedy. Saudi Arabia also opposed a cutback.

The "Group Twelve" established at the Washington energy

conference reached tentative agreement on an oil-sharing

plan to combat any future embargoes or cutbacks. The plan

established two "trigger-points." The first would come

into play in the event of an embargo of all consumers,

and would be "triggered" by a 10% shortfall in consumer-

country stocks. The new French Government indicated,

through diplomatic channels that it was ready to join the

consumer bloc.



July 29:*/

August 5:*/

August 12: -1

Kuwait Coil Co. capitulated to the Kuwaiti Government's

demands of $10. 95/bbl for its participation crude (94.8%

of the tax-reference price) for the third quarter of 1974.

It was brought about by the Government's threat to deny

crude to Gulf and BP (the owner of KCO) either by selling

it to others (perhaps at a lower price) or by shutting in

the production. Before this action, no purchaser of inter-

national crude had paid more than 93% of the tax-reference


A Harvard report for the Senate Foreign Relations Sub-

committee on Multinational Corporations claimed that the

U. S. lost only a slightly larger proportion of its oil sup-

ply than other nations the previous winter although it was

the main target of the Arab oil embargo from October to


The reason given was that international oil companies allocated

supplies equitably among all markets. They negated the

embargo efforts against the U. S. for the most part.

Corporate documents released by Senator Frank Church

revealed that U.S. officials ignored oil-company warnings

of Arab willingness to use oil as a weapon months before

the embargo was imposed. Saudi King Faisal reportedly

demanded that the U.S. limit its support to Israel before

and during the October War. Exxon, Mobil, Texaco,

and Standard Oil of California policed the embargo for the

1974 (cont'd)

August 12:

August 12: */

Saudis by preventing oil shipments to the U.S. Aramco

said that had it not complied, its total production would have

been stopped. The companies had sent urgent warnings to

the Administration stressing King Faisal's dissatisfaction

beginning four months before the war, but were unable

to convince the Administration cf the seriousness of the

situation. The messages were acknowledged but it was

doubted that any measures were necessary.

Senator Church accused the Aramco partners with

being less interested in keeping the price down than in

control of crude oil through preferential buy-back arran-

gements. "These company objectives are not necessarily

best for the American consumer and the parameters of

negotiations between the companies and the Saudis should

be subject to careful U.S. Government supervision, said

Church. He added that during negotiations Mobil, having

the smallest Aramco interest, "threatened to make a deal

with the Saudis outside the Aramco framework so that it

would not be tied to its 10% equity interest in Arabian crude."

Saudi Arabia postponed a large oil auction under pressure

from other OPEC States. The sale was to have set a new
"marker" price for Middle East crudes. The Saudis had

contended lower crude prices were in order and they would

accept the best bids, below the 93% of tax-reference price

which had become a kind of standard in the Persian Gulf.


1974 (cont'd)

August 12:

August 12: */

Saudis by preventing oil shipments to the U.S. Aramco

said that had it not complied, its total production would have

been stopped. The companies had sent urgent warnings to

the Administration stressing King Faisal's dissatisfaction

beginning four months before the war, but were unable

to convince the Administration of the seriousness of the

situation. The messages were acknowledged but it was

doubted that any measures were necessary.

Senator Church accused the Aramco partners with

being less interested in keeping the price down than in

control of crude oil through preferential buy-back arran-

gements. "These company objectives are not necessarily

best for the American consumer and the parameters of

negotiations between the companies and the Saudis should

be subject to careful U.S. Government supervision, said

Church. He added that during negotiations Mobil, having

the smallest Aramco interest, "threatened to make a deal

with the Saudis outside the Aramco framework so that it

would not be tied to its 10% equity interest in Arabian crude."

Saudi Arabia postponed a large oil auction under pressure

from other OPEC States. The sale was to have set a new
"marker" price for Middle East crudes. The Saudis had

contended lower crude prices were in order and they would

accept the best bids, below the 93% of tax-reference price

which had become a kind of standard in the Persian Gulf.


1974 (cont'd)

August 12:

August 12: */

The action stemmed from the Saudi failure to line up sup-

port of other major producing states -- notably Iran --

in its drive for lower prices. Iran had threatened for

the first time to cut back crude production in order to

sustain high prices.

A preliminary agreement setting up a mechanism to

share oil supplies in emergencies was reached by 12 major

oil-consuming countries in the Energy Coordinating Group

in Brussels. The 12 nations agreed to pool their available

oil supplies for sharing among them should there be another

embargo or cutbackin production. A "big majority" of the

group, however, could overrule a request by one or two

members to activate the emergency measures. The agree-

ment also called for joint plans for massive stockpilling

of oil and for reducing energy consumption by 7-10% in

an emergency. The group was thereafter called the Inter-

national Energy Agency (IEA). The 12 nations are the

U.S., Canada, Britain, Norway, West Germany, Denmark,

Italy, Holland, Belgium, Ireland, Luxembourg, and Japan.

France did not jointhe agreement. The intent of the agree-

ment was to avoid a scramble of oil during an embargo

or cutbacksituation which would send prices soaring again

and cause severe economic difficulties. The agreement grew

out of the February meeting in Washington of the major

consuming nations.


1974 (cont'd)

September 2:*/ FEA estimated the cost of the Arab oil embargo to the

economy at $10-20 billion, 500, 000 jobs, and a 30% in-

crease in the cost of living.

September 9: */ Abu Dhabi reached a participation agreement with Abu

Dhabi Petroleum Co (BP, France's CFP, Mobil-Exxon-

Shell, and Partex) for 63%, which was not protested. The

company agreed to pay abuy-back price of $11.93/bbl (94%

of the tax reference price) retroactive to Jan. 1, 1974.

September 9:*/ Harry Bridges, president of Shell Oil Co., said that he

did not expect a breakdown in OPEC's united front. He

held little hope for a cut in the world crude prices and

pointed to recent cutbacks in production by exporting na-

tions to "help contain an oil surplus of about 4 million bar-

rels a day which existed recently." He warned that the OPEC

countries could quickly reverse any predictions that crude

will be an ample supply by sharply cutting back production.

September 16:*/ The Venezuelan Government announced that its crude oil

production would be reduced to an average of 2.6 million

b/d. 22. 7 % below the average for 1973.

September 16:'/ The National Petroleum Council proposed a national security

oil storage of 500 million bbl/ to protect against future oil

embargo. The oil would be stored in salt domes on the

cost of the Gulf of Mexico.

September 23. */ OPEC at its ministerial conference in Vienna, agreed

to freeze crude prices for fourth-quarter 1974. Most members

planned, however, to obtain higher royalty and tax payments



September23:*/ from the oil companies in a move to reduce what it calls

their "excessive profits." An OPEC-wide call for production

cutbacks in member states, which also had been widely

anticipated, didn't materialize. Many of them, (Iraq, Libya,

Kuwait, Venezuela, and Algeria) had already made substantial

cutbacks. Andothers weren't willingto do so. Immediately

after the conference, Abu Dhabi jointed the list with a

300,000 b/d production cut. In a communique following the

Vienna conference, OPEC urged that the increases "should

not be passed to consumers, taking into consideration the

excessive margin of profits still being made bythe interna-

tional oil majors on their upstream operation." Saudi

Arabia tabled a proposal at the meeting calling for a re-

duction in tax-reference crude prices to give some relief

to consuming-country budgets, but the move failed -- even

with support by influencial OPEC members such as Algeria,

Kuwait, and Iran. Saudi Arabia said that it might "reconsider

its attitude toward OPEC. The Saudis disassociated themselves

from the increases in royalty and tax payments, in view

of their pending 100% takeover of Aramco.

September 23.*/President Ford, in an address to the U.N. General As-

sembly, warned Arab producers against further use of oil

as a political weapon. "It has not been our policy to use

food as a political weapon, despite the oil embargo and

the recent oil price and production decisions. The

implication was that if OPEC producers harm major

1974 (cont'd)

September 23:*/ industrial nations, with more oil cutbacks or higher prices,

political and economic countermeasures could result.

September 23:*/ Federal Energy Administrator John C. Sawhill said: "There

comes a point where the conditions under which oil is sup-

plied lose their commercial character and become issues

of national survival. At that point -- and we have long

since passed it-- we must explore the full range of options

at our disposal to protect the national interest."

September 25: Schlessinger was quoted as saying that the United

States regarded the problem of oil prices as onw that is

detrimental to the world's economy, but it expected to have

a solution to the problem thrQugh negotiations and amicable

discussions. The United States, he said, was not anticipat-

ing that there would be military conflict. Schlessinger also

ruled out the possibility of using military sales as a lever

in negotiations with the OPEC countries.

September 30:*/ Venezuela abolished tax rebatesto oil companies which had

served as incentives for new capital investment.

September 30:*/ The U.S. conceded that it had no policy or program to

bring about a reduction in world oil prices. At the same

time, officials (Simon, Morton, and Sawhill) said that con-

suming nations could not long absorb the economic impact

of current prices, which increased fourfold over the year

before. Nor, they added, was there any market pressure

to reduce oil prices, given recent actions of OPEC pro-

ducers to trim output to avoid surpluses at depressed levels



September 30: of demand. Efforts to increase domestic energy supplies

and develop new sources outside OPEC nations were not

expected to be productive for several years and could not

influence prices. FEA international specialists were critical

of industry's failure to articulate the future role it saw

for itself in these new circumstances. They considered

that concessionaires had lost virtually all price bargaining

power and were forced to make concessions to OPEC nations

in order to maintain access to the oil production they formerly

controlled. This failure to define a viable new role, FEA

maintained, encouraged governments to step into the vacuum

and shape that new role. The multinational companies were

seen as indispensable to orderly growth of production and

distribution world-wide for the foreseeable future. Where

their supply or price decisions had political and economic

inpact, however, FEA claimed that consuming governments

not only had the right but the obligation to assure that

the interests of consumers were protected.

September:30* / The World Energy Conference was held in Detroit by

4,000 delegates from 80 countries. The U.S. used the

conference as a platform to attack OPEC for the sharp

increase in world oil prices. President Ford said "on

Sept. 23rd, "If we lapse into a confrontation of exporters

and consumers or an unseemly scramble of consumers being

played off one against another, all hopes for a global solution

will be destroyed. Shaykh Yamani defended the OPEC

70-017 0 76 6


1974 (cont'd)

September 30:*/ action by pointing out Middle East prices were depressed

for many years when they were controlled by the oil com-

panies and that price increases were not confined to OPEC

nations. He cited Canada and the U.S.S.R. as two exporters

outside OPEC who had raised prices. "In the 1950's and

1960's, the decision makers for Middle East crude prices

were the oil companies, and the price they set varied from

$1.75/bbl to $2.18/bbl for shorter periods and stabilized

around $1. 80/bbl for 11 years, Yamani said. "The realized

price had always been much lower than the posted, ap-

proaching $1.40 in the late 1960's." He added that prevailing

prices were $2/bbl too high and should be cut back. He

said that Saudi Arabia was under pressure to reduce its

production but would hold it at 8. 5 million b/d. If agreement

could be reached in OPEC to lower posted prices, Yamani

said, "then there will be an automatic reduction program. "

He said OPEC countries including Saudi Arabia then would
"produce accordingto demand. "Yamani warned of a major

recession ahead, but said he hoped "that the world would

recover to avoid a depression. He admitted that rising

oil prices have contributed to inflation and that this was

the Saudi's reason for wanting lower posted prices. "We

believe that the present price is higher than consumers

can afford. "We think that the price increases that took

effect the first of this year have covered all the inflation

of the last 10 years and probably until 1976. We don't think

we should ask for any more increases. "


September 30:*/ In spite of its failure to win OPEC approval of

Saudi pricing proposals, Yamani said Saudi Arabia was

not reconsidering its membership in OPEC and that rumors

to this effect "were wishful thinking. "No one, he said
"can afford to destroy OPEC."

October 7: */ The Shah said that Iran would press for such a fixed

price (subject to crude origin and quality) at the Dec. 12

OPEC meeting which was set prices for first-quarter 1975.

Reactingto the Gerald Ford and Henry Kissinger speeches

at the recent World Energy Conference, the Shah said he

hadn't studied them in detail, but that "nobody can dictate

to us. Nobody can wave a finger at use, because we can

wave back." The oil-producing nations, he added, must

buy essential goods like food at prices that are fixed

by others, "They say take it or leave it," he said, "and

we have to take it. "

October 7:*/ Royal Dutch/Shell said that its integrated profit margin

on oil trading outside North America was about 50 cents

/bbl and that this margin "is barely adequate for the mainte-

nance of the business and totally insufficient for the heavy

investment required if energy is to be provided in the

future. Shell also said "In its communique OPEC stated

that the tax and royalty increases should be absorbed by


1974 (cont'd)

October 7: */

October 7: */

October 7:*/

Ocotber 14:*/

the 'excessive margin of profits' of the oil companies. This

is impossible on current figures." the company stated.

Venezuela increased it tax take from the oil companies by

3.5% retroactive to the first of the year. Indonesian froze

its prices as demand for its oil began to drop.

Kissinger told the foreign ministers of France, West

Germany, the U.K. and Japan that a 15% cut in oil demand,

accompanied by diplomacy, would persuade OPEC produ-

cers tolower oilprices. Most countries, except the U. S.,

were openly skeptical that prices could be lowered and that

in any case, they were not willing to use their economic

or political leverage to attempt such a reduction. Their

major concern, discounted by Secretary Simon, was the

need for OPEC to convert petrodollars into loans to poor-

er consumers. It was suggested that the major oil con-

sumers, through international facilities, would thereby

be responsible for keeping oil prices high.

U.S. Ambassador to Saudi Arabia, James Akins said

that the Saudi's "lone voice" within OPEC had been instru-

mental in keeping oil prices from rising 50% above their

prevailing level and in seeking price reductions. He em-

phasized that it was not the policy of the U.S. to destroy

OPEC. Akins also cautioned that if nothing is done by the

industrialized countries to combat inflation, cut consumption

and improve relations with the producing countries, oil

could go to $20/bbl.


1974 (cont'd)

October 14:*/

October 14:*/

October 21:*/

Libya cut its oil price by 80 cent/bbl.

Shaykh Yamani warned that failure of peacemaking

efforts in the Middle East and continued occupation by

Israel of Arab lands would result in a new war and an

embargo on oil shipments. He also suggested that the right

way to go about efforts to reduce prices was in a conference

of seven or eight nations representing three groups --OPEC,

industrial nations, and oil importers among developing

nations. The agenda would have to be broader than just

prices, Yamani insisted, including needs for technology,

industrialization, guarantees on foreign investment of oil

revenues, and a fair return of those investments.

John Lichtblau of the Petroleum Industry Research Founda-

tion said that even if the long-sought Middle East peace

settlement were obtained, "the Arabs would hardly feel a

moral obligation to lower oil prices in gratitude for the

help received from the West... The five Arab members

with surplus oil revenues-- Saudi Arabia, Kuwait, Abu

Dhabi, Qatar and Libya-- would be opposed by the eight

other members of the organization who strongly want oil

pices to stay at least where they are now but preferably

move up in line with world inflationary trends... Six

of these members -- including Iran and Venezuela, the


1974 (cont'd)

October 21: */

second and third largest exporters -- are not Arabs and

have, therefore, nothing to gain by accepting any price

cut in return for a settlement of the Arab-Israeli dispute.

Algeria and Iraq would oppose the price cut for economic

reasons. "The breakup of OPEC could result in uncontrol-

lable price cuts, which no Arab oil producer would want

to bring about, Lichtblau said. He doubted that Saudi Arabia,

the most likely proponent of a price cut related to the

settlement with Israel, could single-handledly bring down

the OPEC price because of its production potential. He

also disputed the OPEC argument that oil-price hikes were

necessary to offset world inflation trends. However,

Litchblau pointed out, world export prices of manufactured

goods had risen by about 50% in the last 4 years and per-

barrel government oil income by 950%. "In fact, using

any postwar year prior to 1970 as a base, world prices

would have to rise at an annual rate of 13-14% for the nest

15 years to catch up with the world oil price increases

that have taken place." If OPEC were to set its price

only hight enough to meetits maximum import and internal

investment requirements, there would be no world oil price

crisis, he said.


1974 (cont'd)

October 21: */

October 21:*/

October 21:*/

Algeria reduced its oil price by 70cents/bbl and

Abu Dhabi reduced its tax-reference price from 94.8% to

93% or 23 cent/bbl.

Saudi Arabia decided to fully apply the last two OPEC

price-increase formulas contrary to earlier Saudi pro-

mises to keep prices down. Aramco was told of the pol-

icy shift at a secret meeting in Florida on Sept. 27. The

increase was to consist of higher buy-back prices for

government participation crude oil, third-quarter royaly

payments were to be based on 14.5% of posted prices rather

than 12.5% fourth-quarter royalty was to be 16 2/3% as part

of the 3. 5% increase in government take decided at the Vien-

na OPEC meeting.

French Foreign Minister Jean Sauvagnargues said that

France had not yet decided to join the IEA. Sauvagnardes

said that France was opposed to IEA on two counts. The

plan implied the "wrong approach" to the oil problem,

and it could hamper development of an "autonomous" EEC

energy policy. The core of the oil problem, he said, was

price, and that should be settled by a negotiated solution

between producers and consumers. Some solidarity among

consuming countries was needed, including poor countries

like India and Bangladesh, but such solidarity must not

lead to confrontation with OPEC states, he said.


19 74(cont'd)

October 21: */

October 24:*/

October 28 :*/

October 28:*/

November 4:*/

Mexico announced that it would sell its newly discovered

reserves the world market price and would not undercut


French President Giscard d'Estaing issued a call for an

international conference of both consuming and producing

countries, noting that the two groups have many common

interests and should examine their problems together

rather than in confronting groups. His move was seen

an attempt to upstage IEA at the very moment of its creation.

The London Financial Times said "it looks at best a dupli-

cation of efforts already under way, and at worst a hindrance."

The draft blueprint for Project Independence which called

for increased domestic supply along with conservation

measures and emergency storage, was released by FEA.

The Agency said that the global-market oil price would

likely level off at $7/bbl.

President Perez of Venezuela declared that all U.S. and

other foreign countries operating in Venezuela would be

nationalized by the end of the year.

The IEA began to take definite shape, as participating

countries filed formal approvals of the plan with the Brussels

headquarters of the body. IEA expected to begin functions

on Nov. 18, under the chairmanship of Etienne Davignon,

Director-general of Belgian foreign policy. Approval of

the plan had been received from the United Sates, Japan,



November 4: */

November 4:*/

November ll:*/

West Germany, Britain, Belgium, the Netherlands, Den-

mark, and Luxembourg. Late approvals were expected

from Italy, Canada, and Ireland, but Norway was not ex-

pected to go along. France continued to avoid the group,

but HenriSimonet, energy commissioner for the European

Economic Community, forwarded a plan to bring France

into the emergency oil-sharing plan through a Common

Market oil-sharing policy which would permit the French

to take part in the plan even if they continued to boycott

IEA, which was to function under the aegis of the Organi-

zation for Economic Cooperation and Development (OECD).

Government-financed, long-term export credits were to

be banned to major industrial nations and oil-producing coun-

tries under an agreement signed by the U.S., Britain,

France, Germany, Italy, and Japan. The agreement also

set a minimum interest rate of 7.5% for long-term govern-

ment-financed export credits and bans interest subsidies

for credits exceeding 5 years.

Lt. Gen. Sutowo, president-director of Indonesia's state

oil company, said that the high prices will stimulate new

production and also development of alternative energy sour-

ces. He justified the prices on two other grounds: they they

represent a "just trade for an irreplaceable resource" and

that they will help close the "ever-widening" gap between

1974 (cont'd)

November ll:*/ the standard of living of Indonesia and the United States

and other industrialized countries. Revenue received by

the developing countries for their oil will create profit-

able new trading partners and ease world tensions, Sutowo


November 11: */ Norway officially notified the IEA that it would not par-

ticipate in the group.

November 14:* Saudi Oil Minister Yamani said that Saudi Arabia

had a plan to give back to the consumer the increased re-

venues it would gain from the tax and royalty increases

imposed in the Abu Dhabi meeting. "I want to deny cate-

gorically," he declared, "that Saudi Arabia wants to make

additional money. We don't want a single dollar from

what took place in Abu Dhabi. We want to pass it completely

to the consumers. He hinted further that the plan would

reduce the amount of oil available to the Aramco partners.

November 18:*/ Turkey, Spain, Austria, Sweden, and Switzerland ex-

pressed their intention to join the IEA. The 12-nation

Energy Cooperating Group held its last meeting in Brus-

sels, and henceforth, it was to be known as the IEA, oper-

ating as part of the Organization for Economic Cooperation

and Development (OECD), with headquarters in Paris. Nor-

way,while declining official membership, said it would


1974 (cont'd)

November 14:*/

November 18:*/

November 25:*/

be a non-voting representative, and it might be willing to

share more oil than the agreement required; it wanted

freedom of action. The Swedes, Swiss, and Austrians wanted

an amendment to the agreement which would protect their

traditional neutrality.

Treasury Secretary William Simon said that the Arab

oil exporters did not have the U.S. in a "perilous, un-

breakable hammerlock." He said a combination of develop-

ment and conservation could sharply reduce the current

U.S. dependence on foreign oil. He added that OPEC pri-

ces would come down sooner or later.

Saudi Arabia surprised the industry and its Organization

of Petroleum Exporting Countries (OPEC) partners by an-

noucing it would offer 2-3 million b/d of state-owned

crude oil for direct sale on world markets, the largest

amount of participation crude ever offered by a Middle East

producing country (a quarter of Saudi Arabia's daily

production of 8.5 million b/d). The Saudi move was

seen as a pressure tactic against the four American share-

holders of Aramco. None of the big international oil com-

panies were to be permitted to buy the crude. The prin-

cipal buyers were to be independents and the governments

of consuming countries. By selling such a volume of oil


1974 (cont'd)

November 25:*/

November 25:*/

on a world market already in surplus, it was thought that

the Saudis were hoping to force down crude oil prices.

This would have improved their status with the consuming

countries and strengthened their position at the next OPEC

ministerial meeting in Vienna, December 12.

The U. S. asked Western Europe. Japan, and North Amer-

ica last week to join in an "international financial safety

net" to deal with deficits caused by soaring oil-import bills.

The common loan and guarantee facility, to be funded

with up to $25 billion in 1975 and that much more in 1976

would aid nations adopting programs to cut their dependen-

ce on foreign oil.

Secretary of State Henry A. Kissinger proposed that by

the end of 1975 the industrialized nations reduce" their oil

consumption by 3 million b/d below what it would be other-

wise. The basic principles of the financing facility were

(1) Participation should be linked with a commitment to

cooperate in reducing dependence on oil imports.

(2) Participants would avoid resorting to trade restrictions

or other "beggar-thy-neighbor policies."

(3) The facility should supplement private market channels

and other channels, including the International Monetary

Fund, lending money on market-related terms.


November 25:*/ (4) Decisions on financial support should be made by a
weighted vote of participants, based on the overall economic

position of the borrower, not just the oilL-import bill.

(5) All members should share the credit risk on the basis

of their share of participation.

December 2:*/ The four shareholders of Aramco (Mobil, Texaco, Exxon,

and California Standard) submitted a formal letter to the

Saudi government offering the state 100% interest.

December 9:*/ Abu Dhabi announced plans to take over 100% of its oil


December 23:*/ The U.S. agreed to 1975 talks between exporting and con-

suming countries, while France yielded to U.S. insistence

on a unified consumer negotiating position. Both OPEC

members and consumers planned strategy sessions for a

global energy conference.

December 23:*/ EEC member nations committed themselves to reduce

reliance on oil and gas imports from 63% of energy re-

quirementsto40-50% within 10 years. They further agreed

to check the growth rate in energy consumption by 15%

through conservation, while pushing nuclear energy and

other indigenous sources.

December 23:*/ Saudi Arabia, Qatar, Abu Dhabi increased the royalty

to 20%, the tax rate to 85%, and the crude cost to compa-

nies by 55 cents/bbl.



January 3: Secretary Kissinger stated that the U.S. was con-

sidering the use of military force in the Middle East

as a policy option. The White House "made it clear

that the statement was supported by President Ford."

Kissinger said:

I am not saying that there's no circumstances where
we would not use force. But it is one thing to use in
the case of dispute over price, it's another where there's
some actual strangulation of the industrialized world...
Any President who would resort to militaRy action in
the Middle East without worrying what the Soviets would
do would have to be reckless. The question is to what
extent he would let himself be deterred by it. But you
cannot say you would not consider what the Soviets would
do. I want to make clear, however, that the use of force
would be considered only in the gravest emergency.

January 5:**/ Foreign responses to the Kissinger statement be-

gan to appear. The Iranian newspaper Kahyan, head-

lined "New Threat of Doctor K," and stated that "Iran

cannot remain indifferent toward these threatening words,

even if they are amended and modified later. Pale-

stinian Liberation Organization leader Yasser Arafat

said that "the United States is dangling a threat to in-

tervene militarily to occupy oilwells"; while the Beirut

newspaper, Al Moharrer, printed a cartoon showing

Kissinger dressed in a Nazi uniform and wearing the

Star of David. The Iraqi newspaper, Tarig Ash-Sha'b

charged that Kissinger "threatened to use force against

these (oil-producing) states if they do not reduce oil

prices. The statement "provoked angry and worried

*/Adapted from "Misjudjments in the Middle East, placed in the Congres-
sional Record (S. 790) on January 23, 1975, by Mr. Helms.


1975 (cont'd)

January 6:**/

editorials, news articles, and comments by Government

officials" when reported in Germany, according to a New

York Times dispatch. "West Germans, even those at the

highest levels, are worried about being drawn into an

American military adventure in the Middle East and re-

marks like Mr. Kissinger's make their fears seem real. "

In a television interview, Dr. Armin Grunewald, a Govern-

ment of Germany was "not interested in any kind of con-

frontation with the oil countries, but rather in cooperation

... we do not have the use of force in mind, and do not

share such thoughts. And Martin Bangemann, General

Secretary of Germany's Free Democratic Party said that

Kissinger's remarks reminded him of "gunboat diplomacy."

The nuclear aircraft carrier Enterprise and five

other vessels left Subic Bay in the Phillippines. The task

force headed in a southwesterly direction, away from

Indochina, with orders to enter the Indian Ocean by way

of the Straits of Malacca. With the Enterprise was a bat-

talion of Marines. The Pentagon refused to disclose the

destination of the task force, but indicated that the task

force might remain in the Indian Ocean for a consider-

able length of time. Included in the task force with the


1975 (cont'd)

January 6: */

January 7: **/

Enterprise and the battalion of Marines were two destroy-

ers, a supply shipand the guided-missile cruiser, "Long

Beach. News of movement by the task force was not reported

in American newspapers until January 10.

Iran has signed a letter of intent with El Paso

Natural Gas Co. and Belgium's Sopex and Distrigaz to

establish the world's biggest liquefied-natural-gas project.

Initial cost was estimated at $5. 9 billion over 25 years

and first deliveries to the U.S. and Europe were envi-

sioned forthe early 1980's. The three western companies

were to hold 50% interest and National Iranian Gas the

other 50%. The cost figure included the needed liquefac-

tion and terminal facilities plus the purchase of 34 LNG


The first major Arab response to the Kissinger

statement appeared. Egyptian Information Minister

Ahmed Kamal Abul Magd said that Secretary Kissinger's

statement had been "unnecessary, untimely, unacceptable

on its merits and did not serve the cause of American-

Arab relations or the cause of peace in the area. Having

opened a new era of good relations with the United States,

Egypt had gone out of its way to refrain from statements

that could jeopardize that friendship, and that the Kissing-

er statement "does not help improve our relations." On


1975 (cont'd)

January 8:**/

January 9:**/

the same day, Egyptian press gave headlines to what it

called Kissinger's "threat" and to rebuttals by various

Arab leaders, and especially to the statement of Alger-

ian President Houari Boumedienne. Boumedienne declar-

ed that "the occupation of one Arab state would be regard-

ed as an occupation of the entire Arab world, adding that

American military aggression would bring about the destruc-

tion of the oil fields. The Egyptian government endorsed

the Boumedienne statement.

The Shah of Iran began a five-day visit with

Egyptian President Anwar el-Sadat in Cairo. The pur-

pose of the visit was to stress Islamic unity--the Shah

was switching sides.

Egyptian President Anwar el-Sadat, in an inter-

view published in a Beirut newspaper, said that Arab

countries would blow up their oil wells before allowing

them to fall under control of invading forces from the

United States. Meanwhile, French television ran a tele-

vision program showing U.S. Marine military maneuvers

in the Mediterranean. Depicted was an invasion exercise

on the island of Sardinia, involving 2000 Marines. "We

don't want to invade, but we are prepared, stated Vice

Admiral Frederick Turner. "I assure you in all confi-

dence that we could carry out any mission entrusted to

us--any mission," Turner said.

70-017 0 76 7


1975 (cont'd)

January 10:**/

January 10:**/

The first press reports of movement by the Enter-

prise task force appeared. The State Department denied

speculation that the task force had anything to do with the

deteriorating situation in South Vietnam and Cambodia.

Meanwhile, speculation was widespread in the Middle

East that the task force was moving into the Indian Ocean

to add muscle to the Kissinger statement.

The New York Times article interviewed with several

American military officials on the feasibility and potential

for success of a U.S. military intervention in the Middle

East. "Senior military officers consider the seizure of

selected Middle East oil fields military feasible but po-

litically disastrous," said of the generals interviewed

in the article. Nonetheless, "allied officers feared the

effect on the North Atlantic Treaty Organization of a uni-

lateral American action. General Johannes Steinhoff, the

retired West German Air Force officer who was chairman

of NATO"s military committee from 1971 to 1974, said

the alliance reaction to Mr. Kissinger's words had been

an exasperated: "For God's sake,'" the Times article

pointed out in reference to reaction to the statement from

military officials outside the United States.