THE PRESIDENT'S DAILY BRIEF 20 DECEMBER 1974

• Document Type: FOIA
• Collection: President's Daily Brief 1969-1977
• Document Number (FOIA) /ESDN (CREST): 0006007898
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 16
• Document Creation Date: August 14, 2016
• Document Release Date: August 24, 2016
• Publication Date: December 20, 1974

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The President's Daily Brief
December 20, 1974
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Exempt from general
declassification schedule of EQ. 1.1652
exemption category 5B( 1),(2),(3)
declassified only on approval of
the Director of Central Intelligence
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USSR:
December 20, 1974
Table of Contents
USSR: The Soviet economy continues to grow at a
brisk pace, but major five-year-plan goals
will not be met. (Page 2)
Iran-Iraq:
---7
(Page 3)
Mexico:
(Page 4)
Syria: President Asad is pessimistic about the
future of Middle East peace negotiations.
(Page 5)
Pakistan:
(Page 6)
Portugal: President Costa Gomes is against partic-
ipation by the military as a bloc in the con-
stituent assembly to be elected next spring.
(Page 7)
Notes: Cyprus; France (Page 8)
At Annex we examine the prospects for continuing
cooperation among the members of OPEC.
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USSR
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USSR
Soviet planning and budget chiefs
told the Supreme Soviet on Wednesday that
for the second year in a row the economy
grew ata brisk pace. Major five-year-
plan goals (1971-1975), however, will
not be met, largely because the economy
was thrown off pace in 1972 by the poor
agricultural year and because of the
continuing failure to complete new pro-
duction facilities.
Industrial production rose, according to So-
viet measures, by 8 percent in 1974, the highest
rate Since 1970. No details were. given, but in-
dustry's success apparently resulted from uninter-
rupted flows of raw materials and energy, and com-
pletion of massive investment. The. picture was
less rosy in the agricultural sector because un-
favorable weather caused farm production, to fall
far' below the plan and last year's levels.
Soviet leaders probably are relatively satis-
fied with the economy's performance In 1973-1974,
but next year key components of the industrial,
energy, and agricultural sectors will fall lar
short of the original five-year-plan goals. Of
the five new targets for 1975 released by Toss,
four are below the originals. Moreover, by the
end of next year, the consumer still will not have
achieved the standard of living promised at the
24th Party Congress in 1971. Planning chief
Baybakov admitted that the original, consumer tar-
gets for 1975 have "proved unreachable-" Indeed,
Group A industries (largely producers goods) are
to grow at a higher rate than Group B industries .
(largely consumer goods) in 1975, reversing the
rates of the 1971-1975 plan.
On the wage and benefits side, the Soviet
worker may fare better. In 1975 the minimum wage
and pay for medium income workers will be raised,
and one billion rubles of bonds--frozen since
1958--will be redeemed. Higher incomes, without
a parallel rise in the supply of consumer goods,
will, however, exert inflationary pressures and
add to consumer frustration.
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IRAN?IRAQ
The Shah of Iran has made deci-
sions recently that escalate Iranian in-
volvement in the Iraqi-Kurdish war. The
way the Shah has operated since midsummer,
in allowing the direct participation of
Iran's military and in supplying
rela-
tively sophisticated weapons to
the Kurds,
indicates that he is willing
to
take some
political
rebellion
and military risks
going.
to
keep the
The Shah regards the Baghdad regime as the
chief sponsor of political radicalism and agita-
tion in the Persian Gulf, and as an instigator of
dissident movements in Iran. His ultimate goal is
to see that regime replaced by a more moderate one,
or, failing this, to keep the Iraqis preoccupied
with internal problems. By keeping alive the Kurd-
ish rebellion, he increases the internal political
pressures on Baghdad and ties down its military.
We doubt that he wants open hostilities with Iraq
or that he would commit Iranian infantry units
openly to the Kurdish cause.
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MEXICO
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SYRIA
? President Asad weighed in yesterday
with a pessimistic prognosis of the fu-
ture of Middle East peace negotiations.
Asad, who seldom gives interviews, told
an Indian journalist that his hopes for
successful political movement are not
great and that the future will be fraught
with "dangerous possibilities unless sub-
stantial progress is made in the coming
months."
Asad reiterated in low key Syria's standard
views on negotiations., ruling out "partial and
unilateral settlements." He observed that war
might again be necessary if political efforts fail
to secure total Israeli withdrawal from Syrian
territory and the achievement of Palestinian na-
tional rights. IT war should break. out, Syria
would try to make it a long one, which "would not
be in Israel's interest.".
Asad's tone throughout the interview was more
resigned than threatening. He did not suggest that
he is at the end of his tether on negotiations nor
did he press for an immediate reconvening of the
Geneva conference. Instead, he said he believed
Geneva could succeed when "suitable conditions be-
come available." His words do not suggest that
Syria is prepared to take the initiative, in offer-
ing any new formulas for breaking the current nego-
tiating deadlock.
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PAKISTAN
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PORTUGAL
President Costa Gomes has declared
that he is against participation by the
military as a bloc in the constituent
assembly that is to be elected next spring.
. The Armed Forces Movement has been deeply di-
vided over this issue, and the President's state-
ment should improve the position of those members
of the movement who have argued against direct par-
ticipation. Most of the movement's members prob-
ably believe that they can exert considerable in-
fluence on the draft of the new constitution with-
out participating directly.
Meanwhile, rumors of dissension within the
cabinet continue to circulate in Lisbon. Sources
close to Costa Gomes and Foreign Minister Soares
have predicted to US diplomats that the dispute--
which seems to center on the character of the new
economic program--probably will be papered over.
The intensity of the rumors suggests that the dis-
agreements have been bitter, however, and may leave
scars that will eventually weaken the unity of the
government.
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NOTES
? Cyprus: President Makarios yesterday gave
former acting president Clerides_written instruc-
tions to begin negotiations with Turkish Cypriot
Vice President Denktash on the political aspects
of the Cyprus question. Clerides met with Denktash
later in the day, and the US embassy in Nicosia be-
lieves that the two men will r'esume their negotia-
tions. According to a Nicosia radio broadcast, the
instructions are "in accordance" with the political
line agi.Peed to in Athens earlier this month by the
Greek and Cypriot governments.
France: The French.have announced they will
begin building a nuclear-powered helicopter carrier
next April. The ship, which is expected to become
operational in 1980, will be assigned to escort
and antisubmarine warfare missions, as well as to
provide fleet air cover when carrying vertical-or-
short-take-off-and-landing aircraft.
seriously considering ob-
taining a Super Harrier-type vertical-or-short-
take-off-and-landing aircraft, possibly the Anglo-
US AV-16, for the new ship. When completed, the
carrier will be the first nuclear-powered surface
warship in any West European navy.
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THE FUTURE OF OPEC OIL SUPPLIES AND PRICES
The price of oil has come to be essentially a
matter of political decision and thus difficult to
predict. Nevertheless, members of the Organization
of Petroleum Exporting Countries have very strong
incentives to stand together on the price issue.
If OPEC were to dissolve, there would be no
natural floor for oil prices above the cost of pro-
duction, and none of the members wants to see the
return of $2-a-barrel oil. Furthermore, Saudi
Arabia--the country with the greatest financial ca-
pability to cut production--has strong political
reasons to conform to the desire of other Arab pro-
ducers to maintain high prices.
The Demand for Oil
In 1975, demand for OPEC oil probably will de-
cline. Slowing economic activity throughout the
developed world will reinforce the impact of higher
prices and conservation measures on consumption.
The normal pattern of inventory reductions is not
expected to materialize. By midsummer, demand for
OPEC oil probably will fall by at least 3 million
barrels per day from the current level of 29 mil-
lion barrels per day. Crash conservation programs
in several of the major consuming countries perhaps
could create a surplus of as much as 6 million bar-
rels per day.
After 1975, as economic recovery begins to
offset the continuing impact of conservation meas-
ures, OPEC exports will probably stabilize between
26 million and 27 million barrels per day. OPEC
exports will begin to fall again, however, when
new oil from Alaska, the North Sea, China, and
perhaps Mexico begins to enter the market in major
quantities in 1978-80. By 1980, OPEC exports prob-
ably will not exceed 22 million to 24 million bar-
rels per day.
OPEC's production policy for the near future
will be to regulate output to meet demand and thus
maintain the level of prices established by the
group. Thus far, production cuts have been made on
an individual basis, and no formal or informal
production pro-rationing scheme has been agreed
(continued)
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upon. OPEC countries will probably need to cut out-
put further this coming summer, but it is not clear
how the cuts will be made. What seems likely is
that one or more countries will cut output outside
the OPEC framework, as they did this past summer.
Similar, individual moves to cut or raise out-
put should be adequate to meet the small expected
fluctuations in demand until the late 1970s. Kuwait,
Libya, Iraq, the United Arab Emirates--mainly Abu
Dhabi--Ecuador, and Venezuela have all shown a will-
ingness to reduce their production substantially.
Most other members also have made small voluntary
production cuts.
Mammoth Surpluses
In 1975, OPEC members will have estimated sur-
plus revenues equivalent to about 18 million barrels
per day of output. If Saudi Arabia refused to cut
its output next year despite an oil surplus, the
other members of OPEC, with surplus revenues equal
to 10 million barrels per day, could reduce output
by 6 million barrels per day and still receive far
more money than they could spend. The massive ex-
cess of oil revenues above import requirements
places nearly all of the member states in the posi-
tion of being able to reduce production substan-
tially to maintain prices.
For the next couple of years, nearly all pro-
ducers can act as price setters, with only Algeria,
Ecuador, and Indonesia being forced by their import
needs to act as price takers. As expenditures rise,
the number of price setters will decline sharply.
By the late 1970s, only Saudi Arabia, Kuwait, the
United Arab Emirates, and perhaps--to a much lesser
degree--Libya, Iraq, and Iran will still have the
freedom to act as price setters.
During the next few years, the cartel will be
able to cope with any likely oil surplus without
Saudi participation, but by the late 1970s Saudi co-
operation will be essential. Continuing slow growth
in energy demand and rising production of energy
elsewhere probably will require a formal or informal
system of allocating cutbacks in OPEC states by 1978
?or 1980.
(continued)
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If OPEC is to succeed in holding prices high
late in the decade, the OPEC core--particularly Saudi
Arabia--must either reduce output much more sharply
than OPEC countries as a whole, or recycle revenues
to other OPEC states to facilitate their cutbacks.
Although not in the position of a price setter,
Venezuela will be reducing output substantially as
its oil reserves are depleted.
The need for sharp cuts in output will greatly
increase the influence of Saudi Arabia and Kuwait.
These nations could afford to make the necessary -
cuts because they would still have ample financial
resources. The prospect of a quantum drop in oil
income if the oil producers competed in the market
should serve to keep OPEC countries united. One
possible OPEC response would be to raise oil prices
sharply by about 1980 to recreate the flexibility
to cut output still further.
Even if non-OPEC countries are highly success-
ful in holding down growth in energy consumption
and in boosting their own output of energy, they
probably will still have to rely on the present mem-
bers of OPEC to provide more than 20 million bar-
rels per day of oil in 1980. Given this level of
demand for OPEC oil, member countries should have
no difficulty making price increases stick.
Price Policy
For the next few years, OPEC has indicated
that it will probably attempt to maintain oil prices
at about their current level in real terms. The
cartel can be expected to raise prices periodically
to offset at least part of the increase in import
costs. The odds favor the adoption of some sort of
price-indexing system to tie oil prices to the
prices of industrial and agricultural exports.
The OPEC Secretariat and many of the more im-
portant producers support indexing, but Saudi Arabia
opposes automatic price adjustments. Thus, compro-
mise seems likely, with oil prices rising less than
the cost of imports. In any event, price negotia-
tions among the main producers will continue for
years.
(continued)
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As time goes on, and certainly by the late
1970s, a number of members of the Organization for
Economic Cooperation and Development will have
joined OPEC members in having strong vested inter-
ests in maintaining high energy prices. Developed
countries like the UK probably will have protected
their energy industries by establishing floor
prices at high levels. Because of the large debts
it is currently running up, Britain, for example,
would be placed in a very difficult situation if
oil prices fell sharply just as North Sea output
reached substantial levels.
Among the OPEC countries, Saudi Arabia might
be an exception to the general desire for high and
rising prices. Such political factors as Arab
unity, the Israeli occupation of Arab land, and
anti-communism play a large but undefinable role
in Saudi petroleum policy formulation. Outside
political pressure also could be important. At
the same time, there is a body of Saudi opinion
favoring high prices for economic and conservation
reasons, and this group appears to be growing in
influence.
Although severe strains on the cohesiveness
of OPEC members appear a long way off, the ex-
pected shrinkage in demand for OPEC oil over the
long term gives the oil-importing nations chances
to break the stranglehold on prices. Success in
this endeavor will require that the importers be
alert to opportunities and willing to exploit them
fully through political inducements or pressures.
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