INTERNATIONAL ENERGY SECURITY GROUP

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86M00886R000400010025-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 22, 2016
• Document Release Date: December 1, 2010
• Sequence Number: 25
• Publication Date: July 28, 1984
• Content Type: MEMO

Declassified in Part - Sanitized Copy Approved for Release 2012/01/17: CIA-RDP86M00886R000400010025-3
EXECUTIVE SECRETARIAT
ROUTING SLIP '
7 IDC1
2 I DDCI
33. XEDIP
4 ID/ICS
15 1D/PAO
I6 SA/IA^
R"racks To 20: Please take necessary action -
with State to replace Waterman on
list. of standing members of the IESG:__
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 R421449
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United States llepartment of otate
uHOL?.DGIl
With_.z EIY;Attachment
MEMORANDUM
Senior.Interagency Group No. 34
TO: NSC - Mr. Robert Kimmitt
Energy - Mr. William Vitale
Commerce - Mrs. Helen Robbins
Defense - Col. R.J. Affourtit
CIA - F- -r
OPD - Mr. John Svahn
Treasury Mr. Christopher Hicks
Interior - Mr. Stephen Gleason
Transportation - Mr. Logan H. Sallada
USTR - Mr. Dennis Witfield -
SUBJECT: International Energy Security Group
Executive Registry
84 -a8st/t
Attached is a summary of the discussion at the
International Energy Security Group meeting held on July 3,
1984 and a list of those who attended.
Charles Hill
WITn--y"?? TTACHMENT
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INTERNATIONAL ENERGY SECURITY GROUP MEETING
July 3, 1984
Summary of Discussion
Contingency Planning for the Persian Gulf (NSDD 134 and 138)
Under Secretary Wallis summarized the results of his April
consultations in European capitals. The effect was to focus
governments' attention on oil stock policy and to move them in
the direction of stock draws. This does not mean that they
will draw immediately in the event of a disruption. Unlike the
U.S., most other OECD governments do not hold large official
stocks. Rather, they meet their IEA stock commitments through
a combination of public and private stocks over which they
exercise varying degrees of control. While responses varied,
it was clear that most governments are now thinking
constructively about early use of stocks in an emergency and
are moving in our direction. There is still much work to be
done.
Ambassador Fairbanks: reported that the Japanese were
receptive to the U.S.-initiative. There is agreement within
the bureaucracy regarding the appropriate stock level and rate
of in-flow. The Japanese are likely to tilt toward holding
larger government stocks over time, but the question is how
fast. There is no evidence that they have any plans to move in
the immediate future. With regard to other aspects of
contingency planning, the Japanese showed particular interest
in the rules of engagement for shipping. Dave Tarbell (DOD)
commented that DOD was aware of this interest and had asked
Embassy Tokyo to check into it.
Don Pearlman (DOE) and Allan Wendt (State) reported on
recent IEA discussions on stocks. Mr. Pearlman noted that
there had been two informal meetings. recently with six to eight
other nations and the EC, as well as a meeting of the IEA's
Standing Group on Emergency Questions. The IEA Secretariat had
put together a paper on stocks, which focuses on stock levels,
the need for further examination of minimum operating levels,
differing methods by which stocks are held, and differing legal
bases for drawdown of private stocks. It notes that stock
policy can be approached from the supply side (stock draw) or
the demand side (restraint). On balance, the paper is a
worthwhile exercise. It demonstrates that many IEA countries
SECRET
DECL:OADR
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do not have large reserves, net of minimum operating levels,
and it focuses almost wholly on the advantages of early stock
draw in the event of a "major disruption." It encourages
countries to build stocks and provides a mechanism for meeting
early in a disruption.
Some countries are insisting that the paper be "balanced"
by giving more attention'to demand restraint measures. Some
are also concerned about setting up a consultation mechanism
outside the Governing Board. The paper is now in a form
acceptable to the U.S. The next step will be to win acceptance
by the Governing Board. Even if we accomplish this, we will
still face a long upward climb in persuading our allies to
build stocks. There is a remarkable lack of enthusiasm to
build above current levels. France and Italy frankly say that
an increase in government stocks is impossible now.
Mr. Wendt noted that some countries are suspicious that the
U.S. is in some way trying to circumvent the IEP, the IEA's
founding document, which places considerable emphasis on demand
restraint. In particular, some countries resent the recent
informal meetings which have been limited to participation by
the major stock holding countries. The U.S. believes that
these meetings are a useful-mechanism for discussions among
those countries actually in a position to draw stocks. The
U.S. has handled this problem by stressing the importance of
stock draw, including an SPR draw, in reducing the damage of a
disruption. Our intent is to strengthen the IEA: there is no
intent to set up a body outside the IEA.
Charles Schotta (Treasury) reported that his working group
had completed its analysis of the consequences of a significant
price increase during an oil supply disruption. The most
severe disruption considered, an 8 million barrel shortfall for
6 months, could increase the aggregate current account deficits
of OECD countries by $95 billion. in general, the group found
that, for each $10 per barrel increase in the annual average
price of oil, GNP growth within the OECD area could decline by
slightly under 1 percentage point and inflation could increase
by slightly more than 1 percentage point.
The impact of an oil price increase on non-oil LDC's would
be especially severe. Many of these countries are already at
or above their commercial borrowing limits, while OECD
countries are likely to have new resources available for
official credits in the event of a disruption. The group
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analyzed 15 non-OPEC LDCS: Mexico, Egypt, Argentina, Zaire,
Taiwan, Brazil, India, Korea, Thailand, Chile, Israel, Morocco,
Pakistan, the Philippines and Turkey. Mexico and Egypt
oil exporters and would benefit from increased oil prices.
Argentina and Zaire have insignificant net oil imports and
would thus be largely unaffected. Brazil, India, Korea, Taiwan
and Thailand could probably absorb increased oil prices,
although with varying degrees of difficulty. In the remaining
six cases, (Chile, Israel, Morocco , Pakistan, the Phillipines,
and Turkey) however, extraordinary financial assistance of some
type, totalling $1-4 billion would likely be needed. The group
foresaw no special U.S. response; most problems would be
addressed through the'IMF mechanism.
Mr. Robinson (NSC) noted that the Europeans had expressed
great interest in the impact of an oil supply disruption on
LDCs. The international financial system-has less flexibility
to absorb an oil price increase than ever before. Early
release of the SPR and other oil reserves would help hold down
oil price increases thus benefiting all countries.
Mr. McCormack (State) noted that it is already hard to
persuade commercial banks to extend new credits to financially
strapped LDCs. It will be even harder in the event of an oi!
price increase.
Mr. Schotta agreed, but added that a Persian Gulf
disruption would be a short term disruption, not necessarily a
long term change in the price of oil. Import reductions by
LDCs, even those with little left to cut, would have to be the
basic adjustment to higher oil prices.
Mr. Pearlman noted that NSDD 134 states as a U.S. goal
avoidance of triggering the IEA sharing mechanism if possibl-e.
He asked whether targeted financial assistance to IEA members,
notably Turkey, would be possible to avoid pressure to trigger
the sharing system.
There followed a general discussion of whether the
selective trigger would ever be used, given the new IEA pricing
provisions for the transfer of oil within the IEA allocation
mechanism. (A paper on this subject was prepared during the
IESG examination of our international energy policy and
preparedness.)
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Under Secretary Wallis summarized the discussions on energy
at the London Summit, noting that the U.S. introduced the
subject albeit late in the planning stages. The President
raised energy emergency preparedness issues in all of his
bilaterals. This was the most productive part of the
exercise. While the U.S. did get a statement on energy in the
Declaration, it wasa minimal statement. The issue was clearly
not yet ripe for formal summit discussion. With hindsight, we
were able to get as much, if not more, than we could expect.
Mr. Pearlman and Mr. Wendt reviewed their earlier
discussion of the problems of increased stock build. It will
be important for the U.S. to continue efforts to encourage
increased stock building by major oil consumers, but this is a
difficult task.
Mr. Patrizia (State) reported that concerned agencies (DOE,
State, NSC, White House Press Office, USIA) are putting the
final touches on the public affairs strategy called for in NSDD
134. They would aim for completion by the end of the week.
Mr. Tarbell asked if other agencies would be given an
opportunity to review the strategy. Mr. Patrizia replied that
it would be available for comment. by IESG member agencies.
Update on U.S.-Japan Energy Issues
Under Secretary Wallis informed the group that he had
suggested a side meeting of the U.S.-Japan Energy Working Group
during the September Economic Subcabinet consultations in
Washington but that the Japanese had not yet responded.
Mr. Yancik (Commerce) reported on U.S.-Japan coal trade.
The Japanese Coal Mission mandated by the Joint Statement on
Energy Cooperation visited Washington in May. The meetings
with Congressional leaders were especially effective in
demonstrating the importance of coal trade to overall
U.S.-Japan economic relations. The U.S. and Japanese private
sectors agreed to create a Standing Technical Committee to
continue the May discussions. The Committee will hold its
first meeting in Tokyo in September. The U.S industry will
press the Japanese to agree on targets for U.S. coal sales to
Japan. A bright spot is U.S. metallurgical coal sales to Japan
which will be about 13 million metric tons this year; the level
would have been closer to 10 million tons without the efforts
of the Energy Working Group.
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SECRET
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Mr. Wendt reported that ARCO, Yukon Pacific and a group of
Japanese trading companies and banks will conduct a
pre-feasibility study of a project for joint development of
Alaskan gas. Exxon and Sohio have been invited to participate
as well, but have so far shown no interest. There is also
evidence of Japanese interest in a planned new project (ARCO's
Cook Inlet project) to export gas from southern Alaska.
Dan Taft of OMB reported that Senator Murkowski's proposed
Alaskan oil amendment to the Export Administration Act had gone
through a number of iterations. The Senate version of the EAA
contains language calling for a Presidential commission to
study the issue. Compromise language now before the Conference
Committee calls for the President to report to the Congress on
the impact of exports of up to 200,000 barrels a day.
A list of those who participated in the meeting is attached.
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IESG MEETING
Tuesday , July 3, 1984
ATTENDEES
AGENCY
Allen Wallis
State
632- 3256
Richard Fairbanks
State
632-5324
Richard McCormack
.State
632- 0396
Allan Wendt
State
632-1498
Roger W. Robinson
NSC
395-3622
Ben Bonk
NSC
395-4985
Dorothy Robins-Mowry
USIA/NEA
485-8526
Michael Austrian
State
632-5151
Ralph Johnson
USTR
395-3320
A. Merklein
H
DOE
252-5800
.
Michael T. Kelley
DOC
377-0614
Randall Davis
White House
456-6252
Dan Taft
OMB
395-3285
Ken Glozer
OMB
395-3040
Charles Schotta
Treasury
566-5881
Dave Tarbell
DOD/OSD
695-2659
D.H. Pearlman
DOE
252-6476
Dave Burns
State
632-8097
Greg Miller
State
632-2181
Nancy Maloley
DOI
343-7351
hn Brodman
J
DOE
252-5915
o
CIA
632-5150
Bob Hall
NEA
P. Goldfield
H
DOC
377-1461
.
Joe Yancik
DOC
377-1466
Tony Albrecht
State
632-0366
John Holmes
State
632-0310
Lou Pugliaresi
State
632-9571
Ernest Chase
Treasury
566-5071
Bob Reinstein
USTR
395-7203
Charles Patrizia
State
632-1868
Kaarn Weaver
State
632-8854
Finn Neilsen
DOE
252-4000