A BRIEFING BOOK FOR THE WASHINGTON ENERGY CONFERENCE

• Document Type: CREST
• Collection: Library of Congress
• Document Number (FOIA) /ESDN (CREST): LOC-HAK-407-3-1-5
• Release Decision: RIPLIM
• Original Classification: S
• Document Page Count: 132
• Document Creation Date: January 11, 2017
• Document Release Date: February 1, 2010
• Sequence Number: 1
• Publication Date: February 4, 1974
• Content Type: REPORT

No Objection to Declassification in Part 2010/02/01 :
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MEMORANDUM FOR: The Honorable Henry A.
Kissinger
The Secretary of State
I believe you will find the
attached Briefing Book useful in pre-
paring for the 11 February Energy
Conference.
State Department
review completed
Attachment:
ER 1B 74-3
W. . Colby
Director
MORI/CDF per
CO2912223
PAGES 2 &
4-132 PER
CO2912223
4 FEB 1974
(bATE)
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Raftrat
c$3
A Briefing Book
for
The Washington Energy Conference
11 February 1974
State Department review
completed
Secret
ER IB 74-3
4 February 1974
Copy N2
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NATIONAL SECURITY INFORMATION
Unauthorized Disclosure Subject to Criminal Sanctions
Classified Isyj
Exempt from general dec assti, [cc ton schedule
of EP. 11652, exemption category:
? 5B(1), (2), and (3)
Automatically declassified on:
Dote Impossible to Determine
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K ti I
A BRIEFING BOOK
FOR
THE WASHINGTON ENERGY CONFERENCE
OVERVIEW
Most consumer countries will come to the Washington conference with
a positive attitude toward some form of international cooperation on energy
matters. Although some consumers have joined in the race to make bilateral
deals with oil producers, they still support cooperation regarding oil prices
and other issues. Even the Japanese, who are highly cautious toward joint
consumer action, now believe that some form of cooperation between
exporting and importing countries on oil prices is desirable.
The more receptive attitude toward cooperation that has developed
recently does not mean that foreign participants will necessarily follow US
initiatives. Still too shaken by recent events to risk antagonizing the
oil-exporting countries, these representatives will avoid provocative words
or actions. Some countries, notably France, will resist making any
commitments on major policy issues.
Several countries believe that a Washington-led group is not the best
forum for consumer cooperation. They view the Washington meeting only
as an opportunity to exchange ideas and believe that the thornier problems
will have to be hashed out at a consumer-producer conference. The French,
unwilling to support any initiative that may strengthen US influence in
Western Europe, have suggested a UN-sponsored world conference to deflect
attention from the US-sponsored meeting. Several EC countries oppose this
suggestion, preferring to avoid the bureaucratic clutches ? of the United
Nations. Nevertheless, most countries would like . to see either the
Washington conference group or an OECD group of consumers join together
25X6 with oil producers and representatives of the less developed countries to
decide major policy issues.
The European Community -- to be represented at Washington by EC
Commission President. Ortoli and by West German Foreign Minister Scheel,
who is the current president of the EC Council -- has been unable to develop
a common energy policy. Because disagreements among members probably
will not be resolved at the 4-5 February meeting of the EC Council, the
Community is unlikely to speak with one voice in Washingtor
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The EC Commissi
itself has long afIvocated consumer cooperation.
Several of tl.e West European participants will favor cooperative acti n
0
to make oil supplies more secure. The Netherlands, still embargoed a d
with little hope of arranging bilateral deals with Arab states, is likely o
push hardest for a united consumer front on the matter of assuring adequ te
oil supplies. West Germany has been visibly irritated by its EC partne s
unwillingness to cooperate in solving energy problems and will come o
Washington hopi g to find a common course of action. Other countr s
that are unable o compete with the major industrial nations in maki g
bilateral agreements also will support cooperation in obtaining supplie
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Most of the participants in the energy conference will favor discussion
of a new oil pricing system and a non-provocative attempt to roll back
the recent large price increases. For instance, most consumers would endorse
a public statement emphasizing the potential of higher oil prices to ca. Ise
a worldwide depression, damaging producers and LDCs as well as major
consumers. Japan and several other countries favor postponing substantive
work on a new Oil pricing system until a joint consumer-producer task force
can be formed.
Nearly all conference participants will favor discussion of oil company
profits and of vVays to channel massive Arab dollar holdings to consumer
countries. All consumers, even the recalcitrant French and Japanese and
the energy-rich Canadians and Norwegians, support cooperation in the
development of new energy sources, in sharing energy technology, and in
fostering energy conservation.
Although few countries now expect serious oil supply constraints, the
extraordinary Ottober and December oil price increases provide consider f ble
motivation for 'international cooperation. The oil price increases will add
between $2 billion and $6 billion to the import bills of most consumer
countries. For Ivan, the increase is $ 1 1 billion, threatening the first trade
deficit in a decade. Because of the deterioration in their trade accounts,
the main consurrier nations now face large current account deficits in 1974
instead of the near balance most were forecasting in October (see Table 2).
Table 2
Changed Outlook for the Trade and Current Account Balances
in 19741
Billion US $
Incritase
in Oil
Impott Bill Trade Balance
January
1974
October 1973
January 1974
Japan
II
5 to 7
-3 to 0
West Germany
51/2
to 6
10 to 12
7 to 8
France
51/2
2
-3
United Kingdom
5
-31/2 to -21/2
-9
Italy
4
-3
o -61/2
Netherlands
2
N.A.
N.A.
Cana da
2
2
I to l'A
Norway
%
o 1/2
N.A.
N.A.
Current Account
October 1973
1 to 3
3 to 4
0
-2 to 0
-11/2
1
-1/2
-1/2
4
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The oil price increases also will slow economic growth and intensify
inflation. The industrial nations were expecting slower growth and
accelerating price increases in 1974 even before oil prices rose. With
consumers facing the choice of curtailing living standards or escalating their
wage demands to offset higher fuel bills, 1974 prospects for growth and
prices are much dimmer now than before the oil crisis (see Table 3). Japan
will be hard hit. The oil price increases will contribute to an expected 17%
increase in consumer prices and to a decline in the economic growth rate
to only about 4%, as against the 9% forecast earlier. The United Kingdom
will come close to matching the Japanese rise in consumer prices and will
probably experience a decline in overall output.
Table 3
Changed Outlook for Economic Growth
and Inflation Rates in 19741
Annual Growth Rates in Percent
Economic Growth
October 1973
Japan
9
West Germany
31/2
France
51/2
United Kingdom
31/2
Italy
6
Canada
5
Netherlands
41/2
Norway
51/2
Consumer Prices
January 1974 October 1973
3 to 4
0 to 2
4
-2
2
3 to 4
1
10
6
8
12
8
8
5
7
5
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Canada
Background
Before the oil crisis, slackening consumer expenditures and export
earnings were expected to reduce Canada's growth from 6-1/2% in 1973
to a more normal 5% in 1974. The Arab oil restrictions, which cut oil
imports going to eastern Canada by an estimated 75,000 b/d (or 8%) in
October-December, did not dampen this outlook. The loss in imports is
being more than made up by 100,000-b/d shipments of west Canadian crude
oil via the St. Lawrence River or the Panama Canal.
Current Outlook for Oil Supply and Costs
For the five importing provinces of eastern Canada, the oil problem
is a matter of soaring cost, not physical shortages. For the three western
producing provinces, the oil problem is a matter of the extent of domestic
price controls and tax measures. For the nation as a whole, the oil problem
raises serious issues of inter-provincial relations.
The staggering OPEC price increase will boost eastern Canada's crude
oil import bill by $1.8 billion to a total of $3.1 billion in 1974 -- an
increase equal to about 3% of total personal consumption expenditure in
the five provinces. Even if the Arab supply restrictions are eased later this
year, seaborne shipments of west Canadian oil will remain economic at the
higher world prices and probably will be continued at about the present
level. This will help to reduce demand for imported oil to 800,000
850,000 b/d for the remainder of 1974, compared with about 900,000 b/d
in 1973.
Economic Prospects for 1974
While political difficulties over sharing of the cost of the OPEC price
increase remain, Ottawa is successfully meeting the direct economic
problem. Potential balance-of-payments strains in 1974 were averted by
slapping on an oil export tax, which has raised the price charged US
customers to approximately the OPEC level. Although the government has
not yet decided what combination of domestic price and export tax should
be established for the full year, the export price almost certainly will be
kept near the OPEC price. Canadian oil export earnings would thus jump
by about $1.8 billion to $3.5 billion -- an increase equal to the estimated
rise in the oil import bill.
The Canadian economy still will be adversely affected by the price
hikes. Ottawa plans to avoid the depressive effect of higher oil prices on
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SEU.RET
the east Cana&
rise in consume
price hike on C
will hurt derna
payments deficit
economic growth
may rise from 5-
n economy by using the export tax proceeds to limit
prices for oil products. Nevertheless, the impact of
nada's foreign customers ? especially the United State
-id for Canadian exports, probably widen the curr
a little, and possibly slow Canada's investment boom. R
in 1974 probably will not exceed 4%, and unemploym
1/2% in 1973 to 6% in 1974. Higher oil prices will mere
the inflation rate to perhaps 10%, compared with 9% last year.
Positions on International Cooperation
he
he
nt
al
nt
se
Despite Canada's positive response to the US initiative, Trudea s
minority government will be reluctant to commit itself to ny
comprehensive consumer nation scheme for global or continental ene gy
cooperation. Ottawa is prepared to discuss such cooperation on a
case-by-case basis but will drive a hard bargain because of Canada's s ill
favorable oil situation.
The most important influence on Ottawa's position is the necessity
of ensuring that domestic energy resources first meet Canada's present nd
future needs be ore any international commitments are undertaken. With
the strong rise of Canadian nationalism in recent years, Prime Minister
Trudeau must rove circumspectly. Above all, he would be unable to j *in
in any agreement that left him vulnerable to charges that other nations
are dictating the development and use of Canadian energy resources. he
urge to act indcbpendently is tempered by recognition of Canada's cl ise
economic interdependence with the United States and its need for a heal hy
US economy to maintain its own prosperity.
As an ene
interested in pr
the costs of en
Sharp views suc
countries so as
The Trudeau g
creation of an
develop the Alb
would provide
Trudeau govern
MacKenzie Vail
Canadian Arctic
Although
of the Alberta-
in oil, eastern C?
gy-rich but capital-importing nation, Canada would
posals by the other conference participants on sharing
rgy research and development. External Affairs Minis
cost-sharing as an opportunity for involving oil-produc
o avoid limiting cooperation to the consuming countr
ernment has hinted that it would be willing to consi
international consortium -- controlled by Ottawa --
rta tar sands. Under such a scheme, consortium invest
he financial resources and be repaid in crude oil.
ent also has taken a strong stand in favor of the propo
y pipeline, which would transport natural gas from
and Alaska to US and Canadian markets.
ttawa has recently announced plans ? including extens
ntario pipeline to Montreal ? to achieve self-sufficie
nada will remain partly dependent on oil imports for so
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of
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es.
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to
rs
he
ed
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years to come. Consequently, the Trudeau government should be strongly
interested in an international agreement to assure oil supplies to consumer
nations. While the Canadians have not been directly hurt by skyrocketing
oil prices, they are concerned about the worldwide economic impact. Ottawa
might tacitly favor cooperative action to obtain a price rollback but would
be hesitant to adopt a strong stand because of the desire to remain neutral
in the Middle East conflict.
Canada: Energy Data
Primary Energy Consumption
Consumption as a Percent
by Source of Domestic
(Percent) Production
Total
100
82
Oil
45
87
Natural gas
20
57
Coal
10
129
Hydro/nuclear
25
99
Pattern of Energy
Consumption
(Percent)
Total
100
Transport
24
Households
20
Manufacturing
38
Commerce
14
Other
4
Total exports
Oil Trade
1973 (est.)
Thousand b/d
Percent
(all to the United States)
1,260
Total imports
1,000
100
Arab
220
22
Saudi Arabia
80
8
Abu Dhabi
60
6
Other Arab
80
8
Iran
180
18
Venezuela
470
47
Nigeria
80
8
Others
50
5
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West Germany
Background
Before the Arab oil supply cutbacks, West Germany's main concern
was cooling off the overheated economy. As the rate of inflation approached
8% last spring, the government imposed restrictive policies that began to
bite by September. Forecasts made prior to the oil crisis anticipated a
slowing of economic growth from about 6% in 1973 to between 3% and
4% in 1974. Unemployment was expected to grow from 1% to 2% of the
labor force. Most observers foresaw the trade surplus declining from an
expected $15 billion in 1973 to between $10 billion and $12 billion in
1974 under the impact of continued appreciation of the mark and slower
economic growth abroad.
Following the Arab announcements of restrictions on oil supply,
German officials were very pessimistic about the energy situation, in part
because of the country's heavy dependence on the embargoed port of
Rotterdam. Early forecasts projected an oil supply shortfall of 20%-25%
by the end of December.
On 9 November the Parliament gave the government emergency powers
to impose conservation measures. The initial measures included reduced
speed limits, a driving ban for the four Sundays before Christmas, and export
licensing for both crude oil and refined products. Rationing was rejected
in favor of a program to allocate supplies to industry and transportation
at the expense of individual consumers. In addition, the government
purchased a controlling interest in the oil firm Gelsenberg to gain more
control over domestic refining and distribution. Under government
encouragement, energy users began to save 85,000 b/d of oil by substituting
coal.
By mid-December, Bonn was expecting recession by the spring of 1974
and a GNP for 1974 at or, more probably, below the 1973 level. Consumer
demand was expected to be down about 10% in early 1974. Several major
industries announced their intention to cut production by an average of
10%. Concerned over the prospects of widespread unemployment, the
government in early December banned the entry of new foreign workers
from non-EC countries and authorized the construction of additional
housing units. Later in the month, it rescinded most of the anti-inflationary
measures instituted earlier in 1973, including several that had inhibited
investment. Monetary policy remained restrictive, however, because the oil
price increases announced in October were expected to intensify inflationary
pressures.
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Current Outlook for Oil Supply and Costs
Since the Orst of the year, German attention has largely shifted fr
the problems cattsed by short oil supplies to those expected to result fr
increased oil pries. December figures indicated that the shortfall in
supply was muc
anticipated dem
all the shortfall
The oil import
in 1973, assumi
demand because
smaller than had been expected -- only 7% to 8%
nd. Deliveries of crude oil were reported as normal, w
ccurring in product imports, largely from the Netherlan
ill is expected to be about $6 billion higher in 1974 t
g a price of $10 per barrel and a 7%-10% reduction
of conservation and slower economic growth. The volu
of oil imports would in that case remain at approximately the 1973 le
Economic .4ospects for 1974
West Germ
inflation, and sh
to grow by 0%
10%; and unem
with the usual
Germany proba
to $8 billion,
oil prices will c
present Bonn
Officials se
price hikes are t
believe that the
and are focusi
increases in une
ny faces a year of little economic growth, continuing ra
rply increased unemployment. Real GNP is now expec
o 2%; the inflation rate probably will accelerate to ab
loyment will approach 3% of the labor force, compa
% rate. Even with the large increase in oil import co
ii
of
th
Is.
an
in
?
el.
id
ed
ut
ed
ts,
ly will be able to achieve a trade surplus of $7 bill'on
hich should still offset its deficit on services. The hi er
mbine with the growth recession already in progress to
th serious short-term economic management problem..
difficult adjustments ahead, as the shock waves from
nsmitted through the economy. Many government offic
increased cost of oil will scuttle the fight against inflat
g their attention primarily on preventing further la
ployment. Officials of the Bundesbank nonetheless pl
for the present, to pursue anti-inflationary monetary policies.
The econo
growth of priva
The slackening
economic policie
and to structura
decline in dome
the oil shortage.
of the 11% inv
for investment.
as the governm
oil
als
on
ge
n,
ic slowdown is resulting almost entirely from slo er
e domestic demand, as foreign sales remain very stro g.
f private domestic demand is traceable to the restrictive
s of 1973, which hit hardest at the construction industry,
problems in the textile and clothing industries. Only he
tic demand for automobiles can be attributed directly to
Many firms seem hesitant to invest, even though rem a
strnent tax has made available an additional $2.5 bill on
ublic spending shows no sign of slowing and may acceler te
nt takes up the fight against unemployment.
The balan4 of payments should come through the year reasona
well. Thus the trade account will again achieve a surplus, but
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considerably smaller than the record achieved in 1973. The increased import
bill probably will be largely offset by export growth of 6% to 8% as foreign
buyers continue ordering from West German firms because of their ability
to deliver high-quality goods quickly. Some impetus to German exports
may come from US consumers' stampede toward smaller cars. Certain
oil-producing countries have indicated that they want to use some of their
increased revenues to import more West German capital goods.
Although foreign workers' remittances will be reduced, West Germans'
travel expenditures abroad will stay near the 1973 level. The deficit on
invisibles probably will more or less offset the trade surplus. A net outflow
of capital from West Germany, primarily to the United States, is expected
to put the official settlements balance into deficit.
Positions on International Cooperation
At the Washington conference, West Germany will seek common action
to alleviate the oil supply and price problems. Minister of Foreign Affairs
Scheel will have the dual role of speaking for the EC and for Bonn. He
will push hard before, during, and after the conference for a common EC
energy policy that includes cooperation with other oil-importing countries.
French disregard for Community interests in breaking off from the joint
float may make it easier to achieve agreement on such a policy among
other EC members.
Bonn is vitally interested in securing a rollback of recent oil price
increases and views the current race to strike bilateral deals with oil
producers as possibly detrimental to this end. Nevertheless, it is under
pressure to seek such arrangements itself because of the highly publicized
deals of some of its EC partners and Japan. Bonn has tentatively agreed
to finance a $1.2 billion refinery in Iran in exchange for oil supplies and
reportedly is also considering a trilateral arrangement for natural gas with
the USSR and Iran. In Washington, West German representatives will support
proposals for cooperative efforts to acquire adequate oil supplies at
reasonable prices but will be wary of joint moves that might trigger
retaliatory action.
The West German government is convinced that alternative sources of
energy must be developed. It is already planning to allocate more funds
for deep drilling for domestic natural gas and for subsidizing the increased
use of coal. In Washington, the West Germans will wish to discuss measures
that consumer nations might take to protect large investments in these
projects against a sudden turnaround in oil exporters' policies.
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Bonn is int rested in discussing appropriate uses for the massive fu ds
that will flow to oil-producing countries. In their own bilateral negotiatio s,
the Germans ate talking about long-term economic cooperation a d
assistance in industrializing Arab economies. Bonn undoubtedly wo Id
welcome consideration in Washington of proposals for channeling A ab
surplus funds back into consumer countries without disrupting world mo ey
markets.
West Germany: Energy Data
Primary Energy
Consumption Share
by Source Imported
(Percent) (Percent)
Total 100 52
Oil 56 95
Natural gas 11 37
Coal 30 -101
Hydroinuc?ar 3 36
Pattern of Energy
Consumption
(Percent)
Residential, cntnmercial,
and agricult4re 43
Industrial 41
Transportation 16
Crude Oil Imports2
1973 (est.)
Thousand b/d
Percent
Total 2,200
100.0
Arab 1,610
73.2
Libya 550
25.0
Saudi Arabia 480
21.8
Other Arab 580
26.4
Iran 270
12.3
Other 320
14.5
1. Exported.
2. Oil requirem ents are greater than crude oil imports. In 1972, net imports of
petroleum prod cts amounted to about 700,000 b/d.
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France
Background
Before the oil crisis the French government officially projected a 5.5%
increase in real gross domestic product (GDP) for 1974, compared with
an above-average rate of 6.6% estimated for 1973. Production bottlenecks,
tightened monetary policy, and reduced export growth resulting from
faltering economic activity elsewhere in Western Europe were the factors
behind the expected decline. Unemployment would nudge above the 2%
level, and the average rate of inflation would be about 8% in 1974.
France suffered only a small loss in oil supplies during the last quarter
of 1973, but the international crisis nonetheless made businessmen more
cautious, especially in view of difficult oil supply problems faced by France's
major European trading partners. Capital spending plans were not reduced,
but there may have been some reluctance to take on additional employees
or to rebuild depleted inventories.
In a pre-Christmas forecast, the government saw the value of French
exports increasing by only 5% in 1974, compared with a previously expected
15%. This decrease in foreign demand, based on the assumption of no West
European economic growth in 1974, would cut the French GDP growth
rate to an estimated 2.5%. Unemployment was seen as rising to a politically
unpalatable rate of 3%-4%.
Current Outlook for Oil Supply and Costs
Paris does not believe that oil supply will be an important constraint
on economic growth this year. France enjoys favored status with the Arabs
and will not deviate from its pro-Arab policy. It has negotiated important
bilateral oil deals with Saudi Arabia and Iraq already and is pressing for
bilateral deals with other governments, offering armaments and industrial
goods for oil.
The French are concerned, however, about the large price increases
for imported oil. The oil import bill (on a c.i.f. basis) is now expected
to run about $8 billion to $9 billion in 1974 --more than $5 billion higher
than in 1973.
Economic Prospects for 1974
Prospects for economic growth in 1974 are brighter in France than
in most of the other EC countries. Sustained by strong domestic demand,
the real increase in total output should approach 4%. Unemployment,
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however, will grov by about one-third, to a rate of about 2.5%, and inflati n
will accelerate, o an average of about 12%. The payments balance a so
will be cause fo concern, with the current account probably register ng
a deficit of sone $4 billion.
Because of the pressures on prices, the government is maintain ng
restrictive economic policies. At the same time, it appears to be alert to
the danger of provoking a recession by waiting too long to reverse cour e.
Floating of the franc has given the authorities freedom to use monet ry
policy without fear of a large loss of reserves. The government's strong st
fiscal weapon wOuld be reduction of the value-added tax rate ? a in ye
that would imm diately put more money into consumers' pockets. Las er
fmancing for ex orts also could stimulate the economy.
As a result of the doubling of its outlays for oil and prospects of
sluggish export jowth, France faces a trade deficit of at least $3 billi n
this year. This eficit could exceed $3 billion if Paris does not succe d
in substantially ncreasing exports to the petroleum-producing countri s.
Foreign Minister Jobert has expressed the hope that France will be a ile
to sell up to $3 billion worth of arms to these countries annually.
To help thei balance of payments, France began last month to reve se
its policies concerning long-term capital movements. Outflows will now be
discouraged unless they directly increase French exports, and both French
borrowing abroad and foreign short-term and long-term investment in Fra ce
will be encouraged.
Positions on International Cooperation
Paris is counting on the current visit of Foreign Minister Jobert to
Arab capitals to result in favorable oil supply arrangements for France a d
will not risk ccepting Washington's invitation until this mission is
completed. If t4 French attend the Washington conference, they will t
to dilute its impOrtance and limit commitments to consumer cooperati n.
The French wil pressure other participants to avoid offending the il
producers by an indication of confrontation and to resist developme ts
that may .strengtlien US influence in Western Europe. They also will atte pt
to restrict the i ternational companies' control in oil marketing.
?
Paris has made its own proposal for a world energy conference, to
be held under IN auspices. Participants would include oil producers a d
LDC consumers as well as the industrialized nations. This proposal proba ly
is a tactic to divert attention from the Washington-sponsored confere ce
and to gain fai* with oil-producing nations.
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In a letter to the chairman of the EC Council, the French government
urged that the Community retain total freedom of action to participate
in energy discussions in other forums and to enter into bilateral agreements
with Arab producers. The letter was ambiguous on whether bilateral
arrangements should be concluded by the EC, as such, as well as by
individual member states. The French have pressed for the Community to
speak with one voice at the conference, thus giving Paris a veto over the
EC position.
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France: Energy Data
Primary Energy
Consumption Share
by Source Imported
(Percent) (Percent)
Total
100
74
Oil
71
98
Natural gas
7
46
Coal
15
32
Hydro/nuc
ar
7
-101
Pattern of Energy
Consumption
(Percent)
Residential, cOmmercial,
and agricultnre 38
Industrial 44
Transportation 18
Crude Oil Imports2
1973 (est.)
Thousand b/d Percent
Total 2,690
100.0
Arab 2,070
76.9
Saudi Arabia 610
22.7
Iraq 1 350
13.0
Kuwait 310
11.5
Abu Dhabi 290
10.8
Other Arab 510
18.9
Iran 220
8.2
Other 400
14.9
I. Exported.
2. Oil requirem
petroleum produ
Dnts are less than crude oil imports. In 1972, net exports of
:.ts amounted to about 75,000 b/d.
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Italy
Background
As late as October 1973, the outlook for the Italian economy in 1974
remained good. Real growth of GNP was officially projected to accelerate
to 6% or more, on the assumption that the strong 1973 recovery in consumer
demand and industrial activity would continue. Stringent price controls,
selective credit restrictions, and improved productivity gains promised a
slowing of inflation to about 8% from the 12%-14% rate of mid-1973. Rising
industrial production was expected to ease unemployment, recently running
at about 3.5% of the labor force. A swing to a small trade surplus was
expected as a delayed benefit from the 1973 lira devaluation.
The October-December oil production cutbacks for the Arab states
threatened a 20% shortfall in Italian supplies in 1974. Government
conservation measures adopted in October and November would have
reduced the shortfall to an estimated 12%-14% of demand. Included in the
conservation measures were a Sunday driving ban, imposition of speed limits,
price increases for petroleum products, restricted business hours, and
controls on exports of petroleum products.
Despite the conservation program, Italian economic prospects for 1974
were dim by mid-December. Even without further oil supply cutbacks,
stagnant output and a worsening of the unemployment rate to at least 5%
were predicted. Hopes of an export revival were laid to rest; the leading
export industries were among those likely to suffer most from the oil
shortages, and West European demand for Italian goods clearly would
weaken.
Current Outlook for Oil Supply and Costs
By the end of December, increased oil prices supplanted the supply
situation as Rome's major worry. Assuming oil consumption at the 1973
level and a cost of $10 per barrel, Italy's net oil import bill will swell by some
$4 billion this year. Italian officials see little opportunity to avoid a
corresponding deterioration in the current account balance. Furthermore,
Italy's foreign exchange position is comparatively weak; the holdings of
$5.8 billion equal only three months' imports.
The oil supply still is running about 10% below demand. Industrial
needs are largely being met by reducing refinery stocks and cutting
consumption by households and the service sector, although enterprises in
some provinces have been experiencing fuel oil shortages. Failure to ease
price controls for petroleum products could cause continuing diversion of
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crude oil supplies
holding 1974 oil
o more lucrative markets in Europe and the United States,
imports below the 1973 level.
Economic Prospects for 1974
Forecasts of
of Italy, for exa
OECD Secretariat
is an increase of
prices and a rise
point. The Emba
from $3 billion
reasonable.
Italian economic activity in 1974 vary widely. The Bank
ple, estimates a 0.5% decline in real output while the
forsees a 5% rise. A more realistic forecast we believe,
1%-2% in GNP, together with a jump of about 15% in
n the unemployment rate of at least one-half percentage
sy's estimate that the current account deficit will grow
n 1973 to about $5.5 billion this year also seems
High oil price S will raise major policy issues for the Rumor government.
The automobile a
consumer demand.
layoffs of worke
preclude much of
nd tourist industries are being hit hard by weakened
Although most industries will be able to avoid sizable
s, retail price controls and an investment slowdown
an increase in production. Inflationary wage demand
seem inevitable, clispite price controls and rising unemployment.
The recent oil price hikes will severely weaken the balance of payments
Because demand is expected to be sluggish in Italy's major markets, export
are likely to show only moderate growth even if the lira remains at it
present depressed llevel. Such gains as are made in export receipts will be
swamped by the rising cost of oil and other raw materials, which bulk
especially large in Italian imports.
At the same time, tourist receipts and worker remittances probably
will stagnate as th
against the lira ar
into growing defici
outflows in spite
increasingly di fficul
the lira, substantial
be necessary.
West European economies turn downward. Pressures
likely to continue as the current account is thrown
t. The lira's weakness will again prompt large capital
f stringent controls. As large foreign loans become
to obtain and the Bank of Italy attempts to support
drawdowns in Italy's already small foreign reserves will
Despite the contractionary impact of the oil price hikes, Rome will
be slow to take up expansionary measures. Monetary policy probably will
remain slightly restrictive through much of 1974.
Positions on International Cooperation
Rome is likel
international cooper
to support, in principle, US initiatives aimed at
tion on energy matters. It will not enter into any new
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arrangements, however, without considering the attitudes of other
EC countries and the effect on bilateral relations with the Arab states.
The Italians will be most receptive to proposals promising success in
obtaining a price rollback. Among other things, the Minister of Foreign
Trade has recommended that the 11 February meeting assign a high priority
to finding ways of limiting auction prices for government-owned oil.
Rome is trying to develop alternative sources of energy and probably
will approve international proposals with this purpose. Even Raffaele Girotti,
director of the state oil company and a strong proponent of closer ties
with the Arabs, has urged Italian participation in multilateral efforts to
develop energy sources other than oil. The government recently earmarked
$1 billion for construction of two nuclear powerplants before 1980. Rome
is a major participant in EURODIF, one of the two consortiums organized
to develop Europe's nuclear fuel capabilities, and advocates close
cooperation with our Atomic Energy Commission.
The Italians will oppose any arrangements suggesting a
consumer-producer confrontation. They will be wary of proposals that
would undermine the state oil company's agreements with Libya and Iraq
or interfere with current efforts to expand bilateral relations with Arab
oil producers. Officials from the foreign ministry and President Leone's
office recently visited Syria, Iraq, and Saudi Arabia, and Foreign Minister
Moro began a trip through Saudi Arabia, Kuwait, and Iran on 29 January.
Moro recently tried to improve the climate for his tour by moving beyond
the EC declaration on the Arab-Israeli dispute, citing total Israeli withdrawal
from the occupied territories as the most important element for peace.
These efforts have been mounted partly because of sharp domestic
criticism of Rome's Middle East policy. The government has been accused
of following a policy calculated to offend no one while other West European
countries were concluding favorable bilateral deals. At the Washington
meeting, the Italians will be careful not to endorse any arrangement that
would renew this controversy.
Rome's approach to dealing with its energy problems is typified by
the comments of Christian Democratic party chief Arnintore Fanfani,
probably the most powerful politician in Italy. He asserts that Rome can
respond favorably to the Arab call for new forms of economic support,
to the US call for international cooperation, and to the EC effort to settle
on a common energy policy. Italian officials do not see these initiatives
as mutually exclusive but rather are trying to devise a balance among them.
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Italy: Energy Data
Primary Energy
Consumption Share
by Source Imported
(Percent) (Percent)
Total 100 80
Oil 76 99
Natural Os 10 9
Coal 6 97
Hydro/n41ear 8 Negl.
Pattern of Energy
Consumption
(Percent)
Residential, commercial,
and agricuhure 36
Industrial 45
TransportatiOn 19
Crude Oil Importsl
1973 (est.)
Thousand b/d Percent
Total 2,410 100.0
Arab 1,930 80.1
Saudi A4bia 630 26.1
Libya 460 19.1
Iraq 390 16.2
Other Ar4b 450 18.7
Iran 330 13.7
Other 150 6.2
1. Oil require lents are less than crude oil imports. In 1972, net exports of
petroleum products amounted to about 225,000 b/d.
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Japan
Background
Prior to the oil crisis, Japan's economic outlook was fairly bright.
Although a slowdown in economic growth in 1974 was expected because
of a cyclical downturn in private investment spending, real GNP still was
projected to grow about 9%. Tokyo was confident it could bring under
control the rapid inflation experienced in 1973, when wholesale prices
jumped 30%. Some increase in the country's trade surplus, which had been
more than halved in 1973 to $3.8 billion, was expected along with a
reduction in the overall balance-of-payments deficit. All of these projections
assumed that Japan would continue to buy steadily increasing amounts of
oil at prices not too far above the 1973 average.
When the Arabs cut oil supplies beginning in October, Japan's economic
prospects were altered dramatically. Oil deliveries to Japan began falling
almost immediately, dropping by about 400,000 b/d between October and
December. Not only were Arab oil deliveries being reduced, but also
foreign-owned oil companies (which handle more than 70% of Japan's oil
imports) began diverting substantial amounts of non-Arab oil away from
Japan, primarily to Western Europe. Indeed, most of the supply shortfall
during the last quarter of 1973 reflected diversion. If Arab oil cutbacks
had continued much into 1974, Japan would have experienced a sharp
decline in economic activity for the first time in the post-war period.
Current Outlook for Oil Supply and Costs
The price of oil, rather than the physical supply, is now the chief
problem facing Japan. Although diversion is continuing, Japan's supply
outlook has improved since it was placed on the "friendly country" list
in late December and Arab oil production began increasing. As a result,
oil import volume in 1974, rather than declining, will at least match last
year's level of 5.4 million b/d. The cost for the same volume will increase
enormously ? by at least $11 billion to about $17 billion. Except for the
United States, Japan's oil import bill this year will increase by more than
that of any other country.
The supply shortfall during the early months of 1974 is expected to
total several hundred thousand barrels per day, with the gap narrowing as
the year progresses. To cope with the shortfall, Tokyo has implemented
a wide-ranging energy conservation program aimed principally at cutting
industrial use, which accounts for about 65% of Japan's energy
consumption. The conservation measures are being administered flexibly and
will be eased as the supply situation improves. In the meantime, drawdowns
of stocks probably will be accelerated to avoid serious production
bottlenecks.
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Economic ospects for 1974
Energy-rela ed problems have already disrupted normal gro th
patterns. Shorta es have slowed the growth in industrial output, and hig er
oil prices will agravate the situation in the months ahead. The $11 bill on
direct loss in p rchasing power resulting from higher oil costs this year
is equivalent to almost 3% of GNP and 8% of fixed investment. Beca se
of shortages an0 less favorable terms of trade stemming from the ene gy
problem, the real rate of growth' in GNP in 1974 will slow to 3% -41'0?
the slowest rat d since the 1950s.
Energy-related problems are aggravating Japan's inflationary spi al.
Spurred by sup ly problems at home and higher import prices, whole ale
prices rose 309 last year and consumer prices nearly 20%. Even be ste
the latest oil p ice increase the outlook was for at least a 10% rise in
wholesale prices in 1974. The price spiral already poses a serious polit cal
problem for the Tanaka government, and Finance Minister Fukuda has m de
clear his desire o bring inflation under control even at some cost in redu ed
economic growth and unemployment.
Higher oil
decade. With a
will decline, bu
to at least $40
dollar value in
experience even
as well as other
for export mark
prices also threaten Japan with its first trade deficit
slow rate of real growth, the physical volume of imp
t higher prices will boost the import bill by about 3
billion. A rapid expansion of exports in either volume
1974 is not in the cards. Most industrial countries
slower growth than Japan, and their demand for Japa
a
rts
%,
or
ill
ese
?reign goods will not increase much. Moreover, competif on
ts will become more intense as countries attempt to of set
inflated oil import bills by boosting sales abroad.
To help b lster its trade and payments position in the wake of he
oil crisis, Toky0 has already allowed the yen to depreciate 11% rela ive
to the dollar. The government is also considering measures to stimu ate
exports and restrain imports in an effort to slow the decline in for ign
exchange reservOs. Official reserves, which reached a peak of $19 bill'on
tL
in February 1973, now total only about $11 billion. In addition to offi ial
reserves, howev r, Tokyo can draw on $10 billion in reserves built us in
non-official acc unts during 1972 and early 1973. Even so, the h ge
balance-of-paymnts deficit expected in 1974 could reduce total rese es
by at least one4hird.
Positions o
n International Cooperation
Tokyo s viw of the conference still is based mainly on its fear of
antagonizing th oil producers. Although the Japanese are eager to se a
reduction in oil prices, they oppose taking any action that might lead to
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a confrontation. They are therefore unlikely to agree to any but the most
innocuous forms of cooperation.
Government leaders do not fully agree on oil policy. Finance Minister
Fukuda is most concerned about the price question and, together with
Foreign Minister Ohira, most inclined to move in the direction of
international cooperation. Their hands are tied to some extent, however,
by Minister of International Trade and Industry Nakasone and his
supporters, including Deputy Prime Minister Miki. The chief concern of
the latter two is ensuring supplies, preferably by dealing directly with the
producing countries. Nakasone was among the strongest proponents of a
pro-Arab policy when the energy crisis emerged and probably is in a position
to veto Japanese involvement in any type of organization that might
antagonize the oil producers.
Because of these policy differences, the Japanese will avoid taking any
major initiatives at the February conference. Indeed, the Ministry of Foreign
Affairs is delaying its preparation of position papers until it has a better
idea of the attitudes of the European Community. Japan hopes to follow
an EC lead in pushing for a statement by the conference giving approval
in principle to bilateral arrangements between oil importers and exporters.
Even without such sanction, however, the Japanese will continue to pursue
bilateral deals. Since the start of this year, Japan has lined up additional
large supplies of crude oil from Iraq for the next 10 years, arranged to
import crude oil from Algeria for the first time, and offered to finance
a $1 billion refinery in Iran in return for the output.
Stabilization of oil prices is an issue of prime concern to Japan.
Nonetheless, Tokyo will oppose any move to force a price rollback by the
producers. In order to avoid antagonizing the exporters, the Japanese will
seek to have discussion of prices deferred until a joint producer-consumer
conference can be held. At the first stage of international talks, Tokyo
probably will try to steer any discussion of prices to those charged by
the major oil companies, which it accuses of unduly raising profit margins.
Japan wants the conference to lay the groundwork for a meeting of
producers and consumers and apparently prefers that such a meeting be
held before any working groups are established. As Tokyo sees it, joint
producer-consumer task forces should tackle the price issue as well as other
matters, including ways to help the Arabs invest their money. The Japanese
would be willing, however, to discuss less controversial issues, such as energy
conservation and development of new energy sources, at the February
meeting. In fact, Tokyo agreed last summer to cooperate with the United
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States on the I. tter. The signing of a formal R&D Agreement has b en
delayed by bur aucratic jealousies in Tokyo rather than by any m or
disagreements with Washington. Japan and the United States also agree t at
the United Nathms energy conference proposed by France should not be
convened until after the 11 February and any follow-up meetings have b en
held.
Japan: Energy Data
Primary Energy
Consumption Share
by Source Imported
(Percent) (Percent)
Total 100 86
Oil 75 100
Natural ga 1 26
Coal 17 67
Hydro/nuciear 7 0
Total
HouseholdS
Agriculture, mining,
and const uction
Manufacturing
Transporta ion
Other
Pattern of Energy
Consumption
(Percent)
100
10
6
61
11
12
Oil Imports
1973 (est.)
Thousand b/d Percent
Total 5,400 100.0
Arab 2,390
44.3
Saudi Ara ia 1,240
23.0
Other Ara 1,150 21.3
Iran 1,730 32.0
Indonesia 840 15.6
Other 440 8.1
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No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
SECRET
Norway
Background
Prior to the oil crisis, Norway's economic outlook for this year was
bright. The growth of real GNP was expected to accelerate from 4.3% in
1973 to 5.5% in 1974. The inflation rate promised to drop slightly, to
7%. Only a modest weakening in the country's trade and payments position
was expected.
The Arab supply restrictions induced Norway to initiate a fairly
effective conservation program. Net imports of oil satisfy about 45% of
total energy requirements, with hydroelectric power meeting most of the
remainder. The Arab cutbacks reduced Norway's oil imports by about 20%
during the last quarter of 1973. Both direct shipments from the Arabs and
deliveries of refined products, mainly from the Netherlands, were reduced.
Exports of nearly all of the 40,000 b/d of oil domestically produced
apparently have continued despite the loss of Arab oil.
Current Outlook for Oil Supply and Costs
Continuing supply constraints do not threaten serious problems for
the economy. The government's conservation program has already resulted
in a 20% saving in consumption of heavy oil, largely by switching some
industries to use of hydroelectric power. Private consumption of heating
oil and gasoline has also been reduced. With Arab oil production increasing,
Norway expects to obtain as much as necessary during most of 1974. Total
imports this year probably will at least match the 140,000 b/d imported
in 1973. The cost of petroleum imports will rise in 1974, but by the end
of the year Norway's oil exports should about equal imports.
Economic Prospects for 1974
Real growth of GNP in 1974 probably will about match last year's
rate of 4%. Business confidence appears fairly strong, and industrial
production will increase steadily. No appreciable increase is expected in
the present low rate of unemployment.
The inflation rate probably will be pushed well above the 7% average
of recent years by higher oil costs and sharply increased labor costs.
Norwegian labor unions, for example, may demand wage increases of as
much as 15%, compared with hikes averaging about 10% over the past several
years. There is no sign so far that the government is moving to tighten
fiscal and monetary policies.
N-1
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Higher prices f r imported oil will hurt Norway's trade balance much
less than those of nost other developed countries. Much of the cost will
be offset by increas d earnings from Norway's exports of oil and natural
gas. Most of the estimated rise in the current account deficit from
$400 million in 19t3 to $800 million in 1974 is attributable to import
requirements associated with oil and gas development. Because earnings from
oil and gas exports are expected to increase sharply in late 1974 and 1975,
deterioration in the current account balance this year need not be viewed
with alarm. In fact because Norway stands to be hurt less than other
industrial countries .I y the energy crisis, some funds have flowed into the
country in anticipat on of a currency revaluation.
Positions on International Cooperation
Although the Norwegian government has responded positively to US
initiatives looking t6vard cooperation on energy matters, Foreign Minister
Frydenlund has sugSested that the OECD might be the best forum. Oslo
fears that US sponsarship may squelch French cooperation and alienate
Arab oil producers. In any case, Oslo was relieved that the conferee list
was expanded to inchide all EC members. It hopes that subsequent meetings
will include even mare countries, including the USSR and Eastern Europe.
At the WashingtIon conference, Oslo can be expected to endorse plans
that would help ass1... e stable oil supplies. It will support proposals aimed
at helping producer ountries invest their surplus funds. Because it wants
to prolong the life of Norwegian oil fields and avoid overheating the
economy through an oil boom, Oslo also will support consumer efforts
to develop alternative energy sources. Norway may advocate greater public
control over the international oil companies. Prime Minister Bratteli already
has suggested formal cooperative arrangements between countries and oil
companies to bring the industry under political control.
N-2
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No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
SECRET
Norway: Energy Data
Primary Energy
Consumption Share
by Source Imported
(Percent) (Percent)
Total
100
50
Oil
58
81
Natural gas
Coal
6
50
Hydro/nuclear
36
-31
Pattern of Energy
Consumption
(Percent)
Residential, commercial,
and agriculture
31
Industrial
52
Transportation
17
Crude Oil Imports2
1973 (est.)
Thousand b/d
Percent
Total
140
100.0
Arab
64
45.7
Saudi Arabia
20
14.3
Abu Dhabi
7
5.0
Other Arab
37
26.4
Iran
55
39.3
Other
21
15.0
1. Exported.
2. Oil requirements are greater than crude oil imports. In 1972, net imports of
petroleum products amount to about 25,000 b/d.
N-3
SECRET
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
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The Netherlands
Background
Before the October oil crisis, the Netherlands expected in 1974 to
achieve a 4.5% rise in real GNP, a slight reduction in unemployment from
the present rate of 3.0%, and a current account surplus of about $1 billion.
Oil consumption was expected to increase by about 10%. The government's
primary concern was the 8% inflation rate. Tighter price controls, a
restrictive monetary policy, and the revaluation of the guilder in September
were expected to trim the rate of inflation to 5% in 1974.
The October embargo on Arab oil shipments to the Netherlands
invalidated previous forecasts for 1974. Faced with the prospect of a 30% -
35% reduction in normal oil imports, the government adopted stringent
measures to reduce domestic oil consumption and an export licensing system
to cut off oil exports to non-EC countries. An allocation scheme favoring
industry was developed to minimize the impact of oil shortages on output
and employment. Stocks were to be drawn down during 1974 to the
compulsory 65-day EC floor to limit the decrease in crude oil consumption
to about 25%.
Mid-December forecasts for 1974 predicted no growth in real GNP,
an unemployment rate approaching 4%, an inflation rate of 10.5%, and
a sharp deterioration in the balance of payments. A $715 million
government program to facilitate industries' conversion to natural gas was
expected to stimulate business investment despite the depressing effects of
the oil crisis on outlays in the metallurgy and chemical industries. Officials
expected a 3% decrease in commodity exports because of supply constraints
and weak foreign demand. The volume of Dutch imports was not expected
to increase, because of production limitations in major trading partner
countries. To adjust demand to production capacity, the government froze
$250 million of planned highway, defense, and education expenditures, and
indicated that curbs on private consumption might be forthcoming.
Current Outlook for Oil Supply and Costs
In January the focus of government concern shifted from supply
shortages to the impact of the October and December price increases. If
the physical volume of imports equals the 1973 level, the Dutch oil import
bill will rise by $2 billion in 1974, further aggravating inflation and
investment problems. Even so, the Dutch are in a strong position to pay
the higher prices because sizable reserves have been accumulated.
Oil company diversions and increased imports from non-Arab sources
have improved supply prospects and made possible a higher level of refinery
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No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
SECRET
throughput han first expected. The supply situation should cont
improve as the Arabs expand production. Oil shortages in
industr,ializel countries are smaller than expected; this should f
continued diversion of non-Arab crude oil to the Dutch mark
government' S decision to end gasoline rationing on 5 February is e
of the imprloved supply picture.
Econoriqc Prospects for 1974
The Dutch economy simultaneously faces growing unemploym
stepped-up i flation in 1974, despite recently improved oil supply pr
The outlook for major economic indicators is: GNP up 1%, prices u
unemploym nt of 3.5% to 4%, and a current account deficit of $500
Invest ent decisions, particularly in export industries, are li
be postponei in anticipation of a squeeze on profits from rapidl
production costs. Depressed investment and output will i
unemploym nt later in the year. An expected increase in
consumptiox demand will further strain production capacity and, co
with the hi her cost of imported oil, aggravate the rampant d
inflation.
nue to
other
cilitate
t. The
idence
nt and
spects.
14%,
illion.
ely to
rising
crease
private
bined
mestic
The oil crisis, combined with the effects of the September guilder
revaluation land overall import price trends, probably will chane the
1974.
974 --
sumed
urrent
years,
than
at the
mgs in
substantial
While the i
including t
petroleum --
account bah
increases in
urrent account surplus of 1973 into a slight deficit in
port price index is expected to rise 15% or more in
e nearly $2 billion increase for domestically co
rising export prices will cushion the effect on the
nce. Dutch officials estimate that, over two to three
the value of natural gas exports alone could mor
compensate for higher crude oil costs. The primary concern is t
petroleum-in ensive nature of Dutch export industries will hurt ear
the longer t rm.
Inflatio
restrain pric
expenditures
needed for
and unemployment pose problems for fiscal poli
e increases, the government needs to hold down bu
But to deal with rising unemployment, expenditu
nemployrnent benefits and job-creating public works. T
unemploym nt has been fought by reducing working hours and res
the number of foreign workers. Emergency legislation passed in J
will allow t e government to restrict price and wage increases
stimulate new employment, primarily in the building trades.
y. To
getary
es are
us far,
ricting
nuary
nd to
TN-2
SECRET
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
St:UREA:
? Positions on International Cooperation
The government and people of the Netherlands welcomed the US
initiative in calling the 11 February meeting. Their well-publicized bias
toward Israel makes bilateral deals with Arab states much more difficult
for the Dutch than for other EC members and turns them perforce toward
cooperative action. Although the Netherlands is committed to the EC, it
is disturbed by recent divisive trends, specifically:
? the failure of the EC members to stand by the Netherlands
during the oil embargo,
? the failure of the EC to produce any semblance of unity
on energy issues,
? French and British efforts to forge bilateral ties with the
Arab states, and
? France's surprise move in breaking from the European joint
float on 19 January.
The Dutch will seek a common EC position prior to the Washington
conference but, faced with French intransigence, would rather see the EC
divided in its response than uniformly negative.
The Dutch would like to see cooperation on oil sharing and on price
reductions handled through existing institutions such as the OFED.
Although not specifically averse to the United Nations as a forum, they
would prefer to avoid unwieldy assemblies that would get bogged down
in side issues. They are opposed to Communist participation. They will
resist French attempts to denigrate constructive follow-ups to the
Washington conference.
The Dutch are sensitive to the plight of less developed countries as
oil consumers and are willing to help them solve their energy problems.
They would like to see a tripartite conference among oil producers, major
consumers, and less developed countries evolve from the Washington
conference. They would prefer that these groups be represented by existing
institutions ? perhaps by OPEC, OECD, and the "Group of 77."
TN-3
SECRET
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
The Netherlands: Energy Data
Primary Energy
Consumption Share
by Source Imported
(Percent) (Percent)
Total 100 16
Oil 56 94
Natural gas 41 _70
Coal 3 35
Hydro/nuelear Negl. -Neg1.1
Pattern of Energy
Consumption
(Percent)
? Residential, commercial,
and agriculture 50
Industrial 35
TransOortation 15
Crude Oil Imports2
Total
Arab
Sa
1973 (est.)
Thousand b/d
2,070
1,380
di Arabia 690
Percent
100.0
66.7
33.3
Kuwait
380
18.4
Other
Arab 310
15.0
Iran
440
21.3
Nigeria
220
10.6
Other
30
1.4
1. Exported.
2. Oil Irequirements are less than crude oil imports. In 1972, re-exports of crude
oil and rtet exports of petroleum products amount to about one million b/d.
TN-4
SECRET
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
SECRET
United Kingdom
Background
Even before the oil crisis, the outlook was for a sharp economic
slowdown in Britain during 1974. The growth rate was expected to drop
to 3.5%, only half that achieved during the economy's rare sprint in 1973
but still a little above the long-term average. Consumer demand, which led
the boon-i, seemed likely to cool in the face of rising prices and continued
wage restraints. At the same time, export demand promised to remain strong
and an investment upturn was in view because output was pressing against
production capacity.
Expectations of a reduced supply of energy following the Arab oil
cutback in October further depressed prospects for economic growth.
Although Britain was a favored nation, its oil imports threatened to drop
by about 10% during the first quarter of 1974 because of the Rotterdam
embargo and company diversions of oil to countries harder hit than the
United Kingdom. Early in November, moreover, Britain's energy situation
took a sudden turn for the worse. A miners' ban on overtime cut coal
output by more than 30%, preventing substitution of coal for oil. To adjust
to lessened energy supplies, the government cut petroleum allocations for
most economic sectors to 10% below November 1972 consumption, limited
exports of petroleum products, and announced a drastically shortened
workweek.
By mid-December, we were forecasting economic growth of only 1%
and an inflation rate of 10% to 12% in 1974. The threatened shortfall
in oil deliveries alone was expected to trim about 2 percentage points from
industrial growth and 0.5 percentage points from the increase in GDP.
Continuation of the short workweek through mid-January, it was estimated,
would cost another 1 percentage point in economic growth. Prolongation
of the short workweek would not only reduce output but also worsen the
large trade deficit. To bring demand more into line with output
expectations, the government tightened credit and introduced restrictive
budgetary measures. Nevertheless, excess demand and rising world
commodity prices presaged continuing rapid inflation and a shaky current
account balance.
Current Outlook for Oil Supply and Costs
The easing of Arab oil supply restraints and the colossal oil price
increases announced in late December altered the nature of Britain's energy
problem. For 1974 as a whole, oil-supply constraints on economic growth
probably will be slight, but high oil prices will intensify the country's
economic woes. The United Kingdom is now paying about $10.00 per barrel,
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No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
SECRET
c.i.f., for oil. If some shortfall in supply occurs in early 1974 nd
conservation effOrts continue to temper demand, oil imports will aver e
about 2.5 mihin b/d this year, and their cost will jump by ab ut
$5 billion.
Dampened economic growth, high prices, and conservation measu es
have sharply reduced earlier forecasts of the demand for oil in 1974 in
all countries. Nonetheless, oil deliveries to Britain during January nd
February are likely to fall 10% to 15% short of demand, which is be ng
inflated by the Oat shortage. But Britain should have little trouble fill ng
its oil import needs by the end of the first quarter if the coal disp te
is settled, particularly if Arab production is increased soon, as expect d.
Economic 11 rospects for 1974
ti
At best, Br tain is unlikely to achieve any economic growth in 19 4.
If the dispute be ween the government and the coal miners drags on thro gh
March, a drop 1i GDP of at least 2% is possible. Unemployment will se
sharply, perhaps reaching 800,000 persons (3.2% of the labor force) by
the end of 1971, compared with 500,000 persons in mid-December 19 3.
Although the oil supply situation will ease as the year progresses, he
price increases mill both accelerate inflation and have a contraction ry
impact on some parts of the economy. The immediate effect of hig er
oil prices will be to raise the fuel bills of British consumers at a time of
growing uncertainty about future incomes and prices. Consumers will be
torn between in reasing precautionary savings, which would further red ce
their non-fuel p rchases, and trying to maintain living standards. Redu ed
consumption w uld ease pressures on prices and imports, but Brit sh
workers -- inten on maintaining or raising living standards ? proba ily
would soon deniand large wage increases, which would either shatter he
government's Stage III wage goals or worsen the already bad state of
industrial relations. Even under the Stage III restrictions, price-index clau es
in many labor Contracts are boosting money incomes.
Sizable wa4e hikes as well as higher fuel prices will raise product on
costs and curtail industry's ability to invest. The competitiveness of Bri ish
goods would in turn be impaired and the trade balance worsened. So e
purchasing power transferred to the Arabs may return to Britain thro I gh
its well-developed financial markets. But with industrial relations in ch os
and the pound floundering, Arab investors will shy away from dir ct
investment in tlie United Kingdom.
The increased oil import bill will cause a substantial deterioration
Britain's trade and current account deficits, which already are at rec
levels. To offset some of the $5 billion added cost of oil, the Uni
UK-2
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in
rd
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No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
SECRET
Kingdom has removed a ban on arms exports to belligerents in the Middle
East and is trying to arrange barter deals with Iran and Saudi Arabia. In
addition, the Arabs are being encouraged to use London's extensive financial
facilities in investing their new wealth. These efforts will compensate for
only a small part of the cost increase. Already floating at record lows,
the pound is expected to remain weak this year. '
The contractionary impact of oil-price increases is not an immediate
problem for the economy, which already is afflicted with excess demand.
With industrial growth constrained but incomes affected little by the short
workweek, a switch from a restrictive to an expansionary policy would
only aggravate inflation and boost imports. The increase in oil costs is
expected to add 2% to 4% to retail prices, raising the inflation rate to
about 15% for 1974. The trade and current account deficits probably will
reach at least $9 billion and $7 billion, respectively, even without
expansionary government policies.
These problems are so severe that the government is unlikely to
stimulate economic activity even after industry goes back to normal hours.
An expansionary policy would have to be accompanied by strict (probably
unenforceable) price controls and severe import restrictions. Instead, Prime
Minister Heath may opt for a restrictive spring budget to supplement the
expenditure cuts announced in December. Monetary policy probably will
stay tight, and inflation will push interest rates to all-time highs.
Positions on International Cooperation
Because of the expected large current account deficit, London probably
favors low-key cooperative efforts to obtain an oil price rollback. It is
skeptical about chances for success, however, and fears that any offense
to Arab sensitivities could result in an even harder line. The British probably
will argue against exerting direct pressure on the Arabs, recommending
instead that the Washington conferees simply stress the damage to oil
producers and consumers alike that would result from a worldwide
depression. The British have suggested that private meetings be held with
producer countries to explore the possibility of instituting a new pricing
system.
The United Kingdom already has moved to produce more energy from
resources under its own control. Lord Carrington, head of the newly created
energy ministry, has announced a speed-up in development of North Sea
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oil deposits, whi h are expected to satisfy about 80% of Britain's oil ne ds
by 1980. By 19 0 natural gas production is expected to double to so e
5.5 billion cfd nd fill about 15% of UK energy needs. At the same ti ie,
ps
even by its EC partners. The British also hope to increase coal producti n.
London is expected to restrict outside participation in the project, perh
The British probably will support multilateral efforts to h ip
oil-exporting coUntries invest their surplus funds. London's first conce n,
however, will be to offset its increased import bill by bartering British go ds
for oil. A barter deal with Iran has been concluded and another with So di
Arabia is well Under way.
Because ofl Britain's unstable political and economic situation, he
Heath government will strongly oppose any multilateral decisions not in
keeping with its domestic concerns. It has said, for example, that it inte ds
to continue pursuing bilateral deals ? a course likely to be folio ed
regardless of deCisions made at the Washington conference.
UK-4
SECRET
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
?
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
SECRET
United Kingdom: Energy Data
Primary Energy
Consumption Share
by Source Imported
(Percent) (Percent)
Total
100
50
Oil
52
100
Natural gas
14
3
Coal
30
3
Hydro/nuclear
4
1
Pattern of Energy
Consumption
(Percent)
Residential, commercial,
and agriculture 43
Industrial 41
Transportation 16
Crude Oil Importsl
1973 (est.)
Thousand b/d Percent
Total
2,330
100.0
Arab
1,480
63.5
Saudi Arabia
550
23.6
Kuwait
400
17.2
Libya
240
10.3
Other Arab
290
12.4
Iran
460
19.7
Other
390
16.8
1. Oil requirements are greater than crude oil imports. In 1972, net imports of
petroleum products amounted to about 200,000 b/d.
UK-5
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No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
25X6
No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
SECRET
Attitudes of Other Countries
Belgium
Brussels generally supports Washington's initiative in calling a meeting
of major oil-consuming nations. The Belgians delayed a public statement
on the conference to permit EC coordination and will seek to act in concert
with their partners in Washington as well. They will not hesitate, however,
to speak out on matters that concern them.
Although the recent fall of the government was triggered by the failure
of the Belgo-Iranian petroleum refinery agreement, the true roots of Belgian
political troubles lie in domestic issues. The government continues to
function in a caretaker capacity, and Minister of Foreign Affairs
Van Elslande presumably will lead the delegation to Washington as planned.
In any case, the major Belgian political parties differ little in their approach
to international energy matters.
Belgium's resources preclude self-sufficiency in energy, and Brussels
has little confidence in its ability to compete with larger European countries
in arranging bilateral agreements with oil producers. The government thus
should be receptive to plans for cooperative action to assure adequate oil
supplies. Belgium also will support suggestions for coordinated action by
consumer countries to develop alternative sources of energy.
The Belgian approach to the Washington meeting is likely to be shaped
by two additional factors. As a country heavily dependent on trade, Belgium
is particularly concerned about worldwide recession arising from the energy
crisis. At the same time, Belgium wants to avoid offending the oil-producing
countries, because petroleum imports provide about 60% of energy supplies
and substitution possibilities are few. Brussels thus can be expected to
advocate that consumers consult with oil producers as well as among
themselves.
Belgium feels the LDCs should have a say in matters that seriously
affect them and, for this reason, favors the French suggestion that the
United Nations play a role as a forum on energy matters. Belgium perceives
the need, however, to inform the LDCs that higher oil bills will reduce
industrial countries' capabilities to furnish development aid.
Denmark
Copenhagen's new minority government of Moderate Liberals needs
the support it might gain from effective handling of energy problems.
Holding only 22 seats in the I 79-seat parliament, the government is unlikely
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to last long but
the present cris
could benefit from new elections if it does creditabl
S.
Prime Miniter Hartling's response to the US initiative is enthusia
even though Copenhagen has some of the same reservations as Oslo. Hart
views the Washington conference as a good "first step" toward solving
oil problem but has called for expanding the number of participant
subsequent meetings. In particular, he would like to see the LDCs inclu
in future energy conferences.
Although
January, they
opposition parti
policies, at lea
bilateral oil de
e Danes reluctantly began bilateral oil negotiations in
till favor a unified EC energy policy. Faced with
s, Prime Minister Hartling apparently was forced to s
t temporarily. Earlier the Danes had strongly critici
Is by other members of the EC. Government spokes
accused the U
25X6 , France, and West Germany of violating the spirit
perhaps the le4er of the Rome Treaty by attempting such arrangeme
Denmark will support a cooperative EC policy aimed at develo
a coordinated consumer position for negotiations with producers. The Da
to develop a Ix
easily. Copenha
development ef
outside the EC
Ireland
in
tic
ing
in
ed
ate
me
ift
ed
en
nd
ts.
mg
es
would support elf' rts
mework in which producers and consumers can negof ate
en can be expected to support pooling of research nd
orts and sharing of energy resources, even with count ies
Because ofl its worsening balance-of-payments problems, Dublin
be anxious to participate in cooperative action to obtain an oil p
rollback. It also prefers a multilateral approach in trying to secure adeq
oil supplies. Th Irish press has been highly critical of French and Br i
bilateral deals with oil producers. The view stems in large part, of cou
from Dublin's Arnited bargaining power.
Dublin will
actions that wo
has had a pro-
and nearly half
resist any efforts to organize a consumers' cartel or ot
ld irritate Arab oil producers. The government tradition
rab tilt, largely because 70% of Irish petroleum imp
of total energy supplies come from the Middle East.
ill
ice
ate
ish
se,
er
lly
rts
Ireland dos not have the resources to engage in a major progra to
develop alternative sources of energy. It would welcome internati nal
sharing of energy technology and joint research and development progra s.
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Luxembourg
Luxembourg is enthusiastic about the Washington conference and
flattered by the invitation to attend. Government officials, especially Prime
Minister Pierre Werner and Minister of Foreign Affairs Gaston Thorn, see
the meeting as an important opportunity to coordinate views on energy
matters and as a step toward a realistic Atlantic partnership. They also
hope that it will lay the groundwork for consultation with LDC consumers
and with oil producers.
The Luxembourg government is eager to refute rumors that the
Washington meeting's purpose is to set up a consumer bloc. It is wary of
the French and worried that Arab states, supported by Paris, will initiate
reprisals unless Washington participants broaden the scope of future oil
consultations.
uxembourg opposes the French proposal that the United
Nations be used as a forum for energy consultations.
The EC
EC political directors view Washington's convocation of the world's
major oil consumers as an important initiative and are particularly pleased
by inclusion of the Community as an entity. EC Commission President
Ortoli and West German Minister of Foreign Affairs Scheel, in his role as
Council president, will represent the Community. Their authority to speak
for the EC will be circumscribed by the positions adopted by member states
at the Council meeting of 4-5 February.
The objectives of the Commission itself are broadly similar to those
of the United States. It would like to see progress at the Washington
conference in the following areas:
? an assessment of world oil supply and price problems;
? a framework for cooperation among consumers on
conservation, alternative energy sources, research and
development, and limitations on competition for existing
supplies;
? a basis for cooperation between consumers and producers;
and
? plans for subsequent meetings that will include LDC
consumers and oil producers.
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The Comm ssion has been frustrated in its earlier efforts to guide e
Community to ard a common energy policy. To date, it has accompli ed
little more thah to initiate information pooling on the energy situat on
within member States. Given the economic and political disarray within e
Community, the Commission welcomes the Washington conference a a
unique opportunity to move EC members toward the kind of coopera ive
action it has favored all along.
The OECD
OECD Secretary General Van Lennep has openly approved of e
Washington conference and its objectives. He sees the OECD perform ng
an important st. pport function in the post-conference period.
The OECL secretariat supports joint action to assure adequate oil
supplies for im orting nations. It believes that present prices are hi er
than can be ju tified on the basis of medium-term costs of energy fr m
alternative sources. Van Lennep favors multilateral attempts to persu de
exporters to roll back prices or, at the least, to refrain from further increa es.
He recommends that meetings with oil producers also consider mutu Ily
beneficial mean of channeling excess Arab funds back to consu er
countries, partidularly to the LDCs.
OECD is seeding up and restructuring its study of alternative sou ces
of energy and f conservation possibilities. By this summer, it intends to
provide a detail id analysis of mid- and long-term energy strategies that co ld
be initiated in 1974.
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Belgium-Luxembourg: Energy Data
Primary Energy
Consumption Share
by Source Imported
(Percent) (Percent)
Total
100
86
Oil
58
100
Natural gas
13
99
Coal
28
52
Hydro/nuclear
1
88
Pattern of Energy
Consumption
(Percent)
Residential, commercial,
and agriculture
38
Industrial
52
Transportation
10
Crude Oil Importsl
1972
Thousand b/d
Percent
Total
879
100.0
Arab
424
48.2
Saudi Arabia
268
30.5
Kuwait
127
14.4
Other Arab
29
3.3
Iran
100
11.4
Other
355
40.4
1. Oil requirements are less than crude oil imports. In 1972, net exports of
petroleum products amounted to about 250,000 b/d.
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No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
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No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
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No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
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No Objection to Declassification in Part 2010/02/01 : LOC-HAK-407-3-1-5
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