involved are relatively small, replacing them would involve some logistic complications.

50. Circumstances could develop, moreover, in which one or more Arab oil producing countries might move against US-owned oil producing companies. Participation of US military units with Israel in fighting with the Arabs, for example, would probably occasion seizure of most producing companies. Such devices as partial or complete nationalization, or a prohibition against repatriation of profits could hurt the US badly. (US oil operations in the Middle East brought some $2 billion net inflow to the US balance of payments in 1969.) Similar moves are possible against British companies (whose contributions to the UK's balance of payments is considerably greater than in the case of the US) and are conceivable against other European countries; but most of the latter are unlikely targets in the context of Arab-Israeli hostilities.

51. Should one or more Arab states seize all US (and/or UK) oil operations, there would be serious disruptions in oil shipments, which could last for months. However, consumers must have the oil and— except for Libya—the producing countries must sell it fairly promptly in order to finance their economies. We believe that, in the event a country seized a company or companies which produced substantial quantities of oil not replaceable from other sources, affected NATO countries would find themselves compelled fairly speedily to make other arrangements to obtain the oil they need. We believe that, in most cases. of disruption, a near normal flow of oil would be restored before many months had passed.

52. The Arab-Israeli situation has potential for yet another means of interrupting oil flow, i.e., sabotage by the Palestinian guerrillas. There have been a few minor instances of this sort already, and US and UK oil companies are likely to be targets of sabotage in the years ahead. Oil fields, storage tanks, loading facilities, tankers, and the like are vulnerable in varying degrees. It is relatively simple to blow up a pipeline or a wellhead, but these are also relatively easy to repair. Although repeated acts could be costly to the company involved, this type of sabotage is not likely to interfere more than marginally with oil shipments. A major shutdown of a company's operations would require sophisticated demolition of key units, e.g, destroying a large part of a tank farm, rendering a loading pier unusable for an extended period, or knocking out an electric power plant. The oil companies and the host countries would, of course, guard against such actions, but they would be unable to protect against all contingencies.

53. In the sabotage operations they have tried so far within Israel and Israeli-occupied territory, the Palestinian guerrillas have struck at targets of opportunity rather than at targets of importance. We believe that, generally speaking, they would do the same if they turned more

of their attentions to oil installations, especially as oil companies and local governments are taking steps to guard critical installations. To inflict damage heavy enough to interrupt a significant portion of oil flow would require a high level of competence in sabotage operations. We cannot judge the actual competence the fedayeen have or are likely to acquire. It should be noted, however, that many Palestinians work in Middle East oil companies, and they are a potential source of technical information for the fedayeen and of access to oil installations. Finally, while we judge it unlikely that any Arab country would destroy its own oil industry or sabotage another's, the fedayeen do not have this inhibition.

D. Interstate Political Rivalry

54. The desire to put pressure on Iraq for political reasons has figured in Syria's two closures of the IPC pipeline in 1956 and 1966-1967. This desire could cause Syria to close this line again. The two countries are ruled today by mutually antagonistic Baath Parties, and antipathy between Baghdad and Damascus has continued under a variety of regimes. Should the Syrians come to believe that, for example, Iraq was trying to overthrow their government, Damascus would probably retaliate. Since strong Syrian-Iraqi antagonism is likely to endure, we rate closing of the IPC line-for at least a period of months-as likely sometime in the next five years.

E. In Sum

55. We believe that, on the whole, oil producing countries will continue to put their own financial needs ahead of ideology and politics and that they will not attempt to deny, for more than a short period, significant quantities of oil to Europe or Japan on political grounds. There are other forces in the area, however, not under the constraints that affect the oil producing countries. The possibilities of interruption are so many, the political emotions so prominent, and the resentment against US policies—already strong and deep in many Arab states-so likely to grow over the years ahead, that partial interruptions of oil flow to NATO and to the US will probably occur during the next five years. Short of major Arab-Israeli fighting, such interruptions are likely to be temporary and to involve relatively small fractions of European supply; they might be varied in cause, as well as effect. Among the possibilities are a Syrian closure of the IPC pipeline and fedayeen sabotage of oil facilities. In the event of major Arab-Israeli fighting, some interruption of oil shipments seems almost certain, and we would not rule out seizure of US oil interests.

[Omitted here are the Annex, entitled Consequences of Certain Interruptions in Oil Flow, and tables.]

62.

Telegram From the Department of State to the Embassy in the Netherlands1

Washington, November 19, 1970, 0043Z.

189262. Subject: Potential European Energy Problem. Ref: Hague 4000 (State 174710 to NATO, Bonn, OECDParis).2 For Ambassador Middendorf.

1. The Department shares your concern that Europe has not faced up to the long range problem of seeking adequate energy supplies to meet rapidly rising demands, and believes that it is essentially a matter in which the Europeans must take the initiative.

2. In the matter of oil supplies, the Netherlands and the UK have companies which possess resources which have been adequate for their needs in the past. Other European countries such as Germany and Italy have been willing to depend largely on US firms to meet their needs. France has been the leader in obtaining its own concessions and controlling imports in order to diversify its sources of petroleum. There has been a gradual realization over the past two years that 1) Europe was heavily dependent on the Arab world for oil, and that this posed a potential problem, but Europe continued to control sufficient oil to supply Europe's needs, and 2) the US could increase production by 2 million barrels per day to provide oil for Europe in an emergency. The Libyan oil crisis, described in CA-5324,3 demonstrated overdependence on one country in the Arab World, and how that dependence was compounded by the strains on tanker supplies caused in the process of substituting Persian Gulf oil for Libyan oil. In two presentations to the OECD Special Committee for Oil this year (January and May)* US representatives cautioned that the spare productive capacity of wells in the US was declining markedly from earlier estimates, and was probably 500,000 b/d or less, yet a paper distributed prior to the NATO Petroleum Planning Committee meeting October 5-65 still contained the figure of 2 million b/d for US spare capacity.

3. There are three main courses of action open to Europe to provide the needed energy commodities: 1) to obtain oil concessions on a

1 Source: National Archives, RG 59, Central Files 1970–73, PET 12–3 EUR. Secret. Drafted on November 17 by Archie M. Bolster (E/ORF/FSE); cleared in EUR, EUR/FBX, EUR/RPE, EUR/RPM, PM/ISP, E, and E/ORF/FSE; and approved by Trezise. Repeated to USNATO Brussels, Bonn, and USOECD Paris.

2 Document 60.

3 Airgram CA-5324 to Beirut, October 16. (National Archives, RG 59, Central Files 1970-73, PET 6 LIBYA)

* Information concerning the January OECD meeting was transmitted in airgram A-13, January 16. (Ibid., PET 3 OECD) Regarding the May meeting, see Document 46. 5 Not found.

national basis to diversify supplies, 2) to store larger amounts of oil in order to survive short term supply interruptions, and 3) to develop gas reserves, atomic energy, and other sources of energy to decrease the dependence on oil.

4. There is some movement on all of these fronts. Deminex, the German state-financed oil company, has been more active in its second year of existence, and is bargaining for concessions off Nigeria, Trinidad, Indonesia and elsewhere, for example. Other countries can be expected to follow the lead of France and Germany.

5. Several European countries are considering increasing their oil stocks, although only West Germany appears to have made a firm decision to increase its stocks to 90 days of consumption. The average level for European oil stocks is just over 70 days, but at least 20 days. supply must be discounted as unavailable because it is in tank bottoms, lines, and local storage. Rapid increase in demand requires increased storage simply to keep stocks at existing levels. The further burden of new storage facilities to increase stocks to the 90 day level would be heavy, over $1 billion for the European members of OECD according to a recent report. Some countries such as Italy are reluctant to consider increasing stocks, believing that even 120 days of stocks would not permit Europe to outlast foreseeable producing country denials. Even 6 months of stocks might not be enough to outlast a major denial of supplies, but the more storage Europe has the better its bargaining position is.

6. The Netherlands is the major supplier of gas to the European continent, and competitive forces should insure the rapid development of the entire North Sea oil and gas potential. Atomic energy, on the other hand, is lagging in development while arguments over the best method of enrichment continue. Europe continues to phase out coal production and will be increasingly dependent on foreign coal. Imports of coal from the US are now higher than 1967 levels after a low point in 1969. New methods of energy generation such as magnetohydrodynamics are no more advanced in Europe than they are in the US, despite Europe's far greater dependence on imports of energy materials. Thus Europe will have to give much more attention to the mix of energy sources available to it if it is to be more self-sufficient.

7. There have been jurisdictional problems in organizing to study energy problems. The OECD has had priority in considering peacetime movements of oil with NATO's role limited to wartime. This division of labor has been challenged by those who feel NATO must face the strategic consequences of potential oil shortages in situations short of war. The European Community has been content to participate in OECD meetings through observer delegations, but is now considering the establishment of stockpile goals and perhaps other activities to increase energy supplies available in Europe. Study of the peacetime oil

supply situation is handled more expeditiously in OECD than elsewhere because the membership is more representative of major consumers (Japan is included) and because its Secretariat has more information at its command, but even the High Level Group of the OECD Special Committee for Oil is unwieldy for the purposes suggested in your message. In order to give OECD a greater sense of urgency in planning for the long run, a small group of countries could meet together as you have suggested, either inside or outside OECD, but for now the most effective way of considering the problem is to stress the importance of the OECD oil meetings of November 30-December 2. Assistant Secretary Trezise will represent the US at these meetings, as he did last May.

8. In the short run, extreme concern in Europe about oil supplies could have the undesirable effect of convincing European nations that they should place restrictions on US firms operating there. They might even decide to take over US firms. We believe it is more to the point that Europe should face up to the long range problem now so that measures to alleviate it can be taken up immediately with due allowance for the lead times involved.

9. In your discussion of these matters with Dutch officials the Department suggests that you emphasize the role of OECD in the energy field and encourage them to express their concerns through that organization.

10. Material on the world's energy demand and the US place therein is being gathered together and will be sent by pouch."

End

6 Not found.

Rogers