SOME IMPLICATIONS OF THE INTEGRATED EMERGENCY PROGRAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900030032-0
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 27
• Document Creation Date: December 20, 2016
• Document Release Date: October 20, 2006
• Sequence Number: 32
• Publication Date: July 22, 1974
• Content Type: MFR

STAT
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SUBJECT: Distribution of S-6342
The attached S project was prepared for the International
Energy Review Group and transmitted via the Honorable Thomas
Enders (State).
Chief ,
Systems Development Staff
Office of Economic Research
STAT
22 July 1974
Distribution: (S-6342)
15 cys - IERG (via Enders)
2 - D/I
2 - St/SD
1 - D/OER .
1 - SA/ER
1 D/I/IE
1 - St/P
OER/St/SDI 1(22 July 1974)
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 Approved EOr.Rel..a,5e..,2,4.Q'(311..LOI...--.CaI F3DPB5T1J0875.ROO,1,90,0934032-0 - .-_--
SSMED
Some Implications of the Integrated Emergency Program
Prepared For
The International Energy Review Group
25 June 1974
CIA/OER
UNCLASSIFIED
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 Approved For Release 2t)06i1"110~ IA,=I b'p$5T0~' ~v t1b~ D00 (73 -O
UNIC ASS f Fl)
Introduction
There are basically two models for attempts to prevent
oil embargoes, and to mitigate damages of any embargo that
does occur. Countries can take an entirely laissez-faire
approach by letting market forces determine levels of oil
stocks, consumption, imports, and prices. Alternatively,
these variables might be managed according to an international
? agreement.
An agreement only to share oil during crises might dissuade
producer countries from attempting selective embargoes, and
might prevent price increases resulting from a scramble for
available supplies. But such a limited 'agreement--if viewed
as an insurance policy--could also reduce countries' incentives
to legislate standby demand restraint programs and to increase
emergency oil stocks. These.negative effects might be countered
by broadening the agreement to include management of stocks
and demand.
Consideration of such a comprehensive agreement, or.
Integrated Emergency Program (IEP), prompts the questions to
be answe,:Bd in this report:
--- During alternative embargoes that might have occured in
1974, what levels of imports would an IEP have allowed the US,
Western Europe, and Japan?
71 T Yr J-4 -%
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UNCLASW-l
-- Pow much oiJ. would an IEP now require the US to add
to its stocks?
-- Under an IEP, how long would US oil stocks have lasted
if certain crises had occurred in 1974?
-- In terms of stock requirements and imports allowed
during crises, how would the US and other major oil importers
fare under an IEP in 1985?
? -- In relation to an IEP, how would certain agreements
only on sharing affect US imports during embargoes?
-- What effects would an IEP have
on consumer countries' incentives to reduce their dependence
on oil imports?
To answer these questions, we first posit a particular IEP,
and examine its implications for oil imports and stocks. We
then consider effects of va:.-iations in the agreement.
Details of the IEP
The US, Western Europe, and Japan might now agree that
each will maintain an oil stock equivalent ?Lc 100 days of
normal imports, will restrain oil consumption by at most 10%
during any crisis, and will adhere to?a sharing plan.
The sharing plan distinguishes among severe, moderate,
mild, and negligible crises. During severe crises, where oil
supplies are reduced by an amount exceeding 10% of the partner
countries' combined normal consumption, imports are determined
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according to a principle that each partner should exhaust its agreed
oil stock over the same time while maintaining consumption at
90% of normal.
To develop from this principle a formula for allocating
imports during severe crises, we define C as the partners'
combined daily rate of oil consumption immediately before a
crisis, so that restrained consumption is .90C. If P denotes
the partners' combined oil production just prior.to the crisis,
and if I measures the total daily rate of imports available
to the partners during the crisis, then the supply shortfall
S becomes
S = .90C - P - I.
This means that the partners as a group draw from their stocks
S million barrels of oil per day (mb/d).
This shortfall is allocated among partners iii proportion
to their agreed oil stocks. If tj measures the jth partner's
stock, and T is the total stock, then the jth partner's daily
stock drawdown obligation dj becomes
dj = (tj/T)S..
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I WO Accp1Rr-r
When each partner depletes its required stock at the agreed
rate, then each exhausts that stock at tho same time.
To determine the iy,itra-crisis imports allowed to each
partner, we define cj as the jth partner's daily oil consumption
just before the crisis, and pj as the partner's pre-crisis
dai'.y oil production. The imports the partner needs to
maintain its restrained rate of consumption are nj, where
nj = .90cj - Pi-
The imports that the partner actually gets during the crisis
are then ii, where
i i = nj - dj .
1.'"Lh`Ls says that a partner's allowed imports during a severe
crisis equal his required imports minus his drawdown
obligation.
During moderate crises, in which a 10% demand restraint
would overcompensate the embargo loss, the percentage of
demand restraint is set just large enough to make the combined
shortfall zero. There are no stock drawdown obligations, and
each partner receives imports equal to the difference between
S kj. ~ti~,yr-ymCSZ
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UNCLASSI'C
restrained consumption and normal production.
A crisis may be small enough not to warrant demand
restraints. During a mild embargo, in which the partners
suffer a combined loss of less than 5% of their normal
consumption, demand restraints are set at zero, so the
total shortfall becomes
S = C - P - I,
which means that the shortfall is the combined loss. The
loss is compensated by stock drawdowns, which are determined
as in severe crises. Thus during. mild crises the partners
share oil and draw from 'their stocks, but do not restrain
consumption.
During negligible crises, when a selective embargo forces
no partner to take more than a 5% loss in imports, there is no
required demand restraint and no sharing. Partners take their
own steps to deal with negligible crises.
In summary, the four kinds of crises cover all possible
losses.
The apportionment scheme therefore anticipates any
supply disruption.
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Effects of the IEP
UNCI_',rr'"Tarr
Had different embargoes occurred in 1974, partners in the
IEP would have suffered the combined losses shown in Table 1.
During any embargo, the IEP would have. dictated larger
percentage cuts in imports for the US than for other partners
(s&.c Tables 1 and 2). Allowed US imports, however, do not
vary smoothly as a function of the total imports available to
the group (see Figure 1). The break points in the function
stem from the distinctions the IEP draws among crises of
different severity.
During the embargoes; agreed stocks would last at
least a half year (see Table 3). Because the IEP distinguishes
among crises of different. severity, stocks last longer in
some crises that are more severe than others. This para-
doxical result is unimportant, however, since stocks
last virtually forever during moderate embargoes.
To meet the agreed stock level for 1974, the US
would have to store an additional 29 million barrels of
oil.* At $10/b for the oil itself, and at $5/b for storage
construction, the cost is roughly half a billion dollai~-s.
An increase of storage construction costs to $10/b would,
increase the total cost by $150 million.
The IEP effect on imports changes signif.cantly over
time. Recent OECD forecasts indicate that should the price
per barrel of oil remain at $9, the US would import only
.012 mb/d in 1985, versus 6.2 mb/d in 1974. Thus the IEP
We have defined US emergency stocks to be 60% of total US
stocks as reported by the American Petroleum Institute.
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 Table 1
Oil Imports the IEP Would Allow During Embargoes in 1974
millions of barrels per day and in percent of normal imports)
Eiub arqo
100% OPEC minus Iran
100% OAPEC
50% OPEC
100% OAPEC minus
Saudi Arabia
50% OAPEC
Total Imports
Available*
(r,bb d) (%)
7.20 27
12.20 46
14.80 55
-18.00 67
73
100% OAPEC against the.--22.30 83
US
,
sliest German
y,
and the Netherlands
25% OAPEC 23.20 87-
100% OAPEC against 25.20 94
the US
W
t
Uni'-ed States
es
ern
Europe
Japan
(mb/d) %
m
d
($)
(mb d)
(%)
0.80
13
4.71
31
1.69
31
1.96
32
7.55
50
2.70
50
2.56
41
9.02
59
3.22
60
3:30
53.
10.84
71
3.87
72
3.64
59
11.69
77
4.17
77
4.29
69
13.28
87
4.73
88
4.56
74
13.74
90
4.90
91
5.83 .
94
14.29
94
5.08
94
Total imports available to the US, Western Europe, and Japan.
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 Table 2
Oil-Imports the IEP Would Allow*During Embargoes in'1974
(in millions of barrels per day - aria .in percent of normal imports)
Total imports
West
United
Available*
France
Germany
Kingdom
Italy
Embargo
(inb/d)
(%)
(mb/d)
(%)
(mb/d)
(%)
(mb/d)
(%)
( /d)
(%)
100% OPEC minus Iran
7.20
27
0.87
31
0.69
31
0.73
31
0.76
31
100% OAPEC
12.20
46
1.39
CO
1.11
49
1.i6
50
1.22
50% OPEC
14.80
55
1.66
60
1.33
59
1.39
60
1.46
60
100% OAPEC minus
Saudi Arabia
18.00
67
1.99
71
1.60
71
1.67
72
1.75
72
50% OAPEC
19.50
73
2.14
77
1.72
77
1.80
77
1.88
77
100% OAPEC against the
US, West Germany,
and the Netherlands. 22.30
83
2.43
88
1.96
87
2.04
88
2:14
88
25% OAPEC
23.20
87
2.52
91
2.03
90
2.11
91
2.21
91
100% OAPEC against
the US .
2.5.20
94
2.61
94
2.12
94
2.19
94
2.29
94
* Total imports available to the US., Western Europe, and Japan.
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Figure 1
Oil Ira ports the IEL' Would Allow
Durincj Embargoes in 1974*
Percentage
of Normal
Imports
Percentage
of Norma.1
Total Imports
* The US, Western Europe, and Japan each lose roughly
the same percentage of imports when their combined
loss is less than 7% of their normal imports.
..~ww.~~~"~ll~ ~wM+~A~1/~C^J'+~FR1~w1[t'lY[' iYlAl~,~v~'~ ht'~'J~C~~!!R~l;~gw" :M101 ~F.'~, 7~'y-"'RI~ T.~
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 . Table 3
Embargo
During Embargoes in 1974
Days that Agreed Oil -Stocks Would Last
Percentage of
Available Imports* Normal Imports Days that
(mb/d) Available Stocks Last
100% OPEC minus Iran 7.2 27 170
100% OAPEC 12.2 46 250
50% OPEC 14.8 55 329
100% OAPEC minus 18.0 67 543
Saudi Arabia
50% OAPEC. 19.5 73 780
100% OAPEC against the 22.3 83--- 4222
US, West Germany,
and the Netherlands
87 co
1009% OAPEC against. 25.2 94- 1675
the US
Total imports available to the US, Western Europe, and Japan.
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 d ForRelease 2006/11101 ;,CIA-RP85T00875R00190003002.-0
would in 1985 force the US to export domestic production
in almost all crises (see Table 4 and Figure 2).
Agreed stocks in 1985 would last at least a half year, and
probably much longer. (see. Table 5) Changes in import patterns
account for the stock life differences between 1974 and 1985.
Effects of Changes in the IEP
Parameters of the IEP, notably stock requirements and
demand restraints, can be changed without altering the
agreement's basic structure. In particular, agreed stocks
can be those required to maintain 90% rather than 100%
of normal oil consumption for 100 days without imports.
Effects of this change, in terms of allowed imports,
are negligible for moderate crises (compare'Tables 1 and 6).
In severe crises the US fares slightly better. Moreover,
the change has little effect on stock lives during crises
(compare Tables 3 and 7). The change does, however, allow
the US to meet the stock requirement with present stocks.
Under an additional modification of the IEP, each
partner agrees to restrain oil demand during severe crises
by an amount equal to 5% of total energy consumption, rather
than 10%% of oil consumption. Since oil accounts for a
different fraction of each partner's energy consumption,
the change means that each partner agrees to a different
demand restraint as a percent of oil consumption.
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Table 4
Oil Imports the ..'P Would Allow During Embargoes in 1585
(in mill ores of barrels per day and in percent of normal imports)
Total Imports
Western
Available*
United States
Europe
Japan_
Embargo
(mb/d)
(%)
(mb/d) (b) (iiib/d)
(%)
iiib
d)
(95)
100% OPEC minus Iran
5.80
27
-1.68 -14014
4.41
34
3.08
36
100% OAPEC
10.10
47
-1.68 -13994
7.00
53
4.78
56
50% OPEC
12.10
56
-1.68 -13985
8.21
63
5.57
65
100% OAPEC minus
Saudi Arabia
14,:,0
68
-1.68 -13972
9.83
75
6.64
77
50% OAPEC
15.90
73
-1.68 -13968
10.50
80
7.08
82
100% OAPEC against the
US, West Germany,
and the Netherlands
19.60
90
-0.84 - 6979
12.28
94
8.16
95
18.80
87
-1.16 - 9675
11.97
91
7.99
93
* Total imports available to the-US, Western: Europe, and Japan.
Z=i
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Figure 2
Imports the IL?'P Would Allow During
I,mbarcgocs in 1985
(in millions of barrels per day)
Allowed
Imports
(mb/d)
.?a
S1
Imports Available
to the US, Westc;
Europa, and Japar.
(mb/d)
!t -y', 7!~?AR" 'f1lA.'P"R.. 9~IIf~Z1~.i~M IxROA4:~;x?^ct T' 4~.~ qT "'1!"?'^Cr"7 1f1!!M{R~SpFa'?..
 Approved For'aelee006i10? `'rA=C1F'85T0087R00`130~f~{t~32`'
Embargoes
100% OPEC minus Iran
100% OAPEC
50% OPEC
100% OAPEC minus
Saudi Arabia
50% OAPEC
100% OAPEC against the
US, West Germany,
and the Netherlands
25% OAPEC
Tabil le 5
Days that Agreed O Stocks Would Last
During Embargoes in 1 885
Available Imports*
(mb/d)
Percentage of-
Normal Imports
Available
Days that
Stocks last
5.8
27
185
10.1
47
292
12.1
56
400.
14.8
68
795
15.9
73
18.8
87
19.6
? 90
* Total imports available to the US, Western Europe, and Japan.
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 Embargo
Table 6
Oil Imports the IEP* Would Allow During Embargoes in 1974
Total Imports Western
Available** United States Europe Japan
(mb/d) (%) (mb d) () (mb d) (%) (i^-b/d) (%)
100% OPEC minus Iran 7.20 27 1.39 22 4.28 28 1.53 28
100% OAPEC 12.20 46 2.36 38 7.25 48 2.59 48
50% OPEC 14.80 55 2.86 46 8.80 58 3.14 53
100% OAPEC minus 18.00 67 3.48 56 10.70 70. 3.81 71
Saudi Arabia
50% OAPEC 19.50 73 3.77 61 11.59 76 4.13 77
100% OAPEC against the 22.30 83 .4.32 70 13.26 87 4.73 88
US, West Germany,
and the Netherlands
23.-20 87 4.5G 74 3.3.74 90 4.90 91
100% OAPEC against 25.20 94 5.89 95 14.25 94 5.06 94
the US
* In this version of the IEP, agreed stocks are those necessary to maintain 90%
of normal consumption for 100 days without imports.
** Total imports available to the US, Western Europe, and Japan.
r'N
 Table 7
Days that Acreed'Oil Stocks* Would Last
During Embargoes 'in '1974
Percentage of
Available Imports** Normal Imports Days that
(mb/d) Available Stocks Last
100% OPEC minus Iran 7.2 27 146
100% OAPEC 12".2 46 214
50% OPEC 14.8 55 282
100% OAPEC minus
Saudi Arabia ?. 13.0 67 465
50% OAPEC 19.5 73 668
100% OAPEC against
US, West Germany, .
and the Netherlands
100% OAPEC against
the US
22.3
* Agreed stocks are those necessary to maintain 90% of normal consumption for.100
days without imports.
** Total imports available to the US, Western Europe, and Japan.
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 The two changes regarding agreed stocks and demand
restraints cause negligible differences in imports allowed
the US (ccmpare Tables 1 and 8). Stock lives are similarly
unchanged (compare Tables 3 and 9).
.Further parameter changes, however, would significantly
alter the US standing. during crises. In general, increases
in the agreed percent of demand restraint decrease the intra-
crisis imports allowed to the US. In 1974, for example,
each percentage point increase in the demand restraint
(stated. as 10% of oil consumption) costs the US 86,700
b/d in allowed imports. This loss does not vary with the
level of severe crises.
Comparisons with Agreements Only on Sharing
Under one alternative to the IEP apportionment plan,
partners each take the same percentage cut in oil imports
in order to share an embargo loss. This import-based
scheme always allows the US more intra-crisis imports than
does consumption-based sharing, in which partners apportion
a loss icy taking equal percentage cuts in oil consumption. Under
the IEP, the US fares worse than under import-based sharing,
but better than under the consumption basis (see Table 10).
A third alternative to the IE?P has been advocated by
Japanese delegates to the OECD. Their plan is essentially
an arithmetic compromise between sharing on the basis of
consumption versus imports. For example, to weight consumption-
based sharing by 90%, one multiplies each partner's
P~ .ti+t"t^~s cgting
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 T
b
a
le 8
Oil Imports the IEP* Would Allow During Embargoes in 1974
Total Imports Western
Available** United States Europe
J
Embargo
apan
(mb d)
(%)
(mb/d)
(%)
(mb d)
(%)
(mb/d)
(%)
100% OPEC minus Iran
7.20
27
1.37
22
4.29
28
1.55
29
-100% OAPEC
12.20
46
2.32
.37
7.26
48
2.62
49
50% OPEC
14.80
55
2.81
45
8.81
58
3.18
59
100% OAPEC minus
Saudi Arabia
50% OAPEC
13.00
19.:50'
67
73'
3.42
3.70
55
60
10.71
11.61
70
76
3.87
4.19
72
78
100% OAPEC against the
22.30
83
4
23
68
13
2
US
.
.
7
87
4
79
89
, West Germany,
and the Netherlands
25? OAPEC
23.57
88
4.47
72
14.03
92
.
5.07
94
100% OAPEC against
the US
25.20
5.90
95
14.25
-94
5.06
94
* In this version of the IEP, demand restraints are: 5% of total energy consumption,
rather than 10% of total oil consumption. Agreed :.cocks are those necessary to
maintain restrained consumption for 100 days without imports.
** Imports available to the US, Western Europe, and Japan.
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 Days that Agreed Oil Stocks* Would Last
Duri
E
?
f f
ng
mbargoes in 19 44
Embargoes
Available Imports**
(rnb/d)
Percentage of
Normal Imports
Available
Days that
Ci-CZ - T ....L
100% OPEC minus Iran
7.2
144.
100% OAPEC
12.2
20,
50% OPEC
14.8
269
100% OAPEC minus
18.0
Saudi Arabia
67
423
50% OAPEC
19.5
73
579
F=.
{
100% OAPEC against the
22.3
US, West Germany,
and the Netherlands
25% OAPEC
23.2
82
87
185.1
` '
6352
100% OAPEC against
the US
25.2
94
* Agreed stocks are those necessary to allow consumption (restrained by 5% of
energy demand) for 100 days without imports.
** Imports available to the US, Western Europe, and Japan.-
 Table le
A Comparison of Imports Allowed they US Under"
the 'IEP, Consumption-3ased Sharing, and Import-Based Sharing
During Em:iargoes in 1974
(in millions of barrels per day and in percentage of normal imports)
I
t
US Imports
US Imports
mpor
s
Available*
US Imports
Under the IEP
Under
Based
Consumption-
Sharing
Under
Based
Import-
Sha
i
Embargo
(
b d
r
ng
m
) (%)
(mb/d) (%)
(mb/d)
(%)
(nib /d)
( %)
100% OPEC minus Iran
7.20 27
0.80 13
-2.73
-44
1.67
27
100% OAPEC
12.20 46
1.96 32
-0.45
?- 7
2.82
46
50% OPEC
14.80 55
2.56 41
0.73
12
3.42
55
100% OAPEC minus
Saudi Arabia
50% OAPEC
18.00' 67
19.50 73
3.30 53
3.64 59
2.19
2.87
35
46
4.16
4.51
67
73
100% OAPEC against the
22,30 83
4.29 69
4
15
67
.
'
US, West Germany, and
and the Netherlands
25% OAPEC
23.20 87
4.56 74
.
4.56'
74
5
16
5.37
83
87
100% OAPEC against
25.20 94
5.83 94
5.47
88
5.83
94
the US
Imports available to the US, Western Europe, and Japan.
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 Aooroved For Release 2006111101: CIA-RDP85T00875R001900030032-0
UtK1ASS lED
consumption-based share by .90, and then multiplies each
import-based share by .10. Each partner's compromise share
is the sum of his weighted shares. The Japanese prefer to
weight the consumption basis as heavily as other partners
agree. Thus the US would probably fare worse under the
Japanese plan than under the IEP.
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r 1)
Incentives to Reduce Dependence on Imports
Each sharing agreement we have considered penalizes attempts
by partner countries to reduce their dependence on oil :imports.
To illustrate this, we consider two hypothetical historical
scenarios:
Scenario 1: In 1974 the US does nothing more than it
actually did to reduce its dependence on oil imports. Later
in 1974, OAPEC stops 50% of its exports to the US, Western
Europe, and Japan.
Scenario 2: In 1974 the US increases its domestic
oil production enough to reduce its oil imports by 25%, in
contrast to the first scenario. Later in 1974--as in the
first scenario--OAPEC stops 50% of its exports to the US,
Western Europe, and Japan.
Had certain sharing agreements been in force during
1974, the US would have been allowed fewer intra-crisis imports
in the second versus the first scenario. In this sense, each
sharing plan would have penalized the US. The penalty that
each plan levies is the difference in the intra-crisis imports
allowed the US under the two scenarios.
In particular, the US penalty would have been 1.30 mb/d
under the basic IEP, 1.34 mb/d under' consumption-based sharing,
and 1.12 mb/d under import-based sharing. Thus under the IEL',
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had the US reduced its imports by 25% or 1.55 mb/d, it would
have bettered its standing during the crisis by .25 mb/d. The
corresponding gain under import-based sharing would have been
.43 mb/d. Thus import-based sharing provides a greater
incentive to reduce dependence on imports. This holds true
for countries ether than the US, even when a partner reduces
its imports by cutting oil consumption.
The penalties imposed by import-based sharing could be
eliminated by a slight change in this plan. Specifically,
normal future imports could be projected for each partner.
Then during a crisis, the supply loss could be allocated in
proportion to projected rather than actual imports. This
solution could be constrained by a stipulation that no
partner would gain actual imports as a result of sharing.
The IEP could similarly be modified to soften the
penalties it imposes on countries' attempts to reduce
dependence on imports. The modification would link a partner's
agreed oil demand restraint to the partners reduction in
imports below some norm. Thus as the US approaches independence
of oil imports,.US shares o1 intra-crisis imports would
increase.
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The IEP apportionment plan represents a middle ground
between import-based sharing (under which the US would fare
best during embargoes) and consumption-based sharing. As
the US reduces its dependence on oil imports, both the IEP and
consumption-based sharing become burdens to the US. All
three plans impose certain penalities on countries' efforts
.to reduce import dependence, but simple changes in the IEP
and in import-based sharing could soften these perialties.-