Oil Imports, Stock Withdrawals, and the IEP

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December 20, 2016
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August 17, 2005
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July 22, 1974
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STAT Approved For Release 2005/12/14 :CIA-RDP85T00875R001900030033-9 Approved For Release 2005/12/14: CIA-RDP85T00875RO01900039pi3 9 22 July 1974 MEMORANDUM FOR THE RECORD ,4W8ff@@Vc Distribution f S-6 o 343 1'1-~l Cj 1 GI dk ~Ca2T ~0,c~, "-, The attached S project was prepared for the International 'Energy Review Group and transmitted via the Honorable Thomas Enders (State). STAT AT Distribution. D -063y3-,y .. _ ....._ .....~4 oaFed.Eor,.Re,le~.~,~.2R.Q~/,1,2/'4 . CIA RDP85T0087~00~3~``?;'~'~~'`~''~^., Approved For Release 2005/12/14: CIA-RDP85T00875R001900030033-9:' Oil Imports 'and Stock Withdrawals Implied by the Integrated Emergency Program Prepared for The International Energy Review Group 19 July 1974 CIA/OER 2 ?'~'7C!""`e'{'?""'~'~'-"*~}'~"P',~;s~1~r?'`~"i~*?','~'1,79Rtlr.+-~~Ftt~'~+r7~?~,~~".i~0~",,,,~- ~e4+,ur ,~.':i'--~-~? Appr,~~red EQXM~a a 2005/12/14 CIA-RDP85T008 .,1 ~.,~r900030033-9 Approved For Release 2005/12/14: CIA-RDP85T00875R001900030033-9....~ .`.,.., Table of Contents Page THE IEP, AS OF 10 JULY 1974 . . . . . . . . INTRODUCTION AND KEY JUDGMENTS . . . . . . . . . . 1 SCENARIOS IN 1980 10 SCENARIOS IN 1985 ~.. 18 ANNEX . " . 23 SCENARIOS IN 19.73 . . . . . . . . . . . 0, . . . ` . Moderate and Severe Crises . . . . Gains from Losses: Anomalies in Moving from Mild to Moderate Crises e, . . . . . . ? . Imports and Stock Withdrawals During . Negligible and Mild Crises . . . . . Imports and Stock Withdrawals During ._.App.rax~ or Re~easb$~ .. Approved For Release 2005112/14: CIA-RDP85T00875RO01900030033-9 INTRODUCTION AND 'KEY JUDGMENTS 1. Chairman Davignon's Note of the Energy Coordinating Group (ECG) T?- -ceting on 8 and 9 July contains the most recent revisions of the Integrated Emergency Program (IEP)--a US proposal for international agreement on oil stocks, demand restraints, and sharing-during supply disruptions. The note leaves unanswered two major questions that this report addresses: -- Under the IEP, how would the US and other members fare during oil embargoes? What imports would the IEP allow, and how long would emergency stocks last? -- Could the IEP produce results that the ECG had not intended? If so, how could these anomalies be corrected? 2. To answer these questions, we first specify how the IEP determines members' imports and stock withdrawals during crises. We then show how the IEP might have functioned, had various crises occurred in 1973.? Finally, to -show potential effects of the IEP, we examine embargoes possible in 1980 and 1985. The data base for all our calculations appears in this report's annex. 3. Our major judgments on the IEP are: In virtually all crises, the IEP requires the US - :.'o take larger percentage cuts in-imports than other' members. -- Except during certain mild crises, all members take the same percentage cut in oil consumption. This does not mean that the IEP specifies sharing on the basis of consumption (where each member reduces his consumption by the same percentage that an embargo reduces the-group's consumption). -- US import shares under the IEP fall between the low shares the US would get under consumption-based sharing, and the high shares the US would get under import-based sharing. Approved For Release 2005/12/14: CIA-RDP85T00875R001900030033-9 Approved For Release 2005/12/14: CIA-RDP85T00875R001900030033-9 1.ASS I F,P -- Had the US 'hen severely embargoed in 1973, the IEP would have helped. For example, under a selective embargo the US could have lost 60? of its imports, but under the IEP the same embargo would have cost the US an import loss of only 23%, -- Should the US achieve self-sufficiency in oil production, the IEP would require the US to curtail its oil consumption and export some of its domestic prcduction to other members during crises. -- If the members agree to maintain emergency oil stocks equal to 90 days of normal imports, then under -the IEP the group could now weather severe embargoes, such as a total OAPEC cutoff., for at least seven months. Should OAPEC cut its exports by half, ninety-day stocks would last at least two years. Half of these stocks would last- half as long. -- Davignon's note specifies an IEP sharing plan only for moderate and severe crises. The plan for mild crises remains to be determined. An application of the IEP plan during mild crises w:ut produce anomalous results. -- These anomalies could be remedied by an alternative sharing plan for mild crises. Each member could absorb his embargo loss, up. to a maximum of 5% of his normal consumption. This absorption would reduce the group's supply shortfall, which all members could share on the basis of their reduced levels of consumption. THE IEP, AS OF 10 JULY 1974 4. Under the IEP, each member's daily *oil imports and stock withdrawals during a crisis are based on daily embargo losses. The allowed imports and stock withdrawals are determined differently, depending on whether a crisis is negligible, mild, moderate, or severe. Approved For Release 2005/12/14: CIA-RDP85T00875R001900030033-9 Imports and Stock Withdrawals During Negligible and i?Iild Crises 5. In a negligible crisis--when no member's daily loss of oil imports exceeds 5% of his normal daily consumption-- the IEP prescribes no sharing and no demand restraints. In such cases, each member deals with the crisis according to his own choice of stock withdrawals and demand restraints. 6. A mild crisis obtains when the import loss to one or more members exceeds 5% of his/their normal daily consumption, and when this loss does not exceed 7% of all IEP members' joint consumption. In this case the IEP '? requires members whose embargo loss exceeds 5% of normal consumption to cut their oil consumption by 5%. No demand restraints are required for a member whose embargo loss does not exceed 5% of his normal consumption. Regardless of whether a member must restrain his demand by 5%, any target of a selective embargo must absorb his embargo loss up to the 5% limit. 7. This demand reduction decreases the joint embargo loss that all IEP members as a group must absorb through stock withdrawals and sharing. The formulas for these two measures remain to be determined, according to the Chairman's Note. The note does suggest for more severe crises a formula that could be applied, with minor modifications, to mild crises. Applications of this IEP formula produce anomalous results. These could-be remedied by a second option for the sharing formula.. In detail, the two options (a. and b.) are: a. Sharing sc; that all members exhaust their oil stocks at the same time. To specify this formula, we let C denote the members' normal total rate of ' oil consumption, in millions of barrels per day (mbjd). We also write their total daily production as P mb/d, and their imports during the crisis as I mb/d. We assume for example that two countries-- ,hose normal consumption rates are cl and c2 mb/d respectively--are required to reduce their ..consumption by 5%. Then the group's adjusted shortfall S becomes ?t'i~.~~i/.l.ASS Approved For ease 05/1 4 . I - P85T 0875R00 0030033-9 FI P . tv. x,lRY7a.. i.~~~""r"w? X'l~R -W K-wS. B O ,0b S = (C - .05 (cl + c2)) - P - I. .,..I11il~r.v '(M... wr ?...... ?