Oil Imports, Stock Withdrawals, and the IEP

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900030033-9
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 31
• Document Creation Date: December 20, 2016
• Document Release Date: August 17, 2005
• Sequence Number: 33
• Publication Date: July 22, 1974
• Content Type: MFR

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
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 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
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 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$~ ..
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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.
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 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.
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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
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